Janus Henderson Group PLC (JHG) 2014 Q4 法說會逐字稿

Welcome to Henderson's 2014 full-year results. We're conscious that many of you here in the room here in London are time constrained and want to get away to Man Group presentations, which start at 10 am. So Roger and I will try and keep our presentations concise. We're happy to take any questions. We'll start in London at the end of the presentation and then open up to questions from those who are on the line.

You can see up here today's agenda that I wanted to cover.

I'll first take you through 2014 highlights, with a particular focus on our investment performance and our flows and our operating results. Roger will then take you through the financials and, in particular, give you an update on the improved capital position we're seeing at the Group. Finally, I'd like to finish by giving you an update on our strategy and what we're seeing in the first few weeks of 2015.

So if we turn to the highlights for 2014, you can see on this slide assets under management were up 8% over the year. However, there were a number of corporate activities that are incorporated within this.

You will recall the property transaction we conducted earlier in the year. We also concluded the purchase of Geneva Capital in October and also the sale of Intrinsic went through in December. So, on a combined basis, these had the effect of reducing assets under management.

If we were to strip these out, assets under management for the Group was actually up 16%.

This growth was primarily driven by net inflows, which stood at over GBP7 billion. This I can say is a record for Henderson.

And we also managed to gain market share in pretty much all of the major markets that we operate in. As you can see here, investment performance also remains consistently strong, with 83% of funds outperforming over the crucial three-year period.

Our 13% increase in underlying profit before tax was matched by a similar increase in earnings per share. That has enabled the Board to propose a final dividend of 6.4p per share, which takes our total dividend for the year to 9p per share; up nearly 13% in sterling terms.

Let's start by drilling into more detail on investment performance. The headlines here are that our three-year performance remained very strong, with 83% of funds outperforming. I remember standing up here this time last year saying that 82% was a strong result, so it's really pleasing a year on to have our performance at the same level.

If you look on the one year, two-thirds of our funds outperformed and this is down from 78% this time last year and really for a variety of reasons.

For example, if you look in the alternative category, the reduction was driven by the Henderson UK property fund, where we had large inflows over the year, which meant that we held more cash and we had significant transaction costs as we put that cash to work incorporated in the 2014 performance years. That's nothing that really concerns us.

If we look in fixed income, the rate side of our business was positioned for a rise in government bond yields; something that we still anticipate and have positioned the portfolio for but clearly didn't happen in 2014.

You can also see that our best-performing capability is European equities, where we are seeing standout performance across the board. With the adoption of quantitative easing by the European Central Bank in January, we are seeing significant increase in client demand for European assets.

Let's now turn to flows. As I mentioned, 2014 was a record year with net inflows of GBP7.1 billion. We delivered net new money growth of 11%, which is well ahead of the 6% to 8% per annum target that would see us double our assets under management by 2018.

Our net new money growth was ahead of the industry as a whole, which we estimate grew at around 3% to 4%. Even in the fourth quarter, when we did see a slowdown in our own inflows, our growth comfortably exceeded that of the industry.

So you may ask, why is this happening? Well firstly, our strong investment performance, of course, contributes to what we're seeing there. But it is also our distribution relationships, it's the brand improvements that we're seeing back on the rebranding we did this time last year and also the increased diversification that we're seeing in the business.

These factors helped us maximize inflows when our strategies were in high demand. But, crucially, they also maintained assets when clients became more defensive. We tended to benefit by seeing less outflows at those points.

So, in terms of both net new money growth and also in market share gains, this was a very good year for us; frankly a record year.

So let's look at each product line in more detail and we'll start with institutional.

At the beginning of last year we told you that our aim was to stabilize flows in our institutional business and actually we've done a bit better than that. We've managed to broaden the range of strategies we're selling.

And it's important to note that many of the recent investment management hires that we've made had institutional backgrounds. Once they've built their track record we will add distribution resource to support them where appropriate.

Looking at institutional, if I had a negative, it would be that Geneva Capital saw net outflows of around GBP500 million in the fourth quarter. This was disappointing and was driven by a large outflow from one longstanding client, who actually consented to the deal but then subsequently told us that the change of ownership had prompted them to change managers.

Roger's going to cover Geneva in more detail in his presentation, but let me just say that I like the team and their investment process and I'm really impressed with the way our enlarged US team is integrating and now working together.

Also, looking forward, our new global equity strategy had a difficult performance year in 2014, which will likely delay client interest.

On the positive side, since the yearend we've seen a good outcome [within] insurance client consolidated managers. We won the [enlarged] mandate, which will add GBP1.7 billion to our assets under management but it is at a lower combined fee margin, which means that the same total revenue for the Group will be earned.

If we turn now to our UK retail business, the highlight here is that we achieved over 10% market share of total UK retail net sales in 2014. This places us third overall in the market. This is a significant milestone and comes within five years of the New Star and the Gartmore acquisitions.

It's particularly pleasing to see the diverse range of products which have attracted flows. We've shown you here on the left where we're getting flows for.

If we look forward, our UK business does have a couple of headwinds we need to contend with in 2015. As we've announced, Richard Pease will be departing with his roughly GBP1 billion Special Situations Fund and he'll most likely leave in June this year. But, remember, this is profit neutral for us for the first 12 months post his departure.

Secondly, the sale of Intrinsic means that we lose the Cirilium product range, which was a positive contributor to our flows in 2014.

But, on the positive side, last month we completed the merger of the Old Mutual property fund into the Henderson UK property fund and this has added just under GBP500 million of assets to that fund. This fund now stands at over GBP3 billion.

Finally, and possibly most significantly, we're getting ourselves onto many more buy lists and also gaining increased levels of inclusions in model portfolios.

If we now turn to the SICAV range, the story here is about building an increasingly resilient business through diversification.

Historically, flows here have been pretty volatile. They'd ebb and flow with risk-on/risk-off markets. Now what we're seeing is clients switching from our pure equity funds to our equity long/short funds and the more defensive play or even reallocating away from us in equities, but buying our European credit funds.

We've had top quartile net sales in European equities, with strong flows into the Henderson Gartmore Continental European Fund and also the Henderson Horizon Euroland Fund.

But we're also growing market share across other asset classes. And, for example, the Henderson European Corporate Bond Fund was a top seller in its sector in 2014 and top quartile net sales we had in our equity long/short range.

If we look forward, we see helpful cyclical and structural forces at work in the SICAV space for us. Certainly, the ECB's recent adoption of QE is driving clients back into European assets.

And structurally, we're seeing increased demands for sub-advised mandates from some of our banking clients as MiFID II incentivizes them to move from multi-manager arrangements to sub-advised models. And we're well positioned to be one of those sub-advised managers for them.

Now last, but not least, I'd like to turn to our US mutuals business.

US mutuals had their second best year since the business was launched in 2001, despite seeing a reversal in the second half as demand turned away from foreign assets back towards the domestic US market. Nevertheless, we continued to gain share and we finished the year as the top seller in European equities.

Looking forward, our US team is off to a strong start in 2015, with renewed interest in European equities since the ECB announcement and a strong set of performance numbers, as well as some helpful ratings upgrades for a number of our funds.

