Henderson Group - 2010 Full Year Results

Henderson Group plc

Full Year Results

2010

23 February 2011

Financial highlights

Notes.

1. Total fee income less operating costs, divided by total fee income.

2. Based on underlying profit after tax attributable to equity holders of the parent.

3. Based on weighted average number of shares in issue less weighted average number of own shares held during the period.

4. Based on weighted average number of shares in issue less weighted average number of own shares held during the period adjusted for the

dilutive potential of share awards.

Commenting on the 2010 annual results Chief Executive, Andrew Formica said:

"2010 was characterised by recovery in the global economy, although the effects of the global financial crisis continued to be felt.

Market conditions improved and equity markets ended higher, but the path was not smooth and was lined with episodes of volatility and

uncertainty. Given the diversity of our business, we were well placed to navigate this uncertain and volatile market environment.

Henderson Group delivered a strong result in FY10 as improved equity markets, good investment performance and £2bn net inflows

in higher margin products contributed to a 37% increase in underlying profit compared to FY09. The Board has adopted a progressive

dividend policy and, in line with this, is recommending a final dividend for 2010 of 4.65 pence per share, bringing the total dividend for

2010 to 6.5 pence per share, a 7% increase on the 2009 total dividend.

We announced, after the year end, our proposed acquisition of Gartmore. This acquisition will reinforce our position as a diversified

asset manager bringing with it a credible traditional and absolute return franchise as well as additional investment strengths, and it

will significantly strengthen our presence amongst UK retail investors. We are making good progress and we expect to complete this

acquisition in early April.

We are optimistic about the outlook for markets which bodes well for the Group. Our strategic approach of combining organic growth

while remaining alert to opportunities to accelerate our strategic goals has at its heart an overriding focus on our clients, ensuring that

we have the capabilities required to help them achieve their investment objectives. We are well positioned to grow our existing product

range and develop new products to distribute through all the channels in every geography in which we operate."

Henderson Group plc47 EsplanadeSt HelierJersey JE1 0BDRegistered in JerseyCompany No. 101484ABN 67 133 992 766

Key financial highlights

·; Underlying profit before tax increased by 37% to £100.7m (FY09: £73.7m).

·; Average AUM increased by 11% to £58.7bn (FY09: £53.0bn).

·; AUM at 31 December 2010 was £61.6bn (31 December 2009: £58.1bn).

·; Net higher margin inflows of £2.0bn (FY09: £0.7bn).

·; Investment performance remains good in most areas with 62% of Fixed Income and 77% of Equity funds achieving or beatingtheir benchmarks over one year and 82% of Fixed Income and 63% of Equity funds achieving or beating their benchmarks over three years

·; Operating margin increased by 9% to 30% (FY09: 27.6%), due to higher market levels, positive higher margin inflows, the benefits of the New Star acquisition in April 2009 and continued cost control.

·; Compensation ratio remained stable at 44.4% (FY09: 43.9%), despite increased competitive pressures.

·; Basic EPS on underlying profit increased by 36% to 10.2 pence in FY10 (FY09: 7.5 pence).

·; The Board of Directors has proposed a final dividend for FY10 of 4.65 pence per share (FY09: 4.25 pence per share), resultingin a total FY10 dividend of 6.5 pence per share (FY09: 6.1 pence per share), an increase of 7%.

Forward-looking statements

This announcement contains forward-looking statements with respect to the financial condition, results and business of the Group. By their nature, forward-looking statements involve risk and uncertainty because they relate to events, and depend on circumstances, that will occur in future. The Group's actual future results may differ materially from the results expressed or implied in these forward-looking statements. Nothing in this announcement should be construed as a profit forecast.

To view the full details of the 2010 Full Year Results (ASX Appendix 4E), paste the following link into your web browser:

http://www.rns-pdf.londonstockexchange.com/rns/6822B_1-2011-2-22.pdf 

To view the full details of the 2010 Full Year Results Presentation, paste the following link into your web browser:

 http://www.rns-pdf.londonstockexchange.com/rns/6822B_2-2011-2-22.pdf

Market briefing

Management will present these results on 23 February 2011 at 8:00pm (Sydney time)/9:00am (London time).

Teleconference details

We recommend participants start dialling in 5 to10 minutes prior to the start of the presentation. To telephone link-up to the briefing, dial one of the following numbers from 7:50 pm (Sydney time)/8:50am (London time):

From:United Kingdom 0500 1016 30 (free call)Australia 1800 9889 41 (free call)All other countries +44 (0)20 7162 0025 (this is not a free call number)Conference title Henderson Group Full Year Results BriefingChairperson Andrew FormicaReference 886097

Replay number from:United Kingdom +44 (0)20 7031 4064 Access code 886097Australia +61 (0)2 8223 9748 Access code 886097 (available from 23 February to 2 March 2011).

Webcast details

You can logon to a webcast of the results briefing which will start at 8:00pm (Sydney time)/9:00am (London time). Go towww.henderson.com/group and click on the relevant link on the homepage. An archive of the webcast will be available shortlyafter the event.

Further information

www.henderson.comor

Investor enquiries Media Enquiries

Mav Wynn, Head of Investor Relations Richard Acworth, Head of Corporate Communications+44 (0) 20 7818 5135 or +44 (0) 20 7818 5310 +44 (0) 20 7818 [email protected] or [email protected] [email protected]

Australia: Cannings United Kingdom: Maitland

Luis Garcia George Trefgarne/Rebecca Mitchell +61 (0) 2 8284 9990 +44 (0) 20 7379 5151

Preliminary Final Report for the Year Ended 31 December 2010

Incorporating the requirements of ASX Appendix 4E

The information contained in this document should be read in conjunction with the Henderson Group plc (the Company) Annual Report for the year ended 31 December 2010 and any public announcements made by the Group in accordance with the continuous disclosure obligations arising under the Corporations Act 2001, the Companies (Jersey) Law 1991 and the Australian Securities Exchange (ASX) Listing Rules. This report includes the full year information required to be given to the ASX under Listing Rule 4.3A.

Contents

The results of Henderson Group plc for announcement to the market are as follows:

Note

1. Excluding a non-controlling interests loss of £0.5m (FY09: £0.7m profit).

Dividends

On 22 February 2011, the Directors recommended the payment of a final dividend in respect of the year ended 31 December 2010 of 4.65 pence per share.

Henderson Group plc does not offer a dividend reinvestment plan.

Net tangible assets per ordinary share

"Net tangible assets" are defined by the ASX as being total assets less intangible assets less total liabilities ranking ahead of, or equally with, claims of ordinary shares.

