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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gartmore Grp | LSE:GRT | London | Ordinary Share | KYG917851084 | ORD 0.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 119.80 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Gartmore Group Limited
Preliminary results for the year ended 31 December 2010
HIGHLIGHTS AND RESULTS
2010 2009
Net Revenue GBP208.7m GBP223.7m
EBITDA (1) GBP55.0m GBP54.8m
Underlying cash earnings (2) GBP39.2m GBP19.5m
Underlying cash earnings per share (3) 12.3p 10.5p
Assets under management GBP17.2bn GBP22.2bn
Net new business (GBP7.2bn) GBP0.3bn
* 60%, 72% and 74% of mutual funds above median over 1, 3 and 5 years
respectively
* 6.6% net performance across alternative funds
* Net debt GBP49.5m at 31 December 2010
* Following the announcement of the recommended acquisition of Gartmore by
Henderson Group, a meeting of Gartmore shareholders is anticipated to be
held at 9.00 a.m. (GMT) on 21 March 2011 to approve the scheme of
arrangement.
FINANCIAL UPDATE
* As at 31 December 2010 Gartmore had AUM of GBP16.5bn taking into account
notifications of redemptions of GBP0.7bn received up to 7 January 2011.
* Since the year end the Group has experienced net outflows (net of notified
redemptions) in January of GBP390m and up to 18 February GBP402m. However,
since the year end markets have been positive, partially offsetting these
outflows.
Jeffrey Meyer, CEO, commented:
"We were pleased with our progress through the end of the first quarter 2010,
but events after this caused us to consider other strategic opportunities in
order to preserve value for shareholders and maintain client support. In view
of this the proposed transaction with Henderson Group represents a good outcome
for shareholders while ensuring continuity for clients. The strategic and
financial benefits of the transaction are significant. The plan for integration
is proceeding on schedule, with the majority of portfolio managers representing
84% of AUM joining Henderson."
(1) EBITDA consists of operating earnings of GBP53.1m (2009: GBP53.1m) before:
depreciation of GBP2.0m (2009: GBP1.7m), tax on share of profit from the Joint
Venture of GBP0.4m (2009: GBPnil), costs of the strategic review of GBP2.3m (2009: GBP
nil), and the one-off GBP2.8m release of the dilapidations provision (2009: GBP
nil).
(2) Underlying cash earnings are reconciled to profit or loss for the financial
year in Note 10 below.
(3) The weighted average number of shares for 2010 is 317,762,000 on a fully
diluted basis (2009: 185,579,000). The current number of shares in issue is
363,940,908.
There will be a conference call for analysts and investors at 2.00 p.m. (GMT).
Dial in details: UK Free Call: 0800 073 1806
UK Standard International: +44 1452 561263
USA Free Call: 1866 223 0502
Conference ID: 42183832
A replay of the call will be available on the website following the call http:/
/www.gartmore.com.
Contacts
For further information please contact:
Jeffrey Meyer, CEO Keith Starling, CFO
+44 20 7782 2045 +44 20 7782 2569
Jeffrey.meyer@gartmore.com Keith.starling@gartmore.com
Brunswick Group:
Azadeh Varzi Helen Barnes
+44 20 7404 5959 +44 20 7404 5959
avarzi@brunswickgroup.com hbarnes@brunswickgroup.com
CHIEF EXECUTIVE'S STATEMENT
Dear Shareholders:
2010 was a difficult year. We faced a number of challenges. In each case, our
focus was to preserve value for shareholders, maintain performance for clients
and communicate clearly. As we have done in the past, we addressed each issue
with thorough analysis, full consideration of the options, and broad debate
both in terms of the range of solutions considered and the parties included. We
benefited from a strong and heavily engaged board, and from the experience and
insight of Hellman & Friedman.
Over the past several years, we made changes intended to strengthen our business
model. We hired new portfolio managers in key demand areas. We reorganized
distribution and brought in new leadership. We launched new products more relevant
to investors' needs. We reduced costs and raised performance standards. We worked
on creating a culture of increased accountability, better execution and the need
for greater partnership both internally and externally. We took steps to reduce
our reliance on a key investment team. This all had to be done organically due to
the limitations of our leveraged capital structure. In general, we were pleased
with our progress through the end of the first quarter, but events in subsequent
quarters caused us to consider other strategic opportunities to preserve shareholder
value and maintain client support.
Under the circumstances, the proposed transaction with the Henderson Group
represents a good outcome. The proposal, which is fully set out in a circular
which you will receive shortly, is to exchange each Gartmore share for 0.6667
of a Henderson share. In addition, Gartmore shareholders will be eligible to
receive the Henderson 2010 final dividend which is due to be paid in May. We
have already received support from Gartmore shareholders that represent 57% of
our stock. In addition, the majority of our portfolio managers, representing
84% of our AUM (including sub-advised AUM), will join Henderson.
The strategic and financial benefits of the transaction are significant.
Henderson is strongly committed to the alternative asset classes, UK and
European distribution of mutual funds. The fit between investment teams is
complementary and the culture of independence of each team's investment process
is the same in both firms. Lastly, the financial synergies that result from
combining the two businesses and achieving greater economies of scale are
expected to be significant and will become more evident in the quarters to
come.
In regards to our investment performance in 2010, we saw an overall improvement
in long-only results, but relatively low returns in our alternative products.
For the year, 60%, 72% and 74% of our retail funds were above median over 1, 3
and 5 year periods, respectively. Our alternative funds achieved an asset
weighted return of 6.6%, net of fees, which compares favourably to 6.3% for the
relevant index.
In regards to our financial results, net revenue was GBP209m, down 7% when
compared to prior year's results. This number was negatively affected by
performance fee revenue which was GBP35m as compared to GBP66m in 2009. Operating
costs were reduced by GBP14m, or 8%, as compared to the prior year due to lower
variable remuneration. In addition, in December 2010 the Company implemented a
firm-wide cost saving programme which will generate GBP10m in annual savings.
EBITDA was GBP55m which is basically in line with 2009 results. Underlying cash
earnings per share increased to 12.3p, up 17%, following the conversion of a
portion of remuneration costs to longer term equity based incentives and lower
interest costs. Gross debt at 31 December 2010 stood at GBP246.5m with total cash
balances of GBP197.0m. Net debt was therefore GBP49.5m at the end of the year
compared to GBP85.3m at the end of 2009, a reduction of GBP35.8m following an
improvement in operating cashflow compared to the prior year.
We remain optimistic about the industry in general and the increasing demand
for absolute return products. We think the enlarged Henderson Group will be
strongly positioned to benefit.
I would like to thank our clients, shareholders and staff for their resilience
and loyalty during 2010. We are grateful for all the client support we received
during the year. We are equally grateful to our staff who showed tremendous
perseverance and commitment. Lastly, I would like to thank our Board. Their
collective experience and tireless contribution to the firm were invaluable.
Jeffrey S. Meyer
Chief Executive Officer
BUSINESS REVIEW
INTRODUCTION
Gartmore is an established traditional equity and alternative asset management
firm, whose mutual funds, alternative funds and segregated mandates are
distributed to clients in the United Kingdom, Continental Europe, North
America, Japan and South America. We are one of the few firms with significant
expertise in both long only and alternative investments and so are ideally
positioned for the convergence of traditional and alternative investment
management.
At 31 December 2010, Gartmore had GBP17.2bn of AUM split across three product
groups - mutual funds, alternative funds and segregated mandates. Of this total
AUM, 88% was invested in listed equities. The investment function is
underpinned by a common distribution and administration platform and a
centralised risk management framework.
We distribute products throughout the world, through six distribution teams,
servicing both retail and institutional clients. As well as in London, Gartmore
has offices in Tokyo, Frankfurt, Madrid and Boston.
MARKET PERFORMANCE
Gartmore's business results are heavily dependent upon equity markets and so
are influenced by the global economic climate and its impact on capital
markets.
