HGG.L Regulatory News (HGG)

2016 Interim Results

28 July 2016

Henderson Group plc (Henderson or the Group) published its Interim Results for the six months ended 30 June 2016 on 28 July 2016. The comments below refer to the period from 1 January 2016 to 30 June 2016 (the period) unless otherwise stated.

Financial highlights

· Assets under management (AUM) at 30 June 2016 up 3% to £95.0bn (31 Dec 2015: £92.0bn)

· Net outflows for the period of £2.0bn

· Underlying profit before tax1 of £100.5m (30 June 2015: £117.4m)

· Underlying diluted EPS1 of 7.1p (30 June 2015: 8.9p)

· Capital above regulatory requirement of £105m

· Interim dividend of 3.20p per share (30 June 2015: 3.10p per share).

Business update

· Consistently strong investment performance: 77% of funds outperforming relevant metrics over three years as at 30 June 2016.

· New investment teams performing well, notably Global Emerging Markets Equity, Henderson Geneva US Small-Cap Growth, US High Yield.

· Increasingly global client base: c.50% of AUM is managed for clients outside the UK (FY13: c.30%).

· Strong financial position: debt free following repayment of £150m senior notes in March 2016.

· Minimal operational impact anticipated following the UK vote to leave the European Union.

Andrew Formica, Chief Executive of Henderson, said: "The first half was dominated by widespread market uncertainty in the run up to the UK referendum. Clients pulled back from investing in European assets and UK property, particularly after the referendum result, but we saw good demand for absolute return and income generating investment styles. Our Institutional flows turned positive in the second quarter, with a positive pipeline. Across our Retail product range since the end of June, outflows have moderated and investment performance has improved.

"At the mid-point of our five year growth and globalisation strategy, we are a fundamentally stronger business. Our new investment teams continue to deliver excellent performance and half of our assets are now managed for clients outside the UK. The dislocation caused by the UK referendum result demonstrates the importance of continuing to diversify our business. Our plan is to stay close to our clients, stay vigilant on costs and stay true to our strategy. Outstanding investment management, strong client relationships and growing brand recognition remain the key drivers of future growth."

1. 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. Statutory profit before tax was £68.4m (30 June 2015: £98.1m). Statutory diluted EPS was 4.8p (30 June 2015: 7.9p). A reconciliation between underlying profit and total GAAP profit is presented in the Interim Consolidated Income Statement.

Results for Announcement to the Market

To view the full details of the 2016 Interim Results, paste the following link into your web browser:

http://www.rns-pdf.londonstockexchange.com/rns/4518F_-2016-7-27.pdf

To view the full details of the 2016 Interim Results Presentation, paste the following link into your web browser:http://www.rns-pdf.londonstockexchange.com/rns/4518F_1-2016-7-27.pdf

These results for announcement to the market include the interim information required to be provided to the Australian Securities Exchange (ASX) under Listing Rule 4.2A and Appendix 4D.

1. 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. A reconciliation between underlying profit and total GAAP profit is presented in the Interim Consolidated Income Statement.

2. Underlying net fee income less total underlying operating expenses, divided by underlying net fee income.

3. Employee compensation and benefits, divided by underlying net fee income.

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

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

6. 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.

Dividend

On 27 July 2016, the board of directors of Henderson Group plc (the Board) declared an interim dividend in respect of the six months ended 30 June 2016 of 3.20p per share (1H15: 3.10p per share). Henderson Group plc does not offer a dividend reinvestment plan.

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.

Risk Management

The principal risks within the Group fall into a number of distinct categories and the actions undertaken to mitigate them are both varied and relevant to the particular risk concerned. Information regarding the principal risks and their mitigation is set out in the Group's 2015 Annual Report and Accounts on pages 23 to 27 and the related governance framework is set out on pages 54 to 65. The risks facing the Group have not changed significantly from those described in the Group's 2015 Annual Report and Accounts. However, as noted on page 27 of the Group's Annual Report and Accounts, the implications of a vote for the UK to leave the European Union were a significant component of Regulatory Change risk in 2016. The build-up to, and then result of, the UK referendum in June led to increases in specific risks including Market, Liquidity and Fund Flows risks during the period and these risks together with Regulatory Change risk continue to be at higher levels than at the time of publication of the Group's 2015 Annual Report and Accounts. Mitigation of these risks follows the processes described on pages 26 and 27 in the Group's 2015 Annual Report and Accounts.

