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F&C Asset Management (FCAM)

  Print      Mail a friend       Annual reports

Thursday 14 March, 2013

F&C Asset Management

2012 PRELIMINARY ANNUAL RESULTS

RNS Number : 9656Z
F&C Asset Management PLC
14 March 2013
 



14 March 2013

Preliminary Announcement for the year ended 31 December 2012 (unaudited)

 

The F&C Asset Management plc Group ("F&C" or "the Group") has today announced its unaudited financial results for the year ended 31 December 2012.

 

Financial and Business Highlights

 

·    Underlying earnings per share (EPS) increased 29% to 7.1p (2011: 5.5p)

·    Euro/Sterling foreign exchange rate reduced underlying EPS by 0.8p in 2012

·    Improved dividend cover of 2.4x (2011: 1.8x) on maintained 3.0p dividend

·    Cost reductions in line with plan

·    54 new institutional mandates won, 44 of which were clients new to F&C

·    Assets under management (AUM) of £95.2 billion (2011: £100.1 billion)

·    Robust investment performance, with 80% of AUM outperforming objectives in 2012 and 76% over three years

 

Financial Summary

Year ended

31 December 2012

Year ended

31 December 2011

Assets under management

£95.2bn

£100.1bn

Net revenue

£243.5m

£267.0m

Underlying operating profit*

£71.2m

£65.2m

Underlying operating margin*

29.2%

24.4%

Group underlying profit before tax*

£52.4m

£47.0m

Statutory profit after tax

£3.0m

£2.6m

Basic earnings/(loss) per Ordinary Share

0.01p

(0.10)p

Underlying earnings per Ordinary Share

7.1p

5.5p




Interim dividend

1.0p

1.0p

Proposed final dividend

2.0p

2.0p

Total dividend per Ordinary Share

3.0p

3.0p

 

‡   At year end.

* Calculations are given in note 16 and underlying operating costs are analysed in note 17.

  Reconciliations between reported profits and underlying earnings and between basic earnings/(loss) per share and underlying earnings per share are given in note 8. 

 

Richard Wilson, Chief Executive said:

 

"This is a robust and much improved set of financial results. The company has made significant progress towards its strategic goals in 2012.  With the restructuring now substantially completed, good investment performance and a newly strengthened management team in place, F&C is now in a position to invest for growth in new markets and capabilities."

 

The Group will host a presentation at 09.30 today at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB.  The presentation will also be available to view via a live webcast at www.fandc.com , a recording of which will be posted on the website later today.

 

 

 

 

Contacts:

 

F&C Asset Management plc

 

David Logan                  Chief Financial Officer               +44 (0) 20 7011 4272                                     david.logan@fandc.com

 

F T I Consulting

 

Billy Clegg                     Managing Director                      +44 (0) 20 7269 7157                                      billy.clegg@fticonsulting.com



Executive Chairman's Statement

 

During 2012 F&C made progress in a number of important areas: we continued to implement the strategy set out for the Group and its institutional business last year; we restructured our management team to ensure we have appropriate leadership to take the business forward; and announced, and subsequently started to implement, a clear plan for the profitable growth of our consumer-focused businesses. 

 

Since phase 1 of our strategic review was announced, we have reduced underlying operating expenses by £23.3 million compared to the prior year and have initiated debt buy-backs, repurchasing some £16.7 million of senior and subordinated debt.  Two of our strategic partners have indicated that F&C will continue to manage assets beyond the existing exclusivity periods and we have continued to build our institutional, solutions-led product suite.

 

Phase 2 of the strategic review was announced in May and focused on our consumer and property business activities.  The review outlined our commitment to pursuing strategies for profitable growth in each of these areas and building on F&C's strength in Multi-manager products, direct marketing and consumer brand awareness.  We believe that F&C may have some interesting opportunities in a post-Retail Distribution Review (RDR) environment.  Accordingly, we have enhanced our direct marketing capabilities to position the Group to better understand the needs and interests of customers and potential customers and capitalize on the anticipated increase in self-directed consumer purchases.

 

We also made significant progress in developing our management team.  Richard Wilson, who had been leading our Institutional and Investment Business, was appointed Group Chief Executive at the end of 2012.  This appointment follows a number of other significant appointments during the year.  Steve Ilott joined the company in March 2012 as Head of Multi-Strategy Investments and Mandy Mannix was appointed as Head of Client Management in July, creating a single distribution and client servicing function across the Group.  Steve Ilott and Richard Watts were appointed Co-Heads of Investment in September 2012.  After leading Thames River from inception, Charlie Porter determined that he wished to step down from executive management and his responsibilities were assumed by other members of the management team in H2 2012.  The Board is confident that there is now a leadership team in place with the right skills to successfully manage and grow the business over the medium term.

 

Our financial results during this period of significant change were satisfactory with underlying profit after tax of £37.5 million, compared to £28.4 million in 2011.  This represents underlying earnings per share of 7.1 pence for 2012 (2011: 5.5 pence).  Based on this result, the Board is recommending a final dividend of 2 pence per share, payable on 24th May 2013 to shareholders on the register at 5th April 2013, bringing the full-year dividend to 3 pence per share (2011: 3 pence per share).  Our dividend cover, relating to underlying earnings per share, has increased to 2.4 times, and the Board will continue to review the dividend level in light of the progress in the business and our debt reduction targets.

 

Market Overview

 

Economic growth around the world generally continued to disappoint during 2012, with strict austerity measures across much of Europe, including the UK, providing a further obstacle to growth.  Europe's sovereign debt-related problems remained to the fore, but a number of actions from the European Central Bank allayed fears over the prospect of a eurozone breakup. 

 

Equity markets reflected this backdrop.  Volatility was a feature, especially in the first six months of the year, before markets rallied strongly into the year end.  The FTSE 100 returned 10.0 per cent. with small and medium-sized UK firms outperforming their larger counterparts by some margin.  Outside of the UK, continental European shares were the standout performer with returns reflecting widespread relief at the European Central Bank's more pro-active actions post July.

 

Bond markets started the year strongly, though surprisingly, given the rally in the equity markets, perceived safe haven bonds have not suffered, although momentum in the latter stages of the year slowed markedly.  This helped higher yield bonds, which have also benefited from a narrowing of credit spreads as investors have been attracted into riskier assets.

 

During 2011, many active fund managers struggled to deliver out-performance of their targets, as markets were primarily driven by macro factors and resulting broad-based rotations in the 'risk-on'/'risk-off' trade.  2012, however, saw market participants begin to refocus their attention on the relative merits of individual investments, making it a much better environment for active fund managers. 

 

This overall economic backdrop was reflected in the Group's Assets Under Management (AUM), with underlying asset performance contributing £10.1 billion to AUM over the year.  However, the Group's AUM declined 4.9 per cent. to £95.2 billion (31 December 2011: £100.1 billion), principally as a result of net outflows of £13.3 billion and adverse foreign exchange rate movements of £1.7 billion. 

 

Business Flows

 

Net outflows during 2012 comprised £11.4 billion of strategic partner assets and £1.9 billion from our consumer and institutional business.  Our wholesale division represented the largest contributor to consumer and institutional outflows.

 

2012 was a challenging year for wholesale, with net outflows of £1.2 billion.  Both the Thames River Global Credit and Global Bond products suffered significant outflows.  In addition, the Thames River Multi-alternative division continued to experience outflows, reflecting the significant structural changes in the fund of hedge funds market.

 

We are encouraged by the performance of the third-party institutional business as the initiatives and structure resulting from phase 1 of our strategic review have been implemented.  2012 saw gross inflows of £2.9 billion, and withdrawals declined sharply during 2012 to £3.6 billion.  Importantly, a significant portion of those assets withdrawn represented lower margin cash management and government bond mandates. 

 

Within our consumer business, retail assets were broadly unchanged over the course of 2012.  Market and economic uncertainty for much of the year dampened investors' willingness to commit savings to risk assets, and activity within UK advisory channels slowed as advisors prepared for the implementation of RDR.

 

Investment trusts reported net inflows of £20 million for the year, with new share issuance by trusts offsetting share buy-backs during the year.