Five Year Financial Summary

Consolidated financial results year ended 31 December

Notes

1. Total fee income less operating costs divided by total fee income.

2. Employee compensation and benefits divided by total income.

3. Net margin calculated on recurring profit before intangible amortisation, void property finance charge and tax.

4. Based on underlying profit after tax attributable to equity holders of the parent.

5. Asset weighted of funds measured over one and three years to 31 December.

business overview

GOOD INVESTMENT PERFORMANCE IN KEY FUNDS AND PRODUCTS

An overview of business performance in 2010

·; Good investment performance continued

·; Reviewed and enhanced fund range with a focus on finding solutions for clients

·; Extended relationships with clients and consultants globally

Given the diversity of our business, in terms of client, geography and product, we were well placed to navigate through the uncertain and volatile market environment during 2010.

Global Listed Assets

Investment performance in our key funds and products continued to be good (as discussed on page 6) and our investment management and distribution teams had minimal turnover, underscoring the commitment of our key employees to the further success of our business.

Relationships with clients and institutional consultants across the globe continued to strengthen and in 2010, we sourced new business from nearly a dozen different investment consultants globally. We expanded our distribution capabilities into new regions, such as the Nordics and South America, and improved our distribution capabilities in China and Japan by developing regional distribution agreements with local financial institutions.

The core markets for us remain in the UK and Continental Europe, supported by an increasing presence in both the US and Asia. In the UK, the successful integration of New Star and our improved brand awareness has contributed significantly to the growth potential of our UK Retail business. We had positive net flows into a broad range of funds including Strategic Bond, our multi-manager fund range, European Special Situations and Credit Alpha, a UCITS III enabled fund. The Strategic Bond Fund enjoyed great success in 2010, both in terms of fund performance and flows, and is fast approaching £1bn in assets. We are also pleased with the success we have achieved in launching the European Special Situations Fund. Launched in the fourth quarter of 2009, it has since grown to over £0.3bn.

It was a good year for inflows into our specialist funds in Continental Europe such as our Global Technology Fund and Global Property Equities Fund. Our pan-European funds also saw strong inflows, especially our Pan European Equity Fund which has consistently delivered top quartile performance over three and five years. Our European Smaller Companies Fund had excellent investment performance and good net inflows. We launched the Horizon European Corporate Bond Fund at the end of 2009 and performance has been very strong, as a result of which we are seeing increased interest in this area.

The biggest disappointment in our US Retail business has been the investment performance of the International Opportunities Fund, one of our flagship funds. Although the five year performance of this fund remains top quartile, the one and three year numbers have been poor resulting in some redemptions from the fund. On the other hand, the Global Equity Income Fund, which now has a four year track record, had good inflows during the year and is approaching USD1bn. We also launched two new funds towards the end of the year, providing further diversification to our US Wholesale product suite. Our US institutional business is going from strength to strength, achieving a near record year in gross sales and crossing the USD2bn mark in AUM sourced from this market at 31 December 2010.

Most of the inflows into our hedge funds occurred in the first quarter of 2010 and these were mainly in Japan, UK Equity Long Short and our Asian absolute return funds. Investor activity slowed thereafter but picked up again in the fourth quarter of 2010. We have good investment performance, particularly in our Japan, Multi-Strategy and European absolute return funds, with 77% of our funds above their high watermark, and we expect to see further inflows into these funds during 2011. We are focused on refilling the capacity in our hedge funds and also responding to the increasing institutional demand in the US for hedge fund products. The UCITS III Credit Alpha Fund has enjoyed great success since its launch in mid 2007, being one of only a small number of UCITS III credit long/short funds. To complement this, given the team's proven track record in long short credit, we also launched the Henderson Credit Long Short Fund, a Cayman domiciled hedge fund, in the first quarter of 2010.

Our Structured Products business continued to earn advisory and management fees and, as a result of improvements in prices and opportunities in the loans market, we were able to release subordinated management fees from our Collateralised Loan Obligations book of business.

Looking at other parts of the business, in Investment Trusts a combination of fund transfers and fund realisations resulted in net outflows in 2010. The Henderson Private Equity Investment Trust plc changed its investment strategy (see page 5), which involves the orderly realisation of the portfolio over a period of two years, and Witan Investment Trust plc changed its asset allocation, despite solid performance, and replaced Henderson's enhanced index portfolios with traditional active managers. That said, Investment Trusts remain a sizeable and important part of our business.

As regards our cash business, DB Advisors were appointed as investment manager of the £3.3bn Henderson Liquid Assets Fund (HLAF) from October 2010. This followed a review of our liquidity business in light of potential changes to the way that the money market fund industry is regulated whilst ensuring the best outcome for investors. Since then, investors have approved the merger of HLAF into the Deutsche Managed Sterling Fund, a corresponding sub-fund of Deutsche Global Liquidity Series plc, and as a result our AUM will reduce by approximately £3.0bn with effect from February 2011.

Our focus remains on providing client solutions. As such, we continually review our fund range, whether that be launching new products or rationalising existing ones, to ensure that we offer relevant products to our clients. We want to capitalise on the good reputation we have built in areas such as multi-manager, credit, and absolute return. Building our brand is vital in all markets, as well as maintaining good relationships with consultants and distribution partners globally and locally.

Global Property

Global Property AUM grew by £1.7bn from £8.9bn to £10.6bn, mainly due to fund flows, including £0.9bn relating to the purchase of 50% of Westfield Stratford City on behalf of clients and the investment of £0.5bn of prior year client commitments. Total client commitments at 31 December 2010 were £1.4bn (2009: £1.4bn), as investments made have been replaced by new assets raised. AUM as at 31 December 2010 of £10.6bn excludes

investments by Pearl in closed-ended property funds of £0.4bn and £0.8bn of UK Retail assets, in respect to the Henderson UK Property Unit Trust.

Whilst we made good progress in investing client commitments, we are selective in the properties we choose to invest in. Prime assets in some of our key European markets are fully priced or of poor quality whereas the US property market recovery appears to be lagging Europe by six to nine months. It is also evident that the spread between prime and secondary properties has increased considerably. Taking into account these factors, the requirements of each fund is carefully balanced against the availability of suitable properties in the market. During the year, the team, taking advantage of improving valuations in the market, sold some of their assets and in so doing unlocked profits for clients. In the majority of cases these proceeds will be reinvested.

We also reviewed our fund range and in the middle of the year we transferred the £0.2 billion Henderson International Property Fund acquired as part of New Star to Aviva Investors. After a review of the fund's long-term strategy, we established that, for the fund to remain effective, it needed to increase in both size and regional diversification. It was decided that it would be in the best interests of the investors in the fund to combine the fund with another fund with similar investment objectives and holdings..