Forward-Looking Statements and Other Important Information

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 website 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.

Market briefing

Management will present these results on 28 July 2016 at 5.00pm (Sydney time)/8.00am (London time).

Webcast details

You can log on to a webcast of the results briefing which will start at 5.00pm (Sydney time)/8.00am (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 dialling 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 4.45pm (Sydney time)/7.45am (London time):

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 1,000 employees worldwide and assets under management of £95.0bn (30 June 2016). 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 £2.5bn (26 July 2016).

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

Business Review

Assets under management (AUM)

AUM increased to £95.0bn at 30 June 2016, reflecting net outflows of £2.0bn and market and FX movements of £5.1bn1.

Retail outflows accelerated considerably in the immediate aftermath of the UK's referendum on EU membership, particularly from the Henderson UK Property Fund and funds focused on European assets. Trading was suspended in the Henderson UK Property Fund from mid-day 5 July 2016 to give the fund time to dispose of assets and rebuild liquidity. The diversity of Henderson's product range helped mitigate the effect of EU referendum related outflows, with continued client demand for absolute return and income-focused investment strategies.

Institutional flows recovered in the second quarter, driven by inflows into Henderson Geneva in the US, Henderson Fixed Income and Henderson Growth Equities in Australia and fixed income strategies in the UK. Henderson's institutional client base is becoming increasingly diverse, with over 40% of institutional clients now based outside the UK.

Negative market movements in the period were counterbalanced by FX translation gains as Henderson's business becomes increasingly global, with USD, EUR and AUD strengthening 9%, 11% and 11% respectively, against GBP.

Investment performance

Investment performance remained strong in the period, with 77% of funds outperforming on a three year basis. 55% of funds outperformed on a one year basis.

Performance is calculated as a percentage of funds, asset-weighted, that are outperforming based on the relevant metric: peer quartile ranking for Retail, positive for absolute return, positive versus benchmark for Institutional.

1. Not adjusted for rounding.

Financial Review

Income drivers

Underlying net income was £284.8m, down 9%. This reduction was driven by lower performance fees in a period of significant market volatility (£20.1m compared to £48.8m in 1H15), partially offset by higher management fees. Management fees grew 4% to £239.7m. The principal positive drivers were strong flows in late 2015, the Australian acquisitions in 2H15 and currency translation benefits, while negatives included market movements, rebates and adjustments to fees. Other income rose slightly to £19.0m, reflecting a re-allocation of income from management fees. Finance income decreased to £5.5m (1H15: £15.3m), after a £9.1m one-off seed capital gain in 1H15 that arose in the sale of the Property joint venture.

Expense drivers

Underlying expenses totalled £184.3m, down 5%. This reduction was driven by lower variable employee compensation and benefits, which were down 21% at £67.0m. Fixed employee compensation and benefits rose 17% compared to 1H15 to £55.7m, reflecting investments made in 2H15, an annual wage increase averaging 3% and staff increases to support growth and regulatory initiatives. Non-staff operating expenses were 3% higher at £58.3m and finance expenses reduced to £3.3m, reflecting the repayment of £150.0m of debt in March 2016.

Profit

Underlying profit before tax for the period was £100.5m (1H15: £117.4m), with the reduction driven primarily by lower performance fees.

Key ratios

Operating margin for the period was 35.1%, broadly in line with 2H15 but lower than in 1H15 (36.3%). Compensation ratio reduced to 44.0% (1H15: 44.5%).

Tax

The tax charge on the Group's underlying profit for the period was £21.0m, resulting in an effective tax rate of 20.9% (1H15: 13.3%). In February 2016, Henderson confirmed that it expects its tax rate to rise to near to 20%, reflecting changes in the company's global tax profile, growth in higher tax jurisdictions and non-recurrence of one-off credits which reduced the tax rate in prior periods.

Earnings per share (EPS)

Diluted underlying EPS was 7.1 pence per share (1H15: 8.9 pence per share). This reduction reflects Henderson's higher effective tax rate as well as a reduction in underlying profits.

