Janus Henderson Group PLC (JHG) 2006 Q4 法說會逐字稿

Okay, welcome to Henderson's 2006 full year results presentation. There are people listening by phone and via the website, so I hope you can hear me clearly. In addition to the information we have got in the presentation today -- and there's more detail, obviously, in the stock exchange announcement and the Appendix 4E that we launched earlier today. And all three documents obviously are available on the group website.

I'll make a few initial comments about the results, and then Toby Hiscock will cover the financial aspects of the figures in more detail. I will then touch on some of the key business developments in 2006 and our priorities for the rest of 2007. And obviously, we're very happy to take questions from you and from the people on the phones.

We think this is a strong set of results with group operating profit up 30% to 82.2 million pounds, and earnings per share up to 0.063 pounds compared to 0.032 pounds in 2005 -- obviously, before restructuring costs.

The bulk of the group profit obviously is generated by Henderson Global Investors, which increased profits by 29% to 81.1 million pounds, with an associated improvement in the cost/income ratio to 72.6%, which is about 3 points lower than 2005.

Underlying the results we think there are two important trends. The first is a broadly based improvement in investment performance. And secondly, and obviously closely linked to the first one, net inflows of 4.3 billion pounds into high margin specialist products. So although total assets under management declined from 67.7 billion to 61.9 billion over the year, caused largely by outflows in the Pearl on the legacy books of business, the overall revenue picture was obviously positive because of the higher margin product sales that I have just referred to.

As I have just said, the profit numbers obviously exclude one-off costs of 7.8 million pounds incurred as part of the restructuring and undertaken in the second half of the year.

In corporate, for the records, we completed the sale of Towry Law UK in the first half. And we completed the second capital return of 200 million pounds in the second half, and also commenced regular dividend payments.

And on that last point, assuming we get shareholder approval at the AGM in May, we intend to post file dividend of 0.0227 pounds per share, making a total of 0.0315 pounds per share for the year.

So those are the headlines. And I'll hand over to Toby now to take you through the financials in more detail.

Okay, thanks, Roger. Good morning, everyone. As Roger just mentioned, profit for the group in 2006 increased by 30% to 82.2 million pounds, including the one-off restructured costs incurred in the second half of 2006. The total operating profit for the group was 74.4 million pounds.

Within that group number, Henderson delivered a 29% increase in net profit before tax to 81.1 million pounds. And corporate made a profit of 1.1 million pounds. Corporate costs were lower in 2006, even though one-off legal and professional expenses inflated these costs by 2 million pounds. The one-off costs relate to the revised agreements with Pearl and the costs incurred by a potential acquisition opportunity, both in the first half of 2006. We expect corporate costs to be lower in 2007, probably nearer 10 million pounds.

The income earned on corporate cash balances declined slightly to 12.6 million pounds in 2006 from 13.3 million pounds in 2005. This income was largely from interest earned on cash proceeds retained after the sale of the Life Services business.

The net interest figure for corporate is expected to be zero or negative in 2007 compared to 2006. This is due to the combined effects of lower cash balances, having now returned all the cash proceeds from sale of the Life Services business, and potentially taking some debt onto the balance sheet in the first half of 2007.

We restructured Henderson in the second half of 2006. The cost of the changes was 7.8 million pounds, all of which was charged to the profit and loss account in 2006. Roger will talk more about this in a moment.

Discontinued operations comprise Towry Law UK and Pearl. The 2 million pound loss is unchanged from the first half, and consists mainly of the profit on disposal of Towry Law UK offset by the crystallization of warranty claims under the Pearl sale agreement.

For 2006, income tax charge for the group of 11.2 million pounds represents an effective tax rate of 14.9% for continuing operations and 15.4% for group as a whole. These rates are in line with the guidance we gave in early December following the resolution of the number of legacy tax issues with the UK tax authorities. Although [it well competes with] our results, the lower tax rate is temporary, and we expect to return to a more normal corporate rate by 2009 or 2010.

Moving to Henderson Global Investors in a bit more detail, management fee income increased by 13% to just over 221 million pounds in 2006. Although total assets under management declined in the year, net inflows into higher margin business and higher investment markets resulted in increased revenue. The largest contributors to the increase in management fee income were mutual funds, hedge funds and property business.

