Janus Henderson Group PLC (JHG) 2013 Q2 法說會逐字稿

We might make a start. So, welcome to Henderson's 2013 first-half results. Certainly morning to all those here in our London offices, and also afternoon to those joining by phone from Australia.

I'm joined today by our new Chief Financial Officer Roger Thompson.

We have a short presentation that we will go through and then very happy to throw over to questions you might have.

I'd like to give you, first, an overview of the key highlights and results, and then to update you on the strategic initiatives that we've been working on here at Henderson over the last six months. Roger will then cover the financial highlights of the results in much more detail.

Turning to the key highlights of the first half. In terms of looking at profit before tax, it was a record first half underlying profit before us of GBP101m. This is was up 22% on what we delivered the same period last year, and that was helped by the performance fees of GBP57.5m that we earned in the period.

In terms of the cost discipline of Henderson, we continue to maintain a strong cost discipline across the Group, and this is evidenced by the improved operating margin, which has increased to 38.8% for the period.

Looking at investment performance, our three-year investment performance has improved to 73% of our funds, meeting or exceeding the benchmarks. On a one year basis, it is also strong at 70%.

Obviously, sustained from the investment performance is a good lead indicator of flows, so particularly pleasing to see the investment performance coming through in the Group.

And looking at flows, one of key highlights was a return to positive net retail flows with approximately GBP600m of net positive flows in the first half, and this was helped by UK retail having positive flows for the second quarter of GBP150m.

Finally, looking at the assets under management, this has increased by 7% to just on GBP68b.

Before I drill into what we've been focusing on for the last six months, I thought it might be important for us to just look back over what the Group's done over the last five years.

If we turn to pre the crisis, what you saw with Henderson was very much primarily a European equity fixed income and property business that had one large client that represented around 40% of the assets under management. The business back then had much lower margins and much lower profit than what you see today.

During the crisis, we took advantage of the opportunities that presented themselves in the marketplace and diversified considerably the Group, especially getting a greater balance between retail and institutional.

We also focused on expanding our absolute return fund range. That was particularly through the acquisition of Gartmore, and this is an area we see will feature more prominently in client portfolios going forward.

The acquisitions of New Star and Gartmore also enabled us to improve margins and profitability at the Group, which we are also starting to see come through in the results today.

Looking at over the last 12 to 18 months, what we've been doing is bedding down those acquisitions. We've been also simplifying the business to better focus on the core product areas, and these include global and multi-asset products, two areas we see of increasing importance for the Group going forward.

We've also established strategic relationships. You've heard me talk in the past about the relationships we've set up last year with Sesame Bankhall and Intrinsic, as well as the recently announced TIAA tie-up.

Throughout all of this, we've maintained a very strong cost discipline, and this has enabled us to invest in the business to set us up future growth.

So for now look forward -- to going forward for the next six months and beyond, what you will see us do is invest in our overseas operations as we seek increase the scale in those long-established international businesses. We've been in Asia and America now for nearly two decades, and the platform we have there is very strong. And what you'll see is us continuing to allocate resources, both distribution and investment talent, as we seek to build those out.

We are also enhancing our existing range with a particular focus on income and absolute return products. This is a particular area of strength for us here at Henderson and also something we see as important, in terms of client portfolios as clients look on a look -- forward-looking basis.

So, together with a strong investment performance that we've been delivering on behalf of our clients, this will lead to sustained positive net flows across the business and also across the geographic regions that we invest in. This will ultimately lead to value for all of our stakeholders, whether it's our clients, whether it's our staff, or you our shareholders.

As we all know, and you've heard me say many times before, here, at Henderson, the stated mission is to be a trusted global asset manager focused on delivering excellent investment performance and service for our clients.

To achieve this, what we've been doing over the last 12 months is to focus on these four areas to make sure we've simplified and focused the business, to continue to focus on delivering the strong investment performance which will lead to improved flows, to also make sure that from a financial perspective, we deliver a very strong financial position for the Group, which enables us to invest in the business to position us for growth.

On all of these measures, significant progress has been made over the last six months. And these areas have resulted in improved top line performance, a strengthened capital position and this is leading to overall enhanced value for our shareholders.

If I drill down into each of these areas in a little bit more detail, so starting on how we've been simplifying and focused in the business.

You recall last year we talked around to streamline the business and we reshaped the way we structure the business. And this has enabled us to increase both the focus but also the speed of execution across the Group.

The recently announced TIAA-Henderson Global Real Estate joint venture also enabled us now to focus on our key capabilities, while still maintaining our exposure to real estate through that joint venture.

We have now realigned the business around our core franchises of global and European equities, around absolute return, multi-asset, and global fixed income.

Turning to investment performance, obviously investment performance is very important for us here at Henderson and we continue to deliver very strong investment performance for our clients. Looking at our fixed income funds, 81% of our fixed income funds are on a three-year basis, or exceeding their benchmark, and that's 73% for equities and for equities it rises to 81% on a one-year basis.

We've also produced positive retail flows for the first time since the first half of 2011. UK Retail in particular has delivered a solid second-quarter of net inflows. And actually, looking at Retail in general, in the -- for the seven months of the year up to the end of July, the gross sales we've achieved in retail have now exceeded what we achieved in all of 2012 with UK and US retail flows ahead of where they were in all of 2012, and Europe just slightly behind.

And on institutional, while it had a difficult period in the first half, I'm very encouraged by the institutional pipeline opportunities that we see as we look forward in this next half.

Looking at the financial performance of the Group, the strong financial performance that is coming through is evident by the results that we've put out today, and I'll leave Roger to talk a bit more on these in his section shortly.

And, finally, we continue to position the business for growth. For example, with TIAA and the tie-up in our Global Real Estate business, we're also exploring all other areas to work with them and strategic opportunities that we can do outside of property. Given their strong depth and understanding of the US market, an increasingly important market for us, they can be valuable partner as we seek to expand in that region.

Our other strategic partnership with Sesame Bankhall and Intrinsic that we spoke about last year are beginning to show really good signs of growth. And the recent acquisition of a 33% stake in 90 West is really establishing the foundation of our Australian business. That, again, we started just over a year ago.

We've also launched new products in the last half associated with the recent acquisitions we've done. Firstly, on Northern Pines, which was our -- we took a 50% stake in a US long short manager. And then more recently, the US credit team, where we hired a team that joined us in February. And in April, we launched a US high-yield fund. That fund, in the first four months of being up and running, is currently number one in its category, and is actually delivering a positive overall return where high-yield funds in the same period are actually negative. So, it's building a very strong base, which will form the foundations of future success for us.

And, finally, on a particularly pleasing note, we also announced today that we've agreed terms with Phoenix. And this extends and deepens our relationship between both of our organizations where the relationship has been very strong now in terms of how we work together, and, also, been -- based on a bedrock of very strong investment performance. We've delivered excellent performance for them across all their product range. And that -- the new terms really reflect that relationship

The new terms themselves are backdated to begin to apply from the beginning of this year. And so the impact of those terms are reflected in our first half revenues and also our closing run rate management fees.

The new IMA we signed with them extends the agreement to a minimum of nine months to the end of 2015, and that we'll actually move on to a rolling two-year notice period with them, which doesn't start until the January 1, 2014. And, presently, there are no on assets under management with them that are under notice of withdraw.

