Janus Henderson Group PLC (JHG) 2009 Q4 法說會逐字稿

Well, good morning and good evening to those in Australia on the phone. Thank you for joining us today as we present the Henderson Group's 2009 annual results. Obviously in addition to the information in the presentation that we'll go through now, there's also more detail in the appendix 4E which we lodged earlier today. And both documents are available on the Group's website.

I will start by talking about the performance of our business in 2009 and then Shirley will cover the financial results in more detail. I will wrap up the presentation with our strategic priorities and outlook for the business. We're happy to take questions at the end of this briefing.

2009 stands out as one of the most difficult trading years for asset managers, despite an improving environment in many financial markets. Declines in market levels and a significant client aversion to risk in 2008, and in particular first quarter of 2009, combined to create some of the worst trading conditions many of us will have experienced. Throughout this period our business has proved resilient.

In this time we were also alert to the opportunities presented by disruption in markets and this enabled us to acquire New Star. This business matched our strategic ambition and comfortably exceeded our financial criteria. New Star was integrated with speed and a clear understanding of the key value drivers for our business. We have significantly strengthened our UK retail franchise. We've already seen evidence of the benefits in our UK retail sales. We expect this acquisition will continue to support earnings growth in 2010 and beyond.

In 2009 we improved the alignment between our distribution and investment teams, ensuring there is a clearer focus on delivering the best outcome for clients. Investment performance in our funds, with some exceptions, is the best I've seen for many years. And this contributed to the positive net flows in our wholesale and institutional funds for the year.

Whilst we expanded the business in specific areas, we did not want to give up the hard-fought efficiency gains we've achieved since 2008. Having realigned the business during 2008, we entered 2009 with an efficient cost structure. All these points meant the business was able to withstand the challenges of volatile and weaker markets.

On this slide we show the key financial highlights which clearly demonstrate this. The improving market and client demand, together with our competitive long-term investment performance, helped the Group generate a recurring profit before other items of GBP73.7m. This was an encouraging result, particularly considering that the FTSE was 15% lower on average than in 2008.

Our operating margin and compensation ratios were broadly stable and our year end assets under management were 17% higher due to a combination of the acquisition of New Star, positive markets and good net inflows in our wholesale and institutional business. In particular we saw GBP700m into our higher margin products in the year, with GBP1b coming in the fourth quarter. Our investment performance is very good, with 70% of our funds meeting or beating their benchmarks over one year and 64% over three years.

Earnings per share, as defined on this slide, was lower in 2009 due to lower profits, the issue of shares to partially fund the New Star acquisition and a higher effective tax rate. The Board is recommending a final dividend of 4.25p per share which, if approved by shareholders in May, will leave the full year dividend unchanged at 6.1p per share.

We have introduced five financial KPIs this year. And we show here this five-year history. We're moving in the right direction on most fronts. And I will touch on these KPIs in more detail in the rest of the presentation.

The first of these is investment performance, the lifeblood of this organization. On this slide we show you the asset weighted investment performance of our funds and I've already mentioned the percentage of assets at or exceeding benchmarks over one and three years was 70% and 64% respectively in 2009. This helped deliver strong flows in our various products, despite the difficult market conditions. Of course, within these numbers, some categories were weaker than we would prefer. However, we saw some significant improvements, notably in hedge funds, now 100% over one-year benchmark, and fixed income at 94% over one year.

The US Wholesale fund range has maintained its excellent track record, with 88% of assets outperforming over one year and 97% over three years. Excluding the impact of the New Star fund range, UK Wholesale performance has improved, with 76% of funds beating target over one year, and 65% over three years.

The Horizon [C-CAS] performance has been slightly disappointing over one year, predominantly due to the Pan European equity fund though over the three years this fund is still top decile. With the exception of a couple of trusts, the performance in the investment trust over one year was disappointing. More recently we are seeing much better performance in a number of our trusts.

In Property, the final 2009 score for Pan European funds with market or peer group benchmarks is not yet available. We have included our estimates for now. The investment performance in several of our global property funds has been disappointing. To a large extent this is due to the continued decline in property values affecting fund benchmarks against absolute return and also some of the funds with gearing which are compared to ungeared benchmarks. Of late we have seen an improvement in investment performance of the property funds, especially those with a relative benchmark.

Investment performance in our institutional business is excellent, with a significant majority of funds meeting or beating their benchmark over one and three years. We've seen a significant improvement in the performance of the New Star UK Wholesale fund range during our ownership, with 62% of funds beating their benchmark over one year at December 31, 2009, and that's up from 13% at the half year. With overall good investment performance in most of the key products, we are well placed to capitalize on the sales momentum in the business.

