JANUS HENDERSON GROUP PLC - Annual Report 2012

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Annual Report 2012

Knowledge Shared

Performance highlights

£146.5m

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159.2
146.5
100.7
2010 2011 2012
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Investment performance

73%

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73
70 69
66
62
59
1 year 3 years
2010 2011 2012
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Assets under management

£65.6bn

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64.3 65.6
61.6
2010 2011 2012
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Net cash

£17.9m

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17.9
(20.8)
(28.0)
2010 2011 2012
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Dividend per share

7.15p

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7.0 7.15
6.5
2010 2011 2012
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Contents

Welcome to Henderson

In this busy and complex world, our investment teams, through their wealth of investment insight, provide simple investment solutions to our clients.

We know our investment decisions impact our clients directly – it is their money after all. For this reason, we believe it is important to establish a partnership with our clients based on trust. So, we share our insights and knowledge with our clients.

Knowledge. Shared.

This report and additional information about the Group can be found online at www.henderson.com

Our business at a glance 2 Chairman’s statement 6 Chief Executive’s review 7 Our business model and strategy 12 Key performance indicators 20	Overview

In this report
This symbol will direct you to more
information within this report.
Business review
Financial review
Risk management
Corporate responsibility
Governance
Board of Directors
Directors’ report
Report on Directors’ remuneration
Directors’ responsibilities statement
Independent auditors’ report
Financial statements
Glossary
Shareholder information
Summary of movements in AUM
Five year fnancial summary

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119
Performance
Governance
Financial statements

Henderson Group Annual Report 2012

Our business at a glance

Who we are

Our mission

A trusted global asset manager focused on delivering excellent performance and service to our clients

Our people

We have 1,000 people dedicated to investing actively for our clients, delivering excellent investment performance and service. Our behaviour, individually and collectively, has a real impact on the success of our organisation.

Excellence

Always doing what we have committed to and striving for the highest standards.

Focus

Our investment principles

One of our biggest responsibilities is as a steward of our clients’ wealth. That’s why we have set out how we fulfil our stewardship responsibilities in our Responsible Investment Policy. Maintaining a regular dialogue with companies we invest in, is the cornerstone of responsible investing.

Our investment managers are not constrained by a house view. Their investment decisions, based on shared knowledge and experience, aim to meet or exceed clients’ needs and are supported by sound risk management, strong governance and regulatory compliance.

Directing our energy, time and resources to what matters most for our clients.

Conviction

Working with a strong belief in our future success, showing pride in our work and driving our business forward with passion and energy, demonstrating the highest level of commitment.

Collaboration

Supporting, working together and valuing alternate views with strong relationships built on respect.

Responsibility

Taking ownership of our actions, developing trust with our clients. Acting as an ambassador for Henderson at all times.

Where we’ve come from

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1983
Became a public company
1986
Opened investment office in Japan
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1992 1999 Acquired Touche Remnant, established Henderson as • Set up single strategy hedge fund business the UK’s leading investment • Set up Private Equity business trust manager • Purchased Phoenix Realty to create Henderson North America Property • Opened offices in Switzerland and Austria

1934

1985

1995

2000

1934 Founded to administer the estate of Alexander Henderson, the first Lord Faringdon

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1987 1998
Opened office in the Netherlands Acquired by AMP (Australia)
1985 2000
Launched offshore (SICAV) 1995 Opened offices in
retail fund range, opening office Opened office in Singapore, Hong Kong and Italy
in Luxembourg
Henderson’s Asian headquarters
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Henderson Group Annual Report 2012

Our business mix

Assets under management

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Asset class Client type
Equities 54% Retail 46%
Fixed Income 26% Institutional 44%
Property 19% Phoenix 10%
Private Equity 1%
£65.6bn £65.6bn
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2012
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Acquired 50% stake in Northern Pines
2006
2003 • Launched our first sophisticated UCITS III Fund, our platform capable of processing complex
• Launched pooled real estate derivatives in volume
Launched pooled real estate funds in Europe

• Opened distribution offices in Japan and Spain

• Demerged from AMP

Opened office in Sweden
Acquired Horizon France

2002

2005

2009

2012

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2001 2005
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Started US retail business
Sold Life Services
Opened office in France
Re-named as Henderson Group plc

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2009
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Acquired New Star Asset Management Group, strengthening market position in UK retail

2011 Acquired Gartmore Group, an established traditional long only and alternative UK fund manager

Opened office in China

Henderson Group Annual Report 2012

Our business at a glance continued

What we do

Henderson is a diverse business across multiple regions and asset classes.

Where we operate

Clients by AUM geographical source £38.1bn[1] £3.6bn £6.0bn £11.2bn[2] Chicago Edinburgh Amsterdam Beijing Hartford London Frankfurt Hong Kong New York Luxembourg New Delhi Philadelphia Madrid Singapore Milan Sydney Paris Tokyo Stockholm Vienna Zurich

How we operate

Investment Management

(Equities and Fixed Income)

We have specialist teams centred around our core capabilities in Equities and Fixed Income. The teams share their ideas and knowledge to help ensure our investment performance is maximised.

Total income AUM No. of funds £355.8m[3] £45.5bn[1] 170[4] 2011: £404.2m 2011: £44.4bn

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See page 22

Property

Our funds are managed by specialist teams supported by the Property Management team and our integrated investment platform.

Total income AUM No. of funds £67.6m[3] £12.5bn[1] 34[4] 2011: £60.3m 2011: £12.4bn See page 24

Private Equity

We focus on fast-growing, market leading companies and funds.

Total income AUM No. of funds £11.0m[3] £0.9bn[1] 6 2011: £5.4m 2011: £1.0bn See page 25

Excludes Phoenix AUM of £6.7bn.

Includes Middle East and Africa.

2012 includes investment income and an economic cost of capital recharge for the cost of capital provided centrally. £3.4m income is recognised centrally. 4. Excludes segregated mandates.

Henderson Group Annual Report 2012

Product range Key developments Key priorities Absolute Return, European Equities, •[ Achieved strong investment performance ] •[Develop business outside Europe ] Global Equities, Mulit-Asset. over one and three years through organic growth initiatives and Global Credit, Diversified Fixed Income and •[Good progress in globalising our fixed ] small acquisitions Rates, Secured Credit, Retail Fixed Income. income franchise •[Maintain market leading European ] •[Launched a number of products offering ] equity and fixed income franchise
Where we distribute clients the investment solutions they seek •[Strengthen client offering in core ] Product ranges are distributed globally •[Reorganised and simplified our structure, ] capabilities in global equities and fixed to both institutional and retail clients. specifically in Equities income, multi-asset and absolute return
•[Strengthened our absolute return ] •[Right-size our global product set and ] fund range capitalise on strong investment performance in core asset classes to grow net sales
Product range Key developments Key priorities Retail Centres, Core European Offices, •[ Expanded our distribution platform ] •[Manage fund extensions] Tailored and Pooled Solutions, Multi-Family in Europe •[Actively manage European portfolios ] Housing/Apartments. •[Successfully extended two of our funds, ] to capitalise on recovery momentum one being our flagship UK Shopping in Europe
Where we distribute Centre Fund •[Continue to develop Asian property ]
Products are distributed globally, largely to institutional clients, other than retail funds •[Developed new products to meet ] business through partnerships and changing client needs joint ventures
which are distributed in the UK only. •[Continued to raise capital for a number ] of existing and new funds

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Product range Key developments Key priorities
Infrastructure, Asian Private Equity, and Fund • [Progressed strategic and business ] • [Continue to realise assets in Asian ]
of Funds. initiatives at John Laing private equity funds
• [Achieved steady performance in Asian ] • [Recover value in Infrastructure private ]
Where we distribute
private equity funds equity funds
Products are distributed globally by our own
• [Had another strong year in the Fund of ] • [Grow Fund of Funds business]
teams and external placement agents.
Funds business
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Henderson Group Annual Report 2012

Chairman’s statement

A trusted partner for our clients

“We concentrate on what we are good at”

Rupert Pennant-Rea Chairman

Overview

Slower global growth, rising unemployment in many countries, the eurozone crisis – all weighed on markets in 2012. Although Henderson performed reasonably well, we fell short of our growth ambitions. We have slimmed down the business to protect the interests of our shareholders and focus on our key areas of expertise to meet clients’ needs. By simplifying and streamlining our business, we were also able to make a number of investments which will result in Henderson being a more global business with stronger investment teams and distribution channels.

Our strategy

Our central goal is to be a trusted partner for our clients, providing a service that meets or exceeds their expectations. We are committed to organic growth, although we also see strategic alliances and smaller acquisitions as an attractive way to strengthen and diversify the business so that it is less exposed to Europe. Let me mention a few examples from the recent past: we bought a 50% interest in Northern Pines Capital LLC, a US long/short equity hedge fund manager; we hired a team of US-based credit specialists, enabling us to extend our strong European credit record to a global scale; through acquiring Horizon Investment Management France SAS, we strengthened our position in the French property market; and in response to the Retail Distribution Review in the UK, we formed a strategic alliance with Sesame Bankhall Group, the country’s largest IFA network. More detail on these and other initiatives are in the Chief Executive’s review.

Dividends

The Board is recommending a final dividend for 2012 of 5.05 pence per share, bringing the total dividend to 7.15 pence per share, 2% up on the 2011 total. This final dividend will be paid on 31 May to shareholders on the register on 10 May. We continue to apply our dividend formula so that (always provided the money is there) the interim dividend is 30% of the total dividend for the previous year.

The Board

Gerry Aherne left the Board in May 2012 and Sarah Arkle joined in September; each has had a successful career in asset management.

In December we announced a change in the Company’s tax residency from the Republic of Ireland to the UK. With all strategic decision-making now back in London, we were able to reduce the number of Executive Directors and David Jacob and James Darkins stood down. Many thanks to both of them and to Gerry Aherne for their valuable contributions to the Board.

I also announced that I will be leaving the Group at the Annual General Meeting on 1 May 2013, after almost nine years as a Director. Henderson has come a long way since the demerger from AMP in 2003 and I have much enjoyed my time as your Chairman.

Richard Gillingwater was recently appointed as a Non-Executive Director and Chairman Designate. Henderson will be well served by a person of Richard’s standing, and his extensive boardroom experience will be a great asset to the Company. He will become Chairman after the AGM in May.

Outlook

Although the global growth outlook is still a cause for concern, financial markets had a strong start to 2013, encouraged by signs of progress in tackling the challenges of the eurozone and the US budget. Provided inflation remains low, the pressure on real incomes will ease, which will have a positive impact on economic growth. Whatever happens in the wider world, Henderson is committed to delivering the products and services our clients need and investing where we see potential for growth.

Thank you

The Board would like to thank all our staff for their hard work and we also thank you, our shareholders, for your support.

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Rupert Pennant-Rea Chairman

Henderson Group Annual Report 2012

Chief Executive’s review

Well positioned to grow

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“Markets ended the year strongly despite political and economic uncertainty”

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Andrew Formica Chief Executive

Review of 2012

especially pleased with the success we have achieved in our fixed income funds. For example, the Henderson Horizon Euro Corporate Bond Fund reached €1bn in AUM in less than three years from launch – and it returned 30.6% over that period, outperforming the IBOXX EUR Corp benchmark by over 12%. Building on this strength, we launched the offshore Henderson Horizon Euro High Yield Bond Fund and look to offer a Horizon Global Corporate Bond Fund shortly.

We strengthened our UK retail business by entering into strategic alliances, including Sesame Bankhall Group, and launched a range of multi-asset, multi-manager funds under the ‘Optimum’ banner. Multi-asset investment strategies are increasingly demanded by our clients and it is important that we have the products and strength of talent in our teams to provide the best possible investment outcomes and service. We hired Paul O’Connor, from Mercer Investment Consulting, and James de Bunsen, from Armstrong Investment Managers. Both have extensive experience in asset allocation and the now 12-strong team has around £5.4bn in AUM.

It was another year that started optimistically but was soon overshadowed by political and economic uncertainty leading to a slide in markets in the second quarter. A combination of bank bailouts, quantitative easing and ‘Operation Twist’ in the US provided some relief, and markets climbed again after Mario Draghi, president of the European Central Bank, pledged to preserve the euro. Against this volatile and uncertain backdrop, it is encouraging that equity markets ended the year higher than 2011.

Globalising our fixed income franchise

We also witnessed a changing political landscape with leadership changes in France and China and of course the noise surrounding the US elections.

We have moved ahead in globalising our fixed income franchise with the appointment of senior credit analysts both in Europe and in the US, to help sustain our excellent performance record and to meet increasing client demand.

We have significantly rationalised our fund range, to help us present a clearer product line-up to our clients. Our closed-ended business, with its well-established range of investment trusts, should also be a natural beneficiary in a post-RDR world.

All this uncertainty, combined with our relatively high exposure to both Europe and equities, meant we faced a challenging sales environment. Despite this, the Group’s underlying profit was down only 8% as we matched the percentage fall in revenues with a similar percentage decline in costs. As the Chairman mentions, we made good progress in our key strategic objectives, including strengthening our retail business and expanding global and absolute return products, adding to our presence outside of Europe.

The US team, credit specialists based in Philadelphia, is headed by Kevin Loome who was formerly employed by Delaware Investments where he managed over US$6bn of predominantly high yield investments. The team will be integrated with our UK-based credit team headed by Stephen Thariyan and be a vital component of our global offering. The two teams share a similar investment philosophy and style and have managed portfolios across the entire credit spectrum.

To provide advisers with a range of lower-cost funds that generate income and keep their clients within defined risk parameters, we launched Henderson Core Solutions. These funds, managed by the multi-asset team, do not have specific income targets or benchmarks but are intended to deliver a competitive level of income within clearly defined risk parameters. They complement Henderson’s existing multi-manager fund range, which invests primarily in third party active funds and are an attractive alternative in a persistently low interest rate environment.

Strengthening our retail business

To address the implications of the Retail Distribution Review (RDR) in the UK, we launched ‘unbundled’ share classes. These share classes (often referred to as ‘clean fee’ share classes) will comply with the changes outlined in the RDR where investment managers are no longer allowed to pay commission to financial intermediaries for bringing in new business.

We have an excellent European retail franchise, with strong performing funds and improving fund flows and it remains an important part of our business. We are

Henderson Group Annual Report 2012

Chief Executive’s review continued

Restructured teams in Equities

In Equities, we have restructured our teams under four key business areas:

(1) European Equities. Although these equities were out of favour for most of 2012, our managers, led by John Bennett, have outstanding investment records and believe current conditions offer attractive returns for the patient investor.

(2) Global Equities. We have recently consolidated our activities in this area under the leadership of Stephen Peak. We are already well known for our Global Equity Income products, as well as our specialist products such as Technology and Property Securities, and have strengthened our team with the appointment of Matt Beesley, a highly respected fund manager who is spearheading our global equity and EAFE proposition. We have also brought together our Asian and Emerging Markets teams to create a unified Global Emerging Market offering.

(3) Multi-Asset. As explained on the previous page, we have developed innovative new products for UK retail clients to suit the post RDR world. Bill McQuaker has been expanding his team to support him in our asset allocation investments.

(4) Absolute Return. We recognise that clients increasingly want lower volatility together with absolute rather than simply

2012 – Henderson Group share price performance (% growth)

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40
30
20
10
0
-10
-20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
–– Ordinary shares –– FTSE 250 –– CDIs –– ASX 200
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relative returns. The Hedge Fund Executive Management Committee, representing the equity managers, is investing in and expanding our product offering. We recently acquired a 50% interest in Northern Pines Capital LLC (Northern Pines), a US long/ short equity hedge fund manager launched three years ago. Northern Pines is based in Boston and was founded by Pat Dunn and Dan Schiff. The fund has a similar investment strategy to that of our AlphaGen range. Strengthened by our infrastructure and distribution, we expect to grow this fund as we promote it to our clients in the US, Europe and Asia.

More diverse product offering in the US

We have diversified our fund offerings in the US to reduce our dependency on European equities and we successfully launched our All Asset and Dividend and Income Builder Funds. Both funds draw on the expertise and successful investment track records of our existing fund managers. Our Global Equity Income Fund was our main source of net inflows in the US, its assets growing by just over 30%, and it was in the top 3% selling funds in the Lipper Equity Income category in 2012.

As already mentioned, we hired the US-based credit specialists team. This is a significant step forward in the globalisation of our fixed income business and is in direct response to increasing client and consultant demand for global credit products.

New hires to expand our presence in Australia and Asia

In little more than eight months, we have made significant progress in moving ahead with our ambitions in Australia. Rob Adams, who was appointed in May as Head of our Australian business and charged with developing and directing the strategy, has secured Board approval for a three tier approach to expanding in this important market for us. The first step is to build a distribution hub in Sydney; we have hired Matt Gaden to head it up. In the future we plan to have both funds managed and products launched locally.

We also recruited two senior distribution professionals in Asia. In October, Shiro Tsubota joined as the new Chief Executive of our Japanese business and Mabel Chan joined as Head of Retail Distribution, Asia ex Japan.

Henderson Group Annual Report 2012

2012 – the year that was

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5 Jun 27 Jul
The Queen’s 2012 Olympics 12 Dec
30 Mar diamond jubilee commence in London US Fed announces
new round of monetary
Eurozone finance ministers 13 Sep stimulus to replace
6,000 agree to enlarge fiscal bailout US Fed announces ‘Operation Twist’
5 Jul third round of QE
7 May UK BoE £50bn QE
Hollande wins French
programme; ECB cuts rates
presidential election
11 Jun 1 Jan
Eurozone US ‘fiscal
5,800 ministers agree cliff’ resolved
9 Feb to lend €100bn
UK BoE expands QE to Spanish banks
6 Sep
Draghi unveils details of
5,600 13 Jan 5 Mar Putin wins Russian new bond buying – Outright Monetary Transactions 6 NovObama re-elected
S&P downgrades a presidential election 26 Jul as US president
number of eurozone European markets
countries’ credit ratings rally as Draghi pledges 29 Oct
8 Mar to preserve the euro
Greece secures acceptance Hurricane Sandy 24 Nov
5,400 of its debt swap offer 29 Jun ‘Gangnam Style’
EU leaders agree to use bailout becomes most watched
fund to support struggling banks video ever on YouTube
30 Jun 16 Nov
23 Apr
Dutch election Mursi sworn in as Egypt’s Japan PM dissolves
first civilian democratically parliament, triggers
5,200 elected president election on 16 Dec
25 Apr 20 Jun 15 Nov
Q1 data confirms US Fed extends ‘Operation Xi Jinping confirmed
UK back in recession Twist’; Samaras sworn in as new leader of China
as Greek prime minister
5,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
–– FTSE 100
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Source: UBS Equity Strategy review and own Group research.

Property remained resilient

Our Property business remained resilient. We raised equity for new and existing funds and took advantage of opportunities to expand our business and widen our distribution platform.

We continued our strict discipline of choosing only the best investments to meet our clients’ objectives. Given the shortage of quality properties, we also made extensive use of our in-house development team to pursue more value-add projects.

Last year, we also extended two of our funds, the UK Shopping Centre Fund and our AUB French Logistics Fund. We continue to engage with clients in order to determine the best solution for them as funds approach their expiry dates.

We have expanded our European distribution through partnering with Investire Immobiliare SGR in Italy, opening an office in Stockholm and acquiring Horizon Investment Management France SAS. We also want to expand our brand and presence in Asia, and have become investment adviser to a Singapore joint venture – Silk Road – to invest and develop designer outlet malls in China together with our partner RDM Asia and an existing client. This is an exciting development and our first move into the Chinese property market. It will form the cornerstone of growth for Property in the Asia Pacific region.

Good progress in Private Equity

Our Private Equity business made good progress in the year, with the exception of Henderson PFI Secondary Fund II L.P. (Fund II). Our Asian private equity funds and Fund of Funds businesses continue to perform well, as did our Henderson PFI Secondary Fund I (Fund I). As for Fund II, the most notable development was resolving its litigation issues. This is in the best interests of all our stakeholders and we continue working hard to increase the value of Fund II.

Henderson Group Annual Report 2012

Chief Executive’s review continued

We simplified and streamlined the business

Our various initiatives last year all cost money, so we had to redeploy resources from other parts of our business. Although we increased our overall gross sales following the acquisitions of New Star and Gartmore, our net sales remained negative last year, so we conducted a detailed review of our business structure.

This identified problems with some legacy products and structures and (in a few areas) poor investment performance.

To tackle these weaknesses, we needed a simplified business structure. We have therefore removed the role of Chief Investment Officer, with the Heads of Equities and Fixed Income joining the Executive Committee (ExCo). In addition, we centralised all of our support functions under Shirley Garrood, Chief Financial Officer.

These changes have strengthened our commitment to delivering quality investment expertise, performance and service to our clients.

Outlook for Equities

Overall, we feel optimistic about the outlook for equities this year while recognising that investors still need to be convinced that the worst of the economic crisis is behind them. Clearly, there are risks in 2013: the ‘debt ceiling’ debate in the US, the well-publicised issues in the eurozone and continued unrest in the Middle East. However, we should not lose sight of the fact that the vast majority of companies are generating cash and have made great strides in strengthening their balance sheets. The equity income investor is being rewarded with the yield on equity markets globally expected to be 3.3% in 2013 and dividends are forecast to grow by 8%, well above inflation. Furthermore, if growth improves in the first quarter, the demands for more deleveraging will abate. Much would follow from this: greater confidence in equity earnings should prompt a move out of cash into risk assets.

All said, we continue to believe that European equities offer compelling value and that concerns around Europe, which are well known, are at least partly priced in already.

It is impossible to say whether, based on recent market movements, the bear market has come to an end. I am strongly of the view however, that so long as investors adopt a medium-term investment horizon and are willing to take a longer-term view on European equities, they will be rewarded with solid total returns from this asset class.

With the re-election of President Obama, Ben Bernanke is likely to remain Chairman of the US Fed until January 2014, thus ensuring monetary policy remains stimulative. Although US equities have been out of favour for some time with domestic investors, we think this is now likely to change.

The outlook for Asia is good: valuations are attractive, corporate fundamentals remain solid and balance sheets are strong. Evidently, uncertainty over the macroeconomic backdrop remains and in the short term at least, it is going to be difficult for Asian markets to disconnect from what is going on in the global economy. We remain confident that this is an attractive time to

invest in Asia for the medium to long term. We expect companies to become increasingly upbeat about their prospects as the growth outlook for the region improves as we move through 2013. In terms of opportunities, China is the market with the most investment appeal from a valuation perspective and its current position in the growth cycle. As politics plays a critical role in driving the business cycle, the peak year of China’s investment growth is likely to come in 2013 as the new leaders begin to implement their growth plans.

Despite the opportunities, risks remain. Should there be an inflationary spike, domestic interest rates could be driven higher and governments may become less accommodative in implementing measures to boost growth, though this is far from our central case.

Outlook for Fixed Income

Bond spreads – sovereign and corporate – have widened and narrowed markedly all in the same year. We do not believe that the returns delivered in 2012 will be followed by further double digit returns.

The much talked about potential for a “great rotation” out of bonds into equities could damage sentiment in the fixed income markets in 2013. In fact, the positive start to the year by equities may be in anticipation of such a shift. Whilst long-dated government bonds are likely to come under selling pressure, not only as a result of the potential for rotation but also given their absolute yield levels, we believe that corporate bond markets still offer the potential for positive returns.

Our fixed income clients benefit from a choice of products which offer many different active investment strategies. One of our favoured investment areas is “double core” bonds – bonds from core companies in core countries.

Furthermore, our fixed income portfolio managers oversee a host of strategies, many of which should deliver positive returns in the 4% to 7% range during 2013. Increasingly we are seeing client demand for ‘total return’ structures which allow our managers to asset allocate across all of our fixed income strategies.

Henderson Group Annual Report 2012

Outlook for Property

Globalisation has had a significant impact on international capital flows in all asset classes. Property is no exception; investors are adapting their allocations globally in order to enhance their potential risk adjusted returns and achieve diversification.

In Europe, it is hard to envisage 2013 being significantly different from 2012, with performance relying on income security and active asset management. Depending on developments in the eurozone, there could be a sell-off of exposures in the periphery with hopes for a strong recovery waning; but equally, investors could well make their first commitment back into the region on the back of encouraging economic numbers.

In the US, which is buoyed by more favourable growth assumptions, pricing has generally levelled off. However, mirroring both Europe and Asia, the market continues to have pricing disparities across real estate types and markets. The speed of recovery across occupier markets differs considerably between geographies, sectors and quality of product, a trend likely to persist. A return to employment growth has supported an improvement in retailer performance, though rentals and valuations remain challenging. The major US markets should resume their recovery as confidence improves, but investors would do well to focus on primary markets.

In Asia, a number of developments will have a significant impact on the region’s capital and real estate markets. China’s new leadership will provide support for economic growth prospects, whilst new governments in Japan and South Korea are already affecting fiscal and monetary policy. These socio-political events could lead to revised growth forecasts which will in turn mean investors need to time their entry and exit points in tandem with the projected real estate cycles.

Regulatory outlook

Governments and regulators continue to drive regulatory change to improve the operation, security and ultimately the reputation of global wholesale and retail markets.

In the UK, the approach to the supervision of regulated retail firms continues to move towards a greater consideration of business strategies, firm governance and outcomes for consumers. Rule changes such as the RDR emphasise the regulatory commitment to the fair treatment of customers and the avoidance of conflicts.

Regulatory bodies within the EU continue to initiate and enact new regulations aimed at harmonising the EU financial services industry. The EU Alternative Investment Fund Managers Directive (AIFMD) will change the landscape for diversified asset managers operating regulated and alternative funds.

Increasingly, US and other international regulations are impacting the environment in which we operate, leading to new and challenging obligations to address as our business develops. We are strongly committed to meeting these challenges.

The outlook for the Group

Looking ahead, I am positive about the outlook for the Group. We have made many changes to our structure and operations over the past four years, and they have put us in a stronger position to capitalise on the opportunities in the market.

I am confident that we are now in a position to deliver the products and level of service our clients need. Delivering on clients’ investment objectives, and providing them with the service they deserve and expect, is at the heart of everything we do. Establishing their trust and working with them in partnership is paramount.

Achieving this will result in organic business growth which will enable us to continue investing in areas for future growth.

Thank you

I would like to thank Rupert for his outstanding contribution to the Board. I have greatly appreciated his guidance and support as we positioned Henderson for future growth.

In Richard Gillingwater, we are pleased to have found such a high calibre replacement. I very much look forward to working closely with him and benefiting from the significant experience he brings to the Board.

I would also like to thank our staff for all their hard work to ensure that we deliver excellence to our clients.

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Andrew Formica Chief Executive

Ongoing changes in the regulatory environment will add costs to our organisation. However, this is a small price to pay to deliver a better and trusted governance structure which should improve clients’ confidence in how their investments are being managed.

Henderson Group Annual Report 2012

Our business model and strategy

How we generate, preserve and deliver value

We are a dedicated, independent, diversified asset manager with the safety and growth of our clients’ assets as our central objective. As a publicly traded global asset management company, we are focused on sustainable growth that benefits all stakeholders.

Business model

Strategic priorities

Business fundamentals

We are an active investment manager seeking to deliver excellent investment performance and outstanding client service. This is predicated on having the right products, recruiting, nurturing and retaining talented people and providing our clients with an overall experience that exceeds their expectations.

Product

Offer a diverse range of innovative, traditional and alternative products, with transparent investment processes, to meet clients’ needs, helping them achieve their investment objectives.

People

Attract and retain employees who demonstrate a client centric attitude and actively encourage employee share ownership, thus fully aligning interests to those of our clients and shareholders.

Service

Established culture focused on clients’ needs and creating an identifiable brand in our core markets.

Henderson is focused on five strategic priorities to deliver long-term shareholder value.

Grow retail business

Improve retail market share in the UK, Continental Europe and the US, while developing our franchise in key growth areas of Asia Pacific and Latin America.

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See page 7

Expand global and absolute return products

Develop and expand existing global and absolute return product ranges.

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See pages 6 and 7

Operate efficiently

Focus on core businesses, including managing risks and operating them efficiently, while divesting non-core businesses.

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See page 9

Foster strategic relationships

Foster long-term strategic relationships to help develop future business growth.

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See page 15

At Henderson, our clients are at the centre of everything we do. From designing products for them, to managing their money and providing after-sales service, all our activities are centred around meeting or exceeding their expectations.

This client centric approach is founded on our robust governance structures to ensure that we comply with various regulatory requirements and manage our risks within acceptable risk parameters.

At the heart of our approach to investing client money, are teams of talented people who, by sharing their knowledge and insight, actively manage our clients’ investments to achieve or exceed the outcomes clients seek.

Be client centric

Embed a client centric attitude in the firm, establishing an identifiable brand and culture based on success.

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See page 14

Henderson Group Annual Report 2012

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Product
Client
pr
s
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ate ie
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Business fundamentals

Prioritise clients’ best interests

Fair treatment of customers throughout the product lifecycle, from design and through to the post-sales support cycle.

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See page 21

Strong governance and risk management

A culture where risk management is embedded at all levels of the organisation. See page 28

Active investment management Shared knowledge and insight used to actively manage clients’ investments.

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See pages 22 to 25

Henderson Group Annual Report 2012

Our business model and strategy continued

Service Clients at the centre of everything we do

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and efficient client centric team”
Phil Wagstaff
Global Head of Distribution
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investors there can benefit from opportunities in Europe that our European long/short products exploit.

taking the Henderson brand to where it belongs with a more sophisticated image that spans all channels.

The improvements we made in 2012 will provide the platform we need for success

In my first year at Henderson, we have accomplished a great deal across our distribution function to embed a client centric culture. It is clear that we will achieve success not only through product quality but also by being a truly professional, responsive and efficient sales and marketing team. The progress we made and the changes we implemented around people, processes and product in 2012, whilst also improving our efficiency, will provide the platform we need to grow the business.

Our advertising and marketing spend is directed towards investment marketing and promoting our mobile client information delivery programmes, highlighted on the next page. We want to make it easier for clients to interact with us and we want clients to better understand who Henderson is and what we do. Having reorganised the business and making it easier for clients to identify our core product categories will certainly help in this regard.

Over the course of 2013, this trend will continue and will form a core part of our distribution strategy. We will access key clients and share ideas in all the markets we operate in and we will do this in a way that clients value.

With the implementation of the RDR in January, we have made a number of changes to the way we price our products and, in particular, for retail clients receiving advice from advisers where the advice has to be charged for separately. I am pleased to say all these changes were completed on time and communicated to advisers well ahead of the implementation of the RDR.

Extending client service globally

Understanding our clients’ needs

By forming key business partnerships and hiring distribution talent around the world, we have been able to extend the quality of service we offer our clients.

It is important that we understand our clients’ changing needs so that we can provide them with both the service and products that are important to them.

Our new advertising strategy

A great strength of our distribution model is the breadth of our product offering by geography and by client type. In order to improve client focus, service and relationships, we have specific teams dealing with retail and institutional clients and clients invested in absolute return funds, with client service teams in place for each client type.

As much as we endeavour to understand clients’ needs, having an identifiable brand and culture recognised by clients is vital for our future success.

We have increased the number of client events we hold globally to enable us to share our ideas and views and allow us a greater level of feedback on what is important to our clients. One of our most prestigious events, now in its fourth year, is our annual investment conference for UK wealth managers. The theme of this year’s conference was ‘New Year, New Perspectives’. It allowed us to showcase a range of investment themes we believe will be key drivers of markets in 2013. Similarly, we have taken our successful hedge fund conference we hold for UK clients to the US for the first time, as we believe institutional

Our new UK advertising strategy, launched at the start of 2013, seeks to promote the wealth of investment knowledge and expertise we have at Henderson and the benefits our clients will receive from sharing in this knowledge. By inviting our clients to engage and share their views with us, we will develop an inclusive brand which will, over time, build trust and loyalty. This advertising creative also gives us the platform to rebrand the business globally,

Local support across key markets in Europe, Asia and the US enables us to deliver local service to a wide variety of clients. This has been further enhanced by senior hires in a number of the Asian offices.

Henderson Group Annual Report 2012

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excellent and efficient platform to our clients”
Lesley Cairney
Chief Operating Officer
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a direct link to the latest thinking from influential experts on global investment regions, asset classes, economics and markets. Our clients can follow the fund managers, funds, asset classes and topics relevant to them and they are able to connect to HGi on their desktop, mobile, or tablet device. Once a client follows our experts, funds and topics, they will receive a tailored stream of information that includes the latest videos, articles and updates that they are most interested in.

We made some changes to our global distribution model, designed to allow us to capture the best ideas in each channel and share and develop them across all markets. A culture of co-operation, sharing, teamwork and client focus will strengthen our global client offering significantly.

management support. We also implemented systems architecture that allows us to operate across different time zones and this has particularly improved the ability of our US business to access and utilise our broader infrastructure.

Delivering better information in an easy-to-access way

Excellent service levels delivered notwithstanding many changes

Another key objective was to invest in data and information quality and improve the client experience.

In a year where we made extensive changes to our product line-up and infrastructure, our IT and operations teams and service providers maintained excellent service delivery. We track and measure our operational performance on a regular basis through detailed metrics and key performance indicators. There are also many external measures; one of these compiled by a leading UK fund platform, placed Henderson first out of 136 asset managers in terms of overall operational performance at the end of 2012. This rating measures processing accuracy and timeliness across a range of key operational categories: pricing; settlements; distributions; dealing; and reconciliations.

We understand the importance of being able to share knowledge with our clients and, to this end, we vastly improved our systems to make information or knowledge ‘mobile’ and therefore easier to access.

We also upgraded our Client Relationship Management system to allow our teams to access the information they need on clients and products, wherever they are.

Working with our partners

The first success as part of our ‘Client Information Delivery’ programme, was implementing a new client reporting platform in Property. In the next phase of this programme we plan to deliver a new platform for both retail and institutional client reporting and introduce new factsheet technology. This programme will have a visible impact on what clients see and experience.

We work in close partnership with our third party administrators to ensure that our service levels are of the highest standard.

We also continuously look at ways in which we can be more efficient and, in so doing, reduce the costs that the Group and our clients incur.

In 2013, we will continue to focus on accurate and efficient delivery of information to our clients, ensuring that we have quality systems and processes so that we deliver the best possible service to our clients.

In an increasingly digital and mobile world, we successfully delivered a number of new initiatives as part of our ‘Digital Future’ programme. The aim was to ensure that we maximise the use of digital communication to positively influence investment decisionmaking at every opportunity.

Helping globalise the business

In 2012, one of our key objectives was to enable the business to be more integrated and function better globally.

We are confident that we have the right team and the right partners in place to keep delivering a solid service to the business and our clients around the world.

Our support teams have been reorganised in such a way that we are more focused on delivering an end-to-end service from providing and managing data to fund

In 2012, we completed a global roll out of HGi – our online presence that offers clients

Henderson Group Annual Report 2012

Our business model and strategy continued

Our people Alive to opportunities

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“ O ur people are ambassadors for Henderson”

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Andrew Robinson Head of Human Resources

At Henderson, our efforts are focused on delivering excellent investment performance and service to our clients.

Progression and recognition of our people

Attracting and retaining talent

In order to attract, retain and motivate our people, we believe in clear and open communication channels and flat management structures to encourage free thinking, enabling decisions to be made with speed and accuracy.

As part of being a high performing organisation, we encourage all of our people to fulfil their potential. Individuals set their own objectives each year for their roles and responsibilities and managers ensure that these are aligned to our Group strategic priorities. These objectives are reviewed formally on an annual basis. This annual review also allows for succession planning and ensures that we retain talented people and develop their careers.

Our employment practices are designed to create a workplace where all our people are encouraged to be ambassadors for the Group by delivering on our shared values: excellence, focus, conviction, collaboration and responsibility.

Our people work in an innovative and autonomous environment that encourages responsibility and accountability for actions and decisions taken. We strive to be the best and this has been recognised by a number of industry awards and independent accreditations we have received for innovation, technology, products and performance.

We take a real interest in the careers of our people. We provide a series of learning and development courses to help them improve their skills, performance and future career prospects. Our reward system creates a culture aligned with the interests of our clients and shareholders.

One way in which we align the interests of our clients, shareholders and people is the ability for our people to participate in share plans. This has turned out to be successful with around 10% of the Company owned by our people, assuming all share plans vest.

Headcount by region

Length of service

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UK 76% Under 2 years
US 9% 2-5 years
Asia/Australasia 8% 6-9 years
Europe excl UK 7% 10+ years
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43%
21%
20%
16%
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Male 62%
Female 38%
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Henderson employed 1,014 people as at 31 December 2012 (2011: 1,060).

16 Henderson GroupAnnual Report 2012

We offer a comprehensive range of benefits and performance-based compensation. Our remuneration philosophy is to provide a competitive total reward package. This encompasses a number of monetary and non-monetary benefits.

We continue to develop our Trainee Programme which attracts young people with high potential to perform. This programme offers them a chance to develop their skills with both formal and on-the-job training through a nine to 12-month contract, during which they can apply for or be offered a permanent role if a suitable opportunity exists.

Over the last two years we have recruited 83 trainees across the business, of which approximately 80% have become permanent employees.

Of the trainees who have left Henderson, two thirds were successful in finding permanent jobs elsewhere. We are developing this programme by partnering with other firms in our industry to encourage entry level recruitment and widen opportunities for graduates, school leavers and apprentices across the industry.

We employ a diverse group of people

Employing a diverse group of people helps us deliver better products and better service for our clients. We provide a work environment where everyone is treated equally.

Henderson employs around 1,000 people in 17 countries, represented by 40 nationalities. At 38% of the Group, women account for a significant proportion of our workforce and the proportion of women in senior roles has remained broadly consistent during 2012. Where possible, we monitor diversity rates

Employment statistics (%)

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10
Turnover rate
11
2012
2011
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of current employees and job applicants to ensure that diversity levels are maintained or improved.

An engaged workforce benefits our clients

We believe that an engaged workforce delivers outstanding client service and helps drive business performance.

In our most recent staff survey, we achieved an 82% response rate. In general, the results were substantially ahead of the industry benchmark, specifically Customer Focus, Commitment/Engagement and My Job.

Regular communications about business developments

To help our people understand our business strategy, goals and objectives better and to make clear their role in achieving our growth ambitions, regular, consistent and clear communication across the firm is essential.

It starts from the top. Andrew Formica holds an annual conference where people from all parts of the business get together to discuss, challenge and review the business performance and cultural development of the organisation. At the conclusion of the conference, all managers are tasked with communicating key findings, messages and action points to their teams. This results in a firm-wide understanding of how we are progressing as a business and what each person’s role is in achieving a successful outcome.

Throughout the year, members of the ExCo will brief staff on the financial results of the Group and other important developments. There are global weekly newsletters and regular employee forum meetings where people can raise issues or ask questions.

2012 staff survey highlights (%)

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Customer
Focus 9 84 11 5
Commitment/
Engagement 79 17384
My LineManagers 74 16 3810
Favourable
Neutral
Unfavourable
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Additionally, Andrew Formica regularly writes to everyone and we hold business spotlight seminars where anyone in the business can educate and update us on their specific areas. Employee communication is also placed on our intranet so that any updates can be accessed no matter where each person is located.

Gender diversity (%)

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Women on
the Board 22
Women
on ExCo [1] 33
Women in
the Group 38
2012
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As at January 2013.

Henderson GroupAnnual Report 2012 17

Our business model and strategy continued

Product

Innovation for better investment outcomes

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Product governance at Henderson

We are always looking to align our business objectives with our clients’ best interests. Increasingly, clients are seeking solutions rather than an investment product that is simply linked to a benchmark. This is embedded into how we incorporate the FSA’s TCF principles (see page 21).

Our Strategic Product Group (SPG), which consists of representatives from the product, distribution and investment teams, ensure that our product range is appropriate for clients’ current and future investment needs. It provides a framework which allows us to manage our products which currently spans over 90 strategies and around 200 equity and fixed income funds.

The SPG also focuses on ensuring that products are scalable across distribution channels and geographies.

The SPG continuously reviews industry trends against our target product portfolio and existing product range to identify where we have gaps and responds where appropriate.

There are currently five trends which have informed the investments we are making in our capabilities and the talent we have hired (see pages 7 and 8). These include:

[the shift by clients from investing in ] domestic equities to investing in global and emerging market products;
[clients’ demand for income and yield ] in a low interest rate environment;

“ We align our business objectives with our clients’ best interests”

Stewart Cazier

Managing Director, Distribution

Given the extent of the activity over the past couple of years, both in terms of rationalising our fund range and expanding our capabilities, we believe we are now in a better position to meet our clients’ needs.

