Janus Henderson Group PLC (JHG) 2011 Q4 法說會逐字稿

Good morning. Good evening to those in Australia. Thank you for joining us today as we present Henderson Group's 2011 full-year results. Apologies if the voice is a bit croaky. I have succumbed to the English weather over here in the last few weeks, but hopefully it'll be okay for the rest of the morning. The ASX Appendix 4E, which contains the audited results and accounts and the business review, and the presentation that we're going through are available on our website.

I'll start with an overview of the results and then cover strategic development we undertook in 2011, including the Gartmore acquisition. Shirley will follow with the financial results and Gartmore in more detail. Then I will look at our key performance metrics and how we are tracking against those and within a broader industry context. I will end by recapping a few points and outline our priorities for the rest of this year. We are happy to take your questions at the end of this briefing.

In what was a volatile and uncertain environment, we capitalized on opportunities, managed what was within our control and extracted many efficiencies from combining Gartmore with Henderson. In so doing we produced a record financial result with underlying profit before tax up 58% to GBP159m and diluted earnings per share up over 30% to 12.4p per share. This is the strongest set of results we have reported since our demerger from AMP in 2003. The increase in income, driven largely by Gartmore, helped improve the management fee margin by 11% to 53 basis points. Our operating margin improved 21% to 36.3%. This was due to integrating Gartmore at a higher operating margin than our own, higher performance fees and continued cost control.

On the dividend, the Board is recommending a final dividend of 5.05p per share. This will take the total dividend for 2011 to 7p per share, nearly 8% higher than 2010. This is in line with our progressive dividend policy and demonstrates our confidence in the business to continue generating good cash flows.

Investment performance remained good over three years, with 66% of funds either meeting or exceeding their benchmarks. One-year figures suffered slightly following lower estimated property performance and volatile markets in the second half of 2011.

Against what is a strong set of financial results I'm obviously disappointed with the headline number for net fund flows. Putting this into some context, two-thirds of the outflows relate to the Henderson institutional book where we saw significant outflows from lower-margin accounts. That said, I want to see positive net fund flows and we have made a number of changes and investments to support this. I will spend more time in flows later on.

As regards our financial strength, we continue to generate positive operating cash flows and the net effect of debt refinancing and repayment is that we maintained our prudent gearing ratios. Shirley will say more on this later. However, before I hand over to Shirley I would like to touch on some of the corporate activity we undertook in 2011. It is fair to say that the Gartmore acquisition has exceeded our expectations. And to illustrate the benefit of the acquisition we will show you in the next couple of slides our analysis of the asset and revenue retention levels.

Here we break down the fund flows on the Gartmore book since the announcement of the acquisition last January. By retaining key staff, communicating clearly and regularly with our client and integrating Gartmore swiftly and seamlessly we held on to 86% of the assets. The high asset retention contributed to the good revenue generation and retention illustrated on the next slide.

Excluding performance fees and focusing on the recurrent management and transaction fees, the revenue run rate of the Gartmore business at the time of announcement was GBP132m per annum. Looking just at the impact of net flows, we estimate that we retained around 89% of management and transaction fees. After taking into account market movements we estimate a run rate at the end of 2011 of GBP106m. As the markets have improved since December, this run rate has also improved.

In addition to the recurring revenues we acquired, we already have and expect to continue earning performance fees on the ex-Gartmore funds. There are also opportunities to improve the revenues side of our combined business through an enhanced product offering, especially in our absolute return fund range, and with increased scale comes additional operational benefits for us to exploit.

The Gartmore acquisition was clearly the headline corporate event of last year for us. However, in line with our strategy we also exited a number of non-core legacy business which had in total GBP4b of assets under management. The disposals consisted of the Liquid Assets Fund we transferred to DB Advisors. We sold New Star Institutional Managers to the Management Team and their partner Connor, Clark & Lunn. And we sold the Hermes GPE private equity joint venture back to Hermes.

These disposals have resulted in a number of efficiency gains and improved our risk profile, benefits which offset the modest loss of revenue. We also restructured certain parts of the business. Late last year we parted ways with the currency team, we changed the way we support our SRI capability and reviewed the way we manage our multi-strategy funds. These actions improved the efficiency of the Group and help simplify and streamline the business, paving the way for reinvestment where we have gaps.

I'd like to now hand over to Shirley.

Thank you Andrew. I'm delighted to present these financial results, as you mentioned, our strongest since the demerger from AMP some eight years ago. As you can see on this slide, our underlying profit before tax was GBP159.2m in 2011. This was 58% higher than in 2010. Over 50% of the growth in total fee income flowed through to underlying profit. Much of this growth and improvement came from Gartmore, which I will illustrate in the next few slides.

The overall Group operating margin improved significantly from 30% to 36.3%. We were able to achieve the cost efficiencies from the Gartmore acquisition by June 30, adding this business at an operating margin of above 50%. We estimate that of the 6.3 percentage points' improvement in the operating margin, 4.3 was the result of the speedy and efficient integration of Gartmore. The remainder came from both improvements in the Henderson standalone business and from extracting further efficiencies from combining the two. Over the medium term we still think we should be able to move towards an operating margin of 40%.

As Andrew mentioned, our diluted earnings per share improved by 31% from 9.5p to 12.4p per share. We estimate that just over half of the improvement came from Gartmore, with the remainder again coming from the standalone business and the benefits from operating the combined business more efficiently.

We also measure the financial success of this acquisition by comparing the Group's cost of equity, which is 11.7%, and our weighted average cost of capital, which is 11.5%, to the return on equity and return on invested capital respectively. These returns are based on the share price at announcement, on annualized management and transaction fees earned and on actual performance fees earned in the year. In both instances the returns achieved exceeded our hurdle rates by a significant margin.

