Janus Henderson Group PLC (JHG) 2008 Q4 法說會逐字稿

Okay, we might make a start. Obviously, there are other, bigger news items on today, and a lot of what we're putting out, obviously, we've announced earlier in the year. But what I want to do is welcome you all to Henderson Group's 2008 full year results presentation. Hopefully, those listening by phone or via the webcast can hear us clearly.

In addition to the information that we'll present in the presentation, there is more detail in the stock exchange announcement, and the Appendix 4E that we [lodged] earlier today. All those documents are available on our website at henderson.com, if you wish to get copies later.

I'll make a few initial comments on the results, and then Toby, our CFO, will cover the financial aspects in more detail, before I complete with talking a bit more about business development and the priorities for the rest of the year. We'll be happy to take questions at the end of the briefing.

And if you look at slide one on the overview we operated in an extremely challenging business environment last year, with major equity markets suffering one of their worst years on record. This was matched with significant falls in property, and also corporate bonds. Considering the ongoing volatility and uncertainty in market, I've been reassured by our robust business model.

Due to the cost action we took earlier in the year, Group profits were upheld at GBP80 million, with earnings per share down less than 1p per share to 10.8p. Henderson Global Investors profit was GBP99.7 million, which is 9% lower than the year before.

Supported by a 24% decrease in operating costs, the Henderson cost to income ratio improved from 67.5% in 2007 to 63.4% in 2008. Total assets under management were GBP49.5 billion at the end of 2008. The Board is recommending a final dividend for 2008 of 4.25p per share, which will bring the total dividend to 6.1p per share, the same as the total dividend paid for 2007.

I'll now hand over to Toby, who'll talk through the financials in more detail.

Okay, thanks, Andrew, and hello everyone. So, profit for the Group before tax and non-recurring items in 2008 was GBP80.3 million compared to GBP106.7 million in 2007. After non-recurring items, the Group made a loss before tax of GBP17 million in 2008 compared to a profit of GBP147 million in 2007. That was due to the recognition of certain one-off charges in 2008 compared to some one-off gains in the prior year, which I'll say more about later.

Within the Group profit figure, Henderson delivered a good result, given the challenging market conditions we faced throughout the year; namely, profit before tax and non-recurring items of GBP99.7 million, 9% below the result in 2007.

Corporate made a loss of GBP19.4 million before tax and non-recurring items. Within that, corporate costs were down 15% in 2008 to GBP7.7 million, whereas corporate net interest turned negative in the year, to GBP11.7 million, due to the introduction of some debt in May 2007, and also lower cash balances following the special dividend we paid to shareholders in October 2007.

We expect corporate costs in 2009 to remain at a similar level to 2008; whereas we expect corporate net interest costs this year to be approximately GBP3 million less than in 2008. And that's because, in December of last year, we decided to unwind an interest rate swap on our corporate debt, which gave rise to a profit before tax of GBP12 million. The bulk of this will be amortized over the remaining term of the debt, which is approximately 3.5 years, as a credit to corporate interest.

Moving to tax, in 2008, in 2008, the effective tax rate for the Group on recurring profits was 10.7%, in line with previous guidance. And as a result of our scheme of arrangement, which we implemented in October of last year, we expect the Group to achieve an effective corporate tax rate of approximately 20% per annum from 2009 onwards.

Slide four shows Henderson's results in more detail. Net management fee income in 2008 was GBP221.9 million; lower than in 2007, mostly due to markets, which were, on average, some 16% below the levels of the prior year. The largest contributors to management fees in 2008 were wholesale, pan-European property, and institutional funds.

Good net fund inflows into our institutional business, mostly fixed income and cash mandates, and relatively modest net fund outflows from our higher margin products, meant that average management fee margins declined only slightly from 42 basis points of assets under management in 2007 to 41 basis points in 2008.

Transaction and net performance fees in 2008 amounted to GBP35.9 million in total. That's ahead of guidance. Transaction fees were GBP16.5 million, just 7% lower than 2007, principally due to a slower pace of investment in our Property business, whereas net performance fees were GBP19.4 million, compared to the record result of 2007.

All of that takes total fee income in 2008 to GBP257.8 million, 21% lower than in the year before. Our total fee margin on average assets under management was 2008 was lower than in 2007, due to the lower transaction and net performance fees, whereas the net margin on average assets under management improved in 2008 to 18.6 basis points compared to 17.8 basis points in 2007, due to higher investment income and active cost management.

Turning to costs, Henderson's operating expenses decreased 24% to just over GBP170 million in 2008. This was the result of savings in most expense categories, including a GBP43 million, or 28%, decline in staff costs due to falling headcount and also lower variable pay, given the weaker revenue environment.

Our active approach to cost management enabled Henderson to deliver an improved cost to income ratio, from 67.5% in 2007 to 63.4% in 2008.

And further to my comments on costs on the previous slide, here we show the decline in our compensation ratio from 46% in 2007 to 41% in 2008; variable staff costs, which include bonuses and share plans, reduced sharply in 2008 given the reduction in total income.