Transaction fee income was in line with 2005, whereas performance fees rose strongly by 41% on 2005. These fees continue to come from a range of products, and the number of funds we earned performance fees on also continues to rise. The largest contributors to performance fee income in 2006 were hedge funds, Horizon funds, investment trusts and property business. That takes us to total fee income in 2006 of 283 million pounds, a 15% increase from 2005.

Investment income in Henderson increased by 27% from 2005 to 12.6 million pounds. This was mainly due to interest on its cash balances and returns from seed investments in Henderson products. As a result of the higher management and performance fee income earned during 2006, our average fee margins increased with total management and net margins all up on prior periods.

This slide shows that since 2004, net performance fees have just about doubled, and management fees have been increasing steadily. This is in spite of assets under management declining from over 70 billion pounds by the end of 2003 to 62 billion pounds at the end of 2006.

Moving onto costs in Henderson Global Investors -- operating expenses increased 12% from 2005 to just under 212 million pounds. This was due to higher staff and IT expenses. The 18% increase in staff costs was almost entirely due to higher variable costs. And these relate to provisions for variable remuneration schemes reflecting the improved operational performance of the business.

IT expenditure increased by 43% to 10.6 million pounds, due to higher spend on investment management data services and the cost of upgrading our derivatives trading platform.

These increases were partially offset by savings in investment administration, office expenses and a number of other costs.

Importantly, the increase in operating expenses was more than offset by the increase in total revenues, which resulted in an improvement in Henderson's cost/income ratio from 75.5% in 2005 to 72.6% in 2006. And we expect to improve further on this cost/income ratio, and remain confident that subject to benign markets, we'll achieve a full year ratio of 70% in 2007. And this will be accomplished largely through profitable revenue growth.

Further to my comments on staff costs in the previous slide, here we show that the increase in staff costs was a function of increased income. In the last two years, fixed staff costs as a percentage of our total income have fallen slightly, whereas variable staff costs have increased. In total, staff costs have remained roughly flat as a percentage of our total income.

Turning next to the balance sheet -- this remains healthy, with good liquidity and appropriate provisions. As we have previously flagged, we intend to gear the balance sheet in 2007 to a prudent level in order to enhance capital efficiency. And subject to market conditions, we are considering a sterling debt issuance of between 125 and 175 million pounds in the first half of this year.

Last October's capital return of 200 million pounds together with its counterpart in May 2005 means the group has returned over 1 billion pounds to shareholders in the past two years, all of the proceeds from the sale of the Life Services business. In addition, we stated in 2006 that there was potential for further capital return of between 150 and 200 million pounds in 2007.

In January of this year, the UK Financial Services Authority granted the group approval of its waiver application from consolidated supervision. And as a result, the group's financial resources are no longer constrained by inadmissible goodwill, and our regulatory capital service has increased. We are therefore now considering a further return to shareholders of approximately 200 million pounds in the second half of this year.

These actions should result in a further improvement in our return on equity and earnings per share numbers, and we expect to provide further updates on these initiatives in due course.

Group cash and cash equivalents at the end of December '06 amounted to 309 million pounds. These balances are allocated as follows -- 80 million pounds to regulatory and working capital. Our regulatory capital requirement has reduced during 2006 from 95 to 75 million pounds through a number of efficiency improvements. 50 million pounds of this requirement is funded and cash. Working capital remains at 30 million pounds.

40 million pounds of cash is allocated to accounting provisions, the largest of which remains in relation to legacy product we're selling in Towry Law International.

59 million pounds of cash represents pension commitments, comprising 40 million pounds of additional contributions promised the Henderson staff pension scheme during 2007 and 2008 and an escrow balance of 19 million pounds mainly related to the Pearl sale agreement.

10 million pounds of cash is allocated to additional seed capital for Henderson products. Our current investments, excluding BPI, amount to approximately 30 million pounds.

