景順投信 (IVZ) 2002 Q4 法說會逐字稿

Welcome to AMVESCAP's 2002 preliminary results conference call. Today's conference is being recorded upon request by AMVESCAP. If there are any objections you may disconnect from the call at this time.

Callers who access the call during the live transmission will be deemed to have solicited access to the call for the purposes of the U.K. Financial Services Market Acts Regime governing Real Time Financial Promotion. The presentation that follows may include information that in U.S. practice constitutes forward-looking statements. These are statements regarding AMVESCAP's goals, beliefs, plans or current expectations all taking into account information currently available to our management. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. We caution investors not to put undue reliance on forward-looking statements. Today's speakers are Chairman, Charles Brady and Chief Financial Officer, Robert McCullough. Our question and answer session will follow accordingly. At this time I would like to turn the call over to Chairman, Charles Brady.

Thank you very much. We also have with us today John Rogers who is the new CEO of the INVESCO Division. I am afraid Courtney didn't understand that.

Anyway, we appreciate you joining us today for this report. Obviously with the things going in the world I'm not sure anybody's report is the highlight of everybody's things they must do everyday. But, in any case, we'll give you the report. You have seen the press release.

I think you can just sum up 2002 as being an extremely tough year. There was no way around it. I don't have to give you the numbers but for the record the DOW was down 17. The FTSE and the SEP were down 23. NASDAQ down 31.

If you go back to the peak of all of this, these declines both in the duration and magnitude, are really the biggest we've had since the mid-thirties. So we have had a tough, tough two or three years here.

I think in many ways though we might look on this as a very important year for AMVESCAP because it really let us do some things that probably we needed to do in any case.

We have tried to respond the best we could to the market conditions we had. We strengthened our position I think across the world. I believe we are in fighting shape if the market does turn. Let's put it more positively, when the market turns.

During the year we basically continued our integration of past acquisitions. I think everyone will appreciate that when you take on as many acquisitions that we did over the last five years there are things that need to be integrated and you just don't get to them when the market is doing so well.

We moved closer to a more common infrastructure platform. We have responded to our client's needs, who were really asking for a formal solution to their problems, by realigning our businesses in the two major divisions. We have strengthened our investment processes and particularly our risk control. All of those things we have done in 2002 and they will be important to us in the future.

We've also reduced expenses as everyone has. I think we've done it in a controlled manner. We tried not to compromise our distribution capabilities on our product breadth and the quality of service. We have certainly cut our expenses.

If you go back to the Q1 2001 our expenses have fallen now by 22%. We think that there probably is more to go. We'll just have to see.

Last quarter, at the end of the quarter, we announced a major initiative for a further expense reduction of £100m by the end of this year. Bob McCullough will report on that a little later, but we are well on the way to accomplishing that.

We had estimated about 500 people would be lost in that process. I think 400 and something have already gone and the others know when they are leaving. So all of that has been taken care of.

On the investment front we actually made good progress. As of today 55% or roughly £270b of our funds are at least in the top half of their peer group. That's for one year, and 70% of our assets for three years.

If you look at just the equities, which is obviously the more sensitive thing, 53% of AMVESCAP's equity fund is now in the top half of the universe. That's for one year and 57% for three years. So I believe we have made some good progress in bringing our investment performance, which suffered quite frankly, up.

We've also diversified our style a great deal. I know that many people think that we have been more of a growth style of house for a while, and we were, because that's what the market was demanding. Today 36% of our equities are in growth. 38% are in core and 26% are in value. So you see we have a very nice spread of businesses.

I'll going to ask John to speak about INVESCO but let me give you a few highlights about the rest of the company.

AIM started 2003 with a new CEO, Mark Williamson and by the way, Mark will probably join us on the next conference call. So I expect to kind of rotate our senior management on these calls so you'll have a chance to ask them questions.

Mark started the year running AIM and we also changed the name from AIM Funds to AIM Investments. This reflects the fact that today investment solutions are really the thing. It's not just mutual funds. There's a whole lot of distribution channels that we go through and AIM is going to participate in all of those.

In AIM trial market in Canada we continued to have a great success. It was a top fund performer. It had $2.5b of net sales last year and that's 74% of all the net sales in the entire Canadian industry. So you can see it as a home run.

In 2002 we also introduced the Atlantic Trust brand for our Private Account business. That has continued to grow. We have made one small acquisition. We have some other things that we might do in the future. We opened a couple of offices and also Atlantic Trust was recognized by Trust in The States Magazine. It was named the no.1 Multi- [indecipherable] office last year. So that's a great accomplishment for a young company.

INVESCO Retirement will change its name at the end of the Q1 to AMVESCAP Retirement. They have now grown to 1,400 plans and 650,000 participants. So that company is also doing extremely well. They would have reduced their expenses by roughly 20% at the same time they grew their revenue. So we're making good progress and I think at this point we're gaining critical mass, which is so important in this industry.

Now let me turn over to John. I'll let you have a chance to meet him. I'll let him comment on INVESCAP, excuse me INVESCO.