Now looking at performance fees. At the beginning of the year we anticipated that this would be a more difficult year in which to generate performance fees. As it turns out, performance fees decreased only slightly. Institutional and hedge funds were the main contributors in 2009. Bear in mind that we are now showing performance fee gross, in other words we're including the share of performance fees paid to fund managers. Previously we had shown net performance fees.

As expected, those funds with absolute benchmarks, or funds with relative benchmarks that also require a positive return, such as our Horizon funds and some of our investment trusts, did not generate the same level of performance fees as in 2008. And hedge fund performance fees, even though being the second largest contributor overall, are around half of what they were a year ago. This slide bears testimony to the diversity of the business. And it is pleasing to see the significant contribution in 2009 from our institutional client base, predominantly driven by our fixed income team's performance.

We expect to continue generating performance fees. But to help you get a sense of where we can possibly earn performance fees, we provide a more detailed breakdown on the next slide.

Just under half of the assets have the potential to earn performance fees, down from over half last year. This decline in potential performance fees is a result of our bigger UK retail book where we cannot earn performance fees on these.

On hedge funds, around 16% of funds were above their high water mark, with another 10% within 5% of their high water mark. In the case of Horizon and Investment Trusts, 21% and 17% respectively were at or above their high water marks at the end of the year, whereas at the half year this was less than 10%. As I'm sure you'll recall, these funds have to beat their benchmarks and also post a positive return since last performance fees were earned. The private equity funds are long-term in nature and have some time to run before they expect to realize performance fees.

We now turn to the assets under management and flows. Overall, assets under management increased by GBP8.6b from GBP49.5b to GBP58.1b. This does include the GBP8.1b taken on through the New Star assets at the end of April. And we also had net inflows of GBP700m into our higher margin business. In our lower margin business, the GBP600m of net inflows into institutional was offset by outflows from our cash funds of GBP600m and GBP1.1b from New Star Institutional Managers. Whilst Pearl continues to withdraw assets, the agreements we've had in place since June 2006 ensure that these withdrawals will now have any material unexpected impact on future revenues.

During the year the property team invested some of its pipeline and, most notably, won the Australian Future Fund mandate on the Bull Ring Shopping Center, which is included in investment assets, not in the pipeline. In addition, given industry conditions, we saw valuations in property, private equity and structured product funds all in the year. These negative market and currency movements were offset by positive market and currency movements elsewhere in the business, resulting in a GBP5.1b positive movement in 2009.

The change in our assets under management over the year is highlighted more accurately in the next two slides. Turning first to the quarterly flows, you can see clearly the improving flows into our higher margin product line. In the third quarter we had net flows in these products of GBP300m. And this accelerated to GBP1b in the fourth quarter.

Looking at this in more detail on the wholesale and hedge fund products, you can see the impact both of increasing flows but also improving markets. As mentioned earlier, the FTSE average was 15% lower than in 2008 at an average level of 4569. We ended the year at 5413, representing an 18% increase above the 2009 average. The outlook for net flows improved significantly from the second half of 2009. And we were well positioned to benefit from this.

If we look to 2010, so far this year we're seeing continued net inflows into our wholesale and hedge fund ranges. Given the client enquiries and current due diligence requests, I expect this to continue.

On the institutional side of our business, we have net unfunded wins of GBP700m at the end of the year, predominantly in fixed income which we expect the bulk to fund by the half year.

The Property pipeline was GBP1.4b at the end of the year. And we've already invested around GBP100m of this so far this year. We're selectively investing in properties and expect to invest around two-thirds of the pipeline throughout 2010.

Pearl currently has notified withdrawals of GBP2.3b.

I will now hand over to Shirley to take you through some of the financials in more detail.

Thank you, Andrew. This is my first ever results since taking over as CFO from Toby. Since then I've had the opportunity to review our disclosure in greater detail.

As you're probably aware, and as we announced on January 21 this year, we are now showing performance fees growth, therefore the share of performance fees paid to fund managers for the peer and operating costs. We also eliminated corporate office which impacts finance income and total expenses. We've provided you with an updated five-year summary today. And an updated spreadsheet showing our historical results, including half year numbers, is available on the Group's website.

So let's look at the results. I'll focus on the recurring profit on this slide and talk more about non-recurring items, tax and EPS later.

Recurring profit before other items and tax was GBP73.7m in 2009. This profit was 8% lower than 2008, as a result of lower market levels and investor confidence. Recurring profit before tax was GBP63m, 22% lower than last year. The GBP10.7m charge in respect of the amortization of investment management contracts and void property provisions are a consequence of the New Star acquisition.

