Janus Henderson Group PLC (JHG) 2007 Q4 法說會逐字稿

Good morning everyone. Welcome to our 2007 full year results presentation. And those of you listening on the phone or via the website hopefully you can hear me clearly as well.

In addition to the information in this presentation there is more detail obviously in the Stock Exchange release, and in the Appendix 4E that we released earlier today. And all three documents obviously are available on the website www.henderson.com

I'm going to make a few initial comments on the results and then Toby will cover the financial aspects of the figures in more detail. And thereafter I'll talk more about business developments and our priorities for 2008. And obviously we are very happy to take questions both from people in the room and on the phones at the end of the briefing.

So starting with the headlines, the results, obviously we achieved strong growth in profits in 2007 up 30% on 2006 to GBP106.7m. And the thing about that headline for us that feels like a vindication of our strategy of focusing on high margin business lines in the last few years, and focusing on profitability as opposed to just on assets under management levels.

Driven by that headline results obviously there are also significant improvements in earnings per share up 83% on 2006, improvements in the cost income ratio 5 points lower than 2006. And in the dividend where the outcome was almost double the level in 2006.

Probably in more than one sense those figures are history. We think the environment in 2008 and the market background is going to be harder than it was last year. So having demonstrated that we can drive profits higher in a relatively benign environment, the job for us now is to demonstrate that we can drive profitability in a less benign environment in a more adverse set of circumstances. And that's what we plan to do.

For us I think it means two things, first a renewed focus on costs, and secondly, of course, a continued effort to drive revenues higher via those high margin business lines. And those two themes the focus on costs and driving revenues higher you'll hear repeated during the rest of this presentation.

So with that introduction, Toby why don't you pick up the financials?

Okay. Thanks very much Roger. Morning everyone. So, profit for the Group before tax and non-recurring items in 2007 increased by 30% to GBP106.7m. Including non-recurring items the total operating profit before tax from all operations was GBP147.2m, 103% higher than the previous year.

Within the Group number Henderson delivered a 35% increase to net profit pre-tax to GBP109.6m and corporate made a small loss of GBP2.9m. Corporate costs were lower in 2007 although 2006 included one-off legal and professional expenses of GBP2m. We currently expect corporate costs in 2008 to be similar to those of 2007.

Corporate net interest declined to GBP6.2m in 2007 from GBP12.6m in 2006.

Interest income earned on corporate cash was lower than the year before due to lower cash balances. This follows recent cash returns to shareholders. But it did offset the interest expense paid on the debt that we raised in May of last year. And we expect corporate net interest to comprise mainly debt servicing costs in 2008 and it will turn negative, approximately GBP10.5m before tax relief, assuming an interest coupon on the debt of 6%. This has changed from the GBP12m guidance that we gave previously.

Profit before tax from non-recurring items amounted to GBP40.5m in 2007, which we recognized in the first half of the year. To recap briefly, the first non-recurring item was an accounting gain of GBP31.8m on the Group's investment in BPI following its merger with another Italian bank to create BP. GBP16.3m of this was received in cash by way of a special dividend.

The second non-recurring item was a GBP8.7m pension scheme service credit arising from an agreed change to staff benefits with effect from April of 2007.

Subsequent market conditions and some BP stock specific developments in the second half of 2007 contributed to a 30% drop in the BP share price, which has been accounted for in our Group equity. For the time being we retain an investment in the merged bank with a market value of approximately GBP54m.

Moving to tax, in 2007 the effective tax rate for the Group before non-recurring items was 11.7%. And the effective tax charge on all operations was 10.2%, both rates within our published guidance of 10% to 15%. We still expect a Group tax rate on continuing operations, excluding any non-recurring items, of between 10% and 15% this year reverting closer to the U.K. statutory rate in 2009 or 2010. Of course, that statutory tax rate reduces from 30% to 28% with effect from April of this year.

Moving on to slide four here we look at the Henderson results in more detail, management fee income increased by 17% to GBP258m in 2007. This was due to continued revenue growth from higher margin products, exceeding outflows from lower margin business areas, which led to improved fee margins on average assets under management.

We also enjoyed market growth for most of the year. The largest contributors to the increase in management fee income were wholesale, property, private equity and hedge funds.

Transaction fees were 28% lower at GBP17.8m in 2007 mostly due to a slower pace of investment in property. The other contributors to transaction fees include sub-registry fees on our OIC business, foreign exchange dealing income and some stock lending revenues.

Net performance fees rose strongly by 34% from 2006 to just over GBP50m in 2007. These fees came from a wide range of products and the number of funds we earn performance fees on also continued to rise. The largest contributors to performance fee income in 2007 were property, hedge funds and investment trusts.