Hello there. I'm going to take just a few minutes to talk about some of the broad factors behind our decision to bring the INVESCO businesses together, give you a picture of our vision for the business and then give you some vinettes from the Q4 and from the year as a whole.

Just looking at the rationale behind the integration of the INVESCO businesses. One of the main driving factors here is the blurring of traditional boundaries in the investment management industry. I'll give you a couple of examples. There is an increasing amount of globalization going on in the world of financial intermediaries and the advisors that our clients use. We work with a number of major global distributors and consultants who are important to us really right round the world.

We've also seen a, if anything, an acceleration in the blurring of lines between what we would have called retail and institutional business. By that I mean some of the factors used when distributors select money managers. The process is becoming much more rigorous, much more institutionalized and the depth and investment process used by an investment center is subject to a much higher level of scrutiny by all kinds of intermediaries right across the business.

The second point of rationale is that we felt that, as Charlie said, it was an opportunity and a good time to simplify our structure. Primarily, so that we could respond more quickly to our client's needs and to unburden the clients from our own organizational structure.

The second point in terms of simplification is we felt that we had an opportunity to increase the mobility or transferability of our investment products across borders and also across distribution segments. So that we could unlock different channels and different products and put them across borders and across boundaries.

Then third. This new structure is going to help us speed up our own internal communications and I think to simplify and speed up the decision making that we conduct inside INVESCO.

Now let me give you a snapshot of the vision that we're working on for this business.

We're committed to sustained leadership in the investment management industry. That's INVESCO's business. We also are committed to, what we call, a local global feel. So we're committed to having local connections with our clients and their advisors, but we're also committed to being able to deliver a diversified array of products across asset classes across geographies.

The concept that we're going to use as we organize INVESCO is a concept that I call "centers of excellence". And so we're going to use the "centers of excellence" construct across the three main parts of our business. That is first, investments, where we're going to have "centers of excellence" focusing on asset class and style. We're going to have very high standards, continuing high standards for the quality and depth of our process and those investment centers will work across any distribution channel.

The distribution structure will also be organized by client. It'll be client driven and also organized by geography. Then, on the administration side of our business, our "centers of excellence" will seek leverage and efficiencies. We've got some great opportunities there in terms of increasing our leverage.

Now, finally, let me just give you a few vinettes on the business itself. You'll have seen from the presentation that was sent out that there were some negative flows in the Q4 in the different parts of INVESCO and I want to just touch on that.

In the old INVESCO Institutional business there was a net outflow in the quarter of about $3.1b. If you deconstruct that, there actually were two accounts that resulted in an outflow of $4b in the quarter. So, if you exclude those two accounts we would have had positive flows.

Those two accounts had average fees of 10 basis points, and so you can tell that they were very low fee business. The largest of those two was actually an advisory account not a discretionary account.

Then turning to INVESCO global there were net outflows of $2b. Of that $2b half was represented by one account which was actually an indexed account and we have subsequently more than replaced the revenue from that account with the same client. A smaller mandate but a much more attractive revenue.

I'd also make the point that in the institutional business in North America for the year as a whole the new business that we won came in at average fees of 33 basis points. That compares pretty favorably to lost business for the year which averaged 24 basis points.

Charlie talked about performance in the institutional business. In the U.S. 70% of our focus products which represents 90% of our assets now have three, five and ten year records ahead of benchmark.

The fixed income business where we have integrated our fixed income activities worldwide in INVESCO is on track and we closed in '02 $300m in a single CDO and 350m EURO CLO and brought in about $2b of new business in '02.

In the INVESCO Funds Group Unit, the Mutual Fund Company in Denver, they continued to provide excellent service and have won the eighth consecutive year Delbar (ph.) Mutual Fund Service Award. I would also say in terms of performance things are improving in that group. On an asset weighted basis their one year performance was in the 57th percentile at the end of last year. That compares with the 76th percentile back in January. So there is substantial improvement there.

A couple of other points to conclude. In the U.K., where we've had strong investment performance from the perpetual side of INVESCO which we brought in, net sales were flat in '02. We've also achieved a number of significant mandates on a sub-advised basis from other financial institutions.

On the continent of Europe we continue to have very strong sales presence where we were able to achieve net sales of $1b in '02.

And finally in Asia Pacific, we are awaiting, as I think you know, license approvals that we have submitted for a joint venture fund company in China. Our investment performance there has improved substantially in the region with over 70% of locally managed assets in the top two quartiles for '02.

I will leave it there and take questions after Bob has his remarks.

Bob let’s turn to you then.

Thank you very much and good afternoon, good morning to everyone.

You've got the presentation pack. Let me not be redundant of what's covered in the press release, but just hit a couple of the high points as we go through if we can. Starting on page 5 with the P&L statement.

You see the results there. A couple of things I'll speak more about are the exceptional item of $69.2m that we took in the year, including a large exceptional in the Q4. This relates to cost reduction initiatives that we spoke about at our last conference call.