Our three flagship funds, the Henderson Global Equity Income Fund, Henderson International Opportunities and Henderson European Focus, all finished 2014 with very strong relative performance; each being top quartile in their respective categories.

Our objective has been to broaden the US product line and, on the chart, we can see the roadmap for our newly launched funds to achieve their three-year track record and be eligible for ratings. We've shown it there on the left.

I am very pleased that we were also able to launch the Henderson US Growth Opportunities Fund in December. This is the first new fund to be launched by the Geneva Capital team.

To sum up, the US has a more diverse range of funds now and the team is focused on growth and breadth of its offerings to the clients.

I think this slide is quite a useful slide to show you the progress we've made over the last few years.

As we've spoken about building scale and diversification, our retail business has been one of the critical drivers of focus for us and it's a key success in the factor that we're achieving in taking market share, as we are at the moment.

In this slide you get a snapshot to illustrate the progress we've made, and you can see both by the number of funds achieving significant inflows, here at over GBP100 million per year, or the number of funds that have over GBP1 billion of assets under management continues to increase.

So I'll conclude this first section by summarizing what have been, for me, the main operating highlights for 2014.

First and foremost, we've delivered strong investment performance for our clients and above-industry net new money growth. And during the year we've added more investment managers to broaden and globalize our product lines. We acquired Geneva Capital to expand our US presence. We've started to build our Australian business, and we've already launched two funds down there.

We've refreshed our brand, which is really starting to pay dividends. And we've made important upgrades to our portfolio in management and finance systems, amongst others.

We also set about and reshaped our business where appropriate; notably with the launch of TIAA Henderson Real Estate this time last year.

We've maintained the cost discipline that Henderson is known for and delivered operating margins and a compensation ratio in line with our guidance to you this time last year.

In summary, it was a great year both in flows as well as in investment performance and we've invested in our business to continue to diversify and grow it.

With that, I'd like to hand over to Roger to take you through the financials.

Thank you. As well as the record flows you've just heard about, Henderson delivered record financial results in 2014 in terms of revenue, profit and EPS. The key driver here is on the top row.

Our management fees increased 22% in 2014, which more than offsets the 12% reduction in performance fees from the exceptional levels of 2013. Management fees now constitute 75% of our total income; up from 70% last year.

As mentioned, 2014 was a year of investment for growth. We invested in a disciplined manner and kept our percentage cost growth beneath our growth in revenues. As a result, the underlying profit from continuing operations, and the diluted EPS on the same basis, was up 13%. And the Board is recommending that we increase our dividend by a similar amount.

Andrew's talked about what's driven the growth in our AuM, so I'm going to focus on the other key driver of our management fee line, which is fee margins.

Fee margins rose in 2014, driven by the growth in our retail business. The main driver of why our overall fee rates didn't increase further, given the growth in retail, is business mix. We've seen [sales] success in lower fee products, such as the Henderson UK Property Fund, where we share the fees with TIAA Henderson Real Estate, as well as the evolution of our business from old, high-margin channels, like the direct book, to higher volume global distributors.

Andrew's also mentioned the recent GBP1.7 billion institutional win for us, which is broadly revenue neutral. This, combined with the roll-off of our private equity business following the IPO of John Laing, contributes to our total management fee margin, reducing it to nearer 55 basis points at present.

Our strong investment performance for clients led to a good year for performance fees. This chart shows you how the mix of our performance fees has evolved since the New Star acquisition; becoming considerably more diverse and hence more sustainable.

Performance fees as a percentage of total income has ranged from 7% to 20% over this period. We're very comfortable with the contribution to our revenues we get from performance fees and we like the alignment they give us with the interests of our clients.

I've included in this slide]the historic performance fee bonus payout ratio, which depends on the mix of performance fees between long-only and long/short styles.

This is probably a good moment to highlight to you the new data book which our IR team has added to our revamped website. In it we've lifted out all of our performance fee-bearing funds, excluding segregated mandates, of course, to help you with your performance fee modeling.

Now looking at costs. Hopefully you've all had a chance to review the details of the relatively small cost reallocations, which were sent out in an email this morning, and they're on slide 36 of the appendix. And I'm conscious that this makes the numbers a little bit unfamiliar, but once you've had time to absorb these differences, you'll see that our fixed staff costs came in in line with the guidance we gave you this time last year; up 10%.

We expect a similar level of growth in 2015, with about 3% of this coming from the inclusion of Geneva, 3% from wage increases and the remainder from the full-year effect of our 2014 investments, plus a limited number of new hires, although these are more likely to be in distribution than investment management; should therefore produce quicker returns.

Variable costs were up 11%, reflecting growth in revenues, flows and profits, as well as a strong investment performance. But, as you see, we have begun to bring down our compensation ratio.

Non-staff operating expenses increased by GBP15 million, rather than the GBP17 million we guided, with the difference relating to GBP3 million of one-off FX gains.

Given that investor sentiment has now improved and we're looking to maximize the sales opportunity that we currently have, this, together with our IT costs associated with regulatory requirements and our global infrastructure, mean that we expect non-staff operating costs to rise by around 12% from the normalized 2014 figure.

I think this gives you a sense that we continue to focus on our cost discipline against a background of rapid growth.

So moving on to look at our key ratios. Again, we explained the slight change in the calculation methodology this morning, which means that we now exclude financial income in calculating our compensation ratio.

Irrespective of this change, and in line with our guidance, our compensation ratio fell to 44.7% and our operating margin stayed relatively flat at 35.5%.

We've previously guided that we would expect our compensation ratio and our operating margin to converge at 40% over our five-year plan. There's no change to that guidance.

Given the growth in our top line and a reduction in our investment requirements, we expect a reasonable improvement in our compensation ratio and our operating margin for this year.

Geneva is an important strategic milestone for us in the US and it adds strong US investment capability to our increasingly global coverage. We're really pleased with the way the two businesses have come together. The investment principles remain focused on managing client money.

Nick Bauer, previously Geneva's Head of Distribution, has made an immediate contribution in building and leading Henderson's North American institutional distribution team. Our teams are working really well together and the integration is fully on track.

Geneva has been through a period of underperformance, consistent with their focus on unlevered, high-quality growth companies. Without getting too excited about short time periods, recent performance has stabilized and is showing signs of improvement.

As Andrew mentioned, we did see one unexpected outflow but on the slide I'll remind you of the transaction structure, which protects us from AuM fluctuations and means we're still on track to deliver an IRR in the 20%s.

[In trying to gauge from ] which part of our strategic objective to broaden and grow our successful US business, whilst Geneva's investment performance needs to continue to improve, we're excited by the strategic benefits that this transaction provides.

The next item I wanted to cover is tax.

Our headline tax rate is below the UK tax rate, principally because a portion of our profits are earned outside the UK and are subject to lower tax rates, as well as the result of different accounting and tax treatments. These two sets of factors bring our tax rate down to the normalized 13.4% shown in the middle of this chart here.

Also in 2014 we recognized some one-off prior-year items, which further reduced our tax rate to 11%.

[Various] factors, including proposed changes to global tax policies, mean that our normalized tax rate of 13.4% will likely rise in 2015; possibly by as much as 250 basis points.

