Janus Henderson Group PLC (JHG) 2012 Q4 法說會逐字稿

Okay. I think we are all seated, so we'll make a start. Well, good morning, everyone, for those who have come here in the London office, and obviously good evening to those in Australia. Welcome to our 2012 full-year results. Hopefully, everyone on the webcast and the teleconference can hear us clearly.

I'll start with a quick overview of the results and the progress we have made against our key performance indicators. Shirley will delve into the financial results in more detail, and then I will recap and outline our priorities for the rest of this year. We are happy to take any questions you may have at the end of the presentation.

If we look at the positive start markets have made so far this year, it's easy to forget that 2012 started the same way. However, the early optimism last year was soon overshadowed by political and economic uncertainty that led to a downturn in global equity markets from the second quarter. Throughout the year, volatility featured constantly, with a number of political leadership changes and appointments taking place, mixed in with further bail-outs of banks, extended quantitative easing here in the UK and the Fed's actions to stimulate growth in the US economy. In the latter stages of 2012, markets enjoyed some respite with a generally upward path, particularly after Mario Draghi's pledge in July to preserve the euro.

The uncertainty these events created poses a challenging sales environment, with Henderson experiencing renewed outflows given our relatively high exposure to Europe as well as to equities. This impacted both revenues and profits, and we saw our underlying profit decline by 8% to GBP146.5m. We did, however, keep a tight rein on costs and were able to at least match the percentage fall in revenues with a similar percentage fall in costs.

Diluted earnings per share declined by only 6% to 11.7p, as a lower tax charge for the year was offset by a higher share count. Despite the fall in profits, our operating margin held steady at 36%.

We manage employee costs tightly, enabling us to modestly reduce the compensation ratio to just over 41%. This was driven by lower variable compensation, in particular lower performance fee bonuses.

Overall, the business remains in good health. The Board has therefore decided to recommend a final dividend for 2012 of 5.05p per share. That will bring the total dividend to 7.15p per share, an increase of 2%. We expect to pay this dividend on May 31.

Investment performance overall is strong, with 69% of funds either meeting or exceeding their benchmark over three years and 73% over one year, both numbers up from the previous year. Assets under management increased by 2% to GBP65.6b, as although we saw net outflows these were more than offset by positive market and FX movements. I'll give a further breakdown on fund flows in the slides to follow.

In terms of our balance sheet and financial strength, we have seen good progress on improving the overall strength of the business as we generated strong cash flows. We fully repaid our 2012 debt in May from existing resources, and we recently cancelled our revolving credit facility. Overall, our activity in the year has left us with gross debt of only GBP150m and a net cash position of GBP18m.

Before I hand over to Shirley, I will take a closer look at the main KPIs we monitor. First turning to investment performance, performance over three years continued to be strong. We saw significant improvements in some of our larger core funds as markets improved towards the end of the year, resulting in our one-year numbers improving from 59% at the end of 2011 to 73% at the end of 2012.

At an asset class level, performance in our fixed income funds continued to be excellent over all periods and our equity funds performed strongly in the second half, resulting in an improvement in both our one- and three-year numbers. The performance in our property fund was weaker over one year, largely as a result of two funds underperforming their benchmarks, whereas over three years performance improved as one fund in particular performed well after completing its investment program.

Turning to the business lines shown at the top of the slide here, in UK retail performance over one year has improved. Our European SICAV fund range continued to perform very strongly over all periods. Encouragingly, as clients are looking at Europe again, this performance has started to translate into new business growth.

The performance in the US mutual fund range has picked up significantly over one year, as performance in the International Opportunities fund improved, finishing the year in the first quartile. Our investment trust business had another good year, with all but one of our trusts outperforming their benchmarks.

Along with the industry, our Absolute Return Funds were tested by the volatility in markets. However, performance picked up in the second half of the year, with the vast majority of our funds being positive for the year. Henderson's Absolute Return Funds returned 7% on average for the year on an asset weighted basis, beating the EuroHedge Composite index, which delivered around 5%.

The institutional business, as you can see here, continued to perform strongly, with our fixed income range in particular having delivered excellent performance for our clients.

The total fee margin decreased by 6% to 66.5 basis points as a result of lower performance and transaction fees. The management fee margin continued to improved and increased by 2% to around 54.5 basis points, largely due to a greater proportion of lower margin institutional outflows and an additional quarter from the Gartmore acquisition in 2011. Management fees will be impacted by market levels and margins attached to net flows; however, we expect our management fee margins to remain stable and our closing run rate of 54 basis points is a reasonable proxy for 2013.

New business growth did not meet our expectations, as both retail and institutional sales suffered from a combination of the effects of the Eurozone crisis, investors' risk aversion to many asset classes and in a few cases of weaker performance.

In our equity fund ranges we saw positive net sales across a number of funds, most notably in our technology funds, global property equities funds and the global equity income fund in the US, and also some of our European funds, including the European Special Situations Fund, European Property Equities and the European Focus Fund. Otherwise, we saw redemptions as clients continued to favor fixed income funds over equities.

In our fixed income funds we had strong net sales in Horizon Euro Corporate Bond Fund and also in credit. The All Stocks Credit and Credit Alpha were particular standouts for us. We did, however, see outflows as several of our longstanding institutional clients adopted a buy-out model for their investment portfolios, despite or maybe because of having had excellent returns on their investments.