So, in summary, Gartmore has been a financial success in the short period of ownership. As it is now fully integrated we will not be able to disaggregate Gartmore from the existing business going forward.

Turning to the combined business and delving further into the drivers of the net increase in total fee income of GBP114.7m, management fees, which account for 76% of total fee income, contributed to just over two-thirds of the increase. This was primarily due to the take-on of Gartmore assets. The largest contributors to management fees were UK retail, SICAVs, institutional property funds and offshore absolute return funds.

We earned nearly 50% more in performance fees compared to 2010. And this accounted for 20% of the increase in total fee income. Performance fees from absolute return funds, the AlphaGen funds in particular, and from SICAVs, showed the biggest year-on-year increase. I will say more on performance fees on the next slide.

Transaction fees accounted for 12% of the increase in total fee income. The fees we earn on UK retail fund accounted for about 55% of these fees. Fees from this range are recurring in nature and based on AUM levels.

Taking a closer look at performance fees, performance fees from institutional clients were lower, albeit from a different and wider client mandate mix. As I just mentioned, absolute return funds and SICAVs were the main contributors to the GBP22.4m increase. Seven of our absolute return funds accounted for around 90% of the performance fees earned there. In the SICAVs, pan-European equity and global technology were the main contributors.

On offshore absolute return funds, around 15% of assets under management were at or above the high water mark and a further 47% within 5% of their high water mark as at January 31 this year. The SICAVs and investment trusts have to beat their benchmarks and post a positive return since the last performance fee was earned. The increased volatility in the second half of 2011, with many funds having first half year ends, have caused many of these funds to be below their high water marks. So given this volatility, it's better to look at funds that are within 5% or higher of their high water marks. In the case of Henderson SICAVs and investment trusts, 61% of assets under management were within this range of January 31.

Of our total fund range, 42% of our assets under management have the potential to earn a performance fee. That said, 2012 will pose a more challenging outlook for performance fees. It would be prudent to expect these fees to be substantially lower than in 2011 given recent market levels, the current profile and timing of fund year ends.

This slide highlights how we manage our cost base in line with our income. It also shows that we controlled costs throughout the Gartmore integration process. Looking at the full-year numbers, operating expenses, the red line, increased approximately GBP50m or 20%, of which GBP39m was staff costs. Variable staff costs which move in line with income earned and provide a flexible cost base for the business accounted for GBP26m of the increase. Higher performance fee share and short-term incentives were offset by lower sales-related incentive payments.

Fixed staff costs rose by GBP13m due to the impact of Gartmore staff for three quarters, other headcount increases and salary inflation. We would expect 2012 fixed staff costs to be slightly lower than the 2011 second-half run rate as the benefit of the cost saving measures taken in the last quarter of 2011 come through, but offset by selective investment in the business and some salary inflation.

Turning to our KPIs, our compensation ratio, that's the pink line, has reached its lowest level and our operating margin is at its highest level of the past five years. This demonstrates that as we've grown the underlying profitability of the business has also improved. The scale benefits of Gartmore enabled us to reduce the compensation ratio to 41.6% in 2011 from 44.4%. We expect a compensation ratio of around 40% is achievable. However, this is dependent on both the level of net sales and the performance fees generated and therefore the share paid out to staff. As previously mentioned, the operating margin improved from 30% to 36.3% and we expect it to continue to move towards 40% in the medium term.

Looking at other operating expenses, i.e. non-employee-related costs, most of the increase from GBP92.4m to GBP103.8m is as a result of the Gartmore acquisition as more funds and higher headcount required additional administration and support. Office expenses were lower in the second half of 2011 as some longstanding disputes were resolved in our favor and offset other costs we would have paid. So in thinking of this cost line going forward, you should assume that the first half is a more likely run rate.

Other expenses increased mostly as a result of business development spend on our brand and marketing support for our core retail institutional businesses. There were a number of smaller impacts, such as an increase in irrecoverable VAT. Except for office expenses we would expect full-year 2012 other operating expenses overall to be in line with the 2011 second-half run rate.

The one-off integration costs of GBP69.7m are in line with what we said at the time of announcing the acquisition. After tax this cost falls to GBP34.5m. We incurred GBP6m of restructuring costs in Q4 as part of cost saving measures we took in response to the market volatility in the second half. This is the first such exercise since 2008. As a result of this restructuring exercise a number of roles were removed across the organization. This demonstrates our continued focus on controlling our costs whilst we also invest selectively in the business.

During the year we reviewed the void property provision in respect of properties acquired through the New Star acquisition. As a result of improved sub-letting arrangements, GBP6.5m of the provision was released and is recognized as a non-recurrent item.

The effective tax rate on underlying profit was 21.1% compared to 20.5% in 2010. This rate is slightly higher due to the impact of Gartmore, a predominantly UK business. 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.

Underlying earnings per share, both on a diluted and basic basis, shows healthy increases of 31% and 29% respectively. And Andrew has already spoken about the increase in the dividend.

On this slide we provide you with an overview of our cash flow. We generated GBP161.5m of underlying cash flows. We had GBP57.8m non-recurring cash outflows, including integrating Gartmore. We repaid GBP43.2m of Gartmore net debt and received GBP116.7m from the new debt issued in March. We made dividend payments of GBP69.9m, whilst the purchase of own shares was offset by cash from unclaimed capital distributions. Overall the net-debt-to-EBITDA ratio remains low at 0.2 times. We have confidence in the business' ability to continue generating strong cash flows and, as such, we will repay the GBP142.6m debt due in May 2012 from our existing cash resources.

Looking at the financial strength of the business, we issued GBP150m of senior unrated fixed-rate notes in March, which along with the combined Group's cash, was used both to repay Gartmore's debt and extinguish GBP32.4m of the existing 2012 notes. The gross debt position at December 31 was GBP292.6m. The GBP200m facility entered into to facilitate the Gartmore acquisition has been cancelled. This leaves a GBP75m revolving credit facility available, entered too in January last year, which has not been drawn and which expires in April 2014.

