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GARTMORE GROUP LIMITED – Final Results
Gartmore Group Limited Preliminary results for the year ended 31 December 2009 HIGHLIGHTS AND RESULTS 2009 2008 Net Revenue £223.7m £242.1m EBITDA (1) £54.8m £90.2m Underlying cash earnings (2) £19.5m £42.5m Underlying cash earnings per share (3) 10.5p 23.6p Assets under management £22.2bn £18.7bn Net new business £252m (£4,876m) * Assets under management up by 19% to £22.2bn * Net new business of £252m * Launch of three absolute return mutual funds, raising £900m * Net inflows into mutual funds in 2009 of £485m * 19.1% net performance across alternative funds * IPO in December 2009 raised £280m which was used to repay debt. Net debt £ 85m at 31 December 2009 * A significant number of hires of portfolio managers, including four who are rated either AAA or AA by manager rating services Jeffrey Meyer, CEO, commented: "We are pleased to have met our earnings expectations for 2009. We are starting to see the positive impact of the changes we have made, notably the impact of the new hires and product launches. Momentum is continuing in 2010 with £273m of net inflows for January and February. Following the IPO in December, we have achieved our objective of reducing debt, positioning us to deliver our strategy for future growth." (1) EBITDA consists of operating earnings of £53.1m (2008: £88.3m), plus added back depreciation of £1.7m (2008: £1.9m); (2) Underlying cash earnings are reconciled to profit or loss for the financial year as follows: 2009 2008 £m £m Profit/(loss) for the 47.6 (147.0) financial year Amortisation of intangible 21.3 27.0 assets Foreign exchange movement on (59.7) 165.8 debt Foreign exchange movement on 5.6 (4.7) cash Pension costs (0.6) (0.5) Amortisation of debt 3.2 1.9 issuance expenses Exceptional IPO costs 2.1 - Underlying cash earnings 19.5 42.5 (3) The weighted average number shares for 2009 is 185,579,000 (2008: 180,000,000). The current number of shares is 307,272,727 There will be a conference call for UK/European analysts and investors at 9.00 a.m. (GMT). Dial in details: Tel: +44 (0)20 7162 0077 Ref: 858692 There will be a separate conference call for US analysts and investors at 9.30 a.m. (EST). Dial in details: Tel: +1 334 420 4950 Ref: 858695 The presentation will be available to download on the Gartmore Investor Relations website from 8am GMT - http://www.gartmore.com. A replay of the call will also be available on the website following the call. Contacts For further information please contact: Jeffrey Meyer, CEO Keith Starling, CFO +44 20 7782 2045 +44 20 7782 2569 [email protected] [email protected] M Communications: Ed Orlebar Caroline Villiers +44 7738 724630 +44 020 7920 2321 [email protected] +44 7808 585184 [email protected] CHIEF EXECUTIVE'S STATEMENT A great deal has been accomplished in 2009. In the first half of the year, we took advantage of the dislocation among competitors to diversify and strengthen our firm through new hires and product launches. In the second half, we took advantage of improved market conditions to strengthen our balance sheet by raising equity in an IPO and repaying debt. In short, we increased the intrinsic value of our business by reacting quickly to market opportunities. However, as we look to the future a lot more remains to be done. In broad terms, we are focused on execution and extending our franchise. We must continue to provide clients with superior investment returns and excellent client service. In addition, we must make certain that the investments made in prior years achieve their full potential and contribute meaningfully to our financial results. We must also continue to look for opportunities to broaden our franchise by hiring proven investment teams, improving our distribution and launching new products that meet the evolving needs of today's investors. We recognise this will take time. It can take several years for existing track records to improve and new ones to be built. Before discussing our 2009 results, I wanted to briefly discuss how we manage the Group. We set clear initiatives (the 2010 initiatives are included in this letter), we act with a sense of urgency and we allocate our resources efficiently to deliver high levels of profitability. We measure our success based on a number of key metrics, the most relevant of which are investment performance, net sales, AUM levels, net revenue, EBITDA and underlying cash earnings per share. As a result of the accounting treatment of asset amortisation, foreign exchange movements and IPO costs, from an earnings perspective we focus mostly on underlying cash earnings per share. We seek to maintain a culture that attracts and retains intellectual capital. We believe that superior investment returns comes from: (i) attracting, retaining and developing investment talent; (ii) adhering to a disciplined investment process; and (iii) consistently applying strong risk management skills. In addition, we seek to build partnerships with our clients. Our single greatest source of differentiation is the fact that our Alternative fund business is fully integrated into a full-service firm. We believe the absolute return product category will continue to be in demand as preservation of capital and risk management skills become increasingly important investment criteria. Investors will also look to infrastructure, governance and brand as well. We are attractively positioned in this regard. In 2009, financial results for the industry declined and we were no exception. While AUM increased, net revenue and earnings were significantly lower when compared to the prior year. In 2009, AUM increased 19% to £22.2bn, but net revenue declined 8% to £224m and EBITDA 39% to £55m. Underlying cash earnings per share declined 56% to 10.5p. Net sales were £252m. On an asset-weighted basis our hedge funds returned 19.1% net of fees, and 72% of our mutual funds were above their benchmark for the three-year period. In December, we raised £280m of equity capital through an initial public offering. These primary proceeds were used to repay debt that was incurred in our management buyout. At December 2009, we had net debt of £85m. It is our intention to reduce net debt to zero in the next few years through internal cash generation. We see no need to carry debt unless a value creating opportunity arises and it is the most effective way to fund it. If this is the case, we will be conservative in our use of leverage. Cost management remains an important focus. In simple terms, we look at our cost base in two categories: staff costs and non-staff costs. For 2009, staff costs increased 19% to £117m. This includes the portion of the performance fees that we share with our investment teams. Non-staff costs decreased 3% to £54m during the same period. We are expecting a small increase in our 2010 headcount as we look to hire additional investment teams and strengthen selected areas. Alternative Funds As I mentioned earlier, in 2009 we achieved an asset-weighted return of 19.1%, net of fees. Our volatility over the same period was 5.7%. In 2009, we won a