Annual Report and Financial Statements 2011

ANNUAL REPORT AND FINANCIAL STATEMENTS 2011 | 23

Report of the Directors

Results, business review and dividend The Group’s results for the year ended 31 December 2011 are shown in the Consolidated Income Statement on page 42. A business review of the year ended 31 December 2011 and future developments are covered on pages 2 to 21. This review, together with the Directors’ Report on Corporate Governance on pages 27 to 33, forms part of the Report of the Directors.

The Group profit for the year, after tax, amounted to £2.6 million.

The Directors recommend a final ordinary dividend of 2.0 pence per share, amounting to £10.4 million, resulting in a total of 3.0 pence and £15.6 million for the year.

The final ordinary dividend, if approved, will be paid on 25 May 2012 to ordinary shareholders whose names are on the register on 30 March 2012. No liability for the proposed dividends has been recognised as at 31 December 2011, in accordance with IFRS.

Principal activity and status The Group’s business is asset management. Details of the progress of the business during the year and of future prospects are contained in the Chairman’s Statement, the Chief Executive’s Report and the Business Review on pages 2 to 21.

The Company is registered as a Public Limited Company in terms of the Companies Act 2006 and is currently a constituent of the FTSE 250 Index. The Company is registered in Scotland, registered number SC73508, and is domiciled in the United Kingdom.

Details of the principal entities within the Group are contained in note 39 to the Consolidated Financial Statements. There are also two branch offices in the Group outside the UK, in Germany and Ireland.

Significant agreements F&C is party to the following significant contracts that take effect, alter or terminate upon a change of control of the Company:

Friends Life Group (FL Group) There are four material Investment Management Agreements (the Agreements) that have been in place with companies within the FL Group since October 2004 and under which assets are managed by F&C. Management of the majority of these assets can only be terminated by the relevant contracting party within the FL Group upon 12 months’ notice expiring no earlier than 11th October 2014 subject to certain exceptions listed within the Agreements. These exceptions include withdrawals of assets as a result of underperformance thresholds being triggered, withdrawals for reasonable business and financial needs (such as discharging liabilities under insurance contracts and meeting internal financing requirements), and withdrawals of assets of up to £150 million per annum in respect of the overall portfolio of assets covered by each of the Agreements. Withdrawals of assets not permitted under the Agreements require the payment of compensation by the FL Group to F&C. Management of the remainder of the assets of the FL Group by F&C (known as the Demutualisation Assets) can be

Achmea Group There are four material Investment Management Agreements (the Agreements) that have been in place with companies within the Achmea Group since October 2004. These Agreements sit alongside an overarching Umbrella Agreement which sets out the high level terms governing the relationship between the F&C Group and the Achmea Group including the operation of F&C’s rights to exclusivity over the management of assets of the Achmea Group. Management of the majority of these assets can only be terminated by the relevant contracting party within the Achmea Group upon 12 months’ notice expiring no earlier than 11th October 2013 subject to certain exceptions listed within the Agreements. These exceptions include withdrawal of assets for reasonable business needs, including strategic acquisitions and assets withdrawn following termination for underperformance by a particular asset class by a specified margin below the applicable investment benchmark and assets withdrawn pursuant to an allocation to an asset class not covered by exclusivity rights (for example venture capital investments). Withdrawals of assets not permitted under the Agreements require the payment of compensation by the Achmea Group to F&C. Management of the remaining assets of the Achmea Group by F&C can be terminated at any time upon provision of notice.

Millennium BCP Group (BCP) The consequences of termination of the various agreements with BCP-related funds are regulated by an Umbrella Agreement with BCP (the UA). The UA provided that compensation would be payable if any of these agreements are terminated before 29 June 2013. If a person acquires an interest in the shares of F&C which is larger than the aggregate interest of Friends Life and Achmea, then the period by reference to which compensation is payable by BCP to F&C on termination of such an agreement is reduced. On 17 December 2010, Sherborne acquired an interest in the shares of F&C which is greater than the aggregate interest of Friends Life and Achmea thereby reducing the period by reference to which compensation would have been payable had an agreement been terminated at that time from 42 months to 12 months. Further communications from BCP have put F&C on notice that payments by BCP in respect of F&C’s continued provision of services to BCP, constitutes payment in lieu of compensation and that the agreements could be terminated by BCP at any time without compensation or notice. As at the latest practicable date prior to the publication of this Annual Report and Financial Statements, none of the relevant agreements has been terminated and no notice terminating such agreements has been received.

terminated at any time by the relevant contracting entity within the FL Group either, in the case of the “With Profits” fund assets, upon 6 months’ notice or, in the case of the other Demutualisation Assets, upon 12 months’ notice. As previously notified in the Company’s Interim Management Statement in January of this year, F&C is on notice from the FL Group for the withdrawal of £2.3 billion of the Demutualisation Assets, such withdrawal to take effect in December 2012.

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