25th Aug 2006 07:01
Henderson Group plc25 August 2006 2006 Interim Results 25 August 2006 Financial highlights • Group operating profit before tax from continuing operations £46.2 million, +31% on first half 2005 (1H2005: £35.4 million). • Group operating profit before tax from all operations £44.2 million, +26% on first half 2005 (1H2005: £35.1 million). • Henderson Global Investors pre-tax profit £46.6 million, +23% on first half 2005 (1H2005: £38.0 million). • Henderson Global Investors cost to income ratio 69.2% for first half 2006, improved from 70.6% in first half 2005. • Total assets under management £63.1 billion at 30 June 2006 (£67.7 billion at 31 December 2005). • Earnings per share from continuing operations of 3.2 pence. • Interim dividend declared 0.88 pence per ordinary share. Key business developments • £2 billion net of high margin product inflows, including mutual funds, hedge funds, property funds and structured products. • Total revenue margin 43bps (1H2005: 37bps) and management fee margin 32bps (1H2005: 28bps) on average assets under management. • Subject to shareholder and UK Court approval, approximately £200 million surplus cash to be returned to shareholders by 24 October 2006. • Entered new Investment Management Agreements (IMAs) with Pearl, revenue neutral with upside performance fee opportunity. • Completed sale of Towry Law UK at a pre-tax profit of £9.5 million, 36% over book value. Comment from Chief Executive, Roger Yates "We have seen promising trends in business performance in the first half of thisyear, despite unsettled market conditions. Our strategy of focusing onspecialist product areas in Henderson Global Investors has delivered goodresults, with £2 billion of net inflows into higher margin products such asMutual Funds, Absolute Return funds and Property. These flows helped driverevenues and margins higher and more than offset the revenue lost from expectedfund outflows from Pearl Group and our Institutional business." Net profit after tax from continuing operations was £37.6 million in the firsthalf of 2006, up 32% from the first half of 2005. Net profit after tax from alloperations was £35.5 million in the first half of 2006, an increase of 50%compared with the first half of 2005. The first half 2006 income tax charge forthe Group included a £8.6 million charge for continuing operations and aneffective tax rate of 18.6%. The effective tax rate for the Group overall(continuing and discontinued operations) was 19.7%. We expect the effective taxrate for the continuing operations to increase to the expected rate, i.e. 30%,over the medium term. Henderson Global Investors - inflows into higher margin business Operating profit before tax for Henderson Global Investors was £46.6 million -up 23% from £38.0 million in the first half of 2005, mainly due to increases inmanagement and performance fee income. Management fee income increased 14% to £108.4 million in the first half of 2006compared to the first half of 2005, primarily as a result of improved marginsand favourable equity markets. The largest contributors to this increaseincluded Mutual, Property and Absolute Return Funds. Transaction fee income decreased by 3% to £12.6 million in the first half of2006. Performance fees increased by 46% to £24.2 million in the first half of2006 and continue to come from a range of products. Absolute Return, Propertyand Horizon Funds were the largest contributors in the first half of 2006.Therefore, total fee income in the first half of 2006 was £145.2 million, up 16%from £124.9 million in the first half of 2005. Continued growth in specialist product areas and expected outflows in thegeneralist, lower margin areas produced a more profitable product mix, with thetotal revenue margin for Henderson Global Investors up from 37bps in the firsthalf of 2005 to 43bps in the first half of 2006. Management fee margins rose to32bps on average from 28bps in the first half of 2005. Net margins increasedfrom 11bps in the first half of 2005 to 14bps in the first half of 2006. Investment income increased 43%, from £4.4 million in the first half of 2005 to£6.3 million in the first half of 2006, largely due to profits on seedinvestments. Total operating expenses increased by 15% to £103.5 million in the first half of2006. Savings in investment administration and other costs were offset byincreases in staff expenses and IT expenditure. The increase in staff expenseswas due almost entirely to variable remuneration schemes reflecting improvedoperational performance. Overall, the increase in total revenue exceeded the higher costs in the firsthalf of 2006 resulting in an improvement in the cost to income ratio from 70.6%in the first half of 2005 to 69.2% in the first half of 2006. Total assets under management declined from £67.7 billion at the end of 2005, to£63.1 billion at the end of June 2006. This decrease in assets was due toexpected outflows associated with the Virgin Money Group (£2.4 billion), theclosed life books of Pearl Group (£1.5 billion) and lower margin Institutionalbusiness (£2.9 billion). The impact of these outflows on revenues and marginswas more than offset by continued strong inflows into the specialist, highermargin business areas, with net inflows of £2 billion in the first half of 2006. Pearl Group - new IMAs The transition to the new IMAs is well in hand. The £1.5 billion outflow ofPearl Group's assets is consistent with the expected outflow associated with therun-off of the closed life books. As announced on 30 June 2006, under the newIMAs, Pearl will have greater flexibility over assets under management and thiswill make it more difficult for us to predict what the potential future fundflows of Pearl will be. That said, we have secured minimum payments over thenext nine years regardless of asset levels and thus have certainty of revenues.We also have a realistic opportunity to earn performance fees. Corporate office Corporate costs were £7.0 million in the first half of 2006, down slightly from£7.2 million in the first half of 2005. As indicated previously, one-off legaland professional costs incurred in the first half of 2006 have inflatedCorporate office costs in the period by £2 million. The one-off costs relate toour discussions with the Pearl Group and the potential acquisition we reviewed. The return on Corporate cash was £6.6 million in the first half of 2006 comparedto £4.6 million in the first half of 2005. This is largely due to interestearned on cash retained after the sale of the Life Services business. Discontinued operations Discontinued operations comprise Towry Law International, which was closed tonew business in May 2004; the Life Services business, which was sold in April2005 and Towry Law UK, which