Management fee income in 2009 was GBP226.8m, 2% higher than 2008, with the take-on of New Star more than outweighing the impact of lower market levels. The largest contributors to management fees in 2009 were wholesale, property and institutional funds.

Transaction and performance fees in 2009 amounted to GBP56.5m in total. The performance fees we show here are gross. You probably recall that we had previously guided that we expect to achieve net performance and transaction fees of at least GBP25m. On a like-for-like basis we would have comfortably beaten our guidance and the number would have been approximately GBP45m on a net basis.

Transaction fees were GBP24.9m, 51% higher than last year, principally due to additional sub and main register fees on [OIC] following the New Star acquisition, structured product advisory fees and various other items. Transaction fees are likely to be at a similar level in 2010 as a result of recurring sub and main register fees on OIC and our expectations on investing the property pipelines.

Performance fees were GBP31.6m, 1% lower than 2008. Andrew's already covered both the largest contributors in 2009 and the outlook for performance fees. That takes total fee income in 2009 to GBP283.3m, 5% higher than in 2008.

Finance income decreased to GBP4.3m in 2009. This decline was due to lower interest rates on lower cash balances and lower returns from the Group's investment portfolio.

Turning to fee margins, our total fee margin on average assets under management in 2009 increased by 3 basis points from 2008, largely due to higher transaction fees and improving management fee margins. Average management fee margins increased from 41 basis points in 2008 to 43 basis points in 2009. And the net margin on average assets under management declined slightly to 14 basis points from 15 basis points, mostly due to higher cost. It's probably worth noting that the second half fee margins are significantly up on the first half.

Moving on to costs, overall operating costs increased by GBP12m, or 6%, to GBP205m in 2009. This was due to an increasing cost in most categories, other than staff, the largest category, and other costs which are flat year on year. I'll say more on staff costs on the next slide. Investment administration and IT costs increased mainly as a result of taking on New Star funds and staff.

Office costs were higher compared to 2008 due to a release of a void space provision and a lease incentive recognized in 2008 and some inflation and adverse currency movements on overseas accommodation in 2009. Depreciation increased due to depreciation of capital expenditure incurred in relocating to our new office space in London at the end of 2008.

The operating margin fell slightly from 28.6% to 27.6% due to the impact of lower market levels on fee income, offset by the impact of New Star on income, but also higher operating costs due to New Star.

Further to my comments on staff cost on the previous slide, here we show the trend in operating costs, the red line, compared to total income, the orange line. Within the expense totals you can see the mix of fixed staff costs, the green line, and variable staff costs, the light blue line. The compensation ratio as a whole, the dark blue line, declined slightly in 2009 from 44.3% to 43.9% due to a fall in variable staff costs as a result of tougher market conditions. Fixed staff costs are only slightly up, despite the addition of 85 New Star staff.

You can also see how variable staff costs rose in line with income in the second half. As we've said before, this was one of the key ways in which we manage the business. The total income and variable staff costs move up and down together. If markets improve and revenues increase, we'd expect to see an increase in future variable staff cost and therefore some limited pressure on the compensation ratio.

Returning to the profit and loss slide, the Group made GBP15.5m profit after non-recurring items. I'll cover non-recurring items on the next slide. But first, looking at tax.

In 2009 the effective tax rate for the Group on recurring profits was 21.2% compared to 10.7% in 2008. The higher tax rate is due to the recognition of previously unrecognized deferred tax assets and the release of prior year provisions in 2008 not repeated in 2009 and, to a lesser extent, the impact of more profits earned in the UK this year. We expect the Group to achieve an effective corporate tax rate on recurring profits similar to current levels, although to the extent our profit mix changes substantially and impacts the effective tax rate, we'll give guidance at that point.

Basic earnings per share, for the reasons Andrew already explained, declined to 7.5p from 10.8p in 2008.

The non-recurring charge of GBP47.5m before tax relief in 2009 relates to the following items. New Star integration costs lower than the GBP40m previously guided as re-branding and administration costs were less than expected. We don't expect any further integration costs to be incurred.

One of the infrastructure funds in our private equity business has seen a significant fall in valuation. And given its disappointing performance we've prudently decided to take a charge on the management fees of this fund. This aligns our interest more closely with those of our clients. The impact on our 2010 management fees is about 1.5% reduction of Group management fees or around GBP3m.

