Janus Henderson Group PLC (JHG) 2015 Q2 法說會逐字稿

We might make a start if that's okay. Welcome to Henderson's interim results especially for those here in the room in the UK and also those of us joining remotely from Australia, Europe and in the US.

Today's agenda is up here now and what I'd like to do is take you through the first half results looking in particular at investment performance and flows. Roger will then take you through the financials and in particular about the buyback we announced this morning. Finally I'll talk to you about how we see the market backdrop, the regulatory environment and our outlook for the rest of the year.

So if I turn to our results in the first half, the highlights, the first thing I'd say is this has been a very strong set of numbers for Henderson. They show how well we're delivering on many fronts and also confirm that we're on track to reach our long term growth objectives that we set out 18 months ago.

Investment performance remains consistently strong with 83% of funds outperforming their peer group over three years. I'll say a little bit more on that in a bit more detail later.

We also had net inflows of GBP5.6 billion which was ahead of the GBP5 billion we saw this time last year.

Assets under management are up 10% since June last year to just over GBP82 billion. On a continuing basis, that is in other words if we exclude our stake in TH Real Estate, from last year's numbers, assets under management actually grew by 18%.

Underlying profit on continuing operations is up 29% and earnings per share are up 31%. Overall a fantastic result.

The Board has declared an interim dividend of GBP0.031 per share. As Roger will tell you in a little more detail later, we're launching a share buyback programme with an initial GBP25 million to be completed by the end of this year. This reflects our current view of the best way to deploy excess capital for the benefit of our shareholders.

So let's now turn and look at the assets under management movement in a little bit more detail.

So looking first at market and FX movements this picture looked very different at the end of May compared to the end of June. As at the end of May we were just under GBP5 billion positive in the period before market reversals in June wiped off GBP3.3 billion. The unexpected UK election result saw a bounce in sterling which was a key negative for us in the second quarter.

Flows by contrast were consistently strong across both quarters and I'll talk about this in more detail in a couple of slides on.

To complete the picture I'll talk you through the disposals, transfers and acquisitions that we concluded in the first half.

Our biggest disposal in the period was a sale of our 40% share in TH Real Estate which removed GBP5.7 billion of assets over the period. We do retain exposure to the property market firstly through our well regarded global REIT team and also our very successful Henderson UK Property OEIC which continues to be sub-advised by TH Real Estate.

Also included under disposals is the previously disclosed departure of Richard Pease and his European Special Situations Fund.

On the acquisitions side we had the merger of the old Mutual Property Fund into the Henderson UK Property OEIC and we increased our ownership of 90 West, a Sydney based global natural resource equity business from 41% to full ownership.

The last pieces of the acquisitions are Perennial Fixed Income and Perennial Growth Management which we announced in June and are on track to close in the fourth quarter. The reaction to these acquisitions has been universally positive, both the teams at PFI and PGM themselves, their clients, the research houses and consultants.

Rob Adams and the team down in Sydney are hard at work building out the infrastructure needed to integrate both PFI and PGM. They've been recruiting sales people and also expanding our global operating platform to make sure it functions in Australia.

Overall we're really excited about the opportunity that these acquisitions give to accelerate our growth plans in Australia. It also builds out our local investment management capability and to bring Henderson into contact with a much broader client base than we could have reached on our own.

If we move on now to look at investment performance, the headline here is that performance remains very strong with 83% of our funds outperforming over three years, the same percentage as when I showed this chart in February. On a one year basis we obviously can see bigger swings, 76% of funds outperformed compared to 66% at the end of December.

Fixed income is the area with a lower level of outperformance than we previously showed. The REITs side of the business is still positioned for a rise in government bond yields and also the Henderson Horizon Euro Corporate Bond Fund is more heavily weighted than its peers towards high yielding credit, which meant that it suffered more than most in the second quarter reversal. In both areas the long term track record remained very strong.

When I spoke about European equities performance at the full year I said it's pretty much as good as it gets. Well since then it's actually got a couple of percentage points better at both the one and three years' numbers. As you know it's asset management nirvana to have really strong investment performance coincide with a period of strong client demand. That is exactly what you're seeing in our business here at the moment.

This is also a good moment to move on and look at flows. You can see from this chart that we've delivered annualised net new money growth of 14% in the first half. This is well ahead of the 6% to 8% per annum growth in new money that we hoped to achieve when we set out our 2018 strategic ambitions.

Retail flows over the 10 quarters that are shown here have averaged GBP1.6 billion and despite a slowdown that we saw in June we're still well above this level in the second quarter.

If we look in a little bit more detail and start with institutional.

As you can see from the chart institutional flows were solidly positive in both quarters particularly in our UK business where we are competing really well. A trend we continue to benefit from is clients diversifying their existing fixed income exposure and reducing duration. We're working with existing clients to evolve their current mandates and also seeing good interest and new mandate wins for styles such as our multi-asset credit and absolute return bond funds.

Our activity with institutional clients continues to become more global and we are seeing institutional flows in the first half in France, Scandinavia, Asia and the US as well as of course the UK.

In the round, the quality of our institutional business continues to improve. I should point out that we are seeing a higher level of client activity in fixed income mandates of late as clients seek to position themselves and their portfolios for an inevitable rise in interest rates. On one hand we're benefiting from this with several of our strategies such as multi-asset credit and absolute return bond doing well but we're also seeing longstanding mandates being switched or reduced regardless of strong performance and service. This has led to a pickup in growth flows but also in redemptions although I would add that the direction of travel remains encouraging.

Moving on to look at UK retail we were delighted to see our progress recognised a few weeks ago when Investment Week, probably the most influential publication for our UK client base, named us the global group of the year. The citation referred to our strong fund performance, a growing brand recognition and strategic acquisitions that widen our investment skill set, which is a real testament to the hard work across multiple years and multiple teams here at Henderson.

The biggest category for net sales in the UK over the last two quarters has been alternatives as clients continue their search for income and also strong risk adjusted returns. The Henderson UK Property OEIC remains the dominant contributor for us with no ill effects from the change in ownership structure of TH Real Estate. There were good flows too into Henderson UK Absolute Return, one of two Henderson best in class winners also at the Investment Week awards, the other being our Henderson European Focus Fund.

