6th Mar 2008 07:01
F&C Asset Management PLC06 March 2008 To: London Stock ExchangeAttention: RNSFrom: F&C Asset Management plc ("the Company")Date: Embargoed until 7am on 6 March 2008 Preliminary Announcement for the year ended 31 December 2007 (Unaudited) The F&C Asset Management plc Group ("F&C") has today announced its unauditedfinancial results for the year ended 31 December 2007. Financial and Business Highlights • First year investment phase of three-year plan successfully completed • Profit before tax of £25.9 million (2006: loss of £30.5 million) • 119 per cent. increase in performance fees to £20.8 million (2006: £9.5 million) • 7 per cent. increase in net revenues to £264.5 million (2006: £248.2 million)+ • Operating margin of 30.9 per cent. in-line with indications given to the market (2006: 36.5 per cent.) • Underlying Earnings Per Share of 10.4 pence (2006: 12.8 pence) • 28 per cent. increase in net UK retail sales compared to an industry decline of 38 per cent. • 11 per cent. increase in institutional inflows • Average fee rate increased to 22.5 basis points (2006: 21.6 basis points) • New wholesale and UK retail distribution agreements announced for 2008 2007 2006 Assets under management (at year-end) £103.6bn £104.1bn Net revenue+ £264.5m £248.2m Profit/(loss) before tax £25.9m £(30.5)m Underlying profit before taxation*++ £77.3m £88.7m Operating margin*# 30.9% 36.5% Basic earnings/(loss) per ordinary share 3.5p (4.9)p Underlying earnings per ordinary share*++ 10.4p 12.8p Interim dividend 2.0p 4.0p Proposed final dividend 4.0p 7.0p Total dividends per ordinary share 6.0p 11.0p Reconciliations between reported earnings and underlying earnings and betweenbasic earnings/(loss) per share and underlying earnings per share are given innote 4. * before amortisation and impairment of intangibles, BCP compensation receipt, restructuring costs, Investment Trust VAT expense and the cost of the Re-Investment Plan + excluding BCP compensation receipt ++ excluding minority interests # operating margin represents underlying operating profit* expressed as a percentage of net revenue Enquiries: Jason Hollands, Head of Group Communications Telephone: +44 (0) 20 7011 4168 David Allchurch/John Sunnucks - Tulchan Communications Telephone: +44 (0) 20 7353 4200 Chairman's Statement Results For the year 2007, the Company recorded a profit after tax of £18.7 million.This compares to a reported loss in 2006 of £22.5 million. Underlying earningsper share were 10.4 pence versus the 12.8 pence reported in 2006. The swing toreported profit reflects the absence of prior year distortions such asimpairment charges. The reduction in underlying earnings reflects early stageinvestment in accordance with our three-year plan. Strategy and Outlook Last year we announced a three-year plan designed to better position yourCompany for growth. The strategy required an upfront increase in investmentspending. We said that we would spend more in the short term to make more in thelong term. 2007 was year one of the three year plan. The resultant underlyingearnings are consistent with the indication given at the time.Non-earnings-related targets were also established for which Key PerformanceIndicators were agreed and tracked. The accompanying CEO Report will givefurther details on progress made to date. During the year, the Board revisited and reaffirmed its commitment to the planand to the strategy it represents. We continue to believe that the realisationof the plan is the best strategy by which to maximise shareholder value.Meanwhile, Friends Provident, our 52% shareholder, has undertaken its ownstrategic review. Among the conclusions announced by the Board of FriendsProvident was that wealth management would no longer be core to their strategy.We are therefore working with Friends Provident to seek a solution which willwork to the benefit of all parties and shareholders. Needless to say, thisdevelopment offers both challenge and opportunity. Dividend and Dividend Policy The Board are recommending a final dividend of 4.0 pence, payable on 16 May 2008to shareholders on the register at 11 April 2008. Our policy is to pursue progressive dividend growth from the rebased dividendfor 2007 and to achieve at least 1.5 times earnings cover. Board Developments There were a number of Board changes since my last statement. These have ofcourse been announced but are summarised below. Philip Moore, Chief Executive of Friends Provident, stepped down from the Boardof F&C in November 2007 upon leaving the Board of Friends Provident. We thankPhilip for his contribution during his tenure and wish him well. Sir Adrian Montague, Executive Chairman of Friends Provident, replaced PhilipMoore on the Board of F&C. He joins as a non-Executive, non-IndependentDirector. Nicholas