Property saw positive flows, and I'll cover this in more detail shortly, whilst private equity saw monies returned to clients from some of our older funds. Both property and private equity experienced negative foreign exchange movements, leading to reduced assets on a sterling basis.

Taking a closer look at retail flows, we had our best ever year of gross flows across the retail business. This is encouraging. And the best-selling funds were our Euro Corporate Bond Fund and Global Technology Fund in our SICAV range, our Global Equity Income Fund in the US Mutual range and Credit Alpha and European Special Situations in our UK OEIC range. That said, net sales growth in UK retail was held back by the impact of the retail distribution review as advisors repositioned their client portfolios ahead of its implementation on January 1 this year.

As mentioned before, we have taken a number of steps to protect and grow our UK Retail business. Although it is hard to predict exactly how this regulatory change will play out and how business models will respond, we believe that we are well placed by forming alliances with key decision makers and having adjusted our fund range over the year. There are more regulatory changes to come, and so it's probably too early to factor in any significant change in our UK Retail flows just yet. The FSA has delayed its final rules on platforms to later this year, as it clarifies the tax treatment of rebates and payments for platforms. Therefore, platforms will have until early 2014 to comply.

Our US Mutual Fund range was negatively impacted by Eurozone concerns, resulting in net outflows last year. Flows in our Retail SICAV range in Europe ended the year strongly, resulting in this fund range recording net inflows for the year. Although these inflows were predominantly into fixed income products, it is encouraging to see that our equity funds are starting to benefit from improved market sentiment towards Europe and equities in general. Henderson is still one of the leading investment trust managers, and we had net inflows of GBP54m in that sector.

In Institutional, we continue to see good growth sales in fixed income. However, net flows were impacted by clients rebalancing their portfolios, either into global mandates or where they have been subject to pension buy-out arrangements. Our performance continues to be strong and, together with additional capabilities we now have in place or in the process of establishing, we expect to grow the business here.

Taking a closer look at absolute return funds, outflows continued in 2012. And even though the second half was tough, outflows slowed in the fourth quarter. Over the year, underperformance by hedge funds in general and lower demand for equity long/short strategies saw the industry experience outflows. On our fund range, performance improved over the year and client demand for long/short strategies is beginning to return.

The positive net flows in property are largely as a result of the equity raised for a new German logistics fund and fund launches such as our Silk Road Chinese designer outlet mall fund, as well as the acquisition of Horizon Investment Management in France.

I'll now hand over to Shirley.

Thank you, Andrew.

The 2012 results show our business demonstrating good cost control, whilst continuing to invest in areas we believe will contribute to our future growth. You can see the detailed profit and loss in the appendix, but I'll focus on the underlying profit numbers and touch on some of the other line items.

As you can see on this slide, our underlying profit before tax was GBP146.5m in 2012, 8% lower than 2011. The benefits of having revenue from Gartmore for an extra quarter and reduced expenses were offset by lower performance and transaction fees and the impact of net outflows in 2011 and '12 on management fees. Given the flexibility in our operating costs, especially in variable compensation, we were able to at least match the percentage fall in revenues with a similar percentage fall in costs.

So, taking a closer look at the income drivers, management fees were resilient and account for over 80% of total fee income, decreasing by less than 2% or GBP5.3m to GBP355.2m, principally due to net outflows. This was partly offset by an additional quarter of Gartmore management fees.

Transaction fees decreased by 14% or GBP7.4m over the year, largely due to the disposal of the Hermes private equity joint venture and other one-off fees recognized in 2011, combined with lower structured credit advisory fees in 2012. We still expect that, on average, around 60% of transaction fees will be recurring in nature.

In line with my previous comments, 2012 was a more challenging year for performance fees. We earned GBP33.9m, substantially less than in 2011, and I will go into more detail on the next slide.

The reduction in net finance expenses is principally due to the repayment of the GBP143m 2012 notes in full, offset in part by an extra quarter's interest on our 2016 notes.

The impact of lower markets in the first half was most evident in the lower performance fees earned from our absolute return funds and European SICAVs. These fund ranges together accounted for an approximately GBP30m decline in performance fees from 2011. Institutional clients contributed about 20% less than in 2011, as clients redeemed some mandates that previously earned performance fees. That said, in 2012 we source these fees from a larger number of institutional clients than in 2011.

The vast majority of our offshore absolute return funds, investment trusts and SICAV funds with a performance fee potential are close to generating performance fees based on current market levels. Of our total fund range, approximately 40% of our assets under management have the potential to earn a performance fee. Performance fees are difficult to predict, especially in volatile markets. But given our diversity, we currently expect 2013 performance fees to be at least in line with the 2012 level, due to the recent improvements in markets and our continued strong performance.

This slide highlights how we continue to manage our cost base in line with our total income. As already mentioned, we do continue to invest in the business, and we have done this within an environment where we've controlled costs well.

