ANNUAL REPORT AND FINANCIAL STATEMENTS 2011 | 59


6. Exceptional income and expenditure (a) Other exceptional net operating expenses The Group has classified the following operating (expenses)/income as exceptional:


Notes


Exceptional employment (expense)/income TRC Commutation expenses


TRC Management Retention and Incentive Plans Operations outsourcing expenses F&C Partners litigation expense TRC integration expenses


F&C REIT variable non-controlling interests SBP income Corporate advisory fees


Foreign exchange transfer from reserves on liquidation of subsidiary (i) (ii)


(iii) (iv) (v)


(vi) (vii) (viii) (ix)


2011 £m


(8.7) (5.7) (4.6) (2.7) (1.9) (0.2) 4.8 – –


(19.0)


2010 £m


2.5


(6.2) (1.8) –


(6.0) (1.1) 0.3


(9.9) 1.3


(20.9)


(i) Exceptional employment (expense)/income During 2011, the Board initiated actions to achieve ‘rightsizing’ staff cost savings as a result of the operations outsourcing and the subsequent strategic review process. As a result, some £8.7m of non-recurring redundancy and related staff costs were incurred during the year in order to achieve the targeted level of recurring staff cost savings.


During 2010 the Group recognised a net £2.5m of non-recurring income associated with employee remuneration arrangements. This comprised a £4.0m pension curtailment credit arising from benefit changes made to defined benefit pension arrangements, as outlined in note 25(d), offset by a £0.6m past service pension cost and £0.9m of redundancy and related staff costs, which were incurred as a result of cost saving actions initiated during that year.


The Directors consider these non-recurring employment (expenses)/income to be exceptional in nature and have therefore excluded them from the measurement of underlying earnings in the respective financial year.


(ii) TRC Commutation expenses The Divisional Members of TRC Investment Teams entered into put and call options at the time of the TRC acquisition, which, if exercised, will typically transfer up to 20% of their entitlement to management fee profits to the F&C Group. Under IFRS, the share element of the consideration payable under these Commutation arrangements requires to be accounted for as a share-based payment.


Given the capital nature of these arrangements, the Directors consider it appropriate to treat the total Commutation expense as exceptional in nature and exclude it from the measurement of underlying earnings for each financial year.


(iii) TRC Management Retention and Incentive Plans As a condition of the acquisition of TRC, the Group established a Management Retention Plan (MRP) and Management Incentive Plan (MIP) to retain and incentivise certain TRC personnel. At 31 December 2011 it has been assessed that none of the MIP performance criteria will be met and, as a result, the cumulative charge previously recognised has been reversed and a credit has been recognised in the 2011 Income Statement. The MRP expense (including NIC) recognised in the income statement is £4.7m (2010: £1.7m). The 2011 credit in respect of the MIP is £0.1m (2010: charge of £0.1m). Details of these share-based payment arrangements are given in notes 26(e) and (f).


Given the quantum and nature of these awards, the Directors consider it appropriate to treat the associated expense/(credit) as exceptional and exclude them from the measurement of underlying earnings for each financial year.


(iv) Operations outsourcing expenses During 2011, £2.7m of legal, advisory and consultancy costs were incurred in respect of the planning and execution of the outsourcing of certain of the Group’s back and middle office investment operations to State Street.


The Directors consider these project costs to be exceptional in nature and have therefore excluded this expense from the measurement of underlying earnings for 2011.


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