Janus Henderson Group PLC (JHG) 2014 Q2 法說會逐字稿

Welcome to all of those who've joined us here in the UK, and also those joining us remotely on the phone from Australia and also from the US.

Today, I'll be presenting the Henderson Group's first-half results for 2014, and I'm joined by Roger Thompson, our CFO.

Looking at the agenda that we'd like to cover today, I want to go through the first-half highlights; also to give you a sense of the industry overview so we can put in context the first-half performance for Henderson into that broader market context.

I'll then set out the progress in the first half of the investment program we're doing that we're calling growth in globalization. And how, in line with the strategy we articulated in February, how we're doing in that.

Roger will take you through the financials in more detail, and then I'll come back at the end to just cover off the near-term outlook for the Group, as well as leaving plenty of time for any questions at the end.

So if we turn to our first-half highlights. The assets under management for the Group was up to GBP74.7 billion. This is up 10% since this time last year and the main driver has been strong flows into retail. Flows for the first half were GBP5 billion; GBP3 billion in the first quarter, as we've already disclosed, and GBP2 billion in the second quarter.

Client activity slowed somewhat in the second quarter, but we continued to take market share in our major markets. Investment performance remained strong, with 86% of funds outperforming on a three-year basis.

Profits, on a continuing basis, were up 2%; a good result given the increasing level of investment in growth, as we told you we would be doing in February, and also that performance fees were lower than this time last year. We have been supported by a strong uplift in management fees, which were up 21% on this time last year.

But of course, for me, one of the highlights of the half was the announcement of the acquisition of Geneva Capital Management. This fills a gap that we've had for quite a while in US equities, and we've been looking for a while there. And also it strengthens our institutional distribution in the US which is, again, another important component for our long-term growth.

The Board has approved a dividend for the first half of 2.6p a share. Roger will take you through the change in the way that we're thinking about the interim dividend, so suffice for me to say that it reflects our confidence in the ability for us to grow our business.

Before I dive into the results in more detail, I thought it would be useful to include some market information by way of context.

So on this chart, we show the market returns in the first half of 2014 for the asset classes where we participate. It's been a fairly benign period, with all areas delivering moderately positive returns.

Looking at equities, my view here is that valuations are pretty fair and that there will be modest support from earnings growth. There is still cash in portfolios, giving the option to buy on divs, and also when markets correct, which is pretty much the experience that we have seen from clients in the first half.

If we turn to fixed income, here it's a bit more challenging. I think there's a risk that the market may have re-rated interest rates too low, so I'd say the outlook looks more negative for government bonds in the investment grade.

At Henderson, we still see opportunity in high yield, but our job will be mainly about protecting client capital in the months ahead.

In alternatives, the hedge fund industry has had a pretty tough time. It's been hard work, particularly given the low volatility we're seeing across all major asset classes and sentiment's still quite fragile, so it's been a struggle making good returns. Thankfully, many of our funds are doing much better than the industry.

On this slide, we show you the industry flows for the first half. The first thing to note is that growth has returned well to our industry at large. Probably of most significance to us over this period has been the strong flow into European equities, though as you can see, this has moderated in the second quarter.

Now let's turn to look at Henderson over this period. As we told you in February, our strategy is all about growth and globalization, and the last six months have been about investing to sustain the growth momentum over the next five years. Assuming reasonable market appreciation, we expect to be able to double our assets under management over that five-year period.

So when I look at a business like us, what do I see as the key drivers to achieving sustained return to shareholders?

Firstly, the ability to deliver above industry net new money growth; making sure that you're delivering strong investment performance for your clients. You also need to continually invest in the business, particularly in areas such as client relationships, your investment management capabilities and the global platform you operate.

Despite that, you also have to show the operational leverage as you grow, and have a disciplined use of the cash resources as these businesses are very cash generative.

These are obviously early days but today, Roger and I will, between us, try and give you sense of how we're doing against these criteria.

Let's turn to at the progress in the first half, starting with Henderson flows on a global basis.

Looking at total flows, you can see that our growth continues to be driven by our retail client inflows, but also that our institutional business has switched from being in significant outflow to being slightly positive. We're currently delivering annualized net new money growth of 15% per annum.

What's driving these flows? If you take as read the importance obviously of strong investment performance and also having the right product mix for your clients, there are a couple of specific drivers I'd draw your attention to.

Firstly, half of the net flows that we're seeing were into funds either acquired with or managed by ex-Gartmore and New Star managers. These two transactions were always financially compelling, but what you can now see is the benefit that they're giving in terms of strategic benefits for the Group and how much it's driving the growth of the business at the moment.

The second thing I'd highlight is the geographical diversity of our flows, which is different from the current assets under management makeup.

On the retail side, our UK business performed really well in the last six months and is taking market share in what is a really key market for us. But despite the strong growth we're seeing, it still only accounted for one-third of all our flows, versus about one-half of the current assets under management in the global retail book of business we have.

This points to the high level of growth that's being achieved in our SICAV offshore range, particularly in Europe and Latin America, as well as our US retail business, our US mutual funds.

And in institutional, we have seen inflows in the first half from clients in the US, in Australia and in Japan. We're starting to see the broadening of our business from our traditional UK base.

One thing that is often overlooked is our ability to sell our regulated, open-ended vehicles to institutional clients. So there is some noise in these numbers where institutional clients have really supported us, especially in the absolute return funds, so some of the retail flows we show here are really sourced from institutional clients, though at the same margin as our retail clients I would add.

Looking forward at the product pipeline, a couple of key themes emerge. Firstly, we've been looking to develop new capabilities. For example, over the half, we've established the emerging market corporate bond and also the global corporate bond SICAVs. And we're balancing that with an extension of our existing strategies, mostly in the alternative space.

So we're launching an offshore Cayman vehicle in the global long/short equity space. We're also launching a global long/short [usage] fund, as well as an international opportunities long/short fund in the [40 act] space. For the first time, we'll have a long/short equity fund in the US market.

Bringing together a mix of new ideas and scaling up the existing strategies and capabilities is what we've been seeking to achieve over the last six months.

If I turn now to institutional, in the institutional business there's definitely a turnaround underway, though I would still say we're facing some headwinds. For the foreseeable future, we expect an annual outflow of around GBP700 million from mandates that are either in runoff or from maturing structured products.

Added to this, we know that a couple of large clients are planning to restructure their portfolios as they implement Solvency II, which could lead to a change in the mix of required product, as well as manager changes. These could be a positive or a negative for us.

However, we are also seeing good early signs of the growth we are confident we can achieve in our institutional business in the medium to longer term. For example global equities, which is run Matt Beesley, is winning mandates ahead of reaching the key milestone of a three-year track record.

We announced in May that Matt had been awarded a $140 million mandate by SEI, and I'm delighted to be able to announce today that SEI has awarded us two additional mandates which funded in July.