We expect to continue generating transaction and performance fees, although given the more challenging markets we may not achieve the same level of fees in 2008 as in recent years. We currently expect total transaction and net performance fees of nearer GBP30m in 2008. That takes us to total fee income in the first half -- in full year 2007 to GBP325.9m some 15% higher than in the year before.

Investment income in Henderson declined by 9% to GBP11.5m due to slightly lower activity levels in Henderson's seed investment portfolio compared with the prior year. As a result of the higher management and performance fee income earned in 2007 our fee margins on average assets under management increased with total management and net margins all up on prior periods.

Moving on to costs Henderson's operating expenses increased 6% from 2006 to just over GBP225m. Savings in investment administration, IT and office expenses were offset by increases in variable staff and other expenses, which included additional provisioning of approximately GBP3m and a seed investment impairment of GBP6m.

Fixed staff costs were stable due to management actions on pension costs, whereas variable staff costs increased in line with the improved operating performance during the period.

Increased revenue and slower cost growth resulted in an improvement in Henderson's cost to income ratio from 72.6% in 2006 to 67.5% in 2007, comfortably within our guidance for 2007.

Further to my comments on staff costs on the previous slide, here we show the movement in these costs in recent periods. Variable staff costs which include bonus and the cost of our share plans, move in line with total income. Whereas fixed staff costs have remained stable. Overall, staff costs have declined as a percentage of total income from 2006 to 2007.

Our goal for 2008 is to meet or beat Henderson Global investor's 2007 operating profit before tax. This may be achieved from a combination of management fee growth and continued cost management, assuming markets recover. If, however, markets remain subdued then we will aim to achieve it through cost reduction.

We've already taken some measured action in this regard, namely headcount and related restructuring from which we expect to realise savings of GBP20m in 2008, before a restructuring charge of approximately GBP2.5m before tax. This has been done without cutting any investment capabilities.

In addition we've identified a further GBP10m of non-staff costs that could be removed from our cost base if markets stay weak. Further savings are also achievable in variable staff costs depending on future market levels.

The variability of our cost base is an important advantage in tougher markets, and we are reasonably confident therefore of delivering a cost to income ratio for Henderson global investors of below 65% in 2008.

The balance sheets remain sound with good liquidity, conservative provisioning and prudent gearing ratios, including interest cover. Net assets were lower at the end of 2007 compared to 2006 due to the GBP250m special dividend and subsequent share consolidation in October of last year. This dividend brought the total of cash returns made to shareholders to GBP1.3b since May 2005. Our current position is that any further surpluses will be reinvested in the business for growth.

We've completed our initial assessment of the Group's regulatory capital requirement under the new Individual Capital Adequacy Assessment Process or ICAAP, set out in the capital requirements directive with effect from January of this year. This has been discussed with our U.K. regulator the FSA, but is still subject to their formal review and approval during this year. Nevertheless we don't foresee any significant change to our existing GBP75m minimum regulatory capital requirement, which gives rise to a regulatory surplus in our parent company of GBP328m at the end of December 2007.

Group cash and cash equivalents amounted to GBP248m at December 31, 2007 or approximately GBP70m net of debt. This is allocated as follows, GBP24m to pension commitments being the remaining GBP20m of the GBP80m additional contributions promised to the Henderson staff scheme during the period 2006 to 2008. And also a small balance of GBP4m committed to the Pearl pension scheme. GBP32m is to fund the final dividend for 2007.

GBP50m is allocated to regulatory and working capital as disclosed previously. GBP70m is allocated to provisions and contingencies, including warranties and indemnities still open under the Pearl and Towry Law U.K. sale agreements. And that leaves approximately GBP70m available for investment.

Although we continue to hold cash against all our accounting provisions, and the contingencies noted above, we are currently considering a less conservative policy, and believe some of the underlying cash could be available for other purposes.

The circa GBP70m identified for investment in the business could be used in a number of ways. As additional seed capital in Henderson products, for upgrading the infrastructure supporting our higher margin products, and for other opportunities that meet our criteria, for example, acquiring new talent and attractive books of business.

I'll now hand you back to Roger.

Thanks Toby. So in the rest of this presentation I'll cover investment performance and fund flows. I'll also talk in a bit more detail about our property business. There's been a lot of publicity about property assets in the media; we've had a lot of questions on that part of our business. So I want to cover that in a bit more detail.

But starting with investment performance, maybe the first thing to say is the environment for generating returns to our clients has definitely got a lot harder in the last few months. Against that more adverse environment performance in general, I think, is still the right side of the line.

So if you look at the three year numbers on the right-hand side of this slide, broadly satisfactory especially in those high margin areas. So good numbers in U.S. mutual funds, good in European mutual funds Horizon, good in hedge, very good in property. And it's the three year numbers, in our view, that tend to drive flows. So we are reasonably happy with that position.

