景順投信 (IVZ) 2004 Q2 法說會逐字稿

Welcome to AMVESCAP’s 2004 Interim 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 promotions.

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 maintenance 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 believe, expect, anticipate, intends, plans, estimates, projects and future or conditional words 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 SECs website at www.sec.gov.

Good morning, and welcome to the AMVESCAP 2004 Interim Results conference call. Today’s speakers are Chairman, Charles Brady, AIM Division Chief Executive Officer, Mark Williamson, 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 in London and Europe, and good morning to those in the US. Thank you so much for joining us for this renewal of AMVESCAP’s performance in the first half of 2004.

I’m joined today, here in New York, by James Robertson, our Chief Financial Officer, who will present our financial review, and Mark Williamson, who will be able to address questions directly about our US Retail business.

You know the first half of 2004 was a relatively flat, according to the indexes. And I think, against that backdrop, I feel like our results were actually pretty strong in a number of areas. And I know that you want to hear from me about two specific areas. And first, I’m sure, is about the regulatory issues that we have outstanding.

All I can tell you is that we here have been pressing forward as strongly as we can, to try to resolve this as soon as we can. I had hoped that we would finish it by the end of the second quarter that did not transpire for a lot of reasons. But, you may ask, well what does it mean “pressing”? And, what it really means is, that if we get a request for information, we respond to it just as quickly as possible. And, when we can, we press for meetings, so that we can actually present our views on things.

All of that is complicated by the fact that we’re certainly seeking a universal settlement of all outstanding issues with the regulatory people. And, since that includes more than one body, it makes it complicated. I can’t really tell you any more than that. But, we really are pushing this as hard as we possibly can, and I can assure you that we hope to resolve it, earlier rather than later.

The second is about our press release, where the Board has decided to defer the seasonal interim dividend. Our Board is really committed to delivering long-term value to our shareholders. And, I think you know that at each reporting period we basically look at the results for that period and decide on appropriate level for dividends.

At the present time, obviously we have the earnings to support our dividends, but we also have an outstanding unknown liability. And, frankly our Board, I don’t think had any course of – choice of course of action, but have simply deferred that decision for the time being. Once we can quantify the amount of that liability, then we will be able to take appropriate action.

On our Mutual Funds in the US, I think we actually had a productive – made a lot of progress in the last 60 months. And, Mark Williamson here is going to report on that. So, before I turn the podium over to James Robertson and Mark, I’d like to tell you about a couple of other divisions that have performed well.

At AIM Trimark net sales increased from $64m in the first six months of last year to $588m in the first half of this year. So, they really have had a strong growth in Canada. They’re the strongest in their particular channel, which is the advisor channel. And, 70% of their assets are now in the four and five star rated funds. So, Canada is extremely strong and very positive cash flows for us.

Likewise the investment performance in the UK is very strong. 75% of our assets outperformed their peers over the 1 and 3 periods. So, operating profits, in that business alone increased 40% in the first half of 2004, and the assets under management increased by $4b.

In Europe we’re continuing see demand for guaranteed and protected products from retail customers, and we have strong cash flow in Europe. And, in Asia, we have the same thing. We launched our second fund in China, raising over $300m during this period. That now gives us over $0.5b in funds that were raised in China in 2004. So, we have a start-up, but it’s a very strong start-up in China.

Here in the US, undoubtedly the regulatory issues are affecting our businesses. The institutional business has had a lot of progress though, especially in alternative asset classes. The first six months of the year, we funded three new financial structured products for $1.4b. So, we are taking an assets in the US in institutional business.

And, in the Mutual Fund area, the performance there has got dramatically better. But I think before I speak, I’ll let Mark Williamson give you a full review – excuse me, let me just go on to James Robertson, and talk about the financial results. Then we’ll have Mark review the Mutual Fund end – part of our business. James.

Thank you Charlie. Good morning to everyone, and good afternoon to those of you in Europe.

I’m going to go through the slide presentation. I don’t intend to talk on every item, but I will highlight those which are of interest.

Starting with the summary Profit & Loss Account page – let me start by giving some background of the environment for the second quarter and for the half year. During that period markets for the half-year and the second quarter have been flat to up slightly.

The S&P 500 was up 2.6% for the half-year, 1.3% for the quarter. Dow Jones flat for the half year, up a little less than a percent in the quarter. NASDAQ up 2.2% for the year; FTSE was down slightly for the year, up a little in the quarter. And, at the same time as the equity markets, the bond markets were generally weak in the quarter. The leading aggregate index was down 2.4% and the [LIMINEX] US was down 3.5%. So in general, markets have had very little effect on the first half-year.

As I mentioned in the previous quarter, however, there are two items which do influence the results considerably, and the first of those is foreign exchange. It had a meaningful impact on our results, in 2004 the average dollar/sterling exchange rate was $1.82 compared to $1.62 in 2003. And, for the quarter we didn’t have much FX movement, it was $1.81 in Q2 compared to $1.83.

