. RNS Number : 0444Z Ashmore Group PLC 15 September 2009 Ashmore Group plc 15 September 2009 PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2009 Ashmore Group plc, one of the world's leading emerging market investment managers, today announces its audited results for the year ended 30 June 2009. Financial highlights * Profit before tax of £159.8 million, a decrease of 19% from FY2008 (£196.2 million) * Total net revenue of £203.5million, a decrease of 15% from FY2008 (£240.0million) - Net management fees up by 1% to £183.2 million - Performance fees of £52.5 million (FY2008: £44.7 million) - Foreign exchange hedging cost of £42.4 million, of which £4.1 million relates to future periods * Operating margin of 74.5% (FY2008: 76.0%) * Final AuM of US$24.9 billion down US$12.6bn (34%) from US$37.5 billion at 30 June 2008 (31 December 2008: US$24.6 billion). * Basic earnings per share of 17.1p (FY 2008: 21.0p) * 8.34p final dividend, making a full year dividend of 12.0p Mark Coombs, Chief Executive Officer, Ashmore Group said: "This year's results were broadly satisfactory within the context of the extraordinary global market conditions. After a period of net outflows, AuM increased in the final quarter to close at a level of US$24.9 billion. July and August have seen net inflows, following the trend established in May and June. "The reshaping of the emerging markets role within the global order has received a significant boost in the last year. As emerging markets make up a greater proportion of the world's markets, the long term trend of an increasing allocation from investors towards them continues to be very positive for Ashmore. "There are many initiatives that are being worked upon across the firm which we anticipate will bring significant value over the coming years." Analysts/investors briefing There will be a presentation for analysts at 09.00 on 15 September at the offices of Goldman Sachs at Peterborough Court, 133 Fleet Street, London EC4A 2BB. A copy of the presentation will be made available on the Group's website at Contacts For further information please contact: Ashmore Group plc Penrose Financial Graeme Dell Gay Collins Clare Milton Group Finance Director +44 20 7786 4888 / +44 20 7786 4874 +44 20 3077 6000 +44 7798 626 282 Chairman's Statement The year to 30 June 2009 was one of unprecedented turbulence in the global economy which resulted in an extreme reduction in the levels of leverage deployed across the world and a significant reduction of liquidity and increased volatility throughout world markets. As the year ended, there were some signs of a recovery in markets with a more stable set of conditions prevailing. Against this background, Ashmore Group ("Ashmore" or, the "Group") has had a broadly satisfactory year with profit before tax of £159.8 million (year ended 30 June 2008: £196.2 million). Over the last year the Group has concentrated on its core capabilities of product innovation, asset raising / retention, good investment performance and excellent client service. At the same time, it has continued to strengthen the business through the recruitment of additional talented individuals within the central and local asset management businesses and through the introduction of enhanced core systems and operating processes. The Chief Executive Officer's Statement and the Business Review provide further detail on these activities. In recognition of the financial performance and our confidence in the Group's future prospects, the directors are recommending a final dividend of 8.34p for the year ended 30 June 2009 which, subject to shareholder approval, will be paid on 4 December 2009 to all shareholders who are on the register on 6 November 2009. This makes a total dividend of 12.0p for the year (2008:12.0p). During the year ended 30 June 2009, the following Board changes occurred. In September 2008, Jonathan Asquith joined the Group, having been Vice Chairman and Chief Financial Officer at Schroders plc. Initially he was an independent non-executive director and member of the audit committee. Subsequently he has become chairman of the remuneration committee. Jonathan's extensive industry experience and knowledge have added additional strength to the Board and its committee structure. At the Group's AGM in October, Jon Moulton retired, having been a non-executive director since the Group was established in 1999. I should like to thank Jon for the very considerable contributions he made over those 10 years. In June, the Group announced the appointment to the Board of Melda Donnelly, former Chief Executive Officer of Queensland Investment Corporation and current Deputy Chairperson of the Victoria Funds Management