Over one year the numbers are still good in U.S. mutual funds and hedge and property. They weaken somewhat in the U.K. and -- U.K. retail and Horizon, although actually the Horizon number is very significantly affected by outflows and underperformance in property securities. Without that actually the Horizon number would be about 68%.

Towards the bottom of the slide in the lower margin areas still not yet where we want to be but very much moving in the right direction. The most important point though is we've looked at investment performance over three years is do you have enough products that are sellable out there in the market and across the high margin range? We definitely do.

Obviously another way of measuring success in investment performance is the outcome on performance fees. And there 2007 was obviously a standout year, net performance fees was just over GBP50m compared to GBP37m in 2006. And really generated right across the business in property, in hedge, long only investment trust, European mutual funds and so on, and as you heard from Toby 65 different funds generating those fees up from 52 in 2007 -- 2006 rather.

As regards 2008 performance and transaction fees obviously it's still really early in the year, so it feels quite bold making a forecast about performance and transaction fees. Having said that we are reasonably cautious about markets. We don't expect markets to move really higher than current levels. In fact our working assumption there is a little bit lower than current levels.

And on that basis we are expecting something like GBP30m of performance fees and transaction fees in '08 rather than the GBP50m guidance that we'd given previously for that number. Obviously if we are wrong and markets improve the scope for that number to be higher than that forecast.

Turning to fund flows, as we already showed you on the first slide total assets under management declined from GBP61.9b at the end of 2006 to GBP59.2b at the end of 2007. So moving from left to right on this slide then we start the year with GBP61.9b market movements, add GBP2.6b, the lower margin institutional book, so outflows of GBP2.2b. That number includes GBP0.9b of outflows associated to the expiry of our sub-advisory agreement with BPI. That's pretty low margin business at the end of 2007.

Higher margin net flows further on the right of the slide. And net GBP1b in that was GBP0.4b first half GBP0.6b in the second half. And those totals included good flows into U.S. mutual funds, property and hedge funds.

And finally on the right-hand side Pearl outflows GBP4.1b out in line with the run off of that book of business. And as you know we announced earlier in 2007 there is GBP9b outstanding that we expect to transfer back to Pearl at some point in the first half of 2008. Plus we announced previously that the Pearl staff pension fund was going to withdraw GBP1.8b. I think we said that was about GBP2m of revenues that they've already announced. We think that will happen at the end of this month. We flagged all those announcements in relation to Pearl in previous announcements, so that's not new news.

The next slide puts those 2007 assets under management into a longer term context. And it shows that since 2002 our high margin assets under management have grown steadily from about GBP13b to approximately GBP28b so steady and good progress there.

Obviously by contrast the lower margin institutional and Pearl assets have shrunk significantly for all the reasons we've discussed before.

The net result of those trends is first those higher margin products are now about half our total assets. Second as a result of the change in mix our revenue margins, as you saw from Toby, have now risen to over 50 basis points in our whole business. And third obviously Group revenues and profits have risen steadily to the strong result we've announced today, despite the fact that assets under management were obviously lower than they were in 2002.

Next slide has a little bit more detail on fund flows last year. Now the standout performance we think was the GBP1.4b into U.S. mutual funds. That was driven by consistently good investment performance and the shift towards international products, which I suspect myself, is a multi-year shift towards international products by U.S. investors. Those flows actually meant that we ranked fifth in terms of net new flows in U.S. mutual funds amongst all international and global fund providers in 2007. From a standing start five or six years ago that's a pretty credible outcome we think.

In property we saw a GBP0.9b inflow. A slower pace of investment there than we'd seen in previous years. But as you see taking all our property business together, at the bottom of the slide, we've got a GBP2.3b pipeline to invest in 2008. That's not included in assets under management and it's not included in our revenues, because we only charge when we get the money invested. And obviously we hope that the weaker property markets that we had in the second half of last year will make that money easier to invest than it was in 2007.

As regards outflows we covered the GBP0.9b CDO related outflows in the half year results, so I won't go over that ground again. And finally U.K. and European mutual funds GBP0.5b outflows this year. That number includes GBP0.6b of outflows just in property securities in 2007, so excluding that we had modest net inflows into the Horizon range in particular.

Thinking about 2008 and what the picture will be like. In our view, recent weakness in markets, which we suspect is more than likely to be sustained, and has clearly damaged investor confidence, and we are cautious about mutual fund flows in 2008. I hope we are wrong but that's our view.

We've got plenty to sell and good performance with European equities, U.S. equities, Japan and specialist fixed income products. But our view is that we will need a recovery in markets and a recovery in investor confidence to achieve significant net inflows into mutual funds in our business.

Elsewhere in the Group, however, we do see opportunities, and in three particular areas. First that GBP2.3b pipeline in property, and as I say because of recent market weakness I think we've got better prospects of getting a chunk of that money invested.