Global equity markets rose in 2010. At 31 December 2010, the MSCI World Index
(in Sterling terms) was up 13% from 31 December 2009. The average level of this
index was up 19% in 2010 compared to 2009.
DEVELOPMENT OF ASSETS UNDER MANAGEMENT
Assets under management declined from GBP22.2bn at the end of 2009 to GBP17.2bn at
31 December 2010. There were net outflows during 2010 of GBP7.2bn, however market
and investment performance partially offset this, increasing AUM by GBP2.2bn.
Breakdown of changes in AUM by product
Year ended 31 December
2010 2009
(GBPbn) (GBPbn)
Alternative funds
Opening AUM 3.9 4.2
Subscriptions 0.9 1.6
Redemptions (3.0) (2.0)
Net flows (2.1) (0.4)
Performance 0.3 0.1
Closing AUM 2.1 3.9
Mutual funds
Opening AUM 12.2 9.5
Subscriptions 3.1 3.8
Redemptions (5.4) (3.3)
Net flows (2.3) 0.5
Performance 1.2 2.2
Closing AUM 11.1 12.2
Segregated mandates
Opening AUM 6.1 5.0
Subscriptions 0.7 1.6
Redemptions (3.5) (1.4)
Net flows (2.8) 0.2
Performance 0.7 0.9
Closing AUM 4.0 6.1
Total AUM 17.2 22.2
Alternative fund AUM decreased to GBP2.1bn as at 31 December 2010 from GBP3.9bn as
at 31 December 2009. The Group saw net inflows of GBP252m in the first quarter of
2010, continuing the strong sales momentum seen in the second half of 2009. The
departure of two key fund managers from the European Large Cap team resulted in
outflows over the remainder of the year. Of the total net outflows from
alternative funds in 2010 of GBP2.1bn, GBP1.9bn or 90% was from funds managed by
the European Large Cap team. Alternative fund AUM benefited from positive
investment performance in 2010, with weighted average returns of 6.6% net of
all fees.
Mutual fund AUM decreased to GBP11.1bn as at 31 December 2010 from GBP12.2bn as at
31 December 2009. The Group suffered GBP2.3bn of net outflows, principally from
European equity funds, which accounted for 75% of the outflows. 94% of the
Group's mutual fund AUM is in equities and therefore it benefited significantly
from market performance.
Segregated mandate AUM reduced to GBP4.0bn as at 31 December 2010 from GBP6.1bn as
at 31 December 2009. Net outflows were GBP2.8bn, again principally from the
mandates managed by the European Large Cap team (58%) and to a lesser extent
the Global Equity team (27%). Assets managed under segregated mandates are
substantially invested in equities, and so investment performance increased as
the equity markets improved in 2010.
In all cases, the greatest outflows occurred in the second quarter when a key
fund manager in the European Large Cap team was suspended, and in the fourth
quarter following the retirement of another fund manager in the European Large
Cap team.
The table below provides additional information on our 2010 flows.
Quarterly net new business inflows/(outflows) in 2010 by product
Net new Alternative Mutual Funds Segregated Total
business Funds Mandates
GBPm GBPm GBPm GBPm
First quarter 252 (221) 95 126
Second quarter (665) (508) (607) (1,780)
Third quarter (421) (262) (30) (713)
Fourth quarter (1,263) (1,341) (2,197) (4,801)
(2,097) (2,332) (2,739) (7,168)
Update
The Gartmore Group's AUM of GBP17.2bn as at 31 December 2010 is stated without
reference to notified redemptions. Taking into account notified redemptions
received by the Gartmore Group as at 7 January 2011 of GBP0.7bn in aggregate,
comprising GBP0.5bn from alternative funds (including GBP0.2bn for the 1 January
2011 dealing day), GBP0.1bn from mutual funds and GBP0.1bn from segregated
mandates, the Gartmore Group's AUM as at 31 December 2010 was GBP16.5bn.
Since the year end the Group has experienced net outflows (net of notified
redemptions) in January of GBP390m and up to 18 February GBP402m. However, since
the year end markets have been positive, partially offsetting these outflows.
Clients
Gartmore has approximately 174,000 mutual fund client accounts, 289 alternative
fund clients and 33 segregated mandate clients. These clients are located in
the UK, Continental Europe, the Americas and Asia.
Total AUM by Client Location 2010 2009
UK 55% 51%
Continental Europe 18% 28%
Asia, including Japan 13% 7%
North America 8% 8%
South America 6% 5%
Rest of World 0% 1%
100% 100%
Alternative Funds
Gartmore has been managing alternative funds since 1999 and now manages AUM of
GBP2.1bn in 15 investment strategies. All the investment strategies are equity
long/short. The clients investing in our alternative funds are as follows:
Alternative Funds by Client Type 2010 2009
Institutions, Pensions Schemes and 79% 69%
Institutional Fund of Hedge Funds
Family Offices, High Net Worth Individuals 11% 14%
Private Banks and Wealth Managers 4% 3%
Fund of Hedge Funds 3% 7%
Managed Account Platforms 3% 7%
100% 100%
The proportion of clients that are institutional, and institutional quality
fund of hedge funds, has increased from 69% at the end of 2009 to 79% by the
end of 2010. The clients investing in our alternative funds are spread across
Asia, Continental Europe, the UK, North America and the rest of the world. As a
consequence of the loss of AUM, the proportion of clients in Continental Europe
also declined during 2010 following redemptions from the European Large Cap
equity team.
Alternative Funds by Client 2010 2009
Location
Asia, including Japan 45% 22%
Continental Europe 21% 30%
UK 17% 33%
North America 15% 12%
Rest of World 2% 3%
100% 100%
Mutual Funds
Of the GBP11.1bn (2009: GBP12.2bn) of mutual fund AUM, GBP7.0bn (2009: GBP7.3bn) is in
UK OEICS, GBP3.7bn (2009: GBP4.4bn) is in Luxembourg based SICAVs and GBP0.4bn (2009:
GBP0.5bn) is in UK Investment Trusts. This AUM has been distributed by sales
teams as set out in the following table.
Mutual Funds by Sales Team 2010 2009
UK 64% 62%
Northern Europe 13% 15%
Institutional 12% 11%
Southern Europe & South America 11% 12%
100% 100%
Segregated Mandates
Gartmore currently runs 36 (2009: 60) segregated accounts for 33 (2009: 53)
clients. The geographical breakdown of the GBP4.0bn (2009: GBP6.1bn) of AUM managed
is shown below. The proportion of assets attributable to clients in Continental
Europe has declined following redemptions from the European Large Cap equity
team.
Segregated Mandates by Client 2010 2009
Location
UK 35% 30%
North America 26% 23%
Asia, including Japan 26% 14%
Continental Europe 13% 32%
Rest of World 0% 1%
100% 100%
Investment Capabilities
Our business is diversified across equity asset classes. The GBP17.2bn of AUM is
managed across twelve investment teams, eleven of which are focused on
equities. Of the twelve investment teams, five manage both long-only and long/
short strategies.
Following the reduction in European equity AUM, three investment capabilities -
Emerging Markets, European Equities and UK Equities - are approximately equal
in size and make up 60% of AUM. Global Equities represents 14% of AUM.
The private equity AUM is managed by a team which in 2010 merged with the
private equity team of Hermes Fund Managers Limited. The Board considers that
this 50:50 joint venture between Gartmore and Hermes, named Hermes GPE, which
has been operational since 1 April 2010, should significantly improve the
growth prospects of the Group's private equity business.
AUM by Equity Capabilities 2010 2009
Emerging Markets 21% 15%
European Equities 20% 38%
UK Equities 19% 13%
Global Equities 14% 14%
Private Equity 7% 5%
Fixed Income 3% 3%
Other 16% 12%
100% 100%
INVESTMENT PERFORMANCE
Gartmore has a record of strong historical fund performance.
