景順投信 (IVZ) 2004 Q3 法說會逐字稿

Welcome to Amvescap's 2004 third 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 and 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 and 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. Sir, you may begin.

Thank you very much. Good afternoon to our investors in London and Europe, and good morning to those in the US. I thank you for joining us today for a discussion of Amvescap's financial performance in the third quarter of 2004. I'm joined today by, in Atlanta, by James Robertson, Amvescap's Chief Financial Officer. Before I hand the program over to James to discuss the financial results, I'd like to make a few general comments.

The past quarter, and indeed much of the last year, have been dominated by the news of the regulatory investigation related to market timings in our US Mutual Funds. On September 7, we reached an agreement in principle to settle these issues with the Attorney Generals of Colorado and New York, and the staff of the SEC. Under the terms of these agreements, Amvescap's subsidiaries agree to pay a total of $375m in shareholder restitution and civil penalties, as well as reduction in management fees in our US Mutual Funds by $15m dollars per year for the next 5 years.

Earlier this month, really about 2 weeks ago, these agreements in principle were confirmed as final settlements with these regulators. And as I stated at the time of our initial announcement, we deeply regret the harm done to our fund investors. In January, we pledged that any Mutual Fund shareholder harmed by market timing would receive full restitution, and this has now been done.

Our firm was founded on principles of integrity and care for our clients, and it was painful, truly painful, for Amvescap employees at all levels to realize that individuals strayed from these core values and damaged our company's reputation. Together, we have rededicated our firm to maintaining the highest ethical standards and we're going to focus in on delivering strong investment performance and service to our clients. We've taken strong measures to ensure that we will never, ever have this problem again and to uphold our clients' trust by putting their interests first.

Among these measures, we have had an independent law firm - [indiscernible] - undertake a comprehensive review of our policies, procedures, practices and to ensure that they rank among the strongest and most effective in the industry. Throughout the year, we will work to steadily increase our risk management and compliance capacities. We've added an experienced new Head of Compliance, we've established a new Operational Risk Management Group within the firm that includes the Internal Audit function. We have created a company-wide whistleblower line and a new escalation policy to provide multi ways for employees to voice concerns about potential improper activities.

Our US Mutual Funds are implementing a number of measures to strengthen controls and ensure compliance with policies designed to protect the interests of fund shareholders. We're doing this both before and as part of the settlement. Our AIM Boards have a new independent Chairman, Ruth Crockett and Amvescap -- we have been extremely pleased to add Ed Lawrence, one of the industry's most experienced legal advisors, as a new independent Director to our plc Board.

After the settlement -- immediately after the settlement, Amvescap's Senior Managers and I implemented a detailed comprehensive communication plan, calling for meetings with key global relationships, clients and consultants, our rating agencies, shareholders and others in the investment community. A number of you on this call probably have participated in these initial discussions. We continue to steadily work through the stages of this plan as we seek to reinvigorate the firm's success. These conversations have been frank and productive. Clients and our global distributors are supportive of our efforts to move forward and regain momentum by turning our full attention to the performance of our products and the successful execution of our strategy.

In our US retail business, I can see that progress is being made since the settlement. Importantly, the settlement allows us to remove the most unhelpful language that had been required to be added to a sticker on the front of all of our US Mutual Funds. We have completed the final phase of the integration of INVESCO Mutual Fund group into AIM Investments under the single brand AIM and it brings increased clarity into our fund line-up and brand position. A recent -- in a recent report that recognizes this, Morningstar gave AIM the highest ranking available to firms that have been involved in market timing. And last week they begin to revise upward, the [indiscernible] rate of individual funds. Next month, AIM will begin an intensive marketing campaign for the unified brand including return to television advertising and the reintroduction and of the successful [indiscernible] mediums for key distributors.

Our independent surveys -- from independent surveys, we know that the reputation of AIM's great wholesaling force and services has remained strong throughout the past year. And without the [indiscernible] over the last few months they have proposed to increase performance in this improved environment. On the invest -- in the institutional side of the business, we have engaged in a comprehensive calling program on part of all of our -- our overall post settlement communication strategy. They are meeting with clients and consultants to reveal the confidence in our firm and remind them of position performance across all our products and present new products and opportunities that were not going to be considered while the firm was under a regulatory cloud.

