60 | FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements


6. Exceptional income and expenditure continued (vi) Exceptional premises expenses As part of the strategic review programme, significant annualised cost savings are expected as a result of premises restructuring activity. As part of this programme, following lease changes and restructuring work at the Group’s Head Office in London, a net expense of £1.3m has been recognised in the Income Statement for the year to 31 December 2012. This comprises £2.7m of non-recurring premises-related costs associated with the restructuring activities, offset by a £1.4m credit in respect of an accelerated release of lease incentive liabilities.


(vii) F&C REIT variable non-controlling interests SBP income 30% of F&C REIT, the Group’s property asset management business, is held by the former owners of REIT, two of whom occupy key management roles within F&C REIT.


The former owners have the opportunity to increase their ownership of F&C REIT by a further 10% through the achievement of performance targets over the six-year period to 31 December 2014. This earn-out mechanism meets the criteria of, and is accounted for as, a share-based payment. In 2011 it was assessed that the performance target is unlikely to be achieved in any of the remaining performance periods. As a result, the cumulative charge previously recognised was reversed and a credit of £4.8m was recognised in the 2011 Income Statement. As at 31 December 2012 this assessment remains unchanged.


This credit has been excluded from underlying earnings as this arrangement is considered to be of a capital nature. Further details of this arrangement are given in note 25(c).


(viii) TRC integration expenses Following the acquisition of TRC in 2010, the Group incurred a number of integration expenses associated with the alignment of certain activities within the enlarged Group in 2011. No such costs were incurred in the year ended 31 December 2012.


Given the nature of this expense, the Directors considered it appropriate to treat it as exceptional and excluded it from the measurement of underlying earnings.


(b) F&C REIT put option fair value gain


2012 £m


F&C REIT put option fair value gain 11.5


2011 £m


8.7


The fair value of the F&C REIT put option liability, as disclosed in note 27, reflects the value of the portion of the F&C REIT business which is currently owned by the non-controlling interest partners and which is the subject of options. The £11.5m reduction in the fair value of the options during 2012 has been recognised as a gain in the Income Statement (2011: gain of £8.7m).


The Directors consider the value of these options and movements therein to be of a capital nature, and have therefore excluded these gains from the measurement of underlying earnings.


(c) TRC acquisition consideration adjustments


2012 £m


Net asset consideration adjustment Deferred consideration adjustment


– –


–


2011 £m


0.1 7.5


7.6


The total consideration of £48.6m recognised in 2010 for the acquisition of TRC included a £7.5m estimate of further cash consideration and £7.5m of estimated conditional consideration payable if certain performance criteria were achieved.


During 2011, a payment of £7.4m was made to the vendors of TRC, under the terms of the Sale and Purchase Agreement, representing an adjustment to the initial cash consideration to reflect the excess of net assets acquired over and above the agreed target. As the payment was less than the estimate of £7.5m, the excess of £0.1m was credited to the Income Statement in accordance with IFRS.


Neither of the conditional consideration performance targets relating to the acquisition were achieved. As a result, the associated liability of £7.5m was also released to the 2011 Income Statement in accordance with IFRS.


Due to the capital nature of these items, the Directors excluded the total credit of £7.6m from the calculation of underlying earnings for 2011.


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