Janus Henderson Group PLC (JHG) 2011 Q2 法說會逐字稿

Okay. Thank you for all those attending here and also on the call. Good morning and certainly good evening to those in Australia as well. Thank you for joining us today as we present the Henderson Group's interim results for 2011. In addition to the information in the presentation that I'll go through, there is also more detail in the interim report and accounts and both those documents are available on our website.

I will start with the highlights of the first half and update you on the Gartmore acquisition. Thereafter, Shirley will cover the financials in more detail and then I will wrap up the presentation, looking at some of our key financial metrics, including investment performance, fund flows and margins, and then recap and outline on our priorities for the rest of this year. I'll be happy to take any questions at the end of the briefing.

Over the last six months, the Group produced a strong result, with total income increasing by approximately 40% to GBP255m and underlying profit up 80% to GBP86m. In addition, underlying earnings per share was up over 60%. The increase in profit was driven by good performance in the Henderson business, the contribution from Gartmore for one quarter and also higher equity markets. In line with our stated dividend formula, the Board has declared an interim dividend of 1.95p per share which we will pay to shareholders on September 23.

In particular, we continue to drive forward our retail and absolute return businesses, and we saw good net inflows into the Henderson UK retail fund range and the Gartmore retail absolute return funds. It is fair to say that the Gartmore acquisition has exceeded our expectations so far, both in the speed of integration as well as the robust trading of the business, and I will go into more detail shortly.

Over the half we also refinanced our debt and repaid Gartmore's debt with the net effect that we have maintained our prudent gearing ratios. Shirley will say more on this later.

Let's take a closer look at the key elements of the Gartmore acquisition, which featured prominently in the first half. The Gartmore acquisition provided the Group with the opportunity to strengthen two areas of strategic importance to us, namely our retail and absolute return franchises. It also augmented our core investment capabilities, especially global and emerging market equities and expanded our distribution reach, notably in Japan.

First, turning to the financials underpinning the deal, we are pleased with the high level of asset retention and therefore the revenue being generated by these assets. This outcome is the result of retaining key staff, clear client communication, our ruthless focus on a swift integration and the continued good investment performance of the Gartmore funds. In fact, Gartmore contributed over GBP13m into forward fees since acquisition, largely from two absolutely return funds, Volantis and [Rocus]. If we had owned the business from January 1 rather than April 4, this figure would have been GBP26m.

The integration of Gartmore is well advanced and has been a success so far. All indications are that the integration costs will remain within the GBP70m we guided at the time of the announcement. We have also in the first three months of ownership achieved all the cost efficiencies we set out at the time of the announcement and therefore the operating margin of the acquired business at the end of June exceeds 50%.

It is fair to say that the acquisition of New Star in 2009 played a significant part in our ability to extract value from Gartmore. Given the lessons we learnt from that acquisition, we implemented our brand strategy immediately. All UK retail funds and institutional funds, excluding Japan, have been rebranded Henderson. This is a good nine months ahead of what we achieved with New Star. The Japanese and SICAV or European retail funds have been co-branded Henderson Gartmore, whilst we have retained the AlphaGen brand for the absolute return funds.

Overall, given the progress achieved, we are confident that this acquisition will significantly enhance our earnings -- underlying earnings per share in 2011.

As I have just mentioned, the integration of Gartmore has been swift. As you can see from this slide, we sought to condense the timetable as much as possible, whether it was getting from announcement to completion in as quick a time as feasible, or getting the fund managers, other teams and systems integrated in just three weeks. The brand and product strategy have been accelerated from what we achieved with New Star. And just this past weekend we completed a few more steps in the integration plan, merging 13 Gartmore funds, reducing our fund range by 20 funds so far this year.

From here on, most changes will be dealt with as part of business as usual. That doesn't mean that we feel the integration is finished; far from it. What we have achieved to date is to extract the benefit we had identified prior to acquiring Gartmore. However, under our ownership, there are additional benefits on the revenue and cost side we are actively focused on exploring over the remainder of this year.