MacAndrew joined the Board last May as an Independent non-ExecutiveDirector. He is a Chartered Accountant with experience in both finance and assetmanagement. Nick is a member of the Audit & Compliance Committee. Gerhard Roggemann joined the Board in July as an Independent non-ExecutiveDirector. Gerhard's long career in finance includes experience in the assetmanagement, banking and corporate finance sectors. He brings a particularknowledge of the German marketplace. John Heywood reached the normal retirement age of 70 in 2007 and intends toretire from the Board at the forthcoming Annual General Meeting in May. Duringhis years on the Board, John could always be counted on to ask the challengingquestion in a manner both incisive and polite. He is an example to us all. Hewill be missed. John chaired the Company's Remuneration Committee. To ensure a smooth transitionahead of his retirement and in advance of the most recent bonus round, the Chairwas assumed during the 3rd quarter by Brian Larcombe. Brian is a long standingmember of the Remuneration Committee. Summary We remain committed to the objectives of the three-year plan. 2007 was the firstyear of this effort and overall progress is encouraging. As set out further inthe Chief Executive's Report, the market and corporate situation createsuncertainty over the timetable for delivery but not to our commitment to thestrategic direction. On behalf of the Board, I would like to thank our employees for their tremendousefforts and impressive achievements. Robert JenkinsChairman6 March 2008 Chief Executive's Report Last year I reported the launch of a three-year plan, focused on targetingspecialist areas and higher margin products, to foster profitable organicgrowth. Consistent with this strategy, our Key Performance Indicators are biasedtowards growth, rather than short term operating margin or assets undermanagement. The first phase of this plan required accelerated investment in people, productsand infrastructure to ensure we deliver strong investment performance onexisting funds and upgrade our product suite, distribution resources andoperating platform. Underpinning this we identified a portfolio of eight productand marketing initiatives for 2007, as well as specific infrastructureinvestments. In spite of turbulent markets in the second half of the year and the corporatebackdrop, discussed further below, I am pleased to report good overall progressin executing the first year of our plan. Our portfolio approach to newinitiatives, combined with a careful monitoring of progress in each, provided uswith the flexibility to adjust the mix of the investment programme throughoutthe year in light of market developments. In aggregate, the revenues and costsof these initiatives were well within the parameters of our plan. The financial outcome for 2007 is slightly ahead of our plans, with underlyingearnings per share of 10.4 pence and operating margin of 30.9 per cent. Ouraverage fee rate has continued to rise progressively from 21.6 basis points in2006 to 22.5 in 2007 reflecting our focus on increasing revenue margins. Business Flows 2007 was another record year for our UK retail funds business with £703 millionof inflows into open ended funds. Our net sales rose 28 per cent. during aperiod when, according to the Investment Management Association, net sales of UKdomiciled retail funds actually declined by 38 per cent. Importantly, inflowswere across a broad number of funds including multi-manager, ethical, corporatebond, UK and Asian equity funds. We have excellent momentum in UK retail andhave secured a number of new distribution agreements with adviser firms thatshould allow us to build sales further during 2008. Having disclosed in January 2007 that we had received notification ofinstitutional withdrawals during 2007 of £5.2 billion, final institutionaloutflows totalled £6.1 billion including an £800 million withdrawal fromCambridge University notified in September 2007, following its decision toestablish its own investment office. We recorded increased institutional inflowsof £3.3 billion during the year and obtained eleven new consultant "buy"ratings. Average fees on institutional inflows were higher than average feeslost on institutional outflows, reflecting the implementation of our strategy. Investment Performance Investment performance was strong across a number of key products and assetclasses during 2007 resulting in performance fees increasing by more than 100per cent. We out-performed in core UK equities, UK high alpha, UK small cap,pan-European Equities, emerging equities, global equities, UK credit, high yieldbonds, emerging debt and convertibles. Performance was excellent in Asia exJapan and emerging equities. The latter result is particularly