You can see on the chart that European equities was negative in the second quarter. This was because we saw an outflow of just under GBP100 million booked to the European Special Situations Fund just before Richard Pease's departure in June. It's really pleasing to note that the way we handled Richard's departure has been widely commended by our clients, giving them plenty of notice and therefore plenty of time to take the necessary decisions.

Overall in our UK business we're seeing strong growth sales balanced with some profit taking after strong returns. With client demand strong in property absolute return, European equities and high yield we continue to be well positioned and to deliver net new money growth ahead of the market.

If we turn now to our SICAV range which is in its fourth consecutive year of positive flows, we continue to generate net new money growth ahead of the industry with the diversity of our product range helping sustain flows in periods like this when we see high levels of rotation between asset classes.

European quantitative easing has clearly been a dominant driver in the period but it's interesting to note that QE has driven flows into SICAVs from a broad range of clients from as far afield as Latin America and Asia. It is not just our product range that's globalising but it's also our client base.

Looking forward, the diversity of our product range should help sustain our SICAV flows even in volatile markets. We're starting to see client interest in new and developing styles, our emerging markets and Japanese equities for example, which are at their very early stages but will build even greater diversification in the longer term.

Last but not least let me turn now to US mutuals. This has been a great couple of quarters for our US business in which our US team is justifiably proud of being within the top three active fund families. This is across all investment categories not just the ones we compete in on two major dealer networks.

On the right hand side of the chart I've repeated the information we showed you at the full year about when our newer US funds achieve their three year track records. Dividend and income builder turns three at the end of August, is already over the GBP50 million assets under management mark and looks set to have a five star Morningstar rating when it hits that milestone and is in a very large conservative allocation category.

As you can see from the slide global equity income is already selling well and we're confident that dividend and income builder will prove a really useful complement to that product.

Whilst we're looking at the US business I'll broaden out from our US mutual flows to make a quick comment on progress at Geneva Capital Management. We closed the acquisition in October last year at a time when they were experiencing outflow and negative performance. I'm pleased to report there's been a substantial improvement in investment performance so far this year as their quality growth driven investment style returned to favour.

Geneva is still in net outflow but outflows are slowing considerably. Consultant holds are coming off and we've been awarded our first new mandate since the acquisition in the small cap area where the pipeline is now starting to build. We've been pleased ever since we closed the acquisition with the way Geneva and our existing US business have come together and it's great to see the people and investment style we bought into really starting to deliver.

In summary our US business is travelling well and there's a lot more in the pipeline.

If you look at this slide it looks at flows from the perspective of our five core capabilities and proves an interesting snapshot of development of each of our capabilities. As you'd expect our strongest flows in the first half came from European equities. What's interesting is the diversity within the European equities space where the top five funds in terms of net sales are run by four different managers. I'd describe European equities as our most complete business at this point.

Global equities is still a work in progress. Within this capability we have teams who are attracting strong client demand, our Global Equities Income Fund that I mentioned just before, international opportunities also in the US mutual space and Henderson Cautious Managed here for the UK. There is also a couple of funds where performance hasn't been as good. Henderson Horizon Global Property Fund and the Henderson Global Technology Fund have had a more difficult period of late.

We've invested over the last few years to boost our global equities capability organically in Matt Beesley's team, the Asian team headed by Andrew Gillan and the emerging markets team under Glen Finegan, also through the acquisition of Geneva in the US and now Perennial in Australia. The good news here is that Matt Beesley's performance has turned around and we're starting to get reverse enquiries in areas such as emerging markets far earlier than we would have expected.

Our fixed income business is adapting well as clients look to diversify their fixed income exposure. We saw strong flows into actively managed strategies such as Henderson Horizon, Euro Corporate Bond Fund and also the Henderson Strategic Bond Fund as well as into the buy and hold institutional mandate we talked about at our full year results in February.

Our US High Yield Fund will hit its three year track record next year with excellent performance to date. We're also excited about the Global Credit Fund that the team in Philadelphia have enabled us to now launch.

Multi-asset is another business in transition with the UK retail joint ventures winding down small outflows from our mature multi-manager range and small inflows into the newer diversified range. The team are developing interesting propositions for both retail and institutional clients but there's still a way to go.

Last but not least is alternatives. This is a massive area of strength for Henderson and one which we continue to develop. The top selling fund in this capability was the Henderson Gartmore UK Absolute Return Fund followed by the Henderson UK Property OEIC both of which had net flows of over GBP400 million in the half.

I hope that gives you a flavour of the key strengths, diversity and potential we see within our business.

To sum up my section we're on track with the ambitious plan we put in place to grow and globalise our business. We're ahead of target on net new money growth and continue to gain market share in all of our major markets. Investment performance remains strong despite rocky markets of late. We're broadening our global reach both through our acquisitions in the US and Australia and organically as our product line and our client base expand.

With that I'll hand over to Roger who'll take you through the financials and talk a little bit more about the deployment of capital.

Thanks Andrew and welcome everyone.

Building on the record flows and consistently strong investment performance which Andrew's just talked about I'm very pleased to report a 29% increase in underlying profit before tax in the first half of 2015. The key number is the one the top, the 19% increase in our management fees driven principally by those strong flows. Performance fees and other income are also up.

Income from associates and joint ventures has declined compared to the same time last year reflecting the exit of the intrinsic joint venture here in the UK as well as reduced profits from TH Real Estate before we sold our 40% stake in June.

Finance income was boosted by GBP9.1 million gain on the seed capital we had invested in property funds which we've now sold to TIAA-CREF. We had around GBP22 million of seed capital in property this -- out of our seed capital budget around GBP125 million this will now be re-invested in our core business.

Costs rose in line with guidance and I'll talk with costs a little bit later in the presentation. But for now let's stick with revenues and look at management fee margins.

As we signalled they would in February, our average management fee margins have fallen slightly in the first half driven by a variety of factors. These include the increased volume of lower fee institutional business in the mix, for example the big buy and hold mandate which we told you about in February and the ongoing role of our private equity business. At 56.7bps, the blended management fee margin is higher than the 55bps pro forma that I talked about in February, primarily because of the strength of our high margin retail, equity business. It's pleasing to note that our retail margins, if you look in the middle of the chart, have stayed relatively constant for the last five years.

With the reductions due to the change in business mix that I talked about in February largely behind us I'd expect margins to remain at a similar level for the full year, subject to markets and flows.

