景順投信 (IVZ) 2004 Q1 法說會逐字稿

Welcome to AMVESCAP's 2004 First Quarter 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 UK Financial Services & Markets Act Regime governing real time financial promotion.

This call may include statements that constitute forward-looking statements under the United States securities laws. Forward-looking statements include information concerning possible or assumed future results of our operations, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, assets under management, acquisition activities and the effect of completed acquisitions, debt levels and the ability to obtain additional financing or make payments on our debt, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions.

In addition, when used in this report, words such as believes, expects, anticipates, intends, plans, estimates, projects and future or conditional verbs such as will, may, could, should and would or any other statement that necessarily depends on future events are intended to identify forward-looking statements.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations.

We caution investors not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, you should carefully consider the areas of risk described in our most recent Annual Report on form 20-F, as filed with the United States Securities & Exchange Commission (SEC). You may obtain these reports from the SEC's website at www.sec.gov.

Today's speakers are Chairman, Charles Brady, and Chief Financial Officer, James Robertson. A 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 and good afternoon to our participants both here in London and in Europe. And also good morning to those of you in the US. We are delighted that you've all joined us for this review of AMVESCAP's first quarter performance.

And this afternoon I'm joined here in London by James Robertson, who is our new Chief Financial Officer. He will present the financial review. I also can tell you that Bob McCullough is with me and so Bob is still around.

Before turning the presentation over to James, I'd like to share a few highlights with you, which what I think was a solid beginning to the year 2004.

As I said in our earnings release, I believe that AMVESCAP's significant rise in profits in the first quarter reflects not only the stronger equity markets, but importantly it also reflects the structural changes that we have made over the past year and a half, which has strengthened our Company's competitiveness.

We had excellent investment performance in key markets around the world, which produced positive flows in both Canada, Europe, Asia and here in the UK. Illustrating that point we sold products in the first quarter of overhead gross sales of over $10b in the US retail and institutional markets alone.

Since the bear market ended last year, the investment management industry has experienced a strong recovery. Regrettably the pending regulatory investigation in the US is hindering AMVESCAP from fully participating in this rebound.

As we discussed in our January call, we are working diligently to construct - to resolve all of the pending regulatory issues as soon as possible. We have pledged to make full restitution to any mutual fund investors who have been harmed by market timing activities.

And we are completing a comprehensive independent review of our mutual fund policies, procedures and practices to ensure that they will rank among the strongest and most efficient in the industry. And while I am unable to predict the exact timing or size of this final settlement, we hope to reach that goal by the end of this present quarter.

Although the pending regulatory issues have undoubtedly made the work of our businesses more difficult, particularly in the United States, each of our Groups made noteworthy accomplishments during the quarter.

In the AIM division our Canadian team continued to excel. AIM Trimark was number one in net sales in the distribution channels of its assets, and they increased 6% in the first quarter.

The US overall performance of our retail funds continued to improve with strong one year performance. And our fixed income line up is amongst some of the very strongest in the industry.

Most management attention is focused on the products that continue to suffer redemptions, as a result of historical under performance. And it is a challenge, but we have made good progress.

I mentioned the positive flows in our INVESCO Group in Continental Europe, and Asia. And these are reversing trends that we saw a year ago. So, both Europe and Asia has returned quite positively for us.

Here in the UK our investment INVESCO Perpetual business continues to grow a strong success. Investment performance across the one, three and five year ranges are all strong and we are increasing our market share.

So, the highlights of the quarter for our Atlantic Trust division, our new Private Wealth Management business, was the successful completion in March of the Stein Roe acquisition. These combined firms now serve the needs of our high net worth clients through 13 offices across the US, and now manage in excess of $15b.

So, with those kind of highlights, I'd like to turn it over to James Robertson to give us the real financial review.

Thank you Charlie, and good morning and good afternoon to everyone. Hopefully you have in front of you the slide presentation, and I'll be working my way through it. I won't go through every line. I'll highlight those which I think will be of interest.

So, starting with the summary profit and loss account. First of all the background for the quarter. Markets were pretty flat with the FTSE index down 2%, the DOW Jones down 1%, NASDAQ down 0.5% and the S&P up about 1.3%. So, a pretty flat market environment is the background to this quarter.