pleasing as itvindicates the actions taken to rebuild our emerging equities team in 2006. We under performed in US, Japanese and Continental European equities and UKgovernment bonds and global credit. Where necessary we have taken action toimprove performance in these asset classes. For example, we have appointed anew Head of European equities and, in the case of US large cap equities, wemoved all mandates to our Quantitative Equity Strategies desk at the start of2008. Socially Responsible Investment (SRI) funds under performed their unscreenedsectors during 2007 as they are naturally biased towards small caps and werelimited in their ability to participate in oil and gas and mining shares, aswell as certain defensive sectors such as tobacco. However, our SRI funds remainpositioned as market leaders against their ethically screened competitors and weexpect to see ongoing strong demand for sustainable investments. Investment in Products, People and Infrastructure New product development was a key feature of 2007, particularly in the firsthalf of the year. In addition to those products identified in my interim reportand at the launch of the three-year plan, we also launched an innovativemulti-asset Diversified Growth Fund and the first '130/30' fund focused on UKequities. We further built our sustainable investment range with new fundsfocused on ethical bonds and the investment opportunities linked to climatechange. In The Netherlands we launched our own fiduciary management service torespond to the structural changes in that market. We also continued work on our infrastructure platform. We successfully broughtin-house the element of our operations that had previously been outsourced toMellon and now have in place a single, integrated operational function thatleaves us better placed to take on new business and ensure consistency ofservice. As we recognise the efficiencies generated by these infrastructuredevelopments and other investments we would anticipate a reduction in head countfrom the end of 2007 levels. Likewise, we implemented a new front-officeDecision, Risk and Dealing (DRD) system to support the delivery of investmentperformance, particularly as we develop more sophisticated products. We have made additional investments in human capital, following on from thesubstantial upgrades of our investment teams in 2006. Much of our recruitment in2007 has been focused on the further development of our distributioncapabilities to allow us to achieve increased inflows over the coming years. Inparticular we recruited a Head of Distribution and Business Development to leadthe distribution drive in our international wholesale and institutionalbusinesses and a Head of Product Management to improve the speed of delivery ofnew product initiatives. We have strengthened distribution teams in TheNetherlands, Germany and the UK and opened an office in Sweden. We have alsoregistered our funds into a number of new jurisdictions including Austria,Switzerland and the Nordic region. Outlook With strong performance, an enhanced product suite and additional hires in salesand business development, the focus of 2008 will be distribution. In Europe wewill continue to deepen our presence in existing markets as well as extend intonew territories. We have recently concluded a distribution deal with theAllfunds Bank platform that will provide us access to a broad base ofdistributors located in several markets, including Spain and Italy. Moreover, wehave recently established distribution relationships with banks in both Italyand Russia. We are also finding opportunities outside of Europe, including a newagreement with IM Trust that will provide us with access to the Chilean marketand we are exploring initiatives in Asia and the Middle East. Against this backdrop of good progress in executing the plan there areundoubtedly challenges ahead, not least from a deteriorating economicenvironment and volatile markets. We believe that our strategy of being adiversified business by asset class, client type and geography positions us wellto weather the storm. We have no direct exposure to US sub-prime mortgages andlimited exposure to structured credit instruments. However, volatile marketsundoubtedly present significant challenges for active investors and hamper netsales. In our 2006 Annual Report & Financial Statements, we stated that: "we aresetting ourselves a target of increasing underlying EPS by 50 per cent. from2007 to 2009". Since that statement was made the Company has entered into anOffer Period and has confirmed with the Takeover Panel that this targetqualifies as a Profit Forecast for the purposes of the Takeover Code. Given itsduration the target cannot be reported on as a Profit Forecast as required bythe Takeover Code and in the absence