As you can see here, performance overall of the Gartmore funds is good, with a high percentage of equities outperforming their benchmarks over one, three and five years. Fixed income is a core strength of the Henderson business and the Gartmore range has been fully absorbed into our existing teams. As we've previously indicated, net outflows declined over the period. Averaging GBP400m per month in the first quarter, they then slowed significantly to around GBP100m in April and May and down to GBP70m in June. Just to be clear, these figures are all net of notified redemptions we stated at announcement. The net result is that we added GBP15.5b to our assets under management in the first half.

One other pleasing point you can see from this chart is that net flows in Gartmore's absolute return funds turned net positive in May, and this has continued since.

I would like to pause here and reflect on what the New Star business, acquired just over two years ago, has done for our UK retail range. As a result of the acquisition of New Star, we're in a strong position to build momentum in our UK retail business. The Gartmore business will only help support this.

After years of outflows from our UK retail book, net flows turned around in 2009 after the acquisition of New Star, and specifically the addition of a high-caliber distribution team. We built on this in 2010 and flows in the first half of 2011 exceeded total flows in 2010. The acquisition of Gartmore cements our position and demonstrates further our commitment to the UK retail market. Given how disruptive acquisitions can be, I am very encouraged with the net flows in UK retail we have seen so far this year.

Very briefly, I thought I would share with you some examples of our ad campaigns we have run over the past few months. The key message to our clients has been no change in how or by whom your money is being managed, so Gartmore funds remain under old management. And recently, to support the change in name from Gartmore to Henderson, we used these ads. The change in fund name is simply that, with no other characteristics changing.

Let me now hand you over to Shirley.

Thank you, Andrew. The detailed profit and loss is in the appendix on slide 29. I'll focus on the underlying profit number first and touch on some of the other line items in subsequent slides.

Underlying profit before tax was GBP86.4m in the first half, 78% higher than the same period last year. As you can see, half of the total fee income growth of GBP75.9m flowed through to the underlying profit. Also around half of the increase in total fee income was as a result of adding the Gartmore business at an operating margin in excess of 50%.

Taking a closer look at the drivers of total fee income, over half of the increase in total fee income was due to higher management fees, primarily due to the take-on of Gartmore assets and higher equity market levels. The largest contributors to management fees were UK retail, SICAVs and institutional property funds. Gross performance fees accounted for 39% of the increase in total fee income and will more than double compared to the first half of last year. I will cover performance fees in more detail on the next couple of slides.

Transaction fees accounted for 10% of the increase. The fees we earn on UK retail funds account for around 60% of transaction fees. These fees are recurring in nature and based on AUM levels.

Turning to performance fees, these were approximately GBP30m higher, with absolute return funds and SICAVs accounting for around 90% of this increase. The last time we had such a significant contribution from these fund ranges was in 2007. We earned a similar level of performance fee from institutional clients, albeit from a different client mandate mix and, as you can see, from many more clients.

In property, four funds contributed to the GBP0.5m of fees. In investment trust, the Henderson smaller companies trust had very strong performance. The performance fees from private equity represents additional carried interest earned on one of our Asian Pacific funds.

The number of funds generating performance fees in the first half increased significantly on prior period as a result of adding Gartmore and more institutional mandates delivering performance fees. That said, we expect that in the second half of this year these fees will be substantially lower than in the first half, given the current profile and timing of fund year-ends. To give you a sense of the performance fee potential in our business, we provide a detailed breakdown on the next slide.

Taking our total fund range as at June 30, and therefore including Gartmore, you can see that 43% of our assets under management have potential to earn a performance fee. Currently the contribution from our absolute return funds and SICAV is weighted to the first half. And given their significant contribution in the first half, this helps explain why we expect performance fees in the second half to be substantially lower.

