HGG.L Regulatory News (HGG)

Full Year Results 2014

25 February 2015

Henderson Group plc (Henderson or the Group) published its Full Year Results for the year ended 31 December2014 on 25 February 2015. The comments below refer to the period from 1 January 2014 to 31 December 2014 (the period) unless otherwise stated.

Financial highlights

· Assets under management (AUM) at 31 December 2014 up 8% to £81.2bn (31 December 2013: £75.2bn)

· Net inflows for the year of £7.1bn (2013: £2.5bn)

· Underlying profit before tax from continuing operations of £187.8m, up 13% (2013: £165.5m)

· Diluted continuing underlying EPS of 14.7p, up 13% (2013: 13.0p)

· Capital surplus of £44m¹ without recourse to the waiver from consolidated supervision

· Board recommends a final dividend of 6.40p per share to take the total dividend for the year to9.00p per share, up 12.5% in sterling terms

Business update

· Strong investment performance: 83% of funds outperforming relevant metrics over three years²

· Net new money growth from continuing operations of 11%, well ahead of the industry

· Market share gains in our major markets in each quarter of 2014

Outlook

· Strong start to 2015, with Retail flows to 20 February tracking ahead of 2014 average

Andrew Formica, Chief Executive of Henderson, said:

"Last year was very successful for Henderson. We delivered strong investment returns for our clients, our best ever year of inflows and record profits. We continued to invest in people and new systems, and we expanded our global reach, all of which significantly contributed to the progress we are making to grow and diversify our business.

"This year has started well, with renewed client demand for European assets. As last year's results demonstrate, our business is becoming stronger across market cycles, and we look forward to continued growth in the years ahead."

1. Calculated based on the Group's pillar 2 capital requirement as approved by the Board in its 30 June 2014 ICAAP.

2. Percentage of funds, on an asset-weighted basis, that are outperforming relative to benchmark, percentile ranking or absolute where appropriate and includes Henderson UK Property OEIC.

Henderson Group plc47 EsplanadeSt HelierJersey JE1 0BDRegistered in JerseyCompany No. 101484ABN 67 133 992 766

RESULTS FOR ANNOUNCEMENT TO THE MARKET

For the year ended 31 December 2014.

These results for announcement to the market include the information required as part of the Preliminary Final Report to be provided to the ASX under Listing Rule 4.3A and Appendix 4E.

The results for Henderson Group plc for announcement to the market are as follows:

Dividends

On 24 February 2015, the board of directors of Henderson Group plc (the Board) recommended a final dividend in respect of the six months ended 31 December 2014 of 6.40 pence per share (2H13: 5.85 pence per share). Henderson Group plc does not offer a dividend reinvestment plan.

Henderson operates a progressive dividend policy, and expects to grow ordinary dividends broadly in line with earnings over the medium term.

Net tangible assets per ordinary share

Net tangible assets are defined by the ASX as being total assets less intangible assets less total liabilities ranking ahead of, or equally with, claims of ordinary shares.

Audit

This Appendix 4E has not been audited but is based upon financial statements which have been audited.

The financial statements, together with the audit report, which is unqualified, will be made available with the Henderson Group plc 2014 Annual Report, which will be published on 18 March 2015.

1. The composition of employee compensation and benefits has been reviewed in the year and has resulted in certain items (including training and recruitment agency costs) being reclassified from employee compensation and benefits to non-staff expenses. There is no impact on prior year profits. Prior year comparatives have been restated.

2. Underlying profit, while not a GAAP measure, in the opinion of the Directors, gives relevant information on the profitability of the Group and its ongoing operations.

3. Net fee income from continuing operations less total operating expenses from continuing operations divided by net fee income from continuing operations.

4. Employee compensation and benefits from continuing operations divided by net fee income from continuing operations.

5. Based on continuing underlying profit after tax attributable to equity owners of the parent.

6. Based on weighted average number of shares in issue less weighted average number of own shares held during the period.

7. Based on weighted average number of shares in issue less weighted average number of own shares held during the period adjusted for the dilutive potential of share awards and share options.

To view the full details of the 2014 Full Year Results (ASX Appendix 4E), paste the following link into your web browser:

http://www.rns-pdf.londonstockexchange.com/rns/7800F_1-2015-2-24.pdf

To view the full details of the 2014 Full Year Results Presentation, paste the following link into your web browser:

http://www.rns-pdf.londonstockexchange.com/rns/7800F_2-2015-2-24.pdf

Market briefing

Management will present these results on 25 February 2015 at 7.15pm (Sydney time) / 8.15am (London time).

Webcast details

You can log on to a webcast of the results briefing which will start at 7.15pm (Sydney time) / 8.15am (London time).

Go to www.henderson.com/IR and click on the relevant link on the homepage. An archive of the webcast will be available shortly after the event.

Teleconference details

We recommend participants start dialing in 5-10 minutes prior to the start of the presentation. To telephone link-up to the briefing, dial one of the following numbers from 7.00pm (Sydney time) / 8.00am (London time):

From:

Further information

About Henderson

Henderson is an independent global asset manager, specialising in active investment. Named after its first client and founded in 1934, Henderson is a client-focused global business with over 900 employees worldwide and assets under management of £81.2bn (31 December 2014). Its core areas of investment expertise are European Equities, Global Equities, Global Fixed Income, Multi-Asset and Alternatives.

Henderson is dual-listed on the Australian Securities Exchange (ASX) and the London Stock Exchange (LSE) and has a market capitalisation of approximately £3.0 billion (February 2015).

Further information can be found at www.henderson.com/IR.

Forward looking statements

This announcement contains forward-looking statements with respect to the financial condition, results and business of Henderson Group plc. By their nature, forward-looking statements involve risk and uncertainty because they relate to events, and depend on circumstances, that will occur in the future. Henderson's actual future results may differ materially from the results expressed or implied in these forward-looking statements. Nothing in this announcement should be construed as a profit forecast.

The content of the websites referred to in this announcement is not incorporated into and does not form part of this announcement. Nothing in this announcement should be construed as, or is intended to be, a solicitation for or an offer to provide investment advisory services.

FIVE YEAR FINANCIAL SUMMARY

Summary of movements in AUM

1. Acquisitions and disposals include the disposal of the Property business and recognition of the Group's share of TIAA Henderson Real Estate Limited on 1 April 2014; the Group's share of an increased holding in 90 West Asset Management Limited; the acquisition of Geneva Capital Management on 1 October 2014; and, the disposal of Intrinsic Cirilium Investment Company Limited on 1 December 2014.

2. Private Equity funds' closing AUM is based on 30 September 2014 valuations.

3. Other includes US Mutuals together with Australian managed investment schemes.

4. Equities asset class includes Multi-Asset and Commodities.

5. Fixed income includes Cash.

6. Includes AUM of the Henderson UK Property OEIC which remains with the Group following establishment of the TH Real Estate joint venture.

7. Includes Henderson UK Property OEIC and Private Equity AUM and reflects Henderson's share of the TH Real Estate AUM.

8. Certain items (including training and recruitment agency costs) have been reclassified from employee compensation and benefits to other expenses. There is no impact on prior year profits. Prior year comparatives have been restated.

9. Net fee income from continuing operations less total operating expenses from continuing operations divided by net fee income from continuing operations.

10. Employee compensation and benefits from continuing operations divided by net fee income from continuing operations.

11. Net margin calculated on underlying profit before tax from continuing operations.

12. Based on underlying profit after tax attributable to equity owners of the parent.

13. Underlying profit, while not a GAAP measure, in the opinion of the Directors, gives relevant information on the profitability of the Group and its ongoing operations.

14. Asset-weighted performance of funds measured over one and three years to 31 December 2014. Performance for 2013 and 2014 includes Henderson UK Property OEIC - all prior periods include Property and Henderson UK Property OEIC performance.

Chief Executive's review

Investing for our clients

Our 80th anniversary celebrations this year gave us opportunity to reflect on Henderson's distinguished history of pioneering products, global investment horizons and valued relationships with clients and counterparties. For me, the single most important aspect of our history is that we were named after our first client. This reminds each of us, every day, to put the client first.

What did we deliver for our clients in 2014?

At the heart of what every asset manager aspires to deliver to their client is a high quality investment process and consistently strong investment returns. At Henderson, 83% of our funds outperformed over the three year period our clients monitor most closely, with two thirds outperforming over the more volatile one year period.

In equities, our managers delivered exceptional performance across a broad range of strategies in European Equities, which meant that even in falling markets we gained market share in the second half of 2014. Performance in Global Equities was more varied, with income and cautious managed styles delivering strong performance for clients, but our new Global Equities team suffered performance setbacks after a strong first year. Fixed Income performance pulled back from its 2013 levels, as government bond markets stayed stronger than our teams anticipated. However, the new recruits to our Fixed Income business contributed well, with the Henderson Horizon Global High Yield Bond Fund delivering first decile performance in its first calendar year. Multi-Asset portfolios delivered solid performance and in Alternatives, our flagship equity long/short funds succeeded in providing better defensive investment options than many of our peers - an attractive characteristic in the difficult market conditions seen in the second half of the year. In short, we delivered impressive investment performance across a broad range of strategies.

Investment process and performance form the bedrock of what we deliver to our clients, but strong, sustainable client relationships are equally important, especially as activities to maintain and enhance these connections continue to evolve. We have always worked with our largest clients to develop new investment ideas. As our product design process evolved this year, we sought client feedback at the design stage of a series of new strategies to meet current and future demand, which led to us launching new funds focused on global and emerging markets corporate bond strategies. In the intermediated Retail markets, we also increased the level of information and insight we source from our clients' end customers, commissioning research into evolving customer needs and inviting 300 of our end customers to sit on a Customer Panel to share their views on a range of topics.

We made significant steps forward in the quality of the reporting we provide to our clients, particularly online, where video is challenging the written word in popularity. It is no longer sufficient for a portfolio manager to invest wisely: he or she also needs to communicate well. During the course of this year, our managers shared their insights through thought leadership pieces and fund commentaries, and also on video, which led to a surge in monthly page views on our award-winning digital platform. Our aim is to share our perspectives with our clients, to enable them to understand our thinking and use it to shape their own decisions. During the course of this year, we re-launched our brand around the Knowledge. Shared proposition. This is aimed at providing unrivalled levels of thought leadership, transparency and service; attributes that clients tell us add the most value to them. Relationships with clients are being transformed into partnerships.