Secondly, I'd like to make mention up front that when reviewing the movements in the P&L that we're about to do, please take two factors in particular into account. In order to get a fair apples-to-apples comparison, firstly foreign exchange continues to have a meaningful effect when our results are translated into sterling.

For example the first quarter '03, the exchange rate was $1.58 with an average exchange rate of $1.59 in the quarter. In the fourth quarter of '03 that was $1.77 with an average of $1.73. And for the quarter just ended, the first quarter of '04, it was $1.81, with an average of $1.83. So, quite meaningful movements have been experienced and they have a significant impact on our figures.

Secondly, as mentioned in the last quarter's call by Bob McCullough, our tax rate has moved up from a 30.6% rate to a 35% rate. As a result of various tax benefits and losses in Canada running out, and being fully used up.

So, turning to the second page, looking at the comparison of the 2004 Q1 to the 2003 Q1. As you can see earnings per share is up 38.1%. On a constant foreign exchange basis EPS would have been up 52% and on a constant foreign exchange and constant tax rate, it would have been up 62%.

As you can see the headcount is down about 6.5%. So, that includes the addition of about 150 net people coming in from the Stein Roe acquisition. Net of a small disposal we made in the UK, which when you adjust for that our headcount is actually down about 9%.

The earnings growth between a year ago and now is driven off increased revenues and increased assets. And you can see that the average assets under management were $376b in the quarter, which is up 16%.

Turning to have a look at the first quarter when compared to the fourth quarter of '03. Earnings per share is down about 1.2p from the fourth quarter. And about 0.6p or half of this movement is down to the effects of foreign exchange and the change in the tax rate. And the other 0.6p is the combination of increased insurance costs, increased marketing and payroll costs. All three of which were factors that Bob McCullough mentioned to expect in the last quarter's call.

There were a few one-off expenses in the period. But they were offset by a one-off gain that we experienced by the disposal of our small High Net Wealth business in the UK. This was a small unit that didn't fit with our long-term strategy. And for the sake of clarity, this in no way signals any change in our commitment to building up a high-end private wealth management business.

Revenues in dollar terms were slightly up, around about 2% up. But the foreign exchange effect again turns this into a decrease. Average assets under management were up about 5.5% in dollar terms.

Headcount continues to fall by around 70 people. But of course this shows as an increase as a result of the Stein Roe acquisition.

Turning to the next, the segmental analysis. When comparing to the same period last year, I would just like to point out that there has been a reclassification of costs. Just moving them from one segment to another.

There has been a reclassification of some costs that we're now sharing on a central basis into the corporate. There is no underlying rise in corporate costs, just a reclassification.

And there was some movement of expenditure between AIM US and INVESCO US concerning our Denver operations that occurred after the first quarter last year. The major changes in the US figures are down to some of the - some of it is down to foreign exchange plus increases in legal insurance and marketing costs.

Looking at the next slide you can see that in fact Canada, in local Canadian dollar terms, had a small increase of about Can$2m. In the UK the main changes again are the increased marketing, remuneration costs and the reclassification of some defined contribution platform costs into that operation this year.

Turning to Funds Under Management, assets under management in the quarter increased from $370b to end at $381b. The industry as a whole is getting stronger. We have seen around the world a much stronger RFP season in Canada, a much stronger ISA season in the UK. And AIM Trimark in Canada and INVESCO Perpetual in the UK were able to take good strong advantage of that, and participated fully as you can see with the positive flows. And in fact we had good flows also in Asia and in Europe.

Outflows in the US amounted to $1.8b in the US Mutual Fund business and about $1b in the institutional business. And undoubtedly our US business is being held back a little from fully participating in new business flows as a result of the regulatory issues. Having said that the $1.8b figure is a little lower than some figures that I had seen published before as some of the estimate services had put out.

Looking under acquisitions and disposals, this reflects the net of the addition of $7.4b from the Stein Roe acquisition and the small disposal of about $1.3b from our UK Private Client business.