The potential contribution from SICAVs has declined as the majority of Gartmore funds have no performance fee element attached. On absolute return funds, around 66% of funds were at or above their high water mark and 92% were within 5% or better of their high water mark as at June 30. In the case of Henderson SICAVs and investment trusts, 51% and 35% respectively were at or above their high water mark at June 30. The SICAVs and investment trusts have to beat their benchmarks and also have to post a positive return since the last performance fee was earned.

This slide highlights how we manage our cost base in line with our revenues. We continue to control cost, despite being focused on the Gartmore acquisition. Our variable staff costs move in line with income earned and therefore provide a flexible cost base for the business to operate within. In the first half, the compensation ratio decreased to 43.5% from 44.5% as the Group realized synergies from the Gartmore acquisition. However, the Gartmore impact was dampened by an increase in performance fee bonuses on higher gross performance fees earned in the period. Even with market volatility, we would expect the compensation ratio to be lower than the first half of this year.

Overall operating costs increased approximately GBP36m or 28%. Variable staff costs contributed GBP25.5m of the increase, principally due to the performance fee bonuses. Fixed staff costs rose by GBP6.1m, which includes the impact of Gartmore staff for one quarter and some salary pressure that we mentioned in the second half of last year.

Investment administration charges increased by GBP2.5m, which reflects the administration of the Gartmore funds. The only other increase of note was in other expenses, mostly the result of the investment in our brand and UK retail business.

The operating margin rose from 29.1% to 36.1% due to Gartmore and associated synergies, an increase in market levels, higher performance fees and our continued cost control. In the second half, costs will be impacted by a further quarter of Gartmore and increased IT spend, but this will be offset by lower performance fee bonuses. The impact of costs in the second half and lower performance fees earned is expected to result in a lower operating margin in the second half.

As we stated at the time of the Gartmore acquisition announcement, we expect to incur one-off integration costs of approximately GBP70m in 2011. GBP51.7m of non-recurring cost before tax were incurred in the first half and include staff-related expenses, deal and structuring costs, transition of outsourced retail and investment operations, costs relating to fund mergers and office relocation and reorganization. Most of these costs attract a tax credit at the UK statutory rate.

There is also a non-recurring tax credit of GBP12.9m relating to previous unrecognized tax losses which will now be used against future benefits. Linking back to what Andrew said earlier, this is an example of a financial benefit being derived as a result of the Gartmore acquisition, which was not identified until Gartmore was under our ownership.

Other acquisition impacts, which include the treatment of the Gartmore-related employee share awards, amortization and investment management contracts and void property finance charges are set out on slide 34 in the appendix.

The effective tax rate on underlying profit of GBP86.4m for the Group was 20.9% compared to 21.6% in the first half of 2010, in line with the lower UK corporate tax rate. The main reason for the underlying effective tax rate being lower than the pro-rata UK corporate tax rate of 26.5% is the net favorable effect of different statutory tax rates applying to profits generated by non-UK subsidiaries.

Basic underlying earnings per share increased by a healthy 62% to 7.6p from 4.7p in the same period last year.

The acquisition of Gartmore was financed by the issue of Henderson Group shares. Prior to completion, the Group issued GBP150m of senior unrated fixed-rate notes, which, along with the Group's cash, was used to repay Gartmore's debt and extinguish GBP32.4m of the Group's existing 2012 notes, resulting in the Group's gross debt position at June 30 of GBP292.6m. Bank facilities were arranged prior to the Gartmore deal announcement and subsequently GBP157m of the GBP200m multi-currency term facilities have been cancelled. No facilities have been drawn to date.

Cash balances were largely unchanged at GBP156m, resulting in the Group being in a net debt position of GBP136.6m as at June 30. The Group's balance sheet remains healthy, with prudent gearing ratios. There's been no significant change following the Gartmore acquisition, except for net debt to EBITDA rising to 0.7 times, reflecting the upfront nature of the integration costs and that Gartmore was acquired with a net debt position. It is our intention to repay the GBP142.6m notes due in May 2012.

The extension of our investment firm consolidation waiver to April 4, 2016, was formally confirmed by the FSA on completion of the Gartmore acquisition.