As shown on the previous slide we saw strong cash generation in the business and unrestricted cash balances increased by GBP110.4m. The net debt position remains small at GBP28m as at December 31. The balance sheet is healthy with prudent gearing ratios and there has been no significant change in these ratios following the Gartmore acquisition.

I'll now hand back to Andrew.

Thanks Shirley. I would like to turn now to some of the key performance indicators we look at in the Group.

On this slide, turning first to investment performance, which includes Gartmore over all periods. As I mentioned earlier, total asset-weighted performance continues to be good over three years, although the one-year figures suffered slightly due to the estimated property performance. 59% and 66% of funds overall exceeded their benchmarks over one and three years respectively.

Looking at the various asset classes, 53% and 71% of equity funds and 79% and 87% of fixed income funds were achieving or beating their benchmarks over one year and three years respectively. The estimated property performance was 48% and 23% respectively, where the effects of the property downturn in 2008 and 2009 continue to impact the longer-term numbers. Performance over one year in UK retail has slightly weakened as a couple of our larger funds have underperformed more recently. However, over three years performance remained strong.

After a short period of underperformance last year our SICAVs are again performing strongly over all periods. The performance of the US mutuals business continues to be impacted by the underperformance of the international opportunities fund. Having steadily improved in the first nine months of 2011, the fund suffered in the market turmoil of the fourth quarter to post a disappointing one-year return. Since inception of this fund returns are extremely good and I have confidence in the fund manager line-up and we have seen an improvement in fund performance so far in 2012.

Along with the industry, our absolute return funds were tested by the volatility in markets last year. Over longer periods performance is strong and year to date we have seen a rebound in a number of the funds. The institutional business, as you can see here, continues to perform very well.

This slide shows our net flows in retail and institutional in the first and second half of last year. Sorry.

This slide shows you the progress, sorry, in fee margins we have made over the past three years. The significant improvements are a result of a change in the mix of our assets under management as we have increased the retail and absolute return components, strong performance fees and also two successful acquisitions. The total and net fee margins will vary depending in part on the level of performance fees we generate so they will come under pressure if, as Shirley has highlighted, performance fees are down substantially this year.

Looking at the management fee margin, I expect we could maintain the current level given the mix of our business and where we see sales growth coming from.

Now on this slide, which shows our net flows in retail and institutional in the first and second half of last year. As I mentioned earlier, it was a disappointing result as clients, driven by the market uncertainty, sought to reduce exposure to risk assets across the board.

Starting with retail flows, 2011 was a year of two halves, with the Henderson funds in net inflow in the first half but then turning into net outflow in the second as market conditions deteriorated. The outflows were predominantly from our SICAV and US mutual funds. Encouragingly the Henderson UK retail book remained relatively stable and delivered full-year net inflows of GBP283m. Net of previously notified Gartmore outflows this would have been broadly flat for the combined book.

In institutional we lost several longstanding lower-margin mandates when clients, despite strong performance, rebalanced their portfolios. It was a combination of clients reducing their European exposure, the maturing and unwinding of CDOs and a small number of clients changing asset allocation to global mandates.

Unfortunately during the fourth quarter we received notification of a total of around GBP1b of outflows which left in that quarter and more than offset the net client commitment we had at the end of the third quarter. This is particularly disappointing as many of the mandates were delivering strongly, as you saw in the investment performance slide, and we received significant performance fees from these clients. Whilst currently the pipeline in institutional is looking flat, we expect that notified redemptions are likely to go out before notified wins are funded.

Taking a closer look at absolute return, flows turned negative in the fourth quarter as clients in general reduced their allocation to equity long/short strategies. This is carried forward into the early part of this year. Flows in the non-equity long/short funds, such as our agriculture and credit funds, have remained stable.

Property had net inflows throughout the year albeit at a slower pace in the second half. Although we did not see a similar level of net inflows in the second half, this does mask a significant amount of activity. We were involved in over 90 asset deals last year and we continued selling assets to realize successful exits for our clients.

Taking a closer look at property, here we illustrate the level of activity that underlines the changes in our property assets under management. You can see how the pipeline of client commitments has been invested over the past two years, as well as additional new equity raised offset by distribution to our clients as we realized return to them.

Now turning to the next slide, we show that property client commitments remain largely unchanged from the end of 2010 to the end of 2011 at GBP1.4b. As we invested approximately half the client commitments during the year, we raised an even greater level of additional commitments. Again, this demonstrates that we continue to raise new equity through eight funds or segregated accounts and we also put the pipeline to work. Overall we purchased 53 and sold 38 properties last year. We will continue to deploy these client commitments over the next few years.

In the next few slides we take a look at our net flows as a percent of beginning assets under management compared to that of the industry. A key focus of our strategy over the past three years has been to build our UK retail business. Doing two acquisitions over that period will naturally disrupt your business and in these markets it is likely to take longer to demonstrate persistent net sales growth.

So far this year, without knowing the industry position but looking at our own experience, the position remains challenged with clients retaining a degree of caution. In the UK we are seeing good gross flows. However, net flows have been negative at around GBP100m per month. A significant proportion of these outflows have been from the multimanager range and strategic bond where short-term performance has suffered. However, the managers have good long-term performance and are well regarded, hence we expect to see an improvement. In addition to delivering good or improving investment performance, an improvement in the eurozone and market levels generally should benefit our sales.

As regards the retail distribution review, we believe this could result in the larger well-recognized groups benefiting as advisors increasingly limit the number of managers that they partner with. To that end we have signed up with a network of representatives from the advisory market and we will continue to invest in our brand.