One of the highlights of the year was being appointed as investment management adviser to Canada Pension Plan Investment Board and Algemene Pensioen Groep N.V. (through a joint venture) on their purchase from Westfield Group of a 50% stake (valued at £871m) in Westfield Stratford City. Another was the launch of the Central London Office Fund II (CLOF II) which had a first close of £90m and made investments of £25m in the year. One of the cornerstone investors in CLOF II has allocated funds outside of the fund for further investment in central London offices and we began to invest some of this allocation during the year. We also reopened the open-ended Henderson Indirect Property Fund (Europe).

There has been a significant improvement in investment performance (discussed on page 6) across the fund range. We take a long-term view on investment strategy, keeping sight of the fact that our average fund duration is eight to 10 years. Although short-term investment performance suffered in 2008 and 2009, our strategy is now paying dividends for our clients and this has provided a significant boost to our brand strength in property. We took advantage of the downturn in the property cycle and were therefore well placed to lock in gains as property markets in some parts of Europe recovered rapidly in early 2010. While the easy wins have gone from prime markets our investment team is using its asset management and development skills to reposition secondary assets into the prime market.

As regards our outlook for global property, in the UK, we believe that sentiment may wane in 2011 but that a more stable pace of recovery offers a welcome change from recent market volatility and should, in the medium term, help cement a more sustainable and robust market. For Europe, low interest rates and bond yields will underpin continued strong real estate interest in 2011 and overheating in parts of the European property market seems unavoidable. In Asia, we predict that global commercial property investment will track macroeconomic indicators in 2011 and that, as such, Asia's ability to weather the global financial storm, in addition to its attractive growth prospects and low interest rate environment, will underpin continued investor interest.

Global Private Equity

Total AUM grew by £0.1bn to £0.7bn in 2010 (excluding £0.1bn of Pearl AUM) , as a result of increases in the value of our funds.

In the infrastructure business, a number of initiatives were successfully concluded in 2010 giving rise to a positive impact on valuation. In particular, during the fourth quarter of 2010 John Laing (an investment held by two of our infrastructure funds) raised a £270m listed infrastructure fund, the second largest investment fund Initial Public Offering on the London market in 2010. At the same time John Laing and its parent undertakings refinanced and repaid its bank facilities. John Laing also met its targets for new business in 2010 and is expanding its global business in North America, Asia and Australia. These initiatives have underpinned a strong improvement in the performance of the infrastructure funds.

Other parts of the Private Equity business continue to perform well. The first Asia fund has delivered a IRR of 16% per annum over a nine year period. The fund realised one of the three remaining investments during the year and partially realised the other two. These realisations gave rise to performance fees in the form of carried interest and the Group has recognised £4.8m in FY10 in relation to carried interest on this fund. The team's second fund has made three investments to date across India and China and these are progressing well.

The Fund of Funds business has continued its good performance. The unlisted Global Fund of Funds, which was fully invested by the end of 2003, has now delivered a net IRR of 14% per annum. The listed Fund of Funds vehicle, Henderson Private Equity Investment Trust plc, performed well during 2010. In September, the Trust announced its intention to execute an orderly realisation of its portfolio. As a result, the share price of the Trust increased 70% during the year, making it the top performing private equity investment trust in 2010.

Investing in our brand

We undertook a company-wide rebranding project in the second quarter of 2010, the catalyst being the integration of the Henderson and New Star funds. In tandem with the decision to remove the New Star brand, we also invigorated our brand across the Group. A new Henderson Global Investors logo and brand identity was developed, building on the investment made into the UK retail brand. The rebranding exercise has been a success as in the UK retail market, awareness levels remain significantly above levels prior to the New Star acquisition.

financial review and key performance indicators

GROUP UNDERLYING PROFIT INCREASES 37%

Key performance indicators

Our KPIs are identified by the symbol and commentary on our progress is provided in the accompanying text. Our KPIs are:

1. Investment performance;

2. Fee margins;

3. Fund flows excluding Pearl;

4. Operating margin and compensation ratio;

5. Earnings per share (EPS); and

6. Treating customers fairly.

Key financial highlights

·; 70% of funds achieving or beating benchmark over one year

·; Underlying profit increased 37%

·; Total fee margin improved to 61.7bps

·; Net higher margin inflows of £2.0bn

·; Operating margin improved to 30%

·; Compensation ratio stable at 44%

·; Basic EPS on underlying profit increased 36% to 10.2p

Investment performance

The investment performance of the Group's funds is good with 77% and 63% of Equity and 62% and 82% of Fixed Income funds achieving or beating their benchmarks over one and three years respectively. UK Retail performance was good with 70% of assets outperforming over one year. In our UK Retail fund range, performance was adversely impacted by legacy New Star funds and only 41% of assets outperformed over three years; however, excluding New Star funds, 65% of assets outperformed.

Horizon performance improved significantly in the year with 83% and 88% of assets outperforming over one and three years respectively. This has driven record flows into these funds. Performance of the US Retail fund range has been disappointing with 11% and 16% of assets outperforming over one and three years respectively. This is due to the Henderson International Opportunities Fund, representing approximately 65% of US Retail assets, underperforming.

In the Institutional business, all fund classes continued to perform well over one and three years, with 100% of enhanced index funds outperforming over one year and 92% over three years. In our Institutional Fixed Income funds, 64% outperformed over one year and 97% over three years. Hedge fund performance suffered over the one year period, with 67% outperformance; however, three year performance remains good with 81% of funds outperforming. Of our funds, 91% are above or within 5% of their high watermarks.

In Property, the one and three year performance track record is pending publication of the IPD Annual Benchmarks in March 2011. However, estimates devired from the monthly data show that the one year performance numbers should improve significantly with circa 65% of funds achieving benchmarks or better in 2010. Encouragingly, investor confidence in the long-term performance of the Group's Property business has remained strong.

NSIM performance has improved significantly during the period with 98% of assets outperforming over one year. However, the three year investment performance is disappointing with 55% of assets outperforming.

The number of buy rated products increased by 12 to 135 during the period. In addition, the Group won a number of investment performance awards including:

·; FT Business Pension and Investment Provider Award - UK Fixed Income Manager of the Year;

·; Investment Week Fund Manager of the Year - Multi Manager Group of the Year; and

·; Lipper Best European region fund over five years: US.

Fixed Income and Equity funds continued to perform well with 62% and 77% respectively of assets achieving or beating their benchmarks over one year and 82% and 63% respectively over three years.

The Group financial result

Underlying profit before tax in FY10 was £100.7m, an increase of 37% on FY09 (£73.7m). Profit before tax was £76.5m, compared to £15.5m in FY09.