Corporation. Melda has extensive experience of the international pension industry and of institutional shareholder best practice. I would like to welcome Melda to the Board, and she has also become a member of the audit committee from which I have stepped down. The team at Ashmore is committed to implementing successfully its strategy of developing a global specialist emerging markets business, with assets of all classes managed both centrally and through developing a number of local asset management operations in the key emerging markets. I would like to thank all the members of the Group for the efforts they continue to make towards achieving our goals. The opportunities and challenges that will be presented in the future will be significant as the global economic prospects become ever more influenced by the emerging markets, where the Group has a track record of success, built over many years. Michael Benson Chairman Chief Executive Officer's Statement The Group's overall financial performance achieved in the year ended 30 June 2009 was broadly satisfactory within the context of the extraordinary global market conditions. In the first half, as a result of significant reductions in asset valuations and sharply increased outflows, assets under management (AuM) were reduced by a third and after a further small fall in the third quarter the final quarter saw an increase to close at a level of US$24.9 billion. The opportunity presented now for Ashmore is greater than ever as world events over the last year have both emphasised and accelerated the increase in the significance of the emerging markets within the global economy. We continue to see opportunities going forward across the asset classes we operate in, and during the last year have further invested in our operating platform to enable us to take full advantage of these opportunities. Assets under Management and Financial Performance The opening AuM at 30 June 2008 stood at US$37.5 billion. Overall during the year, net redemptions of US$7.5 billion (H1 US$5.8 billion, H2 US$1.7 billion) and negative investment performance of US$5.1 billion (H1 negative US$7.1 billion, H2 positive US$2.0 billion) have resulted in final AuM of US$24.9 billion. Whilst all investment themes have seen net redemptions across the year, these slowed significantly in the second half, which also saw a turnaround in markets and investment performance. The pace of recovery varied by theme, with external debt recovering fastest to record a 9% increase in AuM in H2, while local currency still had net redemptions that outweighed its positive performance during that period. Special situations lagged the listed equity markets, as is usual when emerging from stress events, and as we waited for corporate and capital market activity - the principal driver of revaluations - to pick up. AuM in the theme remained broadly flat in the second half of the year. Lately there have been some positive signs pointing to the re-establishment of the global IPO market after an almost complete absence of such activity in the last year. The Group achieved net revenue for the year of £203.5 million (2008: £240.0 million) a reduction of 15%. Management fees (net of distribution costs) in Sterling terms rose marginally to £183.2 million (2008: £182.0 million), reflecting the fact that the reduction in average levels of AuM were offset by the strengthening of the US Dollar and the increase in management fee margin. Total performance fees for the year were £52.5 million (2008: £44.7 million) an increase of 17%, including the maturity of the first Global Special Situations Fund in July 2008, and the August 2008 annual performance fees. Other income was £6.4 million (2008: £10.1 million), the reduction occurring as a result of reduced transaction activity levels. Foreign exchange losses for the full year were £38.6 million, comprising £38.3 million realised hedging costs related to hedging the US$ denominated management fee income for the period, £4.1 million unrealised hedging loss related to the hedging of management fees for future periods, and a £3.8 million gain from foreign exchange movements on the Group's non Sterling denominated net assets. After costs of £52.9 million (2008: £58.8 million) and interest income of £9.2 million (2008: £15.0 million) profit before tax was £159.8 million, a decrease of 19% from the previous year. Basic earnings per share for the year were 17.1p (2008: 21.0p). The Impact of the Credit Crisis The events of the global credit crisis have been extensively documented over the last year. There is little merit in recounting them again, rather in looking instead at the impact felt in the emerging markets and at our resultant