We realize that strong, consistent investment performance is essential to our success. We have good, sellable products in all of our business, with particular strength in Canada and the UK. We are working diligently on these projects where improvements are needed. Definitely in Europe, we are reviewing opportunities to increase our operational efficiency, but it's much too early to expect an immediate effect of these initiatives. A positive response received from our clients in innovator areas gives us great optimism for the year 2005.

You'll hear from James about our flows in the third quarter and that they were marginally improved over the second quarter. And although it's early in this quarter, that marginal improvement continues. We have certainly not seen any acceleration of outflows since the settlement, as some people have speculated.

In our meeting with the analyst community and shareholders I have also shared my thoughts about leadership succession at Amvescap, which I would like to reiterate today. Amvescap's Board has been implementing a successful succession plan for the past 3 years, and the successful transformation of our founding body of Senior Managers to the next generation of leaderships across the company. As part of that process, my role as Chairman and CEO will be split. The decision on when that will happen and who will become the CEO rests entirely with the independent Directors of the company. My expectation is that that will occur during the first part of next year, but the decision is truly theirs.

Now let me turn it over to James for a review of our third quarter financials.

Thank you, Charlie. Now let me say good afternoon and good morning to our various listeners. Let me start by drawing your attention to move to slide 4, 'Summary Profit and Loss Account', in the presentation. I'll start with giving you some idea of the backdrop to the quarter and to the year to date.

Firstly, let me just give you a quick look at what markets have done during the third quarter. Markets were generally down, the 1 that was most markedly down was the Nasdaq, down 7.5%. Markets outside the US were somewhat mixed, the FTSE marginally up but the Nikkei down nearly 9%. For the year, markets generally have been down and so therefore there has been no impact to boost our earnings from the markets during the period.

As before, and as mentioned in the previous call, foreign exchange rates do play an important role when making a comparison between the prior year and this year. In 2004, the average dollar exchange rate -- dollar/sterling exchange rate is $1.82 which compares to $1.62 in 2003. And in the quarter, the average dollar/sterling exchange rate for the quarter was $1.81 compared to the previous year's $1.62. The other factor which has impacted a comparison between the prior and this year is, as mentioned before, the tax rate has changed to 35% from about 30.6% in the prior year.

During the period, we announced an interim dividend of 2.5p, and you will see that flowing through this statement here. We also, in our previous call, discussed the fact that we would be taking an exceptional item in the third quarter, and you will see that we have a slide coming up where I will discuss in detail the exceptional item and what it covers and what the costs relate to.

So, looking at slide 4, you can see that revenues are more or less flat, slightly up compared to last year. And, if you take out the effect of exchange rates, then revenue would have been up about 8%. We can see that the diluted earnings per share before goodwill and exceptional items increased by 0.2p and again, if the exchange rate had remained constant, then the EPS would have been at about 17.5p, which is up 8%. In a constant tax rate, the increase would have been more like 15%.

Turning to slide 5, the 'Group Profit and Loss Account'. This slide shows the quarterly comparisons between the third quarter of 2004 and quarter 3 a year ago. Again, the foreign exchange and tax rate impact this comparison. Revenues show a decrease of 8% quarter on quarter, and that is all due to foreign exchange. Without that, they would have been flat.

You will note the exceptional item flowing through and also the dividend flowing through in this 3 month period, as mentioned. Diluted earnings per share before goodwill and exceptional declined 1.4p from last year, but 0.4p of that is down to foreign exchange and a further part of the decline to tax, as mentioned.

So let's turn to slide number 6, 'Exceptional Items', and you can see a breakdown of the exceptional items, which total £190.5m net of tax and £249.7m pre-tax. These are made up as follows.

The largest item is the settlement cost, the $375m previously mentioned plus the small amount related to some separate settlements with Colorado and Georgia, which totaled -- when added to the $375m made it up to $376.7m, that's the total, which in sterling is the £208.918m. In addition to that, we have got some exceptional costs which are primarily related to the legal expenses incurred in relationship to the settlement - that's the £20.249m.

As a result of all the cost reductions we have been putting through over the past 2 years, we have some excess office space, particularly in Denver, from where we've been merging our Mutual Fund operations in with AIM, and in London. And therefore we have brought forward those lease costs, as required to do so under accounting standards, to reflect the value of those lease costs, here the £20.224m.

