12th Sep 2005 07:19
F&C Asset Management PLC12 September 2005 This announcement and the information contained herein are not for release, publication or distribution in whole or in part in or into the United States, Canada, Australia or Japan To: London Stock ExchangeAttention: RNSFrom: F&C Asset Management plc (the "Company")Date: Embargoed until 7am on 12 September 2005 Extract from Interim Results for the six months to 30 June 2005 (unaudited) The interim results of the F&C Asset Management plc Group ("F&C") have beenprepared in accordance with accounting policies the directors expect to apply atyear end. The comparative results for the year to 31 December 2004 and 30 June2004 have also been restated to comply with those International FinancialReporting Standards ("IFRS") the directors expect to apply at 31 December 2005. The IFRS that will be effective (or available for early adoption) in the annualfinancial statements for the year ending 31 December 2005 are still subject tochange and to additional interpretations and therefore cannot be determined withcertainty. Accordingly, the accounting policies for 2005 will be determinedfinally only when the annual financial statements are prepared. Financial Highlights • Underlying earnings per share increase 21.2 per cent to 7.9 pence. • Operating margin of 42.2 per cent. • Revenue margin of 21 basis points. • Interim dividend of 4.0 pence. Business Highlights • Integration of ISIS and F&C progressing well with 11 out of 16 workstreams closed. • Financial benefits of integration being reflected in 30 June results. • Stockmarkets have performed well and we continue to build our investment proposition. • Resolution announce internalisation of asset management. Enquiries: Howard Carter, Chief Executive - Telephone: 020 7506 1168 / 020 7506 1103 Chairman's Statement Interim Results - 2005 Observations on H1 2005 If 2004 was the year of the transaction, 2005 is clearly the year ofintegration. This was our principal challenge as we began the year. As youwill see from Howard Carter's report, good progress has been made. In mostareas of activity, we are now operating on a "business as usual" basis. This isa significant achievement given the magnitude of the merger. Much has yet to bedone, but we are well on our way. It is worth noting, that to date we have suffered few client losses directlyrelated to the merger itself. We have however, lost a number of mandates due toinvestment performance issues. The further strengthening of our investmentproposition is therefore a major focus for the firm. Interim Dividend Consistent with the above and our first half results, the Board has today,declared an unchanged interim dividend of 4.0 pence per ordinary share whichwill be paid on 21st October 2005 to shareholders on the register on 23rdSeptember 2005. Directorate Change - Succession Planning Howard has made the Board aware that he is minded to retire no later than at theend of 2006. The Board and Howard have therefore been working closely togetherto ensure a sound and smooth leadership transition. We are fortunate to haveavailable in-house a ready and worthy successor. Alain Grisay was named DeputyChief Executive in March and was later confirmed by both the NominationsCommittee and the Board as the natural and preferred successor to the CEO role.Indeed, Alain has repeatedly deputised for Howard. He has been a driving forcebehind our pan-European proposition. He is an energetic leader dedicated tobuilding shareholder value and one whom the Board believes, fully equal to thechallenges and opportunities ahead. To ensure clarity of command andaccountability, Alain will formally take over the CEO reins on 1 January, 2006.Beyond that date, Howard has agreed to be available for guidance and support andwill retire formally from the Board at the next Annual General ShareholdersMeeting scheduled for May 2006. You will have seen that earlier in the year, there were a number of retirementsfrom and additions to the Board. Ken Inglis, independent non-executive directorand Brian Sweetland, non-executive director retired from the Board. Meanwhile,Brian Larcombe joined the Board as an independent non-executive director. Inadvance of Howard's retirement, the Nominations Committee will of course assessthe appropriate balance and composition of the Board. Resolution Life The business challenge for the moment centres on the prospective loss of theassets of Resolution Life as reported earlier in the year. We will keepshareholders current as and when the specifics of amount to be withdrawn,compensation and timing are established. The bad news is that we may lose up tocirca 10% of revenues. The good news is that because of last year's merger andthe resulting greater diversification and strength of the business, such a loss,whilst both regrettable, is manageable and will be managed. Notwithstanding thepotential hit to earnings, we believe we will still be able to achieve anoperating margin towards the higher end of the industry in which we compete. Outlook We have long believed that the investment management industry was likely toconsolidate. Increasing corporate activity in the sector is confirming thatbelief. We anticipated this trend both with our merger of 2004 and earliercorporate activity. In a sense, we have been through the consolidation andintegration that much of our competition must now face. We also continue tobelieve the pan-European marketplace to be the investment management industryopportunity of the decade and this remains our strategic focus. In short, weremain confident in our business model and market positioning. Robert JenkinsChairman 12 September 2005 Chief Executive's Report Interim Results - 2005 Introduction This report is our first full interim report since the merger and also our firstunder International Financial Reporting Standards (IFRS). Our immediate task is to complete the integration according to the timetablepreviously provided whilst at the same time building an enhanced platform fororganic growth. The asset management business has considerable long term growthopportunities, but it is becoming increasingly competitive. Investment qualityis emerging as an even more important differentiator and it is our intention todeepen and broaden our capabilities as a result of the merger. Strongdistribution links, a diverse client base, a wide product offering are allimportant to our success, but they need to be supported by superior investmentperformance if the full benefits are to be realised. Equity markets performed well during the first half of the year. For example,the FTSE 100 rose almost 10% and other European markets did even better in localcurrency terms, although when measured in sterling the gains were very similarto the UK equity market. However, almost all of the market uplift took place inthe final months of the half year and had a limited effect on revenues for thefull period. Financial Results Our results are presented under IFRS for the first time, along with comparativeresults for 2004. However, given the size and timing of the merger with F&C, wedo not believe that 2004 comparatives are particularly representative. One of the conditions of the Sale and Purchase Agreement with respect to themerger was the requirement to produce completion accounts as at 10 October 2004,to validate the value of assets and liabilities acquired and regulatory capitalrequirements. This exercise has been concluded satisfactorily. Revenues from investment management fees for the first six months were £129.8m,very much in line with our internal forecasts. It reflects some benefits fromrising equity markets as well as new product sales in the higher revenue marginareas, offset by insurance and institutional outflows. While the average feerate has risen from 18 basis points at 30 June 2004 to 21 basis points at 30June 2005 this is a result of the merger of ISIS and F&C. In the half year ourprogress in higher margin business has not had a material impact on increasingthe revenue margin. Expenses Under IFRS we are required to consolidate our managed pension fund business on aline by line basis rather than show the impact as a single line in our IncomeStatement. This has resulted in an overall cost of £29.6m in operating expenseswith some £30.3m recorded in income as an offset. Previously under UK GAAP we had amortised goodwill on an