27th Feb 2008 07:02
Henderson Group plc27 February 2008 2007 FULL YEAR RESULTS 27 February 2008 FINANCIAL HIGHLIGHTS 12 months to 12 months to Change 31 December 31 December 2007 2006Earnings per share1Basic, continuing operations 11.7p 6.4p +83%Basic, all operations 16.4p 5.6p +193%Diluted, all operations 15.6p 5.5p +184%Total ordinary dividend per share2,3 6.1p 3.15p +94%Return on equity4 23% 13% 10 pts improvementOperating profit before taxGroup, continuing operationsexcluding non-recurring items £106.7m £82.2m +30%Group, all operations includingnon-recurring items £147.2m £72.4m +103%Henderson Global Investors £109.6m £81.1m +35%Operating profit after taxGroup, all operations includingnon-recurring items £132.2m £61.2m +116%Henderson Global Investors cost toincome ratio 67.5% 72.6% 5.1pts improvementAssets under management (AUM) £59.2bn £61.9bn (£2.7bn) 1 Based on the weighted average number of shares in issue less the weightedaverage number of own shares held during the accounting period.2 2007 final dividend of 4.44 pence per ordinary share recommended, subject toshareholder approval at Annual General Meeting on 1 May.3 2007 total dividend equivalent to 50% of net profit after tax beforenon-recurring items.4 Before tax from continuing operations excluding non-recurring items. KEY DEVELOPMENTS • £1 billion net inflow into higher margin products. • Total fee margin 53bps (2006: 44bps) and management fee margin 42bps (2006: 34bps) on average AUM. • Satisfactory investment performance with 58% (2006: 63%) of funds by value beating their benchmarks. • Debt issuance of £175 million in May 2007 with 9 times interest cover. • Share consolidation and special dividend paid in October 2007, £250 million, equivalent to 27.6 pence per share. • Henderson Global Investors cost to income ratio target of below 65% in 2008. COMMENTS FROM CHIEF EXECUTIVE, ROGER YATES "We delivered solid growth in profits in 2007, reflecting strong improvements inour fee margins and in our cost to income ratio. In turn, these helped generatea significant improvement in return on equity and allowed us to pay asubstantially higher dividend. Our main objectives in 2007 were to improve investment performance, to continueto grow our higher margin businesses, to deliver a 70% cost to income ratio inHenderson Global Investors (Henderson) and to make the Henderson Group (Group)balance sheet more efficient. We achieved good progress against theseobjectives: • Generally satisfactory investment performance was offset towards the end of the period by market turbulence. This volatility has persisted to date in 2008, creating a more challenging environment in which to deliver investment returns to clients; • Given these market conditions, we were pleased to win £1 billion of net new higher margin business in 2007, including particularly strong flows into our US Wholesale fund range; • Henderson's cost to income ratio for the year of 67.5% comfortably beat our target; and • We believe our debt raising last May was both well timed and well priced. These strong results are testament to our product diversity which should standus in good stead in more challenging markets." GROUP RESULT Operating profit before tax from continuing operations, excluding non-recurringitems, was £106.7 million in 2007, up 30% from 2006. Operating profit after taxfrom all operations, including non-recurring items, was £132.2 million in 2007,an increase of 116% compared with 2006. The 2007 tax charge for the Groupcomprised a £12.4 million charge on continuing operations and a £2.6 millioncharge on non-recurring items. The effective tax rate for all operations,excluding non-recurring items, was 11.7% (2006: 14.9%) and includingnon-recurring items was 10.2% (2006: 15.5%). We expect the effective tax rate on continuing operations, excludingnon-recurring items, to remain between 10% and 15% in 2008, reverting closer tothe statutory rate in 2009 or 2010. The lower effective rate in 2007 was due tothe utilisation of previously unrecognised deferred tax assets and greaterclarity on the level of tax provisioning required for prior years. HENDERSON GLOBAL INVESTORS RESULT Operating profit before tax from Henderson was £109.6 million - up 35% from£81.1 million in 2006, due to higher management and net performance fee incomecoupled with slower cost growth. Management fee income increased 17% to £258 million in 2007, primarily as aresult of improved fee margins on average assets under management (AUM) andmainly positive market movements. The largest contributors to this increaseincluded Wholesale, Property, Private Equity and Hedge funds. Transaction fees decreased by 28% to £17.8 