A third driver has been a return to positive flows in our offshore Cayman domiciled absolute return funds. Over the last 12 months, we've seen strong interest in our regulated usage of absolute return funds and it's great to see the offshore Cayman vehicles also now attracting flows.

At the moment, he's only small tickets but he's going into a broader range of styles, and is more evident of returning investor confidence, in particular towards his AlphaGen equity long/short strategies, as well as in our agriculture business, which has posted some great numbers for a number of years now.

When it comes to investing in our institutional business, we're making progress in building out our investment capabilities and also our distribution reach. On the investment management side, in global equities we're starting to see returns now on the investments we've made two years ago.

In the multi-asset side, we just yesterday announced John Harrison to join us a director in the team. He's joining us from UBS Global Asset Management where he was previously head of multi-asset over there.

In terms of global credit, as you will recall, our US high yield team has had a phenomenal start in regard to the investment performance, and we've recently expanded the team by adding investment grade capability over there.

In addition, we are expanding our overall global capability in credit by adding emerging market credit and hires have been underway there and the team being built out at the moment.

With the investment we are making on our investment capabilities, it is also appropriate that we are now developing our distribution footprint to support this. On distribution, we have been building out the Pan-Asian team and we've had new hires in Japan. It's pleasing to see the team over their winning their first mandate so far this year.

Exploring interesting opportunities to expand our presence in Northern Europe as well, particularly in the Nordics and Benelux.

And in the US, you'll see us build out the institutional sales team there under the guidance of Nick Bauer, who will join us from Geneva Capital Management when that deal completes on October 1. All in all, we're putting in the groundwork now to ensure that our institutional business becomes a more substantial contributor to flows in the outer years of our five-year plan.

If I turn now and look at the retail flows, we're experiencing a period where we are outgrowing the market. As you can see from the chart up here, there are always going to be swings from quarter to quarter, but I think if you look at the last 12 or 18 months, it gives you a sense of the range of quarterly flows that we hope to achieve going forward.

Behind these flows are two significant drivers; diversification and also increasing scale. If you look on diversification on this chart, what we've shown you here are the 12 funds that had net inflows of more than GBP100 million so far this year. And when you look at it, note the diversity, both by the fund range and also as well by the capability. Last year for comparison, we had 20 funds in the full year that had net inflows that exceeded GBP100 million.

We're also starting to build scale in our funds. You can see on this chart, it shows the funds under management that we have that have greater assets than GBP1 billion. These 13 funds contrast to where we were this time last year where we had nine funds at that level.

Henderson is well known to having a relatively large number of small specialist funds, so it's a good moment to point out that we're starting to build some quite interesting scale in our funds, which is important in an industry with a winner takes all type market. Also, the new capabilities we're developing are ones that will be able to be multi billion pounds in terms of capacity, moving us away from that specialist area that would have characterized Henderson of old.

In terms of investments, we're building scalable, globally relevant products, such as our global equity income franchise;, our global credit franchise; our global high yield business; global long/short equity, as I mentioned earlier; and also unconstrained bond.

We've also been investing in our brand and are delighted with the early signs of success we're seeing since the re-launch we did in January. For example, the product page views on our website has tripled and we've won various awards, including the AIC Investment Trust website of the year.

Our product development is becoming increasingly client driven, with client input now systematically built in to the product development process. This is clear evidence of the cultural change that's happening here at Henderson. We're definitely thinking bigger, more globally and always with the client at the heart of everything we do.

So if we dig down deeper into some of the channels and look at our UK retail products. This is the probably the area of greatest sense of achievement given the investments that we've made over the last five years. The second quarter built on the sales momentum we saw in 2013 and in the first quarter this year, with a whole wide range of products making significant contribution to flows.

To demonstrate that, we show you here the first half flows by the core capabilities. The key products that we sold in the first half included the Henderson UK Property Trust, Henderson Cautious Managed, Henderson UK Absolute Return, Henderson European Focus and Henderson Strategic Bond funds. All these products cover the breadth of our capabilities.

As you know, the UK market is still dealing with the structural change triggered by the retail distribution review. We have a very experienced team at Henderson, the majority of them brought in from New Star, and they have very longstanding client relationships and they've been navigating this changing landscape with great success.

This is down to their ability to engage with key decision makers, namely the discretionary fund managers, as well as the creators and marketeers of the model portfolios and the IFA community itself.

In terms of investment in the UK, it's really around backing our winners. For example, we're running an online campaign to make the Henderson Cautious Managed fund, which was the second biggest selling fund for us in the first half. It is now over GBP1.8 billion in size, having more than doubled from when the fund came to us from the acquisition of Gartmore.

Chris Burvill's doing a brilliant job on investment performance in his first quartile on a one-year, three-year and five-year basis.

Our level of client engagement has never been higher, with our busiest ever month of client events occurring in May this year. And our consistency of commitment to our UK clients is the key to us sustaining the long-term relationships that we currently enjoy and will also be the cornerstone of future success here.

If we look at the SICAV range, we did see a slowdown in the second quarter. This was driven by reduced client demand for equities and alternatives, counterbalanced to some extent by an uptick in fixed income. So mirroring what I showed you earlier at an industry level.

That said, we still delivered net inflows into SICAVs of nearly GBP600 million in the second quarter. And what's driving the success of our SICAV range? I thought it would be useful to highlight a couple of factors.

In Europe, one size doesn't fit all. So our broad range of products is actually a distinct advantage. For example, if you take Germany, it pays to have a Euroland fund rather than a pan-European product. Whilst in France, what we see is that client demand is more around the small cap offerings to complement the large cap funds that they typically buy from the local providers.

We're also seeing good growth from our global relationships; they're currently driving good flows into our absolute return funds, but over time, we're focused on moving from being seen as a niche supplier of absolute return offerings to more one of global offerings, which will command a higher share of their client portfolios.

Our SICAV range also sells well in Latin America, although the activity we saw was much stronger in the first quarter than the second quarter. In particular, we're seeing good growth from the offshore channel there and there is demand for strong risk-adjusted returns which our absolute return products are providing for clients there.

So where are we focusing our investment? The three areas I'd highlight are Latin America, Italy and Switzerland. In Latin America, we're adding on the ground resource in Miami to support the offshore channel. And in Italy, we're adding a couple of people to build strategic partnerships with the IFA or the Promontory network over there. And in Switzerland, we've added resource in Geneva to support our global distribution relationships who are mainly centered there.

Turning to US mutual. The flows we saw at the beginning of this year were exceptional, as investors reallocated away from cash and moved offshore and in particular, back to Europe.

Over the last six months, flows were driven by strong demand for European equities from RIAs and the wirehouses, and we were delighted to see, according to Morningstar, that we were the biggest seller of European equities in the period there.

Given our strong investment performance and the asset growth we've seen in the Henderson European Focus fund run by Stephen Peak, we announced in the market last month that we will soft close the fund to new shareholders by November in order to protect the performance for the existing clients.