I'll now hand you back to Andrew.

Thanks, Shirley. I would like to now turn to take a closer look at some of our key performance indicators. We have included Gartmore's performance over all periods this year. It didn't significantly alter the picture either way. Overall, our one and three-year investment performance remained good. However, some areas were impacted by the volatility and uncertainty in markets during the past six months. Over one year and three years respectively 54% and 75% of equity funds and 98% and 82% of fixed income funds were achieving or beating their benchmarks.

The long-term performance in SICAV fund range remained strong. However, some of the largest SICAVs have underperformed more recently against their peers. These include the Horizon Pan-European equity, Gartmore SICAV Latin America and Horizon Global Technology fund, three of the largest funds in this category.

The one-year performance numbers in the US mutuals continues to be impacted by the International Opportunities Fund, the largest fund in that range. It is worth highlighting that year-to-date performance is good and we are confident that the excellent long-term track record of this fund, which hits its 10th-year anniversary in September, is well recognized by our clients.

Performance in the absolute return funds is good across all periods, though recent market volatility remains a test for most funds. The institutional business continued to perform well. And in property, our one-year numbers improved, as we indicated earlier in the year, with 66% of assets outperforming, reflecting the successful positioning of the funds through the previous downturn.

You will have seen our first-half flows in the trading update we gave last month, so I won't dwell on this too much. More details on our net flows are contained in the interim report and accounts. This slide shows the movement in our assets under management, excluding the Gartmore take-on, since the end of last year.

We had net inflow of GBP575m into Henderson retail, partially offset by outflows of GBP290m in Gartmore retail. Both Henderson and Gartmore had outflows from institutional, together GBP2.7b. The Henderson institutional net outflows include all of the GBP2.2b of notified withdrawals we announced in May. There was also a GBP400m outflow from Phoenix and a GBP1.7b transfer from Henderson liquid asset fund, our AAA-rated cash fund DB Advisors. Markets added GBP1.4b.

As I've mentioned already, we continue to see good flows in UK retail and absolute return, which you can see more clearly on the next slide. Taking a closer look at the component of retail flows, all categories were net positive in the half, with the standout being UK retail. Flows in US mutuals picked up towards the end of the period. But flows in SICAVs, although net positive, had reversed post their high in March.

On the right-hand side, we show that flows in the Henderson retail and institutional absolute return funds were net positive. The Gartmore institutional absolute return funds saw outflows in the first half of GBP73m. This was all due to GBP132m of previously notified withdrawals. Excluding these, we would have seen net inflows of just under GBP60m into their range. As I mentioned earlier, we are very encouraged with the positive net flows in the Gartmore retail absolute return funds.

Looking at the pipeline, our net pipeline as at June 30 comprised GBP1.2b of outflows from Phoenix, GBP1.1b transferred with the sale of the NSIM business, and previously notified redemptions from Gartmore of just over GBP200m. The impact of the Group future profits as a result of the outflows from Phoenix and NSIM is negligible.

At the end of the period the institutional pipeline was flat. Property client commitments remained largely unchanged at GBP1.5b. And although some client commitments were invested, we raised additional commitments during the period. We expect to continue raising new equity and invest in client commitments in the second half of 2011. Furthermore, we expect to continue selling some assets as we realize successful exits for our clients. The combined effect of all this activity is that net flows are expected to be positive but are unlikely to exceed the net flows seen in the first half.

Shirley has already touched on the improvement in margins. This slide shows you the progress we have made over the past two years. In the first half of this year, both the total fee margin and net margin have been helped by the high level of performance fees being earned. But it is not just the performance fees impacting this; management fee margin continues to also show good progress, demonstrating the shift in our business as we have increased the retail and absolute return components thereof.

So just to recap the key points. We have good investment performance and solid flows in UK retail and absolute return funds. Fee margins and our operating margin are trending in the right direction and we have been able to reduce our compensation ratio. We've seen strong growth in the profitability of our business and have maintained a prudent capital position. Finally, as highlighted earlier, the integration of the Gartmore business has gone very well and has exceeded our expectations.

