景順投信 (IVZ) 2002 Q2 法說會逐字稿

Welcome to AMVESCAP 2002 conference call. Today's conference is being recorded. If there are objections, you may disconnect at this time. Caller who is access the call will be deemed to have access to the call for the purposes of the U.K. financial services (inaudible) governing realtime financial promotion. The presentations that follow may include information that constitutes forward- looking statements. If there are states regarding goals, beliefs, plans or current expectations, take into account information currently available to management. Forward- looking statements are not guarantees of performance. They involve risks and assumptions. We caution investors not to put undo. (inaudible). A question-and -answer session will follow accordingly. I will turn over to Charles Brady.

Thank you and good morning. I appreciate you joining us this morning. It is such an exciting morning. Every morning is exciting. We get up and see what is going to happen in the market that day. It has been volatile, as we all know. We try to put this in context. It is not good enough to say I have been through this before. But, we have been through this before. Every few years, you get some sort of a huge volatility in the market and it is always a reflection of how much of excess you have on the other side. It is literally a mirror image. We all would admit the 90s were extremely strong, well in excess of what they should have been. We are paying the price for that. It is going on two or three years now and it may go further. If you look under the surface, the economy is getting better. I think the different in this sell-off and correction in the marketplace and some in the past is that the central banks around the world are doing the right things. They have cut interest rates and are trying to promote expansion. A lot of things have come together at one time. We had a conference of global partners recently. You know the movie the perfect storm, we call it the perfect storm. That is what has happened. Any a number of thing vs happened. You had the credibility gap, accounting issues, terrorist attacks. Anything you want to name has come to bear at one time. All in all, the markets are holding up well. Our first quarter - second quarter was difficult. But, no more difficult than everyone else's, I think. We have a long-term strategy. We are sticking to the strategy and have stuck to it the last 5 or 10 years. I don't see a reason to stop the strategy. Demand for our services continue to grow. The consolidation in the marketplace continues and some of the acquisitions we made over the last couple of years look good now. some of our strong points are Trimark and Perpetual, both were out of favor when we were able to purchase those properties. They are doing extremely well. Trimark of Canada is the number one seller of mutual funds. Perpetual is also one of the leaders in the selling of mutual funds. We have a lot of good performers. The market doesn't want to hear that. We will live with it for the time being. Our retirement service, 401(k) business continues to grow. Money continues to come in there. The AIM funds have been reorientated. 36% are core funds. The market again, doesn't want to look at that. So, I think that we are just in a difficult time. There is not much that can be said about it. Bob, will you go through the financials and we will answer questions.

