REG-Ashmore Group Plc <ASHM.L> PRELIMINARY RESULTS FOR YEAR - Part 2

. Part 2 : For preceding part double click [nRn1P4544D] Multi strategy funds 30 June 2008 30June 2007 AuM opening (US$bn) 2.6 0.6 Subscriptions (US$bn) 1.2 1.8 Redemptions (US$bn) (1.1) 0.0 Net subscriptions (US$bn) 0.1 1.8 Performance (US$bn) 0.3 0.2 Closing AuM (US$bn) 3.0 2.6 In addition, Ashmore was appointed investment manager following the launch of a newly incorporated publicly listed closed-ended investment company, Ashmore Global Opportunities Limited ("AGOL"), This source of permanent capital raised E 500 million upon listing on the Main Market of the London Stock Exchange on 12 December 2007. These funds are now invested across the Group's investment themes and multi strategy fund. AGOL provides the Group with a new point of access for an investor class to gain access to Ashmore's investment themes within a listed fund vehicle with a stated focus on the special situations investment theme, in line with which, AGOL has invested US$250 million into GSSF4. Additionally, during the year, a liquidity fund was launched offering a Standard & Poor's "AAAm" rated fund. This is able to manage the cash components of the underlying Ashmore funds, retained by the funds for liquidity purposes, with a view to enhancing the absolute return received on this cash and to attract external funds in due course. The level of funds at year end was US$2.2 billion drawn from across the investment themes and funds. Management fee margins and performance fees The year on year improvements in management fee margins detailed in each of the investment theme reviews above have resulted in the achievement of an overall average management fee margin of 103bp across the themes (2007: 93bp). This is in line with the Group's strategy of maintaining high and stable management fee margins. The Group's strategy is also to maintain a balance between funds able to earn performance fees and those that are management fees only. At the year end the Group was able to earn performance fees on 65% of AuM (2007: 64%). Within this a further proportion of the AuM did not earn performance fees in the year because either such fees are earned at the end of the multi year fund life; or are subject to rebate agreements. The overall performance fee income was £44.7 million for the year ended 30 June 2008 (2007: £20.4 million). Operating costs and operating margin The Group's cost structure, with a low proportion of tightly controlled recurring costs and a large proportion of variable performance related costs, is at the core of the Group's philosophy. The majority of the Group's costs are made up of personnel expenses. The Group continues to invest to support the future growth of the business through recruitment. Headcount increased by 35%, from 69 at 30 June 2007 to 93 at 30 June 2008, in line with which wages and salaries increased to £5.3 million (2007: £3.8 million). The Group's variable compensation represents the majority of the overall personnel expenses. This includes performance related bonuses, share based payments and associated social security costs and is calculated as a percentage of profit before tax, interest and variable compensation. In the year ended 30 June 2008 the percentage of variable compensation was 18.2% (2007: 18.4%). The Group continues to undertake infrastructure initiatives to support the development of the business. In line with this, and the headcount growth, the overall total for other expenses for the year ended 30 June 2008 was £11.1 million (2007: £5.5 million) which included a number of new and one off costs. Firstly £1.2 million of deferred acquisition costs related to the Group meeting the underwriting expenses of the AGOL launch were charged in the year. This will result in an annualised charge going forward of £2.1 million for seven years from December 2007. Secondly the Group completed the lease of a new London office, from January 2008 with an annualised increase in operating lease and other premises costs of £1.0 million, and a £0.3 million one off charge in relation to the office move. Finally the cost base included amounts of £1.2 million (2007: £0.1 million) in the subsidiary local asset management operations in India, Turkey and Brazil, together with additional professional fees associated with the establishment of these and other potential local asset management ventures. As a result, the operating profit margin for the year ended 30 June 2008 was 76% (2007: 76%). Taxation The vast majority of the Group's profit is subject to UK taxation and typically the Group has a limited number of non-tax deductible expenses. Consequently the Group's effective tax rate has historically tracked close to the 30% UK corporation tax rate. The introduction of a 28% UK corporation tax rate from 1 April 2008 has resulted in a small beneficial impact on the Group's effective corporation tax rate in the financial year to 30 June 2008 (overall blended corporation tax rate of 29.5%), with the full-year benefit