annual basis. This isnot the requirement under IFRS with goodwill effectively being split intointangible assets and goodwill on the balance sheet. Only intangible assetsrequire to be amortised over their anticipated useful life. This has resultedin a charge to the income statement for the half year of £27.9m. Restructuring costs of £13.3m and £0.4m reflect the costs of the integration andthe outsourcing operation. Under IFRS these are classified as restructuringcosts rather than exceptional items. The integration on which I comment laterhas to date incurred expenditure of £31.7m, before tax relief, out of ouroriginal budget of some £50m. Operating expenses of £74.5m are very much in line with our budget and place usfirmly on track to meet and if not slightly exceed our synergy target of £20million for the year to 31 December 2005. Our operating margin for the first half of the year was 42.2 per cent. Thiscompares with 33.8 per cent for the first half of 2004 recalculated under IFRS.Due to the inclusion of the Managed Pension Fund results on a gross basis in ourincome statement and other IFRS requirements we have reworked our operatingmargin and the 33.8 per cent for the first half of 2004 compares with 36.3 percent for the same period under UK GAAP. Our operating margin is only one of themetrics we use to measure business performance and at 42.2 per cent isconsistent with the range of our stated objective at the time of thetransaction. Earnings Per Share Earnings per share under IFRS was a loss of 0.2 pence per share but this doesnot reflect the underlying or long term performance of the company as expensescontain a number of one off or short term non recurring costs. Also includedare amortisation of intangibles which we have added back in arriving atunderlying earnings per share. Given the acquisitions undertaken by the Companyin recent years and the current level of non recurring expenditure we believethat underlying earnings per share is the best measure of earnings and the oneupon which we will measure dividend cover. Underlying earning per share for the half year were 7.95 pence compared to 6.56pence for 2004 as restated, an increase of 21.2 per cent. Assets under Management and Fund Flows Assets under management rose by £3.3bn to £128.1bn, with gains from equitymarket movements being offset by around £1.6bn of net outflows. Within client categories, there were some net outflows from institutionalclients predominantly in the Netherlands and the UK driven either by continuedmoves from balanced to specialist mandates or by historic investment performanceissues in some instances. In the case of some of our Dutch pension fundclients, we have benefited from higher fees associated with the switch frombalanced to specialist mandates. Outflows from insurance clients were dominatedby attrition on the closed life book managed for Resolution Life in the UK.Other areas, which constitute the higher revenue margin segments of ourbusiness, experienced positive net flows. Following on from two successful property trust launches in 2004 we completed athird fund raising in the first half of 2005 through the Commercial PropertyTrust with assets of £965m. While Friends Provident owns some 63.0%, this stillrepresented a significant fund raising and is the largest launch of aninvestment trust specialising in direct property to date. Our UK retail business experienced net inflows in the first half of the year,helped by a number of strategic distribution arrangements. In addition our subadvisory European retail operation gained new business, boosted in particular byimproving momentum in Portugal but also in Germany. One of the consequences of adopting IFRS was that our parent, Friends Provident,would have been required to consolidate all of the unquoted companies in whichit had a majority interest held by our private equity operation, ISIS EquityPartners. This would have presented significant operational issues and thereporting and other requirements could have severely restricted our ability tosource deals and raise funds. We obviated the need to do this by becoming aminority owner in ISIS Equity Partners. The previous profit sharingarrangements with ISIS Equity Partners remain unchanged and therefore the impacton F&C profits are unaffected. During the period we also acquired a privateequity fund of funds team from Martin Currie for a price equivalent to slightlyover one year's revenues and we plan to expand our activities in this area.This is a growing market segment and is separate from our other private equitybusiness, referred to above, which focuses on direct investments. We continue to develop our hedge fund capabilities through a recentlyestablished fund of funds business as well as our single strategy hedge fundoperations. Although conditions for fund raising were generally unfavourable inthe first half, we reopened our award winning Amethyst fund to new investors. Business Developments The integration has gone largely to plan and as a result the dedicated ProjectOffice supported by external consultants was closed on 30 June, with eleven ofthe sixteen workstreams wound up and activities returned to business as usual.The outsourcing of investment administration has proven to be complex and willtake longer to implement than originally envisaged. Mellon has been chosen asour partner in this area, but it will take until late 2006 to fully integratedata and systems onto a single platform. The full financial benefits will notbe realised until early 2008 following migration on to Mellon's strategicplatform. We now envisage just over £20 million of synergy benefits in thecurrent year, further benefits in 2006 and the full £33 million by early 2008.The £50 million forecast cost of achieving the synergies is likely to beexceeded because of the complexity of the outsourcing requirements and should bein the region of £60m. However we do not foresee this impacting our cash orreserves forecasts in the short term as the outsourcing costs will spread into2007 and possibly 2008. We have made a number of enhancements to our investment teams since the merger.In particular we have appointed a new Head of Fixed Interest, Jacob de Wit, andwe have strengthened our teams across a number of asset classes. Investmentperformance has been broadly neutral since the merger. For example around 50%of our UK retail funds are ahead of peer group over the last twelve months andjust over 60% of investment trusts are ahead of benchmark over the same period.Institutional performance has improved in a number of areas althoughunderperformance in 2003/2004 is impacting 3 year returns on balanced mandates.Specialist areas such as property, private equity and hedge funds continue togenerate returns ahead of benchmark in most cases. Outlook Earlier this year we announced that Resolution plc, post its merger withBritannic, will be internalising up to £22bn of funds currently managed by F&C.At the current time discussions are taking place with Resolution about thetiming of withdrawal of funds from F&C and compensation amounts. We expectunrelated outflows of around £3.8bn in the second half of 2005 due to thetransfer by Resolution of various annuity books to third parties. Once we have concluded our discussions with Resolution regarding their plans tointernalise asset management operations, we will provide details on revenuelosses, compensation payments and timing. In terms of the impact onprofitability, we can confirm that the effective operating margin on thisbusiness is high and considerably above that on our business as a whole. Thismainly reflects the efficient and integrated nature of our business which meansthat there are considerable economies of scale on this type of activity. Within the institutional business we expect a continuation of outflows fromDutch pension funds in the second half of the year, partly driven by switchesfrom balanced to specialist mandates and by historic performance issues.However, trends in our non-institutional business are positive and areactivities in which revenue margin is relatively high. Currently there is agood momentum in our UK retail and in particular on our Continental European subadvisory business, as well as new fund raising on our largest hedge fund,Amethyst. Overall we would expect non-insurance net flows to be negative in thesecond half of 2005, unlike in the first