Three of our property seed investments have been impaired based on the latest fund valuations. And the credit relating to insurance recoveries, where the Group reached agreement with insurers regarding a number of historical insurance claims made by Towry Law International and Henderson under an AMP Limited run-off insurance policy.

Turning to our financial position, the Group's liquidity position remains satisfactory. And despite the cost of integrating New Star, we have strengthened our cash position. The cash balance is up from GBP93m at June 30 to GBP119m at December 31. The Group's gross debt position remains unchanged at a nominal GBP175m. Net of cash of GBP119m, it amounted to GBP56m at December 31, 2009.

The final dividend payment, assuming it is approved by shareholders, will be funded from these resources. Although this dividend will result in a higher payout ratio than we've had before, we're confident about the outlook for the business. Additionally, going forward, we will adopt a formula for the interim dividend. Assuming the Group has the resources, the interim dividend will be the equivalent of 30% of the total dividend for the previous year.

Non-recurring items impact on this cash balance post year-end is broadly neutral. As you can see, our gearing ratios remain comfortable. The business continues to generate good interest cover, notwithstanding challenging market conditions. In addition, the business continues to enjoy a strong regulatory capital position, including a regulatory capital surplus of GBP323m at December 31, 2009, after taking into account the waiver from consolidated [fee] provision which the FSA renewed for five years following the acquisition of New Star.

I'll now hand you back to Andrew.

Thanks, Shirley. In order for us to remain successful, we must focus on developing products that satisfy our clients' needs. And once invested we must exceed their expectations and continue to deliver top performance. Over 2009 we have positioned our products in line with clients' needs and will extend these in 2010.

We currently have good momentum in our performance numbers and will harness this in order to generate positive flows across the business. In line with what we expected -- in line with that, we expect to see a continued improvement in our operational efficiency and to increase our average fee margins. New Star is mostly integrated and has been a clear financial success. Now we have to truly realize the potential for our UK Wholesale strategy.

Increasingly our product demand is coming back from outside our core UK market, and we expect to see further evidence of this in 2010 as the investment and distribution over the past three years begins to bear fruit in all geographies.

Overall, our competitive long-term investment performance and diversity of product offerings provides strong support in 2010. We remain committed to providing clients with more valuable investment products. Generating profitable organic growth continues to be our primary focus. We also remain alert to opportunities to accelerate our strategic plan subject to our strict financial discipline.

Finally, we are optimistic about the outlook for market, though expect the volatility will remain high throughout the year as economic news will remain mixed. All in all, Henderson is well placed to grow its existing product ranges in all of our channels and the geographies we operate in.

That concludes the formal part of the presentation. We'll now take questions from the floor and also hand over to the operator.

Hi. It's Hubert Lam from Morgan Stanley. Just three questions. Firstly on New Star retail flows. Can you just give us an indication of what that was like in Q4 and what you're seeing so far year to date?

Secondly, in terms of your goodwill waiver, is it correct that currently it would expire now in about 2014? Is that correct?

And also it looks like currently you have a negative net tangible assets. Is that a concern for you or is it not really because you have already expensed the goodwill labor and you already have a capital surplus, so in that case you're less worried?

And lastly in terms of your -- okay. One more. In terms of your senior debt, you have GBP175m which is due in 2012. Are you currently in talks of rolling that over?

Okay. Why don't I take the first question and I'll hand to Shirley for questions two, three and four? In terms of the New Star retail flows, if you have a look at the quarterly flows, which is on page -- slide eight, you can see in the fourth quarter that the UK wholesale channel had net flows of GBP100m. We aren't looking at the New Star funds separately to the Henderson range. We have one UK retail channel. We are in the process of merging the underlying products which we'll be announcing shortly what the ranges will be, as such, in that. But we expect that to happen in April this year.

But in terms of the overall UK retail sold, you can see the impact on that. Particularly the important thing for the New Star range was the considerable up-tick in investment performance and you saw that at 62% for the one-year numbers. And that's obviously attributable and the market's looking at that as Henderson's improvement since our stewardship.

We've seen some positive market flows in the New Star range. In particular we launched a new fund under Richard Pease which launched the -- in October. And that fund's grown to north of GBP100m at the end of the year. We also saw continued flows in the [50] Henderson range. But there does remain some outflows in some of the New Star products. But net effect is you can see a positive trend there in the fourth quarter and we're confident that the market flows are delivering as we would expect. And we'll probably be held back until the full fund ranges merge is done. But once that, we'll be able to really take the business forward.

I'll hand over to Shirley on the waiver, tangible assets and debt questions.

As I said, our goodwill waiver is renewed until 2014. And there's no reason to believe under the current rules that it wouldn't be renewed again when it expires. Obviously if the current rules change then we'd need to look at our capital position in light of whatever the rules change to.