Total operating expenses decreased by GBP26.7m, mainly due to lower staff costs plus investment administration and other expenses being lower. Fixed staff costs increased by 6% to GBP102.3m. The restructuring action we took at the end of 2011, net of new hires for our growth initiatives, offset the impact of an additional quarter of Gartmore staff. However, due to an increase in the accounting charge for pension costs of nearly GBP5m, as the scheme trustees shifted from return seeking to risk reducing assets, fixed staff costs rose.

You may be aware that in 2013 the accounting rules for pensions will change, with the charge being split across staff costs and finance income, and the calculation methodology also changing. Ignoring the impacts of the change in pension accounting, due to the actions we took late last year, fixed staff costs should reduce in 2013 even after absorbing the costs of any additional hires to support our growth initiatives.

Variable staff costs declined by GBP26m or 25% to GBP77.6m, mostly as a result of lower performance fees and other short-term bonuses, reflecting the lower performance fees earned and overall business performance.

Looking at the impact on our key ratios, as Andrew mentioned, the operating margin held steady as lower variable staff costs and continued cost control substantially offset the impact of lower fee income, in particular lower performance fees. We continue to believe that the business is capable of achieving an operating margin of approximately 40% over time. This will obviously depend on flows and market levels. Given the current position of the business, we do not anticipate any significant change in operating margin either way in the short term.

Although the compensation ratio increased in the second half, it has reduced year on year. Looking to 2013, we don't expect our compensation ratio to reach our medium-term goal of 40%. We expect this ratio to stay relatively consistent with 2012 levels, but again, of course, dependent on a number of factors, including net fund flows, market levels and performance fee quantum and mix.

Turning to non-staff costs, as you can see, we have managed these well, and compared to last year these costs decreased by 6% or GBP6.7m. This was a particularly good outcome, given an extra quarter of Gartmore costs in 2012, and was due to lower investment administration charges and lower other expenses as a result of reduced discretionary spend and historical VAT claims which the Group settled with HMRC. Overall, in 2013, we will continue to manage our expenses in line with the previous year.

As regards non-recurring items, we have recognized a net credit as non-recurring costs were more than offset by the recognition of GBP26.6m net management fees relating to the private equity fund PFI II. The settlement of issues with claimants who are investors in the PFI II fund meant that the Group was able to recognize management fees of GBP3m in the second half of 2012, and as part of the non-recurring item fees prior to June 2012. We anticipate that these fees will be paid on wind-up of the fund, September 2016, per the fund agreements. Hence, all fees are recognized net of discounting and costs.

GBP9.1m of costs have been incurred and associated with the reorganization of the Group, enabling us to reduce fixed staff costs and also to invest in areas of the business where we see most growth potential. We expect to achieve a two-year net payback from the restructuring charge through reduced fixed staff costs.

The Financial Services Compensation Scheme has increased the one-off levy in relation to 2010/'11, and the Group has recognized this additional charge of GBP2.5m.

We increased the void property provision recognized on the acquisition of Gartmore by GBP1.2m, as our original estimates for subletting have proved slightly challenging in the current letting market.

Our tax charge of GBP19.5m, which results in an effective tax rate on underlying profits of 13.3%, was lower than our usual effective tax rate of around 20% and lower than the pro rata UK corporation tax rate of 24.5%. As in previous years, this is as a result of the net favorable effects of different statutory tax rates that apply to profits generated by non-UK subsidiaries. For 2012 only, the rate is lower due to the use and recognition of previously unrecognized tax losses.

We do expect our ETR to move back to the more usual level, around 20%, in 2013 but this will depend on where profits are sourced from. As we announced at the end of last year, the UK government's controlled foreign company reform means that the Group's tax position and effective tax rate are now unaffected by having a UK tax resident parent company.

Moving to the balance sheet, you will note that the Group has moved into a net cash position for the first time since 2008. As mentioned in previous years, December is the cash high point prior to the payment of the final dividend and bonuses. However, we do expect the Group will continue to generate strong operating cash flows through the whole of 2013.

We had operational cash flow of GBP139m, paid dividends of around GBP78m and repaid GBP142.6m of debt with net interest payments of GBP15.5m. This leaves us with a gross debt position of GBP150m. We've also cancelled the GBP75m revolving credit facility which we entered into in 2011 when we acquired Gartmore.

Given our net cash position, we remain comfortable with our gross debt ratios, which have also halved. Our focus remains, subject to external factors, to repay the 2016 notes and to strengthen our capital base through the economic cycle, so that we can operate without the FSA consolidation capital waiver in due course.

I'll now hand back to Andrew.

Thanks, Shirley.

So let's just summarize 2012. It was a challenging environment for us, making it difficult to generate positive net fund flows. That said, we remain focused on delivering strong investment performance to our clients, and in that regard I am pleased to see an overall improvement in investment performance across the business in 2012. We also continue to apply our rigorous discipline in managing our costs, which you can see evident in the results. We generated strong cash flows, which has enabled us to move into a net cash position.

However, it wasn't just about cost management. We also restructured and reorganized the business in December, simplifying it so that we are more focused on the core growth areas of our interests. This has enabled us to streamline our business, made quicker decision making, and also enabled us to redirect resources towards those capabilities which we expect will deliver growth.

We've also made a number of investments, which over time will result in Henderson being a more global and stronger investment and distribution capabilities. For example, we have moved ahead in globalizing our fixed income franchise and hired a US credit specialist team just this month.