Alternative Funds
For the year ended 31 December 2010, the Group's alternative funds benefited
from positive investment performance producing an AUM weighted return of 6.6%,
which compared favourably against the Eurohedge European Equity long/short
Index, which recorded returns of 6.3% over the same period.
Period - annualised return net of all fees Gartmore's Eurohedge
Alternative European
Funds Equity
Long/Short
USD Index
Since Inception 15.9% 8.9%
5 years 9.6% 5.8%
3 years 8.3% 2.2%
1 year 6.6% 6.3%
Alternative fund awards won recently include:
* Hedge Funds Review "Best Long/Short Equity Hedge Fund 2010", Alphagen
Volantis
* Eurohedge "Best European Equity Fund 2009", Alphagen Tucana
* Eurohedge "Best Small Cap Fund 2009", Alphagen Volantis
* Eurohedge "Best Global Equity Fund 2009", Alphagen Rhocas
Mutual Funds
As at 31 December 2010, 60%, 72% and 74% of Gartmore's mutual fund AUM was
invested in funds that have achieved first or second quartile performance over
the last one, three and five years, respectively. This compares to 19%, 72% and
83% for one, three and five years to 31 December 2009 respectively.
Percentage of funds
Mutual fund AUM weighted 1 yr 3 yr 5 yr
performance to 31 December
2010 (1)
1st quartile performance 19 16 69
2nd quartile performance 41 56 5
3rd quartile performance 37 6 14
4th quartile performance 3 22 12
(1) Relative to Lipper sector median, excludes absolute return, cash and index
funds
One year performance has significantly improved in 2010 and the three and five
year good performance has been maintained. All of the top five largest mutual
funds managed by Gartmore are above median over three and five years, and are
all top quartile over five years.
Segregated Mandates
For the three years to 31 December 2010 49% (2009: 84%) of segregated mandate
AUM was above benchmark and 88% (2009: 82%) was above benchmark over five
years.
FINANCIAL REVIEW
OVERVIEW OF THE RESULTS
The Group enjoyed good sales momentum in the second half of 2009 and this
continued into the first quarter of 2010. AUM increased from GBP22.2bn at the end
of 2009 to GBP23.5bn at 31 March 2010, a rise of 6%. Following the suspension of
one key fund manager in April 2010 and the resignation of another in November
2010, the business suffered outflows across all three product groups during the
second, third and fourth quarters. Total redemptions for the year were GBP7.2bn
and AUM fell to GBP17.2bn by 31 December 2010.
The revenue and profit in a financial year depends upon the average AUM. In
2009, AUM increased from GBP18.7bn to GBP22.2bn, whereas in 2010 AUM declined from
GBP22.2bn to GBP17.2bn. Despite the fall in 2010, average AUM was 8% higher than in
2009. This higher average AUM resulted in higher management fees. Alternative
fund performance, which was strong in 2009, was weaker in 2010, although still
ahead of the Eurohedge European Equity Long/Short index. This resulted in a
lower contribution from performance fees to the overall revenue of the Group.
Net revenue for the year fell by GBP15.0m or 7% compared to 2009. Performance
fees were GBP31.1m lower because of weaker alternative fund performance in 2010,
but management fees increased by GBP17.9m because of higher average AUM. Net
management fee margins were slightly improved in 2010.
Costs were down by GBP13.9m or 8% on 2009, with variable remuneration
significantly reduced following the lower performance fees. The overall
reduction in costs offset the drop in net revenue and so operating earnings and
EBITDA were approximately flat on the previous year.
The Group continued to reduce net debt during the year through cash generated
from operations. GBP60.7m of cash was generated from operating activities
compared to GBP44.3m in 2009. By 31 December 2010 net debt was reduced to GBP49.5m.
KEY PERFORMANCE MEASURES
The Board and the Executive Committee monitor the performance of the Group
against the budget and prior year using a number of financial and non-financial
performance measures. These measures are considered to be the key drivers of
profitability and business success. Gross sales, redemptions, investment
performance and risk metrics are monitored by Executive Committee members on a
daily basis. The other measures are monitored at least monthly. A number of key
measures are shown below for the year ended 31 December 2010.
2010 2009
Assets Under Management GBP17.2bn GBP22.2bn
Net new business
Alternative funds (GBP2.1bn) (GBP0.4bn)
Mutual funds (GBP2.3bn) GBP0.5bn
Segregated mandates (GBP2.8bn) GBP0.2bn
Total (GBP7.2bn) GBP0.3bn
Net Revenue GBP208.7m GBP223.7m
EBITDA GBP55.0m GBP54.8m
Underlying cash earnings GBP39.2m GBP19.5m
Underlying cash earnings per share 12.3p 10.5p
EBITDA margin 26% 24%
Compensation ratio
Including LTIP 47% 52%
Excluding LTIP 43% 52%
Management fee margin on AUM 83bp 77bp
The Board and Executive Committee also regularly review a number of
non-financial performance indicators at a Group level. These include:
* Investment performance, including the alternative funds, absolute return
funds, the quartile ranking of mutual funds against peers and the
segregated mandate performance against benchmark;
* Investment risk; and
* Compliance, regulatory and operational risk metrics.
The movements in the key performance measures are discussed in the Development
of AUM section above and Review of Financial Statements section below.
INCOME STATEMENT
The table below shows the Group's results of operations for the year.
Year ended 31 December
2010 2009
GBPm GBPm
Management fees 219.4 201.5
Performance fees 34.8 65.9
Other revenue 11.5 10.9
Total revenue 265.7 278.3
Fee and commission expenses (57.0) (54.6)
Net revenue 208.7 223.7
Other operating expenses (156.7) (170.6)
Share of profits in joint venture 1.1 -
Operating earnings 53.1 53.1
Exceptional costs (5.0) (2.5)
Intangible amortisation (23.1) (29.6)
Operating profit 25.0 21.0
Finance income 7.1 67.8
Finance expenses (13.9) (42.6)
Profit before taxation 18.2 46.2
Taxation (4.9) 1.4
Profit for the year 13.3 47.6
Net revenue
Net revenue for 2010 was GBP208.7m, a decrease of GBP15.0m, or 7%, from GBP223.7m for
2009. Management fees were higher because of higher average AUM, but
performance fees declined due to reduced alternative fund investment returns.
Net Revenue by Product Year ended 31 December
2010 2009
GBPm % GBPm %
Alternative funds 84.4 40.0 106.6 47.7
Mutual funds 105.2 51.0 91.9 41.1
Segregated mandates 18.6 9.0 25.1 11.2
Other 0.5 0.0 0.1 0.0
Net revenue 208.7 100.0 223.7 100.0
The net revenue for the alternative funds decreased due to the impact of lower
performance fees in 2010. The net revenue for mutual funds increased because
higher average AUM generated higher management fees. The average AUM managed
under segregated mandates was lower in 2010 resulting in lower management fees.
BUSINESS REVIEW
Management fees
The level of management fees is driven by the size and mix of AUM and the
margins achieved for each product.
Net management fee margins 2010 2009
bp bp
Alternative funds 147 144
Mutual funds 79 73
Segregated mandates 41 41
AUM weighted average management fee 83 77
margin
Net management fee margins are net of fee and commission expenses paid to
distributors. Net management fee margin on overall AUM improved due to the
lower margin private equity business moving into the Joint Venture and so no
longer being included in net management fees and also because of an increase in
retail margins during 2010.
Net management fees for 2010 were up by GBP15.5m, 11%, as a result of higher
average AUM. AUM increased significantly during 2009 and fell in 2010 due to
net outflows, but on average was higher in 2010. Approximately 88% of the
Group's AUM is invested in listed equities and average world equity markets
were 19% higher in 2010 compared to 2009. A large portion of the Group's AUM
and revenue is in foreign currency, but exchange rates were relatively stable
during 2010 compared to 2009.