On net tangible assets, no, being negative is not a concern. It's a consequence of where we are, with doing acquisitions from -- by definition if you buy investment management businesses you're buying goodwill.

On the senior debt, no, we're not in talks about renewing it. As you'll probably recall, it's covenant-light. It doesn't expire until the middle of 2012. And so we're not in a hurry to renew it. There may be an opportunity at some point, connected with an acquisition or something like that to reexamine our capital position.

It's Bruce Hamilton, Morgan Stanley. Two questions. Firstly on the New Star Institutional business. Obviously you saw a tick-up in outflows there and the performance has been pretty weak on a one-year basis. Have you had any further indications of what the outflows might look like as we look into the first half or this year as a whole? And maybe if you can just give us the difference in the margins between institutional business there and the inflows you get in the retail space from New Star.

Yes, sure.

And the second one was just, sorry, broader color on flows. So basically in Q4 and in terms of the pipeline looking into 2010, where are you seeing the most interest from clients and where is that changing relative to current delta? Thanks.

Okay. So on New Star Institutional Management, there was -- they already had at the time of our acquisition quite a difficult period in terms of convincing clients, which we sort of knew and you've seen some reasonable outflows in that book. Right at the time of takeover you'll have seen in our Q2 IMS we highlighted some of that outflow. And that was driven by the fact that an institutional client's very concerned about the ownership structure of New Star which clearly steadied with the acquisition by Henderson, but had unsettled clients prior to that.

That then corresponded with a relatively poor period of investment performance, pretty much out of odds with the existing Henderson range, as you would have seen. And that -- any clients that were unsettled prior, it did seem to cause an acceleration of that. The fourth quarter investment performance in that business was good and recovered quite a bit of the ground that they'd lost in the second and third quarter, but still ended up with a negative year over 2008 -- 2009 relative to benchmarks.

With 2010, so far it's started fine. It's just the question is, given the institutional clients, it's very hard to predict the cycle they take in terms of when they review mandates and that. We expect that it'll be difficult to grow that business in the short term until we move the investment performance through. But obviously we're working very hard to make sure the existing clients are kept well informed and that we continue delivering investment performance on that.

In relation to the margin on that business, that business is typically around 30 to 35 basis points of management fee margin. They don't have any performance fees really on any of their products. That was compared to our UK Wholesale range of around 70 to 80 basis points. So clearly a considerable difference in terms of the margins of those two books of business.

In terms of broader color on flows, Q4, I'll try and go through the different lines. I think in terms of if we take the UK retail channel first, that fixed income business saw strong flows, particularly Strat Bond. Also I've mentioned Richard Pease's new European Special Situations fund. UK property funds have seen good flows as well.

In terms of the European business, it was our China fund which was probably the best performing China fund last year. Did very well. Our Pan European Alpha Fund run by Paul Casson, which is a [four-year] history absolute return-driven fund, had exceptional performance last year, up over 34% and saw some strong flows as well. Our core Pan European Fund under Tim Stevenson held well. You will have seen the numbers were a bit weak for the year but the long-term numbers are very good. And that sort of has seen flows. And technology actually saw some good flows in that Horizon range.

Looking to the US, the predominant growth is in our International Opportunities Fund, which has been our flagship fund. But then increasingly towards the end of the year and continuing into this year is our Global Equity Income product, which has now gone through three years of numbers, had some great performance and we've started seeing some significant flows, as well as our European Fund run by Stephen Peak which was probably one of the best, if not the best, European mutual funds last year as well. So performance coming into that.

Looking at the hedge fund range, the initial flows were coming back into our Asia Pacific Absolute Return Fund where actually our numbers were good pretty much through the down cycle, an excellent performance and continued well last year. But we saw money flow out just on the basis that we didn't gate those funds. We've seen that -- those money come back now and that fund's now closed. Our Japan Absolute Return Fund's also seen good flows and continuing to see quite a lot of interest going into this year.

And Stephen Peak's UK and European Funds had exceptional performance last year. They've yet to see material flows come into those business but they're under a lot of inquiries so we'd expect to see flows coming to that area. And then finally the Currency Fund that if you remember we took on a team from Fortis. They've launched their fund in April last year. They delivered around 13%, 15% return in that nine-month period. And again we're seeing lots of inquiries in that area. So we see some momentum in that side of the business.