number of Eurohedge awards - Best European Equity Hedge Fund, Best Global Equity Hedge Fund, and Best Small Cap Hedge Fund. In addition, we were one of seven firms nominated for Hedge Fund Firm of the Year. Our Alternative products saw the greatest change in investor demand. In 2008, on an asset-weighted basis our Alternative funds returned (5.5%), net of fees, which compared favourably to (8.8%) for the Eurohedge European Long/Short Index. Nevertheless, we experienced significant outflows which continued through the first quarter of 2009. During this period we did not restrict redemptions. Our risk management systems performed well and our portfolios remained liquid. This performance, along with our strong infrastructure and governance, has put us in a good position to gain assets. We started 2009 with £4.2bn of Alternative AUM and ended the year with £3.9bn, a 7% decrease. During the year we had net redemptions of £409m. Asset flows turned positive in the second quarter. For the last three quarters of 2009, we had £582m of positive net sales, as compared to £991m of redemptions during the first quarter and we have had positive monthly sales since June 2009. Of equal importance, Alternative fund inflows came primarily from institutional investors. One of our key initiatives in 2009 was to diversify our alternative investor client base. We put in place a disciplined client tiering process and realigned our resources. We targeted longer-term investors that had full control of their investable assets and gave us transparency on their products. At December 2009, 69% of our Alternative funds AUM was held by these investors. We are pleased with this result and it remains a key initiative in 2010. Capacity in our Alternative funds is monitored and discussed with the investment teams. We do not set capacity limits at the corporate level, but agree it with the investment teams. We believe this is important to providing clients with superior risk- adjusted returns and maintaining a culture that attracts investment talent. The tricky thing about capacity is that it varies based on market conditions. At present, we have meaningful capacity in virtually all of our strategies. Mutual Funds At the end of 2009, we had £12.2bn of mutual fund assets under management in 52 different funds. 72% of the funds were ahead of benchmark for the 3-year period and 83% for the five-year period. For the year ended 2009, we had £485m of positive net sales in these funds. We launched three absolute return mutual funds in 2009 and raised £900m of assets. We believe we are attractively positioned to participate in this growing product category. We have been managing absolute return funds since 1999 and our fund launches are based on proven strategies. The demand for these products remains strong and could possibly accelerate in the current period of volatility. Most of the new hires we made in 2009 strengthened our mutual fund proposition. Where we had poor performance, we took steps to improve it. We hired four new portfolio managers who were either rated AAA or AA by Citiwire or who managed funds rated AAA by Standard & Poor's or 5 star rated by Morningstar. This has strengthened our offering in Continental European Equities, Pan European Equities, UK Equities, UK Investment Grade Fixed Income, European High Yield and Asia Pacific Equities. The new managers are settling in well and we are pleased with their contribution. We are hopeful for further new hires in 2010 and have found this to be a cost effective way of growing the Group. The third change that has taken place in our mutual fund business has been in UK Retail Sales and Marketing. Starting in 2007, we began an initiative to strengthen this area. We brought in new leadership, recruited new sales people and increased our marketing spend. We are pleased with the progress they have made. Segregated Mandates Our Segregated business saw £176m of net sales in 2009. We had net inflows of £ 586m in Global Equities, but net redemptions primarily in Fixed Income, UK Equities and Pan European Equities. In regards to investment performance, 84% of our segregated mandates were above benchmark over 3 years and 82% over 5 years. Key Initiatives and Outlook For 2010, we are focused on the following initiatives: * Generating superior investment returns; * Pursuing the absolute return opportunity; * Accelerating the growth of UK retail; * Diversifying the hedge fund client base; * Extending European Wholesale Distribution, and; * Diversifying the business by investment teams, products and clients. Most of these initiatives are unchanged from 2009. As we consider diversification opportunities, we are interested in macro, currency and event driven strategies, to name a few. We will also continue to strengthen Institutional and Alternative distribution in the US and Netherlands, in particular. We expect it to be harder to hire new teams in 2010 as we have found incumbent employers more aggressive in bidding back talent. We have a cautious outlook for markets in 2010. Markets are volatile and a number of economic, political and regulatory issues still lack clarity. What is clear from our results is that our absolute return, or alpha driven products are in strong demand and we believe we are attractively positioned to grow and diversify our business going forward. I would like to thank our partners at Hellman & Friedman. We have worked with them since 2006 and we could not have asked for better partners. We also thank our employees and Board for their contribution, commitment and enthusiasm. It is critical to our success. Lastly, we welcome our new shareholders. 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 investment and so are ideally positioned for the convergence of traditional and alternative investment management. Gartmore has £22.2bn of AUM split across its three product groups - mutual funds, alternative funds and segregated mandates. Of this total AUM, 91% is invested in listed equities, with good diversification across equity capabilities. This 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 the US, Japan, Germany and a branch in Spain. 