million in 2007, mostly due to aslower pace of investment in Property. Net performance fees increased by 34% to£50.1 million in the same period and came from a range of products, withProperty, Hedge funds and Investment Trusts being the largest contributors. As a result of higher management and net performance fees, total fee income in2007 increased to £325.9 million, up 15% from £283.1 million in 2006. Continued growth in higher margin products and outflows from the lower marginareas of our business resulted in a more profitable product mix. The total feemargin on average AUM increased from 44bps in 2006 to 53bps in 2007. Managementfee margin on average AUM rose from 34bps in 2006 to 42bps in 2007. Net marginincreased from 12bps in 2006 to 18bps in 2007. Investment income declined 9%, from £12.6 million in 2006, to £11.5 million in2007. This was mostly due to lower activity levels in Henderson's seedinvestment portfolio during 2007 compared to 2006. Total operating expenses increased by 6% to £225.3 million in 2007. Savings ininvestment administration, IT and office expenses were offset by increases invariable staff and other expenses including the impairment of a seed investmentand additional provisioning. Fixed staff costs were slightly lower than lastyear due to management actions on pension costs, whereas variable staff costsincreased in line with improved operating performance during the period. Overall, the increase in total income exceeded the higher costs in 2007,resulting in an improvement in the cost to income ratio to 67.5% from 72.6% in2006. Total AUM declined to £59.2 billion at 31 December 2007 compared to £61.9billion at 31 December 2006. Net inflows into higher margin business totalled £1billion and comprised: US Wholesale funds (£1.4 billion), Property (£0.9billion) and Hedge funds (£0.1 billion), partially offset by net outflows fromCDOs (£0.9 billion) and UK and European Wholesale funds (£0.5 billion). Theoutflow from CDOs occurred in the first half of 2007 and represented redemptionsby noteholders at above par value for which we received make-whole managementfees. The net outflow from UK and European Wholesale funds was mostly due toprofit-taking in property securities in the Horizon fund range. AUM in propertysecurities declined from £2.0 billion at the start of 2007 to £1.1 billion at 31December 2007. Net outflows from lower margin business in 2007 comprised Institutional (£2.2billion) and Pearl Group (Pearl, £4.1 billion). As previously announced, thesub-advisory agreement with Banca Popolare Italiana (BPI) expired at the end of2007 and a £0.9 billion outflow relating to this is included in netInstitutional outflows. Also, as previously flagged, Pearl gave notice in 2007of its intention to withdraw £9 billion of assets and the Pearl Staff PensionScheme, an Institutional client, gave notice of its intention to withdraw £1.8billion from Henderson. We expect most of the £9 billion of assets will bewithdrawn in the first half of 2008 and the Pearl Staff Pension Scheme mandatewill transfer to Pearl on 29 February 2008. As previously stated, the investmentmanagement and other related agreements, entered into with Pearl in June 2006,allow Pearl flexibility to withdraw and/or re-allocate its assets. As such, wecannot predict movements in Pearl funds. However, if actual fees fall belowcertain thresholds, Pearl has agreed to make compensation payments to Hendersonto make good the shortfall, until April 2015. The Pearl fund outflows referredto above, therefore, will not have a material impact on Henderson's futurerevenues. There were favourable market and foreign exchange rate movements in 2007 AUM of£2.6 billion. Henderson's investment performance over the last three years is generallysatisfactory. In Listed Assets, which comprises our Equity and Fixed Incomebusiness, 54% of funds by value beat their benchmark in the three year period.Over one year, 57% of Listed Asset funds by value beat their benchmark. Theexternal validation in 2007 of our investment process was strong as evidenced bythe increased ratings of our fund managers (from three to seven) and of ourfunds by third party assessors. Investment performance in our US Propertybusiness remains excellent with 76% and 100% of funds achieving or beating theirbenchmarks over one and three years respectively. In Pan-European Property, weexpect to retain a strong three year performance track record, pendingpublication of peer group benchmarks in the next month or so. PROFIT PROTECTION Our goal for 2008 is to meet or beat Henderson Global Investors' 2007 operatingprofit before tax. This may be achieved through a combination of