CI Financial Corp (CIXX) 2010 Q4 法說會逐字稿

At this time I would like to welcome everyone to the CI Financial 2010 fourth quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions).

This presentation contains forward-looking statements reflecting management's current expectations regarding the future performance of CI and its products, including its business operations and strategy, and financial performance and conditions. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. For future information regarding factors that could cause actual results to differ from expectations, please refer to management's discussion and analysis available at www.ci.com/cix.

EBITDA, free cash flow, adjusted earnings, and pre-tax operating earnings are not standardized earnings measures prescribed by GAAP. However, management believers that most of its shareholders creditors, other stakeholders, and investment analyst prefer to include the use these measures in analyzing CI's results. CI's method of calculating these measures may not be comparable to similar measures presented by their companies. EBITDA is a measure of operating performance, a facilitator for valuation and proxy cash flow. A reconciliation of EBITDA to net income is included in management's discussion and analysis available at www.ci.com/cix.

I would now like to turn the call over Steven MacPhail, President and CEO of CI Financial. Mr. MacPhail, you may begin the conference.

Thank you, Kim, and good afternoon. With me today are my colleagues Derek Green, President of CI Investments, and Doug Jamieson, CI's Chief Financial Officer.

I want to start by saying that this quarter that we're reporting is one of the best are quarters I've reported on in 16 years. Our Q4 average retail assets under management were up 7% from the prior quarter in Q3. Our pre-tax operating earnings per share were up 10% on consecutive quarters, Q3 to Q4. We are ahead of expectations on our Hartford acquisition, which we closed in mid-December, with our forecast EBITDA of CAD20 million for 2011, which relative to our net purchase price of CAD95 million, makes it an excellent transaction.

In 2010 CI had net sales of CAD1.1 billion, our seventh year of reporting net sales in excess of CAD1 billion, the only company in Canada to do that for seven straight years. We did a CAD300 million bond issue with interest below 4%, resulting in our average cost of debt for all of CI at approximately 3.18%.

In November we bid for DundeeWealth, one share of CI per share DundeeWealth in a binding offer. Bank of Nova Scotia chose to exercise the right to match and bought the company. I will say that we did get a nice break fee out of this transaction even if we did not get the company, which after all of our expenses, including fees to our advisors, netted CI almost CAD4 million.

Looking at the highlights of 2009 compared with 2010, I'll first say our average retail assets management were up 16%, rising CAD9 billion from CAD55.4 billion to CAD64.5 billion. Our earnings per share rose 13% from CAD1.01 to CAD1.14. However, if we adjust our earnings per share for the fact that in 2009 we had a CAD45 million tax recovery related to provincial income tax changes, then the real change in earnings per share would be CAD0.94 to CAD1.15, a 22% increase. Consistent with that number is our pre-tax operating earnings per share, which were up 22% from CAD1.74 to CAD2.12. Our EBITDA per share up 18% from CAD1.97 to CAD2.32. And I guess the real strength in numbers is shown by dividends that rose 33% from CAD0.57 to CAD0.76 a share for the year.

Comparing the fourth quarter of 2010 to the fourth quarter of 2009 follows the pattern of the last slide. Our average retail assets under management were up 12% from CAD61 billion to CAD68 billion, an increase of CAD7 billion. Our earnings per share as reported dropped from CAD0.40 cents to CAD0.32, but again, as I mentioned earlier, that was really all relative to the CAD45 million income tax recovery that we had in the fourth quarter of last year, which if you net that out, the real change in earnings per share was from CAD0.27 to CAD0.32, a 19% increase. That's on pre-tax operating earnings per share, which were up 16% from CAD0.49 to CAD0.57, or our EBITDA per share which was up 19% from CAD0.54 to CAD0.64. All in all, an absolutely excellent quarter for CI.

I am now going to turn it over to Derek to provide color on our sales for last year, where we are today, and some of our money managers and their performances.

Thanks, Steve. As Steve mentioned in his open comments, 2010 was an excellent year from a financial standpoint for CI. I think it is worth mentioning that it did a lot to repair investor confidence. There has been increasing interest in balanced and equity mandates, which are obviously higher margin products. 2010 was also a good year from a sales perspective. We had gross sales of almost CAD10 billion, and as Steve also mentioned, it was our seventh consecutive year of having sales in excess of in excess of one -- net sales in excess of CAD1 billion.

An important point I would like to share about the evolution of our business, in 2008 seg funds, either our own segregated fund products or products that we are involved in, represented in excess of 100% of our sales. Today it is approximately 30% of our business, and mutual funds are becoming a much more important and bigger part of our business.

I would like to now discuss our sales from a higher level, or really snap shot. The gross sales were up 15%. Our gross sales were strong across all channels. The financial planning community up 10%. Sun Life, our sales were up 19%. Assante, which is our sister company where we have a very, very high penetration rate, were up 6%. And IIROC, the old IDA channel where we redoubled our efforts and are trying to focus on growing that business, was up 37%.