The redundancy and reorganization charges primarily relate to the final part of the reorganization and merging into the AIM mutual fund operation of our Denver Mutual Fund operation.

And finally, we have a negative of £5.226m, which is the -- taking the previously estimated exceptional charges and now comparing them to the actual costs that we have occurred -- incurred, through all the reorganizations, there was an over-estimation of £5m which we've taken back here.

To remind you, the settlement broke into $235m of restitution and $140m of penalty, and these amounts are payable in 2 tranches of $212.5m towards the end of this year, and $162.5m at the end of next year. And I will talk a little later in the presentation about the financing of the settlement.

Turning to slide 7, 'Quarterly Financial Comparisons', this slide shows the comparison between the third quarter '04 and the second quarter '04. There is no meaningful foreign exchange movement between the quarters and, as you heard, there was some negative market movement in the period. Revenues and expenses are down slightly as a consequence of the market movement and partially due to flows. As you can see, diluted EPS is broadly in line with the previous quarter, down by 0.2p.

And at this juncture I'd like to reiterate what we've mentioned before, which is that we do expect that, as Charlie mentioned, we will be moving up our marketing costs as we go back on the front foot, take our good performing products out into the market more aggressively. So, during the fourth quarter we will be expecting to see the marketing costs rise and, as a guideline to help you, that should be somewhere between the £3m to £6m range, or the $5m to $10m range, probably somewhere in the middle of that, those numbers.

Slide 8, a slightly more detailed comparison of the third quarter '04 to the third quarter '03, the previous year. You can see, again, I have mentioned that foreign exchange and the tax rate had a significant impact on results. Let me also mention that, in our ongoing efforts to continue reaping efficiencies as we roll out some of our common platforms, that headcount is down 165 people, or nearly 2.5%, since a year ago.

Turning to the 'Segmental Analysis', slide 9. In the third quarter, we have restated the segmental analysis to reflect the merging of the Denver investment operation into the AIM mutual fund operation, so that you can see clearly how that will be now and will be going forward. And just so that it's easy for you to understand the effect in the past, in the appendix you will find all the various analyses of how that works out on all the previous periods.

Having a quick review across the businesses here, the U.S. has -- the U.S. Mutual Fund business we've talked about and has been having some outflows during the period, partially performance-driven, partially as a result of the settlement.

In Canada, recently this period -- recently, I think in September, we launched 5 new institutional pool funds to take the time-out discipline out into the institutional marketplace in Canada. We began a TV ad campaign during the quarter. In growth and net sales we're right at the top of the industry and investment performance has stayed very strong, 90% -- nearly 90% of our products above average against peer groups over 3 years. During the quarter, we were awarded again the number 1 customer service contact center by Environix Research for the eleventh straight quarter.

Looking at the U.K., here again we won the award as the second best telephone service center for customers in an independent survey during the period. We continue to expand, grow our distribution relationship and we've increased the depth and penetration of our products in some of the life company shares. We've now moved up into second place in the retail marketplace in the U.K.

In the Europe institutional business, during the quarter we launched a new £400m CDO product successfully from our financial structures group, stable value products continue to be attractive, and here as well, the Plansponsor magazine, the institutional trade magazine, ranked -- gave us a number 1 ranking for operational excellence in our institutional business.

So that's just some business highlights. Turning to the next page, slide 10, 'Operating Profit', segmental operating profit which compares the business units between the third quarter '04 and the second quarter '04.

As I mentioned before, this has adjusted for the movement of the Denver investment operation out of INVESCO U.S. into AIM U.S., so these are fair comparisons, period to period. You can see a slight movement in the marketing expenses within Canada having an effect there, the main effect in the U.S. is the revenues from market flow. In the U.K., the result is pretty much in line with the first quarter result, the second quarter did benefit from some performance fees. And in the corporate line, you will see a reclassification of costs out of our AIM U.S. and INVESCO U.S. into corporate in respect of treating our -- some of our centralized services.

Turning to slide 11, 'Funds Under Management', you can see here that, for the year to date, funds are down £7.9b from the beginning of the year, partially through markets, partially as a result of the lost business as you can see there, offset a little bit by some acquisitions/disposals. You can see that the losses mainly arise in the U.S. Institutional and in the U.S. Retail businesses.