coming through in the following financial year. There is a £13.8 million deferred tax asset on the Group's balance sheet at 30 June 2008. This is largely due to cash tax deductions which will arise over the next six or so years in respect of share price appreciation on share-based payments awards. In addition there is also a deferred tax liability on the Group's balance sheet of £3.8 million. This is in respect of the deferred acquisition costs associated with the launch of AGOL which will be charged over seven years to the Group's income statement. Balance sheet and cash flow The Group's strategy is to maintain a strong balance sheet in order to support regulatory capital requirements, to meet the commercial demands of current and prospective investors and to fulfil the development needs across the business. These needs include funding the establishment costs of local asset management ventures, seeding new funds and other strategic initiatives. In line with this strategy during the period, the Group invested £14.6 million in meeting the underwriting costs of the AGOL fundraising. In accordance with International Accounting Standards, these underwriting costs are recognised in the balance sheet as deferred acquisition costs which are charged to the income statement as the related revenue is recognised. Additionally, during April 2008, the Group invested BRL49.3 million (£15.1 million) of seed capital in the initial launch of an onshore Brazilian local currency fund, managed by the Brazilian asset management subsidiary. The Group continues to generate significant cash from operations which totalled £195.5 million in the year (year to 30 June 2007: £132.3 million). After the payments of the deferred acquisition costs and seed capital investment and, after taking account for taxation, property, plant and equipment purchases, dividend payments and interest received the overall cash has increased by £61.2 million during the year ended 30 June 2008 to £279.2 million (30 June 2007: £218.0 million). As at 30 June 2008, total equity attributable to shareholders of the parent was £271.8 million compared to £195.9 million at 30 June 2007. There is no debt on the Group's balance sheet. Foreign exchange and treasury management The Group's revenue is almost entirely denominated in US dollars, whilst the Group's cost base is largely Sterling based. Consequently, the Group has an exposure to movements in the US$/£ exchange rate. The results for the year ended 30 June 2008 were achieved against the backdrop of a weaker US$/£ exchange rate and this has impacted on the Group's reported profit. Reported profit before tax increased by £64.8 million, a 49% increase over the prior year. In constant exchange rate terms, profit before tax increased by £68.9 million, an increase of 54% in the year. This was after restating the prior year figures at the current year's average US$/£ exchange rate (2008: US$/£2.01; 2007: US$/£1.95). This resulted in the following restatements to the prior year numbers: lower net revenue in Sterling terms (£5.1 million), net hedging gains excluded (£2.7 million), and a notional reworking of the variable compensation cost to reflect the above items (a £1 million reduction). In the current year, net hedging gains of £3.2 million were excluded. On this basis, the net impact of the movement in the US$/£ exchange rate on the reported increase in profit before tax in the year of £64.8 million was £4.1 million. The Group's policy is to hedge its net foreign exchange exposure by using a combination of forward foreign exchange contracts and options for up to two years forward. The Group also sells US dollars at spot rates when opportunities arise. As at the date of this report, the Group has hedged 67% of its forecast US dollar based net management fee revenue for the remainder of this financial year at US$/£1.95. Based on the current year's net management fee revenue, at current exchange rates, a +/-10 cent exchange rate movement would have an £3.9 million/£4.3 million impact on net management fees. Dividend Recognising the continued strong progress and the Board's confidence in the Group's prospects, subject to shareholder approval, a final dividend of 8.34p per share is proposed to be paid on 5 December 2008 (2007: 6.7p) to shareholders on the register on 7 November 2008. An interim dividend for the six-month period to 31 December 2007 of 3.66p (2007:2.3p) was paid on 25 April 2008. This would result in a full-year dividend of 12.0p (2007: 9.0p). The Company's intention is for its dividend policy to be progressive. Ashmore Group plc Consolidated income statement Year ended 30 June 2008 2008 2007 Notes £m £m Management fees 186.7 130.2 Performance fees 44.7 20.4 Other revenue 13.3 13.0 Total revenue 244.7 163.6 Less: Distribution costs (4.7) (3.8) Net revenue 240.0 159.8 Personnel expenses 2 (47.7) (32.6) Other expenses 3 (11.1) (5.5) Operating profit 181.2 121.7 Interest income 15.0 9.7 Profit before tax 196.2 131.4 Tax expense (55.2) (39.9) Profit for the