I won't calculate for you the percentage change in revenues, expenses etc., but let me make one point and that is that foreign exchange, the average rate of foreign exchange between the dollar and sterling was $1.50 for the year 2002 compared to $1.43 for 2001. So if you put the two years on a like for like basis it accounts for 0.7p per share difference in per share impacts.

For the Q4 that same comparison was $1.58 this year versus $1.43 or 0.2p per share from last year's Q4 to this year's Q4 and Q3 to Q4 this year really had a negligible impact.

To remind you, 2001 does include a number of acquisitions so you're looking at part year results for those. Our expenses have declined by $118m during the course of the year on a year by year basis which gets to the point that Charlie talked about.

To give you some rough figures, our compensation accounts for just a touch over 60% of expenses this year which is up 1% higher than it was of expenses last year.

Marketing expense this year is 9% versus 12% of total expense last year and IT spend is 11% in both years.

The release calls attention to the fact that we have a proposed final dividend of 6.5p per share, which is a 5% increase in the dividend. When looking at the increment and the final dividend taken together, 11p last year versus 11.5p this year.

Also the tax rate pre-goodwill and pre-exceptional is steady at 30.6% year on year.

If we turn the page to the cost reduction initiatives, we talked about £100m. In our minds that really was $150m given where the sterling exchange rate was at the time of the Q3. So I'll use a little editorial license and speak in dollars if I can. And a targeted head count reduction of 500 people. In the Q4 we reduced our head count by 412. I think you can see that we would be comfortable in telling you that we will achieve that 500 person reduction.

Also, we have done a lot more detailed work on what this means in the way of our run-rate savings. You'll recall that our discussion had talked about $150m reduction in our run-rate at the end of 2003. On an annualized basis we have achieved $55m of that in the Q4. We believe by the end of June we will believe we will have accomplished $130m of the $150m. We feel again confident that that $150m will come in as planned by the end of next year.

Part of this has to do with compensation so that if in fact there were some recoveries in the market place, we would I think be obliged to sort of come back and take a little bit of a look in that respect.

The thing that's not included really is any impact on the work in progress that we've had on the group wide efficiencies. We have made some very very good progress in looking at a number of areas where we can sort of simplify our infrastructure. No decisions have been taken at this point in time but we will keep you posted as the year progresses on that. Obviously, if there were to be major decisions taken there would likely be some costs associated with that. That would be reflected as an exceptional item as the year progresses.

So, all in all I feel like we've made some, it's been a very busy 90 days since we last talked on the cost production front, but I think that we have made some very good progress.

When you look at the next page in the exceptional items, I think it's fairly obvious that the biggest part of this has to do with the cost of redundancy and some costs of reorganization that has gone along with the simplification in our structure. The project cost there has to do largely with the cost for the T-fast system going in, in London, which will be completed by the Q3 of this year.

Finally we, by virtue of the fact of our reduced head count and other changes, we have got some excess leases that we have provided for, for about £7m.

The tax rate is higher here having to do really with the tax charges associated with these items, or lack of tax benefit as the case may be, coupled with a small true-up in our tax provision overall.

Our head count on the next page I won't dwell on but you can see between December of last year and December of this year a reduction of 938 people including the 412 people that have come in the Q4 of this year. We do expect further reductions in the Q1 of 2003 continuing on toward that targeted 500.

Looking at the quarterly comparisons, Q3 to Q4, as mentioned before, the impact on our revenues and operating expense, both sort of move in the same direction in terms of foreign exchange. So the impact on our operating profit is really quite small looking at these two areas. There really is nothing that I would say structurally is much different between the two, the small decline you see in operating expenses versus the Q4 is largely because redundancies have come in very late in the year this year. So we really have not seen the biggest part of that impact coming through, as we will see next year.

I speak more about the funds under management.

The next page, just a brief EPS comparison, really for the people that follow our ADR, just to reflect on a like for like basis what, you know, what has happened in the percentage movements and EPS change when you look at both of the two years together. You will recall that the SEC requires us to use a spot rate at the end of the year in calculating our financial results when we convert to dollars as opposed to the average rate that are used in actually preparing the accounts during the course of the year.

Page 11 shows the operating profit comparison. I would just -- I guess -- make a couple of points very quickly here. In the case of managed products the decline that you see is largely a revenue issue. The expenses have gone up ever so slightly between the Q3 and Q4. The institutional group and the decline that you see between 2001 and 2002 on a year to date basis, I think again the margins have stayed very consistent between the two years.

Looking at the Q3 to the Q4 you'll remember in the Q3 we did have quite some large performance fees that we're not repeating this quarter and that's what accounts for the change in the margin of the profitability there.

The global business we continue to pare back our costs but again we see you know a dramatic decline in revenues in the U.K., Europe and in Asia all along and it's really very much characterized the reduction there as a revenue issue.

I'll be happy to take any questions later on, on that front.

Page 12, is merely a recap of the results as they will be shown to you going forward in the Q1 2003. The shifts basically have taken the U.S. INVESCO Funds Group and moved it under the INVESCO U.S. activities and Private Wealth and Retirement we have grouped together for ease of showing. The rest you know I think is fairly self-explanatory.