Turning to investment performance, this is obviously a key delivery in terms of what we do for clients and a focus here at Henderson. What I've tried to do here is show us the investment performance set around the five core investment capabilities that we've restructured the Group.

As you can see here, investment performance across all these capabilities is strong. But rather than look at them in this aggregate level, I thought it might even be better if we drill down into some of the core funds in each of these areas to give you an area of where the focus is for the business and what will ultimately drive future success here for the Group.

So, starting with our Global Equity franchise and starting at the top with global income, global equity income is one of the key strengths to the firm. And you can see here our UK onshore fund has performed very well this last year. And, you may recall, I spoke about how we were converting a UK equity income fund to a global franchise. That was literally just over 12 months ago. And you can see here, since having done that, the strong performance that is coming through in that.

In the US as well, our best-selling fund in our US range, with our global equity income fund over there.

Looking at the other fund, our Global Focus fund, this is our mainstream global equity fund. We're making really good progress in building out our global equity franchise and Matt Beesley joined us just said over 12 months ago to take over the focus fund following our -- the acquisition of Gartmore.

You can see the longer-term track record, the difficulty of the performance, which Gartmore have had in that fund. Since Matt has come on board, the fund is at 17 percentile in the last 12 months and more recently, it's even being in top decile in the last quarter.

Turning to European equity, a core strength for us as a business, you can see here the top quartile performance across the key -- some of our key fund ranges. European Select Opportunities fund there, the onshore fund, is 16 percentile over one year. And our flagship offshore Pan-European fund, the Horizon fund, the SICAV there, is [13] percentile over one year. And that fund was the largest contributor to performance fees in the period through the SICAV range.

Looking at absolute return funds, again, they've shown very strong performance over the last 12 to 18 months. Looking at some of our more important funds, Tucana, which is our European concentrated absolute return fund, is up 15% in the last 12 months, and Octanis, which is our UK absolute return fund, is up 14% over the same period.

Our UK small cap long short fund, Volantis, has generated 17% return for the last 12 months. And this fund was the largest contributor to performance fees coming through from the hedge fund range that you see in the results.

The strong performance there has also enabled us to launch a sister fund, Volantis Catalyst, which we launched earlier this year.

Turning to multi-asset, it's an increasingly important part of our business. And I'm very pleased that our flagship fund, the Multi-Manager Distribution is now 15 percentile year-to-date and showing a very strong recovery in investment performance there.

And finally, looking and Global Fixed Income business, our European corporate fund there, the SICAV fund, was a fund we launched in December 2009. And since launch, it is the second best fund within its category, and is also the best-selling fund in our SICAV range over that period.

Also, Credit Alpha, which you can see at the bottom has consistently strong performance over a long period, is one of the key drivers of the return to improved performance in our UK Retail business.

If I now turn to flows. Starting here with Institutional, in Institutional, we were impacted in the first quarter by two large mandates which I had previously discussed. In the second quarter, we also saw outflows of nearly GDP600m. These have, however, now being matched by inflows which we've won but hadn't funded until the period end and funded in July.

Notwithstanding this, it's been a difficult half for our Institutional business. But if we now look forward, the current pipeline and the RFPs that we're seeing, which show encouraging signs as we look forward for the second half.

If I now look to Retail, I'm encouraged by the improvement in net Retail flows, and you can see that demonstrated by the nearly GDP600m of net inflows that we had in the first half.

Our US range, in particular, has solidly built across this period showing good growth in each of the months. Our offshore SICAV range have experienced strong growth over the first half, though this was tempered in June where the wobbly markets that we saw did see clients look to reduce some of their exposure. I'm pleased to say that July has seen a return to positive growth in that channel as clients have got clearly more settled with what markets are doing.

And probably looking in a little bit more detail in UK Retail, our UK Retail range saw positive net inflows of GDB150m in the second quarter. And this was driven by flows into Credit Alpha, our European Special Situations equity fund and our UK Property Unit Trust. So quite broad base flows there. As well as we saw good flows coming in from our new joint ventures with Sesame Bankhall and Intrinsic.

Overall, I'd also say that the momentum we've seen in the second quarter in Retail has so far continued in July and early August.

So now, I'd like to hand over to Roger, who will cover in a bit more detail the financial results, and then I'll just wrap up at the end before taking questions. Thank you.

Thanks Andrew. Good morning to you all here and hello to those on the phone.

Before I start, I just wanted to add my welcome to you today. I'm delighted to have joined Andrew and the strong team here at Henderson, and I really look forward to meeting many of you over the next few months.

Andrew has talked about the positive momentum and the strategy of the business and I'm going to take you through the current results that that strategy is delivering and the financial strength from which we expect to be able to deliver sustained growth into the future.

You can see the P&L in the appendix, but I'm going to start by talking through the underlying profit figures and then touch on some of the underlying line items to show -- to demonstrate how we're managing the business.

Underlying profit before tax was 22% up on a year ago. Performance fees dominated the growth in the first half, but management fees also grew as market rises more than offset the 2012 outflows.

Fixed compensation and other expenses feel in aggregate by around 9% on a year ago, improving the underlying profit figure, the effect of the focus and the rationalization that we talked about last year.

Variable compensation rose due to both portfolio managers sharing in the underlying performance fees generated, as well as increased variable compensation due to the higher profits. The end result, record underlying profits of GDP101.1m.

Focusing on the revenue, total income is up 14.5% to GDP268m. Management fees, which account for around 70% of our total income rose 4% to GDP186m benefitted from the higher average markets offset by 2012 outflows. Even though the first-half flows were in aggregate net negative, the revenue on those flows were actually marginally positive due to the product and client mix.

And as Andrew has mentioned, the first-half management fees incorporate the new fee agreement with Phoenix. And reflecting on the ongoing nature of the business and as part of our simplified AUM of flow disclosures, our Phoenix assets will now being included within our institutional line rather than split out separately. We have included our old classification of assets in the appendix for one last time.

Transaction fees were in line with the second half of last year at GDP20m, and I would expect them to be broadly similar for the second half of this year.

As we stated in our trading update, we earned substantially more in performance fees compared to the same period of last year. Andrew has talked about the strong investment performance which we've generated for our clients. This, combined with favorable markets, has resulted in significant performance fees across the range, notably in our Pan-European SICAV, our offshore Absolute Return funds and in now UK Absolute Return and Credit Alpha OEICs.

I will also note the diversity of the fees across the product range with the performance fees in the first half coming from 78 different funds, showing strength across the franchise.

Our total fee range set, 42% of our AUM has the potential to earn a performance fee. But, as we noted in our trading update, the calenderization of years -- year ends of funds with performance fees is weighted towards the first half, so we wouldn't expect such a strong second half. I'd probably expect performance fees to be significantly less than the first half but more than the second half of last year.

Andrew referred earlier to 2005 where one captive insurer made up 40% or our AUM. Our business is now well diversified between Retail and Institutional, with Retail making up around 60% of our revenue. And as you can see, it's well split between UK funds, SICAVs, US Mutuals and Investment Trusts. This diversity shows both the strength and quality of our revenue flow, but also the opportunity for us to grow globally.