The non-recurring charge of GBP97.3 million in 2008 is before tax relief and comprises the following elements; our profits on unwinding the interest rate swap on our corporate debt, and the accounting treatment for this profit is now as follows.

A GBP1.5 million non-recurring profit being the realized fair-value movement from unwinding the swap instrument, and a GBP10.5 million above the line profit being the fair-value adjustment to the debt instrument, which we will release over the remaining life of the debt as a credit to corporate interest.

Secondly, a GBP68.8 million adjustment to our equity stake in Banco Popolare due to the part disposal and impairment of this investment, given market conditions last year, and in accordance with accounting standards.

Thirdly, a GBP7.2 million impairment charge in respect of a holding in a Henderson structured product, again, due to the deterioration in markets. Fourthly, a restructuring charge of GBP15.7 million, in relation to reducing Group headcount by approximately 9% during the year, and we expect to achieve a one year payback on this initiative; and ultimately, a GBP2.6 million expense on a review of most of our third-party investment administration arrangements last year.

And we can announce we've awarded our existing partner, which is BNP Paribas Security Services, with a new contract for investment operations that enhances our relationship with them, provides a full range of investment operation services to us and our clients, and also offers global access to BNP Paribas customers for Henderson.

Finally, the cost of implementing the scheme of arrangement, which was approximately GBP4.5 million, as previously disclosed.

The balance sheet remains sound, with good liquidity and prudent gearing. In addition, the regulatory capital surplus in the firm remained healthy at GBP299 million at the end of December last year. Within the balance sheet, gross cash and cash equivalents amounted to GBP152 million at the end of December 2008, or GBP146 million net of restricted cash. And that cash balance is allocated as follows.

GBP44 million earmarked to fund the proposed New Star acquisition. GBP35 million to fund the 2008 recommended final dividend, and that covers the placing and other new shares, in connection with the New Star acquisition; GBP20 million to cover short to medium-term accounting provisions and GBP50 million to regulatory and working capital, which is consistent with prior years.

So I'll now hand you back to Andrew.

Thanks, Toby. I'd like to cover a few points on our business performance, and comment on how I see the future for Henderson. If we turn to investment performance first; there's no doubt that it was a tough environment in which to generate investment returns to clients.

Looking at the numbers on this slide, you can see that our one-year numbers in quite a few categories were weaker than we would prefer; in particular, property-enhanced index and hedge funds suffered.

Whilst much of the under performance in the hedge funds and the halved index ranges was due to the exceptional market conditions, action has been taken to improve future performance. So far in 2009, for example, our hedge fund range has delivered net positive returns, and this includes, for example, Stephen Peak's European Absolute Return Fund, which is up 25% this year, and our Global Multi-Strategy Fund, which is up 11%, recovering some of the recent drawdowns from 2008.

In pan-European property, the performance track record is pending publication of the [IPD] annual benchmark next month. The 2008 score for funds with the market or peer group as their benchmark is expected to come in around 50%. Although, due to the fact that a lot of our funds also have absolute return benchmarks, where the benchmark is cash, the overall performance is expected to be around 21% of funds achieving or beating their benchmarks, which will bring down the three-year track record to around 50%.

But if we turn and look at other parts of our business, investment performance remains competitive. If you look at the UK -- the US wholesale fund range this has maintained its good track record with over 85% of assets outperforming over one and three years. Our flagship fund the Henderson International Opportunity Fund has for the seventh consecutive year delivered top quartile performance and beaten its benchmark, positioning us well for when client sentiment returns.

Similarly the Horizon SICAV has delivered strong performance with 82% of assets beating target over three years. Here again, our flagship fund the Horizon Pan European Equity Fund run by Tim Stevenson is top decile over one year, three years, five years and since inception.

In fixed income in 2008 the Henderson All Stocks Credit Fund and the Henderson Long Dated Credit Fund delivered top decile performance compared against their institutional peers.

Our UK wholesale fixed income funds also benefitted from net inflows in 2008 in a market that was in net outflow and this was due to strong and consistent relative performance of the funds against their peers. The Henderson Strategic Bond Fund run by John Patullo and Jenna Barnard is second quartile over one and three years and first quartile over five years.

In addition in 2008 we saw a number of consultant rating upgrades, fixed income, positioning us well to continue winning new client assets in 2009.

If we turn to performance fees at the beginning of the year we anticipated that this would be a more challenging year, which would generate performance fees. In light of that we are pleased to have achieved performance fees of GBP19.4 million. Performance fees were generated across the business with hedge and property being the biggest contributors. Despite tougher markets the fees are still being sourced from a number of different funds, although as you expect this is down on 2007.

Turning to slide 12 you can see the movement in our assets under management in 2008. What I'll do is turn to the next slide, which will cover this movement in a bit more detail.

Despite difficult markets Henderson's asset under management has proved resilient. Our institutional business continues to improve and we had significant inflows here of GBP3.7 billion mainly into fixed income and cash funds where both areas have performed well relative to both their peers and their benchmarks. Our cash business, for example, grew significantly in 2008 as the Henderson Cash Fund was the best performing cash fund over one, two and three years.