[the clients’ need for capital preservation ] which is driving the demand for outcome orientated, absolute return and multiasset products;
[the shift in wealth to clients in emerging ] markets; and

As part of our product monitoring we will continue to amend our capabilities, either for tactical client driven reasons or simply tidying up our product offering.

[the shift in pension schemes from ] defined benefit to defined contribution which means that clients will increasingly need to take more responsibility for their own savings and future incomes.

A diversified product range with core capabilities at the centre

At a more detailed level, the SPG also conducts product lifecycle reviews on existing funds to ensure that they continue to meet clients’ needs and expectations; filters the new product ideas to a shortlist of ideas which meet our clients’ needs and our strategic priorities; and monitors the progress of inflight product development.

We have amended our product offering by merging certain funds or changing their investment objectives and also invested in capabilities.

As can be seen on the table opposite, our product range is centred around a number of core investment capabilities.

A second group, the Product Implementation Committee, supports and directs product delivery and implementation including monitoring capacity levels in funds, stress testing of new products, approving product specifications and implementing changes resulting from the product lifecycle reviews.

Rationalising our fund range

We significantly reduced our fund range to approximately 170 funds at the end of 2012. In so doing, we have simplified our fund range, making it much easier for our clients to understand our diversified offering and also do business with us.

Henderson Group Annual Report 2012

Our priorities for 2013

We will continue to review our fund range to ensure that we are meeting clients’ needs.

In recent years we have focused on integrating and consolidating our fund ranges to focus our resources on a number of core capabilities. We expect less activity in 2013 and will focus more on building on our core capabilities and recent investments, but against a background of significant regulatory and technical changes in our industry – for example, the AIFMD and Foreign Account Tax Compliance Act (FATCA).

Importantly, in the UK investment managers are no longer allowed to pay commission to financial intermediaries for new business post 1 January 2013 (as a result of the RDR). We see this as the start rather the conclusion of changes in the UK retail market (see below).

Overall, in 2013 we will focus on our core growth capabilities and build on the areas we have recently invested in.

Our response to RDR

In common with other UK retail fund managers, we have made changes to our systems, terms of business and share classes to reflect the removal of commission from new business transacted after 31 December 2012.

However, we believe that the more profound impact will not be the technical changes, but their impact in accelerating several existing

trends in the advisory market. These are likely to continue through 2013 and into 2014, and focus on:

[a reduction in independent advice ] in favour of restricted advice;
[an increased separation of financial ] planning and investment management;
[an increase in demand for multi-asset ] products which are more closely aligned to adviser and client suitability processes; and
[an increase in demand for income ] orientated funds in all portfolios to fund advisory and platform fees.

Accordingly, we have responded to these trends by establishing joint ventures with some major distributors with dedicated products and launching Henderson Core Solutions, a growing suite of multi-asset income focused solutions.

Further changes are expected as our regulator, soon to be the Financial Conduct Authority (FCA), clarifies its intentions about fund manager rebates provided to fund platforms.

The Global Product Committee in our Property business

Early in 2012 we established a Global Product Committee (GPC) in our Property business. The GPC acts as a forum for reviewing new product ideas. It ensures that sound investment and research fundamentals underpin every investment opportunity we offer to our clients and that

the rationale for these opportunities is stress tested at an early stage.

Through this the GPC, alongside the business development team in Property, decides which new opportunities to prioritise.

The benefits of the GPC include:

[offering clients a clearer view of our ] products and in-house expertise;
[bringing together client investment ] objectives and feedback with our investment and product opportunities; and
[ensuring that the product development ] and investment process is underpinned by strong research fundamentals.

Core investment capabilities

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Equities Fixed Income Property Private Equity
Absolute Return Diversified Fixed Income Core European Offices Asian Private Equity
and Rates
European Equities Multi-Family Housing/ Fund of Funds
Global Equities Global Credit Apartments Infrastructure
Retail Fixed Income Retail Centres
Multi-Asset
Secured Credit Tailored and Pooled
Solutions
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Henderson Group Annual Report 2012

Key performance indicators

How we performed

Performance in 2012

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The decline in diluted earnings per share
Earnings per share on
from 12.4 pence in FY11 to 11.7 pence in
underlying profit (p)
FY12 was due to lower underlying profit and
a higher average share count, partly offset
15 by a lower effective tax rate.
10
5
0 FY08 FY09 FY10 FY11 FY12
–– Basic –– Diluted
----- End of picture text -----

Priorities for 2013

[Keep the client at the centre ] of everything we do and build trusted partnerships
[Focus on delivering organic ] business growth and investing in areas for the future
[Remain vigilant on costs]

The decrease in the total fee margin from •[Deliver products which meet or exceed ] Fee margins (bps) 70.6bps in FY11 to 66.6bps in FY12 was clients’ needs

due to a decrease in total fee income, largely •[Maintain management fee margin ]

driven by performance and transaction fees. •[Deliver strong investment performance ]

70 The increase in the management fee margin to generate higher performance fees

60 from 53.3bps in FY11 to 54.6bps in FY12 50 was due to a higher proportion of outflows from lower margin institutional business and

40 an additional quarter of Gartmore revenues. 30 The decrease in the net margin from

20 23.6bps in FY11 to 22.5bps in FY12 was 10 due to the decline in underlying profit before tax over the same period. 0 FY08 FY09 FY10 FY11 FY12 –– Total fee margin –– Management fee margin –– Net margin

The compensation ratio reduced from 41.6% •[Continue alignment of variable staff ] Compensation ratio and in FY11 to 41.1% in FY12 reflecting the costs with business performance operating margin (%) Group’s continued cost control and variable •[Maintain operating margin and improve ] nature of staff costs. if market conditions allow

60 The operating margin reduced slightly from •[Maintain compensation ratio subject ] 50 36.3% in FY11 to 36.0% in FY12 as lower to a number of factors, including variable staff costs and continued cost net fund flows, market levels and

40 control substantially offset the impact performance fees 30 of lower fee income. •[Ensure our clients, shareholders and ] staff interests are aligned 20 10 0 FY08 FY09 FY10 FY11 FY12 –– Compensation ratio –– Operating margin

KPIs used as a key measure in the remuneration of executives are identified with this symbol. See the Report on Directors’ remuneration commencing on page 48.

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Henderson Group Annual Report 2012

Net fund flows excluding Phoenix (£bn)

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4
2
0
-2
-4
-6
-8 FY08 FY09 FY10 FY11 FY12
–– Net flows –– Retail
–– Institutional
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Performance in 2012

Net fund outflows were £3.1bn (excluding Phoenix) in 2012 of which £1.9bn was from the Institutional business and £1.2bn was from the Retail business.

Priorities for 2013

[Provide innovative solutions to our ] clients to meet their needs
[Return to net sales growth, specifically ] in Retail
[Expand global and absolute return ] product offering
[Establish strategic relationships, ] especially to assist distribution

Investment performance improved and remained strong with 73% and 69% of funds exceeding their benchmarks over one and three years respectively.

[Maintain strong investment ] performance across core funds over all periods

Investment performance over 1 and 3 years (%)

[Assist fund managers in improving ] performance where funds have short-term underperformance

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80
70
60
50
40
30 FY08 FY09 FY10 FY11 FY12
–– % of assets at/exceeding benchmark over 1 year (incl Property)g benchmark over 1 year (incl Property) benchmark over 1 year (incl Property)year (incl Property)ear (incl Property)perty)erty)y))
–– % of assets at/exceeding benchmark over 3 years (incl Property)
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[Strengthen investment talent in our ] core capabilities and growth initiatives
60 50 40 30 FY08 FY09 FY10 FY11 FY12 –– % of assets at/exceeding benchmark over 1 year (incl Property)g benchmark over 1 year (incl Property) benchmark over 1 year (incl Property)year (incl Property)ear (incl Property)perty)erty)y)) –– % of assets at/exceeding benchmark over 3 years (incl Property) Treating Customers Fairly (TCF) •[Continuous oversight of key metrics ] •[Continue disciplined lifecycle reviews ] The TCF principle is embedded in the monitoring TCF outcomes were overseen on all products culture and procedures of the business. TCF, by the Board and senior management •[Undertake further market analysis for ] amongst other priorities, intends to promote •[Rigorous investment and performance ] trends in consumer demand fair treatment of customers throughout the analysis of products against objectives •[Develop new products to meet known ] product lifecycle, from design to post-sales •[High quality documentation and ] investment profiles of clients support. We always aim to: reporting designed to meet customer
•[treat our clients fairly;] information needs
[All staff completed TCF training ] during 2012
[design products to meet clients’ ] needs; and
•[ensure that information on our products ] is clear, fair and not misleading and that our interests are aligned with those of our clients.

Henderson Group Annual Report 2012

Business review

Investment Management: Equities and Fixed Income

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“
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“ Having four key areas in Equities makes it easier for clients to understand what we offer”

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Graham Kitchen Head of Equities

easier for our clients to understand what we do. The four areas are European Equities, Global Equities, Multi-Asset and Absolute Return (also see pages 5 and 8).

Against a challenging backdrop, the majority of our equities and fixed income funds delivered strong performance over one and three years. This strong performance did not necessarily result in positive net flows and the increase in total AUM for Investment Management of just more than £1.0bn to £45.5bn, was due to positive market and foreign exchange rate movements of £4.4bn offsetting net outflows of £3.4bn.

Fixed Income

We have had excellent performance in our fixed income products over all periods and we have seen significant growth in products such as our Horizon European Corporate Bond, Total Return Bond, Multi-Asset Credit, All Stocks Credit and Credit Alpha funds. That said, several of our long standing institutional clients redeemed their investments as they adopted a buy-out model for their investment portfolio, despite, or maybe because of, having had excellent returns from their investments with us. We discuss Institutional in more detail on the next page.

European Equities is led by John Bennett. We have outstanding performance across a number of products and channels and by bringing three teams together, we have greater cohesion in our offering. Our UK Equity team, a core strength with a significant amount of AUM, forms part of John’s broader team.

Equities

In our Equity funds, performance improved significantly in the second half of 2012, resulting in an improvement in both our one and three year numbers. Although flows generally were negatively impacted by eurozone issues, we saw positive net sales across a number of funds, in particular some of our European funds – a pleasing result given the strong performance we have and the strategic importance we place on this part of our business. The funds that delivered the best growth over the year included our Technology Fund, the Global Equity Income Fund in the US and a number of our SICAVs including European Special Situations, European Property Equities, Global Property Equities and the European Focus funds. Notwithstanding some good growth across these funds, we saw continued redemptions as clients continued to favour fixed income over equity funds.

Global Equities is led by Stephen Peak. There has been increasing client demand for Global Equity products and to capitalise on this, and develop our product range, we brought together our well-established global sector teams, Technology and Property Securities, and the Emerging Market and Asian teams. The Global Equity Income team and the predominantly long/short Japanese equity teams will also be part of this business area.

At the end of last year, we launched the European High Yield Fund. Given our existing strengths in corporate bonds, we believe we can meet client needs in offering access to the high yield market.

The structure of our fixed income teams has remained broadly unchanged and grouped into four core areas. Global Credit, led by Stephen Thariyan; Diversified Fixed Income and Rates, led by Phil Apel; Secured Credit, led by Colin Fleury; and Retail Fixed Income, led by John Pattullo. Phil Apel has been appointed Chair of the Investment Strategy Group which oversees the asset allocation of our core fixed income funds.

Multi-Asset is led by Bill McQuaker. Over the past year, we have launched a number of multi-asset products, such as our All Asset US Mutual Fund and a number of “low-cost” funds in the UK retail market, as clients increasingly focus on investment solutions. Under Bill’s leadership, we expect to rapidly grow this business area.

We have moved ahead in globalising our fixed income franchise and hired a US credit specialists team. Based in Philadelphia, the new team, formerly employed by Delaware Investments, will develop US credit products, and be integrated with our UK-based credit team, becoming a vital component of our global offering. Hiring this team allows us

Absolute return is governed by the Hedge Fund Executive Management Committee, chaired by Paul Graham with David Elms representing the equity managers. We discuss this business area in more detail on the next page.

We simplified the structure of our Equities investment management teams where we reorganised from 18 teams into four key business areas. These four areas reflect our existing strong franchises and where we intend to strengthen and grow the business. This new structure is simpler and makes it

Henderson Group Annual Report 2012

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“We have moved ahead in globalising our fixed income franchise”

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Jim Irvine

Head of Fixed Income

to satisfy increasing client needs for global credit products, from high yield to investment grade. This also now provides US domestic product to distribute through our existing US team (see page 7).

Although these inflows were predominantly into fixed income products, it is encouraging to see that our equity funds are starting to benefit from improved market sentiment towards Europe and equities more generally.

Institutional

The Institutional business, particularly in Fixed Income, continued to perform strongly in 2012. It is therefore disappointing that we had net outflows in the year as explained on the previous page. That said, we are encouraged by our ongoing strong investment performance and the positive consultant ratings in our Institutional business. This, together with additional capabilities we now have in place, or are in the process of establishing, means we are well placed to meet our clients needs.

We remain one of the leading investment trust managers in the UK and the trust range has delivered excellent performance over one and three years with all of our investment trusts, except one, outperforming on a one year view. We have therefore been disappointed by the recent loss of two trusts. The Henderson Asian Growth Trust has replaced Henderson as manager of the trust and Henderson Fledgling Trust have decided to merge with another trust to achieve scale.

Retail

In our UK retail funds, performance has improved over one year and in our European SICAV fund range, performance continues to be strong over all periods. The performance in our US Mutual fund range has picked up significantly over one year as performance in the International Opportunities Fund improved, finishing the year in first quartile.

Absolute return funds

Along with the industry, our absolute return funds were tested by the volatility in markets. Outflows continued in 2012 due to some underperformance and in particular the lower demand for equity long/short strategies. Encouragingly, performance improved in the second half of the year as markets recovered, resulting in our absolute return fund range being modestly positive for the year.

Despite our best ever year of gross sales across our retail business, net sales in UK retail were hampered by the impact of the RDR as advisers repositioned their clients’ portfolios ahead of its implementation on 1 January 2013. As mentioned on page 19, we have taken a number of steps to protect and grow our UK retail business. Although it is hard to predict exactly how regulatory change will impact business models, we are well placed by forming alliances with key decision-makers and the adjustments we have made to our fund range over the year.

Encouragingly, we were recently appointed as manager on the SVM Global Trust, a £160m specialist private equity and alternatives trust.

In order to focus on the needs of investment trust clients, we have raised awareness of the merits of investing in investment trusts in a post-RDR world.

Again, focused on our clients, we have made extensive use of social media and launched HGi, which offers our clients a direct link to the latest thinking from influential experts on global investment regions, asset classes, economics and markets (see more on page 15).

We continue to see a shift in demand from relative return to absolute return investing and as such, absolute return remains an important part of our growth strategy. The acquisition of Gartmore strengthened our absolute return proposition and we aim to build on this by growing and improving the management of our existing hedge funds as well as expanding our product range. This is supported by our acquisition of a 50% interest in Northern Pines which will extend and diversify our absolute return product range and provides further solutions for our clients (see page 6).

Our US Mutual fund range was negatively impacted by eurozone concerns, resulting in net outflows for the year. That said, we are confident that flows will improve as the outlook for the eurozone improves.

Flows in our European retail SICAV range ended the year strongly, resulting in this fund range recording net inflows for the year.

Henderson Group Annual Report 2012

Business review continued

Property and Private Equity

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“We seized opportunities to grow and strengthen the Property business”

James Darkins Managing Director, Property

Management France SAS (Horizon), a privately owned French asset management business we nearly doubled our French AUM across the retail, offices and logistics sectors. These two businesses complement each other as Horizon’s primary capability is in the office sector whilst our existing expertise lies within the retail sector.

year extension for our AUB French Logistics Fund. This extension has enabled the fund to improve its debt facility and will facilitate the active disposal programme in order to optimise exit pricing.

Property

2012 was a tough year for the real estate industry with changes in regulation, refinancing and fundraising challenges, short supply of good quality properties and increasing pressures for landlords to respond to a rapidly changing world. However, we seized many opportunities through the year to grow and strengthen our business.

We raised further capital for our German Retail Income Fund and for our CASA Partners V Fund (the latest fund in Henderson’s North American multi-family housing series). In addition, further capital was raised for a number of the Warburg Henderson products including Warburg – Henderson Österreich Fonds Nr. 2 (the second in a series of funds investing in Austrian real estate). This closed its investment period in July 2012, having raised €180m from German and Austrian investors, providing it with approximately €360m of capital to deploy in the Austrian property market.

In keeping with changing client needs, we also developed new products. For example, the Henderson German Logistics Fund, aimed at German and Austrian institutional investors. This is a partnership between our German property business and Palmira Capital Partners, a renowned specialist in the logistics sector. The fund focuses exclusively on existing, high quality logistics assets in prime locations throughout Germany. We believe there is significant opportunity in this relatively untapped sector, especially considering the structural changes as a result of the growth of e-commerce. We also entered the commercial real estate debt space and our foray into the Asia Pacific region where we became investment adviser to a Singapore joint venture – Silk Road.

We continued to find value for clients in traditional core markets, such as Germany, while offering innovative new products in new territories, such as outlet mall developments in China.

Property AUM grew by £115m from £12.4bn to £12.5bn as net inflows of £276m were partially offset by negative market and foreign exchange rate movements of £161m. We started the year with £1.4bn of uninvested client commitments. Aggregate transactions for the year totalled £1.7bn and, as a result of selective investments, we ended the year with £0.9bn of uninvested client commitments. We plan to deploy these commitments in the US and Europe over the next few years.

2012 saw us leverage our multi-sector real estate underwriting experience to enter the UK commercial real estate debt space. We look forward to developing this platform further in 2013, with the development and marketing of new fund concepts including the High Income Real Estate Debt Fund.

As a closed-ended pooled fund operator, we inevitably face fund termination dates. We engage with clients to determine the best solution for them and factors we consider include current and forecast market conditions and fund performance and asset values. We successfully extended our flagship UK Shopping Centre Fund by seven years. We are confident that this presents us with an opportunity to further drive returns for existing investors, whilst providing an opportunity for new investors to enter the fund. We also secured a three

A key priority was to develop our distribution channels so that we can deliver our existing product strengths and expertise to new clients. Given the considerable demand for property investments in Sweden and the wider Nordic region, we opened an office in Stockholm. To further boost our development and distribution of property funds in Italy, we formed a joint venture with Investire Immobiliare SGR, a leading Italian property funds asset management company owned by Banca Finnat Euroamerica Group. With the acquisition of Horizon Investment

Regulatory changes are also impacting the Property business and preparing for the implementation of the AIFMD and its impact is important as it will bring real estate business into a tighter regulatory framework.

Henderson Group Annual Report 2012

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“We are focused on maximising the value of our existing portfolio companies”

Priscilla Davies Managing Director, Private Equity

Looking to 2013 and beyond, we are optimistic about the outlook for property as an asset class. Backed by traditional fundamentals of strong income return, relatively low correlation with other asset classes and the potential to hedge inflation, property is attracting increasing interest as investors turn to ‘real assets’. The current environment continues to require us to adapt, and our business is well placed to meet clients’ needs.

under the terms of the agreement reached, we paid the costs of the proceedings and in return the proceedings were withdrawn without any admission of liability.

The Asian private equity funds have performed well. The first fund has delivered a net IRR of 14.6% per annum over 12 years. The fund’s remaining investment is expected to be realised in 2013, following the realisation of the penultimate investment at the beginning of 2013, which generated a gross multiple of cost of 1.9 times. The second fund has commenced processes to consider realisation opportunities in the portfolio. During the first half of 2012, the Asian private equity business suspended fundraising efforts for its India focused fund primarily due to a change in investor sentiment towards the region resulting from increased regulatory uncertainty surrounding proposed retrospective tax changes.

Private Equity

Total AUM decreased from just over £1.0bn to £918m as a result of net distributions to investors of £66m and market and foreign exchange rate movements of £63m.

In the Infrastructure business, we continued to progress strategic and business initiatives at John Laing. It achieved strong new investment volumes including an investment in the UK Department for Transport’s £4.5bn Intercity Express Programme for the delivery of a new fleet of high speed trains.

The Fund of Funds business has had another strong year. The listed Fund of Funds vehicle, Henderson Private Equity Investment Trust plc, almost completed its realisation strategy, selling another five unlisted funds and six listed holdings during the year. The trust’s discount to net asset value decreased from 20% to 9%, and it made cash distributions totalling £47.5m to shareholders during the year.

The valuation for Fund I has continued to improve during the year. Notwithstanding the good progress in the John Laing business, we expect that the difficult market conditions, particularly the banking market, will have a meaningful negative impact on the valuation for Fund II as at 31 December 2012. We continue to work hard to improve the value of Fund II.

The unlisted global Fund of Funds vehicle continued to perform well and has now delivered a net IRR of 12.9% per annum over 11 years.

As previously announced, in December 2011, two subsidiaries and Fund II were served with legal proceedings by a majority of investors which principally alleged breach of mandate and misrepresentation. This matter was resolved in January 2013 and,

We are focused on maximising the value of our existing portfolio companies for our clients in 2013.

Henderson Group Annual Report 2012

Financial review

Strengthening financial performance

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Financial performance

Underlying profit before tax decreased by 8% to £146.5m. This was primarily due to lower performance and transaction fees, partially offset by a decline in variable staff compensation and continued cost control. As a result, the operating margin saw only a slight decline from 36.3% to 36.0% and the compensation ratio reduced from 41.6% to 41.1%. Underlying profit post tax was stable, but an increase in the average number of shares in issue resulted in lower diluted earnings per share of 11.7 pence from 12.4 pence.

Total income and fee margins

Management fee income decreased by 1% to £355.2m, mainly due to net fund outflows in 2011 and 2012 offsetting the additional quarter of Gartmore revenue in 2012. Transaction fees decreased by 14% to

Source of performance fees

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£33.9m
Institutional clients 49%
Absolute return funds 13%
Investment trusts 11%
Property 10%
Private Equity 10%
SICAVs 6%
UK OEICs 1%
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“We continued to generate strong operating cash flow in 2012”

Shirley Garrood Chief Financial Officer

£43.7m, primarily due to the sale of Hermes private equity JV and other one-off fees in 2011. Performance fees decreased by 48% to £33.9m as performance fees earned from absolute return funds and SICAVs were substantially lower. The main contributors to performance fees are shown in the chart on this page.

Finance income and expenses

Finance income increased by £1.7m to £5.0m as the Group recognised profits on the disposal of certain seed investments. Finance expenses decreased by £2.9m to £14.3m, mainly due to the repayment of the Group’s £142.6m 2012 Notes in May 2012, reducing the Group’s interest charge. This was partially offset by an additional quarter of interest on the £150.0m 2016 Notes issued on 24 March 2011.

These decreases in income impacted the total fee margin which decreased 6% to 66.6bps as a result of lower performance and transaction fees, whilst the management fee margin increased by 2% to 54.6bps, largely due to a higher proportion of the outflows being lower margin institutional business and an additional quarter of Gartmore revenue.

Non-recurring items

The non-recurring items recognised in 2012, resulted in a net post-tax credit of £18.5m. The Group recognised £26.6m net management fees on Fund II following the resolution of matters in dispute. This was partially offset by a £9.1m restructuring charge to simplify certain parts of the Group’s business and reduce headcount to lower staff costs. The FSCS has increased the one-off levy in relation to 2010/2011 resulting in the Group recognising an additional charge of £2.5m. In addition, the Group has increased its void property provision by £1.2m. More details are provided in note 7 to the financial statements.

Total operating expenses

Operating expenses decreased by 9% to £277.0m. Employee compensation and benefits decreased by £20.0m to £179.9m. Variable staff costs fell by 25% and contributed £25.7m of this decrease as performance fee bonuses and other staff incentive plans reduced reflecting business performance. Fixed staff costs increased by £5.7m, primarily due to an increase in pension costs following the decision by the trustee of the Henderson Group Pension Scheme to switch more of the asset allocation from return seeking to risk reducing, which has resulted in a lower than expected return on assets. However, underlying fixed staff costs remained flat as the actions taken at the end of 2011 offset the cost of an additional quarter of Gartmore staff and the additional hires supporting our growth initiatives. Other operating expenses decreased by £6.7m or 6% reflecting the Group’s continued cost control.

Tax

The tax charge on underlying profit for the year was £19.5m resulting in an effective tax rate of 13.3%. The effective tax rate on underlying profit is less than the pro rata UK corporation tax rate of 24.5%, primarily as a result of the difference in tax rates on earnings generated overseas and the utilisation and recognition of previously unrecognised tax losses. We expect our effective tax rate to be closer to 20% in the future.

26 Henderson GroupAnnual Report 2012

In December we announced a change in the Company’s tax residency from the Republic of Ireland to the UK.

AUM and fund flows

Total AUM at 31 December 2012 was £65.6bn, an increase of £1.3bn from 31 December 2011. During 2012, the Group had net fund outflows of £3.9bn as market volatility and uncertainty impacted clients’ demand for risk assets. The Institutional business saw net outflows of £1.9bn, Retail net outflows of £1.2bn and Phoenix net outflows of £0.8bn. Market and FX movements added £5.2bn as market levels improved, particularly in the latter stages of 2012.

Investment performance

Investment performance of the Group’s funds remained strong. Overall, 73% and 69% of funds exceeded their benchmarks over one and three years respectively. Looking at the asset classes, 81% and 72% of equity funds and 79% of fixed income funds were either achieving or beating their benchmarks over one year and three years. The property funds achieved 34% and 47% for one year and three years respectively.

In our UK retail funds, performance over one year has improved. Our SICAVs continue to perform strongly over all periods. The performance in the US mutual fund range has picked up significantly over one year as performance in the International Opportunities Fund improved, finishing the year in the first quartile. Our investment trusts had another good year with all but one of our trusts outperforming their benchmark.

Along with the industry, our absolute return funds were tested by the volatility in markets. However, performance picked up in the second half of the year with the vast majority of our funds being positive for the year.

The Institutional business continued to perform strongly with our fixed income range, in particular, having delivered excellent performance for our clients.

Liquidity and capital resources

The Group’s business continued to generate strong operating cash flows during 2012 with net cash flows from operating activities, totalling £166.8m. The Group repaid in full the £142.6m of the 2012 Notes in May 2012 from its existing cash resources.

Cash and cash equivalents at 31 December 2012 were £196.9m. After deducting the manager dealing accounts of £29.0m, unrestricted cash stood at £167.9m.

Gross debt, at par, amounted to £150.0m at 31 December 2012. Therefore, the Group ended 2012 in a net unrestricted cash position of £17.9m, compared to a net debt position of £28.0m at 31 December 2011.

The Group cancelled its remaining £200m multicurrency term facility and its £75m revolving credit facility on 3 February 2012 and 15 January 2013 respectively. The Group’s focus remains, subject to external factors, to repay the 2016 Notes and to strengthen the Group’s capital position.

Pension schemes

The Group has five pension schemes. A defined benefit scheme and a defined contribution scheme, together forming the Henderson Group Pension Scheme (HGPS), the Gartmore Pension Scheme (GPS) and three smaller unapproved pension top-up schemes for former executives.

There was a net surplus in HGPS of £125.4m, after tax deducted at source, at 31 December 2012. The decrease in the surplus was mainly due to a reduction in the discount rate used to value the scheme liabilities.

In April 2012, the trustee of GPS, entered into a buy-in insurance agreement with Pension Insurance Corporation that covers the accrued pension of all members of the scheme. As a result, the Group has reduced its exposure to the risks associated with the scheme. GPS, which is closed to future accrual, had a net surplus of £4.8m, after tax deducted at source, as at 31 December 2012.

The liability in respect of the Group’s unapproved pension schemes amounted to £7.2m at 31 December 2012.

Regulatory requirements

The Group is subject to regulatory oversight and inspection by the FSA and other international regulatory bodies. Consequently, the Group’s internal controls, governance, procedures and capital are reviewed on a continuous basis. Both management and the Board ensure that the Group is compliant with its regulatory obligations at all times. In 2011, as part of the Gartmore acquisition process, the Group was granted a new waiver from consolidated supervision which is valid until April 2016.

The regulatory capital surplus of the Group under the parent financial holding company test increased to £954m as at 31 December 2012 (2011: £623m) following the corporate restructure carried out as part of the change in tax residency from the Republic of Ireland to the UK announced on 13 December 2012.

Dividends

The Board is recommending a final dividend for 2012 of 5.05 pence per share which will bring the total dividend for 2012 to 7.15 pence per share, an increase of 2%. The proposed final dividend will be paid on 31 May 2013 to shareholders on the register on 10 May 2013.

The Board has adopted a progressive dividend policy and will continue to apply a dividend formula where the next interim dividend will be 30% of the total dividend for the previous year, assuming the Group has the resources to fund the dividend.

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Shirley Garrood Chief Financial Officer

Henderson Group Annual Report 2012

Risk management

Managing risk at all levels

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“We meet our business objectives within acceptable risk parameters”

Andrew Steward Chief Risk Officer

provide a forum for resolving and managing BRC’s principal activities

risk and regulatory issues. Day-to-day during 2012 responsibility for the management of risk is delegated to line management who work reports which addressed both significant closely with the Risk function to maintain strategic and operational issues which an effective system of control and oversight. occurred during the year as well as

Our risk management framework helps us meet our business objectives within acceptable risk parameters and it is reviewed regularly so that new and emerging risks are identified early on.

The BRC received regular risk management reports which addressed both significant strategic and operational issues which occurred during the year as well as emerging risks. Reports on aggregated credit risk were provided to each meeting which included matters such as the monitoring of credit risks related to countries within the eurozone and counterparty risks. The assessment of risks arising from the potential break-up of the eurozone was presented and updated throughout the year.

Our culture embeds the management of risk at all levels within our organisation. The framework we operate under also ensures that we meet our business objectives without exceeding our risk appetite and it is subject to continuous review to ensure it recognises both new and emerging risks in the business.

Our framework utilises a ‘three lines of defence’ approach to managing risk: the first line is represented by business management managing risk and having in place effective controls; the second line comprises an independent Risk function which monitors the operation of those controls and ensures risks are not overlooked and a Compliance team which monitors regulatory risks. The third line is provided by Internal Audit which operates and reports independently of management to the Audit Committee and is responsible for assessing the effectiveness of controls and, where necessary, making recommendations for improvements and monitoring management action plans to implement such improvements.

Risk management

During 2012, the pace of regulatory change has continued unabated and the BRC was regularly updated on developments and implications for risk management. The BRC was briefed on the G30 paper on Governance, the FSA’s Annual Retail Conduct Risk Outlook and the results of industry surveys undertaken on asset managers’ risk management practices and current themes. Other matters considered included issues relating to the derivative risk management framework in light of all the regulatory and other changes occurring in that area. The BRC also approved the updated CRO’s and Risk function’s priorities and objectives for 2012 and 2013.

The Board considers risk assessment and the existence of effective controls to be fundamental to achieving the Group’s corporate objectives within an acceptable risk and reward profile. Throughout 2012, there has continued to be an ongoing process for identifying, evaluating, managing and mitigating risks within the Group’s control which accords with the guidance set out in the “Turnbull Report – Internal Control: Revised Guidance for Directors on the Combined Code – October 2005”. No significant failings or weaknesses were identified during this period by this process. A summary of the Group’s risk policy can be found on our website (www.henderson.com) and the key risks and their mitigation are outlined under Risk management on pages 30 and 31.

Quarterly risk reports provided to the Board Risk Committee (BRC) include material business risks such as credit, market and operational risks and the Chief Risk Officer (CRO) provides regular reports to the BRC on these topics. The Risk function also maintains an incident management process and reports regularly to the ExCo.

The BRC reviewed and approved the updated Group Risk Management Framework and Policy Statement, an abbreviated copy of which can be found on the Group’s website. It also approved the updated Credit Risk Policy at the beginning of the year.

The Board considers the scope of the activities of the BRC and the reporting framework set out above gives it sufficient information upon which to assess the effectiveness of the Group’s system of internal controls and to assess the actual and potential risks facing the Group.

The responsibility for managing risk lies with the ExCo. There are also a number of management committees chaired by, and consisting of, senior managers that have responsibility for specific areas of risk. These

Henderson Group Annual Report 2012

The reverse stress test was reviewed and updated; this requires the Group to identify explicitly the scenarios most likely to render the business unviable and then assess them. As part of this exercise, an overview of possible significant events and mitigating management actions was considered. Semi-annually, the Internal Capital Adequacy Assessment Process document is updated by the Risk function in conjunction with the relevant business areas. The BRC then reviewed, challenged and recommended its approval to the Board following approval by the ExCo. The BRC also reviewed the risks relating to litigation matters.

Further information on the BRC’s role in monitoring and assessing the Group’s management of risk is set out in the Governance section.

Three lines of defence

Henderson Group plc Board

Board Risk Committee 1[st] Line of Defence 2[nd] Line of Defence

Audit Committee

3[rd] Line of Defence Internal Audit

Chief Executive Risk and Business Management Compliance Functions

[Primary responsibility for ] •[Risk management ] strategy, performance and oversight is provided risk management lies with by the BRC with the the Board, the Chief CRO working with Executive and the heads counterparts in the of each division and divisions and operating operating business businesses and
•[Business management ] with Compliance is responsible for ensuring Henderson has in place effective internal controls
[Independent assurance ] on the effectiveness of the risk management systems is provided by Internal Audit reporting to the Audit Committee
[Audit of business areas ] based on an assessment of risk with higher risk activities audited more frequently

Henderson Executive Committee

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Andrew Formica Shirley Garrood Lesley Cairney James Darkins Jacqui Irvine Chief Executive Chief Financial Chief Operating MD, Property General Counsel Officer Officer

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Jim Irvine Graham Kitchen Andrew Steward Phil Wagstaff Head of Head of Chief Risk Global Head Fixed Income Equities Officer of Distribution

Also directors of Henderson Group plc.

Henderson Group Annual Report 2012

Risk management continued

Key risks and their mitigation

The key risks faced by the Group fall into a number of distinct categories and the means adopted to mitigate them are both varied and relevant to the nature of the risk concerned.

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----- Start of picture text -----

Acquisition Credit Foreign currency Key personnel Liquidity
The risk of organisational The risk of a counterparty The risk that the Group The risk of losing either The risk that the Group
stress through the potential to the Group defaulting will sustain losses through a member of the ExCo may be unable to meet
demands made on staff on funds deposited with adverse movements in or one of the Group’s key its payment obligations
and resources through the it or the non-receipt of exchange rates. investment or distribution as they fall due.
need to integrate acquired a trade debt. professionals. This could
businesses. This risk is have an adverse effect
aligned to the Group’s on both the growth of the
long-term strategy that business and/or the
involves willingness to retention of existing
consider the acquisition business.
of businesses.
We only consider We have an established We mitigate this risk through We operate competitive We manage liquidity
acquisitions which fit with Credit Risk Policy to either the effect of natural remuneration structures on a daily basis within the
our strategic goals and meet ensure credit risk arising hedges i.e. holding financial designed to recognise Finance function, to ensure
our financial criteria such from transactions with assets and liabilities of equal and reward performance. the Group has sufficient
that we can realise value for counterparties is assessed, value in the same currency, We also have succession cash and/or highly liquid
our shareholders. Thorough managed and monitored and by limiting the net planning to ensure that assets available to meet
due diligence is performed in line with the Group’s risk exposure to an individual there is cover for key roles its liabilities. The Group
before any acquisition is appetite. Furthermore, the currency or by hedging should they become vacant. ensures that it has access
made and this includes Credit Risk Committee exposure arising from In addition, staff surveys to funds to cover all forecast
assessing the ability meets regularly to approve, available-for-sale financial identify any issues which commitments for at least
of the Group to integrate review and set limits assets. A Hedge Committee could adversely impact the following 12 months.
successfully the acquired for all new and existing oversees the risk and staff retention and During the year, the 2012
business. There have been counterparties. As a result reports to the Board monthly. comprehensive training is Notes were repaid.
no material acquisitions of the continuing eurozone As a result of the market offered ensuring skills and Henderson does not bear
during the year and the issues, there has been conditions during 2012, knowledge reside in more any liquidity risk associated
Gartmore businesses heightened focus on there has continued than one individual. with our clients’ funds and
acquired in 2011 have been monitoring counterparties to be heightened focus has no obligation to provide
successfully integrated. during 2012 and limits on monitoring euro short-term liquidity to
have been changed denominated assets. our clients.
as appropriate.
Description
Mitigation
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Henderson Group Annual Report 2012

Investment Market Operational Regulatory/legal Reputational performance The risk that funds fail The risk that market The risk that the Group The risk that a change The risk that negative to achieve performance conditions lead to a decline will sustain losses through in laws and regulations publicity regarding the hurdles or benchmarks. in the value of Group inadequate or failed internal will materially affect the Group will lead to a loss This might cause clients to available-for-sale financial processes, people, systems Group’s business or markets of revenue or litigation. redeem their investments, assets and/or a reduction and external events. This in which it operates. The The risk of damage to which in turn would result in the value of clients’ AUM, includes the risk arising from Group’s business is subject the Group’s reputation in a reduction in revenue which would result in a failing to manage key to many regulations in is more likely to result earned by the Group. reduction in the level of the outsourced service providers different jurisdictions and from one of the risks Poor fund performance revenue that is based on the and also the risk arising currently the pace of change materialising rather than will also result in lower value of clients’ AUM. from business disruption is significant and may affect as a standalone risk. performance fees. (the occurrence of events the business either directly which could have a material or indirectly by reducing impact on the operations investors’ appetite for our of the business). products, increasing capital requirements or in some other way.

We mitigate this risk through We mitigate the risk on the We operate a system of We continuously monitor We believe that reputational a robust investment process Group’s available-for-sale controls which is designed regulatory developments, risk is mitigated through which includes detailed financial assets by investing to ensure operational risks via a dedicated team in the effective mitigation research. We also have in a diversified range of are mitigated to an Compliance. Where there of the other key risks. a clearly articulated assets and mitigate a fall acceptable level. The is likely impact on our In addition, we regularly investment philosophy in the value of clients’ AUM operation and effectiveness business, we have working communicate with clients and analyse our funds by having a broad range of the controls are regularly groups in place to implement and the market and, by comparing their of clients by distribution assessed and confirmed the changes. The broader in doing so, help to performance against channel, product, asset class through the work of the Compliance team monitors mitigate the risk of appropriate benchmarks. and region. In addition, the Group’s assurance functions: ongoing regulatory reputational damage. We maintain a broad range Group actively seeks fee Risk, Compliance and obligations and engages of funds to reduce the bases which are not solely Internal Audit. Outsourced in regular dialogue with probability of multiple funds related to the market value service providers are our regulators. In 2012, underperforming at the of AUM and makes a overseen by the relevant this included AIFMD, same time. An independent significant amount of its line function and, for key RDR and derivatives. Investment Risk function expense base variable. relationships, their controls monitors risk and are also reviewed by the performance against Group’s assurance functions. appropriate benchmarks We maintain and test and works closely with business continuity plans fund managers and senior which are designed to management to review ensure that, should an the monitoring reports. event occur which disrupts business activity, we are able to maintain our operations without irreparable damage being done to the business.

Henderson Group Annual Report 2012

Corporate responsibility

A sustainable approach to business

We are committed to interacting responsibly with our stakeholders and our report covers four areas as summarised below.

Marketplace

Aims and objectives We operate high standards of corporate governance and take an active approach to voting in investee companies. Our adoption of the UN Principles for Responsible Investment creates a framework for considering environmental, social and governance (ESG) issues that have the potential to add value to our investment decisions. As well as managing Sustainable and Responsible Investment (SRI) funds where ESG issues are proactively considered, we have a Responsible Investment Policy that outlines our commitment to integrate ESG in our non-SRI equity funds. The management of our property assets adhere to our Responsible Development and Investment Policies.

Progress in 2012

[ The Investment Management Responsible ] Investment Committee, which oversees the implementation of our policy, was further expanded to include representatives from all fund management teams, across our Equity and Fixed Income teams, as well as from our Investment Risk function.
[We put in place a process for screening ] all our major company holdings for compliance with the Global Compact, a set of 10 principles in the areas of human rights, labour, the environment and anti-corruption. This process is now being used to identify potential engagement issues.
[We established a new initiative to screen ] companies for material ESG issues ahead of company meetings. External specialist research on corporate governance and environmental and social issues is used to identify key engagement issues for fund managers to raise at meetings with company management.
[Our Property team is a founder ] participant in the new IPD/Royal Institution of Chartered Surveyors initiative EcoPAS, designed to enable investors and valuers to understand the potential environmental risks in a property portfolio by focusing on the environmental variables thought likely to impact asset value and investment performance.
[We also had our first ‘A’-rated property ] asset in the UK following the recent installation of solar photovoltaics (PV) panels, as part of our policy to provide on-site renewable energy to tenants and reduce carbon emissions.
[We were again awarded four ‘Green ] Stars’ in the 2012 Global Real Estate Sustainability Benchmark for our Shopping Centre Fund, Central London Office Fund and UK and European Outlet Mall Fund. This year over 430 companies responded to the survey, an increase of 30% on 2011.

