Janus Henderson Group PLC (JHG) 2013 Q4 法說會逐字稿

We might make a start. Well, welcome to the Henderson 2013 full-year results. It feels a bit like the Australian cricket team sitting here, it's a lot different what you can change in a season. So morning to those here in the London offices and, obviously, we know there are quite a few people on the phones joining us from Australia, so good afternoon to you.

I'm joined today by Roger Thompson, our Chief Financial Officer, and we'll go through the full-year results and then happy to take any questions you have at the end.

Firstly. I'd just like to cover an overview the key highlights of the results, Roger will then go into the financial results in far more detail and I'll update you on the outlook and also our strategy, including some of the initiatives that we have underway today in 2014.

So, how did we do in 2013? I'm very pleased to announce there was an extremely strong set of results. We delivered record profits before tax and earnings per share also for the Group. The underlying profit of GBP190m is up 24%, this is helped by strong performance fees throughout the year. Our operating margin improved during the year to nearly 36%.

Investment performance continues to be very strong, with 82% of our funds outperforming over three years. This is up significantly from last year; in addition, 78% of funds outperforming over one year. This is a very solid set of numbers and reflecting a strong delivery of investment returns for our clients.

Personally pleasing is the performance of our retail business, which has returned to positive flows in 2013 with GBP4.4b of net inflows in the year for 2013. Included in that is GBP2.5b in the fourth quarter alone. I'll turn to that later to give you a bit more breakdown of where that's come from. In terms of the assets under management, this is increased by about GBP10b to GBP75b, which is up over 14% in the year.

Cash flow from the business continues to build and this has enabled the financial strength of the business to improve and we strengthened the balance sheet throughout the year. Reflecting that, the Board has decided to increase the total divided by 12% to 8p per share. Shortly, when Roger talks, he'll be able to update you on the capital position of the Group, including where we are on the waiver.

Our consistently strong investment performance is one of the elements driving our improved results and, in particular, the net inflows that we're seeing into our retail businesses. You can see in this chart that the strong performance is coming from all of our core capabilities; across our core capabilities, 78% and 82% of our funds outperforming on a one and three-year basis. As I mentioned, this is an improvement compared to this time last year, where only 74% of funds were outperforming on a three-year basis.

If you look across the core capabilities, you're seeing very strong performance. So take European equities, they're just off first quartile for one year. Our global equities is first quartile in both one and three years, as is our global fixed income business. Our multi-asset business has had a very strong period of returns and now has 94% of its assets outperforming over one year and the three-year numbers are now just outside first quartile. Alternatives, which includes our hedge fund business, continues to have very strong performance.

Here we give you some more flavor of some of the key funds in our core capabilities. These are the same funds that we showed you at the half-year and you can see here the strong performances continued. I don't intent to go through these in detail, but it shows you again the breadth of returns we're producing on behalf of our clients.

Let's turn to flows and I'll start by looking at the institutional side of our business first. If you look at the institutional business, you will recall we had some issues to address, which I had spoken about previously. This was largely driven by the shift of institutional clients, who are moving from regional to global products, as well as some poor performance in certain areas, particularly some funds we inherited from Gartmore. Thus, this led to redemptions, as you can see, in the first quarter.

We started to see stabilization in flows in the second half, which was broadly flat, and this is an improvement compared to where it had been over the previous 18 months. In terms of the investments we have made on the institutional side, in particular the key expansions around making our product sets more global, these are progressing very well. Our investment performance is very strong in the key strategies that we've building out. So, for example, Matt Beasley on our global equity team, his team is now top quartile for the pooled funds since taking over 18 months ago.

On the institutional multi-asset side of our business, our numbers have been excellent and these have been boosted by Paul O'Connor, who joined us from Mercers at the beginning of last year to spearhead the institutional side of this business. And our new US credit team, under Kevin Loome, who have come together to help us create a global fixed income platform, his team in the US are now top percentile since launch. That said, it's still very early days in the development of what we're doing here.

Institutional is improving and we do expect to get greater traction towards the end of 2014 and more into 2015, as the products that mature from the current one to two years that we're seeing at the moment to the more important three-year track record, which consultants and clients like to see. And also I'd just like to highlight as a reminder that, as we mentioned at the half-year, institutional now includes Phoenix and, therefore, reflected in these flows is a natural run-off from this, which is still our largest client.

So if we now take a look at retail, clearly this is an area we've invested heavily in over the last two years. Obviously, notably the acquisitions of New Star and Gartmore have really boosted our proposition in this marketplace. We've also improved the product set and we've also rebranded, as you can see.

Our recent investment in the brand, results as you can see here today, has also supported a lot of what we're trying to do and position in that marketplace and I'd say we've adapted well to regulatory and client changes that have occurred over the last few years.

And as you can see, this is now delivering strongly. Despite a fairly quiet start to 2013, the client support accelerated through the second half of the year with GBP2.5b in net flows coming in the fourth quarter alone. Overall, we delivered 15% new growth in net new money in 2013 across all of our retail fund ranges.

Now if we break that down into some more detail for you, in the onshore UK OEIC and unit trust range we achieved a significant turnaround during the year, with almost GBP700m of net new money in the fourth quarter alone. Overall, we achieved 7% net new money growth for the year, however based on the fourth quarter the run rate was 15%.

This turnaround follows a period in 2012 where we were impacted by the disruption caused by the retail distribution review coming into effect at the same time as we were rationalizing our fund range following the Gartmore acquisition. However, by our relentless focus on our clients and their advisors and the strong deliver of investment returns, we are now seeing substantial net inflows into a broad range of products.

We are seeing strong inflows into Henderson UK Property Unit Trust, a range of our European equity funds, our fixed income Henderson Credit Alpha Fund and also our multi-asset products, which include the very successful Henderson Cautious Managed Fund, managed by Chris Burvill. As the recent (inaudible) report highlighted, we were ranked eighth in net flows in the full year and we're rising to fourth for the fourth quarter.

For the offshore SICAV range it was a standout year with over GBP2b of net inflows. This impressive level of net inflows was driven by consistent performance from the product set, which enabled us to be well placed as prime demand returned. You can see here we had a very good fourth quarter, supporting an increase of 28% in net new money coming in over the year.

As I mentioned at the interims, in the first half we had good flows into equity funds, but the fund with the largest net inflows was actually our Henderson European Corporate Bond Fund. However, the story in the second half was around European equities, where we saw good positive moment across the majority of our funds and particular strong flows in the Henderson Horizon Pan European Equity Fund, the Henderson Horizon Pan European Smaller Companies Fund and the Henderson Gartmore Continental European Fund.

Our US mutuals are currently the smallest of our global retail ranges but are growing fast and there are some very strongly performing funds. We now have three funds with over GBP1b of assets under management or more in that grouping. Great performance has enabled us to gather in over 40% of net new money during the year, representing the second best year ever for this product range. In 2013, our fund managers with less than $25b under management in the US, we were ranked seventh in terms of percentage growth in assets.

We continue to expand the product range to position it well for further growth and, during the year, we launched the Henderson High Yield Opportunity Mutual Fund to capitalize on the expertise of the new credit team we hired under Kevin. Since launch in April, it is now ranged second out of 565 funds in its category.

So putting that all together, Henderson clearly has a very strong and diversified retail business spanning the globe. Collectively, we grew our retail business nearly 30% last year, our retail assets under management are now nearing GBP40b and this is up GBP9b in the year and accounts for over 60% of our continuing assets under management and also a far larger component of both our revenues and our profits.