In the higher margin businesses we had net outflows of GBP800 million or approximately 3% of our higher margin assets. This is comprising GBP1 billion out of our wholesale fund ranges, GBP400 million out of hedge funds and GBP300 million out of investment trusts. This is offset to some extent by GBP900 million into property.

Property flows were positive in the first three quarters of last year, with recent outflows only due to sales of property ahead of reinvestment by the team and repaying down some debt. We still have GBP2.1 billion of property pipeline to invest.

On property, we expect the recovery in property markets to remain some way off and we currently expect a recovery to start towards the end of 2009 or beginning of 2010.

In regard to Pearl we had net outflows of GBP6.7 billion. We continue to manage GBP11.5 billion of assets for Pearl, which include GBP4.7 billion which is already under notice of withdrawal on a care and maintenance basis. Remember, that as part of the IMA agreement with Pearl our revenue is protected, as we've announced before.

If we turn [from] the business development that we achieved through 2008, over recent years we have worked to create shareholder value, for example, selling non-core businesses, returning capital to shareholders. In the current more difficult environment we have not reduced our focus on shareholder value and the following examples of business development illustrate this clearly.

Last year the Board concluded that shareholders would be better served by having an international holding group and a group structure design to help protect the Group's tax position and to assist its financial management. Shareholders approved the establishment of a new parent company of Henderson Group by means of a Schemes of Arrangement which became effective on October 31, 2008. The new holding company is tax resident in the Republic of Ireland and incorporated in Jersey. This is of great benefit to shareholders as it produces a lower corporate tax rate than would otherwise be achieved in the UK.

Although our future focus remains on generating profitable organic growth, prevailing market conditions have offered other opportunities at attractive prices to extend our product offering and increase market share. Our acquisition of a 30% stake in Attunga and the recruitment of a strong well respected currency team from Fortis broadened our offering to clients, giving them absolute returned focus product with low correlation to other assets.

The benefit to our clients in these areas is clear when you look at the products they manage. So if we look at Attunga, for example, the Attunga Enviro Opportunities Fund is approaching its third anniversary in August and has delivered to date an annualized return of 47%. The Attunga Agricultural Trading Fund will reach its one year anniversary in April and so far has delivered a return to client of 29%. This is, remember, during some of the most challenging markets for other funds and strategies.

The Fortis currency team who joined us at the start of the year already has the opportunity to grow assets and officially be launching their product in March.

In addition, we're in the middle of the proposed New Star acquisition. This acquisition offers us the opportunity to accelerate our plans in the UK retail market. Since the announcement of our position on January 30 we have made good progress on all fronts, discussions with key clients and staff have been encouraging and supportive and we should shortly be able to provide the market and clients certainty on the combined business structure once all formal approvals have been received. Management will continue to exploit opportunities to create shareholder value.

Turning to the outlook, it's obvious that current market levels are significantly below the average levels we saw in 2008 and we do not envisage this changing any time soon. Earnings for 2009 are, therefore, likely to be more challenging than 2008.

However, our competitive long term investment performance, the diversity of revenues and the active cost management should help us weather the current storms. Because of the cost action we took, we are also able to expand our investment capabilities.

Overall, the breadth of our product range and good long term investment performance, particularly in key flagship funds, should stand us in good stead when market and client sentiment recover; overall, remain in solid shape despite the current economic climate.

That concludes the formal part of the presentation and we're happy now to take questions both from the floor and then we'll hand over to the operator. Who'd like to start?

Andrew Mitchell at Fox-Pitt Kelton. I wonder if perhaps you could give a bit more flavor on how you're seeing fund flows currently.

And I don't know if you're in a position to say anything on this but, I think you said when we talked about New Star that actually things weren't looking so bad. Is that still the case in terms of their fund flows since the announcement?

In terms of our fund flow, obviously the biggest impact so far this year is market movement, not surprising given markets are generally down from where they ended the year.

In terms of parts of our business, UK retail continues to be robust. Europe our Horizon range continues to be robust. North America continues to see outflows, but at a reduced pace than what we were seeing last year and that's a predominance mainly of the strength of the dollar. There seems to be a correlation between the dollar and flows into international equity products, which is what we manage.

Our higher margin -- our lower margin business is broadly flat. It has seen some outflows in some of the cash funds, which is more about people realizing cash in the short term, but nothing significant or major there.

In terms of New Star, obviously it's difficult for us to comment, but you can see in some of the IMA statistics that in February they've continued to experience in their retail book outflows at a reduced rate to what they saw in January, which is a significantly reduced rate to what they'd seen in December.

And you'll expect that, what you're seeing is a reduction in overall outflows, but until you get total certainty around the business structure and line up, which we aren't able to give until we get the regulatory and shareholder approvals, obviously you'd expect that to continue until full certainty is given.

Hi there Katrina Preston from Canaccord Adams. I think back in January you guided that total costs for '09 would continue to reduce on '08. I wonder whether you're planning further headcount reductions or should we just factor in a reduction in underlying costs, because of lower average headcount based on previous actions?