As Andrew has shown, there was also strength and depth in our product range with our focus on Global Equity, European Equity, Absolute Return, Multi-asset and our strong Global Fixed Income business. And that diversification has led to growing fee margins over the last four years. Performance fees have driven out total fee margin up to 76.6 basis points this half, but our underlying management fee margin dipping only slightly to 54 basis points and that includes the revised Phoenix commercials.

The chart on the right shows a net margin of 29.4 basis points on an annualized basis which is a 70% increase since 2010, demonstrating the improved quality of the AUM.

Moving away from revenue. This slide highlights how we continue to manage our cost base in line with our total income. As Andrew has pointed out, we've continued to invest in the business and have done this within an environment where we've controlled costs overall.

I'd like to note two particular items on this slide. Our fixed staff cost, which is the relatively flat light blue line at the bottom, has reduced every half since the first -- since the second half of 2011. And is up only 18% since the first half of 2010, which was before the Gartmore acquisition and which is supporting a revenue increase of 49%.

Our variable staff cost, the orange line, is indeed variable and moves in line with our revenues, showing peaks in the first half of '11 and the first half of '13.

The result is a compensation ratio operating in a narrow range and with revenue increases coming through to the bottom line giving an increased margin for the first half of 38.8%.

Given our exceptional performance fees in the first half, I'd probably expect the second half margin to fall back more towards our 2012 levels.

The compensation ratio of 43.6% is driven higher than last year in part due to performance fee payments, but also due to the positive forward-looking indicators such as investment performance and flows which influence our variable compensation. And given the performance -- and given the positive trends, which we've talked about, I'd probably expect the full year figure to be similar to the first half.

In other costs, we've continued to show a strong discipline in our non-staff operating expenses, down in each line item compared to the first half of '12 but broadly in line with the second half. And I would expect the full year to be below the full year of 2012.

As an example, we've continued to rationalize our third party administrators generating annualized savings around GBP2m.

We've included in the appendix a slide showing detail on our tax and tax rates, but in summary, our effective tax rate on underlying profits is 13%. It is lower than the UK corporation tax rate due to several small one-off items and profits generated in countries with lower tax rates than the UK.

We currently expect the ATR to be similar for the full year of 2012. But given the nature of some of the items recognized in 2013, we expect the ATR in future years to move higher but probably still be beneath the UK rate.

Now, looking at the financial strength of the business. Net cash on the June 30, GBP16.7m, giving consecutive halves of a positive net cash position.

Particularly pleasing, operating and other cash flows in the first half of GBP53.9m include the payments of annual variable compensation, which largely accounts for the difference to the higher figure of the second half of last year.

I'd expect to see further increases in our net cash position in the second half of this year and further improvements again in 2014 given organic cash generation, as well as the proceeds from TIAA Henderson Global Real Estate transaction.

Our focus remains to strengthen our capital base so we can operate without the FTA consolidated capital waiver in due course.

And we're making good progress on that being well ahead of our original expectations at the time of the Gartmore acquisition and we'll move another step forward with the proceeds from the TIAA Henderson JV.

In summary, this is a strong, and in many cases, record set of results for the Group, which flow through to the shareholder.

Total income, GBP268m, up 14.5% from the first half of last year. Underlying profits, GBP101m, up 22%, and equal to the full-year figure of 2010 before the Gartmore acquisition.

Record diluted EPS of 8p up 14% and up 77% since the first half of 2010, showing how that revenue and profit accrues to the shareholder.

The chart on the right shows our progressive nature of the dividends over the past few years. In accordance with our policy, we're announcing an interim dividend today equal to 30% of last year's full year payout 2.15p. The Board will need to, of course, discuss the full-year dividend towards the end of the year.

I'm delighted to have joined and be able to present the results of such a strong business, showing strong foundations, confidence and momentum. I'm delighted to take any questions you have at the end, but for now, I'll pass it back to Andrew.

Thank you, Roger, and just to recap, if you look at what are priorities for us here at Henderson for the rest of this year, first thing, obviously, is to continue to build on the momentum that is coming through in these results that we're seeing in the first half, particularly in terms of investment performance, which is very pleasing and is starting to lead to flows. So that's -- you should expect to see us focus on business as usual.

The TIAA Henderson transaction is clearly a significant transaction for us here in the business and certainly for our Property business and that will take quite a bit of time, and was due to complete at the end, probably some time in Q1 2014. So far, things are progressing well. Feedback from clients has been very positive. But there is still a lot to do. You should expect us to give you more update of that at our full-year results at the end of this year.

In terms of looking at what we're doing in terms of suffering and in investments capabilities and areas of gaps in our business that we look to fill, in particular, we're looking to add investment capability in US and Asian equities with those being located much more on the ground in the local markets. As well, in the US, with the credit hires we've put in place earlier in the year, we're looking to expand that team and add additional investment grade credit analysts to that business. So you'll see us adding more resource in the US and Asia.

And finally, as you would expect from us here at Henderson, we'll continue to maintain -- are very diligent on our costs and discipline in terms of how we manage the business because that enables us to continue to invest in the platform and, in particular, our distribution reach across the globe.

So, just to recap on the first-half results, we've clearly delivered some strong investment performance on behalf of our clients and this is beginning to translate to improving flows. And you can already see that coming through in the Retail side of our business.

Through the restructure of the business that we put in at the backend of last year and now with a joint venture of our Property business, we've really simplified and focused the way we run the business and organize the business.

As well, the actions or recent times and the acquisitions of the past are showing through by our much stronger financial performance, and this is enabling us to have strength in the balance sheet, delivering improved operating performance as well, and obviously, the cash generation of the Group is clearly coming through.

And with all that, we continue to invest in the business to enable us to position ourselves to growth in the years ahead. So they are laying the foundations for what will be the future success of the business.

So that point, I'd like to pause and thank you, obviously for the attention so far. I'd like to hand over to take questions from the floor first, and then I'll hand over to the operator to take any questions for those dialing in.

For those on the floor, if you can just wait for the microphone to take call -- it will take any more questions.

Good morning. Jonathan Richards Bank from Bank of America Merrill Lynch. Couple of questions, if I may. Firstly for Andrew. Could you let us know what your experience was in the UK, I guess, generally over H1? I mean you guys seemed to have outperformed in Q2. How did you see the RDR impacts in your business? How have your partnerships insulated you guys from the overall market turmoil? If you could just give us a bit of a -- more color there.

And, secondly, for Roger. Could you give us an idea of what the split of the variable comp was in terms of what proportion of it was due to performance fees and what proportion was due to just general -- better performance overall across the Group?

Then secondly, on disclosure. Going forward, you said you have rolled Phoenix into your institutional shared classes. Can you just give us an idea if you will give the separate breakouts of I guess margins and how you guys are going to do that going forward just obviously for our forecasting purposes? Thank you.

Okay. I'll take the experience in what we're seeing in our UK Retail business first. And then obviously Roger will pick up your other two questions.

Look, RDR clearly was very disruptive in 2012, and I'd say also in the first quarter. It is improving. I would say the outlook has been. We were disappointed with 2012 given the strong performance and some of the efforts we had put in. I think 2012 for us was impacted also through the fund rationalization and some of the still bedding down of the acquisitions. And with that having really past, we're really seeing quite a shift in terms of sentiment towards us.