I touched earlier on the fact that seg funds are now a smaller part of our business. We continue to see contract redemptions from a seg fund maturity bubble that really in our mind peaked in 2010. But we did launch a new product in October of 2010, and there is now CAD154 million in sales in that product, and it is growing.

I would now like to move on to our acquisition of Hartford. Steve touched on the fact that we closed that in the fourth quarter. This year we have rebranded the company Castlerock Investments and introduced it Canadian investors and advisors. We currently have assets of CAD1.93 billion, up more than 10% since the announcement. We have positive net sales in both January and February, and very, very strong interest from advisors, and we have just completed a road show. We are on track to generate CAD20 million in EBITDA for 2011.

And what this business brings us is really excellence in money management. This company is a core -- features core investment products, and really an excellent line up of portfolio managers, specifically featuring Black Creek Investments and Greystone, which has a very, very strong following in Canada. And it is going to be complimented with a number of our veteran fund managers; Eric Bushell, Alan Radlo, Dan Bubis. And we will grow it from there.

One of the things that I mentioned on our last conference call was our relationship with Edward Jones, and the question was asked if we would be able to retain the preferred partner status. At that time I said that was up to Edward Jones, but I would like to report now that we have received confirmation that CI Investments and Castlerock Investments will both have the preferred partner status with Edward Jones, which we are very, very excited about.

One of the bright lights for growth in our business is the pension and endowment market in Canada. This is really a huge market, and it rivals the Canadian mutual fund industry. There is CAD600 billion in assets there if you back out the Canadian Pension Plan and some of the other bigger pension plans. On an annual basis there are searches that run in the range of CAD40 billion toCAD50 billion. We are seeing all sorts of interest in our products, and I would like to report yesterday we won our biggest mandate to date. It was a CAD150 million mandate in the Canadian Balanced space. But we are also starting to get into -- included in searches, RFPs for things like income, but also for our global investment capabilities as well.

The next thing I would like to touch on is really the strong performance our fund managers have had, really across all categories. Our Signature High Income fund, which has been a favorite to Canadian investors and advisors for over a decade, has been very strong. We have been very strong in the managed solutions space, but also in the balanced space as well. And we are also seeing very strong performance. I touched on the Castlerock Global Leaders earlier in the presentation. Its strong quartile -- strong top quartile ranking across the board. And then again the Cambridge Asset Allocation fund, and Dan Bubis's Canadian Investment fund as well.

The final thing I would like to touch on is really the awards and accolades that we have received in the past, but continue to receive. We have the most recommended of funds of any mutual fund company in Canada on dealer recommendation lists. In 2010 Eric Bushell was named Morningstar Money Manager of the Decade. This is a huge, huge achievement that all of us at CI are very proud. Castlerock Investments; Bill Kanko was the winner of the prestigious Lipper Fund Award. And we have won 42 Canadian investment awards since 1998. So this is something that we are incredibly, incredibly proud of.

At this time I would like to hand the presentation over to Doug Jamieson, CI Financial's Chief Financial Officer. Doug?

Thanks, Derrick. First I would like to quickly compare Q4 results with those in Q3. Average retail assets under management grew 7% quarter over quarter, as the markets were up fairly steadily during both in Q3 and Q4, and we added CAD1.8 billion of Hartford assets halfway through December. CI's reported earnings per share were up from CAD0.26 per share last quarter to CAD0.32 this quarter, an increase of 23%. And CI's adjusted earnings per share were CAD0.32 compared to CAD0.28 last quarter, with adjustments for equity based compensation expense and taxes taken into account. This is an increase of 14% and reflects the increase in average AUM at a slightly higher operating margin.

CI's pre-tax operating earnings grew to CAD0.57 from CAD0.52 last quarter, and adjusted EBITDA was up from CAD0.57 per share to CAD0.64 per share, increases of 10% and 12% respectively, which compares well to the assets under management change of 7%. The reason for this is the SG&A spend was contained well below the increase in AUM and declined one basis point as a percentage of average assets under management for each period. CI paid dividends of CAD0.20 per share during the quarter versus CAD0.195 in Q3.

CI's EBITDA margin, which is EBITDA as a percentage of revenue, jumped to 49.5% from 48.6% last quarter and 47.5% in the fourth quarter last year. This increase in the margin reflects the increase in CI retail AUM over the previous quarter and year, and our ability to hold the line on SG&A spend Similarly, CI's pre-tax income margin has climbed steadily from a year ago at 32.5% to 35.3% this quarter, and again this is the result of the significant increase in CI's AUM over that period.