Based in Philadelphia, the new team, formerly employed by Delaware Investments, will develop US credit products for Henderson and will be integrated with our UK-based credit team, and that will be a vital component of our global offering. Hiring this team allows us to satisfy increasing client demand for global credit products, from high yield through to investment grade. This also now provides US domestic product to sell through our strong US distribution team.

Absolute return is an important part of our growth strategy, and we recognize that clients increasingly want lower volatility together with absolute returns. Expanding our absolute return product range with the acquisition of a 50% interest in Northern Pines Capital, a US long/short equity fund manager, helps us extend and diversify our absolute return product range and provides further solutions for our clients. This firm is based in Boston, and the fund has a similar investment strategy to other funds in our AlphaGen range. Using our infrastructure and distribution, we expect to grow this fund as we promote it to our existing client base in the US, Europe and Asia.

Turning to a part of the world that's close to my heart, we have made significant progress in moving ahead with our growth ambitions in Australia. Our approach to expanding our footprint is centered firstly around developing a distribution hub in Sydney. To this end, we hired Matt Gaden to head up our distribution efforts. Later on, we plan to have both fund management and product capability on the ground.

We have also made two senior hires in Asia, as we increase our distribution efforts in this region. In October, we hired a new Chief Executive of our Japanese business, Tsubota San, and a new head of retail distribution in Asia ex-Japan, Mabel Chan.

I would like to now turn briefly to our recent fund flow and pipeline position. It is disappointing that so far this year we've had outflows from our institutional business, primarily due to one large account, which was a previous Gartmore client who had been invested in an underperforming mandate. Since our acquisition, performance has improved. However, the client has redeemed their investment. In the absence of that, our current pipeline in institutional is modestly positive, with notable wins in global credit and multi-asset credit.

Our property team has recently wound up a 10-year-old fund for our clients as the fund had reached the end of its life. As such, property is likely to have net outflows in the first quarter of around GBP200m, but still has a pipeline of around GBP900m of uninvested client commitments.

Most of you will already be aware of the recent announcement by the Board of Henderson Asian Growth Trust and Henderson Fledgling Trust, where they have decided to move away from Henderson. Partially offsetting that, the Board of SVM Global has recommended shareholders appoint Henderson to manage the trust going forward. The net effect of these is likely to see a reduction in our investment trust assets of circa GBP200m in the first half.

Our absolute return funds have benefited from improved performance and sentiment, and so far this year we have matched pre-notified redemptions with new inflows.

Turning to flows in our retail business, these are positive so far this year, driven predominantly by our European retail SICAV range. Our US Mutual fund range has also returned to positive flows on the back of good performance and improved client sentiment. UK OEICs continued to experience outflows, but at a reduced rate to what we were seeing at the end of last year.

On this slide, it gives you an overview of the areas of key strength of our business. Our new business structure is built around these investment capabilities.

Starting with private equity, this contains our three main areas of Asian direct investing, fund of funds and infrastructure. In property, we are well known for our management of retail shopping centers and outlet malls, as well as central offices in the major European cities. In the US, we have developed a successful franchise in the multi-family housing market. That's apartments to you and me. Our fixed income teams are grouped around diversified fixed income and rates, global credit, retail fixed income and secured credit.

A more extensive restructure took place in equities, where we consolidated our management under four key business areas. These are absolute return, European equities, global equities and multi-asset.

Looking at each of these in a bit more detail, we are increasingly seeing clients shift their emphasis from relative return solutions to absolute return focus. We have focused on improving investment performance and further expanding our product offering under the leadership of our hedge fund executive committee. The Northern Pines interest we acquired is testimony to our commitment to grow in this area.

European equities is one of our key franchises and, despite being out of favor in 2012, I expect it to play a big part in our future success. Our fund managers, led by John Bennett, have outstanding records, and I believe current conditions offer attractive return opportunities for the patient investor.

Clients are increasingly looking for global solutions, and our new global equities team will refresh our product range and develop it for the future. We have consolidated our activities in this area under the leadership of Stephen Peak. We already have well established credentials in global income, global technology and global property securities, and have invested in our global equities capability just last year. We have also brought together our Asian and emerging markets teams, to create a unified global emerging market offering.

We have added more funds and talent to our multi-asset team, as we see this as an important pillar in providing clients with solutions to their investment needs. We have developed innovative products for UK retail clients, to suit the post-RDR world. Bill McQuaker has been expanding his team to support him in our asset allocation decisions here.

So, looking forward to 2013, the business is moving in the right direction. I am confident that the changes and investments we made in 2012 will result in an improved outlook for growth in the business. At the heart of our success rests our clients. Our focus is on extending the trust and partnership with them. And to that end, our new advertising campaign with the focus on knowledge shared is seeking to support this.

Looking at net sales, our focus is on returning to positive sales growth. So far this year, and as I highlighted just before in our retail business, we are moving in the right direction, but there is still more work to do. For example, in the UK we will continue to work with our joint venture partners, such as Sesame Bankhall, to deliver products, address clients and advisors' needs in a post-RDR world. And in the US, we have continued to develop domestic fund offerings to support our established international products. We will shortly launch a US high yield fund to be managed by our new Philadelphia based team.