Cash set aside for warranties and indemnities still open under the Pearl and Towry Law UK sale agreement amounts to 38 million pounds. This is after paying 12 million pounds to Pearl in the first half of 2006 and full and final settlement of all non-tax-related warranties and indemnities.

So that leaves the cash surplus of approximately 80 million pounds.

I'll now hand back to Roger.

Thanks, Toby. Okay, moving now to the key building blocks of the business, which are investment performance, fund flows and margins -- I'll start with investment performance.

In the last two years we've worked very hard to improve investment results across Henderson. And the first step obviously in that was to strengthen the investment team, which we undertook in 2005, bringing in some new talent, but also changing the leadership of the investment operation. Having [bedded] down those changes, it's pleasing obviously to see a generalized improvement in investment performance in 2006.

The strongest investment performance has very much in the high margin products [we] run, like mutual funds, hedge funds and property. And that's obviously encouraging for the revenue line. I'll show you more detail on that in a moment.

In addition, though, we've also seen the start of an improvement in institutional performance. And in addition, during 2006, we received 17 different consultant upgrades in a range of different investment products. And those consultant upgrades, we think, are a good lead indicator for future flows in that business.

Obviously we continue also to receive a number of investment awards -- 15 in total in 2006, some of which we have listed on this slide.

Looking at the investment performance numbers in more detail, there are probably two important messages here. The first is that performance is very good in the high-margin products. So if you look at it over one and three years at our mutual fund operations -- Horizon, the retail OEICs, and U.S. mutual funds -- 68, 79 and 100% respectively of those funds beat their benchmarks. And the numbers are even better over three years for Europe and the United States.

As you can see also, we enjoyed excellent performance at hedge funds and in property. All of those are high margin businesses, and collectively those performance trends are the main reason why we enjoyed a 4.3 billion pound inflow into high margin products.

Secondly, although it was a long way to go towards the bottom of the slide, looking at the institutional book of business -- fixed income, balance and active equity, and enhanced index, the numbers have started to move in the right direction. And combined with the consultant upgrades that I mentioned a moment ago, it does make us a bit more optimistic about institutional flows in the future. I think it's more of a 2008 story than a 2007 story, but I think the funds are very much pointing in the right direction.

Another measure of investment success, obviously, is also the generation of performance fees in the business. And on this one, we had a strong year in 2006. Not only was the quantum of fees strong at 37.3 million, up 41% compared to 2005, but the number of funds contributing to those fees also rose to 52 different clients and up from 42 in the previous year. And that sort of number, plus the diversity of the funds generating the fees, makes us confident that performance fees will remain in important feature of the revenue line in the future, even if the exact amount year to year is hard to predict.

Turning now to fund flows -- we have shown here fund flows split between the first and second halves of the year. Obviously, the first half is already a matter of record. You have seen this before -- good inflows of 2 billion into high-margin products and outflows from Pearl, Virgin Money and the institutional book.

In the second half, Pearl outflows continued -- so 7.2 billion, but that number was significantly affected by the withdrawal of approximately 4.4 billion of annuity assets that we flagged in our trading update that we gave in December of last year. In addition, we earn very low margins, mid single digits on those assets. So the revenue impact is obviously pretty limited.

And of course, the rest of the Pearl assets are protected by the broader agreement reached with Pearl last year, which protects revenues on a sliding scale for the next 8.5 years.

On the positive side in the second half -- two things. First, obviously, the rate of institutional outflow continued to slow -- 0.4 billion out in the second half compared to 2.9 billion in the first half. And second, the rate of inflow into high-margin products remains strong at 2.3 billion in the second half, making that 4.3 billion for the year.

The most important factor clearly is that the positive revenue impact of those high-margin inflows continues to significantly exceed the impact of lower-margin outflows. And of course, that's the main reason why group revenues rose in 2006, even though overall assets under management were lower.

Just a little bit more detail on those fund flows. So taking the 4.3 billion net inflow into high-margin activities first, driven principally on mutual funds, property, infrastructure, and hedge funds. So mutual funds sales totaled 1.6 billion in the year; sales particularly good in Europe and the United States.

Property remains a great business for us -- 1.7 billion of assets invested in that market in 2006. And remember, that's the point at which we earn a fee, and that's the point at which we include those assets and funds under management.