Turning briefly to performance we continue to have, as I mentioned, strong performance in the UK and in Canada and around the world. In the US we have some improving trends with some much improved one-year figures on some of our larger funds in the mutual fund space. In particular, Wine Garden, Basic Value and the Charter Fund, for example, have moved up quite nicely on a one-year basis.

Our value products, our international products, our money market products continue to have strong performance. And in the institutional space we have some strong performance in real estate, stable value, as well as on our international product. Some weaknesses remain to be addressed, but overall the picture is improving.

Turning to the next slide, the balance sheet, not really very much of note here. Goodwill has increased a little reflecting the Stein Roe acquisition. And the movement in cash is really the underlying movement in client cash balance account, reflected in the balance sheet.

Turning to Group cash flow, again, just highlighting the major movements here. The change in debtors, creditors and other. This again is to do with the underlying movement of client cash, which can change at any particular moment in time when you take a snapshot picture.

The taxation numbers, in the previous year we had a full-year's tax payment in Canada. Whereas we're now on a monthly estimated payment basis in the first quarter of this year and that's the major difference there. Acquisitions and disposals reflect the effects of the Stein Roe and the disposal in the UK, and a small incurrence of debt to fund that acquisition.

Nothing has changed, turning to our debt schedule, nothing has changed really that - if you - the columns to compare here are really the dollar figures to the dollar figures. Given that our debt is denominated in dollars. And as you can see, no real movement there.

Shares outstanding, nothing to add there, just for your information.

And then finally, turning to the headcount schedule. You can see that net of the acquisitions, as I mentioned earlier, headcount has actually continued to decrease. It's down about 1% in the quarter and down about 13% overall from a year ago. Overall headcount from our peak is down now by 25%. You can see also, as I mentioned earlier, the reclassification of some people into the corporate category. There is no real underlying increase there.

So, that sums up the presentation. With that let me pass it back to Charlie and after that we'll be happy to answer any questions.

Okay. I think the first quarter represents a solid beginning for the year. Hopefully the year will continue strong and we can have a strong 2004.

Our management is focused on continuing improvement in investment performance, and we are making progress. There is only a small group of us that work on the senior - on the effort to settle all the pending regulatory issues.

As I told you earlier we expect, we hope to do that as soon as possible. We certainly hope to do it in the second quarter. But that's up to other people.

I think this is an important point to remember. We're engaged in this settlement work. The vast majority of our people in our Company are really not involved with this. It is just a handful of us that are dealing with this issue.

As I said earlier, we hope to reach this regulatory settlement by the end of the quarter, and I regret that we can't give you any more guidelines than that. But the nature of it is just not something that we can control.

So, with that James and I will be happy to answer any questions you may have. Can we ask the moderator to open the floor for questions please?

Thank you sir. At this time we are ready to begin the question and answer session. [Operator Instructions] Our first question comes from Philip Middleton of Merrill Lynch. You may ask your question.

Thank you and good morning or good afternoon. I don't normally win this sort of quiz button race. I just wondered, could you please explain to me a couple of things.

I understand entirely the FOREX issue. But it looks like Funds Under Management is up more in dollar terms than revenues, and I think that's really one of the things that caused me a bit of difficulty forecasting this quarter. I wonder if you could give some explanation on this.

And secondly, entirely reasonably you refer to what Bob said about Q1 costs. Could you just please breakdown the increase in terms of the three components you mention and try and give us some sense for what the sustainable cost base is going forward, and what kind of drops away after the first quarter added marketing spend? Thank you very much.

Well, the answer to the - about the assets versus revenues, is really a mix thing. Obviously we picked up some large mandates that probably had lower fees involved with them. And that's always, I think, a danger in this business. People tend to put too much reliance on assets under management and they put too little on the actual mix of those underlying assets. So, I'm pretty sure that is the answer without having the numbers available to me.

James, do you know the thing about the expense side?

Well, on the expense side, as mentioned this time last year and by Bob last session, we do typically have some front loading of some [grants] and marketing costs. That probably accounted for about 0.4p. Having said that, the flexible spend in which we look at our marketing spend in concert with market opportunities, and to a degree what we see an opportunity to benefit from increasing our marketing spend. I'm sure we would take those decisions at the time.

