AGF Management Limited AGF.B
Q1 2013 Earnings Call Transcript
Transcript Call Date 03/27/2013

Operator: Ladies and gentlemen, thank you for standing by. Welcome to AGF's First Quarter 2013 Financial Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this call is being recorded Wednesday, March 27, 2013.

Your speakers for today are Mr. Blake Goldring, Chairman and Chief Executive Officer of AGF Management Limited and Mr. Robert J. Bogart, Executive Vice President and Chief Financial Officer of AGF Management Limited.

Today's call and the accompanying presentation may include forward-looking statements. Such forward-looking statements are given as of the date of this call and involve risks and uncertainties. A number of factors and assumptions were applied in the formulation of such statements and actual results could differ materially. For additional information regarding such forward-looking statements, factors and assumptions, AGF directs you to caution regarding forward-looking statements, which is contained on Page 2 of the presentation, AGF's MD&A for the three months ended February 28, 2013 and AGF's most recent annual information form.

I will now turn the call over to Mr. Bogart. Please go ahead, Mr. Bogart.

Robert J. Bogart - EVP and CFO: Thank you, operator. Good morning, everyone. I'm Bob Bogart, CFO of AGF Management Limited. Thank you for joining us today for a discussion of our first quarter 2013 financial results. Please note that the slides supporting today's call and webcast can be found in the Investor Relations section of AGF.com. Today, Blake Goldring, Chairman and CEO and I will discuss our first quarter (2013) and financial results.

Turning to Slide 4, the agenda for today's call, we will discuss the highlights of the first quarter, provide a business update, review the financial results, discuss our capital and liquidity position, and finally close with an outlook for the rest of 2013. After the prepared remarks we'll be happy to take questions from the analysts.

With that, I'll turn the call over to Blake.

Blake C. Goldring - Chairman and CEO: Thank you, Bob and thank you everyone for joining today's call. It's only been 60 days since our last conservation, but we witnessed a very exciting time across the global equity markets, equity markets came rolling back in the beginning of January and (that'll) hit a new high over the quarter. United States has led the charge with increasing employment and improving housing market and expanding economic activity in the manufacturing sector for the third consecutive month.

Many economists are revising their GDP expectations slightly higher for the U.S. in 2013. With that we believe equity markets will continue to benefit from higher stock prices and lower volatility. No one can rule out future turmoil of course, particularly since the uncertainty of the U.S. government scheduled budget cuts will extend through the weeks and months ahead.

Even with those potential issues on the horizon, we expect a continued rotation back into equity investing as investors' confidence returns and they recognize the current disadvantage of fixed income. The S&P 500 has returned a positive 10% for the year through March 22nd as compared to the negative 2% posted by Barclays Global Aggregate Bond Index.

We believe the rotation will happen gradually as evident by recent data from investor economics that shows that net flows are shifting into equities, which posted positive RSP inflows of $830 million versus outflows of $2 billion a year earlier. Balanced products also saw a 50% increased inflows on a year-over-year basis, while bond funds are at 70% decline.

It's important to note that was in the equity and balanced flows, there is a shift of global investing. We see that Canadian equity continues to be in redemptions, offset by U.S. and global flows. Canadian investors have decreased their share and wealth in global equity funds over the last 13 years.

As one of our analyst noted this week, that trend maybe drastically changing causing a reverse of up to $5 billion per year over the next decade to bring foreign equity allocation back to prior levels.

As we have mentioned in the past, we feel AGF is positioned to benefit from our return to global equity investing and believe we have a competitive advantage in global investing capabilities, coupled with our distribution footprint. This will play out not just in retail but will be a theme for our institutional business as well.

Now with that backdrop, let’s review a summary of the first quarter. AUM was flat over the quarter and we benefited from market action to remain at $39 billion in assets under management. Our gross retail flows were at par with last year, but better upon percentage of assets under management. Total gross flows were above $1.3 billion for the quarter, which includes our retail sub-advisory and institutional segments.

Overall fund performance dipped slightly relative to last quarter in the Q1 with 38% ranked AUM performing above median.

Performance remains our number one priority. The Institutional business experienced a fewer larger redemptions in February, which caused AUM to decline over the quarter but the pipeline is stable and activity levels remained high.

The fixed income category remained strong in terms of flows for AGF. We are seeing early signs of strong momentum in our U.S. and balanced products. Diluted EPS came in at $0.17 per share. Our free cash flow is good and our dividend is very sustained under the current market conditions.