Yes, you will have seen that the, in the numbers Toby gave and in the documents we've put out that the headcount at the end of December was obviously lower than where we were at the beginning of the year and that fell further into January.

So we've, at the back end of last year, took quite decisive action on a number of fronts to reshape that business to the current market levels. Some of that flowed over into January, which is why we've given you the January number, because whilst action was taken in December they didn't necessarily leave the firm until sometime in January.

That -- from that you've also got the cost associated with that in the exceptional, which we said will have a one year payback. Given that that's now been implemented you can be -- it can give you a pretty good guidance of the cost actions that we've taken.

We are now in a position, and very happy with the makeup and shape of the business from a cost perspective for where we are in current market conditions. So we were fairly aggressive at the end of last year, we've taken that action. That's fully implemented. If we're required to do further actions as we go through the year that'll be more generated by change in either client behaviors of in our own business line-up, but we're comfortable where we are now.

Thanks a lot.

Hubert Lam from Morgan Stanley; a few questions for you, firstly on management fee margin. We've seen this fall this year, just wondering where you see development going forward.

Sorry what was --?

Management fee margin.

Okay, yes.

Whether or not we expect it to fall again this coming year, because of movement into more cash and fixed income products?

Secondly in terms of investment income line, I was wondering if you can give me a breakdown between the cash returns and the [seed] returns and how you expect this line to develop going forward, given the lower interest rates?

And thirdly in terms of guidance for performance fees and transaction fees, just wondering if you can give us some guidance for 2009 on that? Thanks.

Thanks, thanks Hubert. In terms of management fee margin it's probably too early to tell. As you saw in the pipeline and when we covered them, both of our higher margin products are positioned well for client sentiment recover, but also some of our lower margin areas such as cash and fixed income continue to perform very well.

So it really depends on what client flows happen. We're anticipating fairly flat sort of level of flows throughout 2009, in which case you wouldn't expect that margin to move, but it will be driven by whatever flows that come on that [sense]. So, I don't expect it to fall dramatically from here.

The opportunity for us in terms of product line up remains strong in both areas of those markets, but it's probably fair to say that the lower margin areas is seeing greater client activity at present on the positive side, than what you're seeing in the higher margin. But I can't comment if that'll change and if so, when it'll change in the other side.

In return to the cash returns I'll hand over to Toby to --

Yes, the number is broadly 50/50; that's between cash and investment portfolio returns. In the investment return element you've got some bits and pieces including the work out fees on Sigma and Orion, which are the fixed income appointments that we've talked about before, where we're advising administrators, receivers on distressed SIVs and conduit funds. So we're looking to do what we can to maintain those things. So it was a reasonably good performance on the investment side of that number, slightly ahead of last year as you saw.

As for cash clearly we're living a very low interest rate environment now and we will be utilizing some of the cash, as you saw earlier, for funding the New Star acquisition. But I can't really give you any more guidance than that.

In return -- in regard to performance fees and transaction fees, it's fair to say that we'd expect performance fees to be materially lower than they were in 2008. Some of our funds have absolute benchmarks, for example, in the property funds which, against cash, when clearly property's gone a certain direction, you saw our hedge fund range from having being lower by its assets in overall performance. There's two opportunities to earn fees there, but not as great as we probably had in the previous years.

And there's also, even several of our funds that have relative return benchmarks, also have a hurdle that clients have to have received a positive return before the fee is paid out. So, there's like a deferred performance fee accruing in these funds that until they get back to that positive return they can paid out. So on that basis performance fees will be lower, because of the breadth of the funds that we have with performance fees, you should still expect some. But I'd say it's materially lower than where we were in '08.

In terms of the transaction fees, some of these are relatively recurring items that you could have some support for. Others are linked to transaction fees, such as on property. And given the statement that we see recovery in property being pushed back to the end of the year or early next year, the -- putting that pipeline to work will be far more backend loaded into the second half. And, therefore, transaction fees will probably be down from this year, but not as material as you would see in performance fees; hope that helps.

Jeremy Grime at Arden Partners. Could you just perhaps give us a little bit of detail on the GBP76 million of available for sale financial assets and some feel for what the risks are involved in those moving up or down going forwards?

Toby, do you want to pick that up?

Yes, well, historically the lumpiest item has been the stake in Banco Popolare and we've taken action in '08; A., to part dispose that holding and B., to impair it down to its current market value.

How much is BP?

Pardon?

How much is BP of the GBP76 million?

Well, the closing balance sheet it's going to be around about a third of that number. So the lion's share is Henderson product and we've always been a pretty active investor in Henderson products. So we align our interests with our clients in that sense. It's a balanced portfolio. It's largely self-funding.

So you've got some liquid investments in there in terms of the wholesale ranges, hedge money from time to time and the slightly less liquid investments in property and private equity. They're all mark to market on a monthly basis. And also, we use very -- follow very strict disciplines in terms of what we choose to invest in. The returns have to stack up with our financial criteria.

