11th May 2006 09:15
Henderson Group plc11 May 2006 Annual General Meeting 11 May 2006 Henderson Group plc today holds its 2006 Annual General Meeting. The scripts for the opening addresses by the Chairman and the Chief Executiveare attached. Part one: Henderson Group Chairman's address to Shareholders. Part two: Henderson Group Chief Executive's address to Shareholders. * * * Address by Rupert Pennant-Rea, Chairman, to the Henderson Group Annual General Meeting 11 May 2006 The Group made further good progress in 2005 in transforming into a pure fundmanagement group, while also producing an encouraging set of results. Since the demerger from AMP in 2003, part of our strategy was to move out ofnon-core businesses and concentrate on fund management. In addition to the saleof the Life Services business, which I spoke about at last year's AGM, inDecember 2005 we announced the sale of Towry Law UK for £37.2 million. The salewas completed on 3 May. The sale proceeds will strengthen the Group's cashposition in the short-term, however we expect that most of it will be put intothe Company's Defined Benefit Pension Scheme, which will retain the accruedliabilities of past and present Towry Law employees. Profit before tax from continuing operations - that is, profit from HendersonGlobal Investors and the Head Office activities we term Corporate - was £63.4million in 2005. This is an increase of 20% on 2004 and was driven byimprovements in performance and management fees in Henderson Global Investors, areduction in Corporate staff costs and shareholder servicing costs, and higherreturns earned on Corporate cash. We also invested in our staff and systems, and we have recruited a number of keyindividuals. All this spending is devoted to improving the performance ofHenderson Global Investors.I will now move on to a topic of real significance for the Company and all itsshareholders. As you know, we have always said that capital not needed todevelop the business will be returned to shareholders. We had initially plannedon returning the surplus in the first half of this year, but this was delayedwhile we considered a possible acquisition. Let me say something about this potential acquisition - though I can't say much,as we are still bound by confidentiality rules. Certainly it would have madestrategic and financial sense to buy this particular fund manager, but only onterms that the Board would have been prepared to recommend to you, theshareholders. Unfortunately, these terms were not acceptable to the sellers, sowe withdrew from the auction. We are not currently looking at any other potential acquisitions. If, however,another opportunity did come along in the short-term, it would obviously have tobring more benefits for shareholders than we can provide by returning surpluscapital to you. You will appreciate that it takes a lot of time to consider an acquisition, sowe weren't able to organise a capital return to coincide with the Notice of thisAGM. But I can assure you that we intend to return £200 million in the secondhalf of 2006. The way we want to do this is through a capital reduction - the same method weused after we sold the Life Services business. This means that, in return for acash payment, every shareholder has the same percentage of their sharescancelled - which, for the majority of our shareholders, is the most equitableand tax efficient way to receive the money. However, procedurally it isn'tsimple, as a capital reduction requires the approval both of a Court in the UKand of our shareholders at an EGM. We are currently waiting for the Court toprovide us with a date for hearing our application and we hope to get dates thatwill enable us to return capital by October. As soon as the Court dates arefixed, we will be writing to you and providing you with more information,including the timing of the EGM. As for the Group's capital, we continue to prepare for the new EU regulationsthat are being introduced on 1 January 2007 under the Capital RequirementsDirective. We cannot yet be sure of the detail, as the rules are still beingfinalised, but we are not expecting an increase in our overall regulatorycapital requirement. Indeed, we are considering taking on some debt, as ourbalance sheet could easily manage that, and will keep you informed of ourthinking in this area. Moving on to another subject, the Group has reached agreement with the Hong KongSecurities and Futures Commission on how to deal with various claims arisingfrom the alleged mis-selling of products to clients of Towry Law International.We made an announcement about this on 2 May. Henderson Group was of course notinvolved in the mis-selling, which was something we inherited as part of thedemerger from AMP. We have taken a responsible approach to this issue, and atthe moment it looks as though the provisions we had in place at the end of lastyear will be enough to cover our expected liabilities. Part of the reorganisation of the business after