Looking to 2015, we expect new business diversification to occur in our US fund range as two funds, our Henderson All Asset fund and also the Henderson Dividend and Income Builder, will reach their three-year track record and also receive Morningstar ratings.

So some key themes we're seeing in the market in the US. Firstly, there is a continued diversification away from fixed income towards equities and in particular, income biased equities, which are supporting flows into our global equity income franchise.

Secondly, we continue to see assets being repositioned towards international equities, which has helped the flows to both our Henderson International Opportunities and our Henderson European Focus funds. Overall, our growth has been well above that of the underlying market, and whilst we still expect to gain market share, we expect it to be at a more moderate level from here.

On the investment side, we're investing by adding additional wholesalers on the West Coast, and also broadening our product range. Last year, we launched two new funds, the High Yield Opportunities fund and the Henderson Unconstrained Bond fund. And we have four funds scheduled for launch in the rest of this year, including our first equity long/short fund in a [40 act] fund wrapper, as well as a new fund from the Geneva team which will come as part of that acquisition.

Now when you look at our performance charts, you can see decent performance across the piece. Equities' performance has suffered a bit on a one-year basis, as last year's winners pared back some of their strong gains. However, overall, we're having a very good period of performance and some of our managers are delivering exceptional returns, even in these markets.

In particular, I'd highlight John Bennett, whose large cap funds have navigated these markets very well. Fixed income has been pretty steady and it's good to note that our new recruits in the emerging markets and the high yield side are starting to contribute valuable ideas to our global funds. It's really great to see how much the collaboration is coming from those new hires.

In Alternatives, we've also navigated the challenging markets pretty well and two of our largest funds, AlphaGen Octanis and Volantis are performing well ahead of peers. This was also recently recognized by winning the best overall group at the 2014 Hedge Fund Review Awards, as well as winning three individual awards for best in category.

We recognize that our core capability will not always perform equally, but the diversification we have in our range and which we continue to invest in as you see, provides me with confidence we can sustain the good growth across all of these capabilities.

Before I conclude and hand over to Roger, I just want to spend a few moments on regulatory matters. As you can see, we are in the midst of implementing a whole slew of regulatory changes with wide-ranging impacts across our business. We're not complacent, but we do have the scale, the expertise and the track record to be able to navigate these regulatory changes successfully.

Most of the regulatory issues you can see here are in green. So whilst they're challenging, they're well underway within Henderson and will have minimal impact on us in our business. The two challenges I would highlight are Solvency II and MiFID II .

Solvency II, as I already mentioned, is highly significant for our insurance clients and may change their required product mix. So although it will have less of an impact on us, it will have a big impact on our clients and can therefore have a knock-on effect, especially in regard to the products that they will need.

The major unknown is MiFID II, which we now know may include pan-European unbundling of research and dealing commissions. My view is that we have a very long way to go before we reach clarity on this one, and it's really too early to be trying to draw any conclusions, particularly around the likely impact on our P&L.

So to conclude, I'm very pleased with the progress that we've made in the last six months, really over a number of fronts. Investment performance is doing really, really well. We've also been gaining market share in the flows that we're seeing, and we're investing in growth exactly as we told you we would in February, which will set us up well for the years ahead.

I'm also really pleased with the quality of people we have joining the business over the last six months. The talent that we've been attracting has been phenomenal. And looking at markets, they've largely been supportive and we're very happy with the level of client activity that we're seeing.

I'll come back at the end to talk a little bit more about the outlook, but for now, I'd like to hand over to Roger.

Thanks, Andrew. I'll start by looking at what's driven the rise in our underlying profit before tax compared to the first half of 2013. I'll talk about each of these line items in more detail in the following slides, but in summary, the biggest driver behind the increase in our underlying profit is the growth in our core revenues, our management fees.

This is the flow through, with a time delay of course of four quarters of positive flows as well as the positive investment performance. Performance fees were strong, but down on an exceptional first half of 2013. JV income includes for the first time the inclusion of one-quarter from our 40% share in TIAA Henderson real estate.

And as we've told you we are investing in the business; the result being that our fixed compensation and our other expenses rise in line with the guidance we gave at year end.

Our variable compensation increases given the strong forward-looking indicators of the business, particularly flows, as well as new hires and the increased cost of share plans.

I'll now give you some more color on these results.

Looking at our income first, I'll talk about the key drivers of this year's result and then point out a couple of things to bear in mind looking forward. Management fees rose 21% to GBP193.7 million driven by the flows that Andrew's just talked about, as well as investment returns. I'll show you later that our revenue margin has also moved up a little.

Given the strong investment return for our clients, performance fees were a pleasing GBP45.2 million, but were lower than last year. And performance fees at Henderson should not be considered as a one-off item given the diversity of the book as I'll show later, but irrespective represent only 17% of our income.

And whilst management fees represent around three-quarters of our income, and therefore performance fees is the bulk of the remainder, it's worth saying a word or two about the line that we now call other income.

The major component of this is our general administration charge. This is a charge to cover the costs of the administration costs of our UK products. We implemented a reduced rate in August 2013 to ensure that there was no over-recovery and the flow through of this is what you're seeing driving the 4% decrease in this line year on year.

This line is now effectively a recovery of a cost, and you should expect to see it roughly flat going forwards.

Moving down to look at income from associates and joint ventures, this now includes the share of the second quarter profits from TH Henderson Real Estate which is GBP500,000 after some startup costs. Within the JV, the combined management team has made good progress on bedding down the new operational infrastructure and is focused on growing the investment capabilities and distribution reach.

And on the subject of joint ventures, we've announced that we're selling our 50% holding in Intrinsic Cirilium to Old Mutual Wealth which is expected to complete in the fourth quarter.

This means that going into 2015, we'll lose our share of the net management fees from the JV which were GBP2.2 million in the first half, and in addition our share of the JV profits which were GBP1.5 million in the first half.

And one final point to make sure you are aware of, the increase in finance income in the period was principally driven by seed capital gains of GBP1.6 million.

Given the uncertainty of producing these returns, I suggest you avoid modeling them looking forward, and I'd expect normal full-year run rate finance income excluding seed capital gains to be around GBP7 million.

Andrew has given you a lot of color on what's driving the flows across the various segments of our business, and to complete the picture on management fees, I wanted to look at two things, the AuM that drives the management fees and the trends in the management fees.

This slide shows the movements in our AuM in the first half, with property broken out to show you the effects of the transactions that we completed on April 1. A net GBP6.7 billion comes out with the AuM transfer to TIAA Henderson Real Estate being replaced by our 40% share in the JV. Now remember you need to back out that JV AuM when you calculate management fees and management fee margins as that JV income comes through our P&L line in terms of after tax profit only.

So the closing AuM on which to base your management fee calculations is the GBP69.5 billion on the right-hand side.

Now let's look at management fee margins. As you can see, our management fees have moved up slightly to 58 basis points. This is driven by a mix shift towards retail and within retail sales of SICAVs and US mutuals which attract a higher fee margin than our UK range.