of such a report the Company is unable toprovide an assurance that the target will be achieved. Accordingly shareholdersshould not rely upon it. As outlined earlier the Board and management are pleased with the progressto-date in implementing its strategy and during 2007 launched a number of newproducts, recruited high quality professionals and improved investmentperformance in key product areas. However, since publishing the earnings targeta number of factors have affected our business including the uncertaintysurrounding Friends Provident, the recent announcement by Friends Provident thatit is considering divesting its shareholding in the company and deterioratingmarket conditions. The combination of these factors is impacting some client andconsultant decisions on new business and has resulted in there being anincreased level of uncertainty around the timing of the growth anticipated inthe plan. Nevertheless the Board and management remains committed to thestrategic direction set out in the plan and its focus on seeking organic growthopportunities in higher revenue margin and specialist product areas. The Board and management believe that the group will increase its rate ofprogress once market conditions stabilise and our long term ownership isresolved. Alain L. GrisayChief Executive6 March 2008 Consolidated Income Statementfor the year ended 31 December 2007 2007 2006 Notes £m £mRevenueInvestment management fees 1 267.2 257.6Other income 1 10.6 3.7 Total revenue 277.8 261.3Fee and commission expenses 1 (13.3) (10.5) Net revenue 1 264.5 250.8 Net gains and investment income on unit-linked assets 45.0 106.7Movement in fair value of unit-linked liabilities (43.9) (105.0)Operating expensesOperating expenses (183.8) (159.4)Investment Trust VAT expense 2 (4.2) -Re-Investment Plan costs (6.4) (11.6)Amortisation of intangible assets - management contracts 5 (42.4) (43.0)Impairment of intangible assets - management contracts 5 - (58.5) Total operating expenses before restructuring costs (236.8) (272.5) Operating profit/(loss) before restructuring costs 28.8 (20.0)Restructuring costs - (9.7) Operating profit/(loss) after restructuring costs 28.8 (29.7)Finance revenue 23.8 20.6Finance costs (27.3) (22.0)Impairment in associates and other financial investments - (0.8)Loss on disposal of associates - (0.1)Share of profit of associates 0.6 1.5 Profit/(loss) before tax 25.9 (30.5)Tax - Policyholders (0.6) (0.9)Tax - Shareholders (6.6) 8.9 Tax (expense)/income 3 (7.2) 8.0 Profit/(loss) for the year 18.7 (22.5) Attributable to: Equity holders of the parent 17.1 (23.5)Minority interests 1.6 1.0 Profit/(loss) for the year 18.7 (22.5) Basic earnings/(loss) per share 4(a) 3.54 (4.91)p Memo - dividends paid 4(b) 43.5 52.7 Memo - dividends proposed 4(b) 19.7 33.8 Consolidated Balance Sheetas at 31 December 2007 As at As at Notes 31 December 31 December 2007 2006 £m £mAssetsNon-current assetsProperty, plant and equipment 11.4 12.8Intangible assets:- Goodwill 5 569.9 569.9- Management contracts 5 253.7 284.3- Other intangible assets 5 1.1 1.1 5 824.7 855.3 Other financial investments 3.8 2.1Other receivables 0.8 2.5Investment in associates - 1.4Deferred acquisition costs 8.1 7.9Deferred tax assets 29.0 33.4 Total non-current assets 877.8 915.4 Current assetsFinancial investments 1,042.8 1,128.8Reinsurance assets 2.3 2.4Stock of units and shares 0.8 0.7Trade and other receivables 96.7 86.2Deferred acquisition costs 3.8 3.4Cash and cash equivalents:- Policyholders 58.2 53.3 - Shareholders 216.2 214.3 274.4 267.6 Total current assets 1,420.8 1,489.1 Total assets 2,298.6 2,404.5 LiabilitiesNon-current liabilitiesInterest bearing loans and borrowings 258.7 258.5Other payables 7.2 4.0Provisions 10.2 9.2Pension deficit 6 26.8 45.4Employee benefits 2.0 -Deferred income 12.1 13.7Deferred tax liabilities 73.4 86.1 Total non-current liabilities 390.4 416.9 Current liabilitiesInvestment contract liabilities 1,090.1 1,175.1Insurance contract liabilities 2.3 2.4Interest bearing loans and borrowings - 5.0Trade and other payables 58.9 62.2Provisions 10.1 9.3Employee benefits 33.7 32.8Deferred income 4.3 4.2Current tax payable 15.3 12.8 Total current liabilities 1,214.7 1,303.8 Total liabilities 1,605.1 1,720.7 Equity attributable to equity holders of the parentShare capital 7 0.5 0.5Share premium account 33.8 32.6Merger reserve 499.3 520.7Other reserves 13.6 (2.7)Retained earnings 145.2 132.3 Total equity attributable to equity holders of the parent 8 692.4 683.4Minority interests 8 1.1 0.4 Total equity 8 693.5 683.8 Total liabilities and equity 2,298.6 2,404.5 Consolidated Statement of Recognised Income and Expensefor the year ended 31 December 2007 2007 2006 Notes £m £m Profit/(loss) for the year 18.7 (22.5) Foreign exchange movements on translation