Turning to outlook and our priorities for the rest of the year. The first thing I would like to highlight on the outlook for our business is that given market volatility and uncertainty, investor appetite is likely to be subdued. Even if markets return to their highs of the year, the psychological effect of market movements seen over the last few weeks will likely deter retail investors in particular from investing at a similar pace to what we have seen over the last few years. Despite that outlook, Henderson is a strong business and the acquisition of Gartmore has further strengthened our position. We continue to believe that we can identify additional benefits from this acquisition.

The acquisitions of both New Star and Gartmore have accelerated our plans in the retail and absolute return market and we continue to focus our energies on the distribution and growth of funds in these channels. One of the other questions we're being asked is what is the impact of the retail distribution review on our business. The most recent announcement from the FSA has delayed the implementation of certain elements of the RDR by at least one year, and in particular they continue to consult in relation to the platform arrangements.

Given the delay, there is unlikely to be any impact in the short to medium term on our business and we can only speculate on the longer-term impact. Once the RDR is fully implemented, you might expect some margin pressure as distributors seek to increase their margins and we harmonize fee rates across all advisory channels. But at present it is too hard to determine whether this is correct and also therefore their quantum.

Finally, whilst I can't predict when these volatile times will settle down, one thing I can stress is that we have increased our focus on our clients and communicating to them what we are doing with their portfolios and our views and outlooks of the events unfolding. We know from experience that at times like these it is imperative that we remain close to our clients to help them through these challenging markets.

Now that concludes the formal part of the briefing. We'll now take questions from the floor and then I'll hand over to the operator.

Hi. It's Hubert Lam from Morgan Stanley. A few questions. Firstly, can you give us an update on Gartmore's potential level at the end of July, whether or not you see outflows in July and so far in August.

Secondly, in terms of flows for the underlying Henderson business, what's it been like so far in Q3 so far in terms of retail flows and asset classes?

Lastly, in terms of the Gartmore cost saves, can you say how much it was that you saved first half? You said it's fully realized now, I'm just wondering how much that is. Thanks.

Okay. Thanks, Hubert. The Gartmore retention levels since the end of the period, I'd say that July, actually the majority of the market disruption we saw was impacted in August, so the latter end of July. And for Gartmore we saw similar rates to what you saw in the second quarter. Nothing different there. In terms of August, it has picked up moderately from that run rate, but I wouldn't say substantially. We've actually seen some of the notified outflows go, probably around half of the notified outflows have gone by now. And the SICAVs and OEICs have seen probably a pickup from what we saw of the average of the second quarter, but I wouldn't say a huge pickup.

In terms of where we are on the Henderson flows over the period. It's really in the retail side, institutional side hasn't seen -- we say with a flat pipeline it remains in a similar position. It's really the retail side that's seen any impact.

Both the UK and the US would have seen modest outflows of them, predominantly driven in the very short term given what's happened in the last couple of weeks or so. The SICAVs or Horizon range has seen higher level of redemptions and I think to see a recovery in that side really is around both stability in markets and probably recovery in markets. So I wouldn't say it's been aggressive in terms of selling. Actually, if anything we've -- I think it's been, because of both the sharp falls and probably the timing of markets, it hasn't been that aggressive. But certainly the level of gross sales has slowed up dramatically and has been probably the bigger feature of that.

In regard to cost saves?

Yes, shall I answer that one? The Gartmore cost saves, what we haven't given you is an exact number. We have said that it's come on at an operating margin exceeding 50% at the end of June. And what I've tried to do in the explanation that I've given around the movement between the two first halves is to be quite clear what is the Gartmore impact in terms of those.