Moving on to performance fees. You can see that our performance fees continue to be earned from a wide variety of strategies and products, 32 different funds to be precise which gives us confidence in our sustainability. Performance fees accounted for 16% of our net fee income, a level of which we're very comfortable particularly given the fact that a greater proportion of performance fees crystallised in the first half over the second.

We have previously told you that our performance fee bonus ratio is usually somewhere between a third and a half. We're at the top end of the range for this period because of the high proportion of performance fees earned from the long-short as opposed to long-only styles. Also bear in mind that there's more long-short money than just shown in the offshore absolute return funds here, the vast majority of performance fees from SICAVs were in long-only and the entire UKOEIC's performance fees are from long-short strategies.

Moving on to costs, our fixed costs were up 11% compared to the first half of 2014 and I still expect an increase of 10% for the full year in line with previous guidance. You will remember that we said around 3% of this rise comes from the inclusion of Geneva, 3% from wage increases and the remainder from the investments we made in 2014 and some limited investments this year.

Variable costs are up 19%. This is the outcome of our remuneration schemes rewarding the strong business results. In particular those critically important elements of flows, which were better, investment performance, strong, driving strong performance fees which were higher, particularly in alternatives. These very strong results explain why our variable compensation has risen more than other elements of our cost base. The last factor I'd mention here is the rise in our share price, which contributed around GPB3 million or 4% to variable staff costs in the period.

Non-staff operating expenses were up 10%. As we capitalised on the strong sales momentum and continue to build out our global infrastructure, in part, to accommodate regulatory change.

We're below our full year guidance for the first half and I expect our full year growth in this line to be no more than the 12% we signalled in our full year results from the normalised 2014 level of GBP105.6 million.

So to summarise cost discipline continues to feature strongly in the way we run this business. There's sufficient discretion in our fixed and variable cost bases to allow us to make adjustments, if we need to, to respond to any changes in market or business conditions. But for now it's pleasing to see the strong revenues outweighing cost growth so we can start to deliver the operating leverage that I'm going to talk about now.

I've talked about what's driving the compensation ratio so here I'm going to focus on the operating margin and I'm really pleased that this has moved up by nearly a per cent in the first half to 36.3% driven principally by that strong top line growth. Bearing in mind that performance fees are weighted more towards the first half and there's a little bit more to go in non-staff costs in the second half over the first, we'd expect operating margins to stay around this level for the full year. There's also no change to our guidance that we expect operating margins to reach 40% over the course of our five year plan, markets permitting.

Moving further down the income statements, the lines I wanted to focus on on this slide are the tax rate, EPS and the dividend.

Our normalised tax rate for the first half was 13.3% but without one-offs our normalised rate is 15.4%. This is consistent with our expectations when we talked to you in February when we said that our normalised rate could rise by as much as 250 basis points from the 13.4% that we reported in 2014.

In the second half of 2015 there could well be further one-offs, so I'd expect our full year tax rate to also come in around 13%. But I would reiterate that we continue to expect that changes in global tax policies, as well as our increased profits from higher tax jurisdictions particularly the US and Australia will push up our tax rate over time and I'll provide more insight on this with our full year results.

Earnings per share for the half were GBP0.089 up 31%. This increase reflected a number of factors the most significant being the increase in underlying profits but also a lower tax rate, lower dilution from share schemes and our decision in February to buy rather than issue shares to meet share scheme requirements.

In setting the interim dividend, we looked at EPS excluding the GPB9 million one-off seed capital gains for the property funds that I mentioned earlier. On that basis EPS rose to GBP0.081 which led to the Board to setting an interim dividend of GBP0.031 up 19%.

Turning to cash and capital. You can see from this table that our net cash position continues to improve. Cash calls in the first half included the full year dividend and share purchases to satisfy share schemes. These were counterbalanced by operating profits and the proceeds from the sale of TH Real Estate. I'd expect operating cash generation for this year to follow a similar pattern to 2014 when three quarters of our operating cash was generated in the second half. Offsetting this will be the cash outflow when the perennial transactions close in Australia, we'll likely re-invest the property seed capital into our core business and we'll complete the buyback that we've announced today.

As far as future uses of cash are concerned, you'll remember that we've committed to pay GBP150 million of senior notes when they fall due in March 2016 from our cash resources.

Now, turning to look at our capital position. You'll remember that we're still operating under the waiver from consolidated supervision which remains in place until April 2016. The numbers we're showing you here are internal calculations without the waiver and won't be officially sanctioned by the regulator until our ICAP is signed off -- on May 2016 ICAP is officially signed off.

You'll see that we've moved to a strong capital position during the first half with the improvement driven principally by the first half profits and the sale of TH Real Estate. Note that the total capital figure that we've shown here also deducts the first half dividend and the share buyback.

So, to end, I wanted to update you on our thinking about uses of capital in light of today's share buyback announcement. We're committed to the active -- an active management of our cash and capital resources, so what you won't see us doing is sitting on a cash pile or building a war chest. When it comes to deploying capital we'll look first at opportunities to invest organically in the growth of our business or to invest in inorganic growth. When capital generation outweighs these options we'll return surplus capital to investors.

You've seen us successfully invest organically in new investment teams and other parts of our business over the last few years and we're delighted to have found acquisitions in Australia and the US to further accelerate our business. I'm sure there'll be more opportunity to invest in organic and inorganic growth in the future, but for now we've decided that this is the right time to initiate a buyback program given our strong business performance and position of capital strength. Accordingly, we intend to buy shares to the value of GPB25 million across our UK and Australian listings by the end of this year.

With that I'll hand you back to Andrew to summarise and conclude.

Thank you, Roger. As we conclude I thought it might be useful to spend a few minutes on how we see the market backdrop and the regulatory environment before we talk about the outlook for the Group for the second half.

Talking to our investment managers they're still fairly positive on markets with the June reversal having corrected the overconfidence which built earlier in the year. Major western economies continue to stabilise and improve. In Europe growth forecasts have withstood the test of Greece and continue to edge higher. This said, investor confidence remained fragile. There is significant implementation risk in Greece, the market volatility caused by China and the commodities market and the spectre or interest rate rises from the US are all weighing on sentiment. It is this lingering sense of caution that could keep investors on the sideline in the third quarter.

Key themes in our discussions with clients include how to position for rate rises and the end to QE as well as liquidity in fixed income more generally.