year 141.0 91.5 Attributable to: Equity holders of the parent 140.8 91.4 Minority interest 0.2 0.1 Profit for the year 141.0 91.5 Earnings per share: Basic 4 21.0p 13.7p Diluted 4 19.9p 12.9p Ashmore Group plc Consolidated balance sheet As at30 June2008 As at30 June2007 Notes £m £m Assets Property, plant and equipment 3.3 0.2 Intangible assets 4.1 4.1 Deferred acquisition costs 7 13.4 - Other receivables - 0.1 Deferred tax assets 13.8 14.4 Total non-current assets 34.6 18.8 Trade and other receivables 34.7 27.2 Derivative financial instruments 1.2 0.5 Cash and cash equivalents 279.2 218.0 Total current assets 315.1 245.7 Non-current assets held for sale 6 16.4 - Total assets 366.1 264.5 Equity Issued capital - - Share premium 0.3 0.3 Retained earnings 271.5 195.6 Total equity attributable to equity holders of the parent 271.8 195.9 Minority interest 1.5 0.1 Total equity 273.3 196.0 Liabilities Deferred tax liabilities 3.8 - Total non-current liabilities 3.8 - Current tax 24.5 15.7 Derivative financial instruments 0.7 - Trade and other payables 63.7 52.8 Total current liabilities 88.9 68.5 Non-current liabilities held for sale 6 0.1 - Total liabilities 92.8 68.5 Total equity and liabilities 366.1 264.5 Ashmore Group plc Consolidated statement of changes in equity Issued capital Share premium Retained earnings Total equity attributable to equity holders of the parent Minority interest Total equity £m £m £m £m £m £m Balance at 1 July 2006 - 0.3 96.3 96.6 - 96.6 Profit for the year - - 91.4 91.4 0.1 91.5 Share based payments - - 6.5 6.5 - 6.5 Current tax related to share based payments - - 4.2 4.2 - 4.2 Deferred tax related to share based payments - - 11.6 11.6 - 11.6 Sale of own shares held - - 1.1 1.1 - 1.1 Dividends - - (15.5) (15.5) - (15.5) Balance at 30 June 2007 - 0.3 195.6 195.9 0.1 196.0 Profit for the year - - 140.8 140.8 0.2 141.0 Issue of share capital - - - - 1.2 1.2 Share based payments - - 8.8 8.8 - 8.8 Current tax related to share based payments - - (1.3) (1.3) - (1.3) Deferred tax related to share based payments - - (2.7) (2.7) - (2.7) Net gains on available-for-sale financial assets - - 0.4 0.4 - 0.4 Dividends - - (70.1) (70.1) - (70.1) Balance at 30 June 2008 - 0.3 271.5 271.8 1.5 273.3 Ashmore Group plc Consolidated cash flow statement Year ended 30 June 2008 2008 2007 Notes £m £m Operating activities Cash receipts from customers 242.8 164.6 Cash paid to suppliers and employees (47.3) (32.3) Cash generated from operations 195.5 132.3 Taxes paid (46.5) (39.2) Net cash from operating activities 149.0 93.1 Investing activities Interest received 15.4 9.5 Purchase of non-current assets held for sale (15.1) - Purchase of deferred acquisition costs 7 (14.6) - Purchase of property, plant and equipment (3.5) (0.1) Net cash from investing activities (17.8) 9.4 Financing activities Dividends paid 5 (70.1) (15.5) Net cash used in financing activities (70.1) (15.5) Effect of exchange rate changes on cash and cash equivalents 0.1 (1.7) Net increase in cash and cash equivalents 61.2 85.3 Cash and cash equivalents at beginning of year 218.0 132.7 Cash and cash equivalents at end of year 279.2 218.0 Cash and cash equivalents comprise: Cash at bank and in hand as shown in balance sheet 279.2 218.0 279.2 218.0 Notes to the Group financial statements 1) Basis of preparation and significant accounting policies In preparing the financial information in this statement the Group has applied policies which are in accordance with IFRSs as adopted by the European Union at 30 June 2008. The accounting policies applied in these financial statements are consistent with those applied in theGroup's annual report and accounts for the year ended 30 June 2007. The annual report and accounts is available on the Group's website. In addition to the accounting policies applied in the Group's annual report for the year ended 30 June 2007, the following accounting policies were adopted: Deferred acquisition costs Costs that are directly attributable to securing an investment management contract are deferred if they can be identified separately and measured reliably and it is probable that they will be recovered. Deferred acquisition costs represent the contractual right to benefit from providing investment management services and is amortised as the related revenue is recognised. Financial assets For available-for-sale financial assets, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is impaired, at which time the cumulative gain or loss previously recognised in equity is taken to the income statement for the accounting period. Non-current assets held for sale Non-current assets (and disposal groups) acquired exclusively with a view to subsequent disposal through sale or dilution are classified as held for sale and measured at the lower of their carrying amount and fair value less costs to sell. Where measurement and re-measurement is outside the scope of IFRS 5, the relevant policy is set out within financial instruments. 