Looking at the second half, we will have obviously two quarters of Gartmore rather than one quarter affecting the results. And probably the only areas which would look very different in -- or different in the second half absent the Gartmore impact, is we will spend some money on IT where we've delayed investing in projects in the first half whilst we were doing the Gartmore acquisition. Obviously the interest expense will be higher because we'll have the notes for the full period rather than half of the period. But apart from that, and the performance fee impact that I've already mentioned, that's the only real differences.

You can see if you look at things like office expenses, we didn't take any extra accommodation for Gartmore, so that's running much as it was before.

Morning. Nick Burgess from RBS. Andrew, you've mentioned a couple of times now that Gartmore's embedded as business as usual, that there are further revenue and cost benefits that you're hopeful of seeing. Could you give us a little bit more color on what those might be?

And secondly, Shirley, taking on board your comments on the second-half compensation ratio, any comments around a long-term through-the-cycle compensation ratio target for the merged business?

Thanks. I think the point I'm making there on the Gartmore business, I'm not going to quantify or tell you what that will be, and partly, because, as I said, I think we're exploring those and working through those anyway at the moment rather than having anything I could update you on. But I think the message really to take away is that there are a number of things that when you look at a business that you are confident you can deliver on, and we factor those into obviously our valuation, brought the business on board on that basis and being able to realize all of those.

Having now acquired it and having been able -- and actually having run the business for a couple of months, there are a number of things we can do both because of things that were in Gartmore that we weren't aware of, so, for example, they can be more efficient on some of the systems than what we were having, there are processes which we can adopt across our Group, or because of the way we've been running our business and applying those processes to their business can improve the running of what we expect to be able to bring across.

Some of those will be one-off gains. And Shirley mentioned the tax benefit that was driven through where we had tax losses that were previously difficult to utilize. Because of the way that Gartmore came across, we could actually utilize those so there'll be some one-off benefits that we'll continue to extract in the coming years. And there'll also be some ongoing benefits as we look at the processes that Gartmore ran and Henderson ran, the way we're both structured and making the most efficient structure of that.

Some of those will come through in the revenue line. Some of those will come through in the cost line. But we're pretty confident that what we've seen to date, there are additional benefits that were not obvious to us and you couldn't have extracted unless either you had the structure that Henderson has as a group for running its business or through the experience we'd had with New Star has meant we could identify those far quicker and be able to capture those. We probably would have made a miss if this had been the first acquisition we'd done.

Yes. In terms of compensation ratio, as I've said in the first half, it is higher than we would expect the rate through the long-term cycle to be because of the performance fees, where we're sharing either 50% or a third with the fund managers. We do expect it to go lower. It will move down into the lower 40s, certainly not below 40%, which does reflect the synergy benefits that we'll get through Gartmore as well.

Thank you.

Any other questions from the floor? Otherwise we'll --.

Yes. Just on the net debt, could you comment on why it seems to be quite a lot higher than the GBP48m guidance you gave as the pro-forma number at the time of the acquisition? Is there perhaps some working capital in there that pushed that higher or is there something else?

Yes. December 31 will always be our highest cash position at any year end because that's before we pay the final dividend and before we pay bonuses. So the big drivers that move net debt in the first half are those two things. The other difference that we had this time is obviously we've been paying the integration cost that I've mentioned of GBP50m. But if you look at the amount of net proceeds we got from the new notes, it was about GBP116m. And Gartmore came with a GBP50m net debt position itself. So there was some cash coming through into that. So if your question being why is your cash still the same despite the fact you've repaid the Gartmore debt, that's -- those are the three main drivers.

Any other questions from the floor? Okay, we might go to the operator, see if there's any questions on the line.

Yes, we do have questions coming from the line of John Heagerty from CS. Please go ahead with your question.

Thanks. Yes. Just one question. I think you've answered most of them. But just in terms of the number of funds, you said you've merged a few funds together in the first half. Still got 189 there. Any sort of target number there?