Revenue and fee margins

Total fee income increased by 28% to £362.1m from £283.3m in FY09. Management fee income increased by 25% to £282.5m from £226.8m in FY09, due to a full year of revenues from New Star assets (acquired in April 2009), the impact of higher margin net inflows and higher market levels. The FTSE 100 Index was on average 20% higher in FY10 compared to FY09.

Transaction fees increased by 48% to £36.8m from £24.9m in FY09, primarily due to fees earned on UK Wholesale funds (including New Star) and transactions related to our Property business. Performance fees increased by 35% to £42.8m from £31.6m in FY09, primarily due to fees earned from institutional mandates. The main contributors to performance fees are illustrated below.

Total fee margin increased from 53.5bps in FY09 to 61.7bps in FY10, largely due to higher transaction and performance fees and improving management fee margins following the New Star acquisition and higher margin net inflows. Average management fee and net margins in FY10 were 48.2bps (FY09: 42.8bps) and 17.2bps (FY09: 13.9bps) respectively. Over the past 24 months, the Group's strategy of growing higher margin assets, which now represent 59% of total AUM (FY09: 56%, FY08: 48%), has helped increase the management fee margin by 13% in FY10.

Total fee margin increased in FY10 due to higher transaction and performance fees together with a full year of revenue from New Star. Improving management fee margin illustrates the shift from lower to higher margin business. Net margins have improved as underlying profits grew in better market conditions.

Finance income

Finance income in FY10 decreased by £3.5m to £0.8m, primarily due to lower cash balances, lower interest rates and the impairment of a seed capital investment in a property fund.

Operating costs

Operating costs increased by £48.5m to £253.5m in FY10. The main components are shown in the table below:

Employee compensation and benefits increased £34.8m to £161.1m (FY09: £126.3m). Within this, fixed staff costs increased by £6.3m, reflecting the impact of New Star for a full year and salary inflation, whilst variable staff costs increased by £28.5m, driven by improved Group profitability. The average number of full-time employees remained stable in FY10 at 938 (FY09: 933). The compensation ratio also remained stable at 44.4% (FY09: 43.9%) as shown in the graph on the following page, mainly as a result of higher variable staff costs. The Group continues to manage its cost base in line with its income to protect the Group from any significant market dislocation.

Investment administration costs increased by £0.7m to £23.3m, primarily due to the increased number of funds following the New Star acquisition. Information technology costs increased by £1.2m to £12.7m due to the write-off of capitalised software costs, the New Star acquisition and inflation.

Other expenses increased by £11.8m to £37.0m, of which £3.0m represents costs incurred in relation to the potential acquisition of RidgeWorth Capital Management, Inc. on which the Group terminated discussions in June 2010. In addition, the Group has continued to invest in targeted strategic business development, in particular, relating to the UK Retail business, through marketing, events and promotions, with an impact of £6.2m. The Group has also seen an increase in irrecoverable VAT of £4.0m, partly offset by net foreign exchange gains in FY10 of £1.6m (FY09: £0.3m loss).

The operating margin improved in FY10 to 30.0% (FY09: 27.6%) due to the increase in market levels, a full year of revenue from New Star funds, higher performance and transaction fees and the Group's continued cost control. The compensation ratio remained stable at 44.4% (FY09: 43.9%), in line with remuneration policies linked to improved Group profitability.

Finance costs

Finance costs in FY10 were £8.7m, £0.2m lower than FY09, and continue to include the amortisation of the profit arising from an interest rate swap on debt in December 2008. The unamortised profit on the interest rate swap as at 31 December 2010 stood at £4.1m and will be amortised over the residual term of the debt, which matures on 2 May 2012.

Non-recurring items

There were four non-recurring items in FY10 resulting in a net pre-tax charge of £10.5m (FY09: £47.5m charge), but a post-tax credit of £6.5m (FY09: £35.2m charge) as shown below:

Note1. The goodwill impairment is disallowable for tax purposes.

FSCS interim levy

In November 2010, the FSCS indicated that it would raise an interim levy on investment managers in respect of claims received primarily from investors in Keydata Investment Services Limited (in administration). The Group has provided for this levy in full during 2010.

Goodwill impairment

The goodwill allocated to the New Star Institutional Managers (NSIM) cash generating unit, (a specialised segregated company, formerly part of New Star), as a result of an earn out deal in respect of that company, has been impaired in full as a result of a 50% decline in AUM.

Towry Law International provision release

During the second half of 2010, the majority of a previously recognised product mis-selling provision, relating to legacy Towry Law International products, was deemed no longer required and was released. This resulted in a £5.8m credit in 2010.

Non-recurring tax

During the second half of 2010, HMRC closed enquiries into certain prior year tax filings, resulting in the Group releasing tax provisions of £16.4m.

Tax

The tax charge on recurring profit for the period was £16.1m, giving an effective tax rate of 18.5% (FY09: £13.3m, 21.2%). The effective tax rate on recurring profit is less than the UK corporation tax statutory rate of 28%, primarily as a result of the net favourable effect of different statutory tax rates applying to profits generated by non-UK subsidiaries. In addition, deferred tax balances have been adjusted for the 1% decrease in the UK corporation tax rate effective from 1 April 2011.

AUM and fund flows

Total AUM at 31 December 2010 were £61.6bn, 6% higher than at 31 December 2009 (£58.1bn). The Group generated higher margin net inflows of £2.0bn and net inflows of £0.4bn in Institutional. These net inflows were offset by lower margin outflows from Cash funds (£1.0bn), NSIM (£1.0bn) and Pearl (£1.8bn) and the transfer of the Henderson International Property Fund to Aviva Investors (£0.2bn). Outflows from Pearl will have no material impact on expected future revenues due to the fee compensation arrangements in place with this client.

The chart above shows AUM by asset class and includes cash holdings within products in Fixed Income AUM and fund of fund holdings in Equities AUM. Property asset class AUM excludes £0.4bn of cash holdings (FY09: £0.3bn) and £0.6bn of fund of fund holdings (FY09: £0.6bn) held in Property-related products. The increase in Equities AUM is due to net inflows into Horizon funds and the increase in equity market levels. Fixed Income AUM has fallen mainly due to outflows from Cash funds and Pearl. The increase in Property funds is mainly due to inflows during the year.

Summary of movements in AUM

Notes1. Transfer of the Henderson International Property Fund, acquired as part of New Star, to Aviva Investors

2. Net of commission expense.3. Property AUM at 31 December 2010 excludes £0.8bn of UK Retail funds and £0.4bn of Pearl Property managed funds.4. Private Equity AUM (based on 30 September 2010 valuations) excludes £0.1bn of Pearl Private Equity managed funds.5. The composition of lower margin and Pearl management fees by category is not shown due to client confidentiality.