 

Strategic partner net outflows were £11.4 billion.  Whilst the business mix of our strategic partners generally implies that there will be recurring net redemptions, this was exacerbated by withdrawals of approximately £1.0 billion in Portugal due to nationalisation of past service liabilities in the BCP pension scheme and £5.3 billion in the UK, as Friends Life withdrew assets to be managed by their newly formed in-house fixed income management team.  We anticipate further withdrawals of fixed income assets by Friends Life of approximately £6.2 billion during H1 2013.

 

Results

 

Net revenues for the year were £243.5 million (2011: £267.0 million).  Revenues from Thames River, for the reasons mentioned above, fell by £13.7 million, and strategic partner revenues declined by £7.7 million.  The decline in value of the Euro vs Sterling reduced our overall revenues by approximately £6.7 million.

 

Net revenues include some £9.5 million of performance fees (2011: £11.8 million), with reduced performance fees at Thames River partially compensated by increases in performance fee income in the rest of the Group.

 

Underlying operating costs, excluding amortisation of intangible assets, foreign exchange gains and losses and exceptional items, were £172.1 million (2011: £202.1 million).  Distributions to Thames River members, included in underlying operating expenses, declined from £18.3 million in 2011 to £11.6 million in 2012, reflecting the direct relationship between these expenses and the contribution from funds managed by the Thames River investment teams.  Core operating expenses fell by £23.3 million, from £183.8 million in 2011 to £160.5 million in 2012.  This reflects the successful implementation of the cost reduction initiatives identified in the strategic review, offset by increases in share-based payment costs arising from the increase in the Group's share price over the reporting period.  Whilst the increase in the Group's share price had an adverse impact on reported operating expenses, this was offset by related tax deductions included in the year's tax credit.

 

The Group also incurred a number of exceptional and non-recurring costs which are excluded from underlying results.  These represent costs associated with the now concluded F&C Partners litigation; costs of implementing our back and middle office outsourcing; one-off expenses of implementing our cost reduction programme; and the costs associated with the Thames River retention plan and Commutation arrangements.  Offset against these is an exceptional gain from the reduction in the F&C REIT put option liability. 

 

The Group achieved an underlying operating profit of £71.2 million for 2012 (2011: £65.2 million).  After net interest expense and tax, this resulted in underlying earnings per share for the year of 7.1 pence (2011: 5.5 pence) attributable to shareholders.  

 

On a statutory basis, which includes non-recurring and other exceptional items, the Group reported a profit after tax of £3.0 million (2011: £2.6 million).

 

Business review

 

As indicated in the introduction to this report, 2012 was a year of significant change for F&C, and represented a transitional period as a number of initiatives were implemented, which should deliver further value for shareholders in 2013 and subsequent years.  Despite the significant management attention devoted to the development and implementation of strategy, the Group remained focused on the delivery of good investment performance and client service; fundamental cornerstones to retaining our existing client base and growing our business. 

 

On an asset-weighted basis, relative investment performance remains encouraging, particularly across our fixed income capabilities, which are, for regulatory and other reasons, increasingly the core asset class for both defined benefit pension schemes and insurance portfolios.  Over three years, 90 per cent. of our fixed income and 50 per cent. of our equity assets outperformed their benchmarks.  78 per cent. of our property assets are above benchmarks over three years.

 

Based on this performance, we have maintained our strong position with investment consultants, achieving a slight increase in individual product buy ratings from 70 in 2011 to 74 by the end of 2012.  Importantly, many of these ratings are attached to our solution-based products, such as Liability Driven Investments, equity-linked bond funds and annuity-matching funds.  These products represent some of the core building blocks of our institutional growth strategy.  Looking forward, we will seek to complement these liability management products with revised return-seeking products, tailored to the changing needs of defined benefit pension clients.  During 2012 we made significant progress in aligning our investment function resources to these new areas of focus and we will launch related products over the course of 2013.

 

The retail and wholesale market continues to undergo significant change.  The end of 2012 saw the implementation of RDR in the UK, with its introduction shifting advisers from commission-based to fee-based business models.  In response to these developments we have adjusted the pricing structure on a number of our key products, including the Lifestyle and Multi-manager ranges.  Both these products are well positioned in an environment in which advisers increasingly look to outsource the management of client portfolios to dedicated specialists.  In addition, we have appointed a Head of our direct-to-consumer business, and we are currently reviewing the product and market opportunities in this area post introduction of RDR.  In doing so, we will be mindful of the long-term needs of our clients in any product proposition that we develop.

 

F&C continues to manage significant assets for a number of strategic partners: Achmea (The Netherlands), Millennium BCP (Portugal), Friends First (Ireland) and Friends Life (UK).  These assets principally comprise insurance funds, but also include sub-advised mutual funds and certain pension scheme assets.  These are generally long-standing relationships which provided us with exclusivity to manage the assets of the partners for a minimum period of time.  However, these exclusivity periods are now nearing maturity.

 

The Millennium BCP long-term contract terminated in 2011, although we continue to manage the related assets, the majority of which are sourced from an insurance joint venture between Millennium BCP and Ageas.  At 31 December 2012, we managed £11.4 billion on behalf of Millennium BCP.

 

The Achmea long-term contract matures in October 2013; whilst we will retain a portion of the assets we currently manage beyond that date, the final book of assets we will retain is not yet clear.  We anticipate further clarity will emerge on the future of this relationship over the next few months. At 31 December 2012, we managed some £22.7 billion on behalf of Achmea.

 

At 31 December 2012, we managed £21.9 billion on behalf of Friends Life, of which a portion is under contract until October 2014.  As previously notified, we anticipate that Friends Life will withdraw some £6.2 billion of fixed income assets during H1 2013 and transfer those to their in-house asset manager.  After that withdrawal, remaining Friends Life AUM will be £15.7 billion, of which some £2.4 billion will be invested in fixed income. 

 

We have made considerable progress in streamlining the Group during 2012.  We have reviewed and restructured our investment teams and client service areas, resulting in related headcount reductions.  We have integrated the former Thames River business into the Group and relocated the Thames River personnel to our London Exchange House premises.  We have substantially completed the project work which allows the transfer of our back and middle office to State Street's strategic platform.

 

Board changes

 

Ian Brindle and Jeff Medlock have indicated that, with the turnaround now well underway, they intend to retire from the Board at the Annual General Meeting in May.  Ian and Jeff have made significant contributions to the Group and we wish them the very best in their future activities. 

 

Summary

 

Two years ago I wrote that the Group had many inherent strengths, but that these had not been reflected in its recent financial performance.  I believe that the effect of the actions taken during the course of 2012 will continue to result in improved financial performance in 2013 and subsequent years, and the Group now has in place a Chief Executive, management team and the enhanced profitability to capitalize on the opportunities available to it. 

 

As a result of the hard work of restructuring during the last 18 months the Company is now in a position to invest for growth in new markets and capabilities.  This task will fall, in large part, to the new management team and in particular to Richard Wilson who became CEO on January 1st.  It is the great strength of F&C that it has people of the calibre and experience of Richard to draw on.  I have every confidence that they will build on the base that has been established to achieve a leadership position in the industry and greater returns for shareholders.