The key for us really, what we're trying to do, is to give you a picture of all of the major businesses and each of our areas of activity.

Page 13, gives the results for the year on fund flows with a 13% decline because of market and a little bit less than 4% decline on lost business of $14b of which $7b came in the Q4. You can see really accounts for the decline that we have experienced there.

Our money market assets while showing a decline of $5.8b year on year actually has, you know, has changed very little from on an average basis one year to the next.

At the end of December our assets were split 50/50 between equities and fixed income. Charlie talked about the components of our equities and our retail and institutional split is about the same as it has been before also.

If you just look at average basis points which, averages can be deceiving, but between Q3 and Q4, I think there's been a 1 basis point change. Nothing in the way of, or anything structural in the business to call attention to here at all.

The Q4 you can see the change that has taken place, with a market improvement accounting for about 3% or $9.4b. Outflows, John has accounted for the large part of that. You can see AIM and INVESCO on the managed products accounts were about $1.9b. An increase in the money market funds there as well.

I should say that our gross sales between the Q3 and Q4 have remained pretty constant throughout. When you look at the year today this year versus last, there is a decline from $98b last year to about $86b this year. But looking at the last two quarters, the mix really has not changed very much at all.

The next page merely reflects the funds flow, again on the new basis that we will use going forward. No particular comments there.

So moving on to the balance sheet, let me make two comments for those that have followed us in the past. In the past we have reflected our banking and insurance businesses in a separate category under the U.K. Reporting of Vernacular. We have had what is called a true and fair override because this did not follow strict compliance with The Company's Act. We have been advised that we really need to go back to grossing our balance sheet up. I can tell you honestly I think this gives a less of an accurate picture than the way we had been presenting it before. But, what you see here is a recast balance sheet for 2001 and having the investment and cash and other activities from our banking and insurance spread throughout the accounts is shown this way.

When we put our financial overview together in our Annual Report I think we will probably put in a summarized version showing it the other way around, as well.

The other thing is in the press release, you won't see it on this slide, but in the press release there is a shift that has taken place between share premium and merger reserves all in our capital accounts of about $1.1b. It's on page 5 of the press release. You'll be able to see that shift.

Here there has been opinion from Counsel that has said something that we had and many others have in the past treated as a voluntary determination as to whether the excess of nominal value over the consideration for shares issued and acquisitions would go to a share premium account or to the merger reserve account. Is not, in fact, voluntary but mandatory, so we have recast our capital accounts to show a greater amount in that merger reserve.

It has no immediate impact, has no impact on earnings. Nor will it in the future. Has no impact on our total capital but whether it is a shift complies strictly with the requirements of section 131 of the Company's Act.

I think I'll just say to you that there are nothing - there is nothing else particularly in our balance sheet that has changed from one quarter to the next. I'll be happy to deal with any questions you may have there.

Turning to the cash flow account, the main comment I think - really nothing that is out of the ordinary - the debt repayment that you see there of $54m net is principally due to the repayment of the perpetual loan notes that took place during the course of the year.

Page 18 gives you the picture of net debt and you will see in sterling terms a decline of net debt during the course of the year of about £185m including £125m of the loan notes on perpetual. We do have in 2003 the first branch of our senior notes coming due as well as the equity subordinated debenchures that were issued in connection with the Trimark acquisition are maturing early in August 2003. Both of those are reflected in our current liabilities in our balance sheet as they were at the end of September.

The next page for the analysts in the call is to give you the picture of where we stand on our shares outstanding at the end of December.

You will note from the end of December '01 to '02 that the amount reserved for options has gone down from 25m to 9.5m shares. That is purely a function of the anti-diluted nature of those options as our share price has declined.

The next two pages give you then the picture of our U.K. GAAP presentation. Again, nothing that is out of the ordinary there that I would call attention to, with one exception, that is on page 20. Whereas last year acquisition accounting was a negative figure, this year is a positive, and that is purely because in the U.S. [indecipherable] have changed to eliminate the amortization of goodwill.

With that I'll just sum up Charlie and turn it back to you for any questions that may follow.

Okay. Let me just sum up where we think we stand. Obviously there are a lot of things going on in the world that we cannot affect. Unfortunately those same things affect us and I guess we'll just have to see how that all works out, but I do think that probably in the next - even as little as 90 days - we probably going to see some clarification of some of the issues.

2002 has been a difficult year but I think we'll look back on it as a transitional year for ourselves.

If you really think about our company, we have built a global platform and it's expensive to maintain it in this environment, but it's very difficult for anyone else to duplicate it. Frankly, it would be more expensive for them to try to duplicate it, and it has a huge amount of leverage on the upside.

AMVESCAP today remains financially sound. We have strong distribution channels. We have top-notch client service. We have improving investment history. So it seems to be like that we're in pretty good shape, if we can get some help from the markets, but, of course, none of us know when that's going to happen.