(inaudible) if I can right fast. Our profits for the operating profits for the 6 month period were $213 million pounds, which is operating margin of 28 and a half percent for the 6 months. We will come to second quarter in a moment. Our tax rate remained constant for the period. Exceptional at 30.6%. We would not envision that changing for the duration of the year. We continue in the U.K. reporting to amortize goodwill. We have done a test about goodwill for impairment. We have concluded there is no impairment that is present there. You will see in our results for this 6 month period, we have a 20 million pound exceptional item. About 17 million pounds is for redundancies, both past and redundancies that will take place largely in the third quarter, little bit into the fourth quarter. Certainly finished by the end of the year. 3 million pounds for adjustments to fixed assets for office moves and things of that sort. We have declared interim dividend of 5 p per share, which is a half P increase over last year's interim dividend, or 11%. Which I think reflects our view about the long term. EPS of 16.2 P per share or 28% decline year on year for the first half. EBITDA up 250 million pounds for the 6 month period of time. Turning for the moment to second quarter, and I should mention again that we had, as you will recall, many will recall, a large number of acquisitions last year that have some effect, especially when you look at quarter over quarter figures. With Nam coming in and county in the first quarter of last year and the other acquisitions coming later in the year, but are included in the current year. The exceptional items in last year's column all related to those acquisitions. That will put balance there. You will see that our investment income has declined from the second quarter of last year. Basically this is seat money we have invested in new funds where we market to market. With the market being down, we have seen roughly 2 and a half million pound downward adjustment there. The average fx rate for the 6 months for us, booking at dollar versus sterling is $1.45. I know in anticipation of a question with the exchange rate jumping the way it has, the question will be what impact has it had on our results? Well, in the first half of the year and frankly in the second quarter, really not very much. Our average rate this year is $1.45 for 6 months and $1.43 for the same period last year. If we were to continue at $1.56 for the remainder of this year, that would impact and probably give us average out of $1.50. We will watch that as we go along. I should say, strong emphasis continues on expense control. Our margin in the second quarter of this year of 29.3. The three major elements of expense compensation, technology, and marketing all remain as a percent of total expenses in line with what we saw for the first quarter, but also for the almost last year. Looking on page 10, just briefly, to the comparison one year to the next. This shows sequentially where we are. You will see that we have had decline in operating expenses from the first quarter to the second. You will recall when we had our March call, we talked about the cost increases being due to the play benefit that is sort of were front-end loaded. We are beginning to see that, as well. EPS was 8 P for the quarter compared to 8.2 P for the first quarter. EBITDA per share came in at 15 P per share. You will see headcount at 8143. The large decline here is due to the redundancy announced in our Denver business 6 weeks ago. Page 11 shows the quarter from last year to this year. I am not sure there is much to call attention to there. It is there for comparison. Page 12, operating profits one period to the next. You can see across the board that we have had downward adjustments, all of this is largely due to the impact on the market and management fee reductions coming from the lower asset levels. I don't think there is anything I would particularly call attention to here, but would be happy to come back and deal with any questions you may have later on. The next page likewise shows just a quarter comparison. No doubt there will be a question about the decline in corporate from where we were in the first quarter. We take some of the employee benefit cost in the center and that is part of the reason, as well as just timing differences. I think if you look at the average for the first half of the year, 16 million pounds, that would be reflected over what one might think about in terms of the next half of the year, as well. Looking to page 14, funds flow. We have 55%, 45% split in equity fixed income at the end of June, comparing to 58.42 at the end of March. A good bit was due, I think, to the change we see in the money market funds, where as you have heard us say, there tends to be great volatility there. That is what has happened. There has been a recovery of those funds after the end of June. I would say a lot has to do with times. The average assets are spelled out in the release. I won't go through those. Total gross sales were about 45 billion in the first half of this year. That compares to 50 billion in last year's first half. So, 10% decline when you look at gross sales activities. You can see clearly how much with the 6 and a half percent loss of market, you know, we have incurred in the 6 month period. Next page shows same picture for the second quarter. I don't think there is really anything that warrants any particular reference here, particularly other than - I should back up and call attention to the fact our global business had strong net flows in the first half of the year with 1 billion new business coming in. A large part of that - most of all of that came from 2 sources, one U.K. retail where Charlie eluded to the fact we have good performance. Also, good flows in continental Europe. Page 16 shows the balance sheet. Nothing new or different here. I think all of this is reflective of our overall program of continuing to take the cash flow and reduce our debt levels. Otherwise, it has been business as usual in each of those - in that area. Look at our cash flow statement, I think that shows you that the same picture. Capital expenditures are down from 39 million pounds last year to 14 million pounds this year. You will see we have increase in investments of about 65 million pounds. That really is made up of two things, one is new seat money we have invested that will reportedly be returned by the end of the year. Secondly, we have bought some shares in the second half as has been publicly disclosed for our share option trust. We did pay down 17 million pounds of debt net. If you look at the next page, I think you can see a bit more clearly. The Perpetual loan notes were redeemed in the second quarter of this year, all but 2 million pounds, that is. So, we have a small rump there. Those have been paid off. We used our credit facility to fund that. Also, our 250 million senior note first from the old chancellor GT acquisition will be come due in May of next year. Those are being reclassified from long-term to current, going back to the balance sheet, still reflected in our net debt picture. So, you will see at the end of the quarter, we are sitting at net debt of 746 million pounds. Page 19 shows shares outstanding. Two things here. One, of course, the shares reserved in diluted calculation for options continues to go down because more and more shares are anti-dilutive at this point in time. Secondly, all of the exchange debentures which will impact our diluted EPS calculation, are not included this year because they are anti-dilutive because they are out of money at this point. Page 20 shows headcount picture. Again, I think nothing particular to talk about here, aside from the fact you can see the impact on Managed Products, which accounts for the decline in the Denver reduction, if you like. Page 21 and 22, I will just mention two things briefly, if I can. The first is under acquisition accounting with no longer having the requirement to amortize goodwill in the you said, you can say it gives us a major bunch in our U.S. earnings. 119 million pounds for 6 months, compared to U.K. earns of 45.7. Secondly, the 12.8 million pound relating to the exceptional item, which under U.S. accounting takes place at the time those funds basically are expended. The next page shows the same impact of that. It is worthy of note, on a U.S. GAAP basis, we would have 3.1 billion pounds of net worth. 5 million in round term. A very large amount of net worth for the company. As Charlie said, it has been a difficult period, but we remain committed to the long-term. We remain committed to our expense controls. And let me just if I can, turn back to Charlie for question that is may come up.