2013 plans

[Maintain high standards of client service ] and explore ways to integrate ESG factors across all our asset classes.
[Integrate ESG risk measures into ] monthly investment risk reports. Reports will identify the highest risk companies in portfolios as rated by specialist research firms and performance relative to the benchmark.
[Further improve the availability and ] integration of specialist ESG research for our fixed income fund managers and analysts.
[Improve data collection processes for ] measuring fund level performance on stewardship and responsible investment related issues.
[ Review extending the external ] verification of our corporate governance work to include engagement as well as voting, in line with the revisions to the UK Stewardship Code announced in September 2012.
[Lead one of the Better Building ] Partnership’s outreach programmes, including London-wide energy benchmarking, sector education programmes, forward procurement strategy with the Institute for Sustainability and pioneering Landlord Energy Rating certification.

Workplace

Aims and objectives

We aim to ensure that all our policies meet best practice and comply with relevant employment legislation and the Universal Declaration of Human Rights, creating a working environment free from discrimination and harassment.

We have learning and development programmes and solutions to develop, attract and retain talent (see more on page 16). We are committed to building staff share ownership and creating a reward approach that consists of both financial and non-financial elements when recognising individuals’ performance.

Progress in 2012

[We completed the roll out of a new ] learning and development platform with 37% of staff attending one session or more.
[We took on 34 trainees into our ] Trainee Programme, see page 17 for further details.

32 Henderson GroupAnnual Report 2012

[Our employee share schemes remain ] well supported with 90% of staff involved in one or more schemes. We continue to be recognised as one of the UK’s leading companies for fostering employee share ownership.
[ We held interactive workshops for ] all of our staff worldwide in response to the 2011 staff survey, which highlighted employee desire for increased communication on strategy.

2013 plans

[Continue to use the feedback from ] 2012 staff survey results to identify areas for improvement.
[ Encourage employees to make ] further use of our learning and development courses.
[ Build on our Trainee Programme ] success and encourage more apprenticeships, school leavers and those from diverse backgrounds. We have also partnered with other firms to develop the programme.

Environment

Aims and objectives

We follow responsible environmental practices for all Group operations and aim to minimise any adverse impact on the environment.

We continue to measure our emissions and carbon footprint for all energy consumption, business travel and waste generation and aim to retain our status as a CarbonNeutral Company by procuring credits through verified carbon offset schemes.

Progress in 2012

[We maintained our status as a ] CarbonNeutral Company by offsetting our net emissions of 3,275 tonnes CO²e.
[We have committed to extend our ] CarbonNeutral Company status until the end of 2015 by procuring credits from a wide range of emission reducing projects in Europe, America and Asia.
[Our gross emissions increased by 8% ] from the previous year, due primarily to business travel as we extend our global reach in the US and Asia.
Notwithstanding this, we continue to focus on delivering our business in the most efficient way possible. Our efforts have resulted in an improved Carbon Disclosure Project (CDP) score and performance band.
[Our CDP ranking was sixth out ] of 22 for lowest emissions per employee for Comparable Capital Market CDP respondents.
[Our environmental initiatives at our ] London office were recognised with the building winning the top award of the Chairman’s Cup in the Clean City Award Scheme.
[We participated in a government funded ] study to evaluate the environmental performance of our London office against the intended design outcomes. The results of the study will be published in 2013.
[We continue to be active members of the ] Broadgate Environmental Working Group.

2013 plans

[Maintain our status as a CarbonNeutral ] Company and focus on our energy reduction programme in our London office.
[Maintain and develop our ] waste management, re-use and recycling programme.
[Complete an environmental study, ] publish results and progress any agreed-upon recommendations to improve environmental performance.
[Focus on the avoidance of travel between ] international offices through increased use of video conferencing.

Community and supply chain

Aims and objectives

We foster positive relationships with the local London community, as this is where the majority of our employees work. Activities focus on employee involvement and charitable donations, and we encourage everyone to participate by matching money raised, pound for pound as well as offering time off for community and charitable activities.

We also aim to ensure that our suppliers and service providers operate responsible labour and environmental practices, and have practices in line with our Corporate Responsibility Policy.

Progress in 2012

[We launched the Henderson Foundation ] to bring greater focus and clarity to our corporate responsibility objectives. We donated a total of £162,213 to community and charitable purposes, compared with £149,532 in 2011. The majority of this donation came from matching employees fundraising for over 50 charitable causes local, national and international. In addition to staff related fundraising, we continued our sponsorship of £50,000 to the Isaac Newton Institute, a leading mathematics institute, and £10,055 to Community Links, our preferred charity since 1987. This is an inner city charity running community-based projects in East London, close to our London office.
[ We substantially increased the number ] of UK staff using the Give as You Earn scheme to 12% of staff.

2013 plans

[Encourage a better take-up in ] employee volunteering and look to improve links with local schools and charitable organisations to source candidates for the Henderson Trainee Programme.

For more information, please visit www.henderson.com

Henderson Group Annual Report 2012

Governance

Strong governance

“We favour high standards of corporate governance, and we try to meet them ourselves”

Rupert Pennant-Rea Chairman

Chairman’s introduction

2012 was another busy time for the Board, during which the Company changed its tax residency from the Republic of Ireland to the UK following the UK government’s Controlled Foreign Company reform. We also restructured our Board in light of the change in residence. I would like to thank David Jacob and James Darkins for the effort, commitment and valuable contributions made to the Board.

As previously announced, I will be stepping down from the Board at the AGM in May 2013 after serving as a Director for almost nine years. I welcome Richard Gillingwater who will be succeeding me as Chairman immediately following the AGM.

Increased regulatory change, difficult markets and a growing emphasis on corporate governance are all features of the world in which we operate. I believe that Henderson has the right governance structures in place to meet these challenges.

A description of our business model and our strategy for achieving our goals is set out on pages 12 and 13.

UK Corporate Governance Code and ASX Principles

The Directors embrace, and are subject to, the high standards of corporate governance contained in the UK Corporate Governance Code issued by the FRC in June 2010 (UK Code) and the Corporate Governance Principles and Recommendations with 2010 Amendments issued by the ASX Corporate Governance Council in June 2010 (ASX Principles). Compliance with the new UK Corporate Governance Code, published in September 2012, which applies from the

financial year commencing on 1 January 2013 will be disclosed in the 2013 Annual Report and Accounts. The UK Code and the ASX Principles can be found on the websites of their respective organisations at www.frc.org.uk and www.asx.com.au. The Company’s corporate governance policies can be found on our website.

The Company complied with the UK Code and the ASX Principles in 2012 except in regard to the setting and disclosure of gender diversity targets. We recognise that the principles of equality and diversity are fundamental to our success and that this will continue to add value to the way in which our business operates in the future. While we do not have formal diversity targets, as we believe that appointments should be based on merit and objective criteria, we are committed to promoting equality and diversity in the workplace and recognise the need for, and benefits of, diversity in helping us attract and retain high potential employees. We have policies, employee benefits and business practices in place to support a diverse workforce.

This statement, together with the Report on Directors’ remuneration, describes how we applied the ‘main principles’ set out in the UK Code and complied with the ASX Principles. Further details can be found in the corporate governance section of our website. The ASX Principles also encourage companies that are not subject to the Australian Corporations Act 2001 to adopt practices and make disclosures to achieve the aims of the provisions contained in certain sections of that Act. We achieved the aims of some of those provisions, although not fully on senior executives’ remuneration.

Our disclosure of individuals’ remuneration is limited to the Executive Directors who were members of the Board in 2012. Disclosure of the remuneration of non-directors is not a requirement in the UK and we consider this information to be commercially sensitive. However, we have disclosed the aggregate annual remuneration of Code Staff (as defined on page 62 in the Report on Directors’ remuneration) on page 62.

The Board’s structure

The Board comprises a Non-Executive Chairman, two Executive Directors and six other Non-Executive Directors (including the Chairman Designate). Biographical details of the Directors are set out on pages 42 and 43.

Although the Chairman, Rupert Pennant-Rea, met the independence criteria on appointment, the UK Code provides that the test of independence is not appropriate thereafter. We consider all the other Non-Executive Directors – Sarah Arkle, Kevin Dolan, Duncan Ferguson, Richard Gillingwater, Tim How and Robert Jeens – to be independent, as they do not have any interest or business or other relationship which could, or could reasonably be perceived to, interfere materially with their ability to act in the best interests of the Company. We have considered the criteria proposed by the UK Code and the ASX Principles in assessing the independence of the Directors. Materiality, as referred to in the ASX Principles, has been assessed on a case-by-case basis by reference to each Director’s individual circumstances rather than general materiality thresholds. We are satisfied that the independent Directors meet a quantitative materiality threshold for independence, which is that no Director has

Henderson Group Annual Report 2012

a relationship with the Group which generates or accounts for more than 5% of the Group’s revenue or expenses. Accordingly, the Board (excluding the Chairman) has a majority of Directors who are independent. Tim How is the Senior Independent Director. There is a division of responsibility between the Chairman, who is responsible for leading the Board and ensuring its effectiveness, and the Chief Executive who is responsible to the Board for the overall management and performance of the Group. The Chairman’s other significant commitments are shown in the Board of Directors section on page 42.

Non-Executive Directors are initially appointed for a fixed term, normally of three years, and any subsequent terms are considered by the Board. If a Non-Executive Director is reappointed after having served six years, such reappointment, and any subsequent reappointment, will normally be for a period of 12 months. The remuneration of the Non-Executive Directors is shown on page 50. The terms and conditions of their appointment are on our website, as is the process for their appointment and reappointment.

At our AGM held on 2 May 2012, shareholders reappointed James Darkins, Kevin Dolan, Duncan Ferguson, Andrew Formica, Shirley Garrood, Tim How, David Jacob, Robert Jeens and Rupert PennantRea as Directors. Our next AGM is due to take place on 1 May 2013, when all Directors on the Board at that date, apart from Rupert Pennant-Rea, will be seeking reappointment in accordance with the recommendations of the UK Code.

Diversity

Our Human Resource policies and staff benefits aim to attract and retain a diverse and flexible workforce. In order to assist us in monitoring our progress on gender diversity, senior management review statistics on numbers and proportions of men and women in the workplace generally and broken down by: working patterns; status; length of service; turnover; region; division; and salary band.

We apply the same principles at Board level. Candidates for appointment to the Board are identified taking into account:

[the current composition of the Board, ] with due regard for the benefits of diversity on the Board, including gender;
[the need for independence;]
[the strategic direction and progress of ] the business; and
[the geographic spread and diversity of ] the Group.

Shirley Garrood was the only woman on the Board until the appointment of Sarah Arkle in September. The composition of the ExCo was recently reviewed. The women representation on the Board is now 22%. The addition of the General Counsel, Jacqui Irvine, and the Chief Operating Officer, Lesley Cairney, in January 2013, means the proportion of women on the ExCo has increased to 33%.

Responsibilities and operation of the Board

The Board met 16 times in 2012, of which seven were scheduled meetings. The Board, the Board Risk Committee and the Remuneration Committee met in Paris in January 2012 and the Board, Remuneration Committee and Board Risk Committee met in Frankfurt in October 2012. All other Board and standing Board Committee meetings were held in Ireland, until December 2012, when the Company changed its tax residency from the Republic of Ireland to the UK by means of a corporate restructuring.

The number of meetings held by the standing Committees during the year are set out later in this statement. We are scheduled to meet at least seven times in 2013.

Additional meetings will be held as required, or at the request of a Director.

During each meeting, Directors are given the opportunity to question and challenge any initiatives and proposals from management. The Board held two meetings dedicated to strategy, in addition to considering regular strategy updates from management during the year. Some of the Non-Executive Directors also attended the senior management conference held in May 2012.

To enable us, as a Board, to perform our role effectively, we are provided with the means and information necessary for us to make informed decisions and to follow best corporate governance practices. In addition, the Chairman, Chief Executive and Chief Financial Officer hold agenda-setting meetings before each Board meeting to review the items of business, the likely time to be spent on each agenda item, who should present particular items and to ensure that appropriate papers are provided.

We receive detailed reports on the various aspects of the business and of any major issues affecting it, which includes a monthly performance report. An overview of the matters considered by the Board in 2012 is on page 37.

We reviewed and approved our corporate governance policies and manual in 2012. These include, but are not limited to, an overview of the Company’s corporate governance procedures, a policy on trading in the shares of the Company by Directors and employees and the Code of Conduct which sets out our values and standards. We have a Market Disclosure and Communication Policy designed to ensure compliance with our disclosure obligations and a Chief Disclosure Officer to oversee this. Together, these corporate governance policies set a framework within which the Directors and employees are expected to protect the interests of shareholders, clients, employees and suppliers. These policies and other corporate governance documents are on our website.

All Directors have access to the advice and services of the Company Secretary and the General Counsel. The Company Secretary can be appointed or removed only with the approval of the Board. Ms Jacqui Irvine was appointed as Company Secretary with effect from 12 December 2012, replacing Ms Fionnuala Hanrahan. The Directors are entitled to seek independent professional advice, at the Company’s expense, where they judge it necessary for them to discharge their responsibilities.

Training

To ensure that the Directors continually update their skills and knowledge, all Directors receive regular presentations on different aspects of the Group’s business and on financial, legal and regulatory matters affecting our sector. For example, during 2012, the Directors received training regarding Convertible Bonds and Group and subsidiary FSA Matters, Market Abuse and Insider Dealing and Treating Customers Fairly. At the meeting in Frankfurt, the Directors received overviews on European macro concerns and European and Latin America retail businesses as well as an update on the future of the euro.

Evaluation of the Board’s performance

Following the external Board evaluation in 2011, we conducted an internal evaluation in 2012.

The evaluation of the Board and Board Committees involved Directors completing a questionnaire about Board composition, Board process, Group strategy and interaction with shareholders with a similar approach being followed for each Committee.

Henderson Group Annual Report 2012

Governance continued

The results of the evaluation were collated and presented to the Board, which included a small number of non-material enhancements to the Board process.

To evaluate individual Directors, the Chairman held a formal evaluation meeting with each Director, taking into account the views of the Directors who had all completed a questionnaire about the skills and experience of the members of the Board. The Chairman’s own performance evaluation was led by Tim How, the Senior Independent Director. For this, the Directors completed a questionnaire which focused on the Chairman’s performance and the Chairman also conducted a self-evaluation which was shared with the Senior Independent Director. After taking account of the results of these questionnaires, the Senior Independent Director met with the other Non-Executive Directors (excluding the Chairman) and evaluated the Chairman’s performance. He then met with the Chairman to discuss the outcome of the evaluation.

A report was presented to and considered by the Board following the evaluation process, at which it was agreed that both the Board and its Committees continue to operate effectively.

The performance of Andrew Formica, Chief Executive, was evaluated by the Chairman and the Remuneration Committee. The evaluation of the members of the ExCo was undertaken by the Chief Executive and the Remuneration Committee.

The performance evaluations were conducted in accordance with the processes disclosed on our website.

Delegations of authority

A schedule of matters reserved for approval by the Board is reviewed annually and is also on our website. The Board has granted specific delegated authorities (with financial limits approved by the Board) to the Chief Executive, the Chief Financial Officer and senior executives in respect of financial, accounting, treasury, regulatory and other matters relating to the Group’s business and these were reviewed and updated during 2012.

The delegations of authority are based on the Chief Executive’s authority from the Board. The delegations cover three levels: the Chief Executive’s delegations (level one), the delegations of the Chief Executive’s direct reports (level two), and the delegations of matters to senior executives (level three). A list of persons to whom these three levels of delegations apply and the authority to sub-delegate is set out in these delegations.

ExCo

The Chief Executive along with the other ExCo members are responsible for developing business strategy and, once approved by the Board, for ensuring that the strategy is implemented in accordance with the approved operating plan and complies with internal policies and controls.

Other operating committees have been appointed, or, following a review, are in the process of being constituted, to manage aspects of our business, which include the:

[Investment Performance & Risk Committee;]
[Operating Risk & Performance;]
[Global Strategic Product Committee;]
[Hedge Fund Executive Management ] Committee;
[Fair Value Pricing Committee;]
[Credit Risk Committee;]
[Financial Instruments Committee;]
[Hedge Committee;]
[Market Disclosure Committee; ]
[Investment Management Responsible ] Investment Committee;
[Henderson Equity Partners Investment ] Committees and Henderson Private Equity Portfolio Monitoring Committees; and
[Henderson Property Investment ] Committees and Executive Management Team.

Together, the above committees form part of the risk management framework that monitors and mitigates the risks and uncertainties set out on pages 30 and 31.

Investor relations

We actively engage with investors and investor bodies and welcome the opportunity to discuss their views on relevant issues. The Board also receives regular feedback from the Investor Relations team and the Executive Directors about investors’ and analysts’ views on the Group and also wider industry matters. The monthly performance report provides a summary of our largest shareholders and significant movements in the share register and reviews share price performance and key market and sector developments.

Our website provides online services to help shareholders manage their holding and engage with the Investor Relations team and Share Registry. To assist shareholders in accessing up-to-date information on the Group, market briefings and other Company announcements and presentations are available on our website. The Company’s Market Disclosure and Communication and

Shareholder Communication Policies, which are designed to promote effective communication with shareholders, are available on our website. We publish our financial results on both the LSE and the ASX. The 2011 Annual Report and Accounts were sent to all shareholders that had requested it and all other shareholders were notified, via post or email, that the 2011 Annual Report and Accounts are available on our website.

Our Executive Directors meet with institutional shareholders and equity analysts regularly. The Chief Executive and the Chief Financial Officer met our largest shareholders during 2012 and those shareholders were all offered meetings with the Non-Executive Directors.

All shareholders were invited to the AGM held on 2 May 2012, held in Dublin and simultaneously broadcast to a venue in Sydney. All Directors attended the AGM. Notice of the AGM was given to shareholders and a summary of the questions asked at the AGM and the answers given, together with the results of resolutions put to the AGM, are on our website.

Board Committees

We have delegated specific responsibilities to four standing Committees of the Board. The membership of the Board Committees and a summary of their main duties and terms of reference are set out in this statement. The Committees’ terms of reference are on our website.

Henderson Group Annual Report 2012

Summary of Board business

An overview of the topics addressed by the Board in 2012

January

Revolving Credit Facility

February

Final Dividend for 2011

Retail Distribution Review Notice of AGM

Treasury Mandate Treating Customers Fairly

Annual Report and Full Year Results Annual Review of Internal Controls

May

1Q12 Interim Management Statement Internal Capital Adequacy Assessment Process (ICAAP)

June

Strategy Day

Specialised Insurance Renewal

August

Interim Results

Interim Dividend for 2012

Treating Customers Fairly

Board Evaluation

October

Strategy Update Draft Annual Budget and Review of Initiatives

Review of Corporate Governance Arrangements

Review of External Advisers

Delegation of Authorities

October Continued

Internal Capital Adequacy Assessment Process (ICAAP)

3Q12 Interim Management Statement

December

2013 Budget and Five Year Strategic Plan

Change of Residency Treating Customers Fairly

For more information visit us online at

www.henderson.com

Board
Date appointed1
Number of
meetings2
Meetings
attended2
Meetings
attended2
Rupert Pennant-Rea (Chairman)
01/10/2004
16
15
94%
Gerald Aherne3
01/10/2004
5
5
100%
Sarah Arkle
05/09/2012
6
5
83%
James Darkins4
04/05/2011
16
13
81%
Kevin Dolan
26/09/2011
16
16
100%
Duncan Ferguson
01/07/2004
16
15
94%
Andrew Formica
05/11/2008
16
16
100%
Shirley Garrood
26/08/2009
16
16
100%
Richard Gillingwater
06/02/2013
–
–
n/a
Tim How
28/11/2008
16
16
100%
David Jacob4
04/05/2011
16
15
94%
Robert Jeens
29/07/2009
16
16
100%

For any period prior to and including 31 October 2008, these appointment dates are references to the previous holding company of Henderson Group with registered number 2072534 (since renamed as HGI Group Limited). For any period after 31 October 2008, such references apply to Henderson Group plc, the current holding company of the Group, with registered number 101484 (referred to as the Company). This also applies to the Audit, Nomination, Remuneration and Board Risk Committees.
The number of meetings represent those whilst a Director.
Gerald Aherne resigned as a Director on 2 May 2012.
James Darkins and David Jacob resigned as Directors of the Company on 12 December 2012.

Henderson Group Annual Report 2012

Governance continued

Board Risk Committee

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Duncan Ferguson

“Risk assessment and the existence of effective controls are fundamental to achieving our objectives”

Membership

Duncan Ferguson is the Chairman of the Board Risk Committee. The other current members are Sarah Arkle, Kevin Dolan and Robert Jeens. The Board Risk Committee met five times in 2012.

Membership

Membership
Board Risk Committee	Date appointed	Number of meetings2	Meetings attended2	Meetings attended2
Duncan Ferguson (Chairman)	29/06/2010	5	5	100%
Gerald Aherne1	29/06/2010	2	1	50%
Sarah Arkle	17/10/2012	1	1	100%
Kevin Dolan	26/09/2011	5	5	100%
Robert Jeens	29/06/2010	5	5	100%

Gerald Aherne resigned as a Director on 2 May 2012. 2. Whilst a member of the Committee.

Responsibilities

compliance and the principal risks and uncertainties relating to the Group. It reviews the work and reports prepared by the Chief Risk Officer (CRO) (who reports directly to the Chairman of the Board Risk Committee) and oversees the effectiveness of the CRO’s role.

The Board Risk Committee is responsible for overseeing, managing and assessing the Group’s key risks through a mixture of qualitative guidance and quantifiable limits. The Board Risk Committee is forward looking and advises the Board on the Group’s risk profile and risk appetite in setting its future strategy. It also advises the Board on the amount of surplus regulatory capital that should be held and oversees the effectiveness of the risk management framework and procedures. Responsibilities include the monitoring of both regulatory

Board Risk Committee’s principal activities during 2012

The Risk management statement (refer to pages 28 to 31) provides details on how the Board Risk Committee exercised its responsibilities during 2012.

Audit Committee

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Membership

Audit Committee	Date appointed	Number of meetings	Meetings attended	Meetings attended
Robert Jeens (Chairman)	26/08/2009	5	5	100%
Tim How	11/05/2009	5	5	100%
Duncan Ferguson	09/06/2005	5	5	100%

Robert Jeens

“We are responsible for overseeing the reliability and appropriateness of financial reporting and internal controls”

Membership

Robert Jeens is the Chairman of the Audit Committee. The other current members are Duncan Ferguson and Tim How. All members of the Committee are independent and have “recent and relevant financial experience” and “financial expertise” as recommended by the UK Code and the ASX Principles. Robert Jeens has competence in accounting and auditing as required by the Disclosure and Transparency Rules. The Audit Committee met five times in 2012, all of which were scheduled meetings.

Responsibilities

The Audit Committee is responsible for overseeing the reliability and appropriateness of the Group’s financial reporting, overseeing the effectiveness of the Group’s system of internal controls, assessing the effectiveness of the Internal Audit function, reviewing the performance and independence of the external auditors (as well as being responsible for recommending their appointment, reappointment and removal) and reviewing the Group’s arrangements in respect of whistleblowing. However, ultimate responsibility for reviewing and approving the Annual Report and Accounts and other public reports, declarations and statements remains with the Board. A description of how the Audit Committee spent its time discharging its responsibilities during 2012 is set out hereafter.

Audit Committee’s principal activities during 2012

Reliability and appropriateness of the Group’s financial reporting As part of the oversight of the reliability and appropriateness of the Group’s financial reporting, the Audit Committee received and reviewed reports from management and the external auditors relating to the Annual Report and Accounts of the Group and the Company as well as the Interim Report and Accounts, interim management statements, related disclosures and the financial reporting process. This included the review and approval of the timetable and deliverables for both the annual and interim results. In addition, it involved a consideration of the Income Statement, Statement of Comprehensive Income, Statement of

Henderson Group Annual Report 2012

Audit Committee continued

Financial Position, Statement of Changes in Equity and Statement of Cash Flows with changes in the status of significant financial matters being highlighted.

Internal controls

The Audit Committee received an internal controls report each quarter which contained an update from each of the Internal Audit, Legal and Compliance functions.

The Internal Audit section of the report contained an update of outstanding audits in accordance with the Internal Audit Plan and the results of audits undertaken throughout the business, together with any findings and outstanding actions. The Audit Committee also received a list of auditable activities ranked in priority of risk.

The Legal section set out a summary of significant known or potential claims made by or against the Group.

The Compliance section set out a summary of any significant compliance issues facing the Group including priority areas relating to a combination of business as usual, and other regulatory developments including the Bribery Act, Retail Distribution Review arrangements, UK and overseas regulatory matters such as the Dodd-Frank Act, the US Commodity Futures Trading Commission, the European Short Selling Regulations, the AIFMD, the review of a Conflicts of Interest Policy for the Group, and updates regarding contact and meetings with the FSA. Where necessary, the updates included actions undertaken or those recommended to be undertaken by the Group.

The Audit Committee also received the Money Laundering Reporting Officer’s report and received various tax updates.

Internal audit

The Audit Committee reviewed Internal Audit in 2012 and was satisfied with the performance of the function.

External auditors and auditor independence

The external auditors are Ernst & Young LLP. The Audit Committee reviewed and approved the external auditors’ remuneration and engagement letter and reviewed the effectiveness of the external auditors during 2012 and agreed that the services provided by the external auditors were satisfactory. The audit engagement partner and senior audit team members are rotated every five years and no contractual obligations exist to restrict the choice of auditors of the Group and the Company.

The Charter of Statutory Auditor Independence was also reviewed, which requires both the Company and the external auditors to take measures to safeguard the objectivity and independence of the external auditors. The Charter takes into account the FRC Guidance on Audit Committees. The policy includes those services which are deemed to be preapproved, those which need prior approval and those which are prohibited. These measures include a prohibition regarding any non-audit services in respect of specific areas (e.g. secondments to management positions) or which could create a conflict or perceived conflict. It also includes information on the procedures for the selection, appointment and rotation of the external audit engagement partner. The Charter is on our website.

The Audit Committee reviewed and authorised details of the non-audit services provided by the external auditors during the year (refer to note 4.2 to the financial statements for a summary of the fees paid) and agreed that the provision of non-audit services by the external auditors did not compromise their objectivity or independence. The Audit Committee considered the risk and contingency plan in the event of the withdrawal of the external auditors from the market.

The external auditors will be asked to attend the Company’s AGM on 1 May 2013 and will be available to answer questions from shareholders about the conduct of the audit and the preparation and content of the Independent Auditors’ Report as shown on page 64.

The internal and external auditors attended all Audit Committee meetings during the year and, on one occasion, met the Non-Executive Directors without the Executive Directors being present.

Outside the framework of formal meetings, Robert Jeens meets and has regular contact with the Chief Executive, the Chief Financial Officer, the Head of Finance, the Head of Internal Audit (with a new Head of Internal Audit being appointed in 2012), the Head of Compliance and the senior engagement partner of our external auditors.

Oversight of internal controls

The Board has overall responsibility for the Group’s system of internal controls and for reviewing its effectiveness. The system of internal controls is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The effectiveness of the Group’s system of internal controls is reviewed at least annually by the Board in order to safeguard the Group’s assets as well as clients’ and shareholders’ interests. For 2012, this review covered all material controls including financial, operational, compliance controls and risk management systems. As part of its review, the Board received assurances from the Chief Executive and the Chief Financial Officer that the statement provided on page 63 is founded on a sound system of risk management and internal controls and that the system is operating effectively in all material respects in relation to financial reporting risks. In addition, the ExCo reported positively to the Board on the effectiveness of the Group’s system of internal controls and the mitigation of any material business risks.

Our system of internal controls requires line managers to confirm regularly that controls in their respective areas have operated effectively. These controls, and the risks which they are designed to mitigate, are maintained within the Group’s operational risk database, which in turn reflects the risk profiles of each part of the Group’s business.

Henderson GroupAnnual Report 2012 39

Governance continued

Internal controls over financial reporting

Our financial reporting process has been designed to provide reasonable assurance regarding the reliability of the financial reporting and preparation of financial statements, including consolidated financial statements, for external purposes, in accordance with IFRS. This process is under the supervision of the Chief Executive and the Chief Financial Officer and has appropriate internal controls to ensure its effectiveness. The internal controls include policies and procedures that:

[relate to the maintenance of records that, ] in reasonable detail, accurately and fairly reflect the transactions and disposals of the Group’s assets;
[provide reasonable assurance that ] transactions are recorded as necessary to permit preparation of financial statements, and that the receipts and expenditures of the Group are being made only in accordance with authorisations of management and Directors; and
[provide reasonable assurance regarding ] prevention or timely detection of unauthorised acquisition, use or disposal of Group assets that could have a material effect on the Group’s financial statements.

Nomination Committee

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Rupert Pennant-Rea

Membership

Rupert Pennant-Rea is the Chairman of the Nomination Committee. All the other Non-Executive Directors are members of the Nomination Committee. The Nomination Committee met five times in 2012.

Responsibilities

The Nomination Committee has responsibility for considering the size, composition, expertise, experience and balance of the Board, and the appointment and retirement of Directors and making recommendations to the Board on these matters.

Nomination Committee’s principal activities during 2012

In 2012, the Nomination Committee instructed an external search consultancy, Ridgeway Partners, to identify suitable candidates for an additional Non-Executive Director. The brief provided to Ridgeway Partners was to compile a list of candidates with direct fund management industry and, ideally, distribution experience. A list of candidates was circulated to the Board, following which the Chairman met with the Senior Independent Director. A shortlist of two candidates was prepared for interview and they were considered by the Chairman, the Senior Independent Director and the Chief Executive following which a recommendation was made to appoint Sarah Arkle to the Board as a Non-

“We reviewed the mix of diversity, skills and experience on the Board today and what will be needed tomorrow”

Executive Director. In 2012, the Nomination Committee also instructed an external search consultancy, The Zygos Partnership, to identify suitable candidates to succeed Mr Pennant-Rea as Chairman. Led by the Senior Independent Director, five candidates were interviewed in total, after which the search was narrowed down to two individuals with final interviews held. Following further meetings with each of the Senior Independent Director, certain of the other Non-Executive Directors, the Chief Executive and the Chief Financial Officer, a recommendation was made to the Board in 2013 to appoint Richard Gillingwater to the Board as a Non-Executive Director and Chairman Designate. An induction programme was arranged and held for Sarah Arkle in 2012 and Richard Gillingwater in 2013 following their appointments to the Board. This included receiving presentations from the business areas and meeting key individuals within the Group to ensure that they have an appropriate level of knowledge of the Group, its business, regulatory aspects and the risks facing it.

Ridgeway Partners and The Zygos Partnership have no other connection with the Company. The Nomination Committee also reviewed the mix of diversity, skills and experience on the Board and succession planning for the Board.

Membership

Membership
Nomination Committee	Date appointed	Number of meetings2	Meetings attended2	Meetings attended2
Rupert Pennant-Rea
(Chairman)	01/03/2005	5	5	100%
Gerald Aherne1	12/05/2005	–	–	n/a
Sarah Arkle	16/10/2012	1	1	100%
Kevin Dolan	26/09/2011	5	5	100%
Duncan Ferguson	12/05/2005	5	5	100%
Richard Gillingwater	06/02/2013	–	–	n/a
Tim How	28/11/2008	5	5	100%
Robert Jeens	26/08/2009	5	5	100%

Gerald Aherne resigned as a Director on 2 May 2012. 2. Whilst a member of the Committee.

Henderson Group Annual Report 2012

Remuneration Committee

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Tim How

Membership

Tim How was appointed as the Chairman of the Remuneration Committee on 2 May 2012. The other current members are Sarah Arkle, Kevin Dolan and Duncan Ferguson. The Remuneration Committee met five times in 2012.

Responsibilities

The Remuneration Committee has responsibility for making recommendations to the Board on the Group’s remuneration plans, policies and practices and for determining, within agreed terms of reference, specific remuneration packages for the Executive Directors and other members of the ExCo. These include pension rights, compensation payments (if any) and the implementation of executive incentive schemes. The Remuneration Committee operates on the principle that members of the ExCo should

“We review and approve the Group’s remuneration plans and Human Resources practices”

be provided with incentives to encourage superior performance and should, in a fair and responsible manner, be rewarded for their individual contributions to the success of the Group. The Remuneration Committee also agrees, maintains and periodically reviews a list of Code Staff to ensure the correct individuals are identified and their remuneration structures are reviewed for compliance with the FSA Remuneration Code.

Remuneration Committee’s principal activities during 2012

The Report on Directors’ remuneration (refer to pages 48 to 62) provides details on how the Remuneration Committee exercised its responsibilities during 2012 and also contains a statement on whether externally appointed remuneration consultants have any other connection with the Company.

Financial reporting and going concern

The Directors have acknowledged their responsibilities in the Directors’ responsibilities statement in relation to the consolidated financial statements for the year ended 31 December 2012 (refer to page 63).

Our business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive’s review on pages 7 to 11. The financial position of the Group, and its cash flow and liquidity position are described in the consolidated financial statements and notes. In particular, note 28 to the financial statements summarises the Group’s objectives, policies and processes for managing its financial risk management objectives, details of financial instruments used and hedging activities and its exposures to market, liquidity, credit, price, interest rate and foreign currency risks.

The Group has sufficient financial resources together with diverse revenue streams. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.

The Directors closely monitored the material uncertainties inherent in current and expected market conditions, the trading performance of the Group and the debt instruments issued by the Group in 2011.

After thorough examination, the Directors are satisfied that the Company has and will maintain sufficient financial resources to enable it to continue operating in the foreseeable future, and therefore, continue to adopt the going concern basis in preparing the Annual Report and Accounts.

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Membership

Membership
Remuneration Committee Tim How (Chairman) Gerald Aherne1	Date appointed 28/11/2008 01/10/2004	Number of meetings2 5 2	Meetings attended2 5 2	Meetings attended2 100% 100%
Sarah Arkle	16/10/2012	2	2	100%
Kevin Dolan	26/09/2011	5	5	100%
Duncan Ferguson	02/05/2012	3	3	100%

Rupert Pennant-Rea Chairman 26 February 2013

Gerald Aherne resigned as a Director on 2 May 2012. 2. Whilst a member of the Committee.

Henderson Group Annual Report 2012

Board of Directors

Experienced leadership

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Rupert Pennant-Rea Andrew Formica Shirley Garrood Richard Gillingwater Chairman of the Board Chief Executive Chief Financial Officer Independent and Chairman of the Non-Executive Director Nomination Committee and Chairman Designate Mr Pennant-Rea has Mr Formica has been with Mrs Garrood is a chartered Mr Gillingwater was, until extensive financial and the firm and in the fund accountant and corporate recently, Dean of Cass business experience. He management industry since treasurer and has worked Business School. Prior to was Deputy Governor of the 1993. He has held various in the City for over 30 years. this he spent 10 years at Bank of England from 1993 senior roles with the Group She joined the Group in Kleinwort Benson, before to 1995, prior to which he and he has been a member 2001 and has been a moving to BZW and, in due spent 16 years with The of the ExCo since 2004. member of the ExCo since course, becoming joint Head Economist, where he was Prior to being appointed 2002, formerly as Chief of Corporate Finance and editor from 1986 to 1993. Chief Executive of the Operating Officer. Prior then latterly Chairman of Company, he was Joint to this, she was Chief European Investment Managing Director of the Operating Officer at Morley Banking at Credit Suisse Listed Assets business Fund Management (Aviva) First Boston. He was Chief (from September 2006) and and trained as an Executive and later was Head of Equities (since accountant with KPMG. Chairman of the Shareholder September 2004). In the Executive and has also been early part of his career, he a Non-Executive Director of was an equity manager and P&O, Debenhams, Tomkins, analyst for the Group. Qinetiq Group and Kidde.

Sarah Arkle Independent Non-Executive Director

Ms Arkle has been in the financial industry for over 30 years. She joined Allied Dunbar Asset Management in 1983 which became Threadneedle in 1994. She was most recently Vice Chairman of Threadneedle until the end of July 2012 and was Chief Investment Officer until December 2010, a role she held for 10 years. She was instrumental in establishing Threadneedle’s investment process and recruiting a number of the firm’s senior fund managers. Previously, Ms Arkle worked at the Far Eastern stockbroker WI Carr (Overseas) Limited and was an advisor to the South Yorkshire Pension Fund.

Non-Executive Director since October 2004 and Non-Executive Chairman since March 2005. Current 12 month term of office expires in September 2013[3] but will step down after the AGM in May.

Executive Director since Executive Director since November 2008. No fixed August 2009 and Chief term of office.[2] Financial Officer since September 2009. No fixed term of office.[2]

Non-Executive Director Non-Executive Director since 6 February 2013. since September 2012. Current three year term Current three year term of office expires in of office expires in February 2016. September 2015.

Mr Pennant-Rea is Mr Formica was appointed to None. Mr Gillingwater is the Ms Arkle is currently a Non-Executive Chairman of the Board of the Investment Non-Executive Chairman Non-Executive Director the Economist Group. His Management Association in of CDC Group plc and Senior of Foreign & Colonial other directorships include September 2012. Independent Director of Investment Trust plc and a Go-Ahead Group plc, Gold Hiscox Ltd, Helical Bar plc member of the Newnham Fields Limited (South Africa) and SSE plc. He has been College, Cambridge and Hochschild Mining plc. appointed as a Non-Executive Investment Committee. Director of Wm Morrison Supermarkets Plc with effect from 1 March 2013.

Chairman of the Board and Chairman of the Nomination Committee. Mr Pennant-Rea attends meetings of other Committees by invitation.

Mr Formica attends Committee meetings by invitation.

Mrs Garrood attends Committee meetings by invitation.

Mr Gillingwater is a member Ms Arkle is a member of the of the Nomination Board Risk, Nomination and Committee. Mr Gillingwater Remuneration Committees. attends meetings of other Ms Arkle attends meetings Committees by invitation. of the Audit Committee by invitation.

Henderson Group Annual Report 2012

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Kevin Dolan Duncan Ferguson Independent Independent Non-Executive Director Non-Executive Director and Chairman of the Board Risk Committee

Tim How Senior Independent Director and Chairman of the Remuneration Committee

Robert Jeens Independent Non-Executive Director and Chairman of the Audit Committee

Mr Dolan has been in the Mr Ferguson is an Mr How has extensive Mr Jeens has extensive financial industry for 33 experienced actuary. business experience. He experience of financial years. Mr Dolan has held Mr Ferguson’s career was in was Chief Executive of services initially as an audit various executive positions, senior management of Majestic Wine PLC from partner in Touche Ross & including as Chief Executive insurance companies and as 1989 until August 2008 and Co and subsequently as of the Asset Management a consulting actuary. He was was formerly Managing Finance Director of Division of Bank of Ireland Senior Partner of Bacon & Director of Bejam Group Plc. Kleinwort Benson Group Group and Chief Executive Woodrow which became He was also a Nonplc and Woolwich plc. His of Edmond de Rothschild B&W Deloitte, from 1994 to Executive Director of previous Non-Executive Asset Management. He 2003. Mr Ferguson is a Framlington AIM VCT 2 plc. Director appointments spent 10 years with the AXA Fellow of the Institute of include the Chairman of Group where he was Chief Actuaries. He served on the nCipher plc and the Deputy Executive Officer of AXA Council of the Institute from Chairman of Hepworth plc. Investment Managers Paris, 1989 to 2000 and as He was also a Nonand Global Deputy Chief President from 1996 to Executive Director of Executive Officer of AXA 1998. He was also a Dialight plc and Gartmore Investment Management. He Non-Executive Director of Fledgling Trust plc. Mr was Chief Executive of La Halifax from 1994 until it Jeens was a Director of Fayette Investment merged with Bank of The Royal London Mutual Management in London from Scotland in 2001 and then Insurance Society Limited 2006 until 2009. Mr Dolan of HBOS Financial Services from 2003 to May 2012. has been a Director on a until December 2007. He number of boards in Europe was Chairman of various life and the US, including DLJ companies of Phoenix and and Alliance Capital. their With-Profits Committees from 2003 to 2012.

Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director since September 2011. since July 2004. Current since November 2008 and since July 2009. Mr Jeens’ Mr Dolan’s current three 12 month term of office Senior Independent Director current three year term of year term of office expires expires in May 2013.[3] since January 2010. Mr office expires in July 2015. in September 2014. How’s current three year term of office expires in November 2014. Mr Dolan is the founding Mr Ferguson is the Senior Mr How is the Senior Mr Jeens is a Nonpartner of Anafin LLC, an Independent Director of The Independent Director of Executive Director of TR advisory firm specialising in Royal London Mutual Dixons Retail plc and the European Growth Trust the investment industry. He Insurance Society Limited. Non-Executive Chairman of PLC and JPMorgan was appointed as a Director Downing Income VCT 4 PLC Russian Securities plc. of Meeschaert Gestion (formerly Framlington AIM Privee in October 2012. VCT plc). He is also the Chairman of Rayner and Keeler Limited and Woburn Enterprises Limited and the Deputy Chairman of the Peabody Trust. He was appointed as a Non-Executive Director of Peabody Capital plc in February 2012.

Non-Executive Director since July 2009. Mr Jeens’ current three year term of office expires in July 2015.

Mr Dolan is a member of the Chairman of the Board Risk Board Risk, Nomination and Committee and a member of Remuneration Committees. the Audit, Nomination and Mr Dolan attends meetings Remuneration Committees. of the Audit Committee by invitation.

Chairman of the Remuneration Committee and a member of the Audit and Nomination Committees. Mr How attends meetings of the Board Risk Committee by invitation.

Chairman of the Audit Committee and a member of the Nomination and Board Risk Committees. Mr Jeens attends meetings of the Remuneration Committee by invitation.

Notes

Resignations:

Gerald Aherne resigned as a Non-Executive Director of the Company on 2 May 2012.

David Jacob and James Darkins resigned as Executive Directors of the Company on 12 December 2012.

All Directors’ appointments are subject to their retirement by rotation and reappointment by shareholders at the Company’s Annual General Meetings.
Executive Directors are employed on annual rolling agreements and their service contracts are terminable on 12 months’ written notice by the Company or on not less than six months’ written notice by the relevant Executive Director.
If a Non-Executive Director is reappointed after having served six years, such reappointment, and any subsequent reappointment, will normally be for a period of 12 months.

Henderson Group Annual Report 2012

Directors’ report

Directors’ report

Principal activities

The principal activity of the Group was the provision of investment management services.

Future developments and business review

The Group’s results for the year are shown in the Consolidated Income Statement on page 66. The Business Review, which is set out on pages 2 to 33, is incorporated into and forms part of this Directors’ Report. Future developments are included in the Chairman’s statement on page 6 and the Chief Executive’s review on pages 7 to 11. The Financial review and KPIs are set out on pages 26 and 27 and pages 20 and 21 respectively.

Corporate governance

The Governance statement appears on pages 34 to 41 and forms part of this Directors’ report.

Branches

The Group continues to operate a number of overseas branches.

Reporting

Shares in Henderson Group plc are listed on both the LSE and the ASX (in the form of CHESS Depositary Interests (CDIs)) and therefore the Company is required to comply with both sets of disclosure requirements.

Events after the reporting date

The Board has not received, as at 26 February 2013, being the date on which the Annual Report and Accounts were approved, any information concerning significant conditions in existence at the reporting date which have not been reflected in the financial statements as presented. The Board has, however, given due regard to the events which occurred after the reporting date as described in note 35 to the financial statements.

Directors

Details of the Board members who served during the year and at the date of this report are set out on pages 42 and 43.

In accordance with the Company’s Articles of Association, one third of the Directors of the Company are required to retire by rotation at each AGM. The retiring Directors are eligible to stand for reappointment by shareholders. The Board may appoint Directors to the Board without shareholder approval. Any Director so appointed must stand for reappointment by the shareholders at the next AGM in accordance with the Articles of Association. In accordance with the UK Corporate Governance Code, all Directors, other than Rupert Pennant-Rea who is stepping down, will offer themselves for reappointment at the AGM on 1 May 2013.

Pursuant to the Articles of Association, shareholders may remove a Director before the end of his or her term by passing an ordinary resolution at a meeting. An ordinary resolution is passed if more than 50% of the votes cast, in person or by proxy, are in favour of the resolution.

Directors’ remuneration and

interests

A report on Directors’ remuneration appears on pages 48 to 62, including details of Directors’ interests in shares and share options or any right to subscribe for shares in the Company.

Directors’ conflicts of interest

The Directors have put in place procedures to deal with conflicts of interest and these have operated effectively throughout 2012. A Register of Conflicts of Interest is maintained by the Company and reviewed by the Board on an annual basis. Any Director who is considering accepting a new external appointment must provide full details of the appointment to the Chairman and Company Secretary. In some cases, the interest or duty of someone who is connected with a Director may give rise to a potential conflict of interest and details of that must also be provided to the Chairman and Company Secretary. The Chairman will then decide whether the relevant appointment causes a conflict or potential conflict of interest and should therefore be considered by the Board. If it is considered and approved by the Board, such interest or potential interest is added to the Register of Conflicts of Interest.

Indemnification and insurance of Directors and officers

The Company provides an Instrument of Indemnity to Directors to the extent permitted by Jersey law, including (i) indemnification against any liabilities incurred in defending any proceedings in which judgment is given in that Director’s favour or the Director is acquitted; (ii) against liabilities incurred otherwise than to the Company, if the Director acted in good faith with a view to the best interests of the Company; and (iii) against any liabilities incurred in successfully applying to the Court for relief where the Director acted honestly.

In addition, the Instrument of Indemnity provides that Directors will have access to Board and Committee papers of the Company for the period of their office and for seven years after ceasing to be a Director for the purpose of defending legal proceedings, and that the Company will maintain Directors’ and Officers’ liability insurance cover for the Directors to the extent permitted by law for the period of their office.

During, or since the end of the financial year, the Company has paid or agreed to pay premiums in respect of a contract insuring all of the officers (including all Directors) of the Group against certain liabilities. The insurance policy prohibits disclosure of the nature of the liability, the amount of the premium and the limit of liability.

Financial instruments

Information regarding the risk management objectives, policies and related matters in respect of the use of financial instruments, including policies for hedging and the exposure to price, interest rate, liquidity, foreign currency and credit risks, can be found in note 28 to the financial statements.

Henderson Group Annual Report 2012

Political donations

The Group made no UK political donations, incurred no European Union political expenditure and made no contributions to non-European Union political parties during the year.

Charitable donations

Donations by the Group during the year towards community and charitable causes amounted to £162,213 (2011: £149,532), which comprised social and welfare £58,432 (2011: £27,920), education and non-UK £53,400 (2011: £13,530), and medical and other projects £50,381 (2011: £108,082).

Supplier payment policy

The Company has no trade creditors. It is the Group’s policy that payments to suppliers are made in accordance with the terms and conditions agreed between Group companies and their suppliers, provided that all trading terms and conditions have been complied with. In respect of the Group’s activities, the amounts due to trade creditors as at 31 December 2012 represent approximately 30 days of average daily purchases throughout the year (2011: 30 days).

Rounding

In accordance with the Australian Securities and Investments Commission Class Order 98/100, amounts in this Directors’ report and other sections of this Annual Report and Accounts have been rounded to the nearest £0.1m, unless stated otherwise.

Annual General Meeting

A separate document, the Notice of Annual General Meeting 2013, covering the AGM of the Company to be held on 1 May 2013, will be sent or made available to all shareholders and will contain an explanation of the business before that meeting.

Share capital and structure

Details of movements in the allotted share capital during the year are given in note 25 to the financial statements.

The share capital of the Company, issued and unissued, consists entirely of ordinary shares of 12.5 pence each. Each share ranks equally and carries the same right to receive dividends and other distributions declared, made or paid by the Company. No restrictions exist on the transfer or holding of securities in the Company under its Articles of Association and there are no shares carrying special rights with regard to the control of the Company.

Substantial shareholdings

At 26 February 2013, in accordance with the provisions of Rule 5 of the Disclosure and Transparency Rules, the Company had received notification of direct and indirect holdings in the Company’s issued share capital as set out in the table below.

Employee share schemes

The Company has a number of employee share schemes. The rights attached to the shares of several of the share schemes are not exercisable directly by employees. The trustees of such share schemes have an obligation to act in the best interests of the beneficiaries of the share schemes and, although the trustees may consider any recommendations made by the Company, where applicable, the discretion to vote remains with the trustees with two exceptions: firstly, in cases of takeover or reconstruction, the employees do have a right to vote via the trustees and secondly, the trustee of the Henderson Group plc Buy As You Earn Share Plan, and its international equivalent, does not have discretion on how to vote. For these plans, the trustee seeks instructions from the employees beneficially entitled to the shares.

Restrictions on voting rights

All shareholders entitled to attend and vote at Company meetings are also entitled to appoint a proxy to attend, speak and vote on their behalf. A member may appoint more than one proxy. Proxy forms must be received not less than 48 hours before the time appointed for holding a meeting, as set out in any notices concerning a general meeting or in any proxy form sent by or on behalf of the Company in relation to a meeting. In addition, the Companies (Uncertificated Securities) (Jersey) Order 1999 provides for a time to be specified in the notice of meeting for determining attendance and voting entitlements. This time may not be more than 48 hours before the meeting. Further details are set out in any Notice of Meeting issued by the Company from time to time.

Amendment to the Articles of Association of the Company

Under the Companies (Jersey) Law 1991, the Company may only amend its Articles of Association if its shareholders pass a special resolution to that effect. A special resolution is passed if two thirds or more of the votes cast, in person or by proxy, are in favour of the resolution.

		Percentage of
Substantial shareholdings	Total number of shares	total voting rights
Perpetual Limited	119,924,360	10.76%
Commonwealth Bank of Australia	55,662,119	5.04%
BlackRock, Inc.	41,389,306	5.02%
IOOF Holdings Limited	49,005,304	4.40%
AMP Limited	43,834,201	3.94%
Westpac BankingCorporation	36,487,919	3.27%

The number of shares and the percentage of voting rights are those at the date the Company was notified.

Henderson Group Annual Report 2012

Directors’ report continued

New issues of share capital and disapplication of pre-emption rights

Under the Company’s Articles of Association, the Directors of the Company are, with certain exceptions, unable to allot any ordinary shares without express authorisation which cannot last more than five years. The Company follows best practice and asks shareholders to grant such authority on an annual basis. Under the Company’s Articles of Association, the Board may not allot ordinary shares for cash, other than pursuant to an employee share scheme, without first making an offer to existing shareholders to allot such shares to them on the same or more favourable terms in proportion to their respective shareholdings, unless this requirement is waived by a resolution of the shareholders passed by a majority of at least three quarters of the holders of the shares who vote in person or by proxy in favour of the resolution.

The Directors have been authorised by shareholders to allot the Company’s unissued shares up to an aggregate nominal amount of £45,800,000, or £91,600,000 when in connection with an offer of equity securities by way of a rights issue to shareholders in proportion to their existing holdings. The former amount represented less than one third of the Company’s issued ordinary share capital as at 31 December 2012. As at 26 February 2013, the Company has authority to allot shares up to a nominal value of £45,800,000, or £91,600,000 when in connection with an offer of equity securities by way of a rights issue to shareholders in proportion to their existing holdings. Shareholders will be asked to renew this authority up to a limit of £46,000,000, or £92,000,000 when in connection with an offer of equity securities by way of a rights issue to shareholders in proportion to their existing holdings, at the AGM on 1 May 2013. The latter allotment ceiling of up to two thirds of the nominal value of the issued shares is in accordance with guidelines issued by the Association of British Insurers.

The Directors have authority to allot equity securities for cash or sell ordinary shares held in treasury (treasury shares) for cash on a non-pre-emptive basis: (a) pursuant to a rights issue; or (b) up to an aggregate nominal amount of £6,875,000. This empowers the Company to make limited allotments of unissued equity shares of the Company or certain rights to acquire such

shares (equity securities) and to sell treasury shares for cash other than in accordance with the pre-emption rights in the Articles of Association. This amount represents less than 5% of the Company’s issued share capital. Shareholders will be asked to renew this authority up to a limit of £6,950,000 at the AGM on 1 May 2013.

Purchase of own share capital

Subject to authorisation by a special resolution passed by shareholders, the Company may purchase its own shares in accordance with the Companies (Jersey) Law 1991. Any shares which have been bought back may be held as treasury shares or, if not so held, would be cancelled, thereby reducing the amount of issued share capital. The Directors have shareholder authority to buy back up to 110,000,000 ordinary shares during the period up to the forthcoming AGM. The maximum number of ordinary shares authorised to be purchased is 110,000,000 minus the number of shares purchased pursuant to any purchases of CDIs made under a Contingent Purchase Contract (CP Contract). The minimum price (exclusive of expenses) which may be paid for an ordinary share is 12.5 pence (being the nominal value of an ordinary share). The maximum price (exclusive of expenses) which may be paid for each ordinary share is the higher of: (a) an amount equal to 105% of the average of the middle market quotations for an ordinary share as derived from the LSE Daily Official List for the five business days immediately preceding the day on which the share is contracted to be purchased; and (b) an amount equal to the higher of the price of the last independent trade of an ordinary share and the highest current independent bid for an ordinary share as derived from the LSE Trading System. No ordinary shares were bought back by the Company during 2012.

The Directors consider that it may be advantageous for the Company to buy back interests in its own CDIs in certain circumstances. However, because CDIs are interests in shares, rather than shares themselves, the Companies (Jersey) Law 1991 provisions which provide for a buy back of shares do not apply to CDIs. The Company, therefore, cannot buy CDIs pursuant to the above authority.

The Company achieves a similar result by entering into a CP Contract with Credit Suisse (Australia) Limited and certain of its affiliates (Credit Suisse) as identified in the CP Contract. Credit Suisse would buy the CDIs in Australia and then convert the CDIs

into shares (Converted Shares). The Company would then have an obligation to buy any Converted Shares from Credit Suisse up to a maximum amount.

The Companies (Jersey) Law 1991 provides that a CP Contract must be approved by shareholders by special resolution. No Converted Shares were bought back by the Company during 2012.

The maximum number of Converted Shares which could be bought back by the Company, together with the number of shares bought back by the Company under the authority to purchase its own shares set out above, is limited to 110,000,000, which represented under 10% of the Company’s issued share capital at 26 February 2013. Shareholders will be asked to renew these authorities up to a limit of 110,000,000 ordinary shares at the AGM on 1 May 2013.

Significant agreements

HGI Group Limited (a wholly-owned subsidiary of the Company) repaid the outstanding £142,592,000 2012 Notes on 2 May 2012 in accordance with the terms of their issue. Henderson UK Finance plc (a wholly-owned subsidiary of the Company) has in issue £150,000,000 2016 Notes maturing on 24 March 2016 and listed on the LSE. Condition 7.3 of the terms and conditions of the 2016 Notes gives each noteholder the option to require Henderson UK Finance plc to redeem or (at Henderson UK Finance plc’s option) to purchase that 2016 Note at its principal amount together with accrued interest in the event of a ‘Change of Control’. A ‘Change of Control’ will be deemed to have occurred if any person or persons acting together come(s) to own more than 50% of the share capital of Henderson Group plc (or more than 50% of the voting rights attached to the share capital of Henderson Group plc) save in circumstances where the ultimate shareholders remain the same. In the event that 80% or more in the nominal amount of the 2016 Notes then outstanding has been redeemed or purchased in accordance with this condition, Henderson UK Finance plc may redeem, at its option, the remaining 2016 Notes as a whole at their principal amount plus accrued interest.

On 15 January 2013, the Group cancelled its £75.0m revolving credit facility.

Independent auditors

Ernst & Young LLP have indicated their willingness to continue in office and a resolution that they be reappointed will be proposed at the 2013 AGM.

Henderson Group Annual Report 2012

Directors’ statement as to disclosure of information to auditors

The Directors who were members of the Board at the time of approving this Directors’ report are listed on pages 42 and 43. Having made enquiries of fellow Directors and of the Company’s auditors, each of these Directors confirms that:

[so far as the Director is aware, there is ] no relevant audit information needed by the Company’s external auditors in connection with preparing their report of which the Company’s external auditors are unaware; and
[the Director has taken all the steps that ] he or she ought to have taken as a Director in order to make themselves aware of any relevant audit information needed by the Company’s external auditors in connection with preparing their report and to establish that the Company’s external auditors are aware of that information.

Signed in accordance with a resolution of the Board of Directors:

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Andrew Formica Chief Executive

26 February 2013

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Rupert Pennant-Rea Chairman

26 February 2013

Henderson Group Annual Report 2012

Report on Directors’ remuneration

Rewarding performance

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“Linking pay and performance is key to a successful executive reward strategy”

Tim How Chairman Remuneration Committee

Dear Shareholders,

About the report

As the newly appointed Chairman of the Remuneration Committee, I am pleased to present our 2012 report on Directors’ remuneration for your approval at the Annual General Meeting on 1 May 2013 in the UK and Australia.

This report is in accordance with applicable legislation and corporate governance guidance in the UK, Australia and Jersey. With the majority of our shareholders in Australia and the UK, we have taken voluntary steps to improve the disclosure in this report.

The report is designed to provide you with information to demonstrate the link between the Group’s strategy, its performance and executive remuneration.

Furthermore, in striving to comply with both UK and Australian legislation, this report includes:

[a description of the membership and role of the Group’s ] Remuneration Committee;

This year, we have introduced a new format to the remuneration report. This includes disclosures on the levels of executive pay and the links between pay and business performance.

[a summary of the remuneration policy of the Group including ] a statement of the Group’s policy on Directors’ remuneration;
[details of the terms of the service agreements and the ] remuneration of each Director for the preceding financial year;

We operate in an increasingly regulated and competitive pay environment which means it is essential that we strike the right balance on levels of executive pay and reporting. I have summarised the key points on remuneration in 2012 on the next page.

[details of the share options and awards under long-term incentive ] schemes, held by the Directors; and
[details of each Director’s interest in shares.]

The report also meets the requirements of the Listing Rules of the UK Listing Authority. It sets out how the principles of the UK Corporate Governance Code and the ASX Principles relating to Directors’ remuneration are applied by the Group. In addition, it outlines our compliance with the FSA Code on Remuneration.

Henderson Group Annual Report 2012

Key points on Executive Directors’ remuneration in 2012

Base salary

The base salaries of the Executive Directors were unchanged in 2012 and they are expected to remain unchanged in 2013.

[A][ndrew Formica’s base salary (£350,000) has remained ] unchanged since his appointment to Chief Executive on 5 November 2008. The base salary for the role of Chief Executive has remained unchanged for seven years.
[Shirley Garrood’s base salary (£300,000) has remained ] unchanged since her appointment to Chief Financial Officer on 1 September 2009. The base salary for the role of Chief Financial Officer has remained unchanged for 10 years.

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See page 51

Annual bonus

[Andrew Formica’s annual bonus for 2012 was 257% of base ] salary, compared to 428% for 2011. His maximum bonus opportunity is 600% of base salary.
[Shirley Garrood’s annual bonus for 2012 was 118% of base ] salary, compared to 150% for 2011. Her maximum bonus is 200% of base salary.
[In line with our Group Remuneration Policy, a mandatory deferral ] of annual bonus awards above £50,000 applies to all executives.

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See pages 51 and 52

Long-term incentives – new awards

New LTIP awards in the form of nil priced options were made to the Executive Directors in March 2012. The eventual value of the award will depend on the Company’s performance during the years 2012 to 2014 against the financial and non-financial measures in the scheme and the prevailing share price when any options are exercised. Typically, we would expect about 42% of the award to vest.

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See page 51

Shareholding interests

Executive Directors are required to maintain a personal target shareholding equivalent to 1 times their base salary. At the end of 2012:

[Andrew Formica’s personal holding was equivalent to 19 times ] his base salary; and
[Shirley Garrood’s personal holding was equivalent to 5 times ] her base salary.

Over and above their personal holding, they have interests in shares and options in the Company share plans as follows:

[Andrew Formica had interest in 5.07m shares; and ]
[Shirley Garrood had interest in 2.09m shares.]

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See pages 58 and 61

Variable pay

[Andrew Formica’s variable pay for 2012 was 88% of his ] total remuneration.
[Shirley Garrood’s variable pay for 2012 was 65% of her ] total remuneration.

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See page 52

Total remuneration

[Andrew Formica’s total remuneration for 2012 reduced by ] 25% against 2011.
[Shirley Garrood’s total remuneration for 2012 increased by ] 5% against 2011.

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See page 51

Long-term incentives – share plans vesting

Awards made under the 2009 LTIP vested in full in April 2012 reflecting the Company’s TSR performance compared to companies in the FTSE All Share General Financial Services Index for the three years 2009 to 2011.

Andrew Formica and Shirley Garrood chose not to exercise their awards that vested in April 2012 and have until April 2017 by which to do so.

The 2010 LTIP awards made to Andrew Formica and Shirley Garrood, due to vest in March 2013 lapsed as the plan did not achieve the performance conditions.

An RSP award made to Andrew Formica in March 2008 in his role as the Head of Equities and prior to his appointment to the Board and Chief Executive vested in March 2012. The final tranche of the award vested fully having achieved the TSR performance hurdles.

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See pages 50 and 51

Henderson Group Annual Report 2012

Report on Directors’ remuneration continued

Summary of Executive Directors’ and Non-Executive Directors’ Remuneration (£’000)

The following table summarises the remuneration paid to our Executive Directors and Non-Executive Directors in 2012:

	Base
	salary	Pension and	Short-term		Long-term	2012	2011
	and fees	benefits	incentives	Sub-total	incentives	total	total
Chairman and Non-Executive Director
R.L. Pennant-Rea	180	6	–	186	–	186	180
Executive Directors
A.J. Formica (Chief Executive)	350	25	900	1,275	1,737	3,012	4,024
S.J. Garrood (Chief Financial Officer)	300	18	355	673	230	903	860
J.N.B. Darkins (Managing Director, Property);
(resigned 12/12/2012)	222	20	365	607	10	617	477
D.J. Jacob (Managing Director, Henderson Investment
Management and Chief Investment Officer);
(resigned 12/12/2012)	237	17	645	899	1,560	2,459	922
Other Non-Executive Directors
G.P. Aherne (resigned 02/05/2012)	27	–	–	27	–	27	75
S. Arkle (appointed 05/09/2012)	19	–	–	19	–	19	–
K.C. Dolan	60	–	–	60	–	60	35
D.G.R. Ferguson	80	–	–	80	–	80	77
T.F. How	83	–	–	83	–	83	60
R.C.H. Jeens	80	–	–	80	–	80	75
Total	1,638	86	2,265	3,989	3,537	7,526	6,785

Notes

Sub-total comprises the sum of base pay or fees, pension and benefits and short-term incentives. The total is the sum of the sub-total and long-term incentives.
Short-term incentives comprise annual bonus and performance fees before mandatory deferral.
Remuneration of Executive Directors and Non-Executive Directors are for the calendar year or from date of appointment or to date of resignation.
There were no amounts paid to the Executive Directors in respect of their qualifying services by way of expenses allowance that were chargeable to UK income tax.
The non-cash elements of the Executive Directors’ remuneration packages (disclosed in the table above as pension and benefits) consist of the provision of life assurance and private medical insurance based on the taxable value for the 2011/2012 tax year. Pension includes any additional employer contribution in respect of a self invested personal pension.
Long-term incentives. The amount shown for Andrew Formica comprises the amounts from exercising his options under the 2009 Sharesave scheme, the vesting of the final tranche of his March 2008 RSP award, the exercise of his 2008 LTIP that vested in 2011 but exercised in 2012 and the gross value of dividends paid on eligible Company share plans. The amount for Shirley Garrood comprises the gain from exercising her options under the 2009 Sharesave scheme, her 2008 LTIP that vested in 2011 but exercised in 2012 and the gross value of dividends paid on eligible Company share plans. The amount for David Jacob comprises the second tranche of his October 2008 RSP award, the exercised value of his 2009 LTIP award and the gross value of dividends paid on eligible Company share plans. The amount for James Darkins comprises the gross value of dividends paid on eligible Company share plans.
[The long-term incentive figures for Andrew Formica, Shirley Garrood and James Darkins do not include the 2009 LTIP award that fully vested in April 2012 that they ] chose not to exercise and have up to April 2017 to do so.
Tim How’s total fees include fees in respect of his appointment to Chairman of the Board Remuneration Committee (in addition to his duties as the Senior Independent Director) following Gerald Aherne’s resignation as Chairman of the Board Remuneration Committee in May 2012.
The benefits amount shown for the Chairman (Rupert Pennant-Rea) is the grossed up cost in respect of tax advice from Company advisers.

Henderson Group Annual Report 2012

Executive Directors’ remuneration

This section summarises the 2012 remuneration for Andrew Formica and Shirley Garrood as Executive Directors throughout 2012. The narrative includes details of the key elements of remuneration and a summary of total remuneration for 2012.

Andrew Formica, Chief Executive

Base salary is reviewed annually, with reference to underlying Group and individual performance, global economic conditions and an assessment against relevant peer group pay and base salary budgets applying to the broader employee population. The Board determined that Andrew Formica’s base salary would remain unchanged in 2013.

In determining his discretionary short-term-incentive (STI) award for 2012, the Board considered a variety of factors such as his personal performance and leadership, achievement of objectives set by the Board, overall business results and the need to ensure his total remuneration is competitively placed against the market.

The following table details his 2012 and 2011 remuneration and shows the percentage change year on year.

The Board awarded him a STI award of £900,000 which was subject to the Company’s mandatory deferral policy.

The Board also granted him 1,400,000 nil priced options under the 2012 LTIP. The aggregate market value of ordinary shares capable of being acquired at the date of award as a percentage of base pay was 460% (against a maximum of 500%). The eventual value of the award will depend on the performance of the plan over the plan performance period and the prevailing share price when the options are exercised.

Shirley Garrood, Chief Financial Officer

Base salary is reviewed annually, with reference to underlying Group and individual performance, global economic conditions and an assessment against relevant peer group pay and base salary budgets applying to the broader employee population. The Board determined that Shirley Garrood’s base salary would remain unchanged in 2013.

In determining her discretionary STI award for 2012, the Chief Executive and Board considered a variety of factors such as her personal performance and leadership, achievement of objectives, overall business results and the need to ensure her total remuneration is competitively placed against the market.

The following table details her 2012 and 2011 remuneration and shows the change year on year.

The Board awarded her a STI award of £355,000 which was subject to the Company’s mandatory deferral policy.

The Board also granted her 600,000 nil priced options under the 2012 LTIP. The aggregate market value of ordinary shares capable of being acquired at the date of award as a percentage of base pay was 230% (against a maximum of 300%). The eventual value of the award will depend on the performance of the plan over the plan performance period and the prevailing share price when the options are exercised.

Remuneration 2012 £’000 2011 £’000 % Change Short-term pay Base salary 350 350 STI bonus – cash 560 919 STI bonus – deferred 340 581	Remuneration 2012 £’000 2011 £’000 % Change
	Short-term pay Base salary 300 300 STI bonus – cash 233 289 STI bonus – deferred 122 161
Total 1,250 1,850 (32%)	Total 655 750 (13%)

Long-term pay (share plan related) Sharesave 6 – DEP/ESOP match – 136 LTIP¹ 210 – RSP² 1,475 1,981 Dividends received 46 43 Total 1,737 2,160 (20%) Pension and benefits 25 14 Total remuneration 3,012 4,024 (25%)	Long-term pay (share plan related) Sharesave 6 – DEP/ESOP match – 78 LTIP¹ 210 – RSP – – Dividends received 14 15
	Total 230 93 147%
	Pension and benefits 18 17
	Total remuneration 903 860 5%

Relates to 2008 LTIP award that vested in 2011 and exercised in 2012.
Relates to 2008 LTIP award that vested in 2011 and exercised in 2012.
Relates to final tranche of March 2008 RSP that fully vested in 2012.

Henderson Group Annual Report 2012

Report on Directors’ remuneration continued

The graphs below show the fixed and variable elements of the remuneration for the Chief Executive and the Chief Financial Officer for the last two years.

Andrew Formica

Total remuneration (£’000) Total remuneration (%)

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----- Start of picture text -----

5,000 100 9 12
4,000 80
3,000 2,160 60
91 88
1,737
2,000 40
1,500
1,000 900 20
364 375
0 2011 2012 0 2011 2012
–– Fixed pay –– Variable pay
–– Short-term incentives –– Fixed pay
–– Long-term incentives
----- End of picture text -----

Shirley Garrood

Total remuneration (£’000) Total remuneration (%)

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----- Start of picture text -----

1,000 100
37 35
93 230
800 80
600 60
450 355
400 40 63 65
200 317 318 20
0 2011 2012 0 2011 2012
–– Fixed pay –– Variable pay
–– Short-term incentives –– Fixed pay
–– Long-term incentives
----- End of picture text -----

Chairman and other Non-Executive Directors’ remuneration

This section summarises the 2012 remuneration for the NonExecutive Directors. The remuneration of the Chairman is determined by the Remuneration Committee and the other Non-Executive Directors and, for other Non-Executive Directors, is determined by the Chairman and the Executive Directors, both on the basis of external independent advice. The Chairman and other Non-Executive Directors serve the Company under letters of appointment that are terminable by the Company on one month’s written notice without liability for remuneration; they do not have service agreements.

It is the Company’s policy that the Chairman and other NonExecutive Directors do not participate in any of the Group’s bonus, incentive or pension schemes, nor are they entitled to any retirement benefits. Under their respective letters of appointment:

[the annual fee payable to each Non-Executive Director (other ] than the Chairman and the Audit, Remuneration and Board Risk Committee Chairmen) is £60,000, of which £5,000 is paid in the form of Company shares;
[the annual additional fee payable to the Audit, Remuneration and ] Risk Committee Chairmen is £20,000, of which £5,000 is paid in the form of Company shares;
[Rupert Pennant-Rea is Non-Executive Chairman of the Group. ] His fees are £180,000 per annum, of which £20,000 is paid in the form of Company shares; and
[Tim How, the Senior Independent Director, is entitled to an ] additional fee of £10,000 per annum.

The Chairman, together with the Executive Directors, determined in 2011 that after the annual increase on 1 January 2012, the Non-Executive Directors’ annual fee would next be reviewed in 2013 with any change effective from 1 January 2014. The annual fees for 2013 will therefore remain unchanged. The additional fees for the Senior Independent Director and the Audit, Remuneration and Board Risk Committee Chairmen will also remain unchanged in 2013.

The Chairman of the Remuneration Committee and the other Non-Executive Directors (excluding the Chairman) reviewed the fees payable to the Chairman and determined that they would remain unchanged at £180,000 per annum in 2013.

Richard Gillingwater joined the Group on 6 February 2013 as a Non-Executive Director and Chairman Designate of the Group. He will replace Rupert Pennant-Rea with effect from 1 May 2013. Until he takes up his Chairman appointment, he will receive fees in line with the Non-Executive Director base annual fee.

Henderson Group Annual Report 2012

Role, membership and responsibilities of the Remuneration Committee

Role of the Remuneration Committee

The Remuneration Committee reviews and approves, where appropriate, the Group’s remuneration plans and overall Human Resources (HR) policies and practices. Its duties are to:

[review and recommend to the Board the Group’s remuneration ] protocols and HR practices, which are performance based and aligned with the Group’s strategy and overall business objectives;
[determine annually the remuneration of the Chairman, the ] Chief Executive and the ExCo;
[approve the policy and terms of the Group’s employee and ] executive share incentive schemes;
[approve the Group’s Remuneration Policy Statement and the ] remuneration terms and arrangements for Code Staff in accordance with the FSA Code on Remuneration; and
[consider pay levels and employment conditions for all employees. ]

The full terms of reference of the Remuneration Committee are available on our website.

No Director or member of the ExCo is involved in any decision on their own remuneration.

Membership

The Remuneration Committee consists entirely of independent Non-Executive Directors. At the start of 2012, it consisted of Gerald Aherne (Committee Chairman), Tim How and Kevin Dolan. In May 2012, Gerald Aherne stepped down, Tim How was appointed to the chair and Duncan Ferguson rejoined the Committee. Sarah Arkle, appointed as a Non-Executive Director on 5 September 2012, joined the Committee on 16 October.

The Chairman and the Chief Executive may attend Committee meetings by invitation, save that they may not attend if their own remuneration is under consideration.

Meetings

The Remuneration Committee meets regularly and takes advice on a range of matters, including the scale and composition of the total executive remuneration package payable in comparable financial institutions to people with similar qualifications, skills and experience. In 2012, the Committee also took advice on the development and forthcoming regulatory requirements in respect of the FSA Code on Remuneration, AIFMD and Department for Business Innovation & Skills to ascertain the impact on remuneration policies and practices.

In 2012, the Committee was supported by the Chief Financial Officer, the General Counsel, the Managing Director, Corporate Services and the Chief Risk Officer (CRO).

The Remuneration Committee Chairman and the Chief Executive make remuneration recommendations for the ExCo which reports to the Chief Executive. The Chairman is also consulted about the remuneration of the Executive Directors.

Advisers

During 2012, the Remuneration Committee received advice from external, specialist consultants (Towers Watson, PricewaterhouseCoopers (PwC) and Lane Clark & Peacock LLP) on technical aspects of remuneration. Towers Watson and PwC provided advice on a variety of remuneration matters and in particular the FSA Code on Remuneration and other regulatory matters. In addition, McLagan Partners also provide remuneration data and advice.

None of Towers Watson, Lane Clark & Peacock LLP or McLagan Partners has any connection with the Group other than to provide data and information on remuneration and on pension matters and developments. PwC provide other consultancy or specialist advice and services to the Group on an ad hoc basis and act as auditors to certain Henderson funds but have no other connection with the Group. The Committee appoints advisers following a panel selection process.

Policy statement

Remuneration policy

The Committee views a successful remuneration policy as one that is sufficiently flexible to take account of future changes in the Group’s business environment and remuneration practice and, therefore, the Group’s policy is also subject to change.

We have established a remuneration framework, which is designed to be market competitive and motivate employees to improve individual and business performance, retain key employees and align employee actions with the interests of shareholders and clients. Our remuneration policies are also designed to address risk management and compliance issues. The Remuneration Committee has discretion and authority to make recommendations on matters of remuneration where they consider it appropriate to do so especially relating to Code Staff.

Our remuneration framework is based on a total reward approach designed to deliver top quartile pay for top performance. There are three key components:

[base salary – paid within appropriate market range; ]
[annual bonus – paid under a short-term incentive plan where ] individuals have the opportunity to receive a bonus (of which a substantial portion above a specified threshold is deferred over three years) based on business and individual performance against targets; and
[long-term incentives – performance based for senior executives ] and certain professionals such as senior fund managers and key distribution personnel which typically vest over three to five years.

The Remuneration Committee met five times in 2012.

Henderson Group Annual Report 2012

Report on Directors’ remuneration continued

TSR performance

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----- Start of picture text -----

150
100
50
0 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
–– Henderson –– FTSE 350 General Financial Services
----- End of picture text -----

Notes

Change in the value of a hypothetical £100 holding since December 2006. FTSE 350 General Financial Services Index comparison based on 30 trading day average values.

Source: Graphs provided by Towers Watson and calculated according to a methodology that is compliant with the UK Companies Act. Data sources: Datastream.

We also considered guidelines from the regulators and government on executive pay and remuneration and HR practices including diversity and gender. As a result, the Group has implemented several changes that strengthen the link between its remuneration policies and HR practice and the increased focus on corporate remuneration governance, these being:

[a Group Remuneration Policy Statement that sets out the Group’s ] remuneration policies and practice;
[the introduction of risk assessment factors into our key reward ] processes through liaison with the CRO, the Board Risk Committee and the Remuneration Committee when awards are made and vest;
[new rules for the Group’s share plans to provide the ] Remuneration Committee with the authority to vary or lapse individual unvested awards in cases of poor risk management or where results have been misstated or where there has been serious misconduct. The Committee also has the ability to claw back shares vested under long-term incentive plans e.g. in the case of serious personal misconduct;
[the introduction of non-financial objectives and risk measures ] into the key remuneration policies and the annual employee appraisal processes. In particular, the Long-Term Incentive Plans (LTIPs) contain a risk and sustainability measure alongside the relative TSR measure; and

Total shareholder return performance

The graph to the left shows the Company’s share price performance compared to the movement in the FTSE 350 General Financial Services Index. This index was selected as the most appropriate index for the Group. The share price in 2012 ranged from a low of 90.55 pence on 24 July 2012, a peak of 132.70 pence on 19 December 2012 and closed at 132.30 pence on 31 December 2012.

Executive Directors’ remuneration individual elements

Executive Directors’ remuneration comprises:

[base salary; ]
[annual bonus; ]
[pension benefits; ]
[benefits in kind; and ]
[participation in certain Group-wide incentive schemes, such as ] LTIP, the Restricted Share Plan (RSP), the Sharesave scheme (SAYE), the Employee Share Ownership Plan (ESOP), the Buy As You Earn Share Plan (BAYE) and the Deferred Equity Plan (DEP).

The LTIP and the annual bonus are performance related and these are key elements in the Executive Directors’ remuneration packages. The SAYE is available to all UK and US employees and is not performance related. Awards to Executive Directors can be made under the RSP and may be subject to performance conditions. The ESOP is a performance-driven voluntary deferral plan available to all employees but is not operated every year.

For target levels of performance, at least 60% of total remuneration (excluding pension) should be performance related. The expected value of awards made under the LTIP was calculated by Towers Watson, using a proprietary methodology. Its methodology considers TSR rank at which payment begins, the payment level at this threshold, the maximum payment under the plan and the rank at which this maximum is achieved. The methodology also takes into account the correlation of the Company’s share price with those companies in its peer group, starting from the premise that the value of the shares awarded at the end of the performance period is correlated with the TSR ranking. The Committee is satisfied that the overall structure is a well-considered set of arrangements for the Executive Directors’ remuneration. It is kept under review to take account of changing circumstances. Incentive payments are not taken into account when determining Company pension contributions for Executive Directors.

[processes that enable the Remuneration Committee to identify ] and regularly monitor all Code Staff in respect of reward, risk management, compulsory deferral and annual appraisals.

Henderson Group Annual Report 2012

Base salary

Annual bonus

At the discretion of the Committee, each Executive Director may receive a bonus subject to achieving performance targets set by the Committee. Payment of bonuses (if any) will be made to the Executive Directors annually, in March, on condition that performance targets were met in the preceding calendar year. The Committee has the flexibility to take into account other factors in determining any bonus. The bonus award is subject to the Company’s mandatory deferral policy. The cash element (post deferral) is paid in March payroll and subject to statutory deductions.

The bonus range is zero to a specified maximum. The maximum bonus entitlement is based on a percentage of annual base salary. The maximum entitlements for 2012 performance were 600% of salary for the Chief Executive (2011: 600%) and 200% for the Chief Financial Officer (2011: 200%).

Each element of the Executive Directors’ remuneration is supported by the achievement of key business and performance measures.

Henderson Group Annual Report 2012

Report on Directors’ remuneration continued

Element	Structure	Purpose	Performance measure
Base salary	Fixed	Reflects the competitive market rate for the	Experience and qualifications
		role, the individual’s contribution and prior
		contractual arrangements
Annual bonus	Variable	Rewards the delivery of operational goals,	Return on equity
		financial and non-financial targets	Underlying pre-tax profit
			Operating margins
			Net fund flows
			Investment performance
			Non-financial measures (refer to notes below)
			are also considered
Long-term	Variable	Supports superior business performance	Relative TSR (95% 2012 onwards)
incentives		in relation to competitor companies and aligns Executive Directors’ and	Non-financial (risk and sustainability metrics) (5% 2012 onwards)
		shareholders’ interests

Notes

In 2012, the Committee agreed to consider, in particular, certain non-financial measures:

• potential external and/or reputational issues arising from regulatory issues, including an adverse report from, or financial penalty imposed by, the FSA, Securities and Exchange Commission, Monetary Authority of Singapore or other regulator, an adverse report from Ernst & Young relating to the Group’s Annual Audit or reputational risk, other than those included above; and

• operational risk and internal controls: the cost of any error deals in the year, together with a failure to satisfactorily close actions relating to any incidents; the number of serious issues identified by Internal Audit, combined with a failure to close related actions within agreed timescales or non-adherence to internal procedures i.e. Group-wide compulsory training (such as TCF and market abuse) or control sign-offs not completed on time.

For the Executive Directors, the corporate performance targets relate to Group performance measures as set out in the table. The Group’s performance measure in 2012 was predominantly underlying pre-tax profit. However, operating margins, net fund flows, return on equity and investment performance were also factored in. Also considered were a number of non-financial measures as set out in the notes to the table and a report from the CRO on risk management.

The Committee and the Board review the performance of each Executive Director on an annual basis against these targets and guidance from the FSA in its Code on Remuneration. The Committee determined that annual bonuses for Executive Directors should continue to be subject to substantial deferral (which also applies to all Code Staff).