On slide 28 you can see that over time our net European flows are better than the industry average. While this range is the most volatile part of our business, it has also contributed handsomely to performance fees in the past and attracts on average a higher management fee margin. More recently the chart shows a slowing for both Henderson and the industry in the rate of decline. So far this year we have seen positive net flows which have substantially neutralized the outflows we have seen in the UK OEIC range. Given our strong fund manager line-up and investment performance in our SICAV fund range, we are in a good position to benefit should this positive client demand continue.

Our US mutual fund range represents a very small portion of the overall industry, but that said you can see on this slide that our flows largely follow the industry trend. We sell predominantly [E-fee] or European product into the US. So given the concerns around the eurozone, the decline in net sales in 2011 stands to reason. Clearly there are performance issues in our largest fund but this alone is not the cause of the net outflows. We are currently in the process of launching an all asset fund, continuing the diversification of our product in this market. We believe this product will tap into US investors' demand for a more all-weather product, with lower exposure to equity markets. January saw modest outflows from this book and February is currently flat.

Industry data for European absolute return fund flows is only available on a half-yearly basis. We have chosen the European long/short equity index as the most representative of our book of business. This shows that we have seen a greater level of inflows than the industry over the past three years. And, if we look at performance, both the Henderson and Gartmore fund ranges have outperformed the industry over the past three years. You can also see here the differences in the two ranges, with their legacy Henderson funds typically having higher volatility compared to the legacy Gartmore ranges.

So just to recap the key points. 2011 was an exceptional year financially for Henderson, where we capitalized on opportunities, controlled our cost base and extracted many efficiencies to produce strong profit growth of 58%. We have good investment performance and we saw good flows into absolute return funds, property and Henderson UK retail. Our fee and our operating margins are trending in the right direction and we have maintained a prudent capital position with strong cash generation in the business. The Gartmore acquisition has already made a significant contribution to our business and has exceeded our expectations. Against a volatile and uncertain environment we have been strengthening and increasing overall efficiency of the business.

Our business model is a simple one. We have the client at the center of everything we do. As such, we are focused on delivering the right product, good investment performance and a quality service. To do this we have to ensure we have the right people in place, aligned with our shareholders and our clients. If we get this right we will achieve our strategic objectives.

In UK retail we are now well positioned to grow the business. Our SICAV fund range has excellent performance and good product, positioning us well to grow in European retail. In our US mutual fund business we need to address performance issues as well as broaden the product offering away from European-biased equity products. This supports one of our key efforts in 2012, which is to expand and grow our absolute return and global products.

You should take comfort from the fact that we are always focused on running the business efficiently, and even more so in challenging times. We have made a number of adjustments to our business in the latter part of last year and we remain vigilant about increasing efficiency across the Group.

You will recall I spoke earlier about looking hard at a number of our investment capabilities. Recognizing the need to continue to invest in areas such as absolute return in global products, we have realized savings to support these initiatives through the review and simplification of other parts of the business. The divestment of non-core activities along with a focus on overall cost enable us to make these investments without incurring an increase in the overall cost base, as Shirley has highlighted. We also believe that by fostering strategy relationships with clients, suppliers and distributors we can accelerate our growth and enhance the profitability of the Group.

Market conditions remain uncertain, but I am confident about the outlook for the Group. We have succeeded in strengthening both our business and client offerings and are well equipped to continue to deliver good returns for our investors through this volatility. As always, our focus is on delivering the best products and services to our clients and creating value for our shareholders.

Now this concludes the formal part of the briefing. I'm happy to take questions first from the floor then I'll hand over to the operator for those on the lines.

It's Hubert Lam from Morgan Stanley. Just three questions for you. Firstly it seems like that retail flows continue to be negative year to date. Can you just confirm that's true or not? And if it is, when do you expect retail flows to, for you to be positive?

Secondly, can you just give us a little bit more color as to what type of -- or where are you seeing interest in, in terms of retail flows in terms of inflows?

Lastly, can you just give us an update on the infrastructure fund law suit? How do you think this will resolve and the timing? Thanks.

Okay. Thanks Hubert. In terms of retail flows year to date, you're correct. The outflows that we're seeing in the UK are mostly offset by what we're seeing in Europe. So UK saw outflows in the fourth quarter last year and that's continued at a similar pace so far this year. We haven't really seen an increase in improvement in terms of flows in the UK, so clients seem to have been caught out by the rally and are very much sitting on the sideline. Gross flows are reasonable but net flows are still negative.

Looking at Europe, I guess that was where we saw the starkest outflows in the second half of last year. And that turned pretty much on a dime associated -- if you looked at it, it seemed heavily linked with the LTRO effect where one of the largest channels we sell into is clearly the banking channel and with the difficulty in funding in 2011 there was definitely, in our eyes, a movement from mutual funds directed towards deposit base as an additional form of funding as the wholesale markets got tougher for them. With liquidity being freed up through the LTRO, pretty much immediately you start to see that pressure ease and we've seen good flows in there, which nearly offset or about offsets what we're seeing in the UK.

The US has seen, definitely seen a rate of decline to what we saw the back end of last year. January had some modest outflows and, as I said, February's flat. The Americans clearly got better economic prospects in terms of what you're seeing through the data. They're still very nervous on Europe and, as I said, we're still seen as predominantly a European house for them so it's not necessarily turning as much. But we're actually well positioned. We've got a number of fund launches coming out as well which should hopefully diversify on that.

So looking at how do I look at the range. Really it's trying to see the UK, when that turns. Net flows in the industry have fallen quite heavily throughout last year and I don't think they've really picked up yet. There is probably an element of churn happening at the moment associated with RDR. It's very hard to get a full read of some of that but there's some positioning ahead of that.

So I'd expect that if market levels stay where they are and people -- volatility comes out of the market, obviously correlation has fallen amongst stocks, which makes it easier from a stock picking point of view to demonstrate the sort of value-add as well. So expect if conditions continue like this for the next few months you'll start to see that picture improve in the second quarter, but if we see a return to increased volatility and falling markets then that could reverse.