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 fell in 2008, particularly as the financial crisis intensified in the third and fourth quarters of that year. At 31 December 2008, the MSCI World Index was down 24% from 31 December 2007. Equity markets continued to be impacted into 2009 but from the end of the second quarter of 2009 have seen an improvement. The sizeable decline in equity prices worldwide led to redemptions by investors from equity funds during 2008 throughout the asset management industry. By the end of 2008, major economies such as the United Kingdom and the United States were in recession. Economic conditions worsened in the first quarter of 2009 and, as a result, the Group continued to operate in a challenging business environment. Although the economic outlook remains uncertain, market conditions have improved since the second quarter of 2009, reflecting a more optimistic view of future economic recovery. Key Themes and Trends in the asset management industry The last 12 months have seen a number of changes in the global asset management marketplace that have resulted in an increased opportunity for Gartmore. Alternative FUNDS Following the dislocation in the hedge fund industry in 2008 that resulted in substantial outflows, investors returned to hedge funds more quickly than expected in the second half of 2009. There has been a clear move towards more liquid and transparent strategies with a focus on equity long short, one of our core propositions. The trend is also to those groups that have strong operational infrastructure, strong risk management and who did not impose redemption restrictions during the difficult period after 2007. This points to flows moving to the larger groups and we believe this trend will continue. This will be exacerbated by a reduction in the number of funds which clients will use, in order to achieve greater control of portfolios. There has been some industry speculation that hedge fund AUM will return to mid 2007 levels by the end of 2010, although we believe risks will still remain for some groups posed by performance, regulation and reputational issues. All these trends leave Gartmore's established and sizeable hedge fund business well positioned as we move into 2010. MUTUAL FUNDS - UK Retail flows have been strong in the UK over the past two years dominated by corporate bond and other fixed interest funds as clients seek lower risk products avoiding the volatility of equities with the attraction of a higher income than deposits. However there are signs that this trend may have played out as the corporate bond sector has recently moved into net outflows. One of the fastest growing sectors over the last 12 months has been absolute return, which aims to provide excess returns over deposits but with a reduced volatility compared with the long only equity or bond markets. The sector has been dominated by those asset managers that can demonstrate long term track records in long short management coupled with retail brands that reassure investors. We see the convergence between hedge and retail continuing strongly over the next few years and believe Gartmore's position as a leading hedge fund business puts us in a strong position to continue to attract retail absolute return fund flows. As with hedge and institutional investors, retail clients have increasingly focused on both operational and investment risk management. Overall we have seen an institutionalisation of the fund approval process. There is some evidence that passive providers are seeking market share from retail investors but with little traction so far. The UK Intermediary market continues to face changes as regulation moves towards a separation of product charges from adviser remuneration. This may result in consolidation in the intermediary market, a growing use of platforms, and a trend to use a limited number of leading providers. We are monitoring these developments closely and believe we are well positioned as the market increasingly favours leading brands with the strongest product propositions. MUTUAL FUNDS - EUROPE The European mutual fund industry saw significant inflows and outflows in 2009. Money market funds and deposits benefited greatly over the first half of the year as investors, led by banks building their cash deposit base, tried to limit exposure to risk assets. In the second half of the year, however, renewed confidence in markets encouraged a reallocation away from low yielding cash investments and a return to equity and bond funds. In particular equity and debt in emerging market and global sectors benefited as investors looked to diversify away from Europe and to access the impressive performance gains seen by these markets in the first six months of the year. By the end of 2009 this trend had somewhat relaxed with allocations also returning to more traditional core equity and bond sectors. Many investors also took advantage of new UCITs III funds to manage their exposure to market uncertainty through absolute return asset strategies. While there has been no sustained trend or preference in investor demand we expect flows to be volatile as investors continue to follow short term market trends. SEGREGATED MANDATES Search activity by investors is increasing after the lows of early 2009 and we see significant demand for both core and satellite global equity solutions with a clear trend away from regional or single country specialisation. This is emerging as one of the key institutional investment themes of 2010. Alternative asset classes remain in demand as the search for asset diversification and low correlation of assets gathers momentum. This has resulted in an increased focus on property, hedge funds and private equity. However, hedge fund investments are tending to be considered only by those pension schemes that have previous experience of this asset class. Other schemes are still struggling to allocate time and resource to understand investment techniques that are new to them. There remains activity and interest in Liability Driven Investing amongst Dutch and UK schemes as trustees continue to seek ways to minimise risk. Threats to active asset management strategies include the continued rise of passive investing and an increased move to core and satellite approaches. These are a response to the generally disappointing active equity returns in 2008/2009 and are seen as a low risk choice for trustees unsure of increasingly volatile markets. This leaves Gartmore well positioned as a provider of higher alpha, added value strategies, aimed at capturing schemes actively managed allocation. The Institutional market has seen a significant increase in the focus on governance and due diligence by investors, and exploring in particular the operational and capital strength of asset managers. There continues to be a heightened sensitivity to company debt, regulatory censure and corporate financial stability. Summary We believe Gartmore is well positioned in each of our core product areas to take advantage of the trends and opportunities, given our strong institutional risk framework, our strong product suite, and a culture which encourages fund managers to focus on delivering strong returns for our investors. DEVELOPMENT OF ASSETS UNDER MANAGEMENT AUM grew from £18.7bn at the end of 2008 to £22.2bn at 31 December 2009, a 19% increase. Of this increase in AUM, £0.3bn was net new business and the balance was due to market and investment performance. We experienced growth in AUM in 2009 across our mutual funds and segregated mandates, but a decline in alternative assets due to redemptions, principally in the first quarter. Breakdown of changes in AUM by product Year ended 31 December 2009 2008 (£bn) (£bn) Alternative funds Opening AUM 4.2 6.3 Subscriptions 1.6 1.2 Redemptions (2.0) (4.3) Net flows (0.4) (3.1) Performance 0.1 1.0 Closing AUM 3.9 4.2 Mutual funds Opening AUM 9.5 14.0 Subscriptions 3.8 3.7 Redemptions (3.3) (4.8) Net flows 0.5 (1.1) Performance 2.2 (3.4) Closing AUM 12.2 9.5 Segregated mandates Opening AUM 5.0 6.8 Subscriptions 1.6 1.6 Redemptions (1.4) (2.3) Net flows 0.2 (0.7) Performance 0.9 (1.1) Closing AUM 6.1 5.0 Total AUM 22.2 18.7 Alternative fund AUM decreased to £3.9bn as at 31 December 2009 from £4.2bn as at 31 December 2008. The alternative fund AUM fell by £2.1bn during 2008 following outflows across the whole hedge fund industry. The Group's funds did not restrict redemptions during this period. Whilst this may have exacerbated the level of redemptions in 2008 and early 2009, we were clear that this strategy would lead to investors returning in the future. These outflows continued until May 2009. Market sentiment then recovered and the Group saw net inflows for each month from June 2009 until November 2009. Gross inflows were £ 1.1bn during this period with the largest flows into the European and UK equities strategies. Alternative fund AUM also benefited from the positive investment performance in 2009, with weighted average returns of 19.1% net of all fees. AUM was reduced due to the appreciation of Sterling, as significantly all the alternative AUM is denominated in currencies other than Sterling. Mutual fund AUM increased to £12.2bn as at 31 December 2009 from £9.5bn as at 31 December 2008. The Group achieved £0.5bn of net inflows, these flows coming from the launch of the Group's absolute return funds and from its China Opportunities, Cautious Managed and Corporate Bond Funds, including the acquisition of the Rensburg Corporate Bond Trust. The Group will launch further absolute return funds in 2010. 94% of the mutual fund AUM is in equities and therefore it benefited significantly from market performance. Segregated mandate AUM increased to £6.1bn as at 31 December 2009 from £5.0bn as at 31 December 2008. The segregated mandates are substantially invested in equities and so increased as the equity markets improved in 2009. The Group achieved positive net inflows of £0.2bn for the year, with eight new mandates being won for a total of £1.2bn AUM. These mandates were won mainly into the Group's global equity and European equity products. The table below provides additional information on our 2009 flows. Quarterly net new business flows in 2009 by product Net new business Alternative Mutual Funds Segregated Total Funds Mandates £m £m £m £m First quarter (991) 64 394 (533) Second quarter 55 (48) (3) 4 Third quarter 327 525 72 924 Fourth quarter 200 (56) (287) (143) (409) 485 176 252 Clients Gartmore has approximately 200,000 mutual fund client accounts, 380 alternative fund clients and 53 segregated mandate clients. These clients are located in the UK, Continental Europe, the Americas and Asia. Total AUM by Client Location 2009 2008 UK 51% 51% Continental Europe 28% 28% Asia, including Japan 7% 8% North America 8% 8% South America 5% 4% Rest of World 1% 1% 100% 100% Alternative Funds Gartmore has been managing alternative funds since 1999 and now manages AUM of £3.9bn in 14 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 2009 2008 Institutions, Pensions Schemes and 69% 62% Institutional Fund of Hedge Funds Family Offices, High Net Worth Individuals 14% 11% Managed Account Platforms 7% 5% Fund of Hedge Funds 7% 18% Private Banks and Wealth Managers 3% 4% 100% 100% As the alternative funds AUM grows, we are strategically focusing on institutional clients and institutional quality fund of hedge funds. The proportion of these clients in our AUM has increased from 62% at the end of 2008 to 69% by the end of 2009. The clients investing in our alternative funds are well diversified across the U.K., Continental Europe, North America and Asia. Alternative Funds by Client 2009 2008 Location UK 33% 26% Continental Europe 30% 28% Asia, including Japan 22% 29% North America 12% 14% Rest of World 3% 3% 100% 100% Mutual Funds Of the £12.2bn of mutual fund AUM, £7.3bn is in UK OEICS, £4.4bn is in a Luxembourg based SICAV and £0.5bn 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 2009 2008 UK 62% 63% Northern Europe 15% 16% Institutional 11% 11% Southern Europe & South America 12% 10% 100% 100% Segregated Mandates Gartmore currently runs 60 segregated accounts for 53 clients. The geographical breakdown of the £6.1bn of AUM we manage is shown below. The proportion of assets attributable to clients in the United States and Japan has increased following success in distributing global equity product to those jurisdictions. During the year we won a significant mandate from a government agency in Japan and several mandates from institutional clients in the US. Segregated Mandates by Client 2009 2008 Location Continental Europe 32% 38% UK 30% 38% North America 23% 18% Asia, including Japan 14% 6% Rest of World 1% 0% 100% 100% Investment Capabilities Our business is diversified across equity asset classes. The £22.2bn of AUM is managed across thirteen investment teams, twelve of which are focused on equities. Of the thirteen investment teams, five manage both long-only and long-short strategies. The largest asset class is European Equities which represents 38% of total AUM. These assets are now managed by two teams following the arrival of the European All-Cap team led by John Bennett in January 2010 which manages 17% of total AUM. The UK Equities AUM is also managed across two investment teams, the UK Large Cap team, headed by Leigh Himsworth, who joined in September 2009, and the UK Small Cap team. We also added Dan Roberts, Equity Income, and Luke Newman to the UK Large Cap team. John Anderson and Kam Tugnait joined in July 2009 to run the fixed income AUM. In January 2010, Jan de Bruijn joined the Emerging Markets team to run Asian Equities. The Private Equity AUM is managed by a team which in 2010 will merge with the Private Equity team of Hermes Fund Managers Limited. This 50:50 joint venture between Gartmore and Hermes will significantly improve the growth prospects of our business. AUM by Equity Capabilities 2009 2008 European Equities 38% 38% Emerging Markets 15% 10% Global Equities 14% 11% UK Equities 13% 11% Private Equity 5% 6% Fixed Income 3% 5% Other 12% 19% 100% 100% INVESTMENT PERFORMANCE Gartmore has a record of strong historical fund performance and in 2009 the Group's alternative funds also performed well relative to comparable indices. Alternative Funds For the year ended 31 December 2009, the Group's alternative funds produced an AUM weighted return of 19.1%, which compared favourably against the Eurohedge European Equity Long-Short Indices, which recorded returns of 10.7% over the same period. Period Gartmore's Eurohedge Alternative European Funds Equity Long/Short USD Index Since Inception (10 years) 15.8% 9.1% 5 years 10.4% 7.2% 3 years 7.1% 2.9% 1 year 19.1% 10.7% Alternative fund awards won recently are as follows: * 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 2009, 19%, 72% and 83% of Gartmore's mutual fund AUM were invested in funds that have achieved first or second quartile performance over the last one, three and five years, respectively. In 2009 the AUM weighted average percentile performance was 66% compared to 33% and 31% for the three and five year periods to December 2009. Percentage of funds Mutual fund AUM weighted 1 yr 3 yr 5 