 

Edward Bramson

Executive Chairman

14 March 2013

 

 

 

 



Consolidated Income Statement (unaudited)

for the year ended 31 December 2012

 

 



2012

2011


Notes

£m

£m

Revenue




Investment management fees

3

252.6

279.0

Other income

3

4.8

4.2

Total revenue

3

257.4

283.2

Fee and commission expenses

3

(13.9)

(16.2)

Net revenue

3

243.5

267.0





Net gains and investment income on unit-linked assets


40.6

13.7

Movement in fair value of unit-linked liabilities


(40.8)

(13.4)





Operating expenses




Operating expenses


(162.5)

(183.8)

Distributions to members of LLPs


(11.6)

(18.3)

Amortisation of intangible assets - management contracts

10

(42.5)

(45.8)

Other exceptional net operating expenses

4(a)

(21.9)

(19.0)

Total operating expenses


(238.5)

(266.9)





Operating profit


4.8

0.4

Finance revenue

5

14.6

17.2

Finance costs

6

(33.4)

(35.4)

F&C REIT put option fair value gain

4(b)

11.5

8.7

TRC acquisition consideration adjustments

4(c)

-

7.6





Loss before tax


(2.5)

(1.5)





Tax - Shareholders


5.3

4.1

Tax - Policyholders


0.2

-

Tax income

7

5.5

4.1





Profit for the year


3.0

2.6





Attributable to:




Equity holders of the parent


0.1

(0.5)

Non-controlling interests


2.9

3.1

Profit for the year


3.0

2.6





Basic earnings/(loss) per Ordinary Share

8

0.01p

(0.10)p

Diluted earnings/(loss) per Ordinary Share

8

0.01p

(0.10)p







£m

£m

Memo - dividends paid

9

15.8

15.6

Memo - dividends proposed

9

10.9

10.4

 

 

 



Consolidated Statement of Comprehensive Income (unaudited)

for the year ended 31 December 2012

 

 



2012

2011


Note

£m

£m

Profit for the year


3.0

2.6





Other comprehensive (expense)/income:




Gains on revaluation of available for sale financial investments


0.7

1.5

Realised gains on available for sale financial investments transferred to the Income Statement


(1.1)

(3.3)

Foreign exchange movements on translation of foreign operations


(2.6)

(2.0)

Net actuarial (losses)/gains on defined benefit pension schemes


(9.0)

3.3

Tax income/(expense) on items taken to Other Comprehensive Income

7(a)

1.6

(0.5)

Other comprehensive expense for the year


(10.4)

(1.0)





Total comprehensive (expense)/income for the year


(7.4)

1.6





Attributable to:




Equity holders of the parent


(10.3)

(1.5)

Non-controlling interests


2.9

3.1



(7.4)

1.6

 

 

 



Consolidated Statement of Financial Position (unaudited)

as at 31 December 2012

 



31 December

31 December



2012

2011


Notes

£m

£m

Assets




Non-current assets




Property, plant and equipment


7.1

7.4

Intangible assets:




- Goodwill

10

611.9

611.9

- Management contracts

10

84.5

128.6

- Software and licences

10

7.8

2.5


10

704.2

743.0

Financial investments


1.3

1.7

Other receivables


0.4

1.1

Deferred acquisition costs


3.3

4.7

Deferred tax assets


28.6

28.3

Total non-current assets


744.9

786.2





Current assets




Financial investments


138.2

454.4

Reinsurance assets


-

2.0

Stock of units and shares


0.3

0.9

Deferred acquisition costs


2.0

2.4

Trade and other receivables


87.2

83.9

Current tax receivable


1.0

0.7

Cash and cash equivalents:




- Shareholders


160.7

196.9

- Policyholders


4.5

28.1



165.2

225.0

Total current assets


393.9

769.3





Total assets


1,138.8

1,555.5





Liabilities




Non-current liabilities




Interest-bearing loans and borrowings


257.4

273.8

Other payables


3.3

6.9

Provisions

11

5.1

7.3

Pension deficit

12

24.1

20.5

Employee benefits


5.0

5.9

Deferred income


5.6

7.0

Other financial liabilities


30.0

41.5

Deferred tax liabilities


19.7

32.4

Total non-current liabilities


350.2

395.3





Current liabilities




Investment contract liabilities


136.9

472.8

Insurance contract liabilities


-

2.0

Trade and other payables


53.2

71.7

Provisions

11

8.3

8.5

Employee benefits


24.7

28.8

Liabilities to members of LLPs


4.0

4.7

Deferred income


2.7

3.3

Other financial liabilities


3.8

3.8

Current tax payable


8.8

7.8

Total current liabilities


242.4

603.4





Total liabilities


592.6

998.7





Equity




Ordinary Share capital

13

0.6

0.5

Share premium account


58.9

51.8

Capital redemption reserve


0.8

0.8

Merger reserve


336.8

359.7

Other reserves


(25.7)

(22.8)

Retained earnings


162.7

154.3

Total equity attributable to equity holders of the parent


534.1

544.3

Non-controlling interests


12.1

12.5

Total equity


546.2

556.8





Total liabilities and equity


1,138.8

1,555.5

 



 

Consolidated Statement of Changes in Equity (unaudited)

for the year ended 31 December 2012

 


Attributable to equity holders of the parent




Ordinary Share capital

Share premium account

Capital redemption reserve

Merger reserve

Foreign currency translation reserve

Fair value reserve

Acquisition reserve

Retained earnings

Non-controlling interests

Total equity


£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Balance at 1 January 2011

0.5

51.8

0.8

383.3

44.1

2.4

(66.0)

138.2

16.5

571.6

(Loss)/profit for the year

-

-

-

-

-

-

-

(0.5)

3.1

2.6

Other comprehensive (expense)/income

-

-

-

-

(2.0)

(1.3)

-

2.3

-

(1.0)

Total comprehensive (expense)/income

-

-

-

-

(2.0)

(1.3)

-

1.8

3.1

1.6












Transactions with owners:






















Purchase of own shares

-

-

-

-

-

-

-

(3.2)

-

(3.2)

Realised element of merger reserve to offset amortisation of intangible assets

-

-

-

(23.6)

-

-

-

23.6

-

-

Share-based payment charges credited to equity

-

-

-

-

-

-

-

17.3

-

17.3

Consideration for non-controlling interests in F&C Partners LLP

-

-

-

-

-

-

-

(10.7)

-

(10.7)

Tax credit associated with purchase of non-controlling interests in F&C Partners LLP

-

-

-

-

-

-

-

2.9

-

2.9

Final 2010 dividend paid

-

-

-

-

-

-

-

(10.4)

-

(10.4)

Interim 2011 dividend paid

-

-

-

-

-

-

-

(5.2)

-

(5.2)

Distributions to

non-controlling interests

-

-

-

-

-

-

-

-

(7.1)

(7.1)

Balance at 31 December 2011

0.5

51.8

0.8

359.7

42.1

1.1

(66.0)

154.3

12.5

556.8

Profit for the year

-

-

-

-

-

-

-

0.1

2.9

3.0

Other comprehensive expense

-

-

-

-

(2.6)

(0.3)

-

(7.5)

-

(10.4)

Total comprehensive

(expense)/income

-

-

-

-

(2.6)

(0.3)

-

(7.4)

2.9

(7.4)












Transactions with owners:






















Share capital allotted on issue of TRC Commutation shares

0.1

7.1

-

-

-

-

-

(7.2)

-

-

Purchase of own shares

-

-

-

-

-

-

-

(0.1)

-

(0.1)

Realised element of merger reserve to offset amortisation of intangible assets

-

-

-

(22.9)

-

-

-

22.9

-

-

Share-based payment charges credited to equity

-

-

-

-

-

-

-

13.4

-

13.4

Tax credit in respect of share-based payments

-

-

-

-

-

-

-

0.6

-

0.6

Adjustment to consideration for non-controlling interests in F&C Partners LLP

-

-

-

-

-

-

-

2.8

-

2.8

Tax associated with adjustment to consideration for non-controlling interests in F&C Partners LLP

-

-

-

-

-

-

-

(0.8)

-

(0.8)

Final 2011 dividend paid

-

-

-

-

-

-

-

(10.4)

-

(10.4)

Interim 2012 dividend paid

-

-

-

-

-

-

-

(5.4)

-

(5.4)

Distributions to non-controlling

interests

-

-

-

-

-

-

-

-

(3.3)

(3.3)

Balance at 31 December 2012

0.6

58.9

0.8

336.8

39.5

0.8

(66.0)

162.7

12.1

546.2

 

The total of foreign currency translation reserve, fair value reserve and acquisition reserve constitutes 'Other reserves' as disclosed in the Consolidated Statement of Financial Position and amounts to a debit of £25.7m at 31 December 2012 (31 December 2011: £22.8m debit).

 

The £10.7m recognised in the Statement of Changes in Equity during 2011 represented the provisional fair value of the consideration paid for the acquisition of the 40% non-controlling interest in F&C Partners LLP, which was acquired pursuant to the valid exercise of the Put Option by the founder members.  During 2012, following the final settlement of the totality of the litigation in respect of F&C Partners, the consideration has been finalised, resulting in £2.8m being credited to equity.