Europe, I guess I was surprised at the speed of change in that business so I'm not saying to you that it would necessarily continue. Interestingly the biggest flows we've been receiving are still in our defensive products, so our European corporate bond funds have probably been the biggest seller we've had in the last two months, so still more defensive. We're still finding we've got a great line up in European Equities, but it still remains difficult to get clients to sort of commit to core European equities at this stage. We're not seeing the same level of outflow but we're not seeing necessarily any investment.

So there's still, I see a strong level of cash sitting on the sideline that when there is confidence coming back will come into market. I'm not sure it's evident just yet.

When you're talking about interest, I still think it is more defensive products over corporate bond funds generally, higher-income-biased equity products over say growth funds in general.

To your third question on infrastructure, look, there's not a lot I could add at this stage given it's a legal process going through the courts. It's going to take quite a while. We estimate that the more substantial parts of the claim probably won't be heard by the courts until 2014; it could even be later. And some of the very technical parts of just bringing the case are unlikely to be heard until the end of this year at the earliest and they're just more technical matters.

So it is unfortunately something that there's not a lot of update I can give you at this stage and it will take probably quite a while to probably get into some of the discussion around it. As we've said in the past and we continue to say, we've investigated the claim, we're very clear on our own position on that we'll vigorously defend our position in that regard, but in terms of update there's not a lot I can give you at this stage.

Hi. Sarah Ing, Singer Capital Markets. You mentioned looking at operating efficiencies. Are there any particular areas that you're targeting and can you put any numbers on what level of cost savings you might be looking achieve?

Yes, as I've mentioned we did some restructuring at the back end of last year, which is to do two things. One to be able to reinvest in capability, particularly in global emerging markets, global equities. And the payback that we expect from that GBP6m that we spent at the end of last year is roughly two years net of reinvestment, so to give you some idea of how long we'd see that taking to come though, because it's not only about cost saving it is about reinvesting in the areas where we want to improve our capability. As I said on the 2012 costs, we expect that for the other costs they will come through at roughly the same as the second half run rate except for the office expenses where you should look at the first half.

And then the other impact which is always difficult to gauge is the variable costs which will move in line with the income but are very dependent on the level of net sales and performance fees.

Good morning. Daniel Garrod from BarCap here. Couple of quick questions. Firstly, I wonder if you could reconcile for me, in page eight of the actual report you detail the net management fee margin and you also have another measure of it on page two. There's a difference between 55 basis points and 53 basis points, what the difference is between those two.

And secondly, I was a little surprised to see the page eight version, the 55 basis points had come down slightly from the interim report. Is that just outflows from the SICAVs, the UK funds that's caused that to come down?

The second question was slide 27 on your UK retail flows versus the industry, there's only one quarter there where you actually had a better run rate than the industry as a whole. Clearly you're stepping up the marketing and promotion of that fund range but is that differences in the bias of your fund range? Why for the last two years has that run rate been so much lower than the industry-wide and what confidence do you have of that improving? Thank you.

Yes, so taking the first question on the management fee margin. The 53 basis points is what we actually earned during 2011 and the 55 basis points on page eight is based on the closing AUM. So the 55 basis points is the forward-looking management fee margin and the 53 basis points is the actual earned for 2011.

In terms of why is the 55 basis points slightly lower than the first half, the retail bits have come off roughly 1 basis point during the second half. Interestingly the institutional basis points have gone up about 4 basis points, which is as the lower margin part of that book has been in outflow. And the overall mix is what contributes to being minus 1 down, 1 basis point down from the first half.

Thank you.

To your second part on UK retail and looking at performance over the last two years, there's obviously a couple of things going on in there in the sense that we've got the integration of both New Star and Gartmore disrupting what we do, and also it's fair to say we're coming from a long way behind. There are some very well-established, very well performing competitors and like many channels the flows have typically been concentrated in the larger managers, so you're trying to disrupt and dislodge someone else above you in that regard.

One of the reasons that we've -- with the Gartmore acquisition pretty much fully completed, we have shifted up a gear in terms of the advertising towards getting the message out around Henderson. And those who are obviously here today will have seen some of the advertising as you came through the foyer. The Jose Mourinho campaign is doing very well in terms of raising the brand and raising the awareness. It is very early days. You'll remember we only launched that in November. It's still too early to get more formal metrics of how well it's doing but on the stuff that we have been able to see, click-through rates, brand awareness, recognition of the ads, they've significantly increased the overall awareness of Henderson.

I'd say, look, I'd love to be in a better position in UK retail at this point. Some of it is market conditions, which deteriorated just at the time when we were hitting our strides in a numbers of areas. Some of the performance in some key funds had slipped a little bit. But overall I'm actually very happy with where we are and I think we've just got to continue plugging away at what we're doing. I think we're doing all the right things. We've got a great team in place, we've had great client feedback and I'm confident just actually committing and continuing to do what we're doing will reap the benefit in time.

There has been, to some extent, of areas where performance -- not performance, where product flows have gone. So we do have gaps in our overall business, such as emerging markets, which still has remained an area of general strength for UK retail as well as other channels. Some of the areas such as UK equity income, whilst our products aren't bad you've got some very strong competitors in that regard and trying to dislodge those is tricky and does take time. So there's an element of some products either we're not in or just very well established names, but overall I'm very comfortable with the work that's being done by teams. I think we're well positioned to improve our position from here.

Thank you.

Arnaud Giblat from UBS. One question on could you tell us about what appetite you're seeing for absolute return funds in Q1, especially in the light of the comments you made on correlations being low? Do you see that as an important driver for future flows in that asset category?