I also expect us to benefit from our strong European franchise, as client demand returns and investors consider Europe as an attractive investment market. You will also see us continue to expand and diversify our product ranges, to lessen our overall exposure to Europe on a going forward basis.

We will continue to work with firms and individuals we know well, to develop business relationships and ventures, especially in property and in UK retail, which will further strengthen our proposition to clients.

We have responded proactively to recent regulatory changes, and focus on being prepared for those already in train and those due to be implemented soon, for example the Alternative Investment Fund Management Directive and the additional changes to be implemented this year as part of the retail distribution review.

Of course, increasing regulatory environment will add increasing cost to us and to the industry. However, this is a small price to pay to deliver an improved and trusted governance structure and increased confidence in our industry.

Finally, it has always been a priority of ours to remain vigilant on costs, and you should expect nothing less in the year ahead. Given all we have achieved this year and how we have positioned ourselves, I am confident about our outlook.

Hopefully this has been a good overview of 2012 and how we start 2013. Happy now to take any questions. I'll start with from the floor and then we'll hand over to the operator.

Morning. It's Andy Garrett from Barclays here. Two quick questions, if I can. The first, on the flow outlook for your UK OEIC and unit trust area, GBP350m of outflows in that fourth quarter. You're indicating in January and February, if I'm right, it's been a slower rate of outflow, but out. So I wondered if you could provide some more color on specific areas where in the fourth quarter you recorded those outflows. Is it performance based? Any specific funds where you've resolved the issue that has seen the improvement in January and February?

And then the second question, on the restructuring program. You've indicated you've taken a GBP9m charge for that. You indicate the payback, if I'm right, is over two years. So we should see a reduction in cost base outside of investments that you make of GBP4m to GBP5m for the next couple of years. Can you provide any more color of where that's coming on, on staff reduction numbers, process streamlining, etc.? Thank you.

Thanks. I'll take the first question and then I'll let Shirley answer the staff costs.

In terms of what we see in the fourth quarter and year to date, in the fourth quarter last year, I think I've spoken at the half-year about performance was poor. Probably the area that had impacted us throughout the third quarter and into the fourth quarter was our multi-manager team, which had had a tough period going into '11 and the early part of 2012. Their performance has turned around significantly. They had a very good back end of the year. We've also strengthened the team through a couple of additional hires. In particular, Paul O'Connor has joined Bill McQuaker. He's got an excellent track record from his time at Credit Suisse and latterly at Mercer's. And that area of performance has definitely improved.

We continue to see Europe as an area that was just not being invested in. That's certainly turning around at the moment, where probably one of our better selling funds year-to-date in the OEIC range with our European specialists sits under Richard Pease.

And so I think it was still very much equity related outflows in the fourth quarter last year. So far, year to date, I don't like to look at such short-term numbers so I won't give you much more color than what we gave, but what I guess we are seeing is certainly a stabilizing in parts of that business, investment improvements in -- performance improvements in a number of areas that had probably had a tougher beginning to last year, so that will help us overall. The joint ventures that we've been looking at doing have stated to grow nicely. So we're probably up GBP30m or so net new business from the joint ventures that we put in place at the back end of last year.

So we have been hit in some outflows in a couple of funds where actually performance has been very good and growth had been very good, and I think clients were just rotating around from that. So, for example, technology last year was -- probably 2011 and 2012 our global tech funds were some of our best-selling funds at Henderson. Given how good technology had performed relative to markets as well, some people have taken money off the table in that regard, certainly nothing to do with performance and more an asset allocation decision.

I see those things as just the normal wash that you have in a business. And whilst it's impacted us this period, there's nothing underlying it either from a performance point of view or any other issue. So things are improving, but it's still going to be a tough period for a short while yet, I'd say.

Then, Shirley, on staff costs?

Yes. So, on staff costs, yes, you're right, I did say a two-year net payback. Whilst we're not giving out the exact number of staff that are impacted, if you look at the yearend staff numbers, you can see at the end of 2011 the yearend staff headcount was 1,060, and it's 1,014 at the end of 2012. It's across the business. So Andrew talked about the changes within the equity area and how that's been reorganized. It is process streamlining, particularly in the support teams. So it is across the business and we do expect to see a payback in two years.

I mentioned the pension cost changes in the calculation methodology. Because our schemes are in surplus, we will actually get a benefit overall through the P&L of that change in 2013, but it will increase the staff cost line. So the staff costs are likely to go up by about GBP2m for the pension changes. but the overall impact on the P&L will be positive, not negative. Whereas if your schemes were in deficit, it's likely to be the other way round.

Thank you.

Hi there. Jonathan Richards from Bank of America Merrill Lynch. Two quick questions. Firstly, I just wanted to see what you guys had seen, call it from the beginning of the year, in terms of impact on overall volumes in your UK business as advisors come to grips with what exactly is happening in the RDR space.

And then secondly, on your absolute return funds on both your institutional and your retail funds, it looks like you have continued to see outflows there. I just wondered if you could square that with comments around the demand for absolute and more income oriented products, I guess increasing on the retail side of the equation.