If we are moving onto the regulatory environment our sense is that levels of engagement with the regulator across the asset management industry continue to increase, specifically here in Europe. We've taken steps already to make sure that we are resourced to respond to this increased level of scrutiny so it's not surprising that around a quarter of the people we are expecting to add this year will be in risk and compliance roles. As well as more active engagement with the regulator regulatory change continues to consume significant amounts of time, effort and expertise within the Group.

MiFID II is the largest of many projects underway at present and it has wide reaching effects across our business from fee structures in Continental Europe through to transaction reporting and of course to research unbundling. On the latter the current state of play is at the publication of the delegated acts has now been delayed until September. Various European and international industry bodies continue to highlight the potential unintended consequences of research unbundling and we have heard that the Commission may be becoming more active to the complexities involved in Europe-only implementation of this without the international support that would give it will have a significant impact on the European markets and asset management industry.

While the position on research unbundling does remain unclear, we are pushing into implementation phase on most other elements of MiFID II which takes us through to 2016. Layer on top of the fair and effective markets' review, which is currently out to consultation but possibly to be implemented in the same time scale as MiFID II, but there's also a slew of other programs whether it's UCITS V, the Market Abuse Directive II and FATCA being adopted on a global basis, all of which involves substantial project resource -- from that you can get a pretty good sense of the mountain of regulatory change ahead of us in the asset management industry.

All in all, risk management activities are consuming an ever-increasing proportion of management time. It is critical that our clients have confidence in their regulatory framework which governs our activities, and we are committed to work with our regulators to make sure that this is the case.

I'll end by talking about the outlook for Henderson in the second half. Flows are increasing again in July after tough markets at the end of June, but we're conscious that lingering concern amongst investors during the northern hemisphere's summer could lead to a quiet third quarter for the industry as a whole. This said, Henderson's remained well positioned against this backdrop.

Our focus on active investment management is delivering excellent investment performance to our clients as you clearly saw in the slides earlier. Our client base and product line are increasingly diverse and our brand recognition continues to strengthen. We are confident but, of course, not complacent. The first half of 2015 has seen us continue to deliver on our strategy and we remain focused on delivering on our long term goals.

With that, I'll go down to questions between Roger and I and we'll start with the UK people here in London before going to the lines.

Good morning, Tony Gray of Barclays, a couple of questions from me. Firstly on the Q2 flows. Can you provide any more colour of -- it looks like the alternatives is the main area of beneficiary of the Q2 flows, any more colour of what strategies are attracting that and equities, well global equities suffered outflows, you're attributing that mainly to the blip in Beesley's performance. Were there any other factors there?

The second question is around MiFIDs seeing as you did mention it and obviously there's air of, an element of self-interest in the question. Do you -- what are your own views around potentially CSA, super CSA agreements as being the solution to this? It looked like in the original ESMA proposals that the amount of commissions required from end clients at the buy side ruled out CSAs as a solution. Are you seeing any movement on that point, thank you.

Firstly, in terms of second quarter flows, as you said strong in alternatives I'd say it was -- as I mentioned the UK property was a component of that but also our UK Absolute Return fund, under Ben Wallace and Luke Newman. That also had very strong flows in the SICAV range and also our Pan European Alpha now for under John Bennett, also saw very strong flows.

I think what you're seeing in alternatives there's a twin effect that we're looking at there. On the property side it was really a diversification in yield play, people looking for the strong yield you continue to get from property. In our long-short and hedge fund ranges it's really at that lower volatility, bond-like characteristics but not from bond markets. That's been a big theme that people are looking to have a more lower risk investment in products and that's really benefited those funds which have excellent track records, not just in terms of the returns they've delivered but also the capital preservations they've delivered in periods of difficult markets, and I think they've really well recognised. That's been a strength for us and obviously was a strength of the Gartmore business that we acquired four years ago and I think that's really helped power our positon and reputation in that regard.

In terms of global equities, yes I mentioned that the performance in property securities, global property securities and technology, so we saw some outflows in there. It was really more a flat period really when you look at the flows rather than anything too negative because the global equity income capability we're seeing has really been powering along and going very well and in some of the areas, I mentioned last year Matt Beesley's global equity product have had a tough year turning out a much better year this year, but we've yet to get to that point now of breakthrough our numbers coming through. So I sort of describe the global equities as a period of tradition -- transition and confident on the teams that have had some tough performance that they'll -- they're starting to see some improvements and I expect that you'll see global equities continue to move forward from us in that regard.

Your question around MiFID II and your own self-interest. I do think that if we do get a removal from or a roll back in terms of where they're looking around the unbundling super CSAs will be -- have to be the answer. The industry -- if there is a change the industry is not going back to how it was. There will still be significant change in terms of unbundling in terms of being -- ability to pay and what you're buying for. So I think the buyer side and the sell side are going to have to work together to be far more transparent to work out what you're paying for and how you're paying for those. It's really the -- what I see a shift in is the mechanism to pay for it. Whether you have to pay hard or whether you can continue to pay for those services through revenues generated through dealing commissions and CSA is a solution. But the industry as a whole is going to have to change anyway it's just whether the transparency comes through leads to payments that are hard for the asset managers and then separately bill the clients or pay through dealing commissions.

It's still too early to say which of those effects but I do think CSAs or some form of CSA whatever you call it, or however it's structured will be the ultimate solution if it's a, if bundling is still allowed.

Hi, it's Hubert Lam from Bank of America Merrill Lynch, a couple of questions. Firstly, on terms of non-comp costs I think Roger said he expects it to grow 12% this year. I'm just wondering into 2016 how do you think that will develop in terms of costs? Will it be similar or less going forward?

Second question is related to flows again. I guess on page 12 I'm just wondering how do you foresee that flow outlook over the next 12 or 18 months. Do you expect your global equity outflows to stabilise and to seed in end flows and do you see that offsetting potentially slower growth in European equities? Thanks.

Do you want to do that one.

Yes, so on the non-comp, Hubert, yes, the answer is it depends. There are some -- there is what I would call good costs in there. Our TPA costs are in there, which account for a large amount of it and a lot of that is driven by AUM and transaction levels. The other areas are areas we've been investing in, so the technology to support the global business continues to be invested in. The technology to support the regulatory change that Andrew has talked about continues to be invested in. So, I think there will be an increase next year. Yes, it may reach double figures but it certainly won't be more than this year.