The Sesame Bankhall and Intrinsic joint ventures are definitely helping. We're getting good momentum there. There is certainly over GBP100m of flows coming from between those two, so that's pleasing.

But particularly pleasing I think is just the breadth for where we're seeing inflows in our own Retail range. So we're seeing it in fixed income with our Credit Alpha fund. We're seeing it with our European Special Situations are as people returning back to Europe and equity. And then, in addition, the UK Property fund has been a very strong performer for us as well as people are looking to gain exposure to property. Our numbers there have been fantastic over a number of periods.

So, I'd definitely say as well that the -- each month it's improving for us in terms of gross sales and net sales, and that's definitely been the trend continuing to July and August. So it's -- it's not just a one-off or something. It has actually been something that's being building. And as we move through the year, they seem to be getting greater confidence in advisors and clients in terms of investing, and that's sort of benefitting us.

And on compensation, we don't give the detail exactly of performance fee payouts. But on average, our performance fee payouts would be a third and a half depending on the mix of the assets. This half they're probably in the low 40s overall.

In terms of Phoenix, this is client, which is now a key client to the organization as it always has been. But it's a regular client. So no, we're going to roll it in. It's part of our Institutional business. Inflows and outflows will be part of Institutional and going forward, will be included with Institutional and not shown separately.

Just on your margin point, I think one of the reasons that the net management fee margin was low in the first quarter, modestly, was a reflection of the new terms. So that's built into that. Otherwise, you would have expected it to be broadly flat.

Good morning. Daniel Garrod from Barclays. A couple of questions. Can I pick up on the signs of improved confidence on the Instructional flow out that you commented for the second half? I know you detailed that you'd won some chunky mandates in July. Any color on in what areas you've been winning those and just what's driven the improved confidence on the net flow picture in the second half? What sort of areas? Is it change in Institutional demand? Has there been any performance improvement on the said mandates there?

And second question, you're going to get the proceeds from the TIAA preferably Q1 of 2014. Can you make any comments around what your cash and your capital position will look like at that point relative to the goodwill waiver? Obviously, there is speculation they may not be rolled once more.

Thanks, Dan. I'll take the first question and Roger will pick up your second one in terms of capital position, etc.

In terms of the Institutional mandate, look, it's definitely clear in my eyes that Retail has got a strong positive trend going with it and that's evident. I think the Institutional is showing encouraging signs that it's clearly not in the same position yet where Retail is.

But what we're seeing is firstly, there were some mandates which we had won in the first half, which just through timing and what was happening market in June, didn't fund until the period ended. If various mandates had funded, then actually, would have had a flat second quarter.

In addition, the first half was impacted by over GDP400m of outflows in our Property business. There are two main drivers of that. One was a longstanding 10-year fund that wound up in the first quarter. And the second was a -- in the second quarter, we had a mandate with a client who invested with us in the depth of the financial crisis and they had seen a significant return from that investment up over 50% over the couple of years since they had invested. And they decided to sell down from that and that was sort unexpected.

We still have GBP1b pipeline in our Property business. It's struggling putting some of that to work. We missed out in a couple of -- some of the businesses we've put to work in that regard or the completion of some of the transactions we're doing are taking a bit longer. But we would expect to be that that GBP400m of outflow from Property in the second half -- in the first half will be replaced by positive inflows for the second half.

Now, I don't know. Will it be GBP400m? Will it replace if? I don't know but it should be positive, so delta change will clearly impact as well.

In turn, where we're seeing Institutional mandates in RFP, it's still predominately in our Fixed Income business, particularly in credit. Our Multi-asset Credit, just our European and Global Credits are the mandates we're seeing.

In equities, it's a bit too early for the Global Equity numbers that I spoke about to come through. We are seeing a couple of RFPS already. We've got to remember that Matt has only being here in literally just over 12 months. The numbers are coming through very well. The process is being well articulated and seeing a differentiated to competitors out there. So we're definitely getting the positioning right with clients. But I would say that was always a for a three-year turn around for him to see business and not I'd say it's more like this time next year or the end of next year that we'll be in a better position to talk about that.

So it's going to be, I'd say, a turnaround in Property from where we are as a number of the initiatives are underway start to be shown in the second half results, and the continued momentum in our Fixed Income business is seeing it.

Thank you.

Okay. And then on the TIAA Henderson proceeds, as you've said, we don't expect the transaction to complete until the first half of --the first quarter of next year, so we can't spend it yet.

When it does, it will be -- it will obviously improve our capital position and it will speed up the ability for us to operate without the FCA waiver. As you know, the waiver is valid until April 2016 but those proceeds will obviously improve the balance sheet and they'll allow us to operate without that waiver sooner should we want to.

Thank you. Catherine Heath, Cantor Fitzgerald. Andrew, can you talk a little bit about your views on revenue margins in UK Retail and how they may evolve over the coming years as what's going on with the FCA and platform papers, please?

Yes. So recognizing the UK Retail -- look, I'd say it is difficult because there are -- there is downward pressure more so from some of the structures. So some clients, for example, are going to institutional type structures to get around the challenges of RDR for them. Only the largest can do that, and therefore, you're getting a more sub-advisor fee.

Our joint ventures, for examples as we have said in the past, have a lower margin than what we would get on our retail book, but we still have a lower cost associated with those.

On the traditional fund range however, I actually think there won't be margin pressure because we've gone out with our clean share class at 75 basis points, and that's -- we'll maintain that margin there and it's about catching the volume.

So, I think UK Retail, I would expect the margins that we're seeing in that book of business at the moment to probably come under maybe a basis point or so pressure a year. Nothing really too significant. Some of that is also driven by the fact that we have higher margin back book from going back a decade or so, which will just roll off because of the age of that book, and that is at higher margins. So there's a mix effect coming through from there. But I'd say if you sort of factored in 1 to 2 basis points per annum would be reasonable picture, but nothing too significant to us.

Okay. Great. Thank you.

Good morning. David McCann from Numis. Just a few follow-up questions on the TIAA property transaction. Can you confirm post transaction exactly how you're planning to disclose the new AUM of the Group because in the presentation you gave you kind of showed a pro forma share. I just wondered if that was exactly how you are planning to do it post transaction?

Secondly, also, how exactly are you planning to account for the newest -- new line of associate income, I guess, that you're going to have there and where that may appear on the P&L?

Finally, just related to that, should we think about that associate income line, if that indeed what it's going to be, as roughly 40% of the EBITDA, which you've kind of guided you will lose plus a bit more contribution from the TIAA contribution, less perhaps a few more central costs of the entities. Is that how we should be thinking about that?

Roger, I will let you take that?

Yes, we will be equity accounting for the transaction and we'll be showing 40% of the assets in our -- within our asset line.

In terms of your second question, again, I think the answer is just yes. It's going to be 40% of that in what we expect to be a growing business.

Why are you planning to show the assets in your AUM because given that you don't wholly own them?

I think as a major shareholder, we would expect to show 40% as our shareholding in that -- in those assets.