Okay. If I take the UK business and volumes, I'd say gross sales for the first six months -- six weeks of the year or so are probably up on the similar period for last year. Modestly, not a huge amount, but they're up. I do think last year was a period of quite a lot of inactivity as advisors positioned themselves, got themselves compliant, a lot of training and the like. I don't think we've started the year -- we've started the year slightly better, but I wouldn't say it's been a significant uplift.

And to some extent the market movements that we've seen, if anything, are probably holding people off, because I think it moved up quite quickly. So we wouldn't say volumes are necessarily up in terms of the market movements. So if last year you categorized the flows into fixed income out of equities, this year you're still getting flows into fixed income but at a more modest rate, and that -- some of that's going into equities. So both growing, but you're not seeing the great rotation that Bank of America might be putting out at the moment.

It's certainly -- so I think markets have gone up on valuation grounds rather than just a weight of money going into them, and to some extent I guess how quick they went up in the first -- in January and early part of February has probably caused some clients to be a bit cautious about moving in there.

Talking about absolute return funds, look, you're right; it was a tough period for us last year. You've got to remember, particularly the institutional side, a lot of the redemption profiles are put in train three to six months out, so we see that pipeline, and we had some of those extending into January and February. What you've seen is an increase in pickup, particularly in long/short. So a lot of money had gone into CTAs and macro. Macro had done all right last year but CTAs had struggled. A lot of people saying, actually, with an improvement in equity markets and a reduction in correlation between equities, equity long/short strategies are becoming far more in favor.

So I think if you looked 12 months ago, equity long/short was probably the least favored of the absolute return category. It's now probably in the top three categories. And we're definitely seeing that in terms of just activity of client enquiries, meetings, etc. They are well up on what we've had this time last year. And for that we have seen flows that have now offset any of the redemption profile that we'd had outstanding from the back end of last year. So we expect that business to grow as we move through the rest of the year, so I'd be disappointed if we were anything other than flat for the first quarter and then to get growth as we move forward from that.

Retail, however, is a bit more difficult, because a lot of money went into absolute return retail flows really as a defensive measure, being worried on equities but not wanting to be into fixed income. I think people now, having seen generally a strong year in equities last year and a strong start this year, are probably saying, actually, on the retail side, do I actually want a bit more bang for my buck. So I think some of that money might go more into the equity or more riskier end of the market. But institutions continue to dominate the flow or the enquiries we've seen on absolute return, with the US remaining the largest market in that regard.

Hi. It's Hubert Lam from Morgan Stanley. A couple of questions. Firstly, on institutional flows, they were quite significant again in Q4. I know you're flagging that there's some further outflow -- one-off outflow in Q1. But performance, it looks like it's pretty good in segregated institutional mandates. Just wondering when we should expect this to turn around significantly.

Secondly, it seems like you're developing more into multi-asset and global equities. How much assets do you have in these themes right now and how fast do you expect them to grow in the near term?

On institutional flows, look, it was disappointing that there's about a -- just over an GBP800m mandate that Gartmore had where performance was quite poor going into the time we took them over. And whilst performance has improved under our leadership, the review, having come up to their three-year review, meant that we were still in the bottom grouping of the clients' interest and they've decided to terminate that mandate. And that mandate will go before the end of this quarter, which is disappointing given we've put a new team in and they've been working well on the numbers.

In the absence of that, I would have expected this quarter to have been positive. And we are seeing quite a lot of interest in our fixed income range in particular. Our equity range is still very much focused on the retail or the absolute return market rather than institutional. That's an area where we're seeking to extend our global equity institutional capabilities, for example, but that will take another couple of years of performance before we get to see inflows.

So fixed income is [where it's] in the space. We've traditionally been in the European credit space, which was out of favor last year. So we got hit by two things. We weren't able to grow because people weren't putting new money towards European credit and we were hit by some buyout. I think we had a very high proportion of the buyouts that occurred in the industry happened to be clients of ours. I don't expect to see anywhere near the level of buyouts or the impact on us in that regard. I think Europe's becoming more in favor.

And the US hires that we've done have gone down very well, because a number of clients had been moving to global, liked what we did, but wanted to see us have that capability there. And the team themselves have a good reputation. And I'd be hopeful that as we move through the year, as clients see them bedded down, working in our offices, that we can move money towards that.

So institutional I think in the fixed income side is fine, and that's where we'll see the growth subject to money continuing on the institutional side going towards fixed income. Equities is still probably going to take a little bit to go. Most of the money that I would have said was at risk through performance in the pre-Gartmore days has probably gone, but there is still some that we would be cautious about in terms of the clients. So we have to work hard with those clients to continue the level of performance.

In terms of the -- you asked about the multi-asset side in terms of the AUM. The AUM on the multi-asset side is probably about GBP5.5b of our total assets are in that area. That is around -- a lot of that is retail orientated, and you'll see a lot of the success of that will come in retail. So last year we launched a couple of what we would call low cost multi-asset funds for the UK retail marketplace. These are risk driven asset allocation funds, using passive instruments such as ETFs or passive fund location and then actively managed at the top level with a lower headline rate. There's around 60 basis points management fee to target that asset allocation range.