of foreign operations 14.9 (4.4)Actuarial gains on defined benefit pension schemes 11.1 2.5Gain on available for sale financial investments 1.9 1.9Fair value gains on available for sale financial investments - (2.4)transferred to the Income StatementTax expense on items taken directly to equity 3 (4.5) (0.8)Other - 0.1 Net income/(expense) recognised directly in equity 23.4 (3.1) Total recognised income and expense for the year 42.1 (25.6) Attributable to:Equity holders of the parent 40.5 (26.6)Minority interests 1.6 1.0 42.1 (25.6) Condensed Consolidated Cash Flow Statementfor the year ended 31 December 2007 2007 2006 £m £m Cash generated from operating activities 85.0 129.5Income tax paid (21.3) (18.3) Net cash inflow from operating activities 63.7 111.2 Cash flows from investing activitiesAcquisition of property, plant and equipment (2.2) (4.1)Refund of acquisition consideration for loss of Resolution Life funds - 27.0Purchase of intangibles - software (0.8) (0.7)Return of capital from investments 0.1 0.1Distributions to minority interests (0.9) (0.5)Repayment of loan from associate (ISIS EP LLP) 1.0 -Payments to acquire investments (2.0) (1.8)Proceeds from disposal of investments - 0.2Expenses of F&CGH Group acquisition (0.1) (0.2)Distributions received from associates 1.9 0.4Investment income - investments 3.8 6.4Investment income - interest and dividends 10.6 5.7 Net cash inflow from investing activities 11.4 32.5 Cash flows from financing activitiesProceeds from issue of share capital 1.2 1.9Repayment of loan from Eureko B.V. - (9.0)Repayment of loans from FP Group (5.0) (205.0)Proceeds from long-term borrowings - 260.0Payments in respect of expenses for long-term borrowings (0.3) (2.1)Interest paid on Loan Notes (17.6) -Interest paid on other loans (0.1) (14.0)Other interest paid (0.2) (0.5)Equity dividends paid (43.5) (52.7)Interest on Preference Shares (0.1) (0.1)Cash movements from dealing in own shares (2.2) (0.7) Net cash outflow from financing activities (67.8) (22.2) Net increase in cash and cash equivalents 7.3 121.5Effect of exchange rate fluctuations on cash held (0.5) (0.1)Cash and cash equivalents at 1 January 267.6 146.2 Cash and cash equivalents at 31 December 274.4 267.6 Cash and cash equivalentsShareholders 216.2 214.3Policyholders 58.2 53.3 274.4 267.6 Basis of preparation and accounting policies Basis of preparation The financial information included in this announcement has been extracted fromthe Consolidated Financial Statements of F&C Asset Management plc and itssubsidiaries (the Group) which have been prepared in accordance withInternational Financial Reporting Standards, as adopted by the European Union("adopted IFRS"), and those parts of the Companies Act 1985 applicable tocompanies reporting under adopted IFRS. The Consolidated Financial Statementsare presented in millions of pounds Sterling, rounded to one decimal place,except where otherwise indicated. Accounting estimates assumptions and judgements The preparation of the financial statements necessitates the use of estimates,assumptions and judgements. These estimates, assumptions and judgements affectthe reported amounts of assets, liabilities, contingent assets and liabilitiesat the balance sheet date as well as the reported income and expenses for theyear. While estimates are based on management's best knowledge and judgementusing information and financial data available to them, the actual outcome maydiffer from these estimates. Accounting policies The accounting policies adopted in the preparation of the Consolidated FinancialStatements for the year to 31 December 2007 are consistent with those followedin the preparation of the Annual Report and Financial Statements for the yearended 31 December 2006 and have been applied consistently throughout the Groupfor the purposes of the Consolidated Financial Statements for the years ended 31December 2007 and 31 December 2006. The 2006 Annual Report and FinancialStatements are available on our website (www.fandc.com) or from our registeredoffice. Notes to the Consolidated Financial Statements 1. Net revenue 2007 2006 £m £m Investment management fees 246.4 248.1Performance related management fees 20.8 9.5 Investment management fees 267.2 257.6 Compensation received from BCP in respect of withdrawal of funds under - 2.6managementOther income 10.6 1.1 Total other income 10.6 3.7 Renewal commission on open-ended investment products (8.4) (7.6)Other selling expenses (4.9) (2.9) Fee and commission expenses (13.3) (10.5) Total net revenue 264.5 250.8 Other income in 2007 includes: • a £2.4m receipt from Eureko B.V. in settlement of the historic pension liabilities arising on non-UK defined benefit schemes acquired as part of the merger in 2004; • £2.4m of income was received from Friends Provident as reimbursement of costs associated with the potential acquisition of Resolution Asset Management; and • £5.2m income arising as a result of the termination of outsourced investment operations, including the release of deferred income. 