In terms of global equities I think I answered that question with (inaudible), I definitely expect to see that as a positive and a strength for the business. We spend a lot of time building out areas of our business. I mentioned for example, Glen Finegan, and the emerging markets side there. The inquiries we're getting are well ahead of any expectations we'd have. So as we look forward into 2016 and beyond I definitely see that as an important part of our business.

Geneva, what we're doing in the US there, we're just starting to -- consultants are taking off any on-hold recommendations and the like. We'll be adding with the Australian acquisitions which we'll see we think can add to us a number of areas. So overall, I think, this will be an area of strength for us as you look into 2016 and beyond.

Good morning, it's Anil Sharma from Morgan Stanley. Just two questions please. The first, I was just wondering how I should interpret the signalling effect of your buyback. Because you've obviously done quite a number of successful small transactions. So should I just be assuming that M&A is off the table in the short term and rebuilding the balance sheet and distributing is the way forward.

Then my second question was just on the operating margins, it just appears that 40% by three to five years out, seems even more conservative, given what you're delivering. So I just wanted an update as to why you think the margin progression will be so slow?

In terms of the significance of the buyback, what it means for MNA, well certainly I'd say at the moment, for this half, MNA we've announced what we're doing with Perennial, there's quite a lot of integration and for us to build out to get ready for that acquisition, it's due to close probably in November 2015. So there's a lot still to do, and for that, that's our focus. So that, as Roger went through in his slides, the way we look at it is what can we invest in our own business? Well, to be fair, we've done a pretty heavier level of investment over the two or three years now, and I think you've seen the benefits of that, and we're very happy with the level of investments, in terms of products and teams, and the performance coming through from them.

We've done a number of acquisitions, they're going to keep us busy, as we continue to build them out. So it's unlikely that you'd see us do any acquisitions between now and the end of the year. On that basis, the Board then said well we do have excess capital, if that's the view what should we do? That's why we've come to the share buyback. As we move into 2016, the Board will have a similar discussion, well are there further areas we need to invest in the business? Are there areas that are actually adding seed capital to products will help us? We've got sufficient seed capital, given the return of the property money, but that may be different in 2016.

There may be opportunities externally in terms of inorganic opportunities in that point, and we may feel in a position to be able to look at those. I'd say again it's unlikely to be positioned in the UK marketplace, our ambitions are to broaden out the global nature of our business, and if we were to do things, it would be likely to be overseas. Having done something relatively substantial for the market in Australia, that probably means we won't do much down there, if at all, in the foreseeable future.

The US is an area of interest to us, but again, we're happy with what we've got, that's an area we can build out on that. But our big emphasis on the US in 2016, will be the fixed income team hitting a three year track record, and their numbers are outstanding. So you wouldn't want to be doing something that runs the risk of damaging the ability to really capture what we've invested in there, but that could be an area of alert for us, and Asia's always been expensive for us. But with China, if it does go through a slowdown, and valuations start to adjust, maybe that will become more attractive. It isn't there today, it may not be there in 2016, but we'd keep an alert for it. In the absence of anything there, then again we'd look at excess capital being generated, and if we have any excess capital, share buyback could be then the preferred route.

But we'd assess our own internal opportunities first, and in the absence of that, what we're really saying is we don't see a need to hold anything over the Board to prove capital level, we'll return that to shareholders.

Can I pick up the margin question?

Yes.

I think you need to go back to the full year results in 2013, we talked about our strategy for the next five years, of growing the business, globalizing the business, and as a result of that, doubling the AUM, and where that went in terms of profit. What we said was, over that time period we would increase the profit to 40%. You wouldn't see any of that in 2014 -- you didn't, and that we would start to see it come through, it wasn't a J curve. So we've done the best part of a percent, I'm guiding towards the best part of a percent for this year, so on that curve.

Could it be more than 40%? We have consistently said running a large diversified global business, there aren't many people who are consistently above 40%, if they're investing in their business. The other thing I've said is let's get to 40% first.

Alright thank you.

Hi good morning it's Gurjit Kambo from JP Morgan. In terms of the US market, you've seen some phenomenal success there into the last few quarters, in terms of flows. During Q3, Q4 you saw some redemptions, has the mix changed now? Because if I look at Q2, it looks like a much more broad mix of flows coming in from Europe international and the other markets. So is that a little bit more immune now to if Europe was to have a significant wobble, to put it that way?

What I'd say about the US business is, the area of probably biggest concern, will be the European flows we've seen. We are, I think the number one selling European manager in terms of our European equity products set, and the US can be quite fickle on that. Interestingly, we have seen in the past they can have some relatively big movements between their view of Europe. They actually stayed pretty solid during the Greece discussions, which it would be quite an interesting test. So in that sense, the US has been pretty consistent on a daily basis, a monthly basis, on a quarterly basis. The flows we've seen are pretty solid.

I would still say that, at the moment it's still concentrated in three funds, International Opportunities, Global Equity Income, and European focus. All three, great performance, really good brand awareness of those funds. I think we have franchises there which are solid franchises, so you're more driven by asset allocation views in the areas they're investing, rather than us trying to build our brand, but it's still very concentrated. So really, the story for us is building out the present, outside of those three areas, and that's why dividend and income builder is so important for us.

A three year track record and a five star Morningstar rating, which you can do a tracker to see how they come out, is a really good opportunity for us to build that business. We've got the US high yield fund coming in next year, which it's top percentile at the moment, over two, two and a half years, just to get to that three year track record. That's going to have to be the trick for us. We launch a new fund under Geneva, in December, it's fantastic at the moment, it's in the mid-tier of top quartile at the moment, performing really, really well, in a really big category. But it's going to take a little time to get the diversification.

What I would say is, the point I made about being the top three in two broker dealer networks, that's an amazing statistic really. When you think about we only compete -- those three funds compete in only probably 40% of the US flows. The combined effect means we're in the top three for some of the largest networks out there. If we can start getting recognized in the other 60%, which a number of these products will put us into, then yes, the opportunity for us is there, because you're just building the brand. We are really well received in that area, not just in performance, but also the servicing, and the way the client -- the way we approach the clients down there seemed really refreshing, really, really positive.

So the US market, a lot of people talk about Asia and its potential, and it is a huge potential, but to us, I'm more excited about the potential in the US market, for retail and then extending that in the institutional side. That could be a really, really big market for us.