Liquidity and capital management

Total cash and cash equivalents at 30 June 2016 were £181.3m. Unrestricted cash stood at £150.8m after excluding manager dealing accounts, restricted cash and cash held in structured entities. Following repayment of the £150.0m 2016 Loan Notes in March 2016, gross debt at par was nil and the Group had a net cash position of £150.8m at 30 June 2016 (1H15: £119.1m).

The Group is subject to regulatory oversight by the FCA and international regulatory bodies. The Group ensures it is compliant with its regulatory obligations at all times. Following expiry of the investment firm waiver from consolidated supervision in April 2016, based on Henderson's calculations, capital above regulatory requirement was £105m as at 30 June 2016 (31 December 2015: £100m). This includes deductions for the interim dividend and share buyback.

Pension schemes

During the period, the Henderson Group Pension Scheme 2014 triennial valuation was finalised on a technical provision basis. While on an accounting basis the scheme records a surplus, on the 2014 technical provision basis, the scheme showed a deficit of £29m. As a result, Henderson has agreed with the Trustee to fund additional contributions, commencing in January 2017, to remove the deficit. The contribution will be £8.4m per annum and will be spread over four years to the end of 2020. These payments will be made out of cash resources but will not impact the Consolidated Income Statement.

Dividend

The Board declared an interim dividend of 3.20 pence per share for the six months ending 30 June 2016 (30 June 2015: 3.10 pence per share). The Group continues to operate a progressive ordinary dividend policy and expects to grow ordinary dividends broadly in line with earnings over the medium term.

Share buyback

Henderson is committed to the active management of its cash and capital resources. The strength of its capital position gives flexibility around the deployment of cash and capital, be that via organic growth, inorganic investment or returns to shareholders. Reflecting the Group's strong capital position, in April 2016, Henderson announced that it intends to continue its share buyback programme and buy back shares to the value of £25m in the second half of 2016.

Presentation of the Interim Consolidated Income Statement

Acquisition related and non-recurring items are disclosed separately from the Group's underlying profit to enable the users of the financial statements to better understand the components of total profit. 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. A reconciliation between underlying profit and total GAAP profit is presented in the Interim Consolidated Income Statement.

Charges from acquisition related and non-recurring items totalled £26.4m after tax (1H15: £11.2m) and are primarily attributable to intangible amortisation of previously acquired investment management contracts. Explanations of all items categorised as acquisition related and non-recurring are shown in note 5 to the financial statements.

Summary of movements in AUM

1. The Group records AUM and net flows when management or performance fees are generated on an investment mandate as well as its percentage participation in the AUM of associates and joint ventures. For associates and joint ventures, where the Group either sub-advises the AUM or where the AUM is contracted to Henderson and sub-advised by the joint venture partner, the Group will show 100% of that AUM rather than the percentage of participation. Where one fund or client invests part or all of its portfolio into another Henderson fund, AUM or flow is shown only against that portfolio that is ultimately managed by the Group rather than the client or fund vehicle initially invested in, except where shown by capability, where AUM is shown by the capability for which the client invests in. All cross holdings are eliminated.

2. AUM used for margin purposes excludes joint venture and associate AUM (except where either Henderson sub-advises the AUM or where the AUM is contracted to Henderson and sub-advised by the joint venture partner).

3. Other includes Australian Managed Investment Schemes, Singapore Mutual funds and Retail Segregated Mandates.

4. Includes US Mutuals and Singapore Mutuals.

 Interim Consolidated Income Statement

For the six months ended 30 June 2016

Interim Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2016

Interim Consolidated Statement of Financial Position

As at 30 June 2016

Approved by the Board on 27 July 2016.

Interim Consolidated Statement of Changes in Equity

For the six months ended 30 June 2016

Interim Consolidated Statement of Cash Flows

For the six months ended 30 June 2016

Notes to the Interim Condensed Consolidated Financial Statements

1. Corporate information

Henderson Group plc (the Company) 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 CHESS Depositary Interests are traded on the ASX.

The Interim Condensed Consolidated Financial Statements of the Group for the six months ended 30 June 2016 were authorised for issue by the Board on 27 July 2016.

