28th Feb 2007 07:03
Henderson Group plc28 February 2007 2006 Full-Year Results 28 February 2007 FINANCIAL HIGHLIGHTS • Group operating profit before tax from continuing operations excluding one-off restructure costs £82.2 million, +30% on 2005 (2005: £63.4 million (note 1)). • Henderson Global Investors pre-tax profit £81.1 million, +29% on 2005 (2005: £62.9 million). • Henderson Global Investors cost to income ratio 72.6% for 2006, improved from 75.5% in 2005. • Total assets under management £61.9 billion at 31 December 2006 (£67.7 billion at 31 December 2005). • Earnings per share from continuing operations excluding one-off restructure costs 6.3 pence (2005: 3.2 pence). • Final dividend proposed 2.27 pence per share, 3.15 pence per share total dividend for 2006. KEY BUSINESS DEVELOPMENTS • Improved investment performance, with 59% (2005: 55%) of funds by value beating their benchmarks. • £4.3 billion net inflows into higher margin products. • Total fee margin 44bps (2005: 37bps) and management fee margin 34bps (2005: 29bps) on average assets under management. • Towry Law UK sold at a pre-tax profit of £9.5 million, 36% over book value. • £200 million surplus cash returned to shareholders on 24 October 2006. COMMENT FROM CHIEF EXECUTIVE, ROGER YATES "Our strategy to focus on higher margin activities is working. This strong setof results reflects the positive momentum in sales, revenues and margins. We areconfident of the direction in which the business is moving and we expect tobuild on a broadly based improvement in investment performance. I feel confidentthat we can continue to grow revenues, improve Group profitability and delivergreater balance sheet efficiency in the year ahead." GROUP - STRONG RESULT Group operating profit before tax from continuing operations, excluding one-offrestructure costs of £7.8 million, increased by 30%, from £63.4 million in 2005to £82.2 million in 2006. Net profit after tax from continuing operations was £63.3 million in 2006, up22% from 2005. Net profit after tax from all operations was £61.2 million in2006, an increase of 28% compared with 2005. Earnings per share rose to 6.3pence per share from 3.2 pence before one-off restructure costs. The 2006 incometax charge for the Group included an £11.1 million charge for continuingoperations and an effective tax rate of 14.9%. The effective tax rate for theGroup was lower than the 30% statutory rate in 2006, due to the utilisation ofpreviously unrecognised deferred tax assets and greater clarity on the level oftax provisioning required for prior years. Although a welcome feature of ourresults, the lower tax rate is temporary and we expect a return to a more normalcorporate rate by 2009/2010. HENDERSON GLOBAL INVESTORS - SIGNIFICANT GROWTH IN REVENUES AND PROFITS Operating profit before tax for Henderson Global Investors (Henderson) was £81.1million - up 29% from £62.9 million in 2005, due to increases in management andperformance fee income. Management fee income for Henderson increased 13% from 2005 to £221.2 million in2006. Although total assets under management declined in the year, net inflowsinto higher margin business and higher investment markets resulted in increasedrevenue. The largest contributors to the increase in management fee income wereMutual Funds, Property and Hedge Funds. Transaction fee income of £24.6 million was in line with 2005 (£24.4 million).Net performance fees rose strongly by 41% from £26.5 million in 2005 to £37.3million in 2006. These fees continue to come from a wide range of products andthe number of funds on which we earn performance fees continues to rise. Thelargest contributors to performance fee income in 2006 were Hedge Funds,Property, Investment Trusts and Horizon Funds. Therefore, total net fee income in 2006 was £283.1 million (note 2), a 15% increase from £247.2 million in 2005. As a result of strong flows into higher margin specialist products, and highermanagement and performance fee income earned during 2006, our average feemargins increased: total, management and net margins were all up on priorperiods. The total fee margin for Henderson was up to 44bps in 2006, from 37bpsin 2005. Management fee margins rose from 29bps in 2005 to 34bps in 2006. Netmargins increased from 9bps in 2005 to 12bps in 2006. Investment income increased by 27% from £9.9 million in 2005, to £12.6 million(note 3) in 2006, due to interest earned on cash balances and returns from seedinvestments in Henderson's products. Operating expenses increased 12% to £211.8 million (note 4) in 2006 compared to£189.1 million in 2005, due to higher staff and IT expenses. The increase instaff costs was almost entirely due to higher variable staff costs. This relatedto