Turning to cash. You can see on this slide that we continue to generate strong cash flows from our underlying business.

The proceeds from the property transaction helped to fund the Geneva acquisition later in 2014. And, as mentioned at our half-year results, we've been investing [more free] capital in our business, particularly in fixed income. And finally, we've separated out the cash outflows from share purchases. And that brings us nicely on to our capital position.

You remember that we currently operate under a waiver from consolidated supervision. That waiver expires in April 2016 and we had told you that we were on track to be in regulatory surplus, without the waiver, at some point during 2015.

I'm pleased to announce that as at December 31, 2014, we are already in a position of capital surplus without the waiver. This is ahead of our expectations and reflects the higher profits, the reduced consideration for Geneva and the full effect of CRD IV; for example the treatment of seed capital. There's a slide in the appendix which shows how our capital surplus has been derived.

Given that we've reached our capital surplus a year earlier than expected, I'm able to announce today that we have stopped issuing shares to meet our share scheme obligations and that we will repay our GBP150 million senior notes when they fall due in March 2016 from our cash resources.

During 2015, assuming that current market conditions persist and we've no further M&A, we expect to build a suitable level of capital with which the Board feels comfortable. Once this is complete, and we've repaid the debt, we'll be in a position to decide what to do with our future excess capital.

Irrespective, you should expect our progressive ordinary dividend policy to remain in place and for us to grow our ordinary dividends broadly in line with earnings over the medium term.

I hope I've given you some useful insight into important areas of our business; our fee and our operating margin progression, the way we view performance fees, our tax rate and a step change in our capital status.

All in all, it's a pleasure to report on another successful year for the Firm, with our best-ever results, a significantly-improved capital position and a promising outlook.

With that, I'll hand you back to Andrew.

Thank you, Roger. In the second part of my presentation I want to focus on strategy and also the outlook for the Group. I thought it might be helpful to do this by giving you a bit more insight into each of our investment management capabilities.

You can see here on the slide the assets under management in each of our five capabilities and we've split this into retail and institutional. You can see that our equities businesses are predominantly retail, whereas our fixed-income, multi-asset and alternatives businesses have a larger institutional client base.

When you consider our European business, covering equity, fixed income and alternatives, we're in a very strong position when investors favor Europe, as they do now.

However, it's interesting to also note that European equities, for example, is only our fourth largest capability in terms of assets under management. When the inevitable rotation comes out of European equities, the investments that we've made in our other capabilities mean that we're increasingly well placed. Let me expand on this in the following slides.

In European equities, the key is that we have a strong, experienced team of managers delivering excellent performance. It goes without saying that we are exceptionally well positioned to attract flows, as further monetary loosening in Europe drives appetite for European equities worldwide.

However, there really is much more to Henderson than just European equities. If we move on to global equities, we have a number of strong, well-established specialist franchises; notably our global equity income business, which at GBP7.6 billion is one-half as big as European equities and has generated strong performance and flows for the Group.

We have work underway to develop other high-capacity global strategies to meet client demand.

In terms of adding new teams and talents, our most recent hire is Glen Finegan to head up emerging market equities. It's worth noting that he isn't actually starting from scratch, however. Our UK-registered Henderson China Opportunities Fund had the highest net inflows of any fund in its sector last year.

Client demand for income, the addition of the investment talent and the acquisition of Geneva Capital mean that our global equities capability is building nicely.

Turning now to fixed income, this has been historically a regionally focused business, but one which we are now globalizing.

The largest segment of our fixed-income business is corporate credit and here we're seeing very strong demand for European investment grade and also increasing interest in our high-yield strategies.

We are delighted with the performance of our global high-yield bond fund, which has delivered first decile performance in its first calendar year. We were able to launch this global fund following the expansion of our credit team in the US in 2013.

Our UK retail (inaudible) strategies had another good year and they are well positioned for the growing demand for income arising from the UK pension reforms.

Looking forward, we now have global and EM credit capabilities in place to expand our product range and also to grow our client base outside the UK and Europe.

We're also looking to capture client demand for total return and multi-asset credit strategies. In 2014 we launched an Australian trust to stand alongside the European and US versions of our total return bond capability.

Our multi-asset business operates in an area of significant investor demand and is adopting a dual-track approach to serve both the retail and institutional markets.

For institutional investors who spent 2014 talking about diversified growth, this fund seeks to offer equity-like returns but with lower volatility. And we also introduced to the market our diversified alternatives range, which includes higher exposure to alternative asset classes.

Whilst we now are better known by consultants, we still have some way to go to capture the important [buyer] ratings.

In retail we continue to demonstrate our traditional multi-asset range, noting the ongoing interest in funds that provide a combination of income and growth.

It is early days for some of our newer offerings, such as the Henderson Core Solution range in the UK, and also the Henderson All Asset Fund in the US, but we expect interest in these propositions to pick up once they reach their three-year track record.

In looking now at alternatives, it is worth noting that our alternative business generated nearly one-half of our inflows in 2014. It's a key differentiator for Henderson that we have well-established alternative credentials, which sit well alongside our more traditional long-only expertise.

Having spent several years building our reputational alternatives, we're in a strong position to capture assets in 2014 as investors look to diversify.

With the John Laing IPO now complete and our property interest restructured, I see our future in alternatives being at the liquid end of the spectrum. Our performance in liquid alternatives is excellent, with 100% of funds meeting or exceeding the benchmark over three years.

We continued to add to our AlphaGen range in 2014 and we also launched our first (inaudible) alternative fund onshore in the US in December.

One of the little-known success stories this year was the fact that our commodities and agricultural business doubled in size, albeit it off a small base.

Henderson applied the agricultural team in 2011 and also bought commodity specialists H3 Global Advisors in 2013. They now have combined assets under management of over $1 billion, with strong investment performance and the breadth of Henderson's distribution reach driving organic growth for those strategies.

I'll finish with a few words on what we've seen so far this year in terms of flows.

On the retail side, the standout product range so far has been our SICAV range, with the ECB's quantitative easing driving inflows. UK flows, whilst positive, are slower because of the changes I talked about earlier. But US mutuals are back at similar levels to what we saw in the first half of 2014. As at Friday last week, our retail flows are running ahead of the average levels we saw throughout 2014.

There's good news as well on the institutional side, where the $1.7 billion mandate win I mentioned earlier started to fund in February. Although this should be seen as a one-off win, offsetting some of the headwinds that we've always spoken to you about that we have in our institutional business.

Broadening out to think about this year as a whole, this year is all about delivery. We're as focused as ever on delivering strong investment performance for our clients, which should allow us to keep generating above industry and net new money growth. And add to this our commitment to deliver operating leverage and you have a fairly complete picture of the focus we here at Henderson have for this year.

So, to summarize, last year we set out an ambitious plan for growth and globalization, the outcome of which, markets permitting, would see us double our assets under management by the end of 2018.

We have made a strong start in 2014 with net new money growth and the contribution from markets and M&A putting us ahead of the target. In order to achieve that 2018 goal, we'll need to keep generating above industry net new money growth and strong investment performance.