Finally, the Board approved a $0.27 dividend, consistent with previous periods and our commitment to our current shareholders. It is highlighted in our financial statement disclosure AGF received a proposed assessment from CRA with respect to our prior year's tax return filings. Bob is going to address this in his comments.

Turning to Slide 6; this slide reflects the performance of our retail funds from February 2012 to the end of February 2013. As of February 28, 2013, 38% of the ranked AUM performed above median over the one year period, which is relatively flat over Q4, 2012. The three-year investment performance has remained relatively flat as well; however, this is a material improvement over performance when compared to a year ago.

We're focused on the trend on the performance versus short-term movements. As you can see from the graph, the trend from one year ago is now moving positively in the right direction. AGFs fixed income suite continues to demonstrate strength the Fixed Income Plus, Emerging Markets Bond and Inflation Plus Bond all outperformed the category average.

As a category, our fixed income products earned net positive flows for the year. Our performance as we mentioned earlier remains a priority. We will continue to invest in resources in the management teams and research capabilities as required in order to improve fund performance.

Our goal is to exit 2013 with 50% of the funds on above one-year median. Our ability to demonstrate this will be a key to increasing gross sales and returning to AUM growth.

Turning to Slide 7, although RSP (season) was robust from an industry level, it was a bit of letdown for the majority of independents AGFs include in terms of net flows. Over this quarter, gross sales were generated via comparative last year on an absolute basis, but as a percentage of AUM, we improved over 2.6% of AUM in 2013 versus 2.4% in 2012.

Net outflows were just under $700 million when adjusted (proceed) money redemptions. Our sales team had a very high level of activity and during the first quarter and there was a very great level of excitement that matches renewed optimism in the industry as a whole.

In particular, our newest product offerings are selling extremely well. Both AGF Floating Rate Fund, as well as the AGF Focus Funds have met or exceeded our expectations post-launch. AGF launched its Floating Rate Fund last May. This unique fund provides investors exposure to floating rate loans that can serve to reduce interest rate risk, while not significantly impacting income. We're very pleased by the Fund's performance-to-date, and is currently has more than $120 million under management. The fund also had a terrific RFP season with $30 million in sales during February alone.

This is an example of a product that can penetrate the broker and bank channels because of its uniqueness and difficult to replicate on a discretionary basis. We're pushing harder to deliver product innovation and gaining more traction in the IIROC and bank distribution channels, which will continue to be a key area of focus throughout the year.

We also launched a marketing and brand awareness campaign. The AGF brand (indiscernible) remained strongly relevant across the wealth management industry, and we continue to push our marketing efforts to increase brand awareness, positively impact gross sales and to address redemptions from long-time AGF partners and advisors.

We have been changing the trajectory of our net outflows, and we expect this to improve over the year through our efforts and combined with the tailwind provided a rotation back to equities. Specifically, with respect to the Emerging Markets Funds, the percentage of redemptions relative to AUM is stable, and we expect year-over-year improvements in over fiscal year '13, which provides more confidence for advisors who remain supporters of the fund. Although EM mandates have trailed in developed markets in general, relative performance remains strong on the fund, and the team is very popular amongst advisors across Canada.

Turning now to Slide 8, I want to get in some detail of our institutional business and the context behind Q1 activity. Our institutional business suffered redemptions over the quarter. We discussed last quarter that there may be some volatility as we enter the back half of the launch period that resulted from the global team disruption last year.

Over the quarter, there were $848 million in redemption on February due to losses in three accounts, one of which was EM mandate. Additionally, our committed pipeline shows an EM mandate that was redeemed in March.

Not to get lost in the outflows is the fact that our institutional business recorded just under $500 million of gross flows in the first quarter. Post Q2, we hope to be entering a more business as usual mode. We remain excited and continue to view the institutional business as a growth channel for AGF. We see the positive leading indicators through our activity levels. After depth and search activity in mid-2012, search levels have recovered to the same level that we saw in Q1 2012.

Search activities are an important lead indicator because they give us an opportunity to develop our profile with the consulting community who continue to dominate the global institutional business and as time progresses; we expect to progress further and further in each progressive search.

Chris Boyle, who leads our institutional business, and his team have been very busy in January and February responding to incoming requests for proposals, which were up 50% year-over-year, almost 70% of which are global mandates. At this point, we average almost one qualified search per day.

Further accentuating the demand for EM product is the lack of credible mandates with open capacity. As I mentioned on the Q4 call, capacity constraints in this category exist and we’ve seen at least one billion large competitors close their segregated mandate to new business.