Henderson Group Annual Report 2012

Long-term incentives

Under the LTIP, the Committee may make awards to Executive Directors up to a maximum number of ordinary shares determined by the Committee at the date of grant. Full vesting of awards is over a three to five year period and is conditional upon the achievement of a performance target and risk and sustainability metrics, measured over a three year period, and the Executive Directors’ continued employment during the performance period. The primary performance measure is relative TSR against a comparator group and the Committee must be satisfied that the Company’s TSR performance reasonably reflects its underlying financial performance over the performance period. For 2012 and future awards, the performance measures comprise 95% relative to TSR and 5% on non-financial (risk and sustainability). In addition, the Committee has the power to vary or lapse individual unvested awards in cases of poor risk management or where results have been misstated or where there has been serious misconduct. The Committee also has

the ability in certain cases to claw back vested awards. In determining the 5%, the Committee will take account of the non-financial metrics in the annual bonus scheme along with a report from the CRO which will cover an assessment of risk awareness and culture in the Company over the LTIP period.

The Group made awards under the LTIP to Andrew Formica, Shirley Garrood, James Darkins and David Jacob on 5 March 2012. The market value of the ordinary shares capable of being acquired under these awards at the date of award was equivalent to 460%, 230%, 246% and 230% of base salary, respectively. The maximum award for Andrew Formica was 500% of base pay and 300% for other Executive Directors. The Committee will consider awards under the LTIP to the Executive Directors in 2013.

This table shows the timings, performance period and criteria, vesting dates and outcome for LTIP awards made from 2009 to 2012 inclusive:

	2009 LTIP	2010 LTIP	2011 LTIP	2012 LTIP
Awards made	March 2009	March 2010	March 2011	March 2012
Performanceperiod	2009-2011	2010-2012	2011-2013	2012-2014
Performance criteria	Relative TSR v FTSE 350	Relative TSR v FTSE 350	Relative TSR v FTSE 350	95% Relative TSR v FTSE
				350 & 5% Non-Financial
	Below 50th – zero	Below 50th – zero	Below 50th – zero	Below 50th – zero
	Above 75th – 100%	Above 75th – 100%	Above 75th – 100%	Above 75th – 100%
Vestingdates Exercise by	Straight line between thesepoints 10 April 2012 10 April 2017	Straight line between thesepoints 4 March 2013 n/a awards lapsed	Straight line between thesepoints 1 March 2014 1 March 2019	Straight line between thesepoints 6 April 2015 6 April 2020
Outcome	TSR of 107.12%,	TSR of 6.83%	Performance period	Performance period
	84th percentile	36th percentile	not complete	not complete
	100% vested	0% will vest

Henderson Group Annual Report 2012

Report on Directors’ remuneration continued

Shareholder alignment

We align the interests of our executives and shareholders in two key ways. Over time, each Executive Director is required to maintain a personal target shareholding equivalent to 100% (1 times) of base salary. In 2012, each Executive Director achieved this target. The table below shows the financial value of the personal holding of each Executive Director and as a multiple of base salary at 31 December 2012:

31 December 2012:
Executive Director	Value £m	Multiple of base salary (rounded)
Andrew Formica	6.58	19 times
ShirleyGarrood	1.41	5 times

All-employee Group share schemes

The SAYE, a savings related share option scheme, is available to all UK employees. It operates within specific UK tax legislation (including a requirement to finance the exercise of the option using the proceeds of a monthly savings contract of up to £250 per month) and exercise of the option is not subject to satisfaction of a performance target since this is an all-employee scheme. Executive Directors are eligible to participate in the SAYE on the same terms as other employees. There is a similar plan for US employees.

The BAYE, available to all UK employees, is a scheme that operates within specific UK tax legislation, (limited to a maximum contribution of £1,500 per annum). The BAYE represents an opportunity for employees to increase their share ownership in the Company, which is an important tool in attracting and retaining staff. The BAYE enables participants to acquire shares via deductions from gross monthly salary (or a one-off lump sum payment), for which the Company provides two free matching shares for every one purchased. The BAYE also allows for limited annual awards of free shares up to HM Revenue & Customs (HMRC) (UK tax authority) limits. Executive Directors are eligible to participate in the BAYE. There are similar plans for employees outside the UK (except for China and India).

The ESOP, offered in February 2011, provided an opportunity for eligible employees to increase their ownership in the Group. Employees were able to purchase Company shares up to a set limit through the DEP and, subject to achievement of prescribed TSR and Company share price performance hurdles and continued employment over a specified period, the Company will provide matching shares for each share purchased. The Company did not offer the plan in 2012 and does not intend to offer the plan in 2013.

Where employees are subject to the mandatory deferral of a portion of their annual bonus, the deferred amount is used to purchase the Company’s shares or Henderson products in the DEP. The deferred shares/products are held in trust during the deferral period, three years, and are subject to forfeiture conditions.

Deferral into Company shares in 2012 attracted a matching share element. For every three Company shares deferred and held in the DEP trust for the full three year deferral period, employees will receive one free matching share when the deferred shares vest. Under the DEP rules, Executive Directors are not eligible to receive matching shares.

The Company Share Option Plan (CSOP) is a global plan that provides employees with an opportunity to buy shares after three years at an option price fixed at the start of the plan. Under the CSOP, an employee may receive one or several awards of share options. As a global plan, the tax treatment for this plan can vary by country and tax jurisdiction but in the UK an employee’s CSOP is limited to £30,000 in aggregate of all unexercised options. Executive Directors are not eligible to participate in the CSOP, but can retain any awards made before their appointment.

The Executive Shared Ownership Plan (ExSOP) encourages employee share ownership at middle management level. Under the ExSOP, selected employees are invited to acquire, jointly with an employee benefit trust (Co-Owner) and under the terms of a joint ownership agreement, a restricted beneficial interest in a given number of shares in the Company. When the jointly owned shares are sold, after at least three years, the participant receives the growth in the value of the shares and the Co-Owner retains the original value of the shares. Executive Directors are excluded from participating in the ExSOP.

All Group share awards can be funded by share issuance except for the DEP and an element of the BAYE which is made through on-market purchases. All awards to Executive Directors are satisfied by on-market purchases.

The Group’s share plans rules currently restrict the level of shares that may be issued to satisfy share plan vesting to 10% of the issued share capital of the Company over a 10 year rolling period. This excludes up to 16m ESOP shares which are outside this limit. Executive plans are restricted to 5%.

There are three resolutions for shareholder approval at the 2013 AGM in respect of specific changes to the Group’s CSOP and BAYE share scheme dilution limits and authority to amend each share plan to ensure consistency of plan dilution limits.

Henderson Group Annual Report 2012

Pensions

Retirement benefits are designed to be both market competitive and cost effective. HGI Group Limited is the sponsoring employer of HGPS, which has both a defined benefit section (closed to new members) and a defined contribution section. No active members of the defined benefit section of HGPS receive unapproved pension benefits in addition to their normal scheme benefits. In the UK scheme, the Group replaced the statutory earnings cap which was abolished on 6 April 2006 by the Finance Act 2004 with an internal scheme earnings cap, which is broadly the same as the previous statutory figure adjusted for inflation. The annual scheme earnings cap in 2012 was £135,612 (2011: £128,412).

The Executive Directors participate in the non-contributory section of HGPS providing benefits on a defined contribution basis on the same age related basis as other employees. Andrew Formica receives a Group contribution, currently 10.5% of base salary, into the pension plan limited by the operation of the scheme earnings cap and Shirley Garrood receives 11.5%, again limited by the operation of the scheme earnings cap.

The Group operates a Self Invested Personal Pension (SIPP) that allows UK employees to make voluntary contributions into a wide range of funds as well as giving them the ability to transfer Company shares from maturing share plans into the SIPP in a tax effective manner. The Group rebates some of the national insurance savings to employees’ SIPP accounts.

The Group also has pension arrangements in place for its non-UK-based employees, which are in line with local market practice.

Benefits and benefits in kind

The Executive Directors are contractually entitled to a lump-sum life assurance benefit of four times base salary and private healthcare medical insurance. In addition, the Chief Executive and Chief Financial Officer are entitled to permanent health insurance.

The Executive Directors also benefit from indemnity arrangements in respect of their services as Directors, and Directors’ and Officers’ liability insurance, under separate Deeds of Indemnity. Further details can be found in the Directors’ report.

Contracts and termination provisions

The Group’s policy is to employ Executive Directors on annual rolling contracts although, in exceptional circumstances on recruitment, longer initial terms may be approved by the Committee. To date, it has not exercised this power. The Committee will, consistent with the best interests of the Group, seek to minimise termination payments.

The Executive Directors have service agreements terminable on not less than 12 months’ written notice by the Group or on not less than six months’ written notice by the relevant Executive Director.

The dates of appointment (and resignation if applicable) of the Executive Directors are:

Andrew Formica – 05/11/2008

Shirley Garrood – 26/08/2009

James Darkins and David Jacob were appointed on 04/05/2011 and resigned on 12/12/2012 as Executive Directors but remain employed as executives.

The Executive Directors’ service agreements allow the Group to suspend Executive Directors from their duties at any time after notice has been given by either party, provided they continue to receive full pay. Under certain circumstances (such as serious misconduct), the Group may terminate employment immediately with no liability to make any further payment (other than amounts accrued to the date of termination).

The Executive Directors’ service agreements have no provisions for remuneration payable on early termination. In relation to their participation in long-term incentive related pay, Executive Directors are subject to the same LTIP rules as other participants.

Pensions and share interests

Directors’ pension entitlements

The Executive Directors are members of the defined contribution section of HGPS. The contribution made by the Group to their Money Purchase accounts for their role is shown below:

	Service at 31 December 2012 or date of resignation (includes pre-Executive Director service)	Pension contribution for period to 31 December 2012 or date of resignation £’000
A.J. Formica (Chief Executive)	19 years
	10 months	24
S.J. Garrood	11 years
(Chief Financial Officer)	8 months	15
J.N.B. Darkins (Managing Director, Property) D.J. Jacob (Managing Director, Henderson Investment Management and Chief Investment Officer)	14 years 8 months 8 years 0 months	17 15

Note

The pension contribution in 2012 for Andrew Formica, James Darkins and David Jacob each include a SIPP contribution.

Henderson Group Annual Report 2012

Report on Directors’ remuneration continued

As at 26 February 2013, 31 December 2012 and 31 December 2011, the Directors had the following beneficial interests in shares in the Company:

in shares in the Company:
		31 December	31 December
	26 February	2012 (or date	2011 (or date of
	2013	of resignation)	appointment)
Chairman and Non-Executive Director
R.L. Pennant-Rea	68,673	68,673	57,655
Executive Directors
A.J. Formica (Chief Executive)	4,975,867	4,975,867	4,286,673
S.J. Garrood (Chief Financial Officer)	1,064,611	1,064,611	964,890
J.N.B. Darkins (Managing Director, Property); (resigned 12/12/2012)	n/a	554,411	534,576
D.J. Jacob (Managing Director, Investment Management and
Chief Investment Officer); (resigned 12/12/2012)	n/a	3,257,294	2,541,198
Other Non-Executive Directors
G.P. Aherne (resigned 02/05/2012)	n/a	13,043	13,043
S. Arkle (appointed 05/09/2012)	663	663	–
K.C. Dolan	3,083	3,083	–
D.G.R. Ferguson	23,908	23,908	18,028
R.D. Gillingwater (appointed 06/02/2013)	–	n/a	n/a
T.F. How	11,780	11,780	7,457
R.C.H. Jeens	14,694	14,694	9,258
Total	6,163,279	9,988,027	8,432,778

Notes

Beneficial interests in the table above represent shares held by a Director, either directly or through a nominee, and any holdings of their spouse and children under age 18. They exclude any unvested awards or vested but unexercised awards held in the SAYE, BAYE, DEP, ESOP, CSOP, RSP or LTIP.

Henderson Group Annual Report 2012

The table below shows the Executive Directors’ interests and movements in the various share schemes in 2012:

			James Darkins	David Jacob
			(resigned	(resigned
	Andrew Formica	ShirleyGarrood	12/12/2012)	12/12/2012)
Interests at 31 December 2011
SAYE	15,721	15,721	–	–
BAYE	44,323	44,323	46,670	45,375
DEP and ESOP	615,812	165,899	126,579	409,499
CSOP	–	41,000	41,000	41,000
RSP	1,228,069	–	–	1,148,104
LTIP vested but not exercised Maximum unvested LTIP award Awards made, vested, exercised or lapsed during 2012 SAYE vested (in 2012) and exercised SAYE awarded	175,000 4,250,000 (15,721) 9,736	175,000 1,725,000 (15,721) 9,736	175,000 1,400,000 – 9,736	– 1,675,000 – –
BAYE awarded	5,530	5,530	5,244	5,241
DEP vested	–	–	(20,552)	(127,621)
DEP awarded	–	–	13,912	32,843
CSOP vested (in 2012) but not exercised	–	41,000	41,000	41,000
RSP vested	(1,228,069)	–	–	(430,539)
RSP lapsed	–	–	–	(143,513)
LTIP vested (in 2012) but not exercised	(2,000,000)	(825,000)	(725,000)	–
LTIP vested (in 2012) and exercised	–	–	–	(825,000)
LTIP vested (in 2011) and exercised in 2012	(175,000)	(175,000)	–	–
LTIP awarded	1,400,000	600,000	500,000	500,000
Interests at 31 December 2012 or date of resignation SAYE BAYE DEP and ESOP	9,736 49,853 615,812	9,736 49,853 165,899	9,736 51,914 119,939	– 50,616 314,721
CSOP vested (in 2012) but not exercised	–	41,000	41,000	41,000
RSP	–	–	–	574,052
LTIP vested (in 2012) but not exercised	2,000,000	825,000	900,000	–
Maximum unvested LTIP award	3,650,000	1,500,000	1,175,000	1,350,000
Less: 2010 LTIP not vesting	(1,250,000)	(500,000)	(375,000)	(475,000)
Adjusted maximum unvested LTIP award	2,400,000	1,000,000	800,000	875,000

Notes

Under the SAYE, after 36 monthly contributions of up to £250, SAYE participants may exercise their options to acquire Company shares at a pre-defined issue price set at a 20% discount to the closing mid-market value on a pre-defined date. The vested SAYE for Andrew Formica and Shirley Garrood in 2012 relates to options awarded under the 2009 SAYE that vested and exercised at 94.5p per share (option price was 58.2p). The SAYE awarded relates to options awarded under the 2012 scheme for which the scheme option price is 92.43p.
Awards made under the LTIP are in the form of nil priced options. The 2008 LTIP vested in March 2011. The awards for Andrew Formica (175,000) and Shirley Garrood (175,000) were exercised in 2012 at 120.16p per share. The award for James Darkins (vested prior to his appointment as an Executive Director) but has not yet been exercised.
The 2009 LTIP fully vested in April 2012. Andrew Formica, Shirley Garrood and James Darkins chose not to exercise their awards and these are included in the LTIP vested but not exercised figures at 31 December 2012 or date of resignation. David Jacob’s award was automatically exercised due to his US citizen status under the rules of the plan.
Maximum unvested LTIP award – this number reflects the number of shares that could vest in the future plus awards that have vested but have not been exercised. However, the expected level of achievement of the TSR performance target at the time of award is 42% of the maximum award.
The adjusted maximum unvested LTIP award reflects the 2010 LTIP which is not vesting and thus reduces the maximum unvested LTIP award amount.
The 2009 CSOP options awarded to Shirley Garrood, James Darkins and David Jacob were in respect of previous roles prior to their appointment as Executive Directors. The awards vested in 2012 but have not yet been exercised. The option price is 72.6p.
The final tranche of Andrew Formica’s RSP award (awarded in March 2008) having met the plan performance conditions fully vested at 120.16p per share. The second tranche of David Jacob’s RSP award (awarded in October 2008) did not fully achieve the performance conditions. Consequently, 75% of the award vested at 125.10p and the remaining 25% lapsed.

Henderson Group Annual Report 2012

Report on Directors’ remuneration continued

FSA Code on Remuneration

The FSA implemented its new Code on Remuneration (Code) with effect from 1 January 2011. Under the Code, the Remuneration Committee must report annually on the remuneration policy and practice for employees termed Code Staff. Code Staff are “employees who perform a significant influence function, senior management and risk takers whose professional activities could have a material impact on a firm’s risk profile”.

Code Staff are defined with reference to managerial responsibility to influence the firm’s overall risk profile. At the discretion of the Committee, other employees may be included as Code Staff if the Committee consider that their role has a material impact on the firm’s risk profile. An annual review of the firm’s risk profile is conducted in order to allow the Remuneration Committee to determine the Code Staff population. The Committee also takes advice from the CRO and Chairman of the Board Risk Committee.

Henderson Group’s Code Staff are defined as the Executive Directors, other members of the ExCo and other employees performing FSA Significant Influence Functions (SIFs).

As at 31 December 2012, 18 employees were identified as being Code Staff whose roles are:

[Executive Directors (Chief Executive and Chief Financial Officer); ]
[other ExCo members (Managing Director Corporate Services, ] Chief Risk Officer, Chief Investment Officer and Managing Director Investment Management, Managing Director Property and Head of Global Distribution); and
[SIFs (General Counsel, Chief Operating Officer, Chief Investment ] Officer Property, Managing Director Private Equity and the Heads of Equities, Fixed Income, Internal Audit, Compliance, Asia, North America and Group Finance).

The aggregate annual remuneration of the Code Staff in 2012 was £16.7m (2011: £20.2m). This is made up of fixed pay, variable pay, non-contributory pension and benefits in kind and share plan related remuneration.

The structure of the remuneration packages for Code Staff is designed to support the achievement of the same key measures as for Executive Directors (as set out on page 56) and to ensure that Code Staff pay complies with the Board’s remuneration policy (as described on pages 53 to 55).

The chart gives more detail on the aggregate remuneration. Fixed pay comprises annual base salary. Variable pay comprises discretionary annual bonus and performance fees. Pension and benefits comprises company employer pension contribution and benefits in kind. Share-based remuneration comprises the gross gain (before tax and social security) on executive and employee share plans awarded in previous years that vested and were exercised in 2012 and in addition, the value of dividends paid on share plans whilst under trust. A fuller description of annual remuneration is shown on pages 55 to 59.

Code Staff remuneration Variable pay 38% Share based 37% Fixed pay 22% Pensions & benefits 3%

==> picture [131 x 131] intentionally omitted <==

In line with the Company’s mandatory deferral policy, 40% of short-term incentive awards i.e. annual bonus awards and performance fee awards over a defined threshold, is deferred.

The Group’s deferral policy on short and long-term incentives fully complies with the requirements for Tier 3 firms (previously Tier 4 before the FSA collapsed the Tiers 3 and 4 into one tier) as set out in the Code.

Executive long-term incentive awards made to Code Staff in 2012 totalled £3.2m. This represents the expected value of awards at vesting, over the next three to five years, dependent upon the achievement of performance hurdles.

Code Staff can elect within the scheme rules to defer the exercise of executive share plan awards once they have vested. This means that the share related element of their aggregate remuneration could significantly vary year by year.

The report on Director’s remuneration sets out the Remuneration Committee’s responsibilities and the remuneration policy in respect of Code Staff.

Additionally, the remuneration of the CRO and the Head of Internal Audit is determined by the Chairman of the Board Risk and Audit Committees respectively. These Committees also review and oversee remuneration paid to other senior employees in risk and assurance functions.

Signed on behalf of the Board:

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Tim How

Chairman of the Remuneration Committee 26 February 2013

Henderson Group Annual Report 2012

Directors’ responsibilities statement

Directors’ responsibilities statement

in relation to the financial statements

The Directors are responsible for preparing the Annual Report and Accounts. The Directors are required to prepare financial statements in accordance with Jersey law which show a true and fair view in accordance with generally accepted accounting principles. The Directors have elected to prepare the Group and Company financial statements in accordance with IFRS as adopted by the European Union.

IAS 1 Presentation of Financial Statements requires that financial statements present fairly for each financial year the Group’s and Company’s financial position, financial performance and cash flows. In preparing the Group and Company financial statements, the Directors are also required to:

[select suitable accounting policies in accordance with IAS 8 ] Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;
[make judgements and estimates that are reasonable;]
[present information, including accounting policies, in a ] manner that provides relevant, reliable, comparable and understandable information;
[provide additional disclosures when compliance with the ] specific requirements of IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s and Company’s financial position and financial performance; and
[state that the Group and Company have complied with IFRS, ] subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy, at any time, the financial position of the Group, for safeguarding the assets, and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that to the best of their knowledge:

[the financial statements have been prepared in accordance with ] IFRS and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company for the year ended 31 December 2012;
[the Directors’ report includes a fair review of the development ] and performance of the business and the position of the Group for the year ended 31 December 2012 and a description of the principal risks and uncertainties faced by the Group; and
[the accounting records have been properly maintained.]

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website, www.henderson.com. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Signed in accordance with a resolution of the Directors:

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Andrew Formica Chief Executive

26 February 2013

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Shirley Garrood Chief Financial Officer

26 February 2013

Henderson Group Annual Report 2012

Independent auditors’ report

Independent auditors’ report

to the members of Henderson Group plc

We have audited the Consolidated and Company financial statements of Henderson Group plc for the year ended 31 December 2012, which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows (the Group), the Company Income Statement, the Company Statement of Comprehensive Income, the Company Statement of Financial Position, the Company Statement of Changes in Equity, the Company Statement of Cash Flows and the related notes 1 to 35 (the financial statements). The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union.

This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors’ responsibilities statement set out on page 63, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group and Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

[give a true and fair view of the state of the Group’s and of the ] Company’s affairs as at 31 December 2012 and of the Group’s profit and the Company’s loss for the year then ended;
[have been properly prepared in accordance with International ] Financial Reporting Standards as adopted by the European Union; and
[have been prepared in accordance with the requirements of ] the Companies (Jersey) Law 1991.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies (Jersey) Law 1991 we are required to report to you if, in our opinion:

[proper accounting records have not been kept, or proper returns ] adequate for our audit have not been received from branches not visited by us; or
[the financial statements are not in agreement with the ] accounting records and returns; or
[we have not received all the information and explanations we ] require for our audit.

Under the Listing Rules we are required to review:

[the part of the Governance statement relating to the Company’s ] compliance with the nine provisions of the UK Corporate Governance Code for our review.

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Ratan Engineer

for and on behalf of Ernst & Young LLP London

26 February 2013

Henderson Group Annual Report 2012

Financial statements Financial strength

Consolidated Income Statement	66
Consolidated Statement of Comprehensive Income	67
Consolidated Statement of Financial Position	68
Consolidated Statement of Changes in Equity	69
Consolidated Statement of Cash Flows	70
Company Income Statement	71
Company Statement of Comprehensive Income Company Statement of Financial Position Company Statement of Changes in Equity Company Statement of Cash Flows	71 71 72 72
Notes to the Financial Statements	73

Henderson Group Annual Report 2012

Financial statements

Consolidated Income Statement

For the year ended 31 December 2012

		2012	2011
	Notes	£m	£m
Income
Gross fee income and commissions	3	651.9	682.8
Finance income	3	5.0	3.3
Gross income		656.9	686.1
Commissions and feespayable	3	(219.1)	(206.0)
Total income		437.8	480.1
Expenses
Operating expenses	4.1	(274.1)	(300.7)
Depreciation		(2.9)	(3.0)
Total expenses before finance expenses		(277.0)	(303.7)
Finance expenses	6	(14.3)	(17.2)
Total expenses		(291.3)	(320.9)
Underlying profit before tax		146.5	159.2
Intangible amortisation	13	(52.1)	(41.7)
Void property finance charge	22	(1.4)	(2.1)
Gartmore related employee share awards	5.3	(10.6)	(33.2)
Recurring profit before tax		82.4	82.2
Non-recurringitems	7	13.8	(69.2)
Profit before tax		96.2	13.0
Tax on recurring profit		(1.0)	(14.2)
Tax on non-recurring items	7	4.7	16.2
Non-recurringtax	7	–	18.9
Total tax	8	3.7	20.9
Profit after tax		99.9	33.9
Attributable to:
Equity holders of the parent		99.7	34.0
Non-controllinginterests		0.2	(0.1)
		99.9	33.9
Dividends
Dividends declared and charged to equity during the year	11	77.6	69.9
Dividends proposed	11	56.3	55.4
Earnings per share
Basic	9.2.2	9.6p	3.6p
Diluted	9.2.2	9.2p	3.4p

Henderson Group Annual Report 2012

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2012

		2012	2011
	Notes	£m	£m
Profit after tax		99.9	33.9
Other comprehensive income
Exchange differences on translation of foreign operations		(1.1)	0.2
Available-for-sale financial assets:
Net (losses)/gains on revaluation		(3.7)	5.5
Tax effect of revaluation Actuarial gains and losses: Actuarial (losses)/gains on defined benefit pension schemes Actuarial gains on post-retirement medical schemes	8 21	0.6 (63.5) –	(0.2) 41.6 0.1
Tax effect of actuarial losses/(gains)	8	0.2	–
Other comprehensive(loss)/income after tax		(67.5)	47.2
Total comprehensive income after tax		32.4	81.1
Attributable to:
Equity holders of the parent		32.2	81.2
Non-controllinginterests		0.2	(0.1)
		32.4	81.1

Henderson Group Annual Report 2012

Financial statements continued

Consolidated Statement of Financial Position

As at 31 December 2012

		2012	2011
	Notes	£m	£m
Non-current assets
Intangible assets	13	717.7	765.1
Investments accounted for using the equity method	14.2	8.4	3.7
Plant and equipment	15	18.0	19.7
Retirement benefit assets	21	130.2	190.9
Deferred tax assets	23	40.3	45.3
Trade and other receivables	18	29.1	–
Deferred acquisition and commission costs	17	60.2	71.4
Current assets		1,003.9	1,096.1
Available-for-sale financial assets	16	44.9	54.3
Financial assets at fair value through profit or loss	16	14.2	10.5
Current tax asset		2.0	3.9
Trade and other receivables	18	144.6	168.3
Deferred acquisition and commission costs	17	82.7	83.3
Cash and cash equivalents	19.1	196.9	273.9
		485.3	594.2
Total assets		1,489.2	1,690.3
Non-current liabilities
Debt instruments in issue	20	148.5	148.0
Trade and other payables	24	10.1	2.7
Retirement benefit obligations	21	7.2	6.5
Provisions	22	12.1	18.7
Deferred tax liabilities	23	69.1	88.5
Deferred income		61.0	72.8
Current liabilities		308.0	337.2
Debt instruments in issue	20	–	143.4
Trade and other payables	24	290.9	303.3
Provisions	22	9.9	20.7
Deferred income		84.6	85.4
Current tax liabilities		14.6	12.9
		400.0	565.7
Total liabilities		708.0	902.9
Net assets		781.2	787.4
Capital and reserves
Share capital	25.2	139.3	137.2
Share premium		693.8	679.0
Own shares held		(100.8)	(115.6)
Translation reserve		5.3	6.4
Revaluation reserve		7.4	10.5
Profit and loss reserve		35.6	69.5
Shareholders’ equity		780.6	787.0
Non-controllinginterests	27	0.6	0.4
Total equity		781.2	787.4

The financial statements were approved by the Board of Directors and authorised for issue on 26 February 2013. They were signed on its behalf by:

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Rupert Pennant-Rea Chairman

Henderson Group Annual Report 2012

Consolidated Statement of Changes in Equity

For the year ended 31 December 2012

			Own			Profit and	Non-
	Share	Share	shares	Translation	Revaluation	loss	controlling	Total
	capital	premium	held	reserve	reserve	reserve	interests	equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2011	104.2	261.0	(52.4)	6.2	5.0	30.4	0.5	354.9
Profit after tax	–	–	–	–	–	34.0	(0.1)	33.9
Other comprehensive income after tax	–	–	–	0.2	5.5	41.5	–	47.2
Total comprehensive income after tax	–	–	–	0.2	5.5	75.5	(0.1)	81.1
Dividends paid to equity shareholders	–	–	–	–	–	(69.9)	–	(69.9)
Purchase of own shares	–	–	(24.5)	–	–	–	–	(24.5)
Issue of shares for Gartmore acquisition Vesting of share schemes Share allotment Share issue costs Issue of shares for share schemes	30.3 – 0.1 – 2.6	389.7 – 1.0 (0.1) 27.4	(70.0) 57.4 – – (26.1)	– – – – –	– – – – –	– (57.4) – – (1.6)	– – – – –	350.0 – 1.1 (0.1) 2.3
Fair value of share-based payment
awards exchanged	–	–	–	–	–	15.4	–	15.4
Movement in equity-settled share
scheme expenses	–	–	–	–	–	54.0	–	54.0
Tax movement on share scheme
expenses	–	–	–	–	–	(0.4)	–	(0.4)
Recognition of unclaimed capital
distributions	–	–	–	–	–	23.5	–	23.5
At 31 December 2011	137.2	679.0	(115.6)	6.4	10.5	69.5	0.4	787.4
Profit after tax	–	–	–	–	–	99.7	0.2	99.9
Other comprehensive loss after tax	–	–	–	(1.1)	(3.1)	(63.3)	–	(67.5)
Total comprehensive income after tax Dividends paid to equity shareholders Purchase of own shares Vesting of share schemes	– – – –	– – – –	– – (6.1) 35.8	(1.1) – – –	(3.1) – – –	36.4 (77.6) – (35.8)	0.2 – – –	32.4 (77.6) (6.1) –
Issue of shares for share schemes	2.1	14.8	(14.9)	–	–	(1.7)	–	0.3
Movement in equity-settled share
scheme expenses	–	–	–	–	–	40.6	–	40.6
Tax movement on share scheme
expenses	–	–	–	–	–	4.2	–	4.2
At 31 December 2012	139.3	693.8	(100.8)	5.3	7.4	35.6	0.6	781.2

Henderson Group Annual Report 2012

Financial statements continued

Consolidated Statement of Cash Flows

For the year ended 31 December 2012

		2012	2011
	Notes	£m	£m
Cash flows from operating activities
Profit before tax		96.2	13.0
Adjustments to reconcile profit before tax to net cash flows from operating activities:
– debt instrument interest expense, facility and arrangement fees	6	14.3	19.6
– share-based payment charges	10.2	29.2	23.9
– Gartmore related employee share awards charge	10.2	9.3	30.1
– intangible amortisation	13	52.2	41.7
– share of profit of associates and joint ventures	14.2	(1.7)	(0.7)
– impairment of associate		1.0	0.3
– plant and equipment depreciation	15	2.9	3.3
– (gain)/loss on disposal of available-for-sale financial assets		(3.3)	0.5
– loss on disposal of fixed assets		0.2	–
– net deferred acquisition and commission costs and deferred income amortisation		(7.9)	(5.6)
– contributions to the Henderson Group Pension Scheme in excess of costs recognised		(2.3)	(6.8)
– other provisions releases	22	(9.8)	(0.5)
– void properties finance charge	22	1.4	2.1
– voidproperty provision charge/(release)	22	1.2	(6.5)
Cash flows from operating activities before changes in operating assets and liabilities		182.9	114.4
Changes in operating assets and liabilities	19.2	(14.5)	(11.0)
Net taxpaid		(1.6)	(12.8)
Net cash flows from operatingactivities		166.8	90.6
Cash flows from investing activities
Acquisition of subsidiaries, including cash acquired		(0.8)	200.8
Proceeds from sale of:
– associates and joint ventures		–	15.9
– available-for-sale financial assets		15.7	13.6
Dividends from associates and distributions from joint ventures		0.5	4.4
Purchases of:
– available-for-sale financial assets		(7.6)	(7.2)
– plant and equipment	15	(1.5)	(1.4)
– computer software intangible assets	13	(3.8)	(0.2)
– interests in associates andjoint ventures		(3.8)	–
Net cash flows from investingactivities		(1.3)	225.9
Cash flows from financing activities
Proceeds from issue of shares		1.9	2.1
Purchase of own shares		(6.1)	(24.5)
Dividends paid to equity shareholders	11	(77.6)	(69.9)
Repayment of 2012 Notes		(142.6)	–
Interest paid on debt instruments in issue		(15.5)	(15.5)
Facility and arrangement fees		(0.7)	(3.6)
Recognition of unclaimed capital distributions		–	23.5
Debt issue costs		–	(2.1)
Net proceeds from issue of 2016 Notes		–	116.7
Repayment of Gartmore borrowings		–	(245.4)
Net cash flows from financingactivities		(240.6)	(218.7)
Effects of exchange rate changes		(1.9)	(0.5)
Net (decrease)/increase in cash and cash equivalents		(77.0)	97.3
Cash and cash equivalents at beginningofyear		273.9	176.6
Cash and cash equivalents at end ofyear	19.1	196.9	273.9

70 Henderson GroupAnnual Report 2012

Company Income Statement

For the year ended 31 December 2012

		2012	2011
	Notes	£m	£m
Administration expenses		(1.7)	(1.7)
Total expenses before finance expenses		(1.7)	(1.7)
Finance expenses	6	(0.1)	(2.1)
Loss before tax		(1.8)	(3.8)
Tax	8	–	–
Loss after tax		(1.8)	(3.8)

Company Statement of Comprehensive Income

For the year ended 31 December 2012

	2012	2011
	£m	£m
Loss after tax	(1.8)	(3.8)
Total comprehensive loss after tax	(1.8)	(3.8)

Company Statement of Financial Position

As at 31 December 2012

Non-current assets Investment in subsidiaries Current assets	Notes 14.1	2012 £m 972.4 972.4	2011 £m 934.0 934.0
Trade and other receivables	18	0.2	1.6
Financial assets at fair value through profit or loss	16	13.0	7.4
Cash and cash equivalents	19.1	4.0	0.1
		17.2	9.1
Total assets		989.6	943.1
Current liabilities
Trade and otherpayables	24	102.5	91.2
Total liabilities		102.5	91.2
Net assets Capital and reserves Share capital Share premium Own shares held Profit and loss reserve	25.2	887.1 139.3 693.8 (100.8) 154.8	851.9 137.2 679.0 (115.6) 151.3
Total equity		887.1	851.9

The financial statements were approved by the Board of Directors and authorised for issue on 26 February 2013. They were signed on its behalf by:

==> picture [95 x 31] intentionally omitted <==

Rupert Pennant-Rea Chairman

Henderson Group Annual Report 2012

Financial statements continued

Company Statement of Changes in Equity

For the year ended 31 December 2012

	Share	Share	Own shares	Profit and	Total
	capital	premium	held	loss reserve	equity
	£m	£m	£m	£m	£m
At 1 January 2011	104.2	261.0	(52.4)	144.8	457.6
Total comprehensive loss after tax	–	–	–	(3.8)	(3.8)
Dividends paid to equity shareholders	–	–	–	(0.1)	(0.1)
Purchase of own shares	–	–	(24.5)	–	(24.5)
Issue of shares for Gartmore acquisition	30.3	389.7	(70.0)	–	350.0
Vesting of share schemes	–	–	57.4	(57.4)	–
Share allotment	0.1	1.0	–	–	1.1
Issue of shares for share schemes	2.6	27.4	(26.1)	(1.6)	2.3
Share issue costs	–	(0.1)	–	–	(0.1)
Fair value of share-based payment awards exchanged	–	–	–	15.4	15.4
Movement in equity-settled share scheme expenses	–	–	–	54.0	54.0
At 31 December 2011	137.2	679.0	(115.6)	151.3	851.9
Total comprehensive loss after tax	–	–	–	(1.8)	(1.8)
Purchase of own shares	–	–	(6.1)	–	(6.1)
Vesting of share schemes	–	–	35.8	(35.8)	–
Issue of shares for share schemes	2.1	14.8	(14.9)	(1.7)	0.3
Movement in equity-settled share scheme expenses	–	–	–	42.8	42.8
At 31 December 2012	139.3	693.8	(100.8)	154.8	887.1

Company Statement of Cash Flows

For the year ended 31 December 2012

		2012	2011
	Notes	£m	£m
Cash flows from operating activities
Loss before tax		(1.8)	(3.8)
Changes in operatingassets and liabilities	19.2	9.9	26.3
Net cash flows from operatingactivities		8.1	22.5
Cash flows from financing activities
Proceeds from issue of shares		1.9	2.1
Purchase of own shares		(6.1)	(24.5)
Dividendspaid to equityshareholders		–	(0.1)
Net cash flows from financingactivities		(4.2)	(22.5)
Net increase in cash and cash equivalents		3.9	–
Cash and cash equivalents at beginningofyear		0.1	0.1
Cash and cash equivalents at end ofyear	19.1	4.0	0.1

Henderson Group Annual Report 2012

Notes to the Financial Statements Group and Company

1. Authorisation of financial statements and statement of compliance with IFRS

The Group and Company financial statements for the year ended 31 December 2012 were authorised for issue by the Board of Directors on 26 February 2013 and the respective Statements of Financial Position were signed on the Board’s behalf by the Chairman, Rupert Pennant-Rea. Henderson Group plc is a public limited company incorporated in Jersey, and from 12 December 2012, tax resident in the United Kingdom (formerly tax resident in the Republic of Ireland). The Company’s ordinary shares are traded on the LSE and CDIs are traded on the ASX.

The Group and Company financial statements have been prepared in accordance with IFRS, as adopted by the European Union and the provisions of the Companies (Jersey) Law 1991.

2. Accounting policies 2.1 Significant accounting policies

Basis of preparation

The Group and Company financial statements have been prepared on a going concern basis and on the historical cost basis, except for certain financial instruments that have been measured at fair value.

The Group and Company financial statements are presented in GBP and all values are rounded to the nearest one hundred thousand pounds (£0.1m), except when otherwise indicated.

Basis of consolidation

The consolidated financial statements of the Group comprise the financial statements of Henderson Group plc and its subsidiaries as at 31 December each year.

The financial statements of all the Group’s significant subsidiaries are prepared to the same year end date as that of the Company. The accounts of all material subsidiaries are prepared under either IFRS or local GAAP. Where prepared under local GAAP, balances reported by subsidiaries are adjusted to meet IFRS requirements for the purpose of the consolidated financial statements.

The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Income Statement from the effective date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that the control ceases. Non-controlling interests represent the equity interests in subsidiaries not wholly held by the Group.

Interests in property closed-ended funds, private equity infrastructure funds, Open-Ended Investment Companies (OEICs) and unit trusts are accounted for as subsidiaries, associates, joint ventures or other financial investments depending on the holdings of the Group and on the level of influence and control that the Group exercises. The Group’s investment in associates, where the Group has the ability to exercise significant influence as well as joint ventures where there is joint control, are accounted for using the equity method of accounting.

Income recognition

Fee income and commissions receivable

Fee income includes management fees, transaction fees and performance fees (including earned carried interest). Management fees and transaction fees are recognised in the accounting period in which the associated investment management or transaction services are provided. Performance fees are recognised when the

prescribed performance hurdles have been achieved and it is probable that the fee will crystallise as a result. The Group accrues the expected fee on satisfaction that the recognition criteria have established a performance fee is due. Initial fees and commissions receivable are deferred and amortised over the anticipated period in which services will be provided, determined by reference to the average term of investment in each product on which initial fees and commissions are earned. Other income is recognised in the accounting period in which services are rendered.

Carried interest

The Group is entitled to receive a share of profits (carried interest) from certain private equity funds it manages, once the funds meet certain performance conditions. Where the funds’ investments represents a large volume of the shares traded in relatively illiquid markets, the Group does not deem it appropriate to recognise unearned carried interest based on current fair values. However, where the value of the carried interest will be determined by the future disposal of investments which are quoted on a recognised exchange, then the Group will recognise carried interest to the extent deemed prudent. Carried interest for all other types of investments is only recognised when investments are disposed of and performance conditions are met.

Finance income

Interest income is recognised as it accrues using the effective interest rate method. Dividend income from investments is recognised on the date that the right to receive payment has been established.

Post-employment benefits

The Group provides employees with retirement benefits through both defined benefit and defined contribution schemes. The assets of these schemes are held separately, from the Group’s general assets, in trustee administered funds.

Defined benefit obligations and the cost of providing benefits are determined annually by independent qualified actuaries using the projected unit credit method. The obligation is measured as the present value of the estimated future cash outflows using a discount rate based on AA rated corporate bond yields of appropriate duration. The resulting surplus or deficit of defined benefit assets less liabilities is recognised in the Consolidated Statement of Financial Position, net of any taxes that would be deducted at source. The Group’s expense related to these schemes is accrued over the employees’ service lives, based upon the actuarial cost for the accounting period, having considered interest costs and the expected return on assets. Actuarial gains and losses, to the extent these are recognised, are included in the Consolidated Statement of Comprehensive Income in the accounting period in which they occur, net of any taxes that would be deducted at source. Normal contributions to the defined contribution scheme are expensed in the Consolidated Income Statement as they become payable in accordance with the rules of the scheme.