 

 



Consolidated Statement of Cash Flows (unaudited)

for the year ended 31 December 2012

 

 



2012

2011


Note

£m

£m

Cash flows from operating activities




Operating profit


4.8

0.4

Adjustments for non-cash items

14

61.4

67.2

Changes in working capital and provisions

14

(54.6)

18.3

Cash inflows from operating activities*


11.6

85.9

Income tax paid


(6.5)

(0.7)

Net cash inflow from operating activities


5.1

85.2





Cash flows from investing activities




Purchase of property, plant and equipment


(3.6)

(3.0)

Proceeds from disposal of property, plant and equipment


0.1

0.1

Purchase of software and licences


(5.8)

(2.2)

Payments to acquire investments


(0.1)

(0.6)

Proceeds from disposal of investments


3.3

3.7

Investment income - interest and dividends


2.0

5.9

Consideration payment for the acquisition of F&C GH


(0.7)

-

Consideration payment for the acquisition of TRC


-

(7.4)

Net cash outflow from investing activities


(4.8)

(3.5)





Cash flows from financing activities




Repayment of Guaranteed Loan Notes 2016


(8.0)

-

Repayment of Subordinated Loan Notes 2016/2026


(7.6)

-

Interest paid on Loan Notes


(21.6)

(21.9)

Other interest paid


(0.3)

(0.4)

Equity dividends paid

9

(15.8)

(15.6)

Distributions to non-controlling interests


(3.3)

(7.1)

Purchase of own shares


(0.1)

(3.2)

Payments in respect of debt arrangements


(0.2)

-

Payment for change in ownership interest in F&C Partners LLP


-

(8.8)

Net cash outflow from financing activities


(56.9)

(57.0)





Net (decrease)/increase in cash and cash equivalents


(56.6)

24.7

Effect of exchange rate fluctuations on cash held


(3.2)

(1.9)

Cash and cash equivalents at 1 January


225.0

202.2

Cash and cash equivalents at 31 December


165.2

225.0





Cash and cash equivalents




Shareholders


160.7

196.9

Policyholders


4.5

28.1



165.2

225.0





*   Cash inflows from operating activities includes investments and disinvestments relating to unit-linked assets attributable to policyholders in the Group's insurance company. These activities can result in significant fluctuations in "cash flows from operating activities".

   Final consideration settlement in respect of the acquisition of F&C Group (Holdings) Limited in 2004.

 



1.          Basis of preparation and accounting policies

 

Basis of preparation

 

These are the unaudited preliminary results of F&C Asset Management plc and its subsidiaries (the Group) for the year ended 31 December 2012 which were approved by the Board on 14 March 2013.  This preliminary results announcement has been prepared on a going concern basis and based on the recognition and measurement requirements of International Financial Reporting Standards, as adopted by the European Union (adopted IFRS), and those parts of the Companies Act 2006 applicable to companies reporting under adopted IFRS.  This preliminary results announcement is presented in millions of pounds Sterling, rounded to one decimal point, except where otherwise indicated.

 

The comparative figures for the year ended 31 December 2011 included in this preliminary results announcement do not constitute the Company's statutory Financial Statements for that financial year within the meaning of section 435 of the Companies Act 2006 but are derived from the 2011 Annual Report and Financial Statements.  Those Financial Statements, which were prepared in accordance with IFRS and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) as adopted by the EU were approved by the Board of Directors on 23 March 2012 and have been delivered to the Registrar of Companies.  Those Financial Statements have been reported on by the Company's auditors; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. 

 

Accounting policies

 

This preliminary results announcement for the year ended 31 December 2012 has been prepared in accordance with accounting policies that the Directors are applying in the Consolidated Financial Statements for the year ended 31 December 2012.  The accounting policies adopted are consistent with those followed in the preparation of the Group's Annual Report and Consolidated Financial Statements for the year ended 31 December 2011.

 

The amendments to the standards below, which were effective from 1 January 2012, did not have any impact on the accounting policies, financial position or performance of the Group:

 

(a)        Amendments to IFRS:

 

IFRS 7

Financial Instruments: Disclosures (Amendment)

IAS 12

Income Taxes (Amendment) - Deferred Taxes: Recovery of Underlying Assets

 

(b)        Improvements to IFRS (issued May 2012):

 

IAS 1

Presentation of Financial Statements - Clarification of the requirements for comparative information

IAS 16

Property, Plant and Equipment - Classification of servicing equipment

IAS 32

Financial Instruments: Presentation - Clarify that tax effect of a distribution to holders of equity instruments should be accounted for in accordance with IAS 12 Income Taxes

 

Accounting estimates, assumptions and judgements

 

The preparation of the Financial Statements necessitates the use of estimates, assumptions and judgements. These estimates, assumptions and judgements affect the reported amounts of assets, liabilities, contingent assets and contingent liabilities at the reporting date as well as the reported income and expenses for the year. While estimates are based on management's best knowledge and judgement using information and financial data available to them, the actual outcome may differ from these estimates.

 

 



2.          Operating segments

 

From a management perspective, the Group has three operating units and therefore presents three operating segments for segment reporting purposes:

 

•     F&C;

•     F&C REIT; and

•     Thames River Capital (TRC).

 

While there are different sources of revenue and distinct distribution channels within operating segments, and assets under management can be categorised by client type and asset class, the Directors do not consider these to constitute separate operating segments within the meaning of IFRS 8: Operating Segments.

 

Management monitors the results of its three operating segments separately for the purpose of making decisions about resource allocation and performance assessment.

 

Segment revenue, operating expenses, finance revenue, finance costs and profit/(loss) for the year include transactions between operating segments, which are eliminated on consolidation. The accounting policies of the operating segments are the same as those of the Group.

 

(a)        Operating segments' financial information

 


        F&C

       F&C REIT

        TRC

       Total


2012

2011

2012

2011

2012

2011

2012

2011


£m

£m

£m

£m

£m

£m

£m

£m

Revenue









External clients

187.0

199.5

38.4

37.8

32.0

45.9

257.4

283.2

Inter-segment revenue

0.7

0.9

-

-

1.5

1.5

2.2

2.4

Segment revenue

187.7

200.4

38.4

37.8

33.5

47.4

259.6

285.6










Fee and commission expenses

(11.1)

(12.3)

(2.2)

(3.1)

(0.6)

(0.8)

(13.9)

(16.2)

Net gains and investment income on unit-linked assets

40.6

13.7

-

-

-

-

40.6

13.7

Movement in fair value of unit-linked liabilities

(40.8)

(13.4)

-

-

-

-

(40.8)

(13.4)










Operating expenses









Operating expenses

(128.6)

(145.7)

(16.5)

(16.7)

(27.6)

(38.3)

(172.7)

(200.7)

Amortisation and depreciation

(28.4)

(31.7)

(11.0)

(11.0)

(6.7)

(6.9)

(46.1)

(49.6)

Other exceptional net operating expenses

(11.6)

(8.6)

-

-

(10.3)

(10.4)

(21.9)

(19.0)

Total operating expenses

(168.6)

(186.0)

(27.5)

(27.7)

(44.6)

(55.6)

(240.7)

(269.3)










Operating profit/(loss)

7.8

2.4

8.7

7.0

(11.7)

(9.0)

4.8

0.4

Finance revenue

20.3

39.6

0.1

0.1

0.2

0.1

20.6

39.8

Finance costs

(33.3)

(35.3)

-

-

(1.0)

(0.1)

(34.3)

(35.4)

F&C REIT put option fair value gain

11.5

8.7

-

-

-

-

11.5

8.7

TRC acquisition consideration adjustments

-

7.6

-

-

-

-

-

7.6

Tax income/(expense)

4.3

4.5

(0.8)

(0.5)

2.0

0.1

5.5

4.1

Profit/(loss) for the year

10.6

27.5

8.0

6.6

(10.5)

(8.9)

8.1

25.2










Segment assets

898.9

1,297.5

197.2

196.2

55.5

72.1

1,151.6

1,565.8

Segment liabilities

(544.1)

(937.8)

(19.2)

(20.0)

(18.0)

(30.7)

(581.3)

(988.5)










Other information









Expenditure on non-current assets

8.8

3.9

0.5

0.4

0.3

0.5

9.6

4.8

Non-cash expenses/(income) other than depreciation and amortisation

(4.8)