Institutionally, we see that also being a proposition that will drive our DC offering going forward, where from a default point of view I think multi-asset type solutions are where they should be. That's still in its infancy in terms of we're moving away -- people are moving into, but I suspect that'll be an area of greater focus for us.

In global equities, probably about GBP1.5b for us. That's an area we're expanding with the hire of Matt Beesley. He came in April last year, so he's yet to get through a full year. He's done a raft of road shows, both in America and across Asia, going down very well. But as you know, getting into the consultants will take a bit of time in that space.

Morning. It's Steve Keeling at Oriel. Two questions. First of all, the level of performance fees you've booked this year and you're confident that you'll book at least that level for 2013, is the mix going to change? And could you just remind me when you actually booked the majority of those performance fees?

And secondly, what does the balance sheet need to look like to operate without an FSA waiver?

I'll answer the performance fee and I'll get Shirley to answer the second question on the balance sheet.

Look, in terms of the performance fees, if you look in terms of the pack in front of you, slide 10 gives you the breakdown of where they were paid for from last year. Historically, institutional has been the biggest area for the last couple of years. Two factors that would impact that going forward. The first is a lot of the outflows in institutional had performance fee capabilities and, as you've seen, we actually performed well. So we won't get -- we just don't have the same book of business in the institutional space that we had.

And also, a lot of those performance fees came from fixed income, where you've seen such significant returns over the last two or three years from fixed income markets which I just don't suspect you'll get the same level of returns. I think institutional won't be -- will be an area where you probably won't see the same level as you've seen historically for the last couple of years.

On the flipside, absolute return funds have performed a lot better, particularly in the back half of last year. So, as I said earlier, our average funds sit around 7%. That was closer to flat at the half-year, so you can see pretty much all of that came in the second half of the year. That means that nearly all of our funds are either at or within a couple of percent of their high water mark, so their ability to earn performance fees is there. So I would be disappointed if we don't see a recovery in the absolute return side of our business.

And the other big one would be SICAVs, where they are a -- they are paid only at where you are in June, where you are relative to your performance at that point. And they also need -- require having a positive return of markets over that period. So if you remember, June last year, they were tracking well up until March. We had a tough quarter. They dipped below the requirement to be a positive return. With markets where they are at the moment, then that criteria at least has gone away. So, on that basis, as long as our performance is good, and you've seen that we continue to do quite well on a performance basis, we should expect to see a recovery in SICAVs to offset any deficiencies in institutional or other areas of our business.

In regard to timing, we are very much first half versus second half weighted, first half predominantly driven by the SICAVs but also because a number of our hedge funds have yearends that are in the first half of the year, or June yearend, rather than December yearend on a weighted basis. So typically it's been, what, two-thirds, one and three quarters?

Two-thirds, yes.

So two-thirds, three-quarters are second half versus first half.

First half versus second half.

Sorry, first half -- yes.

Okay. So providing the market is going to go to your plan, you're pretty well (inaudible)?

Markets at these levels are clearly encouraging for us in terms of where our performance fees have looked -- as I think Shirley mentioned, doing what we did last year should be easily achievable. How much better we do will depend on markets and performance from here.

So, in terms of waiver, the waiver that we've got goes out till April 2016. We only renewed it in '11 when we bought Gartmore. We now have net cash. I did say that is the high point of the year. So by June, I wouldn't expect us still to be in net cash by the time we've paid the final dividend, which is about GBP56m, and the bonuses.

Cash and capital are not an exact correlation, but we've got GBP150m of debt to repay by 2016. We also want to invest in growth initiatives, as we've been talking about. So the focus is to keep on building, through the strong operating cash flow, the cash for now.

No, I get that, but if (inaudible) if the FSA said, right, you don't have a waiver, they're not going to -- how much more capital and more cash would you need to gross that up is the point? So what does the balance sheet normally get (multiple speakers)?

No, I know what the question is and I've -- I think the FSA are unlikely to say that they would withdraw the capital waiver. If they did, they'd probably also be unlikely to say that a penny of capital is sufficient, although technically that would be the outcome. I think if you look at the Pillar 3 disclosures, which are on the regulated entities, that's where the capital really bites when you have a waiver from consolidated supervision. At the moment, that's still on the website from last year, but fairly shortly it'll be updated for this yearend, when those subsidiaries are all signed off. That gives you a good indication of the capital that's required to run the regulated entities.

Okay. So I'll look on the website (inaudible).

Yes.

Good morning. It's Peter Lenardos from RBC. I just had a question. With a stronger balance sheet and a more robust share price, will your growth strategy solely be organic or are you open to bolt-on and potentially significantly larger acquisitions?

Yes. Thank you, Peter. In terms of what we -- you should expect from us through this year is organic growth. We've got to demonstrate that the investments we've made in 2012 and in the last couple of years pay off. We did do a number of small bolt-on acquisitions last years, the Horizon property business in France, the Northern Pines interest that we took on, though they are very modest in terms of the nature of both the cost and the scale for our business, but they did give us very important in-fills into areas or capabilities that we wanted to extend. You should expect to see us continue to do that, but in that size and that scale, quite small incremental additions, more around investment capabilities or reach.

Larger transactions, I don't really see the interest. The majority of large transactions that are available in the marketplace tend to be UK or European exposure anyway, which is not an area of interest for us to expand in. And anyway, we think we're happy with what we've got and we want to demonstrate the value coming through from that. So I wouldn't expect a change in that position through the rest of this year.