Secondly on hedge funds, we had a relatively quiet year in 2007 but this year we are planning to expand capacity in some of our most successful hedge funds. And I think that will help flows there in 2008 and 2009.

And finally on institutional for the first time in a long time I think we are making steady progress, with a reasonable number of buy-rated products. So in the first two months of this year we've won GBP600m of net new business in institutional, which is the first positive trend we've had for some time there. It's an encouraging start to the year.

I said at the start of this presentation that I wanted to spend a bit of time on property because we've had a lot of questions about that, a lot of concerns, which we think are misplaced in relation to our business.

So we set out on the slide here, maybe the place to start is the middle of the slide, the total AUM. You can see we manage about GBP9.8b of assets in property. This is physical property investing in buildings just over half in the U.K. and the rest in Europe and the U.S.

In the U.K. there has obviously been a sharp correction in the property market. And our expectation from the peak in the middle of last year is that values will drop by about 20%. And we've seen about two thirds of that already -- has already occurred. In Europe we think the decline will be less than half that amount a much more shallower correction there.

The geographic diversification that we have is helping to mitigate the impact of that downturn on our property business. So for the second half of 2007 the market movement in our U.K. assets under management was minus 7%. If you combine the U.K. and Europe together the decline was only minus 1.7%. So you can see the benefit of that geographic diversification, partly because as well we are investing in sectors of the market which have outperformed the market as a whole.

As far as redemption risk is concerned it really applies only to that open ended section of our property business, so GBP0.8b, GBP800m. All of which are institutional funds. We currently have a total of GBP22m of redemption requests, which we are obviously processing in an orderly manner. It's less than 0.2% of our total AUM. And, therefore, we think the impact on our business relatively insignificant.

Just to try and deal with all the issues which I read about in the paper. We also read about concerns about banking covenants coming under pressure as a result of decline in property valuations. In our business our aggregate loan to value ratios are about 40% so much more conservative than some investors and some funds. And in fact over the last six months we've seen a number of lenders wanting to do business with Henderson given the less opportunistic nature of the funds that we have.

We actually see in our business good prospects emerging from the current downturn in property. As far as the U.K. is concerned we are actually already seeing demand from strategic investors interestingly from German investors, keen to take advantage of market conditions, as they actually did very successfully with Henderson earlier in the 1990's. We've got existing fund platforms in place to take advantage of those opportunities. So obviously we expect to see the benefits to our AUM as we get our existing pipeline invested, and as investors come to us to take advantage of those opportunities.

The bottom line of all that is our property business is in pretty rude health. It's been very good in the last few years, and it is a very robust business.

Reverting back to trends in the whole business, we've used these triangles before to try to show the proportion of assets under management and revenues accounted for by our high margin business lines. As you can see high margin products now just under half of our total AUM, and just about three quarters of our revenues. And as I said before it reinforces the theme running right through this and previous presentations that are improve -- it's the improving mix of business that is helping to drive revenues and profits higher.

The final section we've called 'outlook'. Maybe the first thing to say is that I've never been happier that we have such a diverse business. It's definitely a source of strength in a more adverse environment. Our assumption is that markets remain flat at best, in fact, a little bit lower than their current levels, and that investor confidence remains pretty fragile. Hence my comments about mutual funds a moment ago.

So in response we have to do a couple of things. First we have to remove some costs from the business without damaging our prospects and our growth prospects. And as you heard from Toby we have already done some of that. And we have additional flexibility via variable compensation.

Second we've got to keep growing the business and taking advantage of the opportunities that do exist. And you heard we've got lots of those in property, in institutional and in hedge, and of course, in performance fees where we can generate those.

If we continue on that path then we think the outcome for 2008 will be a satisfactory one. As you've heard we aim to meet or beat the profit we recorded for Henderson global investors in 2007. Meanwhile there is no doubt that the tougher environment is going to present opportunities for us, either to lift out teams or to make bolt-on deals. And we are actively looking for those opportunities. As you saw from Toby, we've got a strong enough balance sheet to consider those.

Overall it feels to us like we are very much on the front foot. The diversity gives us a lot of protection. We can manage our costs harder, we've got good opportunities to grow the business. And if we do those things we will be pretty well placed if and when markets recover.

So I am going to pause there. That's the end of the formal part of the presentation. We will now take questions, and if I can ask the operator to provide instructions to people on the phone, we can pick those up in due course. So Toby and I will share the questions between us, you can take the difficult ones.

Thanks its Bruce Hamilton Morgan Stanley. Two questions, just to check on your profit guidance is that referencing the GBP109.6m?

Yes.

Is that number i.e. so it's before the interest --?

Yes.