Let's spend a little time at this juncture to talk about investment performance. I've previously mentioned that in the U.K. and Canada we continue to have very strong performance across the board - let me add some color on performance elsewhere.

In the Institutional group, we continue to have strong performance in our Structured Product group, our Global and International group, Real Estate, both the direct and the REIT side of the business have strong performance. Stable values going well in our Financial Structures group are areas I would mention.

As Charlie said, in the U.S. Mutual Funds we have some good products in nearly all the main categories. To give you an example, various flagship funds like our Value Fund, a £7b fund, our Large Capped Growth Fund, a £1b fund, our Weingarten, a £2.5b fund, International Growth, a £2b fund, European Growth, in the international space. In the core space, the Charter Fund which is a £3b fund and the Mid Cap core, £3.5b. All of these have excellent performance, which gives us a lot of products to take to the marketplace.

We have some areas of weakness, which we've talked about before. These areas continue to be worked on. We see a trend of improvement and the bad year that we had in 2001, on our 3 year numbers, which has impacted the 3 year numbers, will begin to fall away from next quarter onwards and will assist the 3 year numbers profile.

Looking at the quarter to date, you can see the outflows of £5b, in the previous quarter I think they were £5.4b. As Charlie mentioned, we have not seen any acceleration or movement in trend at this juncture. You can see the market effect in the quarter was somewhat negative, and a small movement in the money market funds, which as you know are going to be more volatile and influenced by the interest rate movement.

Turning to the 'Balance Sheet'. Maybe I would mention here that, as previously described, the £400m Senior notes which are due in May '05 have been reclassified into current liability, which you will see is the movement there in current maturities of long-term debt, [$4m]. You will also see the increase in creditors, and that is where you will see -- that is where the exceptional items are accrued.

Turning to 'Group Cash Flow', the operating profit is after the exceptional. The large change in debtors and creditors, as I mentioned, is where the accrual of the exceptional item is shown. On the tax side, as I've mentioned in previous quarters, we've had a change in timing around the Canadian tax payments compared to 2003. The acquisitions/disposals line reflects the Stein Roe and HPB acquisitions at the beginning of the year and the sale of the U.K. Private Wealth Group as previously discussed. 'Purchase of shares' is shares purchased for the Employee Share Remuneration scheme.

Moving to slide 15, 'Analysis of Net Debt'. We have a 5 year credit facility which -- and a 364-day facility, of which we have £850m capacity, unused capacity, at this point in time, which we can draw upon, and this is how initially we will handle paying for the settlement. You will note that in the period year to date that net debt is down by about £105m, a decrease of £105m or $168m from the beginning of the year.

As we begin to pay out on the settlement in 2 payments, 1 payment taking place in November and December of this year and 1 payment taking place in December next year, you will see a payment of about £163m or $294m net of tax coming through and utilizing some of the credit facility. To give you an idea of the amounts and the timing, it's about £118m that will come through in December/November and then a year later about £90m. The dollar figures for that are $212.5m and $162.5m. So the way we finance the settlement is through the credit facility.

We are looking at various options we have going forward in our longer-term financing picture. And probably we will look to smooth out the durations on some of our term debt, and we are working and talking with our various advisers and banks on this. We have a very strong bank group of 17 banks and we've had very good relationships and good briefings with them both before and after the settlements. All our ratings from the 3 agencies are investment grade, and they range from triple B+ to A2.

Slide 16 is really just for information, to help you in your models and calculations, just to give you the average shares outstanding.

Slide 17, next year we are transitioning onto IFRS and IAS, in 2005. We've been preparing for this, and this is just to give you a rough idea of the timeline. You can see the conversion date, January 1. Around February we intend to give you a presentation in some detail and an explanation of the transition adjustments at that time. And we will probably issue some additional information prior to that time, so that you can have a chance to examine it before the discussion. And then, in April '05, that will be our first quarter earnings release under IFRS and then all the subsequent quarters will be on that basis. So our first reporting period will be March 31 2005, under IFRS.

Turning to the next slide on page 18, what are the main impacts of IFRS? Well, the main areas, just to give you a flavor, will be on share-based compensation expenses, the treatment of options. IFRS requires a charge to income arriving from employee share options and other stock-based incentive plans. There are very many variables in calculating this amount, and in our case the core performance criteria associated with the options and the ability to foresee the investing will be a key factor in evaluating the expense.