We have still got net new client commitments and property of a further 1.8 billion pounds to invest on which we have not yet earned a fee. The infrastructure business had a great year -- 600 million additional money raised from clients to fund the acquisition of John Laing. And that completed in December. And finally, flows into hedge funds of about $400 million, bringing that business to $3.2 billion in total of assets under management.

I have touched on the outflows from Pearl and Virgin Money enough I think maybe to go over that. Just the last bullet point on that slide talking alignment of investment management and distribution. That is important.

One of the things we spent time on in 2006, especially in the second half, was how to better get investment management and distribution working better together to bring products to the market faster, to exploit areas of good investment performance better, and obviously to improve service to our client. And we have done that by essentially combining investment management and distribution activities into one list of assets operation so that the two functions work more closely together under unified leadership.

Now as part of that restructuring which cost 7.8 million pounds, we were able to remove some layers of management and remove some duplicated functions which obviously helps to improve efficiency.

The reduction in costs will be reinvested in the business. And that's obviously welcome. But the most important point is this alignment of distribution and fund management, which we expect to see in 2007. And ultimately, we expect that to impact fund flows positively. And I should say the early signs of that are very promising.

Turning now to revenues and margins. You have heard from Toby already about the quantum of margins including and excluding performance fees. Obviously, the trend in both is clearly upwards.

Here we have shown a slightly different view of revenues and margins, which just shows how important our high-margin businesses are by reference to the proportion of revenues that those products represent compared to the proportion they represent of assets under management. So 32% of assets under management, 71% of revenues -- that is the business increasingly in Henderson.

And it reinforces the theme running right through this presentation, that the change in mix of business for us is driving revenues and profits higher, even though assets under management are lower.

Moving on just to the outlook for 2007 -- obviously the main objective this year is to build on the good investment performance in the higher-margin parts of the business. There's no reason why we can't add further assets in these areas in 2007, assuming, of course, benign market conditions, which may or may not be a big assumption as we stand here today.

We also see the emergence of opportunities in our institutional client base. As the clients increasingly separate beta and alpha in their portfolios, we do see scope for bringing specialist capabilities to that client base, and at attractive margins. So increasingly, the differentiation in margins and profitability between what we have historically described as legacy products and the high-margin products will gradually began to disappear, I think, while Pearl, I think, will remain something of a special case.

As regards profitability, we do see scope for further margin expansion and for a further reduction in the cost/income ratio by about another 3 points, down to 70% in 2007. On the balance sheet, as you've heard, we're considering a further return of around 200 million in the second half of the year, and the introduction of some debt later in the first half.

So overall, we think we're on the right track. Good opportunities to grow the higher margin businesses. Good opportunities to improve profitability and further opportunities on capital planning. So we're pretty confident about the future.

That concludes the formal part the presentation. We'll take questions from here first. And I'll ask the operator to provide the instructions to the people on the phones. And if there are questions there, we can take those in a moment.

So, I'm quite happy to open this to questions at this point.

(indiscernible) Capital. Just a couple of questions, gents, staying on the area of high-margin products. Given that you guys are increasingly focused on that area, I presume fund manager compensation and how you incentivize talent is increasingly the focus of your attentions.

Would it be possible to understand a couple of things -- firstly, what proportion of revenues now go into compensation -- fund management compensation, both bonus and base salary? And secondly, how do you lock in talent? These players who are generating this fund growth for you -- how do you lock them in?

I'll take the second one, Toby. You can take the first one. I'll answer the second one first, and you'll have time to look at the answer.

There are a couple of different things in terms of keeping investment talent. Part of it is clearly about remuneration. And we have a number of schemes here that try to really replicate and give substance to the idea of creating boutiques within Henderson. So for example, besides carrying competitive salaries and bonuses, we share some of the growth in net contribution for the different businesses. So they have clear line of sight from their contribution to the amount of money they make. In addition, we share performance fees, both on long-only and hedge fund products, which again gives complete transparency -- [award] to those fund managers.

