3rd May 2007 09:09
Henderson Group plc03 May 2007 Annual General Meeting 3 May 2007 Henderson Group plc today holds its 2007 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 3 May 2007 Your company took the final step in transforming itself into a pure fundmanagement business a year ago, with the sale of Towry Law UK, just before the2006 AGM. The Group continued to make good financial progress in 2006, withpre-tax profit from continuing operations up 30% on 2005, mostly due toincreased profitability in Henderson Global Investors. Investment performanceimproved across a wide range of funds, which helped to attract healthy flows ofmoney into higher margin activities. As well as producing good profit growth, we have generated strong cash flow andreturned just over £1 billion to shareholders in the past two years. But westill feel the balance sheet should be working harder, and two recent eventshave provided us with the opportunity to make this happen. First, you may recall that the Group applied for a waiver from consolidatedsupervision by the UK Financial Services Authority, and this waiver was grantedat the start of this year. This means that the Group's regulatory capitalrequirement is no longer constrained by goodwill, so we have more flexibility oncapital planning. As a result, we plan to make a further return of cash toshareholders of approximately £200 million in the second half of 2007. TheDirectors have not yet reached a decision on the best way to do this, but we areunlikely to use the same method that we adopted for the previous two returns. Second, we have recently raised £175 million of senior debt, with a five yearterm, listed and tradable on the London Stock Exchange. UK investors were keento supply these funds, so we are paying a relatively attractive interest rate -just 125 basis points over the UK five year gilt rate. As we've stated before,we want to be prudent about gearing the balance sheet, and £175 million feelsabout right. The money raised will be used for general corporate purposes. We started paying dividends last year, and we intend to maintain a sustainableflow from now on, so we will stick to a 50% pay-out ratio for the time being.The Directors are recommending a dividend of 2.27 pence per share for the secondhalf of last year, and this will be paid on 29 May 2007 to shareholders on theregister at 27 April 2007. For holders of CDIs, the A$ equivalent will be around5.46 cents and the NZ$ equivalent will be around 6.10 cents. This brings thetotal dividend for 2006 to 3.15 pence per share, or around 7.64 cents(Australia) and around 8.57 cents (New Zealand). Overall, the Board remains confident about the Group's prospects and isdetermined to continue creating value for clients and shareholders. Thank youfor your support and encouragement during the year. Address by Roger Yates,Chief Executive,to the Henderson Group Annual General Meeting3 May 2007 As the Chairman has indicated, the Group made good progress and delivered stronggrowth in profits in 2006. Profit before tax from continuing operations rose by30% to £82.2 million, with earnings per share rising even more sharply to 6.3pper share, helped by the £200 million capital return to shareholders weundertook in October last year. In Henderson Global Investors, now the Group's only business, profits rose by29% to £81.1 million on revenues 15% higher at £295.7 million. The positiverevenue impact of £4.3 billion inflows into higher margin products, more thanoffset the revenues lost from outflows from Pearl and other lower marginmandates. Fee margins also improved to 44bps in 2006, up from 37bps in 2005,again a reflection of the shift towards higher margin business. As regardsoverall profitability, revenue growth outstripped higher costs to drive animprovement in the cost to income ratio to 72.6% from 75.5% in 2005. Apart from financial results, perhaps the best indicators of the health of afund management business are investment performance results across the business.In general, we are encouraged by the trends in performance in 2006, particularlyin our higher margin business lines. Thus, in our UK retail range, 79% of fundsbeat their benchmark in 2006, in the Horizon range of mutual funds sold intoEurope and Asia 68% and in hedge funds 78%. Property also had an outstandingyear for investment results with over 90% of funds exceeding benchmarks. Thereare, as always, areas where we can still do better, particularly in some of ourinstitutional mandates. However, the overall picture is a promising one. A different, but very tangible measure of investment success is the quantum ofperformance fees generated by the business. On this measure, 2006 was a verystrong year and we generated net performance fees of £37.3 million compared to£26.5 million in 2005. These fees were sourced across our business from 52different funds. This diversity leads us to believe that performance fees willremain a feature of our revenues, although it is always difficult to forecastthe exact amount. The Group enjoyed a lower tax rate than the UK statutory rate in 2006. Of coursethis was welcome but the lower tax rate is temporary and we expect a return to amore normal corporate rate, which in the UK will be 28%, by 2009 or 2010. As theChairman also mentioned, the Group has returned just over £1 billion toshareholders over the past two years and recently took some debt onto thebalance sheet. As such, we expect interest income earned on Corporate cashbalances to be lower in 2007 compared to 2006. Corporate costs are expected tobe approximately £10 million in 2007, £2 million lower than in 2006. Our strategy has been to develop and build a set of specialist, higher marginactivities. This strategy is working and to help accelerate the pace ofdevelopment, we made some changes to the business in the second half of 2006. Wecreated a Listed Assets business managed by Andrew Formica and David Jacob, withits own distribution activities and associated marketing and product supportareas. We also integrated Property distribution into the existing Pan-EuropeanProperty business managed by James Darkins. These changes have alignedinvestment management and distribution more closely and we have already seen animprovement in product development and client relationships. The cost of thechanges was £7.8 million, which we charged to profit as a one-off restructurecost in 2006. Our activities in North America, Private Equity and Asia were notaffected. Meanwhile, we remain pleased with our relationship with Banca Popolare Italianaand await the completion of the merger between Banca Popolare Italiana and BancoPopolare di Verona & Novara, scheduled for early July 2007. We expect a gain onour investment in Banca Popolare Italiana of approximately £35 million tocrystallise in our profit and loss account during the first half of 2007. As regards the current year, our strategy of focusing on higher margin businesscontinues to bear fruit. Flows into mutual funds and property have been good andat healthy margins. As regards the lower margin business areas, in addition tothe outflows associated with the run-off of Pearl's closed life books, Pearl hasindicated that it is likely to withdraw approximately £5 billion of itswith-profits funds in June 2007. The investment management and other relatedagreements reached with Pearl in June last year, allow Pearl flexibility towithdraw and/or re-allocate assets between investment capabilities. As such wecannot predict future movements in Pearl funds. However, if actual fees fallbelow certain thresholds, Pearl has agreed to pay compensation payments toHenderson to make good the shortfall, until April 2015. Consequently, thislikely withdrawal will not have any significant impact on earnings relative toprevious assumptions. Overall we are making good progress in executing our strategy. Flows into highermargin products are helping drive revenues and fee margins higher and in turnthis is delivering an improvement in profitability. Specifically, we are ontrack to achieve our cost to income ratio target of 70% for Henderson GlobalInvestors for 2007. The business is healthy and its prospects remain good,assuming as always the maintenance of benign market conditions. * * * For further information www.henderson.com or Investor enquiries Mav Wynn, Henderson GroupHead of Investor Relations +44 (0) 20 7818 5135 [email protected] Media enquiries United Kingdom - FinsburyAndrew Mitchell +44 020 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:
HGG.L