So what's driving our success in retail? Here you can see that success is coming from a very broad-based product set in each of our core capabilities. In 2013 we had 20 retail funds that generated net inflows of GBP100m or more. You can see on this slide all the core capabilities contributed to this strong success, seeing significant inflows over the year.

We saw a strong recovery in flows, particularly in our European based products, which included the effects of people rebalancing towards developed markets, such as European equities, especially in the last quarter. In fact, when you look at the benchmark weightings, we can still see that people are underweight towards Europe and we continue to experience heightened interest and flows into this particular area.

Additionally, whilst there was talk of a great rotation out of fixed income into equities, we still saw good flows into fixed income and shifts have been more like an inner rotation, where investors shifted away from pure vanilla gilt and bond funds into more specialist fixed income products such as our multi-asset credit and our total return bond funds.

Here are the best selling funds in each of our capabilities. Global equities actually had the fund with the largest net inflows, being GBP613m into the Henderson Global Equity Income Fund, a US mutual fund which is now over GBP1.6b in assets under management. This is followed by the Henderson UK Property Unit Trust, which saw GBP560m of net flows, and then GBP510m of flows into our Henderson Horizon Pan European Equity SICAV. This is now our largest retail fund at over GBP2.4b run by Tim Stevenson.

I will speak more about our outlook later but, for now, I will hand you over to Roger who will take you through the financial results in more detail. Roger.

Thank you, Andrew. I'd like to add my welcome to those of you here and on the phone and I look forward to discussing the results with you in more detail over the next couple of weeks. As Andrew said, we had a record year with underlying profit before tax of GBP190.1m in 2013, up 31% on last year -- sorry up 24% on last year.

I'll talk more about the detail of these over the next few slides but, in summary, our revenue is up strongly, our fixed costs remain well controlled, our variable costs increased in line with our revenues and our strong investment performance. Our margins and our EPS improved, our flows were back-ended, giving us strong momentum into 2014, and our capital position is strong and improving. I'm delighted to be able to present this set of results as my first as the CFO of Henderson.

As we announced in June, we entered into a joint venture with TIAA-CREF regarding our property business. This is on track to complete at the end of the first quarter. As a result, we have split out our property business and it's presented as a discontinued business from an accounting perspective. I'm going to spend a moment now to review the transactions and explain how they affect our results, before focusing on our continuing business.

To remind you of the transactions, we're selling our North America property business to TIAA-CREF and Henderson and TIAA-CREF are contributing their European and Asian property businesses to the joint venture TIAA Henderson Real Estate, of which Henderson will own 40%. As part of the transaction, TIAA-CREF will pay Henderson GBP114m which, after deal and separation costs as well as tax payments on the gains, will result in estimated cash proceeds of around GBP90m.

I will now explain the property P&L. Our total property business, including North America, had underlying profit before tax of GBP24.6m in 2013 compared to GBP26.4m in 2012. Going forward, in the continuing results, we will have 40% of the post-tax earnings of the new joint venture as part of our results.

However, remember this transaction will not complete until the end of the first quarter and, therefore, in our 2014 profits we will include one quarter of the profits of the existing Henderson property business and three quarters of 40% of the post-tax JV profits. In the appendix you'll also see how we treat the AUM in the property business going forward.

The remainder of the presentation focuses on the continuing business, i.e. excluding property, which recorded underlying profit before tax of GBP165.5m, up 31%.

And here we can see the makeup of that increase in the underlying profit, which was principally through growth in management fees, from market returns and the net impact of flows, as well as record performance fees. Given this performance and other strong leading indicators, we increased our variable compensation, the net result being the 31% increase in continuing underlying profit before tax and I'll give you more details on the following slides.

Our total income is up 23% to GBP473m. Growth in management fees of GBP30m was largely driven by market growth as outflows in 2012 and early 2013 more than offset the benefit of the flows in the second half of 2013. These second-half flows, which Andrew's just talked about, have yet to deliver a full year's impact on revenues and give us strong momentum into 2014.

Transaction fees were slightly lower due to some one-off benefits in 2012, but now let's look at the detail behind the record performance fees. The diversity of performance fees is particularly pleasing across the GBP94m generated in 2013. We generated performance fees from some 92 different funds and accounts, which were broadly spread across platform, capability and geography, showing a clear demonstration of our consistently strong investment performance.

2013 was definitely a strong year and, whilst we're not budgeting at similar levels as that in 2014, given our continuing strong investment performance, positive markets and the spread of funds that have performance fee potential, this level of performance fee should not be viewed as exceptional.

Total fee margins were strong at 78 basis points, in part due to the strong performance fees, and pleasingly, our management fee margin remained relatively constant at 56 basis points, reflecting a positive impact of net inflows into our retail funds and, particularly, equities. In fact, the second half flows, which we've just talked about, into retail funds, have resulted in the closing management fee run rate at 58 basis points at December 31. Net fee margin has increased 72% since 2010. This slide on the momentum into 2014 clearly demonstrates the quality of this year's earnings.

I will now focus on our expenses and P&L margins. As you can see on this chart, our total operating expenses, the red line, continue to move in line with our total fee income, the top black line. Underlying the growth in expenses are our staff costs. Our fixed staff costs, the orange line, saw a decrease over 2012; in fact, they're lower than 2011, partly as a result of the program we put in place in the fourth quarter of 2012 and continued headcount management through 2013 whilst we continued to invest in the business.

Variable staff costs moved up in line with revenue, as the schemes we've run have rewarded staff for excellent investment performance for our clients and strong net new money growth, reflecting the performance of the business. There has always been and will continue to be a strong cost discipline at Henderson. However, we have and will continue to see opportunities to invest in the business through hiring new talented investment professionals or teams, hiring experienced distribution professionals, investing in our brand and improving our infrastructure.

We exited 2013 with higher headcount than the beginning of the year and will continue to invest in talent to deliver long-term growth and compensate for several years of low inflation increases in base pay. We're planning that in 2014 our fixed staff costs will increase by around 10% compared to 2013.

And here we show our compensation ratio, which increased in the year to 45% in line with what I guided at the half year, and our operating margin, which pleasingly increased to 35.7%. Regarding the compensation ratio, 40% continues to be our medium-term expectation, but given the results of the business, we've increased total compensation to GBP212m, an increase of around GBP55m.

Over half of this increase was due to the increase in performance fees earned and average manager payouts increasing, reflecting the increase in fees from long/short strategies versus long only strategies. The remainder of the increases were driven by compensation schemes, reflecting the momentum in the business, strong leading indicators and a share price movement increasing national insurance costs on share schemes.

Whilst a business performing as we're describing could operate now at a higher margin, the investments we've been making, and will continue to make in 2014, will deliver long-term growth but keep 2014 margins similar to 2013.

Non-staff costs were down, although this is largely due to one-off benefits and FX gains in 2013 of around GBP7m. Given growth in the business, I'm pleased that administration costs have marginally reduced. The increase in information and communication costs reflects the investment in the business to support our investment and distribution teams. Other expenses are down due to the one-off benefits, which I've just mentioned.

In 2014, we'll continue to invest in the business and will therefore expect normalized total non-staff costs to rise by approximately GBP10m if the business continues its current momentum.

