02 | BUSINESS REVIEW|
Executive Chairman’s Statement
During 2012 F&C made progress in a number of important areas: we continued to implement the strategy set out for the Group and its institutional business last year; we restructured our management team to ensure we have appropriate leadership to take the business forward; and announced, and subsequently started to implement, a clear plan for the profitable growth of our consumer-focused businesses.
Since phase 1 of our strategic review was announced, we have reduced underlying operating expenses by £23.3 million compared to the prior year and have initiated debt buy-backs, repurchasing some £16.7 million of senior and subordinated debt. Two of our strategic partners have indicated that F&C will continue to manage assets beyond the existing exclusivity periods and we have continued to build our institutional, solutions-led product suite.
Phase 2 of the strategic review was announced in May and focused on our consumer and property business activities. The review outlined our commitment to pursuing strategies for profitable growth in each of these areas and building on F&C’s strength in Multi- manager products, direct marketing and consumer brand awareness. We believe that F&C may have some interesting opportunities in a post-Retail Distribution Review (RDR) environment. Accordingly, we have enhanced our direct marketing capabilities to position the Group to better understand the needs and interests of customers and potential customers and capitalize on the anticipated increase in self-directed consumer purchases.
We also made significant progress in developing our management team. Richard Wilson, who had been leading our Institutional and Investment Business, was appointed Group Chief Executive at the end of 2012. This appointment follows a number of other significant appointments during the year. Steve Ilott joined the company in March 2012 as Head of Multi-Strategy Investments and Mandy Mannix was appointed as Head of Client Management in July, creating a single distribution and client servicing function across the Group. Steve Ilott and Richard Watts were appointed Co-Heads of Investment in September 2012. After leading Thames River from inception, Charlie Porter determined that he wished to step down from executive management and his responsibilities were assumed by other members of the management team in H2 2012. The Board is confident that there is now a leadership team in place with the right skills to successfully manage and grow the business over the medium term.
Our financial results during this period of significant change were satisfactory with underlying profit after tax of £37.5 million, compared to £28.4 million in 2011. This represents underlying earnings per share of 7.1 pence for 2012 (2011: 5.5 pence). Based on this result, the Board is recommending a final dividend of
2 pence per share, payable on 24th May 2013 to shareholders on the register at 5th April 2013, bringing the full-year dividend to 3 pence per share (2011: 3 pence per share). Our dividend cover, relating to underlying earnings per share, has increased to 2.4 times, and the Board will continue to review the dividend level in light of the progress in the business and our debt reduction targets.
Market overview
Economic growth around the world generally continued to disappoint during 2012, with strict austerity measures across much of Europe, including the UK, providing a further obstacle to growth. Europe’s sovereign debt-related problems remained to the fore, but a number of actions from the European Central Bank allayed fears over the prospect of a eurozone breakup.
Equity markets reflected this backdrop. Volatility was a feature, especially in the first six months of the year, before markets rallied strongly into the year end. The FTSE 100 returned 10.0 per cent with small and medium-sized UK firms outperforming their larger counterparts by some margin. Outside of the UK, continental European shares were the standout performer with returns reflecting widespread relief at the European Central Bank’s more pro-active actions post July.
Bond markets started the year strongly, though surprisingly, given the rally in the equity markets, perceived safe haven bonds have not suffered, although momentum in the latter stages of the year slowed markedly. This helped higher yield bonds, which have also benefited from a narrowing of credit spreads as investors have been attracted into riskier assets.
During 2011, many active fund managers struggled to deliver out- performance of their targets, as markets were primarily driven by macro factors and resulting broad-based rotations in the ‘risk-on’/‘risk-off’ trade. 2012, however, saw market participants begin to refocus their attention on the relative merits of individual investments, making it a much better environment for active fund managers.
This overall economic backdrop was reflected in the Group’s Assets Under Management (AUM), with underlying asset performance contributing £10.1 billion to AUM over the year. However, the Group’s AUM declined 4.9 per cent to £95.2 billion (31 December 2011: £100.1 billion), principally as a result of net outflows of £13.3 billion and adverse foreign exchange rate movements of £1.7 billion.
Business flows
Net outflows during 2012 comprised £11.4 billion of strategic partner assets and £1.9 billion from our consumer and institutional business. Our wholesale division represented the largest contributor to consumer and institutional outflows.
2012 was a challenging year for wholesale, with net outflows of £1.2 billion. Both the Thames River Global Credit and Global Bond products suffered significant outflows. In addition, the Thames River
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