half when the launch of the CommercialProperty Trust boosted investment trust assets. Howard CarterChief Executive 12 September 2005 Financial Summary (unaudited) 30 30 31 June June Dec 2005 2004 2004 Restated** Restated** Assets under management £128.1bn £62.9bn £124.3bnNet revenue £160.5m £92.5m £245.5mProfit on ordinary activities before taxation* £51.7m £14.5m £41.0mGroup operating profit* £55.0m £19.8m £51.7mOperating margin* 42.2% 33.8% 34.0%Underlying earnings per share* 7.9p 6.6p 12.8p Interim dividend 4.0p 4.0p 4.0pFinal dividend - - 7.0p Total dividends per ordinary share 4.0p 4.0p 11.0p * before amortisation of intangibles, restructuring costs and the cost of theRe-Investment Plan restructuring costs. ** as restated for the implementation of IFRS. Assets under management by asset type 30 30 31 June June Dec 2005 2004 2004 £bn £bn £bn Fixed interest 75.6 34.1 72.6UK equities 17.2 14.2 16.8Overseas equities 23.5 5.8 23.1Property 6.0 4.8 6.0Other Alternative Investments 1.0 - 0.9Liquidity 4.3 4.0 4.9Sub-total 127.6 62.9 124.3Private Equity 0.5 0.4 0.5Total 128.1 63.3 124.8 Ownership structure of private equity operation changed on 30 June 2005. Assets under management by product type 30 30 31 June June Dec 2005 2004 2004 £bn £bn £bn Life & Pensions 80.9 54.1 78.6Institutional clients 32.6 5.1 32.7Open Ended Products - Third Party 2.3 2.1 2.3Investment Trusts 6.3 1.6 5.3SICAVs/Mutual Funds 0.9 - 0.8Sub-Advisory 4.6 - 4.7Venture Capital Trusts/Limited Partnerships 0.5 0.4 0.4Total 128.1 63.3 124.8 Fund flows for the half-year to 30 June 2005 Client Category Inflows Outflows Net £m £m £m Insurance Funds N/A N/A (1,813)Institutional 2,067 (2,671) (604)Open Ended Products (Third Party) 168 (104) 64Investment Trusts 942 (310) 632Venture Capital Trusts/Limited Partnerships + - (1) (1)SICAVs & Mutual Funds 55 (82) (27)Sub Advisory 872 (765) 107 N/A N/A (1,642) + Funds for Private Equity operation included. F&C Asset Management plcCondensed Consolidated Income Statement (unaudited) 6 months to 6 months to Year-ended 30 June 2005 30 June 2004 31 Dec 2004 (as (as restated) restated) £000 £000 £000 RevenuesInvestment management fees 129,833 58,678 152,571Net fair value gains on assets at fair value through income 30,266 31,585 93,585Other income 4,565 2,217 4,619Total revenues 164,664 92,480 250,775 Fee and commission expenses (4,142) (2,141) (5,271) Net revenues 160,522 90,339 245,504 Operating expensesNet operating costs: investment and insurance contracts (29,568) (30,680) (92,437)Operating expenses (74,461) (39,840) (100,616)Re-Investment Plan costs (12,864) - (5,428)Amortisation of intangible assets (27,874) (5,215) (20,762)(Loss)/gain on foreign exchange (1,510) 26 (751)Total operating expenses (146,277) (75,709) (219,994) Operating profit before restructuring costs 14,245 14,630 25,510 Restructuring costs:- Reorganisation costs post acquisition of F&CGH Group (13,339) - (18,332)- Operations outsourcing (423) (824) (932) Operating profit after restructuring costs 483 13,806 6,246 Finance revenue 6,518 1,539 4,641Finance costs (9,466) (6,848) (14,983)Share of loss of associates (360) - (318) (Loss)/profit before tax (2,825) 8,497 (4,414) Tax - Policyholders (353) (385) (445)Tax - Shareholders 2,456 (2,513) 1,318 2,103 (2,898) 873 Net (loss)/profit after tax (722) 5,599 (3,541) Attributable to:Equity holders of the parent (722) 5,599 (3,541)Minority interests - - - Profit for the period (722) 5,599 (3,541) Memo - dividends 18,854 5,993 32,914 Basic earnings per share (0.15)p 3.74p (1.60)p F&C Asset Management plcCondensed Consolidated Balance Sheet (unaudited) As at As at As at 30 June 2005 30 June 2004 31 Dec 2004 (as restated) (as restated) £000 £000 £000Assets Non-current assetsProperty, plant and equipment 11,231 7,002 10,912Intangible assets: - Goodwill 577,946 254,031 577,946 - Management contracts 551,158 83,440 589,823 - Other intangible assets 484 481 506 1,129,588 337,952 1,168,275Financial instruments 8,150 6,767 8,962Deferred acquisition costs 8,122 6,545 7,808Deferred tax assets 33,239 6,785 30,223 Total non-current assets 1,190,330 365,051 1,226,180 Current assetsFinancial investments 877,913 827,779 813,595Insurance and other assets 2,371 2,329 2,352Stock of units & shares 635 508 556Trade and other receivables 118,717 57,886 63,071Deferred acquisition costs 2,788 2,366 2,566Cash and cash equivalents - policyholders 37,804 38,548 47,145Cash and cash equivalents - shareholders 68,741 15,091 133,939 106,545 53,639 181,084 Total current assets 1,108,969 944,507 1,063,224Total assets 2,299,299 1,309,558 2,289,404 Liabilities Non-current LiabilitiesInterest bearing loans and borrowings (214,800) (180,390) (214,800)Deferred tax liabilities (165,838) (25,851) (177,963)Other non-current liabilities (49,601) (18,756) (41,318)Total non- current liabilities (430,239) (224,997) (434,081) Current liabilitiesInvestment contract liabilities (917,056) (861,767) (861,674)Insurance contract liabilities (3,005) (2,963) (2,986)Other current liabilities (106,682) (73,175) (113,005)Total current liabilities (1,026,743) (937,905) (977,665) Total liabilities (1,456,982) (1,162,902) (1,411,746) Equity attributable to equity holders of the parent Share capital (483) (150) (482)Share premium account (29,997) (2,855) (28,956)Merger reserve (719,797) (117,891) (749,754)Other reserves (63,792) (9,060) (108,401)Retained earnings (28,598) (16,700) 9,935Total equity attributable to equity holders of the parent (842,667) (146,656) (877,658)Minority interest 350 - -Total equity (842,317) (146,656) (877,658) Total liabilities and equity (2,299,299) (1,309,558) (2,289,404) F&C Asset Management plcCondensed Consolidated Statement of Recognised Income and Expenses (unaudited) 6 6 months months Year to to Ended 30 June 2005 30 June 2004 31 December 2004 (as (as restated) restated) £000 £000 £000 (Loss)/profit for the period (722) 5,599 (3,541) Exchange movements on translation of foreign operations (11,083) (103) 4,846 Net actuarial (loss)/gain on defined benefit pension (4,837) 14 (2,035)schemes Net (loss)/gain on financial investments (610) 75 463 Tax on items taken directly to equity - (128) 479 Shares of associate costs charged directly to equity - (98) (98) Net (expense)/income recognised directly in equity (16,530) (240) 3,655 Total recognised income and expense for the period (17,252) 5,359 114 Attributable to:Equity holders of the parent (17,252) 5,359 114Minority interest - - - (17,252) 5,359 114 F&C Asset Management plcCondensed Consolidated Cash Flow Statement (unaudited) 6 months to 6 months to Year ended 31 30 June 2005 30 June 2004 December 2004 (as (as restated) restated) £000 £000 £000 Cash (outflows)/inflows from operating activities (27,416) 27,630 34,581Income tax paid (6,204) (1,542) (6,608) Net cash (outflow)/inflow from operating activities (33,620) 26,088 27,973 Cash flows from investing activities Proceeds from sale of property, plant and equipment 35 - -Acquisition of property, plant and equipment (2,346) (211) (4,066)Purchase of investments (14) - -Investment in associate (509) (5,100) (5,101)Proceeds from disposal of subsidiaries 10 - -Cash transferred on disposal of subsidiary (812) - -Receipt from refund of consideration - 3,893 3,893Expenses of acquisition (583) - (11,998)Loan to Associate (2,500) - -Net cash acquired with subsidiary undertakings - - 132,791Investment income from investing activities 3,909 237 1,678 Net cash (outflow)/inflow from investing activities (2,810) (1,181) 117,197 Cash flows from financing activities Proceeds from issue of share capital 1,042 60 822Drawdown of revolving credit facility from FP Group - - 5,000Repayment of revolving credit facility from FP Group - (5,000) (15,000)Proceeds from long-term borrowings - - 25,000Interest paid on loans (6,089) (5,691) (11,299)Other interest paid (44) (76) (879)Equity dividends paid (32,952) (10,487) (16,480)Preference dividends paid (20) (12) (23)Purchase of own shares (46) - (1,165) Net cash outflow from financing activities (38,109) (21,206) (14,024) Net (decrease)/increase in cash and cash equivalents (74,539) 3,701 131,146 Cash and cash equivalents at 1 January 181,084 49,938 49,938 Cash and cash equivalents at 30 June (31 December) 106,545 53,639 181,084 Cash and cash equivalentsShareholders 68,741 15,091 133,939Policyholders 37,804 38,548 47,145 106,545 53,639 181,084 Accounting