What were the results of this client-focused approach?

2014 has seen a significant improvement in net client inflows, which I attribute to three main factors: markets, products and service.

The year started exceptionally strongly for us, with a resurgence of demand for European equities. It is testament to the tenacity of our distribution teams, who continued to share our knowledge of European equities with clients while the region was out of favour, that we attracted more than our share of new business when European equities came back into vogue. 2014 also demonstrated the strategic success of our past acquisitions. Up until this point, we had seen the financial benefits of the New Star (2009) and Gartmore (2011) acquisitions in cost synergies and improved profitability. During 2014, client confidence in our newly integrated business manifested itself in increased flows, with over half of our flows in the period coming from products or managers who joined Henderson as a result of these acquisitions.

As the year progressed, the diversity of our product line helped sustain net inflows as market conditions became more volatile. Eighteen Retail funds saw net inflows this year of over £100m, across a broad range of capabilities - European Equities, Global Equities, Global Fixed Income and Alternatives. The diversity of our product lines stood us in good stead in the second half of the year, when clients switched from high beta styles into more defensive investments. Our top selling Retail funds in the second half reflected reduced client appetite for risk, demand for income and the defensive characteristics of absolute return.

Our plans to diversify and balance our product lines are more advanced in some regions than in others. Our UK Retail business is the poster child in this respect, and generated net inflows of £2.8bn this year. Top selling UK Retail funds include Henderson UK Property, Henderson Cautious Managed, Henderson Euro Selected Opportunities, Henderson European Focus, Henderson UK Absolute Return, Henderson Strategic Bond and Henderson Multi Manager Income and Growth. By contrast, our US Mutuals business had a very successful first half selling European equities, but did not have a broad enough product range to continue to capture flows once client demand for European equities subsided. We are on the cusp of being able to broaden our US client offer, with our All Asset and Dividend and Income Builder funds reaching their three year track records in 2015, two further funds reaching three year track records in 2016 and an additional three in 2017, including US Growth Opportunities with input from Geneva Capital Management, acquired in October.

Client inflows this year were predominantly driven by our strong Retail businesses in the UK, Continental Europe, the US and Latin America. Our Institutional business made steady progress but needs global product and geographic diversification outside the UK for flows to accelerate. We started to see some early success this year, with inflows from the US, Australia and Japan, as well as the UK and Continental Europe.

Our Institutional business saw a net outflow in the fourth quarter, because of client withdrawls from Geneva Capital Management funds in the immediate aftermath of the change in ownership. Whilst this was unexpected, I am very comfortable with the progress we have made with Geneva since the acquisition closed in October.

Net growth in new client money is, for me, the most significant measure of success in our business. We have done well this year both on an absolute basis, and in relative terms. Industry sources confirm that we have gained market share in major markets such as UK, European and US Retail, which reinforces my view that our client-focused approach is proving successful. 


Geneva Capital Management

Small acquisitions have a key role to play in delivering our strategy, where we see opportunities to accelerate growth. In October 2014, we completed the acquisition of Geneva Capital Management, the US growth equity manager. This was an important strategic milestone for our North American business. Geneva brings proven investment expertise in mid- and small-cap US high quality growth equities to add to Henderson's international capabilities, and a predominantly institutional client base which complements Henderson's strong US Retail presence. Most significantly, Geneva's investment-led culture complements Henderson's, and the two teams are already working well together to build a US business where the whole is bigger than the sum of the parts.

This time last year, we articulated a strategy based on growth and globalisation. How are we doing?

This time last year, I set out a strategy based on strong organic growth and modest acquisitions, the output of which, assuming helpful markets, will be to double our assets under management by 2018. Publicly communicating a quantifiable objective is a risk, I acknowledge, but it has acted as a clear and effective rallying cry for everyone in Henderson.

2014 was a year of carefully targeted organic investment in diversification by product, channel and geography, as well as strategic moves to structure our business around our core capabilities.

Alternatives is an area where we are changing the shape of our business to focus on the liquid end. The IPO of John Laing in February 2015 marked an important step towards our exit from Private Equity. Our Private Equity business delivered disappointing returns for some clients because of very difficult market conditions during and after the 2008 global financial crisis. Although this outcome is clearly not what we hoped for, we have done everything in our power to preserve and maximise value for clients.

Elsewhere in our business, we continued to build on longstanding initiatives to stimulate growth. We hired investment specialists in Asian equities, US investment grade credit, and emerging markets to round out our investment management capabilities. We built out our Australian operation; we refreshed our brand; and we delivered the first phase of our new global finance platform. Given the scale of new investments made this year, we expect 2014 to represent the high point in our expenditure on new initiatives. We are currently carrying the cost of new teams which earn very little revenue, particularly in investment management, where it will take at least three years for them to build a track record.

A personal area of focus for me this year has been to stimulate the flow of new blood and new ideas into Henderson, right through the firm from my senior team to graduate recruits. It is a particular pleasure to welcome Rob Gambi as Chief Investment Officer. Rob is a bold, talented team leader, who has already made an impact on the investment floor. While investment decisions remain the preserve of individual investment managers, Rob has galvanised management decision making and brought a strong risk-focused challenge and debate to the investment discussions. His arrival completes my senior team.

Equally important to me is the success of the Henderson Trainee Programme, part of the Investment 2020 initiative to create more entry level opportunities into fund management. Henderson's programme is aimed at recent graduates, school leavers and those looking for a career change and offers the opportunity to join us on a short-term basis of up to 12 months. 120 trainees have completed our programme since its inception in 2010, and 90% of them have gone on to secure permanent roles within our industry. Our Trainee Programme is not about altruism: it is run for true commercial benefit.

Ours is an industry at risk from disruptive technology, narrow-mindedness and complacency. An injection of youth into our workforce helps guard against these risks.

Having launched our growth and globalisation strategy last year, I am delighted with the first year's results. Roger Thompson's financial review covers our results in detail, so suffice for me to say that net new money growth came through very well, despite muted market returns in the second half, and we maintained a disciplined approach to investing in our business. We delivered a 13% rise in underlying profit. Looking back, I hope we will see 2014 as a pivotal year for Henderson, when we invested well for profitable future growth.

What are our priorities for 2015?

With 2014 marking the high point of our significant investment programme, 2015 is about delivery. Our strategy is clear and well embedded within our business. Our focus now is to deliver what we know we are capable of. Key to achieving this is maintaining strong relationships with our clients, which in turn should lead to high retention rates and strong new business growth. Our focus on investment performance is unrelenting.

Here, then, are our priorities for 2015:

· Continue to deliver for our clients - which in turn will drive new business and enable us to gain market share

· Monitor and support our new investment teams as they establish their track records

· Continue to build our business geographically

· Continue to look for attractive small scale acquisitions to accelerate growth

· Demonstrate the operating leverage in our business model.

We will maintain a disciplined approach to use of capital, and enter 2015 ready to operate without recourse to the investment firm waiver from consolidated supervision, which expires in April 2016. Our next priority is to build the level of capital buffer prescribed by the Board, above which I see no requirement to hold additional capital. Once a robust capital position is achieved, I look forward to the increased flexibility to redeploy capital to:

· fund organic growth and globalisation

· supplement organic growth with value accretive acquisitions

· increase returns to shareholders.

What are the key risks to delivering our strategy?

I am often asked about the key risks to the success of our strategy. We manage risks within our business actively and diligently, as Chief Risk Officer Chris Chaloner reports in his section, but I am also very conscious of the potentially detrimental effect on our plans of external factors - notably markets and regulation.

The rise in volatility we have seen in financial markets in the latter months of 2014 is likely to be a persistent feature in 2015, as markets adjust to disruptive changes in the economic and political landscape. This is a year in which politics could have a greater influence than usual on investor confidence, with a number of key elections taking place in the major economies, against a backdrop of growing support for non-mainstream parties in many countries.

On the positive side, central banks remain focused on sustaining the global recovery and with the drag from fiscal tightening receding globally and the drop in the oil price providing further support, 2015 could be a year of positive growth surprises, after four years of growth downgrades. This is a year for active investment managers to make their mark.

Regulatory change continues to challenge us, and it is comforting to work in a business with the scale, expertise and track record to navigate the regulatory landscape carefully. The implications of unbundling research from dealing commissions as part of MiFID II in Europe are still being worked through, and represent the greatest regulatory challenge for us at present.

Outlook for 2015 and beyond

We enter 2015 with good momentum, knowing that we are gaining market share in our major markets. I am confident that we can continue to generate strong organic growth, principally from our current diverse product range, but increasingly from new initiatives as they build their long-term track records.

Key to our success in 2015 and beyond is staying true to our clients and true to our brand, encapsulated in theKnowledge. Shared brand proposition. Throughout this Annual Report, we have showcased portraits of our current clients as well as that of our founding client, Alexander Henderson, to illustrate the continuing importance we attribute to the views of our clients. This unrelenting focus on the client is central to our 80 year history, and remains key to our future success.

I would like to conclude by thanking all of the Henderson team for their hard work this year, our shareholders for their support, and our clients for trusting us with their money.

Andrew Formica

Chief Executive

Distribution and client service

This year's Annual Report showcases our clients, from our very first, Alexander Henderson, who we were named after, through to the present day, because we must never forget whose money we look after. The Annual Report also showcases our refreshed brand, which we launched globally in 2014. In the course of the year, we updated the look and feel of our written materials, advertising and websites; positioned Henderson as a sophisticated and aspirational company to an increasingly institutionalised target market; and began to live and develop our core brand proposition - Knowledge. Shared.

Prominent throughout Henderson is the mantra that our clients' needs are at the heart of everything we do. We continue to strive to meet or exceed the expectations of our clients and their customers and to embed the fair treatment of customers into the firm's business model. We have an active client engagement programme that helps us improve our understanding of client needs through our research programme, enabling us to directly feed back into both product design and literature the views of our customers. This in turn allows us to ensure that not only do clients get the products that are most suitable for them, but they also get updates and communications in a format that suits them.

For example, in our institutional business, close co-operation with a UK-based life insurance company resulted in the creation of a specifically tailored global credit product, closely matching the needs of their underlying clients. In retail the direct customer feedback though our surveys enabled us to launch guides to help with understanding on certain products, such as absolute return and bond investing. As I write, we are working on a guide to charging which our clients have highlighted they would like more clarity on.