CI's free cash flow is its operating cash flow less the amount spent on deferred selling commissions. And adjusting that for the tax benefits of the income trust structure from 2006 to 2008 and all other tax loss utilizations, you can see CI has a long history of improving free cash flow, interrupted only by the significant market decline of 2008. And CI has generated an adjusted CAD339 million in 2010, and the forecast, based on the asset growth we have seen, is for another strong year in 2011. Taking a look at the last four quarters, you can see the significant growth in the free cash flow over the past year as CI's AUM grew.

Next we have the uses of that cash. CI generated operating cash flow of CAD503 million during the year. And from that CI paid deferred sales commissions of CAD158 million, leaving free cash of CAD345 million. From that amount CI bought back CAD97 million in stock and paid out CAD220 million in dividends. That leaves a surplus of CAD28 million after paying out over CAD300 million to shareholders in 2010.

Taking a closer look at the benefit of CAD97 million in stock buy backs, CI bought back 4.8 million shares at an average cost of CAD20.02 per share. Based on the current annual dividend rate of CAD0.90 per share, CI is saving CAD3.4 million in 2011, and using CI's current average debt rate after tax on the total cost of the buy backs gives an interest cost of CAD2.2 million and net benefit to CI of CAD2.1 million from those buy backs.

I will now turn it back to Steve.

Thanks, Doug. I guess if I can only put up one chart to help you assess CI, it would probably be this chart you are looking at now. Where our retail and asset management has gone. I what asked a half hour ago by an individual who said, gee, Steve I was surprised you increased the dividend when you did. I said, well, John, I think when you look at this chart you will see you will be annoyed if we didn't increase the dividend, because it is pretty obvious to see.

When you look at the chart, the beauty of it is it shows our average assets. And if you start at the first quarter of last year right through to the end of September, those three quarters, the average assets were essentially flat, and for the most part resulted in earnings being essentially flat during that period. But at the end of June, beginning of July, markets really start to turn in Canada, and we finished that third quarter with assets up substantially higher than they started the quarter. And then by the end of the fourth quarter, again they were up substantially higher. So what we saw is our average assets dramatically increased.

When we increased our dividend in November to the CAD0.84, you can see there was quite a bit of a jump in assets from when we increased it to CAD0.78. But now looking forward to where we are today with the current assets now over CAD74 billion, up 9% from the average in the last quarter, then it was logical that all the economics were in place for another dividend increase to be declared. And that's really the basis behind us going to the CAD0.90. The other thing I want to point out in this chart, it really shows you how well positioned we are for the first quarter of this year. Assuming market stay just flat from where they are today, we would expect a considerably better first quarter than the fourth quarter of last year.

Just quickly on the dividend increase. As Doug mentioned, it is now CAD0.90 annually, up from CAD0.84. That's the fourth dividend increase in two years that we've done. Reflects the fact our assets under management are up 9% from November 9. By our calculations it represents some where in the range of the 60% to 65% payout -- I think this is about exactly the same slide that I presented last time with the dividend increased to CAD0.84 -- of our 2011 forecast net income. Not withstanding, it will still leave us with anywhere from CAD165 million to CAD185 million available for stock buy backs, debt repayment, other investments in 2011.

I haven't used this chart in a while, and I'm sure many recall it. And it really shows how much money CI has returned to its shareholders, and how prolific CI is as a cash generator. Recalling back in 1994 we raised CAD25 million in our initial public offering for CI. And since that time we have returned CAD3.5 billion to our shareholders. CAD1.4 billion by way of distributions when we were income trust, CAD1 billion now of dividends, and CAD1.1 billion of buy backs have been returned. I think it is very impressive. I suspect there is not many industries where you can see that type of return profile.

Occasionally we talk about this investment in Altrinsic. Altrinsic is a value manager based in the United States that we own 25% of. Altrinsic got its start as a manager of CI's assets. We funded that company many, many years ago. And over the 10 or 12 years it has been in existence, it has actually started to grow at a remarkable rate. At the end of this year, their assets are in and around $11 billion US. Last year they contributed almost CAD6 million to CI on it, and based on their forecast for this year on mandates they believe they will get, et cetera, we expect their contribution to CI to be north of CAD8 million based on the forecast.

But I think what is really important is when you look at it that this took minimal investment on CI's part to get this exposure to a very rapidly growing US institutional business. It is not unreasonable to see this business at $20 billion or more within five years, and based on the lack of -- I won't say competition, but lack of other global value managers in their space and the amount of money going into it, this could just as easily 10 to 12 years out be a $50 billion business of which CI has a substantial ownership in. I just wanted to point that out as to how well that was doing for CI.