Obviously, it was not the healthiest quarter we have ever had, that is the business we are in, both ourselves and you. So, we have to live through these things. We will do what we are doing. We have a strong company, business and profit margins. We will continue to use our cash flow to build the franchise. Let me open for questions now. 00:30:40

At this time, we will begin the question-and-answer session. If you would like to ask a question, press * 1 on your touchtone phone. I will announce you prior to your question. Press * 1, if you would like to ask a question. First, William cats with Merrill Lynch. Your line is open, sir.

Good morning and good afternoon, everybody. Couple of questions on the flow side. Just curious given your asset mix, little bit more evenly disbursed than others. Could you walk through your results to track what was happening on the equity side versus fixed income side in the core businesses? On top of that, could you talk about what you are seeing or saw in July. Obviously it is a hot topic now? On the institutional side, you referenced a delay in decision making. I am curious, is that delay normal because you don't want to do anything right now or toward fixed income? I have a follow question.

Bob, do you want to talk about flows?

Yes, I will. (inaudible) most of the fixed income securities that we have - sorry, the money market funds, as well our products are largely pretty small in comparison from the equity picture. We have seen good flows in fixed incomes in stable value because it is quite a popular and more so today. The money market funds I think we have talked about and to be honest, the rest of the fixed income is total is small.

I think one interesting thing is in the last month we were able to sell 500 million dollars worth of real estate capability. That is (inaudible) on fixed income, it is invested in - basically a fixed income product. That is the largest raised in that area. There are a lot of people looking for income, safety and we have vehicles they can get into.

Could you comment a little bit on the July trends, if you - you were (inaudible) snapshot, what happened in the month on the retail side? On the institution side, what is your sense of pension plans and their allocation more active conversation to go to equity or (inaudible) still?

July was so difficult, deer in the headlights. Everybody stopped and froze. I don't see a lot of movement. I don't think there is decisions made - most of the time in these situations, the (inaudible) after the fact. Sometimes the wrong decision is made. But, the truth is we have not seen anything just in the course of July being difficult in the market. No increase particularly increase in outflow, no particular increase in flow or shifting around, quite frankly.

Also, the search activity itself is in the institutional side is down across the whole world, not just for us, but as an industry. I think it is just again, because the consultants and certainly the trustees are like the deer in the headlight.

Moving to my other question. On margins, you may have covered this. I apologize. Can you talk about where the headcount reductions came within the managed accounts and what your thinking is there? Charlie, if things are more draconian for an extended period of time, what are contingencies to protect your margins, which are deficient to your competitors?

The most important thing we have to protect outside of our clients, the most important thing is our staff. We could have done like some people and gone across the board and taken a thousand people out day one, maybe a year ago. But, that is not the kind of way we try to run the company. That is not the kind of respect we want for our staff. We don't want to give up assets. We have worked our way down. I think we have been able to maintain margins strong, but not as high as some people's. They are respectable at 28%. I think anybody in any business would say 28% of revenue is a good margin. We will continue that as long as the market continues down. If it becomes clear we - I don't know how you could become more clear than what is going on. If it is clear we need more severe cuts, we will have to do it because the fact we will have no choice. It is a balancing act between the shareholders and employees. You have to go between them.

Having said that, I am curious the modest downsizing you did in this quarter versus prior quarter, what was sort of going on there? Is this natural consolidation or reduced volume?

The numbers are disguised. If you account for the fact we bought companies and added people in. Over the last 12 months, our number of people have gone down by roughly 900, more than you realize.

900 ex-accessions?

If you adjust for acquisitions, 900.

On the retail side?

Mixed, not just retail. Some has just come about from the choice we make the acquisition and natural consolidation.

Our next question comes from Sara wing with UBS Warburg. Your line is open.

Hello. I have a question regarding the revenue margin. I am looking at the Q1 on the average reported in Q1, annualized margins are running at 55 basis points. That appears to have gone up to 58 basis points in Q2 for annualized accounting, Given the mix of the business in terms of bonds has reduced, against equity in Q2, I can't rationalize it margin mix increasing. Could you give me an explanation?