As ever, the main driver of new business remains the quality of our core product offering: that is, risk adjusted returns and the quality of our investment processes. Investment performance has remained strong across our five core capabilities in 2014, and has driven significant net fund inflows into a wide range of strategies.

Our distribution and client service operation

Distribution and client service at Henderson sits at the centre of our business, and comprises sales, marketing, investment and client communications, client service, product strategy and development and brand management - 27% of our staff across 14 locations worldwide. Our distribution capabilities are critical to the success of our strategy.

Distribution strategy

Our distribution strategy, which I outlined to the investment community in the course of 2014, contributes significantly to each of the Group's four major strategy workstreams and can be summarised as follows:

Performance, and the perception of performance, is critical to long-term success

Consistently strong investment performance is critically important to clients. Once you have established a reputation and a brand associated with strong performance, this will strengthen the loyalty of clients.

Global product development is a key success driver

Product development is about creating options to respond to client demand, however it evolves. Not all product ideas will ultimately prove successful. We operate a disciplined global process, which helps us prioritise systematically, allocate our resources, back our winners and cut initiatives if they prove irrelevant to our clients.

Our brand needs to convey a confident, aspirational but believable image. I am delighted with the progress we have made this year, principally with our updated brand. The feedback has been universally positive with the new website winning a number of awards.

Distribution structure is based around client types

This is extremely important when it comes to ensuring that client-facing people at Henderson understand who they are dealing with, and what clients' needs are and why, and are able to deliver tailored levels of service.

Quality of people determine the quality of success

This is critical. Since I first arrived at Henderson, I have focused on upgrading the quality of our people across distribution, across functions and across the globe and now have the strongest distribution team I have ever worked with in nearly 30 years - dedicated to Henderson's clients and servicing their needs.

Teamwork and collaboration are critical in a global market

We have reinforced these behaviours in our compensation schemes because in distribution teams there is a direct link between compensation and output. We have introduced globally consistent, discretionary compensation wherever local market practice allows, to influence behaviour and promote teamwork in line with our distribution strategy.

We invest in our core franchises

This takes time, patience and persistence, as the case study below shows:

Case study - Henderson Horizon Euro Corporate Bond Fund

Henderson Horizon Euro Corporate Bond Fund is just one example of how we have recently built a successful franchise.

Launched in 2009, the fund was a new idea and franchise for Henderson, to be marketed primarily in Europe. The fund's first anniversary marked the beginning of marketing activities to support sales efforts which aimed to re-establish Henderson's reputation as a fixed income fund manager.

2011 through 2013 saw high client interest in credit funds and Henderson's marketing activity was expanded through events and frequent fund management thought leadership communications. This increased level of marketing drove the profile of the fund and combined with strong performance, new business sales have flowed in to the fund.

The Henderson Horizon Euro Corporate Bond Fund is now £2.2bn in size, the second best-selling fund in the sector over the past three years and one of the top 10 funds in terms of asset size with a market share of just over 2%.

Key client themes

The list below describes who our clients are, globally. This time last year, I described the key themes which we saw influencing their buying decisions, noting that we believed that these themes had a number of years to run. The majority of 2013's identified themes remain relevant today. Here is an update on these themes, including how we have been developing our competitive position to take advantage of these opportunities.

Search for income

With low returns on cash savings combined with demographic trends, there is increasing demand for income-generating products, whether in the form of corporate bond funds or equity income products. During 2014, we broadened the appeal of our highly successful Global Equity Income strategy by launching it in different wrappers, for example as a Luxembourg SICAV to make it accessible to European, Asian and South American investors. We have continued to develop higher yielding and successful income generating fixed income products, with the launch of an emerging market corporate bond fund during the year, and posted excellent performance in our US and global high yield funds.

We also increased the profile of Global Equity Income with a major thought leadership initiative - the Henderson Global Dividend Index. Released quarterly, it is a long-term study into global dividend trends - the first research of its kind - providing regional and industry insight into the progress global firms are making in paying investors an income on their capital. In 2014, dividends from companies worldwide reached a record US$1.2 trillion.

Globalisation

We continue to see investors, retail and institutional, survey the global marketplace when searching for the best returns rather than being constrained by their domestic market. This is manifesting itself in demand for global strategies such as Global Equity Income, Global Equity, Global Credit, Global High Yield and Global Natural Resources. We have continued to invest in all of these strategies in 2014. We believe the reduction in allocations to global emerging markets is temporary, and have used the lull in demand as an opportunity to build our teams, recruiting new heads of Emerging Markets Equities and Fixed Income in the course of the year.

Absolute return

There continues to be very significant demand globally for absolute return products - products designed to have low correlations to equities markets and lower volatility, whilst still aiming to produce positive market returns through the investment cycle. Low returns on cash and bonds are driving demand for higher returns without full equity market risk. At Henderson, we are able to take advantage of this through both our onshore and offshore fund ranges and market a mix of strategies, from equity long/short to alternatives such as agriculture and commodities. We have a strong hedge fund sub-brand in AlphaGen, recognised globally with awards such as Best Overall Group at the Hedge Fund Review European Performance Awards. We were also delighted to see our commodities-related hedge fund strategies pass US$1bn in AUM during this year.

Institutionalisation of the fund buying process

As I highlighted last year, one of the main changes resulting from the Retail Distribution Review in the UK and the growing profile of private banking across the globe is that the process of fund selection in the retail marketplace is now much more rigorous and akin to the institutional selection process. This means a great deal of in-depth research by fund panels and investment committees the world over. This fits well with Henderson's approach, as all of our investment strategies have stringent processes behind them with an overlay of an extremely strong risk management framework suited to this type of buyer.

Concentration of fund flows

As a result of increasingly institutionalised fund buying, combined with a flight to the safety and security perceived to be offered by bigger brands and funds, there has been an increasing amount of flow into fewer funds. Data from Morningstar shows that in the 12 months to December 2014, the top 1% of global funds attracted inflows of US$1.3 trillion. Six of Henderson's funds were in this top one percentile.

We are in a 'winner takes all' market. This is a trend which we recognise and have built into our distribution strategy, ensuring we support the marketing of prospective winners but also being bold enough to reduce activity when a strategy does not gain traction. For example, we continued to talk about European equities in the US when this strategy was deeply out of favour, and reaped the benefits in late 2013 and early 2014 when the US re-invested in Europe. In the UK, our Property fund now holds the coveted number one slot.

Henderson's global clients

North America

Retail

· Wire houses

· Wholesale platforms

· Registered investment advisers

Institutional

· State pension funds

· Corporate pension funds

Henderson distribution team: 40

UK

Retail

· Financial advisers

· Platforms

· Discretionary wealth managers

· Private investors

Institutional

· Local authority pension funds

· Corporate pension funds

· Institutions

Henderson distribution team: 150

Asia

Retail

· Banks

· Distribution partnerships

· Discretionary wealth managers

· Private banks

Institutional

· Pension funds

· Institutions

· Sovereign wealth funds

Henderson distribution team: 24

Latin America

Retail

· Banks

· Discretionary wealth managers

Institutional

· National pension funds

Henderson distribution team: 2

Continental Europe

Retail

· Platforms

· Banks

· Insurance companies

· Discretionary wealth managers

Institutional

· Local authority pension funds

· Corporate pension funds

· Institutions

· Sovereign wealth funds

Henderson distribution team: 31

Australia

Retail

· Banks

· Platforms

· Financial advisers managers

Institutional

Super funds

· Self managed superannuation funds

· Institutions

· Charities

Henderson distribution team: 5

Multi-Asset investing

A key theme in the UK and an increasing trend globally is the desire to outsource a combination of asset allocation and stock or fund selection. This has given rise to larger inflows into investment solutions strategies, and Henderson has been at the forefront of this trend using the skills of our Multi-Asset team. We have expanded the reach of our Multi-Asset team during 2014 and are now focusing on Institutional as well as Retail clients.

The one key theme which I highlighted last year which did not remain current throughout all of 2014 was global demand for European equities. This tailed off in the second half of 2014, but remains an important theme in the longer term and Henderson remains very well placed for a future turnaround, with one of the strongest European teams of any asset manager. It was also pleasing to see Henderson continue to gain market share of net flows in the second half, despite a reduction in demand for European equities, which is testament to the quality of our performance and record in this area.

Progress to date and next steps

I am now three years into delivering our five year plan to upgrade our distribution capabilities. Here are the key elements of our progress to date:

Recognising and nurturing our core franchises

Henderson is a firm with global aspirations, successfully expanding from a strong UK base. 2014 has seen exceptional market share growth in our UK business, with strong flows into a diversified range of products including Henderson UK Property, Henderson Cautious Managed, Henderson European Focus, Henderson European Selected Opportunities, Henderson UK Absolute Return, Henderson Multi-Manager Income and Growth and Henderson Strategic Bond. We are committed to protecting and growing this diversified base. As the Chairman mentions in his opening remarks, we are privileged to have a 50 year track record in investment trusts, which we can point to in developing our retail open-ended funds business in areas such as Europe and Latin America.

Making sure we are well resourced with talented people in growth markets

The two markets where we have seen most progress this year are Australia and the US. Our Australian office is now fully staffed with an excellent team, has launched global equity and fixed income products for the institutional market and is starting to build a retail presence. Our Australian commodities funds are starting to build traction inside and outside Australia. In North America, our growth strategy was accelerated this year with the acquisition of Geneva Capital Management. Geneva's expertise and relationships boost Henderson's Institutional presence in the US, complementing our existing Retail strength - we have plans to bring their expertise to other funds around the globe in due course.

Globalising the product suite

Key developments this year include building track records in global equities and fixed income, and broadening our US Mutuals product range. We are continuing the evolution towards a global asset management business and have hired new investment talent which will provide our clients with new investment capabilities, including Global Natural Resources, Asian Equities, Global Credit, Emerging Market Debt, US Equities, Global High Yield and Emerging Markets Equities.

Rebranding the business and increasing our marketing impact

Our brand refresh was a significant step forward this year, and we have also increased our direct client contact with a record number of client events.

Over the next year, we will continue to develop each of these elements. Additionally, we see opportunities to grow our retail networks in Continental Europe and Latin America, and we have more work to do in Asia.