Horizon and UK Retail funds had net inflows of £1.3bn in FY10. Property net inflows of £1.3bn in FY10 included the purchase of a 50% stake in Westfield Stratford City on behalf of clients. Net inflows into Institutional were more than offset by outflows from lower margin Cash funds and NSIM in FY10.

EPS on underlying profit increased in FY10 as a result of the Group generating higher earnings due to improved market conditions and continued cost control.

We believe the Treating Customers Fairly (TCF) initiative promoted by the FSA is embedded within the culture and procedures of the Group. TCF, among other priorities, is intended to promote fair treatment of customers by regulated firms throughout the product life cycle, from design to post-sales support. We always aim to:

Treating customers fairly

·;  Treat our clients fairly;

·;  Ensure that any information provided in respect of a product is clear, fair and not misleading; and

·;  Align our interests with those of our clients.

Pension schemes

The Group has three types of pension schemes. A defined benefit scheme and a defined contribution scheme, together forming the Henderson Group Pension Scheme (Pension Scheme), and three small unapproved pension top-up schemes for previous executives.

There was a net surplus in the Pension Scheme of £112.5m at 31 December 2010 (FY09: £90.0m). The increase in the Pension Scheme surplus during 2010 is due to better than expected returns on the asset portfolio and a lower assumption for future price inflation, based on the Bank of England's published price inflation curve, set at 3.6% per annum (2009: 3.7% per annum). These increases were partially offset by a lower discount rate used to value the Pension Scheme's liabilities for accounting purposes, set by reference to AA-rated corporate bonds with approximately 20 years' duration, down to 5.4% per annum from 5.6% per annum in 2009.

The liability in respect of the Group's unapproved pension schemes amounted to £6.2m at 31 December 2010 (FY09: £6.1m).

Regulatory requirements

The Group is subject to regulatory oversight and inspection by the FSA and other international regulatory bodies. Consequently, the Group's internal controls, governance, procedures and capital are reviewed on a continuous basis. Both management and the Board of Directors ensure that the Group is compliant with its regulatory obligations at all times. The Group has a waiver from consolidated supervision in place, valid until April 2014. The regulatory capital surplus of the Group under the Parent Financial Holding Company test amounted to £304m at 31 December 2010 (FY09: £323m).

Dividends

The Board is recommending a final dividend for 2010 of 4.65 pence per share, which will bring the total dividend for 2010 to 6.5 pence per share, an increase of 0.4 pence per share from 2009. The proposed final dividend will be paid on 27 May 2011 to shareholders on the register on 6 May 2011.

The Board has adopted a progressive dividend policy and will continue to apply a dividend formula where the interim dividend will be 30% of the total dividend of the previous year, assuming the Group has the resources to fund the dividend.

Gartmore Acquisition

On 12 January 2011, the Group announced that it had reached agreement with the board of Gartmore on the terms of a recommended acquisition by the Group of the entire issued share capital of Gartmore (Gartmore Acquisition). The acquisition will reinforce the Group's position as a diversified fund manager with product strength in traditional long-only and absolute return offerings and will significantly enhance the Group's presence in UK retail asset management. Subject to regulatory and shareholder approvals, the acquisition is expected to complete on 4 April 2011 with integration expected to be completed during 2011.

financial review and key performance indicators

risk management

EFFECTIVE MANAGEMENT OF RISK IS CENTRAL TO ACHIEVING OUR BUSINESS OBJECTIVES

Risk management

We have a framework in place which embeds the management of risk at all levels within the organisation. The framework also ensures that we meet our business objectives without exceeding our risk appetite; and is subject to continuous review to ensure it recognises both new and emerging risks in the business. The Group's risk management and capital disclosures in accordance with chapter 11 of the FSA's Prudential Sourcebook for Banks, Building Societies and Investment Firms (Pillar 3 disclosures) are available on our website at www.henderson.com.

Key risks and their mitigation

The key risks faced by the Group fall into a number of distinct categories and the means adopted to mitigate them are both varied and relevant to the nature of the risk concerned. These are set out below in alphabetical order of the key risks:

Consolidated Income Statement 

For the year ended 31 December 2010

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2010

Consolidated Statement of Financial Position

As at 31 December 2010

The financial statements were approved by the Board of Directors and authorised for issue on 22 February 2011. They were signed on its behalf by:

Rupert Pennant-Rea

Chairman

Consolidated Statement of Changes in Equity

For the year ended 31 December 2010

Consolidated Statement of Cash Flows

For the year ended 31 December 2010

Company Income Statement

For the year ended 31 December 2010

Company Statement of Comprehensive Income

For the year ended 31 December 2010

Company Statement of Financial Position

As at 31 December 2010

The financial statements were approved by the Board of Directors and authorised for issue on 22 February 2011. They were signed on its behalf by:

Rupert Pennant-Rea

Chairman

Company Statement of Changes in Equity

For the year ended 31 December 2010

Company Statement of Cash Flows

For the year ended 31 December 2010

Notes to the Financial Statements - Group and Company

1. Authorisation of financial statements and statement of compliance with IFRS

The Group and Company financial statements for the year ended 31 December 2010 were authorised for issue by the Board of Directors on 22 February 2011 and the respective statements of financial position were signed on the Board's behalf by Rupert Pennant-Rea. Henderson Group plc is a public limited company incorporated in Jersey and tax resident in the Republic of Ireland. The Company's ordinary shares are traded on the LSE and CDIs are traded on the ASX.

The Group and Company financial statements have been prepared in accordance with IFRS and the provisions of the Companies (Jersey) Law 1991.

The principal accounting policies adopted by the Group and by the Company are set out in note 2.

2. Accounting policies

2.1 Significant accounting policies

Basis of preparation

The Group and Company financial statements have been prepared on a going concern basis and on the historical cost basis, except for certain financial instruments that have been measured at fair value.

The Group and Company financial statements are presented in pounds sterling and all values are rounded to the nearest one hundred thousand pounds (£0.1m), except when otherwise indicated.

Basis of consolidation

The consolidated financial statements of the Group comprise the financial statements of Henderson Group plc and its subsidiaries as at 31 December each year.

The financial statements of all the Group's significant subsidiaries are prepared to the same year end date as that of the Company. The accounts of all material subsidiaries are prepared under either IFRS or UK GAAP. Where prepared under UK GAAP, balances reported by subsidiaries are adjusted to meet IFRS requirements for the purpose of the consolidated financial statements.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where there is a loss of control of a subsidiary, the consolidated financial statements include the results for the period of the reporting year during which the Group had control. Non-controlling interests represent the equity interests in subsidiaries not fully held by the Group.