yr performance to 31 December 2009 1st quartile performance 2 58 66 2nd quartile performance 17 14 17 3rd quartile performance 51 16 5 4th quartile performance 30 12 12 AUM weighted average percentile 66 33 31 Investment performance in UK equities and fixed income accounted for the majorityof funds in 4th quartile in 2009. These issues have been raised previously and addressed by management through the hiring of new managers, who joined the Group in the 2nd half of 2009. The poor areas of performance occurred in the first half and steadily improved during the second half of the year. Overall performance on an AUM basis was impacted by the performance of the large European funds which were modestly under benchmark in 2009. The two largest European funds were 58th and 66th percentile respectively. Due to the size of these funds they had a significant overall impact on overall performance. The investment performance of the recently launched range of absolute return funds was strong. Fund 1 yr Performance to 31 December 09 European Absolute Return Fund 11.0% (1) UK Absolute Return Fund 8.6% (1) Multimanager Absolute Return Fund 11.7% 1. Since inception in 2009 Our investment performance has been recently recognised by a number of industry awards and commendations. These include: * Investment Week Investment Trust Awards "Best UK Smaller Companies Trust 2009", Gartmore Growth Opportunities plc * Investment Week Investment Trust Awards "Best European Trust 2009", Gartmore European Investment Trust plc. Segregated Mandates For the three years to 31 December 2009 84% of segregated mandates were above benchmark and 82% over five years. FINANCIAL REVIEW OVERVIEW OF THE RESULTS The backdrop to the 2009 results is a year in which equity markets reached their low point in March, with the significant outflows experienced by the hedge fund industry in 2008 continuing until the end of the first quarter. This caused the Group's AUM to reach a low point at the end of February 2009 of £ 16.3bn and consequently 2009 profits were adversely impacted by lower revenue. Conditions improved from the second quarter onwards and £0.8bn of positive net flows were added during the rest of the year. Equity markets rose and AUM finished the year at £22.2bn, up 19% on December 2008. The business saw net inflows into alternative funds in six of the seven months from June to December 2009, and successfully launched its first absolute return mutual funds. The total AUM in absolute return mutual funds was £1.0bn at December 2009. Net revenue for the year fell by £18.4million or 8% compared to 2008, because of lower average AUM and lower overall management fee margins, although performance fees increased following strong alternative fund performance. This drop in net revenue resulted in lower EBITDA, £54.8m down from £90.2m in 2008. Variable remuneration was higher due to increased performance fee payments, but fixed costs were reduced as a result of cost savings implemented in the final quarter of 2008. The Group has the reduction of its senior debt as one of its priorities. In December 2009 the Group successfully completed an IPO raising £268m of primary proceeds net of expenses. £265m of these proceeds were used to pay off debt, together with £50m of the Group's own cash resources. Total repayments of debt, including repayments earlier in the year, were £323.6m and the net debt position was reduced to £85.3m. £44.3m of cash was generated from operating activities, up from £40.0m in 2008. KEY PERFORMANCE MEASURES The Board and the Executive Committee monitor the performance of the Group against plan 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. Net new business, investment performance and risk issues 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 2009: 2009 2008 Assets Under Management £22.2bn £18.7bn Net new business Alternative funds (£409m) (£3,124m) Mutual funds £485m (£1,058m) Segregated mandates £176m (£694m) Total £252m (£4,876m) Net Revenue £223.7m £242.1m EBITDA £54.8m £90.2m Underlying cash earnings £19.5m £42.5m Underlying cash earnings per share 10.5p 23.6p EBITDA margin 24% 37% Compensation ratio 52% 41% Management fee margin on AUM 77bp 86bp 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 returns, the quartile ranking of mutual funds against peers and the segregated mandate performance against benchmark; * Investment risk; * Compliance, regulatory and operational risk issues. The movement in the key performance measures are discussed in the review of assets under management above and the Group Income Statement below. REVIEW OF FINANCIAL STATEMENTS INCOME STATEMENT The table below shows the Group's results of operations for year. Year ended 31 December 2009 2008 £m £m Management fees 201.5 251.4 Performance fees 65.9 27.7 Other revenue 10.9 16.9 Total revenue 278.3 296.0 Fee and commission expenses (54.6) (53.9) Net revenue 223.7 242.1 Other operating expenses (170.6) (153.8) Operating earnings 53.1 88.3 Exceptional IPO costs (2.5) - Intangible amortisation (29.6) (37.7) Operating profit 21.0 50.6 Finance income 67.8 20.2 Finance expenses (42.6) (209.2) Profit/(loss) before taxation 46.2 (138.4) Taxation 1.4 (8.6) Profit/(loss) for the year 47.6 (147.0) Net Revenue Net revenue for 2009 was £223.7m, a decrease of £18.4m, or 8%, from £242.1m for 2008. Management fees were lower because of lower average AUM, but performance fees recovered strongly in 2009 due to significantly improved alternative fund investment performance. Net Revenue by Product Year ended 31 December 2009 2008 £m % £m % Alternative funds 106.6 47.7 105.5 43.6 Mutual funds 91.9 41.1 101.3 41.9 Segregated mandates 25.1 11.2 29.2 12.0 Other revenue 0.1 0.0 6.1 2.5 Net revenue 223.7 100.0 242.1 100.0 The net revenue for the alternative funds increased slightly due to the impact of higher performance fees in 2009, partly offset by hedge fund redemptions in 2008 and early 2009. The net revenue for mutual funds and segregated mandates was reduced by lower management fees from lower average AUM. 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 2009 2008 bp bp Alternative funds 144 148 Mutual funds 73 78 Segregated mandates 41 43 AUM weighted average margin 77 86 Net margins are net of fees and commission expenses paid to distributors. Net management fee margin on AUM was down to 77bp in 2009 from 86bp in 2008 because of the change in mix of AUM away from alternative funds, which are higher margin. During 2008, alternative funds were on average 24% of total AUM compared to an average of 18% of total AUM in 2009. As the alternative funds AUM recovers, we would expect the AUM weighted average margin for the Group to increase. Mutual fund fee margins reduced because of a larger proportion of sales through platforms and supermarkets, and due to some back-dated accruals of distribution fees. Alternative fund fee margins dropped because of the growth in AUM of a fund with a 1% fee rate. Net management fees for 2009 were down by £50.6m, 26%, as a result of lower average AUM which was due to lower equity markets and also net outflows during 2008 and Q1 2009. Approximately 90% of the Group's AUM is invested in listed equities and average world equity markets were 10% lower in 2009 compared to 2008. A large portion of the Group's AUM and revenue is in foreign currency and the strengthening of Sterling against those currencies during 2009 has decreased reported AUM and management fees. As AUM increased in the second half of 2009, the net management fee run rate (annualised management fees based upon end of period AUM) increased. Performance Fees Performance fees in 2009 were up by £38.2m to £65.9m in 2009. This is due to stronger alternative funds investment performance in 2009. The weighted average return across Gartmore's alternative funds was 19.1% in 2009 compared to a negative return of 5.5% in 2008. The alternative funds have no hurdle rates of return, but do have high water marks. Most of the alternative fund AUM fell below high water mark in 2008, but recovered in 2009. 