2. Investment Trust VAT expense 2007 2006 £m £m Investment Trust VAT expense 4.2 - During the year, litigation between an investment trust and HMRC concluded,resulting in investment management fees paid by investment trusts not beingsubject to VAT. This expense represents VAT and onerous interest which may be payable toinvestment trust clients in respect of historic periods beyond the amountrecoverable from HMRC. Due to the non-recurring nature of this expense the directors have excluded thisfrom underlying earnings. 3. Income tax (a) Analysis of tax expense/(income) in the year The major components of tax expense/(income) are: 2007 2006Consolidated Income Statement £m £mCurrent income tax:UK 20.7 18.5Double tax relief in the UK on overseas earnings (8.9) (5.3)Overseas 10.5 9.0Adjustments in respect of previous years 0.3 0.5Deferred income tax:Relating to origination and reversal of temporary differences (10.1) (28.9)Adjustments in respect of previous years (1.3) (1.8)Adjustments in respect of Corporation Tax rate change (4.0) - Tax expense/(income) reported in the Consolidated Income Statement 7.2 (8.0) 2007 2006Consolidated Statement of Changes in Equity £m £m Deferred and current income tax related to items charged or credited directly to equity:Gain/(loss) on financial investments 0.6 (0.1)Actuarial gains on defined benefit pension schemes 3.4 0.9Adjustments in respect of Corporation Tax rate change 0.5 - Tax expense recognised directly in equity 4.5 0.8 (b) Factors affecting the tax expense/(income) for the year A reconciliation between the actual tax expense/(income) and the accountingprofit/(loss) multiplied by the Group's domestic tax rate for the years ended 31December 2007 and 2006 is as follows: 2007 2006 £m £m Profit/(loss) before tax 25.9 (30.5) At the Group's statutory income tax rate of 30.0% (2006: 30.0%) 7.8 (9.1)Adjustments in respect of previous years (1.0) (1.3)Disallowed expenses 2.7 1.2Non-taxable income (0.3) (0.4)Overseas tax 0.9 0.6Utilisation of unrecognised losses - (0.3)Share-based payments 1.1 1.3Corporation Tax rate change (4.0) - Tax expense/(income) reported in the Consolidated Income Statement 7.2 (8.0) (c) Factors affecting future tax charges The Finance Bill 2007, which has been substantially enacted, changes the UKCorporation Tax rate from 30% to 28% with effect from 31 March 2008. The IncomeStatement for the year ended 31 December 2007 reflects a £4.0m tax credit as aresult of the Group's deferred tax balances being revised to the rate at whichtiming differences are expected to reverse. This credit comprises two elements:a £0.3m tax charge which impacts the underlying earnings of the Group and a£4.3m tax credit which is excluded from underlying earnings, to be consistentwith the treatment of the cost to which it relates, namely the amortisation ofintangible assets and the cost of the Re-Investment Plan. £0.5m has been charged to equity reflecting the deferred tax that is expected toreverse through equity. 4. Earnings per share and dividends (a) Earnings per share Basic earnings per share amounts are calculated by dividing profit/(loss) forthe year attributable to ordinary equity holders of the parent by the weightedaverage number of Ordinary Shares outstanding during the year. In the opinion of the Directors the "underlying profit" (defined as the profitbefore amortisation and impairment of intangibles, the BCP compensation receipt,restructuring costs, Investment Trust VAT expense and the cost of theRe-Investment Plan) more accurately reflects the underlying earnings performanceof the Group. 2007 2006 Basic BasicReconciliation of earnings per share p p Earnings/(loss) per Ordinary Share 3.54 (4.91)Investment Trust VAT expense, net of tax 0.60 -Cost of the Re-Investment Plan, net of tax 0.98 1.81Amortisation of intangibles, net of tax 5.25 6.29Impairment of intangibles, net of tax - 8.54BCP compensation receipt, net of tax - (0.38)Restructuring costs, net of tax - 1.45 Underlying earnings per share 10.37 12.80 The following reflects the income and share capital data used in the basic anddiluted earnings per share calculations: 2007 2006Earnings £m £m Earnings/(loss) attributable to ordinary equity holders of the parent for 17.1 (23.5)basic earnings/(loss) per shareInvestment Trust VAT expense, net of tax 2.9 -Cost of the Re-Investment Plan, net of tax 4.8 8.7Amortisation of intangibles, net of tax 25.4 30.1Impairment of intangibles, net of tax - 40.9BCP compensation receipt, net of tax - (1.8)Restructuring costs, net of tax - 7.0 