Interest charge. Great. Okay. And secondly can you just sort of remind me on the position with BPI in terms of that joint venture arrangement? Is that completely ended now? Do you have any assets that you are still managing?

Yes, no we do the institutional part of it has ended, but they still have about GBP200m invested in our Horizon range of funds. So in that sense they are an important client.

Thank you.

Andrew Mitchell at Fox-Pitt Kelton. I wonder if you can say a bit more about the cost reduction which you've implemented. What -- perhaps one way of looking at it would be that if you can do this without impacting the business why hadn't it been done before?

It's a very good question. Look, when business is fantastic and markets are up and everyone has got a zillion ideas, the fact is you always take on some fat and we've tried to address that. We've had -- we've set ourselves a pretty robust challenge of meeting or beating last year's Henderson Global Investors profit. And you really have to work hard to achieve that and it's against that background that we made the costs decisions that we've made.

It might be worth saying that actually that the GBP20m that we identified in hard edged savings for which we are going to take a GBP2.5m charge in '08. That's done, so it's already complete and the people that we've sadly had to let go are out of the building already. So we will get -- that GBP20m is the benefit we will get in 2008.

I just wondered whether in terms of your product portfolio, if you look at the performance and how you are set up, in which area you still see some weakness or where would you want to strengthen the business?

Where we want to strengthen the business. I think by and large the product set is wide enough for us to take advantage of just about anything that happens. We don't have things like commodities so that -- we don't have a massive emerging market equity presence, but those would be the only two obvious (inaudible). We don't particularly have any plans to enter either.

The product -- we've got enough products to sell we just need to make sure we have good performance and we can convince the clients to come to Henderson rather than elsewhere. And the danger is, frankly, if we proliferate products too much then that starts to impact on the cost base inevitably. So it's important that we're disciplined about the products that we have.

Jason, I know (inaudible).

Just a couple of ones. Just going back to the costs for a second. Can you give us some idea of what the GBP20m actually is, is it largely staff costs? Is that what the saving is?

Do you want to pick that up Toby?

Yes, sure. Yes. We have removed some actual heads as Roger alluded to a moment ago. We've also removed a number of vacant positions from the plan this year. We've also looked at salary increases above a certain level. So it's a combination of all those things.

Because the one surprising thing to lots of us here is normal rule of thumb if you want to save GBP20m in a year it costs you GBP20m in a one-off gain. So the GBP2.5m looks incredibly low cost to achieve that annualized saving.

Roughly between the two, vacancies and redundancies, it's about half and half, which probably helps explain it a bit more.

And for the extra GBP10m where would that be? Is that more -- I know it's a sensitive issue but would that effectively be more people?

No. The extra is non-staff costs, the extra 10. It's marketing. It's T&E, it's legal costs, it's not launching funds. If we're right and markets are more difficult and mutual funds sales are hard to come back there's no point in throwing money and product at it, so that additional GBP10m is more in that area. It's not additional staff savings.

Right. Thanks.

Hi. I wonder if you could maybe give a bit more color on the GBP3.1m of additional provisions under seed impairments for the year in terms of costs so we can get an idea of that.

Yes. The GBP3.1m is old news, actually we announced that in the first half of last year. And most of it, GBP3m of the GBP3.1m actually relates to provisioning for National Insurance costs against a legacy bonus scheme which is a prudent position that we're taking during some negotiations with the HMRC just to get that fully wrapped up.

The new news is the GBP6m of seed investment impairment. You're probably aware that we have a diverse portfolio of investments in Henderson products and sometimes they work and sometimes they don't, it's risk capital. And this was a structured product and, again, we've taken a very prudent position on valuation and written it down.

Were there any similar sort of provisions in previous year or was this not really?

Not for the impairment, but we did have a certain amount of National Insurance provisioning also in 2006. So the total provision on the balance sheet for that particular item is now GBP5m or GBP6m and we don't expect to increase it further.

Thank you.

Hi. Carolyn Dorrett, Citigroup. Can you just give us a little bit more details in terms of number of staff that you've let go and maybe an expectation for an average staff level in '08?

Just over 40 was the staff number. Average staff numbers for '08?

We're seeing about 900.

About 900.

And in terms of the U.K. ISA season coming up. Am I right in thinking that you might have changed your charging structure at all for your U.K. Mutual Funds?

We may be doing some special offers but I don't think there's a headline charge. And in any case even if there was you shouldn't assume that the net to us would be any better. We make about 75 basis points on our U.K. Mutual Funds overall. If we're doing special deals you shouldn't assume that the net to us is any higher or lower. Where's Andrew.

(Inaudible).

In the round you should just stick -- stay with an assumption of 75 basis points.