81% of alternative AUM was above its high water mark at December 2009, compared to 19% at December 2008. Performance fees on alternative funds are booked at the crystallisation point which varies between funds, but which are typically annual. Performance fees on approximately 50% of the alternative fund AUM crystallise in quarter 3 each year, with the remainder spread through the other quarters. The uncrystallised performance fees in alternative funds calculated from net asset values at 31 December 2009 were £21.2m. 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 2009 2008 £m £m Salaries and pensions 34.8 38.2 Variable remuneration 80.9 55.4 Redundancy costs 1.1 4.5 Recurring staff costs 116.8 98.1 Other expenses 53.8 55.7 Total other operating expenses 170.6 153.8 Average number of employees 361 417 Compensation ratio 52% 41% Variable remuneration / net revenue 36% 23% Total other operating expenses were up by £16.8m, 11%, to £170.6m. Recurring staff costs increased by £18.7m, 19%, entirely due to an increase in variable remuneration. The Group maintains tight control of its fixed costs, being salaries and pensions and other expenses. In 2008 and 2009 various cost reduction initiatives were implemented. These resulted in headcount reducing from an average of 417 in 2008 to 361 in 2009. The Group had 345 employees at December 2009. This reduction in headcount drove the reduction in salaries and pension cost. 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 discretionary bonus payment, calculated as a proportion of the Group's profitability excluding performance fees, made to all staff on a discretionary basis. Variable remuneration increased as a result of higher performance fees in 2009 since portfolio managers receive a fixed portion of those fees. Other expenses were lower in 2009 compared to 2008 by £1.9m, 3%. These costs include mutual fund administration costs, premises costs, promotional spend and other office costs. The reduction in 2009 was primarily due to lower mutual fund administration expenses. 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 that of it's outsource partners. 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. * Reliance on performance fees - volatility of earnings The Group earns performance fees principally on its long-short equity business. 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 29% in 2009 and 11% in 2008. As well as managing investments using a wide range of investment strategies, the Group has a strategic emphasis on increasing management fee revenue. * Loss of investment teams 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 compensation policy which includes the deferral of compensation into equity and funds. * 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 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. * Interest rate risk At 31 December 2009 the Group had long term variable interest bank debt of € 150.5m and $188.7m (2008: €333.0m and $451.9m). If interest rates were to rise, this would lead to an increase in financing expenses to the Group. The reduction of debt following the IPO has significantly reduced this risk, and the Board continues to prioritise the further reduction of debt. REGULATORY ENVIRONMENT Certain members of the Group are authorised and regulated in the United Kingdom by the Financial Services Authority. Other members of the Group are regulated by the relevant regulatory authorities in countries where the Group has offices - the United States of America, Japan, Spain and Germany - but the Group conducts business in a significant number of countries and therefore its business is affected by the regulators in those countries. One member of the Group has the right to provide financial services on a cross border basis in certain EU states. In addition, some of the Group's mutual funds are registered in many jurisdictions. The current regulatory environment is being, and will continue to be, affected by regulatory change in response to the global financial crisis and is changing rapidly. Regulators are becoming more intrusive. The regulatory change may affect the amount and composition of regulatory capital requirements, governance structures, business processes and remuneration policies. In April 2009 the European Commission published its proposed Alternative Investment Fund Managers Directive and a revised draft was published in November 2009. This Directive includes provisions relating to capital requirements, liquidity management, remuneration and authorisation of depositaries as they relate to the hedge fund business of fund managers. The Group is closely monitoring the development of the Directive. In the UK the FSA is undertaking a Retail Distribution Review which will affect how the Group distributes products to its retail investors. Any necessary modifications to relevant processes and procedures will be put in place to ensure that the Group complies with the findings of the market wide review. DIVIDENDS The Group intends to prioritise further debt repayment using cash flows from operating activities. Consequently, the Board does not intend to pay a dividend during 2010. The Board expects to recommend a dividend for the first time in 2011, subject to any unforeseen circumstances and assuming that profits are available. GARTMORE GROUP LIMITED FOR THE YEAR TO 31 DECEMBER 2009 CONSOLIDATED INCOME STATEMENT 2009 2008 £m £m Management fees 201.5 251.4 Performance fees 65.9 27.7 Other revenue 10.9 16.9 ________ ________ Total revenue 278.3 296.0 Fee and commission expenses (54.6) (53.9) ________ ________ Net revenue 223.7 242.1 Other operating expenses (170.6) (153.8) ________ ________ Operating earnings 53.1 88.3 Exceptional IPO costs (2.5) - Intangible amortisation (29.6) (37.7) ________ ________ Operating profit 21.0 50.6 Finance income 67.8 20.2 Finance expenses (42.6) (209.2) ________ ________ Profit/(loss) before taxation 46.2 (138.4) Taxation 1.4 (8.6) ________ ________ Profit/(loss) for the period attributable to 47.6 (147.0) equity holders of the parent ________ ________ Earnings/(loss) per share Basic and diluted (pence per share) 25.6p (81.7p)1 ________ ________ 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. 