Only showing -- trying to give a representation of where is the diversity of the Group. We are -- still have a Property business. It is now a separately owned company and that's one of the benefits of why I think its growth will be good. But I think for someone looking at the core group for Henderson, they should see us having exposure to property. It'll clearly be lower than the 20% of our assets under management that are represented there. But we still have close to 10% of the Group's assets under management where we have exposure to property. And a lot of the people who look at the business and a lot of our shareholders can see the diversity of the asset classes we're in and I think not to show it at all would give a misleading picture between equity and fixed income of our business compared to we do have that diversity. And what we've seen over the last 10 years is that Property definitely moves differently to Equities and Fixed Income. And I think that's been a strength of the firm. And I don't think we lose through this transaction that diversity or balance.

Presumably, that splits out to separate items just so it doesn't impact the margin calculation?

It's more a visual one to give people a sense of what the business is exposed to. It will be definitely a separate item in that regard.

Right. Got it. Thank you.

Hi. Hubert Lam, Morgan Stanley. Just a question on future growth. You talk about growing more into the US as well as Asia. Is that mainly through organic growth of hiring teams or will you consider acquisitions? Or is acquisition too early because your focus is mainly on growing your capital position first to adequate levels?

Yes. Look, it's probably easier hiring individual teams or individuals rather than acquisitions. We would look for acquisitions as well. And if we did in either of those jurisdictions, they would be relatively small. It is things that may have a couple billion of assets under management rather than anything of substantial scalable or size.

The benefit of doing it as an acquisition is that you get the track record and the funds up and running quicker. The difficulty is the integration and not able to always get the right fit. Hiring teams you can get exactly what you're looking for. So, it could be a combination of those, but if it was an acquisition, it would be very small rather than a significant acquisition in terms of where the focus would be of the Group.

And what you should see us -- we are actively looking and have searchers out for exactly what we're doing. So in the US, for example, we'd love a US equity team that has strong income skill set due to dovetail with a very -- the core strength of us as we're doing income as a Group and where we see, importantly, an increasing trend .

In Asia, we need to have a business that feels more local. So both relocation of people from Henderson down to our Singapore office and additional hires and that will just bolster the investment team in the Asian region. And, obviously, in Australia with 90 West and various other initiatives we're doing there, we'll continue to expand that, which will be a combination of teams but also small bolt-on acquisitions. But again, relatively small in the scheme of the Group's resources.

Good morning. It's Peter Lenardos from RBC. Just a quick question on the Gartmore transaction. I think the anniversary is coming up of that at the end of this year. Are there any lock-ups that we need to worry about? Or are all employees already fleeing clear from the transaction? Thanks.

There are some additional -- there were some retention packages that were actually put in by Gartmore, not by Henderson, and they do roll off at the end of this year. So you're correct on that regard.

Given, I think, the structure of what we put in place, our ongoing structures in terms of rewarding investment professionals that are delivering what they're doing, I've don't envisage that being a problem. Obviously, I could be a hostage of fortune from what I say here, but I think we've -- we're very happy with what -- with the managers we've got. They seem very happy here at Henderson. The reward structures we have on an ongoing basis are there to encourage long-term staying with the Group, not trying to have a renegotiation every three years or something.

So I would hope that the structures we have in place and the way they're structured would encourage people to say this is -- and they've now had a chance to see Henderson, which I think they're very pleased with the momentum and the way we manage the business. So I don't envisage any problems. But you're right, at the end of this year what Gartmore put in place do roll off.

Thanks, Andrew.

If there are no further questions from the floor, we'll just -- I'll throw it out to the operator to take any questions from those in other lines.

Thank you. (Operator Instructions). Your first question comes from Arun Melmane. Please ask your question.

Hello. A couple of questions. Can we just talk about underlying performance and when I say underlying, it is example performance fees in some senses? So, it's up 4% over the half of last year, which is below sector peers. So I was just wondering if you could comment on that?

The second bit I think we didn't talk about segregated mandates at all. It still seems to be bleeding funds on Q1 and Q2 so it would be interesting to get your thoughts on what we could do to turn around that section of your business?

And the other one I had was on AUM on slide eight by quartiles. It would be interesting if we were able to break that down by the quantum rather than fund PMs. So, how much of your PM of GBP600b was in first quartile and second quartile and so forth, if that's possible?

The two other I had are technicals on financials. Would you like to have them now? Or --

No. It's okay. Keep going. You're on a roll.

Sorry. A -- the one on cash, to follow-up on Daniel's question, I just wanted to know what the quantum of cash retention for the Group ought to be to work on a waiver-free basis post debt pay down. That was one.

And the last one was on the property JV, the 40% consolidation. I was just wondering, given that you don't contribute to the JV -- and I was just wondering how much rights you had on investment themes to be able to consolidate on that? Thank you.

Why don't I pick out the questions on the seg mandates and the quartile performance and Roger can pick up on the underlying performance at management fee level, cash retention and capital question and the JV consolidation.

Looking at the seg mandates, I think we spoke about, at the time of the IMS, the mandates have impacted the first quarter. One of them was a very large mandate coming over from Gartmore. It was in the global equity space. You can see from the numbers I put up earlier how the three and five year numbers were poor in that space and that's really what triggered the review.

It's disappointing, given we had replaced the team and we're starting to show encouraging signs of performance, but that was the biggest outflow associated with that.

In terms of the second quarter, there was again some -- and probably the biggest contributor there was a -- was a property fund dragging that down. As well as it -- we do just see some shifts in terms of Fixed Income business as people take money out of fixed income, having had a strong run in that.

And we were matching that with new business being one. And it just didn't fund at the same time, so same time.

So second quarter, I wasn't too fussed about and I think given some of the comments I said earlier, when you're looking at the RFP activity and where we're seeing business going, I'm confident that we're on the right track.

But it -- Institutional takes a lot longer to turn around necessarily than Retail. It tends to be much lumpier. You can always get one-off changes in clients, just based on their own circumstances, not necessarily related to performance.

If you drill into the investment performance and in the appendices, we show across our Institutional business, it's very, very strong, so it's not really a performance issue. The improved -- we have improved our ratings with consultants over the period and the fact that the situation with the Infrastructure business that we sort of resolved at the beginning of the year, has also helped the overall profile and outlook for the business.

So there have been a number of one-offs in this, which are disappointing but I'm not too fussed on that.

In terms of asset under management for investment performance by quartile, we haven't disclosed that. It's not something we're -- I will intend to cover here. But it is fair to say that a number of our funds are clearly delivering very strong numbers and I think the strengthening you saw in Equities of 81% of funds on a one-year basis is seeing also a significant improvement in terms of first quartile performance. And I think that's obviously helping with flows, particularly in our Retail business, where that turnaround in performance is recognized quite quickly.

And Roger?

Yes. In terms of the underlying management fees, it is that turnaround you've got to remember. We went into 2013 with a headwind of the outflows of 2012. We talked about inflows in the first half in Retail. And, overall, as I mentioned, although our net figure is net outflows, our revenues from those outflows are slightly positive.

The acceleration of those flows, talking about Retail first, between Q1 and Q2 and into July is showing real momentum. So we now have a tailwind of flows from our Retail book, and hopefully those flows will continue and will continue to generate increased management fee.

The Institutional business, as we've said, has got outflows in the first half. And, again, we're starting to see that turnaround, so that will stop being a drag on the management fee and hopefully start to increase management fess there too.

So I think it's a -- the story is of the momentum changing around flows. I agree that hasn't fully come through into the management fees, but where you see that is going to be in the halves following from when you start to get the flow coming through.