Thank you.

Martin Cross, HSBC. I apologize I missed the first few slides so you may have addressed this, but you referred just now to a materially lower performance fee outlook. In terms of your variable costs, to what extent can you match that pound for pound?

Well, in terms of the variable cost structure, in terms of the performance fees we show you the actual net performance fees after what we share with the managers. So, the variable will come down for them in line with that. So we have an arrangement that shared, depending on the nature of the performance fees with managers; so that will be shared in that sense.

In terms of the overall other variable cost line, we've managed that well in time. The reduction in headcount that we've taken particularly at the back end of the year, mean that the overall both fixed cost, and therefore variable costs associated with those headcount will be lower in 2009 anyway on that basis.

The limit to go, there is a point where you get to you can't go any further and on that basis we're probably getting closer to that limit than we were sort of 12 to 18 months ago. So performance fees are showing net, so they're shared with managers on that basis.

May I have just one other question as I've got the microphone. A question I've asked other companies as well; has your relationship with the regulators -- banks are certainly undergoing a sea change of their relationship with the regulators. Are you seeing a toughening of attitudes any wavering on the waiver, for instance?

No, not at the moment. I think at the moment we're probably a bit of sideshow for the regulator compared to other issues they have. And to be fair our businesses aren't usually in the capital and requirements that a lot of the other issues that they're dealing with do.

Will that change going forward? You have to expect that we are still part of the financial services, our landscape and any change in the regulatory environment, which is clearly ongoing, will have an impact on ultimately our client and, therefore, to some extent on us.

Directly on us at the moment, no; but indirectly there is going to have to be a change to us and what that is, it's probably too early to tell. I don't think the regulators themselves know the full extent of the changes. But in terms of direct conversations with the regulator, at the moment there's nothing to warrant or change the stance we've taken.

If there's nothing further from the floor, we'll go to the lines.

Thank you. (Operator Instructions). Our first question comes from the line or Arjan Van Veen, please go ahead with your question announcing your company name and location. Thank you.

Yes, hi gents it's Arjan Van Veen, Credit Suisse in Sydney; two questions on New Star if I may. Firstly, the -- if I look at the average -- or sorry, the assets under management they've got, would it be fair to assume that the margins they generate would be similar to yours by segment? Or have they got a higher equity bias?

Arjan, hi, in terms of New Star Asset Management the margins obviously we've given you the run rate revenues and the GBP10 billion asset, was 61 basis points on management fee and 67 basis points total revenue coming from them; so higher than our overall margins. But you're right, that's driven by the mix of asset they have, both the equity mix, but also the higher proportion of retail assets versus institutional assets.

In regard to the underlying margins per asset class or per line of business, they're pretty much consistent with ours, both at the institutional level and the retail level.

Thanks. Toby, I looked through the defined benefit disclosures. I couldn't really find what -- is that -- your defined benefit pension fund has it moved at all? Is it now in deficit, given the market movements?

Quite the opposite, Arjan, we're embarrassed to say we have a surplus of GBP152 million.

Okay.

At the end of December last year, largely from investment outperformance. You may recall that we moved the strategy of the scheme to a so called liability driven investment approach late '07, early '08 and it's really paid dividends for us. We also put a swap program --overlay program in place to give us some protection against interest rate and inflation risks. So, it's an extremely strong financial condition.

So it actually strengthened over the year, rather than weakened, Arjan?

More than doubled the surplus.

I think you might be one of the few. And then, just one final question, if I may, on the cost side; if I look at your second half cost as a starting point, I think you mentioned during the presentation that a lot of the cost-out was -- happened toward the back end of that half as well. So it would be fair to assume that you start with a second half assuming it to fall a bit further, and then add on the New Star costs?

Well, in terms of the cost line for the -- well, the headcount and staff costs for 2009 will be lower than 2008, because a lot of those actions, a lot of the headcount reductions that you see in the presentation were very much late-weighted towards the back end of the year, and as I've said, even into January. So, from a starting point for Henderson it's lower throughout 2009.

Yes, I'm looking at the second half of '08 versus the first half of '09, so half on half. So is it more the second half numbers? I'm not looking at full year numbers. Is it half year? Obviously second half is lower than the first half, but I'm starting with the second half as a starting point.

Yes, the second half. The changes we implemented were at the very end of the second half. So the first half '09 will be lower than second half '08 on that basis.

In regard to New Star and the phasing of the cost, you remember, we obviously won't own New Star until probably the first week of April, so we'll only have three quarters of the business in the first year in 2009.

And over that period, there'll be a phasing process as we get down to, as we said, the cost income ratio being 40% or lower on the revenues we bring across. So that phasing, at this stage, it's probably too early to give you full guidance of that.

It's not until we've got full control of the business, but we can then start some of the proposals to reduce the cost base and align it to where we need it to be, and to move it onto our operating platform. But we expect that to be fairly rapid. We'll be able to give you some guidance at the half year results, where we'll have been two or three months into ownership at that point, and hopefully we'll be a reasonable way through the program at that point as well.