1 Basic and diluted earnings per share amounts for the year ended 31 December 2008 have been restated to reflect the bonus issue on 3 December 2009. GARTMORE GROUP LIMITED FOR THE YEAR TO 31 DECEMBER 2009 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Attributable to equity holders of the parent 2009 2008 £m £m Profit/(loss) for the period 47.6 (147.0) ________ ________ Other comprehensive income: Exchange differences on translation of foreign (2.1) 6.0 operations Loss on cash flow hedges (0.5) (4.5) Reclassification of cash flow hedging amounts on 5.6 1.9 maturity Actuarial loss on post-retirement liability (0.8) (0.7) Tax (charge)/credit on other comprehensive (1.2) 1.6 income ________ ________ Total other comprehensive income for the period, 1.0 4.3 net of tax ________ ________ Total comprehensive income/(expense) 48.6 (142.7) for the period ________ ________ GARTMORE GROUP LIMITED as at 31 DECEMBER 2009 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2009 2008 £m £m Assets Non-current assets Property, plant and equipment 2.6 4.2 Intangible assets 330.4 357.6 Deferred tax asset 1.9 7.2 Trade and other receivables 7.4 5.0 ____ ____ Total non-current assets 342.3 374.0 ____ ____ Current assets Trade and other receivables 67.0 73.2 Investments 0.3 2.3 Cash and cash equivalents 173.7 219.7 Current tax 2.0 - ____ ____ Total current assets 243.0 295.2 ____ ____ Total assets 585.3 669.2 ____ ____ Equity Issued share capital 1.5 - Share premium 270.3 - Capital contribution 2.4 2.4 Exchange reserves 3.7 5.8 Retained earnings (93.7) (139.8) Cash flow hedge reserve - (3.7) ____ ____ Total equity attributable to equity holders 184.2 (135.3) of the parent ____ ____ Non-current liabilities Long-term borrowings 257.4 638.2 Trade and other payables 1.2 1.6 Provisions 6.2 4.4 Post-retirement liability 0.4 0.2 Deferred tax liability 25.2 33.6 ____ ____ Total non-current liabilities 290.4 678.0 ____ ____ Current liabilities Trade and other payables 108.2 116.3 Provisions 2.4 1.0 Derivatives - 5.2 Current tax 0.1 4.0 ____ ____ Total current liabilities 110.7 126.5 ____ ____ Total liabilities 401.1 804.5 ____ ____ Total equity and liabilities 585.3 669.2 ____ ____ GARTMORE GROUP LIMITED FOR THE YEAR TO 31 DECEMBER 2009 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of the parent company Cash Flow Share Share Capital Exchange Retained Hedge Capital Premium Contribution Reserve Earnings Reserve Total £m £m £m £m £m £m £m At 1 January - - 2.4 (0.2) 7.7 (2.5) 7.4 2008 Loss for the - - - - (147.0) - (147.0) period Other - - - 6.0 (0.5) (1.2) 4.3 comprehensive income/ (expense) net of tax ________ ________ ________ ________ ________ ________ ________ At 31 December - - 2.4 5.8 (139.8) (3.7) (135.3) 2008 and at 1 January 2009 Profit for the - - - - 47.6 - 47.6 period Other - - - (2.1) (0.6) 3.7 1.0 comprehensive (expense)/ income net of tax Bonus share 0.9 - - - (0.9) - - issue Issue of share 0.6 279.4 - - - - 280.0 capital at IPO Share issue - (9.1) - - - - (9.1) costs charged to share premium ________ ________ ________ ________ ________ ________ ________ At 31 December 1.5 270.3 2.4 3.7 (93.7) - 184.2 2009 ________ ________ ________ ________ ________ ________ ________ GARTMORE GROUP LIMITED FOR THE YEAR TO 31 DECEMBER 2009 CONSOLIDATED STATEMENT OF CASH FLOWS 2009 2008 £m £m Cash flows from operating activities Profit/(loss) before taxation 46.2 (138.4) Adjustments for: Finance income and expense (25.2) 189.0 Depreciation on property, plant and equipment 1.7 1.9 Amortisation of intangible assets 29.6 37.7 Other losses (2.1) 1.2 Change in working capital 4.4 (30.7) _________ _________ Cash generated from operations 54.6 60.7 Interest paid (0.1) (0.4) Income tax paid (10.2) (20.3) _________ _________ Net cash generated by operating activities 44.3 40.0 _________ _________ Cash flows from investing activities Payments for intangible assets (0.1) - Payments for investments (18.9) (0.9) Proceeds on sale of investments 19.8 0.9 Interest received 1.1 8.0 Payments for property, plant and equipment (0.2) (1.2) Acquisition of subsidiary undertaking - (2.6) _________ _________ Net cash generated by investing activities 1.7 4.2 _________ _________ Cash flows from financing activities Proceeds from share issue 280.0 - Repayment/purchase of borrowings (323.6) (15.2) Interest paid on borrowings (30.5) (33.2) Debt waiver fees paid (2.0) - IPO expenses paid (3.9) - _________ _________ Net cash used in financing activities (80.0) (48.4) _________ _________ Net decrease in cash and cash equivalents (34.0) (4.2) Cash and cash equivalents at the beginning of 215.5 207.6 the period Effects of exchange rate changes on the (7.8) 12.1 balance of cash held in foreign currencies _________ _________ Cash and cash equivalents at the end of the 173.7 215.5 period _________ _________ NOTES TO THE ANNUAL REPORT AND ACCOUNTS 2009 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 2009. 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 23 March 2010 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. We have reviewed the management information provided to the chief operating decision-maker and how the Group's economic resources and income/expense are currently managed by the Executive Committee. The Group operates as a single-segment investment management business. 2009 2008 £m £m Revenue by product and services Management and performance fees Alternative funds 106.6 105.5 Mutual funds 135.7 144.4 Segregated mandates 25.1 29.2 _____ ____ 267.4 279.1 Other revenue Mutual funds 10.8 10.8 Other 0.1 6.1 _____ ____ 10.9 16.9 _____ ____ Total revenue 278.3 296.0 _____ ____ UK 271.0 285.2 Overseas 7.3 10.8 _____ ____ Total revenue 278.3 296.0 _____ ____ Non-current assets by geographical area UK 332.7 361.3 Overseas 0.3 0.5 _______ _______ Total of analysed non-current assets 333.0 361.8 Deferred Tax 1.9 7.2 Financial instruments 7.4 5.0 _______ _______ Total non-current assets 342.3 374.0 _______ _______ Major customers No one underlying client or distributor relationship accounted for more than 10% of total revenue (2008: none). 3. Other revenue 2009 2008 £m £m Foreign exchange and other investment (loss)/gain (0.9) 4.3 OEIC administration fees 10.8 10.9 Other fee revenue 1.0 1.7 _______ ________ Total other revenue 10.9 16.9 _______ ________ 4. Other operating expenses 2009 2008 £m £m Depreciation of owned assets 1.7 1.9 Rentals payable under operating leases 4.6 4.4 Recurring staff costs 116.8 98.1 Auditors remuneration 1.0 0.7 Other expenses 46.5 48.7 ________ _______ Total other operating expenses 170.6 153.8 ________ _______ 5. Staff Costs 2009 2008 £m £m Wages, salaries and other 101.7 81.9 Social security costs 12.6 9.1 Pension costs 2.6 2.9 Redundancy costs 1.0 4.2 ______ ________ Total staff costs 117.9 98.1 ______ ________ Staff costs (including the associated social security costs) are further analysed below: Salaries and pensions 34.8 38.2 Variable remuneration 80.9 55.4 Redundancy costs 1.1 4.5 ________ ________ Recurring staff costs 116.8 98.1 Exceptional IPO costs 1.1 - ________ ________ Total staff costs 117.9 98.1 ________ ________ The average number of persons employed by the Group during the year was 361 (2008: 417). All were employed in the investment management business. The pension cost in the year to 31 December 2009 does not include an actuarial loss on the post-retirement liability (net of taxation) taken to the SOCI amounting to £0.6m (2008: £0.5m). 