So, the other item is that when we compare to the prior year, the tax rate that we’re accruing at has changed from last year’s 30.6% to this year 35%.

There have been a couple of small acquisitions, the two being the Stein Roe acquisition into our Private Wealth Divisions and the Hypo-und Vereinsbank addition into our Real Estate. And, that adds to some of the numbers in the comparisons.

So, looking at the numbers, you can see that the revenue increase was £25m. If the exchange rates had remained constant, that would have been an increase of about 13%.

Diluted earnings per share, before goodwill and exceptional items was up 1.6p, which is a 17% rise. If we look at that on a constant exchange rate basis, then earnings per share would have increased to 26% - by 26% to 12.1p. And, with constant tax rates as well, the increase would have been 34% against the prior year.

Turning to the next page – this slide shows the quarterly comparison between the second quarter 2004 with the second quarter 2003. Once again foreign exchange and the tax rate – and tax with comparison. Revenues show an increase of 3%, so adjusting for constant foreign exchange it would have been a 9% increase, somewhat in line with the rise in assets. The driver here was, of course, average asset increases.

Diluted earnings per share before goodwill and exceptional items, shown as being the same as last year, but again adjusting for foreign exchange would have been 5.8% or an increase of 7%. And, with constant tax rate that would have been an increase of 13% on an apples-to-apples basis.

On the next page, the quarterly financial comparisons – this is a little more detail on quarter 2 versus the previous year 2003. Operating profit was up around 13% in dollar terms, so foreign exchange had an impact here. In addition to the items I’ve previously mentioned, the operating margin, you can see has remained constant. Headcount is down 346 or about 5%.

The rise in expenses, is for the same reasons that I discussed in the last quarter, an increase in marketing expenses, insurance costs and some other professional costs that should all be costs, as well as increases in staff costs accrued. Average assets under management were up about 11% in dollar terms, which as I said accounts for the increase in revenues of just over 9% in dollar terms.

Turning to the next page, quarterly financial comparisons – this is comparing the second quarter of 2004 to the first quarter of 2004. There is very little foreign exchange impact on this slide. Revenues were up very slightly, expenses were down very slightly, leading to operating profit increasing by 1.7%, slightly up.

The major difference when we get to the EPS number, which is a decrease from the 5.8p to the 5.4p, is that in the first quarter we booked about a 0.4p gain for the sale of our Small Private Wealth business in the UK. Also, you can see that headcount was slightly down by about 1% in the quarter. The average assets were more or less flat.

Turning to the segmental analysis – give you a brief summary of the trading environment we’ve been in. I won’t spend any comment on the US business, but only because we have Mark Williamson here to talk about that.

So, in Canada, where we’re the second largest manager of long-term assets. In the Mutual Fund Industry there we were first in net sales in our channel. Charlie has already given you those sales figures, we had very strong investment performance.

Moving down into the Institutional Group, we had some strong business environment for our Real Estate, Private Equity, Financial Structures businesses, Stable Value businesses and International [indiscernible] to equities are all doing well.

In the UK the INVESCO Perpetual business is the fourth largest player in the market. In recent – in standard surveys we came out in the top three in nearly every service category there. And, that business also has good flows and a good performance.

Europe and Asia the business is going well. As Charlie mentioned, we’re now up to $0.5b in our new joint venture in China. And, our Capital Shield product, which is a capital guarantee product, is selling very well in Continental Europe.

In the Private Wealth area they are busily integrating with the Stein Roe acquisition, things are not too bad at $15b, US Wires platform. Now, with that, I’ll give you some background if you turn to the next page.

Operating profit comparing quarter 2 of 2004 to the first quarter – when one looks at these numbers a slight decrease in – within US, is primarily due to simply a movement in the assets under management, partially offset by extensive [indiscernible].

Canada is a reflection of the strong flows that they have been seeing. The main being, perhaps I would highlight the INVESCO US, the decrease there is that they have some revenues which arise as a result of transactions, or the transference of performance fees. And, these typically arise in the fourth quarter or sometimes fall over into the first quarter. But, they don’t tend to arise in the second quarter, and that’s the main difference in the revenue line there.

Turning to the Funds Under Management, year-to-date – you can see that funds are slightly up from the beginning of the year. When one looks through the items, we have the acquisition line, this is the net of the Stein Roe acquisition and the small disposal in the UK.

When we look at the money market line, Mark I think will be referring here to some of the inferences there, but there is a dis-intermediation that occurs in a rising interest rate market. Then when we turn to the net loss position in the US, I think that I will talk about that on the next slide, because I think that will be a better comparison.