Thanks, well done there.

If there's no further questions here in London, we might go to the operator, take any questions that are on the call.

Thank you very much sir, and your first question there comes from the line of Simon Fitzgerald from Evans, your line is now opened.

Good morning all. Just the first question for yourself Roger, the finance income up to GPB15.3 million, just given the utilisation of cash over the next half, and then going into 2016, how should we think about that?

Now remember that includes the seed capital gains that I talked about of GBP9 million, so you should think about that as a one off. The remainder of that, there's a little bit of traditional seed in our core business in there, so that number, I think I'd guided before, is about GPB5 to GPB6 million a year of normalised revenue, plus some one offs from seed.

Sure, and also Andrew, last time we spoke in regards to the Perennial growth business, you mentioned that there was a largish client within Perennial growth, in terms of equities. Just wondering if you'd had any discussions about consent with that client, and when we might be able to rely on that GPB5.6 billion actually going in there? When were you going to be at a stage where you're going to be able to rely on that?

Well firstly, on the client feedback for both the fixed income side and the Perennial growth, client feedback has been overwhelmingly positive, it's just been great feedback we've had, recognition of the relationships, the teams and the (inaudible) that Lee and Glen have directly with their clients, but also how well Matt Gaden and Rob Adams and what we're trying to do down there, is perceived. So the combination of bringing it together, has been really embraced by clients, research houses and consultants, far better than I could have dreamt or hoped for. That does include the Perennial growth clients, where they're really positive on the combination.

In terms of the consents, there's a couple of things that have to happen. The bigger thing is we have to -- because we're actually only buying part of the Perennial businesses, we're only buying the growth equity business and the fixed income business, we have to completely put in place a whole operating platform. We obviously already have that all the way down to Singapore, but extending it to the Australian marketplace, and that takes a bit of time. We're well advanced in what we need to do, but we have to have that in place, and then we have to go out and effectively request for clients to sit there and move over in both the funds into our regulated entity, and then for the [seg] mandates for their consent to move over.

That process will begin, but really won't begin until another month or so, as we're in a position to be able to demonstrate exactly, from an operational point of view, what they'll move over to. So that's why I say that the deal is likely to close in November. That's just because that's the time you need to firstly be able to put in the infrastructure, so that you can then answer client questions. So clients have got a lot of the information they need, but at the moment, we need to be able to prove to them a lot of the things we're saying that requires us to put that investment in place, which we're now doing.

So it's probably another couple of months away before we're in a strong position to say where the client acceptance will be. But given the strength of feedback we've seen, the research [houses] have been very positive, the platforms have been really encouraged by what we're doing, and the larger clients have just really been excited about the proposition. I remain very, very encouraged, and expect we'll have a very positive outcome there. But it's still too early to give you any feedback, and we haven't yet approached clients formally for that acceptance.

Just one final question on MiFID II. Where do you think the outcome is going to actually end up with this, in terms of particularly around those research budgets? How do you think you actually would go, by trying to build back the clients in regards to that?

Simon, I probably can't say anything more about where I think it'll go, than what I gave in my notes. Because you're talking about political intervention. It's not just an economic argument, and you've got many diverse parties with quite divergent views. So I don't think Europe for example, is aligned on that they're trying to do. So what outcome could come? You just don't know. That said, I think we're well placed, we're well placed whether we have to unbundle, we could do it, we're in a position to do that. And if we didn't have to unbundle, I think we're already meeting where most people would feel that the regulators could settle on, if they settled on a retained bundled world, but enhanced CSA's we're already there.

So I think operationally, we'd be in a pretty good place, and well ahead of others to get there. In terms of the ability to go to clients on this, I think there is very strong argument that we'd be able to achieve a positive outcome in that regard. One of the discussions points that's been having with the regulators through this topic is, well if you do go this route, you have to make a mechanism easier to do that. Because what happens if one client opts in and one client opts out in a pooled fund, how do you do that? I do think that if it does go down to an unbundled approach, there will be mechanisms that make it relatively easy for you to approach clients of what you're charging and how you would do that. Particularly on the retail funds or the unitised products.

So, I'd be hopeful that we could get to a position that it be able to go and put in place a mechanism to deal with the client aspect of that, should it come about. But until we know the rules, one of the issues with the previous drafts, was they actually seemed in conflict. They were actually very difficult, when you actually went through them, they were saying they were trying to clarify the position, we actually felt they made it more difficult to understand how you could physically do this. They recognize that, so whatever outcome does come in September, if it's unbundled or not, I also think there will be a mechanism that will simply how you are to approach clients around getting agreement to talk to them. But at the moment, we don't see the draft, the text, so I can't give you a guide into where I think it'll come down.

Thank you for taking my questions.

Your next question is from the line of Bryan Raymond, from Macquarie, your line is now opened.

Hi guys, could you just provide a bit more colour around your statement around the improving July outlook for flows, any quantum, or any asset classes benefiting materially, or any client bases that are responding favourably to any of the macro stimulus. Is there anything you can give us some further info on that?

I don't want to go too much into month by month numbers, but I'd say that July has been an encouraging month. We actually anticipate a relative slow down. The July and August months are typically slow months , because of the northern hemisphere summer holidays. Given the market uncertainty out there, we anticipated quite a slowdown, and we still do for August, which is the more pronounced holiday period here.

July has actually been a relatively normal month for us. June saw, particularly our European client base, given what was happening with Greece, much more cautious. So that was the area where you saw people just sitting on their hands and not wanting to invest. Given the sort of Greece position they got to by the early to mid-July, July 10 there, you actually started to see people coming back to that, which I think was quite encouraging that we didn't see a wholesale get out sell in Greece, which we did see when the Euro concerns surfaced in 2012.

So I actually think clients were quite moderate through the Greek discussions, and actually with a resolution, and I'll use resolution in a very loose term because I'm not sure we've got a true solution there, I think we've just kicked the can down the road, clients have been quite positive in terms of coming back. I mentioned earlier the US continued to be positive for us, pretty much through all of that period, we didn't really see much change at all, so that US has been strong. Europe was probably the area where there was caution, and therefore sitting on their hands, and they've returned for July. Institutional continued to see some okay wins for us, but as I said in the thing, there's a higher level of in-flows, but also some redemptions profile that picked up.