Performance fees
Performance fees in 2010 were down by GBP31.1m to GBP34.8m in 2010. This is due to
lower alternative funds investment returns in 2010. The weighted average return
across Gartmore's alternative funds was 6.6% in 2010 compared to 19.1% in 2009.
The alternative funds have no hurdle rates of return, but do have high water
marks. At 31 December 2010 93% of alternative AUM was above its high water mark
compared to 81% at December 2009. Performance fees on alternative funds are
booked at the crystallisation point which varies between funds, but is
typically annual.
The uncrystallised performance fees in alternative funds and absolute return
mutual funds, calculated from net asset values at 31 December 2010, were GBP18.5m
(2009: GBP21.2m).
Other revenue
Other revenue is principally the administration expenses charged to mutual
funds to cover operational costs incurred by the Group.
Other operating expenses
The table below shows a breakdown of the Group's other operating expenses for
the year:
Year ended 31 December
2010 2009
GBPm GBPm
Salaries and pensions 34.9 34.8
Variable remuneration 53.3 80.9
Long term incentive plan 8.4 -
Redundancy costs 2.1 1.1
Recurring staff costs 98.7 116.8
Other expenses 60.8 53.8
Total ongoing other operating expenses 159.5 170.6
Average number of employees 340 361
Compensation ratio including LTIP 47% 52%
Compensation ratio excluding LTIP 43% 52%
Variable remuneration / net revenue 26% 36%
BUSINESS REVIEW
Total ongoing other operating expenses were down by GBP11.1m, 7%, to GBP159.5m.
Recurring staff costs reduced by GBP18.1m, 15%, due to a drop in variable
remuneration.
Mainly as a result of the cost reduction initiative implemented in late 2010,
headcount reduced from an average of 361 in 2009 to 340 in 2010. The Group had
308 employees at 31 December 2010 as compared to 345 at 31 December 2009.
Variable remuneration is the share of performance fees, and to a lesser extent,
management fees paid to portfolio managers, which the Group believes is in line
with its competitors, together with a bonus payment, calculated as a proportion
of the Group's profitability excluding performance fees, made to all staff on a
discretionary basis. Variable remuneration reduced as a result of lower
performance fees in 2010 since portfolio managers receive a fixed percentage of
those fees.
Other ongoing expenses increased by GBP7.0m, 13%, in 2010 compared to 2009. The
increase was due to higher professional fees, costs of the strategic review,
promotional spend and higher FSCS levies. Other expenses also include mutual
fund administration costs, premises costs and other office costs.
The arrangements put in place by the FSCS to protect depositors of failed
deposit-taking institutions resulted in significant FSCS levies on the
industry. The Group has accrued GBP2.1m in 2010 in respect of its share of the
cost for the 2010/2011 levy year. Recoveries in future years by the FSCS may
become available to offset this liability but the amount and timing of these is
highly uncertain and no allowance has been made for these in calculating this
liability. Further charges for historical failures by financial institutions
are likely to be incurred in future years and the ultimate cost remains
uncertain.
Exceptional costs
The Group signed new leases for the majority of the floors at the Rex Building,
London EC4. Prior to the recommendation by the Board in January 2011 of the
acquisition of the Group by Henderson Group plc, it was anticipated that the
Group would relocate to the new building at the end of the second quarter of
2011. As the lease on the Group's current head office expires in September
2012, an onerous lease charge of GBP5.0m has been made in the Income Statement
for 2010 for the rent cost between mid 2011 and September 2012.
The Company completed its IPO in December 2009. Total expenses payable by the
Company in 2010 as a result of the IPO were GBP11.6m, of which GBP9.1m was set
against the share premium account and GBP2.5m was shown as exceptional IPO costs
in the Income Statement for 2009.
KEY RISKS
RISK MANAGEMENT
The Group's risk management is a structured process which identifies, measures
and reports risk. It aims to identify potential changes in the risk profile of
the business and is built on formal governance processes, individual
responsibility and senior management oversight.
Risk is controlled through a network of procedures, checks, reports and
responsibilities. The risk management structure is supported by legal and
compliance advice, guidance from internal audit and input from the business
areas. The maintenance of core business processes and continuance of ordinary
business activity is ensured by the Group's business continuity plans and those
of its outsource partners.
BUSINESS REVIEW
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties facing the Group are those which have the
largest potential effect on AUM, revenue and profitability. These have been
identified as follows:
* Decline in equity markets
A decline in equity markets would lead to a fall in AUM and revenue for the
Group. The alternative funds AUM would typically fall less than the mutual
funds and segregated mandates AUM. The Group regularly models various equity
market fall scenarios and assesses the effects on profitability.
* Loss of investment teams and key personnel
The departure of investment teams from the Group could lead to a fall in AUM
and therefore a fall in revenues and profitability. Key members of investment
teams are appropriately incentivised, including significant equity interests in
the Company. The Group has established a remuneration policy which includes the
deferral of compensation into equity and funds.
* Reliance on performance fees - volatility of earnings
The Group earns performance fees principally on its alternative fund products.
The performance fees are vulnerable to poor investment performance and
potentially to falls in equity markets. The proportion of net revenue that is
derived from performance fees was 17% in 2010 and 29% in 2009. As well as
managing investments using a wide range of investment strategies, the Group has
a strategic emphasis on increasing management fee revenue.
* Completion of the Recommended Acquisition by Henderson Group plc
The recommended acquisition by Henderson Group plc of Gartmore's entire issued
share capital may not become effective and the Board may have to continue with
the strategic review. This may lead to an extended period of uncertainty for
the Group which may lead to a fall in AUM and revenue.
* Poor investment performance
Poor investment performance by Gartmore funds and segregated accounts could
lead to a decline in the value of those funds. In addition, poor investment
performance may lead to the withdrawal of the funds by existing clients and
damage the prospect of winning new clients. Gartmore has sophisticated risk
management processes and systems and provides regular oversight of the
performance of all of the investment teams, and takes active steps to address
underperformance when it occurs.
* Operational errors
The Group may make operational errors to the detriment of a client and may have
to provide compensation. The Group's exposure has reduced over recent years
following the outsourcing of the investment administration function and it
continues to invest in systems and controls. The Group maintains insurance
cover for a portion of these losses.
* Reliance on third party providers
The Group outsources business critical administration functions to third
parties. The failure of those third parties or the decision to discontinue its
service provision would cause Gartmore to implement alternative internal or
third party arrangements. The costs of this implementation could be high.
* Foreign exchange risk
The Group reports in Sterling. It is exposed to foreign exchange risk, as a
significant proportion of its net revenues are generated in foreign currency,
predominantly US Dollars, Euros and Japanese Yen. This means that reported
revenues are impacted by fluctuations in the exchange rates against Sterling.
Additionally, there are significant balance sheet items (including the
long-term bank debt) which are denominated in foreign currency and retranslated
at year end exchange rates, which can lead to foreign exchange gains or losses.
Interest payable on the long-term bank debt acts as a mitigant to the foreign
currency risk associated with revenues.
BUSINESS REVIEW
* Interest rate risk
At 31 December 2010 the Group had long-term variable interest bank debt of EUR
147.2m and $184.5m (2009: EUR150.5m and $188.7m). If interest rates were to rise,
this would lead to an increase in financing expenses to the Group. The Board
continues to prioritise the further reduction of debt.
REGULATORY ENVIRONMENT
Certain members of the Group are authorised and regulated by the FSA (United
Kingdom), the Securities and Exchange Commission (U.S.), the Financial Industry
Regulatory Authority (U.S.), the Financial Services Agency (Japan) or the
Comisión Nacional del Mercado de Valores (Spain). Further, the Group conducts
business in a significant number of countries and therefore its business is
also affected by financial services regulation in those countries. One member
of the Group has the right to provide financial services on a cross border
basis in certain EEA states. In addition, some of the sub-funds of the
Luxembourg SICAV managed by the Group are registered in a number of EEA and
non-EEA jurisdictions.