Typically, similarly with the RFP season in Canada and the selling seasons in the UK, and to a degree in the US, we tend to have increased spend in the first quarter.

Thank you.

Michael Lipper of Lipper Advisory Services. You may ask your question.

Hi Charlie.

Hi Mike, how are you doing?

Okay. Let me ask a philosophical question that you can internalize if you wish. The settlements that have been coming out often have led to an agreement to lower fees. On what basis does this make any judicial sense?

Are you asking me that? Mike, I don't think it has any basis. Nor do I have it in any basis in regulatory or law. This seems to be an arbitrary judgment that's important to certain people before seeing if they will lower fees. It is not coming from market pressure and it is not coming from the regulatory body that is charged with this responsibility. So, I'm not sure I can answer that question. But I think I know where you can find the answer.

Well, so therefore this is just the price of a settlement. Because the fees themselves have not been a matter of any adjudication?

No, I think that's exactly correct. I think that you will find, if you read all the documents that's in the public domain. That's something that we know - something is in the public domain. You will find that the settlements and the total, have no relationship to anything - any stated loss or any amount of money or anything. It is just a - it's a basic punishment.

Thank you and good luck.

I think we need the luck. Thank you so much.

Carolyn Darren of Smith Barney. You may ask your question.

Good afternoon. One quick thing as a request beforehand, I didn't actually receive the first quarter '04 presentation. I did receive the full year '03 presentation. Could you just have a look into that and maybe ask someone to resend that through to me.

Well, let me make an announcement. I was going to make it at the end, but I'll make it now.

It is embarrassing, but unfortunately when we sent out the first quarter results some analysts received some working papers that were attached to it. That was just an accident. These papers are not - they were work in process. They are not to be relied on. It was a presentation that was being prepared and frankly was not presented. It has errors in it and it has other unreliable information.

However, in the interests of full disclosure for everyone, we are actually putting this same document up on our website. And you can look at it if you wish, but I want to warn you not to rely on it in any way. But I think that's the document you must have received.

It was actually full-year '03 presentation pack. But I'll sort that out with James, I'll sort that out. That's fine.

That's the one we accidentally sent - the one we accidentally sent out is the one I'm referring to.

Okay, fine. Two quick questions if that's all right. First of all, probably to James. Just in terms of the US Institutional outflows, which I believe were $1b in the first quarter. Does that include the loss of any big mandates? And are there any further large mandate losses expected for the second quarter?

I think we do have a couple that we have identified, that we know will go out in the second quarter.

Yes, and it did include a couple of large losses and a couple of large wins. So, there was a net effect of $1b. We had a large loss in the stable value of capital, also some wins in the stable value account. And as Charlie says, we do have a couple of other large accounts we're aware of in the next quarter.

Okay. Thank you. And finally, just in terms of your operating profit margin target, which I believe is 30% for the full year. Can you just give us some sense of whether you might have further cost reduction plans for the remainder of the year to try and increase the probability of hitting that target? Thank you.

We don't have a broad plan of across the board cuts. But there are some efficiencies that were worked into the system last year that we haven't really received 100% of the benefit of yet. Because we have gone on a number of new operating platforms that just simply have not been brought up to the highest level of efficiency. So, I think we can gain some more, but there is no really broad across the world plan to cut more expenses. We really need to get the revenue growing right now.

Joanna Nater of Lehman Brothers. You may ask your question.

Hi, a couple of questions. I guess on the - you'd mentioned that you're seeing some impact on the US business. I guess I'm wondering I guess on the retail and the institutional separately, how are you seeing the institutional side manifest itself in terms of the impact of the regulatory investigations? Is it just lower wins that you're seeing, or lower RP's or -I guess how is it manifesting itself?

And then on the retail side, just wondering if you can comment on the extent to which you think that your longer term distribution relationships might be impaired by some of the protracted time toward settlement? Whether you think maybe your distributors are just temporarily putting - selling AIM funds on hold? Although I know that you have had salesmen [in terms of] selling them aggressively, or do you think that there is a risk that you might be removed from some distributors' preferred lists? If you will - I guess - to what extent you think that the damage might be longer term or more shorter term in nature?