Moving on to tax and EPS. Due to the combination of tax rates in the various jurisdictions we operate in being lower than the UK and the resolution of some prior-year tax matters, we've seen our ETR decrease from 12.5% to 10.8%. We expect our ETR to rise in 2014 back to a similar level of 2012 before rising closer to the UK tax rate in future years.

Given strong growth in underlying profit and the performance in the ETR -- and the improvement in the ETR, this has resulted in an increase in continuing underlying diluted EPS to 13p per share, an increase of over 26%. This growth in EPS and the confidence in the outlook of the business allows the Board to recommend a final dividend of 5.85p per share, resulting in a total dividend of 8p per share, a nearly 12% increase compared to 2012.

The Board considers that this level of dividend is well covered. Going forward, rather than pay a formulaic 30% interim dividend, the Board has resolved that it will also make an active decision on the dividend at the interim stage.

In terms of our balance sheet, our net cash position is very strong. After paying a dividend to shareholders of nearly GBP80m, our net cash has improved from GBP17.9m to GBP56.3m during the year, despite funding net seed capital of around GBP30m as we continue to invest in our core capabilities. The business is generating good cash flows and we expect this to continue organically, but this will be further strengthened by the proceeds from the TIAA-CREF transaction, as mentioned earlier.

In terms of our capital, as you know, we operate with a capital waiver, which was renewed following the Gartmore acquisition, which you may recall expires in April 2016 and, following discussions with the FCA, we fully expect this to stay in place until then.

That said, we also expect to be in a position to meet our capital requirements without a waiver by the end of this year and, as the business continues to generate profits, we'll generate additional capital to provide us with a comfortable level of prudence above those capital requirements during 2014. This all means that we're well on track to operate without the need for a waiver when it expires in 2016.

I hope the disclosures we've given you, splitting out between our continuing business and our property business, along with the other information in the appendix aid your analysis of the Group. But I'm going to finish with a slide that shows the Group's strong financial performance over the past five years.

Growth in revenues has resulted in profit more than doubling over those five years, an earnings per share growth of 91%. This has flowed through to the shareholder in terms of dividends as shown in the bottom right and the strong share price moves. As Andrew will highlight shortly, our focus is on repeating that revenue and profit growth over the next five years and I'm now going to hand back to Andrew to explain how we intend to continue that growth.

Thank you, Roger. Although it's still early days, our retail flows in the first quarter have been consistent with the run rate that we saw in the fourth quarter of last year. In particular, equity and property flows continue to dominate and the rebalance back to Europe we saw last year has also continued into this year.

If we look at the institutional side of our business, there are some encouraging signs we're seeing at present and, therefore, we anticipate a more stable position this year. Investment performance remains strong and we will continue to invest in the business and position us with growth in the years ahead. I'll touch on some of that shortly.

On this slide we capture our five-year plan, which was signed off by the Board at the end of last year and, just to remind you, our mission is to be a trusted global asset manager focused on delivering excellent performance and service to our clients. Now, I know those words are not that different to what a lot of others would say, but it really is something us here, at Henderson, really believe. And, in particular, the word about becoming trusted with our partners, which is endemic with the brand that we've got out with knowledge shared and being global in the approach we take as well as everything we do is for clients.

The philosophy you can see up here, it's about active fund management with the clients' needs at the heart of everything we do. That is where you'll see us investing, that also is how we'll develop our business. The five-year plan is centered around what we here at Henderson would call growth and globalization. The key deliverables of this plan are that by 2018 I expect that we will have a truly global footprint.

I also fully expect us to have delivered in excess of 5% in net new money growth each year. So, if we combine this with reasonable market appreciation as well as the expectation we'll continue to do small bolt-on acquisitions, this will enable us to double the assets under management for the Group over that period.

I truly believe this is achievable and not just an aspirational goal and this is consistent with the success and growth over the past five years the Group has experienced. Whilst the last five years have been supported by the acquisitions of New Star and Gartmore, the next five years will be supported by our international businesses and the broadening product set and the global product capabilities.

And in 2013, you actually saw us begin to deliver on this strategy across all of our regions. Many of the activities from last year and the years before that are actually bearing fruit. We have met the challenges of RDR in the UK and we now have a product range meeting client needs and delivering excellent investment performance. We have maintained our margins and are well positioned to benefit from increasing client demand.

We have also seen these activities supporting our success in Europe and the US. Our commitment to Europe, through some tough years is now resulting in good, broad-based flows across our SICAV range. And similarly in the US, our focus on delivering excellent investment performance in the European and international equity products has resulted in strong client flows to date.

In North America, we added a new US fixed income high yield team and they have already been returning top decile performance for our clients. Having seen clients increasingly look for global capabilities in their credit managers, we were very fortunate to be able to attract a great team led by Kevin Loome. Kevin and his team have fitted in very well with our existing team and are adding considerable value to not only our clients but also our process.

And, as you know, asset managers are people-oriented businesses differentiated by the strength of the management teams. We have strengthened the senior team here at Henderson, with the addition of our new Chairman, Richard Gillingwater, our new CFO, Roger Thompson, and shortly Rob Gambi will rejoin us as Chief Investment Officer. All three of these bring extensive experience in global firms and have had considerable success in operating at a global level, therefore positioning us well as we globalize this business.

Of course it would be remiss of me not to highlight how we've also grown our Australian business in 2013. We entered this market as we saw the increasing global focus of our product range was exactly where this large and growing market was looking. From a standing start we now have our first Australian-based fund, the Henderson Global Equity Fund, and will shortly launch our second, the Henderson Global Fixed Income Fund.

We also completed two acquisitions down there, firstly a stake in 90 West, a manager of global natural resources, and H3 Global Advisors, a manager of global commodity funds. Under the leadership of Rob Adams, we have assembled a world class team and will continue to invest in our brand, in our local client servicing and our products for what, to us, is a very exciting market.

Also, we're starting to see the results from our hard work over the last five years and although we're seeing all that at the moment, there's still plenty more to come, and if we look into 2014 we're working on a range of initiatives to advance the growth and globalization ambitions that I mentioned earlier. Let me just give you a flavor of some of the things we intend to do in 2014.

Under the heading of developing our global business, we continue to broaden our global distribution ready, for example, by expanding on our US institutional team. We're also keen to support the momentum we are seeing in European retail through increased marketing, spend and also sales people and we'll continue the rollout of the Australian business as we gather greater traction down there.

We will also remain open to consider bolt-on acquisitions. Last year we bought into Northern Pines, we bought a stake in 90 West and we acquired H3 Global Advisors. Looking forward, I've made it clear my desire to add a US equity platform, which would not only support our retail business over there in the US but it would also accelerate our institutional investment plans.

Henderson is increasingly becoming well known for its global capabilities and it was strengthened this week with the launch of the Henderson Global Dividend Index, which reported that global dividends hit a record $1 trillion in 2013. We're continuing to invest in our global product line, for example, we're bringing together the best ideas for our long/short offerings and will shortly be launching a global product in this important long/short alternative space.

We are actively expanding our US credit team and we're adding an emerging market credit team to make sure we have the waterfront covered in our global credit product. We're also continuing to invest in our client service capabilities, which will include our new client customer interest initiative, which is seeking to develop a deeper level of client engagement through understanding and engaging directly with our end clients, not just their advisors.