I have split out here the fees for our retail and institutional businesses which show that our retail margins have remained pretty constant over the last four years. That said, we continue to expect to see pricing pressure of around 1 basis point or 2 a year in our UK range over the next few years.

We exit the half with a run rate of around 58 basis points and would expect this to remain relatively stable for the remainder of the year.

Moving on to performance fees. You can see from this chart that we continued to earn performance fees from a wide spectrum of sources, albeit at a lower level of the first half of 2013 when markets were more buoyant.

Compared to that outstanding first half of 2013, we saw lower performance fees in our SICAVs, UK OEICs and investment trusts, but saw good growth in our offshore absolute return fund ranges.

The diversity of fees by strategy and product provides us with confidence of the Group's ability to generate performance fees in the future.

So what is our expectation for the second half? A question you always ask. Well the first half is usually higher than the second given the timing of crystallization dates. So achieving around half of the first-half level in the second half would be an excellent result.

And I know lots of you have asked for more information around performance fee generation; we've added a new slide in the appendix on page 53 which I hope will help.

Moving on to costs; the key message here is that we're doing exactly what we said we'd do in investing in the business. Our fixed staff costs are up 9%, tracking to be up at 10% year on year as we guided in February. This increase is principally down to new hires, as we invest in the business to deliver on our growth ambitions.

Our variable costs are up 18%, rewarding the strong leading indicators of our business, flows and investment performance, and in addition, our new hires have a variable comp impact, and our share price performance means that the P&L costs of our share schemes has risen.

Non-staff operating expenses are in line to be approximately GBP17 million higher than 2013 as we guided in February. As a reminder, this is made up of GBP7 million of one-off benefits that we saw in 2013 which will not recur, as well as GBP10 million of investment spend in 2014 in areas such as marketing, and technology, as well as some volume-related increases.

For your information, within the first half, non-staff operating expenses we recognized a GBP3 million gain in the first half of last year, GBP3 million one-off benefit in the first half of last year, and in this half around a GBP1 million one-off cost.

So what does this mean for our key ratios? Well as we've previously indicated, 2014 is a year around sustaining the growth in flows and revenues and investing for the future. The combination of that means that our margin at 35%, and our compensation ratio at 44.6% stayed pretty constant with where they were last year and are what you should expect to see for the full year this year, before expected improvements in the future.

In terms of EPS and dividend, I'll start from the underlying profit on continuation -- the continuing operations and work down the page.

So discontinued operations, this shows the first quarter's profit from our property business in 2014 before the transaction was completed, compared to two quarters of profit in the first half -- sorry, two quarters of profit in the 2013 comparator.

It's a little lower than we expected given some performance fees and transaction fees were not achieved.

Our underlying tax rate has increased to 14.1%, moving up towards the UK rate.

And the weighted average number of shares on a diluted basis increased by around GBP50 million as the increase in our share price moved more schemes into a dilutive position.

The combination of the higher tax rate and number of shares caused a slight reduction in continuing underlying diluted EPS.

As Andrew said, the Board's declared an interim dividend of 2.6p per share.

And you remember that in the past, we took a formulaic approach to the interim dividend, setting it at 30% of the prior year's full-year dividend, so on the old basis the interim dividend would have been 2.4p. The Board now sets the interim dividend on a forward-looking basis, based on its view of the business performance and its momentum.

As an aside, don't assume that the percentage increase in the interim compared to last year is a good indicator of the full-year dividend increase, it's also a result of the change in methodology.

So looking forward to the full year, Henderson will continue to pursue a progressive dividend policy and having rebuilt its dividend cover and its capital strength, it will align its decision on the dividend with the performance of the business.

Turning to cash flow, we had strong free cash flow from our underlying business which more than offsets the payment of dividends to shareholders. We're putting more seed capital to work to support our strategic priorities, and for example have recently seeded total return bond funds in the US and Australia.

And last but not least, the June cash figure is boosted by the proceeds from the TH Real Estate transaction which will in part be used to fund the purchase of Geneva Capital.

I thought it would be useful to give you an update on that transaction, and to reiterate its effect on our capital position. We're moving well towards completing the Geneva transaction on October 1, with strong client feedback and client consents one month in already above 40%. We're excited by the opportunities that lie ahead, as are our new colleagues in the US.

And in terms of our capital position, you remember at the full-year results I reminded you that we have a waiver in place until April 2016 which broadly means that we do not need to deduct acquisition-related goodwill from our available capital.

And I said that ex acquisitions, we'd be ready to meet our capital requirements without the waiver by the end of 2014.

The Geneva transaction's pushed that back a little, but not far, and we still expect to be able to meet our capital requirements without recourse to the waiver at some point during 2015.

So to conclude, I wanted to show you the timeline of the investments that we have made and are making in our business to achieve our stated goal of doubling our AuM over five years.

Andrew's talked about the benefits we're seeing from the early investments in New Star and Gartmore, as well as that we're starting to see flows into global equity following the investments we made there, starting in 2012.

We've made significant focused investments over the prior two years -- over the last two years, which are unlikely to see much flow this year. But some of which should start to generate flow in revenue in 2015 and the others in the medium to long term, delivering that leverage into the business that we need.

So in conclusion, this is a strong set of first-half results for Henderson and we're positioning ourselves for significant revenue and profit growth in the medium to long term.

I'll now hand back to Andrew.

Thank you, Roger. Just a few words from me by way of summary. This clearly is a good set of numbers and our business is performing well in both absolute and relative terms.

Operationally, our progress this year is bang in line with our expectations. We're investing as we said we would for organic growth in the years ahead, and I'm delighted with Geneva to have found an acquisition here that will really accelerate our growth plans in the US.

The market backdrop remains supportive and client activity levels are good. Flows in the first half of this year were strong and reflect a number of positives coinciding at once. You can see our investment performance, the return to European products and also a re-weighting back to risk assets, as examples.

If we look at July, it has been consistent with the second quarter run rate. We now have the holidays approaching in August so things may slow down, but I'd say, given our investment performance and the product suite we have, I remain confident that we can continue to deliver on the growth aspirations we have in the future.

At that point, I'd like to pause and hand over to any questions. We'll start with any on the floor first. If you just wait for a microphone to be picked up by those listening in, and then we'll go to the operator for calls.

Arnaud Giblat, UBS. A couple of questions please. Firstly, on your five-year plan. You're targeting 6% to 8% flows. I was wondering if you could maybe break it down into three buckets. What proportion of those flows will come from the existing business, without the investments; what proportion will come from your new fund launches; and what proportion will come from your new geographies?

And secondly, on management fee accretion, I'm wondering, given what you said about institutional attracting flows from alternatives, from global equity, and outflows from Phoenix, probably and other lower margin businesses. Could you give us maybe a bit more color around what management fees the new businesses -- sorry, the new flows are coming in at and the outflows are going out at?

So taking that breakdown of flows, to try and predict what our flows will be over five years and then to break it down by products, new, old, unlaunched, unyet even thought about, is quite frankly, something I couldn't do.