opportunity set. It is clear that the crisis did not originate in the emerging markets but, in a global crisis as severe as that experienced over the last year, no market or sector could be immune from impact. Ashmore's experienced fund management team have managed funds through significant crises before, perhaps most notably in 1994 and 1998. On this occasion the global scale of the crisis was greater but the emerging market impacts have been very different. Unlike the earlier crises the emerging markets are now net creditors in global terms and as a result there has been relatively little increase in the default risk in Latin America and Asia and lower levels of contagion. The impact in those regions has principally been one of collateral damage from either reducing cross border flows or a reduction in export levels. In Eastern Europe there has been a more direct impact, in part due to the greater direct investment from a concentration of EU countries and institutions and also to the greater extent to which leverage had been employed compared to other emerging market regions. Following these events, the resultant position is an opportunity in three ways. Firstly, in a macro sense we believe that it has accelerated the shift of economic weight to, and the bargaining positions of, the emerging markets. The G20 London summit saw emerging markets deliverables dominating and indicates that the international community recognises that emerging markets will define globalisation in the future. Secondly, based upon Ashmore's experience in managing across cycles through a number of past crises we believe the business is well positioned for strong investment returns in the future. The investment process employed managing a portfolio during periods of market stress is one where the liquidity of a portfolio is retained through the purchase of highly liquid instruments, whilst adding high embedded value lower liquidity instruments such as special situations and corporate high yield to provide significant alpha over the cycle. This active management approach is not based on market indices and accepts short term mark-to-market declines, often arising simply as a result of wider bid-offer spreads in distressed markets, to secure long term gains through the acquisition of attractive assets which will appreciate over the medium to long term. We have, as expected, begun to see the start of such outperformance, and look to realise further upside. Thirdly, we are confident Ashmore remains well positioned to raise more AuM in the future through the second and third phases of the Group's Strategic development - the further diversification of developed world capital sources and themes and the mobilisation of growing emerging market capital pools. Developed world capital sources have undoubtedly been the most affected by the events of the last 18 months with an extreme reduction in leverage available resulting in an overriding reduction in the scale of funds deployed. However, we are beginning to receive subscriptions from these pools again, as investors work out where their capital should best be allocated. At the same time, levels of redemptions, which were predominantly liquidity driven rather than asset allocation based, have reduced dramatically from the levels we received during the middle of the year ended 30 June 2009. Capital allocators within those largest emerging world sources of capital - central banks, governments/reserve managers and sovereign wealth funds - are also seriously assessing greater reserve allocations to the emerging markets and so diluting the historic dominance of the US dollar in this role. Therefore looking forward, the opportunity for greater emerging market significance, strong investment returns and AuM growth see Ashmore very well positioned. Operational Delivery At the core of Ashmore lies our central investment committee whose established investment processes focus on the maintenance of long term outperformance. Periods of high market stress drive increased volumes of inputs to those processes, including correspondingly greater analysis to enable the best investment decisions to be implemented. The investment professionals in all themes have been tested extensively this year in successfully implementing active investment management decisions. Some of the public funds with broad mandates not tied to benchmarks saw short term underperformance for part of the year as we added illiquid assets and subsequently as the special situations valuations lagged more liquid investments in the recovery phase. Our long term institutional investor base has a good understanding of our approach but nevertheless a feature of last year was a