Interests in property closed-ended funds, private equity infrastructure funds, Open-Ended Investment Companies (OEICs) and unit trusts are accounted for as subsidiaries, associates, joint ventures or other financial investments depending on the holdings of the Group and on the level of influence and control that the Group exercises. Strategic shareholder investments in associates, where the Group has the ability to exercise significant influence as well as joint ventures where there is joint control, are accounted for using the equity method.

Income recognition

Fee income and commission receivable

Fee income includes management fees, transaction fees and performance fees (including earned carried interest). Management fees and transaction fees are recognised in the accounting period in which the associated investment management or transaction services are provided. Performance fees are recognised when the prescribed performance hurdles have been achieved and it is probable that the fee will crystallise as a result. The Group's policy is to accrue 95% of the expected fee on satisfaction that the recognition criteria have established a performance fee is due, with the balance recognised on cash settlement. Initial fees and commission receivable are deferred and amortised over the anticipated period in which services will be provided, determined by reference to the average term of investors in each product on which commissions are earned. Other income is recognised in the accounting period in which services are rendered.

Carried interest

The Group is entitled to receive a share of profits (carried interest) from certain private equity funds it manages, once the funds meet certain performance conditions. Where the funds' investments constitute large volumes in relatively illiquid markets, the Group does not deem it appropriate to recognise unearned carried interest based on current fair values. However, where the value of the carried interest will be determined by the future disposal of investments which are quoted on a recognised exchange, then the Group will recognise carried interest to the extent deemed prudent. Carried interest for all other types of investments is only recognised when investments are disposed of and performance conditions are met.

Finance income

Interest income is recognised as it accrues using the effective interest rate method. Dividend income from investments is recognised on the date that the right to receive payment has been established.

Realised and unrealised gains and losses on financial assets

See policy set out under financial instruments on page 23.

Operating leases

All leases are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

Post-employment benefits

The Group provides employees with retirement benefits through both defined benefit and defined contribution schemes. The assets of these schemes are held separately from the Group's general assets in trustee administered funds.

Defined benefit obligations and the cost of providing benefits are determined annually by independent qualified actuaries using the projected unit credit method. The obligation is measured as the present value of the estimated future cash outflows using a discount rate based on AA rated corporate bond yields of appropriate duration. The resulting surplus or deficit of defined benefit assets less liabilities is recognised in the statement of financial position. The Group's expense related to these schemes is accrued over the employees' service lives, based upon the actuarial cost for the accounting period, having considered interest costs and the expected return on assets. Actuarial gains and losses are recognised in the statement of comprehensive income in the accounting period in which they occur. Normal contributions to the defined contribution scheme are charged to the income statement as they become payable in accordance with the rules of the scheme.

Other post-employment benefits, such as medical care and life insurance, are also provided for certain employees. The costs of such benefits are accrued over the employees' service lives, based upon the actuarial cost for the accounting period using a methodology similar to that for defined benefit pension schemes.

Share-based payment transactions

The Group issues equity-settled and cash-settled share-based payments to certain employees. The valuation methodology, assumptions and schemes are disclosed in note 10.

Equity-settled share-based payments are measured at the fair value of the equity instruments at the grant date. The awards are expensed, with a corresponding increase in reserves, on either a straight-line basis or a graded basis (depending on vesting conditions) over the vesting period, based on the Group's estimate of shares that will eventually vest. The expected life of the awards used in the determination of fair value is adjusted for, based on management's best estimate, the effects of non-transferability, exercise restrictions, market performance and behavioural considerations.

The cost of cash-settled transactions is measured initially at fair value at the grant date. The fair value is expensed over the period until vesting, with recognition of a corresponding liability. The liability is remeasured at each reporting date up to and including the settlement date, with changes in fair value recognised in the income statement.

Income and sales taxes

The Group provides for current tax expense according to the tax laws of each jurisdiction in which it operates, using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is provided, using the liability method, on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax assets or liabilities are not recognised if they arise from goodwill, however, they are recognised on separately identified intangible assets. If the deferred tax arises from the initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither the accounting nor taxable profit or loss, it is not accounted for. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax liabilities are not recognised for taxable differences arising on investments in subsidiaries, branches, associates and joint ventures where the Group controls the timing of the reversal of the temporary differences and where the reversal of the temporary differences is not anticipated in the foreseeable future.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and tax laws that have been enacted or substantively enacted by the reporting date.

Income tax relating to items recognised in the statement of comprehensive income is also recognised in that statement and not in the income statement.

Expenses and assets are recognised net of the amount of sales tax, except where the sales tax is not recoverable, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of expenses. Receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable, to the taxation authority, is included separately in receivables or payables in the statement of financial position.

Business combinations

Under the requirements of IFRS 3 Business Combinations, all business combinations are accounted for using the purchase method (acquisition accounting). The cost of a business combination is the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the acquirer. The fair value of a business combination is calculated at the acquisition date by recognising the acquiree's identifiable assets, liabilities and contingent liabilities that satisfy the recognition criteria, at their fair values at that date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree. The cost of a business combination in excess of fair value of net identifiable assets or liabilities acquired, including intangible assets identified, is recognised as goodwill. Any costs incurred in relation to a business combination after 1 July 2009 are expensed when the services are received.

Goodwill

Goodwill arising on acquisitions is capitalised in the consolidated statement of financial position. Goodwill on acquisitions prior to 1 January 2004 is carried at its value on 1 January 2004 less any subsequent impairments.

Goodwill arising on investments in associates and joint ventures is included within the carrying value of the equity accounted investments.

Impairment of goodwill

Goodwill is reviewed for impairment annually or more frequently if changes in circumstances indicate that the carrying value may be impaired. For this purpose, management prepares a valuation for each cash generating unit based on value in use. This valuation is based on the approved forecasts for future years, extrapolated for expected future growth rates, and discounted at the Group's risk adjusted discount rate. Where the value in use is less than the carrying amount, an impairment is recognised. Where goodwill forms part of an entity or sub-group and the entity or sub-group or part thereof is disposed of, the goodwill associated with the entity or sub-group disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal. Any impairment is recognised immediately through the consolidated income statement and cannot subsequently be reversed.

Investment management contracts

Investment management contracts have been identified as a separately identifiable intangible asset arising on the acquisition of subsidiaries. Intangible assets are recognised at the present value of the expected future cash flows of the investment management contracts acquired. The intangible asset is amortised on a straight-line basis over the expected life of the investment management contracts, currently estimated at approximately eight years.