I would say that to achieve the plan that we have, everything is in the business today. So the first thing I'd say, this isn't based on hiring or building new capabilities. That in particular is driven now that we have announced the Geneva acquisition.

That said, some of those capabilities, whether it's emerging market credit, whether it's high yield, whether it's the Geneva business, will still take a while before they deliver flows, so they may be at the back end of that.

It will be a mix of existing products and also the new products. It's fair to say any new fund you launch, we don't have any expectations for flows really to come until after three years. And it's really; three you start to see some traction; four you start to hope to get a pickup; and five year you start to get into the bittersweet spot, if you're delivering the right product and performance for that.

So I guess the way we look at it in terms of over the five-year period is, we can see good momentum and visibility of our existing product ranges and we know that the capacity in there, and we've seen that, what you see in the first half, and we believe that will carry through in 2014 and into 2015.

Then what we've done is made a number of investments and I think Roger's slide was very good at showing you that, of where those investments have been made, whether it's some of the investment capabilities such as global equities or high yield, or some of the geographies such as the Australia build-out, that will then sustain us or give us visibility in 2016, 2017 and 2018.

It's not saying what we are seeing now can't continue, but if it doesn't, that's where it will come through from.

We would expect that institutional will drive a bigger proportion at the latter end of the period than they are at the moment. So even if retail was to slow, and you remember -- look at our retail flows. They're well above what the industry is doing in retail. So we are definitely gaining market share in the core markets.

So even if we are seeing a slowing in retail, we are still seeing it from a position of strength and we still believe we'll take market share. I'm not getting too worried about any sort of noise in the retail numbers, but institutional you'll start to see that moving up.

You mentioned some of the outflows we're seeing in there. I'd say that that period is probably more pronounced between 2014 and 2015 and then will lessen, as particularly things like the structured products we'll see they will mature and then that's it. And the run-off we would see in some other clients, we'd expect to start to moderate. And you're right that those outflows are at lower margin, on average, than the existing institutional margin.

To your point about what is the management fee for institutional and how the mix is changing; on retail we have great visibility because actually the retail ranges are quite tight in terms of what we get on them. Institutional is a pretty broad church, and the range within that is quite broad from everything from our global equities and our hedge fund business is in there, earning obviously significant fees, to enhanced index products and some of our products earning in the sort of single-digit fees. So there's a real mix, it's really hard to give you an estimate.

I think one of the reasons you did see an uplift in the institutional fee, half on half, was driven by those outflows at lower margins and the inflows being at higher margin. But to say that that's going to trend and where it could go to, it's probably too early to say because it just really depends what you sell and where you sell it at.

Arun Melmane, Canaccord. When I look at your five-year target for where you think your AuM will get to, and then when I look at the Institutional, you talk about Institutional actually coming in at the latter end of the five year. And then I look at your performance numbers over your core capabilities on GBP74 billion, they look pretty strong.

So what do you think the problem is with Institutional and how can that be fixed to get the flows in, and why is it not pulling more of a weight in terms of the Group, rather than retail?

The second one I had was on the core capabilities in retail, you broke down what drove your flows and that was GBP900 million. But you've got GBP1.8 billion-odd in retail. So where is the rest of it coming from? Because I thought your core capabilities with high performance should generate more than 50% of the flows that come in so you must have something else in the AuMs that's driving another GBP900 million. Thank you.

I'll let Roger look up the question on flows because I think that's just because we're only showing you the top funds and obviously we have a broad range, but I'll let Roger just check that.

In terms of your problem -- what problem do we have with Institutional. I'd say really the issue has been, and we've spoken about this in the past, is that an Institutional business has really been non-existent in equities. Our equity business has been much more structured around retail propositions and retail managers. And in fixed income has been much more focused in the domestic UK market, or really only regional in Europe.

We've had gaps in our institutional range, such as emerging markets, which has been a big driver of client demand. So whilst you're right we're getting very strong investment performance, it hasn't been in areas that institutional clients have typically been buying. We've been addressing that. I would say our global credit capability now is fantastic. But it's still only been developed in the last 18 months. It's still going to take a while to really bed down.

That said, they are good. Because I just actually came back from the Philadelphia office where our US high yield and investment grade team are based and the collaboration that they have with our European business, our UK team, is phenomenal and this is a business that will be a very, very big business. The numbers are great; they're working well together. When you go and go through their process and how they're doing it, institutional quality, it will get there. It's just time, and you've just to keep showing the performance and showing the collaboration.

On equities, we're developing institutional grade product and Matt Beesley's probably the leading one in terms of the global equity capability, but also on the global equity income, which typically, institutional clients haven't bought income as much as retail clients, but we're starting to see some more interest in that. And clearly, the Geneva business is an institutional business, so [GEK] is this US equity capability, so we've got more in that space.

And then finally, in the multi-asset space, again, our proposition was predominantly targeted at the retail business and we're now moving into the Institutional side. John Harrison joining from UBS Global Asset Management will really help, as he's very, very well-known in the institutional space.

Rob Gambi, our CIO, who came from UBS Asset Management, again, very institutional in terms of his background and support he gives. So there's a lot of investments we're making in institutional side.

I agree with you, we've got good product and our performance is good. It's just a matter of time, which is why we say we're not going to see it necessarily in 2014. We're starting to see evidence of it because we're offsetting already outflows but it's going to be a little longer.

Do you want to talk --?

I'm not sure I totally follow but let me give you a couple of facts and if I don't cover it, please come back. Looking at slide 17 on diversification, now that shows the largest funds, so there's GBP4.2 billion of flow out of around GBP4.6 billion of retail flows, is coming from those 12 funds. Obviously you've got a few negatives as well, but that's the biggest driver of retail flow, are those large funds.

If you look in the appendix on slide 51, you can see how our flow is broken out by capability. So looking at the five capabilities we have, there's a pretty broad spread of those flows between capabilities.

Does that cover?

(inaudible).

Peter Lenardos, RBC. Two questions; one on tax and one on performance. First on tax, how should we think about the development of the tax rate going forward? Your overall tax rate remains well below the UK statutory rate, and as the business becomes increasingly towards the US, federal and state taxes there are double the UK rate. So how should we think about that developing?

Second on performance, I noticed your one-year number, while still strong at 69%, has come down from 78%, outperforming since year end. Just reasons for that. Any concern that that trickles in to the three-year number. Thanks.

I'll let you pick up the tax rate and I'll pick up (inaudible).

On tax, tax rate 14.1% for the first half, and we previously indicated we'd expect to move towards the UK rate over time. So there is still some noise in those numbers. I can't predict exactly what it will be for the year but the long-term trend is up towards the UK rate, which has obviously been decreasing anyway.

You're right, we're adding businesses in higher tax jurisdictions, so the US and Australia primarily I would say. There is talk about the UK tax -- the US tax rate coming down so that would benefit us. But you're right, over the mix of that will -- you would expect to see that tax rate increasing a little over time.