significant increase in the time spent by our marketing and client relationship teams in reinforcing and enhancing this understanding. In the area of new product launches, the period has naturally seen somewhat reduced levels achieved compared with recent periods. The second half saw the fifth global special situations fund launched with AuM of US$0.1 billion and in May we launched the Global Consolidation & Recovery Fund giving financial institutions a way of addressing some or all of their distressed or other emerging market balance sheet exposures. In addition to these public fund launches, the period saw two new segregated mandates funded in external debt and corporate high yield. At the same time we have been working hard on future initiatives to provide our clients with further diversification into those asset classes where we see significant opportunity in the next one to three years. It has been another very busy year in the area of infrastructure projects with the implementation of a new portfolio management system which, in conjunction with the fund accounting system implemented last year, provides the backbone upon which to execute our long term fund management strategy. In addition, we have deployed new core systems in the human resources and company secretarial areas and implemented a new general ledger system. In all cases, these provide us with further robust scalable applications that can be used across the Group. The Group's local asset management subsidiaries now operate in Brazil, Turkey and India. At the beginning of January we launched equity funds managed in our Sao Paulo office mirroring the onshore and offshore fund structures established there last year with the local currency funds. All these funds have begun to see some subscriptions following the establishment of good opening track records. In Turkey, having established the local asset management business in Istanbul following regulatory approval in August last year, we launched three Ashmore mutual funds in May this year. In India, the period has been a busy one for both the locally based special situations team, and our mid market private equity venture. Following the acquisition of a majority interest in Dolomite Capital, a New York based emerging market fund of third party funds manager and independent advisor, in November we completed the acquisition of the balance before the year ended to enable us to consolidate the team with our existing staff and grow our overall Ashmore marketing and distribution presence in the United States. People & Culture Ashmore has been successful over the long term because we have combined a successful operating model with good people and a robust culture. At the heart of the culture we believe are two overriding principles - alignment with our clients and alignment with our shareholders. The performance of the team at Ashmore over the year to 30 June 2009 has been one of immense effort and significant achievement in many areas. Nonetheless, as in past years, the financial rewards for the team have been reduced, mirroring the negative absolute returns delivered by a number of the Group's funds, and by Ashmore's shares. This demonstrates the long term nature of our commitment to make returns for both our investors and our shareholders. Our culture doesn't change. The organisation has grown as we have recruited a significant number of people into the Ashmore team during the last two years. The experiences we have shared in the delivery of investment performance, client management, support and infrastructure development over the last year have been stretching, but nevertheless highly enjoyable and rewarding. I would like to thank everyone for the part they have played over the period in providing Ashmore with the platform to seize the significant opportunities going forward and I look forward to us all getting on and seizing them. Performance Fees Unaudited annual performance fees for the funds with performance years ended 31 August 2009 (including EMLIP and LCD) were £5.1 million (August 2008: £31.0 million) which will be recognised in the financial year ended 30 June 2010. Outlook Statement The outlook can be assessed from two standpoints, the internal perspective of the firm and the external perspective of the markets in which we operate. Our outlook based on the first of these is as positive as at any time I can remember as the number of new opportunities, projects and initiatives that are being worked upon across the firm is extensive. New funds, new themes, potential clients and strategic initiatives are underway which we hope will bring significant value over the coming years. July and August have seen net inflows and positive