But we said before that it'll be fully embedded into our business by December at the latest this year. There's nothing so far that would change our view of that. And obviously, we'll be looking to accelerate and be faster than that if at all possible.

Perfect. Thanks, gents.

(Operator Instructions). Our next question comes from the line of Bruce Hamilton. Please go ahead with your question, announcing your company name and location. Thank you.

Hi there, yes, Bruce Hamilton in London, Morgan Stanley. Sorry, to clarify you on costs, am I right in thinking you previously guided that costs in '09 underlying for Henderson would be down 15% on '08? Am I correct in that? And has anything changed on that? Or is that still the guidance, in effect?

We did talk in those terms on January 30, with the New Star announcement, yes.

Perfect. And so there's no change to that?

Not at this point, no.

Great. Thank you.

Our next question comes from the line of [Mark Hancock]. Please go ahead with your question, announcing your company name and location. Thank you.

Good morning, Mark Hancock, Precept, in Sydney. Just in terms of the investment income on the corporate account, I was surprised with the lower interest rates. I know there was a question earlier. But I'm surprised that the second half income was equivalent to the first, given the sharply lower cash rates on offer.

Yes, the Henderson investment income, rather than the corporate net interest, Mark. There were a couple of distributions from products that we invested in in this, available for sale, assets portfolio I talked about earlier. So, they're fairly lumpy items and you can't always predict them, but they came through -- or at least one of those came through in the second half, which was a good outcome for us.

So that's not a maintainable income level going forward, the GBP14.7 million?

Well, as I hinted earlier, about half of that number was cash interest in '08, and obviously, going forward in a much lower interest rate environment and also utilizing more cash for the acquisitions, then you can probably do the math.

Okay. But then, you get this other impact, this other benefit, from this amortization? Yes. Just in terms of performance fees --

The amortization (inaudible) for corporate interest number, because the corporate interest charge of just over GBP11 million in '08 will reduce by GBP3 million this year, whereas the income is in Henderson. So the GBP14 million also of investment income in Henderson in '08, about half of that was cash interest and the other half in investment portfolio.

Thank you. Could I just ask about performance fees? Do you expect any material performance fees for property or hedge funds in 2009?

There will some performance fees coming from across the range of our funds. And I'd expect some of those will come possibly from, probably, more hedge than property. But as I said earlier, it'll be materially lower than what we delivered in '08.

But would you expect it less than half?

I'll let you decide on the definition of material.

Right. How are you confident that there are going to be any performance fees at this early stage of the year?

I might be wrong. I just think it's because (multiple speakers).

But is it some that are accrued already and --?

And how we're performing. Obviously, all funds don't have a full calendar year in terms of where [in the year] booked, and some are relative benchmarks, some we're partway through the performance period. Funds are performing well. I expect we'll have some. I wouldn't put in zero (inaudible).

Right, so unless there was a disaster -- yes. Thank you.

Our next question comes from the line of Nigel Pittaway. Please go ahead with your question, announcing your company name and location. Thank you.

Okay, it's Nigel Pittaway from Citi in Sydney. Two questions, if I could, please. I'll ask them one at a time. First of all, just on the dividend. Obviously, it was the intention to increase the payout ratio, but you've now, obviously, had a fall in markets, and also the New Star acquisition, so I was just wondering where you are on that.

Okay, taking the dividend, yes, you're right that in 2008 we paid a maintained dividend to 2007, and the payout ratio was slightly above the level that we had earlier guided to do to achieve that.

I think, looking forward to 2009, it's too early to say what we will do in the dividend, because of the market environment, but clearly, we also recognize that our shareholders value the dividend. It's important to them. It's something we take a strong view of. So I think we're comfortable, what -- holding the dividend to 2008, despite the payout ratio, and slightly above where we guided. In 2009, we'll take a view throughout the year.

So, we shouldn't presume that the original 5% increased guidance in the payout ratio still holds, that's --

I wouldn't take a 5% dividend payout ratio above what we did in 2008 as the guidance. Later -- throughout the year, we'll give you a more, firmer update on our dividend policy, but I think you can take the view of where we look at the dividend in regard to demonstrating our commitment of the business, and also our appreciation from shareholders [and the importance of that].

Okay, that's good. And then, on the attrition assumption you've got for the New Star firm, I was just wondering over what type of time period are you actually assuming that that attrition takes place?

The assumption that when we alluded to attrition in the business, aligned with other types of transactions, our own working assumption was that that would occur throughout 2009, before we fully integrated it. And our working assumption was that it wouldn't be front-end loaded and, therefore, wouldn't necessarily trigger the adjustment mechanism that we have in place. That was obviously a prudent and conservative assumption that we took, and the right way to determine the financial aspects and our commitment to that.

In regard to where we -- where I expect to see attrition is, until we get clarity on the key fund management and distribution lineup which, unfortunately, we're not able to do for another month or so, until the approvals go through, you will see a reduction or continued attrition in their fund range. But I would expect to see improvement in that relatively quickly post those clarity being given. But that hasn't been a working assumption in terms of how we looked at the business.