We’ve made a significant investment in our management and distribution capabilities in the institutional business and we’re confident that this will be a multi-billion dollar growth business for us over the next three to five years.

Moving then to Slide 9, I’m going to turn the call back over to Bob, who will review the financial results in more detail.

Robert J. Bogart - EVP and CFO: Thank you, Blake. As a reminder, you'll notice in our presentation and our published financials and MD&A has been divided into continuing operations and discontinued operations. This is consistent with the presentation of results from previous quarters in 2012 post disposition of our Trust business. There has been no activity within discontinued operations for the current quarter.

Slide 9 reflects a summary of our financial results for Q1 2013 as compared to Q1 2012. Revenue was down 7.2% driven by the reduction in AUM due to redemptions in the institutional retail business lines. This decrease in revenue is generally in line with the rate of our AUM reduction over the same time period. EBITDA decreased 13.7% to $45.3 million for Q1 2013 relative to a year ago, with an operating margin of 37%. First quarter diluted EPS came in at $0.17, one penny less than the corresponding period in 2012.

Turning to Slide 10, we show the trended quarterly results. This chart reflects our EBITDA and revenue over the past five quarters. As discussed in the Q4 call, we believe that current EBITDA reflects more normalized operations. Throughout 2012 there are one-time items, which made it more challenges to preview our run rate EBITDA.

SG&A was slightly higher in Q1 2013 as a result of a change in the way we are required to account for expense reimbursements associated with one of our distribution partners. Formerly the expenses incurred were netted against revenue received, but beginning in 2013, we will show the expense within SG&A and the revenue separately on a gross basis. This treatment increases the SG&A cost by approximately $1.5 million per quarter, but also increases revenue by the same amounts, so it's a wash on our financials.

Relative to Q4 2012, our SG&A is also slightly higher as a result of bonus accruals associated with PM compensation and an increase in stock compensation due to rise in AGF.B share price.

Turning to Slide 11, I’ll walk you through the basis points yield on the business. This is a slide we regularly show on our calls to let you see our performance on a longer trended basis and smoothing out some of the impacts of market volatility, it shows our investment management revenue, operating expense and EBITDA as a percentage of average AUM on the current quarter and the prior year's quarter, as well as trailing 12 months view.

Note the quarters have been annualized and the results excluded the impact one-time cost. Prior periods have also been adjusted to reflect the SG&A increase relative to the change in the accounting -- I just mentioned. With respect to revenue, the operations reflect an increase in revenue yield due to a higher mix of retail business per dollar of AUM, and as a relatively larger redemptions associated with lower fees institutional assets have caused this rate to increase.

Our SG&A on a relative basis as a percentage of AUM was higher in Q1 2013 as a result of lower AUM levels. On an absolute basis, SG&A is lower on a year-over-year basis. On a relative basis our EBITDA was higher as the revenue gains per dollar of AUM and the cost reductions cutting initiatives that we enacted in Q3 and Q4 of 2012 have increased the yield. The rise in the equity markets over the quarter has created some positive operating leverage versus the trailing 12 month results.

Turning to Slide 12, I’ll discuss the free cash flow and dividend coverage. This slide represents the last five quarters of free cash flow shown by the blue bars on the chart. The cash flow represented this consolidated free cash flow in Q1, 2013 is the second quarter without any free cash flow generated from AGF Trust.

Now it’s important to note that the free cash flow from quarter-to-quarter can be impacted by a variety of items, including timing of cash taxes and dividends received from minority investments. Our free cash flow was $28 million in this quarter and our Q1 dividend payout ratio was 85%.

If we were to extrapolate the Q1 cash flow and exercise our NCIB facility in 2013, our expectation for a dividend to free cash flow metric will be in the 80% to 85% range for the year. Of course, the metric is quite sensitive to equity market movements and we will update our expectations quarterly.

We continue to maintain a strong cash position with $356 million in cash on hand and a net cash position of $44 million. We continue to be interested in adding new product in investment capabilities and we will use our capital prudently to build or buy such capabilities. We have no update for the quarter.

Finally, let me touch on the CRA notice that Blake mentioned at the top of the call and the tax footnote disclosure in the financials. Over the last several years, the international division at the CRA has been reviewing under audit certain transfer pricing between a domestic and foreign subsidiary within the AGF Group of Companies involving asset management activities.