People often ask me to characterise Henderson's competitive advantage - a difficult question to answer for asset managers. We all rely on essentially the same elements - investment performance; the right people, products and relationships; a strong client service ethic; and a respected brand. What tends to mark out the winners from the losers is execution. I am delighted with the progress Henderson has made this year on behalf of our clients, and believe we have the people, products and processes we need to continue to deliver to our clients.

Phil Wagstaff

Global Head of Distribution

Financial review

Financial performance

2014 has been a successful year for Henderson.

We delivered strong investment performance for our clients, grew our client base, and invested in our business to make progress towards our strategic goals of growth and globalisation. In a world of increasing accounting complexity, my review aims to distil our financial statements into key business insights.

The Group achieved underlying profit before tax from continuing operations of £187.8m, an increase of 13% (excluding profit from our Property business generated in the first quarter). This was driven by the 22% rise in management fees (£403.5m), our core revenue stream. Performance fees remained strong at £82.8m, but down on the level reported in 2013.

As we invested across the business in areas including investment management, client relationships, marketing and technology, we saw a £37.9m increase in total operating expenses to £334.6m. However, we maintained cost discipline and delivered a 35.5% operating margin, which is one of our key measures of performance.

The Group's key performance indicators validate our strong financial results. We delivered strong retail fund inflows throughout the year, with exceptional inflows in the first half when markets were less volatile. Management fee margin moved up slightly to 57.8bps, with the mix in AUM being the main driver of the change. These factors, in combination with our strong investment performance, are the key drivers for revenue growth. As mentioned, we remained vigilant on costs and despite a rise in total compensation, we saw a reduction in our compensation ratio from 45.4% in 2013 to 44.7% in 2014. Diluted continuing underlying EPS increased by 13% to 14.7 pence, primarily driven by increased profit.

AUM and flows

The Group's total AUM at 31 December 2014 was £81.2bn, an increase of 8%. We achieved net fund inflows of £7.1bn as we strengthened our product offering, enhanced our global distribution and delivered strong investment performance.

The Group completed a number of transactions this year, notably the property transactions resulting in a 40% joint venture with TIAA-CREF, the acquisition of Geneva Capital Management and the sale of our 50% holding in Intrinsic Cirilium to Old Mutual, which have resulted in an overall negative impact from acquisitions and disposals of £5.3bn. Ignoring the impact of these transactions, our AUM increased by 16%.

This year, our strong net fund inflows of £7.1bn resulted in an overall net new money growth of 11%, demonstrating that we are well positioned in terms of our key products and capabilities.

Flows have been primarily driven by our Retail business this year, but there has been an improvement in our Institutional business where we have seen small positive net inflows, across a broadening geographical base. We were pleased that we continued to capture strong flows in Retail, especially in the latter half of the year, as market volatility increased and investor sentiment changed.

In particular, our UK Retail business attracted strong flows across a diverse product set and we are seeing the benefits from our New Star and Gartmore acquisitions, giving us strong growth momentum. Our US Mutuals business had an impressive first half driven by flows into European Equities products, but as demand slowed, we saw clients subsequently rotate into domestic dominated strategies. This slowing was also apparent across our SICAV range, where we observed a rotation away from growth orientated strategies and into more defensive and absolute return products.

Over the course of the year, we continued to take market share across our key markets and have made positive steps towards the delivery of our long-term strategy.

Income drivers

Fee margins

Driven by the mix of our AUM, management fee margin rose slightly in 2014 to 57.8bps, an increase of 1.5bps on 2013 (56.3bps). Over recent years, we have observed some pricing pressure and in 2014 we benefited from increased flows into higher fee margin products, including UK OEICs, SICAVs and US Mutuals, to help offset this pressure. Fee margins for our Institutional business are more wide-ranging but averaged just over 30bps.

Management fees

In 2014, management fees grew significantly by 22% to £403.5m. This was largely driven by strong net fund flows and good investment performance.

Performance fees

Our consistently strong investment performance with 66% and 83% of our funds outperforming on a 1 year and 3 year basis respectively, has helped maintain a strong level of performance fees.

As a result, we achieved performance fees of £82.8m which were slightly ahead of expectations, but down by £11.7m on the record high achieved in 2013 when market growth was very strong. Our ability to generate performance fees from a diverse range of products gives us confidence for our ability to continue to earn fees in the year ahead. In 2014, we saw good relative growth in performance fees from our Offshore Absolute Return fund range, whilst across SICAVs, Institutional and UK OEICs we observed a small decrease in the proportion of performance fees generated.

Other income

In 2014, other income fell slightly by £2.4m to £32.5m. The majority of this income is attributable to our general administration charge for which we implemented a policy change in August 2013. The policy change resulted in a reduced rate which had a full year impact in 2014.

Expense drivers

Total operating expenses

As we progress towards delivering our growth and globalisation strategy, it should be noted that 2014 was the peak year for investment. Total operating expenses increased by 13% to £334.6m, primarily driven by employee compensation and benefits which increased by £22.6m to £232.0m. Fixed staff compensation has increased to £88.4m, reflecting our investment in new talent. Variable staff compensation increased to £143.6m as we rewarded staff for strong net flows, investment performance and business performance. In line with expectations, our non-staff operating expenses increased by £15.3m to £102.6m, due to additional investment in areas including marketing and technology and the impact of favourable one-off items recognised in 2013.

Finance income and expenses

Finance income decreased marginally from £10.2m in 2013 to £10.1m in 2014. In 2014, £3.6m was generated from the sale of seed capital investments and £4.5m was the recognition of net interest on the Group's retirement benefit asset.

Finance expenses increased marginally to £11.6m and primarily relate to interest payable on the 2016 Loan Notes which are repayable in March 2016.

Acquisition related and non-recurring items

The acquisition related and non-recurring items are disclosed separately from that of the Group's underlying profit to enable the users of our financial statements to better understand the components of our total profit. These items totalled £88.0m before tax and are primarily attributable to the intangible amortisation of previously capitalised investment management contracts, although this year they have been more than offset by the gain on disposal of the Property business. See notes 7 and 9 to the financial statements.

Tax

The tax charge on the Group's continuing underlying profit for the year was £20.6m, resulting in an effective tax charge of 11.0% in comparison to the pro-rata UK corporation tax rate of 21.5%. The difference is primarily due to the benefit of profits in some overseas jurisdictions being subject to lower tax rates and tax credits on settlement and finalisation of tax returns relating to prior years.

TH Real Estate

On 1 April 2014, the Group completed the transactions with TIAA-CREF relating to its Property business. This resulted in the Group taking a 40% share in the TH Real Estate joint venture. In the nine months to 31 December 2014, TH Real Estate contributed £2.7m to continuing underlying profit, recognised in income from associates and joint ventures.

Geneva Capital Management

On 1 October 2014, the Group completed its acquisition of Geneva Capital Management LLC (Geneva), a US growth equity manager, resulting in a £3.4bn increase to our AUM. Geneva brings established investment expertise in mid- and small-cap US high quality growth equities, which complements our existing international capabilities. Through the acquisition of Geneva, we have also strengthened our institutional distribution capabilities and client base in North America, which creates a solid foundation for growth across this channel.

Since the acquisition of Geneva, our focus has been on investment performance and integration. We have had positive engagement with clients, with the vast majority consenting to the transaction but have experienced outflows totaling £494.1m for the three months to 31 December 2014 which includes the impact of the termination of one significant portfolio.

In December, we launched the US Growth Opportunities Fund, which fills an important domestic equity product gap for our US Mutuals business and will help to accelerate our growth.

Capital and liquidity management

The Group continued to generate strong net operating cash flows.

Total cash and cash equivalents at 31 December 2014 were £242.8m (including cash classified as held for sale). Unrestricted cash stood at £227.7m after excluding manager dealing accounts, restricted cash and cash held in structured entities. With gross debt, at par, amounting to £150.0m, the Group ended 2014 in a net cash position of £77.7m (2013: £56.3m).

The increase in net cash was moderated as we invested in our strategic priorities including a net investment of £35.3m of seed capital into new fund launches including total return bond funds in the US and Australia.

Regulatory requirements

The Group is subject to regulatory oversight and inspection by the FCA and other international regulatory bodies. The Group ensures it is compliant with its regulatory obligations at all times. In 2011, as part of the Gartmore acquisition process, the Group was granted a new investment firm waiver from consolidated supervision which is valid until April 2016. The regulatory capital surplus of the Group under the parent financial holding company test was £960.0m as at 31 December 2014 (2013: £983.0m).

During 2014, we continued to monitor the Group's capital position without recourse to the aforementioned waiver. We have made strong progress on reducing the Group's consolidated capital deficit. Despite the recent Geneva acquisition, we are delighted to report that, based on our calculations, we are now operating with a surplus of £44.0m¹ as at 31 December 2014.

Pension schemes

The Group has four pension schemes. A defined benefit scheme and a defined contribution scheme, together form the Henderson Group Pension Scheme, and there are three smaller unapproved pension top-up schemes for former executives. The net retirement benefit asset increased during 2014 to £119.6m (2013: £96.5m), mainly as a result of higher returns from the scheme assets.

Dividends

The Board declared an interim dividend of 2.60 pence per share and is recommending a final dividend for 2014 of 6.40 pence per share, bringing the total dividends for 2014 to 9.00 pence per share, an increase of 12.5%. The proposed final dividend will be paid on 29 May 2015 to shareholders on the register on 8 May 2015. We will continue to maintain a progressive dividend policy, with the Board actively reviewing and setting the interim and final dividends for 2015 in line with business performance and outlook.

Roger Thompson

Chief Financial Officer

1. Calculated based on the Group's pillar 2 capital requirement as approved by the Board in its 30 June 2014 ICAAP.

Key performance indicators

We measure our strategic and operational progress through a set of indicators that focus on core performance factors.

Treating Customers Fairly (TCF)

Our strategy

With our clients' needs at the heart of everything we do, we continue to strive to meet the expectations of our clients and their customers and to embed the fair treatment of customers into the firm's business model.

Embedding is measured using monthly management information to derive a "Red Amber Green" (RAG) rating for each of the six FCA TCF outcomes.