Okay. Thank you.

Our next question comes from the line of Kieren Chidgey. Please go ahead with your question, announcing your company name and location.

Hi, Kieren Chidgey, Merrill, Sydney. Just two questions, if I can. Firstly, on New Star, just wondering if you can remind me in broad terms what the mix of their fund is in terms of equity exposure?

Well, the 10 billion that we announced they had, there was about 1.8 billion in property, about 1.1 billion, 1.2 billion in fixed incomes, and about 6.5 billion, 7 billion in equity. And of the equity, GBP3 billion to GBP3.5 billion of that is institutional and the rest is retail.

So, there's [multi] (inaudible) around 700 million as well, which is a mix of equity and debt, but I would look at it separately.

Okay. And the second question, just a quick one, perhaps for Toby, in relation to your guidance on the tax rate moving to 20%, is that -- does that view hold post the integration with New Star?

Yes, it remains our working assumption. Obviously, New Star is a more UK-centric business than we are. But assuming the acquisition completes, we will be looking to do what we can to leverage the benefits of our Irish platform to the New Star businesses.

But -- so 20% is still the right way to think about the effective tax rate in the medium term. In the longer term, we might yet do a bit better than that, but for the next two to three years.

Okay, thank you.

Our next question comes from the line of [Lauren Power]. Please go ahead with your question, announcing your company name and location. Thank you.

Hi, thanks. It's [Lauren Power] from ABN Amro in Sydney. Hi, Andrew, I just wanted to ask a question around the hedge fund strategy. You talk about taking some action to improve future performance. Can you just talk -- elaborate on that a bit more?

And then finally, do you think it's still realistic to get flows into these funds?

Do I think it's realistic? Of course, it's realistic. The timetable that it may come in may be different.

In terms of -- on hedge funds, the -- it's really important, I guess, to stress that the desire of clients to have absolute returns and uncorrelated returns is clearly [unstated] and it's something that there is huge demand for. 2008, unfortunately, not just at Henderson, in some of our product (inaudible) as well, but the industry didn't do a great job of delivering that. The correlation of too many asset classes was too high, hedge fund included, sort of falling in line with equity markets and other investments funds. So that's clearly dented confidence. But I think the demand for the type of product is still there.

In terms of the action we've taken, in some teams, we've changed some key personnel, so we've hired someone in Singapore, a guy called Chris Jones, to run our multi-strategy side down there in Asia, and replace the manager that we had in there.

Stephen Peak's taken full control of our UK long-short range in the recent months. And some of the managers, such as Stephen, who had a tougher back end of the year in Europe, we're very, very confident with, and given commitment to, and support to rebuild their franchises. As I highlighted, they're doing well in that so far, in what's continued to be tough trading environment. Both in fixed income and equity, our hedge fund range is being very robust and performing very well. So that's a pleasing sign.

Other things we've taken to address performance is obviously the acquisitions we've made; continue that investment for our clients in that space. So the Currency team their core product is an absolute return currency fund. It's proved very lowly correlated with other asset classes and other strategies. The Attunga range, as I highlighted, again, is in an area that we haven't previously been in, but we see a strong demand from clients, and we also see a strong attraction the client to be looking at those things.

So, they're all the sort of things we're [taking to show] and demonstrate a commitment to this space, and we do see Henderson being very well positioned going forward, because of it's institutional background, because of the risk controls, the approach we take. A lot of the concerns that people have around hedge funds, around transparency, around the risk controls, around the ability to do managed accounts, and all those sort of things, Henderson is in a much better position than a lot of other firms to deliver on that.

That said, flows at the moment continue to be very hard to find. If your institution has been moving this way, if you're taking a wait-and-see approach, and if you're a fund to fund, you've been hit on so many fronts by both negative performance from your managers, but then also because of some of the well-known frauds out there, that they're in very much a retreat mode.

We are not immune to that, and to some extent may be even at the forefront of it, because we've taken a very strong view to maintain what we see as appropriate levels of redemption period. So, typically, our funds have 30 day to 90 day redemption notices. We have limited or avoided having to lock client money up or put on any gates.

Our view is, if the strategies are liquid enough, and you can return the money to clients, you should do so, and we have done that. And even some of our very well-performing funds that were up last year, for example, had redemptions at the back end of the year. And those redemptions from the clients are simply based on the fact that we were liquid when other clients (inaudible) were trying to redeem word.

We also know that through that clients are very supportive of the fact that we've worked with them in a very professional manner, very transparent manner, and are being very supportive of our help for them and we expect their support to come back in time, when flows resume. I hope that answered the questions, Lauren.

Yes, that's great. Thanks.

Our next question comes from the line of (inaudible). Please go ahead with your question, announcing your company name and location, thank you.

My question has been answered, thank you.

Our next question comes from the line of Tony Sherlock. Please go ahead with your question, announcing your company name and location.