But remember the biggest amount of our business is still here in the UK. Our fund management capabilities are primarily here in the UK, so the majority of our business is driven by UK rate and the way that our taxes are structured.

In terms of investment performance on the one-year, it doesn't bother me or concern me, not really. A lot of it is small and mid-caps that perform really well have given back. And if you actually look at the major indices relative to active managers year to date, the major indices are often top quartile or even higher in terms of where they're performing.

On a peer group basis, we're actually doing quite well. On an indices basis, I think the indices is just having a period because most people skewed away from some of the large cap and some of the (inaudible) that have done well -- that are doing well at the moment.

I don't think that that market condition -- none of us are worried about either the stocks being on the market positioning that's happening. What you are seeing in the market is a pretty odd market in terms of climb or share price returns based on the results that are coming through. So people are picking up on the negatives always rather than maybe looking to the longer-term trends. We're pretty comfortable on that.

I don't think it will impact significantly the three-year numbers clearly. Our softening one-year number will at some point drag that down a bit. But by and large, it's nothing that I worry about. And actually, what we're getting through the discussions we're having with the PMs is actually greater conviction in the holdings we've got. So there's certainly no either fear or change happening in the portfolio mix. It's absolutely being held throughout, and we're confident with the positioning, so I'm not worried.

Great. Thank you.

Neil Welch, Macquarie. I've got three questions; the first is on your point around Solvency II. Just to give us a sense of that, what sort of proportion of your institutional assets do we need to think about that may reallocate and maybe give us a sense of the margins around that?

Just to be a little bit more positive, what are the product changes you have made ahead of that, that would put you in a position to be net flow?

The second is in terms of the spread of business coming back into European asset classes, both credit and equities. To what extent can you give us some visibility how you feel? International clients are still under-allocated to European equities and European asset base, and particularly maybe whether you've seen any signs of the European retail client allocating more to equities.

I'm afraid the third point, which is just on your capital plans; in view of the Geneva acquisition and your new dividend guidance, could you give us an idea as to how much you feel that you can contribute in seed capital going forward, or whether the run rate we're at, at the moment is realistic? Thank you.

I'll pick up on the first two and Roger can pick up on your capital question there.

In terms of Solvency II, the biggest impact is the products that the insurance companies can hold that don't incur, effectively, a significant capital burden for them, which means their credit portfolios are more likely to move from relatively active, or even semi-active, to much more buy and hold. And that's the thing.

And once you go to buy and hold, it tends to be about well who's best at it, who do we have the best relationship with. So it tends to be a scale gain. So what you're more likely to see is, we have the capability to offer what they need so there's no problem in Henderson offering it. What you're more likely to see is the potential for consolidation of the managers that they have.

In terms of [booking] business for us, it's not huge. You're talking less than GBP2 billion as a total Group AuM, so it's not a big position. You're right that it could be a win because actually I would say our investment performance is very, very strong in fixed income. The reputation we have with our clients in this space is very, very good. So we could be someone who's seen as a winner in there, and that's why I'm saying at the moment, it's too early to tell if you're a winner or loser.

Even if you're a winner, your margins are likely to come down because the product says it's going to be less active, so it will be a lower fee. So you might find you get volume growth offset by revenue decline on that. You should still probably get growth in it but it will be at a reduced rate.

Why we're just flagging it is it's a big issue for clients. And ultimately, regulatory changes that affect our clients affect us, even if it doesn't require a lot of changes to what we do in terms of reporting and other things. That's why we were flagging that one.

In terms of what experience we've seen in Europe, I think the industry chart we showed at the -- showing the first -- the second quarter was half the run rate of the first quarter, we definitely saw in the first quarter a sense of we're very underweight Europe. And people just said, we're too underweight and they moved back in. And I would have said that took us not even halfway to normal weightings. So you then continue to see weightings go back in.

The European earnings season hasn't been great. If you look at -- whilst earning downgrades of 2014 have slowed from what you were seeing at the back end of 2013, if you look at the results coming through, they haven't been massively beating expectations. And actually if anything, they're probably by and large disappointed. So those looking from outside, so the Americas or Asians, are probably having a bit of pause in terms of the allocations they have done there.

For us as well, and particularly the US, given the strong growth we've seen in our European focus fund, having to soft close that as well is always going to impact our flows in that regard.

Europeans are being very supportive of Europe, and it is now the quieter period. Europeans are pretty much on holidays for the next four weeks, so we will see a moderation in that. But actually the SICAVs, despite having a weaker period in the second quarter, are still very strong, and our overall of the first half was the biggest business. And the biggest thing within that was European.

Interestingly, where we're also seeing is when people are getting worried about a slowdown in the equity side, they're buying our absolute return products. So they're seeing them as a good, more defensive equity play, whether it's our UK absolute return fund or our European Alpha Plus fund, which is a long/short fund.

So we're actually -- I think we've got a number of products that if you do get concerns over the equity growth, that are actually positioned well to be able to capture concerns in that regard, which probably wasn't Henderson's strength before. We've built out our fixed income side; we've built our absolute return space, which will enable us to offset any move away from very risk on assets.

On the capital side?

Yes, in terms of capital, it's an important use of our capital. The Board approved an increase to our seed capital late last year. And a lot of our seed capital in the past was used up with property and private equity, and over time, that will come back. But we are increasing seed capital.

One of the other things is that as we're launching more fixed income funds, they tend to be bigger ticket and therefore require larger sizes of seed. We would expect to continue to increase, but it's very much a prioritized process and we monitor that very carefully as to when we expect to withdraw that money and getting that out as quickly as we can in order to reinvest it.

Any sort of quantum that you could point us towards on an annualized basis (inaudible)?

Not -- 10s rather than -- yes. Low 10s.

Thank you. Thanks very much.

Nitin Arora, HSBC. A couple of questions. Firstly again on the Institutional side. You talked a bit about the product development for the Institutional clients. Could you talk a bit about where you stand in terms of distribution there; which areas are strong for you, and which are you looking to develop?

And then secondly a bit more technical. You talked about tax rate moving towards the UK; so let's say if it goes up by 1% every year you're talking about 5%, 6% hit to the increase in the rate on an absolute basis.

And then also, if you could talk a bit around the share-based payments. Because I could see your share count continues to increase by 4% or 5% every year. So what I'm wondering is if your PBT is up, let's say, 10%, and you have 5% hit because of tax rate, 5% because of share count, you are in a situation where earnings remain stable. So if you could talk a bit about that.

I'll let Roger pick up the last two. Just on your first point around the distribution investments we're making in Institutional. I'd say it's probably been the area we've -- is last of the investments that we're making in Institutional, because there's no point having the distribution footprint unless you have the product capability, and the product sits right.

So having now done that for a number of years, and been very happy with the progress we're making, it's now important that we do put that distribution footprint in.