Goodwill is different under IFRS, there will no longer be a periodic charge for amortization, but, somewhat similarly to what we do already, there will a annual impairment review of the goodwill numbers with potential adjustments. Just as a matter of clarity, we are not carrying any goodwill in our balance sheet in relation to either our AIM or ISG mutual fund operations, so we do not have any goodwill to assess in that respect.

Financial Instruments requires assets to be recorded at fair value, which is a change. And Employee Pension Post-retirement benefits, we don't have many of these in the Group. They do exist in certain locations and we will be required to take account of the new standards, which require annual valuations and calculations of gains and losses. Also, the way in which the accounts look will change a little bit in our Annual Report.

So, that completes the presentation, you will find in the appendices as I mentioned, the segmental information redrafted to give you the apples vs. apples adjustments for the movement of the investment operation in Denver into AIM. That's to make it easier for you to calculate and understand the changes.

At that point, I'd like to stop and hand back to Charlie.

Alright, thank you, James. The past year has been a challenging one, and at times even confusing, but we know that the way forward is abundantly clear. We at Amvescap must now focus all our efforts on renewing the confidence of those who have entrusted their assets to us, and delivering strong, consistent investment performance.

Last week, we had a meeting of the Amvescap partners, about 150 people. We had a candid discussion of past mistakes and present challenges. We all recognize that the company is at a critical junction in its history, but it's my observation from that gathering that our colleagues have the talent and the passion to succeed for our clients, and the commitment to each other and our shareholders to successfully meet the challenges of today and capture the bright opportunities that our future -- industry continues to offer in the future.

I believe that we have taken the first steps necessary to get the company back moving, the feeling is from my point of view good among the people and they are clearly dedicated and motivated to get this company started again. I think with that we'll turn it over to questions now.

Thank you, sir. At this time, we'd like to begin the question and answer session of the conference. [OPERATOR INSTRUCTIONS]. The first question comes from Hugh van Steiness (ph) with Morgan Stanley. You may ask your question.

Hi there. 3 quick questions. First, going on options, historically, Amvescap's been a very generous user of options. I'm struck that many of them are under the water at the moment - should we expect a significant option or share grant in Q4? And, more generally, how should we think about the impact of options on your 2005 set of accounts, please?

I think, on the options, you've stated it right, a lot of them are under water and therefore they will be never be of any value to anybody. I think we will try and refresh this, this year. We obviously have the issue of trying to motivate staff and compensate staff, they have been affected over the years.

I think we will also see a tendency to move towards more restricted stock as opposed to options, which basically the cost to us would be the same in terms of operating statements. So we'll see a combination of stock and options. I'm not sure about the way it'll be accounted - James, do you have a point on that?.

Yes, Hugh. As I went through on the IFRS treatment, 1 of the key factors is the degree to which you can foresee that options will [indiscernible], or will in fact meet performance criteria. As you correctly stated, that is not very likely so therefore the valuation is likely to be quite small.

Okay, thanks. The second 1, probably for you, James, as well. Just on costs, you've been very helpful in terms of guiding some marketing costs and presumably there'll also be some cost savings from the redundancies and so forth. Are there any other items which we should think about which may potentially add costs, for instance, Janus for instance is now paying hard dollars rather than soft dollars for research, that may have an impact. Or are there any other legal-related costs, which may have an upward drift into next year?

Yes, thank you for reminding me, Hugh. Let me further -- to help everybody on this point. In terms of the redundancy and reorganization costs and the lease costs that we took in the exceptional, that will probably have something like a £10m cost reduction effect going forward, as a result of those changes.

In terms of what do we see on the other costs, legal and professional costs remain under pressure, our auditing costs are rising. We will have a handle during this next quarter on what will happen to our insurance costs and professional indemnity costs. I don't really have a clear view on that. We had a very substantial increase in the last period, so I would hope that we wouldn't see that go up significantly. I don't know whether it'll be going down from there.

On the soft dollar side of the equation, this year we did sustain soft dollars in terms of everything other than the basic client-approved research material and instruments. I don't see an immediate change to that, though we're alert to it, and at this juncture I would not look for an adjustment in that area.