(4.4)

0.2

0.1

7.0

10.0

2.4

5.7

 

 



(b)           Reconciliations to unaudited Primary Statements

 


2012

2011


£m

£m

Total revenue



Total revenue for reportable segments

259.6

285.6

Elimination of inter-segment revenue

(2.2)

(2.4)

Group revenue

257.4

283.2




Operating expenses



Total operating expenses for reportable segments

240.7

269.3

Elimination of inter-segment expenses

(2.2)

(2.4)

Group operating expenses

238.5

266.9




Finance revenue



Total finance revenue for reportable segments

20.6

39.8

Elimination of inter-segment finance revenue

(6.0)

(22.6)

Group finance revenue

14.6

17.2




Finance costs



Total finance costs for reportable segments

34.3

35.4

Elimination of inter-segment finance costs

(0.9)

-

Group finance costs

33.4

35.4




Profit for the year



Total profit for reportable segments

8.1

25.2

Adjustment for inter-segment profit distributions

(5.1)

(22.6)

Group profit for the year

3.0

2.6




Assets



Total assets for reportable segments

1,151.6

1,565.8

Elimination of inter-segment assets

(12.8)

(10.3)

Group assets

1,138.8

1,555.5




Liabilities



Total liabilities for reportable segments

(581.3)

(988.5)

Elimination of inter-segment liabilities

12.8

10.3

Unallocated defined benefit pension liabilities

(24.1)

(20.5)

Group liabilities

(592.6)

(998.7)

 

The reportable segments' totals for all other line items reported in the table at note 2(a) are the same as those for the Group, with no reconciling differences.

 



3.          Net revenue

 


2012

£m

2011

£m

Base management fees

243.1

267.2

Performance-related management fees

9.5

11.8

Total investment management fees

252.6

279.0

Other income

4.8

4.2

Total revenue

257.4

283.2




Renewal commission on open-ended investment products

(8.0)

(8.8)

Other selling expenses

(5.9)

(7.4)

Fee and commission expenses

(13.9)

(16.2)




Net revenue

243.5

267.0

 

Other income in 2012 includes £2.0m (2011: £1.4m) of compensation in respect of the withdrawal of strategic partner assets.

 

 

4.          Exceptional income and expenditure

 

(a)        Other exceptional net operating expenses

 

The Group has classified the following operating (expenses)/income as exceptional:

 


Notes

2012

£m

2011

£m

Exceptional employment expenses

(i)

(8.2)

(8.7)

TRC Management Retention and Incentive Plans

(ii)

(6.2)

(4.6)

Exceptional outsourcing expenses

(iii)

(3.3)

(2.7)

TRC Commutation expenses

(iv)

(1.6)

(5.7)

F&C Partners litigation expenses

(v)

(1.3)

(1.9)

Exceptional premises expenses

(vi)

(1.3)

-

F&C REIT variable non-controlling interests SBP income

(vii)

-

4.8

TRC integration expenses

(viii)

-

(0.2)



(21.9)

(19.0)

 

(i)         Exceptional employment expenses

 

During 2011, the Board initiated actions to achieve staff cost savings as a result of the operations outsourcing and the subsequent strategic review process.  As a result, some £8.7m of non-recurring redundancy and related staff costs were incurred during that year in order to achieve the targeted level of recurring staff cost savings.  During the year ended 31 December 2012 further strategic review initiatives have been implemented to achieve additional staff cost savings, resulting in the recognition of £8.2m of non-recurring employment related expenses.

 

The Directors consider these non-recurring employment expenses to be exceptional in nature and have therefore excluded them from the measurement of underlying earnings in each financial year.

 

(ii)        TRC Management Retention and Incentive Plans

 

As a condition of the acquisition of TRC, the Group established a Management Retention Plan (MRP) and Management Incentive Plan (MIP) to retain and incentivise certain TRC personnel.  The MRP expense (including NIC) recognised in the 2012 Income Statement is £6.2m (2011: £4.7m).  No MIP expense was incurred in 2012, as during 2011 it was assessed that none of the performance criteria would be met and, as a result, the cumulative charge previously recognised was reversed and an associated credit of £0.1m was recognised in the 2011 Income Statement. 

 

Given the quantum and nature of these awards, the Directors consider it appropriate to treat the associated net expense as exceptional and exclude them from the measurement of underlying earnings for each financial year.

 

(iii)       Exceptional outsourcing expenses

 

During 2012, a further £2.3m of advisory and consultancy costs were incurred in respect of the continued execution of the outsourcing of certain of the Group's back and middle office investment operations to State Street.  In addition, £1.0m of non-recurring costs were incurred as part of the strategic review activity to rationalise other outsourced activities of the Group.

 

The Directors consider these project costs to be exceptional in nature and have therefore excluded this expense from the measurement of underlying earnings for each financial year.

 

(iv)       TRC Commutation expenses

 

The Divisional Members of TRC Investment Teams entered into put and call options at the time of the TRC acquisition, which, if exercised, will typically transfer up to 20% of their entitlement to management fee profits to the F&C Group.  Under IFRS, the share element of the consideration payable under these Commutation arrangements requires to be accounted for as a share-based payment.

 

The net expense of £1.6m recognised in 2012 comprises a £3.5m charge for the Investment Teams where options have been, or are expected to be exercised, offset by a credit of £1.9m for those teams where it is no longer expected that F&C would exercise its call option.  At 31 December 2012, F&C's call options are the only remaining options; they become exercisable in September 2013. 

 

Given the capital nature of these arrangements, the Directors consider it appropriate to treat the total Commutation expense as exceptional in nature and exclude it from the measurement of underlying earnings for each financial year.

 

(v)        F&C Partners litigation expenses

 

As highlighted in note 11, the F&C Partners litigation was settled in June 2012, resulting in a net expense of £1.3m being recognised in the Income Statement for the year ended 31 December 2012. 

 

Given the quantum and nature of this expense and the previous costs incurred, the Directors continue to consider it appropriate to treat these costs as exceptional in nature and exclude them from the measurement of underlying earnings in both financial years.

 

(vi)       Exceptional premises expenses

 

As part of the strategic review programme, significant annualised cost savings are expected as a result of premises restructuring activity.  As part of this programme, following lease changes and restructuring work at the Group's Head Office in London, a net expense of £1.3m has been recognised in the Income Statement for the year to 31 December 2012.  This comprises £2.7m of non-recurring premises-related costs associated with the restructuring activities, offset by a £1.4m credit in respect of an accelerated release of lease incentive liabilities.

 

(vii)      F&C REIT variable non-controlling interests SBP income

 

30% of F&C REIT, the Group's property asset management business, is held by the former owners of REIT, two of whom occupy key management roles within F&C REIT.

 

The former owners have the opportunity to increase their ownership of F&C REIT by a further 10% through the achievement of performance targets over the six-year period to 31 December 2014.  This earn-out mechanism meets the criteria of, and is accounted for as, a share-based payment. In 2011 it was assessed that the performance target is unlikely to be achieved in any of the remaining performance periods.  As a result, the cumulative charge previously recognised was reversed and a credit of £4.8m was recognised in the 2011 Income Statement.  As at 31 December 2012 this assessment remains unchanged.

 

This credit has been excluded from underlying earnings as this arrangement is considered to be of a capital nature. 

 

(viii)     TRC integration expenses

 

Following the acquisition of TRC in 2010, the Group incurred a number of integration expenses associated with the alignment of certain activities within the enlarged Group in 2011.  No such costs were incurred in the year ended 31 December 2012.

 

Given the nature of this expense, the Directors considered it appropriate to treat it as exceptional and excluded it from the measurement of underlying earnings.

 

(b)        F&C REIT put option fair value gain

 


2012

£m

2011

£m

F&C REIT put option fair value gain

11.5

8.7

 

The fair value of the F&C REIT put option liability reflects the value of the portion of the F&C REIT business which is currently owned by the non-controlling interest partners and which is the subject of options.  The £11.5m reduction in the fair value of the options during 2012 has been recognised as a gain in the Income Statement (2011: gain of £8.7m).