Maybe I’ll also give you a quick picture of performance, before turning to the quarter-on-quarter comparison on assets. As I look through our major categories of assets, on the insurance side year basis, our fixed-income products – looking first at the institutional state, the fixed income assets are at 98.5% of assets over 5-years, they’re ahead of their benchmark about 62% over 3-years. They’re a structured product. Pretty much all of the assets are ahead of their benchmark over 5-years at 65% over 3.

Our core growth areas, 75% of assets ahead of benchmark over 5-years, but the 3 year numbers are all below benchmark, and indeed have some performance issues that we’re working on very diligently in that area.

International areas – terrific numbers 91% above benchmark in 5-years and 93% with 3-years. Asia Pacific around 70% above benchmark. Money Market, with top quartile for 99.7% of the assets; Stable Value and Real Estate both performing well. I won’t talk about the US Mutual Funds. The Canadian Mutual Funds – 85% of their assets over 3-years are in the top first or second quartile, in the UK that number is 87%. So, that just gives you a picture of some very strong performance around the Group.

So, looking at the quarter – really the two items of interest here, I think are to look at the outflow performance in the US Institutional Group and the US Mutual Fund Group. In the US Institutional Group, the situation at the moment is that they have net new inflows in terms of new clients. But, they have net outflows in terms of withdrawals from existing clients. Two items here, there was a sub-advisory relationship that accounted for about 0.6% of the 1.6% redemption which was taken over. And, as a result the mandate moved away from us. Otherwise, the underlying level is about the same as in the first quarter. And, what’s happening here, is some redemptions out of the core growth area, with the performance – as I mentioned. But, also, there’s a lot of rebalancing coming out of the international products into domestic US, as a result of the strong performance of the international area.

In the US there was one major termination by a large 401 [indiscernible] about $1.4b, which was long heralded that they would be making this move during this year, and this occurred in the second quarter. If you adjust for that that accounts for most of the increase in net redemptions over the first quarter; otherwise you’re looking at a level, I think, about 1.8% in the first quarter to 2.1% in the second quarter.

In the US Retail and Institutional Markets, undoubtedly uncertainty over the settlement issue is causing some of our clients to stand on the side lines when considering where to put new monies, make new contributions or to offer new mandates. So, when you have a slow down in contributions and new business, even if redemption is holding flat, you’re going to get an increase in the net redemption picture.

Turning to the balance sheet – pretty much consistent here, nothing much to note, other than that our $400m of senior notes have now moved into – the $400m senior notes, have now moved into the current liability area, because it’s due in less than 12 months, due in May 2005.

Another, more technical item, is that we’ve adopted UITS 38, which changes the accounting treatment on Employees Share Option Trust, recorded now as a deduction to equity instead of as an asset. So, that has moved out of the fixed asset investment area. Then there was also a restatement of the December balance sheet here to reflect that change.

Turning to the next page, on the cash flow – again something that has happened before hand has happened again; it has been explained before, but just to make it clear. The movement you see in change of debtors and creditors, this occurs because of the way we account for some client cash movement. In principally Germany and the UK, if you take a snapshot of any one particular day in time, you will find transactions in process which move this number. And, it can move just as quickly the next day to the other way, so, no real underlying significance in that.

And, I mentioned last quarter that the change in the tax is due to moving onto a non-fee accrual in Canada instead of an annual payment basis – a monthly payment basis as opposed to an annual payment basis.

Turning to the next page, net debt – again the numbers to focus on here are the dollar numbers because the debt is primarily denominated in dollars. The exception to that is the “other”, including the FX lines, which is where there’s some minor debt and overdraft, not in dollars, and so nothing changes there. You can see that net debt is down by about $75m, leaving our net debt levels at around $950m or just under – or just over £0.5b roughly.

The next page I’ve nothing to say, it’s really for information purposes; to show the average shares outstanding. And, really the last two pages are for those who are interested in the US GAAP reconciliation. Just quickly to mention the major changes are, that there is a difference in acquisition accounting. Where, in the US there is no amortization for goodwill, but there is a capitalization of an annual impairment. And, there is a slightly different treatment on exceptional items for reorganization, where in the US you would take those items as they occur in time, whereas you can look forward for provisions in the UK.

With that, that ends the financial briefing. And, maybe I’ll pass back to Charlie.

Okay. Thank you James. There’ll be plenty of time for questions at the end. But, let’s turn to the Mutual Fund area, where I know you have a big interest. And, Mark Williamson is going to give us a review of what’s going on in the Mutual Funds.

Okay. Thank you Charlie. I’m going to focus my comments on what I understand to be the areas of greatest interest. That is the Fund [clause] in our long-term products, as well as a look at performance. And, then we’ll add some comments about our marketing plans, and a little bit about the money fund business as well.