Let's now turn it to questions for Bob, John or myself, anyone.

If you would like to ask a question at this time please press '*1' on your touch-tone phone and we'll announce you prior to your question. Again, please press '*1' now on your phone if you'd like to ask a question and we'll take just a moment for our questions to register in our queue.

And our first question comes from Glen Schorr with Deutsche Bank. Your line is open.

Hi, thanks very much. Morning and afternoon.

Good morning.

A quick question on - last quarter you gave us a little bit of color on increasing in RFP's in both the retirement and institutional businesses and based on John's color in institutional it looks like you were - this can be charged at two outflow accounts you were able to close from new business. Maybe just asking for a similar commentary this quarter on institutional retirement?

Okay. Glen, I can give you some sense of institutional. Activity in the institutional industry was down, as you know, very substantially in general in '02 from '01. But we did see a pick-up in expressions of interest towards the end of the year. To give you a feel, we were involved in - and this is now looking at the U.S. Institutional business - we were involved in about 550 searches in '02 and that's up from about 300 searches in '01. We did more RFP's, a few more, not a whole lot more, but we did more RFP's in '02 than we did in '01. That activity basically accelerated as the year progressed.

I think that you'd find that the same would hold through in continental Europe and certainly in the U.K. We saw more RFP's and more searches in the year and as the year progressed. I'd say Asia was perhaps a little more muted in terms of RFP's as a whole but nothing substantially different from '01.

Glen on retirement. I don't have any numbers handy. We can sort of get you some numbers but I know that they had a very strong year. The amount of opportunity in the business they close was an increasing number and especially through our effort in the U.K. we have built ourselves a very very strong position in that market place. I think a leading position at this point in time. So we have a very strong list of clients there and this continues to grow I think.

Charlie I might just add there also that perhaps the best reflection of that activity, which I agree with what you said is, that the retirement group did demonstrate net positive sales for assets under administration of $2.5b in the year.

John has that, the institutional activity continued, you mentioned accelerated in the second half of '03 - continuing in '03 I mean?

Well Glen as you know, there is a lot of seasonality in searches and the beginning of the year is always a bit of a slow period but I would say, if you were to look at it year on year, the pipeline actually looks reasonably good in terms of search activity. We did carry over a good bit of won but not funded business from last year.

Okay. Also one of the other things you mentioned on the closing of the CDO or CLO transaction. Can you tell us about how big your total CDO, CLO business is and if you are keeping the equity component or the first loss position on the books or selling it off?

Sure I can talk about that. It is a meaningful business to us. We have - off the top of my head - in excess, if you look at the total amounts of these CDO and CLO structures, the total amount of debt and equity in the market place, we're probably looking at about $1b-$1.5b I'd say. We do participate in the equity of these CLO's basically at the minimum level, which is a very small percentage position. That's been a pretty good thing for us.

I will say that, as you know, in the bank loan and high yield market place, there have been a number of disappointments and problems in the market in general. Our bank loan and high yield performance has been very very strong and as a result all of the structures that we participate in have been very durable - have not been impaired in the market place where we are the manager of the structure itself. It's been a very good experience for us.

Glen I might also say, we adopted and have applied consistently a very conservative accounting policy, as it comes to looking at the realization of those investments. Not only for the bank loan business but as well for the private equity businesses.

That's great. That's a major statement to not have a [inaudible] record of a lot of the other structures in the market in '02. Maybe just a final mop-up question. There is a small investment loss I noticed on the income statement. Anything specific there?

We actually had a small provision against a couple of those bank loan items but I think, you know, all in about $1m is very small in the quarter. Sorry private equity, I said bank loan, I meant private equity.

Right. Okay. Thanks very much guys.

Our next question comes from Hugh Ventadines (ph.) with Morgan Stanley. Your line is open.

Yes. Good morning. Three quick questions. The first just on flows. I'd just like you to give an update for January on current trading, in particular I guess in managed products and global where we'd seen, I think $2b outflows in Q4 and I just wondered if there'd been any reversal in that trend?

Second, I assume with the year-end process there was a sort of grant of options. I was wondering if Bob you'd give us any color on going into 2003 what's the sort of diluted number of shares which we should sort of run with? Equally, do you have any plans in your U.S. reconciliation to move to sort of U.S. options accounting.

Lastly, I think on the wires you've been talking about doing additional cost cuts and I was just wondering, is that above and over what you've mentioned here or are you just sticking with what's on page 6 at the moment. Thanks ever so much.

Let's see, who wants to answer that question?

That sounds like one for the Chairman but I'll be happy to take it Charlie.

Whatever and I'll try to take the rest of it.

Hugh we really don't comment as you know on flows aside from the quarter. But, you know, I think its safe to say, that you know, we are participating in the market on a similar basis to what has happened in the month of January, similar to what's happened with the market itself.

As it relates to options, we do not have any intention of adopting the accounting followed in the U.S. You know we will wait and we'll follow the international accounting standards requirements and if need be, we'll also, if the U.K. changes their requirements in the interim we'll certainly abide by that. We do not intend to make a further adjustment.