6. Exceptional IPO costs Exceptional IPO costs of £2.5m in the year (2008: £nil) relates to the Company's IPO in December 2009. £1.1m of these costs are staff-related. The remaining £1.4m relate to other non-recurring advisory and marketing costs relating to the IPO that are not chargeable against share premium. 7. Finance income and expenses 2009 2008 £m £m Finance income Interest income 1.1 7.9 Interest receivable on cash flow hedge reclassified - 0.5 from equity Exchange movement on debt 59.7 - Expected return on pension assets 4.7 5.3 Exchange movement on cash - 6.5 Gain on repurchase of own debt 2.3 - _______ ________ 67.8 20.2 _______ ________ Finance expenses Interest expense (18.4) (33.3) Interest payable on cash flow hedge reclassified (5.6) (2.4) from equity Exchange movement on debt - (165.8) Interest on pension obligation (3.9) (4.6) Exchange movement on cash (7.8) - Lender fees (2.0) - Amortisation of debt issuance expenses (4.4) (2.6) Other finance expenses (0.5) (0.5) _______ ________ (42.6) (209.2) _______ ________ 8. Taxation The Company, whilst incorporated in the Cayman Islands, is a UK resident company for tax purposes. a) Tax (credit)/charge for the period 2009 2008 £m £m Current taxation UK corporation tax at 28% (2008: 28.5%) Current period (0.6) 9.4 Prior period 0.2 (1.5) Overseas taxation Current period 3.1 5.2 Prior period 0.2 0.2 ________ ________ 2.9 13.3 Deferred taxation Origination and reversal of timing differences (4.3) (4.7) ________ ________ Total tax (credit)/charge (1.4) 8.6 ________ ________ The tax rate of 28.5% for the year to 31 December 2008 is based on the UK tax rate of 30% which applied for the first three months, and 28% which applied during the remaining nine months of the year. The tax charge in the period is lower (2008: higher) than the standard rate of corporation tax in the UK and the differences are explained below: b) Factors affecting tax (credit)/charge 2009 2008 for the period £m £m Profit/(loss) before taxation 46.2 (138.4) _______ _______ Taxation at the standard corporation tax rate 12.9 (39.4) 28% (2008: 28.5%) Permanent differences (15.6) 48.1 Adjustment to tax charge in respect of prior periods 0.4 (1.3) Overseas tax at higher rates than UK 0.9 1.2 _______ ________ Total tax (credit)/charge (1.4) 8.6 _______ _______ £16.7m of the permanent differences results from the non-taxable gain on re-translation of the long term borrowings (2008: loss on re-translation £ 47.3m). 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 £ 4.7m (2008: £0.6m). 9. Earnings/(loss) per share The calculations of earnings/(loss) per share are based on the following profits and numbers of shares. Basic earnings/(loss) 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/(loss) 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. There were no dilutive potential ordinary shares during the reported periods. The weighted average number of ordinary shares used to calculate basic and diluted earnings/(loss) per share has been adjusted to reflect the cancellation of 100 ordinary shares of $1 each and the bonus issue of 180,000,000 ordinary shares of £0.005 each on 3 December 2009, and basic and diluted earnings/(loss) per share amounts for the year ended 31 December 2008 have been restated accordingly. Underlying cash earnings/(loss) 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 items. The purpose of providing the underlying earnings/(loss) is to allow readers of the financial statements to clearly consider trends in the underlying results excluding the impact of non-cash items. IAS 33 Underlying cash earnings basis 2009 2008 2009 2008 (restated) (restated) £m £m £m £m Basic and diluted earnings/(loss) per share Profit/(loss) for the financial year 47.6 (147.0) 47.6 (147.0) Adjusting items, net of attributable taxation Amortisation of intangible assets 21.3 27.0 Foreign exchange - exchange movement on debt (59.7) 165.8 - exchange movement on cash 5.6 (4.7) Pension costs (0.6) (0.5) Amortisation of debt issuance 3.2 1.9 expenses Exceptional IPO costs 2.1 - Profit/(loss) for the financial year 19.5 42.5 - adjusted basis Weighted average number of shares 185,579 180,000 185,579 180,000 (000's) Basic and diluted earnings/(loss) per 25.6p (81.7p) 10.5p 23.6p share (pence per share) 10. Long term borrowings 2009 2008 £m £m Debt 259.0 644.2 Debt issuance expenses (1.6) (6.0) ________ ________ 257.4 638.2 ________ ________ Debt In issue at start of period 644.2 493.2 Repaid/acquired in period (323.6) (15.2) Gain on repurchase of own debt (2.3) - Deemed interest on 0% Sterling loan note 0.4 0.4 Exchange movement in period (59.7) 165.8 ________ ________ At end of period 259.0 644.2 ________ ________ Debt issuance expenses Book value of debt issuance expenses at start of period 6.0 8.8 Amortised in period (4.4) (2.6) Release of debt expense accruals - (0.2) ________ ________ At end of period 1.6 6.0 ________ ________ The Group debt at 31 December 2009 is a mixture of Euro and US dollar floating rate debt and a Sterling loan note. At 31 December 2009 Interest rate Maturity Currency £ £ equivalent equivalent when at 31 issued December 2009 m £m £m Euro floating rate Euribor plus 2014 €150.5 103.0 133.8 debt 2.00% US dollar floating US Libor plus 2014 $188.7 95.4 116.8 rate debt 2.00% Sterling loan note 0% 2014 £7.3 7.3 8.4 _______ _______ 205.7 259.0 _______ _______ At 31 December Interest rate Maturity Currency £ £ 2008 equivalent equivalent when at 31 issued December 2008 m £m £m Euro floating Euribor plus 1.75% 2014 €333.0 228.0 322.0 rate debt US dollar US Libor plus 2014 $451.9 228.5 314.3 floating rate 1.75% debt Sterling loan 0% 2014 £7.3 7.3 7.9 note _______ _______ 463.8 644.2 _______ _______ The then parent, OPLP, made an interest free Sterling loan to the Group related to the refinancing in 2007. A deemed interest rate of 5.5% has been applied to this note. In accordance with the Senior Credit Agreement ("SCA"), the margin on both the Euro and US dollar floating rate debt is 2.0%, as the leverage ratio of the most recent Compliance Certificate submitted prior to 31 December 2009 was above 3.75. The margin reduces to 1.75% when the leverage ratio falls below 3.75, and Gartmore remains in compliance with all other terms of the SCA. The margin payable at 31 December 2009 was 2.0% (2008: 1.75%). In 2009 the Group bought back some of its own long term debt spending £5.7m on debt with a face value of £8.0m. Also in 2009, the Group made a mandatory repayment at par of £3.0m (2008: voluntary repayments of £15.2m). Following the IPO in December 2009, the Group repaid £314.9m of long term debt. 11. 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. Nothing in the announcement should be construed as a profit forecast. END
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