(Inaudible), I'd forgotten my other question. Can you give us some black and white on the potential acquisitions because this is a bit of a reverse for you? You've always slightly been cagey about acquisitions in the past. So I wondered what sort of thing and how likely it was? You don't normally mention these things unless there's something clearly if the offing.

I don't know try to get on the front foot with you. Well, you're right, generally we've been sceptical. Whenever we have looked at things in the past, as you know there was particular thing we looked at going back a couple of years, but we've always thought it's just too difficult and the things are too expensive. I do think that things have been freed up a little bit. We can see in various places big organizations for a long time - they just can't find the right way to drive their own lives. I think the structure we've got in place here, our investment management operation with David -- run by David and Andrew is very attractive to those types of teams and movers. So we're always looking at that but we're probably looking a bit harder now. I wouldn't be specific about where those might be. We're interested in talent wherever it can come. It is as likely to come in -- I probably shouldn't mention anything because people read too much into it, in main stream equity as it is in small cap or global equity. I don't think you'll see us make radical departures, so I wouldn't expect us to hire a big commodity team or something like that.

And then in terms of small bolt-on deals that might be bits of a business or whole small enterprises that are finding the going a little bit tougher and where the fund managers want a bit more security but plus the sort of entrepreneurial environment we can offer. This is a forward-looking statement, not a statement of today. It's just to alert you to the fact that it is as a new answer change to what we've said before. And we want to make sure you're just all aware of that. I don't know if that's black or white.

We might just see if there are any questions on the phones.

Thank you sir. Our first question comes from the line of Nigel Pittaway. Please go ahead with your question announcing your Company name.

Hi Roger and Toby, it's Nigel Pittaway here from Citi. Just a couple of questions if I can? First of all, just in the movement on the performance and transaction fees, obviously GBP61.9m to guidance of GBP30m next year. I just wondered if you could give us any color as to what areas are taking the biggest haircut there, or which you anticipate to take the biggest haircut and which will stay the most resilient?

And then also on the market assumptions, you obviously said that they are a little bit lower than current. I was just wondering whether you can be more specific than that? Does that mean -10% or that sort of area.

I'll take the first and Toby can take the second. The first one, I think we're probably more relevant to '07 most cautious about property. Because even if we do relatively well and the returns are negative that means it's much harder to earn performance fees. And there were some, I think we identified there were some three year fees payable in '07 so that would be the biggest reversal in '08. But to -- it feels pretty brave to forecast performance and transaction fees two months into the year and I think your assumption should be that to do that we've had -- we've got pretty good visibility on that -- reasonable visibility on that GBP30m. If things get better, great. But if they don't that will be the number or something like that.

Toby on market assumptions.

Well, the rule of thumb is something that equates to the average markets. We've seen it in January, February of this year.

That means a few percent lower than where we are today.

Okay. Thanks.

Okay, Nigel.

Our next question comes from the line Arjan van Veen. Please go ahead with your question announcing your Company name.

Thanks. Roger can you just clarify on Nigel's questions? In your outlook statement you're saying flat markets for 2008. I assume if you're answering Roger's -- sorry Nigel's question you're actually assuming you'll going to slide down from here in terms of your forecast?

Correct.

The second question was again similar to Nigel's. On your GBP30m of transaction performance fees, given you seem more upbeat about the ability to invest that $2.3b of Property Mandate, it is fair to assume that the reduction is really largely coming from performance fees rather than transaction fees?

Well, we'll see but I think the biggest element is definitely performance fees, yes.

And then following-on from that so the GBP50m previous guidance if you assume more normal markets in '09 would that still be a relevant number?

Yes it would. I think so.

I then finally, just one on the cost base. The GBP20m reduction you're referring to come from this restructuring, that I would assume if I compare it to the '07 cost base would be on top of that GBP9m of normal charge that came through in 2007?

I'll let Toby answer that because he made a point about RPI yesterday.

I think what you do is if you take the GBP9m out you need to add back something in for Retail and/or Consumer Price indexation, so the two offset one another really. So your starting point is GBP228m for HGI and then you take the GBP20m off of the GBP10m and so on and so forth.

Okay.

While I've got you. Just to make clear we said we'd meet or beat the 2007 Henderson Global Investors profit outcome.

Yes, we sent out a correction on that Roger.

Okay, great.

Next question comes from the line of Kieren Chidgey of Merrill Lynch. Please go ahead with your question announcing your Company name.

Kieren Chidgey from Merrill Lynch. Just wondering if you could comment on your growth in the U.S. I see recently you've launched an Institutional offering there. I was just wondering on what your outlook for that is? And also whether or not you're aiming at or considering in terms of acquisitions broadening your base in the U.S. generally?

You're right we have launched an Institutional product really focused on Ether in the U.S. And the numbers -- the [prawn sums] are great. It'll take time to get traction just as it took us time to get traction in Mutual Funds.