Looking at flows let me just start by saying that management recognizes that the current net flow situation is not acceptable. We also believe that this is transitory, for reasons that I will try to outline for you as we talk along here. A couple of other things I would point out, just to try to bring some perspective to this issue. First of all, remember that when we report AIM flow numbers, we’re talking about the combined assets of the AIM Funds and what were the INVESCO Fund’s complex, up until a year ago, when we combined distribution under the AIM umbrella, if you will.

The other couple of things I’d like to say, is in general our distribution capabilities remain very strong. And, just to point out a couple of reasons to support that statement. Recent surveys by major important, well recognized groups, rank AIM for example, among the most – the three most popular fund families with which investment consultants like to do business. Another important survey ranked AIM as number one in response to [domestic] management, number one in proactive contact. So, we remain strong partners in the dealer community.

Our flow, is as you know, has been an issue for some time. Going back about a year ago, in fact almost exactly a year ago, we were just before breaking into positive flows, and with the regulatory issues that surfaced in September of last year, unfortunately that trend was broken. And, we have had a negative outflow situation for some time. More recently those have leveled off, with the exception in the second quarter, as I think James alluded to earlier. We had a very significant redemption in a single account, by a single large institutional investor. Something we had known about for a long time, but it sort of skewed the results. And, I think perhaps paints a more negative picture than is justified about the run rate, if you will.

The management, as I said, is focused on addressing the net redemption issue in the retail channel. We have plans – so-called focus plans for our largest funds, where those – we have redemption issues. We are working on those in a very focused way. We’ve also been collaborating with an external provider to help us with predictive analytics to help us with anticipating, where we may have issues with particular advisors and particular funds, and try to head those off. And, all these things are beginning to work.

The redemption rate for the AIM managed product, the historical AIM fund has reduced quite significantly over the last 6 months. It has dropped both in absolute terms and also relative terms to the industry average. We do have a redemption rate that is above industry average, we are closing in on that, and it’s quite significant the change in the last 6 months.

Outside of the retail channel, our other business lines remain strong. And, just to provide a little additional perspective. I think we’ve talked about – in a previous call – the fact that the reason we believe we have this overhang in the retail channel, is because of the success we had in the late 1990s going into the year 2000. We simply sold a great deal of funds assets at the top of the market – as we look back we see that. In fact we had about $30b worth of sales in the year 2000, and that’s obviously – with the drop in the market that we saw in 2000, 2001 and 2002, those investors suffered in that decline. And, as a result we’ve had an overhang that we’ve had to work through in our retail business.

Having said that, many of our other business lines continue to be strong, and we’re making very strong sales in our retail channels, but the redemptions are outpacing the sales in the retail channel.

In our other lines of business, we have net positive flows. For example, in our Managed Accounts business, we added two significant new programs – mandates, this year. Our Assets Under Management and our Managed Accounts business are up 56% year-to-date, 170% over the last 12 months. We’re now in 18 sponsored programs with 37 seeded mandates. This is a business we started about 3 years ago. For every 1 account terminated in this business, 13 new ones are initiated. So, this is a very strong evidence of the acceptance of our Managed Accounts business, which is a reflection of our overall investment management process, and acceptance of [indiscernible] market place.

Similarly, in our external Sub-Advisor business we’ve got more than $1b in net sales this year alone. We’re running at, at least $100m in net flows in that business every month. Recently just awarded a large cap growth mandate – take over account, if you will, for an important insurance company partner.

In the retirement side we recently launched mandates for mid-cap core, for large-cap value, some very large sophisticated borrowing [K] plans, utilizing consultants. Our 529 business continues to grow, with world sales up 187% for this year over last year, net sales up 60% for the year and assets up 80% in our 529 business.

On the marketing side we continue to introduce products that we think are helpful, and that our clients will indicate an interest in. We’ve introduced a suite of asset allocation funds that have been very well received by our partners. And, we have about 125 firms now have placed these funds, just recently launched in the second quarter, on their shelves.

And, our funds that we have launched in the last year that are managed by our Trimark – AIM Trimark partners in Canada, have done well, are beginning to see good traction in the market place as well.

So, in summary, what I would say about flows, is we do have this legacy issue that we’re working through on the retail channel. But we’re heartened by the fact that the other business lines are growing very strongly and that our investment management processes, a lot of the drivers in the market place is evidenced by that.

Let’s turn and talk about performance more specifically. I’ll make some general comments and then come back with a little bit of specifics. First of all, we’re seeing improving long-term performance across the board. This is the key area of focus for our Company. Our management team is extremely focused on this, it is the most important thing in our Company that we pay our attention to.

Some of the things that we have done that we think are beginning to pay off, and that we’re seeing fruits for our efforts. We’ve reinforced the management structure, first in the Investment Group. We have a Group effort there that we think is working very well. We’ve realigned certain teams within the [sell pods] that we’re seeing betting resource sharing and idea sharing.