 

The Directors consider the value of these options and movements therein to be of a capital nature, and have therefore excluded these gains from the measurement of underlying earnings.

 

(c)        TRC acquisition consideration adjustments

 


2012

£m

2011

£m

Net asset consideration adjustment

-

0.1

Deferred consideration adjustment

-

7.5


-

7.6

 

The total consideration of £48.6m recognised in 2010 for the acquisition of TRC included a £7.5m estimate of further cash consideration and £7.5m of estimated conditional consideration payable if certain performance criteria were achieved.

 

During 2011, a payment of £7.4m was made to the vendors of TRC, under the terms of the Sale and Purchase Agreement, representing an adjustment to the initial cash consideration to reflect the excess of net assets acquired over and above the agreed target.  As the payment was less than the estimate of £7.5m, the excess of £0.1m was credited to the Income Statement in accordance with IFRS.

 

Neither of the conditional consideration performance targets relating to the acquisition were achieved.  As a result, the associated liability of £7.5m was released to the 2011 Income Statement in accordance with IFRS.

 

Due to the capital nature of these items, the Directors excluded the total credit of £7.6m from the calculation of underlying earnings for 2011.

 

5.          Finance revenue

 



2012

£m

2011

£m

Loans and receivables:




Bank interest receivable


0.8

1.8

Other interest receivable


0.2

0.2

Designated as fair value through profit or loss:




Movement in fair value of investments


0.7

-

Gain on redemption of bonds


1.1

-

Designated as available for sale:




Investment income receivable


1.1

3.7



3.9

5.7

Other finance revenue:




Expected return on pension plan assets


10.7

11.5

Total finance revenue


14.6

17.2

 

 

6.          Finance costs



2012

£m

2011

£m

Interest expense on financial liabilities recognised at cost using the effective interest rate method:




Fixed/Floating Rate Subordinated Notes 2016/2026


8.4

8.4

Guaranteed Fixed Rate Loan Notes 2016


13.1

13.5

Bank charges and other interest payable


0.3

0.4

Total interest expense


21.8

22.3

Amortisation of loan note issue costs and facility fees


0.3

1.0

Unwinding of discount on onerous provisions


0.3

0.5

Designated as fair value through profit or loss:




Movement in fair value of investments


-

0.1

Other finance costs:




Interest cost on pension obligations


11.0

11.5

Total finance costs


33.4

35.4

 

 

7.          Income tax

 

(a)        Analysis of tax income in the year

 

The major components of tax (income)/expense recognised in the Income Statement and Statement of Changes in Equity are:

 


2012

£m

2011

£m

Current income tax:



UK

0.7

3.7

Overseas

5.3

5.7

Adjustments in respect of previous years

(1.9)

(0.1)

Deferred income tax:



Relating to origination and reversal of temporary differences

(10.8)

(12.7)

Adjustments in respect of previous years

1.3

0.1

Adjustments in respect of Corporation Tax rate change

(0.1)

(0.8)

Tax income reported in the Income Statement

(5.5)

(4.1)

 

Deferred and current income tax related to items charged or credited directly to Other Comprehensive Income or Equity:

2012

£m

2011

£m

Fair value movements on financial investments

(0.1)

(0.5)

Net actuarial movements on defined benefit pension schemes

(2.1)

1.0

Other overseas pension schemes movements

0.3

(0.3)

Adjustments in respect of Corporation Tax rate change

0.3

0.3

Tax (income)/expense recognised in Other Comprehensive Income

(1.6)

0.5

Tax associated with purchase of NCI* in F&C Partners LLP

0.8

(2.9)

Share-based payments

(0.6)

-

Tax income recognised in Statement of Changes in Equity

(1.4)

(2.4)

*   Non-controlling interests (NCI).

 



(b)        Factors affecting the tax income for the year

 

A reconciliation between the actual tax income and the accounting loss multiplied by the Group's domestic tax rate for the years ended 31 December 2012 and 2011 is as follows:

 


2012

£m

2011

£m

Loss before tax

(2.5)

(1.5)




At the Group's statutory income tax rate of 24.5% (2011: 26.5%)

(0.6)

(0.4)

Adjustments in respect of previous years

(0.6)

-

Disallowed expenses

0.8

0.2

Non-taxable income

(3.6)

(5.3)

Overseas tax at different rates

0.3

0.2

Unrecognised losses

(0.1)

0.1

Share-based payments

(1.6)

1.9

Disallowed distributions to LLP members

3.0

4.9

Non-taxable income attributable to LLP members

(3.0)

(4.9)

Corporation Tax rate change

(0.1)

(0.8)

Tax income reported in the Income Statement

(5.5)

(4.1)

 

 

8.          Earnings per share

 

Basic earnings/(loss) per share amounts are calculated by dividing the earnings/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year.

 

Diluted earnings/(loss) per share amounts are calculated by dividing the earnings/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year plus the weighted average number of Ordinary Shares that would be issued on the conversion of all the dilutive potential Ordinary Shares into Ordinary Shares at the reporting date.

 

In the opinion of the Directors the 'underlying earnings' as quantified in the 'Reconciliation of earnings/(loss)' table below, more accurately reflects the underlying earnings performance of the Group.

 

Reconciliation of earnings/(loss) per Ordinary Share

2012

p

2011

p

Basic earnings/(loss) per Ordinary Share

0.01

(0.10)

Amortisation of intangibles

5.25

5.61

Exceptional employment expenses

1.13

1.24

TRC Management Retention and Incentive Plans

1.02

0.80

Exceptional outsourcing expenses

0.47

0.39

TRC Commutation expenses

0.30

1.10

F&C Partners litigation expenses

0.19

0.16

Exceptional premises expenses

0.21

-

F&C REIT variable NCI SBP income

-

(0.93)

TRC integration expenses

-

0.01

Deferred Tax - Corporation Tax rate change

0.36

0.39

F&C REIT put option fair value gain

(2.16)

(1.69)

TRC acquisition consideration adjustments

-

(1.47)

Underlying earnings per Ordinary Share

6.78

5.51

Foreign exchange losses included within underlying earnings per share

0.28

-

Underlying earnings per Ordinary Share excluding foreign exchange losses

7.06

5.51

 

 


2012

p

2011

p




Diluted earnings/(loss) per Ordinary Share*

0.01

(0.10)




Diluted underlying earnings per Ordinary Share

6.10

4.93




Diluted underlying earnings per Ordinary Share excluding foreign exchange losses

6.35

4.93

*  Where the Group has incurred a basic loss per Ordinary Share, no dilution arises despite the 'dilutive potential weighted average number of Ordinary Shares' being greater than the 'weighted average number of Ordinary Shares used to determine the basic loss per share'. As a result, the reported basic and diluted loss per Ordinary Share are the same in 2011.

 

All amounts disclosed in the table above are stated net of any attributable tax, as presented in the 'Reconciliation of earnings/(loss)' table below.

 



The following tables disclose the earnings/(loss) and share capital data used in the earnings/(loss) per share calculations:

 


2012

2011

Reconciliation of earnings/(loss)

Gross

£m

Tax

£m

Net

£m

Gross

£m

Tax

£m

Net

£m

Earnings/(loss) attributable to ordinary equity holders of the parent for basic earnings/(loss) per share

(5.1)

5.2

0.1

(4.0)

3.5

(0.5)

Amortisation of intangibles(1)

39.3

(11.4)

27.9

42.6

(13.7)

28.9

Exceptional employment expenses

8.2

(2.2)

6.0

8.7

(2.3)

6.4

TRC Management Retention and Incentive Plans

6.2

(0.8)

5.4

4.6

(0.5)

4.1

Exceptional outsourcing expenses

3.3

(0.8)

2.5

2.7

(0.7)

2.0

TRC Commutation expenses

1.6

-

1.6

5.7

-

5.7

F&C Partners litigation expenses

1.3

(0.3)

1.0

1.9

(1.1)

0.8

Exceptional premises expenses

1.3

(0.2)

1.1

-

-

-

F&C REIT variable NCI SBP income

-

-

-

(4.8)

-

(4.8)

TRC integration expenses

-

-

-

0.2

(0.1)

0.1

Deferred Tax - Corporation Tax rate change

-

1.9

1.9

-

2.0

2.0

F&C REIT put option fair value gain

(11.5)

-

(11.5)

(8.7)

-

(8.7)

TRC acquisition consideration adjustments

-

-

-

(7.6)

-

(7.6)

Underlying earnings attributable to ordinary equity holders of the parent

44.6

(8.6)

36.0

41.3

(12.9)

28.4

Foreign exchange losses included within underlying earnings

2.0

(0.5)

1.5

-

-

-

Underlying earnings attributable to ordinary equity holders of the parent excluding foreign exchange losses

46.6

(9.1)

37.5

41.3

(12.9)

28.4

 (1)      Excludes £2.2m (2011: £2.0m) of amortisation of intangibles (net of tax) which is attributable to NCI.  The tax amount includes the related deferred tax movement associated with the Corporation Tax rate change.