the sale of the Life Servicesbusiness also included a review of the remuneration of the Chief Executive. TheRemuneration Committee wanted to ensure that his total package continues toreflect the market in which the Group operates. The Committee started with the view that exceptional performance, whetherindividual or corporate, should be rewarded through bonus and incentive schemesrather than base salary. This is increasingly the norm in the UK fund managementindustry, and ensures that the interests of senior executives are closelyaligned to those of shareholders. In that spirit, we negotiated new arrangements with the Chief Executive. Thedetail is contained in the annual report, but essentially his base salary hascome down by just over 40% and the maximum Short-Term Incentive payment that hecould earn has gone up to 600% of his new, reduced salary. We are also askingtoday for shareholder approval to increase the cap on LTIP grants to the ChiefExecutive from 300% of annual salary to 500%. The Committee wants to maintainthe absolute value of the LTIP awards that can be made to the Chief Executive,which means we need to increase the maximum multiple of salary that can beapplied to LTIP awards. The maximum will not be increased in the case of otheremployees, and should shareholders approve this increase, the RemunerationCommittee proposes to make an LTIP award to the Chief Executive after the AGM. I have left to the end what you probably wanted to hear about first: thedividend - our maiden dividend. The Directors are recommending the payment of1.39 pence per share for the six months ended 31 December 2005. For holders ofCDIs, the A$ equivalent will be around A$ 3.28 cents and the NZ$ equivalent willbe around NZ$ 3.70 cents per CDI. We are aiming for a sustainable flow ofdividends in the future, so this is a prudent start. We plan to pay the dividendon 26 June to shareholders on the register at 16 June. We have lodged a separateannouncement a week ago confirming the relevant dates and also the exactAustralian dollar and New Zealand dollar equivalents for the dividend. For thoseshareholders who have not yet provided us with their bank account details, westrongly encourage you to do so, as this is a safer, more convenient way for youto receive your dividends. 2005 was a year of considerable change for the Group. Thanks to the skills andcommitment of our staff, we feel confident about the Group's prospects. Thankyou also to our shareholders for your support and encouragement during the year. Address by Roger Yates, Chief Executive,to the Henderson Group Annual General Meeting11 May 2006 As the Chairman has outlined, 2005 was a year in which Henderson GlobalInvestors delivered good growth in profits, we took the steps necessary to getthe Company firing on all cylinders and we completed the disposal of non-corebusinesses. Profit before tax from continuing operations in the Group rose by 20% to £63.4million, helped by eight months worth of Corporate cost savings and higherreturns on Corporate cash. Within Henderson Global Investors, now the Group'sonly business, profits rose by 9% on 2004 to £62.9 million, due to improvedmargins and higher equity markets. Over the year, operating expenses wereslightly higher, although higher revenues and performance fees generated afurther improvement in the cost to income ratio to 75.5% from 76.4% in 2004.Assets under management were 2% lower at £67.7 billion, due to anticipatedoutflows from Pearl Group and the Institutional book of business. During the year, we also took steps to revitalise Henderson, particularly asregards investment performance and fund flows into the higher margin areas ofour business. We hired a number of key investment professionals at variouspoints during the year, and these changes to our investment line-up contributedto a marked improvement in investment performance. Overall, 55% of our fundsbeat their benchmark but performance was strongest in the highest margin productranges. In particular, our Absolute Return Funds, Mutual Funds sold into Europeand North America, and Property funds were all stand-out performers. This in turn had a favourable impact on high margin fund flows, with some £1.9billion of higher margin products sold. As regards assets under management,these positive flows were offset by larger outflows from Pearl Group and theInstitutional clients. By contrast, the impact on revenues and profits waspositive, reflecting the higher margins of business gained. Overall total fee margins rose to 37bps from 34bps in 2004. This reflected thechanging business mix, particularly the shift towards specialist products,including Mutual Funds, Absolute Return Funds, Property and Private Capital. For2005 as a whole, these specialist products accounted for 24% of assets undermanagement, but 62% of revenues. This compares to 21% of assets under managementand 52% of revenues in 2004. Therefore, the key to revenue and margin growth inHenderson, is the