Good morning, it's Tony Sherlock from Aegis Equities in Sydney. I would just actually ask for a bit more color as to how you're expecting to get the costs in New Star down so materially. It had first half 08 operating expenses of 42.5 million and you're looking at, going forward, a marginal cost to income ratio of 40%, which would really imply that you're going from a 85 million 4 year cost within New Star down to 26 million.

Yes, Tony. Look, firstly, the New Star had already announced a program at the back end of the year that would take their operating costs down from 80 million down to 60 million and that action had already been under way.

But there is a large amount of overlap with their business and ours. Everything from the building they operate in, obviously the management teams, and the various things that we have in place that we don't need for them. You've got a large -- so, there is a large staff overlap, in terms of what we need and we've sort of guided numbers that there will be a significant in the overall headcount that we will bring on board. And some of those will be they bring strength to us as well; that we need to look at what we offer in that space.

And then, on the operating model, we have a far more efficient operating model, in terms of IT, outsource arrangements, administration, etc. And bringing them on to both our platforms and then also onto our fee structures for those, because of the enhanced scale will lead to the cost reductions that you've alluded to there.

And, you're correct, we can, because of the overlap in our businesses, significantly reduce the cost that they would otherwise be unable to do on their own as a standalone business.

So, in essence, the cost structure will be, like, taking over their Fund Managers and a little bit of their admin along the side and that's about it?

You're taking along the key professionals, which will be Fund Managers and some of the sales and client servicing people. We will be moving them on to our existing platforms, in terms of operations and IT. Moving them into our building and then we get to retain, obviously, the asset management contracts associated with that.

Okay, thank you very much.

Our next question comes from the line of Andrew Hill. Please go ahead with your question, announcing your company name and location. Thank you.

Hi, yes, it's Andrew Hills from Wilson HTM. Another question on New Star, Andrew. Can you just give me some idea of the concentration risk in the New Star firm? I have done some very quick work on just looking at the third party websites and it looks like there's about 6 billion of fund, which is managed by about four funds or so. Is that correct? Or can you give me some idea of the concentration risk?

No, it wouldn't be anywhere near as high as that. The biggest concentration risk is probably in the institutional book, which has around 3 billion assets under management from the one team, whilst the number of clients there are quite large. They are in the twenties. Obviously, the investment process is consistent with that one team and the corporate uncertainty is always something that's an issue, particularly for institutional clients, particularly in the North American market.

We have been working hard on working with those clients and the consultants in that space to demonstrate to them that the value of the acquisition, the stability it gives, both to the team, and to ultimately the clients assets.

In regard to the retail assets, it's not four funds representing 6 billion. So it's nothing like that.

Ok, thank you.

We appear to have no further questions from the phone participants at this time. So, I'll hand the conference back to you, thank you.

Thank you very much. There's just one question still -- one or two questions from the floor, which I'll take.

Good morning, Catherine Heath at Altium. Can you give us a feel please for the relationship with BNP, whether there are any implications to the costs from the change in relationship and, also, from a distribution perspective, what you're expecting?

Yes, the BNP Paribas Security Services contract that we've signed, you should expect to see -- well, it's only -- we've only signed for investment operations at the moment, we're still looking at our retail operations. That will come before the end of the first half, as we are still working through what the best outcome for that is.

In terms of investment operations, this was not necessarily about reducing costs. This was about improving the investment servicing and client servicing side, and which we've got strides in terms of taking that forward in terms of the protection we get for our client, and also the servicing level and quality associated with that. So, we're very pleased with what BNP have offered on that.

There will be some cost savings associated with that, because this will take a while to phase in. I wouldn't expect any of these savings to come through into this year, but there will be some benefit. And you've got to remember that a lot of the costs our borne by our funds. So while Henderson itself won't necessarily benefit from that, our client will in regard to their funds.

In terms of the distribution side, one of the real strengths for BNP, and one of the [Paribas] and to go with them, was as a bank they've survived through this process far, far better than many of their peers and they're one of the leading European banks.

And the distribution -- the arrangement we've got with them does include greater support into their own affiliates and distribution arrangements, which at the moment we're factoring in very little from them. But the benefit and the way -- the conversations from both sides have been very encouraging that that could be a great source of benefit to us down the track.

So this I wouldn't look at this as a customer/supplier relationship, but as a -- really a partnership on a number of areas where we get access to a lot more of their banking initiatives and products, their distribution arrangements and, obviously, they have regained a long-term contract with a partner that they're very pleased to work with, who are doing it -- are operating in areas that they want to continue to grow and be bigger in.

Thank you.

Very quick, Martin Cross, HSBC. I wonder if Toby can tell us what the GBP80.3 million pre-tax profit would have been at constant currencies?

In constant currency, well, (inaudible). I'm not sure I have all those numbers in my head, Martin. It's certainly fair to say that net net we derive a modest benefit, no more than modest, from the stronger Euro, stronger Dollar. But I wouldn't put it down as material.

No, it wouldn't have been material, I'd say.

Okay, no further questions. Thank you very much for your time today. If you have further questions feel free to come through to Mav, and we'll try and answer them. Thank you all.