management feegrowth and continued cost management, assuming markets recover; or through costreduction, if markets remain subdued. We have already taken some measured action in this regard, namely headcount andrelated restructuring which should generate £20 million of savings in 2008,before a restructuring charge of approximately £2.5 million pre-tax. This hasbeen done without cutting any of our investment capabilities. In addition, we have identified a further £10 million of non-staff costs thatcould be removed from our cost base if markets stay subdued. Further savings arealso achievable in variable staff costs, depending on future market levels. The variability of our cost base is an important advantage in tougher marketsand we are reasonably confident, therefore, of delivering a cost to income ratiofor Henderson Global Investors of below 65% in 2008. CORPORATE RESULT Corporate costs amounted to £9.1 million in 2007, £2.4 million lower than 2006due to one-off legal and professional expenses of £2 million incurred in thatyear. We currently expect Corporate costs in 2008 to be similar to those of2007. Corporate net interest declined to £6.2 million in 2007, from £12.6 million in2006. Interest income earned on Corporate cash was lower than the year beforedue to lower cash balances, following recent cash returns to shareholders, butoffset the interest expense paid on the debt we raised in May. We expectCorporate net interest to comprise mainly debt servicing costs in 2008 and itwill turn negative, therefore; approximately £10.5 million before tax relief(compared to previous guidance of £12 million), assuming an interest rate of 6%. BANCO POPOLARE GRUPPO BANCARIO (BP) The merger of BPI and Banco Popolare di Verona e Novara, to create BP, completedon 1 July 2007. This transaction crystallised a net gain on our investment inBPI of £31.8 million in the first half of 2007, of which £16.3 million wasreceived in cash by way of a special dividend. The investment gain has beenrecognised in the Group's income statement as a non-recurring item. Subsequent market conditions and BP stock-specific developments in the secondhalf of 2007 contributed to a fall in the BP share price. The loss in value ofour BP investment has been accounted for in the consolidated statement ofrecognised income and expense and balance sheet. We will continue to hold thisinvestment for the time being. As mentioned above, the sub-advisory agreement with BPI expired at the end of2007, resulting in fund outflows of £0.9 billion. Nevertheless, we have retaineda distribution agreement with BP for higher margin Horizon funds (AUM: £0.2billion at 31 December 2007). PENSION SCHEMES There was a net surplus in the Group's main staff pension scheme, beforedeferred tax provisions, of £62.3 million at 31 December 2007 (31 December 2006:£5 million net liability). This favourable development was principally due to: • changes in service benefits with effect from 1 April 2007 (which resulted in a non-recurring pension scheme credit of £8.7 million in the 2007 income statement); • increased returns on investments in 2007, driven by the £60 million special contributions made in 2006/2007 in line with previous guidance; and • a 0.7% increase in the AA corporate bond discount rate used to value pension liabilities for accounting purposes. BALANCE SHEET AND RETURN OF CASH The Group improved the efficiency of its balance sheet during 2007, raising £175million of senior debt in May 2007 and returning a further £250 million of cashto shareholders by way of a special dividend in October 2007. The initial interest coupon on the debt was fixed and has been swapped into avariable rate to take advantage of falling interest rates and align more closelywith the return from the Group's cash balances. Interest cover remains high at 9times. With the most recent cash return of £250 million, the Group has returned a totalof £1.3 billion to shareholders since May 2005, in addition to regulardividends. Although the balance sheet remains strong, our current position isthat further cash surpluses will be reinvested in the business for growth. FINAL DIVIDEND The Directors have recommended an ordinary dividend in respect of the six monthsended 31 December 2007 of 4.44 pence per share. We plan to pay the dividend on30 May 2008 to shareholders on the register on 9 May 2008. This takes the totalordinary dividend for 2007 to 6.1 pence per share, equivalent to 50% of netprofits after tax before non-recurring items, an increase of 94% on the prioryear. We started paying dividends in 2006 and have aimed for a dividend cover ofapproximately two times. The Board will review this policy in 