Property has both a mix of new mandates to win such as the Australia Future mandate that we've won as well as putting the pipeline to work. We're actually actively looking to put that to work and as we said the pipeline of GBP1.4b, around GBP1b of that we hope to put to work in 2010. So we've already got started on that so far this year. And you would have seen the numbers from Property in the fourth quarter around GBP400m of net new funds, half of that was the Australia Future Fund, some of that was put into the pipeline to work on other mandate wins. And we continue in discussions with clients on new products as well. So I don't expect in Property it'll just be putting the pipeline to work, I expect there to be also additions to that pipeline given the inquiries we're having.

Institutional has been predominantly in two areas. It's been our fixed income business in predominantly credit in the fixed income side but also in our structured products, ABS, recovery-type area, but also increasingly our EAFE range sold into the US where the numbers delivered by Manraj there are exceptional on a one, three, five and seven-year basis. He's top quartile across the panel and we're starting to see good flows in that.

So it's quite broad-based in terms of [things] but that hopefully gives you a highlight of some of the key products in each of the different channels.

Hi, Carolyn Dorrett from UBS. Two questions if I may. First of all in terms of compensation, you've previously guided in terms of how the compensation to revenue ratio might progress over the next two years taking out 46%. Under this new presentation format can you give us an update on how that ratio might track?

And secondly could you just give us an update on your thoughts of organic growth versus acquisitions?

Can we just go back and look at slide 14. On the old basis the compensation ratio for this year would have been 40.7% versus the 43.9% that it is on the new basis. And of course it's not always the same difference because it's the performance v. mix that is having an impact.

Looking forward, what I'm trying to demonstrate on this slide is that we've been pretty good at getting our variable staff costs to move in line, i.e. the light blue line with the total income line, the top line, the orange line. And I see no reason why we shouldn't continue to do that in the future. We do need to remain competitive and that's why I use the word limited pressure on the compensation ratio from here.

And in terms of that as well, Carolyn, in terms of the -- if you think about it, because the way the operating margin is on an improving trend, even though the income line moving forward we should be able to absorb any pressure we would see from a compensation point of view just because of the fact that the income line will move ahead of what the absolute level of cost, the pressure would come on that sense. So I'm pretty comfortable around where we've come in at the full year for the compensation ratio. Clearly it's a competitive environment and you've got to keep an eye on that but at the moment that's where I'd be. I think we flagged at the second half -- at the end of the first-half results that we expected some pressure which we've been able to absorb in these results as you can see. And any future pressure I think can be borne through the success of the improving outlook and improving flow of the income line.

And your other question around organic versus acquisitions. I think certainly organic growth is preferable. It's the focus of what we do and as you can see, with the good investment performance and also the reach in terms of our distribution and the products we have in those distribution channels the organic growth opportunity available to us looks strong. It's clearly our focus to really capture that opportunity.

But I think it also is incumbent on us to consider what other opportunities are there to either fill product gaps in our business or to improve and strengthen some of our distribution reach. That's less so in the UK, particularly from a distribution point of view particularly with the New Star acquisition which has very much strengthened our UK retail channel. And our institutional position in the UK has always been stronger than in other jurisdictions.

It's also at a time where you can see considerably more owners of asset managers consider what the long-term strategic position is for their business and particularly financial institutions are looking at whether they are natural owners as much for the difficulties they've got in their core business but also as their underlying businesses move to more open architecture. There's the conflict between the direct-owned asset manager in that sense.

Not surprisingly given the Henderson model being listed and independent and also the fact that we run a multi-boutique structure, we're often asked to look at these sort of opportunities. And I'd have to say that there's clearly a lot more opportunities being offered to us than would even get anywhere near what would be attractive to us in terms of anything else we're already doing.

If however something came along that was attractive to us, we feel that the New Star acquisition is now well and truly in bed -- apart from the back office that has to be merged it's pretty much in bed. And if it offers something attractive to us and it's very much at the financial criteria that we would expect and our shareholders would expect we will look at it. And as we flagged before we're prepared to consider acquisitions to take our business forward as well if they meet strategic and financial criteria.

Morning. (Inaudible) from Execution Noble. One question on the guidance that you've given on net performance fees and transaction fees. Any particular reason why there's such a huge departure from the guidance?

The transaction fees are relatively easy to predict because they're a mixture of sub and main registry fees, structured product advisory fees and property transaction fees. So to the extent that you don't invest the property pipeline in one period and you invest in another you'll get an impact on transaction fees from that. They're relatively easy to predict.

On the performance fees it's much harder and I think there's a slide there that Andrew showed showing the difference between 2008 and 2009. Performance fees don't come from the same place each year. So it is much, much harder to predict what the performance fees will be and we have, as you saw there, some very good fees from the institutional, in particular the fixed income business. Unlikely that those would repeat again at that sort of level but then we've got hedge funds at high water marks.