In Mutual Funds themselves the industry has definitely turned negative, just as the U.K. and European Mutual Fund industry did in the first couple of months of this year. Our flows have remained positive but also have been slower than they were in 2007. There's no doubt that we're building a good infrastructure there, good distribution agreements, putting more product down that pipeline but we need confidence to be there amongst the Mutual Fund buyers. So although I expect U.S. Mutual Fund flows to be positive in 2008 as I've sat here today I'd be surprised if it was anything like as good as 2007.

Right. Thank you. And in terms of potential acquisitions?

Acquisitions, I didn't answer that question. We're quite happy with the organic nature of our development in North America. I think the comments I made about investment teams and infill deals, I think we think very much about the U.K. and Europe for those opportunities.

Thank you.

Our next question comes from the line of Andrew Hills. Please go ahead announcing your Company name.

Good morning gentlemen, it's Andrew Hills from Wilson HTM here. I've got a few quick questions. In November last year you advised there was major change in corporate cost between 2007 and 2008. Does that guidance remain?

Yes. At about GBP9m.

Okay. Second question is I note there's an increase in the dividend payout ratio in the second half. Is there any change in the dividend policy?

The dividend was twice covered in 2007. If you look at the millions of pounds numbers as opposed to the earnings numbers there's a distortion because of the calculation on earnings per share compared to dividend per share. The earnings per share is a weighted average, the dividend per share is done at the end of the dividend -- point at which we pay the dividend, point at which we announce the dividend.

But the dividend was twice covered. We've said in 2008 that we'll look at the dividend payout ratio and although we haven't had the discussion with the Board yet I think our expectation is that we'll prudently increase the payout ratio. If you wanted to make an assumption I'd assume something like a 5% improvement in the payout ratio in each of the next three years and then leave it there after that. That's probably a reasonable working assumption. As I say we've yet to have that discussion with the Board.

Okay. And also I'm interested your comments about finding another GBP10m cost savings if markets don't recover. I'm interested because I'm just wondering why you are running a business on the -- or why are you running your business dependent on something that you can't actually control? It sounds like you're trying to achieve a return for shareholders. Is that the case?

What was the last point, we're trying to do what?

It sounds like you're either very established costs or you're trying to achieve a return for shareholders?

Well, we're definitely trying to achieve a return for the shareholders and we don't have control over the market. So we're doing our best to plan prudently and if it turns out that we've been overly prudent then that's helpful.

Okay, and then just one more while I'm here. The Hedge Fund investment performances overall look very weak in the second half of '07. Firstly is that correct? And also following on from that how have the Hedge Fund performances been going since the beginning of this calendar year?

I think we had some good performance in '07 and some -- we had one fund in particular Japan which wasn't a good performer. Everything else was there or thereabouts. 2000 -- obviously we're choosing good performance fees in 2007 as you saw from the slide. In 2008 a couple of our funds are doing very well, our largest fund which is Europe, Andrew is up 12% so far this year which in an adverse circumstance is pretty good. Things like Asia were very good last year and have started steadily this year. Style Rotational was fine last year, started off reasonably this year. Multi-Strategy was good last year, probably too early to write home about that, but by and large Hedge Fund performance is fine. And as I say that's why we think we can expand capacity in the most successful ones in 2008 and 2009.

Okay. Thanks Roger.

Okay. Sure thing.

Our next question comes from the line of Mark Hancock. Please go ahead with your question announcing your Company name.

Good morning Roger, Mark Hancock from [Precept].

Good morning Mark.

Just three quick questions. Firstly on the seed investment write-down, the impairment provision. Is that impaired to current market values and is there any prospect for recovery there if the underlying products improve?

Well we've written it down to a small residual balance. So we are still carrying a few million pounds of value on the balance sheet which we think is a very prudent position. Hopefully there will be some upside to come but you can't forecast in these credit markets.

Okay. Second question was on the Pension Fund surplus GBP62m is there any prospects for some value to bid win to the shareholder through there?

No.

No, no contribution holiday.

I'm afraid not. The accounting basis which is what you see in the accounts is anathema to scheme trustees and scheme actuaries. They work on actuarial figures not IS19 accounting basis. And obviously there's a big debate on at the moment about longevity and our own scheme trustee has started to look at that. But the general trend is that DB schemes are becoming more and more expensive. Ours is now a closed scheme, we've changed the investment policy of this scheme as well, all those thing help but I think it unlikely that any of that surplus will revert any time soon.

If longevity doesn't get you then suddenly deciding we should use gilt rates as a discount mechanism rather than AA bond rates that'll get you. So definitely don't assume anything coming back to the shareholder.

Right, third question. The performance fees the GBP30m base case presumably that will be skewed to the first half in the similar pattern to the previous periods?