AGF has received a proposed assessment from the CRA that would increase the tax liability for years 2005, ’06, and ‘07 by approximately $40 million before the assessment of any interest and penalties. The Company is in disagreement with the proposed filings by the CRA and we are in the process of responding to the proposed letter and we will provide a rebuttal and supplementary information supporting management view that the CRA position is incorrect.

While the outcome of the audit can't be predicted with certainty, the Company has confidence that merits of the transfer pricing methodology, which is supported by annual transfer pricing studies conducted by external and the economic substance of its the legal and operating structure supports its tax filings.

At this point, based on the information available to the Company, it is our best estimate that all amounts have been provided for the financial statements. Following the exchange of information and the meeting with the CRA and the receipt of formal assessment, management will be in a better position to assess the CRA position and any potential impact on the Company. We expect those activities to occur over the next quarter, although full resolution may take several years if the process is followed through to its conclusion.

Now moving to Slide 13, I'll turn it back to Blake to wrap up today's call.

Blake C. Goldring - Chairman and CEO: Thanks, Bob. For the rest of 2013, I want to outline our priorities and expectations. Firstly, we want to exit 2013 with 50% of funds above one year medium. It is important for advisors, clients and our sales team it would be a catalyst for increasing gross sales in the retail channel.

We will continue with product innovation and we launched new products focused on unmet demand in each categories. We expect retail gross sales to improve year-over-year and significant improvements over the remainder of fiscal year '13.

This will be driven by our sales teams leveraging our performing products for increased activities supported by a brand and marketing push. For the institutional business we need to turn these RFP and RFIs into the sales funnel and ultimately AUM for the firm.

We've hired and built out a very strong global distribution team under the leadership of Chris Boyle. As we move into a regular business post with this watch period, post watch period, we expect to finish the year flat on a net sale and spend the back half of 2013 in positive sales territory.

We will invest to grow our business. As we mentioned we see opportunity in our resources and grow the global platform capabilities to take advantage of a multiyear and multibillion dollar opportunity to distribute through the retail and institutional channels.

The NCIB was renewed and we will be active. I want to thank everyone on the AGF team for their hard work over the quarter and to our shareholders for their continued support.

With that, we'll now take your questions.

Transcript Call Date 03/27/2013

Operator: John Aiken, Barclays Capital.

John Aiken - Barclays Capital: Blake on your closing commentary you talked about being active in the normal course issuer bid but the slide deck actually show selective. What's the criteria you are looking at? What your prospective cash flows are going to be or are you looking at a certain price points where your shares are trading at?

Blake C. Goldring - Chairman and CEO: Yeah, I think that we looked clearly at what the stock price is doing. We have a disciplined way in which we can participate certainly at market downturns and what have you, and we can selectively get in, but we have a disciplined process, John, because it's our intent to be active and fulfill our NCIB.

John Aiken - Barclays Capital: Bob, one question on the CRA. Was there any change in methodology for the years post-2007, or is this an issue that may pop up again depending on how successful the CRA is?

Robert J. Bogart - EVP and CFO: Yes. I think in our footnote disclosure, we mentioned that it's most likely that the CRA will look at subsequent periods post-2007. To your first part of the question, the only thing that has really changed, methodology has not changed, but certainly the assets under management have dramatically declined. That will be managed by the foreign subsidiary, so the volume would have been impacted.

Operator: Geoff Kwan, RBC.

Geoffrey Kwan - RBC Capital Markets: I just wanted to follow up on John's last question. If the CRA is going to come back with a proposal around 2008 through 2012, now I know you mentioned the AUM has changed with the foreign subsidiary, do you have any ballpark about what that amount that they might seek would be or would you know even based on your own interpretations of what they're going after?

Blake C. Goldring - Chairman and CEO: It's really too early in the process, Geoff, to comment formally. We haven't really received a formal assessment with respect to the 2005 to 2007 period. So, we believe the ultimate resolution of the matter, as I mentioned to John, could be applied to future years. That said, we have been accepted into what's called an advanced pricing arrangement program with the CRA that will provide certainty for the transfer pricing from 2012 to 2016. In addition, the CRA has agreed to open to address the open tax years from 2009 to 2011 as part of that program. That process which really involves the tax jurisdictions as well as the tax, they are having dialogue and negotiations, it could take several years to work its way through to its natural conclusion as well.

Geoffrey Kwan - RBC Capital Markets: So just to clarify your comments, so you've got a framework in place that should – that the CRA is comfortable with over the next two years, but also would be – have applied to the past few years or did I misunderstood…?