Underlying earnings attributable to ordinary equity holders of the parent 50.2 61.4 2007 2006Share capital No. No.Weighted average number of Ordinary Shares for basic earnings/(loss) per share* 484,192,096 479,285,850 * Excluding own shares held by Employee Benefit Trusts (b) Dividends 2007 2006 £m £m Declared and paid during the year:Equity dividends on Ordinary shares:Final dividend for 2006: 7.0p (2005: 7.0p) 33.8 33.5Interim dividend for 2007: 2.0p (2006: 4.0p) 9.7 19.2 43.5 52.7 Proposed for approval at the Annual General Meeting: Equity dividends on Ordinary Shares Final dividend for 2007: 4.0p (2006: 7.0p) 19.7 33.8 5. Goodwill and other intangible assets Management Software and Goodwill contracts licences Total £m £m £m £mCost:At 1 January 2006 578.0 619.8 4.1 1,201.9Additions - - 0.2 0.2Disposals (8.1) (43.2) (0.1) (51.4)Foreign exchange losses - (3.3) - (3.3) At 31 December 2006 569.9 573.3 4.2 1,147.4Additions - - 0.8 0.8Disposals - - (0.2) (0.2)Foreign exchange gains - 11.8 0.1 11.9 At 31 December 2007 569.9 585.1 4.9 1,159.9 Amortisation and impairment:At 1 January 2006 - 203.7 2.5 206.2Amortisation charge for the year - 43.0 0.7 43.7Disposals - (16.2) (0.1) (16.3)Impairment losses - 58.5 - 58.5 At 31 December 2006 - 289.0 3.1 292.1Amortisation charge for the year - 42.4 0.8 43.2Disposals - - (0.1) (0.1) At 31 December 2007 - 331.4 3.8 335.2 Net book values: At 31 December 2005 578.0 416.1 1.6 995.7 At 31 December 2006 569.9 284.3 1.1 855.3 At 31 December 2007 569.9 253.7 1.1 824.7 Goodwill arose on business combinations and relates to the business as a wholefollowing the fundamental integration, rationalisation and re-organisationswhich took place after each acquisition. Goodwill is not amortised but requiresto be tested for impairment annually. This annual impairment review of goodwilldetermined a surplus, therefore no impairment has been recognised in the year(2006 - £nil). During 2007, no indicators of impairment existed and therefore no impairmentreview of management contracts has been undertaken this year. During 2006, anaggregate impairment charge of £58.5m was recognised in respect of managementcontracts. 6. Defined benefit pension schemes The following tables summarise the aggregate defined benefit pension deficit of the Group and the key assumptions whichdrive the quantum of the deficit: 31 December 31 December 2007 2006 £m £m Defined benefit pension obligations (177.4) (179.8)Fair value of plan assets 150.6 134.4 Total pension deficit (26.8) (45.4) Expected long-term rates of return on plan assets 31 December 31 December 2007 2006 Equities 7.00% 7.00%Gilts 5.00% 5.00%Corporate Bonds 5.60% 5.00%Other 7.00% 7.00%LDI Pools 4.50% n/aCash 4.50% 4.50% Key assumptions used to determine benefit obligations 31 December 31 December 2007 2006 Discount rate 5.50% - 5.60% 4.60% - 5.00%Rate of salary increase 2.50% - 4.55% 2.50% - 4.25%Rate of inflation increase 2.00% - 3.30% 1.75% - 3.00% Mortality assumptions The mortality assumptions used for the UK defined benefit schemes at 31 Decemberare: 31 December 31 December 2007 2006Mortality table for males retiring in the future PMA92MCYOB - 1 PMA92B1965MC - 1Mortality table for females retiring in the future PFA92MCYOB - 1 PFA92B1965MC - 1Mortality table for current male pensioners PMA92MCYOB - 1 PMA92B1935MC - 1Mortality table for current female pensioners PFA92MCYOB - 1 PFA92B1935MC - 1 To demonstrate what these mortality assumptions mean, the expected ages at deathof members retiring at age 60 are as follows: 31 December 31 December 2007 2006 Years Years Expected age at death for a male retiring in the future at age 60 89 88Expected age at death for a female retiring in the future at age 60 92 91Expected age at death for a current male pensioner aged 60 88 86Expected age at death for a current female pensioner aged 60 91 89 7. Share capital The Group recorded the following amounts within shareholders' equity: 31 December 2007 31 December 2006 £m £m Issued Ordinary Shares of 0.1p each 0.5 0.5 The number of Ordinary Shares in issue were as follows: 31 December 2007 31 December 2006 No. No. Allotted, issued and fully paid Ordinary Shares of 0.1p each 495,705,530 484,775,590 Ordinary Shares held by Employee Benefit Trusts (3,433,228) (2,472,502) Ordinary Shares available in the market 492,272,302 482,303,088 8. Condensed consolidated reconciliation of equity 2007 2006 £000 £000 Total equity at 1 January 683.8 745.4 Items reported in the Consolidated Statement of Recognised Income and Expense 42.1 (25.6) Ordinary dividends paid (43.5) (52.7) Share-based payment charges credited to equity 13.0 15.7 Share capital allotted on exercise of options 1.2 1.9 Distributions to minority interests (0.9) (0.5) Cash received into Treasury as settlement of options 0.2 