Institutional is a bit more lumpy, but I think it's just probably been that July's been a normal month for us.

Great, thanks for that, and then on the buyback and the surplus capital position, how much of the GBP113 million do you view as excess, i.e. above your internal buffers that you'd need above your minimums? I'm just trying to get a bit of colour around the potential quantum of capital return, and if not capital return, then how much you intend to really invest organically, and inorganically, is there any sort of, obviously numbers would be great, but any further colour you can really give us around that as well?

I think what we said before Bryan is that we're not going to give a single number as a buffer, because we think that will change over time, given our business risk in the markets, et cetera, and the Board will look at that as a moving number, and considering those aspects and other things. So I think the only thing I can say at this point, is the Board obviously considered that we're at a position of capital strength at the moment in order to do a GPB25 million share buyback.

Right, so we shouldn't look at this as an indicator that you've got further acquisition opportunities in the works? I think Andrew mentioned earlier, the US is a priority there. I'm looking at a proportion of the overall excess capital, or surplus capital I should say, it's sort of circa 22%, but seems like you've still got a fair bit of firepower there to deploy either capital return or towards acquisitions or organic opportunities. You're saying that it's probably a bit early to assume that, is that--

As I say, it's definitely too early to say that, because these are our numbers, as opposed to the numbers which the STA will need to bless in our May 2016 ICAP. So it's definitely too early to say, but when we talk about the capital requirement, that's the minimum capital requirement, and the Board will obviously want to hold some form of buffer above that, and quite rightly we've got some good conservatism in there. So I wouldn't get too carried away, and then on M&A, we've got a lot to be getting on with at the moment.

We've invested in the business both organically and inorganically, over the last couple of years. As Andrew said, we've got a lot of work to do to integrate the perennial businesses in Australia. We'll continue to look for opportunities, but you shouldn't expect anything in the near future.

Okay great, thanks.

Thank you, and your next question is from the line of Nigel Pittaway, from Citi. Your line is now opened.

Hi guys, just a couple of questions. First of all, just on the management fee margin in your guidance for a similar level for full year. Obviously there's a couple of small positives there with the Pease funds going from the denominator, but still the revenue staying in the numerator, and also the John Laing AUM still I presume disappearing in the September quarter. Perennial obviously comes in in the fourth quarter, is there anything else that we should think of, in terms of what's happening there, in the second half?

No, as I said, they're the big things. When we talked about those items which would affect it, and when I talked about the 55 basis points at the year, they're the items that are still to play out, sorry, they are the items, and they have now largely played out. So there's very little, so from here it's really just down to where our flows, our net flows come in, and the effect of markets. The large effects are done, Nigel.

Okay, fair enough, just on the comment that obviously you've invested to build the global infrastructure in part to accommodate regulatory change. I mean just in terms of those regulatory costs, are we basically seeing sort of one off increments now that enable you to get the compliance people on board et cetera that then sort of get you a little bit ahead of the curve in terms of regulatory change? Or do you think that the -- it's so uncertain that this increment's likely to go on?

Nigel I'd say that we've definitely had a step up in regulatory and assurance sort of costs. That is what we're hoping to get us ahead of the curve rather than sort of playing necessarily catch-up. I think it will be at elevated levels for at least two years on the basis that just when you look at what I sort of described and the timeline for that project go on for. That said I -- it will have to be in two years' time when we say you know what? Have we -- there is a lot of that spend as well I would call project spend. So it's actually making sure the implementation of these projects and regulatory changes are done. At the end of that period, can those costs then be actually reduced and brought back? Or does that become the new norm? I think what we've seen on the banks is they always thought it was project spend but it's becoming the new normal for them.

So I would be very reluctant to sit there and say at this point that you're going to see that come back. Obviously I'd hope that that's a potential but I just can't say where it will be. I think the regulatory agenda for asset managers has shifted towards us and that's been an issue. For most of those roles we're putting on -- are actually putting on as full time employees just because turnover's been high and we feel it's better for them to be in the business rather than using contractors as such to do it. But I think there's also a lot we can do about improving the systems side of it which will hopefully in time make it more systemised and reduce some of the manual turnarounds. Because in the short term when you get significant regulatory change what you're doing to implement it quickly you need to throw bodies at it, have manual turnarounds until you can then implement it.

So a lot of our programme as well is to try and codify what we have to do which could see us shift and change and hopefully reduce the long term cost burden on us in that regard. Nothing we're seeing I would say should be any different to any other asset manager. These are the exposures that we've all got to deal with at the moment.

Sure, okay thank you.

Thank you and your next question if from the line of David Humphreys from JCP, your line is now open.

Good morning gentlemen, two questions if I may. Firstly Andrew thank you for the continuing description of what's occurring with commission unbundling, it's quite fascinating in terms of how it's evolving. Question -- are you able to give us some kind of indication as to what the ultimate cost might be to your business in a -- from a sterling operating cost perspective?

Do you want to do that?

Well I think yes, I'd look at it slightly differently David and go back to the margin. We're looking to grow our business and we've talked about five years but obviously that time horizon will go out, we're looking to grow that and effectively have a margin which we've talked about it being 40%. So I'd reverse into that number. You know there are always costs whether they be regulatory or volume costs that as we grow the business we'll get there. There will be -- you know there should be efficiencies in that along the way. But I'd look at it -- I don't see a cost base that stops if we grow our business.

I think he's talking about hard cost for unbundling.

I'm sorry just talking about unbundled.

I think you -- sorry David your question was actually more are we able to give you a cost of -- if we have to go to unbundled? Is that...

That's right, yes.

Sorry David. We haven't given that number and we -- and yes, the answer to that is it depends. Because the regulation hasn't been set at all and even unbundling doesn't mean that it can't be charged to clients necessarily. What we have done over the last few years is continued to manage our research budgets very carefully. We're spending considerably less on research now than we did three, four, five years ago. So the number is significantly reduced. It is still obviously a significant number. But again until the rules and regulations are actually written, how that comes about and whether anything will potentially go through our P&L it's too early to say.

Okay.

And David I know you'd like -- everyone would like a hard number but the reality is I think it's a dangerous number to put out. I think it would get interpreted in different ways and the rules are so uncertain I just don't see any benefit. Obviously we are spending time on it, we do think about all the worst case scenarios and the like. But given the rules are so uncertain and what we're seeing we just don't think it's helpful. I hope that's okay.