I will just finish out with a bit of an outlook for CI before we move to the questions. I think in 2011 we will continue to evaluate our expansion into alternative investments. As we mentioned earlier this year, we own 35% of a company called Red Sky, a small hedge fund. Well it is not that small anymore. It is up to CAD45 million in assets. It's had great performance since the start September 1, up 12% since that point in time. So we see this as a real opportunity for CI to do similar things in this area and on the expectation that if they are successful, then CI, even though we don't control the businesses have a significant stake in the business that we can benefit from their growth and then potentially use them as CI money managers if we actually want to take the mainstream into our distribution network.

I think if we look to 2011, as Derrick talked about, the enhanced distribution with Edward Jones is very positive. They have been a terrific company to work with since we became preferred status with them. But I think that's a good opportunity for CI. We have talked for many years how CI's strategy is to look for all areas of enhanced distribution [to] be a significant partner with who ever we distribute with. And it is no different with the Edward Jones relationship. So we are quite excited about what that will bring to CI for the future.

As I mentioned, our US institutional business is growing rapidly, and that business now actually valued -- CI's portion is valued in the neighborhood of CAD80 million, and we have had third party verification of that. It was quite impressive for something where we actually have zero invested into that business.

And lastly, we are going to continue to pursue consolidation opportunities. I will say we are disappointed that we didn't get DundeeWealth when we bid on it, but we weren't upset the Bank of Nova Scotia matched our bid and won it either. The fact is it will be consolidated into Bank of Nova Scotia now, and it is one less independent company for us to contend with out in the market place. So any consolidation from our perspective is good., and now we just move on from that to other ideas.

I say quite openly that basically all sizes and ideas are considered. When we bought Hartford, it really wasn't on the radar screen of a lot of people out there. But I think a lot of fund companies now are wondering, jeez, why didn't we take a look at that one? Because it's a terrific deal and a terrific company for us. And I would say lastly that what we have concluded tat we are open to doing transactions outside of Canada. Given our success with Altrinsic, and given that we are seeing opportunities where CI has an opportunity to grow its business without really betting the farm, which is what we don't want to do, or take major financial exposures. But we do see opportunities where we can get in and utilize a number of skills we have and potentially grow outside of Canada.

And with that I would like to say thank you very much to this [now], and we open it up to any questions you might have.

(Operator Instructions). At this time we have a question from Scott Chan from Canaccord. Please go ahead.

Hi, guys, great quarter.

Thanks, Scott.

Thanks for the Altrinsic slide. Just so when I look at the month end AUM numbers, you took the 25% Altrinsic out of the institutional? So say CAD2.5 billion, so your pure institutional is about CAD1 billion approximately last time I checked? Where did the CAD2.5 billion go?

We just don't report it anymore. We just took it out of those numbers because we only own the 25%. So it doesn't show up anywhere.

Okay.

So it doesn't show up anywhere.

So as of right now it is probably CAD11 billion total Altrinsic, and you own 25% of that?

That's correct.

Okay. And, sorry, I missed that last part on what you said on the US institutional. You said something going from going from 0 to 80 million?

What I said was -- our investment in the Altrinsic business is worth about CAD80 million. That's our 25% is worth about CAD80 million. And that's been, I'll say validated by third parties.

Great. And just going back to the Edward Jones comment, was CI a preferred -- was CI before Hartford on the preferred list at Hartford -- sorry, at Edward Jones? Or did Edward Jones just add CI because of the acquisition with Hartford, which is now Castlerock?

It is Derrick Green. I'll take that question. So CI was a preferred partner on our segregated funds through our relationship with Sun Life, but we were not preferred on the mutual fund side. When we bought Hartford Investments Canada, there is no guarantee or assurance that we would be granted full preferred partner status. In fact, they had been doing due diligence on us. And I think -- ultimately I think the catalyst was the acquisition of the Hartford business, but if they hadn't been doing their homework on us, and we hadn't been working closely with them, it just wouldn't have happened. Ultimately they make the decisions on who they want to partner with and who they don't want to partner with. So it is -- it took a good acquisition and made it I think really a great acquisition. So Castlerock has been -- I think it is going to turn out to be really a great acquisition.

That's great. How many advisors approximately are there at Edward Jones?

I don't want to speak on behalf of them, but I believe between 650 and 700 in Canada.

Okay, great. Thanks a lot, guys.

Thank you.

Thank you. Our next question comes from Geoff Kwan from RBC Capital Markets.

Hi, Good afternoon. The first question I had was, you have shown that the gross sales seems to be holding up fine. There was obviously the redemptions in the quarter, part of which is of the segregated fund products maturing. From what I can see, I guess positive net sales in October, slightly negative in November, a bit in December. Just trying to get a sense how much of that might have been due to the segregated fund policies maturing? Was there some activity on the SMAs, or one-time institutional rebalancings?