In footnote no. 2 to our accounts. There is a little tabulation that shows shares reserved for options which adds about 120m shares to the share count altogether.

Okay.

Of that total, these are all options under all plans for all times so its not all that has happened this year. The option grants that took place during the late end 2002 have backing performance criteria associated with them. While they are outstanding and count against the total plan tabulation that we have in terms of shares that can be issued, under the U.K. accounting because they do have back-end performance criteria, they will not enter into the earnings per share calculation until such time as it is certain that we will meet the test for those, which will be approaching three years, because there's a three year vesting period that - the test has to do with our earnings growth over and above the real growth caused by the RPI of CPI, composite index on inflation.

Okay.

Hopefully that gives you some response that will help you along. I guess the way I would sum it up is the options are there. It's something that we will be watching and we will be reporting to you as we go along to sort of signal when we will begin including them in our EPS calculation. But not for 2003 do I think that's going to happen.

Did that cover all the points of your question?

Yes. That was fine. I mean, I was just saying on the wires you mentioned about some additional cost cutting. I was just wondering if that is up and over what you eluded to earlier.

It is one and the same Hugh.

Okay. Fair enough. Okay. Thank you very much indeed for that.

We do have an ongoing study about infrastructure of the company and we're not sure how often that's going to come out but that would be, we will have to deal with that later in the year. There will be some pluses and some minuses on that, there will be some savings but there will be some expenses getting there, so I'm not sure that it'll effect 2003 at all.

Okay. Thanks.

Our next question comes from Michael Lipper (ph.) with Lipper (ph.) Advisory Services. Your line is open.

Good morning, good afternoon.

Good morning Mike.

I have two questions and they're unrelated. The first is on the money market fund assets. You have a large institutional base. Did any of the banks that have been using the fund shift out? Second there is a significant drive on a number of broker/dealers who move money out of money funds and into their controlled banks.

The second question, which is pure speculation, but your thinking on it would be useful. Assume for the moment, this is probably ridiculous, that the President's retirement program is enacted as announced, what order of magnitude would this have in the way of an impact on '04 for you?

Well, let me try to get - in the money market funds we have not seen any outflow. I am not saying that we - I don't have the figures whether we've actually lost any banks, but the truth is we hit a record level for the assests.

One of the problems around year-end, our quarter end, is an outflow normally and it always happens. So they really, sometimes it runs substantially higher than that during the course of the quarter and then they come out at the end of quarter and come right back in after the quarter. I think you'd know about that.

The truth is, I think we are one of the people who seem to be benefiting more from the conditions we're in than many other people in the money market business. So we feel like this is a very good business, a very strong business at pretty much a record level.

On the President's thing that's purely speculation. Clearly we're in the business of participating in long-term saving flows. That's the business we're in. It's a cyclical business. We've had numbers of years of great growth. We've had now three years of negative growth. But if there's anything that changes the rules, that encourages more money to flow into this, then I feel sure we'll get our share of that. So it could be a very positive thing. What percentage it would be, there'd be no way to speculate I think at this point.

Thank you.

Thank you. Next question.

Our next question comes from Robert Bumby (ph.) with HSBC. Your line is open.

Yes. Good morning. A couple of questions if I could please. First of all on the mutual fund businesses, assuming that there is some sort of modest recovery in equity markets at some stage this year, maybe later in the year, and that continues. How long do you think it will take you to reverse the trend of net redemptions into net positive flows?

The second question is just a technical one on the accounts. I may be being silly but I just want to reconcile the net repayment of debt of $54m and a small movement in cash [indecipherable] and the cash flow so with $185m reduction in net debt, shown on the net debt analysis.

I'll let Bob deal with the second one. In the case of funds I don't think that there's any reason that we wouldn't participate immediately. We have strong sales, if you look at the numbers in the press release, the reason we put them in there was because of the fact, as you can see, that we really have a lot of sales and a sales team, they can get the job done. I don't have any problem about us participating in any kind of upturn. Though what'll happen is, of course, you would assume that some of the redemptions will slow down. If that happened then the net to the company would be pretty substantial.

We are looking forward to being positive this year, we hope we'll be positive this year, we think we'll be positive this year.

Bob you know about the second question.

I do Charlie. Robert you're putting me to the test my friend. The key part on this is under the issuance of debt to £54m. The largest component of that is the repayment of the perpetual loan notes accounting to roughly £126m. There is also, offsetting that, is the add-on to the credit facility and actually in the £54m is the issuance of some shares this year under the retention, I'm sorry, the erred out agreement under the [indecipherable] purchase of £16m. It's just been lumped together sort of in a summarized fashion in the press release itself. But that, when you get the report accounts, you'll see it's split out in that level of detail.

The other thing of course that impacts that change on net debt is the change in the cash accounts which you don't see in the £54m from the cash flow statement either.

Thank you.

Our next question comes from Ken Worthington with the CIBC. Your line is open.

Hi, good morning.

Good morning.