Yes, I'll answer that question probably in two channels. I think the first channel, in the retail side we saw strong demand for absolute return fund retail denominated products last year. That was probably an area of highlight in what was otherwise a challenged market space. That's changing as obviously markets pick up. People are looking to move towards beta products. So it was seen as defensive in a volatile market. Not surprisingly you'd see people shift towards looking at other alternatives on the retail side. So I think the retail channel in absolute return flows will probably be more volatile in terms of the interest that you see coming to and from it.

On the institutional side, I think institutional investors were probably disappointed with the overall level of returns of particularly equity long/short funds last year. We were broadly in line with the industry. We were certainly no worse in that regard, but there was still a negative return from equity long/short funds. And I'd say the biggest driver of that was the correlation between individual stocks at extremely high levels, which made it very difficult for stock-picking funds, which an equity long/short fund typically is, to make much headway.

So far this year, as you will have seen from some of your own research, that correlations have fallen quite dramatically from very high levels now to below average levels and that's aiding significantly in investment performance and the ability for us to demonstrate the worth of that.

So I think the fact we had a disappointing last year in 2011, seeing a pick-up in performance in this last couple of months, which we definitely are in our funds -- some of our funds are having an exceptionally good return so far this year -- coupled with the fact there's a rationale for it based on the correlations falling, means clients are starting to take a greater interest. And I think institutional clients never went away. They just slowed their pace of investing and paused while they saw the outlook and now that they're seeing things an improving picture we're starting to see a lot more client interest.

Now that is interest. That's enquiries, that's people coming in doing meetings rather than translating into tickets as such. What you're seeing in the first quarter tends to be a reaction to what you saw last quarter because of the way redemption notices and institutions work. But it definitely seems that clients who you knew were looking to invest in absolute return funds on the institutional side are starting to pick back up that program where they'd sort of put it on hold for three or four months.

So I think the institutional and the retail aspects are probably a bit different in the regard and I think the Institutional outlook is building and looks reasonable at this stage. I wouldn't get too carried away, but I'd say it looks reasonable.

Thank you.

Good morning. Jonathan Richards from Merrill Lynch here. Just two quick questions if I may. Firstly on your operating margin target of about 40%, how quickly do you think that you could actually achieve that assuming flat markets for the rest of the year?

And of that 3.7% margin expansion from your current levels, how much of that would you attribute to more efficiencies coming out of Gartmore?

Secondly, more broadly, what products or areas are you guys excited about for 2012? And any sort of breakdown on the institutional or the retail side if there's differences there.

I think if you assume flat markets then you should assume that our operating margin would stay much the same rather than move quickly towards 40%. The drivers are really net sales, performance fees from here.

In terms of efficiencies from the Gartmore business we have done quite a lot of that in the second half. There are some funds that you'll see. We've announced we're going to rationalize some more funds. This year there's another 19 funds in the UK retail range coming out between May and July. But most of the integration and the efficiency we can get from that is behind us. So the efficiencies from here are really about, given that we now have this book of business, are there ways in which we can do things more efficiently, as opposed to Gartmore being the driver for that.

And to your second question, I guess I don't get too excited about products as such because I think it's very difficult to predict where client demand would be. I guess one area we're investing -- I think we've had good product in, but we probably haven't shouted enough about has been in multi-asset. We're launching that in the US but we're also revamping product across the globe. And that, I would say, has appeal both institutional and retail, so I think that's there.

I think we also have a very strong line up of dividend or income earning equity managers that we probably haven't been very good at getting the coherent strategy and message across, whether it's in regional, such as UK, Europe or Asia, or global. And I think we'll get better at getting that out and there's definitely still pent-up demand for income generating equity products and I think clients are very much looking for that sort of area.

I think in our credit side, our fixed income returns on credit have been fantastic and the ability to take what is probably perceived as one of the top European credit houses and broaden that, particularly with adding US into it to have a global capability, is something that's very high on our agenda and hopefully we'll be able to make plans in that.

On the absolute returns side, notwithstanding the strong line up we have in equity long/short, one of the areas that I like that we've got is agriculture. We had a relationship with Attunga which we had for a number of years and they had a very good agricultural fund and we've brought that in-house at the backend of last year. They have very small assets, about $150m, but an excellent three-year track record. Last year they were up north of 20%. And very, very lowly correlated with other asset classes. And the ability to grow that fund given their track record, given the quality of the team and how they operate relative to other products that people are invest in, I'm quite excited about that.

And on property we're very hopeful to be able to develop the franchise that we've built in Europe and take that into Asia. And there's one or two very interesting products we're doing to take our European expertise, particularly on the retail side, some of the outlet malls and like we've done, into Asia, in particular China. So hopefully we'll be able to show you some progress on that regard as well, which I think would be for us very exciting for some of our clients who are looking to capture the trend towards consumers, particularly in China and in Asia in general as they move to an economy that's much more around domestic demand.

Great. Thank you.

Thank you. Catherine Heath, Canaccord. My first question regards the pending litigation. I understand you can't comment on what's going on there in detail, but I wonder if you can give us some reassurance in terms of the conversations you're having with your institutional clients in terms of any sort of contagion effect.

Yes. You will have seen obviously in the results that the fund flows particularly in institutional were disappointing. And unfortunately I can't point to litigation just saying that was an excuse and if it wasn't there it wouldn't have been anywhere near as bad. It's not. I don't see that at all correlated with that.

Interestingly since the news of our legal case being announced we've had no changes in the ratings we've had with any of the consultants. I think we received mandates from 12 different consultants, was it?

14.

14 different consultants over the last year and we continued to be winning mandates and being put forward for business right up to today. So in that regard, I do see it as a small and isolated area. You've got to remember this is related to a particular product in a subsidiary of the Group. It's not in the main part of what we do as a business. I think clients understand and see that. We've been very open and disclosed it so I don't think from a consultant perspective there was a shift by being surprised or concerned in that regard.