You've seen that in Asia, for example, in Japan. We've pretty much rebuilt the entire institutional sales team there. We've had a complete turnover of that in the last 18 months; and pleasing to see they're now winning their first tickets down in that market.

Australia's been a big push for us in the Institutional market. Matt Gaden, Head of Distribution down there, we'll be adding additional resource on the Institutional side to support him.

Turning to America, we've really only got about three people on the Institutional side on the ground over there. With the Geneva Capital acquisition, we're going to take that between resources that they have; resources we have; and adding additional resource will take that up to nine. So quite a big boost in there.

And I mentioned earlier, also looking in Europe, particularly round the Nordics, round the Benelux and Nordics area, is an area we'll be investing in.

The UK we've got a really good team and footprint. We don't need to do any more there. It's really [backing that] international footprint better. They're the main investments we're going to make.

I still think even making those investments we will feel relatively light, institutionally. But let's make those -- see some progress on that first, and then add to it, rather than going any more aggressive than that at this stage.

On the tax point, the guidance we've given in the past, which as I say still sticks, is pretty much -- you're putting a number on it, but what we've said is that we would expect to move towards the UK rate, but stay below it over a period of time.

I've commented on the increase in our business outside the UK as well, in some higher tax jurisdictions. But yes, you're right. We would expect it to move up. It's what we said before; we'd still expect it to be the case.

In terms of share-based payments, we issue shares in line with the ABI guidelines. Some of those are starting to reach at the upper ends, and therefore we're buying more, rather than issuing. So that does cap out over a period of time. So it's not exactly as you're saying. You wouldn't expect to see that continue to increase. That does start to cap out.

Most likely from next year we -- given the re-build on the capital base in line, we'll likely move to all share purchases on market. So I think that dilutive effect that you've talked about in the last year or so is likely to be a current or historic problem issue not going forward.

Okay, thanks.

Daniel Garrod, Barclays. A couple of questions around the disposal of the Intrinsic JV. You're losing about GBP7 million of annualized total income from disposal of that. What's the contribution that that has made to your flows? Is it pretty immaterial as well? What are intentions around use of the proceeds from that disposal?

And you've made perhaps more of a noise around the Sesame JV a couple of years ago I think. How is that progressing? What are your intentions there? What is the contribution of flows from that JV?

I'll pick up on Sesame, and I'll let Roger go into the detail of the numbers you're asking about on Intrinsic.

In Sesame, we've heard the rumors that you've heard, that Friends are looking to exit the business. My understanding that that's a sales proceed -- it's at -- that didn't proceed anywhere. We have a very strong relationship with them. That business is more embryonic than the Intrinsic business. The Intrinsic business actually came to us following the New Star acquisition, so it had been a longstanding relationship; while the Sesame one was pretty much started from scratch last year.

It is contributing flows to us, and we have a very good relationship with them. If they were to go under a similar -- if they were to transfer, or be sold from Friends to a competitor, like happened with the Intrinsic, then we'd have to re-evaluate it, as we did with Cirilium.

However, if they go to a different party who also is similar to where Friends are, that don't have the asset management capability, then it's a venture that would continue and flourish.

So I think to speculate or think about it at this stage would just be wrong and not really fruitful. And at the moment, I don't believe they're looking at doing anything with that business.

On Intrinsic itself, you want to go --

It's a successful fund range. If you look at the numbers in the UK, then we're about GBP1.5 billion of flow in the first half. The detail we've given you shows the top funds. None of those funds are Cirilium funds, so you can see that it's not major. But there is a -- I'd describe it as a material percentage, as opposed to a major one if that helps, Daniel.

And in terms of the use of proceeds?

Sorry, use of proceeds. Yes, we're selling the business. That will generate cash. That's not a public amount. But you're right; the numbers that come out of our P&L, there will be a small amount -- a relatively small amount from the P&L gain that will add to our capital strength.

Thank you.

Any further questions from the floor?

Haley Tam, Citi. Can I ask a question about MiFID II? I know you do say that there's no consensus emerging on it yet. Could you give us an idea of what your thoughts are on it?

And perhaps linked, whether there are any operational changes that you have undertaken, or are considering, in response? Thank you.

Okay. I thought that might come from one of your other colleagues, rather than from Citi. But anyway.

MiFID II. Look, it's -- MiFID II's broad; 700-odd pages; there's a lot in it. Most of what's in it will have minimal impact for us, so some disruptive, some of the rem stuff in that is just niggly. But clearly the biggest surprise was the dealing commissions. And the reason it was the biggest surprise was where it appeared, which is as an inducement, which no-one was expecting.

People have had debates on this as a conflict for interest. We know for a long time now that the FCA has had in their view this as an issue. They've accepted the fact that the UK shouldn't go out on a limb on it; they wanted to get to a global solution. There is absolutely no way the Americans are going to pick this up. It's enshrined in law over there, and trying to get their legislative agenda to even consider this won't happen.

So the best the Europe -- the best the FCA could do would be try and get a European consensus. And it appears that they've somehow got some sense of doing that.

How they've got it through the inducement side is odd. It's created a number of real difficulties and challenges by doing it that way. A lot of the consultation papers, which are -- a lot of are public so you can see, are really challenging that it shouldn't be in there.

My understanding is, some of the other regulators across Europe are also concerned on it. So I don't think Europe are unified on its position that ESMA is coming out on this; but I [wouldn't] also say that the FCA and ESMA are pretty clear that this is going to happen. So in their eyes it's going into about how you deal with it, though I think they'll think we've got a lot of road to still cover before we go with it.

And if it moves back into conflicts, then I think it's an easier issue to deal with in some ways. And if you look at the recent FCA guideline, they've put out a note which in some ways is disappointing because they showed many funds not meeting what they would see as a current criteria. But they did show that several funds -- firms were at the level, or above the level, that they would expect.

Measuring ourselves against the criteria they set in there, we come out very, very well in terms of how we already set regular budget for research for all of our teams. We've been bringing those budgets down year on year. Those budgets have not moved based on AuM. Those budgets are a fixed, hard amount. We monitor it through the year; we allow there's some deviation, but once they hit certain levels we bring that down.

So we've a very robust way of dealing with it already. I do believe -- I can understand the issue around the point of view of making sure it's in there and that you are treating the client's interests well. And I do believe you can do that through both transparency and proper robust processes.

I don't think -- I think the regime that they're proposing, I don't believe there's any proof at this stage that shows it will be any better, and actually could have very significant detrimental impacts for the industry. It will create a very distinct disadvantage for the European asset management industry relative to global peers.

For clients, I'm not sure they get a better deal from this because actually, the likelihood is that research will become more difficult to acquire. We will either bring it in-house in terms of how we look to do it, and I actually think there's a strength in the way that the research is currently pooled and delivered on.

And then finally, from a Company point of view, research is likely to become more difficult for small and medium-sized companies which are only going to drive up their cost of capital and therefore it's going to be more difficult for them. And that's going to impact European growth overall.