Policies (a) First reporting under International Financial Reporting Standards The consolidated interim financial statements are the F&C Asset Management plc Group's (the Group) firstfinancial statements since its adoption of International Financial Reporting Standards (IFRS). The notes presented here explain the significant accounting policies adopted by the Group. IFRS 1 'First-time Adoption of International Financial Reporting Standards' has been applied and, in linewith this Standard, an opening IFRS balance sheet has been prepared as at 1 January 2004, the date of the Group'stransition to IFRS. To the extent that the IFRS accounting policies differ from those applied under UK GAAP anyadjustments to balances reported under UK GAAP have been taken to retained earnings or other equity reserves. An explanation of the effect of the transition to IFRS on the reported financial position and financialperformance of the Group is provided in note 5. This note includes reconciliations of equity and profit or loss forcomparative periods reported under UK GAAP to those reported for those periods under IFRS. The following are the Group's significant accounting policy choices arising from IFRS 1: • As a result of its early implementation of the amended IAS 19 'Employee benefits', which is not yet endorsed by theEuropean Union ("EU"), the Group will not currently comply with IAS 34 'Interim Financial Statements'. • Past business combinations have been restated to comply with IFRS 3 'Business Combinations' with effect from 1 July2002. • Cumulative foreign exchange differences are deemed to be zero at the date of transition to IFRS. • Share-based payments granted before 7 November 2002 are exempt. • Items of property, plant and equipment are carried at the carrying value that was applied under UK GAAP. The consolidated interim financial statements will be authorised for issue during September 2005. (b) Basis of preparation The financial statements are presented in pounds sterling, rounded to the nearest thousand. They are prepared under thehistorical cost convention, modified to include certain assets and liabilities at fair value as permitted or required byIFRS. The preparation of interim financial statements requires management to make judgements, estimates and assumptions thataffect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual resultsmay differ from these estimates. EU law (IAS Regulation EC 1606/2002) requires that the annual consolidated financial statements of the Group for theyear ending 31 December 2005, be prepared in accordance with accounting standards adopted for use in the EU. This interim financial information has been prepared on the basis of the recognition and measurement requirements ofIFRS in issue that either are adopted by the EU and effective (or available for early adoption) at 31 December 2005 orare expected to be adopted and effective (or available for early adoption) at 31 December 2005, the Group's first annualreporting date at which it is required to use adopted IFRS. Based on these IFRS rules the directors have madeassumptions about the accounting policies expected to be applied, which are as set out below, when the first annualfinancial statements are prepared for the year ending 31 December 2005. Previously the group followed UK accountingstandards issued by the UK Accounting Standards Board and pronouncements of its Urgent Issues Task Force, relevantStatements of Recommended Practice and the Companies Act 1985 (collectively, UK GAAP). The Group has early adopted the amendment to IAS 19 'Employee benefits - Actuarial gains and losses, group plans anddisclosures', on the basis it will be adopted by the EU such that it will be available for use in the annual IFRSfinancial statements for the year ending 31 December 2005. The IFRS that will be effective (or available for early adoption) in the annual financial statements for the year ending31 December 2005 are still subject to change and to additional interpretations and therefore cannot be determined withcertainty. Accordingly, the accounting policies for 2005 will be determined finally only when the annual financialstatements are prepared. The accounting policies set out below have been applied consistently and throughout the Group for the purposes of theconsolidated interim financial statements. They have also been applied in preparing an opening IFRS balance sheet at 1January 2004 for the purposes of the transition to IFRS, except as permitted by the transitional requirements of IFRS 1'First-time Adoption of International Financial Reporting Standards'. (c) Accounting estimates and judgements Management discussed with the Group's Audit and Compliance Committee the development, selection anddisclosure of the Group's critical accounting policies and estimates and the application of these policies andestimates. Where estimates have been previously made under UK GAAP, consistent estimates have been made on transitionto IFRS. (d) Basis of consolidation The consolidated financial statements of the Group incorporates the financial statements of subsidiaryundertakings, being entities controlled by the Company. The Company controls an investee entity when it has the powerto govern the financial and operating policies of the entity so as to obtain benefits. The results of subsidiary undertakings and associates acquired or sold are included from or to the datecontrol changes. An employee share ownership trust and an employee benefit trust have been established for thepurposes of satisfying certain equity-based awards. These trusts are fully consolidated within the accounts. Intra-group transactions and balances are eliminated on consolidation. (e) Associates Associates are entities over which the Group can exercise significant influence, but not control.Investments in associates are accounted for using the equity method. The investments are therefore initially recognisedat cost and subsequently adjusted to reflect the Group's share of post-acquisition changes in net assets. The Group'sshare of post-tax profits is recognised in the Income Statement. (f) Foreign currencies The consolidated financial statements are presented in sterling, the Company's functional andpresentational currency. Each entity in the Group determines its own functional currency and items included in thefinancial statements of each entity are measured in that functional currency. Transactions in foreign currencies are translated to the functional currency at the exchange rate rulingat the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at theexchange rate ruling at the balance sheet date, and any exchange differences arising are taken to the Income Statement. Non-monetary assets and liabilities measured at historical cost in a foreign currency are translated usingthe exchange rate at the date of transaction. As a result, no exchange differences arise. Non-monetary assets andliabilities stated at fair value in a foreign currency are translated at the rate at the balance sheet date. Where fairvalue movements in assets and liabilities are reflected in the income statement, the corresponding exchange movementsare also recognised in the Income Statement. Where fair value movements in assets and liabilities are reflecteddirectly in equity, the corresponding exchange movements are also recognised directly in equity. The assets and liabilities of foreign operations are translated to the presentation currency at foreignexchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to thepresentation currency at foreign exchange rates approximating the rates ruling at the dates of the transactions. Foreignexchange differences arising on translation of foreign entities into the presentational currency are recognised directlyin the Foreign Currency Translation Reserve (FCTR), which is a separate equity reserve and reported in the Statement ofRecognised Income and Expense (SORIE). These exchange differences are recognised as income or expenses in the period inwhich the operation is disposed of. Intangibles attributable to the acquisition of foreign operations are translated at the rate at thebalance sheet date and the resulting exchange movements are also taken to the FCTR. (g) Revenue Revenue represents income from investment management services and is recognised as the services areprovided. Initial fees received in advance are