Thank you. And then my second questions please. You've talked about strategic partnerships as a plan for this year and mentioned I think one just with the retail networks in the UK. I wonder if you could give us a little bit more idea of your plans there.

Yes. In the UK, for example, we've been looking at, RDR throws up a number of challenges and issues.

And you probably will have seen that with Sesame that Henderson has partnered with them to provide the majority of the investment management solution that they provide to their clients. So there are a number of channels looking at in an RDR world will they actually offer a different type of product and service. And what we want to do is provide a significant support to them in all aspects of what they do, not just the investment performance and fund range, but support with training for their advisors, help with their clients and the whole aspect of that, to become a more integral component of their client solutions. So I think Sesame's probably a good example of the sort of things we've been looking at.

But are you look at other things, let's say overseas, in terms of distribution?

We always are. I think any independent asset manager distribution alignments are always key and there are a number of things we're doing. I think at this stage it's probably too early to highlight or go into any more detail on some of those, but we are having conversations always to support our initiatives, particularly in areas such as Asia where the channels and the way they're supported are important to have partners in Asia of ours.

Thank you.

Okay, if there's no more questions from the floor we might go to questions on the phones.

Our first question on the phone comes from the line of John Heagerty. Please go ahead with your question announcing your company's name.

Thank you. John Heagerty from Credit Suisse. Just a couple of questions if I could. Firstly, just on the cash balances, you've got net debt I think of GBP28m. I see you've got plans to repay some of the debt, but you're still going to have -- the amount you pay on your debt is far higher than the income you earn on your cash. So are you still trying to keep that GBP28m net debt or are you going to reduce that debt further from the, I think you're going to get down to about 150 left?

Yes, you're right to say that the net debt is GBP28m at the end of the year and we will repay that which is due in 2012. The debt that we took last year has a five year life until 2016 and of course you're right to say that the rate that we pay on that of 7.25% is obviously not what we could earn if it's just sitting as cash balance. So I think the judgment call is whether to, obviously you can repay debt early if you wish to or whether we have a better use for that cash.

Actually you've also got a GBP75m revolving credit so it seems a little bit unnecessary to have that additional debt there, because if you want some debt or assistance there you can just dip into the revolving credit.

The revolving credit isn't drawn. I think CFO's get shot for running out of money. The amount that you pay for having a revolving credit facility that you don't draw is well worth it in my view.

Okay, fine. Just on the disposals you made last year as well, I guess particularly in the second half, can you tell us what the average fee was, the management fee was on the assets disposed, on the full bill I'm thinking but if you could specify what the second half asset management fee was that would be very helpful as well?

Yes. Hermes was a joint venture so that didn't bring a management fee as such. That was a share of income from the joint venture. This was something where Hermes had the option on a change of control effectively to buy it from whoever ended up buying Gartmore, which they exercised. And the amounts on that is modest. It's not going to move the dial. NSIMs similarly the second half is not --

Yes, NSIMs, revenue or management fee margins were -- they're an institutional business so they're more in line with an institutional business and lower than the overall Group average. Early in the year the cash fund or the liquid asset fund that we transferred to DB Advisors, given it's a cash fund you can get a sense it was very low margin.

That's great. Thanks very much.

Our next question comes from the line of Nigel Pittaway. Please go ahead with your question announcing your company's name.

Hi. It's Nigel Pittaway here from Citi, Andrew and Shirley. Just a question on the, obviously a big fall in variable costs in the second half, variable costs down 26.9, revenues only down 32.1 half-on-half. So given we're saying the variable costs tend to follow revenue that seems to be a very big reduction. I presume it's coming back to the flow levels, is that really explaining all of that major reduction there or are there other factors at play?

I'll give you the high level answer and Shirley will give you the detailed numbers that are associated with it. But, as you know Nigel, the schemes we operate are very much linked to the profitability of the Group. So for fund managers it's not just sharing the performance fees, which were down in the period from the first half, so there's that element coming through, but also the profitability of their book-to-business would have come down as market levels come down, and also as outflows.

And on the sales side, sales incentive schemes are linked to what we sales generate and with those having reversed over the year, they're looked at how you look over the whole year, so obviously you accrue it where you were in the first half and then you see where you were at the end of the year.

So I think that -- and also a lot of our benefits linked to staff are very much aligned with shareholders by having share-based awards which are, again, based on the average share price throughout the year, which where we ended the year was a lot lower than where we were throughout the year.

So the combination of that means our variable comp is very much aligned and moves in line with the income line and we're able to bring it down just through the fact that -- I genuinely believe that they have been set up to work in the interest of shareholders. That as shareholders benefit that they payout, but at the same time when shareholders come under pressure because of what's happening in the business or the industry or the environment, that there's an element of cushion coming back from some of these things. And you saw strong evidence of that in the results.

Is there anything you want to add?

Yes, I think Andrew has probably said most of it. The biggest driver between first and second half on the variable staff costs was the level of performance fees, the GBP54m in the first half and GBP10m in the second half, that is driving the change in variable staff costs. But the market levels affect a number of our schemes so as market levels come down then the share that the staff get is coming down as well.

Okay. And then just a question on the institutional performance fees. Obviously you were surprised at how strong they were in the first half. They did fall to just GBP0.6m in the second half, which is quite a big skew obviously towards the first half, so which of those two numbers I guess to believe in terms of being a potential earning capacity moving forward?

Yes, I think as I say every time I'm asked a question like this, performance fees are notoriously difficult to judge. And on the institutional funds in particular, where every fund has its own arrangements, you can't say that there is something which basically means you can judge what the institutional fees will be. They are all on their own criteria against very difficult benchmarks.