Our rebrand, which you can see in evidence all around you today, builds the theme of sharing knowledge with our clients and creates a coherent global identity. And alongside the investment in our infrastructure platform, which Roger has already described, rest assured we remain committed to our traditional focus on cost discipline.

So, as we enter our 80th year, it's good to have a start with such a strong set of results at our backs. It is pleasing to see that all the hard work in the last four to five years is really coming forth and bearing fruit. Investment performance is clearly powering that, we continue to see strong, consistent performance across all of our core capabilities.

This is driving momentum in our retail business across the globe and also across products. It's not just in one region or only one or two particular products that we're seeing success in. All of our product sets are gathering flows and we have seen this continue into 2014. Our institutional business will take a little longer, but a lot of the work is already underway. We expect to continue to make progress in 2014, so we expect that in 2015 you should really see that progress really become evident.

Strengthened cash and financial position is evidenced through these results and we expect that to also continue in 2014. And, for the future, our energies are directed at delivering on our ambitions centered around growth and globalization, of course keeping the clients at the center of everything we do remains our core focus here at Henderson.

So at that point I thank you for your attention and I'd like now to firstly take any questions we have from the floor and then I'll go to the operator for questions for those dialing in. Daniel, if you could just wait for the microphone thing.

Right next to me. Good morning, Daniel Garrod from Barclays. Two questions if I may. The first I guess, inevitably on the retail distribution side of things that you mentioned. Your average equities revenue margin currently 69 basis points I think you detail in the pack, can you make any comments around pressure to offer discounts on that? In particular you've obviously publicized you've signed JVs with Intrinsic and Sesame, any color around what kind of revenue margins on those kinds of booker business and what you're seeing going forward?

And the second question around performance fee generation, record level of performance fees, very impressive this year, I think you said you don't budget for 2014 on that being repeated. Am I right in thinking GBP5m at least comes from the property assets that you'd be losing anyway? What sort of visibility is there from funds that generate performance fees for different year-ends? Can you give any color around how much lower it could be in 2014? Thank you

Yes, in terms of RDR I'll answer a few questions on that and I'll get Roger to talk a little bit about the margins for the joint ventures as well. The first question you asked on RDR was what impact is some of these super clean share classes and some of the debate going on at the moment. We have a couple of funds that we put on a super clean share class basis, where we see significant growth available from those funds, significant capacity and we haven't done anything that's exclusive. So those super clean classes are actually available to all who meet the minimum investment requirements and those who have sought exclusivity in their platform to have a price we haven't chosen to play. So there are a number of notable people out there saying how they've been able to get with groups, individual prices adjust for them, we don't agree with that and we've resisted and haven't been in that. So I don't expect to see a significant margin impact through the Henderson branded funds.

In terms of the joint ventures, Roger can pick up in a sec, but they are at a lower margin and we also get additional benefit coming through from the part ownership of the joint venture itself. So the net margin effect, given that some of the costs are lower, isn't too far away from where we get on the net margin for our existing business, but they are much larger margin and will have dragged down the UK margin for those product sets coming through. But again we see that as a quite interesting diversification for our business.

Performance fees, you're right, the GBP5m came from property, so GBP94m came from the rest of the continuing Group, but it's really hard to budget what to put in for these and we really can't -- whilst the funds themselves accrue performance fees, we don't accrue any performance fees until they're vested. We still have a skew towards the first half. That skew's not as great given the growth we've seen in some of the funds, particularly some of the long/short funds last year, which means there will be slightly more in the second half going forward than the clear divergence you've seen in the past.

As Roger tried to outline, we don't see that the result in 2013 was exceptional, it is repeatable but it does require the strong investment performance and the market growth that we've seen coming through to support that. Therefore, we would be tempering from our own perspective not having a similar level, I'm not going to give you a number, but I wouldn't be going in at GBP94m. But I'm not saying that it's going to collapse to where it was the year before at only GBP30m odd as well, I'd say that would be well below our expectation, given the booker business, the investment performance and how we see things. But Roger, did you want to pick up on the joint venture margins.

I think you covered most of it. As you said, the margin is slightly lower on the JVs, they're performing well, flows are coming into those, our cost base is lower on those so the overall net impact is not significantly lower and then obviously we have the stake in the -- an equity stake in the JV as well. I'm delighted that Andrew hasn't actually given guidance on exactly what performance fees are.

So don't ask again. There is a microphone making its way down.

Thank you, Neil Welch from Macquarie. Firstly, could you update on what you're thinking about doing or not doing in the UK master trust market?

Then in terms of European distribution I wonder if there's anything coming out of MiFIR which is an opportunity for you in terms of European funds and European distribution there?

And finally, I wondered if in the context of the UCITS V Directive news this morning, how close you are in terms of compensation and, indeed, whether there is a capital impact to consider from some of the depository's recommendations? Thank you.

Okay, in terms of the first question on a master trust, no it's not a key focus or anything in the issues we're doing, so that one's easy.

In terms of MiFID, I guess the big challenge if some of the changes come through in Europe is that an RDR-like model in Europe would actually be far more beneficial for us because of the closed nature of the banking model of there as to direction of flows. However, as you can imagine, there's a vested interest from a lot of the large European economies and banks there to resist those changes being in. So you're seeing it come through individual countries such as the Netherlands and obviously the UK.

I'm not sure in the short to medium term you'll see significant changes that will benefit us, but I do think on a more longer-term basis that the shift is inevitable, which will favor independent asset managers, which really have been picking up scraps on the side given the way the model works. I think once you get that full transparency of costs and charging and all that, it'll make it very hard for a lot of the banks and some of the existing arrangements to remain in place, which will benefit from us, who are much more used to dealing with the transparency and very happy to deliver on that.

In terms of -- I'll let Roger talk about the capital changes required, but in terms of the remuneration changes, they are still obviously very early in terms of what's coming out. They're not too far out from what we already do, we defer 40% of our funds -- of our bonuses for staff over three years, we defer up to -- at least half of that into Henderson stock and then up to half into the funds that the managers manage. So this idea of investing into your manager products is not alien to what we do, but they are obviously asking for potentially 100% to go in and for up to 60%.

So it's not a big change from where we are today, we wouldn't envisage a huge issue for us to do that. I still favor having a mix of funds and the business, because I think that's a good alignment between both the shareholder and the clients, rather than just to one constituent in that basis.

And, to some extent, a regulatory change is helpful, because at least then you've got a level playing field. Four or five years ago we still had deferrals of 40% and we were probably an outlier relative to some of our peer group. Now our peer group are doing very similar, in some cases even much higher, and actually that makes it easier.  I do think deferrals are important in this game.  We are not a transactional business.  We're very much about doing long-term partnerships with our clients. And I think for clients to see us investing, the success we've achieved, whether you're a fund manager or other part of the business, over an extended period, I think is beneficial for the long-term culture and sort of partnership we're trying to build. So I've got no problem with those rem rules and I think they're possible for us to adopt.

I do have a problem with capped bonuses and cap levels. I think that's an artificial mechanism. I just don't think that's fair. We've been very successful at managing the variable comp line and I'd hate to lose some of that by having to increase the fixed cost. But that's just my personal position. And we've managed to offset that challenge from Europe last year, but it can always come back.

