Henderson Group - 2011 Interim Results

HENDERSON GROUP PLC 2011 INTERIM RESULTS

17 August 2011

Financial highlights

1 Gartmore related employee share awards represent the post-acquisition share-based payment charge for awards to Gartmore employees originally made in 2010 and exchanged into Henderson Group plc shares upon Completion on the same terms as the original awards.

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 and reflects the dilutive impact of share options and unconditional awards of shares to employees.

Commenting on the 2011 interim results Chief Executive, Andrew Formica said:

"The first six months of this year have been busy for both the Group and for markets. I am pleased that throughout this period we have produced a solid set of results with revenues increasing by 40%, underlying profit by 80% and EPS by 60%. Whilst the acquisition of Gartmore dominated our efforts in the first half, the Henderson business continued to perform well. The integration of Gartmore is exceeding our expectations. Looking at the recent turmoil in markets we are managing the business on the assumption that conditions remain challenging in the short- to medium-term. However, given our hard work over the past few years which has strengthened our business and client offerings, we are better equipped to weather this volatility. We will invest selectively in our business to ensure that we deliver the best product and best service to our clients whilst we continue to manage our cost base actively."

Henderson Group plc

47 Esplanade

St Helier

Jersey JE1 0BD

Registered in Jersey 

Company No. 101484

ABN 67 133 992 766

Key highlights

·; Underlying profit before tax has increased by 78% to £86.4m in 1H11 (1H10: £48.5m).

·; AUM at 30 June 2011 was £74.4bn (31 December 2010: £61.6bn).

·; Interim dividend increased by 5% to 1.95 pence per share (1H10: 1.85 pence per share).

·; £575m net inflows into Henderson retail in 1H11.

·; Good progress in Henderson and Gartmore absolute return fund flows in 1H11.

·; Good investment performance over one (66%) and three years (67%).

·; Basic EPS on underlying profit increased by 62% to 7.6p in 1H11.

·; Completion of the Gartmore acquisition on 4 April 2011, integration of Gartmore is well advanced.

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Market briefing

Management will present these results on 17 August 2011 at 6.00pm (Sydney time)/9.00am (London time).

Teleconference details

We recommend participants start dialling in 5-10 minutes prior to the start of the presentation. To telephone link-up to the briefing, dial one of the following numbers from 5.50pm (Sydney time)/8.50am (London time):

Webcast details

You can logon to a webcast of the results briefing which will start at 6.00pm (Sydney time)/9.00am (London time). Go to www.henderson.com/group and click on the relevant link on the homepage. An archive of the webcast will be available shortly after the event.

Interim Report and Accounts for the six months ended 30 June 2011 incorporating the requirements of ASX Appendix 4D

The information contained in this document should be read in conjunction with the Henderson Group plc Annual Report and Accounts for the year ended 31 December 2010 and any public announcements made by Henderson Group plc and its controlled entities (the Group) during the period in accordance with the continuous disclosure obligations arising under the Australian Corporations Act 2001 and the Australian Securities Exchange (ASX) Listing Rules. This report includes the interim information required to be provided to the ASX under Listing Rule 4.2A.

Results for Announcement to the Market

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

1 Excluding non-controlling interest of £nil (1H10: £0.7m).

Dividends

On 16 August 2011, the Board of Directors (the Board) declared an interim dividend in respect of the six months ended 30 June 2011 of 1.95 pence per share (1H10: 1.85 pence per share). Henderson Group plc does not offer a dividend reinvestment plan.

A final dividend of 4.65 pence per share was paid on 27 May 2011 in respect of the year ended 31 December 2010.

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.

The Interim Condensed Consolidated Financial Statements included within the Interim Report and Accounts have been subject to an independent review by Ernst & Young LLP.

Directors' Report

The directors of Henderson Group plc (the Directors) present their report for the six months ended 30 June 2011. The Board approved the financial results for the six months ended 30 June 2011 on 16 August 2011.

Directors

The Directors who served during the six months ended 30 June 2011 and up to the date of this report are shown below:

Rupert Pennant-Rea (Chairman)

Andrew Formica (Chief Executive)

Shirley Garrood (Chief Financial Officer)

James Darkins (appointed 4 May 2011)

David Jacob (appointed 4 May 2011)

Gerald Aherne

Duncan Ferguson

Tim How

Robert Jeens

As previously announced, the appointment of Kevin Dolan is subject to obtaining approval from the UK Financial Services Authority under its approved persons regime. All Directors are expected to stand for reappointment at the 2012 Annual General Meeting.

Business review and results

The Group's results for the six months ended 30 June 2011 are shown in the Interim Condensed Consolidated Income Statement on page 16. A review of the six months ended 30 June 2011 and future developments is covered in the Business Review on pages 7 to 14.

Rounding

In accordance with the Australian Securities and Investments Commission Class Order 98/0100, amounts in the Interim Report and Accounts have been rounded to the nearest £0.1m sterling, unless stated otherwise.

Directors' declaration

In the opinion of the Directors:

·; the Interim Condensed Consolidated Financial Statements set out on pages 16 to 34:

- give a true and fair view (as set out in section 305 of the Australian Corporations Act 2001) of the Group's consolidated financial position as at 30 June 2011 and of its performance for the six months ended on that date; and

- have been prepared in accordance with the Disclosure and Transparency Rules of the FSA which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed; and

·; there are reasonable grounds to believe that the Group will be able to pay its debts as and when they fall due.

Signed in accordance with a resolution of the Board:

Andrew Formica Shirley Garrood

Chief Executive Chief Financial Officer

16 August 2011 16 August 2011

Statement of Directors' Responsibilities

The Directors confirm that to the best of their knowledge, in relation to the Interim Condensed Consolidated Financial Statements, that:

·; the Interim Condensed Consolidated Financial Statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the European Union;

·; the Interim Report and Accounts include a fair review of the information required by Disclosure and Transparency Rule 4.2.7R, being an indication of important events that have occurred during the first six months of the current financial year, and their impact on the Interim Condensed Consolidated Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·; the Interim Report and Accounts include a fair review of the information required by Disclosure and Transparency Rule 4.2.8R, being disclosure of related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period and of any changes in the related party transactions described in the last annual report that could have a material effect on the financial position or performance of the Group in the first six months of the current financial year.

Signed in accordance with a resolution of the Board:

Andrew Formica Shirley Garrood

Chief Executive Chief Financial Officer

16 August 2011 16 August 2011

Business Review

The Board and Executive Committee use a number of key indicators to monitor the performance of the Group. The trend of these key performance indicators is set out below:

Investment performance

Fixed income and equity funds continued to perform well with 82% and 75% of assets, respectively, achieving or beating their benchmarks over three years.

Fee margin

Total fee margin improved in 1H11 due to higher transaction and performance fees and three months revenue from Gartmore. The improving management fee margin illustrates the shift from institutional to retail business along with the acquisition of Gartmore. Net margins have improved as underlying profits benefit from increases in both fee and operating margins.

Operating margin and compensation ratio

Operating margin improved in 1H11 to 36.1% from 30.0% in FY10 due to the impact of the Gartmore acquisition and associated synergies, an increase in market levels, higher performance fees earned and the Group's continued cost control. The compensation ratio decreased to 43.5% in 1H11 from 44.4% in FY10, as the Group realised synergies from the Gartmore acquisition. However, the impact was reduced by an increase in performance fee bonuses as higher gross performance fees were earned in the period.

Fund flows excluding Phoenix

The categorisation of fund flows changed with effect from 1 January 2011 and therefore no prior period comparatives are available.

Net inflows into Henderson retail funds of £0.6bn in 1H11, were partly offset by £0.3bn of net outflows from Gartmore retail funds. The Henderson institutional net outflows of £2.6bn in 1H11 were mainly from long-standing lower margin mandates where clients have, despite strong performance, rebalanced their portfolios.

Earnings per share on underlying profit

EPS on underlying profit increased in 1H11, due to the 83% increase in underlying profit after tax versus 1H10 offset by the issue of shares to fund the Gartmore acquisition.

Treating customers fairly

The quality of our customers' experience of investing with Henderson is our highest priority. We continue to devote significant resources and time to understanding our customers' needs and enhancing the products and services we offer to ensure we treat our customers fairly. In line with the FSA's current thinking on product suitability, we remain firmly focused on all aspects of governance throughout the life cycle of all our products.

Consolidated financial results

1 Gartmore related employee share awards represent the post-acquisition share-based payment charge for awards to Gartmore employees originally made in 2010 and exchanged into Henderson Group plc shares upon Completion on the same terms as the original awards.

2 Where appropriate ratios and metrics have been annualised.

3 Employee compensation and benefits divided by total income.

4 Based on underlying profit before tax.

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

6 Based on weighted average number of shares in issue less weighted average number of own shares held during the period and reflects the dilutive impact of share options and unconditional awards of shares to employees.

7 Attributable to equity holders of the parent.

8 Asset weighted of funds measured over one and three years to 30 June or 31 December, as appropriate (except Property funds in 1H11 where FY10 data is used and in 1H10 where FY09 data used).

The acquisition of Gartmore Group Limited and its controlled entities (Gartmore)

The acquisition of Gartmore completed on 4 April 2011 at a cost of acquisition of £365.4m, adjusted for Gartmore related employee share awards. Gartmore's AUM at Completion was £15.7bn (£15.3bn net of notified redemptions). This acquisition has enhanced the Group's scale and distribution capability in the UK retail funds market, providing a significant platform for future organic growth. The retention of Gartmore's assets remains ahead of expectations; at mid-year some 91% of the 31 December 2010 AUM had been retained.

In line with guidance, we remain confident that the operating margin of the acquired Gartmore business will exceed 50%. The acquisition remains on track to deliver significant enhancement in underlying earnings per share in 2011. Integration of the Gartmore business is well advanced and has progressed smoothly.

Interim result

Underlying profit before tax in 1H11 was £86.4m, an increase of 78% on 1H10 (£48.5m). Recurring profit before tax was £48.6m compared to £41.6m in 1H10. Non-recurring items totalled £51.7m in 1H11 (1H10: £nil).

Revenue and fee margins

Total fee income increased to £254.5m. This increase was primarily due to higher:

·; management fees - three months revenue on Gartmore assets and the impact of higher market levels;

·; transaction fees - fees earned on UK retail funds, including the impact of Gartmore; and

·; performance fees - fees earned on institutional, offshore absolute return and Henderson SICAV funds.

Total fee margin increased to 74.9bps in 1H11, primarily due to higher transaction and performance fees and improving management fee margins following the Gartmore acquisition. Net margins increased by 52% in 1H11, as underlying profits benefited from increases in both fee and operating margins. 

Operating costs

The main components of operating costs are shown in the table below:

The increase in employee compensation and benefits was due to higher performance fees bonuses earned, the impact of the Gartmore acquisition, improved Group profitability and, to a lesser extent, higher fixed staff costs, reflecting salary pressure and additional headcount post the Gartmore acquisition. The compensation ratio reduced from 44.5% in 1H10 to 43.5% in 1H11, as the synergies gained through the Gartmore acquisition are partially offset by the performance fee bonuses paid on higher gross performance fees.

Investment administration costs increased, principally due to the acquisition of Gartmore funds. Office expenses increased largely due to higher building insurance costs and the impact of inflation. The three largest components of other expenses are marketing, legal and travel costs. The Group has continued to invest in targeted strategic business development, in particular, relating to the UK retail business, through marketing, travel, events and promotions.

Finance costs

Finance costs increased due to the Group issuing new senior notes in March 2011, repayable in 2016 (2016 Notes).

Non-recurring items

Non-recurring costs in 1H11 related to the integration of Gartmore. These integration costs include staff related expenses, legal and professional fees, transition of outsourced retail and investment operations and costs relating to fund mergers and office relocation and reorganisation. As stated at the time of the acquisition announcement, the Group expects total integration costs of approximately £70m before tax in FY11.

Tax

The tax charge on recurring profit for the period was £7.5m, giving an effective tax rate of 15.4% (1H10: £8.6m, 20.7%). The effective tax rate on recurring profit is less than the current pro-rata UK corporation tax statutory rate of 26.5%, as a result of the net favourable effect of different statutory tax rates applying to profits generated by non-UK subsidiaries and that the Gartmore related share scheme awards and the amortisation of investment management contracts attract an accounting tax credit at the full UK tax rate.

Assets under management

Total AUM increased £12.8bn (21%) from 31 December 2010. The acquisition of Gartmore added £15.7bn at Completion, whilst the transfer of the Henderson Liquid Assets Fund (HLAF) to DB Advisors in February 2011 reduced AUM by £1.5bn. During 1H11, favourable market and foreign exchange rate movements of £1.4bn and £575m net inflows into Henderson retail, were offset by net outflows from Gartmore retail of £290m, Gartmore institutional of £148m, Henderson institutional of £2.6bn and Phoenix of £407m.

Summary of movements in AUM

Summary of investment performance

Henderson's overall investment performance1, across asset class and product type remains good. Over one and three years, 66% and 67% of funds, respectively, outperformed. Within this, 54% of equity funds and 98% of fixed income funds outperformed over one year and 75% and 82% over three years. Final FY10 Property performance showed 66% of funds outperforming over one year, 1% higher than previously reported, following the receipt of final IPD benchmark data.

Business management

The Group is a single segment asset management business governed by the Board, which has sole discretion for setting the strategic direction of the business. Whilst the Group's Executive Directors and key management are responsible for, and have discretion over, the day-to-day management of the business and support functions, all strategic, financial management and key operational decisions are taken centrally by the Board. The Board receives reports across product lines, distribution channels and geographic regions, and monitors financial performance and determines the allocation of capital centrally.

Business strategy

The Group continues to focus on its strategy of growing its existing business through organic growth and, where there are attractive opportunities, through acquisitions and partnerships in markets where the Group is looking to build its distribution or investment capabilities. During 1H11, the Group acquired Gartmore. This acquisition reinforced the Group's position as a diversified asset manager, enhanced the offering of its traditional long-only and absolute return funds and significantly strengthened its presence in the UK retail market.

Investment Management (previously known as Global Listed Assets)

Notwithstanding the volatility in markets in 1H11, we experienced good net inflows into the Henderson UK retail fund range, including the Henderson and Gartmore absolute return funds. The most notable flows in the Henderson UK retail fund range were into Credit Alpha, Strategic Bond, Long Dated Credit and multi-manager funds. In the offshore absolute return funds most of the net flows were into Japan, Agricultural and Asia Pacific. Net flows in the Henderson retail SICAV range, although net positive in 1H11, were held back by eurozone concerns and ensuing market volatility. Net flows in our US Mutuals range turned positive in 1H11 after a slow start at the beginning of the year with the Global Equity Income Fund recording most of the inflows. Investment performance in our 10 year old flagship fund, the International Opportunities Fund, was good in 1H11, leaving the fund in the top quartile year to date, and over three and five years though one year performance remains disappointing.

Institutional net outflows of £2.7bn, excluding Phoenix, are mainly from long-standing, lower margin mandates where clients have, despite strong performance, rebalanced their portfolios. The institutional pipeline is flat at period end.

In line with its strategy the Group exited two of its lower margin businesses. The cash business was transferred to DB Advisors and, as a result, the Group's AUM reduced by £1.5bn in 1H11. On 1 July 2011, the Group sold its shareholding in WorldInvest Management Ltd (WorldInvest) to Connor, Clark & Lunn UK Limited (CCL). WorldInvest owns 100% of the share capital of New Star Institutional Managers Limited (NSIM) and, therefore, the Group's interest in NSIM with £1.1bn of AUM has been disposed of and transferred to CCL. The impact on the Group's profit in future periods is negligible.

Property

The net inflows of £197m relate largely to an investment, known as the 'Leadenhall Triangle', on behalf of the Central London Office funds. Property client commitments remained largely unchanged at 30 June 2011 at £1.5bn as, although some client commitments were invested, we raised additional commitments during the period. We expect to continue raising new equity and investing client commitments in 2H11. Furthermore, offsetting these investments, we expect to continue selling some assets as we realise successful exits for our clients. The combined effect of all this activity is that net flows are expected to be modestly positive in 2H11.

Private Equity

The Private Equity business continues to perform well, with positive performance across its funds. The first Asia fund is delivering a consistent net IRR of approximately 16%, while the second Asia fund is now fully invested having completed its final investment during 1H11. Henderson Private Equity Investment Trust increased its price by 24% during 1H11, due to the Fund of Funds team's measured and orderly realisation of the portfolio, a strategy which commenced in September 2010.

As previously disclosed, the infrastructure fund, Henderson PFI Secondary Fund II L.P. (Fund II), had a difficult period during the global financial crisis of 2008 and 2009 culminating in concerns raised by our clients. Recent correspondence indicates that some clients remain concerned. We are still confident that the Group has no legal liability. Looking at the funds themselves, over 2010 and 1H11 the Infrastructure funds have made significant progress in improving performance through the implementation of a number of initiatives. Henderson PFI Secondary Fund L.P. and Fund II are currently valued at 1.2x2 and 0.6x2 cost, respectively, corresponding to a 13% and 49% increase in value over the last 12 months, respectively. The values represent a continued improvement in performance.

1 Investment performance for one and three years include Gartmore funds.

2 As at 30 June 2011, based on 31 March 2011 valuations.

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 (the Pension Scheme), the Gartmore Pension Scheme which is a defined benefit scheme and a number of smaller unapproved pension top-up schemes for previous executives.

There was a net surplus in the Pension Scheme of £135.9m at 30 June 2011 (31 December 2010: £112.5m). The increase in the Pension Scheme surplus during 1H11 is principally due to two factors. First, the move from the Retail Price Index (RPI) to the Consumer Price Index (CPI) as the basis for future revaluation of deferred and active pensions. Secondly, there was an increase in the 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, to 5.6% per annum from 5.4% per annum in 2010.

Gartmore operated a pension scheme (the Gartmore Pension Scheme) which is fully funded and is closed to new members and future accrual. The Group is uncertain whether it can derive future economic benefit from the Gartmore Pension Scheme through reduced contributions or return of assets and therefore the surplus has not been recognised by the Group as at 30 June 2011. As at 30 June 2011, the surplus stood at £57.5m (31 December 2010: £56.9m).

The liability in respect of the Group's unapproved pension schemes amounted to £6.6m at 30 June 2011 (31 December 2010: £6.2m).

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 ensure that the Group is compliant with its regulatory obligations at all times. The Group has a waiver from consolidated supervision in place, renewed on completion of the Gartmore acquisition and valid until April 2016. The regulatory capital surplus of the Group under the Parent Financial Holding Company test amounted to £629m at 30 June 2011 (31 December 2010: £304m). The increase in the capital surplus is as a result of shares issued in respect of the Gartmore acquisition and regulatory capital requirements.

Related party transactions

No related party transactions that materially affect the financial position or performance of the Group have taken place during the period, and there have been no changes in the related party transactions described in the last annual report that could have a material effect on the financial position or performance of the Group in the six months ended 30 June 2011.

Dividends

The Board has declared an interim dividend of 1.95 pence per share (1H10: 1.85 pence per share), in line with the stated formula where the interim dividend equates to 30% of the total dividend for the previous year, assuming the Group has sufficient resources to fund the dividend. The interim dividend will be paid on 23 September 2011 to shareholders on the register on 2 September 2011.

Outlook

We expect the recent market turmoil to continue in the short- to medium-term, which will dampen investor appetite. That said, we will invest selectively in our business to ensure that we deliver the best product and best service to our clients whilst we continue to manage our cost base actively.

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 the 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.

Risk management

The key risks within the Group fall into a number of distinct categories and the means adopted to mitigate them are both varied and relevant to the particular risk concerned. Information regarding the key risks and their mitigation in 2010 is set out in the Group's Annual Report and Accounts as at 31 December 2010 on pages 17 to 19 and the related governance framework is set out on pages 29 and 30. These risks and our response to them have not changed significantly from that described in the Group's Annual Report and Accounts with the exception of the risks associated with the acquisition of Gartmore and its subsequent integration, which are described below.

On 12 January 2011, the Group announced the terms of the proposed acquisition of Gartmore Group Limited which was subsequently completed on 4 April 2011. The acquisition of Gartmore was financed by the issue of Henderson Group plc shares. Prior to Completion, the Group issued £150m of senior, unrated, fixed rate notes which along with the Group's existing cash and borrowings was used to repay Gartmore's debt of £245.4m and extinguish £32.4m of the Group's existing 2012 Notes at a premium of £0.9m. Bank facilities were also arranged prior to the deal being announced.

The acquisition and subsequent integration of Gartmore did increase some of the risks outlined in the Group's Annual Report and Accounts, in particular 'Acquisition', 'Key personnel' and 'Operational' risks. Prior and subsequent to the announcement of the proposed acquisition, senior management has been active in planning and implementing the integration and therefore identifying and mitigating risks. A governance structure was established with regular reporting to an acquisition and integration steering committee and also to the Executive Committee, the Board Risk Committee and the Board itself. The main operational integration occurred over the extended Easter weekend. This integration was successful, with no material integration problems. Turnover of key staff in both organisations has been minimal and the organisation stress caused by the integration has reduced considerably since the end of April.

Independent Review Report to the members of Henderson Group plc

Introduction

We have been engaged by Henderson Group plc (the Company) to review the Interim Condensed Consolidated Financial Statements in the Interim Report and Accounts for the six months ended 30 June 2011 which comprises the Interim Condensed Consolidated Income Statement, Interim Condensed Consolidated Statement of Comprehensive Income, Interim Condensed Consolidated Statement of Financial Position, Interim Condensed Consolidated Statement of Changes in Equity, Interim Condensed Consolidated Statement of Cash Flows and the notes to the Interim Condensed Consolidated Financial Statements from pages 16 to 34. We have read the other information contained in the Interim Report and Accounts and considered whether it contains any apparent misstatements or material inconsistencies with the information in the Interim Condensed Consolidated Financial Statements.

This report is made solely to the Company in accordance with guidance contained in the International Standard on Review Engagements 2410 (UK and Ireland), "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The Interim Report and Accounts is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report and Accounts in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The Interim Condensed Consolidated Financial Statements included in this Interim Report and Accounts has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the Interim Condensed Consolidated Financial Statements in the Interim Report and Accounts based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

On the basis of our review, nothing has come to our attention that causes us to believe that the Interim Condensed Consolidated Financial Statements in the Interim Report and Accounts for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Ernst & Young LLP

London

16 August 2011

Interim Condensed Consolidated Financial Statements

Interim Condensed Consolidated Income Statement

For the six months ended 30 June 2011

Interim Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2011

Interim Condensed Consolidated Statement of Financial Position

As at 30 June 2011

Approved by the Board on 16 August 2011.

Interim Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2011

Interim Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2011