The current regulatory environment continues to be affected by regulatory
change in response to the global financial crisis. Generally, this regulatory
change will affect the financial services regulatory infrastructure, the amount
and composition of regulatory capital requirements, governance structures,
business processes and remuneration policies of financial services
organisations.
The following regulatory developments are of particular relevance to the Group:
* Corporate governance During the financial year there have been a number of
significant developments in the area of corporate governance that are
relevant to the Group, including: (i) the FSA's Policy Statement on
Effective Corporate Governance; (ii) the new UK Corporate Governance Code;
(iii) the new Stewardship Code; and (iv) the updated Financial Reporting
Council Guidance on Audit Committees. The Group has implemented appropriate
changes to its corporate governance arrangements in light of these
developments.
* FSA Remuneration Code The Group has been subject to the FSA's extended
Remuneration Code since 1 January 2011. The extended Remuneration Code
increases the responsibilities of the Group's Remuneration Committee and
generally requires remuneration arrangements to be risk adjusted. Further
information on the Group's remuneration policy is given in the Remuneration
Report.
* Bribery Act The Bribery Act will impose criminal liability on organisations
in the event that their employees, subsidiaries, agents or consultants pay
bribes anywhere in the world, unless the relevant organisation can prove
that it has adequate anti-corruption systems and controls in place. The
Bribery Act will be arguably the toughest anti-bribery law in the world,
applying to both public and private sector corruption and not containing
any exemptions for facilitation payments or promotional expenditure. The
Bribery Act is likely to come into force in 2011. The Group will take into
account guidance to be issued by the Ministry of Justice in seeking to
comply with the Bribery Act.
* UCITS IV The re-cast EU Directive on the coordination of laws, regulations
and administrative provisions relating to undertakings for collective
investment in transferable securities ("UCITS IV") is to be implemented by
1 July 2011. Changes of principal relevance to the Group include: (i) the
replacement of current simplified prospectuses for UCITS with a short
standard form key investor information document designed to present
comprehensible information in a similar manner for all UCITS; (ii)
simplification of the procedures for cross-border distribution of UCITS;
and (iii) revised conduct of business requirements. The Group continues to
work towards implementation of UCITS IV by 1 July 2011.
BUSINESS REVIEW
* New UK financial services regulatory regime It is proposed that by the end
of 2012 the current tripartite division of responsibilities between the
FSA, HM Treasury and the Bank of England be abolished and the FSA's current
regulatory responsibilities be reallocated so that it ceases to exist in
its current form. From the end of 2012 certain members of the Group are
likely to be regulated by a new Consumer Protection and Markets Authority.
It remains to be seen whether any of the Group's members will also be
subject to dual regulation by the new Prudential Regulation Authority. This
regulatory reform is likely to result in significant changes to the rules
with which certain members of the Group must comply and an increased
regulatory focus on consumer protection.
* Retail Distribution Review ("RDR") The RDR is one of the central pillars of
the FSA's retail market strategy and implementation of the necessary rule
changes is due to take place by the end of 2012. Through the RDR, the FSA
is seeking to improve consumer trust and confidence in the retail
investment industry by: (i) improving the clarity with which firms describe
their services to consumers; (ii) addressing the potential for adviser
remuneration to distort consumer outcomes; and (iii) increasing
professional standards for investment advisers. The Group is continuing to
follow RDR developments (as well as the European Commission's
communications on Packaged Retail Investment Products) and considering how
its systems and processes will need to change and, in particular, the way
in which the Group will distribute its products following RDR
implementation.
* EU Alternative Investment Fund Managers Directive ("AIFM Directive")
Following approval of the AIFM Directive by the European Parliament in
November 2010, it is expected that the AIFM Directive will be transposed
into national law in May or June 2013. Various pieces of secondary
legislation contemplated by the AIFM Directive remain to be published prior
to this transposition deadline. The AIFM Directive will impact the way in
which hedge fund and investment trust managers operate their businesses,
including marketing, depositary, valuation and delegation arrangements and
conduct of business requirements.
GARTMORE GROUP LIMITED
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2010
2010 2009
GBPm GBPm
Management fees 219.4 201.5
Performance fees 34.8 65.9
Other revenue 11.5 10.9
________ ________
Total revenue 265.7 278.3
Fee and commission expenses (57.0) (54.6)
________ ________
Net revenue 208.7 223.7
Other operating expenses (156.7) (170.6)
Share of after-tax profit of 1.1 -
joint venture
________ ________
Operating earnings 53.1 53.1
Exceptional property costs (5.0) -
Exceptional IPO costs - (2.5)
Intangible amortisation (23.1) (29.6)
________ ________
Operating profit 25.0 21.0
Finance income 7.1 67.8
Finance expenses (13.9) (42.6)
________ ________
Profit before taxation 18.2 46.2
Taxation (4.9) 1.4
________ ________
Profit for the period 13.3 47.6
attributable to equity
holders of the parent
________ ________
Earnings per share
Basic (pence per share) 4.3p 25.6p
________ ________
Diluted (pence per share) 4.2p 25.6p
________ ________
Operating earnings, while not a GAAP measure, in the opinion of the Directors
gives relevant information on the profitability of the Group and its ongoing
operations.
GARTMORE GROUP LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2010
Attributable to
equity holders of
the parent
2010 2009
GBPm GBPm
Profit for the period 13.3 47.6
________ ________
Other comprehensive income:
Exchange differences on 1.6 (2.1)
translation of foreign
operations
Loss on cash flow hedges - (0.5)
Reclassification of cash flow - 5.6
hedging amounts on maturity
Actuarial loss on (0.6) (0.8)
post-retirement liability
Tax credit/(charge) on other 0.2 (1.2)
comprehensive income
________ ________
Total other comprehensive 1.2 1.0
income for the period, net of
tax
________ ________
Total comprehensive income 14.5 48.6
for the period
________ ________
GARTMORE GROUP LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2010
2010 2009
GBPm GBPm
Assets
Non-current assets
Property, plant and equipment 2.1 2.6
Intangible assets 306.6 330.4
Investment in joint venture 2.6 -
Deferred tax asset 4.3 1.9
Trade and other receivables - 7.4
________ ________
Total non-current assets 315.6 342.3
________ ________
Current assets
Trade and other receivables 60.7 67.0
Investments 9.2 0.3
Cash and cash equivalents 197.1 173.7
Current tax 1.2 2.0
________ ________
Total current assets 268.2 243.0
________ ________
Total assets 583.8 585.3
________ ________
Equity
Issued share capital 1.8 1.5
Share premium 270.9 270.3
Own shares (1.9) -
Non-distributable reserve 10.8 2.4
Exchange reserve 5.3 3.7
Retained earnings (80.8) (93.7)
________ ________
Total equity attributable to equity 206.1 184.2
holders of the parent
________ ________
Non-current liabilities
Long-term borrowings 246.1 257.4
Trade and other payables 2.5 1.2
Provisions 1.0 6.2
Post-retirement liability 0.3 0.4
Deferred tax liability 18.0 25.2
________ ________
Total non-current liabilities 267.9 290.4
________ ________
Current liabilities
Trade and other payables 104.4 108.2
Provisions 0.3 2.4
Current tax 5.1 0.1
________ ________
Total current liabilities 109.8 110.7
________ ________
Total liabilities 377.7 401.1
________ ________
Total equity and liabilities 583.8 585.3
________ ________
GARTMORE GROUP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2010
Attributable to equity holders of the parent company
Share Share p Own Non-distributable Exchange Retained Cash f Total
remium reserve low