We've passed the peak of our investment cycle, so you should see operating margins starting to improve this year and beyond. Couple this growth profile with the improvement in our capital position, and we have an interesting story developing over the next couple of years.

With that, Roger and I are happy to take any questions. As I mentioned, I think we'll start with the floor here in London and then hand to the operator.

Anil Sharma, Morgan Stanley. Just a couple of questions, please. Firstly on flows, given the fall off in performance in the UK property, I just wanted your opinion. Is there any capacity constraints there and what's your view on the flow outlook, given it was so strong in 2014?

Secondly, on the capital position, how should we think about a buffer over and above the kind of regulatory minimum before you can potentially distribute excess?

And then (technical difficulty). Most people are expecting you to get to 40% operating margin within the next three years. So I just wondered do you think consensus is overly optimistic based on what you were saying about the five-year plan?

I'll leave the last two questions for Roger to pick up. In terms of the property flows and capacity constraints, in some ways actually larger property funds are easier because you get greater diversification, you can buy bigger lot sizes in terms of property and you can manage inflows and outflows better.

So there is actually a -- what we can define is the larger the fund gets, the more comfortable clients are being an investor in that because they're a smaller proportion of the overall fund. You go into model portfolios; you're able to manage that better.

So whilst GBP2 billion sounds like a large fund, we see the capacity being able to get to GBP5 billion or GBP6 billion in that fund certainly possible. And so actually there are converses and positives for that so I wouldn't be too worried about capacity in property.

And we continue to see strong interest in that and it's a great relationship between us and obviously the subsidiary of THRE on how we manage and work with that.

Roger, do you want to pick up on capital and --?

The amount of excess capital you hold, I think, depends -- it should vary. I don't think it should be one number. It's going to vary in line with market conditions and the capital needs that we have. So it will vary over time.

But, importantly, we're making changes now. You've seen the dividend increase. We're committed to a progressive dividend. We've made a change, which we've announced today, in terms of stopping share issuance and buying-for-share schemes and the commitment in the first half of 2016 in order to pay down the debts.

It's really --that cash and capital position is something that will continue to evolve during 2015 and the first half of 2016, so I think you'll hear more from us over that time period. But I think it's a variable number over time, like I say, depending on market conditions and the needs of capital.

And, sorry, in terms of margin, as I say we'd laid out that over the five years, so there's four years to go, I guess, that we'd expect operating margins to get to 40%. So consensus is saying we're going to do it in three years; just a little bit ahead of what we've said. But we've also told you that we would expect to see some of that starting to come through this year.

Okay. And on the capital then, so you don't think a 10%, 20% -- there's no percentage buffer you think is the right number? (multiple speakers) I get your point that the capital number itself will fluctuate, but in terms of what should we think about as a reasonable (multiple speakers) --?

We haven't set that number, as I say, but it will fluctuate over time.

Thanks.

Hubert Lam, Bank of America Merrill Lynch. A couple of questions, firstly on revenue margins. So the starting point is lower at 55 basis points. I'm just wondering how you think that will grow during the year again and the stronger growth in retail plus the equity -- I assume that equity margins are higher and I guess that's where flows are going into, so seeing how that develops this year.

Secondly, on institutional, growth was relatively modest in 2014. So I'm wondering what you think of 2015, given the headwinds that you've talked about in its performance, as well as the legacy outflows, outside of that large institutional mandate? Thanks.

On the revenue margin, I think it's probably worth emphasizing that a lot of people look at the mix effect, and you're mentioning growth we're seeing in retail, and obviously that is a positive contributor.

But the biggest driver of the revenue margin mix is actually your existing book of business. And, as you know, we're significantly biased towards equities. So if equities outperform fixed income, which they didn't last year, then that will obviously benefit us, because our equity margin is much higher than our fixed income margin.

So I think to sit there and say will the 55 basis points have a positive or a negative influence, it's probably got a positive influence if you think equities will outperform fixed income. That's generally where we're positioned in terms of portfolios and what we expect. It's what we expected last year and it didn't materialize. We expected it to happen this year but who can tell, but that will drive that.

And you're right, there's another helpful kicker being that retail is likely to be the strongest driver of inflows for the Group this year and that is a higher margin than our average and, therefore, you can see those benefits.

So, yes, there are some positive trends there that probably offsets the inevitable sort of margin pressure that you just face in any business, though I wouldn't say it's acute. I'd say we don't see it as any higher than any normal year, so I'm not ringing alarm bells on that.

In terms of the institutional side of our business, we always said that the institutional side growth would kick in over the life of the five-year plan and be more back-end loaded. 2105, if we had expectation of what would have come through would have been, global equities will be hitting its three-year track record.

Its first year was a very strong year. Its second year gave back pretty much those gains. So it's broadly flat on a since-inception basis. It's just delays in all the uptick, I would say, in global equities.

The other developments in what we're seeing, whether it's for fixed income, whether it's for multi-asset developments, whether it's the emerging market equities and that, they're all on track. But they just still remain more towards the backend of 2018 plan.

And remember as well, because one of our clients has a natural one-off anyway, we have some CDOs and the likes that won't be renewed. So the implication of those is clearly that there are outflows coming from that part of the business.

And finally, the IPO of John Laing means that our private equity business, which the infrastructure funds represent around $800 million, they will drop off. We actually don't earn fees on them going forward from now because the IPO's happened, but you probably won't see that until some point in the second half when it comes out of AuM. But that is factored into that 55 basis points. So it will have an impact in terms of flow in that quarter but it won't have an impact in terms of margins or revenues.

So the net effect of that is institutional we still feel is developing well and we're happy with where it is, but it's definitely behind the position we find ourselves in retail.

Peter Lenardos, RBC. Just two questions, please. First on -- another question was asked on the regulatory capital buffer, but what is the requirement, if you want to disclose that, and which direction is it moving?

And the second would be any updated thoughts on the unbundling proposals? Thanks.

You can see it's laid out in the appendix, Peter. I think on slide 38 you can see how our capital is calculated. This is based on our Pillar 2 calculations of June 30 last year.

Obviously, with our audited resulted for this year, for 2015, getting audited and an ICAP process in 2016, then the FCA will update those numbers. But you can see on slide 38 that our capital requirement that we're estimating now, and have talked through with the FCA, is GBP164 million.

How has that been moving over time? Has the acquisitions caused that to increase?

We go through a very thorough ICAP process. That increases and decreases over time, so the increase in seed capital that we have has increased that number.

The disposal of the non-liquid end and the seed capital and co-invest we have in property and private equity coming off in 2015 will actually decrease that because they're higher capital positions.

And, obviously, the growth in the business will increase that number over time, but there's no step change that you should be concerned about, I think, would be how to summarize it, Peter.

And to your question on research commissions payable through -- or research payments being payable through dealing commissions, which is part of the MiFID II text, we did have, actually, a helpful update, which seemed to back away from a full unbundling and hard costs at the back end of last year. That said, the proposals appear unworkable, so the devil's in the detail, as always with these.

It's very unclear where it still will lie because the proposal they put forward requires client consent in every instance in terms of how you would adopt this approach, and it looks a very difficult approach. And the current regime with CFAs would seem to be the right mechanism to deliver what they're after seems to be challenged in some of the rulings.