2014 performance

Key customer focused initiatives have included:

· 2nd annual Staff Survey1 on our performance in achieving our client goals showed an improvement in positive responses in all question areas across the UK business

· The Henderson Customer Panel was established to gather feedback from UK retail direct investors

· Major enhancements to TCF management information, reporting and governance structure

1. The survey captures UK staff attitudes to customer-centric topics.

Investment performance over 1 and 3 years (%)

Our strategy

Strong investment performance underpins our growth strategy, our reputation and our ability to attract net new money from clients. We measure the percentage of our assets at or exceeding the relevent metric over 1 and 3 years to monitor our performance.

2014 performance

· At the end of 2014, 66% of funds had outperformed over 1 year and 83% over 3 years, demonstrating consistently strong investment performance

· Investment performance was strong across all of our core capabilities

Net fund flows (£bn)

Our strategy

Net fund flows are a strong lead indicator of the success of our strategy and are a key driver of revenue and profitability. Reflected in the mix of our fund flows are investment performance, distribution and client service, the success of our product offering in meeting client needs, and our strategy to globalise our business, as well as external market factors.

2014 performance

· Net new money growth of 11%

· Total net fund inflows of £7.1bn driven by our Retail business which contributed £6.8bn

· Institutional net flows improved with £0.3bn in 2014 across a broader geographical base

· Our significant net fund inflows reflect strong investment performance across an increasingly diverse product range

Fee margins (bps)²

Our strategy

Fee margins are under constant pressure across our industry - from clients, intermediaries, competitors and regulators. Our average fee margin is a strong indicator of our ability to adapt and respond to these pressures, by delivering the right product at the right price to our clients, globally.

2014 performance

· Management fee margin increased to 57.8bps driven by strong retail flows and increased flows into higher margin products including SICAVs

· Total fee margin decreased slightly to 74.3bps, impacted by the fall in performance fees from the high in 2013

· Net margin remained relatively stable at 26.9bps, highlighting our ability to maintain operational efficiency

Compensation ratio and operating margin (%)²

Our strategy

Our ability to deliver value to our clients and shareholders depends on achieving the right balance between investing in the growth of our business, rewarding and retaining our staff and operating efficiently. These two ratios enable us to monitor this balance.

2014 performance

· Compensation ratio reduced from 45.4% in 2013 to 44.7% in 2014, despite an11% increase in total staff compensation

· We delivered an operating margin of 35.5% in 2014 which is broadly in line with 2013 (35.7%). 2014 was a peak year for investment, but we maintained cost discipline as market volatility increased in the second half of 2014

Earnings per share on continuing underlying profit (p)²

Our strategy

Earnings per share on continuing underlying profit is a clear measure of our ability to deliver sustainable, profitable growth on a global basis, and deliver value to our shareholders.

2014 performance

· Diluted earnings per share on continuing underlying profit grew to 14.7p in 2014, up from 13.0p in 2013

· The key driver of this growth is the 13% increase in continuing underlying profit before tax, as the effective tax rate and weighted average number of shares remained relatively flat

2. Net margin, compensation ratio, operating margin and diluted earnings per share are all based upon continuing underlying profit which, while not a GAAP measure, in the opinion of the Directors, gives relevant information on the profitability of the Group and its ongoing operations.

Risk management

Risk overview

Our strategic objectives and the key risks to our strategy and business model are deeply interconnected. Risk management is fundamental to our operating model and deeply integrated into the day-to-day running of our business.

Risk management framework

The principle of individual accountability and responsibility for risk awareness and risk management is an important feature of our culture. Overall accountability for risk management lies with the Board which articulates the risks that the Group is willing to take in pursuit of its strategy through the Group's risk appetite statement. The risk appetite statement is reviewed by the Board on an annual basis and covers eight main themes regarded as essential to the successful delivery of the Group's strategy and goals:

· Client and fund investment focus;

· Group financial stability;

· Group growth and performance;

· Operational risk;

· People risk;

· Regulatory change;

· Reputational risk; and

· Trust.

In order to manage risk effectively, the Board and senior management have to take a forward looking view and our risk management process aims to identify new and emerging risks at an early stage so that these are assessed alongside known and continuing risks. The principal risks faced by the Group, together with the approach to mitigating these risks to ensure that the Group's risk profile remains within its risk appetite, are described on the following pages. The risk management framework is set out in the Group's risk policy, a summary of which can be found on our website (www.henderson.com/IR).

Three lines of defence

Our framework utilises a 'three lines of defence' approach to managing risk. The first line comprises the Chief Executive and business management, who ensure the Group is managed in accordance with the Group's risk appetite on a day-to-day basis.

The second line comprises the Risk and Compliance functions which monitor the financial, operational and regulatory risks in the business and the related controls in place to manage these risks. The Chief Risk Officer (CRO) reports independently of management to the Chair of the Board Risk Committee (BRC) and attends all Board, Audit Committee and BRC meetings; the CRO and the Risk and Compliance functions provide reports to each Committee meeting. Internal Audit is the third line of defence, providing independent assurance that the controls are appropriate and are operating effectively. Internal Audit reports independently to the Audit Committee.

Board Risk Committee's principal activities during 2014

The BRC received risk management reports which addressed real and potential emerging risks, strategic and operational risks and topical matters such as cyber-crime and regulatory updates. During the year, the Group has explored a number of acquisition opportunities and completed one of these - the acquisition of Geneva Capital Management in October. The BRC reviewed and challenged the risk assessments provided by the CRO throughout the acquisition process. In addition, the Group disposed of its 50% equity interest in Intrinsic Cirilium Investment Company Limited to Old Mutual Wealth in December and this transaction was also subject to review, challenge and oversight by the BRC.

The pace of regulatory change has continued unabated during 2014. This included the implementation of the AIFMD (covering principally the Group's Hedge Fund and Investment Trust activities), the Capital Requirements Directive IV, which changed the calculation of the Group and its subsidiaries' regulatory capital requirements, and the derivatives related EMIR (European) and Dodd-Frank (US) requirements. The Group implemented the required changes successfully and is on track with implementing these and other evolving regulatory requirements, related policies and procedures. The BRC reviews reports from the CRO that cover regulatory pronouncements that are pertinent for the Group's business model. The Assurance function also reports to the BRC on any investigations into operational risks including incidents that have resulted in significant losses and/or regulatory fines for competitor firms.

In 2014, there was a continued increase in the apparent frequency and sophistication of cyber-crime incidents experienced by companies throughout the world. The BRC received a presentation from an external expert on cyber security and conducted a "deep-dive" into broader information technology related risks. The BRC also reviewed the Group's business continuity plans during 2014. The Group has an Information Security Management Committee, which assesses, monitors and controls related risks including cyber crime.

An important regular activity conducted by the Group is the annual Internal Capital Adequacy Assessment Process (ICAAP) which involves the first and second lines of defence in assessing the Group's risk profile and control environment for mitigating these risks. The ICAAP results in an assessment by management of the appropriate amount of capital to be held by the Group. The BRC reviews and challenges management's assessments (including stress tests and reverse stress tests) and conclusions and makes a recommendation on capital requirements to the Board.

Outside the framework of formal meetings, the Chair of the BRC, Sarah Arkle, meets and has regular contact with the Chief Executive, the Chief Financial Officer and the CRO.

Henderson Group plc Board

1st Line of Defence

Chief Executive and Business Management

· Primary responsibility for strategy, performance and risk management lies with the Board, the Chief Executive and the heads of each division and operating business.

· Business management is responsible for ensuring Henderson has in place effective internal controls.

Board Risk Committee

2nd Line of Defence

Risk and Compliance Functions

· Overall responsibility for risk management oversight lies with the Board Risk Committee.

· The CRO leads the Risk and Compliance functions who provide day-to-day independent monitoring and assessment of the risks in the divisions and operating business

Audit Committee

3rd Line of Defence

Internal Audit

· Independent assurance on the effectiveness of the risk management systems is provided by Internal Audit reporting to the Audit Committee.

· Audit of business areas based on an assessment of risk with higher risk activities audited more frequently.

Key risks and their mitigation

The key risks faced by the Group fall into a number of distinct categories and the means adopted to mitigate them are both varied and relevant to the nature of the risk concerned.

Acquisition and divestment

Description

· Risk of organisational stress through potential demands on staff and resources through need to integrate acquired businesses or to reorganise processes to divest parts of the business.

· This risk is aligned to the Group's long-term strategy that involves willingness to consider the acquisition of businesses.

Trends in 2014

· Acquisition of Geneva Capital Management.

· Divestment of the Group's property business and formation of the TH Real Estate joint venture.

· Disposal of our equity interest in the Intrinsic Cirilium Investment Management joint venture.

Mitigation

· Acquisitions/divestments considered only where they fit with our strategic goals and meet our financial criteria such that we can realise value for our shareholders. The Board's risk appetite statement includes quantitative and qualitative criteria that must be met for any acquisition.

· Thorough due diligence performed before any acquisition is made including assessment of our ability to integrate successfully the acquired business.

· Integration risk, post closing, is managed, monitored and reported.

Credit

Description

· Risk of a counterparty to the Group defaulting on funds deposited with it or the non-receipt of a trade debt.

Trends in 2014

· Credit default swap spreads of our principal counterparties narrowed in 2014 indicating reduction in perceived default risk.

Mitigation

· Credit risk arising from exposures to counterparties is assessed, managed and monitored in line with the Group's risk appetite.

· The Credit Risk Committee meets regularly to approve, review and set limits for all new and existing counterparties.

Foreign currency

Description

· Risk that the Group will sustain losses through adverse movements in exchange rates.

Trends in 2014

· Volatility of foreign exchange rates remained low in 2014, although they have increased in 2015.

Mitigation

· Holding financial assets and liabilities of equal value in the same currency.

· Limiting the net exposure to an individual currency.

· Hedging currency exposure arising from seed capital investments.

· Risk overseen by the Hedge Committee that submits a monthly report to the Board.

Fund flows

Description

· Risk of net redemptions by clients resulting in a decline in AUM and revenues earned by the Group.

Trends in 2014

· Overall, strong positive net inflows in 2014.

Mitigation

· Diversity of sources of revenue by asset class, capability, fund style, strategy and geography.

· Diversity of investor base between retail and institutional and by geography.

· Strong investment performance across product ranges.

Key personnel

Description

· Risk of losing either a member of the ExCo or one of the Group's key investment or distribution professionals.

· Potential adverse effect on business growth and/or the retention of existing business.