Blake C. Goldring - Chairman and CEO: You got part of it right. We are beginning that process such that we can get certainty with the CRA in terms of the transfer pricing moving forward. That agreement will be applied retroactively to 2009, but we just had notification that we've been accepted into the program. So we haven't even begun to have conversations with the CRA yet.

Geoffrey Kwan - RBC Capital Markets: Another question related to that is, does this development with the CRA impact, how you guys plan to be on the NCIB and similar to that is, are you – the intent is to max out or close to max out on the NCIB as you did last year?

Blake C. Goldring - Chairman and CEO: That was the intension that we discussed in Q4 and it remains our intension. So, this is a factor in terms of – certainly it's a factor in terms of cash uses, but it won't impact our perspective on the NCIB.

Geoffrey Kwan - RBC Capital Markets: The last question I had was, in relation to this CRA proposal, how should we think about the associated legal cost that you guys may have to incur to deal with the CRA?

Blake C. Goldring - Chairman and CEO: We don't like some. Yes, so it will impact G&A going forward, but we'll look to make that up.

Geoffrey Kwan - RBC Capital Markets: I'm sorry, it will be something I'm assuming you have to expense, but in terms of…

Blake C. Goldring - Chairman and CEO: Correct.

Geoffrey Kwan - RBC Capital Markets: … the need for legal, paying the lawyers, is that something where it is just kind of on an ad hoc when you guys are seeing something from CRA, you need them to deal with it or is there kind of an ongoing legal aspect that need to be…?

Blake C. Goldring - Chairman and CEO: It's going to obviously negatively impact G&A. It will be more of a recurring as opposed to episodic, because as part of this program we'll be utilizing fairly regularly external counsel and external advisors in the process.

Operator: Stephen Boland, GMP Securities.

Stephen Boland - GMP Securities: I guess I have to ask something on the CRA as well. I don't the legalities in terms of statute of limitations, but I don't remember of seeing a company being assessed or reassessed for something that's seven or eight years ago, is that – is this been an ongoing know audit that – you mentioned that through the audit process over the past several years, but maybe this has been gaining steam with the CRA or is this the first time you've actually heard something formal from them?

Blake C. Goldring - Chairman and CEO: Well, this – I believe this probably started in 2006-2007 in terms of the actual audit, there was -- were a larger case audits, so will be reviewed every two years. So these things take a while to resolve. So on a domestic front -- that audit was successfully completed with de minimis change, but on the international side because it’s more complex involves other aspects of the CRA, they just take longer to process. We're frustrated with the timing as well, but this is not in my experience -- as a former tax professional this is not unusual.

Stephen Boland - GMP Securities: It just seems like if it's 2005 that mean you've been through several, if it’s a two-year window of audit, it’s gone through several of these…

Robert J. Bogart - EVP and CFO: On the domestic side, correct.

Stephen Boland - GMP Securities: On the domestic side.

Robert J. Bogart - EVP and CFO: On the domestic side, right.

Stephen Boland - GMP Securities: Which?

Robert J. Bogart - EVP and CFO: Yeah, this is something that is not – it’s not just a special situation with respect to any kind of cross-border transactions associated to AGF. It’s more broadly happening within the asset management industry, we’re certainly aware of that, as well as other industries including Suncor the energy space, I mean there are other companies that are dealing with this.

Stephen Boland - GMP Securities: Just I’m not sure if I am reading this little too finely in your note, are you actually starting to reserve for this, or is that going to be a material reserve if you are?

Robert J. Bogart - EVP and CFO: Like any other company we've got provisioning set aside from certain tax situation Steve. We feel very strong with our position based on the transfer pricing studies and other comparables that support our position, but these matters are subject to a significant degree of interpretation. So it's possible that additional tax liability may be due but we just don’t have enough information at this point in time and we feel very strongly about our position.

Stephen Boland - GMP Securities: Maybe I can ask you an operational question now. When I look at your decline in average AUM from, I guess, the retail is down I think 11, the institutional is down 18, but your management fee year-over-year is only down, well, 9 or 10. I mean, I know there is a shift in retail, but would it even going a little more finely, is it your highest margin products that are holding up the best, because otherwise we would have seen an average number management fee decline somewhere in the middle of that? Is that a fair assessment like your...?

Robert J. Bogart - EVP and CFO: Are you – when you are referencing AUM decline, you are referencing average or just absolute?

Stephen Boland - GMP Securities: Average, over-year.

Robert J. Bogart - EVP and CFO: Average year-over-year, yes, so it is a shift into higher margin products that have less of a redemption rate than let’s say the Canadian equities and/or balanced products.