Go back a slide to slide five on this one. So the institutional performance which is only for our fixed income funds. The large tick-up, particularly from full year '08, was just driven by the remarkable recovery you saw in fixed income markets last year and that's unlikely to be repeated in 2010, just given what -- the recovery you see in that market. So on that basis you wouldn't expect to see a similar level of performance fees.

That said, our hedge fund business improved dramatically through the year, both in terms of the investment performance, as they moved from well below high water mark towards and through high water marks and also the fact that the asset base has increased. So on hedge funds the outlook is encouraging. Property again will continue to remain, probably for at least another year until markets really pick up, difficult to achieve performance fees certainly like they saw in '08.

And on the investment trusts and Horizon line, as I said there, if you roll back a year ago well less than 10% of our funds there were at or near their high water mark. That's now around 20% of that book's business. We do expect there'll be some contribution coming from investment trusts and Horizon.

But how much the hedge funds, investment trusts and Horizon can offset lower institutional funds I can't really tell you. It's one of those things that you have to see how it comes through the year. But I think the fact of the diversity that you see in our performance range gives us comfort that there will be performance fees come through in the business. We've had good performance and if things continue like they are -- I wouldn't get too excited about what you've delivered this year but I wouldn't sit there and think you're going back to no performance fees.

Would the guidance be closer to GBP45m, similar to this year?

I don't think I gave any guidance and no, I wouldn't.

(Operator Instructions). The first question comes from the line of Arjan van Veen. Please go ahead, your line is open.

Hi, Arjan van Veen, Credit Suisse. Just on the average fees generated, I calculate you did 46-odd basis points in the second half excluding performance fees versus high fees in the first half. Now I assume that the key driver to that is the higher margin -- full period for the higher margin New Star AUM coming through as well as some recovery in equity markets driving higher margins there. Is there anything else that's driving higher margin increases in the second half relative to the first half?

Arjan, you're spot on.

So in terms of looking forward that would be a stable margin going forward plus any initiatives that you talked about earlier to increase that should continue to see that hopefully ticking up if you get to your targets?

The mix in the second half, as I talked about, the outflows in the cash funds, Pearl and NSIM are all below that average margin that you saw and the inflows in the fourth quarter in particular are all in higher margin, [well above the] margin so there was clearly a favorable margin mix. So there's no reason to expect that what you saw in the second half should reverse as we move through this year, if anything the pressure will be on the other side of it.

Yes, okay. And sorry, Andrew, just to make sure I heard you correctly on the performance fees, the two-thirds that came from institutional, that was mainly fixed income performance?

It wasn't just but yes, mainly, and a lot of that obviously was based on significant improvement. A lot of our fixed income funds and performance fees are credit-based funds and our credit markets clearly had a significant year last year ahead of normal events in terms of their performance. So I wouldn't expect the same level to be repeated this year.

Okay, perfect. Thank you. Good numbers.

The next question comes from the line of John Heagerty. Please go ahead, your line is open.

Thanks, hi there. Hope you can hear me okay, a bit of noise in the background. It's just a question following on from Arjan's question actually. You've mentioned a couple of things on slide 18 just to expand average fee margins and improve operational efficiency. And I just wanted to follow up on that and just say is that from the second half or from the full year in terms of both the percentage management fee, the 46bps and also maybe the operating margin?

My comments were mainly relating to full year where you'd expect the 2010 to go to. I'll hand over to Shirley to give you a little bit more color on that but as we tried to highlight in 2009, given the average impact of markets in '08 on '09 we were always going to be under pressure on those areas. The same is now but in reverse given that markets end of the year far higher than the average you're going to see that the second-half run rate is far more consistent with what you see in 2010 than the average for the year. But again even the fourth quarter is very different to the third quarter on that sense and it's the fourth quarter that's probably more meaningful.

Yes. And then to elaborate on that, we would expect to see the operating margin move up from here from the full year 27.6%. The market driver and the level of assets under management would support that from the fourth quarter. And that the average management fee margin of 45bps, 46bps for the second half we would expect to be there or thereabouts as we go forward.

Okay, thanks. That's very helpful.

The next question comes from the line of Nigel Pittaway. Please go ahead, your line is open. Nigel Pittaway, your line is open, please go ahead with your question. This question seems to have been withdrawn. The next question comes from the line of Kieren Chidgey. Please go ahead, your line is open.