Other post-employment benefits, such as medical care and life insurance, are also provided for certain employees. The costs of such benefits are accrued over the employees’ service lives, based upon the actuarial cost for the accounting period using a methodology similar to that for defined benefit pension schemes.

Share-based payment transactions

The Group issues equity-settled share-based payments to certain employees. The valuation methodology, assumptions and schemes are disclosed in note 10.

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements Group and Company continued

2. Accounting policies continued 2.1 Significant accounting policies continued

Share-based payment transactions continued

Equity-settled share-based payments are measured at the fair value of the equity instruments at the grant date. The awards are expensed, with a corresponding increase in reserves, on either a straight-line basis or a graded basis (depending on vesting conditions) over the vesting period, based on the Group’s estimate of shares that will eventually vest. Based on the Group’s estimate, the expected life of the awards used in the determination of fair value is adjusted for the effects of non-transferability, exercise restrictions, market performance and behavioural considerations.

Income taxes

The Group provides for current tax expense according to the tax laws of each jurisdiction in which it operates, using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is provided, using the liability method, on temporary differences at the reporting date between the tax bases of assetsand liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax liabilities are not recognised if they arise from goodwill; however, they are recognised on separately identified intangible assets. If the deferred tax arises from the initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither the accounting nor taxable profit or loss, it is not accounted for. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax liabilities are not recognised for taxable differences arising on investments in subsidiaries, branches, associates and joint ventures where the Group controls the timing of the reversal of the temporary differences and where the reversal of the temporary differences is not anticipated in the foreseeable future.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and tax laws that have been enacted or substantively enacted by the reporting date.

Income tax relating to items recognised in the Consolidated Statement of Comprehensive Income is also recognised in that statement and not in the Consolidated Income Statement.

Sales taxes

Assets and expenses are recognised net of the amount of sales tax, except where the sales tax is not recoverable, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of expenses. Receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the tax authority, is included within receivables or payables in the Consolidated Statement of Financial Position.

Foreign currencies

The functional currency of the Company is GBP. Transactions in foreign currencies are recorded at the appropriate exchange rate prevailing at the date of the transaction. Foreign currency monetary

balances at the reporting date are converted at the prevailing exchange rate. Foreign currency non-monetary balances carried at fair value or cost are translated at the rates prevailing at the date when the fair value or cost is determined. Gains and losses arising on retranslation are taken to the Consolidated Income Statement, except for available-for-sale financial assets where the unhedged changes in fair value are recognised in the Consolidated Statement of Comprehensive Income.

On consolidation, the assets and liabilities of the Group’s overseas operations whose functional currency is not GBP are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at average exchange rates for the accounting period. Exchange differences arising, if any, are taken through the Consolidated Statement of Comprehensive Income to the translation reserve. In the period in which an operation is disposed of, translation differences are recognised in the Consolidated Income Statement.

Business combinations

Under the requirements of IFRS 3 Business Combinations, all business combinations are accounted for using the purchase method (acquisition accounting). The cost of a business combination is the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the acquirer. The fair value of a business combination is calculated at the acquisition date by recognising the acquiree’s identifiable assets, liabilities and contingent liabilities that satisfy the recognition criteria, at their fair values at that date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree. The cost of a business combination in excess of fair value of net identifiable assets or liabilities acquired, including intangible assets identified, is recognised as goodwill. Any costs incurred in relation to a business combination after 1 July 2009 are expensed as incurred.

Goodwill

Goodwill arising on acquisitions is capitalised in the Consolidated Statement of Financial Position. Goodwill on acquisitions prior to 1 January 2004 is carried at its value on 1 January 2004 less any subsequent impairments.

Goodwill arising on investments in associates and joint ventures is included within the carrying value of the equity accounted investments.

Impairment of goodwill

Goodwill is reviewed for impairment annually or more frequently if changes in circumstances indicate that the carrying value may be impaired. For this purpose, management prepares a valuation for each cash generating unit based on value in use. This valuation is based on the approved forecasts for future years, extrapolated for expected future growth rates and discounted at a risk adjusted discount rate based on the Group’s post-tax weighted average cost of capital. Where the value in use is less than the carrying amount, an impairment is recognised. Where goodwill forms part of an entity or sub-group and the entity or sub-group or part thereof is disposed of, the goodwill associated with the entity or sub-group disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal. Any impairment is recognised immediately through the Consolidated Income Statement and cannot subsequently be reversed.

Henderson Group Annual Report 2012

Investment management contracts

Investment management contracts have been identified as a separately identifiable intangible asset arising on the acquisition of subsidiaries. Intangible assets are recognised at the present value, as at the date of acquisition, of the expected future cash flows of the investment management contracts acquired. The intangible asset is amortised on a straight-line basis over the expected life of the investment management contracts, currently estimated at between three and eight years.

Investments in subsidiaries

Investments by the Company in subsidiary undertakings are held at cost less any impairment where circumstances indicate that the carrying value may not be recoverable.

Equity accounted investments

Equity accounted investments comprise investments in associates and joint ventures held by the Group. Investments are recognised initially at cost. The investments are subsequently carried at cost adjusted for the Group’s share of profits or losses and other changes in comprehensive income of the associate or joint venture, less any dividends or distributions received by the Group. The Consolidated Income Statement includes the Group’s share of profits or losses after tax for the year, or period of ownership, if shorter.

Deferred acquisition and commission costs

Incremental acquisition costs incurred in obtaining investment management business are deferred to the extent that they are recoverable out of future income. This includes initial commission paid by the Group in respect of certain investment products. These costs are amortised over the period in which they are expected to be recovered from matching revenues from related contracts. At the end of each accounting period, deferred acquisition and commission costs are reviewed for recoverability against future revenues from the related contracts in force at the reporting date.

Impairment of assets (excluding goodwill and financial assets)

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes an estimate of the recoverable amount, being the higher of an asset’s fair value less cost to sell, and its value in use. In assessing value in use, the estimated future cash flows are discounted to their net present value using a risk adjusted discount rate based on the Group’s post-tax weighted average cost of capital.

Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. An impairment loss is recognised in the Consolidated Income Statement.

Financial instruments

Financial assets and liabilities are recognised in the Consolidated Statement of Financial Position when the Group becomes party to the contractual provisions of an instrument, at fair value adjusted for transaction costs except for financial assets classified at fair value through profit or loss, where transaction costs are immediately recognised in the Consolidated Income Statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the Group has also transferred substantially all risks and rewards of ownership. Financial liabilities cease to be

recognised when the obligation under the liability has been discharged, cancelled or has expired.

Financial assets

Purchases and sales of financial assets are recognised at the trade date, being the date when the purchase or sale becomes contractually due for settlement. Delivery and settlement terms are usually determined by established practices in the market concerned.

Debt securities, equity securities and holdings in authorised collective investment schemes are designated as either fair value through profit or loss, or available-for-sale, and are measured at subsequent reporting dates at fair value. The Group determines the classification of its financial assets on initial recognition. Financial assets classified as fair value through profit or loss comprise the Group’s manager box positions in OEICs and unit trusts and investments in the Group’s fund products on behalf of employee benefit trusts. Where securities are designated as fair value through profit or loss, gains and losses arising from changes in fair value are included in the Consolidated Income Statement. Where investments in the Group’s fund products are held against outstanding deferred compensation liabilities, any movement in the fair value of these assets will be offset by a corresponding movement in the deferred compensation liability in the Consolidated Income Statement.

For available-for-sale financial assets, gains and losses arising from changes in fair value which are not part of a designated hedge relationship are recognised in the Consolidated Statement of Comprehensive Income. When an asset is disposed of, the cumulative changes in fair value, previously recognised in the Consolidated Statement of Comprehensive Income, are taken to the Consolidated Income Statement in the current accounting period.

Unrealised gains and losses on financial assets represent the difference between the fair value of financial assets at the reporting date and cost or, if these have been previously revalued, the fair value at the last reporting date. Realised gains and losses on financial assets are calculated as the difference between the net sale proceeds and cost or amortised cost.

Where a fall in the value of an investment is prolonged or significant, this is considered an indication of impairment. In such an event, the investment is written down to fair value and the amounts previously recognised in the Consolidated Statement of Comprehensive Income in respect of cumulative changes in fair value, are taken to the Consolidated Income Statement as an impairment charge.

Trade receivables, which generally have 30 day payment terms, are initially recognised at fair value, normally equivalent to the invoice amount. When the time value of money is material, the fair value is discounted. Provision for specific doubtful debts is made when there is evidence that the Group will not be able to recover balances in full. Balances are written off when the receivable amount is deemed irrecoverable.

Cash amounts represent cash in hand and on-demand deposits. Cash equivalents are short-term highly liquid government securities or investments in money market instruments with a maturity date of three months or less.

Financial liabilities

Financial liabilities are stated at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement. A financial liability ceases to be recognised when the obligation under the liability has been discharged, cancelled or has expired.

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements Group and Company continued

2. Accounting policies continued 2.1 Significant accounting policies continued

Derivative financial instruments and hedging

The Group may, from time to time, use derivative financial instruments to hedge against price, interest rate, foreign currency and credit risk. Derivative financial instruments are classified as financial assets when the fair value is positive or as financial liabilities when the fair value is negative.

At the inception of a hedge, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. Such hedges are expected to be effective in achieving offsetting changes in fair value and are assessed on an ongoing basis to determine that they have been effective throughout the reporting periods for which they were designated and are expected to remain effective over the remaining hedge period.

Currency hedges

Forward foreign currency contracts are used to hedge the currency nominal value of certain euro and US dollar denominated availablefor-sale financial assets and are classified as fair value hedges. The change in the fair value of a hedging instrument is recognised in the Consolidated Income Statement. The change in the fair value of the hedged item, attributable to the risk being hedged, is also recognised in the Consolidated Income Statement, offsetting the fair value changes arising on the designated hedge instrument.

Fair value estimation

The fair value of financial instruments traded in active markets (such as publicly traded securities and derivatives) is based on quoted market prices at the reporting date. The quoted market price used for financial instruments is the current bid price. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques commonly used by market participants, including the use of comparable recent arm’s length transactions, discounted cash flow analysis and option pricing models.

Provisions

Provisions which are liabilities of uncertain timing or amount, are recognised when: the Group has a present obligation, legal or constructive, as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. In the event that the time value of money is material, provisions are determined by discounting the expected future cash flows at a discount rate that reflects a current market assessment of the time value of money and, where appropriate, the risks specific to the liability. When discounting, the increase in the provision due to the passage of time is recognised as a finance charge.

Equity shares

The Company’s ordinary equity shares of 12.5 pence each are classified as equity instruments. Equity shares issued by the Company are recorded at the fair value of the proceeds received or the market price on the day of issue. Direct issue costs, net of tax, are deducted from equity through share premium. When share capital is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a change in equity.

Own shares held

Own shares held are equity shares of the Company acquired by or issued to employee benefit trusts. Own shares held are recorded at cost and are deducted from equity. No gain or loss is recognised in the Consolidated Income Statement on the purchase, issue, sale or cancellation of the Company’s own equity shares.

Dividend recognition

Dividend distributions to the Company’s shareholders are recognised in the accounting period in which the dividends are paid and, in the case of final dividends, when these are approved by the Company’s shareholders at the AGM. Dividend distributions are recognised in equity.

2.2 Significant accounting judgements, estimates and assumptions

In the process of applying the Group’s accounting policies, management has made significant judgements involving estimations and assumptions which are summarised below:

Impairment of intangible assets

Goodwill is reviewed for impairment annually or more frequently if there are indicators that the carrying value may be impaired.

Investment management contracts are reviewed for impairment annually or more frequently if there are indications that the carrying value is impaired.

The judgement exercised by management in arriving at these valuations includes the selection of market growth rates, fund flow assumptions, expected margins and costs. Further details are given in note 13.

Share-based payment transactions

The Group measures the cost of equity-settled share schemes at fair value at the date of grant and expenses them over the vesting period based on the Group’s estimate of shares that will eventually vest.

Consolidation of seed investments

From time to time, the Group invests seed capital on the launch of products, such as UCITS, SICAVs, hedge funds, property and private equity funds and other investment vehicles. The seed capital investments vary in duration depending on the nature of the investment, with a typical range of less than one year for equity and fixed income products and between three and seven years for private equity and property funds. Given the limited size and nature of these investments, the Group does not consider itself to have significant influence or control over the underlying funds to warrant accounting for them using the equity method or consolidating them into the Group’s financial statements.

Impairment of available-for-sale financial assets

Available-for-sale financial assets are reviewed for impairment at each reporting date or more frequently if there are indicators that the carrying value is impaired. In specific cases, where a quoted market price or fair value is not available, significant judgement is exercised by management in determining the extent of impairment, taking into account other available market data. Management also exercises judgement in determining whether a decrease in the value of an asset meets the prolonged or significant tests.

Henderson Group Annual Report 2012

Pension and other post-employment benefits

The costs of, and period end obligations under, defined benefit pension schemes are determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these schemes, such estimates are subject to significant uncertainty. Further details are given in note 21.

such as joint arrangements, associates and other off balance sheet vehicles. This standard has a mandatory effective date in 2014.

IFRS 9 Financial Instruments proposes revised measurement and classification criteria for financial assets. This standard has a mandatory effective date in 2015.

Unless stated above, the Group is assessing the impact of the above standards on the Group’s future financial statements.

Provisions

By their nature, provisions often reflect significant levels of judgement or estimates by management. The nature and amount of the provisions included in the Consolidated Statement of Financial Position are detailed in note 22 and contingencies not provided for are disclosed in note 32.

Deferred tax assets

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that future taxable profits will be available against which the losses can be utilised. Significant judgement is required by management in determining the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits.

2.3 Changes in accounting policies

The accounting policies adopted in this Annual Report and Accounts are consistent with those of the previous financial year. The Group has also adopted any IFRS or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 1 January 2012. There were no new standards effective for the current year which had a material impact on the Group.

2.4 Future changes in accounting policies

A number of new standards and amendments to standards and interpretations are effective for periods beginning on or after 1 January 2013. The following new standards are not applicable to these financial statements but are expected to have an impact when they become effective. The Group plans to apply these standards in the reporting period in which they become effective.

IAS 1 Presentation of Financial Statements requires items in other comprehensive income to be grouped based on whether they are potentially reclassifiable to the income statement. This amendment has a mandatory effective date in 2013.

IAS 19 Employee Benefits replaces interest costs and expected return on plan assets with a net interest cost that is calculated by applying a discount rate to the net defined benefit asset or liability. This revision has a mandatory effective date in 2013. The expected impact of adoption is disclosed in note 34.

IFRS 10 Consolidated Financial Statements defines the principle of control, and establishes control as the basis for consolidation in the preparation of consolidated financial statements. This standard has a mandatory effective date in 2014.

IFRS 11 Joint Arrangements states that when deciding how to account for joint ventures, the focus is on rights and obligations. This standard has a mandatory effective date in 2014.

IFRS 12 Disclosure of Interests in Other Entities includes the disclosure requirements for all forms of interests in other entities,

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements

Group and Company continued

3. Income

Group

	2012	2011
	£m	£m
Gross fee income and commissions
Gross fee income	550.8	599.3
Amortisation of deferred income	101.1	83.5
Finance income	651.9	682.8
Interest on cash and cash equivalents	1.9	2.0
Net investment income from,disposal of,andgains and losses on,available-for-sale financial assets	3.1	1.3
	5.0	3.3
Gross income	656.9	686.1
Commissions and fees payable
Commissions and fees payable	(119.5)	(128.2)
Amortisation of deferred acquisition and commission costs	(99.6)	(77.8)
	(219.1)	(206.0)
Total income	437.8	480.1

4. Expenses

4.1 Operating expenses

Group

4. Expenses 4.1 Operating expenses Group
		2012	2011
	Note	£m	£m
Employee compensation and benefits	5.2	179.9	199.9
Investment administration		25.7	28.1
Information technology		14.4	14.0
Operating leases		9.5	9.0
Office expenses		7.3	7.4
Foreign exchange losses		0.4	0.2
Other expenses		36.9	42.1
Total operatingexpenses		274.1	300.7

Other expenses include marketing, travel and subsistence, legal and professional costs and irrecoverable sales taxes.

4.2 Auditors’ remuneration

Group and Company

	2012	2011
	£m	£m
Fees payable to the Group’s auditors for the audit of the Group’s consolidated financial statements	0.3	0.3
Fees payable to the Group’s auditors and their associates for other services:
– statutory audit of the Group’s subsidiaries	0.8	0.9
– other services pursuant to legislation	0.3	0.4
– other services	0.3	–
Total fees	1.7	1.6

The above analysis reflects the amounts billed by Ernst & Young LLP or accrued by the Group in the respective years. Included in the fees payable to the Group’s auditors for the audit of the Group’s 2012 consolidated financial statements are fees of £30,000 (2011: £30,000) for the audit of the Company’s 2012 financial statements.

Henderson Group Annual Report 2012

5. Employee compensation and benefits 5.1 Average number of employees

The average number of full-time employees was as follows:

The average number of full-time employees was as follows:
	Group		Company
	2012	2011	2012	2011
	no.	no.	no.	no.
Average number of employees	1,062	1,043	3	3

The total number of full-time employees (excluding those working on capitalised projects) at 31 December 2012 was 1,014 (2011: 1,060) for the Group and three (2011: three) for the Company.

5.2 Analysis of employee compensation and benefits expense

Employee compensation and benefits expense comprises the following:

		Group 2012 2011	Group 2012 2011	Company 2012	2011
	Note	£m	£m	£m	£m
Salaries, wages and bonuses		124.9	155.9	0.6	0.8
Share-based payments		29.2	22.4	–	–
Social security costs		18.6	19.9	0.1	0.1
Pension service cost	21	7.2	1.7	–	–
Total employee compensation and benefits expense		179.9	199.9	0.7	0.9

5.3 Gartmore related employee share awards

Group

The £10.6m (2011: £33.2m) charge represents the post-acquisition share-based payment charge, including £1.3m (2011: £3.1m) for national insurance, for awards to Gartmore employees originally made in 2010 and exchanged into Henderson Group plc shares upon acquisition on the same terms as the original awards.

6. Finance expenses

	Group	Group	Company
	2012	2011	2012	2011
	£m	£m	£m	£m
Debt instruments interest	13.6	16.0	–	–
Bank facilityand arrangement fees	0.7	1.2	0.1	2.1
Total finance expenses	14.3	17.2	0.1	2.1

7. Non-recurring items

Group

The non-recurring items comprise the following:

7. Non-recurring items Group The non-recurringitems comprise the following:
	2012	2011
Net recognition of Henderson PFI Secondary Fund II L.P. fees Restructuring costs Additional FSCS 2010/2011 levy Gartmore void property provision Gartmore integration costs New Star voidproperty provision release Non-recurring items before tax	£m 26.6 (9.1) (2.5) (1.2) – – 13.8	£m – (6.0) – – (69.7) 6.5 (69.2)
Tax on non-recurring items	4.7	16.2
Non-recurringtax	–	18.9
Non-recurringitems after tax	18.5	(34.1)

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements

Group and Company continued

7. Non-recurring items continued

2012

Net recognition of Henderson PFI Secondary Fund II L.P. (Fund II) fees

Net management fees of £26.6m relating to Fund II have been recognised based on the resolution of matters in dispute between certain claimants who were investors in Fund II and the general partner of Fund II, Henderson Equity Partners (GP) Limited, and the manager of Fund II, Henderson Equity Partners Limited.

Restructuring costs

The Group has reorganised to simplify certain parts of its business and reduced headcount to lower staff costs, incurring restructuring costs of £9.1m.

Additional FSCS 2010/2011 levy

The FSCS have increased the one-off levy in relation to 2010/2011 resulting in the Group recognising an additional charge of £2.5m.

Gartmore void property provision

The Group has increased the void property provision, recognised on the acquisition of Gartmore, by £1.2m due to lower occupancy rates than initially forecast.

2011

Restructuring costs

In response to the market downturn in the second half of 2011, the Group restructured certain parts of its business, incurring staff related costs of £6.0m.

Gartmore integration costs

On 4 April 2011, the Group’s acquisition of Gartmore was completed. In relation to the acquisition and integration of Gartmore, costs of £69.7m before tax were incurred during the period. These costs mainly related to staff related expenses, legal and professional fees, transition of outsourced retail and investment operations, office relocation and reorganisation and fund mergers.

New Star void property provision release

A void property provision recognised on the acquisition of New Star in 2009 was reassessed, resulting in a release of £6.5m.

Non-recurring tax

Following the acquisition of Gartmore, the Group reassessed the potential utilisation of previously unrecognised tax assets and tax liabilities recognised by Gartmore in the first quarter of 2011. Consequently, a deferred tax asset of £14.8m was recognised in respect of the expected utilisation of these assets against future taxable profits and £4.1m of Gartmore tax liabilities were released.

Henderson Group Annual Report 2012

8. Tax

Tax recognised in the income statement

8. Tax Tax recognised in the income statement
	Group		Company
	2012	2011	2012	2011
	£m	£m	£m	£m
Current tax:
– charge for the year	16.9	5.9	–	–
– prior period adjustments	(7.4)	(2.1)	–	–
Deferred tax: – credit for the year –priorperiod adjustments Total tax credited to the income statement	(16.5) 3.3 (3.7)	(23.4) (1.3) (20.9)	– – –	– – –

Tax recognised in the statement of comprehensive income

Tax recognised in the statement of comprehensive income
	Group		Company
	2012	2011	2012	2011
	£m	£m	£m	£m
Deferred tax (credited)/charged in relation to available-for-sale financial assets
movements	(0.6)	0.2	–	–
Deferred tax(credited)/charged in relation to actuarial(losses)/gains	(0.2)	–	–	–
Total tax(credited)/charged to the statement of comprehensive income	(0.8)	0.2	–	–

Reconciliation of profit before tax to tax credit

The tax credit for the year is reconciled to the profit/(loss) before tax in the income statement as follows:

Group

Profit before tax	2012 £m 96.2	2011 £m 13.0
Tax charge at the UK corporation tax rate of 24.5% (2011: 26.5%)	23.6	3.4
Factors affecting the tax credit:
Recognition and utilisation of previously unrecognised tax losses	(8.9)	–
Disallowable expenditure and non-taxable income	(2.6)	5.8
Prior period adjustments	(4.1)	(3.4)
Differences in effective tax rates on overseas profits	(8.5)	(9.6)
Non-recurring tax	–	(18.9)
Non-recognition of net tax losses	–	4.6
Changes in statutory tax rates	(3.5)	(3.4)
Other items Total tax credited to the Consolidated Income Statement	0.3 (3.7)	0.6 (20.9)

Company

Company
Loss before tax	2012 £m (1.8)	2011 £m (3.8)
Tax credit at the Republic of Ireland corporation tax rate of 12.5% (2011: 12.5%)	(0.2)	(0.5)
Factors affecting the tax credit:
Disallowable expenditure and non-taxable income	0.1	0.3
Grouprelief surrender	0.1	0.2
Total tax credited to the CompanyIncome Statement	–	–

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements

Group and Company continued

9. Earnings per share

Group

The weighted average number of shares for the purpose of calculating earnings per share is as follows:

9. Earnings per share Group The weighted average number of shares for thepurpose of calculatingearningsper share is as follows:
	2012	2011
	no.(millions)	no.(millions)
Issued share capital	1,108.3	1,027.0
Less: own shares held	(74.3)	(72.9)
Weighted average number of ordinary shares for the purpose of basic earnings per share	1,034.0	954.1
Add:potential dilutive impact of share options and awards	48.0	58.6
Weighted average number of ordinaryshares for thepurpose of diluted earningsper share	1,082.0	1,012.7

Basic and diluted earnings per share have been calculated on the profit attributable to equity holders of the parent. The difference between the weighted average number of shares used in the basic earnings per share and the diluted earnings per share calculations reflects the dilutive impact of options and awards of shares to employees, which are anticipated to vest based on market conditions as at 31 December 2012.

9.1 On underlying profit after tax attributable to equity holders of the parent 9.1.1 Earnings

	2012	2011
	£m	£m
Profit after tax attributable to equity holders of the parent	99.7	34.0
Add back: intangible amortisation, void property finance charge and Gartmore related employee share
awards adjusted for tax	45.6	57.6
(Deduct)/add back: non-recurringitems adjusted for tax	(18.5)	34.1
Earnings for thepurpose of basic and diluted earningsper share	126.8	125.7

9.1.2 Earnings per share

	2012	2011
	pence	pence
Basic	12.3	13.2
Diluted	11.7	12.4

9.2 On profit after tax attributable to equity holders of the parent 9.2.1 Earnings

	2012	2011
	£m	£m
Earnings for thepurpose of basic and diluted earningsper share	99.7	34.0

9.2.2 Earnings per share

	2012	2011
	pence	pence
Basic	9.6	3.6
Diluted	9.2	3.4

Henderson Group Annual Report 2012

10. Share-based payments

Group

10.1 Share-based compensation plans

The following share-based compensation plans were in operation during 2012:

Restricted Share Plan (RSP)

The RSP allows employees to receive shares in the Company for £nil consideration at a future point, usually after three years. The awards are made typically for staff recruitment and retention purposes and larger awards, generally, have performance hurdles. The Remuneration Committee approves all awards and the vesting of awards over £50,000. On vesting, the employee must satisfy any employee tax and social security obligations.

Employee Share Ownership Plan (ESOP)

The 2011 ESOP enabled all staff, including Executive Directors, to defer part of their cash-based incentive awards up to a specified limit through the purchase of Company shares. The 2011 ESOP awards up to three matching shares for every share purchased depending on the performance of the Henderson Group TSR and Company share price. It is a five year plan with one third of the matching shares vesting on the third, fourth and fifth anniversaries, if the conditions have been met on each anniversary.

Long-Term Incentive Plan (LTIP)

The LTIP awards selected employees restricted shares or £nil cost options that have employment conditions and performance conditions attached as shown below. Employees who have been awarded £nil cost options have five years to exercise their options following the three year vesting period:

year vesting period:
Criteria	Amount vesting
Henderson Group TSR less than the 50th percentile of the FTSE 350 General Financial Services companies	nil%
Henderson Group TSR at the 50th percentile of the FTSE 350 General Financial Services companies	25%
Henderson GroupTSR at or above the 75thpercentile of the FTSE 350 General Financial Services companies	100%

If the Henderson Group TSR is between the 50th and 75th percentiles, the amount vesting will increase on a linear basis. The Remuneration Committee must also be satisfied the Henderson Group TSR reflects the underlying performance of the Group. For the 2012 LTIP, the performance hurdle was 95% relative to Henderson Group TSR and 5% on risk and sustainability metrics.

Since 2011, employees are entitled to dividend equivalents, based on the dividends declared, during the three year vesting period in respect of the shares that vest. The dividend equivalents are payable in two equal tranches, one and two year(s) after vesting. However, employees are not entitled to vote or receive dividends in respect of these awards until the vesting conditions are met, nor are they allowed to pledge, hedge or assign the expected awards in any way.

The 2009 LTIP met its vesting conditions on 31 December 2011 and 100% of awards vested in April 2012. The 2010 LTIP did not meet its vesting conditions on 31 December 2012 and all awards lapsed.

Deferred Equity Plan (DEP)

Employees who receive cash-based incentive awards over a preset threshold, have an element deferred. The majority of awards are deferred into the Company’s shares, with some deferrals into Group managed funds. The DEP trustee purchases Company shares and units or shares in Group managed funds and holds them in trust. Awards are deferred for up to three years and vest in three equal tranches. Those employees who elected to participate in the 2011 ESOP, have their restricted shares, upon vesting, automatically transfer into the 2011 ESOP as bonus shares. They revert to matching shares subject to the performance and employment conditions of that plan.

The 2012 DEP has a matching share element where employees, excluding Executive Directors, are awarded one matching share for every three restricted shares on the third anniversary of the award. One third of the restricted shares will become unrestricted on each anniversary. If an employee requests to receive any of the restricted shares prior to the third anniversary, the related matching shares will be forfeited.

Hedge fund performance fee bonus awards are deferred into hedge funds and are held in trust for three years. A third of the units or shares will convert from restricted units or shares to bonus units or shares each anniversary, and the forfeiture is lifted.

Forfeiture conditions apply in the case of approved and unapproved leavers.

The expense of deferred short-term incentive awards is recognised in the Consolidated Income Statement over the period of deferral. As at 31 December 2012, £19.7m (2011: £21.1m) of deferred awards are to be recognised in future periods.

Buy As You Earn Share Plan (BAYE)

The BAYE is a HMRC approved plan. Eligible employees purchase shares in the Company by investing monthly, up to £125 (annual limit £1,500), which is deducted from their gross salary. For each share purchased, for no additional payment, two free matching shares are awarded (partnership shares). Partnership shares will be forfeited if purchased shares are withdrawn from the trust within one year.

The international version of the BAYE operates on a similar basis to that of the UK, but each purchased share is matched with one partnership share, which is not subject to forfeiture.

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements Group and Company continued

10. Share-based payments continued 10.1 Share-based compensation plans continued

Company Share Option Plan (CSOP)

The CSOP is a HMRC approved share option plan with the maximum value of unvested options at any time limited to £30,000 for UK employees. No such restrictions apply for overseas employees. Employees buy Company shares after a three year vesting period at an option price fixed at the start of the scheme. There are no Group performance conditions attached to the options and the exercise period is two years, whilst US employees have three months to exercise. Executive Directors are not eligible to participate in the CSOP, but they may hold awards made prior to their executive appointment. The 2012 CSOP option price was £1.25 (2011 CSOP: £1.63 and 2010 CSOP: £1.24). The 2009 CSOP awards, excluding US employees, became exercisable in March 2012. The option price was £0.73. The CSOP 2010 was available to exercise for US employees in June 2012 as the US CSOP is a two year plan.

Executive Shared Ownership Plan (ExSOP)

The ExSOP is an employee share ownership plan and is aimed at encouraging employee share ownership at middle management level. Executive Directors do not participate in the ExSOP.

Certain employees are invited to acquire jointly, with an employee benefit trust, the beneficial interest in a number of Company shares under the terms of a joint ownership agreement (JOA). Under a JOA, the employee will benefit from any growth in value in excess of a hurdle price fixed at the time of the award.

For the 2012 ExSOP, the market price at grant was £1.21 (2011: £1.61) per share. The hurdle price was set at £1.31 (2011: £1.76) per share. The shares have a three year vesting period with a subsequent two year exercise period.

Sharesave scheme (SAYE)

The SAYE is a HMRC approved plan. UK employees may participate in more than one scheme but only up to a maximum of £250 per month across all schemes. Employees who participate in the SAYE contribute a monthly amount from their net salary to a savings account. The SAYE vesting period is three years for UK employees.

At the end of a three year period, the employees in the 2012 SAYE can exercise their share options using the funds in their savings account, together with any bonus equivalent, 2012: 0.0 (2011 SAYE: 0.1 and 2010 SAYE: 0.3), to subscribe for shares at a preset price. This was £0.92 (2011 SAYE: £1.31 and 2010 SAYE: £1.00) per share in 2012, a 20% discount to the average share price five business days prior to the award. Employees have up to six months after the three year period to exercise their options and subscribe for shares. Forfeiture provisions apply in the case of approved and unapproved leavers.

The USA Employee Share Purchase Plan (ESPP) operates on the same principles as the UK SAYE, but has a two year savings period, a lower discount at 15% and no bonus element. In 2012, the preset option price was USD1.54 (2011 ESPP: USD2.19 and 2010 ESPP: USD1.62). Employees may participate in more than one plan, but only up to a plan maximum of USD312.50 per month across all plans.

Gartmore plans

The Gartmore plans are schemes that allow employees to receive shares in the Company for £nil consideration at a future point, usually after three years. The awards were made by Gartmore, prior to the Group’s acquisition, typically for staff retention purposes. On vesting, in order to obtain the shares, the employee must still be in employment and must satisfy any employee tax and social security obligations. These awards are now governed by the rules covering the Group’s DEP and RSP awards.

10.2 Share-based payments through the Consolidated Income Statement

	2012	2011
	£m	£m
DEP	12.3	4.8
Gartmore related employee share awards	9.3	30.1
LTIP	6.2	5.0
ESOP	4.3	6.5
RSP	3.6	2.8
BAYE	1.4	1.5
CSOP	0.7	1.0
ExSOP	0.5	0.4
SAYE	0.2	0.4
Share-based payments expense	38.5	52.5
The total amount settled through the Consolidated Statement of Changes in Equityis analysed between:

The total amount settled through the Consolidated Statement of Changes in Equityis analysed between:
	2012	2011
	£m	£m
Share-based payments charged to the Consolidated Income Statement	38.5	52.5
Otherequity settled bonuses and other movements	2.1	1.5
Amounts to be settledwithequity	40.6	54.0

All amounts above exclude Group related employment taxes which are also recognised in the Consolidated Income Statement.

84 Henderson GroupAnnual Report 2012

10.3 Share options outstanding – SAYE

Share options outstanding under the Group’s SAYE are as follows:

Share options outstandingunder the Group’s SAYE are as follows:
	2012		2011
		Weighted		Weighted
		average		average
	Options	exercise price	Options	exercise price
	no.	£	no.	£
At 1 January	4,588,287	0.78	5,571,379	0.68
Granted	3,662,033	0.92	873,296	1.31
Exercised	(3,058,330)	0.59	(1,497,501)	0.70
Forfeited At 31 December	(950,615) 4,241,375	1.17 0.95	(358,887) 4,588,287	0.88 0.78

The weighted average share price on the date options were exercised during 2012 was £1.00 (2011: £1.42). There were 29,869 options exercisable at 31 December 2012 (2011: 162,076). The weighted average fair value of options granted during 2012 was £0.24 (2011: £0.42). At 31 December 2012, the expected weighted average time remaining until the vesting of outstanding awards was two years (2011: 10 months).

10.4 Share options outstanding – CSOP

Share options outstanding under the Group’s CSOP are as follows:

Share options outstandingunder the Group’s CSOP are as follows:
	2012		2011
		Weighted		Weighted
		average		average
	Options	exercise price	Options	exercise price
	no.	£	no.	£
At 1 January	13,720,524	1.01	13,498,217	0.88
Granted Exercised Forfeited At 31 December	4,291,300 (5,881,023) (1,599,560) 10,531,241	1.25 0.74 1.24 1.22	2,336,886 (1,106,905) (1,007,674) 13,720,524	1.63 0.75 1.07 1.01

The weighted average share price on the date options were exercised during 2012 was £1.19 (2011: £1.64). There were 2,163,630 options exercisable at 31 December 2012 (2011: 539,376). The weighted average fair value of options granted during 2012 was £0.24 (2011: £0.29). At 31 December 2012, the expected weighted average time remaining until the vesting of outstanding awards was one year (2011: eight months).

10.5 Jointly owned shares outstanding – ExSOP

Jointly owned shares outstanding under the Group’s ExSOP are as follows:

Jointlyowned shares outstandingunder the Group’s ExSOP are as follows:
	2012		2011
		Weighted		Weighted
	Jointly owned	average	Jointly owned	average
	shares	exercise price	shares	exercise price
	no.	£	no.	£
At 1 January	5,391,040	1.45	3,597,000	1.24
Granted Exercised Forfeited At 31 December	4,229,000 – (1,365,429) 8,254,611	1.31 – 1.37 1.40	2,399,040 (21,048) (583,952) 5,391,040	1.76 1.24 1.40 1.45

There were no options exercised in 2012 and therefore the weighted average share price on options exercised during 2012 was £nil (2011: £1.59). There were no jointly owned shares exercisable at 31 December 2012 (2011: nil). The fair value of the jointly owned shares granted during 2012 was £0.22 (2011: £0.23). At 31 December 2012, the expected weighted average time remaining until the vesting of outstanding awards was one year and six months (2011: one year and 10 months).

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements

Group and Company continued

10. Share-based payments continued

10.6 Fair values of share-based compensation plans

The fair value amounts for the options and jointly owned shares granted under the SAYE, CSOP and ExSOP were determined using the Black Scholes option-pricing method, using the following assumptions:

	2012 SAYE	2012 CSOP	2012 ExSOP	2011 SAYE	2011 CSOP	2011 ExSOP
Dividend yield	6.98%	5.18%	5.18%	3.72%	3.90%	4.03%
Expected volatility	35.5%	36.3%	36.3%	29.3%	29.2%	29.6%
Risk-free interest rate	1.54%	2.08%	2.08%	3.73%	3.73%	3.54%
Expected life	3 years	3 years	3 years	3 years	3 years	3 years
Weighted average share price	£1.16	£1.28	£1.21	£1.64	£1.67	£1.61
Weighted average exerciseprice	£0.92	£1.25	£1.31	£1.31	£1.63	£1.76

Expected volatility has been calculated based on the historical volatility for the Company’s shares over three years.

Other share schemes involve the grant of shares for £nil consideration. The fair value of these grants is calculated using the share price at grant date, which is set out in the following table. No adjustments have been made for dividends.

		2012	2012	2011
		Shares	Average grant	Shares	Average grant
		granted	share price	granted	share price
		no.	£	no.	£
LTIP		12,762,500	1.24	8,417,000	1.73
DEP		12,125,845	1.21	6,708,516	1.41
RSP		5,620,556	1.08	830,381	1.40
BAYE		1,280,972	1.13	1,909,477	1.47
Gartmore related employee share awards(refer to note	5.3)	–	–	38,132,073	1.73

The fair value calculation for the LTIP includes a statistical assessment of the likelihood of the Company achieving performance targets as set out in the plan.

11. Dividends paid and proposed

Company

11. Dividends paid and proposed Company
		2012		2011
	2012	pence	2011	pence
	£m	per share	£m	per share
Dividends on ordinary shares declared and paid in the period
Final dividend in respect of 2H11 (2H10)	54.8	5.05	49.2	4.65
Interim dividend in respect of 1H12(1H11)	22.8	2.10	20.7	1.95
Total dividendspaid and charged to equity	77.6	7.15	69.9	6.60

		2012		2011
	2012	pence	2011	pence
	£m	per share	£m	per share
Dividends proposed on ordinary shares for approval
by the shareholders at the AGM
Final dividend for 2H12(2H11)	56.3	5.05	55.4	5.05

The Board is recommending a final dividend for 2H12 of 5.05 pence per share which, when added to the interim 1H12 dividend of 2.10 pence per share, results in a total dividend for 2012 of 7.15 pence per share.

The final dividend proposed in respect of 2H12 of £56.3m is based on the total number of ordinary shares in issue at 31 December 2012.

There is a £1.1m decrease between the proposed dividends (2H11 final: £55.4m and 1H12 interim: £23.3m), as reported in the 2011 Annual Report and Accounts and the Interim Report and Accounts for the six months ended 30 June 2012, versus the dividends paid out during the year (2H11 final: £54.8m and 1H12 interim: £22.8m). This represents dividends waived by employee benefit trust trustees on shares held in trust on behalf of Group employees. The amount waived in respect of the final dividend declared in respect of 2H12 will be established by the employee benefit trust trustees on 10 May 2013, being the dividend record date.

Henderson Group Annual Report 2012

12. Segmental information

Group

Operating income and net assets

Henderson is an investment manager, operating throughout Europe and with operations in North America and Asia. The Group manages a broad range of actively managed investment products for institutional and retail investors, across multiple asset classes, including equities, fixed income, property and private equity. Management operates across product lines, distribution channels and geographic regions. All investment product types are sold in most, if not all, of these regions and are managed in various locations.

Information is reported to the chief operating decision-maker, the Board, on an aggregated basis. Strategic and financial management decisions are determined centrally by the Board and, on this basis, the Group is a single segment investment management business.

Entity-wide disclosures

Entity-wide disclosures
Revenues by product UK OEICs/unit trusts	2012 £m 331.9	2011 £m 313.7
SICAVs	95.4	112.2
Property segregated mandates and funds	68.9	63.0
Institutional segregated mandates and cash funds	50.9	57.5
Offshore absolute return funds	32.4	52.2
US mutuals	28.9	33.3
Other	43.5	50.9
Gross fee income and commissions	651.9	682.8

Geographic information

Geographic information
	2012	2011
Revenues from clients UK Luxembourg Americas	£m 497.1 83.5 25.3	£m 513.1 86.0 29.8
Singapore	11.4	13.0
Japan	8.0	13.3
Other	26.6	27.6
Gross fee income and commissions	651.9	682.8

The geographical revenue information is split according to the country in which the revenue is generated, not necessarily where the client is based.

The Group does not have a single client which accounts for more than 10% of revenues.

client is based. The Groupdoes not have a single client which accounts for more than 10% of revenues.
	2012	2011
	£m	£m
Non-current assets
UK Other	823.7 9.7 833.4	853.5 6.4 859.9

Non-current assets for this purpose consist of intangible assets, investments accounted for using the equity method, plant and equipment, non-current trade and other receivables and deferred acquisition and commission costs.