The results for the six months ended 30 June 2016 are unaudited but have been reviewed by the auditors, PricewaterhouseCoopers LLP. The results for the six months ended 30 June 2015 were also unaudited but were reviewed by PricewaterhouseCoopers LLP. The condensed comparative figures for the full year ended 31 December 2015 have been taken from the Henderson Group plc Annual Report and Accounts. The 2015 financial statements in the 2015 Annual Report and Accounts were audited by PricewaterhouseCoopers LLP and their report was unqualified. Henderson Group plc's 2015 Annual Report and Accounts have been filed with the Jersey Financial Services Commission Companies Registry. The Interim Condensed Consolidated Financial Statements do not constitute statutory accounts.

2. Basis of preparation and significant accounting policies

Basis of preparation

The Interim Condensed Consolidated Financial Statements for the six months ended 30 June 2016 have been prepared in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the European Union and in accordance with the Disclosure and Transparency Rule 4.2.6R of the United Kingdom's Financial Conduct Authority.

The Interim Condensed Consolidated Financial Statements do not include all the information and disclosures required in the annual financial statements and therefore should be read in conjunction with Henderson Group plc's 2015 Annual Report and Accounts, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

The Directors are satisfied that the Group has and will maintain sufficient financial resources to enable it to continue operating for at least 12 months from the date of approval of the 2016 Interim Results. The Directors closely monitored the material uncertainties inherent in current and expected market conditions and the trading performance of the Group. After thorough examination, the Directors are satisfied that the Group has and will maintain sufficient financial resources to enable it to continue operating in the foreseeable future, and therefore, continue to adopt the going concern basis in preparing the Interim Report and Accounts. This has been considered as part of the Group's Risk Management procedures set out in the Risk Management section of the Interim Report and Accounts.

Significant accounting policies

The accounting policies adopted in the preparation of the Interim Condensed Consolidated Financial Statements are consistent with those followed in the preparation of Henderson Group plc's 2015 Annual Report and Accounts.

In 2015, the Consolidated Statement of Financial Position presented financial liabilities at fair value through profit or loss, excluding provisions, separately from within trade and other payables where they have been previously presented. As a result, £39.0m and £52.4m have been transferred from non-current and current trade and other payables respectively in the 30 June 2015 Consolidated Statement of Financial Position to reflect this change.

In 2015, the Consolidated Statement of Cash Flows presented additions and disposals in financial instruments made by consolidated funds on a net basis within investing activities as these funds invest and divest investments frequently for trading purposes. The 30 June 2015 Consolidated Statement of Cash Flows has been re-presented to reflect this change with the reported figures relating to seed capital additions of £12.3m and disposals of £30.2m separated out on the following lines: (a) proceeds from disposals of available-for-sale financial assets - seed capital; and (b) purchases of net financial assets at fair value through profit or loss - consolidated funds. There is no impact on reported cash flows from investing activities.

3. Segmental information

Henderson is an investment manager, operating throughout Europe with operations in North America, Asia and Australia. The Group manages a broad range of actively managed investment products for institutional and retail investors, across five capabilities, being European Equities, Global Equities, Global Fixed Income, Multi-Asset and Alternatives, including Private Equity and Property. Management operates across product lines, distribution channels and geographic regions. All investment product types are sold in most, if not all, of these regions, and are managed in various locations. Information is reported to the chief operating decision maker, the Board, on an aggregated basis. Strategic and financial management decisions are determined centrally by the Board and, on this basis, the Group is a single segment investment management business.

Entity-wide disclosures

Revenues by product

Geographic information

Revenues by region

The geographical revenue information is split according to the country in which the revenue is generated, not necessarily where the client is based. The Group does not have a single client which accounts for more than 10% of revenues.

Non-current assets

Non-current assets for this purpose consist of intangible assets, investments accounted for using the equity method and property and equipment.

4. Seasonality of operations

The Group's revenue streams are not generally seasonal in nature, with management fees and other income accruing evenly during the year. Performance fees are recognised when the prescribed performance hurdles have been achieved and it is probable that the fee will crystallise as a result. The hurdles coincide with the underlying fund year ends. The year ends of offshore absolute return funds and SICAVs are biased to the first half of the year. In addition, given the uncertain nature of performance fees, these can fluctuate from period to period. Finance income includes movements on seed capital investments and consequently can fluctuate.

5. Acquisition related and non-recurring items

5.1 Acquisition related items

Intangible amortisation

Investment management contracts have been identified as separately identifiable intangible assets arising on the acquisition of subsidiaries or the purchase of stand-alone contracts. They are amortised on a straight-line basis over the expected life of the contracts, currently estimated at between three and eight years.