Hi, it's Kieren Chidgey here from Merrill Lynch. I have a question also on the management fees by product, more on a half by half basis. There's been a significant swing in the structured product line and I'm just wondering if you can talk to that and give us a feel for what we can expect there going forward?

And secondly, on the UK wholesale funds you've gone from GBP22m of management fees in first half down to GBP8m in second half on my numbers despite the fact your funds under management have actually gone up. So I'm just wondering what actually drove that?

On the structured products we've got quite a lot of advisory fees now that come through in the transaction fee line rather than the management fee line. So the management fees is not the whole story on structured product income.

UK wholesale, I don't recognize what you're talking about.

Can you repeat the question you said, Kieren, on what you -- the significant half was significantly lower in UK wholesale?

Well, the numbers I'm looking at basically suggest you've gone -- I think you were GBP30m first half but you've basically done a similar number second half?

Kieren, (multiple speakers), because there's no way that's right.

Okay, all right. I'll follow (multiple speakers).

Because the management fees are going to be higher for the fact that we only had a quarter of the -- for half of the first half we only had the New Star fund range and we had it for a full half -- it's gone higher just because of that. Markets were higher and flows were higher. So I can't reconcile what you're saying but I'm happy to take it offline and take it up with Mav afterwards if you like.

All right. Cheers.

The next question comes from the line of [Mark Conts]. Please go ahead, your line is open.

Hi, it's Nigel Pittaway actually here. Sorry, my other line dropped out so this is definitely me this time. In terms of the property flows, we're just trying to ascertain that GBP1b of the pipeline that you think will be invested in 2010. Is it actually right to assume that most of that will actually happen in the second half of 2010 rather than first half? Is that a reasonable assumption?

No, I think it's -- well, it's good to have you back, Nigel, I thought you must have gone off to the shrink or something down there when we couldn't get you. I would say on the property, it's probably fair to say we should expect this to carry on evenly throughout the year and there's no reason it should be backend-loaded. We've said already we've put GBP100m to work in the first month. We're continuing to put money throughout the year. So if you assume roughly on average in the middle of the year as we said.

All right, okay. Fair enough. And just on the institutional pipeline, obviously you were flagging that at the time of the interim management statement and you're still flagging pretty much the same amount. I guess my question was, I did get the impression that you were planning to have invested some of that in the fourth quarter. That's obviously not happened. Is there anything that's particularly holding that up or is it pretty reasonable to expect that that will actually be invested in the six months to June 30?

Well, we actually saw some outflows in some of our institutional business as well as some inflows and as to the net margin effect of what we saw those, the AUM was broadly neutral in that fourth quarter but the margin impact was more positive. And then we've added to the pipeline in that sense. So there is a couple of effects going through that.

Right, okay. And then just finally if I could, just wondering if you could just confirm the timing of your UK wholesale strategy and that that's still on track and that you've still got this target for the end of the year?

Yes, obviously the most important thing at the present time is to get the fund ranges together. We have softly announced, I don't think we've shouted from the rooftops on it yet, but the New Star name will also drop at the same time as the fund merges back in April. So there'll be the one Henderson range pretty much from April or May onwards. And that's really going to be the focus of the communication to clients and getting those funds together. But until that point that's got to be the emphasis of what we do.

It's from that point we're going to start to push the business forward. There's been significant marketing campaigns on individual product lines which have been boosting those product lines. We're continuing to do and push particular products you might have seen. You probably haven't down in Australia but over here you'll start seeing the Asian Income push that we're doing which started on Monday which will be a big thing for us over the coming months as well.

So I expect that you'll see that we're still on track and that's consistent with the plan as I've said to you that by the end of the year and as we move into 2011 we should be getting to a run rate of a top five retail sales. In terms of the gross flows we're getting, we're actually moving up towards that target but we're still seeing outflows attributable to the New Star book and what we need to do is drop those outflows on the net side because the gross is pretty much moving as we'd like and our expectation of that.

Thank you very much.

We do not have any further telephone questions registered.

Morning, Catherine Heath at Altium. I understand, Andrew, you're not able to give guidance on performance fees for 2010 at the gross level but I wondered if you could tell us if there's a different range in terms of payout per staff depending on the mix please?

Yes. I think we sort of indicated in the past that it's the hedge funds that we pretty much share 50/50 with staff, all other channels it's typically a third. So if the mix is -- if it's coming through from performance fees then the share coming to the Group will clearly decrease in that sense but otherwise that mix has been consistent in the past so we expect to be consistent going forward.

Thank you.

If there's no other questions thank you for your time and any follow-up questions obviously feel free to come back to Mav Wynn.