So there are a lot of clarifications still being sought. And it's interesting that if you talk to different regulators across Europe you get different answers. So the FCA, which was one of the advocates for driving this change, still feels it's unworkable and therefore you have to go hard.

If you talk to Europeans, such as the French or the German regulators, their view is: Oh, no, no this was deliberately put in to make it workable. We understand that it doesn't work so we need to understand how we can change it.

So until we get clarity, it still remains a bit up in the air, but they definitely backed away from the extreme position we saw in summer last year.

That said, the UK regulator, the FCA, is still very fixated on going down this path. They do seem at odds with the rest of the European regulators, but time will tell in terms of when the final text comes through.

So there's a lot of discussion by trade associations of the industry trying to just get to a workable solution.

You should also be aware that the dealing commission is only one part of MiFID II, and MiFID II is a 1,160 page document, which I don't recommend any of you read.

But there are significant reforms in there around disclosure, transparency, the operations of how you trade, which, by and large, won't change significantly what we do, but they do have a significant cost in terms of system development, in terms of compliance costs and the like, and Roger mentioned the higher non-staff costs that we'll see in 2015.

A lot of that's driven by these regulatory changes, which are just additional burdens on us as a business.

Interestingly, when we look to 2015, because of the level of investment we've made in the front office and distribution, we felt that we didn't need to make significant in 2015.

All the costs that we're generally doing that are approved are all around dealing with regulatory changes, which we don't think provide a great deal of different protection to clients but do put a huge onus on us in terms of cost. I hope that answers -- (multiple speakers)

Thank you.

Paul McGinnis, Shore Capital. I think, Andrew, you mentioned fee deflation wasn't any more severe than it has been in recent years. Could you just run through -- within the particular markets, is it any particular markets where you're feeling it more than others?

And then with a specific reference to UK retail market, where obviously the platforms are competing for business at the moment and putting pressure on fund managers to offer super clean units, etc., whether there's anything in particular going on in that market?

I wouldn't really say there's much change. In terms of the UK a lot of the pricing pressure came around the introduction of RDR, where people position their platforms, because now it's about charging your clients and less about that incident.

So there's a number that -- we talked about getting on some of the model portfolios and some of those areas you'll have discussions around the pricing of your products, because you clearly get greater scale with that.

The biggest impact for us in the UK has been less about pricing pressure in new business but more the mix effect, because we, like many in the industry, have a lot of business written decades ago at 150 basis points, which is rolling off, you're not writing that, and your new business is being written at closer to 70 basis points.

So it's more the inflows are generally a bit lower than what the outflows are as a Group. So that's driving your margin effect far more than pricing changes in the retail marketplace.

In Europe we don't see pricing pressure. I expect that in time you will because it will adopt similar -- I expect that they'll end up in a RDR-type world on a phased three- to five-year view, and you'll have, therefore, similar pricing challenges or changes that you saw in the UK. But that's not on the horizon for the next year or so, as far as I can see.

And in the US, as we get scale the mutual fund boards do tend to bring down your prices. We saw some of that last year, given the strong growth we saw. I don't anticipate -- it's still very good margins, high 70%s, that we're getting in that book of business. You may see a basis point or so pressure there.

Institutional is probably where you see the most acute margin pressure. And the problem for us to give you any good guidance of it is our mixed institutional business is so broad, it's not [rated] as one channel or one type of product that's there.

But it is fair to say fixed income pricing's under pressure just generally given by low yields and low returns. So it's how much are fees a percent of that? That's probably impacting the institutional side of the market.

But, as I said, I don't think there's anything acutely different to what we've seen in any other year. It doesn't look like it's accelerating or picking up. And for the UK in particular, as you mentioned, it's more probably the back book rolling off as a bigger driver of your fee margin than pressure from platforms or clients.

Thank you. Sorry, could I just have a quick follow up on performance fees? Again, is there any particular resistance in the market on any particular product categories? Obviously, you've had quite a good year for the second year in a row on those.

It's particular channels. The UK retail and US retail side of our business don't have performance fees, except on our absolute return funds. They're difficult to get on the platforms.

And also, one of the things we've seen, because of RDR, investment trusts, which typically had a performance fee, have often been seeking to renegotiate to take off the performance fees so they're more in line with their unit trust component. So those channels probably have lower performance fees.

On the institutional side of our business, it's a mix. Some of the new strategies we're developing more likely than not have performance fees on them. But then we still see a number of clients who pay performance fees. Our European business typically has performance fees.

So it's really a mix effect more than clients changing their attitude towards them. Some clients like them; some clients don't. Our view is they do align yourself, but if structured correctly, they align yourself better with the clients.

Gurjit Kambo, JPMorgan. Just in terms of the SICAV growth in sub-advised mandates, is there any difference in the margin there? And is that potentially offset by lower costs in sub-advised mandates?

Firstly, maybe let's talk about why is it driving it? Because of MiFID II the challenges for some of the banks will be around transparency and the rebates they've got. So they're looking to go for multi-manager solution, which would see a rebate to a -- a bit like a St. James's Place-type structure. So you're right. For that we will probably see a lower margin in terms of the sub-advised.

But what are the other challenges we've had in Europe? You'll get two effects. You will have lower costs associated with it, but the second effect will also be you should increase your persistency on that book of business. So Europe [perennially] is running about one-half the persistency in the UK and that's because they just generally trade and churn a lot more.

If you move from sub-advised mandate, you're likely to have a much, much longer, more institutional-type relationship. So I think the offset of the persistency, and some lower costs, would be more than offset, I think, than the lower margin in that regard.

And just one quick follow up. In terms of the flows in 2015, you mentioned quite a lot of SICAV and US mutuals. What about by asset class? Was there a particular fund that you've seen flows into?

European equities would probably be the biggest driver, also US mutuals. Up until the day of the ECB quantitative easing, we were seeing outflows in our European equity products; less than the industry but we were seeing it.

And pretty much the day that came, US buyers came back into Europe. We got very strong performance in our international, which is an [ET] product, which, again, has a significant European component. So we've seen significant growth there.

And in terms of Europe itself, they're really buying all the European assets. They're buying equities, they're buying equity long/short and they're buying fixed income or corporate bonds. So, actually, I wouldn't just say it's focused just on equities; it is focused on the region.

Thank you.

Marcus Barnard, KBW. Just on your strategy to double your assets under management by 2018, can I just ask how much you're prepared to flex those ranges? And I'm particularly interested in acquisitions, whether you'd look to do more than 2% to 4% if the right opportunities arise.

I think that's more an indicative roadmap for the focus of the Group. So when we set it out a year ago, it was about emphasizing that we felt organic growth was the main driver of the growth of the Group and that we felt we were positioned, through performance and investments in product and capabilities, to be able to grow better than the industry. That was the prime focus.

If you coupled that with market returns, which you'll have your own estimates on, and we were trying to articulate that you should consider us to continue to do acquisitions, but they're opportunistic and more bolt-on rather than more transformational deals that a New Star or Gartmore had, that was the main emphasis. So, of course, you're right.