In terms of debt and capital, yes we operate with the FCA consolidated capital waiver. On that basis, we have a very significant surplus. Our deficit without that waiver has decreased very significantly. It's now less than half that it was when we completed the Gartmore acquisition.

In terms of when you can operate without it, that's a difficult to answer. The FCA may calculate it on a slightly different basis without the waiver than they do with it.

But, as I said, we are progressing more quickly than we imagined towards being able to operate without the waiver. And the proceeds from TIAA Henderson JV will take us another step forward to being able to operate without that.

Does that answer the question?

On the property JV -- sorry, you are not willing to give any quantums in respect of the waivers, in cash terms?

Well I think -- we've announced -- as to the cash proceeds that come out of the waiver, so that was announced with the transaction as GBP114m before costs.

I think your question on the waiver as well is, in terms of capital position, we knew -- our plan at the time of the Gartmore acquisition was that we would grow without the need of a waiver by the end of the waiver's time, which was in early 2016.

As Roger has said, we've made significant progress on that, notwithstanding the TIAA Henderson, which had -- that had been brought forward from where our original expectation was.

So you can take a guess at where that might be. The extra GBP100m odd will come from the joint venture proceeds with TIAA, will only further bring that forward closer.

So the difference about operating without a waiver, or not being in a deficit and operating without a waiver, are two different things as well. Because you don't know what capital buffer you might need over and above not being in a deficit. And my personal view has always been that a waiver is a useful use for an asset manager, because then you are not holding all your surplus capital as cash, which doesn't earn a lot of money.

So, even if we could get with -- operate without a waiver, I'd still be arguing that we should have a waiver to be able to utilize the cash reserves of the business in a more effective manner for our shareholders, which might be seeding funds or other things if we aren't able to return that capital to shareholders.

But, at the moment, that discussion is not a discussion we are having with the FCA today. It might be a discussion we are having with the FCA once we've got the proceeds from the TIAA joint venture. But that's still a little way off, so we can't give you much more color than that until we've had a more detailed conversation with the regulator.

Thank you, and on the Property JV, just your thoughts on what right you have to be able to -- on the investment decision, to be able to consolidate 40% AUM?

That's an accounting rule. The AUM disclosure is something that if we disclose how we're doing it, I think we are -- as Andrew said, it's the right thing to do to disclose the business with the Property AUM, to reflect the nature of our business. I think as long as we are clear in the disclosure of that, that's something that we are totally correct in doing.

Brilliant. Thank you for taking my questions.

Thank you.

Thank you.

Thank you. Your next question comes from Nick Burgess. Please ask your question.

Yes. Morning everyone. Nick Burgess at Baillieu Holst here. Just a question on the compensation ratio. If I heard you correctly, you are saying for the second half it's likely to stay at the same level. I think six months ago I got the impression that a target of 41% was not unreasonable for this year. And you also reiterated the previously-stated target of 40% in the medium term. So is 40% still the medium-term target, and can we specifically just address the differences between what you were saying six months ago, and now the 43% to 44% target for this year?

Thanks, Nick. I think our medium-term target would still be very low 40s. The increase this year is in part due to performance fees, as we've said, but in part it's due to the forward-looking indicators of the business. So our compensation is also driven by those strong measures that Andrew has talked about in terms of investment performance and sales.

I think our gross sales year to date are the same as they were for the full year last year. That does drive compensation and we need to and want to pay people correctly. So that's why we expect compensation to be at around 43% for the full year.

So I've answered half your question.

(Inaudible - microphone inaccessible).

Okay.

Yes, so yes -- do we expect the lock -- the medium-term to be in the 40s again? It relates to that -- the earlier question around our revenues. Yes, once we start to see the ongoing effect of flows coming through our revenue line, then yes, you'd expect the compensation ratio to fall back towards the 40 level.

And Nick, if the flow picture changes from where it looks like today, or if the investment performance falls away from where it is today, then there is scope for us to actually bring the compensation ratio down from that.

We are being prudent and, given how the business is travelling, I think the view is we feel that, given that and given the strong numbers coming through on a number of different metrics, that's where we'll be for the full year.

It may come down if that doesn't materialize as it currently looks. And also I'd say -- staff -- managing that variable cost line has been something I think we've done very well. And staff have clearly been impacted in the variable side as income has come down in previous years. I think with income going up there is a little bit of catch-up for staff, and the competitive pressure is probably building out there with our peers. You've seen some high-profile names and changes in the UK marketplace. We want to make sure that we're on the right side of what we need to do around our talent.

So that's where -- so it is a bit of a shift from what we may have said six months ago, but it's a reflection of both the momentum in the Business and the competitive position we see ourselves in. But even in those results you've seen it absorbed in the profits we are delivering.

Thank you.

Thank you very much. Your next question comes from Nigel Pittaway. Please ask your question.

Good morning. Just first of all, I was just wondering whether you could give us a bit of flavor for the extent of volatility in those Retail SICAV flows. Obviously GBP36m out in the second quarter. Would it be right to think of those as having been pretty positive in April and May, negative in June and then turned positive again since? Is that a reasonable summation or not?

Yes -- sorry, I was just checking you weren't going to have another question, Nigel. You often have two.

Well, I probably will, but I'll let you answer that one first.

All right. In terms of European flows, exactly that. We were decent positive in May -- in April and May, continuing the trend we saw in the first quarter. And then pretty much that reversed entirely in July -- sorry, in June. And then since July it would have reversed the other way again. So June and July are probably flat over those two months' periods, and August continues --

Right.

-- it's obviously very early in August, but it's continuing the trend in July.

So it was very much one month. We know the European flows, as we've always said, can be far more volatile. The market impact there was far more acute in terms of how clients reacted. They stopped. They took profits in a number of areas we had performed well in. It was not performance at all related. It was very much risk off the table, and once there was a sense of less concern about where markets might go and markets started to move back higher, we saw an immediate reversal of that picture.

Okay. Thank you. And then just on the JVs, are there any start-up losses for the Sesame and Intrinsic JVs appearing anywhere in the P&L this period, or --?

No, not really. Because of the way it's set up, no, it doesn't. There's nothing that comes through in that line.

Right. Okay. And so is it still envisaged that there will be profits from those JVs moving forward?

Yes. They starting from a low base. As I said, just a bit over GBP100m of net flows so far coming through from those businesses. You will start to see that come through in the numbers. But it will -- we expect that business -- that business is building quite good momentum. Both of those businesses are travelling really well.

As I've said in the past, they offer an alternative to -- in the RDR world they offer an alternative to the marketplace in some of the restricted advice channels that say Intrinsic operate in. We see their client base as being some of the most affected by RDR in terms of becoming unadvised, and the model that we are running with our funds there are making it an easier position to be able to deal with those clients.

And the performance of the funds have been incredibly strong. So the Intrinsic range, we've actually been working with Intrinsic now for five years. We've just hit the five-year track record at the end of June. And the numbers there are brilliant over that period. So they've got a model which is designed to be low cost, focusing on a core group of the market, who we think are currently not well represented in terms of advice, with great serving products. So you will see that build, but the profits, like any new start-up, they take a while to really flow through to the Group. We have a share of profits coming through.