Australian acquisitions

Amounts included in operating expenses and amortisation represent deferred consideration relating to the Perennial Fixed Interest Partners Pty Ltd and Perennial Growth Management Pty Ltd (together 'Perennial') and 90 West Asset Management Limited ('90 West') acquisitions treated as compensation expense due to the acquisition contract requiring service conditions for the employee vendor.

Void property finance charge

Upon the acquisition of Gartmore and New Star, certain property leases acquired became onerous contracts and provisions were established at the point of acquisition, reflecting the net present value of the excess lease rentals and other payments over the amounts expected to be recovered from subletting these properties. The finance charge is unwound during the term of the underlying leases through finance expenses.

Deferred consideration finance charge

The acquisitions of Geneva and Perennial provide for contingent consideration payable to vendors subject to certain revenue and growth targets being achieved. The deferred consideration is recorded at its net present value and the finance charge is charged over the period until the consideration is payable should the condition be met.

5.2 Non-recurring items

Six months ended 30 June 2016

Transactions relating to joint ventures

Loss from associates and joint ventures

An impairment on the investment in Northern Pines of £2.7m was made in the current period ahead of its wind up in the second half of the year.

Operating expenses and amortisation

Final expenses of £0.2m related to the disposal of TH Real Estate on 1 June 2015 have been recognised in the period.

Australian acquisitions

Operating expenses and amortisation

The Group incurred costs of £0.4m in the period related to the integration of Perennial and 90 West.

Six months ended 30 June 2015

TH Real Estate

Loss from associates and joint ventures

A £0.3m adjustment to the £5.4m one-off establishment costs recognised in 2H14 was made in the six month period to 30 June 2015.

Finance income

On 1 June 2015, the Group sold its 40% stake in TH Real Estate, resulting in an £11.4m gain.

Australian acquisitions

Finance income

A £0.1m gain was recognised on the revaluation of the Group's previous 41.4% stake in 90 West, based on the transaction price on 29 May 2015 when the Group acquired the remaining 58.6% of shares.

Operating expenses and amortisation

The Group incurred costs of £0.8m in the six month period to 30 June 2015 relating to the acquisition of 90 West and the acquisition of Perennial.

6. Tax

Tax recognised in the Interim Consolidated Income Statement

Reconciliation of profit before tax to tax charge

The tax charge for the period is reconciled to the profit before tax in the Interim Consolidated Income Statement as follows:

The UK corporation tax rate reduced from 21% to 20% with effect from 1 April 2015. Accordingly, the UK corporation tax rate for the period is 20% (2015: pro rata 20.25%).

7. Debt instrument in issue

On 24 March 2011, the Group issued, at par, £150.0m of 2016 Notes which were listed on the LSE, unsecured and unrated, and which yielded interest at a fixed rate of 7.25% per annum. The notes were repaid in full at their maturity on 24 March 2016.

On 10 February 2016, the Group entered into a revolving credit facility for £30.0m for a one year period. Currently, no amounts have been drawn down.

8. Dividends

An interim dividend of £36.2m (3.20p per share) was declared by the Board on 27 July 2016. This will be payable on 16 September 2016 to shareholders on the register at 26 August 2016.

The difference between the proposed final dividend as reported in the 2015 Annual Report and Accounts (£81.5m) and the dividend paid out during the period (£80.9m), represents the dividends waived by employee benefit trusts on shares held in the trust on behalf of Group employees. The amount waived in respect of the interim dividend declared for 2016 will be established by the trustees of the employee benefit trusts on 26 August 2016, being the dividend record date.

9. Earnings per share

Weighted average number of shares

The weighted average number of shares for the purpose of calculating earnings per share is as follows:

Basic and diluted earnings per share have been calculated on the profit attributable to owners of the parent. The difference between the weighted average number of shares used in the basic earnings per share and the diluted earnings per share calculations reflects the dilutive impact of outstanding share options and awards, which are anticipated to vest based on market conditions as at 30 June 2016.

9.1 On underlying profit after tax attributable to owners of the parent

Earnings

Earnings per share

9.2 On profit after tax attributable to owners of the parent

Earnings

Earnings per share

10. Operating cash flows reconciliation