Then capital requirements --

In terms of capital, the biggest change is actually an advantage to us in terms of treatment of seed capital. So under CRD IV, seed capital isn't automatically deducted. We have a reasonable amount of seed capital, but we'd expect -- I mentioned earlier we increased the seed capital by around GBP30m this year, we'd expect that to continue to increase incrementally as we continue to invest in the capabilities. And from a CRD IV perspective, that's not automatically deducted, so you can -- so that's how we, in part, how we'll be using some of the surplus cash and capital in the business. That's a positive.

Yes. Choose one with the hands up please.

Good morning. It's Peter Lenardos from RBC. Two questions. One on seed capital, if you anticipate making a similar amount of net investments in 2014 or if that should decline going forward.

And second, on regulatory capital, how was your -- how did your regulatory capital requirements progress throughout 2013 and what impact if any does the TIAA-CREF transaction have on reg cap? Thanks.

Okay. The first thing I'd say on seed capital is we do actually hedge as much as possible the investment risk and the FX risk. So hopefully you won't see any FX dilution in our results going forward associated with the seed capital investments.

As Roger was just pointing out that under the new directives, actually seed capital is an efficient way of holding capital rather than holding cash, because it really does support the business, growing new funds. And particularly as the property business moves into the joint venture, our need to have seed capital for that business, which was a big drain and a big commitment for us, not only because they tended to require larger-size investments, they also required to be in for a longer period. So the seed investments we're able to make in our equity and fixed income and multi-asset products tend to be smaller in size and tend to be in for less time. You can be in for less than a year.

So we do expect to see that seed capital continue to increase. But we also should be able to recycle a lot of what we've got far more effectively than we may have been in the past because of private equity and property requirements. And we monitor these to make sure they're getting an acceptable return. They have to be boosting the business. They have to be driving the new products and future growth.

You've got to remember as well, this is a business, when you launch a new product, the products you launch today are not going to help you in 2014, and they probably wouldn't even help you in 2015. They're 2016 and 2017 and 2018 products. So the seed capital is there about making sure you've got products that you need for the future and to give you that credibility and that track record. And as part of that business, we have to be doing that. And we've got great success in that.

I told you earlier about the European Corporate Bond Fund. This was a fund we seeded four years ago and it was our best-selling fund in 2012 and one of our best-selling funds in 2013. If we hadn't taken that decision in 2009, we wouldn't ever have the benefit of getting through in the results in the last couple of years.

So that's how we look at seed. We do see it as an important component of our business. It's an important component of the growth and it's an important component of attracting and retaining the management talent, the fund management talent that's important to our business.

You want to?

Yes. In terms of reg capital, obviously the deal is not completed yet. So long term the reg capital will change. It obviously hasn't so far. So, yes, we need to sit and wait on that one, Peter.

Great. Thanks.

Hi. Hubert Lam, Morgan Stanley. A few questions. Firstly, on the performance fees, can you remind us what percentage of performance fees goes back to the manager, if that's changed or is that -- or if that will change?

Secondly, in terms of the operating margin, I think you're targeting next -- 2014 to be similar to 2013. Can you tell us what would be the medium-term target? Is 40% achievable in the medium term?

And lastly, in terms of institutional, and you seem to be a little more cautious on that for this year, is it mainly because of the slower gross flows or do you still expect redemptions from the legacy assets to come through?

I'll pick up the first and the last question. I'll leave the operating margin question for Roger.

First, on the performance fees, no, there hasn't been a change in the split. So, traditionally our long-only products, a third goes to the managers, and for our long/short products, 50% goes to the managers. The difference, what you see is a significant change in the mix of performance fees this year from the GBP30m you saw in 2012 to the sort of GBP90m-odd you saw in this year, which again was driven by the long/short sort of recovery, and some of our retail funds have that long/short capability. So there's been a greater proportion of performance fees earned at that higher percentage. So there's been an impact in that. But we don't intend to change the sharing across those sorts of ranges.

In terms of the question on institutional, I guess I'm not -- I don't think I'm being somewhat cautious. I actually think -- I'm actually very happy with where our institutional business is at the moment. It's just reflecting the fact that it is going to take a longer time to get the consultants' support and the support for that. It may come earlier, but we've got to be realistic, you're typically looking for three-year track records.

Matt Beesley on the global equity team, I couldn't ask him to do anything better. His numbers are outstanding. He's going fantastic in terms of downward consultants. The process is clear, it's articulated well, it's differentiated, it's delivering. It's just going to take a while before it gets full consultant support and therefore for growth that comes from that.

Now it doesn't mean we won't get some early adopters, and you will get that and we've clearly got a lot of interest in some of those areas. But it's just -- the caution is that we're going to do that.

The other offset is we do know there are a number of funds that will mature this year. So for example, in 2009 we entered into a very successful product with our clients and a particular consultant in the ABS space. That's grown fantastic. We saw an opportunity in the disruption in the market. It's done exactly what it should -- actually it exceeded client expectations by a significant margin. But that will come to mature this year.

I mentioned the Phoenix business. Whilst we don't expect outflows from Phoenix taking money away from us, they are a business that has a natural runoff and that's reflected in those numbers. So there are a number of areas where we know we'll see redemptions, but we also will see growth. But the effect of those means we probably feel it'll be fairly flat through 2014, before 2015 you start -- you really start getting to sort of strong consultant support and the consultant ratings that will drive recovery.

I guess I look at it that we spent a lot of time in the last couple of years getting the retail side of our business right, the product range rationalization, and that's coming through. The next couple of years is actually going to be about institutional. We've already been spending time on it, the Matt Beesleys, the Kevin Loomes, the Paul O'Connors, have all been about positioning the product set. The next year or two we're positioning the sales and distribution teams to support that. Because there's no point investing in those until you have the products right, and then once -- when you get the combination of those come together. So I think you'll see institution -- the institutional side of that business be a strong growth for us in that five-year plan, but more at the backend rather than the front-end-weighted of that.

Sorry, did you want to just pick up on --

Yes. In terms of margins, without a doubt 40% is achievable, and as I said, it's achievable in the short term if you don't invest in the business. We are investing in the business. I talked about fixed staff costs going up this year and non-staff costs going up. Variable costs -- variable comp will depend on the business results. If we continue to see strong investment performance this year and we continue to see strong flows this year, then obviously we'll be rewarding staff.

And similar to seed capital, what Andy has just been talking about, you have to remember that we've got a number of businesses which were effectively seed businesses. We've got an Australian business which we're investing in. We've got the US fixed income business Andrew's just talked about, even global equity, where we've been making investments over the last few years. And they're not up to speed yet. So, when those things come on line, we'll have others behind them, but that's when we'll see the true operating leverage of this business. And yes, 40% is definitely achievable. But that's a medium-term thing. As I said, I'd encourage you to put in a similar number for 2014 as 2013.

Jonathan?

Yes, good morning. Jonathan Richards from Merrill Lynch. A few questions if I could. The first is just, you've seen very good retail flows obviously in the last quarter, and you've hinted that those are continuing. Are you seeing any capacity constraints in any particular funds? If you could give us any idea if the, I guess, spread that you've seen is sustainable, that would be helpful.

And then secondly, longer term on your retail margins, you're around 74 basis points now. Could you give us an idea of what you think your long-term average margin could go to between the US, the UK and continental Europe, and especially given that the UK is going to see the pricing pressure as advisers look to utilize passive products more than active?

Yes. Okay, first on capacity constraints. In a few areas we've seen some capacity constraints. European Smaller Companies for example, good growth last year for us, but because of the nature of the type of fund it is, it sort of soft closed. Our Credit Alpha Fund as well is an area where we soft closed to new investors, taking existing investors. And our European Special Sits under Richard Pease is also sort of soft closed.