We also have an opportunity of help people build equity in the business through a number of different share plans. From standing start in late 2003, we're at the point now where if all schemes vest, the staff will own about 10% of the equity of Henderson. And every single penny of that has had to go through the profit and loss account.

So there's a variety of means we use from a remuneration point of view. But I also think the cultural aspects of Henderson are very important. And I think the talent in this business wants to work in small, tightly knit teams with clear line of sight to remuneration and ability to effectively run their own businesses. And we provide that for people there, and I think it's one reason why we have been able to hold onto the talent. And the second part of question, Toby?

Yes, the slide I put up tried to show, I think, that about half our total income is expensed in staff costs. So about 48% in '06, 47% in '05 -- that's about 140 million pounds per annum.

So every ren scheme is expensed through P&L, including all the share schemes. Bear in mind that performance fee bonuses actually come off above the staff cost line. And so we have always shown our performance fees net of the share paid to the individual managers.

(inaudible question - microphone inaccessible)

Well, you saw how [far the] 37 million pounds in respect to [net] performance fees and. Bear in mind that we share the fees 50/50 with managers on long/short money, and one-third to the manager, two-thirds to house on long-only money. So the manager's share is less than 37 million pounds in total in respect to 2006. We're not publishing an exact number on that, but it's less than 37 million. So if you want to add that to your -- 104 to your staff costs, that gives you (indiscernible) the gross.

I just had a question on the performance slide. It looks like some of the higher margin products -- the actual performance relative to benchmark is slightly less excellent than it's been previously. I was just wondering if that's the correct interpretation?

And then a very small detail -- I noticed the fee margin guidance you've given in the appendix slides -- some of the ranges have been slightly edged down. I wonder if that is just a sort of minor adjustment, or is it indicative of any margin pressure in any of the areas?

On the second one, not particularly. There's the other area where the industry as a whole -- you see the margins coming down. But would say rather -- make it sound like a bold statement, but in general, there's very little margin pressure in our business in general.

On the point about investment performance, I think you are slightly harsh. I think the percentages -- if I look across our mutual fund range, for example, I think that we have certainly got plenty of products which are highly competitive to sell.

One of the really interesting things about the performance numbers which don't come through in what I've shown you is that mutual fund sales have been very good in Europe and very good in North America because performance has been really very strong, especially in North America -- it has been fantastic. That's why we won the Lipper Small Fund Group of the Year for the second year running based on that performance.

Fund sales have been less good in the UK. And part of the reason for that is most of the UK sales -- something like 68%, I think it is, of UK net sales come in UK equity products -- UK equity income, capital growth, all companies, and so on. And historically, Henderson hasn't had a strong offering in that area.

But I'll tell you what -- if you look at our UK equity performance today, it's very, very competitive both in the equity income space and the capital growth space. And that -- it's early days, but I think that all bodes well for the future, because, frankly, we have [punched below our] weight in UK retail products historically. And I think we can do much better there over the next couple of years. So that's a good area of focus for us in 2007.

Transaction fees -- can you just give us a rough idea of what is included last year in transaction fees? And in particular, how much that is the income from BPI, which you're going to sell (indiscernible) taken from so we can work out what will be missing out of that line?

Okay, well, the largest contributor to transaction fees was the listed asset business for a number of reasons. You've got sub registration fees in there, which is a standing charge we take from all unitholders on our [weight] register. You've got a bit of FX [steeling] income. And you've got the BPI -- most of the BPI income in there. The BPI income would account for 3 to 4 million pounds of the total in respect to 2006. The balance is really the property business, which had another great year, as we have highlighted.

Let me say BPI (indiscernible) the funds would be taken from. Obviously, if the merger goes through, we have a number of options as to what to do with our estate.

(inaudible question - microphone inaccessible)

Well, no, the terms of the merger, if they are approved by the shareholders on the 10th of March, are a special dividend in cash, which is just over EUR2 per share for BPI, so less than 20% of the total value of the share -- the balance in paper, [BPVN] paper. So when we flag in our trading statement to (indiscernible) if the thing goes through, our investment gain would crystallize in the first half of '07, that is largely in accounting event. Only a small element, as I say, is realizable in cash.