taken to the balance sheet and amortised over the period of the assetmanagement service. The period of provision of asset management services is estimated based upon experience of averageholding periods of investors. Performance fees are recognised once they have been earned and are measurable with reasonable certainty,which is usually at the end of the performance period. (h) Leases All Group leases are operating leases, being leases where the lessor retains substantially all the risksand rewards of ownership of the leased asset. Rentals paid under operating leases are charged to the Income Statement ona straight-line basis over the lease term. Lease incentives are recognised by the Group as a reduction of the rentalexpense, allocated on a straight-line basis over the lease term. Note (v) discusses the recognition of onerousprovisions on property leases where the leased space has ceased to be used by the Group. (i) Fees and Commission Expenses Fees and commission expenses comprise of two main elements, namely costs associated with gaining new assetmanagement contracts, and subsequent commission paid to agents. The costs associated with the gaining of contracts aredeferred and amortised over the terms of the contracts, while the subsequent commissions paid to agents is expensed asthe services are provided. (j) Finance Revenue Finance revenue comprises interest, dividends, expected return on pension assets and gains on sale ofinvestments held at amortised cost. Dividend income is recognised when the right to receive payment is established.Interest is recognised on an effective interest rate basis. (k) Finance Costs Finance costs comprise interest payable on borrowing, interest on pension liabilities and dividends onpreference shares. (l) Income Taxes Income tax expense comprises current and deferred tax. Income tax is recognised in the Income Statementexcept to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable to the taxation authorities on the taxable income for the year,using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respectof previous years. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amountof assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxableprofit. This is accounted for using the balance sheet liability method and includes tax on revaluation gains and losseson investments recognised in the Income Statement. Deferred taxation is calculated at the tax rates that are expected to apply in the period when theliability is settled on the asset realised. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred taxassets are recognised to the extent that it is probable that taxable profits will be available against which deductibletemporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to theextent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the assetto be recovered. (m) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any recognisedaccumulated impairment losses. Expenditure on property, plant and equipment is capitalised on initial recognition only. Subsequentexpenditure is capitalised only when it is probable that there will be future economic benefits associated with the itemand the cost of the item can be measured reliably. All other expenditure is recognised in the Income Statement as anexpense as incurred. Property, plant and equipment is depreciated so as to write off the cost or valuation of assets, using thestraight-line method, over their estimated useful lives, as follows: Leasehold improvements - over 10 years Motor vehicles - over 3 years Office furniture & equipment - over 3-5 years Computer equipment - over 3 years Depreciation is recognised as an expense in the Income Statement. The assets carrying value and useful life are reviewed at each reporting date. If an indication ofimpairment exists, the assets are written down to their recoverable amount and are charged to the Income Statement inthe period in which it arises. (n) Intangible Assets Goodwill All business combinations are accounted for by applying the purchase method. Goodwill represents theexcess of the cost of the acquisition over the fair value of the net identifiable assets acquired and is recognised asan asset and reviewed for impairment annually. Goodwill is carried at cost less any accumulated impairment losses. In respect of acquisitions prior to 1 July 2002, goodwill is included on the basis of its deemed cost,which represents the amount recorded under UK GAAP as at 1 January 2004, the date of the Group's transition to IFRS. Management Contracts The useful lives of management contracts are finite and are amortised on a straight line basis over theirestimated average contract term of between 10 and 20 years. Other Intangible Assets Purchased intangible assets have a finite life and are shown at cost less accumulated amortisation andimpairment losses. Amortisation is charged to the Income Statement in equal annual instalments, based on the usefuleconomic life of the intangible assets concerned as follows: Software - 3 years Licences - over the contractual term (3-5 years) Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economicbenefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. (o) Impairment Goodwill is tested for impairment annually. The carrying amounts of other assets which are subject toimpairment testing under IFRS are reviewed at each balance sheet date and if there is any indication of impairment theasset's recoverable amount is estimated. An impairment loss is recognised in the Income Statement when the carryingamount of an asset exceeds its recoverable amount. Goodwill was tested for impairment at 1 January 2004, the date oftransition to IFRS. An impairment loss in respect of goodwill is never reversed. For other assets, an impairment loss isreversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss isreversed only to the extent that the asset's carrying value does not exceed the carrying value that would have beendetermined, net of depreciation or amortisation, if no impairment loss had been recognised. Where there is objective evidence that an 'available-for-sale' financial asset has been impaired, anycumulative loss that had been recognised directly in equity is recognised in profit or loss. (p) Investments and other financial assets When financial assets are recognised initially they are measured at fair value plus, in the case ofinvestments not at fair value through profit or loss, directly attributable transaction costs. They are classified into the categories described below: Financial investments at fair value through income include investments that are held for trading purposesor that have been specifically designated as 'at fair value through income'. They are carried at fair value in theBalance Sheet and gains or losses are taken to the Income Statement. Available for sale financial assets are also carried at fair value in the Balance Sheet. Movements infair value, other than impairment losses and foreign exchange movements on monetary assets, are taken to the fair valuereserve until derecognition of the asset, at which time the cumulative amount in this reserve is recognised in theIncome Statement. Included in this category are the Group's private equity investments, some of which are made throughlimited liability partnerships. The fair value of these investments represents the Group's direct investments andentitlement to carried interest distributions, both of which are measured with reference to the British Venture CapitalAssociation guidelines. Loans and receivables are recognised at amortised cost using the effective interest rate method. The Group has adopted trade date accounting. Accordingly, financial investments are recognised on thedate the Group commits to the purchase of the investments, and are de-recognised on the date it commits to their sale. (q) Cash and cash equivalents Cash and cash equivalents comprise cash balances and investments in money market instruments with amaturity of three months or less. (r) Investment contracts The Group sells unit-linked pension contracts through its insurance subsidiary, F&C Managed Pension FundsLimited (MPF). Management fees are earned from these contracts and are accounted for as described in the accountingpolicy for revenue. MPF is consolidated into the Group accounts on a line-by-line basis. Unit-linked policyholder assets heldby MPF and related