0.3 Purchase of own shares (2.4) (0.7) Total equity at 31 December 693.5 683.8 Attributable to:Equity holders of the parent 692.4 683.4Minority interests 1.1 0.4 693.5 683.8 9. Post Balance Sheet events On 31 January 2008, Friends Provident plc, the Company's 52% majorityshareholder, announced the results of its strategic review. Among theconclusions announced by Friends Provident was that wealth management was nolonger core to its strategy and as a result it may seek to divest of itsshareholding in F&C. The F&C Board is working with Friends Provident to find asolution which will meet the needs of all parties. The Directors do not believe this announcement has any material financial impacton the financial position of the Group at 31 December 2007, as reported herein.Whilst no certainty exists as to the potential outcome, it is possible that acourse of action could trigger change of control clauses which exist within anumber of the Group's contractual arrangements. 10. Other information The financial information set out above for the years ended 31 December 2007 and31 December 2006 has been extracted from the unaudited and audited FinancialStatements respectively for those years. The information does not constitutestatutory accounts in terms of the Companies Act 1985. The Annual Report andFinancial Statements for 2006 received an unqualified audit opinion and havebeen filed with the Registrar of Companies. The Report and Financial Statementsfor the year ended 31 December 2007 will be filed within the statutory period,following the Annual General Meeting. Copies of the 2007 Annual Report and Financial Statements will be posted toshareholders later this month and will be available for inspection at theregistered office of the company at 80 George Street, Edinburgh EH2 3BU. A copy of the analyst presentation which takes place at 9am today will beavailable on the Company's website www.fandc.com. A video recording of thispresentation will be made and will also be available on the Company's website. This announcement and the information contained herein are not for publicationor distribution in and shall not constitute or form any part of any offer orinvitation to subscribe for, underwrite or otherwise acquire, or anysolicitation of any offer to purchase or subscribe for, securities including inthe United States, Canada, Australia, Japan or any other jurisdiction where suchactivity is unlawful. This announcement and the information contained herein do not constitute anoffer of securities for sale in the United States of America. Neither thisannouncement nor any copy of it may be taken or distributed into the UnitedStates of America or distributed or published, directly or indirectly, in theUnited States of America. Any failure to comply with this restriction mayconstitute a violation of US securities law. The securities referred to hereinhave not been and will not be registered under the US Securities Act of 1993, asamended (the "Securities Act") and may not be offered or sold in the UnitedStates unless they are registered under the Securities Act or pursuant to anavailable exemption therefrom. No public offering of securities is being madein the United States. Forward-looking statements This announcement may contain certain "forward-looking statements" with respectto certain of the Group's plans and its current goals and expectations relatingto its future financial condition, performance, results, strategy andobjectives. Statements containing the words "believes", "intends", "expects","plans", "seeks" and "anticipates", and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertaintybecause they relate to future events and circumstances which are beyond theGroup's control including among other things, UK domestic and global economicand business conditions, market related risks such as fluctuations in interestrates and exchange rates, and the performance of financial markets generally,the policies and actions of regulatory authorities, the impact of competition,inflation and deflation, the timing, impact and other uncertainties of futureacquisitions or combinations within relevant industries, and the impact ofchanges in capital, solvency or accounting standards, and tax and otherlegislation and regulations in the jurisdictions in which the Group operates. As a result, the Group's actual future financial condition, performance andresults may differ materially from the plans, goals, and expectations set forthin the Group's forward-looking statements. F&C undertakes no obligation toupdate the forward-looking statements contained in this announcement. Nothing inthis announcement should be considered as a profit forecast. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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