So there's a number of consequences that can come from this that I don't believe anyone's done the full argument and the analysis on it. And we just need to have that. So I do think it's also a number of years away. MiFID II comes in in 2017; I cannot see how the debate will be done in a way in that time, but it's something that's going to evolve because it's clearly come out of not where we expected in the last month.

My position's fairly clear. I don't think it's the best thing for clients. I do think there are things the industry can do and I think Henderson's at the forefront of doing that, and we absolutely engage with trade bodies to promote that and our other peers out there in terms of ways to improve the overall image and how we deal with this.

And if it comes in, we'll just have to deal with it, but at the moment we're not having any -- it's too early for us to even say this is how we would definitively deal with it.

If there's no other questions from here, we'll go to the phones and get people who've dialed in. So if I hand over to the operator.

(Operator Instructions). Ryan Fisher.

Actually, my questions have all been asked and answered, so thank you for that.

Scott Olsson.

I've just got a question on the management fee margin. I know you highlighted the improvement that you saw half on half, but just relative to that exit margin in December that you highlighted of 58 bps, it's still quite flat, even though you've had close to GBP5 billion of retail flow through the half.

So I'm just wondering if you could talk about the dynamics of the flow through the half. I see that the retail margin is flat, but I thought there would be more positive mix coming through.

That's true. Some of the flows are coming in to our UK range are at the lower end of the fees that we get on the UK range. So the Henderson UK Property Trust Cautious Managed which have got strong flows are at the lower end of our fee range on the UK range. So that dampens it a little bit.

The other thing is GBP5 billion, but we're talking about a GBP75 billion book of business. So it's a very gradual change. There's a combination of things. As I say, we're at 58 basis points, you're right, we exited last year at around 58; we've obviously been adding on average at 58 and again that's a mix of things.

Some of the Institutional business that we won came in at a lower fee and we're exiting the half at 58 as well. I still would expect that to increase a small amount over time over the short term, I should say, over the next year as we're continuing to expect the growth to be primarily through retail before the Institutional growth that we've talked about.

I think there is upside potential from margin; that's the way we're going, but I don't want to drive that figure up too high yet.

And just to add, on the Henderson UK Property fund which you'll see was the best-selling fund for us in the UK range, because that's [a sub advice] to TH Real Estate, we actually only see half of the management fee coming to ours. Actually for a retail management fee, it looks very light relative to the book of the business. So a combination of that obviously has an impact on that.

Okay. And then to some costs. I know you've been quite clear on your expectations for 2014. I was just wondering beyond this, to support the platform that you're going to need to move towards this double AuM target, are you expecting that cost growth has to remain at a relatively elevated level for the next couple of years after 2014 or can it pull back to more CPI-type growth levels?

The biggest amounts of cost growth are investment in investment management capabilities, and the vast majority of those, as Andrew said, are in-house. Now we're talking about adding the distribution in order to match that investment management capability and reap the benefits of it.

And adding distribution is 1s and 2s here and there. So it's a much lower number. The other thing is -- the other area is in our platform and our platform here is a very global platform. There's things we're continuing to do there, but we do not need to do any major things in order to have a global platform for Henderson in order to double our AuM.

We will continue to see investment, but it's certainly not at an elevated level. That covers both the fixed staff costs and our other expenses; variable comp will obviously move in line with the results.

Okay, thank you.

(Operator Instructions). Nigel Pittaway.

Can I just pry a little bit further onto the operating margin first of all. I think what you said last year was that you'd encourage us to put in a similar operating margin number for 2014 as 2013, yet we obviously have had quite a fall in the first half 2014 relative to PCP.

Can you maybe just make a few comments on that, first of all, please?

Yes sure, the first half of 2013, Nigel, included that very dramatic, exceptional [PFI] number, a performance fee number, which drove up the op margin in the first half and also, as I said, included around GBP3 million of one-off benefits in our other costs line.

The guidance was around the full year, which was around 35%, and that's where we are both in the first half of this year, and as I've said, where we would guide for the full year this year before increasing over time.

And I would add to that, Nigel, that what you saw as well in the first half, if you look at the picture in terms of our flows in particular, changed dramatically half on half. So the variable compensation we'd set aside in the first half was relatively light given the end result that what we achieved. And that was why we made that up in the second half.

What you saw was quite a big swing in operating margin from first half to second half. What Roger's saying is we're expecting that the full year this year will be similar to the full year last year and actually the half-on-half shift should be much more the same rather than the pronounced moves you saw.

Right, okay. Thanks for that. Also, can we just be a little bit clearer on the way in which the share price actually impacts the variable staff costs. Because in the second half 2013 obviously you said that was a material factor, the share price was up 70%; this half it's only up 8%. So are we right in thinking that the right number to look at is the 80% between June to June, or how is that flowing through?

You're right. It's a moving share price and relative share price and what's that doing to the programs that have been put in place over the last three years and that rise in share price year on year were at a very different level in June 2013. There are a number of schemes which are now fully paying out which were not -- potentially were even at zero a year ago.

That's what's come through. Again, I would say that the vast majority of our schemes are now fully priced with the share price where it is now. Does that help, Nigel?

And just on the -- yes okay. And then just on the compensation ratio still. I think obviously you were saying that was going to be relatively flat and I see you've given more precise guidance, but I thought that was on the basis that performance fees were pretty much at the same level in 2013. Can you just maybe comment?

So performance fees --

Performance fees are lower, so I guess the question is performance fees are lower, so why isn't that being reflected in the comp ratio?

Our overall comp ratio, you see, is at 44.6%. Our compensation ratio on performance fees is slightly higher; it's in the high 40%s. There is a small difference there on PFIs, but it's not a major difference, it's the difference between 44.6% and nearer 50%. So that doesn't drive it as much as I think you're expecting, Nigel.

Right, okay, fair enough. Thank you for that. And then just maybe finally. Just on the comments that were made on go-forward margin, one thing that is noticeable is the Institutional margin has come down a bit. Is that the impact of TH Real Estate? Is that basically what we're seeing there or are there other things? I think your go-forward was 33% at December, it's 31% now.

These numbers are on a continuing basis, Nigel, so it's not the effect of TH Real Estate because that's stripped out of these numbers. This is the net effect of --

Yes, but you've got the 40% share in there.

No, not in these numbers, no. This excludes THRE, as I said. We need to look at -- we just take that in as an after-tax profit and that's why we're looking at the assets which we'll use for the management fee calculations is that GBP69.5 billion as opposed to the full GBP74 billion.

Right, okay. There's a footnote, isn't there? Yes, okay, so it's not that -- so what is it then, sorry?

It's the change in mix of business.

Right, okay.

There are no further questions on the telephones, sir.

Okay, well thank you for your time today. If there's any further follow-up questions, feel free to come to the team here under Miriam on the Investor Relations side.

But as you can see, it's been a good half for Henderson. Investment performance continued well. Flows and client activity remain strong and we expect to see momentum continue to support our ambitions in the rest of this year and into 2015. Thank you.