Actually given the product breadth we have, we don't see that as a significant hurdle. Interestingly, you take the Small Cap Fund, Ollie Beckett who runs that fund also runs a small and midcap product. So what people are doing now buying in the small and midcap products, that's actually enabling us to sort of shift client demand to sort of similar products but slightly different. So in a few areas where there is capacity constraints, they're mainly in the small cap space, our UK small cap team under Volantis, for example, have been closed, hard closed, for a long time. And they don't constrain our growth. They're factored in to what we think we can achieve anyway.

In terms of the margin spread, it's interesting that, at the moment, Europe -- so in order of the margins we achieved in our retail books, the US is actually the highest-margin business for us, then Europe, then the UK. If I see pricing pressure, it's probably more the UK given the shift with RDR and some of the new models coming out. What we sort of said, we think that could go at about a basis point a year sort of decline.

Europe actually feels relatively stable for now. The biggest impact will be the discussion we had earlier about, if we went to an RDR-type model in Europe, you'll probably see some margin pressure there. But I think that'd be offset significantly by volume. But there's nothing on the horizon. So certainly in the short to medium term I wouldn't pencil that in.

And similar, in the US, our product set we would say premium priced for the type of products we offer. If we get significant growth, and I'm talking about the growth of the funds not just doubling from where they are now but you're talking 5 to 10 times bigger, then you're going to have to look to bring your margins down. But [you'll have an] offset by sheer scale.

So if you go and look at the really big funds over there, they do have lower expense ratios, and it's an independent board that monitors this. And there will be trigger points as our funds hit GBP3b, GBP5b, GBP10b for example, where the board will evaluate the total expenses and costs, and seek to drive that down. But you'll be more than compensated by the gearing you're getting through from that.

So it'd be a nice problem to have. And I don't envisage us hitting many of those targets or where the board may look to trigger than in the next year. But that's clearly a risk.

And so I think, yes, I think you mentioned sort of the threat of passive funds and their margin pressure. The reality is we are an active fund manager and we've got to price to that. It's not about fighting the war on price. It's about fighting the war on the consistency of performance and service you offer and the approach you take to deliver your expertise to your clients. That's how we got to go about it.

We do have some products where we're seeing considerable success in Australia, our enhanced index products, which are about trying to get closer to passive fees on the front but with performance fee elements, so that they can really play into models that are being developed for the low-cost marketplace.

So for Australia for example, they've adopted in the institutional space the My Super regime which is actually about having a very constrained TER for the product offering. So that leads you to naturally try and adopt passive funds. But we can actually offer funds that offer close to passive fees but with a performance element to it, and get within that -- bringing our global capability in there, and actually has a considerable capacity and really plays well into those markets. So where there's fee pressure, I think we've got product capabilities where we can take our alpha element and dilute it and turn it down and put it over our [passive-like] type product to be able to generate very good overall margins for us even if the management team margin looks lower.

So the institutional business, if we get the growth I was mentioning earlier through institutional, that will lower our margins, because institutional is lower. But I think we can compensate through the net margin just because of the fact of the way we can manage the business through that.

Morning. David McCann from Numis. Two from me. Firstly, on the five-year plan that you outlined when you talked about doubling assets under management over that period and you also outlined the 5% net organic growth rate for the business, and obviously to make that work, to make that balance, you need 10% growth per annum in other areas, which obviously suggests a fairly high performance assumption there or a reasonably high level of acquisitions per annum. So maybe if you could give a bit more color on the balance and maybe the assumptions are kind of underlying that.

The second question is on the dividend, you obviously gave a little bit of guidance that the 30% interim of this year's final kind of being scrapped, but you didn't really give any color on really what it might be replaced with. So maybe some color on the half-one, half-two expected weightings and maybe a payout ratio, if that's the way you're thinking about it, just to help our modeling really. That'd be helpful. Thank you.

Yes. I'll let Roger pick up the dividend question. In terms of the doubling assets under management, firstly, just to be clear, it's talking about the continuing business before I get in trouble for increasing the expectation on the property side there. Really, I actually fully expect us to do more than 5% net new money growth. So the numbers we would assume would be higher single digits than 5%.

In terms of normal market conditions, I'd be anticipating mid-single-digit returns from markets, we'll achieve that. That does leave you, putting that together, slightly short of the number that you so quite rightly sort of backfilled, and we do expect we'll add some small bolt-on acquisitions. For example in US equities, when I talked about it, I've always talked about something ideal for us would be somewhere between $5b and $15b of assets under management.

When you start to add that in to the book of business we have, you start to find that that gap that you think might be there isn't as large as you expect, particularly if you do it early in the plan and it grows as well as we would anticipate. So to me the numbers do stack up. They're probably driven more by benign markets, but the market growth would be lower than what we think we can achieve on a net flow basis.

As far as the dividend, our policy's stated as a progressive dividend. That continues. I've talked about the cover, the Board being comfortable with the cover and where it is now. In terms of the mix first half to second half, the Board haven't discussed that. We'll discuss that at the interim stage. I would assume the mix will stay relatively constant split between first and second half, but we'll talk about that as we go.

The important thing is that we want to signal to the market twice a year as to our confidence in the business, and that's why we're changing that dividend policy on the interim.

Hi, good morning. It's Gurjit from Credit Suisse. Just a couple of questions. First, in terms of the 10% guidance on the increase in fixed employee cost, is that mainly for sort of a distribution or investment management or anything else? Can you just provide any guidance there?

In terms of the fixed staff cost, it's a combination of new hires that we expect the headcount will be increasing, but also above-inflation salary increases that we've given to the Group because if you notice, we've actually kept salary inflation very low over the last couple of years, and we increasingly need some growth on that.

Actually the salary inflation is most acute in the support areas. The assurance functions, compliance, for example, ops and IT are probably seeing some of the larger increases just because of the recovery in general financial businesses is seeing a strong demand there. And we probably feel we need above-inflation increase at this point, probably for another year as well, just to make sure we maintain because what we're seeing at the moment has just been a pickup.

From the fund management sales side, actually it's not really coming from there because they're focused on the total comp and we'd much prefer to keep that focus on the variable side. They're getting paid very well because the sales come through and investment performance have come through. We -- and that's why the compensation ratio is where it is. If either of those fall away, it gives us much more flexibility to bring it away.

So the fixed staff cost is driven probably more by the support side in general, but it is really looking across the board to make sure we maintain that mix between fixed and variable, particularly in a market like here where banks are now only lending on your fixed salary, not your total compensation, it makes it quite difficult for young people coming in. And that's a consideration for us as well.

And in terms of where that headcount growth is, it is -- it's the same thing, it's a mix. So, yes, we are investing as we said into adding headcount to that US fixed income team we talked about, thinking about other areas, emerging market debt, emerging market equity where we may want to increase, certainly some small incremental increases in our sales distribution around Europe principally, and continuing to invest in Australia.

And then yes, there are things that we need to do on the infrastructure side, in part due to regulation, really say that we haven't had a question on regulation, but it's still all there. The good news is it's now about implementing what's out there. There's some things we need to do -- we need to continue to do there, and to support our growing business. So, probably relatively evenly mixed between those three.