There are start-up costs and other things which they're washing their face on but, as that builds scale, you'll see more profits come out of that in the years ahead, but limited in this year.

Yes. So we will still see both the share of profits and the benefit of the flows here -- that's in the future?

That's correct, yes.

That's correct. Okay. Thirdly, just on transaction fees, I think you've previously said that around about 70% of those are recurring. They do seem to have just been flattening out or even edging down over recent times.

Presumably in the non-recurring there's not much in the way of property transaction fees now, is that fair to say, that we'll be lost on the TIAA-CREF transaction? Is that a fair interpretation, or --?

Yes, well that's correct. The transaction fees that we get through from Property, which are down in the first half because the property transactions have been lower, as I mentioned earlier, and they will not be in -- going forward, once the deal completes, obviously they won't come through. We'll just have the one line in the associates for the overall profits, which will include that.

And you are right, it's in the 60s in terms of what's really recurring. Probably two-thirds are recurring on that basis.

Right, so the Property is in the non-recurring at the moment, that's right?

That would --

That's correct.

That would be correct. We would see Property as non-recurring -- as a large contributor of that non-contributing element.

Yes, okay. And then just finally, is there anything we should worry about, about the AIFM directive and capital adequacy directives?

Well, on AIFM, the main issue there -- it's just -- we all should worry about it. The main issue there has just been simply that the sheer volume of work we need to do to get the business in shape. It has significant implication for our Property businesses and the structures we have there. And so even in the absence of this transaction, we'd have to be getting the clients to restructure the way we do our business.

In terms of the capital directives, I don't think there's any impact on us actually.

Nothing major. No.

And obviously the last time we spoke, Nigel, there was the threat of the UCITS IV coming through and the impact that that would have on employees and compensation.

And they have -- that has been rejected at the last round, so hopefully that won't come back, in which case, the issues we've previously discussed around capping of bonuses to the fund managers and the investment professionals here appears to, at the moment, have receded.

Great. Okay. Thank you very much.

Thank you. Your next question comes from Toby Langley. Please ask your question.

Oh, good morning guys. It's Toby calling from Nomura. I -- apologies if this -- maybe it's been covered already. I just wanted to ask if you had any comment about the dividend going forwards given the improvement in your net cash flows. That's question one.

The second one is on TIAA-CREF. Just which particular product areas are you looking to evaluate beyond what you've committed to do with TIAA-CREF already? If you can give us some color on that that would be helpful.

And then lastly, kind of following up on Nigel's point around flows from new areas of the business, can you give us a sense of the AUM that now stands with Sesame Bankhall, etc.?

And a request maybe that if these businesses are proving to be a more material element of net flows, maybe if we could have some kind of channel disclosure on those, that might be helpful.

Yes -- everything is helpful for an analyst. Looking at the dividend, where we are going forward? As Roger has pointed out, in terms of results for this half we have a formula which is 30% of the previous year's full-year dividend, or total dividend, is what's paid as an interim dividend. So it should have been no surprise what the dividend would be.

We have a progressive dividend policy and the -- and improved outlook in terms of business and improved profits. You'd expect to see the dividend will reflect the delivery of the business in that sense.

But the Board itself won't really meet to discuss this until the end of the year, and it will be announced in our full-year results.

So I can't really give you any more guidance than that because the Board itself hasn't debated that. And one of the whole reasons of having the current structure is that the debate happens once a year rather than having to have it twice and try and second guess what people might be thinking. And the Board just hasn't had that discussion.

But an improved outlook for both profits and overall strength of the business, you should expect to see an improved dividend. How much that will be, will be up to the Board discussion when we have that.

In terms of TIAA as an organization and what we can do with it, look they are extremely strong in the DC market. They have a wealth of knowledge in terms of their client base and what they do. We've been able to get our Mutual fund range on a number of their platforms. They have retirement platforms and brokerage platforms. We weren't previously on those platforms.

We've been able to get ourselves to have selling agreements to be put in place with those. Now, that doesn't immediately translate to flows. It just means that you are able to be represented on their platforms. There's about another 20 odd managers who would also be on there. But it's a good start. We continue to have discussions with them in their discretionary elements of where they are looking for managers. And the key strength where they'd highlight for us is our equity income capability, which is a key theme, given their heavy emphasis on retirement. You can see that's a key theme for a lot of their client base, and also in the alternative space of what we offer.

A lot of the long short funds we have in the hedge fund space that we've been putting into Retail products, is really, really attractive for them, because it's a space that they don't currently do. They don't have any products in that area and they see in us a core strength in that.

So that's -- both of those two areas are things that are active conversations with them that we'll continue to see what we can work on.

And for TIAA themselves, they are looking to expand their business from which is predominantly US-centric into other jurisdictions. And they will work with us, given our global reach.

I wouldn't be surprised to see a partner in a number of initiatives, say in Asia, where they have very strong ambitions in moving. Some of that could come through the Property business, if it's property related, or just outside of that, there might be a number of things we can do.

So we are still at very early days. It's only just over a month ago we announced the transaction. But I'd say the goodwill and the relationship is only strengthening through that period.

In terms of the Board of the Property business, I sit on that -- on the Board of the new joint venture when it's established, as well as Rob Leary, who is the new Chief Exec of TIAA Asset Management. So you've got the two heads of the asset management business, outside of property, sitting as Board members there as well. And that's partly because we want to make sure we work together and form a strong relationship, to do things outside of Property. So it just looks good at this stage, but nothing tangible that I can point to.

In terms of your question as improvement of flows from new areas, well we are always going to see new and innovative ideas of what we put in place [see flows]. If we kept breaking down everything we were doing into a new area, we're going to get criticized that our results and our flow picture is so complicated we can't work out what's going on. So we just try to go the other way, which is simplify it. So I appreciate it may help you in some of your analysis, but it probably also confuses and clouds some of the message that are coming through.

I think the way I just look at it is Retail in general is doing well. Some of that's coming through from these joint ventures, but it's also coming through from our traditional business. And I think the overall message there is strong. So, sorry, I'm not going to break that down further.

Just following up on that though, is that not a bit overly simplistic? Are we not experiencing a bit of a two-speed retail market in the UK at the moment, with the likes of -- admittedly not under [Barwick] compared with yourselves, but the likes of Hargreaves Lansdown pulling in very impressive flows, because they have a new model -- simpler proposition?

And you yourselves have highlighted the fact that there is a back-book element to your business, which is rolling off over time. Admittedly yes, it might lead to some further disclosure, but it helps, surely if both analysts and investors better understand that to be delving into the business. That's the way I --

No, Toby. I can understand, I appreciate that, because --

(Multiple speakers) outside and see it. Is that not the right way to think about it?

-- one of the things we do look at as a business is the persistency of our book-to-business. We are always going to see clients roll off and you are always going to have to replace that with new business.

And obviously one of the benefits of the joint ventures is gross sales equals net sales at the moment because that's where they are starting from.

But in terms of how to disclose that, it's just something we don't do. We'll take it on board and if we really feel it's going to make a difference to how we are considered by our shareholders, we may make that change. But at the moment I don't think it's something that we need to do. I'm not getting a huge amount of pressure to do that.

Obviously we have that breakdown and we are constantly managing that and hopefully, through some of our commentary, we are telling you the areas of growth and interest.