investment performance, following the trend established in May and June. As far as the prospects for emerging market investment are concerned we believe the reshaping of the emerging markets' role within the global order has received a significant boost in the last year. We are also optimistic that we are seeing investors begin to allocate capital again and our challenge remains, as always, to persuade them of the compelling investment opportunities presented in the emerging markets. The long term trend of an increasing allocation from investors towards emerging markets, as these markets make up an ever greater proportion of world markets, whether measured by market capitalisation in debt or equity, or through alternatives like GDP or growth potential, continues to be very positive for Ashmore. The largest source of capital to manage over the long term remains the capital from within the emerging markets themselves, and we are increasingly focused on this, and on the resources required to access it. Mark Coombs Chief Executive Officer Business Review Key Performance Indicators Year ended Year ended 30 June 2009 30 June2008 Year end AuM US$ 24.9 bn US$37.5 bn Average AuM US$ 27.7 bn US$35.3 bn Average net management fee margins (bps) 107bps 103bps Operating profit margin 74.5% 76.0% Variable compensation ("VC")/ EBVCIT 14.0% 18.2% Year end headcount 142 93 Assets under Management and Fund Flows Global market conditions during the first half were extremely challenging, particularly with the aggressive falls in global markets in the aftermath of Lehman's failure on 15 September 2008. The significant fall in valuations, coupled with the redemption of assets by clients for liquidity reasons, impacted the Group's assets under management. Inflows fell away, as those clients with liquidity held off from making EM allocations in turbulent markets. Despite some signs of stabilisation late on, all relevant indices were down on the opening 1 July position by 31 December 2008, some significantly. As a result, the significant majority of the decline in AuM during the financial year occurred between September and December 2008, with a decline from US$37.5 billion at 30 June 2008 to US$24.6 billion by 31 December 2008, through a combination of net redemptions (US$5.8 billion) and adverse performance (US$7.1 billion). The second half of the financial year opened with further market falls, which again undermined investor confidence and erased some gains made in December. Outflows continued on from the first half, at a much reduced rate, and these were concentrated in the local currency funds. At the end of the third quarter AuM had fallen a further US$1.1 billion to US$23.5 billion. Since then, AuM has stabilised, reflecting the improvement in market conditions. AuM rose by US$1.4 billion in the fourth quarter to close at US$24.9 billion on 30 June 2009, US$1.9 billion being attributable to performance and US$0.5 billion to net outflows, all of which arose in April 2009. The quarter ended with outflows having stabilised, and modest inflows. This resulted in an aggregate uplift in AuM during the second half of US$0.3 billion, being attributable to favourable performance of US$2.0 billion, and net outflows of US$1.7 billion. Year ended 30 June 2009 Year ended 30 June 2009 Year ended 30 June 2008 Year ended 30 June 2008 Opening AuM (US$bn) 37.5 31.6 Gross subscriptions (US$bn) 3.8 11.0 Gross redemptions (US$bn) (11.3) (8.0) Net subscriptions (US$bn) (7.5) 3.0 Performance (US$bn) (5.1) 2.9 Closing AuM (US$bn) 24.9 37.5 Movements in assets under management by investment theme are shown in the tables below:- Year ended 30 June 2008 AuM Opening Gross subscriptions Gross redemptions Net (redemptions)/ Performance Closing AuM (US$bn) (US$bn) (US$bn) subscriptions (US$bn) (US$bn) (US$bn) External debt 21.2 4.8 (4.8) 0.0 1.5 22.7 Local currency 5.0 4.2 (1.6) 2.6 0.9 8.5 Special situations 3.4 1.8 (0.2) 1.6 0.5 5.5 Equity 2.0 0.2 (1.4) (1.2) 0.0 0.8 Total 31.6 11.0 (8.0) 3.0 2.9 37.5 Year ended 30 June 2009 AuM Opening Gross subscriptions Gross redemptions Net (redemptions)/ Performance Closing AuM (US$bn) (US$bn) (US$bn) subscriptions (US$bn) (US$bn) (US$bn) External debt 22.7 1.7 (6.0) (4.3) (2.4) 16.0 Local currency 8.5 1.5 (4.2) (2.7) (1.3) 4.5 Special situations 5.5 0.5 (0.6) (0.1) (1.1) 4.3 Equity 0.8 0.1 (0.5) (0.4) (0.3) 0.1 Total 37.5 3.8 (11.3) (7.5) (5.1) 24.9 New funds The year saw levels of new funds launched reduced from earlier years in terms of both numbers of funds and levels of AuM raised. In the public funds category, 4 funds were launched: the Global Special Situations Fund 5 (US$0.1 billion); the Global Consolidated & Recovery Fund (US$0.1 billion); and 