Yes, okay. The second question I have is on your capital position. Looking at your cash flow the amount that's being spent to purchase your own share for share schemes is a sizeable sum. Given you still have 50-odd million of diluted shares outstanding, how should we think about your capital position in light of you continuing to buy back your shares for those schemes?

Yes, the share purchases for -- or the purchases -- use of cash to purchase shares in the first half. If you look at last year the vast majority of that happens in the first half -- over the second half obviously we award bonuses in March, April and the vast majority of those shares to match that are purchased in that time period. So I think about two thirds or three quarters of the share purchases were made in the first half last year and I'd expect a similar amount this year. So that will drive -- so there's less use of that in the second half on that capital figure. I think -- you know the capital -- as I said the capital will grow in the second half through the growth of the business. There'll be less use of those share schemes but we obviously need to include the Perennial transactions. So I'd expect our overall capital figure at the end of the year once -- including the Perennial transaction -- to be at a slightly lower level -- probably slightly less than GBP100 million at the year end.

Thanks.

Thank you and your next question is from the line of Scott Olsen from UBS. Your line is now open.

Morning guys. I just have one question on the compensation ratio. And broadly flat on 2014 at 44.5%. I know there's some impact of share price appreciation in there and it's obviously rewarding another very good half of flows and investment performance. But just wondering if those flow and performance trends continue what are the prospects for, you know, bringing that down meaningfully? I think the target was to have it converge to that 40% operating margin over time.

Yes, as we said the comp ration is high -- or is at the level it is because of the strong business results, as you said flows, investment performance. The two one-offs in the first half are the performance fees which are higher in the first half than the second traditionally given just where the crystallisation of our performance fees are. And the fact that the vast majority of those are in long-short money. So there's a higher compensation payout on performance fees both in terms of quantum and the percentage payout on those. And the second bit as you've said is the share price move. Outside of that then yes there's scale in our business as it comes through. But you know with you know if we continue to deliver strong flows and strong investment performance we will want to continue to reward the people generating that.

Okay, great, thank you.

Thank you and you have one more question from the line of Ross Curran from CBA. Your line is now open.

Hi gents, a couple of quick questions. You mentioned that you needed to spend a bit of money getting your platform in Australia up to speed to be able to take the perennial funds on. Can you give us a feel for that investment and the ongoing spend that's required. And then secondly will that platform be scalable? So how much more fund can you add to it on the platform you're planning in putting in?

Yes I think Ross in terms of the numbers. If you go back to the acquisition announcement we put in, we had some integration costs associated with that. That's the cost pretty much to put the platform in place. And we also adjusted to give you a pro forma operating margin for that business, an EBIT margin for that business. Which includes the costs and the ongoing charges. It is fair to say as well to your point about the scalability of it, we are building a full scale platform down there. So the ability for us to really drive significantly more assets through that platform is definitely there. That's how we're approaching this as not just to bring those business on but to actually build a total soup to nuts sort of approach in terms of what we can get for establishing their product set but also as we increasingly bring existing Henderson capabilities in that marketplace. So there's -- it is being built to be very scalable.

Can you make a comment at all of the cost of buying Aussie fund managers versus say UK fund managers or US fund managers?

Look -- well the UK market -- sorry the Australian market at present is probably trading on higher multiples than certainly the UK peers and on -- more closer to but I'd say even above US peers. So on a headline number that's what you'd say. I'd say the way we structured the Perennial deal and the price we paid there we're comfortably below where US and UK are trading at the moment so we're very comfortable with that. It was in the range that we would see as acceptable I think. There's a number of asset managers in the Australian market that are trading considerably above ranges that we would typically look at. But in this case we were able to purchase it within the criteria we'd normally set and below where I'd say traditional -- or current -- market perception is for asset managers.

And then finally -- sorry this -- I'm sure this isn't non-material. But what's the Anglo-Sino consulting business you sold?

The what?

Sorry Ross?

This is in -- I thought there was an Anglo-Sino business that was mentioned, Anglo-Sino Henderson Investment Consulting.

Is that the (inaudible).

Oh no yes, no that's just -- that was just a -- that's an entity as part of the TH Real Estate transaction. So sorry for the confusion, it was a single entity that was set up to support the Chinese part of property which we've now sold into TH Real Estate.

Okay, great, thank you.

Thank you, you have no more questions from the phone lines but you did receive a question over the webcast. And that is from Stephen Scott from Contango Asset Management. He asks what do the recent awards typically mean in terms of [SUM] growth inflow.

Thank you. The question was the recent awards what does it mean in terms of growth. Well I'd say in the UK it's -- well awards are more a recognition of what you've done rather than necessarily how you might look going forward. But I think it really cements the position that we've seen in the UK retail marketplace where we're definitely a top five player in terms of new business growth and the conversations we're having. To have won the Investment Fund Manager of the Year Award, the Global Group award is a fantastic achievement. You know when -- before we bought New Star back in 2009 I think it would have only been a pipedream for Henderson to have got to that position. So we've done that within sort of six years of that acquisition is a real boost, a real recognition of what we're doing. And have also picked up two of the most prestigious awards, UK Absolute Return and also the European category. Again just demonstrates the breadth of what our offering is.

I'd say that the feedback from our clients and peers alike was universally positive on the back of it. Everyone felt it was a deserved award winning for that. And I think it's -- I don't think the award itself means anything for future business but I think the recognition of what's actually happening in Henderson is really what underlies what we're seeing in UK retail at the moment.

Given that's the final question we have, thank you all for your time today. As you can see there's greater numbers for us across the board in a number of areas which really the strategy we set out 18 months ago is demonstrable in this results about how well it's delivering. We don't think this is as good as it gets, we think there is a lot more we can do in the business as the investments we've made over the last couple of years come on stream. Notwithstanding market volatility it's really pleasing to see how well we're doing against the industry and we hope to sustain that not just the rest of this year but into 2016 and 2017.

If there's any further questions you have on the results, the IR team here with Miriam is available to answer any questions and also is -- over the next month or two Roger and I will try and see as many shareholders as we can so we'll look forward to catching up with you then. For those on the line in Australia, thank you for not mentioning the cricket. Roger's much, much happier at the moment for one day.

For one day.

So let's hope we have a better showing in the next couple of hours. Thank you.

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