Yes. I think that's a reasonable working assumption. In '07 it was split probably 35/15 something like that. So if you like it's a two-thirds/one-third split. I think that's a reasonable working assumption for '08.

Has that GBP30m been tracked home in some sort of objective bottom-up way or that is that just your arbitrary sort of feel?

No. We just made it up. No. We've done some detailed work and made a set of, what we think, are realistic assumptions and it's very much been dealt from the bottom up.

And do those assumptions assume slightly down but not materially down markets?

Correct.

Yes. Okay Roger. Thank you very much.

Thanks a lot.

Much appreciated.

Our next question comes from the line of Martin Cross. Please go ahead announcing your Company name.

Good morning. Martin Cross, HSBC. Just going back please, to the meet or beat target of the GBP109.6m. I mean, taking it -- going further down the P&L you've got a expected GBP16m/GBP17m swing on net interest, corporate costs being the same so that gives you -- you're going to be in -- if you met rather than beat the GBP109.6m you'd actually be at about GBP90m. Now on a full tax rate, 28%, that takes you down to about GBP65m post tax profit. I don't know what it is in earnings per share I haven't got the right number of shares to hand.

About 724.

I'm sorry.

About 724m.

Okay. At the same time you're talking about raising the dividend payout ratio. You've taken your debt into a floating rate environment. Just how close to the wind are you sailing here in terms of your interest cover and what your bankers think of your dividend payout? I'm sure you're going to say you've got plenty of headroom but perhaps you'd give us some bearings on that?

I am going to say that but I'll let Toby answer the question in detail about that instrument comment.

Well the debt instrument itself doesn't contain any covenants that bind us to specific targets on debt equity, debt EBITDA or interest cover. But when we raise the funds obviously we had conversations with the investors on guidance for all of those things. And the slide that we've given you in the pack today I think demonstrates that we're well within prudence on all of those measures. And it's important that we maintain that prudence and we think we can comfortably and achieve those shareholder targets as well.

Given that you've got a fairly hefty dividend yield on your stock already, at current share price anyway, why do you want to increase the dividend? Or should we say, increase the payout ratio? Is it to do with your plans for using your shares for bolt-on acquisitions?

Absolutely not. It's steady progress in trying to deliver returns to shareholders of which dividends are an important part. And I think having a progressive dividend policy hopefully underpins that strategy. It's no more than that Martin.

Okay. Thank you.

That concludes the telephone questions sir.

Okay. Anymore here? Yes.

Chris Smith from Oriel Securities. Just an industry question, given what you've said about performance fees and I think generally one expects the industry to record lower performance fees in '08, do you think the client, your clients will -- what do you think the reaction they'll have to that, I'm not talking specifically about Henderson, but do you think they'll say that's good we'll paying less performance fees to you guys or will be a longer term impact? They're saying well actually these performance fees generally are too high and then maybe a bit of pressure?

I think Hedge we see no signs of pressure there. They're grown up investors; they know what they're getting into. Elsewhere in the business there's definitely more and more examples where clients are embracing performance fees as an alignment of interest with the fund manager. And that's happening in both the Institutional arena but also in the Retail arena as well. We've got performance fees on our European Mutual Funds. Maybe there are ways of getting them on our U.K. Mutual Funds.

I think my experience is clients embrace that, what they're not interested in, in my experience, is paying performance fees for relative performance when overall performance is negative. So the returns have got to be positive and the high watermarks are put in place to help protect the investors' interests. But with those caveats I think we see performance fees as on more and more of our client portfolios and actually being embraced by the clients and I think that's probably true across the industry.

Okay. One more there.

(Inaudible). Relating to your investment performance that you have highlighted on slide 11, you have clearly highlighted the detailed performance of raised funds. But if I compare these numbers with what you had given at the time of the interims there is some clear deterioration in performance especially in high margin products. Can you give some color on the reasons and what steps are you taking too?

I think this has been a deterioration that has been the European Mutual Fund range, and I think I said it half way through that a chunk of that is because these are weighted average numbers, asset weighted is to do with the under-performance of property securities, without that that number would be considerably higher. U.K. Mutual Funds I don't think there is anything specific Andrew that would point to.

(Inaudible) and has moved from a under gear to a geared position and buying (inaudible), early in December or January (inaudible).

In the U.K. Mutual Funds one of the bigger funds is our U.K. Equity Income Fund which we've got high hopes for. In the more recent months that has under-performed a little bit because of the James Henderson buying into financial stocks and he was a bit early in there. It's coming right now. Hopefully that will change the numbers round. But it's a fair point, we've got to do better in the round, and my colleagues know that in European and U.K. Mutual Funds.

Okay, let's wrap it up there. Thanks very much for coming. If there are any more questions afterwards you know where we are.