Let me try to answer it and then I'll give James a chance to contribute something to that.

The institution business manifests itself primarily in people putting us on hold. That will not - effectively fundings, some kind of mandates that we've already won.

Okay.

But just simply just putting us on hold. Other people are probably not putting forth as good as an R&P program as we would like. But although those numbers are really, in the first quarter, about equal to last year. So, I don't think there's any noticeable down turn.

The ratio of wins is still about the same. But it's primarily just the people that just put us on hold for funding, of fundings that we already have. I think that's the biggest thing.

And would you expect that they would then fund those mandates?

I think there's no question that they will. You know - because that segment is controlled by consultants. Consultants are always looking for some reason not to hire people, because most of the people that they finally get into the finals are all pretty well qualified. They just need one reason not to hire somebody, and this is an adequate reason. I do think that will reverse itself immediately if we can settle the regulatory things.

And the retail side is a little more complicated. But I think it actually is the opportunity to re-establish any relationships that we might have actually better for a number of reasons. One is that at this point virtually everybody in the industry is involved in this one way or another. There is more than just marking time, and there is a number of other things that are being alleged for different people in the industry. And I think when it is finally said and done, you're going hard to find a mutual fund house that doesn't have some small stain on its reputation.

And so, therefore I think we can re-establish it there faster. And we still have really good gross sales in that as a matter of fact. I think the issue on the retail side is a bit more performance driven than it is the regulatory issues.

Okay.

James.

No, that's the comments I would have made.

Okay.

Okay. Great, thanks.

Robert Wagner of Mullen Bank. You may ask your question.

Morning. Could you tell me whether or not there are any exceptional items included in the operating expenses that were disclosed at the end of last year?

Operating expenses--

We didn't have any exceptional items in this quarter, if that's what you're referring to.

I'm referring to it.

Well, we had a very small one that was offset by an exceptional positive. So, basically they offset each other.

Okay. Thank you.

Hugh van Steines(ph) of Morgan Stanley. You may ask your question.

Hi Bob and Charlie. I wanted to just pursue Joanna's question a bit further. Two things, first is it possible to break down into gross sales and gross outflows for the two US businesses impacted? Or perhaps maybe give us a bit more color if - to what extent on the retail side - it's just simply that gross sales are slower, rather than gross outflows are higher, which is our overall hunch.

And then secondly, just to pursue Joanna's point. Also interested in what/how your distributors are thinking about you on the retail side. I saw Scandia has deselected you. I wonder if that's already in the Q1 numbers, or if there are any other relationships which are equally on hold or under question, and what impact that may have as the year progresses? Thanks.

Again, I think most of our distributors are basically still with us. Probably not every single one, but most of them. And many of them, as you well know, also are in the same business as we're in, in that they have their own funds, and many of them have the same problems. So, I think they've been somewhat understanding about those types of things.

The Scandia thing I believe is 100% based on performance and not on regulatory issues.

And Scandia will show up in the next quarter, not this one.

Okay.

But on the gross sales side, I think that what we have seen is an increase in the total sales in the industry. But we haven't been seeing an increase in our share as a result. So, I think if that's what your intuition is telling you Hugh, I think that intuition is correct.

It is hard for us to evaluate exactly what the sales would have been in the absence of a regulatory issue. And as Charlie said, it is hard to distinguish between those items which are down to straightforward performance and those which are down to regulatory complications.

I suppose the other two points one might make, as illustrations that can give you some color as to what's happening. We did have one major distributor who deselected us from their program, right at the beginning of this issue, who has now reselected us and put back all the assets they took out.

And secondly, although there are - of course you can't go purely by surveys - we did have a survey this quarter from Casina(ph) that ranked AIM Investments number three. As the third most popular funds family with which intermediaries like to do business.

Okay. Thanks ever so much.

At this time we have no additional questions.

All right. Well, thank you very much for joining us today. We will be - hopefully to have solved this regulatory issue by the time we meet again, which will be hopefully 90 days from now. And thank you for joining us today. Goodbye.