You announced the Deutsche Bank relationship last year. Are there any other new distribution relationships that you've brought on, or are bringing on, abroad or in the U.S.? Any other things that we should be aware of?

That one is ramping up slowly. Frankly the announcement was probably earlier than it should have been but my partner wanted to make the announcement so we made it. There has not been a follow-through so far as I personally know of other banks in Germany which we would expect to happen at some time. If that happens we will be involved.

I think the biggest agreement, that we think that has promise to us is in the one in China. I don't think you can underestimate what that could possibly be because I know that people are going to actually be able to get a license in China is going to be extremely small, we have a very favorable structure although we are joint venture partner, we run the business and that is a very favorable thing for us. That's different from many other people that might get a joint venture agreement. The potential there is just staggering, so I think that's the one that we would put the emphasis on right now. I think that's where it's going to go.

In the U.S. I am not aware of anything, but does anybody else have any information?

I don't think so Charlie, I think you've covered it well.

Great, thank you.

China's going to be a big play for everyone I believe and I think we'll be one of the leaders there. Another question?

Yes sir. Our next question comes from Joanna Nator (ph.) with Lehman Brothers. Your line is open.

Hi. I wondered if John could maybe extend a little bit more around the INVESCO the creation of the new INVESCO's business. Particularly I am interested in the potential for taking some of the institutional products which have been performing quite well and even some more niche products, and packaging them into retail products. Whether you have done anything around that and whether you can maybe use the historical records from the institutional product in the retail channels.

Also, with regard to the institutional business specifically, you mentioned that you're seeing quite a lot of activity, I'm wondering whether you're able to keep your win ratios up the way you had in the last couple of years?

Hi Joanna. Let me tackle those questions. Definitely one of the very attractive features of bringing the different parts of INVESCO together, as I mentioned, is being able to move investment capabilities across different, lets call them vehicles. That's not just limited to mutual funds it also involves taking portfolio management teams who've been doing mutual funds and putting them in a position to complete for separate account flows. As well as the other way, as you suggest. So we're in the midst right now of a significant exercise in product line analysis and review which we think we result in a number of things you'll be able to see. Like having some of the products that we've traditionally sold in separate account or communal trust forms, also be in mutual fund format. That's not just in the U.S. that's around the world and it'll cross in a number of different ways.

As far as using track records. There are very specific rules under the 40 Act and subsequent directions that do provide specific guidance on what can and can't be used for performance record stand points. So obviously we will have to live inside those regimes.

The second question, in terms of new business, it's interesting our win ratio in the institutional business remains quite high, but it is a few points down in terms of the win ratio from where we were last year. We've been analyzing that and trying to understand why. There's nothing - there doesn't appear to be anything systematic about that. These things flow a little bit from year to year. But the decline in terms of number of points of change in the win ratio was really not very significant, it remains quite high.

Okay, that's great. That's helpful. Thanks.

Thank you.

Operator, next question?

Yes. Our next question comes from James Alexander with M & G (ph.). Your line is open.

Hello. Just wondering whether you could just give us a figure for the amount of revenue you booked from the CDO's and alike in 2001/2002 and what you expect to get from it in 2003?

[indecipherable] John.

I don't have those exact numbers to hand. I can give you a feel for the kind of basis point revenue that we would normally charge if that's all right. I think we're talking order of magnitude depending on the size of the structure and what type of structure it is a level of complexity. We're looking on the order of 30 to 60 basis points for those type of structures. In some cases you can get a little bit more.

Did you say you did about $1.5b in '02?

Well no. If you take the total amount outstanding of structures that we've participated in, that would be about the number in terms of total assets. Also, I'd say in terms of these structures that there are, in some cases, there are performance fees as part of the structure, that's not always the case, but it can be. Then, of course, if we take equity participation, there can be an upside kicker there, as the structure comes to its maturity.

Did you have any of those in 2002, the equity gains?

No we didn't because none of the structures matured in 2002. These structures don't mature yet for another couple of years, before the first one matures.

You'll be doing more in 2003, do you think?

Yes we have basically, earmarked two or three structures a year that we'd like to try and get away, depending on market conditions.

Thank you.

Thank you.

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

Good afternoon. I just wondered if you'd give us some feel for whether you're seeing any pricing pressures in retail distribution? This is something everybody's always talking about. I think it's often more talked about than real, but I just wondered if you could see any pressure there in terms of third party distributors?

Philip I think you know this, especially being with your firm that, I think the issue is there is no pricing pressure from the involvement client. There is always going to be pricing pressure from the distribution channels and sharing that. I do think that has sort of settled down and we've reached maybe a balance there. I know there's always requests for more, there's pushed back to you know we can't do it. But I do think that everybody understands that it has to be profitable on both sides.

I think as long as we stick to that principal then the client is well served and I think we are probably okay on this. So I think the basic answer to your question, is we don't see any increase pressure.

Okay. Thanks very much.

Our next question comes from Anard Basudevin (ph.) with DKW (ph.). Your line is open.