There's still a significant proportion of the funds, as you can see, 42%, can earn performance fees and that's 170 funds. Trying to characterize where that will be, why I gave you some guidance on the high watermarks was to try and help with an assessment of where performance fees might be. But not for the institutional funds so much, but for the other funds we are very first half skewed and particularly around June 30.

Okay. So there's no particular reason other than performance why it was such a big skew towards the first half.

No.

No.

No. Okay, that's great. Thank you.

Our third question comes from the line of Anthony Hoo. Please go ahead with your question announcing your company's name.

Hi guys. It's Anthony Hoo from Nomura. Can I ask a question around the book that you got from Gartmore itself? So just on the flows that you saw there, were the flows --- were there any factors specific to the Gartmore book or do you think they were just affected by general market factors that were also seen in your normal Henderson book?

And also what are the trends that you've seen in the year to date? Has the negative flows continued?

Looking at Gartmore specifically, I'd say substantially by the end of the third quarter that the integration of the Gartmore business was complete and I don't think there was any integration element at all related to the Henderson takeover that was affecting the book from that period.

And actually looking at the Gartmore flows in the fourth quarter relative to Henderson flows, any impact they were experienced was very much market related. And actually they were probably more resilient in things like the European books because of some of the heavier outflows they'd seen earlier relative to Henderson. And you will have seen on the institutional side the significant of the outflows was much more the Henderson rather than the Gartmore side. So I wouldn't say anything on there.

In terms of going forward and year to date, because of where we are now with fund integrations and the merger we can't really break it down like Gartmore versus others. And I think I answered earlier the questions around how flows are looking for the first couple of months this year and there's no, I wouldn't say there's anything that I've seen, any impact on the Gartmore funds being different or significantly different to Henderson funds in that regard.

Okay, great. If I could ask another question just quickly on your distribution strategy, I think last year there was some mention around leveraging the capabilities that you bought with Gartmore specifically in Asia and Japan. Are you able to give us an update on that?

Yes. Obviously Gartmore did increase our distribution footprint in two important channels. The absolute return channel, Paul Graham from Gartmore heads up now the combined business in relation to how we deal with institutional client in particular buying our absolute return vehicles. And then also in Japan where they had a much bigger team and a much greater success. And I'm very pleased with the quality of the teams we have in both of those channels.

You may have caught at the end of last year as well that we announced that Phil Wagstaff who was the Head of Distribution at Gartmore has actually come to be Global Head of Distribution for all the Henderson Group as well. Now Phil has a fairly unique experience in the sense that he used to work at Henderson back in the nineties, he then spent quite a considerable time at New Star before then being at Gartmore for the last four or five years. So he actually knows the organizations, both Henderson but also the businesses that we've acquired over the last couple of years, very well and he's ideally placed to bring that together.

So distribution and getting distribution coordinated, aligned and working together is an important aspect of what we're doing in 2012. Phil has got that on his plate and he's making very good progress. He rejoined at the beginning of this year so it will take a little while for him to be fully felt on that.

But it's fair to say that I think the distinction between Retail and Institutional in terms of products they buy, their buying patterns and behaviours, is becoming more and more closer together. And so the coordination of those activities is important, which is why in the past we'd had co-heads, one with a Retail sort of experience bent and one with an institutional bent, and we consolidated that under a single head at the beginning of the year to sort of reflect the changes we're seeing there.

Okay, great. Thank you.

Our last question from the line of Marcus Rivaldi. Please go ahead with your question announcing your company's name.

Good morning. It's Marcus Rivaldi from Morgan Stanley Fixed Income. A couple of questions please on the balance sheet. First of all, the goodwill adjustment that you made since the interim of roughly GBP50m relating to the acquisition, could you may be split that down between the retirement benefits impact and the trade and other payables impact?

And then my second question was really more a follow-up on the debt question. It sounds as if you're guiding that really over time you want your debt to be coming down even further from where it is on a gross basis. Just looking at the 7.25% bonds that you've got there, I think the only way you'd be able to do that is by purchasing them off the market. Is this a short term thing to address or is it something more longer term that you're looking to do? Thank you.

Okay, if I may, I'll do those in reverse order. No it's not a short term thing and I'm not about to go out buying this debt back in the next few weeks. But it's a question that obviously you would ask, why would have a GBP150m of debt if you don't have a good use for it sitting on your balance sheet? The reality of doing acquisitions is that you can only raise equity effectively to pay the shareholders with; you can't raise equity to pay your integration costs. So you end up with an upfront requirement for cash which then obviously gets released fairly quickly as the operational cash flow starts to flow, as you can see on the slides around cash flow.

In terms of the retirement benefit asset, we didn't recognize Gartmore's retirement benefit asset at the half year and we weren't sure that we were entitled to the surplus and Gartmore itself had not recognized the pension scheme asset on its own balance sheet. During the second half we now know that we are entitled to this surplus. We're only entitled to a surplus on a wind-up of the scheme because the scheme is closed to future contributions and so there are no contributions going into the scheme.

What this means is that on a wind-up the trustees would deduct tax so you'll also see in the report and accounts tax at source being deducted from the retirement benefit asset, and this is withholding tax at 35% that would be deducted before any surplus comes back to us.

In terms of the goodwill adjustment, GBP35m is what we've put through against goodwill being the value, the net benefit of that retirement benefit asset at acquisition. And then that's gone up to, I think it's, GBP53m, GBP54m as at December and the rest of that has gone through the statement of comprehensive income like any other retirement benefit surplus. And the remainder is partly the sale of -- the big other element in the goodwill adjustment is adjusting for the sale of the Hermes GPE joint venture back to Hermes in the second half.

Thank you very much, very clear.

We have no further questions so I hand back to you sir for the closure.

Okay, unless there's any other questions from the floor, thank you very much for your coming today. If there's any further follow-up questions feel free to go to Mav Wynn in the Investor Relations department. Thank you.