Okay, thanks. I apologize for being selfish, but 1 very quick 1 on the U.K., it's clearly had outstanding performance but the profitability is well below the group average. I'm also struck that the new business you won looked much lower margin business, perhaps because of Life wrappers. Could you just shed a bit of color of what's the plan on the U.K. to bring it up to the group average or beyond?

Certainly, we agree that the profitability needs to be improved, and that's been worked on over the past period. We have put in place now various initiatives towards moving to single pan-European platforms in support of the business. We've been focusing down some of the product areas, which were not at critical mass, we've been working to take those out, and we'll begin to see some effect of that coming through. We've been able to increase some of the revenue flows and some of the revenue impact from some of our strong products which will begin to take effect during the fourth quarter and will be visible in the first quarter next year. And we have also been looking to create efficiencies throughout all the functions and in the investment areas and managerial areas. So we are working strongly across all fronts to get margins heading upwards towards what we would expect from an operation such as ours.

Okay, thanks.

Can we have another question, please?

The next question comes from Philip Middleton with Merrill Lynch. You may ask your question.

Hello. I just want to talk a bit more about the cost line actually. Hugh's asked about the U.K. but it's not just the U.K. where the margin issue appears somewhat questionable. What are you doing to try and rebuild the profitability of all the non-U.S. operations?

And also what do you attribute the margin on the INVESCO institutional business in the U.S. now you've moved the Denver operations out of that? That appears to have fallen quite sharply.

James, do you want to comment on that?

Yes, taking the second part of the question first, the marginal profitability effect of the Denver investment operation was a very high margin part of the business, so when that's reclassified that does have an effect on the institutional side.

In terms of the non-U.S. businesses, these are businesses, which are rebuilding their critical mass position, they are back into profit and they are growing their profit at this juncture. In Asia, we have begun to get some good movement of products through our Japan office. And we've begun, as you know, to build up parts of [indiscernible] expected our assets under management in our China joint venture, which I think will be a very important part of obtaining a much more sizable operation in the future in that part of the world. And in continental Europe, as I mentioned previously, our initiatives to look at how we can get greater efficiency is on a pan-European basis. It's not just a U.K. initiative, it is looking at the U.K. and Europe on the platform side. So that's what we're doing on those 2 parts.

So in terms of the cost line going forward, I can expect about £10m to drop out due to the various restructuring you're talking about each year, and above that there's going to be a £3m in the fourth quarter this year. And after that, I presume from what you're saying you'd look for a general downward drift in the operating expenses as some of those other initiatives take effect?

I think we'll always be working on cost, but quite frankly, what we need is to get the operating line moving up, because that really is what we -- that's really the problem as I see it at this point. And that will come about by getting better performance, putting more money back into the markets and frankly, just letting senior managers begin to focus back on running the business. And with any kind of tail wind from the market itself, that top line should begin moving, and that really will take care of the profit situation.

Okay, thank you.

Do we have another question, please?

The next question comes from Carolyn Durrett with Smith Barney. Ma'am, you may ask your question.

Good afternoon. The first question, just in terms of your U.S. Equity Mutual Fund sales. As I understand it, the negative comment stickers were taken off I believe on October 8. Can you give us an indication of how sales have been over the last 3 weeks, then? Post negative comment, versus say the sales which were in September.

Well, it's just really too early, but we were able to take the stickers off, I think on October 9 or 10, I think that's the right date. It was a final official settlement. And it's just simply too early to say, but obviously it'll be a great help to us. You can't measure the effect of your sales force when you've got something as negative as those stickers were on the front of prospectuses.

Okay.

We'll make a full report on that next quarter, but it's just too early now.

Okay. Can I ask a quick question in terms of the Asian and European outflows, which I think were about $1.2b this quarter, somewhat larger than I'd forecast. Can you give us some color on whether that was institutional or retail and the reason behind that outflow?

If James could just get that 1 --

Yes, Carolyn. We had some senior changes in our investment team in Asia which -- as a result of that, or partially as a result of that, we did have a couple of client fallouts. There was already some weakness there and this resulted in a couple of those clients leaving, 1 of them was an Asian mandate in Europe, that's what's reflected there. Also, there was an industry-wide weakness in the corporate bonds sector in Taiwan, which resulted in all the industry corporate bond firms having net redemptions, and those were the 2 biggest items.