Morning. Could you please give us some more color on the $150m of cost savings? What we've heard so far is the head count reduction project. That 500 would possibly bring in about $55m of savings that's going by the average compensation expense of about $110,000 per person. Correct me if I'm wrong on this estimate but if that is right which means that there's another $95m of cost savings to come. When do you think you would be able to give the market a better idea as to how these cost savings are going to come?

Let me start off and maybe Bob can add to it.

When I've managed this business for many many years, it seems to me like the real key invariable is always just the number of people in the head count if you will. Because associated with all the people are all the other expenses and your actual salaries are roughly 50% of total expenses, therefore, if you have a person that leaves, and if you're able to get rid of the other expenses that's another 50%. So basically doubles the figure of just head count. I think that's where you would get a lot of it.

Clearly, if you then give up space, you have to write that off and that's some of the exceptions that we have written off here now, because we are giving up space around the world actually as most people are.

The other savings, Bob, maybe you can help me with that? Just general things that we normally might have felt we could afford at one time, we said we wouldn't do today.

Yes well. I think Charlie you've covered it all but, I think there's one sort of significant exception and that is $110,000 per annual compensation is way too high. I'm not exactly sure how you calculated that figure but, you know, that would just not be right and so it's hard for me to respond any more in detail.

The other items that we had, as we talked about as in the press release and also in the presentation, do include the charge-offs related to leases and in particular the cost of the move to Finnesbury Square (ph.) new facility in London. Also the cost of putting in the new transfer agency system in London as well and there are just a whole host of other items that sort of go into--.

Bob, I think he's looking for the savings more than the exceptional items.

Well, I'm saying that out of each one of those items would come savings into next year.

Right. Is it possible to be a little more precise about the savings, if my estimate of $55m from the head count cut is wrong? What would be the actual savings that you'd get from the already announced programs?

Well I think as we've said I think that we've gone through every bit and piece of our business - you know - line by line, business by business, location by location and people have adjusted their expense levels in line with what they see to be the operating results. It's not something that from the top down that we said cut marketing by 'X' percent or technology by 'Y' percent. Obviously, we have got those cross the group life activities that we're looking at, but what you’re talking about individual managers in every single country, of reviewing what's essential and what's sort of discretionary and making determinations on that way.

So I'm not exactly sure I know how to answer your question any more specifically than that.

Okay. Sorry to keep coming back to the same point but I would like to get a good thickness to where we'll end up 2003 at. If you say that you are going to get $150m out of your expenses, of your current expense base, is that the net saving after your reinvestment means in other parts of the business? Or is $150m before considering expenses that you'll need to incur in let's say investment global or even in the U.S. separate accounts management business for instance.

I think it's a net figure. We actually, that's after reinvesting something like $26m increases in various parts of the business.

Okay. So what is the variable cost currently as a percentage of total costs?

You know, in today's environment with as much flux as we have going right now, I'd be a little reluctant to try to give you a precise figure. But we again, not dodging the question, but we - you know - we continue to put as much variability as possible in our cost base.

You have to go back to probably 5, 6 or 7 years ago when we announced that we were going to increase the amount of variable costs that we had. We went through the program and we used to basically report that pretty far along and we brought it down, at one point it was 90% fixed and 10% variable. We got it down to under 70% and obviously we're using some of that variable expense up right now. We're basically cutting that back and therefore the percentage has probably actually gone back up.

If we can get a level that we feel that we can operate at, in other words a level of the stock market, we can actually refigure the whole structure of the company so we can get the variable costs back to the same level that we would feel comfortable with. Which would be - you know - 30% or so, of the overall expenses. Maybe even higher than that. But when you're dropping down like we are now you're using up those variable costs. You're basically just doing away with them.

A final question on CAPEX. Will this be at the same level of £54m around that for 2002 or should we look at the Q4 and rate of £22m to get a sense of what you'll need to spend in 2003?

I think it'll be pretty close to the results for 2002 in total perhaps even a little less than that. The Q4 had some abnormal capital spending in there for the move to our new quarters in London. I think - you know - looking at the overall for the year it's going to be probably about right. In fact it may be that it will actually be a bit less than that as the year progresses.

Okay. We have other questions?

Sorry Mr. McCullough, Mr. Brady, due to time constraints we are unable to take any further questions at this time so I'll turn the call back over to you.

Alright. Thank you very much for participating. I hope we've given you some feel for where we think we stand.

These are clearly uncertain times but, our business, if you think about it is dedicated to participate in long-term savings and we forget that this is a cyclical business. You know when we're in a bull market, we tend to forget that the thing does go down from time to time. Unfortunately when it's also down like it is now we forget that the long-term trend is really growth. So we think that we have been able to protect the franchise of AMVESCAP on a worldwide basis. That we have built a unique structure and we feel like that if, and I think maybe better when, this long bear market ends we are extremely well placed to participate in the future.

I really hope that you agree with us on that point because I think the upside could be quite exciting.

Thank you very much for being with us today. We appreciate it very much. Thank you.

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