2008, with a viewto increasing the pay-out ratio prudently in the next few years. OUTLOOK Our diversity is a source of strength and the business is in good shape towithstand a sustained period of market weakness. Markets may move higher fromcurrent levels, but our current planning assumes that they do not. In addition,we are assuming that retail investor confidence remains fragile, leading us tobe cautious about net flows into our Wholesale funds in 2008. Offsetting this,we see opportunities in the institutional market, in particular, further growthin our Property business, where our focus will be on investing pipelinecommitments of £2.3 billion as at 31 December 2007, and Institutional business,where we have won £0.6 billion of new business since the start of the year. Our primary focus will continue to be on profitable organic growth, but we alsobelieve that, in more difficult markets, we are in a good position to capitaliseon other opportunities. We are actively looking for those opportunities where wecan lift out teams or make bolt-on acquisitions that meet our criteria. We expect to continue earning transaction and performance fees in 2008, althoughwe do not currently anticipate the same level of fees in 2008 as in recentyears. We currently expect transaction and net performance fees of approximately£30 million in 2008. Our goals for 2008 are to meet or beat Henderson GlobalInvestors' 2007 operating profit before tax and to deliver a Henderson GlobalInvestors cost to income ratio of below 65%. APPROVED BY THE BOARD OF DIRECTORS ON 26 FEBRUARY 2008. For further detail on the 2007 full year results, please see the AustralianSecurities Exchange (ASX) Appendix 4E lodged together with this announcement. To view the full details of the 2007 ASX Appendix 4E, paste the following linkinto your web browser; http://www.rns-pdf.londonstockexchange.com/rns/7273o_1 -2008-2-27.pdf To view the full details of the 2007 Full Year Presentation, paste the followinglink into your web browser; http://www.rns-pdf.londonstockexchange.com/rns/7273o_2 -2008-2-27.pdf FORWARD LOOKING STATEMENTS 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. * * * DETAILS OF MARKET BRIEFINGS: WEDNESDAY, 27 FEBRUARY 2008 For a telephone link to the briefing, dial one of the following numbers 5 to 10minutes prior to the start of the call: Conference title Henderson Group, full year results market briefingChairperson Roger Yates 9.00am (London time)/8.00pm (Sydney time) FromUnited Kingdom 0500 551088(free call)Australia 1800 9890 15 (free call)All other countries +44 (0)20 7162 0125 (this is not a free call) Replay number From United Kingdom 0800 3581860 Access code: 783459Australia +61 (0)2 82239748 Access code: 783459 (available from 27 February to 5 March 2008) Alternatively, you can listen to a live audiocast of the briefing. To listen tothe briefing, go to www.henderson.com and click on the relevant link on the homepage. NOTES TO EDITORS ABOUT HENDERSON GROUP PLC Henderson Group plc (Henderson Group or Group) is the holding company of theinvestment management group Henderson Global Investors (Henderson). HendersonGroup is headquartered in London and since December 2003 has been dual-listed onthe London Stock Exchange and ASX. Henderson Group is a constituent of the FTSE250 and S&P/ASX 200 indices. Established in 1934, Henderson is a leading independent global asset managementbusiness. Henderson provides its institutional, retail and high net-worthclients with access to skilled investment professionals representing a broadrange of asset classes, including equities, fixed income, property and privateequity. Henderson is one of Europe's largest investment managers, with £59.2billion of AUM (as at 31 December 2007) and employs around 980 people worldwide. ABOUT CHESS DEPOSITARY INTERESTS 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 ASX. CHESS Depositary Interests, or CDIs, are a way of allowing securities of foreigncompanies to be traded on the ASX. CDIs afford shareholders all the same directeconomic benefits as ordinary shares, like the right to dividends and the rightto participate in rights offers. FURTHER INFORMATIONwww.henderson.com or Investor enquiriesMav Wynn, Head of Investor Relations +44 (0) 20 7818 5135 or +44 (0) 20 7818 5310 [email protected] or [email protected] Media enquiriesUnited Kingdom: Maitland Australia: CanningsPeter Ogden/Lydia Pretzlik Peter Brookes/Pip Green+44 (0)20 7379 5151 +61 (0)2 9252 0622 Henderson Group plc4 BroadgateLondon EC2M 2DARegistered in EnglandNo. 2072534ABN 30 106 988 836 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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