policyholder liabilities are carried at fair value, with changes in fair value taken to profit orloss. Amounts received from and paid to investors under these contracts are accounted for as deposits receivedor paid. Charges due under these contracts are recognised in the Income Statement. At the balance sheet date the valueof these contracts is stated at an amount equal to the fair value of the net assets held to match the contractualobligations. (s) Insurance liabilities Insurance liabilities are measured in accordance with actuarial principles and guidance. Any change inthe value of the liability is taken to the Income Statement. Where these liabilities are reinsured, the element of therisk reinsured is valued on the same basis as the related liability and is included as an asset in the Balance Sheet.Changes in the value of the asset are taken to the Income Statement. Amounts recoverable under reassurance contractsare assessed for impairment at each Balance Sheet date. (t) Employee benefits (i) Short-term employee benefits Short-term employee benefits are recognised as an undiscounted expense and liability when theemployee has rendered services during an accounting period. Short-term compensated absences are recognised in the caseof accumulating compensated absences, when the employees render service that increases their entitlement to futurecompensated absences or, in the case of non-accumulating compensated absences, when the absences occur. (ii) Profit-sharing and bonus payments These are recognised when there is a present legal or constructive obligation to make suchpayments as a result of past events and a reliable estimate of the obligation can be made. (iii) Pensions Defined Benefit Schemes - The Group's net obligation in respect of defined benefit pensionobligations is calculated separately for each plan by estimating the amount of future benefit that employees have earnedin return for their service in the current and prior periods; that benefit is discounted to determine its present value,and the fair value of any plan assets is deducted. In order to determine the present value of the defined benefitobligation, the benefits are discounted at a rate equal to high credit rated corporate bonds that have a maturityconsistent with the currency and the expected terms of the obligations. The calculation is performed by a qualifiedactuary using the Projected Unit Credit Method. The surplus or deficit of such schemes is calculated as the excess or shortfall of the fairvalue of the assets of the scheme compared against the present value of the scheme liabilities and is recognised as anasset or liability of the Group. Past service costs, arising on a commitment to provide a higher level of benefit thanpreviously promised, are recognised in the Income Statement on a straight line basis over the period in which theincreases in benefits vest. To the extent that the benefits vest immediately, the expense is recognised immediately inthe Income Statement. Any unrecognised past service costs are deducted from scheme liabilities. Current service costs, interest costs (on the liability), expected return on plan assets andcurtailments/settlements costs are recognised in the Income Statement. The Group recognises actuarial gains and losses in the period in which they occur directly inequity, as disclosed in the Statement Of Recognised Income And Expense. At each balance sheet date all actuarial gains and losses are recognised in full and recognisedthrough equity. This approach has been applied to all plans. Where the Group is unable to identify its share of assets and liabilities in multi-employerdefined benefit schemes the Group accounts for these in the same way as for defined contribution schemes. Defined Contribution Schemes - Contributions made to these schemes are charged to the IncomeStatement as they become payable in accordance with the rules of the scheme. (v) Other long-term employee benefits Other long-term employee benefits are recognised as the net amount of the present value of thedefined benefit obligation at the balance sheet date less the fair value, at the balance sheet date, of plan assets outof which obligations are to be settled directly. The benefit is discounted to determine its present value, and the fairvalue of any plan assets is deducted. (vi) Termination benefits Termination benefits are recognised as a liability and an expense when the Group terminatesthe employment of an employee before the normal retirement date. (u) Share Based Payments All grants of shares, share options or other share-based instruments that are granted after 7 November2002 are required to be recognised as an expense under IFRS. The fair values of share-based payment awards are measuredusing a valuation model applicable to the terms of the awards (Black Scholes, Binomial or Monte Carlo simulation). Thefair value is measured at the award grant date and the expense is spread over the period during which the employeesbecome unconditionally entitled to exercise the awards, known as the vesting period. The expense recognised in theIncome Statement is equal to the estimated fair value of the awards multiplied by the number of awards expected to vest. Vesting of awards typically depends upon meeting defined performance criteria such as continued company servicerequirements, EPS targets and/or share price return targets. Vesting of employee share awards depends upon meeting "market" and/or "non-market related" performanceconditions. The type of vesting criteria impacts the calculation of the expense charged to the Income Statement andsubsequent adjustments, as follows: a) Non-market based conditions are performance criteria not directly linked to company share pricetargets, such as EPS targets and/or company service requirements. In line with IFRS2 requirements, the probability ofmeeting "non-market based" conditions is incorporated into the expense charge via the estimate of the number of awardsexpected to vest. The total cumulative expense is ultimately "trued-up" or "trued-down" to reflect the actual number ofawards which vest. Therefore, if no awards vest, no cumulative expense charge is ultimately recognised. b) Market based conditions are performance criteria linked to company share price targets. In linewith IFRS2: 'Share-based Payments', requirements, the probability of meeting "market based conditions" are incorporatedinto the calculation of the fair value of the award. Should the market-based performance condition not ultimately bemet, no "true up/down" adjustment is made to reflect this. Therefore, an expense charge is made whether market-basedawards ultimately vest or not. IFRS2 makes a distinction between awards settled in equity and those settled in cash. Equity settledawards are charged as a debit to the income statement and a credit to equity. Cash settled awards are charged as adebit to the income statement and a credit to liabilities. The estimated fair value of cash settled awards arere-measured at each reporting date until the payments are ultimately settled. Awards of employees treated as "good leavers" vest immediately and the full expense of the awards ischarged to the Income Statement immediately. For example, good leavers include retirees and involuntary redundancies. (v) Provisions A provision is recognised in the Balance Sheet when the Group has a legal or constructive obligation as aresult of a past event, and it is probable that an outflow of economic benefits will be required to settle theobligation. If the effect is material, provisions are determined by discounting the expected future cash flows at apre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risksspecific to the liability. No provision is established where a reliable estimate of the obligation cannot be made. Where the Group has liabilities under property leases and where the space has ceased to be used for thepurposes of the business, full provision is made for future net outstanding liabilities under such leases after takinginto account the effect of any expected sub-letting arrangements. (w) Share Capital Preference share capital - The Group's issued preference share capital is classified as a liability. Itis carried at amortised cost in the Balance Sheet. Preference dividends are recognised in the Income Statement asinterest expense. Ordinary share capital - When ordinary shares are repurchased the amounts of consideration paid, includingdirectly attributable costs, are recognised in equity and are classified as treasury shares. Dividends - Dividends are recognised as a liability on the date of declaration of the dividend. (x) Accounting for ESOP Trusts The group has two ESOP Trusts which own shares in the Company to enable it to satisfy future exercises ofoptions and other share-based schemes. The ESOPs are consolidated into the Group's results. These shares are treatedas treasury shares and are deducted from equity when purchased. 