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements

Group and Company continued

13. Intangible assets

Group

Intangible assets are analysed as follows:

2012

2012
		Investment
		management	Computer
	Goodwill	contracts	software	Total
	£m	£m	£m	£m
Cost
At 1 January	515.3	310.2	1.7	827.2
Additions	0.3	0.7	3.8	4.8
At 31 December	515.6	310.9	5.5	832.0
Amortisation
At 1 January	–	(61.0)	(1.1)	(62.1)
Amortisation charge	–	(52.1)	(0.1)	(52.2)
At 31 December	–	(113.1)	(1.2)	(114.3)
Carryingvalue at 31 December	515.6	197.8	4.3	717.7

2011

2011
		Investment
		management	Computer
	Goodwill	contracts	software	Total
	£m	£m	£m	£m
Cost
At 1 January	277.0	86.9	1.5	365.4
Additions	238.3	223.3	0.2	461.8
At 31 December	515.3	310.2	1.7	827.2
Amortisation
At 1 January	–	(19.6)	(0.8)	(20.4)
Amortisation charge	–	(41.4)	(0.3)	(41.7)
At 31 December	–	(61.0)	(1.1)	(62.1)
Carryingvalue at 31 December	515.3	249.2	0.6	765.1

The Group considers itself to have one cash generating unit to which goodwill is allocated.

The recoverable value of goodwill for the Group at 31 December 2012 has been determined by a value in use calculation, using the Group’s annual budget and five-year forecasts approved by the Board and a terminal value for the period thereafter. The terminal value has been calculated assuming a long-term growth rate of 2% per annum in perpetuity, based on the Group’s view of long-term nominal growth. A pre-tax risk adjusted discount rate of 10.1% (2011: 11.6%) per annum has been applied.

The resultant value in use calculation has been compared with the carrying value of goodwill to determine if any goodwill impairment arises. The calculation shows significant headroom in the recoverable value of goodwill.

The value in use calculation has been flexed for a 40% reduction in equity market levels in 2013 and an appropriate decrease in costs. This calculation also shows headroom in the recoverable value of goodwill.

Recent market transactions and the Group’s current market capitalisation provide additional evidence that the recoverable value of goodwill is in excess of the carrying value.

Henderson Group Annual Report 2012

14. Investments in subsidiaries, associates and joint ventures 14.1 Principal subsidiaries

Company

Investment in subsidiaries

14.1 Principal subsidiaries Company Investment in subsidiaries
			2012	2011
			£m	£m
At 31 December			972.4	934.0
The directlyheld subsidiaries of the Companyare as follows:
	Country of
Henderson Group Holdings Asset Management Limited Henderson Global GroupLimited	incorporation and principalplace of operation UK Republic of Ireland and UK	Functional currency GBP GBP	Percentage owned 2012 100% –	Percentage owned 2011 – 100%

On 27 September 2012, Henderson Group Holdings Asset Management Limited, a new directly held subsidiary of Henderson Group plc, was incorporated, and indirectly acquired on 12 December 2012, Henderson Global Group Limited.

Group

The principal subsidiaries of the Group, excluding the directly held subsidiary of the Company shown above, are as follows:

	Country of
	incorporation and
	principal place	Functional	Percentage	Percentage
	of operation	currency	owned 2012	owned 2011
Gartmore Investment Limited	UK	GBP	100%	100%
Henderson Administration Limited	UK	GBP	100%	100%
Henderson Alternative Investment Advisor Limited	UK	GBP	100%	100%
Henderson Equity Partners Limited	UK	GBP	100%	100%
Henderson Equity Partners Funds Limited Henderson Fund Management Limited Henderson Funds Management (Jersey) Limited Henderson Global Investors GP LLC Henderson Global Investors (Holdings) Limited	Jersey UK Jersey USA UK	GBP GBP GBP USD GBP	100% 100% 100% 100% 100%	100% 100% 100% 100% 100%
Henderson Global Investors (International Holdings) BV	Netherlands	EUR	100%	100%
Henderson Global Investors (Japan) Limited	Japan	JPY	100%	100%
Henderson Global Investors Limited	UK	GBP	100%	100%
Henderson Global Investors (North America) Inc.	USA	USD	100%	100%
Henderson Global Investors (Singapore) Limited	Singapore	SGD	100%	100%
HGI Group Limited	UK	GBP	100%	100%
HGI (Investments) Limited	UK	GBP	100%	100%
Henderson Holdings Group BV	Netherlands	GBP	100%	100%
Henderson Investment Funds Limited	UK	GBP	100%	100%
Henderson Investment Management Limited	UK	GBP	100%	100%
Henderson Management SA Henderson Property Management (Jersey) Limited Henderson UK Financeplc	Luxembourg Jersey UK	USD GBP GBP	100% 100% 100%	100% 100% 100%

The information disclosed in the table above is only in respect of those subsidiaries which principally affect the figures shown in the Group’s consolidated financial statements. There are a number of other subsidiaries which do not materially affect the Group’s results or net assets. Particulars of these subsidiaries have been omitted for simplification purposes.

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements

Group and Company continued

14. Investments in subsidiaries, associates and joint ventures continued 14.2 Investments accounted for using the equity method

Group

The Group holds interests in the following associates and joint ventures:

	Country of incorporation and	Functional	Percentage	Percentage
	principalplace of operation	currency	owned 2012	owned 2011
Asia Real Estate Fund Management Limited	Singapore	SGD	50%	50%
Asia Real Estate Fund Management BVI	British Virgin Islands and Singapore	USD	50%	50%
Attunga Capital Pty Limited	Australia	AUD	30%	30%
HGI Immobilien GmbH	Germany	EUR	50%	50%
Intrinsic Cirilium Investment Company Limited (formerly
New Star Investment Funds Limited)¹	UK	GBP	50%	100%
Northern Pines Henderson Capital LLC	USA	USD	50%	–
Northern Pines Henderson Capital GP LLC	USA	USD	50%	–
Optimum Investment Management Limited (formerly
Gartmore Fund Managers Limited)¹	UK	GBP	50%	100%
Warburg-Henderson Kapitalanlagegesellschaft
für Immobilien mbH	Germany	EUR	50%	50%

These entities were formerly controlled by the Group and became joint venture entities during the year. Refer to note 33.2 for further details.

The Group’s share of net assets and share of net profits from associates and joint ventures are as follows:

The Group’s share of net assets and share of netprofits from associates andjoint ventures are as follows:
	2012	2011
	£m	£m
Share of net assets	8.4	3.7
Share of netprofits for theyear	1.7	0.7

15. Plant and equipment

Group

15. Plant and equipment Group
	2012	2011
	£m	£m
Cost
At 1 January	37.5	35.8
Additions	1.5	1.4
Acquisitions through business combinations	–	0.5
Disposals	(2.1)	(0.2)
Foreign exchange movement	(0.1)	–
At 31 December	36.8	37.5
Depreciation
At 1 January	(17.8)	(14.6)
Charge	(2.9)	(3.3)
Disposals	1.9	0.1
At 31 December	(18.8)	(17.8)
Net book value at 31 December	18.0	19.7

Included in cost as at 31 December 2012 were fully depreciated assets amounting to £5.5m (2011: £4.8m).

Henderson Group Annual Report 2012

16. Fair value of financial instruments

Group

Total financial assets and liabilities

16. Fair value of financial instruments Group Total financial assets and liabilities
		Carrying value		Fair value
		2012	2011	2012	2011
	Notes	£m	£m	£m	£m
Financial assets
Financial assets at fair value through profit or loss		14.2	10.5	14.2	10.5
Available-for-sale financial assets		44.9	54.3	44.9	54.3
OEIC and unit trust debtors, accrued income and trade and other debtors Derivative financial instruments Cash and cash equivalents Total financial assets	18 18 19.1	165.8 0.5 196.9 422.3	161.0 0.2 273.9 499.9	165.8 0.5 196.9 422.3	161.0 0.2 273.9 499.9
Financial liabilities
Debt instruments in issue	20	148.5	291.4	158.9	302.4
OEIC and unit trust creditors,accruals and other creditors	24	301.0	306.0	301.0	306.0
Total financial liabilities		449.5	597.4	459.9	608.4

Financial assets at fair value through profit or loss mainly consist of investments in the Group’s fund products which are held, in employee benefit trusts, against outstanding deferred compensation arrangements. Any movement in the fair value of these assets is offset by a corresponding movement in the deferred compensation liability, both recognised through the Consolidated Income Statement.

The Group enters into forward foreign exchange contracts to hedge mainly available-for-sale financial assets denominated in foreign currency and therefore applies fair value hedge accounting.

Debtor and creditor balances, included in the table above, represent balances mainly settling in a short time frame, and accordingly, the fair value of these assets and liabilities is considered to be materially equal to their carrying value after taking into account any impairment.

Company

As at 31 December 2012, the Company held financial assets at fair value through profit or loss with a carrying value and fair value of £13.0m (2011: £7.4m). These investments are classified as Level 1 and Level 2 using the hierarchy set out on the following page. During 2012, there were no transfers in or out of Level 1, Level 2 and Level 3 (2011: £nil).

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements

Group and Company continued

16. Fair value of financial instruments continued

Group

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial assets and liabilities by valuation technique:

[Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;]
[Level 2: other techniques where all inputs, which have a significant effect on the recorded fair value, are observable, either directly or ] indirectly; and
[Level 3: techniques where inputs which have a significant effect on the recorded fair value that are not based on observable market data. ]

		2012	Level 1	Level 2	Level 3
	Note	£m	£m	£m	£m
Financial assets
Financial assets at fair value through profit or loss		14.2	10.5	3.7	–
Available-for-sale financial assets		44.9	5.5	–	39.4
Derivative financial instruments	18	0.5	0.5	–	–
Total financial assets		59.6	16.5	3.7	39.4

		2011	Level 1	Level 2	Level 3
	Note	£m	£m	£m	£m
Financial assets
Financial assets at fair value through profit or loss		10.5	8.5	2.0	–
Available-for-sale financial assets		54.3	2.5	–	51.8
Derivative financial instruments	18	0.2	0.2	–	–
Total financial assets		65.0	11.2	2.0	51.8

During 2012, there were no transfers in or out of Level 1, Level 2 and Level 3 (2011: £nil).

The following is a reconciliation of the movements in the Group’s financial assets classified as Level 3 during the year:

	2012	2011
	£m	£m
Fair value at 1 January	51.8	40.4
Additions	0.3	5.5
Disposals	(7.7)	–
Fair value movements recognised in the Consolidated Statement of Comprehensive Income	(5.0)	5.9
Fair value at 31 December	39.4	51.8

As the fair value measurement of the financial assets included in Level 3 is based on non-observable inputs, a change in one or more underlying assumptions could result in a significant change in fair value. However, due to the numerous different factors affecting the assets, the impact cannot be quantified.

Henderson Group Annual Report 2012

17. Deferred acquisition and commission costs

Group

17. Deferred acquisition and commission costs Group
	2012	2011
	£m	£m
At 1 January	154.7	113.6
Costs and commissions capitalised	87.9	118.9
Amortisation charge	(99.6)	(77.8)
Foreign exchange movement	(0.1)	–
At 31 December	142.9	154.7
Non-current Current At 31 December	60.2 82.7 142.9	71.4 83.3 154.7

18. Trade and other receivables

	Group	Group	Company
	2012	2011	2012	2011
	£m	£m	£m	£m
OEIC and unit trust debtors	44.1	62.7	–	–
Derivative financial instruments	0.5	0.2	–	–
Trade debtors	10.1	13.1	–	–
Accrued income	98.0	70.0	–	–
Other debtors	13.6	15.2	–	–
Prepayments Amounts owed bysubsidiaries Non-current	7.4 – 173.7 29.1	7.1 – 168.3 –	– 0.2 0.2 –	– 1.6 1.6 –
Current	144.6	168.3	0.2	1.6
	173.7	168.3	0.2	1.6

19. Cash and cash equivalents

19.1 Cash at bank, in hand and cash equivalents

	Group	Group	Company
	2012	2011	2012	2011
	£m	£m	£m	£m
Cash at bank and in hand	183.5	170.4	4.0	0.1
Cash equivalents	13.4	103.5	–	–
Cash at bank,in hand and cash equivalents	196.9	273.9	4.0	0.1

Cash and cash equivalents consist of cash in hand, cash at bank and short-term highly liquid government securities or investments in money market instruments with a maturity date of three months or less.

Included within cash and cash equivalents as at 31 December 2012 is £nil (2011: £4.7m) restricted cash. Restricted amounts represented cash previously held in escrow for Henderson Group Pension Scheme. In addition, as at 31 December 2012 £29.0m (2011: £4.6m) of cash at bank and in hand was held in the Group’s manager dealing accounts which represent payments due to and from OEICs and units trusts as a result of client trading.

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements

Group and Company continued

19. Cash and cash equivalents continued 19.2 Changes in operating assets and liabilities

19. Cash and cash equivalents continued 19.2 Changes in operating assets and liabilities
	Group		Company
	2012	2011	2012	2011
	£m	£m	£m	£m
Change in OEIC and unit trust debtors and creditors	19.4	(23.4)	–	–
Increase in gross deferred acquisition and commission costs	(87.9)	(118.9)	–	–
(Increase)/decrease in other assets	(28.1)	11.2	37.0	(7.6)
Increase in gross deferred income	95.0	127.0	–	–
(Decrease)/increase in provisions and other liabilities	(12.9)	(6.9)	11.3	87.9
Increase in investment in subsidiaries	–	–	(38.4)	(54.0)
Changes in operatingassets and liabilities	(14.5)	(11.0)	9.9	26.3

20. Debt instruments in issue

Group

20. Debt instruments in issue Group
	2012	2012	2011	2011
	Carrying value	Fair value	Carrying value	Fair value
	£m	£m	£m	£m
Senior, unrated fixed rate notes due 2012 (2012 Notes)	–	–	143.4	145.1
Senior,unrated fixed rate notes due 2016(2016 Notes)	148.5	158.9	148.0	157.3
	148.5	158.9	291.4	302.4
Non-current	148.5	158.9	148.0	157.3
Current	–	–	143.4	145.1
	148.5	158.9	291.4	302.4

On 24 March 2011, the Group issued, at par, £150.0m of 2016 Notes which are listed on the LSE, unsecured, unrated, repayable in full on 24 March 2016 and bear interest at a fixed rate of 7.25% per annum payable six monthly. The 2012 Notes were repaid in full on 2 May 2012.

On 12 January 2011, the Group entered into a £75.0m revolving credit facility with a syndicate of three banks. The facility was not drawn as at 31 December 2012 and as referred to in note 35, subsequent to 31 December 2012, the Group cancelled this facility.

On 12 January 2011, the Group also entered into a £200.0m multicurrency term facility with the same syndicate of three banks. As at 31 December 2011, £42.6m remained available to the Group up to 4 October 2012. The facility was not drawn and on 3 February 2012, the Group cancelled this facility.

Henderson Group Annual Report 2012

21. Retirement benefits

Group

Retirement benefit assets recognised in the Consolidated Statement of Financial Position

		2012	2011
	Notes	£m	£m
Henderson Group Pension Scheme	21.1	125.4	136.8
Gartmore Pension Scheme	21.2	4.8	54.1
Total retirement benefit assets at 31 December		130.2	190.9

Retirement benefit obligations recognised in the Consolidated Statement of Financial Position

Henderson Groupunapprovedpension schemes	Note 21.3	2012 £m 7.2	2011 £m 6.5
Pension service cost recognised in the Consolidated Income Statement
		2012	2011
	Notes	£m	£m
Henderson Group Pension Scheme	21.1	1.2	(3.3)
Henderson Money Purchase Scheme		5.5	5.4
Gartmore Pension Scheme	21.2	0.1	(0.7)
Henderson Groupunapprovedpension schemes	21.3	0.4	0.3
Totalpension service cost for theyear		7.2	1.7

Actuarial (losses)/gains recognised in the Consolidated Statement of Comprehensive Income

Actuarial (losses)/gains recognised in the Consolidated Statement	of Comprehensive Income
		2012	2011
Henderson Group Pension Scheme Gartmore Pension Scheme Tax at source Reclassification from deferred tax	Notes 21.1 21.2 23	£m (21.5) (75.7) 34.1 –	£m 38.6 28.6 (31.6) 6.1
Henderson Groupunapprovedpension schemes	21.3	(0.4)	(0.1)
Total actuarial(losses)/gains for theyear		(63.5)	41.6

Tax at source represents tax deductions at source under statute on refund of surpluses.

Employer contributions

The Group expects to contribute approximately £8.7m to the Henderson Group Pension Scheme (HGPS) and the Henderson Money Purchase Scheme in the year ending 31 December 2013. No contributions are expected to be made into other schemes.

21.1 Henderson Group Pension Scheme – Final Salary Scheme

The Final Salary Scheme represents the defined benefit section of HGPS, which closed to new members on 15 November 1999. The sponsor and principal employer of HGPS is HGI Group Limited and the participating company is Henderson Administration Limited. The appointed investment manager for the final salary scheme is Henderson Global Investors Limited. The Final Salary Scheme is funded by contributions to a separately administered fund. The actuarial advisers to HGPS are Towers Watson & Co.

The 2012 HGPS accounting valuation under IAS 19 Employee Benefits, is based on full membership data as at 31 December 2011 and updated to the accounting date by an independent actuary in accordance with IAS 19. The HGPS assets are stated at their fair values as at 31 December 2012. The triennial valuation took place during 2012 based on 31 December 2011 membership data, and was finalised in 2013.

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements

Group and Company continued

21. Retirement benefits continued 21.1 Henderson Group Pension Scheme – Final Salary Scheme continued

Reconciliation of present value of defined benefit obligations

21. Retirement benefits continued 21.1 Henderson Group Pension Scheme – Final Salary Scheme continued Reconciliation of present value of defined benefit obligations
	2012	2011
	£m	£m
At 1 January	365.6	336.8
Current service cost	3.2	3.3
Interest cost	17.7	18.0
Actuarial losses	13.1	16.9
Benefitpayments	(12.0)	(9.4)
At 31 December	387.6	365.6

Reconciliation of fair value of defined benefit scheme assets

Reconciliation of fair value of defined benefit scheme assets
	2012	2011
	£m	£m
At 1 January	523.8	449.3
Expected return on scheme assets	19.7	24.6
Actuarial (losses)/gains	(8.4)	55.5
Contributions	3.7	3.8
Benefitpayments	(12.0)	(9.4)
At 31 December	526.8	523.8

Net retirement benefit asset recognised in the Consolidated Statement of Financial Position

Net retirement benefit asset recognised in the Consolidated Statement of Financial Position
	2012	2011
	£m	£m
Present value of defined benefit obligations	(387.6)	(365.6)
Fair value of defined benefit scheme assets	526.8	523.8
Tax at source	(13.8)	(21.4)
Net retirement benefit asset at 31 December	125.4	136.8

Pension service cost/(credit) recognised in the Consolidated Income Statement

Pension service cost/(credit) recognised in the Consolidated Income Statement
	2012	2011
	£m	£m
Current service cost	3.2	3.3
Interest cost	17.7	18.0
Expected return on scheme assets	(19.7)	(24.6)
Totalpension service cost/(credit)for theyear	1.2	(3.3)

Movements in actuarial (losses)/gains recognised in the Consolidated Statement of Comprehensive Income

	2012	2011
	£m	£m
At 1 January	39.6	22.4
Actuarial (losses)/gains recognised in the Consolidated Statement of Comprehensive Income	(21.5)	38.6
Tax at source	7.6	(21.4)
At 31 December	25.7	39.6

Movements in net assets recognised in the Consolidated Statement of Financial Position

Movements in net assets recognised in the Consolidated Statement of Financial Position
	2012	2011
	£m	£m
At 1 January	136.8	112.5
Pension service (cost)/credit recognised in the Consolidated Income Statement	(1.2)	3.3
Contributions	3.7	3.8
Actuarial (losses)/gains recognised in the Consolidated Statement of Comprehensive Income	(21.5)	38.6
Tax at source	7.6	(21.4)
At 31 December	125.4	136.8

96 Henderson GroupAnnual Report 2012

Pension scheme assets

The major categories of assets in the final salary section of HGPS, were as follows:

Fair value of defined benefit scheme assets

Fair value of defined benefit scheme assets
	Market value		% as a total of assets		Expected rate of return¹
	2012	2011	2012	2011	2012	2011
	£m	£m	%	%	%	%
Risk reducing portfolio	387.6	389.9	74	74	n/a	3.0
Return seeking portfolio	136.8	130.5	26	25	n/a	6.3
Cashportfolio	2.4	3.4	–	1	n/a	3.0
Total	526.8	523.8	100	100	n/a	3.8

The introduction of the amended version of IAS 19 Employee Benefits, for periods beginning 1 January 2013, means that the 2012 expected rate of return will no longer be used in assessing pension scheme valuations.

HGPS does not hold any investments in employer related companies. The expected return on assets assumption as at 31 December 2011 is the weighted average of the expected returns from each of the portfolios as shown above.

Actual return on defined benefit scheme assets

	2012	2011
	£m	£m
Actual return on scheme assets	11.3	80.1
Principal actuarial assumptions
(a) Financial assumptions
	2012	2011
	%per annum	%per annum
Discount rate	4.6	4.9
Expected rate of return on scheme assets¹ Salary increases Pension increases: – where liability is the Retail Price Index (RPI) capped at 5% per annum – where liability is the RPI capped at 2.5% per annum	n/a 2.5 3.0 2.1	3.8 2.5 3.1 2.2
– where liability is fixed	At fixed rate	At fixed rate
Inflation (RPI)	3.1	3.2
Inflation(CPI)	2.4	2.5

The introduction of the amended version of IAS 19 Employee Benefits, for periods beginning 1 January 2013, means that the 2012 expected rate of return will no longer be used in assessing pension scheme valuations.

(b) Demographic assumptions

Post-retirement mortality assumptions follow 100% of the SAPS ‘S1 Light’ tables and improvements from 2002 in line with the ‘medium cohort’ projections with an underpin of 1% per annum. The table below illustrates the implied life expectancies as at 31 December 2012 using this mortality assumption:

usingthis mortalityassumption:
			Male	Female
			no. ofyears	no. ofyears
Life expectancy for a member who is currently 60 Life expectancyat 60 for a member who is currently45 (c) Historical amounts 2012 £m Defined benefit obligations (387.6) Defined benefit scheme assets 526.8	2011 £m (365.6) 523.8	2010 £m (336.8) 449.3	28.1 29.5 2009 £m (312.8) 402.8	29.6 31.1 2008 £m (251.9) 404.4
Surplus in the scheme before tax at source 139.2	158.2	112.5	90.0	152.5
Experience (losses)/gains on scheme liabilities (0.8)	(2.2)	(0.9)	12.1	(1.2)
Experience(losses)/gains on scheme assets (8.4)	55.5	26.3	(18.5)	20.6
Net experience(losses)/gains (9.2)	53.3	25.4	(6.4)	19.4

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements Group and Company continued

21. Retirement benefits continued

21.2 Gartmore Pension Scheme – Final Salary Scheme

As part of the acquisition of Gartmore in April 2011, the Group acquired the assets and liabilities of the Gartmore Pension Scheme (GPS). GPS was closed to new entrants and future accrual for existing members in 2006. The sponsor and participating company is Gartmore Investment Management Limited. The actuarial advisers to GPS are Lane Clark & Peacock LLP.

The 2012 GPS accounting valuation under IAS 19 Employee Benefits, is based on full membership data as at 31 December 2011 and updated to the accounting date by an independent actuary in accordance with IAS 19. The GPS assets are stated at their fair values as at 31 December 2012. As part of a buy-in arrangement, the trustee entered into a bulk annuity insurance agreement on 4 April 2012 with the Pension Insurance Corporation. The buy-in arrangement entered into by the trustee has reduced the Group’s exposure to the risks associated with the scheme. As a result, the value of assets, recognised under IAS 19, reduced to reflect the buy-in arrangement and are shown as actuarial losses in the relevant tables below.

Reconciliation of present value of defined benefit obligations

	2012	2011
	£m	£m
At 1 January	96.7	–
Balance at acquisition	–	87.1
Interest cost	4.6	3.3
Actuarial losses	10.7	9.0
Benefitpayments	(7.1)	(2.7)
At 31 December	104.9	96.7

Reconciliation of the fair value of defined benefit scheme assets

	2012	2011
	£m	£m
At 1 January	179.9	–
Balance at acquisition	–	141.0
Expected return on scheme assets	4.5	4.0
Actuarial (losses)/gains	(65.0)	37.6
Benefitpayments	(7.1)	(2.7)
At 31 December	112.3	179.9

Net retirement benefit asset recognised in the Consolidated Statement of Financial Position

	2012	2011
	£m	£m
Present value of defined benefit scheme obligations	(104.9)	(96.7)
Fair value of defined benefit scheme assets	112.3	179.9
Tax at source	(2.6)	(29.1)
Net retirement benefit asset at 31 December	4.8	54.1

Henderson Group Annual Report 2012

Pension service cost/(credit) recognised in the Consolidated Income Statement

Pension service cost/(credit) recognised in the Consolidated Income Statement
	2012	2011
	£m	£m
Interest cost	4.6	3.3
Expected return on scheme assets	(4.5)	(4.0)
Pension service cost/(credit)for theperiod	0.1	(0.7)

Movements in actuarial (losses)/gains recognised in the Consolidated Statement of Comprehensive Income

	2012	2011
	£m	£m
At 1 January Actuarial (losses)/gains recognised in the Consolidated Statement of Comprehensive Income Tax at source At 31 December	18.4 (75.7) 26.5 (30.8)	– 28.6 (10.2) 18.4

Movements in net asset recognised in the Consolidated Statement of Financial Position

Movements in net asset recognised in the Consolidated Statement of Financial Position
	2012	2011
	£m	£m
At 1 January	54.1	–
Balance at acquisition	–	35.0
Pension service (cost)/credit recognised in the Consolidated Income Statement	(0.1)	0.7
Actuarial (losses)/gains recognised in the Consolidated Statement of Comprehensive Income	(75.7)	28.6
Tax at source	26.5	(10.2)
At 31 December	4.8	54.1

Pension scheme assets

The major categories of assets in the final salary section of GPS, were as follows:

Fair value of the defined benefit scheme assets

	Market value 2012 2011	Market value 2012 2011	% as a total of assets 2012 2011	% as a total of assets 2012 2011	Expected rate of return¹ 2012 2011	Expected rate of return¹ 2012 2011
	£m	£m	%	%	%	%
Index-linked gilts	–	179.2	–	100	n/a	2.9
Cash portfolio	11.6	0.7	10	–	n/a	–
Bulk annuityinsurance agreement	100.7	–	90	–	n/a	–
Total	112.3	179.9	100	100	n/a	2.9

The introduction of the amended version of IAS 19 Employee Benefits, for periods beginning 1 January 2013, means that the 2012 expected rate of return will no longer be used in assessing pension scheme valuations.

On 4 April 2012, the trustee entered into a bulk annuity insurance agreement.

Actual return on defined benefit scheme assets

Actual return on defined benefit scheme assets
	2012	2011
Actual return on scheme assets Principal actuarial assumptions (a) Financial assumptions Discount rate	£m (60.5) 2012 %per annum 4.6	£m 41.6 2011 %per annum 4.9
Expected rate of return on scheme assets¹	n/a	2.9
Pension increases	3.0	3.1
Inflation	3.1	3.2

The introduction of the amended version of IAS 19 Employee Benefits, for periods beginning 1 January 2013, means that the 2012 expected rate of return will no longer be used in assessing pension scheme valuations.

GPS uses RPI as the basis for revaluation of certain obligations, in line with the trust deed.

Henderson Group Annual Report 2012

Financial statements continued

Notes to the Financial Statements

Group and Company continued

21. Retirement benefits continued 21.2 Gartmore Pension Scheme – Final Salary Scheme continued

(b) Demographic assumptions

The demographic assumptions used as at 31 December 2012 are consistent with those for HGPS. Post-retirement mortality assumptions follow 100% of the SAPS ‘S1 Light’ tables and improvements from 2002 in line with the ‘medium cohort’ projections with an underpin of 1% per annum. The table below illustrates the implied life expectancies as at 31 December 2012 using this mortality assumption:

	Male		Female
	no. ofyears	no. ofyears
Life expectancy for a member who is currently 60	28.1		29.6
Life expectancyat 60 for a member who is currently45	29.5		31.1
(c) Historical amounts
	2012		2011
	£m		£m
Defined benefit obligations	(104.9)		(96.7)
Defined benefit scheme assets	112.3		179.9
Surplus in the scheme before tax at source	7.4		83.2
Experience losses on scheme liabilities	(2.3)		(0.9)
Experience(losses)/gains on scheme assets	(65.0)		37.6
Net experience(losses)/gains	(67.3)		36.7

21.3 Henderson Group unapproved pension schemes

The Group operates three unapproved pension schemes, the details of which are provided below:

Pearl Executive Scheme. Members of this scheme are also members of HGPS. However, pensionable earnings under HGPS are limited to 1/60th for each year of service and the earnings cap. The Pearl Executive Scheme provides benefits at 1/30th for each year of service with a maximum of two thirds of salary after 20 years service based on pensionable earnings above the earnings cap, on an unfunded basis;

Henderson Top Up Scheme. Members of this scheme are also members of HGPS. However, pensionable earnings under HGPS are limited to the earnings cap, and the Henderson Top Up Scheme enables benefits to be based on pensionable earnings without restriction of the earnings cap. These additional uncapped benefits are provided on an unfunded basis; and

there is also an unfunded liability in respect of one member, to whom the Group has made a contractual promise to pay a fixed pension from age 60.

Reconciliation of present value of defined benefit obligations

Reconciliation of present value of defined benefit obligations
	2012	2011
	£m	£m
At 1 January	6.5	6.2
Interest cost	0.4	0.3
Actuarial losses	0.4	0.1
Benefitpayments	(0.1)	(0.1)
At 31 December	7.2	6.5
Summary of defined benefit obligations at 31 December

Summary of defined benefit obligations at 31 December
	2012	2011
	£m	£m
Pearl Executive Scheme	5.9	5.3
Henderson Top Up Scheme	1.1	1.0
Individual contractualpromise	0.2	0.2
Total	7.2	6.5

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100

Defined benefit obligations recognised in the Consolidated Statement of Financial Position

Defined benefit obligations recognised in the Consolidated Statement of Financial Position
	2012	2011
	£m	£m
Present value of defined benefit obligations	7.2	6.5
Net benefit obligation at 31 December	7.2	6.5
Pension service cost recognised in the Consolidated Income Statement
	2012	2011
	£m	£m
Interest cost	0.4	0.3
Totalpension service cost for theyear	0.4	0.3

Movement in actuarial (losses)/gains recognised in the Consolidated Statement of Comprehensive Income

	2012 £m	2011 £m
At 1 January	1.7	1.8
Actuarial losses recognised in the Consolidated Statement of Comprehensive Income	(0.4)	(0.1)
At 31 December	1.3	1.7

Movements in net obligation recognised in the Consolidated Statement of Financial Position

Movements in net obligation recognised in the Consolidated Statement of Financial Position
	2012	2011
	£m	£m
At 1 January	6.5	6.2
Pension service cost recognised in the Consolidated Income Statement	0.4	0.3
Actuarial losses recognised in the Consolidated Statement of Comprehensive Income	0.4	0.1
Benefitpayments	(0.1)	(0.1)
At 31 December	7.2	6.5

Principal actuarial assumptions

(a) Financial assumptions

Principal actuarial assumptions (a) Financial assumptions
	2012	2011
	%per annum	%per annum
Discount rate	4.6	4.9
Salary increases	n/a	n/a
Pension increases:
– where liability is the RPI	3.0	3.1
– where liability is fixed	At fixed rate	At fixed rate
Inflation	3.1	3.2

(b) Demographic assumptions

The demographic assumptions used as at 31 December 2012 are those underlying the last actuarial valuation of HGPS in 2011. Post-retirement mortality assumptions follow 100% of the SAPS ‘S1 Light’ tables and improvements from 2002 in line with the ‘medium cohort’ projections with an underpin of 1% per annum. The table below illustrates the implied life expectancies as at 31 December 2012 using this mortality assumption:

Life expectancy for a member who is currently 60 Life expectancyat 60 for a member who is currently45 (c) Historical amounts				Male no. ofyears 28.1 29.5	Female no. ofyears 29.6 31.1
	2012	2011	2010	2009	2008
	£m	£m	£m	£m	£m
Defined benefit obligations	7.2	6.5	6.2	6.1	4.7
Deficit in thepension schemes	7.2	6.5	6.2	6.1	4.7
Experience losses on scheme liabilities	–	–	–	–	(0.1)

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Financial statements continued

Notes to the Financial Statements

Group and Company continued

22. Provisions

Group

22. Provisions Group
	Void	Staff
	properties	related	Other	Total
	£m	£m	£m	£m
At 1 January 2012	14.0	3.5	21.9	39.4
Additions	1.2	1.7	1.0	3.9
Finance charge	1.4	–	–	1.4
Provisions utilised	(2.9)	(2.6)	(7.3)	(12.8)
Provisions released	–	(2.5)	(7.3)	(9.8)
Foreign exchange movement	–	(0.1)	–	(0.1)
At 31 December 2012	13.7	–	8.3	22.0
Non-current	11.3	–	0.8	12.1
Current	2.4	–	7.5	9.9
At 31 December 2012	13.7	–	8.3	22.0

Void properties

The void properties provision reflects the net present value of the excess of lease rentals and other payments on New Star and Gartmore properties with onerous contracts, over the amounts expected to be recovered from subletting these properties. The discounting of expected cash flows will be unwound during the term of the underlying leases (maximum of 13 years) as a void property finance charge to the Consolidated Income Statement.

Other

Other provisions relate to issues which have arisen as a result of litigation and obligations during the course of the Group’s business activities. All provisions reflect the Group’s current estimates of amounts and timings.

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102

23. Deferred tax

Group

Deferred tax assets/(liabilities) recognised by the Group and movements therein are as follows:

	Accelerated
	capital	Retirement	Intangible	Other temporary
	allowances	benefits	assets	differences	Total
	£m	£m	£m	£m	£m
At 1 January 2011	3.6	(28.7)	(18.2)	23.5	(19.8)
Acquisitions through business combinations	1.6	–	(58.0)	6.0	(50.4)
Credit to the Consolidated Income Statement	0.9	–	13.9	9.9	24.7
Charge to the Consolidated Statement of Comprehensive Income Charge to the Consolidated Statement of Changes in Equity Reclassification in relation to tax at source	– – –	– – 6.1	– – –	(0.2) (3.7) –	(0.2) (3.7) 6.1
Impact of foreign exchange movement	–	–	–	0.1	0.1
At 31 December 2011	6.1	(22.6)	(62.3)	35.6	(43.2)
Acquisitions through business combinations	–	–	(0.2)	–	(0.2)
Credit to the Consolidated Income Statement	(3.7)	1.2	17.0	(1.3)	13.2
Credit to the Consolidated Statement
of Comprehensive Income	–	0.2	–	0.6	0.8
Credit to the Consolidated Statement
of Changes in Equity	–	–	–	0.9	0.9
Impact of foreign exchange movement	–	–	–	(0.3)	(0.3)
At 31 December 2012	2.4	(21.2)	(45.5)	35.5	(28.8)

Deferred tax assets and liabilities in the above summary represent gross assets and liabilities as follows:

At At	31 31	December 2011 December 2012	Assets £m 45.3 40.3	Liabilities £m (88.5) (69.1)	Total £m (43.2) (28.8)

The change in the UK corporation tax rate from 25% to 23% with effect from 1 April 2013 resulted in a reduction of the Group’s deferred tax asset and deferred tax liability of £3.0m and £6.2m respectively. The proposed further reduction of the UK corporation tax rate to 21% by 1 April 2014 is anticipated to be substantively enacted in 2013. The Group estimates the aggregate impact of the proposed reduction from 23% to 21% would reduce the deferred tax assets and deferred tax liabilities, as at 31 December 2012, by approximately £2.7m and £4.9m respectively. Any impact will not be recognised by the Group until the proposed reduction is enacted.

At 31 December 2012, the Group has unused tax losses in respect of which no deferred tax has been recognised as utilisation of the losses is dependent on future profits. The unrecognised deferred tax asset in respect of trading losses carried forward is £1.5m (2011: £13.5m). The unrecognised deferred tax asset in respect of capital losses carried forward is £12.5m (2011: £14.6m). These losses have no expiry date.

Deferred tax is not recognised in respect of taxable temporary differences associated with the Group’s investments in overseas subsidiaries, branches, associates and joint ventures where the Group controls the timing of the reversal of the temporary differences and where the reversal of the temporary differences is not anticipated in the foreseeable future (2011: £nil).

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103

Financial statements continued

Notes to the Financial Statements

Group and Company continued

24. Trade and other payables

	Group	Group	Company
	2012	2011	2012	2011
	£m	£m	£m	£m
OEIC and unit trust creditors	62.4	61.6	–	–
Other creditors	29.3	24.9	–	–
Accruals	209.3	219.5	10.9	7.4
Amounts owed to subsidiaries	–	–	91.6	83.8
	301.0	306.0	102.5	91.2
Non-current	10.1	2.7	–	–
Current	290.9	303.3	102.5	91.2
	301.0	306.0	102.5	91.2

25. Share capital

Group and Company

25.1 Authorised share capital

				2012	2011
				£m	£m
2,194,910,776	ordinaryshares of	12.5	pence each	274.4	274.4

25.2 Allotted share capital

Allotted, called up and fully paid equity shares:

Allotted,called upand fully paid equityshares:
Shares in issue	no.	£m
At 1 January 2011	833,818,501	104.2
Issue of shares for Gartmore acquisition	242,639,403	30.3
Issue of shares for employee share schemes	20,859,379	2.6
Cash allotment	622,004	0.1
At 31 December 2011	1,097,939,287	137.2
Issue of shares for employee share schemes	16,545,873	2.1
At 31 December 2012	1,114,485,160	139.3

All ordinary shares in issue carry the same rights to receive dividends and other distributions declared, made or paid by the Company.

The Directors consider shareholders’ equity to represent Group capital. The Directors manage the Group’s capital structure on an ongoing basis. Changes to the Group’s capital structure can be affected by adjusting the dividend policy, returning capital to shareholders or issuing new shares and other forms of capital.

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26. Reserves

Group and Company

Nature and purpose of reserves

The Consolidated Statement of Changes in Equity and Company Statement of Changes in Equity on pages 69 and 72 respectively, provide details of movements in equity for the Group and Company.

Share premium

Share premium records the difference between the nominal value of shares issued and the full value of the consideration received or the market price on the day of issue.

Own shares held

Total own shares held had a cost of £100.8m (2011: £115.6m) and a market value of £93.8m (2011: £79.5m) as at 31 December 2012 and constituted 6.4% (2011: 7.1%) of the Company’s issued share capital as at that date.

constituted 6.4%(2011: 7.1%)of the Company’s issued share capital as at that date.
	2012 no. of shares	2011 no. of shares
Henderson Employee Trust 2000	2,282,801	4,663,385
HHG plc Employee Trust 2004	996,250	1,635,000
Henderson Employee Trust 2009	45,157,198	46,601,318
Henderson Group plc Employee Trust 2009	18,365,658	21,312,091
Gartmore Employee Trust	1,691,517	2,283,434
ACS HR Solutions UK Limited	1,123,966	1,123,966
Henderson Employee Share OwnershipTrust	1,271,266	942
	70,888,656	77,620,136

The above trusts are used by the Group to operate the share-based compensation schemes as set out in note 10.

Shares are distributed to employees as and when they vest, in line with the terms of each scheme, under the administration of the trustees. ACS HR Solutions Share Plan Services (Guernsey) Limited, a Xerox Company, administers all of the above trusts.

Translation reserve

The translation reserve comprises differences on exchange arising from the translation of opening statements of financial position of subsidiaries, whose reporting currency is not GBP, and differences between the results of these subsidiaries translated at average rates for the reporting period and period end rates.

The translation reserve also includes unrealised foreign exchange gains and losses on available-for-sale financial assets which are not part of a designated hedge relationship. Upon disposal or impairment of these assets, amounts previously recognised in the translation reserve are reversed out and the cumulative amount of the gain or loss is recognised in the Consolidated Income Statement.

Revaluation reserve

The revaluation reserve comprises the amount of any unrealised gain or loss recognised in the Consolidated Statement of Comprehensive Income in relation to available-for-sale financial assets which are not part of a designated hedge relationship.

Upon disposal or impairment of these assets, amounts previously recognised in the revaluation reserve are reversed out and the cumulative amount of the gain or loss is recognised in the Consolidated Income Statement.