There wasn't really any SMA rebalancing, Geoff, but there were a number of other things. I would say the seg fund maturity bubble was safe throughout the year, but there were a number of other things that affected us in December. RRIF payments at the end of 2010 came out in December. We also had regular insurance fees on the base contracts for the insurance, whether it's on our product or any of the other segregated fund products that we're a part of. And then again the GMWB fee. So the income rider, our the -- yes, the income rider on these insurance products, the GMWB fee comes out at the end of December for 2011. Again, that's a significant number. So that's not something we would expect to see in January or February.

And how -- can you talk about how the flows look kind of January and February? And was December then [look] more of an anomaly? And more specifically looking at the RSPCs, and how does it look relative to last year. Are you seeing on absolute level as well as mix, is there any risk taking more toward the equity funds?

Clearly December was an anomaly, but what I will say is we are in net sales for the first quarter. And I think, as I said earlier in the presentation, the one thing 2010 did -- It was a good year. It wasn't a great year. But I think it really did a lot to instill confidence in advisors and investors and people are starting to move out the risk curve. They are moving away from -- well, there is all sorts of talk around the world. No matter what central bank, there is talk about interest rates going up. So people are moving out the risk curve from bond funds into balanced funds and to equity funds. And you know what? Canadians haven't been interested in global investing for a long time. And where we are seeing a lot of interest and we're starting to see flow is interest in our global equity product.

Okay. Last question I had was the comments around the M&A. Just wanted to get a sense, has that changed within Canada on the retail side to the extent you are looking at stuff? And then in the US, if you are looking at stuff, would you have a preference for a good company that you can get at -- you'll have to pay a reasonable price for it? Or would you look at something that might be a little more of a troubled asset that you believe you can turn around?

Geoff, it is Steve. To answer your first questions, first of all, in Canada, I think that the number of options in Canada continues to become more limited. And for the most part I think it is individual circumstances like the Hartford came [up], there could be smaller companies that we could see advantageous to work in. Or maybe more boutique operations that aren't in straight up retail mutual funds looking at other parts of the business, maybe alternative investments. There is a number of very successful players in that market place where there is a chance that with CI's distribution and size we could add something positive to those businesses and continue to grow them. So I would say that would be one area where we certainly have looked at.

Amongst the larger mutual fund companies there are compelling reasons to continue to pursue economies of scale and things that look totally logical transactions to do. I just don't think the owners on the other side are prepared to do those types of transactions. I would say a lot of it is because the wind is in everyone's sail here lately. You saw that chart I put on CI's asset going up. Well the same tide is affecting everyone else. If you were struggling a bit a year and a half ago and the markets go up 20%, it is a lot easier to feel good about your business under those circumstances. So I think people that might be a bit inclined to do a transaction maybe would hold off for the time being, even though the merits of doing a transaction are just as -- are probably stronger today than at any other time.

I would then say to answer your question on the US side, I don't think our number one choice is to go in and look for a troubled asset per say. I would say if we saw an opportunity where maybe there wasn't as much strength in the money management side as there could be, and we could bring some of our strength and relationships to the money management side to bear, that would be a good opportunity. If it was troubled for a whole other sorts of reason that we didn't feel we were able to change, then I don't think we would be that interested and probably more interested in a company that is small to midsize that could take some of the things that CI had and help it grow its own business that way.

So I don't think I've answered that as perfectly clearly as I could, but I think the answer is that you have to be pretty flexible in what you are looking at. I guess what we wouldn't do is to look at a very, very large transaction. And I guess you would say would we but a Putman-size transaction, and -- I'm not critical of the Putnam transaction at all. That was [Power's] decision on that. I am just saying that wouldn't be the size of the transaction that CI would want to do. That would just be a little big for us to take on something of that scale, whereas they have the capacity to take on something of that scale. And they already had a lot in the US to be able to do that. We wouldn't be doing that type of transaction.

Okay. Great. Thank you.

You are welcome.

Thank you. Our next question comes from Paul Holden from CIBC. Please go ahead.

Good afternoon. Wanted to ask you some more questions related to net sales. You talked about the Q4 as negatively impacted by some seasonality-type factors. Q1 tends to be a strong quarter seasonally. Is there reason to feel the net sales picture should be improving in Q1?

Yes, I would say the net sales picture is improving in Q1, but I won't be too specific. And again, the markets have been very strong for the last -- up until a few days ago we had really an extremely strong three or four months. So as I said earlier people are willing to take a little more risk. We are starting to see more interest away from income products and into enhanced income and balance and even into equity. So I think it is dependent on what the markets do from here, but certainly the beginning of the year traditionally is a stronger period for us than say the end of the year.

Okay. Can you give us any sense of how you would compare it to Q1 last year?

I am not going to get specific.

Okay. And then with respect to the seg fund sales, Derek mentioned that perhaps you saw the peak of the redemption bubble in 2010. Can you just give us some of the reasons why you believe last year was the peak?