And, as I said earlier, things like absolute return and equity income are strong drivers of both capability of us as a firm, as well as where we are seeing client interest, is giving you a sense of where greater demand.

This time last year European equities was an area where there was no demand, and we are now seeing a recovery back in that. So, markets will always go through different products sets having different phases of growth. Certain things are hot at certain times and they can change pretty quickly. And it's up to us, managing our business, to manage around that.

I suppose investors, they want to see the secular trend, which is what I'm trying to get to, rather than the cyclical one, which is going to be about, as you say -- looking at what's in favor in a given quarter. And I suppose that's where I would see it being useful for people.

I hear what you are saying. I think we'll take it on board but, for now, I think just let's move on and we are not going to do any more on that at this stage.

Sure. All right. Thank you.

Thank you.

Thank you. Your next question from Mark Hancock. Please ask your question.

Good morning, Andrew.

Hi, Mark.

You got me there?

Yes.

Just -- in terms of -- two questions, performance fees and tax. Just in regard to the performance fees, while performance fees are obviously no doubt subject to manager performance and the absolute market levels and obviously high water marks, I've never seen Henderson achieve better. You've achieved across 78 funds, and also variables spread across the various asset categories and products. Can you give some indication about the sustainability of fees? I assume in some cases it's from the funds kicking through, FTSE high-watermark top levels, for example. And just any indication about seasonality with regard to second half as well, possibly any specific factors that we should be aware of that could constrain Henderson's ability to generate performance fees going forward?

And I'm not just talking about the next half, but -- three to five years as well.

Yes. And you had a question on tax as well?

Thanks, Andrew.

Did you have a question on tax as well?

Sustainability of the low tax rate there.

Okay. Look, on performance fees, I think it's a pleasing return to a solid number there in performance fees for the business. And I do think there's sustainability in that. It obviously does require the performance that we are delivering on behalf of clients which you see there is quite strong. Then obviously positive markets also help in terms of the growth. So -- and where we are seeing growth in terms of new business, the SICAVs have performance fees. The OEICs and the US Mutuals generally don't.

So it depends on the mix of busines, where new business will go into that. But we get an equal mix of new business with performance-fee opportunity, so that's pleasing.

There is a seasonality to our business. The first half is generally much higher than the second half. I think Roger's made the comment, so you'd expect it to be lower in the second half.

If I had to take a guess, I'd say it's half of what we did in the first half, as a best estimate I could give you. It will depend on how markets go from here and how performance goes, but it looks pretty good at the moment, given that. But it's not going to get anywhere near what we got in the first half, but maybe it can get to around half of that level.

And in terms of going forward, I wouldn't think we want to do that in the second half, but that's probably a good or decent year. But I certainly wouldn't say it's not a repeatable year, in that sense. There's nothing in the numbers coming through that I would say was a one-off, a catch-up for something that -- don't expect it to come back again. I'd say it's a -- the performance fees we are generating this year are a result of very strong performance across a broad book of business and if we repeat that performance, with markets being as helpful -- at least helpful, rather than a hindrance, we should be able to repeat the picture in the years to come. But obviously it is dependent on us delivering investment performance, because that's the driver of that.

In terms of the tax rate --

In terms of the sustainability of the tax rate, as I said there are a number of small one-off items, which we have taken the benefit of in the first half.

And I'd expect the rate for this year to be around the 13% in underlying profits.

We do generate revenues and profit in lower tax rate jurisdictions. That is just where our business is based. So we would expect that to continue going forward, but I would expect the rate to move up. But it will be lower than the UK corporation tax rate. Of course, that has also been falling and is expected to continue to fall.

Thank you very much for your help there.

That's okay, Mark.

Thanks, Andrew.

Thank you. Your next question comes from Ryan Fisher. Please ask your question.

All my questions have been asked and answered, so thank you.

Thank you.

Thanks, Ryan.

(Operator Instructions). Your next question comes from Chris Williams. Please ask your question.

Good morning, gents. A quick question, just a point of clarification on the Phoenix mandates, in particular the reference to the minimum compensation arrangement. I'm just trying to understand whether you were earning revenue at that minimum compensation arrangement or above that level.

And secondly, whether the renegotiated terms of that contract are a lower effective investment margin on that business, but the benefit is that the business may be longer in duration.

Yes.

Yes, okay Chris. Actually, I've said in the past that the -- what was actually happening, if you put our assets that we manage for them on a normal rate card, given the mandates and the size of that client, that they were actually below -- you would be below the minimum arrangement. So what was happening was they, as a business, were increasing the revenue they pay us over and above what we would normally expect for those asset bases.

So what you have seen through this is a reflection of the reason there has been an impact at the net margin and the revenues for the Group, albeit it only modestly, is because of the fact that we are now paying just on the assets we are managing. There's no top-up.

Now that additional top-up that we are paying is definitely compensated for by the fact that you've got at least a minimum of six months -- nine months in terms of when the contract expired to when the first time they could take assets from us.

But I also would think -- I think there was a -- there was a concern from some shareholders and analysts of whether they should value this business as a cliff; that it was likely to be in your business until the -- March 2015, April 2015 and then after that the assets will all go. There's absolutely no intention, and the relationship between the organization is so strong that this is an ongoing relationship.

We are a relatively small component of the assets they overall manage. They've got other asset managers. They've got a captive asset manager, as well as using other third-party managers in their business stable. But our performance for them and the way they use us is exactly the areas where they see us as having good, strong performance for them, and the best in breed for what they can get out there. And they value the relationship, not just in investment performance level, but overall in terms of what we offer.

And so you should not think about this as anything other than an institutional client. But if we deliver investment performance and service that they need and they expect, they will be with us for a long, long time to come.

In terms of the overall Group, they are -- less than 10% of the AUM of the Group, and their revenues at the overall Group level are low single digit. So they are a much lower client revenue than the overall Group margin, but they are still profitable for us because of the breadth of the operation of what we do there.

So yes, do not in any way think that this is anything other than an improvement in the position that would have a short-term impact maybe on revenues. For us, we see that, on a net present value basis, as significantly enhanced.

Right, thanks. I've just got one point of clarification, as well. You talked to gross inflows being -- for the seven months -- being ahead of our full calendar year '12. I'm just wondering -- so it's obviously gross inflows have improved. But can you just make a comment on gross outflows in the Retail book, and where you've seen the change on the outflow basis? Because obviously, talking about Retail UK margins over the medium term, you referenced that the legacy books and the integration of back books.

Yes, look I think what we are seeing -- I think the pleasing result is we are seeing improvement in gross flows and also certainly no pickup in the redemption profile. If anything, in some books actually an improvement in that as well.

Certainly, our US business, the ratio of net to gross has only been increasing throughout the year. UK would be similar obviously as it moved from negative to positive.

So I think it's actually at both ends that we are seeing improvement in the redemption profile and the gross sales. I would say Europe always has a high level of gross redemptions as well, generally. So I'm that in Europe there has been an improvement in that picture. But in UK and in US I'd say it has been.

Terrific. Thank you.

That's okay.

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

Okay, well I'm conscious that there's a lot of other things going on today, so I'll close it there.

If you have any further questions, feel free to come back to the Investor Relations department. Andrea or Tony are happy to take any further questions, but thank you for your time.