Great. Thank you.

If there's no more questions on the floor, we'll go to the operator to see those on the calls.

Thank you. Our first question from the line today comes from the line of Naveen Patney from CBA. Naveen, please go ahead.

Thank you. Most of my questions have already been answered but -- or asked, rather, but I've just got an expanding question on the acquisitions. Obviously, large scale acquisitions aren't a major focus this year, but in the advice segment there's clearly been a lot of consolidation post-RDR. Your acquisitions have been focused largely on the investment space. Is that a particular option for you guys, especially to improve your retail flow?

Thanks, Naveen. No, the wealth management or the advice market we see as quite distinctly different. And actually, increasingly wealth managers or advisors are looking to be independent of their asset management capabilities. They want to be able to be seen to be offering truly independent in terms of the fund choices and fund ranges. So we see our strategy remaining as an independent asset manager rather than moving into wealth management or advice.

Okay, thanks. And just lastly, in terms of RDR, you mentioned that last year obviously you were adversely affected by clients repositioning their portfolio. Can you comment in terms of how progressed -- or you think that's finished now, or do you think that's likely to continue in terms of that negative impact for this year?

Yes. In terms of RDR, obviously the platform change is still taken into account till the end of this year or the beginning of next year, so there's still some disruption associated with that. One of the things you saw last year was the creation of a lot of low cost options, where shift away from active funds towards passive component ETFs and the like to drive down overall charges at the top level, more a volume argument rather than a margin shift that you saw. A lot of that did happen in 2012. You should expect some of that to happen, continue to happen given the platform nature of the comment I made earlier.

And then, on an ongoing basis, I do think one of the issues that RDR will have for active managers is reduced volume relative to passive option -- opportunities, but there the offset of that is delivering strong performance with a great brand, and that's got to be our emphasis. So I think a lot of what happened did happen in 2012, but you should expect some of that to continue to impact throughout this year.

Fantastic. Thanks, Andrew.

Thank you.

Our next question today comes from the line of Nigel Pittaway from Citigroup. Nigel, please go ahead.

Hi, Andrew, Shirley. A few questions, if I may. First of all, just on transaction fees, I think you said that -- you gave three reasons for the reduction, the Hermes JV, a reduction in structured credit advisory fees, but then you also said other one-offs in the prior year. I wasn't aware that there had been any one-offs disclosed. I thought the increase in FY '11 was all basically due to Gartmore and markets in the first half. So were those one-offs at all significant? And if so, what were they?

No. They were just the next most significant category. I think, as I've said before, transaction fees is where everything that isn't a management fee or a performance fee ends up. So when you try and compare two years, you get all the odds and sods in both years. I think probably the most important thing on transaction fees is the recurring nature of about 60% of that, which has not changed. And then we will always get some things which are in one year and not in the next, and vice versa.

So it's 60% of the lower level this year or 60% of the higher level in the prior year?

Well, the 60% -- because the 60% is related to the level of markets and the level of principally the UK retail business that we've got, it's those two factors. And it is actually -- it does work out about 60% in both years.

Okay. All right. Second question, then, is on the recognition of the fees on the number two fund. Just to clarify, is that all of them that's now been recognized or is that just a portion with more to come in future periods?

Yes, there's more to come in future periods. So what we've recognized up until now is everything that we've earned till the end of December 2012. So the fund life out till 2016, we will now recognize that through the management fee line, as you would normally do with anything earned.

Right. But you've recognized everything that was accrued and not being recognized whilst the writ was still live?

Yes. Yes.

Yes. Okay. Just on the investment admin expenses, obviously there's a massive seasonality, half on half, that's come into the line that hasn't been there before. Is there any particular reason for that? It was GBP14.4m in the first half, GBP11.3m in the second half.

I could say good negotiating skills. We have a bigger book of business now.

Right. So the second half should be maintainable into the future, is that what we're effectively saying there, or --?

Yes. What I'm saying on all of the costs, apart from the staff costs line, is that I'd expect 2013 to be in line with 2012. So you'll see that most of the reduction in those costs came through in the second half.

Right. But it's the full year that we should use as the bench, not the second half? Yes?

Yes.

Okay. And then just on that comment on RDR, I thought that part of the main reason why you were getting outflows was advisors protecting their commissions ahead of January 1. Are they able to do that anymore, or has that issue now been effectively stopped?

Yes. The point of creating solutions and using low cost provisions as part of that was around moving product into a wrap that could then retain, and that now really has to have happened at the end of the year. Now, some of those -- they're in advice driven wraps. There are some that will be non-advice or execution only. So Hargreaves Lansdown, for example, which is quite a live player here, doesn't have to comply with the same rules until January 1, 2014. So clients under their platforms and the like still have a year of grace, but it will be a lower percent of the market than it was through most of 2012 on that basis, Nigel.

Right. Okay. That's great. Thank you very much.

That's okay. If there's no other questions from the operator, is there any final question from the floor? Okay. Thank you very much for your time. If you have any follow-up questions, feel free to come to Mav and the team, or we'll still be around here for a few minutes. Thank you.