Okay, thank you. And, just finally, in terms of the U.S. settlement. Have you been notified of any class actions and can you give us an update of where the industry stands on that?

Well, there's a massive, massive class action case that's being swept all into 1 trial, that's being held in Baltimore, about 4 judges. They won the [indiscernible] that the settlement on individual areas so large there is not an easy pickings to increase that. It's our own view that the settlement we made was so large, in relation to what we think the damages really were, that it's going to be very hard for anybody to prove that the damage did exceed that in any amount. But we will be involved and are involved.

Also along those lines, we intend to pursue some people that we feel like that used our company and abused us, and any settlement we get there will also be swept into the same pool. So it's a very long term work out, at least a couple of years. We have nothing in our numbers of our recovery, we just simply don't know, but we do feel like that we probably are not facing any major damages there.

Thank you.

The next question comes from Hayley Tam with Bear Stearns. You may ask your question.

Morning, everyone. Just a quick question on the outflows as well, I think focusing on the own U.S. if that's okay. I think in Q2 you highlighted that there'd been $1.4b for the specifics for a 1k plan termination. And I was wondering if you could give us some indication of what was the makeup of the own U.S. outside this time round.

Yes, I think it was about $1.2m, from memory. Most of it was broadly based, this quarter there was a, I think about a $5.400m I think, which did exit during the quarter. We don't actually have any other large lumpy plans like that that we see on the horizon, but we did have 1 go through during the period.

Right, thank you. And one other just very quick question to clarify. When you mentioned the marketing cost numbers during the presentation, at about $5m to $10m, was that just Q4 only as an increase or is that something which we can try and annualize, and what was the --

I think that you can expect to see that continue into the first quarter. Traditionally we increase in the third quarter anyway, because that's where you have the RSP and ISA season campaigns. And I think it's a matter of the more positive the results we see, the more we're likely to emphasize that area of expenditure.

Thanks. And 1 final 1 to follow up on Carolyn's legal class action question. Do we have any indication at all of when that might be resolved?

No, I don't think we do. I think it's going to take quite a long time.

Okay, thanks very much.

The next question comes from Mr. Robert Mumby. Sir, you may ask your question.

Thank you and good morning. Yes, just a couple of points. First of all, on the balance sheet, could you say the gross cash figure of £350m, is that all required in the business or is some of that available to repay debt? And also if you could just comment on the investment income line in Q3 is slightly higher than in Q2, is that all ongoing stuff or anything one-off in there?

The first thing, there's a certain minimum that we have to have for regulatory purposes, just working capital. That number is lower than £350m, it's probably more like £250m, so there's probably a £100m there that's profit surplus. And it just [indiscernible] day by day, frankly, it's a snapshot, so we don't really need all the £350m to pay debt, but we do need a meaningful amount, which we work on all the time to bring down, also. And the other question --

Robert, if I could just amplify on the cash. Basically, we have regulatory working capital requirements and we try to keep a cushion above that because of being required. In most instances it's a perpetual compliance requirement and so therefore we cannot take it down to the bare limit, we have to keep cushions in place. Whenever we do see excesses over those cushions, we apply it to paying down debt, as you can see we did that during the year. On the investment income side, I can't think of anything particular to mention there, Robert, if I do I'll give you a call, but I don't think there's anything meaningful or major.

Thanks. Could I just, whilst I'm on, just follow up on Philip's point on the U.S. Institutional business. And now that it's been shown I suppose as being smaller, lower margin than we'd previously thought, would this business be a candidate for disposal or is there any strategic reason to keep it within the Group?

Well, actually we would hope to rebuild it. That's a basic business that we started with, and although it has eroded a bit, mainly because there's also been a shift in the marketplace for the defined benefit type plans. But we are growing the part of the business that has the highest margins and I would hope that we would transform it into something that has higher margins. So we don't have any intention to cut it, to get rid of it.

Thank you.

The next question comes from Jason Street with UBS. You may ask your question.

Yes, good morning everyone. Just 2 things. 1 on costs, again, I think you mentioned at the time of the settlement that as well as marketing costs going up, there would be an increase in staff costs and we never got a handle for what the scale of that might be. I was hoping you were going to enlighten us today.