Computer software

The costs of purchasing and developing computer software, together with associated relevant expenditure, are capitalised where it is probable that future economic benefits that are attributable to the assets will flow to the Group and the cost of the assets can be measured reliably. Computer software is included in the statement of financial position as an intangible asset and is recorded initially at cost and then amortised over its expected useful life of between three and five years on a straight-line basis.

Plant and equipment

Plant and equipment is valued at cost and depreciated on a straight-line basis over its useful economic life of between two and 20 years.

An item of plant and equipment is removed upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal of the asset, calculated as the difference between the net disposal proceeds and the carrying amount of the item, is included in the income statement in the year the item is sold or retired.

Investments in subsidiaries

Investments by the Company in subsidiary undertakings are held at cost less any impairment where circumstances indicate that the carrying value may not be recoverable.

Equity accounted investments

Equity accounted investments comprise investments in associates and joint ventures held by the Group. Investments are recognised initially at cost. The investments are subsequently carried at cost adjusted for the Group's share of profits or losses and other changes in comprehensive income of the associate or joint venture, less any dividends or distributions received by the Group. The consolidated income statement includes the Group's share of profits or losses for the year.

Deferred acquisition and commission costs

For investment management contracts, incremental acquisition costs are deferred to the extent that they are recoverable out of future income. This includes initial commission paid by the Group in respect of certain investment products. These costs are amortised over the period in which they are expected to be recovered out of margins from matching revenues from related contracts. At the end of each accounting period, deferred acquisition and commission costs are reviewed for recoverability against future margins from the related contracts in force at the reporting date.

Placement fees are deferred and amortised over the expected investment period of the fund. Where the actual investment period is significantly shorter than expected, the amortisation rate is accelerated accordingly.

Impairment of assets (excluding goodwill and financial assets)

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of the recoverable amount, being the higher of an asset's fair value less cost to sell, and its value in use. In assessing value in use, the estimated future cash flows are discounted to their net present value using a risk adjusted discount rate that reflects a current market assessment of the time value of money and the risks specific to the asset.

Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. An impairment loss is recognised in the income statement.

Financial instruments

Financial assets and liabilities are recognised in the statement of financial position, when the Group becomes party to the contractual provisions of an instrument, at fair value adjusted for transaction costs, except for financial assets classified at fair value through profit or loss, where transaction costs are immediately recognised in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the Group has also transferred substantially all risks and rewards of ownership. Financial liabilities cease to be recognised when the obligation under the liability has been discharged, cancelled or has expired.

Financial assets

Purchases and sales of financial assets are recognised at the trade date, being the date when the purchase or sale becomes contractually due for settlement. Delivery and settlement terms are usually determined by established practices in the market concerned.

Debt securities, equity securities and holdings in authorised collective investment schemes are designated as either fair value through profit or loss, or available-for-sale, and are measured at subsequent reporting dates at fair value. The Group determines the classification of its financial assets on initial recognition. Financial assets classified as fair value through profit or loss comprise the Group's manager box positions in OEICs and unit trusts, which are recorded on a fair value basis. Where securities are designated as fair value through profit or loss, gains and losses arising from changes in fair value are included in the income statement.

For available-for-sale financial assets, gains and losses arising from changes in fair value which are not part of a designated hedge relationship are recognised in the statement of comprehensive income. When an asset is disposed of, the cumulative changes in fair value, previously recognised in the statement of comprehensive income, are taken to the income statement in the current accounting period.

Unrealised gains and losses on financial assets represent the difference between the fair value of financial assets at the reporting date and cost or, if these have been previously revalued, the fair value at the last reporting date. Realised gains and losses on financial assets are calculated as the difference between the net sales proceeds and cost or amortised cost.

Where a fall in the value of an investment is prolonged or significant, this is considered an indication of impairment. In such an event, the investment is written down to fair value and the amounts previously recognised in the statement of comprehensive income in respect of cumulative changes in fair value, are taken to the income statement as an impairment charge.

Trade receivables, which generally have 30-90 day payment terms, are initially recognised at fair value, normally equivalent to the invoice amount and subsequently measured at amortised cost. When the time value of money is material, the fair value is discounted. Provision for specific doubtful debts is made when there is evidence that the Group will not be able to recover balances in full. Balances are written off when the receivable amount is deemed irrecoverable.

Cash amounts represent cash in hand and on-demand deposits. Cash equivalents are short-term highly liquid investments with same day or next day maturity.

Financial liabilities

Financial liabilities including trade payables are stated at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement. A financial liability ceases to be recognised when the obligation under the liability has been discharged, cancelled or has expired.

Derivative financial instruments and hedging

The Group may, from time to time, use derivative financial instruments to hedge against price, interest rate, foreign currency and credit risk. Derivative financial instruments are classified as financial assets when the fair value is positive or as financial liabilities when the fair value is negative.

At the inception of a hedge, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. Such hedges are expected to be effective in achieving offsetting changes in fair value and are assessed on an ongoing basis to determine that they have been effective throughout the reporting periods for which they were designated and are expected to remain effective over the remaining hedge period.

Currency hedges

Forward currency contracts are used to hedge the currency nominal value of certain Euro and US dollar denominated available-for-sale financial assets and are classified as fair value hedges. The change in the fair value of a hedging instrument is recognised in the income statement. The change in the fair value of the hedged item, attributable to the risk being hedged, is also recognised in the income statement, offsetting the fair value changes arising on the designated hedge instrument.

Fair value estimation

The fair value of financial instruments traded in active markets (such as publicly traded securities and derivatives) is based on quoted market prices at the reporting date. The quoted market price used for financial instruments is the current bid price. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques commonly used by market participants, including the use of comparable recent arm's length transactions, discounted cash flow analysis and option pricing models.

Provisions

Provisions which are liabilities of uncertain timing or amount, are recognised when: the Group has a present obligation, legal or constructive, as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. In the event that the time value of money is material, provisions are determined by discounting the expected future cash flows at a discount rate that reflects a current market assessment of the time value of money and, where appropriate, the risks specific to the liability. When discounting, the increase in the provision due to the passage of time is recognised as a finance charge.

Foreign currencies

The functional currency of the Company is GBP. Transactions in foreign currencies are recorded at the appropriate exchange rate prevailing at the date of the transaction. Foreign currency monetary balances at the reporting date are converted at the prevailing exchange rate. Foreign currency non-monetary balances carried at fair value or cost are translated at the rates prevailing at the date when the fair value or cost is determined. Gains and losses arising on retranslation are taken to the income statement, except for available-for-sale financial assets where the unhedged changes in fair value are recognised in the statement of comprehensive income.