Well, this is Derek speaking. We have done a lot of analysis on this type of thing, and we have in force closed segregated products, and then we have open segregated products. Most of the redemptions are coming out of -- these are -- we have gone through a number of times in history where segregated funds have been popular. 2000 was very popular, and there was -- at that time we were 10-year products. Unfortunately they had a finite life. As they matured, the advisor or investor could roll it over. The analysis that I had, we had 16,000 seg fund deposit contracts in 2010 that matured. In this year it is around 6,000. The average seg fund contract -- there is an average size. We are looking at about 35% to 40% I would think in 2011 to what we had in 2010. So that is our expectation.

All right, and then maybe on the same topic, but looking at a longer-term trend, you see on slide four of your presentation, that net sales of year over year trending down for the last five years. Can you maybe speak to that, and what factors may lead to a turn around in that trend?

Well I think the biggest factor, again, are segregated funds. At a minimum our net sales are underestimated by about CAD500 million for the seg fund maturity business. Now the fact is I'm the last guy that wants people to redeem funds because they have been matured, but the contract did have an end date. I also did mention in 2008 100% of our net would have come from seg fund sales into our SunWise product or into products that we are participants in. So over 100% of our net in 2008 was seg fund related. Today seg funds represent 35% of our net sales.

So mutual funds are becoming a much bigger, more important part of our business. We have great performance with our money managers, whether it is Signature, whether it is Cambridge. We've got a great stable of funds. And this acquisition of Hartford, which is now Castlerock, there is tremendous interest. I wouldn't recommend to anyone to start a mutual fund company in a mature industry. But I will tell you, if I was going to start a fund co today -- and we acquired one -- when you look at the lineup of the PMs there; Eric Bushell, Dan Bubis, Allan Radlo, when you look at Bill Kanko and Richard Jenkins and then Rob Vanderhooft from Greystone; that lineup is the most envious -- enviable of anyone I would be aware of. So I -- we are getting tremendous interest and great traction with this.

So I think that acquisition -- that little acquisition, as Steve eluded to, was a great acquisition. I think it will help with our sales. The biggest thing will be the seg fund maturity bubble in our mind. It peaked in 2010. It will be less in 2011.

Okay. Fair enough. On a different topic, with respect to the dividend and potential for future growth, you have highlighted that the payout ratio is expected to be 60% to 65%. I got a similar number based on my estimates. How high are you comfortable taking that? Is 65% the upper end of the range where you want that number to come in?

Yes, Paul, I would say that would be a fair assessment. That as it stands right now we are comfortable paying a dividend in that range to give ourselves flexibility to do other things. I addressed that issue with the Board. They actually asked me the same question last night, and I said you never want to be in a position where you are paying too high -- you decide you are going to go to 70%, and then markets correct by 15%, and all of a sudden you realize you are at 85% and you have limited some of your financial flexibility. So we find that by targeting to that range we can be comfortable knowing there would have to be significant changes to our asset levels to make ourselves uncomfortable with that payout level.

Okay. And then final question is with respect to the break fee net of cost. I assume that was included in the Q4 income statement and one of the -- probably in other revenue. Is that correct?

That's correct, though Doug did take it out of our charts to show our EBITDA margins, and those margin charts all have it taken out of there, so that -- we didn't want to distort some of the metrics by having the break fee in there.

Okay. So That's the CAD3.7 billion -- or million? Sorry.

That's correct. That was a net after all expense.

Okay. Perfect. Thank you.

Welcome, Paul.

Thank you. Our next question comes from John Reucassel from BMO Capital Markets.

Thank you. Steve, just a point of clarification, the slide 18, you talk about a 60% to 65% payout ratio. Just if we use the midrange, I just want to make sure I am understanding. The CAD0.90 -- you're indicating that earnings, given the way the markets are today is about CAD1.45. Earnings per share. Is that right?

You can just take 60 and divide it by 0.9. (Inaudible -- multiple speakers).

I just wanted to make sure it wasn't -- I just wanted to make sure that was clear.

Yes, we have given you a range in there, and knowing that the numbers -- we are not trying to be that precise for you, but we are comfortable in that range.

Question for Derek. Slide five, you talked about the gross sales through these different channels; the MFDA, the IIROC, the Assante, the Sun Life. Which -- are these channels -- which channels are the net flow positives in? I assume the Sun Life and Assante, but are you net flow positive in the IIROC channel?

Net flow MFDA, Sun Life, Assante and I would say net redemptions, but the number -- the net redemption number is getting smaller. It got smaller in 2010 versus 2009, and it is starting out to be very good. It has been something that we have really made a concerted effort to target. And if you are a bridge player, we redoubled our efforts. We are spending some significant money.

We are doing a leadership forum this spring. We are taking 500 advisors. We can't target who they are, but we are going to have all of our portfolio managers at a location in the US, and it was sold out within the first two and a half hours that phone lines were open, and a huge percent teeming of them are IIROC advisors, some of them that have not been big supporters of CI for quite some time. So we are excited about the opportunity to showcase our wares to this group. And if everything goes according to plan, next -- we will be able to get that into net sales.