Profit and loss reserve

The profit and loss reserve comprises:

[results recognised through the Consolidated and Company Income Statement;]
[dividends paid to equity shareholders;]
[transactions relating to share-based payments; and]
[actuarial gains and losses recognised in the Consolidated Statement of Comprehensive Income, net of tax.]

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105

Financial statements continued

Notes to the Financial Statements

Group and Company continued

27. Non-controlling interests

Group

The Group has consolidated the following company in which a non-controlling interest is held by a third party:

	2012	2011	2012	2011
	non-controlling	non-controlling	non-controlling	non-controlling
	interest	interest	interest	interest
	%	%	£m	£m
HGI Immobilien Austria GmbH	35%	35%	0.6	0.4
At 31 December			0.6	0.4

28. Financial risk management

Financial risk management objectives and policies

Financial assets principally comprise investments in equity securities, short-term investments, trade and other receivables and cash and cash equivalents. Financial liabilities comprise borrowings for financing purposes and trade and other payables. The main risks arising from financial instruments are price, interest rate, liquidity, foreign currency and credit. Each of these risks is examined in detail below. The Group monitors financial risks on a consolidated basis and intra-Group balances are settled when it is deemed appropriate for both parties to the transaction. The Company is not exposed to material financial risk and separate disclosures for the Company have not been included.

The Group has designed a framework to manage the risks of its business and to ensure that the Directors have in place risk management practices appropriate for a listed company. The management of risk within the Group is governed by the Board and overseen by the Board Risk Committee.

28.1 Price risk

Price risk is the risk that a decline in the value of assets adversely impacts on the profitability of the Group.

The Group is exposed to price risk in respect of seed capital investments in Group funds (available-for-sale financial assets). Seed capital investments vary in duration, depending on the nature of the investment, with a typical range of less than one year for equity and fixed income products and between three and seven years for private equity and property products. The total market value of seed capital investments at 31 December 2012 was £44.9m (2011: £54.3m).

Management monitors exposures to price risk on an ongoing basis. Significant movements in investment values are monitored on a daily basis. Where appropriate, management will hedge price risk. At 31 December 2012, investments with a carrying value of £1.6m (2011: £1.4m) were hedged against price risk through the use of contracts for difference (CFDs).

A fall in the value of an investment which is prolonged or significant is considered to be evidence of impairment under IAS 39 Financial Instruments: Recognition and Measurement. In such an event, an investment is written down to its fair value and cumulative losses previously recognised in equity, in respect of market value and unhedged foreign exchange movements on the investment, are recognised in the Consolidated Income Statement as an impairment charge.

Price risk sensitivity analysis on available-for-sale financial assets

		2012	2012	2011	2011
			Consolidated		Consolidated
		Consolidated	Statement of	Consolidated	Statement of
		Income	Comprehensive	Income	Comprehensive
		Statement	Income	Statement	Income
		£m	£m	£m	£m
Market value movement +/-	10%	–	3.9	–	5.2

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28.2 Interest rate risk

Interest rate risk is the risk that the Group will sustain losses from adverse movements in interest rates, either through a mismatch of interest-bearing assets and liabilities, or through the effect such movements have on the value of interest-bearing assets. The Group is exposed to interest rates on banking deposits held in the ordinary course of business. Available-for-sale financial assets are not currently exposed to interest rate risk. This exposure is monitored by management on a continuous basis.

Financial assets and liabilities exposed to interest rate risk

At 31 December 2012

Financial assets and liabilities exposed to interest rate risk At 31 December 2012
	Floating rate	Fixed rate	Other	Total
Financial assets Financial assets at fair value through profit or loss Available-for-sale financial assets OEIC and unit trust debtors, accrued income and trade and other debtors	£m – – –	£m – – –	£m 14.2 44.9 165.8	£m 14.2 44.9 165.8
Derivative financial instruments	–	–	0.5	0.5
Cash and cash equivalents	191.1	5.8	–	196.9
Total financial assets	191.1	5.8	225.4	422.3
Financial liabilities
Debt instrument in issue	–	148.5	–	148.5
OEIC and unit trust creditors,accruals and other creditors	–	–	301.0	301.0
Total financial liabilities	–	148.5	301.0	449.5

At 31 December 2011

At 31 December 2011
	Floating rate	Fixed rate	Other	Total
Financial assets Financial assets at fair value through profit or loss Available-for-sale financial assets OEIC and unit trust debtors, accrued income and trade and other debtors	£m – – –	£m – – –	£m 10.5 54.3 161.0	£m 10.5 54.3 161.0
Derivative financial instruments	–	–	0.2	0.2
Cash and cash equivalents	213.9	60.0	–	273.9
Total financial assets	213.9	60.0	226.0	499.9
Financial liabilities
Debt instruments in issue	–	291.4	–	291.4
OEIC and unit trust creditors,accruals and other creditors	–	–	306.0	306.0
Total financial liabilities	–	291.4	306.0	597.4

Interest on financial instruments classified as floating rate are repriced at intervals of less than one year. Interest on debt instruments classified as fixed rate are fixed until the maturity of the instrument. Assets and liabilities categorised as fixed rate or other are not exposed to interest rate risk.

Interest rate risk sensitivity analysis

Interest rate risk sensitivity analysis on the Consolidated Income Statement has been performed on the basis of a 50bps per annum fall in interest rates at the beginning of the year. The impact of such a decrease would reduce finance income by approximately £1.0m per annum (2011: £1.4m) in the Consolidated Income Statement.

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107

Financial statements continued

Notes to the Financial Statements

Group and Company continued

28. Financial risk management continued 28.3 Liquidity risk

Liquidity risk is the risk that the Group may be unable to meet its payment obligations as they fall due.

Group liquidity is managed on a daily basis by Group Finance, to ensure that the Group has sufficient cash or highly liquid assets available to meet its liabilities. Group Finance also controls and monitors the use of the Group’s non-operating capital resources. It is the Group’s policy to ensure that it has access to funds to cover all forecast commitments for at least the next 12 months.

The maturity dates of the Group’s financial liabilities and obligations are as follows:

At 31 December 2012

At 31 December 2012
				Carrying
				value in the
				Consolidated
	Within 1 year			Statement of
	or repayable	Within		Financial
	on demand	2-5 years	Total	Position
	£m	£m	£m	£m
Debt instrument in issue (including interest)	10.9	177.2	188.1	148.5
OEIC and unit trust creditors,accruals and other creditors	290.9	10.1	301.0	301.0
	301.8	187.3	489.1	449.5
At 31 December 2011

At 31 December 2011
				Carrying
				value in the
				Consolidated
	Within 1 year			Statement of
	or repayable	Within		Financial
	on demand	2-5 years	Total	Position
	£m	£m	£m	£m
Debt instruments in issue (including interest)	158.1	188.1	346.2	291.4
OEIC and unit trust creditors,accruals and other creditors	303.3	2.7	306.0	306.0
	461.4	190.8	652.2	597.4

28.4 Foreign currency risk

Foreign currency risk is the risk that the Group will sustain losses through adverse movements in foreign currency exchange rates.

The Group is exposed to foreign currency risk through its exposure to non-GBP income, expenses, assets and liabilities of its overseas subsidiaries as well as net assets and liabilities denominated in a currency other than GBP. The currency exposure is managed by monitoring foreign currency positions. The Group uses forward foreign currency contracts to reduce or eliminate the currency exposure on certain individual transactions. The Group seeks to use natural hedges to reduce exposure. Where there is a mismatch on material currency flows and the timing is reasonably certain, they are actively hedged. Where there is insufficient certainty, the currency is translated back into GBP on receipt.

Foreign currency risk management is overseen by the Hedge Committee and hedge effectiveness is reported to the Board monthly.

A rolling programme of forward foreign currency contracts has been implemented to hedge the currency exposures arising from certain available-for-sale financial assets, with a year end notional value of USD39.0m and EUR7.8m (2011: USD43.7m and EUR7.8m) (refer to note 28.6).

Foreign currency risk sensitivity analysis

Available-for-sale financial assets are either denominated in GBP or hedged back to GBP using forward foreign currency contracts based on the Group’s hedging policy. However, there remain some available-for-sale financial assets which are not fully hedged as they fall below the policy level for implementing hedging arrangements. In addition, there are unhedged foreign currency cash balances and net trading receipts in subsidiaries of the Group.

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108

The table below illustrates the impact of adjusting year end exchange rates on all unhedged financial assets and liabilities denominated in a currency other than GBP:

Foreign currency sensitivity analysis

currency other than GBP: Foreign currency sensitivity analysis
	2012		2011
		Consolidated		Consolidated
	Consolidated	Statement of	Consolidated	Statement of
	Income	Comprehensive	Income	Comprehensive
	Statement	Income	Statement	Income
	£m	£m	£m	£m
US dollar +/- 10%	1.1	0.9	1.4	1.7
Euro +/- 10%	0.8	1.3	0.4	2.4
Australian dollar +/- 10% Japanese yen +/- 10% Singaporean dollar +/- 10%	0.2 0.1 –	– 0.1 0.7	0.4 0.3 0.1	0.1 0.7 1.9

28.5 Credit risk

Credit risk is the risk of a counterparty of the Group defaulting on funds deposited with it or the non-receipt of a trade debt.

The Group has an established credit policy to ensure that it only transacts with counterparties that are able to meet satisfactory rating requirements. Counterparty limits are reviewed and set centrally by the Credit Risk Committee. Management is responsible for ensuring that it remains within these limits and the Risk function monitors and reports any exceptions to the policy. The Group has not suffered any losses as a result of trade debtor or counterparty defaults during the year.

The Risk function is also responsible for reporting credit exposures to the Board Risk Committee on a quarterly basis and for ensuring that any credit concerns are raised and actions taken to mitigate risks.

The table below contains an analysis of current and overdue financial assets:

At 31 December 2012

At 31 December 2012
Financial assets	Not past due £m	0-3 months past due £m	3-6 months past due £m	6-12 months past due £m	Greater than 12 months past due £m	Total £m
Financial assets at fair value through profit or loss	14.2	–	–	–	–	14.2
Available-for-sale financial assets	44.9	–	–	–	–	44.9
OEIC and unit trust debtors, accrued income and
trade and other debtors	160.4	2.8	0.7	0.4	1.5	165.8
Derivative financial instruments	0.5	–	–	–	–	0.5
Cash and cash equivalents	196.9	–	–	–	–	196.9
Total financial assets	416.9	2.8	0.7	0.4	1.5	422.3

At 31 December 2011

At 31 December 2011
					Greater than
		0-3 months	3-6 months	6-12 months	12 months
	Not past due	past due	past due	past due	past due	Total
	£m	£m	£m	£m	£m	£m
Financial assets Financial assets at fair value through profit or loss Available-for-sale financial assets OEIC and unit trust debtors, accrued income and trade and other debtors Derivative financial instruments Cash and cash equivalents	10.5 54.3 147.7 0.2 273.9	– – 8.6 – –	– – 0.6 – –	– – 1.8 – –	– – 2.3 – –	10.5 54.3 161.0 0.2 273.9
Total financial assets	486.6	8.6	0.6	1.8	2.3	499.9

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109

Financial statements continued

Notes to the Financial Statements

Group and Company continued

28. Financial risk management continued 28.5 Credit risk continued

The table below contains an analysis of financial assets as rated by Fitch Ratings:

At 31 December 2012

At 31 December 2012
	AAA	AA	A	Not rated	Total
	£m	£m	£m	£m	£m
Financial assets
Financial assets at fair value through profit or loss	–	–	–	14.2	14.2
Available-for-sale financial assets	–	–	–	44.9	44.9
OEIC and unit trust debtors, accrued income and trade and other
debtors	–	–	–	165.8	165.8
Derivative financial instruments	–	–	–	0.5	0.5
Cash and cash equivalents	12.0	49.9	133.3	1.7	196.9
Total financial assets	12.0	49.9	133.3	227.1	422.3
At 31 December 2011
	AAA	AA	A	Not rated	Total
	£m	£m	£m	£m	£m
Financial assets
Financial assets at fair value through profit or loss	–	–	–	10.5	10.5
Available-for-sale financial assets	–	–	–	54.3	54.3
OEIC and unit trust debtors, accrued income and trade and other
debtors	–	–	–	161.0	161.0
Derivative financial instruments	–	–	–	0.2	0.2
Cash and cash equivalents	97.8	71.0	105.0	0.1	273.9
Total financial assets	97.8	71.0	105.0	226.1	499.9

Included within financial assets is £29.1m (2011: £nil) due from a single fund where the Group has a priority call on assets.

28.6 Hedging activities

At 31 December 2012, the Group held CFDs to hedge the price risk arising from certain available-for-sale financial assets. These have been assessed as effective fair value hedges. The net realised and unrealised loss arising on these and other instruments entered into throughout the year amounted to £0.2m (2011: £0.4m gain) and has been offset in the Consolidated Income Statement by £0.2m (2011: £0.4m loss), being the net realised and unrealised gain on available-for-sale financial assets in designated hedging relationships during the year. At 31 December 2012, the fair value of the CFDs was £nil (2011: £nil).

At 31 December 2012, the Group held forward foreign currency contracts to hedge the foreign currency risk arising from available-for-sale financial assets denominated in US dollars and euros (refer to note 28.4).

These forward foreign currency contracts have been assessed as effective fair value hedges. The net realised and unrealised gain arising on these and other instruments entered into throughout the year amounted to £1.2m (2011: £0.4m loss) and has been offset in the Consolidated Income Statement by £1.2m (2011: £0.4m gain), being the net realised and unrealised foreign exchange loss on availablefor-sale financial assets in designated hedging relationships during the year. The fair value of these hedges is set out in the table below:

		2012			2011
	Notional			Notional
	amount	Assets	Liabilities	amount	Assets	Liabilities
	£m	£m	£m	£m	£m	£m
Fair value hedges
Derivative contracts at fair value	30.8	0.5	–	36.8	0.2	–

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29. Leases

Group

Operating leases

The Group is party to four material property leases. A 20.5 year operating lease was entered into during 2008 on 201 Bishopsgate, London, which provides for reviews to open market rent on every fifth anniversary of the lease and provided an initial rent-free period of 30 months. The rental expense on this lease is being recognised on a straight-line basis over the lease period.

On acquisition of New Star and Gartmore, the Group became party to three further material operating leases. These are in relation to 1 Knightsbridge Green, London, 8 Lancelot Place, London and Rex House, Queen Street, London. At the reporting date, the leases run for a period of four, 10 and 13 years respectively. A void properties provision has been recognised for these leases at the net present value of the net expected future cash outflows (refer to note 22).

The future minimum lease payments under the four non-cancellable operating leases fall due as follows:

net expected future cash outflows (refer to note 22). The future minimum leasepayments under the four non-cancellable operatingleases fall due as follows:
Within one year	2012 £m 12.9	2011 £m 14.8
In two to five years inclusive	56.4	58.4
After fiveyears	106.4	115.9
Total	175.7	189.1

The total future minimum sublease payments expected to be received under non-cancellable subleases within one year at the reporting date were £4.3m (2011: £3.9m).

30. Capital commitments

Group and Company

The amounts of capital expenditure contracted for but not provided for in the financial statements at 31 December 2012 amounted to £nil (2011: £nil).

Henderson GroupAnnual Report 2012 111

Financial statements continued

Notes to the Financial Statements

Group and Company continued

31. Related party transactions

Company

Details of transactions between the Company and its controlled entities, which are related parties, together with amounts due from and to these related parties at the reporting date, are disclosed below:

these relatedparties at the reportingdate,are disclosed below:
	2012	2011
	£m	£m
Transactions with related parties during the year
Investment in subsidiary company	847.2	420.0
Disposal of subsidiary company	(847.2)	–
Capital contributions to indirect subsidiary companies	38.5	41.1
Funding from subsidiary companies	(9.8)	(80.5)
Amounts owed by/to related parties at 31 December
Amounts owed by subsidiary companies	0.2	1.6
Amounts owed to subsidiarycompanies	(91.6)	(83.8)

Group

Disclosures relating to investments accounted for using the equity method and Group pension schemes are covered under notes 14.2 and 21 respectively. Transactions between the Company and its controlled subsidiaries and between controlled subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Compensation of key management personnel (including Directors)

The aggregate annual remuneration of Code Staff and all Directors, representing key management personnel, is disclosed below:

	2012	2011
	£m	£m
Short-term employee benefits	10.6	12.1
Post-employment benefits	0.4	0.4
Share-basedpayments	6.2	7.7
	17.2	20.2

The expense of deferred short-term incentive awards is recognised in the Consolidated Income Statement over the period of deferral. As at 31 December 2012, £2.7m (2011: £3.0m) of deferred awards are to be recognised in future periods in respect of key management personnel.

As part of standard employee benefits available to all staff, the Group makes available interest-free loans to staff to cover annual season ticket loans and cycle schemes. Loans provided to key management personnel during the year amounted to £3,919 (2011: £7,208) with repayments (including reductions due to staff no longer being classified as key management personnel) during the year of £7,428 (2011: £3,208). Loans outstanding at 31 December 2012 were £491 (2011: £4,000).

Henderson Group Annual Report 2012

112

32. Contingent liabilities

Group

The following contingent liabilities existed or may exist at 31 December 2012:

[In the normal course of business, the Group is exposed to certain legal issues, which can involve litigation and arbitration, and may result ] in contingent liabilities;
[In the normal course of business, the Group enters into forward foreign currency contracts for Group hedging purposes. Such contracts ] can give rise to contingent liabilities;
[Under the Implementation Agreement dated 6 July 2010 relating to the transfer of management responsibilities to Aviva Investors for the ] Henderson International Property Fund, the Group gave certain tax related warranties for a period of six years from the date of the agreement. These indemnities are subject to certain exclusions and limitations, including a financial cap;
[Under the Facilitation Agreement dated 8 December 2010 relating to the merger of the assets of HLAF into the Deutsche Managed ] Sterling Fund, the Group gave: (a) certain warranties relating to itself and HLAF; and (b) indemnities against certain losses arising from liabilities of HLAF existing prior to the effective date of the merger, certain warranted statements being untrue and any miscalculation of the net asset value of HLAF in the period prior to the effective date of the merger. These warranties and indemnities are subject to certain exclusions and limitations, including a financial cap. The warranties relating to taxation will expire on 28 February 2018 and all other warranties will expire on 28 February 2015; the indemnities will expire on 28 February 2017;
[Under the Share Purchase Agreement dated 13 May 2011 relating to the sale of the entire issued share capital of WorldInvest ] Management Ltd. to Connor, Clark & Lunn UK Limited (CC&L), the Group gave an indemnity against losses suffered by CC&L arising from prior acts, omissions, liabilities or obligations of New Star Institutional Managers Limited that do not relate to its business, with no expiry date;
[Under the Share Sale Agreement dated 1 November 2011 relating to the sale of the entire issued share capital of Gartmore JV Limited ] to Hermes Fund Managers Limited, the Group gave: (a) an indemnity against any liabilities of Gartmore JV Limited existing prior to, or arising as a result of, completion of the sale, subject to certain exceptions; and (b) warranties relating to Gartmore JV Limited that will expire on 30 June 2013. The indemnity and warranties are subject to certain exclusions and limitations, including a financial cap, with no expiry date;
[ Under the Joint Venture and Shareholder Agreement dated 17 May 2012 with Sesame Bankhall Group Limited (Sesame) relating to ] Optimum Investment Management Limited (OIML) which acts as authorised corporate director of an OEIC: (a) the Group gave to Sesame and OIML certain warranties relating to OIML; and (b) the Group gave to OIML certain indemnities in respect of losses that may be suffered by OIML and which arise from acts, omissions or circumstances occurring prior to completion of that agreement. Those warranties and indemnities are subject to certain exclusions and limitations and will expire on 17 May 2019; and
[Under the Joint Venture and Shareholder Agreement dated 1 August 2012 with Intrinsic Financial Services Limited relating to Intrinsic ] Cirilium Investment Company Limited (ICICL) which acts as authorised corporate director of an OEIC, the Group gave to ICICL certain indemnities in respect of losses that may be suffered by ICICL and which arise from acts, omissions or circumstances occurring prior to completion of that agreement. Those indemnities are subject to certain exclusions and limitations, with no expiry date.

As at the date of approval of the 2012 financial statements, the Group and Company neither foresee nor have they been notified of any claims under outstanding warranties and indemnities from the above-mentioned agreements.

Henderson Group Annual Report 2012

113

Financial statements continued

Notes to the Financial Statements

Group and Company continued

33. Movements in controlled entities

Group

33.1 Acquisitions

The Group acquired 100% of the share capital of Horizon Investment Management France SAS on 27 June 2012 for €1.0m (£0.8m) which consisted of intangible assets of £0.7m and other net assets of £0.1m.

On 4 April 2011, Henderson Group plc completed its acquisition of 100% of the issued share capital of Gartmore Group Limited. The value of total equity consideration for Gartmore was £420.0m, being 242,639,403 new ordinary shares at the closing market price on the LSE on the last business day prior to issue. The cost of acquisition amounted to £365.4m after adjusting for Gartmore related employee share awards. The fair value of the net assets of Gartmore at the date of acquisition were £127.1m and the goodwill accounted for £238.3m.

33.2 Disposals

The Group disposed of Henderson (Buchanan Galleries) Limited and Henderson Buchanan plc, which held certain available-for-sale financial assets, on 30 May 2012.

OIML (previously Gartmore Fund Managers Limited) is no longer a controlled entity as it became a joint venture entity, on 17 May 2012, entered into by the Group and Sesame Bankhall Group Limited.

Additionally, ICICL (previously New Star Investment Funds Limited) is no longer a controlled entity as it became a joint venture entity, on 5 November 2012, entered into by the Group and Intrinsic Financial Services Limited.

34. Impact of new accounting standard

Group

As set out in note 2.4, the Group will adopt the revised IAS 19 Employee Benefits standard in 2013. Upon adoption, the 2012 Consolidated Income Statement will be restated, increasing finance income by £9.1m, offset by an increase in staff costs of £2.6m, resulting in an overall increase to underlying profit before tax of £6.5m. It is anticipated that there is no material impact to the Consolidated Statement of Financial Position.

35. Events after the reporting date

Group

The Board has not, as at 26 February 2013, being the date the financial statements were approved, received any information concerning significant conditions in existence at the reporting date, which have not been reflected in the financial statements as presented. The Board has, however, given due regard to the events described below which occurred after the reporting date.

On 15 January 2013, the Group cancelled its £75.0m revolving credit facility, refer to note 20.

The proceedings against certain claimants who were investors in Fund II and Henderson Equity Partners (GP) Limited, the general partner of Fund II, and Henderson Equity Partners Limited, the manager of Fund II, were withdrawn following agreement between the parties on 18 January 2013, refer to note 7.

Henderson Group Annual Report 2012

114

Glossary

2012 Notes

Senior, unrated fixed rate notes due 2 May 2012

2016 Notes

Senior, unrated fixed rate notes due 24 March 2016

AGM Annual General Meeting

AIFMD

EU Alternative Investment Fund Managers Directive

ASX Australian Securities Exchange

AUM Assets under management

BAYE Buy As You Earn Share Plan

Board

The board of directors of Henderson Group plc

bps Basis points

Business review

The business review is incorporated into and forms part of Our business model and strategy, Directors’ report, Chairman’s statement, Chief Executive’s review, Financial review, Key performance indicators and Risk management

CDIs CHESS Depositary Interests

CFDs Contracts for difference

Code Staff

Employees who perform a significant influence function, senior management and risk takers whose professional activities could have a material impact on a firm’s risk profile

Company Henderson Group plc

compensation ratio

Employee compensation and benefits divided by total income

CPI Consumer Price Index

CRO Chief Risk Officer

CSOP Company Share Option Plan

DEP Deferred Equity Plan

Directors The directors of Henderson Group plc

ESOP Employee Share Ownership Plan

ExCo Executive Committee

Executive Directors

Being the Chief Executive and Chief Financial Officer

ExSOP Executive Shared Ownership Plan

FRC Financial Reporting Council

FSA The UK Financial Services Authority

FSCS The Financial Services Compensation Scheme

Fund I Henderson PFI Secondary Fund L.P.

Fund II Henderson PFI Secondary Fund II L.P.

FX Foreign exchange

GAAP Generally Accepted Accounting Practice

Gartmore Gartmore Group Limited and its controlled entities

Gartmore acquisition

The acquisition of the entire share capital of Gartmore Group Limited

GPC Global Product Committee

GPS Gartmore Pension Scheme

Group Henderson Group plc and its controlled entities

hedge funds Hedge funds including absolute return funds

Henderson Controlled entities of Henderson Group plc carrying out core investment management activities

HGPS Henderson Group Pension Scheme

HLAF Henderson Liquid Assets Fund

HMRC HM Revenue & Customs

Horizon Horizon Investment Management France SAS

HR Human Resources

IAS International Accounting Standard

ICICL Intrinsic Cirilium Investment Company Limited

IFRIC

International Financial Reporting Interpretations Committee

IFRS International Financial Reporting Standards as adopted by the European Union

IRR Internal rate of return

KPI Key Performance Indicator

LSE London Stock Exchange LTIP Long-Term Incentive Plan

New Star

New Star Asset Management Group PLC and its controlled entities

OEIC

Open-Ended Investment Company

OIML Optimum Investment Management Limited

operating margin Total fee income less operating expenses divided by total fee income

Phoenix

Phoenix Group Holdings previously known as Pearl Group Limited

RDR Retail Distribution Review

RSP Restricted Share Plan

SAYE Sharesave scheme

SICAV

Société d’investissement à capital variable (collective investment scheme)

SPG Strategic Product Group

SRI Sustainable and Responsible Investment

TCF Treating Customers Fairly

TSR Total shareholder return

UCITS

Undertaking for Collective Investment in Transferable Securities

UK/United Kingdom

The United Kingdom of Great Britain and Northern Ireland

UK Companies Act Companies Act 2006

Henderson Group Annual Report 2012

115

Shareholder information

Shareholder information

As at 26 February 2013

Total number of holders of shares and CDIs and their voting rights

The issued share capital of Henderson Group plc consisted of 1,114,742,536 shares held by 39,197 security holders. This included 724,578,651 shares, held by CHESS Depositary Nominees Pty Limited (CDN), quoted on the ASX in the form of CHESS Depositary Interests (CDIs) and held by 34,106 CDI holders. Each registered holder of shares present in person (or by proxy, attorney or representative) at a meeting of shareholders has one vote on a vote taken by a show of hands, and one vote for each fully paid share held on a vote taken on a poll. CDI holders can instruct CDN to appoint a proxy on their behalf and can direct the proxy how to vote on the basis of one vote per person taken by a show of hands, and one vote per CDI on a vote taken on a poll.

Twenty largest share/CDI holders

			% of issued
		Shares/CDIs	capital
1	National Nominees Limited	167,637,838	15.04
2	J P Morgan Nominees Australia Limited	159,066,720	14.27
3	HSBC Custody Nominees (Australia) Limited	93,053,192	8.35
4	Greenwood Nominees Limited	88,524,438	7.94
5	Citicorp Nominees Pty Limited	67,897,589	6.09
6	RBC Investor Services Australia Nominees Pty Limited	62,581,717	5.61
7	State Street Nominees Limited	59,301,802	5.32
8	BNP Paribas Noms Pty Ltd	56,100,926	5.03
9	Chase Nominees Limited	51,250,376	4.60
10	HSBC Global Custody Nominee (UK) Limited	33,802,061	3.03
11	UBS Nominees Limited	23,230,313	2.08
12	Hargreaves Lansdown (Nominees) Limited	17,728,395	1.59
13	Nortrust Nominees Limited	12,769,183	1.15
14	AMP Life Limited	9,927,718	0.89
15	The Bank of New York (Nominees) Limited	9,802,998	0.88
16	Vidacos Nominees Limited	8,259,562	0.74
17	BNP Paribas Nominees Pty Ltd	7,912,201	0.71
18	BNY (OCS) Nominees Limited	5,978,520	0.54
19	Chase (GA Group) Nominees Limited	4,164,641	0.37
20	Bond Street Custodians Limited	3,779,349	0.34
Top 20	total	942,769,539	84.57
Total shares		1,114,742,536	100.00

Distribution of share/CDI holdings

Distribution of share/CDI holdings
	Number of	% of issued
Categories	holders	capital
1 – 1,000	30,847	1.47
1,001 – 5,000	6,387	1.15
5,001 – 10,000	881	0.58
10,001 – 100,000	802	1.93
100,001 and over	280	94.87
Total	39,197	100.00

2,842 share/CDI holders held less than A$500 worth of shares/CDIs i.e. fewer than 209 shares/CDIs.

Stock exchange listings

Henderson Group plc is listed on the LSE and its CDIs are quoted on the ASX.

Henderson Group Annual Report 2012

116

Substantial shareholders

Details of the Company’s substantial shareholders are set out in the Directors’ report on page 45.

Total number of options over unissued shares

There were 22,877,959 options over unissued ordinary shares in the Company held by 868 option holders.

Restricted securities

There are no restricted securities in issue.

Buy-back

There is no current on-market buy-back of CDIs on the ASX. The Company has authority to purchase ordinary shares on the LSE, although no buy-backs were made under this authority in 2012.

Company Secretary

Jacqui Irvine

Principal place of business in the United Kingdom

201 Bishopsgate, London EC2M 3AE Phone: + 44 (0) 20 7818 1818

Registered office in Jersey

47 Esplanade, St Helier, Jersey JE1 0BD

Registered office in Australia

Level 5, Deutsche Bank Place, 126 Phillip Street, Sydney NSW 2000 Phone: + 61 (0) 2 9230 4982

Share registry

Australia

Henderson Group Share Registry, GPO Box 4578, Melbourne, Victoria 8060 Phone: 1300 137 981 or + 61 (0) 3 9415 4081 Fax: + 61 (0) 3 9473 2500

Jersey

Henderson Group Share Registry, Queensway House, Hilgrove Street, St Helier, Jersey JE1 1ES Phone: + 44 (0) 1534 281842 Fax: + 44 (0) 870 8735851

New Zealand

Henderson Group Share Registry, Private Bag 92119, Auckland 1142 Phone: 0800 888 017 Fax: + 64 (0) 9 488 8787

Email

CDI holders: [email protected] Shareholders: [email protected]

Website

www.henderson.com

Henderson Group Annual Report 2012

117

Summary of movements in AUM

Summary of movements in AUM

					Closing AUM
					average net
	Opening AUM	Net flows	Market/FX	Closing AUM	management
£m INVESTMENT MANAGEMENT (Equities and Fixed Income)	1 Jan 2012	FY12	FY12	31 Dec 2012	fee bps
Retail
UK OEICs/Unit Trusts	14,726	(1,492)	1,752	14,986
SICAVs	6,167	409	650	7,226
US Mutuals	2,881	(200)	325	3,006
Investment Trusts	3,583	54	568	4,205
Total Retail	27,357	(1,229)	3,295	29,423
Institutional UK OEICs/Unit Trusts SICAVs US Mutuals Offshore Absolute Return Funds1 Investment Trusts Managed CDOs Segregated Mandates Liquidity Funds	4,320 280 – 2,979 27 1,036 7,982 459	(459) 391 16 (650) (8) (274) (1,043) (95)	444 91 – (164) 7 (22) 792 (3)	4,305 762 16 2,165 26 740 7,731 361
Total Institutional	17,083	(2,122)	1,145	16,106
Total Investment Management	44,440	(3,351)	4,440	45,529	56
Consisting of:
_Absolute Return Retail_1	1,315	(359)	2	958
Absolute Return Institutional	3,255	(702)	(136)	2,417
Total Absolute Return	*4,570*	*(1,061)*	*(134)*	*3,375*
PROPERTY
Retail
UK OEICs/Unit Trusts	782	13	33	828
Total Retail	782	13	33	828
Institutional Property Funds2 Segregated Mandates	9,513 2,113	104 159	(254) 60	9,363 2,332
Total Institutional	11,626	263	(194)	11,695
Total Property	12,408	276	(161)	12,523	44
PRIVATE EQUITY
Retail
Investment Trusts	63	(28)	(20)	15
Total Retail	63	(28)	(20)	15
Institutional Private Equity Funds³	892	(33)	(22)	837
Total Institutional	892	(33)	(22)	837
Total Private Equity	955	(61)	(42)	852	137
PHOENIX Institutional UK OEICs/Unit Trusts Segregated Mandates Private Equity Funds	2,832 3,557 92	(198) (616) (5)	276 829 (21)	2,910 3,770 66
Total Phoenix	6,481	(819)	1,084	6,746
TOTAL GROUP	64,284	(3,955)	5,321	65,650	54
AUM by channel

Retail Institutional excl Phoenix4 Total Group excl Phoenix Phoenix	28,202 29,601 57,803 6,481	(1,244) (1,892) (3,136) (819)	3,308 929 4,237 1,084	30,266 28,638 58,904 6,746	75 37
Total Group	64,284	(3,955)	5,321	65,650	54
AUM by asset type

Equities Fixed Income Property Private Equity Total Group	35,316 15,513 12,408 1,047 64,284	(3,294) (871) 276 (66) (3,955)	3,401 2,144 (161) (63) 5,321	35,423 16,786 12,523 918 65,650	70 25 44 137 54

Includes £12m of acquired AUM as a result of the Group’s acquisition of a 50% interest in Northern Pines.
Includes £183m of acquired AUM as a result of the Group’s acquisition of Horizon.
Private Equity funds’ AUM is based on 30 September 2012 valuations.
Closing AUM average net management fee bps are calculated including all Phoenix AUM and revenue.

Henderson Group Annual Report 2012

118

Five year financial summary

Five year financial summary

Consolidated financial results

For the year ended 31 December 2012

	2012	2011	2010	2009	2008
	£m	£m	£m	£m	£m
Income
Management fees (net of commissions)	355.2	360.5	282.5	226.8	221.9
Transaction fees	43.7	51.1	36.8	24.9	16.5
Performance fees	33.9	65.2	42.8	31.6	32.0
Total fee income	432.8	476.8	362.1	283.3	270.4
Finance income	5.0	3.3	0.8	4.3	15.3
Total income	437.8	480.1	362.9	287.6	285.7
Expenses
Fixed employee compensation and benefits	*(102.3)*	(96.6)	(83.7)	(77.4)	(74.9)
Variable employee compensation and benefits	*(77.6)*	(103.3)	(77.4)	(48.9)	(51.6)
Employee compensation and benefits Investment administration Information technology Office expenses Depreciation Other expenses	(179.9) (25.7) (14.4) (16.8) (2.9) (37.3)	(199.9) (28.1) (14.0) (16.4) (3.0) (42.3)	(161.1) (23.3) (12.7) (16.2) (3.2) (37.0)	(126.3) (22.6) (11.5) (16.2) (3.2) (25.2)	(126.5) (16.4) (9.6) (13.2) (2.3) (25.0)
Total operating expenses	(277.0)	(303.7)	(253.5)	(205.0)	(193.0)
Finance expenses	(14.3)	(17.2)	(8.7)	(8.9)	(12.3)
Total expenses	(291.3)	(320.9)	(262.2)	(213.9)	(205.3)
Underlying profit before tax	146.5	159.2	100.7	73.7	80.4
Non-operating recurring items	(64.1)	(77.0)	(13.7)	(10.7)	(0.1)
Recurring profit before tax	82.4	82.2	87.0	63.0	80.3
Non-recurring items	13.8	(69.2)	(10.5)	(47.5)	(97.3)
Profit/(loss) before tax	96.2	13.0	76.5	15.5	(17.0)
Tax on underlying profit	(19.5)	(33.6)	(20.6)	(16.3)	(8.6)
Tax on non-operating recurring items	18.5	19.4	4.5	3.0	–
Tax on non-recurring items	4.7	16.2	0.6	12.3	4.8
Non-recurring tax credit	–	18.9	16.4	–	–
Total tax credit/(charge) Profit/(loss) after tax Attributable to: Equity holders of the parent Non-controlling interests	3.7 99.9 99.7 0.2	20.9 33.9 34.0 (0.1)	0.9 77.4 77.9 (0.5)	(1.0) 14.5 13.8 0.7	(3.8) (20.8) (20.9) 0.1
Operating margin1(%)	36.0	36.3	30.0	27.6	28.6
Compensation ratio2(%)	41.1	41.6	44.4	43.9	44.3
Average number of employees	1,062	1,043	941	933	920
AUM as at 31 December (£bn)	65.6	64.3	61.6	58.1	49.5
Average AUM for the period (£bn)	65.0	67.6	58.7	53.0	53.7
Total fee margin (bps)	66.6	70.6	61.7	53.5	50.4
Management fee margin (bps)	54.6	53.3	48.2	42.8	41.3
Net margin3(bps)	22.5	23.6	17.2	13.9	15.0
Basic and diluted earnings per share (EPS)
Weighted average number of ordinary shares for basic EPS (m)	1,034.0	954.1	788.4	759.3	660.6
Weighted average number of ordinary shares for diluted EPS (m)	1,082.0	1,012.7	849.2	809.4	715.0
Basic on underlying profit4(p)	12.3	13.2	10.2	7.5	10.8
Basic (p)	9.6	3.6	9.9	1.8	(3.2)
Diluted on underlying profit4(p)	11.7	12.4	9.5	7.0	10.0
Diluted (p) Dividend per share (p) Investment performance5 Funds at or exceeding benchmark over one year (%) Funds at or exceeding benchmark over three years (%)	9.2 7.15 73 69	3.4 7.0 59 66	9.2 6.5 70 62	1.7 6.1 70 64	(3.2) 6.1 41 49

Total fee income less operating expenses divided by total fee income.
Employee compensation and benefits divided by total income.
Based on underlying profit after tax attributable to equity holders of the parent.
Asset weighted of funds measured over one and three years to 31 December.
Net margin calculated on underlying profit before tax.

Henderson Group Annual Report 2012

119

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Go online for more information: www.henderson.com

For shareholder queries, please contact the Henderson Group Share Registry:

Australia

GPO Box 4578 Melbourne Victoria 8060 T: 1300 137 981 +61 (0) 3 9415 4081 F: +61 (0) 3 9473 2500 [email protected]

New Zealand

Private Bag 92119 Auckland 1142

T: 0800 888 017 F: + 64 (0) 9 488 8787 [email protected]

Jersey

Queensway House Hilgrove Street, St Helier Jersey JE1 1ES T: +44 (0) 1534 281842 F: +44 (0) 870 8735851 [email protected]

Registered office:

47 Esplanade, St Helier Jersey, JE1 0BD

Henderson Group Annual Report 2012

120

PLACEHOLDER

This Annual Report is printed on Impress Satin which is Forest Stewardship Council (FSC ) mixed sources certified. The FSC certification ensures that all virgin pulp is derived from well-managed forests and controlled sources. It is manufactured by an ISO 14001 certified mill.

FSC is an independent, non-government, not-for-profit organisation whose mission is to support environmentally appropriate, socially beneficial and economically viable management of the world’s forests. Designed and produced by Black Sun. www.blacksunplc.com

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AI assistant

JANUS HENDERSON GROUP PLC — Annual Report 2012

30823_10-k_2012-12-31_91bc5ff1-297d-4eac-88cf-1760fd1ccfe0.pdf

Annual Report 2012

Knowledge Shared

Performance highlights

£146.5m

Investment performance

73%

Assets under management

£65.6bn

Net cash

£17.9m

Dividend per share

7.15p

Welcome to Henderson

Who we are

Our mission

Our people

Excellence

Focus

Our investment principles

Conviction

Collaboration

Responsibility

Where we’ve come from

Our business mix

Assets under management

Assets under management

2009

What we do

Where we operate

How we operate

Investment Management

(Equities and Fixed Income)

Property

Private Equity

A trusted partner for our clients

“We concentrate on what we are good at”

Overview

Our strategy

Dividends

The Board

Outlook

Thank you

Well positioned to grow

Review of 2012

Globalising our fixed income franchise

Strengthening our retail business

Restructured teams in Equities

More diverse product offering in the US

New hires to expand our presence in Australia and Asia

2012 – the year that was

Property remained resilient

Good progress in Private Equity

We simplified and streamlined the business

Outlook for Equities

Outlook for Fixed Income

Outlook for Property

Regulatory outlook

The outlook for the Group

Thank you

How we generate, preserve and deliver value

Business model

Strategic priorities

Business fundamentals

Product

People

Service

Grow retail business

Expand global and absolute return products

Operate efficiently

Foster strategic relationships

Be client centric

Business fundamentals

Prioritise clients’ best interests

Strong governance and risk management

Service Clients at the centre of everything we do

The improvements we made in 2012 will provide the platform we need for success

Extending client service globally

JANUS HENDERSON GROUP PLC Annual Report 2012