We can obviously either sell the stake if we want to. We can open discussions with the new owners about [a way] forward. There's lots of options.

I would like to see if there are any questions on the phone?

(OPERATOR INSTRUCTIONS) [Arjun Van Zeen], Credit Suisse.

Two questions if I May. The first one on the strong performance of the Horizon funds in half that went up from 2.9 to 4 billion -- I think about 38%. Just out looking for a bit more color in terms of (indiscernible) or inflows, and what's driving that, especially given some of your positive commentary in the [pack] around Europe -- Continental Europe.

And the second question was in relation to the half-and-half cost breakup -- and in particular, the other expense line. It went from 9 million pounds in the first half to 16 in the second half. And I was really curious along with your IT expenditure whether there is some potentially more one-off costs in there. And I suppose also in conjunction with 7.8 million restructuring charge you've taken, what sort of the outlook is in terms of driving those lines down?

On the Horizon performance, you're right. It was very good in 2006, and helped by overall good performance and good flows into a range of products. But probably the biggest single driver was very good flows into property securities funds, both in Europe, in Asia and the global version of that product that we have. I think probably that's generally true of many money managers. That's been a very strong area for them.

Obviously, we have a range of different products there covering the whole range of asset classes, including fixed income as well. So still lots to shoot at in Horizon in 2007.

On the other costs -- I'll get Toby to pick this up in a minute, but I think you've got to look at it year on year. I haven't got the numbers in front of me. The year-on-year numbers are not hugely different. I think it's much more about phasing. But Toby, you might just want to pick it up.

Actually, in '05, the profile first-half/second-half was quite similar to the profile for other costs in '06 -- i.e. a bigger second half than a first half. But the reason for the larger expenditure in the second half of '06 is really business and product development driven. There was a step increase in marketing expenditure, travel and subsistence and [even] professional expenditures, all in relation to launching new product. And we were very prolific with our product development in the second half of last year.

There was, if you like, one little lump elsewhere in other costs in the second half in relation to a provision that we made -- a couple of million pounds for prudent purposes against the VAT on investment trusts. Annual management fees -- this is in relation to an industry test case which is being fought in the European courts at the moment. The so-called JPMorgan [clowderhouse] case, where the association of investment companies, which is the investment trust trade body, is asserting that its management fees should be free of VAT. So we have prudently set aside a couple of million pounds just in case we have to go back in time a little while and repay VAT to the clients concerned.

And sorry -- can you maybe given a bit color on maybe run rate conversion of the restructuring charge you've taken?

Well, you know, the 7.8 million pounds has in theory sort of entry year payback on it. But as Roger said, we are looking to reinvest the payback in the business. In particular, most of the costs came out our listed asset division, but our property and our private equity businesses are growing very hard at the moment. So we're looking to invest a bit more in those areas to drive the profitable revenue growth that we talk about when setting out that 70% objective for the cost/income ratio this year.

Nigel Pittaway, Citigroup.

A couple of questions, if I may. First of all, I was just wondering on the proposed debt raising -- just you mentioned market conditions were a determinant of how much you raise. But it's quite a wide range there, obviously -- 50 million difference between the top and bottom ends. I just wondered what sort of conditions and factors would take you to either the bottom or top end of that range?

And then secondly, I was hoping that you could maybe just provide a bit more of an update on where you are with BPI. In particular, I think before you said that parts of the agreements were due to be renegotiated in April. So just whether or not that's still the case?

Well, on the range, Nigel, we have given ourselves a bit of flexibility there. I think -- you know, we're looking at a range of questions at the moment -- senior, junior, short-term, long-term and all the other features that go with debt raising. And I can't tell you much more today. It's all in progress. But we hope to make an announcement before the end of the first half. Sorry if that sounds a bit vague, but we tried to nail it down a bit by giving you that range.

On BPI, the Horizon distribution agreement runs until December 2009, so no change there. The subadvisory agreement, where we subadvise their international mutual funds, which are cobranded BPL Henderson -- that moves to a six-month notice period from the end of June this year. So technically, it could come up at the end of this year. But these are part of the conversations that we would like to have with the new management team if and when the merger is approved, with a view to exploring commercial opportunities with them going forward.