Sara, first of all, when you look at something as large and diverse as we are, take a simple average gets to be a bit difficult. There really has not been a meaningful shift when you break it down by business group from one period to the next. You know, I would say there has been no change in fee structures or anything else that would give rise to that.

Okay. A follow-up question on the cost from the last question. On the cost side, the resource come down by 12 million pounds a quarter over quarter. Given the redundancy provisions that you have made, to what degree can we expect further reductions? Is it similar rundown of cost we can expect going forward over the next few quarters?

Charlie. You want to take that? (inaudible) that will take place very soon. So, with that having been said, obviously we would expect further savings on the cost side in the future. You know, where we sit right now and we try as we do each quarter to go in and take a careful and realistic look at what we would expect in terms of annual bonus provisioning so that we have a proper quarterly split of that. But, I would say that where we are right now would be about the best reflection of what I think we might be going forward. It is just very hard in these markets to predict exactly what a figure might look like going forward. The same basic principles will apply.

I will make the point, you know, any given level, we think we can manage the business broad range 30 to 35% margin. I don't think that is something we cannot do. When you have declining margins, if you want to just keep it at that level, you have to cut quickly and fast. I think that is what we have been trying to avoid, going down with the market. We have been making cuts. So, the margin is a little more. By the same to ken, I wouldn't be surprised if a margin did turn up that the margin would go above that range.

That is the final part of that question. To what extent is the (inaudible) regarded as fixed? It would seem from this point you are almost running at 100% fixed cost, given you said last year your (inaudible) was about 25%.

Well, we still have a large variable element. We have run down some of it. If you have 10% increase in revenue, you get 35% increase in bottom line. It is a huge number. You know, assuming you didn't have to add cost. I think that probably 10% increase in revenue would come without increase in cost. I think the market can give you that kind of increase. We are not trying to make light of it, trying to manage the company and protect the assets we have. We view our people as our most important asset. We are careful try tog retain as many people as we can.

Our next question comes from Glen Shore with Georgia Bank.

Thanks. Two quickies. One, curious about the comment on AIM and the equity rebalancing. We appreciate the asset break-out. Can you give us where that came from, 33% growth and 21% other? Then, curious is this something that happened strategically at the firm-wide level or cio level or just individual portfolio managers? Does that translate over to the other divisions?

No, AIM recognized more than two years ago they needed to try to somehow diversify from the growth and aggressive growth in their sector. They went out and actually started trying to build a core base to the business. The largest one we actually have in for this call is the value fund. So, there has been a conscious effort there and across the whole company. When you are in this feeding frenzy, people don't want to hear those things. The wholesalers go into the marketplace and talk to people. They don't want to hear about those things. They want to hear about growth, compounding the number we know cannot be maintained. So, we have been putting forth our plans to solidify. Those are coming further. All of a sudden, people decide it is a good idea.

(inaudible).

So, 33% growth in that range for a while?

It was higher than that.

It has come down?

Yeah. It probably was as high as 50% at one time.

That would be true.

It has come down dramatically.

The thought process didn't necessarily translate to additional growth sales in the past, but if markets settle you think that bodes well. Is it translating into better relative performance?

Better relative performance as a group. Translate into opportunity for the future, no question about it. You know, you get an image in the market place of being in growth shock. That stays with you, even though 46%.

And speaking of images in the market, INVESCO is well known for growth. Is any thoughts on keeping that thought process and pushing it over on to the INVESCO side?

We would try to do the same thing there. We may not have been as successful, but doing the same thing. The value funds and core funds there have had good performance. But, you don't get credit in the market place. You are getting flows there and transfer funds from one side to the other.

Just shifting topics. You know, I know we are talking about small numbers here, but in terms of headcount reduction, all of it came at Managed Products and institutional. I am curious to get your thoughts on why global would actually rise in this environment? I know it is a small number, but what to expect going forward, our growth sales good, performance good or a geographically disbursed franchise?

That is part of it. I think there are two acquisitions in the global division in the numbers, aren't they Bob?

I think the June numbers are aberration. I think you will see what has been over an own-month trend of headcount reductions and that will - I would expect that to continue in the third quarter. I think it was just an aberration that happened at the end of June.