capital shares reserve earnings
hedge r
eserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2009 - - - 2.4 5.8 (139.8) (3.7) (135.3)
Profit for the - - - - - 47.6 - 47.6
period
Other - - - - (2.1) (0.6) 3.7 1.0
comprehensive
(expense)/income
net
of tax
_______ _______ _______ _______ _______ _______ _______ _______
Total - - - - (2.1) 47.0 3.7 48.6
comprehensive
(expense)/income
net
of tax
Bonus share issue 0.9 - - - - (0.9) - -
Issue of share 0.6 279.4 - - - - - 280.0
capital
at IPO
Share issue costs - (9.1) - - - - - (9.1)
charged to share
premium
_______ _______ _______ _______ _______ _______ _______ _______
At 31 December 1.5 270.3 - 2.4 3.7 (93.7) - 184.2
2009 and 1
January 2010
Profit for the - - - - - 13.3 - 13.3
period
Other - - - - 1.6 (0.4) - 1.2
comprehensive
income/(expense)
net
of tax
_______ _______ _______ _______ _______ _______ _______ _______
Total - - - - 1.6 12.9 - 14.5
comprehensive
income net of tax
Adjustment to IPO - 0.6 - - - - - 0.6
costs credited to
share premium
Share-based - - - 8.4 - - - 8.4
payments
Shares issued in 0.3 - - - - - - 0.3
period
Own shares - - (1.9) - - - - (1.9)
acquired in
period
_______ _______ _______ _______ _______ _______ _______ _______
At 31 December 1.8 270.9 (1.9) 10.8 5.3 (80.8) - 206.1
2010
_______ _______ _______ _______ _______ _______ _______ _______
GARTMORE GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2010
2010 2009
GBPm GBPm
Cash flows from operating
activities
Profit before taxation 18.2 46.2
Adjustments for:
Finance income and expense 6.8 (25.2)
Depreciation on property, plant 2.0 1.7
and equipment
LTIP charge 8.4 -
Amortisation of intangible assets 23.1 29.6
Other gains/(losses) 1.6 (2.1)
Change in working capital 9.3 4.4
________ ________
Cash generated from operations 69.4 54.6
Interest paid (0.1) (0.1)
Income tax paid (8.6) (10.2)
________ ________
Net cash generated by operating 60.7 44.3
activities
________ ________
Cash flows from investing
activities
Payments for intangible assets (0.4) (0.1)
Payments for investments (27.4) (18.9)
Proceeds of sale of investments 18.8 19.8
Investment in joint venture (1.5) -
Interest received 0.4 1.1
Payments for property, plant and (1.4) (0.2)
equipment
________ ________
Net cash (used)/generated by (11.5) 1.7
investing activities
________ ________
Cash flows from financing
activities
Proceeds from share issue 0.3 280.0
Repayment/purchase of borrowings (13.1) (323.6)
Interest paid on borrowings (6.1) (30.5)
Debt waiver fees paid - (2.0)
IPO expenses paid (6.5) (3.9)
________ ________
Net cash used in financing (25.4) (80.0)
activities
________ ________
Net decrease in cash and cash 23.8 (34.0)
equivalents
Cash and cash equivalents at the 173.7 215.5
beginning of the period
Effects of exchange rate changes (0.5) (7.8)
on the balance of cash held in
foreign currencies
________ ________
Cash and cash equivalents at the 197.0 173.7
end of the period
________ ________
GARTMORE GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010
1. Accounting Policies
In preparing the financial information in this statement the Group has applied
policies which are in accordance with International Financial Reporting
Standards as adopted by the European Union at 31 December 2010.
The financial information included in this statement does not constitute the
Group's statutory financial statements within the meaning of Section 434 of the
Companies Act 2006. The auditors have reported on those financial statements;
their report was unqualified and did not include a reference to any matters to
which the auditors drew attention by way of emphasis without qualifying their
report. The statutory financial statements are expected to be posted to
shareholders on 28 February 2011 and further copies will be available from the
Company Secretary at Gartmore House, 8 Fenchurch Place, London EC3M 4PB and
from the Company's website www.gartmore.com.
2. Segmental information
The Group is an investment manager, operating primarily in the UK with
operations in Japan, United States and Continental Europe. The Group manages a
broad range of investment products for institutional and retail investors,
across multiple asset classes, including equities, fixed income and private
equity.
All the Group's investment management activity and operational services are
centralised, as evidenced by the side-by-side investment management processes
discussed in the Business Review, and the centralised common infrastructure
means that operating costs are not and cannot meaningfully be allocated to
constituent parts of the investment management business. The chief operating
decision-maker of the Group is the Executive Committee, the members of which
have Group-wide functional, rather than product-related, responsibilities. As a
result, resources are allocated and performance is assessed by the Executive
Committee on the basis of the investment management business as a whole.
The management information provided to the chief operating decision-maker and
the process of how the Group's economic resources and income/expense are
currently managed by the Executive Committee has been reviewed. The Group
operates as a single-segment investment management business.
2010 2009
GBPm GBPm
Revenue by product and services
Management and performance fees
Alternative funds 84.4 106.6
Mutual funds 151.2 135.7
Segregated mandates 18.6 25.1
________ ________
254.2 267.4
Other revenue
Mutual funds 11.0 10.8
Other 0.5 0.1
________ ________
11.5 10.9
________ ________
Total revenue 265.7 278.3
________ ________
UK 257.3 271.0
Overseas 8.4 7.3
________ ________
Total revenue 265.7 278.3
________ ________
The net revenue information above is based on the location of the customer.
2010 2009
GBPm GBPm
Non-current assets by
geographical area
UK 311.0 332.7
Overseas 0.3 0.3
________ ________
Total of analysed non-current 311.3 333.0
assets
Deferred Tax 4.3 1.9
Financial instruments - 7.4
________ ________
Total non-current assets 315.6 342.3
________ ________
GARTMORE GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010
3. Other revenue
2010 2009
GBPm GBPm
Foreign exchange and other 0.5 (0.9)
investment gain/(loss)
OEIC administration fees 9.8 10.8
Other fee revenue 1.2 1.0
________ ________
Total other revenue 11.5 10.9
________ ________
4. Other operating expenses
2010 2009
GBPm GBPm
Depreciation of owned assets 2.0 1.7
Rentals payable under operating 5.2 4.6
leases
Recurring staff costs 98.7 116.8
Auditors' remuneration 0.9 1.0
Other expenses 52.7 46.5
________ ________
Ongoing other operating expenses 159.5 170.6
One-off dilapidations provisions (2.8) -
release
________ ________
Total other operating expenses 156.7 170.6
________ ________
Following a recent survey of the dilapidations cost relating to Gartmore House,
the Group's head office, a one-off release of GBP2.8m was made to the income
statement, through other operating expenses, as the expected cost is now
significantly below the provision carried at 31 December 2009.
5. Staff Costs
2010 2009
GBPm GBPm
Wages, salaries and other 73.5 101.7
Share-based payments 10.0 -
Social security costs 10.5 12.6
Pension costs 2.7 2.6
Redundancy costs 2.0 1.0
________ ________
Total staff costs 98.7 117.9
________ ________
Staff costs (including the
associated social security
costs) are further analysed
below:
Salaries and pensions 34.9 34.8
Variable remuneration 53.3 80.9
LTIP 8.4 -
Redundancy costs 2.1 1.1
________ ________
Recurring staff costs 98.7 116.8
Exceptional IPO costs - 1.1
________ ________
Total staff costs 98.7 117.9
________ ________
The average number of persons employed by the Group during the year was 340
(2009: 361). All were employed in the investment management business.
The pension cost in the year to 31 December 2010 does not include an actuarial
loss on the post-retirement liability (net of taxation) taken to the SOCI
amounting to GBP0.4m (2009: GBP0.6m).
GARTMORE GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010
6. Share-based payments
Awards are made to senior management and key staff. During the year the Company
made two LTIP awards and a series of deferred bonus awards under the terms of
the Gartmore Group Limited Omnibus Incentive Plan. Under the Deferred Bonus
Plan, restricted shares are granted as part of the deferred element of
incentive compensation. The awards are subject to rateable vesting with the
charge to the income statement spread accordingly.