(multiple speakers) The extremes, really, Nigel are what -- with BPI one way, we end up freeing up a significant amount of capital. The other way, hopefully, we end up with the other extreme of a good distribution relationship, and all points in between those two things.

Okay, so it sounds like April is no longer as key as it used to be.

I think that's right.

[Tina Mitchell], [Quarry Bank].

Just a question on capital management. Just wondering in terms of your stance, in terms of your payout ratio -- I think when you started paying out dividends, you wanted to take a conservative approach with regards to the 50% with [a skewing] the first half, second half. Can you just give us a little bit of an idea of what your intentions are in that regard?

You should assume the maintenance of that 50% payout ratio for the [service of] 2007. No plans to change it this year.

Bruce Hamilton, Morgan Stanley.

Three questions. Firstly on the revenue margins -- Roger, you alluded to some industry competition fee has (indiscernible) why we see pressure -- for example, on (indiscernible) fund [the] hedge funds. But I wanted just to understand where you feel the industry is seeing pressure.

Secondly, on the sort of Pearl assets, would it be fair to assume -- or for internal planning purposes, do you assume sort of 10% redemption, or 2 to 3 billion redemptions per annum as a sort of rough guesstimate? Obviously, this year, was -- had some sort of funny one-offs going through.

And thirdly, as the move towards [mythid] changed in any way your sort of product developments -- i.e., are you thinking about our launching more insurance rack product, and does that make you more optimistic perhaps about selling into the European market by our sort of wholesaling channels? Or has it not really affected your thinking too much?

No, on the last one -- it hasn't affected our thinking in a major way. More importantly than [mythid] is the whole [usage through] legislation, which has given us a lot more flexibility about how we manage products, and especially use of derivatives within them, which has given us the ability in some cases to work on the short side as well as the long side in investment.

And we've already launched one product, which is a long/short version of [end uses three] and we've got more launches planned. I think that's a big theme for the European market -- moving to the absolute return space versus the relative return space set for the future.

On the revenue margin, the headline that I made a moment ago was that in general, there's very little margin pressure in our business. If it exists anywhere, it probably is to a degree in the hedge fund arena where, certainly the funds the funds when they commit capital are -- they are sharp as they can be about fees. But I certainly wouldn't make too much of that. And we feel pretty confident about our ability to maintain margins. Even in the hedge fund arena, because capacity is by definition limited, that's your best method of getting pricing protection.

On the Pearl assets, it's a very hard number to predict, because under the agreements we reached with Pearl, they now have complete freedom to do what they want with their assets. And in theory, they could take them all away in one go.

But obviously, the flip side of that is that we have revenue protection for the next 8.5 years. So you may judge that that is unlikely. I really wouldn't want to pay twice for the same fund management.

All other things being equal, I would expect the Pearl book to run [up to] around 3 billion year. But as I said, they've got complete freedom of action on their end on what they do.

[Mark Hancock], [Losys Capital].

Congratulations on a very good results -- most encouraging from down under. I had two questions, one in relation to the generalist revenues from the generalist products. They were down in the second half versus the first half, and I just wondered, is there -- did the second half show that it actually bottomed out a monthly basis? And would you expect them to continue to decline next year, but at a slower rate? And I'll come to my second question later.

It's a slightly tricky thing to get right, because whatever happens to assets under management, there's obviously a lag effect on revenues. So on the revenue line, you're seeing the impact now of the money lost effectively in 2005 and the first half 2006, and that's why the revenues were lower. Equally, as the book business stabilizes and hopefully starts to expand, you'll see that position begin to improve.

And the same is true obviously of the high margin money that we brought in. You don't see the full impact of it -- of the 4.3 billion we won in 2006 until 2007, because the phasing of the inflows. So that is what is going on in the revenue line, in the generalist product revenue line. It's the impact of money lost in 2005 and [half from] 2006 that's driving those revenues lower.

I've got a second question, which is obviously, we're seeing a bit of volatility in the markets over the last 24 hours. I just wondered -- can you give us any comfort potentially about where Henderson may not be so fully exposed to a decline in markets? To what extent is it perhaps not [hostage], for example -- would there be any scope to react on the cost side if we went into a particularly adverse period of global markets -- in particular, global equity markets?