On consolidation, the assets and liabilities of the Group's overseas operations whose functional currency is not GBP are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at average exchange rates for the accounting period. Exchange differences arising, if any, are taken through the consolidated statement of comprehensive income to the translation reserve. In the period in which the operation is disposed of, these translation differences are then recognised in the consolidated income statement.

Equity shares

The Company's ordinary equity shares of 12.5 pence each are classified as equity instruments. Equity shares issued by the Company are recorded at the fair value of the proceeds received or the market price at the day of issue. Direct issue costs, net of tax, are deducted from equity through share premium. When share capital is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a change in equity.

Own shares held

Own shares held are equity shares of the Company acquired by or issued to employee benefit trusts. Own shares held are recorded at cost and are deducted from equity. No gain or loss is recognised in the income statement on the purchase, issue, sale or cancellation of the Company's own equity shares.

Dividend recognition

Dividend distributions to the Company's shareholders are recognised in the accounting period in which the dividends are paid and, in the case of final dividends, when these are approved by the Company's shareholders at the AGM. Dividend distributions are recognised in equity.

2.2 Significant accounting judgements, estimates and assumptions

In the process of applying the Group's accounting policies, management has made significant judgements involving estimations and assumptions which are summarised below:

Impairment of goodwill

As explained on page 22, goodwill is reviewed for impairment annually or more frequently if changes in circumstances indicate that the carrying value may be impaired.

The judgement exercised by management in arriving at this valuation includes the selection of market growth rates, fund flow assumptions, expected margins and costs. Further details are given in note 13.

Share-based payment transactions

The Group measures the cost of equity-settled share schemes at fair value at the date of grant and expenses them over the vesting period based on the Group's estimate of shares that will eventually vest.

The liability for cash-settled share schemes represents the estimated transaction cost up to the settlement date, taking into account historical experience of good and bad leavers.

Impairment of available-for-sale financial assets

Available-for-sale financial assets are reviewed for impairment on a semi-annual basis or more frequently as required. In specific cases, where a quoted market price or fair value is not available, significant judgement is exercised by management in determining the extent of impairment, taking into account other available market data. Management also exercises judgement in determining whether a decrease in the value of an asset meets the prolonged or significant tests.

Pension and other post-employment benefits

The costs of and period end obligations under defined benefit pension schemes are determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these schemes, such estimates are subject to significant uncertainty. Further details are given in note 21.

Deferred tax assets

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profits will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

Provisions

By their nature, provisions often reflect significant levels of judgement by management. The nature and amount of the provisions included in the statement of financial position are detailed in note 22 and contingencies not provided for are disclosed in note 32.

Accrued income

Accrued income is based on latest available information and involves a degree of estimation. The most significant estimation relates to the accrual of performance fees as described on page 21.

Consolidation of seed investments

From time to time, the Group provides seed capital on the launch of its products, such as UCITs, SICAVs, hedge funds and other investment vehicles. The seed capital investments vary in duration depending on the nature of the investment, with a typical range of less than one year for Listed Asset products and between three and seven years for Private Equity and Property funds, and represent less than 50% of the underlying fund's equity. Given the limited size and nature of these investments, the Group does not consider itself to have significant influence or control over the underlying funds to merit accounting for them using the equity method or consolidating them in the Group's financial statements.

2.3 Changes in accounting policies

The accounting policies adopted in this Annual Report and Accounts are consistent with those of the previous financial year, except in relation to the following revised and amended standards set by the International Accounting Standards Board (IASB).

IFRS 3 Business Combinations (revised)

This standard, which the Group adopted in 2010, introduced a number of changes to accounting for business combinations which will impact the amount of goodwill recognised on acquisition. The amendments will also impact the reported results in the period that an acquisition occurs as well as future results. During 2010, the Group acquired no new businesses.

IAS 27 Consolidated and Separate Financial Statements (amendment)

This standard requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as an equity transaction and such transactions will no longer give rise to goodwill or gains or losses. Furthermore, on the loss of control of a subsidiary, the retained interest will be remeasured to fair value and therefore impact the gain or loss on disposal

IAS 7 Statement of Cash Flows (effective 1 January 2010), which clairfies the treatment of expenditure recognised as a cash flow from investing activities and IAS 38 Intangible Assets (effective 1 July 2009) which discusses intangible assets as a result of a business combination have been amended due to the revision of IFRS 3. Additionally, IAS 36 Impairment of Assets (effective 1 January 2010) considers the treatment of units of accounting for goodwill. None of these changes has a material impact on the Group's net income or equity.

2.4 Future changes in accounting policies

During the course of the year, the IASB and the International Financial Reporting Interpretations Committee (IFRIC) issued a number of new accounting standards, amendments to existing standards and interpretations. The following new standard is not applicable to these financial statements but is expected to have an impact when it becomes effective. The Group plans to apply this standard in the reporting period in which it becomes effective.

IFRS 9 Financial Instruments proposes revised measurement and classification criteria for financial assets. This standard has a mandatory effective date in 2013. The Group is still assessing the impact on the Group's future financial statements.

3. Income

Group

4. Expenses

Group

4.1 Operating costs

Other expenses include marketing, travel and subsistence, and legal and professional costs. In 2010, other expenses also include £3.0m of costs incurred in relation to the potential acquisition of RidgeWorth on which the Group terminated discussions in June 2010.

4.2 Auditors' remuneration

The above analysis reflects the amounts billed by Ernst & Young LLP in the respective years. Included in the fees payable to the Group's auditors for the audit of the Group's 2010 consolidated financial statements are fees of £30,000 (2009: £30,000) for the audit of the Company's 2010 financial statements.

5. Employee compensation and benefits

5.1 Average number of employees

The average number of full-time employees of the Group was as follows:

The total number of full-time employees at 31 December 2010 was 955 (2009: 939) for the Group and three (2009: three) for the Company.

5.2 Analysis of employee compensation and benefits expense

Employee compensation and benefits expense comprises:

6. Finance costs

Group

An interest rate swap was entered into at the time of the debt issue in May 2007, to swap the fixed coupon of 6.5% per annum into six month sterling LIBOR plus 85.75bps per annum. The swap was unwound on 9 December 2008 and the cumulative fair value adjustment to the debt carrying value, attributable to the hedged interest rate risk up to the date of unwinding, £10.5m, is being amortised over the remaining term of the debt to maturity on 2 May 2012. In 2010, the impact of the amortisation of the profit on unwinding the swap is a reduction in finance costs of £3.1m (2009: £3.1m).

7. Non-recurring items

Group

The non-recurring items recorded in the consolidated income statement comprise the following: