Henderson Group - 2012 Interim Results

HENDERSON GROUP PLC 2012 INTERIM RESULTS

14 August 2012

Financial highlights

1 Total fee income less operating expenses 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 options and unconditional awards.

Commenting on the 2012 interim results Chief Executive, Andrew Formica said:

"In a volatile time for all markets, these financial results are solid. On the positive side, profits and margins have held up; and, crucially for the long term, two-thirds of our funds have matched or beaten their benchmarks over three years. Against these encouraging achievements, we have seen net outflows across our business.

Reviewing this, and in line with our formula for the interim dividend, the Board has approved an increased payment of 2.1p per share.

Looking ahead, we continue to invest in our fund manager and distribution talent, review the number and variety of funds, and control costs across the business: measures all designed to provide high quality service for our clients and to maintain our financial strength."

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 of £79.0m.

·; Management fee margin at 54.9bps.

·; Operating margin at 36.8%.

·; AUM £63.6bn at 30 June 2012.

·; Diluted underlying EPS at 6.6p.

·; Good investment performance over three years; 66% of funds meet or exceed benchmarks.

·; Interim dividend of 2.1 pence per share.

·; Repaid 2012 loan notes in full - £142.6m.

To view the full details of the 2012 Interim Results, paste the following link into your web browser:

http://www.rns-pdf.londonstockexchange.com/rns/9306J_1-2012-8-13.pdf 

To view the full details of the 2012 Interim Results Presentation, paste the following link into your web browser:

http://www.rns-pdf.londonstockexchange.com/rns/9306J_-2012-8-13.pdf 

Market briefing

Management will present these results on 14 August 2012 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 2012

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 2011 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:

Dividends

On 13 August 2012, the Board of Directors (the Board) declared an interim dividend in respect of the six months ended 30 June 2012 of 2.1 pence per share (1H11: 1.95 pence per share). Henderson Group plc does not offer a dividend reinvestment plan.

A final dividend of 5.05 pence per share was paid on 25 May 2012 in respect of the year ended 31 December 2011.

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 net tangible assets per ordinary share at 30 June 2011 have been restated for the finalisation of acquisition accounting in accordance with IFRS 3, Business Combinations.

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

Consolidated financial results

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

2 Employee compensation and benefits divided by total income.

3 Net margin calculated on underlying profit before 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 30 June 2012.

Business Review

At the start of this year, I was concerned about the challenging outlook for global economic growth and, consequently for financial markets, particularly in our core European markets. Politicians and policy makers continue to struggle with the eurozone crisis. My concerns, unfortunately, have been justified.

In these circumstances we have continued to build on our strengths - the depth and diversity of our business, providing clients with good investment performance and service, maintaining our discipline on costs and improving operational efficiency - whilst, enhancing and strengthening our product offering, distribution capabilities and opening new distribution channels; all in a manner closely aligned with our strategy.

As a result, despite the weakness in the economies in which we operate we are better positioned strategically and continue to produce strong financial results for our shareholders whilst retaining the ability to invest in our business.

Our UK Retail business is well-positioned for the post Retail Distribution Review (RDR) world with both distribution platforms and Independent Financial Advisers (IFA). We have formed a strategic alliance with Sesame Bankhall Group, the largest IFA network in the UK, and under the 'Optimum' banner, we have launched a range of multi-asset, multi-manager funds which can be blended and rebalanced to create bespoke, risk-rated portfolios for their clients. These funds are being managed by our highly rated multi-manager team. We have also launched our RDR compliant 'unbundled' share classes and our product range has been rationalised to present a clearer fund range to our clients. Our closed-ended business, with its well-established range of Investment Trusts, should also be a natural beneficiary of these developments. For the six months under review we have had solid gross flows into our UK retail range, although net flows have been below our expectations, unsurprisingly, given the extent of portfolio repositioning.

In our US business, consistent with our strategy, we have diversified our fund offerings to reduce our dependency on European equities and I am particularly pleased with the successful launch of our All Asset Fund in the first quarter and more recently, our Dividend and Income Builder Fund. Both funds draw on the expertise and successful investment track records of our existing fund managers. We anticipate continued demand for global equities and have strengthened the team with the appointment of Matt Beesley, a highly respected fund manager who has revitalised our global equity proposition.

Our European SICAV fund range continues to have excellent investment performance and although net inflows have been inevitably constrained with the eurozone crisis, it remains an important strategic strength of our business which should prove rewarding when investor appetite returns.

Along with the industry, our absolute return funds were tested by the volatility in markets. Outflows continued in 2012 due to some underperformance and the lower demand for Europe, Japan and Asian strategies. This remains a priority growth area for us and we continue to focus on strengthening our current range, developing new products and diversifying into other strategies.

The Institutional business investment performance continued to be strong and we saw outflows slow in the first half. However, we are impacted by clients rebalancing their portfolios into global mandates or where clients have been subject to pension buy-out arrangements. That said, we are encouraged by the pipeline of client commitments, ongoing strong investment performance and positive consultant ratings in our Institutional business.

The Property business has had a productive and busy start to the year investing client money in Germany, Austria and France, with new fund launches, opening an office in Sweden, becoming investment adviser to our first Chinese joint venture, entering into a strategic alliance in Italy and more recently acquiring Horizon Investment Management France SAS. A large portion of our Property assets are in long-term closed ended funds which expire periodically and we are pleased to recently have agreed with our clients a seven year extension for our flagship UK Shopping Centre Fund.

In our infrastructure business, the valuation of Fund I continued to improve in line with our expectations. However, the overall valuation of Fund II, as at 31 March 2012, declined slightly despite good trading at John Laing. Our Asian and Fund of Funds businesses continued to perform well.

As I said at the outset, we continue to deliver solid financial results in these challenging markets whilst being able to strengthen, reposition and invest in the business for the benefit of our shareholders, clients and staff as well as all our other stakeholders.

Andrew Formica

Chief Executive

13 August 2012

Financial Review

Financial performance

The Group achieved an underlying profit before tax of £79.0m, a reduction compared to 1H11 mainly as a result of reduced performance fees being earned. Continued cost control and the impact of lower variable staff costs increased the operating margin to 36.8%. These factors and the increase in shares in issue due to the Gartmore acquisition, partly offset by a lower tax charge, combined to reduce the diluted earnings per share on underlying profit after tax to 6.6 pence per share.

Total income and fee margins

Total income decreased to £229.1m, driven by a reduction in performance fees earned compared to 1H11, principally on Hedge and European SICAV products. Management fees increased to £178.8m, due to an extra quarter of Gartmore, partly offset by the impact of lower equity markets and net fund outflows in 2H11 and 1H12. Transaction fees were marginally down at £23.3m. Finance income increased to £4.8m as a result of profit on disposal of certain seed investments held by the Property business. The reduction in performance fees has resulted in a drop in both the net margin and total fee margin compared to 1H11. The impact of higher margin business acquired from Gartmore and outflows from lower margin Institutional business has helped improve the management fee margin in 1H12 to 54.9bps.

Total operating expenses

Total operating expenses decreased to £141.8m, helped by a significant reduction in variable staff costs driven by lower performance fees earned and other incentive payments being reduced given the challenging market conditions. Fixed staff costs increased to £51.8m due to an extra quarter of Gartmore and higher pension costs following a decision by the trustee of the Henderson Group Pension Scheme to reduce the asset allocation from return seeking to risk reducing which has resulted in a lower expected return on assets. The compensation ratio improved to 39.2% reflecting the fall in variable staff costs. Other operating expenses increased slightly in 1H12, reflecting an additional quarter of Gartmore costs and a normalised run rate for information technology costs.

Pension schemes

In April 2012, the trustee of the Gartmore Pension Scheme, a defined benefit pension scheme closed to future service accrual and acquired by the Group as part of the Gartmore acquisition in April 2011, entered into a buy-in insurance agreement with Pension Insurance Corporation that covers the accrued pension of all members of the scheme. As a result, the Group has reduced its exposure to the risks associated with the scheme.

Tax

The tax charge on underlying profit was £8.0m, resulting in an effective tax rate of 10.1%. The effective tax rate on underlying profit is less than the pro rata UK corporation tax rate of 24.5%, primarily as a result of the difference in tax rate on earnings generated overseas and the recognition of previously unrecognised tax losses.

AUM and fund flows

Total AUM at 30 June 2012 were £63.6bn, a reduction of £0.7bn from 31 December 2011 as shown on page 8. During 1H12, the Group experienced net fund outflows of £2.1bn as clients continued to shift out of risk assets given concerns over economic growth and the eurozone debt crisis. Market and FX movements during the year resulted in an increase of £1.4bn.

Investment performance

Investment performance of the Group's funds continues to remain good over three years, and one year figures showed improvement compared to 31 December 2011. Overall, 61% and 66% of funds exceeded their benchmarks over one and three years respectively. Looking at the various asset classes, 58% and 66% of equity funds and 78% and 98% of fixed income funds were either achieving or beating their benchmarks for one year and three years respectively. Property performance as at 31 December 2011 was 48% and 23% for one year and three years respectively, where in particular the lack of economic growth in the UK and Europe continued to impact performance.

Liquidity and capital resources

The Group's business continued to generate positive operating cash flows during the period with net cash flows from operating activities totalling £44.7m (including the manager's dealing account). The Group repaid its 2012 loan notes in full on 2 May 2012. The regulatory capital surplus of the Group under the Parent Financial Holding Company Test amounted to £661m at 30 June 2012, £623m at 31 December 2011 and £629m at 30 June 2011.

Dividends

The Board has declared an interim dividend of 2.1 pence per share (1H11: 1.95 pence per share). The interim dividend will be paid on 21 September 2012 to shareholders on the register on 31 August 2012.

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 and Accounts that could have a material effect on the financial position or performance of the Group in the six months ended 30 June 2012.

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.

Summary of movements in AUM

1 Includes £183m of net inflows as a result of the Group's acquisition of Horizon Investment Management France SAS.

2 Private Equity funds' AUM is based on 31 March 2012 valuations.

3 Private Equity AUM and net management fees are excluded from this analysis due to the confidential nature of these fee arrangements.

4 Calculated including all Phoenix AUM and revenue.

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 is set out in the Group's 2011 Annual Report and Accounts on pages 18 and 19 and the related governance framework is set out on pages 30, 37 and 38. These risks and the Group's response to them have not changed significantly from that described in the Group's 2011 Annual Report and Accounts.

Throughout 2011, the Group evaluated eurozone developments and put in place heightened monitoring procedures and contingency plans. The effects of the eurozone debt crisis have continued into 2012 and we have maintained our close monitoring of the situation, with particular focus on the oversight of counterparties, with respect to exposures and limits, evaluation of specific eurozone stress indicators and heightened monitoring of euro denominated assets. Contingency plans are periodically reviewed to ensure that scenarios are current and that appropriate governance structures and procedures are in place, should an event occur.

Directors' Report

The directors of Henderson Group plc (the Directors) present their report for the six months ended 30 June 2012. The Board approved the financial results for the six months ended 30 June 2012 on 13 August 2012.

Directors

The Directors who served during the six months ended 30 June 2012 and up to the date of this report, unless otherwise stated are shown below:

Rupert Pennant-Rea (Chairman)

Andrew Formica (Chief Executive)

Shirley Garrood (Chief Financial Officer)

James Darkins

David Jacob

Gerald Aherne (resigned 2 May 2012)

Kevin Dolan

Duncan Ferguson

Tim How

Robert Jeens

All current Directors are expected to stand for reappointment at the 2013 Annual General Meeting.

Business review and results

The Group's results for the six months ended 30 June 2012 are shown in the Interim Condensed Consolidated Income Statement on page 13. A review of the six months ended 30 June 2012 and future business developments are covered in the Business and Financial Reviews on pages 6 to 8.

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 13 to 27:

- 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 2012 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

13 August 2012 13 August 2012

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

13 August 2012 13 August 2012

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 2012 which comprise 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 being notes 1 to 15. 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 are the responsibility of, and have 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 the Interim Report and Accounts have 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 2012 are 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

13 August 2012

Interim Condensed Consolidated Income Statement

For the six months ended 30 June 2012

Interim Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2012

Interim Condensed Consolidated Statement of Financial Position

As at 30 June 2012

Approved by the Board on 13 August 2012.

Interim Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2012

Interim Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2012

Notes to the Interim Condensed Consolidated Financial Statements

1 Corporate information

Henderson Group plc (the Company) 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 CHESS Depositary Interests are traded on the ASX.

The Interim Condensed Consolidated Financial Statements of the Group for the six months ended 30 June 2012 were authorised for issue by the Board on 13 August 2012.

The results for the six months ended 30 June 2012 and the six months ended 30 June 2011 are unaudited but have been reviewed by the auditors, Ernst & Young LLP. The condensed comparative figures for the full year ended 31 December 2011 have been taken from the Henderson Group plc Annual Report and Accounts. The auditors have reported on the 2011 financial statements in the Annual Report and Accounts and their report was unqualified. Henderson Group plc's 2011 Annual Report and Accounts have been filed with the Jersey Financial Services Commission Companies Registry. The Interim Condensed Consolidated Financial Statements do not constitute statutory accounts.

2 Basis of preparation and significant accounting policies

Basis of preparation

The Interim Condensed Consolidated Financial Statements for the six months ended 30 June 2012 have been prepared in accordance with IAS 34, Interim Financial Reporting as adopted by the European Union.

The Interim Condensed Consolidated Financial Statements do not include all the information and disclosures required in the annual financial statements, and therefore should be read in conjunction with Henderson Group plc's 2011 Annual Report and Accounts, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

The Directors are satisfied that the Group has and will maintain sufficient financial resources to enable it to continue operating in the foreseeable future and, therefore, they continue to adopt the going concern basis in preparing the Interim Report and Accounts.

Significant accounting policies

The accounting policies adopted in the preparation of the Interim Condensed Consolidated Financial Statements are consistent with those followed in the preparation of Henderson Group plc's 2011 Annual Report and Accounts. The 30 June 2011 comparatives have been restated for the finalisation of acquisition accounting in accordance with IFRS 3, Business Combinations.

3 Segmental information

Group fee income and non-current assets

Henderson is an asset manager, operating throughout Europe with operations in North America and Asia. It manages a broad range of actively managed investment products for institutional and retail investors, across multiple asset classes, including equities, fixed income, property and private equity. Management operates across product lines, distribution channels and geographic regions. All investment product types are sold in most, if not all, of these regions, and are managed in various locations.

Information is reported to the chief operating decision maker, being the Board, on an aggregated basis. Strategic and financial management decisions are determined centrally by the Board and, on this basis, the Group is a single segment asset management business.

Entity-wide disclosures

Gross fee income and commissions by product

Geographic information

Gross fee income and commissions from clients