provisions for variable remuneration schemes which reflect the improvingoperational performance of the business. The higher IT expenditure was due toincreased spend on investment management data services and the cost of upgradingour derivatives trading platform. These higher costs were partially offset bysavings in investment administration, office expenses and a number of othercosts. Overall, the increase in operating expenses was more than offset by theincreased revenues, which resulted in an improvement in the cost to income ratiofor Henderson from 75.5% in 2005 to 72.6% in 2006. Total assets under management declined from £67.7 billion at the end of 2005 to£61.9 billion at 31 December 2006. This decrease in assets under management wasdue to low margin outflows associated with Virgin Money Group (£2.4 billion),Pearl Group (£8.7 billion) and traditional Institutional business (£3.3billion). Outflows of Institutional assets slowed to £0.4 billion in the secondhalf of 2006, compared to outflows of £2.9 billion in the first half of 2006,and outflows of £8.8 billion in 2005. The impact of outflows on revenues andmargins was more than offset by continued strong flows into the specialisthigher margin business areas which totalled £4.3 billion in 2006 (FY05: £1.9billion). We are pleased with the improvement in investment performance over the pastyear. Although there remain some weaker areas, in general investment performancein 2006 was good. The strongest investment performance continues to be in thehigher margin areas of the business which include Mutual Funds, Hedge Funds andProperty. In our UK Wholesale range, 79% of funds beat their benchmark in 2006.In our Horizon range of mutual funds, sold to European and Asian clients, thisnumber was 68%, while for North American mutual funds it was 100% and for ourHedge Funds the number was 78%. Similarly, we enjoyed excellent performance inour Property business, where 83% of funds met or exceeded their benchmark. CORPORATE OFFICE - IN PROFIT Corporate produced a profit of £1.1 million in 2006. Corporate costs were lowerin 2006 (£11.5 million) compared to 2005 (£12.8 million), even though one-offlegal and professional expenses inflated these costs by £2 million in 2006. Theone-off costs were incurred in the first half of 2006 and relate to revisedinvestment management and related agreements with the Pearl Group and the costsincurred by a potential acquisition opportunity. We expect Corporate costs to belower in 2007, approximately £10 million. The income earned on Corporate cash balances declined slightly to £12.6 millionin 2006, from £13.3 million in 2005. This income was largely from interestearned on cash proceeds retained after the sale of the Life Services business.The net interest figure for Corporate is expected to be zero or negative in2007, compared to 2006. This is due to the combined effects of lower cashbalances, having now returned all of the proceeds from the sale of the LifeServices business to shareholders, and potentially taking some debt onto thebalance sheet in the first half of 2007. RESTRUCTURE COST We restructured Henderson in the second half of 2006, to align resources moreclosely with our business strategy. The cost of the changes was £7.8 million,all of which was charged in 2006. DISCONTINUED OPERATIONS There were no movements in the results of discontinued operations during thesecond half of 2006. The £2.0 million loss before tax from discontinuedoperations comprises: • a pre-tax profit of £9.5 million on the disposal of Towry Law UK, which completed on 3 May 2006; • a £0.2 million profit from Towry Law UK up to the date of its disposal; and • a warranty claim from the Pearl Group of £11.7 million agreed on 30 June 2006 under the terms of the revised investment management and related agreements. All non-investment management businesses have now been disposed of. BALANCE SHEET - REMAINING STRONG WITH GOOD LIQUIDITY The balance sheet remains healthy, with high liquidity, no current gearing andappropriate provisions. Net assets for the Group were £496 million at 31December 2006 (2005: £647 million). As we have previously flagged, we intend to take on a prudent level of debt in2007, in order to enhance capital efficiency. Subject to market conditions, weare considering a Sterling debt issuance of between £125 million and £175million in the first half of 2007. Last October's capital return of £200 million, together with its counterpart inMay 2005, means the Group has returned £1.07 billion to shareholders in the pasttwo years. In addition, we stated in 2006 that there was potential for a furthercapital return of between £150 million and £200 million in 2007. In January2007, the UK Financial