One major computer system in global we are shifting and having to parallel staff for the time being. It will be a major shift, planned for a long time.

Our next question comes from Phillip Middleton with Merrill Lynch. Your line is open.

Just a couple of areas I would like to comment on. Firstly, I am not quite managed to understand what you are saying about the expense line. Because on the one hand, you seem to be say Thanksgiving is a reasonable run rate. On the other hand, there is some cut backs in the pipeline. If you could just really comment on how those two things scare? It seems costs will presumably, all things (inaudible) half or two. I wonder if that is a misunderstanding or your sense of it?

We are continuing to reduce the expense line.

Okay.

I mean, it should continue going down as long as we are in the conditions we are in now.

Fine. Thanks. Secondly, on flows, I think AIM had good results. I wonder if you could comment on the INVESCO fund family, also, the institutional side there? Those both noticeable outcomes on the institutional? I wonder if there is underlying story there or just life?

I don't think there is underlying story. The flows have been pretty much the same. The big culprit in assets in both cases is really the market. The market has taken us down more than anything else. Actually been surprised the flow built up as well as it has. So, I think basically it is percentage thing, roughly the same.

Phillip, I would add on institutional, as we called attention to in the press release, we continue to see outflows and lower fee-based mandates going to higher, more specialized products. If you look, as I think we tried to outline in our highlights, two-thirds of the institutional product range is above the benchmark. Those activities are producing good new opportunities for us, all be it smaller assets and higher fee levels than the core products going out.

Sure. Okay. INVESCO fund family is just - is that you think because of the growth or the change necessary distribution you have made or -

We think it helps. By and large, the largest amount of sales over the last few years were to existing shareholders, not to brand new people. Of course, those people have the right to buy funds on the same basis. We still retain those. The increase in flows are from new distribution system.

Our next question comes from John Tyce with Votcha. Your line is open.

Two questions. The first, you seem to have held on to net fund inflows longer than your competitors. What went wrong in the second quarter that left you net outflow of funds?

I think people sometimes give up in the market and they just throw in the towel. I mean, I think certainly in July that is what you are seeing. That is the kind of thing you need to have a bottom in the market. I don't know it was any one thing. Just seems like the average person is getting disillusioned. I have never seen a time when you have your own government attacking businesses as they are now. I hate to make a political statement. It seems to me in many ways, politicians were afraid they were going to get caught off base in the election this fall. They want to make sure they can be on record as damming business more than their competitors. Somebody is saying business is bad, business is bad. I think the average person on the street must feel bad about that. You know, I really believe it is a few rotten apples in the barrel. I don't think it is a broad-based problem. We are not required to do the SEC statement about restating earnings, but would be glad to do it. I promise we would not restate earnings. I feel like we are in a period now where the news, no matter the news, is bad. Unfortunately, sometimes people throw in the towel at the wrong time.

(inaudible) the last few days. The second question, however, is on INVESCO global, the operating margin seems to have fallen more than elsewhere at 15.7 for the first 6 months. Quite significantly out of kilter with the rest of the group. Do you have plans to put that right? why is it different?

The real problem, we had a series of relatively new businesses around the world. They had just gotten profitable. Obviously, we felt like if we would have had another year of the momentum we had around the world, we would have brought margins up to the group level. That didn't happen. The markets - it was a set back. When you have a thin margin already, it doesn't take much to drive it down and that is what happened. We have not lost confidence in the strategy of being global. We think these operations outside the U.S. will grow faster than the U.S. over the next 5 to 10 years, just a point they were not as strong to start with. When you have a volume, it hurts bottom line more.

Okay.

Our next question comes from Robert Mumby with HSBC.

Yes, I have another question on flows. I apologize. Can you just confirm - are you saying there is no deterioration in net flow necessary July, you confirm that is the case for the U.S. mutual fund business. Could you say deterioration from June or the same is in June or earlier months?

I don't think I said either way. In early July, the outflows were not bigger than they had been. The market has gone down. The asset base has gone down. The flows have not picked that much.

Did flows deteriorate in June?

It has been a fairly steady thing all year. I don't think so. We have net in flow necessary some places. Individual funds is the same thing.

Yeah, but in the managed business, Q2 flows, decline from Q1, it would appear to be deteriorating trend.

The market has been difficult the last quarter, for sure. Maybe it increased a bit, but people - most people are actually pretty sensible about these things. Much more so than many of the commentaries we hear and read about. They really stick for the long term. If you go and ask people on the street, many talk about buying opportunities. So, the flows we have had an outflow of a small amount, relatively small compared to the base we have got.