But we don't have a target to do 2% to 4% over that period. We wouldn't be surprised if it was of that magnitude. It could be less; it could be more. It will be based on opportunities we see and at the right price and what we feel could really grow our business.

So yes, it is purely opportunistic. It's not at all a target to do M&A. And if we haven't done anything this year, will we be upset? Absolutely not.

If there are no other questions in London, we might to the operator to get those on the line.

Ross Curran, Commonwealth Bank.

Sorry, I know it's small, but just if you could talk through the development of your business in Australia. You've got two equity funds here in Australia, but I note that one of them is 20% underwater and the other one is underperforming the benchmark by 10%.

So I imagine it's a fairly tough job trying to sell those funds at the moment. So maybe you can talk us through the plans for growing the business in Australia, how much have you got invested so far and what you think success looks like there?

Ross, in terms of the equity funds, you're right. One fund is behind benchmark, and that's the global equity fund which we launched -- as we said, had a tough 2014, and that was launched pretty much at the wrong point, in terms of returns, because it had a very strong 2013. So that was the one I mentioned earlier.

The other fund, whilst is down in terms of an absolute return, is actually significantly ahead of its benchmark because it's a natural resources fund. And, actually, we see -- that's our sub-advised, The 90 West, where we own a 42% stake. And interestingly, we see increasing interest in that capability and that manager, so we've actually got quite strong hopes in that.

In terms of the strategy down in Australia, it's continuing to add global capabilities. Interestingly, one of the things that we'll hopefully launch shortly is a global equity income fund. When we first tested the market 12, 18 months ago, people weren't interested in buying the income story. What you get from global equities getting 4%, 4.5% income wasn't seen as attractive enough in the Australian market, given what term deposits were.

Roll forward 18 months, term deposits are rolling off at 4.5% to 6%, coming in at much lower. Or if you want to do a new [VIM], the RBA has cut interest rates down there and look set to cut further. And also the fall in the Aussie dollar means a yield of 4.5%, something more attractive, and also global diversification is attractive.

So we still see a growing interest in the Australian market for global equity income, which, as I mentioned earlier, is one of the real strengths of the Group and I think something we've been selling extensively across the globe. So that could be an interesting opportunity for us in Australia.

Great. And just one other, just a quick question. I know markets have been pretty strong since the balance date. Can you give us a spot funds under management at the moment?

No. (laughter) The answer's no, we won't. You can do your own (inaudible) and we'll update it obviously at the first quarter IMS.

Sure thing.

Arnaud Giblat, UBS.

I just had a couple of quick follow ups on MiFID II. I was wondering first on the comments you made around MiFID II incentivizing a move to multi manager to sub-advised. I understood all the comments you made around revenues and costs, but could you maybe go through a bit more in detail the dynamics that would drive that transfer?

And secondly, on unbundling, the -- first of all, it seems as though at this point it's unclear whether it's a directive or regulation, and I was wondering if you had a view there.

More specifically, I'm wondering if the FCA will be able to gold plate it and, secondly, under the current proposals whereby you're still able to charge the end clients, as long as they agree, if it comes through in that way, although it might difficult to implement on current funds.

Is it not envisagable to, for example, on the retail side, to just put it in your new fund -- prospective fund factsheet that research budget is X and, therefore, you should expect these charges to be charged within the expense ratio and for that to work.

I'll let Roger dig up the cost side of the sub-advised changes. I'll pick up the unbundling discussion after.

As Andrew said, the multi manager is a full-fee rebated model, and the sub-advisory is a clean-fee institutional product. So it's like we're running more institutional mandates and, as Andrew said, with the cost profile of supporting a single institutional business, as opposed to a retail fund.

So there is a real difference there. And, as you said, there is also a longevity component in terms of the value of a piece of business like that.

So, from our point of view, it's how that is serviced is the real change. Plus, obviously, as you get to scale, there can be a revenue component to that in terms of the price we would do a large sub-advised mandate at.

The other thing I'd add to that point as well is that at the time -- what we've got is such strong brand and investment performance at the time these changes are being discussed.

So it means we're having a seat at the table at those debates and discussions, which if you -- it goes back to that point about persistency. Getting to those tables and getting into those models can actually be the biggest driver of your growth, going forward.

So I wouldn't get too upset about what the margin is. And we're not even at the conversations where we know what those margins are anyway.

But the fact is Henderson's' brand and performance is recognized; that we're having those conversations that three years ago we would have been unlikely that we would have been in that position. So I think that's probably the real positive to take away.

In terms of unbundling, you asked two further questions to what we discussed earlier. The first was would the FCA in the UK gold plate? For those in Australia, that means take a more aggressive line and do different to what the rest of Europe, which they're entitled to do.

All indication from the FCA is that they will only do what Europe does. So they're lobbying hard to get Europe as a whole to get to the position but that they will accept the position that Europe gets to. And there's been no change in the conversations from them that they will gold plate.

Though I think they will hold everyone to account fairly high standards of what their expectation is from whenever the rules come out.

So I'd put a very low probability that they would gold plate, and I'm in direct contact with the FCA on this point; have been, and will continue to be, up until the final legislation comes through because it's so important that they do not misstep outside of the rest of Europe, which is already being stepping outside of the rest of the world. So we're pushing that quite hard.

And in terms of how you get client consents in the retail environment, would it just be as easy as changing your prospectus? At the moment the devil's in the detail.

It would be impractical to expect to go to every single client to get approval, as much because we don't even know a lot of those clients, because we go through platforms.

And so you're right, the easier way might be to change prospectus and the documentation associated with a fund, and then get approval from the ACD or from the trustees representing those interests of those investors to approve that.

So similar to, say, like a US mutual fund, where you've got a mutual fund board, you can just get them to make the approvals on behalf of the shareholders or the clients. And that's probably the right outcome. But until we get the detail, it's hard to asses.

So I do expect we'll get to a workable solution but, like everything in Europe, it's going to be last minute.

That's great. Thank you very much.

Ryan Fisher, Goldman Sachs.

Andrew, I've got a few questions. I might just start off with the run rate of 55 basis points management fee margin. I was just wondering if you could clarify a few things there.

In particular, with John Laing it sounds like the fees are already gone, but the AuM stays in there. And that the fixed income mandate at very low fee hasn't yet funded.

Could you just clarify how those are treated in the 55 basis points in numerator and denominator?

Yes, they're both included. The thing about the IPO, the reason the AuM hasn't left is a lot of the proceeds for the investors are held through John Laing shares, because when the IPO happened it didn't raise 100%. They raised only 35%. So investors will, in those funds, still have an interest in John Laing and that is locked up for six months.

So that's why, even though we no longer are charging fees, because we're not doing any work as part of that, from an AuM point of view it is actually locked up until that's realized in six months' time.

And on the large fixed income mandate we mentioned, it has pretty much funded now, by today, and the run rate of 55 basis points is trying to give you the fact that it's distinctly different to where we were at the end of last year. That's why we've highlighted it.

So that 55 basis points incorporates those changes, as of today. Even if not all of the mandate is fully funded, for example, it's factored in to give you that. So it's more for clarification purposes, rather than actual.