Just one quick follow-up, just in terms of Phoenix, could you just remind us what the assets are, are remaining in Phoenix?

(Inaudible)

We don't -- part of the deal we did in the summer was about normalizing Phoenix as a client, onto a regular fee agreement. It is our largest client. It's less than 10% of our assets. But we don't disclose it as we wouldn't disclose any other individual client.

Okay. Thanks very much.

Any other questions from the floor before I go to the operator?

Can we go to the operator to see any questions from those on the line?

Nigel Pittaway, Citi.

Hi, Andrew and Roger. A couple of questions please if I could. Just first of all, just pushing a little bit further on the increase in compensation ratio in the second half. I've obviously heard everything you've said on sales and flows and increasing staff. Just wondered whether there's any other elements in there, because the compensation ratio in the second half does seem to be closer to 47 relative to the 43.5 in the first half, and obviously you're also seeing that in terms of looking at variable cost to revenue ratio, while they're moving in line with revenue, the ratios have gone up even if you adjust for the fairly chunky absolute return performance fees in the second half. So have we sort of covered all the explanation for that is there sort of some element of one-off in that second half that's there?

Yes. Hi, Nigel. There's two things really which I don't think we've really been as clear on as you want to in that first and second half then. The first is the compensation relating to those flows. So flows accelerated pretty significantly, as you saw in the second half, and we are rewarding people for those flows, and the continuing improvement in investment performance. So there's one side of it which is around rewarding and continuing to reward accelerating forward-looking indicators of the business.

The other half though, the other part, which is material to the number, it's a smaller piece but it's material to the number, is national insurance cost on our share schemes. As the share price has risen, our national insurance cost on those share schemes has increased. So I guess that's good and bad news. It increases our compensation cost but you see the share price rise. Hopefully we continue to see it in the future.

But in a sense the first explanation suggests that the ratio of cost to revenue comes down a bit moving forward because the revenue is delayed relative to the costs?

There should be an element of that because, yes, if you take the sales incentive schemes, they pay on the sales being achieved. And a lot of those sales were very back-end-loaded. So the revenue associated with those sales haven't fully been earned through the Group for the year, but the sales people's bonuses reflect that level of growth. So there is an element that we are forward-paying.

And also the fund managers do share any income that they generate as a group, but their share is also calibrated by their investment performance. So if the investment performance is actually strong, they're at the higher end of the share that they would get from that. So if their performance was much weaker, then actually the amount we would pay the fund managers would have been lower. Because what we're trying to get through our variable line to the fund managers is not just the revenue they're generating today but what we believe is the sustainability of that. And with strong investment performance on a one and three-year basis, you've got a much higher persistency than you do if you've got poor investment performance. So we give them a higher share in that.

So both of those combinations have driven it to what I would say a higher-than-normalized level, but they're for good reasons. And I'd prefer to be paying the money and having the results they're having than paying slightly less but feeling that those investment performance or the sales are nowhere near where they are. So I'm pretty comfortable that we're paying the right amount of money.

And it is a competitive environment. We -- things have changed dramatically from where they were just 12 months ago in the asset management space in general. And we have to make sure we stay competitive. Given the momentum we see in the business, it'd be churlish to sit there and try and shave a point or so here off the compensation ratio and then find that we damaged what we see as a very strong story and momentum in the Group.

Okay, that's very clear. Thank you. Secondly, just on the amount going into TIAA-CREF. Your property AUM seems to be relatively stable through the year, yet compared to the original deal it looks like GBP11.5b going in as opposed to GBP12.7b. Is that where the footnote on slide 37 or is that something else? The original presentation in June suggested GBP12.7b; it's now down to GBP11.5b.

I think the GBP12.7b included the US element which was sold. And then you have to include the TIAA-CREF adding into that European business.

Right.

So, yes, the other point that was just pointed out to me is that we would say in the Henderson UK Property Unit Trust, and so to avoid double-counting, we've taken that out because it appears in ours, because it's actually a Henderson fund sub-advised to them. So when you look at the property business in June, we would have included that as under property, but actually that remains 100% with us. They would probably count it as 100% for them as well because they're sub-advising it. But for our purposes, we backed that out. And that's about a GBP1.6b (multiple speakers)

Okay. What we find in the footnote, yes. That's fine. Yes.

That's the main reason there. Just making sure we get [access] on that. Because that fund is a Henderson fund that they manage on our behalf and we share the revenue equally between us.

All right. Okay, fine. Thank you. And then just finally, on the tax rate, because I think, Roger, you said that the 2014 tax rate is going to be similar to FY12. So, is another way of saying that around 13%?

Yes. Correct.

Yes. Okay. Thanks very much.

Lou Capparelli, Evans and Partners.

Thank you. My question, just on the slide 16 where you're calling out that there's going to be a roundabout a 1p hit to EPS in FY13 if it was accounted for as an equity associate for the entire period. But aren't you ignoring the GBP90m that you're going to get as cash proceeds from the sale of the North American business, so that the impact ought to be something less than that? Because I'm sure, maybe if you were to just do nothing more than put it in money or funds, you're going to make a reasonable turn on that GBP90m.

That's a good question. Roger, you want to --

You're absolutely right, we wanted to be -- we wanted to be whiter than white over this. The property business coming out of our results results in that 1p dilution, but as you say we will have around GBP90m to invest in one way or other in the business, which will obviously do something on the other side of that. So you're quite right in the way you're describing it.

All right. And in terms of a return on that, I mean you're not going to make an equity return on it. I assume you'll be investing it in whatever it is that you choose to invest and you don't have any particular plans for that GBP90m?

It's hard to give you a guidance because if you put a cash rate over here at the moment, you're not going to get very much at all.

Yes, but --

(multiple speakers) some of our seed investments deliver, then that's great. And as I've mentioned earlier, there's a number of bolt-on acquisitions we'd love to sort of achieve in the year. If we were to do those, you'd expect them to be significantly above our cost of capital, which means we'd hopefully be replacing that dilution to the property business with success there. But trying to do a bolt-on acquisition and say that it's going to happen is near impossible to be able to predict.

Sure.

But just as a range from very little to actually replacing it all, depending on the use of that cash, at this stage we can't give you any other guidance of what that will be, which is why prudently we've just shown the costs without any benefit.

Yes. Sorry, and the other thing is, TIAA-CREF is also going to be throwing in GBP2.1m as well, which will further reduce that gap.

Yes. I think the thing about 2014 is, for that business, will be, it will be a transition year as the business is set up as a standalone business. So the issue you've got is there's going to be increased costs as the separation between what they did as part of Henderson where they will share a number of infrastructure and support costs that they have to put in place. So their earnings are going to go down in 2014, but then should start to accelerate into 2015 and beyond as the investment program that TIAA has that will be managed by this business will grow.

So, you know, interesting, you will have seen between 2012 and 2013 the profit actually declined. We did price the deal on 2012 earnings. So actually we could see that decline coming. 2014 will be again probably again a step down as these costs come in. And hopefully at the backend of the year you'll start seeing investments that TIAA-CREF make on behalf of their client base and their general account start to grow those earnings, and we'll move back again into 2015, 2016. We expect quite strong growth in the sort of latter half of the next five years.

All right, thanks. And just one more for me if I may, just extending Nigel's last question, you made reference, Roger, to the tax rate in CY 2015 heading towards the UK tax rate. Forgive my ignorance, but what would that be?