2 Brazilian equity funds (1 onshore, and an offshore equivalent) managed by our Brazilian local asset management subsidiary. Additionally, 3 dual-branded Turkish mutual funds were launched - specialising in Turkish equities, debt, and liquidity respectively, managed by our Turkish local asset management subsidiary; and 2 new segregated mandates won in the period - within the external debt and corporate high yield themes. The Group also laid the foundations in respect of a number of other initiatives, which we expect to be a success in FY09/10, markets permitting. The number of funds and levels of AuM can be analysed according to type of fund or mandate as outlined below. Number of accounts Percentage of AuM 30 June 2009 30 June 2008 30 June 2009 30 June 2008 Ashmore sponsored 32 24 54% 59% Segregated 14 16 36% 31% Structured product 3 3 2% 4% White label/ dual branded 10 7 8% 9% Total 59 50 100% 100% Further analysis of AuM Since becoming listed, AuM has been reported on a quarterly basis for each of the core investment themes by external debt, local currency, special situations, and equity. Corporate high yield, the most recently launched strategy, is included within external debt, from where the majority of funds invested in it were drawn. This has meant that multi-strategy funds, where we make the asset allocation decision dynamically between the themes, have been included in the themes rather than as an AuM category in their own right. The information has been presented in this format in the table below for the financial year to 30 June 2009. AuM movements by investment theme as managed:- AuM at 30 June 08 Net subs/ (reds) Net performance AuM at Net subs/ (reds) Net performance AuM at Avg mgt fee margin (US$bn) (US$bn) (US$bn) 31 Dec 08 (US$bn) (US$bn) 30 June 09 bps (US$bn) (US$bn) External debt 22.7 (3.9) (4.1) 14.7 (0.4) 1.7 16.0 85 Local currency 8.5 (1.2) (1.9) 5.4 (1.5) 0.6 4.5 111 Special situations 5.5 (0.3) (0.8) 4.4 0.2 (0.3) 4.3 195 Equity 0.8 (0.4) (0.3) 0.1 - - 0.1 128 Total 37.5 (5.8) (7.1) 24.6 (1.7) 2.0 24.9 107 However, as the business has developed, to provide visibility of those multi-strategy funds in the manner most relevant to their financial impact on the Group's performance, and to provide an additional explicit "other" category for new initiatives as they are launched, we intend in future to provide AuM analysis by the principal component of the theme by which we are mandated. Accordingly, the table below sets out the AuM movement on this basis. AuM movements by investment theme as classified by mandate:- AuM at 30 June 08 Net subs/ (reds) Net performance AuM at Net subs/ (reds) Net performance AuM at Avg mgt (US$bn) (US$bn) 31 Dec 08 (US$bn) 30 June 09 fee margin (US$bn) (US$bn) (US$bn) (US$bn) bps External debt 20.9 (3.9) (3.6) 13.4 (0.6) 1.9 14.7 79 Local currency 7.2 (0.5) (1.7) 5.0 (1.2) 0.4 4.2 106 Special situations 4.6 (0.4) (0.7) 3.5 0.1 (0.3) 3.3 196 Equity 0.5 (0.1) (0.3) 0.1 0.0 0.0 0.1 124 Corporate high yield 0.5 0.0 (0.1) 0.4 0.1 0.0 0.5 183 Multi-strategy 3.8 (0.9) (0.7) 2.2 (0.2) 0.0 2.0 135 Other 0.0 0.0 0.0 0.0 0.1 0.0 0.1 N/M Total 37.5 (5.8) (7.1) 24.6 (1.7) 2.0 24.9 107 The change in AuM reporting does not invalidate the basis of reporting AuM by the theme that assets are ultimately invested in. Such analysis will demonstrate the impact of the allocation of the multi-strategy funds and of cross-over investing. Cross-over investment refers to the process whereby funds in one investment theme, principally external debt, are permitted to invest a proportion of their value into individual assets from other Ashmore themes. AuM as mandated at 30 June 2009 US$bn 30 June 2009 % of AuM AuM as invested in underlying asset class at 30 June 30 June 2009 % of AuM 2009 US$bn External debt 14.7 58 13.0 52 Local currency 4.2 17 4.4 18 Special situations 3.3 13 6.0 24 Equity 0.1 1 0.2 1 Corporate high yield 0.5 2 1.3 5 Multi-strategy 2.0 8 - - Other 0.1 1 - - Total 24.9 100 24.9 100 Investor profile - type and geography The Group has a broad range of investors in the funds it manages, predominantly institutional in type (30 June 2009: 91%; 30 June 2008: 88%), which includes banks, insurers, pension providers, corporates, and government agencies. The balance comprises 9% high net worth individuals (30 June 2008: 12%). Ashmore does not currently access the Retail market directly, though some institutional business, particularly via banks, is intermediated business of this nature. Within the institutional investor profile, the most significant shift during the period has been the increase in corporate pension plans (from 16% to 22%) and government investments (from 15% to 21%) as a percentage relative to 