Great. And just on that topic, Cirilium, I gather, is also already fully adjusted in there?

Cirilium left in December, so that was already factored into the GBP81 billion of AuM that we had. And Cirilium was actually lower margin than the Group margin, because it was a sub-advised mandate. So that was already factored into our run rate at the end of the year and factored into the 55 basis points.

Great. And two quick updates. Could you please just give us an update on what you're expecting with the Richard Pease departure in terms of management fee and also profit margin impact?

And also we've been seeing a bit of talk regarding risks to Sesame in broader terms than just the Henderson relationship and how you're seeing that?

The [fees and] Richard Pease, since he's announced his departure we'd updated, I think in the Q3 IMS, that we'd see some modest outflows. Richard's funds themselves have seen the most significant outflows but we've been able to offset a lot of that through growth in our existing European managers.

We're down tens of millions, less than GBP100 million, but getting closer towards that level in aggregate since the announcement.

And the impact is, the way the structure and the relationship is set up, that when Richard moves we continue to have an ongoing interest for 12 months from that point. So through to -- if he moved at the end of June, for example, this year through to the end of June 2016, so it will have no impact in 2015 and minimal impact in 2016.

And we're able to now move forward with the proposition we have with the rest of our European managers, which is doing well in the UK space.

In terms of the relationship with Sesame, you're right, there's been a lot of rumors around the ownership of Sesame as a Group, Sesame Bankhall. Obviously that's who we did -- our joint venture partner in our Optimum range. The Intrinsic range that you saw was a much, much larger business than Optimum, by the order of probably, I'd say, 10 times. So it's a far smaller issue, should the same thing happen.

I wouldn't anticipate or factor anything in, because it depends -- if those rumors are true and they do actually dispose of it, it also depends on who's buying it. The problem with Intrinsic was it was bought by a competitor, as well as also one of our largest clients, and they had a lot of the capability that we were offering.

If it's sold at all is one thing, and if it's sold to a competitor or to another owner, who doesn't have the investment management capabilities, it would have no impact and actually could be real beneficial for us in this regard.

So at the moment it is only rumors and we just have to manage the business as best we can. But in terms of scale it's, as I said, about one-tenth of the size of the Intrinsic relationship.

Right, thank you. And final question. Roger mentioned the likelihood of a 12%, another 12% increase in non-staff costs. I was just wondering to what extent does that tie in, Andrew, with your comments about MiFID-related regulatory spending? Is that separate or intended to cover up some of that?

That's a large part of it, as we said. There are -- and we've talked about a number of the things that are included in that. There is our global infrastructure coming on line, which we've talked about over the last couple of years. The cost of running and depreciation, the cost we've put on there for a true global infrastructure.

But a big part of that increase is the cost of implementing systems for regulatory. So that's very much included in that number. That number increased in 2014 and, as we've indicated here, there is a further increase in 2015. But it very much included the regulatory piece.

Great. Thanks,, Roger (multiple speakers) --

Sorry, also included in there, though, is the expectation of improved investor sentiment. So we did cut back on expenses in the fourth quarter of last year as investor sentiment came down.

With the strong flows we've talked about and the strong positioning of our equity business, our European business, then we're obviously looking to maximize the opportunity we've got now. So, again, some costs coming through there.

Great. Thank you, guys. That's all from me.

Nigel Pittaway, Citi.

A few quick questions, if I could. First of all, just wanted to be clear what you're saying on the tax rate. Obviously 13.4% normalized, plus 2.5% to 15.9%. What's the chances of one-off impacts in FY15? Or do you want us to put 15.9% in?

I think we definitely say don't put 15.9% in. We're saying it could be as much as that. The run rate -- as we leave this year, 13.4% is the normalized rate. So that's where your starting point is.

There are a number of discussions at government level across the globe around harmonizing tax rates and policies. The impact of those at the extreme level could be up to 2.5% to that rate. They may not come in at all, in effect, in 2015, in which case you're staying at 13.4%, or they may come in partially, which will be somewhere in between.

So, in terms of that, that's why we're trying -- we're trying to give you an upper range, rather than tell you that's where it should be. And, at the moment, we don't know. But, if anything, there's upward pressure for the tax rate, given what's happening at a political level across the globe.

In terms of if there is a one-off, I'll let Roger talk about that.

I think 13.4% is your starting point. As Andrew said, there's upward pressure on that, so you would normally expect it to be a little higher and, as you said, 15.9% is what we would think would be an upper limit.

In terms of one-offs, then I think the opportunity for one-offs, there is still opportunities for one-offs to benefit the rate. So they would be things which would bring it down. We can't see one-offs taking it the other way.

So we will update; there are a lot of moving parts here. So, as I said, 13.4% is the base, moving up over time, which we've talked about in the past. It's also in part due to us doing more business in higher tax jurisdictions, the US and Australia, but global tax rates changing. 15.9% being an upper limit probably for this year, but with some potential for some one-offs to reduce, even if it was to go up that high.

Okay, thanks for that. Just secondly, sorry if I missed this, but obviously you guided to 12% growth in non-staff operating expenses. Did you give any guidance on fixed staff expenses?

The guidance on those is they will be up 10% year on year and that's really split into three different pieces. The full-year effect of the Geneva transaction, bringing those people on board for the full year is about 3% of that; about 3% is what we're assuming will be a wage increase cost; and around 3% from the full-year impact of investments last year, and some limited more investments this year.

So it's a 10% number. The last piece, the investments we're making this year, is probably the smallest piece of that.

All right, okay. Thanks for that. And then just on the property joint venture. Obviously that had a, I think, a bit of a slower start than anticipated. Are you expecting that now to go at full run rate as we head into 2015?

On the TH Real Estate joint venture, 2014 was a transition year for them. There was a significant set-up cost and limited amount of the investment profile we get. So we would expect to see that pick up. And actually in the fourth quarter it did see an improvement in their flows and we anticipate that that will continue into 2015, as the full scale of TIAA comes to benefit that business.

The other thing, however, I would say that happened in 2014 was we talked about in the past, 18 months ago, fund renewals and the risks to some of those fund renewals. Interestingly for that business, the fund renewals probably went better than we anticipated but probably at much lower margins, partly because of their -- either the reduced role that they would play in those funds going forward, or just the pressure of clients in terms of building down the margins.

So the net effect of that meant the fund renewal program probably came through net-net similar where we'd anticipated. And I think that's probably a better outcome than if we hadn't done the deal, because TIAA's capital and presence there probably helped support those.

But that business, as we've said at the time when we looked to move it into a joint venture, had a number of structural challenges and those continue to be.

There's this huge pressure where existing clients are becoming competitors. You're seeing the large sovereign wealth funds and you're seeing the large pension funds doing a lot of the direct property themselves and that's the issue for them. But they are growing well and the capital supported by TIAA has been a strong support for that business, which we just could not have done.

So you're right. 2014 was probably they're there in terms of investments. You will see an improvement in that business in 2015 but it's still considerably lower than where it was back in, say 2012, when we were looking to the changes we made.

Okay. And maybe just a very last question. Obviously just trying to tie in the performance fee second half, which does seem to have come from offshore absolute return funds, or at least that's the sort of area that's probably most surprised, and yet you look at your flows in those areas and they're not -- they're fairly small.