was sold in May 2006. The £2.0 million loss beforetax from discontinued operations consists mainly of the profit on disposal ofTowry Law UK (£9.5 million, a significant premium to book value) offset by thecrystallisation of warranty claims under the sale agreement for the LifeServices business (£11.7 million). We announced a number of payment schemes in May 2006 in relation to legacyproduct issues in Towry Law International. These schemes are proceedingsatisfactorily and the provisions set aside for this purpose remain adequate inthe view of the Board. Pensions In conjunction with the planned return of approximately £200 million surpluscapital, Henderson Group agreed with its Pension Scheme Trustees to contribute£80 million, in excess of regular contributions, over the next two years towardsthe Scheme's deficit, to strengthen its mortality provisions and to re-orientatethe Scheme's investment strategy to a liability driven investment approach. Theadditional contribution will be made in three instalments: £40 million (whichwas provided for under IAS principles on the 31 December 2005 balance sheet)will be paid in October 2006, and £20 million in October 2007 and 2008respectively. As previously announced, most of the Towry Law UK sale proceedshave been earmarked to fund the balance of the additional contributions. Balance sheet and liquidity The balance sheet remains strong with Group net assets at 30 June 2006 of £681million. Subject to shareholder and UK Court approval, surplus cash ofapproximately £200 million will be returned to shareholders during October 2006. Dividend Our policy is to pay a sustainable flow of dividends out of operating profits,whilst maintaining dividend cover of approximately 2x. The Directors havedeclared a dividend in respect of the six months ended 30 June 2006 of 0.88pence per ordinary share (2005: £nil). We plan to pay the dividend on 24 October2006 to shareholders on the register on 13 October 2006, together with theproposed return of cash payment. Outlook for full year 2006/2007 We expect to add further assets in our higher margin product areas of MutualFunds, Absolute Return Funds and Property, although at a slower rate than in thefirst half, given the phasing of product launches and more unsettled markets inrecent months. As regards outflows from Pearl and our Institutional business,the trend is harder to predict. Given the freedom of movement of assetsavailable to Pearl, it is possible that outflows here could accelerate, althoughthis would not impact on revenues which are secured. Institutional outflows aregradually starting to subside, although we still expect a further outflow in thesecond half. Importantly, however, sales of higher margin products toInstitutional clients remain positive. The outflow from Virgin Money,foreshadowed at the time of the sale of that business, will not recur. In the longer term, fund flows are driven by investment performance and here thepicture is generally positive but is still short of where we would like it tobe. In general, performance is strongest in the higher margin product areas,including Mutual Funds, Property and Absolute Return Funds. However, coreinstitutional performance has not yet improved markedly, notwithstanding the newinvestment hires made in the last 18 months. More encouraging, however, is thepositive consultant and client reaction to those hires. As regards profitability, the emphasis on high margin products is drivingrevenues and profitability in the right direction - hence the 1.4% improvementin the Henderson Global Investors cost to income ratio in the first halfcompared to the first half of 2005. For the full year we can improve further onthis and expect not to exceed a 73% cost to income ratio compared to 75.5% in2005. For 2007 we believe that a 70% cost to income ratio is achievable throughfurther revenue growth and careful control of costs. On capital planning, we aim to complete the return of approximately £200 millionto shareholders by the end of October this year. The return on Corporate cashshould fall correspondingly in the second half of 2006. Our initial analysissuggests that a further return of £150 million to £200 million could be possiblein 2007 with the introduction of a prudent level of gearing to the balancesheet, which we are examining in conjunction with the implementation of the newCapital Requirements Directive expected in early 2007. Overall, the business is on the right track with good momentum in key highmargin areas, further opportunities to improve profitability and scope toprovide a further capital return to shareholders next year. All of this remainssubject, of course, to benign market conditions. This interim results announcement does not constitute the Interim Statement 2006for the half year ended 30 June 2006. The Interim Statement will be published inthe Financial Times in the UK on 29 August 2006. The ASX Appendix 4D,Announcement of 2006 Interim Results, was released today on both the Australianand London Stock Exchanges. 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. Paste the following links into your web browser to download the PDF documentsrelated to this announcement: 2006 Interim Results Presentation http://www.rns-pdf.londonstockexchange.com/rns/1030i_1-2006-8-24.pdf 2006 Appendix 4D http://www.rns-pdf.londonstockexchange.com/rns/1030i_2-2006-8-24.pdf 2006 Summary Interim Statement http://www.rns-pdf.londonstockexchange.com/rns/1030i_3-2006-8-24.pdf Henderson Group plc4 BroadgateLondon EC2M 2DARegistered in EnglandNo. 2072534 ABN 30 106 988 836 Details of market briefings: Friday 25 August Australia - 5.00pm (Sydney time) / 8.00am (London time) For a telephone link to the briefing dial one of the numbers below from 4.45pm(Sydney time), for a 5.00pm start.FromAustralia 1800 9889 41 (free call)United Kingdom 0500 5510 77 (free call)All other countries +44 20 7162 0025 (this is not a free call)Replay number +44 20 7031 4064 Pass code: 714315 United Kingdom - 10.30am (London time), 7.30pm (Sydney time) For a telephone link to the briefing dial one of the numbers below from 10.15am(London time), for a 10.30am start.FromUnited Kingdom 0500 5510 88 (free call)All other countries +44 20 7162 0125 (this is not a free call)Replay number +44 20 7031 4064 Pass code: 714316 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 £63.1 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 informationwww.henderson.com or Investor enquiriesMav WynnHead of Investor Relations+44 20 7818 [email protected] [email protected] Media enquiriesUnited KingdomFinsbury Andrew Mitchell+44 20 7251 3801 AustraliaCanningsGloria Barton+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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