pace at which we can add assets and revenues in thespecialist, high margin areas versus the run-off of lower margin business.Overall, it is likely that assets under management will fall in 2006, whilerevenues and profits rise - as was the case in 2005. We also benefited from higher performance fees at £26.5 million, compared to£18.7 million in 2004. Importantly, these fees were generated across a range ofasset classes and clients which, allied to the creation of more opportunities toearn these fees in future, should make revenues from performance fees a moresustainable feature of Henderson's earnings. Turning now to Pearl Group, we announced on 3 March 2006 that Pearl had raised anumber of issues with us as regards the management of their assets and that wewere investigating those. We hope to update our shareholders and the widermarket in due course on the outcome, of what have so far been, constructivediscussions. There are three more items worthy of comment before touching on business trendsso far in 2006. First, as the Chairman noted, we have completed the sale ofTowry Law UK. At the same time, and without admission of liability to investors,we also agreed a scheme with the Hong Kong Securities and Futures Commission tocover various products sold by Towry Law International. The costs of the schemeshould be within the provisions previously raised by the Group. Second, we are seeking to address the accounting deficit in our Defined BenefitPension Scheme, in conjunction with the planned return of capital toshareholders. Besides the existing £40 million provision held for this purpose,we anticipate that most of the proceeds of the sale of Towry Law UK will berequired to tackle the deficit. Third, the return of capital we have previously indicated to shareholders willbe £200 million and will take place during the second half of the year. We willthen look carefully at our financial resources, our regulatory capital positionand the new EU rules on capital, toassess what additional return of capital we might do in 2007. We will update youon this in early 2007, once the new rules are in operation. As regards Henderson's business in 2006 thus far and the outlook for the rest ofthe year, there are a number of positive developments. Fund flows into key highmargin areas have accelerated, helped by good performance. Thus, flows into ourMutual Funds are already double the level reached in the whole of 2005; ourAbsolute Return Fund sales should gather momentum helped by new product launchesplanned for the second half of 2006; and we are steadily investing Propertyassets awarded by clients into the market and thereby earning fees on theseassets. As anticipated, fund outflows have continued from Pearl and from theInstitutional book of business but the revenue and profit impact of theseoutflows is more than offset by flows into higher margin areas. Finally on fundflows, when we sold our 50% joint venture holding in Virgin Money Group in April2004, we indicated that we expected that we would continue to manage the assetsof Virgin Money Group until the end of 2005. We now expect these assets, whichamount to £2.5 billion, to be withdrawn in the next few months. However, thiswill have only a marginal revenue and profit impact. As a result, we are on track to achieve or improve on our cost to income ratiotarget of 74% for Henderson Global Investors for the year, assuming benignmarkets. Within this, costs will likely be higher principally due to higherbonus provisioning reflecting improving profitability. However, at the profitline this should be offset by higher revenues from higher margin fund inflowsand higher equity markets. Costs at the Corporate level are expected to beapproximately £2 million higher than our previous guidance of £10 million ofbusiness-as-usual Corporate costs for the full year 2006. This is due to costsincurred in relation to ongoing discussions with Pearl and costs incurred on thepotential acquisition opportunity. Notwithstanding these higher costs and theadverse impact of the return of capital on interest receivable, we anticipategood growth in Group profits for the year, I should add of course that thisoutlook will depend on a benign market background. In summary, the business is in good shape. We have completed the disposal ofnon-core assets, settled issues relating to Towry Law International andestablished ourselves as a pure-play asset manager. Investment performance isimproving, fund flows into higher margin products are strong and the cost toincome ratio is on target. Overall the prospects for the year look good. For further information www.henderson.com or Investor enquiries Mav WynnHenderson Group Head of Investor Relations+44 (0) 20 7818 [email protected] Media enquiries United Kingdom - FinsburyAndrew Mitchell+44 20 7251 3801 Australia - CanningsGloria Barton+61 2 9252 0622 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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