So should we view that as the strong performance fee performance as a bit of a precursor to flows in that space? Or is that making too much of a connection between the two?

I'll take that, Nigel. That's much more timing of when performance fees are due. So on those ranges a lot of them do have their once-a-year performance fees and there were some significant ones in the fourth quarter in those ranges.

So the asset levels, and we've talked about before offshore absolute return, returns to positive flows from the middle of the year, it was relatively flat in the fourth quarter as well. So the asset levels aren't really changing. It's a timing issue of when those performance fees are calculated and payable.

Okay. Thanks very much.

Mark Hancock, Precept Investment Actuaries.

Just a question in terms of the bonuses and the profit sharing. Roger mentioned that they reflected the improved revenue in [foreign] profit. Your balance formula also depends on the share price. We've seeing that escalate rapidly since balance day. Just wondered has the current share price been reflected at all in the bonus comp? Or will that happen in the next half?

You're right, the share price was relatively flat last year and has accelerated quite significantly in the first part of this year. Obviously that's going to be a 2015 event. It's really the biggest element of that is National Insurance on bonus payments, so there is an element, but obviously it's -- we purchase and have been issuing into those schemes so it's a partial event as opposed to a full change.

But as share price increases then, yes, there is a cost which will go through the P&L.

So other things being equal, you'll have a drag on the first-half profit from the current share price -- if the share price is maintained, other things being equal?

All other things being equal, yes, you would have a small drag. And we've talked about other things we aren't expecting to be equal.

I was going to say, Mark, the offset is that (laughter) it's being driven by increased flows, so you can balance -- we don't pay away the full impact of the revenues we receive. So I think the net effect is shareholders should be pretty happy.

Right. Has there been a bit of up fronting with the performance fees in respect of the sales team for funds that were sold? Or -- I guess as the second half wasn't so strong that wasn't such a big factor in the second half?

Yes. I think the compensation ratio came in probably a touch under 45% where we said it might come in at. And that's a factor of the slowing flows in the fourth quarter and, as you just mentioned, from the share price having been weak in that fourth quarter and that's factored into our 2014 numbers.

For 2015 we'll have to factor in sales, performance fees and the share price as part of our budget but we're comfortable that the way that the bonus pool works that we can achieve what we need to pay and factor that in and still see the compensation ratio come down from where it was last year.

Just another question, in terms of Geneva. I assume it contributed a quarter of revenue. Would that have been about $4 million roughly? (multiple speakers)

Yes, that would be about right.

A $4 million contribution to revenue?

Slightly higher than that in dollar terms.

You can't give us a figure on profit-before-tax contribution? Or (multiple speakers) --

No. I wouldn't --

I think we do have a [60%] operating margin.

So around $2 million EBIT contribution. (multiple speakers).

Probably closer to that (multiple speakers) in pounds. Mark, it was probably closer to that in pounds rather than dollars.

Okay. And will that -- so we get three quarters benefit that next year obviously.

Yes that's right.

Yes. But then we'll have a -- and we won't have any more EPS dilution as a result of it, because you're likely to have paid for it in cash.

Yes. We have got some deferrals associated with it, if you recall, but, yes, we paid with cash.

And in terms of Geneva Alpha, Roger hinted that the performance had picked up a little bit. Can you be a bit more specific about the Alpha to date?

I don't like to talk on quarterly numbers. They have picked up a couple of percent in both (inaudible) strategies, the small and mid-cap, but I don't like us to be criticized on quarterly numbers on the negative side. I'm not going to be [glowing] about quarterly numbers as well on the positive side. But it has moved the right way.

So you feel like we're at risk of losing a bit more fund before you stabilize it?

There's always a possibility. I think about one large client that we lost, they took around one-half of their money and they've kept one-half there. And I'd say that the risk could be that they choose the other one-half to go, but that would probably be a second-half effect if that was to happen. Although they could be happy with seeing the team bedded down and that there's no change.

We were very surprised to have a client consent and then pretty much take the mandate away based on the change in ownership, and that really was their driver. But, as I said, they've retained one-half their holding. You'd have to sit there and say that that's higher risk than you would have thought it was three months ago, but they have said they'll keep it there for now and through to the second half and we'll reevaluate a year on from the deal. Otherwise (multiple speakers) --

One last question. Was there any contribution from currency movements net-net?

Very small. The one item I said about in other operating expenses was a GBP3 million FX gain in the fourth quarter, or in the second half, which obviously will be a one-off item. So you should normalize for that.

Yes, I think it's about GBP3 million or GBP4 million currency impact.

You mean adverse?

No, positive.

Positive in 2014.

How did that come about?

That's a reevaluation effect of balance sheet items.

But not in the profit and loss account? It went through the P&L.

Yes, that's through the P&L.

The GBP3 million to GBP4 million FX positive, which is in your GBP187 million?

Yes. That's right.

That's pretty material. And is it all in the second half, or mainly in the second half?

That was all in the second half, yes.

Okay, thanks for that. I'm surprised you haven't called that out.

I did mention that as we went through that. That was in the presentation.

Okay, sorry I missed that, apologies. Thanks for your time.

Scott Olsson, UBS.

I just had a follow up on Ryan and Nigel's questions on costs. Sorry to labor the point, but the message through last year was that double-digit growth was only really a 2014 feature and would reduce from there, and now obviously we have double-digit guidance for this year.

I appreciate there's some flow through there, but given MiFID II compliance will probably be a multi-year process and you might have some headroom from strong revenue growth, should we be thinking of an ongoing run rate of costs being in the high-single, low-double-digit range rather than tracking down to mid-single digits beyond 2015?

I think the guidance we've given you is really around our compensation ratio and our margin. Both of those are going to improve. We will add costs as we're adding revenues. Some of these are volume costs with third-party outsources. Some of them are costs associated with sales. And some of it, as you pointed out, is regulatory cost. So as the business grows, obviously the cost base will increase.

The important thing is that the margin will improve and will improve -- the margin came down last year and will continue to come down in 2014, and the margin is going to -- as I said, we guided up to 40% and some of that will start to come through this year.

But I would say, Scott, you're right. To factor in inflationary costs of, say, 3%, regulatory challenges will continue to be there so they're going to be a couple of percent to that and you're going to have investments to support the growth, because if we keep growing, even if we grow net new money at 6% to 8%, you need support for that as well, and we're obviously growing faster than that.

So the combination of all that, you should be expecting those costs to be high-single digits rather than mid- to low-single digits. But if obviously the growth isn't coming through, we'll still have some of those costs as inflation will remain in any business like ours. And, unless the regulatory environment changes, they're not going to drop away in a hurry. But some of those costs are associated with supporting what we see as very good top-line growth.

Okay, that's great. Thank you.

Okay, I think that might be all the questions that we have. Obviously if there are any follow-up questions, feel free to come back to Miriam in the IR team. I appreciate that some of you here in London have to rush off so thank you for your time this morning. And we'll see you all over the coming weeks on our road shows.

Ladies and gentlemen, that does conclude today's conference. Thank you for participating. You may disconnect.