1. Restructuring Costs (a) Integration, rationalisation and reorganisation of the business after acquisition of F&CGroup (Holdings) Limited During 2004 the Board initiated a substantial integration, rationalisation andreorganisation of the business after the acquisition of F&C Group (Holdings) Limited ("F&CGH Group") on 11 October2004. This restructuring continued during 2005. The Directors consider it appropriate to disclose the following integration,reorganisation and restructuring costs as non-operating expenditure relating to continuing operations due to thefundamental impact the acquisition had on the management and operational structure of the enlarged group: Integration costs 6 months 6 months ended ended Year ended 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 Redundancy and other related staff 4,926 - 8,975costsPremises costs 1,117 - 4,730Information technology and related 2,305 - 640costsRe-branding, administration and 1,956 - 364client servicingConsultancy and other costs 3,035 - 1,635supporting the restructuring processWrite-down of fixed assets - - 1,988 Integration costs 13,339 - 18,332 (b) Operations outsourcing Following the acquisition of F&CGH Group, Mellon were chosen as the preferred outsourceprovider for the entire group. As the project will fundamentally change the operating structure of the business,the Directors consider that the restructuring costs associated with outsourcing should be disclosed asnon-operating expenditure relating to continuing operations. Operations outsourcing project 6 months 6 months ended ended Year ended 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 Consultancy and other costssupporting the restructuring process 423 824 932 2. Income Taxes The income tax (credit)/charge comprises: 6 months 6 months Year ended ended ended 31 December 30 June 2005 30 June 2004 2004 (as restated) (as restated) £000 £000 £000 Current tax 11,189 4,977 7,100 Deferred tax (12,349) (2,079) (8,285) Prior years' tax (943) - 312 Income tax (credit)/ (2,103) 2,898 (873) charge Effective rate of tax The tax credit for the six month period ended 30 June 2005 has been determined by using aneffective annual tax rate for each tax jurisdiction and applying that rate to the pre-tax income of thatjurisdiction. The combined effective tax rate on all jurisdictions, together with the prior yearadjustment of £943k, brings the total tax credit to £2,103k for the period to 30 June 2005. 3. Earnings per share Reconciliation of Earnings per Share 31 30 June 30 June December 2005 2004 2004 (as (as restated) restated) Basic Basic Basic p p p Loss per ordinary share (0.15) (1.60) 3.74 Amortisation of intangibles, net of tax 4.13 6.56 2.44Cost of Re-investment Plan 1.91 1.71 -Restructuring costs, net of tax:- Reorganisation post acquisition of F&C Group 1.98 5.80 -- Operations outsourcing 0.06 0.29 0.38 Profit per ordinary share before amortisation 7.95 12.76of intangibles, restructuring costs and the 6.56cost of the Re-Investment Plan Earnings 6 6 months months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 (as restated) (as restated) £000 £000 £000 (Loss)/profit attributable to ordinary (722) 5,599 (3,541)shareholders Amortisation of intangibles, net of tax 19,512 3,650 14,533Cost of Re-investment Plan, net of tax 9,005 - 3,799Restructuring costs, net of tax:- Reorganisation post acquisition of F&C Group 9,337 - 12,832- Operations outsourcing 296 576 652 Profit before amortisation of intangibles,restructuring costs and the cost of theRe-Investment Plan 37,428 9,825 28,275 Share capital 30 June 2005 30 June 2004 31 December 2004 No. No. No. Basic weighted average number of OrdinaryShares 470,946,021 149,804,595 221,546,388 Goodwill Management Other Total Contracts Intangibles £000 £000 £000 £000CostAt 30 June 2004 254,031 104,300 4,689 363,020 Intangiblesarising onacquisition ofF&CGH Group 323,915 516,940 65 840,920Additions - - 225 225Exchange gain - 4,990 - 4,990 At 31 December2004 577,946 626,230 4,979 1,209,155 Additions - - 167 167Exchange loss - (11,539) - ( 11,539)Purchase ofManagementcontract - 748 - 748 At 30 June 2005 577,946 615,439 5,146 1,198,531 Amortisation £000 £000 £000 £000At 30 June 2004 - 20,860 4,208 25,068 Amortisationcharge forperiod - 15,547 265 15,812 At 31 December2004 - 36,407 4,473 40,880 Amortisationcharge forperiod - 27,874 189 28,063 At 30 June 2005 - 64,281 4,662 68,943 Net Book Values At 30 June 2004 254,031 83,440 481 337,952At 31 December2004 577,946 589,823 506 1,168,275At 30 June 2005 577,946 551,158 484 1,129,588 5. Explanation of transition to IFRS As stated previously these are the Group's first condensed consolidated interim financialstatements prepared in accordance with IFRS. a) Accounting policies The accounting policies, as outlined earlier in this press release, have beenapplied in preparing the condensed consolidated interim financial statements for the six months ended 30 June2005, the comparative information for the six months ended 30 June 2004 and the year ended 31 December 2004and the preparation of an opening balance sheet at 1 January 2004 (the Group's date of transition). In preparing its opening IFRS balance sheet, comparative information for the sixmonths ended 30 June 2004 and the financial statements for the year ended 31 December 2004, the Group hasadjusted amounts reported previously in financial statements prepared in accordance with its old basis ofaccounting (UK GAAP). b) Financial Impact of IFRS - Reconciliation An explanation of how the transition from previous UK GAAP to IFRS has affected theGroup's financial position and financial performance is set out in the following tables and the notes thataccompany the tables: Note 1 Jan 30 June 31 Dec 2004 2004 2004 £m £m £m UK GAAP equity (as previously reported) 129.1 122.3 818.7 Dividends (i) 10.5 6.0 32.9Reversal of goodwill amortisation (ii) 23.1 34.4 56.8Amortisation of intangibles assets (management (ii) (10.9) (14.6) (25.4)contracts)Share based payments (iii) 0.3 0.4 1.6Consolidation of Employee Benefit Trusts (iv) - - (7.6)Fair value of financial investments (v) 1.2 1.2 1.6Accounting for share of loss of associate (vi) - (0.1) (0.3)Reclassification of preference shares to liabilities (vii) (0.4) (0.4) (0.8)Lease incentives (viii) (0.7) (0.8) (0.9)Revenue (ix) (0.5) (1.0) (1.6)Employee benefits (x) (0.4) (0.7) (0.5)Foreign Exchange Movements (xi) - - 3.2 IFRS - increase in equity 22.2 24.4 59.0 IFRS equity 151.3 146.7 877.7 6 months Year ended to 30 June 2004 31 Dec 2004 £m £m UK GAAP loss after tax (as previously reported) (0.8) (19.4) Reversal of goodwill amortisation (ii) 11.3 33.7Amortisation of intangibles assets (management (ii) (3.7) (14.5)contracts)Share based payments (iii) (0.3) (1.3)Fair value of financial investments (v) - -Accounting for share of loss of associate (vi) - (0.3)Lease incentives (viii) (0.1) (0.2)Revenue (ix) (0.5) (1.1)Employee benefits (x) (0.3) (0.1)Foreign Exchange Movements (xi) - (0.3) IFRS - increase in profit 6.4 15.9 IFRS profit/(loss) after tax 5.6 (3.5) c) Notes to the reconciliation of equity and profit: Details of the adjustments included in the above table are set out below. (i) Dividends Dividends declared after the period end in respect of the period to the balancesheet date were previously recognised in the accounts for that period. Under IFRS this is no longer the case and as aresult retained earnings at each balance sheet date are increased and current liabilities are decreased by the amount ofthese declared dividends. These amounted to £10.5m at 1 January 2004, £6.0m at 30 June 2004 and £32.9m as at 31December 2004. (ii) Business combinations The Group has applied IFRS 3 to all business combinations that have occurred since1 July 2002. Accordingly, the Group has revised the measurement of certain assets to fair value