Trends in 2014

· Staff turnover generally low throughout 2014.

· Percentage of Group revenues from funds managed by an individual fund manager remains well diversified, albeit with increasing concentration in European Equities.

Mitigation

· Our remuneration structures are competitive and are designed to recognise and reward performance.

· Succession planning to ensure that there is cover for key roles should they become vacant.

· Staff surveys identify any issues which could adversely impact staff retention.

· Comprehensive training is offered to all staff.

· Deliberate strategy to avoid dependence on a single investment manager or team for a high proportion of our revenues, resulting in broad and diverse fund manager teams.

Investment performance

Description

· Risk that funds fail to achieve performance hurdles or benchmarks relative to similar funds managed by other firms, leading to client redemptions and reduction in AUM and revenues earned by the Group.

· Poor fund performance will also result in lower performance fees.

Trends in 2014

· Continued strong fund performance with 83% of funds (weighted by AUM) outperforming over three years.

· Slight weakening in one year performance, but still continues to be strong.

Mitigation

· Robust investment process including detailed research.

· Clearly articulated investment philosophy including analysis of our funds by comparing their performance against appropriate benchmarks.

· Broad range of funds to reduce the probability of all funds underperforming at the same time.

· Independent Investment Risk function aims to ensure that the level of risk taken for each portfolio is consistent with client mandates and fund prospectuses.

Market

Description

· Risk that market conditions lead to a reduction in the value of clients' AUM and revenues earned by the Group.

· Risk that market conditions lead to a decline in the value of Group seed capital investments.

Trends in 2014

· Positive market performance in 2014 resulted in an increase in AUM, and therefore revenue, and in the value of seed capital investments.

Mitigation

· Risk of a fall in the value of clients' AUM is mitigated by diversity of AUM by asset class and underlying investment strategy.

· We actively seek fee bases which are not solely calculated by reference to the market value of AUM and a significant amount of our expense base is variable.

· Limits on the aggregate amount of seed capital investments, diversification of the assets invested and appropriate hedging of the market risks where appropriate.

Operational and legal

Description

· Risk of losses through inadequate or failed internal processes, people or systems or through external events. This includes the risk of loss arising from failing to manage key outsourced service providers properly, the risk arising from major disruption to our business and the risk of losses from breaches of investment mandates.

· Risk of losses from litigation.

Trends in 2014

· Continued rise in the number and sophistication of acts of cyber-crime against firms generally.

Mitigation

· Our control systems are designed to ensure operational and legal risks are mitigated to an acceptable level.

· Three lines of defence model is key (see above for details).

· Outsourced service providers are overseen by the relevant line function and, for key relationships, their controls are also reviewed by the Group's assurance functions.

· We maintain and test business continuity plans which are designed to ensure that, in the event of business disruption, we can maintain our operations without irreparable damage to the business.

Regulatory change

Description

· Risk that a change in laws and regulations will materially affect the Group's business or markets in which it operates.

· This may affect the business either directly or indirectly by reducing investors' appetite for our products, increasing capital requirements, restricting our ability to sell products, pursue certain investment strategies and/or increasing the cost and complexity of the Group's business.

Trends in 2014

· Pace of regulatory change remains significant with implementation of the AIFMD and Capital Requirements Directive. Major regulatory change also underway with Regulation and Central Clearing of OTC Derivatives, changes to UK client money regulations and MiFID II.

· Regulations regarding the fair use of dealing commissions are a particular focus for the FCA.

Mitigation

· Active and constructive engagement with regulators.

· Regulatory developments are monitored by a dedicated team in Compliance who provide training to the relevant teams where appropriate.

· Working groups implement required changes to our business processes.

· Compliance monitors ongoing regulatory obligations and engages in regular dialogue with our regulators.

· Active involvement with and through industry bodies.

Reputational

Description

· Risk that negative publicity regarding the Group will lead to client redemptions and a decline in AUM and revenue and/or to litigation.

· The risk of damage to the Group's reputation is more likely to result from one of the other key risks materialising rather than as a standalone risk.

Trends in 2014

· Henderson's brand has continued to strengthen in 2014 as evidenced by positive feedback from clients and the related net fund inflows across multiple channels and geographic regions.

Mitigation

· Reputational risk is primarily mitigated through the effective mitigation of the other key risks.

· Reputational risk is also mitigated by our culture, which is based on the value of integrity, trust and treating clients fairly.

· Risk appetite, risk and compliance policies, governance structures (e.g. the Conflicts of Interest Committee) and reward structures include significant focus on issues and behaviours that could affect Henderson's reputation.

Chris Chaloner

Chief Risk Officer

Financial statements

The information contained in this Preliminary final Report is based on accounts which have been audited.

Consolidated Income Statement

For the year ended 31 December 2014

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2014

Consolidated Statement of Financial Position

As at 31 December 2014

The financial statements were approved by the Board of Directors and authorised for issue on 24 February 2015. They were signed on its behalf by:

Richard Gillingwater

Chairman

Consolidated Statement of Changes in Equity

For the year ended 31 December 2014

Consolidated Statement of Cash Flows

For the year ended 31 December 2014

Company Income Statement

For the year ended 31 December 2014

Company Statement of Comprehensive Income

For the year ended 31 December 2014

Company Statement of Financial Position

As at 31 December 2014

The financial statements were approved by the Board of Directors and authorised for issue on 24 February 2015. They were signed on its behalf by:

Richard Gillingwater

Chairman

Company Statement of Changes in Equity

For the year ended 31 December 2014

Company Statement of Cash Flows

For the year ended 31 December 2014

Notes to the Financial Statements

Group and Company

1. Authorisation of financial statements and statement of compliance with IFRS

The Group and Company financial statements for the year ended 31 December 2014 were authorised for issue by the Board of Directors on 24 February 2015 and the respective statements of financial position were signed on the Board's behalf by the Chairman. Henderson Group plc is a public limited company incorporated in Jersey and tax resident in the United Kingdom. The Company's ordinary shares are traded on the LSE and CDIs are traded on the ASX.

The Group and Company financial statements have been prepared in accordance with IFRS as adopted by the European Union and the provisions of the Companies (Jersey) Law 1991.

2. Accounting policies

2.1 Significant accounting policies

Basis of preparation

The Group and Company financial statements have been prepared on a going concern basis and on the historical cost basis, except for certain financial instruments that have been measured at fair value.

The Group and Company financial statements are presented in GBP and all values are rounded to the nearest one hundred thousand pounds (£0.1m), except when otherwise indicated.

See the glossary to the Annual Report for definitions of certain accounting terms used in these financial statements.

Basis of consolidation

The consolidated financial statements of the Group comprise the financial statements of Henderson Group plc and its interests in subsidiaries and consolidated structured entities (together, consolidated entities), associates and joint ventures as at 31 December each year.

The financial statements of all the Group's significant consolidated entities are prepared to the same year end date as that of the Company. The financial statements of all material consolidated entities are prepared under either IFRS or local GAAP. Where prepared under local GAAP, balances reported by consolidated entities are adjusted to meet IFRS requirements for the purpose of the consolidated financial statements.

The results of consolidated entities acquired or disposed of during the year are included in the Consolidated Income Statement from the effective date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that the control ceases. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with an entity and has the ability to affect those returns through its power over the entity.

The Group re-assesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the elements of control.

The profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to any non-controlling interests. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a consolidated entity, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a consolidated entity, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in the Consolidated Income Statement. Any investment retained is recognised at fair value.

Interests in property closed-ended funds, private equity funds and open-ended pooled funds, such as OEICs and unit trusts, are accounted for as subsidiaries, consolidated structured entities or other financial investments depending on the economic interest of the Group assessed via fees earned and equity holdings and on the level of influence and control that the Group exercises through investment management and other contractual agreements. The Group's investment in associates, where the Group has the ability to exercise significant influence as well as joint ventures where there is joint control, are accounted for using the equity method of accounting. Under the equity method of accounting, the Group presents its share of its economic interest in these investments in the financial statements.

Presentation of the Consolidated Income Statement

The Group maintains a columnar format for the presentation of its Consolidated Income Statement. The columnar format enables the Group to continue its practice of improving the understanding of its results by presenting profit for the year before certain acquisition related and non-recurring items. This is the profit measure used to calculate EPS on underlying profit (refer to note 10) and is considered to be the most appropriate as it better reflects the Group's underlying trading performance. Profit before acquisition related and non-recurring items is reconciled to profit before tax on the face of the Consolidated Income Statement.

The column 'Acquisition related and non-recurring items' comprises:

· acquisition related items: the amortisation of intangible assets, fair value changes and finance charges on contingent deferred consideration on business combinations, void property finance charges and costs in relation to pre-acquisition share awards; and

· non-recurring items: deemed to be one-off and material, when considering both size and nature.

These items are disclosed separately to give a clearer presentation of the Group's results and are analysed further in note 7.

Income recognition

Gross fee income

Fee income includes management fees and performance fees (including earned carried interest), net of rebates. Management fees are recognised in the accounting period in which the associated investment management service is provided. Performance fees are recognised when the prescribed performance hurdles are achieved and it is probable that a fee will crystallise as a result.

Commissions

Commission and rebates on management fees are accounted for on an accruals basis and are recognised in the accounting period in which the associated management fee is earned.

Operating expenses

Operating expenses are accrued and recognised as incurred.

Finance income and expense

Interest income is recognised as it accrues using the effective interest rate method. Other net investment income is recognised on the date that the right to receive payment has been established. The net interest credit on the Group's retirement benefit asset has been recognised in finance income.

Finance expense is recognised on an accruals basis.

Post-employment retirement benefits

The Group provides employees with retirement benefits through both defined benefit and defined contribution schemes. The assets of these schemes are held separately, from the Group's general assets, in trustee administered funds.

Defined benefit obligations and the cost of providing benefits are determined annually by independent qualified actuaries using the projected unit credit method.

The obligation is measured as the present value of the estimated future cash outflows using a discount rate based on AA rated corporate bond yields of appropriate duration. The resulting surplus or deficit of defined benefit assets less liabilities is recognised in the Consolidated Statement of Financial Position, net of any taxes that would be deducted at source. The Group's expense related to the defined benefit schemes is recognised over the employees' service lives, based upon the actuarial cost for the accounting period, having considered the net interest credit or cost on the net defined benefit asset or liability. Recognised actuarial gains and losses are included in the Consolidated Statement of Comprehensive Income in the accounting period in which they occur, net of any taxes that would be deducted at source. Normal contributions to the defined contribution scheme are expensed in the Consolidated Income Statement as and when they become payable.