Well, I mean, the good news is we have got a very diverse business. We've got things like property, which are not really affected at all by -- or not immediately by this type of shakeout. Obviously, we have an important fixed-income business, where capital values are probably rising in the last couple of days rather than declining as yields have fallen. So having a diverse business is probably our best protection.

Secondly, obviously the Company is in a very strong financial position. It has a very strong balance sheet. This is not the type of period -- if it went on for an extended period where you'd want to have a very highly leveraged balance sheet. And we don't. We have a very strong balance sheet. So I think those are probably the best two measures of protection we have.

But we're clearly not immune. If markets go down 20%, we would get hurt because they're not going to impact on our revenues. We do have the ability to mitigate that to some degree because of the variable compensation that we pay. And obviously, you can see what that was in 2006. And that has the ability to flex downwards if business performance or revenues are affected. So if you like, that's a third measure of protection.

[Nisan Ivorus], Clear Capital.

A couple of questions. Firstly, on the cost/income ratio. Henderson had a cost/income ratio of 72.6% in '06. However, if we adjusted for the performance fee -- i.e., instead of net performance fee, we use gross performance fees in the revenue -- the cost/income ratio increases to around 80% -- eight-zero, 80%.

Now I think comparing this with other asset lines, the ratio looks a lot higher. So could you give us some color on why Henderson's cost base is higher than its competitors? And is there any scope of bringing it down further?

Secondly, could you give us a sense of the cost of debt that you would raise in H1 '07?

I'm not sure I entirely get your logic. We have set out very clearly the base on which the cost/income ratio is calculated. And I have said a million times before that the cost/income ratio in my judgment is a function of the mix of business you have. And gradually, as we move towards a higher-margin business mix, you'll see the cost/income ratio improve. And I said a moment ago during the presentation that we expected to improve by about 3 points further to 70% in 2007 -- so, you know, gradual progress. And to me, the more we grow our high-margin businesses, the more we'll be able to improve on that. But for our mix of business at this point in time, we think that's a reasonable outcome.

Toby, I'm not sure if you have got anything to add to that?

Well, we do see our performance fee and our transaction fee income as an integral part of our total income line, because it's just normal these days that clients will come to you and propose a mandate that involves a lower base fee and maybe a higher upside performance fee or a transaction fee opportunity for the manager. I mean, that's just life. And you've seen the breadth of our [pay fee] opportunities, and those that we have crystallized within the course of 2006. And year-on-year, we have grown our transaction and performance fee income as a share of total income. So we do look harder at the total income amount rather than constituent parts of it when it comes to measuring the cost base.

And none of that is to say that -- making sure we make a -- if you like, a decent margin purely on management fees [as an important] -- of course, that's something that we look at. And that's why it's important to get the management fee line moving in the right direction. And obviously, in 2007, you'll see the full impact of the 4.3 billion of high margin inflows. And that will be one of the factors behind improving margins.

But I do think Toby is right, that the more clients we take on, it's becoming increasingly rare for clients not to give us a performance fee opportunity as well as obviously the underlying management fee. It's such an integral part of the business now, I think it's very difficult to separate out.

On your point about the debt cost -- well, again, I'm afraid I can only be fairly general at this point. But obviously, there are at least three considerations driving the costs, whether it's senior or junior -- senior is obviously a bit cheaper; whether it's short or long dated -- shorter is a bit cheaper; whether it's rated or unrated -- rated would be bit cheaper. So all of those things have an influence on the pricing.

You know, as a rough guide, subject to [going] rates, it's sort of [goes] plus 150 or thereabouts seems to be the benchmark. I mean F&C, one of our competitors, (indiscernible) that issue at the end of last year in tandem with our [wave of] unconsolidated supervision. I think they're paying 200 basis points above [guilds].

There are no more questions at this time.

Any more questions in the room? No? Okay, thanks very much for coming. And obviously, if there are any questions that occur to you later on, please feel free to contact us. And we'll do our best to give you the answers. Thank you.