We’ve had additional refinements and enhancements to the oversight risk management processes that we think are helpful. And, we’ve made changes to management teams, the investment approach of flagship Premier Equity Fund, which I’m going to talk about a little bit more specifically.

The Premier Equity Fund is AIMs largest retail fund, about $8b in assets. It had a difficult performance patch, as a result we are seeing more than normal redemptions in this fund, and it is – has been one of the largest contributors to the net outflow problem that we have in general.

We’ve made a change in the portfolio management team in April this year, so, it’s obviously too early to talk about the performance from that change. But I do want you to know that we have a very solid team, of some of our most senior experienced and successful managers working on this fund now, with an approach that we have a lot of confidence in with real positive results. We take some heart from the experience we’ve had with other successful turnaround stories, where we’ve had difficulties in certain funds, made changes and then looked back after a period of time, and recognize that those changes have been constructive and that we have seen dramatic increases, improvements of performance.

For example, these are multi-billion dollar products, the AIM Charter Fund, where we had some difficulties. Now, they’re 3-year record in the top quartile. AIM Balance Fund, where we had difficulties, has seen significant improvement as well. AIM Line Garden Fund, AIM High Yield Fund; these are examples of other large products where we have recognized issues and been able to make adjustments to performance – through the process and had significant improvements result as a result.

We now have, what other banks always point out, we now have products with strong performance over year-to-date, one-year and three-year time periods across all of the large cash categories. We think that’s fairly unique in the market place. Very few managers can say that. And, in addition to the three areas, actually two of the three areas we have strong five-year numbers, and the other one, we’re on our way to having good five-year numbers. So, the funds I’m talking about are AIM [Mark] Cap Growth, AIM Basic Value and AIM Charter, that I mentioned a moment ago. We think again that’s fairly unique for a company to be able to bring strong products in all of those asset classes at the same time.

Our value complex, with a broad suite of products in the value complex, continues to have very strong performance over all accounting periods. Our international line up is very strong. We have 60% of the international funds rated 4 and 5 star by Morning Star; 90% of them are outperforming their peer groups. In fact 80% of the international fund group, 3 star or better, and we have quite an array of products there.

Our fixed income line up is much stronger as well. And, this is an area where we totally revamped the process a couple of years ago. Where the results have been a dramatic improvement across the line, so 8 out of 10 funds are in the top half on a trailing one year basis, and if you look two years the numbers are quite similar.

So, in general our performance overall is improving. Although our long-term records are not – in some cases – where we would like for them to be yet, the trend is definitely in the right direction. This monitoring and management oversight has been substantially enhanced. We’ve taken action where we needed to, where we had long-term performance issues in certain products. And, we’re heartened by the results that we’ve seen so far. And, just know that management is focused on incentivizing superior launches of long-term performance, and the whole team are committed to excellence.

Just looking forward, we really do have the confidence that AIM is positioned to regain sales momentum, with a better environmental backdrop, improving performance as we cross the bow, and invigorated marketing campaign that would include things like a new advertising campaign to begin in the fall; an expanded schedule of customer due diligence meetings. The strength of our resources, which we really do believe is a distinctive for the firm. The breadth and depth of our relationships with our partners, and most importantly, the commitment by management and employees at AIM to regain that momentum – I’m quite confident about the future in this regard.

Finally, just a couple of remarks I would make about our Institutional Money Fund business. Performance there has been, and continues to be excellent. In most of our funds we are number one, if not at least number two amongst our relevant peer group. The flows is in a difficult situation, which is driven principally by the interest rate environment, with the absolute level – low level of interest rates for some time here, we’ve seen intermediation back into bank products. We think that that will likely change in a higher interest rate environment. And, of course, now that interest rates have begun to move up, there is a lag effect that comes into play here. Where people will withdraw certain monies until the interest rate stabilize. This is a normal phenomenon within the market for these products.

However, we are expanding our customer base, as over 10,000 new accounts have been added. We have 4 billion new sales that have been added to the product. So, our business continues to expand – that is the customer relationships continue to expand – and in a better interest rate environment. That is a higher interest rate environment, and stable defining interest rates we think that the infrastructure is in place there, and the relationships are in place for that business to grow dramatically as it has in the past.

With that I’ll stop and turn it back to Charlie.

Well, thank you Mark. I hope you can see from some of the comments made by both James and Mark that we have a lot of strong things going on in the Company. But, they are being matched, without any question, and in many ways held back by the regulatory issues. But, I can promise you that the regulatory issues are the number one priority for the senior management team. We are working on them as hard as we possibly can. There’s just a limit to how fast we can push this, but I can promise you that we will get this behind us as quickly as possible. And, if there’s anything else that we can think of to do, we will do it.

So, with that, let me just open it up for questions, please.