So, Derek, just if I understand, is the IIROC channel, judging by increase gross sales, it has gross sales issue as opposed to a redemption issue?

I would say so, yes. It is not a huge number, the net redemption number, but the net redemption number is getting smaller.

Okay.

John, it's Steve. Just to add on to what Derek is saying, one of the areas where we signif -- we experienced the greatest net redemptions for us is in some of the channels where we're not the direct seller. Where it's a fund to fund product where they invest in CI funds. So we are not the end wholesaler on that product, but other firms have chosen to use our funds in a fund to fund. And those can go to net redemptions. And we really don't have a lot of control over that process. I really don't want to single out, because these are great clients we are dealing with, but the net result is that in some of the cases they have had out flows, and that has then impacted us because our funds have been favored in their portfolios.

Fair enough. But would it be fair to say, Steve or Derek, that that is the nature of the IIROC channel now, that -- or is that 37% increase really more the traditional mutual fund business? Or are you -- I just -- I assume -- I guess I'd assumed that was the nature of the IIROC channel now, with the different platforms at the different dealers.

Yes, we are seeing more interest from the channel. And I think it -- but I don't think there isn't any simple answer. I think we've really -- as I said, we have redoubled our efforts. We are spending more money. We're spending -- we certainly have tried to resegment or segment our business where we can. So wholesalers are focusing more on IIROC. So it is a number of things that is turning this around.

The other thing that really is quite exciting to me is -- and this is an anecdotal. I don't have any firm proof from a study. But I think most Canadian portfolios are pretty overweight Canadian equities, whether it's resource or energy or Canadian banks, to the point that the way things were with global investing in 1999 and 2000, and now people are seeing when the markets misbehave, they are willing to listen to the global story. Well most big IIROC shops, they think they are pretty good at picking Canadian stocks. They have that competence, or laddering a portfolio of bonds. Where they admit they fall short is constructing a diversified global portfolio. So we are seeing interest specifically there with our friends from Black Creek and other global managers.

Okay, great. And then, Steve, the CAD165 million to CAD185 million you talked about of excess or free cash flow to buy back stock or repay debt, is there a priority on one of those two for 2011?

No, there is no priority on those, John. It's really something we assess as we go along, and we look at opportunities. If we decide it is a good opportunity to buy CI shares, then we are well positioned to buy back stock. On the other hand, if we are just going to repay back some debt or just to hold the cash back because we think there is a good acquisition opportunity, then we might well do that. I mean, a good example is we added a little debt on to buy Hartford, and so we could easily pay back 50% of the debt this year, though I am not trying to delever the company. That's not the plan. I'm saying in the course of six to 12 months, I think you just have to be a little flexible in what you want to do and not commit right out of the gate.

Okay. Okay, great. And last I would just put in a request. I know you and some others have decided not to disclose monthly net inflows for a variety of reasons. I would argue you could give monthly net inflows without giving away state secrets, and would hope you and others would reconsider your -- what you disclose in your monthly -- month end press releases. So, that's it. Thanks, Steve and Derek.

Thank you.

Thanks, John.

Thank you. Our next question comes from Stephen Boland from GMP Securities.

Good evening. I just want to echo Mr. Reucassel's comment -- the last comment he made about disclosure. Are you going to commit to providing even a quarterly sales by fund or sales by even asset class?

No, we are going to provide overall sales, but we are not going to provide the detail that had been disclosed in the past, Steve.

I guess the only concern I have, Steve, is that your gross sales look great. Very consistent. But when we are trying to model out a management fee margin, we don't know if that gross sales are all going into some low margin product or a money market on a -- so on a trend basis it adds an element of risk on our modeling. Could you not even provide gross sales by equity funds, balanced -- if that could be something that would be considered. Not going into the actual fund level, but even the asset class I think would be helpful.

Well, we will -- you know what, Steve, we will take that under consideration. I mean, we try to go out of our way to provide good information on what type of margins we are earning and where our expenses are, et cetera, to make it pretty straight forward. I guess --

Yes, I mean, if you don't want go down to the fund level, but even the asset class level.

I guess we are pretty disciplined, and for the last 16 years on all of those other points that, you are right, there is a certain amount of fine-tuning you can do if you know exactly where every fund goes into. The tradeoff for us is it's a lot of competitive information that is being handed out that no other industry would do it on a fund by fund basis.

Right, so even asset class I think would be helpful, just so we --

Well, we'll take that into consideration.

Okay, that's great. I guess the only question now, on the consolidation. Your 36% owner [I guess is] on standby. Is there anything you can do, or you contend with having a big shareholder like that sitting on the sidelines for however long? Is there anything you can do to reduce that ownership level, or -- going forward?