Share-based payment transactions

The Group issues share-based awards to employees, all of which are classified as equity-settled share-based payments. Equity-settled share-based payments are measured at the fair value of the shares at the grant date. The awards are expensed, with a corresponding increase in reserves, on either a straight-line basis or a graded basis (depending on vesting conditions) over the vesting period, based on the Group's estimate of shares that will eventually vest. Based on the Group's estimate, the determination of fair value, using the Black-Scholes model at the date of grant is adjusted for the effects of market performance and behavioural considerations.

Income taxes

The Group provides for current tax expense according to the tax laws in each jurisdiction in which it operates, using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax liabilities are not recognised on goodwill but are recognised on separately identifiable intangible assets, where appropriate. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities are not recognised for taxable differences arising on investments in consolidated entities, branches, associates and joint ventures where the Group controls the timing of the reversal of the temporary differences and where the reversal of the temporary differences is not anticipated in the foreseeable future.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and tax laws that have been enacted or substantively enacted by the reporting date.

Income tax relating to items recognised in the Consolidated Statement of Comprehensive Income and Consolidated Statement of Changes in Equity is also recognised in the respective statement and not in the Consolidated Income Statement.

Sales taxes

Income and expenses are recognised net of sales taxes, except where the sales tax is irrecoverable, in which case the sales tax is recognised as part of the cost of acquisition of an asset or as an expense. Receivables and payables are stated with the amount of sales taxes included. The net amount of sales tax recoverable from, or payable to, the tax authority, is included within receivables or payables in the Consolidated Statement of Financial Position.

Foreign currencies

The functional currency of the Company is GBP. Transactions in foreign currencies are recorded at the appropriate exchange rate prevailing at the date of the transaction. Foreign currency monetary balances at the reporting date are converted at the prevailing exchange rate. Foreign currency non-monetary balances carried at fair value or cost are translated at the rates prevailing at the date when the fair value or cost is determined. Gains and losses arising on retranslation are taken to the Consolidated Income Statement, except for available-for-sale financial assets where the unhedged changes in fair value are recognised in the Consolidated Statement of Comprehensive Income.

On consolidation, the assets and liabilities of the Group's overseas operations whose functional currency is not GBP are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at daily exchange rates for the accounting period. Exchange differences arising, if any, are taken through the Consolidated Statement of Comprehensive Income to the translation reserve. Where net investment hedge accounting is applied using forward foreign currency contracts, the fair value movement on these contracts is also recognised within the translation reserve. In the period in which an operation is disposed of, translation differences previously recognised in the translation reserve are recognised in the Consolidated Income Statement.

Business combinations

All business combinations are accounted for using the acquisition method. The cost of a business combination is the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the acquirer. The fair value of a business combination is calculated at the acquisition date by recognising the acquiree's identifiable assets, liabilities and contingent liabilities that satisfy the recognition criteria, at their fair values at that date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree. The cost of a business combination in excess of fair value of net identifiable assets or liabilities acquired, including intangible assets identified, is recognised as goodwill. Any costs incurred in relation to a business combination are expensed as incurred.

Contingent consideration, resulting from business combinations, is recognised at fair value at the acquisition date as part of the business combination, and discounted where the time value of money is material. The determination of the fair value is based on discounted cash flows, with the key assumptions being the probability of meeting each performance target and the discount factor applied. When the contingent consideration meets the definition of a financial liability, it is subsequently remeasured to fair value at each reporting date through the Consolidated Income Statement, along with finance charges where discounting has been applied.

Goodwill

Goodwill arising on acquisitions is capitalised in the Consolidated Statement of Financial Position. Goodwill on acquisitions prior to 1 January 2004 is carried at its value on 1 January 2004 less any subsequent impairments.

Goodwill arising on investments in associates and joint ventures is included within the carrying value of the equity accounted investments.

Impairment of goodwill

Goodwill is reviewed for impairment annually or more frequently if changes in circumstances indicate that the carrying value may be impaired. For this purpose, management prepares a valuation for the Group's cash generating unit based on its value in use. The value in use is based on forecasts approved by the Board, extrapolated for expected future growth rates and discounted at a risk adjusted discount rate based on the Group's pre-tax weighted average cost of capital. Where the value in use is less than the carrying amount, an impairment is recognised. Any impairment is recognised immediately through the Consolidated Income Statement and cannot subsequently be reversed. Where goodwill forms part of an entity or sub-group and the entity or sub-group or part thereof is disposed of, the goodwill associated with the entity or sub-group disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal.

Investment management contracts

Investment management contracts have been identified as a separately identifiable intangible asset arising on the acquisition of subsidiaries. Such contracts are recognised at the present value of the expected future cash flows of the investment management contracts at the date of acquisition. The intangible asset is then amortised on a straight-line basis over the expected life of the contracts, currently estimated at between three and eight years.

Computer software

The costs of purchasing and developing computer software are capitalised where it is probable that future economic benefits that are attributable to the assets will flow to the Group and the cost of the assets can be measured reliably. Computer software is subsequently measured at cost less accumulated amortisation. Computer software is amortised over a period of three to seven years.

Investments in subsidiaries

Investments by the Company in subsidiary undertakings are held at cost less any impairment in value where circumstances indicate that the carrying value may not be recoverable.

Equity accounted investments

The Group's investment in associates, where the Group has the ability to exercise significant influence as well as joint ventures where there is joint control, are accounted for using the equity method of accounting. Investments are recognised initially at cost where purchased for cash, or at the fair value of shares received where acquired as part of a wider transaction. The investments are subsequently carried at cost adjusted for the Group's share of profits or losses and other changes in comprehensive income of the associate or joint venture, less any dividends or distributions received by the Group. The Consolidated Income Statement includes the Group's share of profits or losses after tax for the year, or period of ownership, if shorter.

Impairment of assets (excluding goodwill and financial assets)

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes an estimate of the recoverable amount, being the higher of an asset's fair value less costs to sell, and its value in use. In assessing value in use, the estimated future cash flows are discounted to their net present value using a risk adjusted discount rate based on the Group's post-tax weighted average cost of capital.

Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. An impairment loss is recognised in the Consolidated Income Statement.

Held for sale classification

The Group classifies consolidated entities purchased exclusively with a view to resale, such as seed capital investments in funds, as held for sale, as their carrying amounts will be recovered principally through a sale transaction rather than through continuing use.

The Group classified its Property business as held for sale, as its carrying amount was expected to be recovered principally through a sale transaction rather than through continuing use.

Assets and liabilities held for sale are measured at the lower of their carrying amount, and fair value less costs to sell.

The criteria for held for sale classification are regarded as met only when the sale is expected to be completed within one year of the date of classification. Where the Group does not sell assets classified as held for sale within a year of classification and the circumstances to extend the one year period have not occurred, the assets will be derecognised from held for sale and consolidated line by line in the Consolidated Statement of Financial Position.

Discontinued operation

The Group has presented its Property business as a discontinued operation with its results excluded from those of continuing operations in the Consolidated Income Statement. Transaction costs, net of tax, incurred by the Group due to the disposal of the Property business, are also included within the discontinued operation line in the Consolidated Income Statement. Management has determined that the Property business represented a major line of business and therefore should be reported as a discontinued operation.

Financial instruments

Financial assets and liabilities are recognised at fair value in the Consolidated Statement of Financial Position when the Group becomes party to the contractual provisions of an instrument. The fair value recognised is adjusted for transaction costs, except for financial assets classified at fair value through profit or loss, where transaction costs are immediately recognised in the Consolidated Income Statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the Group has also transferred substantially all the risks and rewards of ownership. Financial liabilities cease to be recognised when the obligation under the liability has been discharged or cancelled or has expired.

Financial assets

Purchases and sales of financial assets are recognised at the trade date, being the date when the purchase or sale becomes contractually due for settlement. Delivery and settlement terms are usually determined by established practices in the market concerned.

Debt securities, equity securities and holdings in authorised collective investment schemes are designated as either fair value through profit or loss or available-for-sale and are measured at subsequent reporting dates at fair value. The Group determines the classification of its financial assets on initial recognition.

Financial assets at fair value through profit or loss

Financial assets classified as fair value through profit or loss comprise the Group's manager box positions in OEICs and unit trusts, investments in the Group's fund products held by employee benefit trusts and seed capital investments designated as fair value through profit or loss. Where securities are designated as fair value through profit or loss, gains and losses arising from changes in fair value are included in the Consolidated Income Statement. Where investments in the Group's fund products are held against outstanding deferred compensation liabilities, any movement in the fair value of these assets will be offset by a corresponding movement in the deferred compensation liability in the Consolidated Income Statement.

Available-for-sale financial assets

For available-for-sale financial assets, gains and losses arising from changes in fair value which are not part of a designated hedge relationship are recognised in the Consolidated Statement of Comprehensive Income. When an asset is disposed of, the cumulative changes in fair value, previously recognised in the Consolidated Statement of Comprehensive Income, are taken to the Consolidated Income Statement in the current accounting period.

Unrealised gains and losses on financial assets represent the difference between the fair value of financial assets at the reporting date and cost or, if these have been previously revalued, the fair value at the last reporting date. Realised gains and losses on financial assets are calculated as the difference between the net sale proceeds and cost or amortised cost.

Where a fall in the value of an investment is prolonged or significant, it is considered an indication of impairment. In such an event, the investment is written down to fair value and the amounts previously recognised in the Consolidated Statement of Comprehensive Income in respect of cumulative changes in fair value, are taken to the Consolidated Income Statement as an impairment charge.

Trade and other receivables and cash

Trade receivables, which generally have 30 day payment terms, are initially recognised at fair value, normally equivalent to the invoice amount. When the time value of money is material, the fair value is discounted. Provision for specific doubtful debts is made when there is evidence that the Group may not be able to recover balances in full. Balances are written off when the receivable amount is deemed irrecoverable.

Cash amounts represent cash in hand and on-demand deposits. Cash equivalents are short-term highly liquid government securities or investments in money market instruments with a maturity date of three months or less.

Financial liabilities

Financial liabilities, excluding deferred consideration, provisions and non-controlling interests in funds, are stated at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement.