Thank you sir. [Operator Instructions] The first question comes from Miss Carolyn Darrett(ph) with Smith Barney. Ma’am you may ask your question.

Good afternoon. Two questions, if that’s all right. The first one, just very quickly in terms of the US Institutional division; you talked about the first quarter revenues being helped by performances. Can you just quantify that, so we can get a feeling for how much underlying drop-off we’ve had in revenues second quarter?

I think it’s hard to get a specific on this, because they fall in the areas like Real Estate, which is in that unit. Real Estate fees do have normally an annual performance figure in them. It might not be a calendar year, it might be some other period, but it’s normally once a year.

And, then we have certain other structures like our loan products that have – in performance fees [there’s none]. It’s not most of the accounts have performance fees, it’s the special situation – alternative investment type things that performance fees. James do you have a number in mind?

I’ll get you the number Carolyn, I don’t have it to hand right now. But, I will get you the number and talk to you later, if that’s all right.

That would be great. Second question – just in terms of the dividend decision; can you just answer why this decision had [happened] right now, at the start-up. And, what’s different now to how it was at the full-year 2003 stage, i.e. for your February discussions with the Board?

Well, in the first place we’re obviously closer to a settlement than we were then. The second thing is, people should understand that the dividend – the normal schedule for paying the dividend is actually early October, so although it’s declared at this time of the year, it’s not paid for a couple of months.

I have hope that we will be able to conclude the regulatory issues shortly. I don’t know what shortly means, but as soon as possible obviously. And then the Board will have the information, they can reconsider the dividend, and hopefully pay something along those – at roughly the same time that we had originally scheduled. So, it was just that we are at this critical junction. We just don’t feel like that we should make any kind of declaration until we have a look at the information available to us.

Okay. Yeah, that make sense. And, sorry, one final question, just in terms of the regulatory outlook, in terms of EU CAD and the possibility of a FSA waiver. Obviously the FSA put out some more information on this last week. Can you give us an update of how this affects you, and whether it does increase the probability of you being able to get a waiver?

James, has an update on that. We just got that information, as I’m sure you are aware.

Yeah. The European Commission [indiscernible] last Thursday, I think July 15, in [Munich], signed a proposal to the canceling European Parliament in respect of the new European CAD rule directives.

The final proposal amends the definition of capital in the case it is currently [rated]. And, crucially what it does is it no longer requires the deduction of goodwill. Now, this is very helpful. This is certainly what the division will have been taking [advantage] for some time. But we believe that as a non-cash item that was the correct treatment. So, we’re very pleased to see this occur.

On the other hand, just to put this in context. It is important to note that this is a proposal, it still needs to be debated by the Counsel and the European Parliament, before being adopted as law. The timetable is not set on that, but it could be early next year. And, there have been lots of changes before. But, in general it’s a very helpful development for us.

Thank you.

Next question?

The next question comes from Mr. Hugh Ventadines with Morgan Stanley. Sir you may ask your question.

Hi, two questions as well. First, what sort of opportunities or plans do you have for additional cost cutting? And, specifically are you still – do you still feel you’re on target to hit your 30% operating margin target at – sort of by when?

And then also, I see that the responsibility for the some of the major INVESCO products has now moved away from Denver to Houston. Should we read into that that you may consider winding up Denver in the not too distant future? Thanks.

Well, the first question – the cost cutting – there’s no broad cost cutting plans still out there. We don’t have brand new initiatives to cut the cost. But saying that, there’s still a lot of follow-on through what we’ve already done. And, we should be – continue to see the benefits for at least another 18 months I would think. So, we’re still in the process of getting the benefits of the cost cutting we already put in place.

The follow-on to the – the Company is much leaner today than it was. It’s much more productive than it was 3 or 4 years ago. And, I think we went through this with many of you over the last 3 years, talking about how we want to bring together what was a number of acquisitions. We have completed that largely, or we have the plans to complete it.

In the case of Denver – we definitely are going to stay in Denver. We have a need to have a second location in the Mutual Fund area. You always have to have a primary location and a secondary location, and Denver is going to be the secondary location. We are moving the management of some products to Houston, but we also moved some to other parts of the country, just where we think the management teams to manage it is. So, it’s not – it’s not as an effort to shut down Denver, it’s just a realignment of where the best teams of managers for a single product might be.

And, in terms of the 30% operating margin target. Any sense of when you might be able to achieve that?

I think that – in fact -- I don’t want to give you a deadline. But, frankly this obviously depends on the top line. But the key is the increase of revenues. If we started any kind of revival and increase in revenues, then I’d certainly think that will come as soon as we can get the regulatory issues behind us. Assuming that the Mutual market, if you will, I think the margin will grow rapidly then at 30% level.

Thanks.

So, the key is – the key is the increase in revenue.