Well, that's actually -- Steve, that's a good question, and maybe I have to answer it in a little more detail. The last discussion I had with the Bank of Nova Scotia was Monday, December 6. I remember it precisely. It was at 8 AM in the morning. And at that time I congratulated Chris Hodgson on the acquisition of DundeeWealth. They had matched us, and that was fine. That was all fair game. I guess the one thing I had been surprised at at the time was learning that they wanted to own 100% of DundeeWealth, and it was confirmed to me at the time. That's what they wanted, 100% of Dundee, and that their interest really is DundeeWealth, and it's actually not CI at all, now that they had the choice.

So what that has forced us to do is to really relook at where we're going. For the better part of two and a half years we sat down and tried to figure how we could do deals; CI, Scotia; Dunee, CI, Scotia; a whole bunch of things. It took up a tremendous amount of our time, mental time here in calculations, and enough [mulls] probably to sink a ship. But that's gone. They've really lost interest in our business. I mean, that's been clear. I mean, they're not interested any more in having Board seats. They used to want dilution protection. They don't any of that any more -- all for obvious reasons. So I don't know what it means what they're going to do, but from CI's perspective we've had to conclude as a result of that meeting that we're going to plot our course going forward on it. So that's the first one.

The second question I venture just to clarify for you is you asked about could they sell, or how could sell -- is that we have poison pill in place that really doesn't allow them to sell their shares -- well, it doesn't allow them to sell their shares as a block. If they wanted to sell their shares, the only way they could do it would be to sell it in pieces of less than 10% would be the only way they could sell it. Alternatively, they can't sell their shares without CI -- sorry, with CI shareholders, not just CI. All our shareholders approving it. So I can't see any circumstance that CI shareholders would agree to them selling their block, unless it was in the interest of something that CI wanted to do that was for the betterment of all its shareholders. I mean, that's why you have a protection plan in place, that if a transaction gets done, it's there to protect all the shareholders, right? It's not just one individual group.

So if something is going to happen, I mean they can sit there as a, I guess, a passive -- what they are is passive shareholder. Now they could sit as a passive shareholder for a long time. That doesn't bother us at all, because we have no expectations of a passive shareholder other than to collect a dividend -- which I guess is pretty hefty for them now -- on it. And I guess that's the best way to answer your question. That we're just moving forward with our own plan, knowing that if they really want to do something, it has really got to be in the context of something that's good for all CI shareholders, not just Scotia shareholders. Is that helpful?

Yes, that's great. Thanks a lot.

Thank you. At this time our final question comes from Scott Chan from Canaccord. Please go ahead.

Hi, guys. Sorry, just one last follow-up question just on the CI institutional division. Just kind of getting a sense of what stage you are at. Are you just marketing to potential Canadian pensions right now and not US? And how is the RFP activity? Are you guys in that stage where you guys are in the RFP process for several mandates, or is it still within the infancy stage? And I guess lastly the CAD150 million that was won last week, is that your biggest mandate to date in the segment?

So I'll take that as the first question. We received that -- actually the news yesterday. So it's a CAD150 million mandate, the DBDC business, defined benefit defined contribution. Our biggest mandate when -- prior to that was CAD73 million. So we're in -- several -- we have several RFPs out. As I said, that CAD150 million was a really big win. Canadian Balanced is where there is a lot of interest. We are getting in -- we are getting more interest also in our fixed income capabilities, but also in our global capabilities. Obviously the fixed income has lower fees than the balanced, but the global equity, the fees are about 50% higher than the Canadian Balanced, so we're excited about that.

We talk frequently in the retail mutual fund business about the Morningstar, the PALTrak rankings, and how our funds stack up from a performance standpoint. But there are databases that are populated in the pension business, and our -- whether its the global space -- we have a global product that now has a four-year track record that shows incredibly well. Now, a couple of other things that I'd like to point out. The incumbents in this business -- there are couple challenges. One, there are a lot of investment counselors that were baby boomers. They're in their late 50s, early 60s. These companies -- a lot of them either don't have addition capacity. They're looking for succession planning. Or they don't have very good numbers. And I'm not pointing the finger at anyone in particular.

We really got serious about this space about 18 months ago, and Chris Boyle, who heads up that group, and his team, a dedicated group individuals -- I always say it takes a while to get the rock moving, but once you get the rock moving and you've got some momentum -- so the answer -- it's a long question, I apology -- is there are a number of RFPs that are out there, and it's not just in Canadian Balanced. It's in fixed income, and it's also in our -- in global.

Okay, thanks a lot.

Thank you. That was our final question.

Well, thank you very much -- and Steve McPhail here -- for listening to the CI's conference call for our fourth quarter results. And we look forward to speaking to you at the end of our first quarter, reporting those results due in -- I guess in mid-May. Thank you very much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.