Derivative financial instruments and hedging

The Group may, from time to time, use derivative financial instruments to hedge against price, interest rate, foreign currency and credit risk. Derivative financial instruments are classified as financial assets when the fair value is positive or as financial liabilities when the fair value is negative.

At the inception of a hedge, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. Such hedges are expected to be effective in achieving offsetting changes in fair value and are assessed on an ongoing basis to determine that they have been effective throughout the reporting periods for which they were designated and are expected to remain effective over the remaining hedge period.

Forward foreign currency contracts that are used to hedge the currency nominal value of certain non-GBP denominated financial assets and are classified as fair value hedges. The change in the fair value of a hedging instrument is recognised in the Consolidated Income Statement. The change in the fair value of the hedged item, attributable to the risk being hedged, is also recognised in the Consolidated Income Statement, offsetting the fair value changes arising on the designated hedge instrument.

Fair value estimation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial instruments traded in active markets (such as publicly traded securities and derivatives) is based on quoted market prices at the reporting date. The quoted market price used for financial instruments is the last traded market price for both financial assets and financial liabilities where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, management will determine the point within the bid-ask spread that is most representative of fair value current bid price. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques commonly used by market participants, including the use of comparable recent arm's length transactions, discounted cash flow analysis and option pricing models.

Provisions

Provisions which are liabilities of uncertain timing or amount, are recognised when: the Group has a present obligation, legal or constructive, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount. In the event that the time value of money is material, provisions are determined by discounting the expected future cash flows at a discount rate that reflects a current market assessment of the time value of money and, where appropriate, the risks specific to the liability. When discounting, the increase in the provision due to the passage of time is recognised as a finance charge.

Equity shares

The Company's ordinary equity shares of 12.5 pence each are classified as equity instruments. Equity shares issued by the Company are recorded at the fair value of the proceeds received or the market price on the day of issue. Direct issue costs, net of tax, are deducted from equity through share premium. When share capital is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a change in equity.

Own shares held

Own shares held are equity shares of the Company acquired by or issued to employee benefit trusts. Own shares held are recorded at cost and are deducted from equity. No gain or loss is recognised in the Consolidated Income Statement on the purchase, issue, sale or cancellation of the Company's own equity shares.

Dividend recognition

Dividend distributions to the Company's shareholders are recognised in the accounting period in which the dividends are paid and, in the case of final dividends, when these are approved by the Company's shareholders at the AGM. Dividend distributions are recognised in equity.

Non-controlling interests in consolidated funds

For consolidated funds where a non-controlling interest is present, the non-controlling interest is presented as a liability where there is an obligation on the fund to repurchase units at the investor's request. Where the assets of the fund are presented as held for sale, the non-controlling interest is presented within held for sale liabilities. Where the assets of a fund are not classified as held for sale, the non-controlling interest is recognised in other creditors within trade and other payables.

2.2 Significant accounting judgements, estimates and assumptions

In the process of applying the Group's accounting policies, management has made significant judgements involving estimations and assumptions which are summarised below:

Geneva Capital Management LLC acquisition

The acquisition of Geneva Capital Management LLC (Geneva) has required certain judgements and estimates to be made around the future performance of the business when accounting for the investment management contracts acquired and contingent deferred consideration payable in the future. The key estimates applied in valuing the investment management contracts were market growth and attrition rates which have been based around industry data for US equities and US institutional clients. The contingent deferred consideration is calculated in two tranches and payable over six years on an annual basis if revenue retention and growth targets are achieved. Management has estimated the revenue of the business over the six year period to arrive at a discounted liability which is recognised in the Consolidated Statement of Financial Position.

In arriving at the recognised liability, management has applied estimates, including market growth rates based on long-term US equity data, expectations about the product range and growth potential of the business post acquisition and net flow data using client specific information and other assumptions supported by management's industry knowledge. See note 32.1 for further details on this acquisition.

Impairment of intangible assets

Goodwill and investment management contracts are reviewed for impairment annually or more frequently if there are indicators that the carrying value may be impaired.

The judgement exercised by management in arriving at these valuations includes the selection of market growth rates, fund flow assumptions, expected margins and costs. Further details on these assumptions are given in note 14.

Share-based payment transactions

The Group measures the cost of equity-settled share schemes at fair value at the date of grant and expenses them over the vesting period based on the Group's estimate of shares that will eventually vest.

Consolidation of seed capital investments

From time to time, the Group invests seed capital on the launch of products, such as OEICs, SICAVs, hedge funds, property and private equity funds and other investment vehicles. The seed capital investments vary in duration depending on the nature of the investment. The Group reviews the size and nature of these investments to consider its level of influence or control over the underlying funds to warrant accounting for them using the equity method, consolidating them into the Group's financial statements or classifying them as held for sale.

Where the Group does not control the fund it holds seed capital investments in, the Group is also not deemed to hold significant influence over these funds. As the seed capital investments are intended to help establish a fund track record and provide sufficient capital until a fund has sufficient external client capital, it is more appropriate for the Group's interest to be shown as either an available-for-sale financial asset or a financial asset carried at fair value through profit or loss.

Interests in other entities

The Group has assessed whether the funds it manages are structured entities. The Group has considered the voting rights and other similar rights afforded to other parties in these funds including the rights to remove the Group as fund manager, liquidate the funds or redeem holdings in the funds and has concluded as to whether these rights are the dominant factor in deciding who controls the funds.

The Group has judged that its pooled investment funds are structured entities unless substantive removal or liquidation rights exist. Further details are provided in note 15.

Impairment of available-for-sale financial assets

Available-for-sale financial assets are reviewed for impairment at each reporting date or more frequently if there are indicators that the carrying value is impaired. In specific cases, where a quoted market price or fair value is not available, significant judgement is exercised by management in determining the extent of impairment, taking into account other available market data. Management also exercises judgement in determining whether a decrease in the value of an asset meets the prolonged or significant tests.

Pension and other post-employment benefits

The costs of, and period end obligations under, defined benefit pension schemes are determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these schemes, such estimates are subject to significant uncertainty. Further details are given in note 21.

Provisions

By their nature, provisions often reflect significant levels of judgement or estimates by management. The nature and amount of the provisions included in the Consolidated Statement of Financial Position are detailed in note 22 and contingencies not provided for are disclosed in note 31.

Deferred tax assets

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that future taxable profits will be available against which the losses can be utilised. Significant judgement is required by management in determining the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits and the likely timing of deduction of the relevant expenses.

Held for sale classification

An assessment was made as at 31 December 2014 that certain seed capital investments controlled by the Group met the definition to be classified as held for sale in the Consolidated Statement of Financial Position. As at 31 December 2013, the Property business and certain seed capital investments controlled by the Group met the definition to be classified as held for sale in the Consolidated Statement of Financial Position. The Property business was disposed of on 1 April 2014.

2.3 Changes in accounting policies

The accounting policies adopted in this Annual Report are consistent with those of the previous financial year with the following exceptions caused by the adoption of the following standards on 1 January 2014. The Group has also adopted any IFRS or IFRS IC interpretations that are effective for the first time for the financial year beginning on 1 January 2014.

IFRS 10 Consolidated Financial Statements has resulted in certain seed capital investments to be consolidated as structured entities, as they meet the definition of control under this standard. The adoption of IFRS 10 has been applied retrospectively and the impact of the restatement is set out in note 33.

IFRS 11 Joint Arrangements has not resulted in any changes to the consolidated financial statements for the current or previously reported periods.

IFRS 12 Disclosure of Interests in Other Entities is a disclosure only standard and is set out in note 15.

2.4 Future changes in accounting policies

A number of new standards and amendments to standards and interpretations are effective for periods beginning on or after 1 January 2015. The following new standards are not applicable to these financial statements but are expected to have an impact when they become effective. The Group plans to apply these standards in the reporting period in which they become effective.

IFRS 9 Financial Instruments introduces new requirements for classification and measurement, impairment and hedge accounting. This standard is currently expected to become effective in 2018 or thereafter.

IFRS 15 Revenue from Contracts with Customers requires revenue to be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring services to a customer. This standard is currently expected to become effective in 2017.

Both IFRS 9 and IFRS 15 are subject to endorsement from the European Union.

The Group is assessing the impact of the above standards on the Group's future financial statements.

3. Income

Group

4. Expenses

4.1 Operating expenses

Group

Other expenses include marketing, travel and subsistence, legal and professional costs and irrecoverable sales taxes. Refer to note 33 for further detail on the restatement.

4.2 Auditors' remuneration

Group and Company

This note discloses the total remuneration payable to the Group's auditors. PwC replaced Ernst & Young as the Group's auditor on 1 May 2014 following shareholder approval at the Group's 2014 AGM.

The above analysis reflects the amounts billed by PwC or accrued by the Group in 2014. Included in the fees payable to the Group's auditors for the audit of the Group's 2014 consolidated financial statements are fees of £28,544 for the audit of the Company's 2014 financial statements.

Audit related assurance services include the half year review of the Group's interim results and the auditors' engagement covering client money. Other assurance services primarily relate to the work on the Group's AAF controls report. Tax services include compliance services in several non-UK jurisdictions and some advisory work for which PwC was engaged prior to their appointment as corporate auditor. The Group has strict policies in place that restrict the use of the Group's auditors with respect to non-audit services and management expects the fees payable for tax advisory services to decrease in the future.

The above analysis reflects the amounts billed by Ernst & Young or accrued by the Group in 2013. Included in the fees payable to Ernst & Young for the audit of the Group's 2013 consolidated financial statements are fees of £30,000 for the audit of the Company's 2013 financial statements.

5. Employee compensation and benefits

5.1 Number of employees

The number of full-time employees was as follows:

1. Excluding those working on capitalised projects.

The number of employees relating to total operations in 2013 includes a full year of property staff in comparison to three months in 2014 as staff transferred with the Property business on 1 April 2014. The increase in the number of employees during the year includes 25 staff that joined the Group on the acquisition of Geneva on 1 October 2014.

The Company had no full-time employees during 2014 or 2013. Non-executive directors of the Company are not classified as full-time employees.

5.2 Analysis of employee compensation and benefits expense

Employee compensation and benefits expense comprises the following:

6. Finance expenses

Group

7. Acquisition related and non-recurring items from continuing operations