at the date of thebusiness combination in which they were acquired. Additionally, from 1 January 2004, goodwill is no longer amortisedunder IFRS, but is tested annually for impairment. As a result of the above adjustments, the goodwill amortisation charge waswritten-back by £23.1m in the period prior to 1 January 2004 (date of transition), by £11.3m for the six months ended 30June 2004 and by £33.7m for the year ended 31 December 2004. The cumulative impact of these goodwill adjustments onequity amounted to £34.4m as at 30 June 2004 and £56.8m as at 31 December 2004. The impact of amortising intangible assets (management contracts) has reducedequity by £10.9m at 1 January 2004. In addition, the amortisation charge (net of tax) of £3.7m for the six months to 30June 2004 and £14.5m for the year ended 31 December 2004 have cumulatively reduced equity by £14.6m as at 30 June 2004and £25.4m as at 31 December 2004. (iii) Share based payments The Group applied IFRS 2 to its active share-based payment arrangements, exceptfor equity-settled share-based payment arrangements granted before 7 November 2002. The Group accounted for theseshare-based payment arrangements at intrinsic value under UK GAAP. This has been adjusted to fair value to beconsistent with IFRS 2. The effect of accounting for equity-settled share-based payment transactions atfair value is to reduce profit after tax by £0.3m for the six months ended 30 June 2004 and to reduce profits by £1.3mfor the year ended 31 December 2004. The adoption of IFRS 2 is equity-neutral for equity-settled transactions(excluding deferred tax). Cash settled transactions reduce net assets by the movement in the provision for the period(net of deferred tax). The impact of these IFRS adjustments is to increase equity by £0.3m as at 1 January 2004, by£0.4m at 30 June 2004 and by £1.6m as at 31 December 2004. (iv) Employee Benefit Trust As a result of the necessity to consolidate employee benefit trusts together withits interaction with the treatment of treasury shares, deferred tax of £7.6m which was recognised under UK GAAP, hasbeen derecognised under IFRS. Under IAS 12, the deferred tax asset accumulates over the vesting period. This reductionin deferred tax has reduced equity by £7.6m as at 31 December 2004. (v) Fair value of financial investments In accordance with IAS 39, other financial investments (available-for-sale) arerecognised as assets at their fair value. The effect of measuring the Group's private equity investments at fair value is toincrease other financial investments by £1.6m, £1.8m and £2.3m respectively at 1 January 2004, 30 June 2004 and 31December 2004. The equity increase of these adjustments, after recognised deferred tax, amounts to £1.2m as at 1January 2004 and 30 June 2004 and £1.6m as at 31 December 2004. The fair value reserve (other reserves) increase by thesame amount. (vi) Associates IAS 28 requires the Group to recognise its share of results of associates. UnderUK GAAP, no adjustment was made to the carrying value of investments unless any impairment existed. As a result, equity has been reduced by £0.1m as at 30 June 2004 to reflect theGroup's share of associate set-up expenses which were charged directly to reserves. In addition, the recognition of theGroup's share of losses prior to 31 December of £0.3m has reduced equity by £0.3m as at 31 December 2004. (vii) Preference shares Under UK GAAP, preference shares were classified as share capital. IAS 32,Financial Instruments, requires this class of share capital, which attracts a pre-determined rate of dividends, to beclassified as a liability. The impact of this reclassification is to reduce net assets by £0.4m as at 1 January 2004and 30 June 2004 and by £0.8m as at 31 December 2004. (viii) Lease incentives Under UK GAAP, the Group amortised leasehold incentives over the period to thedate of the first rent review. Under IAS 17, lease incentives are required to be amortised over the period of thelease. This change reduces equity at 1 January 2004 by £0.7m and reduces profit after taxby £0.1m for the six months ended 30 June 2004 and by £0.2m for the year ended 31 December 2004. The cumulative reduction in equity as a result of this adjustment amounts to £0.7mas at 1 January 2004, £0.8m as at 30 June 2004 and £0.9m as at 31 December 2004. (ix) Revenue Under IAS 18, when the outcome of a transaction involving the rendering of servicescan be estimated reliably, revenue associated with the transaction should be recognised by reference to the stage ofcompletion of the transaction at the balance sheet date. The guidance issued in the appendix to IAS 18 on theapplication of this principle states that revenues earned on investment management contracts, and related incrementalcosts associated with such security contracts, should be recognised over the life of the contract. In line with standard industry practice, the Group has previously recognised frontend fees and associated costs on the initiation of the contract. This is no longer allowable. Such revenues andassociated costs have therefore been spread over the estimated average life of the contract. These changes reduce equity by £0.5m as at 1 January 2004, by £1.0m as at 30 June2004 and by £1.6m as at 31 December 2004. The impact of this treatment is to reduce profits after tax by £0.5m for the sixmonths to 30 June 2004 and by £1.1m for the year ended 31 December 2004. (x) Employee benefits Employee benefit adjustments have been made in accordance with IAS 19 to reflectthe short-term employee benefits (accrued holiday entitlement) and long-term employee service benefits not recognisedunder UK GAAP. The combined impact on profit after tax of these adjustments is to reduce profits by £0.3m for the sixmonths to 30 June 2004 and by £0.1m for the year ended 31 December 2004. The cumulative impact of employee benefitadjustments amount to a reduction in equity of £0.4m as at 1 January 2004, £0.7m as at 30 June 2004 and £0.1m as at 31December 2004. (xi) Foreign Exchange Movements Under UK GAAP, an exchange gain was recognised on re-translation of a financialasset in respect of the investment in an associate. Under IAS, the gain recognised is reversed, resulting in areduction in profit of £0.3m for the year ended 31 December 2004. In addition, foreign currency gains in respect ofintangible management contracts relating to foreign operations, have increased equity by £3.5m as at 31 December 2004.The net impact of the above adjustments is to increase equity by £3.2m as at 31 December 2004. 6. The above financial information does not constitute statutory accounts as defined in section 240 of theCompanies Act 1985. The financial information for the full preceding year is based on the statutory accounts for thefinancial year ended 31 December 2004 as amended to reflect the adoption of IFRS. The statutory accounts, upon whichthe auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. Copies of the Interim Report and Accounts will be posted to shareholders and will be available for inspection at theregistered office of the Company at 80 George Street, Edinburgh EH2 3BU. This announcement and the information contained herein are not for publication or distribution in and shall notconstitute or form any part of any offer or invitation to subscribe for, underwrite or otherwise acquire, or anysolicitation of any offer to purchase or subscribe for, securities including in the United States, Canada, Australia,Japan or any other jurisdiction where such activity is unlawful. This announcement and the information contained herein do not constitute an offer of securities for sale in the UnitedStates of America. Neither this announcement nor any copy of it may be taken or distributed into the United States ofAmerica or distributed or published, directly or indirectly, in the United States of America. Any failure to complywith this restriction may constitute a violation of US securities law. The securities referred to herein have not beenand will not be registered under the US Securities Act of 1933,as amended (the "Securities Act"), and may not be offeredor sold in the United States unless they are registered under the Securities Act or pursuant to an available exemptiontherefrom. No public offering of securities is being made in the United States. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Fondul Proprietatea