2008. The investor proportion attributable to banks has, by contrast fallen (from 16% to 10%), which is to be expected given the liquidity concerns many banks experienced during the financial year Management fee margins and performance fees As the Group's AuM is predominantly US dollar-based, the majority of management and performance fees are also US dollar denominated. The table below therefore sets out AuM, net management fees, net management fee margins, and performance fees, by theme in US$ - as the best means of analysing the underlying trend of management fees, performance fees and margins. For the purposes of the income statement, these fees are converted into Sterling during the year at the appropriate exchange rate. For management fees the effective average exchange rate during the period is GBP1:1.62USD. This is weighted by reference to the timing and extent of management fees as they arose, and compares to a GBP1:1.60 average monthly rate for the financial year (un-weighted). The effective average exchange rate during the period for performance fees was GBP1:1.84USD, reflecting the crystallisation of the majority of these fees in the first quarter of the year (30 June 2009 - GBP1:1.60USD; 30 June 2008 - GBP1:1.99USD). Underlying US dollar management and performance fees AuM AuM Net management fees to Proportion of net management fees Performance fees to Proportion of performance fees at at 30 June 2009 (%) 30 June 2009 (%) 30 June 2008 30 June 2009 (US$m) (US$m) (US$bn) (US$bn) External 20.9 14.7 120.9 40.7 31.9 33.0 debt Local 7.2 4.2 58.4 19.7 28.7 29.7 currency Special 4.6 3.3 72.0 24.2 32.3 33.5 situations Equity 0.5 0.1 2.2 0.7 0.1 0.1 Corporate high yield 0.5 0.5 7.9 2.7 0.1 0.1 Multi-strategy 3.8 2.0 35.1 11.8 3.4 3.6 Other 0.0 0.1 0.6 0.2 0.0 0.0 Total (US$) 37.5 24.9 297.1 100% 96.5 100% Total (GBP) 18.8 15.1 183.2 100% 52.5 100% Management fee margins The Group's policy of maintaining high and stable management fee margins has been continued during the period, despite the volatility in markets and tough operating environment for asset managers. Across the first half average net management fee margins actually increased relative to FY07/08, as a function of the AuM mix, with the timing of outflows at different margins having an impact, because of the size of mandate or asset class invested in. However, this re-balanced during the second half, such that although the average revenue margin for FY08/09 remained 4 bps higher than the 103bps experienced during FY07/08, average net management fee margins for the final quarter returned to the FY07/08 levels. Performance fees It is the Group's policy to maintain a good balance between those funds where the Group is eligible to earn performance fees and those that generate revenues for the Group solely through management fees. At the year end the Group was eligible to earn performance fees on 67% of AuM (2008: 65%), and 61% of funds (2008: 60%). Within those funds that are eligible to generate performance fees, 14% were ineligible in the year under review, either because such fees are earned at the end of the multi-year fund life or; are subject to rebate agreements. Total performance fee income for the year ended 30 June 2009 was £52.5 million (2008: £44.7 million). Operating costs and operating margin The Group maintains a tightly controlled cost structure, but has invested significantly in infrastructure in recent periods to provide a platform for growth without the need for further comparable support cost expansion. Rather, the focus in the coming periods will be on extending our distribution reach, and on enhancing the Group's investment capabilities where suitable opportunities arise. Retaining a low proportion of fixed personnel expenses relative to variable performance related personnel costs remains core to this philosophy, ensuring employees are strongly aligned with fund investors and shareholders. Salaries represent the Group's biggest category of fixed cost, so a strict base salary cap is enforced. For the year to 30 June 2009 fixed personnel costs increased by £4.1 million to £11.5 million (FY07/08: £7.4 million) of total personnel cost of £36.0 million (FY07/08: £47.7. million). Variable compensation includes performance related bonuses, share based payments and associated social security costs. For FY08/09 this fell to £24.5 million, 14.0% as a percentage of earnings before variable compensation, interest, and tax 'EBVCIT' (FY07/08: £40.3 million, 18.2%), reflecting the reduced performance of the business and market conditions. As we highlighted at the time of the interims, the Group executed a planned More to follow, for following part double-click [nRn2O0444Z]