 

Share capital

2012

No.

2011

No.

Weighted average number of Ordinary Shares (excluding own shares held by Employee Benefit Trusts/Nominees)

530,962,557

515,372,721

 

Dilutive potential weighted average number of Ordinary Shares

590,275,767

575,158,617

 

 

9.          Ordinary dividends

 

Declared and paid during the year

2012

£m

2011

£m

Equity dividends on Ordinary Shares:



      Final dividend for 2011: 2.0p (2010: 2.0p)

10.4

10.4

      Interim dividend for 2012: 1.0p (2011: 1.0p)

5.4

5.2


15.8

15.6




Proposed for approval at the Annual General Meeting



Equity dividends on Ordinary Shares:



      Final dividend for 2012: 2.0p (2011: 2.0p)

10.9

10.4

 

 



10.        Goodwill and other intangible assets

 


Goodwill

£m

Investment

management

contracts

£m

Software

and licences

£m

Total

£m

Cost:





At 1 January 2011

611.9

704.6

5.8

1,322.3

Additions

-

-

2.1

2.1

Foreign exchange losses

-

(1.1)

-

(1.1)

At 31 December 2011

611.9

703.5

7.9

1,323.3

Additions

-

-

5.9

5.9

Disposals

-

-

(1.2)

(1.2)

Foreign exchange losses

-

(1.6)

-

(1.6)

At 31 December 2012

611.9

701.9

12.6

1,326.4






Amortisation and impairment:





At 1 January 2011

-

529.1

4.8

533.9

Amortisation charge for the year

-

45.8

0.6

46.4

At 31 December 2011

-

574.9

5.4

580.3

Amortisation charge for the year

-

42.5

0.6

43.1

Disposals

-

-

(1.2)

(1.2)

At 31 December 2012

-

617.4

4.8

622.2






Net book values:





At 31 December 2010

611.9

175.5

1.0

788.4

At 31 December 2011

611.9

128.6

2.5

743.0

At 31 December 2012

611.9

84.5

7.8

704.2

 

Goodwill

 

Goodwill has arisen from various business combinations and, reflecting the Group's reportable operating segments disclosed in note 2, is represented by three cash generating units (CGUs), as follows:


31 December

2012

£m

31 December

2011

£m

F&C

467.2

467.2

F&C REIT

127.9

127.9

Thames River Capital

16.8

16.8


611.9

611.9

 

Goodwill is not amortised but is tested for impairment annually at individual CGU level, or when indicators of potential impairment are identified. The carrying value of goodwill attributable to each CGU was tested for impairment as at 31 December 2012; to date, none of the CGUs has suffered any impairment of goodwill.

 

Investment management contracts (management contracts)

 

Management contracts predominantly relate to contracts arising from business acquisitions.

 

Management contracts are amortised over their expected useful lives and are tested for impairment only when indicators of potential impairment are identified. No such indicators have been identified since the last impairment review undertaken as at 31 December 2008 and therefore no impairment review of management contracts has been undertaken this year. Management contract impairment losses recognised in prior years relate entirely to the F&C operating segment; the accumulated impairment losses at 31 December 2012 were £218.3m (31 December 2011: £218.3m).

 

The foreign exchange losses recognised in the year arise from the relative weakening of the Euro over the course of 2012, decreasing the value of Euro-denominated contracts, (primarily F&C insurance contracts), in Sterling terms.

 

 

11.        Provisions

 


31 December

2012

£m

31 December

2011

£m

Summary:



Onerous premises contracts

5.3

6.1

NIC on share schemes

7.0

6.1

F&C Partners litigation

-

2.0

Other provisions

1.1

1.6


13.4

15.8




Split as follows:



Non-current

5.1

7.3

Current

8.3

8.5


13.4

15.8

 

F&C Partners litigation

 

In June 2012, following a successful outcome from the Court of Appeal regarding the level of costs and interest to be borne by F&C in respect of the F&C Partners litigation, a full and final payment of £0.65m was paid to the founder partners.  As a result, the excess provision of £1.35m was released during the year.

               

 

12.        Defined benefit pension obligations

 

The following tables summarise the aggregate defined benefit pension deficit of the Group and the key assumptions which drive the quantum of the deficit:

 

Aggregate


31 December

2012

£m

31 December

2011

£m

Fair value of plan assets


232.7

215.9

Benefit obligations


(256.8)

(236.4)

Total pension deficit


(24.1)

(20.5)

 

Expected long-term rates of return on UK plan assets

31 December

2012

31 December

2011

Equities

6.20%

6.30%

Equity-linked bond funds

6.20%

6.30%

LDI pools

3.10%

3.10%

Diversified growth funds

6.20%

n/a

Insurance contracts

4.50%

4.70%

Property (including secured leases)

4.85% - 6.20%

4.85% - 6.30%

Cash

0.50%

0.50%

Corporate bonds

4.50%

4.70%

 

Discount and growth assumptions

31 December
2012

31 December
2011

Discount rate

3.90% - 4.50%

4.70% - 5.20%

Rate of salary increase

2.00% - 3.00%

2.00% - 4.00%

Rate of price inflation (CPI)

2.00% - 2.45%

2.00% - 2.60%

Rate of inflation increase (RPI)

3.15%

3.30%

 

Mortality assumptions

The mortality assumptions used for the main UK defined benefit scheme and the unfunded UK obligation are:

 


31 December

2012

31 December

2011

Mortality table for males retiring in the future

S1NMA L-1 CMI 2011 1.25%

S1NMA L MC min1% - 1

Mortality table for females retiring in the future

S1NFA L-1 CMI 2011 1.25%

S1NFA L MC min1% - 1

Mortality table for current male pensioners

S1NMA L-1 CMI 2011 1.25%

S1NMA L MC min1% - 1

Mortality table for current female pensioners

S1NFA L-1 CMI 2011 1.25%

S1NFA L MC min1% - 1

 

To demonstrate what these mortality assumptions mean in respect of the UK Plan, the expected ages at death of members retiring at age 60 are as follows:

 


31 December

31 December


2012

2011


Years

Years

Expected age at death for a male retiring in the future at age 60, currently aged 40

92

91

Expected age at death for a female retiring in the future at age 60, currently aged 40

93

92

Expected age at death for a current male pensioner aged 60

90

89

Expected age at death for a current female pensioner aged 60

91

90

 

 

13.        Share capital

 

The Group recorded the following amounts within shareholders' equity:

 


31 December

2012

£m

31 December

2011

£m

Issued Ordinary Shares of 0.1p each

0.6

0.5

 



The number of Ordinary Shares in issue was as follows:

 


31 December

2012

No.

31 December

2011

No.

Allotted, called up and fully paid Ordinary Shares of 0.1p each

555,180,788

532,118,789

Ordinary Shares held by Employee Benefit Trusts/Nominees*

(13,001,180)

(13,940,987)

Ordinary Shares available in the market

542,179,608

518,177,802

*   Which are classified as "Own Shares".