You're right, we still have a large fund range. And it will be something we actively look at over the coming year. The fund merges that we've done so far year to date really reflect the key ones that we needed to do at the time of the acquisition, was factored into the acquisition expectation that we had. I think it's fair to say we will continue to look at our fund range and making sure it's fit for purpose and the products are all the right products to have. But for now, because what's come through the Gartmore acquisition, we've done what we need to do. You may see additional fund mergers in time. That will be part of [BAU] as we just reviewed the line-up and portfolio we have.

Some of the reasons we have so many funds as well is because of the different jurisdictions we operate in. And you can't just have a single fund being sold in the US, in Europe and the UK, for example. So some of the duplication is driven by the fact of the jurisdictions we're in. But overall we still probably have a larger range than I'd be happy or comfortable with. And I think as part of a normal BAU we'll continue to investigate that and tidy up where appropriate.

Thanks. So cost savings just going to be incremental, not really particularly noticeable.

Well, a lot of the cost savings and fund mergers actually flow through to the investors given a lot of the costs are borne by the funds themselves. So from a Henderson perspective, when you merge the funds, the cost saves are -- you save some money on some of the reporting and the support in that side, but a lot of the costs actually flow through to the clients, which is one of the reasons we do look hard at our funds and making sure they're efficient and scalable or sufficient for clients because there are ways we can improve the efficiency for clients and drive down the total expense ratio, we will.

So don't think even if we did significant more mergers, the benefit of that would be mostly felt through the funds themselves rather than some of the reporting and some of the administration charges will come down.

Okay. Thanks very much.

Okay.

Our next questions come from the line of Nigel Pittaway from Citi. Please go ahead with your question.

Hi. Couple of questions, if I could. Just the first one, just trying to push a little bit more on the Gartmore fund retention or otherwise since June 30. You've obviously flagged 91% retention at June 30 but you've said there's been a few outflows since. So would it be fair to presume we're around about 89% now?

And then also I think before you've always said that the end of August would be, in effect, the end of the risk period. So I realize there's some market factors in play now as well, but is that still the case?

Well I'm not going to give you a number, Nigel. You won't be surprised. But we'll update you at the end of the next quarter on where things are at. I've given, I thought, a reasonable guidance as to what we've seen in July and August.

Your question around the end of August, would that be where we see the bulk of the outflows associated with the acquisition, I'd say yes. Still comfortable with that. I'd actually say what you're seeing at the moment in the Gartmore range is, to some extent, very similar to what you're seeing in the Henderson range and I'm sure you're seeing in other asset managers, is actually more market-driven rather than the integration-driven.

So we are definitely through the bulk of the issue driven by Henderson acquiring Gartmore and any disruption associated with the mergers or with the change in personnel and the like. That's all bedded down. The communication's been very good. We won't be bothering clients any more going forward with either rebranding of the funds or with any merge of the funds. So the client communication that would be disruptive really stopped as of last weekend in nearly all the business. So that -- on that basis we are through what I would say the high-risk period of through the integration.

What you've now got is just making sure that we drive our business forward through both the investment performance. And a lot of the drivers of that will be just market sentiment which, given the last couple of weeks in market volatility, have been knocked. How quickly it comes back is very, very difficult to tell. We're working hard with clients. I think clients have very much appreciated the commentary we've given to them. And I'd say the level of engagement we've had with clients through these last couple of months have probably been the highest in these sort of volatile periods than I can remember in the historic periods I've been with the Group, which I think is a factor of some of the lessons we've learnt.

And through the talent we've brought into the business, we've really got our message out to the clients. And we've probably had some of the highest awareness levels at the retail end or at the IFA end with some of our comments, some of our fund managers doing webcams and commentaries in the press, have really increased the profile of Henderson, of what we're saying, getting our message out, which I think will pay dividends in time. At the moment clients have just been a bit shell shocked by the speed at what they've come down. That's going to be the bigger driver of the Gartmore movement in AUM from here rather than anything related to the integration or the acquisition by Henderson.

Okay. And maybe just one question on the performance fees. I think you've made it pretty clear, to some extent, by the comments you made on the timing of when the performance fees come through, but I presume what you're saying is that the first-half performance fees didn't really contain any component of one-off in them as you see it. Obviously the market plays a part there as well. But basically there's very minimal one-off components. Would that be fair to say?