Our next question comes from Bruce (inaudible) with Putnam Lovell. Your line is open.

Outside of operating results (inaudible) collapsed during the quarter. Any particular reason? Any particular thing going on there? What is a good run rate going forward?

Bruce, it is more than interest income, it is investment income. In the first quarter we had in that category, the share of (inaudible). We puffed it up a little bit if you look at first quarter to second. It is operational movement. In the second quarter, with seed money investments, when we marked them to market, we had write-downs of those. If you look at the first half of the year, you are back on more or less a reasonable level, running between 2 and a half to 3 million pounds per quarter.

Sir, our next question comes from Tony Cummings with Bear Stearns. Your line is open.

Just want to ask a question on your sort of AIM statistics you put out in today's presentation, where you talk about core growth and other. I do think that you, for the first time, correct me if I am wrong - gave a useful break-down of (inaudible) by saying of the 364 billion in June, 159 billion were AIM. You then say out of the 159, 23 billion is Canada and 58 is institutional money market funds. You are informing us it is only 78 billion dollars that is U.S. retail mutual funds out of a total of 364 billion. When you say AIM is 33% growth, are we talking about AIM U.S. retail or are we talking about inclusive of Canada and inclusive of the institutional money market fund business?

It would be long-term mutual fund assets there, Tony.

In other words, it is a point I think Mark is missing given the focus on your growth style, retail U.S. mutual funds. 78 billion dollars out of a total of 364 billion, assets in management, of the 78, a third you would call gross style retail funds?

That is right. It is just the (inaudible) money I was thinking about.

Okay. We are talking 25 billion dollars out of a total of 364 billion dollars of assets under management or gross value U.S. mutual funds?

That is correct, at AIM.

I think you should stress that a little more.

That is a good point. That is about right.

Thank you.

Our next question comes from Ken Worthington with CIBC World Markets. Your line is open, sir.

Good morning. Can you talk about your relationship with Deutsche Banc and what kind of relationship you are (inaudible) with INVES CO thus far?

Given the market conditions, does it make it harder to develop distribution relationships? Are there any new ones thaw created during the quarter that are worth mentioning?

On the specific relationship, it is really yet to start flowing. So, the truth is we are not getting any meaningful amount of flow at this time. For a lot of reasons, they wanted to put the press release ahead of that. We are in the process of ramping that up now. What we get out of it, we don't know, we think it will be positive. As to getting new relationships, actually the existing conditions make it easier. People really realize they have to somehow or another, focus on a smaller number of people to do business with. They can't afford to spread themselves as thin. So, I think we in fact, will see ourselves getting more relationships like that. We are negotiating others. I don't think I can say which ones at this point, but signed smaller ones. I suspect to get substantially more in the future.

Our next question comes from Joanna Needer with Lehman Brothers.

Hi. I want to ask a question about the institutional flows. I am a little confused as to why there was over a billion outflow in Q2, I mean, as you say, your post has been good. I (inaudible) is down. Are you saying the reason why is because of the switch, continued switch from balance to specialist? And you are losing the balance and getting some specialists back? Is it reallocation into fixed? I need a better sense of what is going on there.

Bob, do you have additional numbers?

I don't have additional numbers, but largely out of our core equity product is where the outflows have taken place. There is a little bit of money that moves in and out and we categorize this in the institutional for the staple value, fixed income component 401(k) contribution, where people tend to put money there and use it like a money market instrument for a period of time. You tend to get volatility because of that. The fundamental reason is shift from the lower fee core product into the higher fees specialized products. It is not a direct one for one shift. Money out and money in. Just to illustrate the point, Charlie mentioned in the case of AIM, the launch of real estate fund. We have also had several, three in number of new CEOs in the first half of this year, largely in the second quarter, which is a very - there is quite a large appetite for that type of product. These are quite robust fee arrangements compared to the undermandates. The size of assets would be 250 300 million per launch. It would be smaller in asset size, just to illustrate the point.

Okay. So, you think this continues to balance shifting out of that product is going to continue for a bit longer?

Yeah, but actually, just to take it in a general sense. I [RA-ELDZ] the second quarter is not a good example. We think the institutional business has bottomed out and is growing. The number may not show exactly that, that is the sense we have. A number of new RFPs is down across the industry at this minute. It was actually strong earlier. I suspect when things calm down, they will calm down and there will be a huge number of RMBs.