All share-based payment plans are settled in the Company's equity. The total
amount taken to the income statement in respect of share-based payments in the
year to 31 December 2010 is disclosed in Note 5.
The terms of grants made during the year are as follows:
LTIP awards LTIP awards Deferred bonus
and fee incentive
On 16 June 2010 On 19 November awards
2010
Restricted shares 9,319,273 47,450,000 1,432,931
Nil cost options 73,831 - -
Fair market value 116.0 112.1 Average 113.0
per share (p)
Service conditions 50% 31 March 2012 1/3 on 19 November 1/3 on the first,
2011 second and third
25% 31 March 2013 anniversary of
1/3 on 19 November grant
25% 31 March 2014 2012
1/3 on 19 November
2013
Vesting for good Accelerated vesting on death, disability, redundancy
leavers and on resignation as a result of a reduction in
status, duties or remuneration following a change of
control.
Continues to vest on original schedule if employment
terminated without cause.
Retirement option No No Yes
Vesting for bad Forfeiture Forfeiture Forfeiture
leavers
Performance 50% of the award Vesting dependent None
conditions (and up to 100% in on the employee's
the case of senior conduct during the
management) is strategic review
subject to the process up and
discretion of the until the earlier
Remuneration of the 31 March
Committee at the 2011 and a change
date of vesting. of control of the
Company.
Restricted shares have full dividend and voting rights whereas the nil cost
options do not.
The fair value of the nil cost options at date of grant is considered to be
based on the share price at date of grant, since the exercise price is zero and
there are no performance conditions. No option pricing model is therefore
required to determine the fair value. The fair value of the restricted shares
and the nil cost options are therefore measured on the basis of observable
market data, being the Company share price at date of grant.
At 31 December 2010, the Directors expected all of the share awards granted to
vest.
New shares were issued by the Company to the Gartmore Employee Benefit Trust
("EBT") to satisfy the LTIP awards. Additional shares to fund the deferred
bonus awards were obtained by the EBT through market purchase using cash
contributions from the Company.
The share-based payment charge for the period included within variable
remuneration was GBP2.7m.
The awards are granted on condition that the employee remains with the Group
during the vesting period.
The Gartmore Group Limited Omnibus Incentive Plan was not in place at 31
December 2009.
GARTMORE GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010
7. Exceptional costs
Exceptional property costs of GBP5.0m in 2010 relate to the current head office,
Gartmore House, which is expected to be vacated in 2011. The exceptional
accounting charge reflects the rent payable on the Gartmore House lease from
the expected point of vacation until the end of the lease in September 2012.
Exceptional IPO costs of GBP2.5m in 2009 related to the Company's IPO in December
2009. GBP1.1m of these costs were staff-related. The remaining GBP1.4m related to
other non-recurring advisory and marketing costs relating to the IPO that were
not chargeable against share premium.
8. Finance income and expenses
2010 2009
GBPm GBPm
Finance income
Interest income 0.5 1.1
Exchange movement on debt 1.1 59.7
Expected return on pension 5.5 4.7
assets
Gain on repurchase of own debt - 2.3
________ ________
7.1 67.8
________ ________
2010 2009
GBPm GBPm
Finance expenses
Interest expense (6.1) (18.4)
Interest payable on cash flow hedge reclassified from - (5.6)
equity
Interest on pension obligation (4.9) (3.9)
Exchange movement on cash (0.5) (7.8)
Amortisation of debt issuance expenses (1.2) (4.4)
Other finance expenses (1.2) (2.5)
________ ________
(13.9) (42.6)
________ ________
GARTMORE GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010
9. Taxation
The Company, whilst incorporated in the Cayman Islands, is a UK resident
company for tax purposes.
a) Tax charge/(credit) for the 2010 2009
period
GBPm GBPm
Current taxation
UK corporation tax at 28% (2009:
28%)
Current period 11.2 (0.6)
Prior period (0.1) 0.2
Overseas taxation
Current period 3.7 3.1
Prior period (0.5) 0.2
________ ________
14.3 2.9
Deferred taxation
Origination and reversal of (9.4) (4.3)
timing differences
________ ________
Total tax charge/(credit) 4.9 (1.4)
________ ________
The tax charge in the period is lower (2009: lower) than the standard rate of
corporation tax in the UK and the differences are explained below:
b) Factors affecting tax charge/ 2010 2009
(credit)
for the period
GBPm GBPm
Profit before taxation 18.2 46.2
________ ________
Taxation at the standard 5.1 12.9
corporation tax rate 28% (2009:
28%)
Permanent differences (0.2) (15.6)
Tax rate change to deferred tax (0.6) -
balances
Adjustment to tax charge in (0.6) 0.4
respect of prior periods
Overseas tax at higher rates than 1.2 0.9
UK
________ ________
Total tax charge/(credit) 4.9 (1.4)
________ ________
GBP0.3m of the permanent differences results from the non-taxable gain on
re-translation of the long-term borrowings (2009: gain on re-translation GBP
16.7m).
From 1 April 2011, the standard UK corporation tax rate will decrease to 27%
from the current rate of 28%. A GBP0.6m credit has been taken to the income
statement in the year ended 31 December 2010 to reflect the measurement of
deferred tax at the lower rate.
Subsidiaries of the Group have unused tax losses for which no deferred tax
asset has been recognised in the statement of financial position amounting to GBP
4.2m (2009: GBP4.7m). The earliest date for expiry of these tax losses is 2022.
GARTMORE GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010
10. Earnings per share
The calculations of earnings per share are based on the following profits and
numbers of shares.
Basic earnings per share amounts are calculated by dividing the profit or loss
for the year attributable to ordinary equity holders by the weighted average
number of Ordinary Shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the profit or
loss for the year attributable to ordinary equity holders by the weighted
average number of Ordinary Shares outstanding during that year plus the
weighted average number of Ordinary Shares that would be issued on the
conversion of all the dilutive potential Ordinary Shares into Ordinary Shares.
The weighted average number of Ordinary Shares used to calculate basic and
diluted earnings per share was adjusted to reflect the cancellation of 100
Ordinary shares of $1 each and the bonus issue of 180,000,000 Ordinary Shares
of GBP0.005 each on 3 December 2009.
The weighted average number of Ordinary Shares used to calculate basic and
diluted earnings per share in 2010 can be reconciled as follows:
Total Weighted
number average
('000) (`000)
Number of shares at 1 January 2010 307,273 307,273
Issue of shares to employee benefit trust 56,668 10,616
_________ _________
Number of shares at 31 December 2010 363,941 317,889
Less: shares owned by employee trusts (58,414) (11,316)
_________ _________
Basic number of shares 305,527 306,573
Share awards under incentive schemes 57,346 11,149
Employee share options 73 40
_________ _________
Number of dilutive shares 362,946 317,762
_________ _________
Underlying cash earnings per share figures are calculated based on underlying
cash earnings, adjusting the profit or loss for the year to exclude exchange
movements on financing, exceptional items, intangible asset amortisation,
defined benefit pension items, and other non-cash and one-time items. The
purpose of providing the underlying earnings is to allow readers of the
financial statements to clearly consider trends in the underlying results
excluding the impact of non-cash items.