And, just one other additional really, probably more for Mark. If we look at the AIM US division, what were the gross inflows in the second quarter, compared to, let’s say, the first quarter of this year and the second quarter of last year, just so that we get the sense of the new business momentum? Thanks

Sales in the second quarter versus the first quarter were probably slightly less, there’s a seasonal adjustment. That would be a normal comparison. But, I think in year-over-year they are similar when we normalize with some of the changes we’ve made in the product line and organization and so forth.

Do you actually have a number?

I don’t have the number. We actually break it down by different [indiscernible]. If I can get this piece of information, [indiscernible] normally release that information.

Okay.

Okay. Thanks.

We’ll get back to you on some information on that point Hugh.

Thank you.

The next question comes from Miss Joanna Nater with Lehman Brothers. Ma’am you may ask your question.

Hi. I think the first question is probably for Mark. And, just on AIM, you mentioned that you saw a lot of distribution strengths. I’m just wondering if you think that there would be any point that if the settlement process becomes even more protracted that that would start to become somewhat in danger.

And, then also wondering if you could comment a bit some of the 529 and Managed Accounts, and how big a percentage of your assets these now represent.

And, then also on the institutional business in the US; I was a little bit confused with all the numbers that you were quoting. I’m just wondering if you could maybe just clarify James, where the redemptions were, and from what types of clients. Are they sort of public sector [indiscernible], and that sort of thing?

And then also, if you were adjusting for some of the big moves, are you saying that there would be an underlying positive flow, or – I’m a little bit confused on that.

Do you want me to take that last question first?

Yep.

On the redemption side – I don’t there is a particular section of clientele nor section of client that one can point to. It’s more a - in particular it’s in the type of product. To try and clarify those points, as you can see in the second quarter it was $1.6b of net outflow, $0.6b of that was the sub-advisor relations with the [indiscernible].

Let me [indiscernible] make clear. We were sub-advising through a company that did [indiscernible]. And, therefore they moved the sub-advisory to the new owner.

Oh, okay.

Than, that therefore means that we’re looking at $1b, which is pretty much the same as in the first quarter. And, when you look at that, there are probably – probably the two biggest components that account for – I would guess up to about 80% of it, is firstly that we’ve seen a lot of clients, because of the run-up in international markets over the last 12 months that weight in influence international has got higher than they would like. So, they’re rebalancing back into US core equities, US domestic equities.

Okay.

As a result, we have a very successful international and global equity product. And, we have seen some of those clients reduce their weight in [indiscernible] international and therefore moving some of the product, and moving it to their domestic US manager, which was not us.

Okay.

That’s – that’s one item. The other is, a I mentioned, we had some weak performance in the last years over the one-year, and the three-year numbers. We’ve still got strong five-year numbers, but the one and three-year numbers are weak on our core and growth products. As a result, we have seen people, in some cases withdrawing the mandates first of all. More generally the larger [indiscernible] has been clients staying with us but reducing the total amount of money left with us.

As a result, when you look at our numbers you can split them between two. Which is, that if you look at net contributions in, less more mobile assets out from clients, we’re in net redemption, but in actual clients – new clients joining us and clients leaving us in total, we’re actually in a net new client position.

Okay.

Is that clear?

Yeah, that’s great, thanks.

Well, let me try to answer some of your other questions. I think you were breaking a little bit. But I think you asked about what the impact would be if we had a protracted period of time without resolution, talking about the regulatory issues. Is that what I understood your first question to be?

Yep.

Well, obviously, as Charlie stated, we don’t anticipate that’s going to be the case. We’re working hard to reach a settlement. But I think that the impact is fully being recognized today, from the issue in the market place. So, I’m not sure exactly how to answer your question, other than to say, we’re certainly hope that we don’t – it doesn’t turn into a protracted process. But, we do know that there is an impact.

It is not possible for me to quantify the impact today. But, we know that it is having substantial impact currently.

You don’t think there’s any impact on sort of your relationships, because if they were sort of valuing very highly in the past, and they have maybe felt a bit less inclined to sell your funds during the sort of regulatory investigation process. You don’t think there is any sort of chance that you might sort of drop a bit down – further down their radar screen, and maybe somebody else moves up the longer it goes on. Do you think that’s at all an issue?

We hope not, and we’re working very hard for that not to be the case. We have long-term relationships with our partners. We work very hard to maintain those relationships. And, the evidence today is that they continue to be strong relationships.

I don’t see how this can be protracted – settlement. It has been protracted, as you well know, but it’s mainly because we’ve just simply been waiting for the opportunity to meet with our regulators. We now have started that process. And the other settlements that we’re aware of – is they did not take a long time once you got started.

Okay.

With regards to your other questions, about the relative size of some of the channels that I described. The [incident] – some of them are small. The 529 business is relatively small. The Managed Accounts business is, as I mentioned a 3-year old business, so it’s by definition small, although it’s past $2b here not long ago and growing very rapidly.