2) Personnel expenses Analysis of employee benefits expense Year ended30 June2008 Year ended30 June2007 £m £m Wages and salaries 5.3 3.8 Performance related bonuses 23.5 18.0 Share based payments 10.0 5.7 Social security costs 7.3 4.2 Pension costs 0.3 0.2 Other costs 1.3 0.7 Total employee benefits 47.7 32.6 3) Other expenses Other expenses Year ended30 June2008 Year ended30 June2007 £m £m Travel 2.5 1.7 Professional fees 2.2 0.6 Information technology and communications 1.4 1.0 Operating leases 1.0 0.4 Premises related costs 0.6 0.3 Insurance 0.5 0.3 Auditors' remuneration 0.7 0.2 Depreciation of property, plant and equipment 0.3 0.1 Deferred acquisition costs charges 1.2 - Other expenses 0.7 0.9 Total other expenses 11.1 5.5 4) Earnings per share Basic earnings per share is calculated by dividing the profit for the financial year attributable to equity holders of the parent of £140.8m (2007: £91.4m) by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is calculated as for basic earnings per share with a further adjustment to the weighted average number of ordinary shares to reflect the effects of all dilutive potential ordinary shares. There is no difference between the profit for the year attributable to equity holders of the parent used in the basic and diluted earnings per share calculations. Reconciliation of the figures used in calculating basic and diluted earnings per share: Year ended30 June2008 Year ended30 June2007 Weighted average number of ordinary shares used in calculation 669,671,683 667,467,808 of basic earnings per share Effect of dilutive potential ordinary shares - share options 38,322,426 38,827,815 Weighted average number of ordinary shares used in calculation 707,994,109 706,295,623 of diluted earnings per share 5) Dividends An analysis of dividends is as follows: Group and Company Year ended30 June2008 Year ended30 June2007 Interim dividend £24.9m £15.5m Dividend per share 3.66p 2.30p Final dividend £57.0m £45.2m Dividend per share 8.34p 6.70p Dividends are recognised in the accounts in the year in which they are paid, or in the case of a final dividend when approved by the shareholders. On 16 September 2008 the Board proposed a final dividend of 8.34p per share for the year ended 30 June 2008. This has not been recognised as a liability of the Group at the year end as it has not yet been approved by shareholders. Based on the number of shares in issue at the year end which qualify to receive a dividend, the total amount payable would be £57.0m (2007:£45.2m). 6) Non-current assets and non-current liabilities held for sale From time to time, Group companies inject capital into funds operated by the Group (seed capital). Where the Group holds more than 50 percent of the fund in which it is investing and where voting rights are attached to the holding, the Group technically controls the fund and it becomes a subsidiary of the Group. Where the Group is actively seeking to reduce its holding, the fund is classified as being held for sale as it is considered highly probable that the fund will not remain under the control of the Group one year after the original investment is made. If the Group still retains control of the fund after this time, the fund ceases to be classified as held for sale and is consolidated line by line. 2008 2007 £m £m Non-current assets held for sale 16.4 - Non-current liabilities held for sale (0.1) - Seed capital classified as being held for sale 16.3 - In the year to 30 June 2008, an investment in a Brazilian onshore local currency fund was classified as non-current assets held for sale. 7) Deferred acquisition costs 2008 2007 £m £m Cost 14.6 - Accumulated charge (1.2) - 13.4 During the year ended 30 June 2008 deferred acquisition costs of £14.6m were incurred. These were directly attributable to securing the investment management contract for a permanent capital vehicle Ashmore Global Opportunities Limited, a newly incorporated investment company, which was listed on the London Stock Exchange. £1.2m was charged during the year and recognised in other expenses. 8) Own shares The Ashmore 2004 Employee Benefit Trust (EBT) was established to encourage and facilitate the acquisition and holding of shares in the Company by the employees of the Company with a view to facilitating the recruitment and motivation of the employees of the Company. As at the period end, the EBT owned 34,012,500 (2007: 38,725,000) ordinary shares of 0.01p with a nominal value of £3,401.25 (2007: £3,872.50) and shareholders' funds are reduced by £5.4m (2007: £5.9m) in this respect. It is the intention to make these shares available to employees by way of sale through the share option scheme. 9) Exchange rates The only foreign exchange rate which has a material impact on the reporting of the Group's results is the US dollar. Closing rateas at30 June2008 Closing rateas at30 June2007 Average rateyear ended30 June2008 Average rateyear ended30 June2007 US dollar 1.9923 2.0088 2.0119 1.9466 This information is provided by RNS The company news service from the London Stock Exchange END FR ILFIVAFIELIT