Yes. I think if you look at the first-half figures, you see 85 funds actually contributed to it, which I think is the largest number of funds we've ever had contribute and is around half of the funds that actually have a performance fee. So in that sense it's quite an achievement. Some of the funds did pay decent performance fees and because of the timing of where those performance fees come through, you wouldn't expect to see anything from those funds the rest of this year.

When we say expect performance fees lower, we are -- I personally would be looking at high single digits as performance fees for the second half. Actually predicting performance fees is extremely difficult. And if you'd said to me we'd deliver the GBP50m of performance fees, I would have laughed at you at the beginning of the year. Some of that came through from the Gartmore performance as well, which has clearly held up well. But just looking at the profile going for the next six months, it will be lower.

Okay. And then just finally on the property, I know you've said that net/net it'll be a small positive inflow. Can you give us any feel for just the magnitude of the ins and outs there in terms of the sort of magnitude of the properties that are being sold and whether or not, within that, you are predicting a pickup in ability to invest or whether it's still pretty subdued.

It's interesting. It's a question I ask, if you're seeing the dislocation in the equity markets that you've seen, does that actually encourage people to put some of the properties on the market that has held back our investment. Haven't seen any evidence of it yet, but then property's clearly going to be -- take longer to move than just a couple of weeks, just the nature of what's happened. So that could benefit us.

But just looking at what we've got in the pipeline, and we know there's some attractive opportunities for us to rebalance the portfolios and sell some properties we bought well in the bottom of the market, we really think what we did in the first half is the best guidance of the net/net effect. I wouldn't expect to exceed that. To give you a view of the split between the two, I'd have to probably come back to you and think about it a bit more. I think it's a bit too premature to break it down to that level.

Okay. Thank you very much.

Okay, Nigel.

The next questions come from the line of Chris Cahill from Quest. Please go ahead with your question.

Hi, Andrew and Shirley. Just a couple of quick balance sheet questions. The first one is could you just give me some outline of what's behind the retirement benefit asset, GBP135m, the deferred acquisition and commission cost number of GBP69m which is held in non-current assets. And the third one is assets available for sale, GBP63.2m. Thanks.

The retirement benefit asset is the Henderson defined benefit pension scheme. You'll see that we haven't set up an asset for the Gartmore pension scheme, although that also has a good funding position, with roughly a GBP57m surplus. Gartmore didn't recognize that on its balance sheet. We're uncertain whether we can get the benefit -- get that GBP57m benefit back to the Company or not and therefore we haven't recognized it.

The GBP135m, the increase from the year end is two main factors. One is an increase in the discount rate used for the liabilities from 5.4% to 5.6%. And the other is the switch from the RPI basis for the CPI basis in the UK, which we have made that switch in the first half of the year. But that increase in the retirement benefit asset doesn't flow through the underlying profit. It goes in the SOCI. So it's not distorting the underlying profit.

On the deferred acquisition cost, this is effectively amortizing over the life, the costs, which I think the average is about four years. So there's a balance sheet asset and a balance sheet liability that you'll see for this. Again, the reason for changes in this is it's based on the size of the underlying book of business. We obviously have a bigger underlying book of business now.

Assets available for sale. These are effectively feed capital investments that we've put into funds. And the changing -- the changes in the first half, some as a result of the Gartmore acquisition and feed capital investments that they already had, and some is as we put into new funds in the half. These are very variable between multi-year commitments into property funds, private equity funds and much shorter term into retail funds, effectively to get them up and running and establish the track record.

Thank you.

We have no further questions from the phone line at the moment. Thank you.

Thank you. I'll just check if there's any further follow-up calls from the floor. Okay. There's no further questions here either. So thank you for your time. We'll wrap up there. Obviously if there are any further questions, you know how to get in touch with us via Mav in the IR department.

Thank you for your attention and have a good day.