Basic and diluted IAS 33 Underlying cash
earnings per share
earnings basis
2010 2009 2010 2009
GBPm GBPm GBPm GBPm
Profit for the financial 13.3 47.6 13.3 47.6
year
Adjusting items, net of
attributable taxation
Amortisation of 16.7 21.3
intangible assets
One-off dilapidations (2.0) -
release
Costs of strategic 1.7 -
review
Exceptional property 3.6 -
costs
Exceptional IPO costs - 2.1
Long-term incentive plan 6.1 -
Foreign exchange - -
- exchange movement on (1.1) (59.7)
debt
- exchange movement on 0.4 5.6
cash
Pension costs (0.4) (0.6)
Amortisation of debt 0.9 3.2
issuance expenses
Profit for the financial 39.2 19.5
year - underlying cash
earnings basis
Weighted average number
of shares (000's)
Basic 306,573 185,579 306,573 185,579
Diluted 317,762 185,579 317,762 185,579
Earnings per share
(pence per share)
Basic 4.3p 25.6p 12.8p 10.5p
Diluted 4.2p 25.6p 12.3p 10.5p
GARTMORE GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010
11. Investment in joint venture
On 1 April 2010 the Group completed a joint venture with Hermes Fund Managers
Limited ("Hermes") to combine their respective private equity fund of fund
businesses into a new vehicle called Hermes GPE LLP ("HGPE"). The Group
invested GBP1.5m of working capital into the new venture along with existing
contracts and staff.
Hermes and Gartmore each hold 49.26% of the voting rights of HGPE, and 1.48% is
held by management.
Profit earned by HGPE is apportioned between Hermes and Gartmore based on
revenue. The proportion is calculated by allocating revenue earned from clients
depending on which entity transferred the client to Hermes GPE. Any revenue
earned by HGPE on contracts with new clients entered into after 1 April 2010 is
apportioned equally between Hermes and Gartmore. In the period to 31 December
2010, no partnership profits were distributed by HGPE.
Movement in the Group's investment in the joint venture during the period to 31
December 2010 was as follows:
2010
GBPm
Investment in joint venture on 1 April 2010 1.5
Share of after-tax profit in the period 1.1
_______
At 31 December 2010 2.6
_______
Other than transactions associated with the information set out above, since
its formation, HGPE has recharged GBP0.1m to the Group, relating to the period
prior to formation.
12. Long-term borrowings
2010 2009
GBPm GBPm
Debt 246.5 259.0
Debt issuance expenses (0.4) (1.6)
________ ________
246.1 257.4
________ ________
Debt
In issue at start of period 259.0 644.2
Repaid/acquired in period (13.1) (323.6)
Gain on repurchase of own debt - (2.3)
Deemed interest on 0% Sterling 1.7 0.4
loan note
Exchange movement in period (1.1) (59.7)
________ ________
At end of period 246.5 259.0
________ ________
Debt issuance expenses
Book value of debt issuance 1.6 6.0
expenses at start of period
Amortised in period (1.2) (4.4)
________ ________
At end of period 0.4 1.6
________ ________
GARTMORE GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010
12. Long-term borrowings (continued)
The Group debt at 31 December 2010 consists of Euro and US dollar floating rate
debt and a Sterling loan note.
Interest Maturity Currency GBP GBP
At 31 December 20 rate equivalent equivalent
10 when issued at 31
December
2010
m GBPm GBPm
Euro floating rate Euribor 2014 EUR147.2 100.7 126.1
debt plus
1.75%
US dollar floating US Libor 2014 $184.5 93.3 117.8
rate debt plus 1.75%
Sterling loan note 0% 2014 GBP2.1 2.1 2.6
_______ _______
196.1 246.5
_______ _______
Interest Maturity Currency GBP GBP
At 31 December rate equivalent equivalent
2009 when issued at 31
December
2009
m GBPm GBPm
Euro floating rate Euribor 2014 EUR150.5 103.0 133.8
debt plus 2.00%
US dollar floating US Libor 2014 $188.7 95.4 116.8
rate debt plus 2.00%
Sterling loan note 0% 2014 GBP7.3 7.3 8.4
_______ _______
205.7 259.0
_______ _______
In accordance with the Senior Credit Agreement ("SCA"), the margin on both the
Euro and US dollar floating rate debt is 1.75%, as the leverage ratio of the
most recent Compliance Certificate submitted prior to 31 December 2010 was
below 3.75. The margin increases to 2.00% when the leverage ratio rises above
3.75, or if Gartmore does not remain in compliance with all other terms of the
SCA. The margin payable at 31 December 2010 was 1.75% (2009: 2.00%). In July
2010, the Group repaid GBP5.6m Sterling equivalent of this debt.
In 2007, the then parent, OPLP, made an interest free Sterling loan to the
Group. A deemed interest rate of 5.5% has been applied to this note. The Group
repaid GBP7.5m of this loan in nominal terms in April 2010.
13. Commitments
At 31 December 2010 the Group had total commitments to pay rentals under
operating leases, relating to land and buildings of the following amounts:
2010 2009
GBPm GBPm
In less than one year 5.4 5.3
In the second to fifth 9.4 8.6
years inclusive
In more than five years 27.9 -
________ ________
42.7 13.9
________ ________
In September 2010 the Group signed 15 year leases for the majority of the
floors at the Rex Building, London EC4. Under the terms of the leases, the rent
is subject to upward review once every five years from the term commencement
date, to open market rent, subject to a minimum uplift to a total annual rent
of GBP2.9m. At 31 December 2010 the Group had no capital commitments relating to
the fit-out.
The lease on Gartmore's current head office expires in September 2012.
GBP4.6m of the amounts included in less than one year and in the second to fifth
years inclusive form part of the onerous lease exceptional property costs and
have already been accrued in 2010.
GARTMORE GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010
14. Events after the balance sheet date
As part of the strategic review announced by the Company on 8 November 2010,
offers for the Company were invited which subsequently led to a conditional
offer from Henderson Group plc ("Henderson Group") for the entire issued share
capital of the Company which was unanimously recommended by the Board and
announced to the market on 12 January 2011 (the "Acquisition"). It is
currently anticipated that the Acquisition will be implemented by way of a
scheme of arrangement under section 86 of the Companies Law (2010 Revision) of
the Cayman Islands (the "Scheme of Arrangement"). For the Acquisition by
Henderson Group to proceed, the shareholders of both Henderson Group and the
Company are required to support the transaction. In addition, FSA approval for
the change of control is required, together with the satisfaction (or waiver)
of certain other conditions. It should be noted that shareholders totalling
approximately 57% of the issued share capital of the Company have already
signed irrevocable undertakings to support the proposed Scheme of Arrangement.
The Henderson Group proposal was announced after the balance sheet date and the
Acquisition remains contingent on the shareholder votes and approvals noted
above. Therefore the assumptions used in the valuation of assets and
liabilities at 31 December 2010 remain unchanged.
However, if the Acquisition proceeds, it will have a material effect on the
financial statements, in particular on some of the assumptions made by the
Directors in their preparation. It is likely that the following items will be
affected:
* Property, plant and equipment - the carrying value of the property, plant
and equipment located in the UK at 31 December 2010 was GBP1.9m.
* Intangible assets: trade name - the carrying value of the trade name at 31
December 2010 was GBP7.9m. The deferred tax liability related to the trade
name is GBP2.1m.
* Long-term borrowings - the GBP243.9m Euro and US Dollar floating rate debt is
classified as repayable in more than one year.
* Lease - as explained in the Business Review, the Group signed new leases on
the Rex Building in September 2010.
* Staff - Gartmore has commenced a voluntary redundancy process and this
could lead to significant redundancies across the Group with consequent
redundancy costs. In addition, employees who have been awarded share-based
payments and are made redundant will enjoy "good leaver" status under the
Gartmore Group Limited Omnibus Incentive Plan and the vesting of these
awards will be accelerated. The estimated additional amount to be charged
to the income statement in 2011 on the acceleration of vesting is GBP7.1m.
15. Forward-looking statements
This announcement contains certain forward-looking statements with respect to
the principal risks and uncertainties facing the Company. By their nature,
these statements and forecasts involve risk and uncertainty because they relate
to events and depend on circumstances that may or may not occur in the future.
There are a number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these forward-looking
statements and forecasts. The forward-looking statements reflect the knowledge
and information available at the date of preparation of this announcement and
will not be updated during the year. Nothing in this announcement should be
construed as a profit forecast.
END
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