Services Authority granted the Group approval of itswaiver application from consolidated supervision. As a result, the Group'sfinancial resources are no longer constrained by inadmissible goodwill and ourregulatory capital surplus has increased. We are, therefore, now considering afurther return to shareholders of approximately £200 million in the second halfof 2007. DIVIDEND Our policy is to pay a sustainable flow of dividends out of operating profits,whilst maintaining dividend cover of approximately 2x. The Directors areproposing a final dividend of 2.27 pence or equivalent per share in respect ofsecond half 2006 profits. Approval of this dividend will be sought at the AGM on3 May 2007. Payment will be made on 29 May 2007. OUTLOOK FOR FULL YEAR 2007 We aim to build on the good investment performance in our higher margin productsto grow assets in these areas. We also plan to build on the better investmentperformance in our Institutional business. As a consequence, we expect profitability and the cost to income ratio to showfurther improvements. As stated before, we believe we can achieve a 70% cost toincome ratio for Henderson Global Investors for the full year 2007, principallythrough profitable revenue growth. We will continue to look at ways in which we can improve balance sheetefficiency, to drive return on equity and earnings per share higher. Overall, the business is on the right track and future prospects for the Groupare good. * * * 1 Before elimination of intra-group transactions between continuing anddiscontinued operations up to the date of disposal (£6.0m profit). 2 Net fee income of £283.1m (FY05: £247.2m) represents gross fee income andcommission receivable on sales of £372.8m (FY05: £290.6m), less commissions andfees payable against income of £89.7m (FY05: £43.4m). 3 Finance income from continuing operations £25.2m (FY05: £23.2m): Henderson£12.6m (FY05: £9.9m); Corporate £12.6m (FY05:£13.3m). 4 Administration costs of continuing operations £223.3m (FY05: £201.9):Henderson £211.8m (FY05: £189.1m); Corporate £11.5m (FY05: £12.8m). * * * To view the full details of the 2006 ASX Appendix 4E, paste the following linkinto your web browser; http://www.rns-pdf.londonstockexchange.com/rns/9947r_1-2007-2-27.pdf To view the full details of the 2006 Full Year Presentation, paste thefollowing link into your web browser; http://www.rns-pdf.londonstockexchange.com/rns/9947r_2-2007-2-27.pdf This announcement contains forward-looking statements with respect to thefinancial condition, results and business of Henderson Group. By their nature,forward-looking statements involve risk and uncertainty because they relate toevents and depend on circumstances that will occur in the future. HendersonGroup's actual future results may differ materially from the results expressedor implied in these forward-looking statements. Nothing in this announcementshould be construed as a profit forecast. Henderson Group plc4 BroadgateLondon EC2M 2DARegistered in EnglandNo. 2072534 ABN 30 106 988 836 DETAILS OF MARKET BRIEFINGS: WEDNESDAY 28 FEBRUARY Australia - 8.00pm (Sydney time) / 9.00am (London time) For a telephone link to the briefing dial one of the following numbers 10minutes prior to the start of the call. FromAustralia 1800 988941 (free call)United Kingdom 0500 101630 (free call)All other +44 (0)20 7162 0025 (this is not a free call)countriesReplay number +44 (0)20 7031 4064 Access code: 737094 (available from 28 February to 7 March) Alternatively you can listen to a live audiocast of the briefing. To listen tothe briefing go to www.hendersongroupplc.com and click on the relevant link onthe homepage. * * * NOTES TO EDITORS About Henderson Group plc Henderson Group plc is headquartered in London and listed on the London andAustralian Stock Exchanges. It is a member of both the FTSE 250 and the ASX 200indices. Henderson Group consists of a Corporate office and Henderson GlobalInvestors, a leading European based investment manager with £61.9 billion assetsunder management. The focus of the Group is to build the asset managementoperations into a more profitable and valuable business. In this announcement, the term "shareholders" refers to all holders of HendersonGroup plc shares, including those whose holdings are in the form of CHESSDepositary Interests on the Australian Stock Exchange. FURTHER INFORMATION www.henderson.com or Investor enquiriesMav Wynn, Head of Investor Relations+44 20 7818 [email protected]@henderson.com or Media enquiriesUnited Kingdom - Finsbury Australia - CanningsAndrew Mitchell Gloria Barton+44 20 7251 3801 +61 2 9252 0622 or +61 4 1352 0603 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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