Okay. Thanks.

Our next question comes from Mark (inaudible) with Fidelity Investments.

Good morning. I have a question regarding the acquisition landscape. I know INVESC O has made a significant number of acquisitions in the last few years. At this point in time, given with 2 and a half years into the bare market and we have seen share markets fall and asset managers fall a long way. Whether you are seeing good value or potential acquisitions?

Well, the opportunities - the case we made over the last 2 or 3 years, we saw a window of opportunity. There were properties available and we had a very high share rating. We took advantage of that. Obviously, I think at this stage, it looks like that was a smart thing to do. The number of properties available has just shrunk. You are beginning - there is going to be rethinking by large institutions that have gone into the business that are probably second guessing. You may well see those outfitters come back. At the present time, other than small things, we don't see anything. I don't know that - I am not sure what the future holds in this area. It does not look like there is a lot of acquisitions available to you.

Okay. Thank you.

Our next question comes from Anan Versu from DKW. Your line is open.

Thank you. Hi, Charlie and Bob. I have a question on U.S. mutual funds rating. How does AIM and INVESCO's ratings look under the mew money STAR regime? How much funds are rated 4 and 5 STAR?

Mixed bag. Bob, do you have numbers?

I can give you numbers. The basic answer to your first question is there were a couple up and a couple down. On balance, it really mended itself out, didn't it?

It wasn't a big move. We didn't say we have been downgraded or upgraded.

At the end of June, we had about 14 and a half% of our assets AIM and INVESCO together were in 4 and 5 STAR funds. A further 40%, roughly in 3 STAR funds at that time. That compares to about 41% at the end of March, 3 STAR and 13% in 4 and 5 STAR at that time.

Okay. I was a bit surprised to see that the ratings have not improved much in the new category wise rating. What does this mean? What is needed for fund ratings to improve? Can we say if we see return of outperformance of growth, can we expect your ratings to improve? bread braid I think morning star went away from that and tried to get away from pure performance. And got to other aspects of the fund management business, which we would applaud. We think some of the problems with the bubble was the fact it attracted so much money to sheer performance. It is a new world. One thing we have had is issues are the ratings people about where you put founds. You can have a fund in one category and it may be rated low. But, actually you may not be trying to manage that way. It is really a question of location between the rating service and yourself where you place the funds. We have had movement of funds from one unit to another. It is a mixed bag at this minute. On balance in the long-run, you have to have high-rated funds. We expect these to be high rated. That is the target we set for ourselves. What the near term movement is, probably cloudy, frankly.

Right. I have a second question on your capex. Capex in the first half as been around 13 million sterling, which is less than the run rate that we have been seeing the last few years. Is this representive of what we can expect going forward?

No, I think our outlook for the year would still suggest we would be spending more or less in line with what we saw last year. I have to tell you, however, people have been - as the first half would reflect, have been conscious about how the money is spent. I don't believe personally we will stay at this level for the second half, but, I would suspect at the end of the day, just conjecturing, we will be less than where we were last year.

We know we are going to have pretty good ones next year. We have major computer systems, so the work is going on thou and will require account spending next year, just not there this year. in the long run, we are continuing to upgrade the systems throughout the world.

Let me add, there is number we have done to put the breaks on capital spending, where it is essential for our business to grow and prosper, for sure.

Our next question is a follow-up from Bruce Broomington. Your line is open.

Quick question with regard to cost going forward. Is there any consideration in folding in the INVESCO brand into let's say the AIM brand at all?

Questions like that we examine all the time. It would only work on the mutual fund side. It wouldn't work for the rest of the business.

Exactly.

We have given consideration to that. We don't think that is the right way to go, but something we examine all the time.

I would like to end with a couple of more questions if we have those.

That is probably the end of the questions. Good. I am taking one day off. I am not in the office today. I thought I would tee off pretty soon. If that is the questions, I am sorry it was not a better quarter. It was a tough quarter. It is not started off great this quarter. But, we are all in the same business. I think we do know you will have cycles like this and we are getting a recovery in the business side, anyway. If we can get confidence back in the market place, then I suspect we will see most of the numbers raise. Thank you so much for being with us. We appreciate your comments.

This does conclude today's conference call. We thank everyone for your participation. All parties may disconnect at this time.