It's going to depend on -- yes. It's going to depend on where our businesses are. We're talking about growing our businesses outside of the UK. Some of those are in lower tax jurisdictions, some of them are higher. Now the growth of the Australian business will result in a higher tax rate. As we grow our business in Asia, it will be lower. The UK rates, remember, is also decreasing. So -- but there are some things, netting off in there, which is why I want to guide towards it being nearer that UK rate, so high teens probably, over the next two years.

All right. Thanks very much.

Okay.

Toby Langley, Nomura.

Hi, good morning, everybody. I've got a couple of questions on channels if I may. If we look at retail side to begin with, had a very strong finish to the year. And I'm just wondering if you could talk to -- on the channel basis what really drove that, whether you saw some shift around it, because you've come up fourth in the league tables in the quarter from where you were through most of 2013, suggests there's been some kind of change in the business mix.

Okay. Well, I think the biggest -- if you look through the underlying business lines which we sort of gave on the slides seven, eight and nine, if you put them together, what you saw what was holding us back in the first half at a total level was UK retail continued the outflows that we'd seen in 2012 but at a slower rate in the first quarter, moving into positive territory in the second quarter but still lower than the run rate that we ended the year. So UK retail and the effect of RDR and the challenges we had about the fund rationalization still impacted that early part of the year.

And then as that really -- as that was really yesterday's story, there was disruption in a number of other houses. There's quite a bit of turnover at the key fund management level last year in the UK. That meant people looked at alternatives. Our performance has been good for a while, and as I've said in the past, performance is like a hygiene factor, you need it to be successful but it doesn't guarantee success. And what you need is to have that performance at the time that others' either performance slips or other challenges to their business. And I think we benefited from that in the second half. We benefited from disruption in some competitive firms, but also a significant shift back in thinking.

Still at the beginning of last year people were all about emerging markets. By the end of the year no one wanted to hear anything about emerging markets, and Europe was on -- was what people were looking at. And that's where we're positioned. We've been talking about the European story for a long time and it didn't give us any traction and it started to give us that traction. So you saw that in the UK.

If you look at the European one on slide eight, that negative second quarter was all down to one month. It was June, when Bernanke came out and started sort of announcing that tapering might start to come into effect, and markets had that wobble in June. The European business is much more volatile than the rest of -- I'd say the UK and the US. And at that point we saw June really reverse. And April and March -- April and May had been actually good months for us, and then June took all that gain away.

When people got more comfortable at what the effect would be, then it came back. And I think the strength in the fourth quarter for both the SICAVs and the US mutuals is really driven by the same shift in the UK which is Europe isn't as bad as we'd thought 12 or [28] months before, oh my God, we don't have enough exposure to that. Who's performing well in Europe? Who's got a great story to tell? Henderson came out ticking the box very, very strongly in all of that. And that's what drove the fourth quarter significant uplift where all three channels were firing at the same level.

So the first quarter impacted by UK, second quarter impacted by SICAVs, the fourth quarter just all channels sort of came together. And I'd say that that's been the case so far this year as well where all three channels are seeing good solid growth. There's nothing standout in it. SICAVs continues to be a very good performing book of business for us, which is why I mentioned the investments we're making in both brand and marketing spend and sales people there. But they're all performing very, very well.

Just digging a bit more into the UK then and looking at the impact of RDR, have you seen anything in the way of a resurgence on the IFA channel or if it's kind of coming through direct platform that you, in terms of the customer-facing channel, what's really driving the uptick for you guys?

Yes. Well, there was a lot of disruption in 2012 where the advisory channel really was going through so much change from a compliance point of view and kind of getting RDR-ready at their own businesses. The investment side, where they're channeling their client money, was very much in the background. They had their default funds and they just continued to invest in that.

What you've seen, once we got through the first six months this year and people feel they've now made those changes, they've got compliant, they're happy with where they are, they then started to question, do I really have the right funds? And if you remember, this time last year I talked about the significant concentration you saw in UK retail where flows were going. I think people have woken up to that and thought, hang on a minute, are we really as diversified as we want? Particularly when some of those areas were exactly in the areas where two or three of the key fund managers left. So when you've worried about concentration and then exactly the manager who's managing has chosen to depart from their firm, that's just brought it home to roost. And I think that's also benefited us.

So advisers are definitely re-engaging having had a period of significant regulatory and compliance requirements on them. That said, the advisory market versus restricted, or the independent market versus restricted, we still see significant growth in restricted. We see more and more smaller independent firms seeking to align to more national firms or to be consolidated, and some of those larger firms recognizing they probably should go to a more restricted model.

Obviously the most success to that is something like intrinsic where we've been positioning. But even in a firm that doesn't want to go so restricted, they're looking for the top 10, top dozen firms, and Henderson is right up there with the product mix we've got, the performance we've got. So we're benefiting from a compliance-driven desire to limit the number of fund managers that sort of work with as they move to limit and restrict the overall product set that they offer to their own clients. So you're definitely seeing, I think, a continued shift.

The platforms themselves have clearly been positioning their product sets. A lot of the new pricing points have been coming out as platforms have tried to be offering the lowest-cost products, which is really more driven by a blend of the products they have to drive down their costs rather than fund managers significantly cutting their costs.

Okay, that's very helpful. And to ask a similar question about the institutional side, but really focusing on your response may tell me whether if it's relevant or not, but are you seeing any sort of uptick in flows from workplace pensions and then could you comment on the mix between through auto-enrollment stuff, if you're getting any of that, and then more vanilla sort of UK pension mandates?

Yes. In terms of things at the workplace, pensions and that, it's still small, it's a very competitive space, a couple of people are aggressively trying to position themselves into it. Henderson will play in the default option or the workplace pension-type solution market more as a component provider than someone providing target date funds or our own specialist products. We do have some products that would fit for that, for example, our diversified growth fund performed exceptionally well last year. It's a default fund on the Henderson defined contribution plan. And we're selling that successfully to others.

But the reality is the solutions for workplace pensions are, and some of these default options, are going to be -- it's going to be a smaller number of people. It's about driving around the admin costs. And then you want to be a component in that. And that's where we're -- I think we're well-positioned to play in that space. I don't think we're as well-positioned to play in the providing the full service offering. And I'm not sure that you'd make money by doing so. You've seen actually a few people pull out of that recently where they just know the costs and the commitment to doing it, there's only going to be a couple of people who succeed. We feel very well-positioned in a number of the components for that, however, which could drive our business.

And that's really a mix between institutional and retail coming together, because they're going to buy the retail-type vehicles for that, but it's very much an institutional sale. And if you can get into those default options, clearly they give you the persistency and longevity of those products, are very strong.

Great. Thank you.

There are no further questions at this time. Please continue.

Thank you. Before I sign off, are there any questions from the floor here that we haven't addressed?

No. Well, thank you for your attendance for those here and obviously those on the lines. Hopefully you can't see that the business delivered a very strong performance, particularly at the end of last year. Momentum has definitely carried through for us so far this year, as long as markets remain helpful and encouraging and certainly my perspective is that I feel markets are of a reasonable value. I'm not looking for a significant sell-off. I actually think there'll be growth in equity markets from here and that we can manage the shift of tapering and quantitative easing being reduced.

With that in mind and given the investments we've made, 2014 looks like another strong and solid year for us, and hopefully building the platform as well for not just 2014, but 2015, 2016 and beyond.

So, thank you.