That is in all the quarters that you've seen this year. It's not a sudden change, it has been put in place throughout the year.

It's already in the numbers.

Okay. The second question is slightly more vague, but when do you think we can see some net inflows into Amvescap?

I promise you, we hope sooner than later, but we are working -- We put together a major plan, knowing that when the summer came we were going to have to do a lot of things, and that plan is being implemented right now. It called for us to go into the advertising and increase the contact with all of our distributors, as soon as the settlement was over. We really thought the settlement was going to end in the first quarter, and then the second quarter, and as you know it came well within the fourth quarter, so it kept dragging out and out. We are now implementing that plan. I would expect you'd have to get into the first part of next year to start seeing any positive flows, but I think they will come. I think we'll see progress, and we're already seeing progress, but to get actual positive flows I think you're going to get into next year.

Thank you.

Any more questions?

The next question comes from Mr. Ken Worthington with CIBC. You may ask your question.

Hi, good morning. Just to flesh out, you've got 3 businesses that have very low margins here and you've given us some general statements about trying to grow the institutional business, grow Europe and Asia, improve margins in the U.S. Can you flesh out your comments, maybe give us some specific examples? If the market is flat over the next 2 or 3 quarters, what can you really do to improve the margins to maybe a level that's higher than between 5% and 12%?

Well, I'll tell you that we are making a fresh review of every single thing we do, so there's not going to be any areas that are just going to be left to sit there on a little margin. We are actually going to look at all of these things and see if there is anything. And obviously there's some things you can do, there's some things you can get rid of, and we will examine everything. But we're dedicated to getting the margins back where they were. I think the industry overall is going to have some problems with margins going to the future, but we can get our margins back up, I promise you that. It's just a matter of us doing the things necessary and frankly I just can't give you a general statement, it's going to be reviewing every single part of the business.

I guess from your comments there, divestiture is a potential?

It is, it's a potential, divestiture, merger, anything that will work.

Okay. If margins don't improve over the -- What time are you allowing the businesses to try to improve margins on their own before you take more drastic action? Is it something that'll be a few quarters, is it 5 quarters, a year?

I don't think it's one number for every part of the business. You forget, I think, that the Asian business and the European business were actually quite profitable in 2000 and the margins were headed up towards what I call the industry standards, so they were moving ahead. Since then, clearly, they've regressed, but we do now see them moving - our early-on budgets for next year show an additional increase, substantial increase. So they're making progress, and it's not easy just to say what period of time will you give them, but definitely there is a finite amount of time that we'll give anybody. And I can promise you we will be harsh about this.

Okay, thank you.

Any more questions please?

The next question comes from Mr. James Alexander with MNG. You may ask your question.

Good afternoon, I've got 2 questions. 1 is on AIM U.S., just in terms of the cost of the [indiscernible] reductions that are going to be coming through. You'll be making about £40m a quarter there at AIM U.S. - is it $15m a year coming off, is that going to come straight off the bottom line, basically, or is there anything else that can offset that?

You're correct, James, $15m from the beginning of next year --

Per year.

Per annum. Not per quarter, per annum will be a deduction. There isn't a direct offset to that, however we're continuing to look at all areas of the business to see if we can get efficiencies across the board wherever we can.

Okay, and thank you. The other question is about the leadership of the U.K. business. I was a bit disappointed to see Rob Hain leaving a few months ago, he presented quite well at your conference. I'm just wondering what was going on there, because I haven't seen any official news from yourselves about that?

We're basically just restructuring Europe under a common leadership and so, Rob just didn't see a future in that structure and decided to move on and do something else. There's really no more to it that. But we are trying to get leverage into the European platform and it means simplifying the structure there.

Which you haven't done yet. Is that something coming up in 2005 then, which we should look forward to?

It's something we're actively working on right now.

Okay, thank you.

Any more questions, please?

At this time, sir, there are no further questions.

Well, let me thank everybody for attending today. I think you must realize what a difficult year it's been to us and it has been destructive, it has been destructive to us, we know that. But we have a very strong company, we have a great footprint, we have great people and they are so enthusiastic about where we go from here. And I just think if you'll just be patient, a little patient, you'll see Amvescap return to the kind of growth rates it had in the past. So we're working very hard on that, we're determined to make it happen, and with some good luck we'll get there. So thank you very much, we appreciate it.