The Retirement channel of course, is probably our most productive channel, and so that’s a very important channel to us. But, I think the reason – what I was trying to point out by talking about those particular channels of distribution and product lines – is that these are the areas that most of our partners have a great interest in. Managed Accounts, for example, is of great importance to many of our partners, and in the time of course, it has been and will continue to be of great importance to our partners. 529 a small area, but has important partners.

And, so the fact that we have such good traction in those areas, in the areas of focus of our partners, actually I think goes to reinforce the idea that our relationships remain strong with our partners. That was one of the things I was hoping to illustrate.

Okay. That’s great. Thank you very much.

Do we have another question.

Yes, the next question comes from Mr. Robert Mumby(ph) with HSBC. Sir you may ask your question.

Thank you. Yes, could I just refer back to the suspension dividend point, and moving on, unless there is a significant depreciation in markets or unless there is a U-turn around in the players, you’re probably going to need the cash flows from the next few years only to pay down your existing debt. On that basis, would you consider financing all of the settlement out of dividend suspensions, to enable that you’ll be able to [inaudible].

First point, let me say Robert that we have not suspended the dividend. We have deferred considering it to somewhat later, that’s all we’ve done. And, I don’t think that we’re talking about suspending the dividend at all actually. But – you know – there is an uncertainty.

Are you able to give us any indication as to alternative means to financing the settlement?

Well, I wouldn’t expect to – I wouldn’t expect it has to come to the sacrifice of all dividends, I don’t think we’re talking about that. We have pretty substantial cash flows on top of the dividend. As a matter of fact, in the first quarter, the second quarter – the dividend effect is fairly modest compared to the amount of earnings, I think I would cover it at least 2:1. So, that’s not, I don’t think, really the issue at all.

We also have, as you probably see from all our financials, where we give our debt facilities. We have substantial bank credit facilities. In fact we just renewed our 364 day facility we have renewed with all banks, participation about a month ago.

But you understand that Board, at every period when they consider dividend, look at all the trading results, look at what they think the future is, and then have an appropriate level of dividend based on all those factors. In this case, we simply have a large factor that is at this point un-quantified, and the Board felt like it should defer the discussion until – and hopefully we can get the information to make the determination. And, again, since we don’t pay the dividend till October, I have every hope – I guess I should only hope, but I have hope that we will be able to resolve the regulatory issues and then reconsider the dividend, pretty much on schedule.

And, what would your decision sort of take into account if there was a significant fall in equity markets?

If a significant fall? Yes, but it always would. Every dividend is – always takes into consideration a fall in the market, a rise in the market, the flows of the business. So, it always takes in those consideration, but every company does that. I’m not aware of anyone that wouldn’t consider all those factors when they’re declaring their dividend.

Okay. Thank you.

The last question comes from Miss Hayley Tann(ph) with Bear Stearns. Ma’am you may ask your question.

Morning everyone. I’ve just got two quick questions please, a follow-up on the cost cutting program that Hugh had.

Firstly I suppose, I think Charlie you mentioned that there’d be a follow-on from the 2003 program for the next 18 months or so, of some more efficiencies.

Yes.

This being the case. I mean, would it be fair to look at the improvement in margins from Q1 to Q2, so from 26.1% to 26.5% as sort of three-months worth of this follow-on [inaudible].

Actually, because of – obviously the assets move around quarter-by-quarter, I don’t think you can really take it on a one quarter to the next quarter type of trend. I think you really have to look at it over a bit longer period of time than that. But, we don’t have any problem modeling with any kind of increase in the top line getting back to that 30% level. That’s not really a goal that we feel that we cannot get to fairly rapidly.

The facts that maybe – just for the sake of clarity I add, that the key driver in the margin is not going to be an issue of cost reduction. We’re obviously managing costs as tightly and as strongly as we can. But, the key always in our minds was to put in place the most efficient platform we could so that we could get the most leverage from growing our revenues. And, that’s what we’ve been achieving. We’ve got a little bit more coming through in those improvements. But it’s looking to get the revenue leverage that would be the key to the margin.

I think we’re going to have to cut off the questions now. We’re also having a Board meeting, and frankly we’re just running out of time.

So, if you have other questions, can I ask you to contact James or myself, and we will be happy to try to answer them. But I think as of today, we’re going to have to terminate this conference call. Thank you so much for joining us. And, I realize that we’re all suffering a bit from this regulatory overhang, but those things, and it’s happened here to us. And, unfortunately we can seem to get a way out of it. But, underlying that, we have a strong Company that’s doing extremely well in a lot of places. And, we’ve made a lot of partners over the last three years in building an infrastructure that can handle a huge amount of volume, and if we just get the opportunity in the market place, I think we can prove that to you. Thank you so much.