 

 

14.        Analysis of movements in statement of cash flows

 



2012

2011


Note

£m

£m

Adjustments for non-cash items:




Depreciation of property, plant and equipment


3.0

3.2

Amortisation of intangible assets

10

43.1

46.4

Loss on disposal of property, plant and equipment


0.9

0.3

Non-cash movement in respect of adjustment to consideration for NCI in F&C Partners LLP


1.0

-

Equity-settled share-based payment expenses


13.4

17.3



61.4

67.2





Changes in working capital and provisions:




(Increase)/decrease in trade and other receivables


(2.5)

78.6

Decrease in trade and other payables


(16.5)

(56.5)

Decrease in employee benefit liabilities


(5.0)

(1.2)

Decrease/(increase) in stock of units and shares


0.6

(0.8)

(Decrease)/increase in liabilities to members of LLPs


(0.7)

0.3

Decrease in investment contract liabilities


(335.9)

(86.4)

Decrease in reinsurance assets


2.0

-

Decrease in insurance contract liabilities


(2.0)

-

Decrease in deferred acquisition costs


1.8

1.7

Decrease in deferred income


(2.0)

(1.5)

Pension charge to operating profit less defined benefit pension contributions paid


(5.5)

(3.6)

Decrease in provisions


(2.5)

(3.3)

Decrease in unit-linked financial investments


313.6

91.0



(54.6)

18.3

 

 

15.        Contingent liabilities

 

Ongoing business operations

 

In the normal course of its business, the Group is subject to matters of litigation or dispute. While there can be no assurances, at this time the Directors believe, based on the information currently available to them, that it is not probable that the ultimate outcome of any of these matters will have a material adverse effect on the financial condition of the Group.

 

 



16.        Reconciliation of reported to underlying earnings

 

The following tables reconcile the reported earnings to underlying earnings attributable to equity holders of the parent. In addition, the calculation of certain key performance indicators is given below.

 

Year ended 31 December 2012

£ millions unless otherwise stated




Reported

earnings

Adjustments

Adjusted

Income

Statement

Adjustments for FX losses

Underlying

earnings

Non-controlling interests profits*

Underlying earnings

(ex NCI)

A     Net Revenue

243.5

-

243.5

-

243.5

-

243.5

      Net policyholder expense

(0.2)

-

(0.2)

-

(0.2)

-

(0.2)









      Operating expenses

(160.5)

-

(160.5)

-

(160.5)

-

(160.5)

      Exchange losses

(2.0)

-

(2.0)

2.0

-

-

-

      Operating expenses

(162.5)

-

(162.5)

2.0

(160.5)

-

(160.5)

      Distributions to members of LLPs

(11.6)

-

(11.6)

-

(11.6)

-

(11.6)

      Amortisation of intangible assets

(42.5)

42.5

-

-

-

-

-

      Other exceptional net operating expenses

(21.9)

21.9

-

-

-

-

-

      Total operating expenses

(238.5)

64.4

(174.1)

2.0

(172.1)

-

(172.1)









B    Operating profit

4.8

64.4

69.2

2.0

71.2

-

71.2

      Interest paid

(22.4)

-

(22.4)

-

(22.4)

-

(22.4)

      Interest and investment income

3.2

-

3.2

-

3.2

-

3.2

      F&C REIT put option fair value gain

11.5

(11.5)

-

-

-

-

-

      Other non-operating items

0.4

-

0.4

-

0.4

-

0.4

      Non-controlling interests profits

-

-

-

-

-

(5.8)

(5.8)

      (Loss)/profit before tax

(2.5)

52.9

50.4

2.0

52.4

(5.8)

46.6

      Tax income/(expense)

5.5

(14.8)

(9.3)

(0.5)

(9.8)

0.7

(9.1)

C    Profit/(loss) for year

3.0

38.1

41.1

1.5

42.6

(5.1)

37.5









      Underlying EPS (C÷D)







7.1p

      Underlying operating margin (B÷A)







29.2%

D    Weighted average number of shares (000's)







530,963

*   Excluding NCI share of amortisation of intangible assets

   Defined as 'underlying operating costs'

   Defined as 'Group underlying profit before tax'

 

Year ended 31 December 2011

£ millions unless otherwise stated




Reported

earnings

Adjustments

Adjusted

Income

Statement

Adjustments for FX losses

Underlying

earnings

Non-controlling interests profits*

Underlying earnings

(ex NCI)

A     Net Revenue

267.0

-

267.0

-

267.0

-

267.0

      Net policyholder income

0.3

-

0.3

-

0.3

-

0.3









      Operating expenses

(183.8)

-

(183.8)

-

(183.8)

-

(183.8)

      Distributions to members of LLPs

(18.3)

-

(18.3)

-

(18.3)

-

(18.3)

      Amortisation of intangible assets

(45.8)

45.8

-

-

-

-

-

      Other exceptional net operating expenses

(19.0)

19.0

-

-

-

-

-

      Total operating expenses

(266.9)

64.8

(202.1)

-

(202.1)

-

(202.1)









B    Operating profit

0.4

64.8

65.2

-

65.2

-

65.2

      Interest paid

(23.8)

-

(23.8)

-

(23.8)

-

(23.8)

      Interest and investment income

5.7

-

5.7

-

5.7

-

5.7

      F&C REIT put option fair value gain

8.7

(8.7)

-

-

-

-

-

      TRC acquisition consideration adjustments

7.6

(7.6)

-

-

-

-

-

      Other non-operating items

(0.1)

-

(0.1)

-

(0.1)

-

(0.1)

      Non-controlling interests profits

-

-

-

-

-

(5.7)

(5.7)

      (Loss)/profit before tax

(1.5)

48.5

47.0

-

47.0

(5.7)

41.3

      Tax income/(expense)

4.1

(17.6)

(13.5)

-

(13.5)

0.6

(12.9)

C    Profit/(loss) for year

2.6

30.9

33.5

-

33.5

(5.1)

28.4









      Underlying EPS (C÷D)







5.5p

      Underlying operating margin (B÷A)







24.4%

D    Weighted average number of
shares (000's)

 

 

 

 

 

 

 

 



515,373

*   Excluding NCI share of amortisation of intangible assets

   Defined as 'underlying operating costs'

   Defined as 'Group underlying profit before tax'

 

 



17.        Underlying operating costs

 

The underlying operating costs of the Group are as follows:

 


Year ended

31 December

2012

£m

Year ended

31 December

2011

£m

Staff costs and related expenses

104.4

116.9

Premises expenses

12.2

14.5

Communication and information technology expenses

16.4

17.4

Third-party administration expenses

9.7

8.4

Promotional and client servicing expenses

5.1

7.1

Other expenses

12.7

19.5

Operating expenses

160.5

183.8

Distributions to members of LLPs

11.6

18.3

Underlying operating costs

172.1

202.1

 

 

18.        Other information

 

Copies of the 2012 Annual Report and Financial Statements are expected to be posted to shareholders in April and will be available for inspection at the registered office of the Company at 80 George Street, Edinburgh EH2 3BU.

 

A copy of the presentation which takes place at 9.30am today will be available on the Company's website www.fandc.com. A recording of this presentation will be made and will also be available on the Company's website.

 

This announcement and the information contained herein are not for publication or distribution in and shall not constitute or form any part of any offer or invitation to subscribe for, underwrite or otherwise acquire, or any solicitation of any offer to purchase or subscribe for, securities including in the United States, Canada, Australia, Japan or any other jurisdiction where such activity is unlawful.

 

This announcement and the information contained herein do not constitute an offer of securities for sale in the United States of America.  Neither this announcement nor any copy of it may be taken or distributed into the United States of America or distributed or published, directly or indirectly, in the United States of America.  Any failure to comply with this restriction may constitute a violation of US securities law.  The securities referred to herein have not been and will not be registered under the US Securities Act of 1993, as amended (the 'Securities Act') and may not be offered or sold in the United States unless they are registered under the Securities Act or pursuant to an available exemption therefrom.  No public offering of securities is being made in the United States.

 

Forward-looking statements

 

This announcement may contain certain "forward-looking statements" with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives.  Statements containing the words "believes", "intends", "expects", "plans", "seeks" and "anticipates", and words of similar meaning, are forward-looking. 

 

By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the Group's control including, among other things, UK domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally, the policies and actions of regulatory authorities, the impact of competition, inflation and deflation, the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries, estimates of assets to be managed for strategic partners or other clients in the future and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which the Group operates.

 

As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals, and expectations set forth in the Group's forward-looking statements.  F&C undertakes no obligation to update the forward-looking statements contained in this announcement. Nothing in this announcement should be considered as a profit forecast.

 


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