Stephen Boland - GMP Securities: So that actual basis point number is going to – if you'll continue to see the similar trends, you are going to keep outperforming I guess on that metric, right? Like your revenue decline is not going to be as much as your asset decline, average asset decline if this trend continues?

Robert J. Bogart - EVP and CFO: Yes, if the past is indicative of the future, yes, but we would anticipate that actually in fiscal ’13 that we are going to be adding AUM in the institutional segment. So we'll see that average rate normalize to the downside a bit.

Operator: Paul Holden, CIBC World Markets.

Paul Holden - CIBC World Markets: The first question I had is, you made a comment regarding putting a stronger sales push into the IIROC and bank channels. Wondering if you can give us more color on how you plan to do that and maybe with what products?

Blake C. Goldring - Chairman and CEO: Yes, we have – Paul, we got an active product development process going on right now and I don't run up – at liberty right now is our share – what our product will be looking like, but it's I think in addition to Floating Rate Fund, that would be very successful through the IIROC channel and we'll just continue on innovation, and products that are tough for (corner) office brokers to replicate. So the approach Paul would be to utilize the floating rate as well as this new product to gain access to corner off brokers where we’ve had probably less success in recent years. So these products can open those stores and then we backfill with our other product which is performing well the global products and other fixed income products.

Paul Holden - CIBC World Markets: I know you don't want to provide specifics on the new product, but is there any kind of color you can provide whether it's selling equity product, and income product, if it's going to be managed in-house or sub-advised or any kind of color on the nature of the product?

Blake C. Goldring - Chairman and CEO: Yes, it will be an equity oriented product, but again, I'd rather sort of discuss at when we're just at the time.

Paul Holden - CIBC World Markets: Within your presentation, you said you expect the Q2 gross sales and net sales to improve year-over-year, so there would be a bit of a difference than what we saw in Q1. So is that really just premised on improving demand for equity funds at the industry level and AGF participating in that or is there something more going on that leads you to that conclusion?

Robert J. Bogart - EVP and CFO: I'll let Blake answer it as well. From a Q1 perspective, Paul, you know that we've got this, a little bit of blending of institutional and retail within the IFIC reported numbers because of our institutional class that will offer the series O Class that we offer through our funds. In addition, we had some substantial seed money repatriation associated with the Floating Rate Fund. So like-for-like, 2013 to 2012, we were actually on a net redemption basis excluding these institutional clients. So just focused on the brokers and the planner market, we were actually better off in terms of net redemptions year-on-year. So you take some of that institutional noise aside and we've just seen that the broker and planner market's becoming stronger on the back of the Focus Funds, as well as the Floating Rate Funds.

Blake C. Goldring - Chairman and CEO: I just simply add as well is that we look at the outflows sold to advisors, as opposed to the outflows from strat accounts and I can just tell you that this is very much improving.

Robert J. Bogart - EVP and CFO: Just as using March as an example, we haven't seen the fairly significant decline in net sales activity that we did -- or excuse me, cross-sales activity that we did last year. So, March is holding up much better as compared to February versus March of last year, compared to last year's February.

Paul Holden - CIBC World Markets: Final question, previously, you've put out SG&A guidance of 1.70 to 1.75. Should we simply bump that up by $6 million account for the accounting change and then recognizing that they will be fully offset by higher revenues?

Robert J. Bogart - EVP and CFO: That correct, Paul.

Operator: John Reucassel, BMO Capital Markets.

John Reucassel - BMO Capital Markets: Bob, just last question on CRA. This (indiscernible) be decided by some judge at some point in the next three to five years, two to four years, is that what you expect?

Robert J. Bogart - EVP and CFO: I hope not. The process would be – you know that you'd go through -- as post – I’ll get in technical process related, but it’s confident authority where you would be again having conversations with the foreign tax jurisdiction as well as the Canadian tax authorities and you would seek to support your position and resolve this over the next two years. There are many hazards of litigation, you don’t really want to go to – you don’t to go to tax court because that would not be our proposed approach, but it may take – but John, it may take two years to get this resolved.

John Reucassel - BMO Capital Markets: And I apologize if I missed it, you said there were three mandates that redeemed at a institutional in February and one of them was emerging markets. What were the two others?

Robert J. Bogart - EVP and CFO: One was a European mandate and the one was a Canadian mandate.

John Reucassel - BMO Capital Markets: For Bob just for you, the debt to EBITDA is about 1.7 times and does the Bank look at net debt or does it look at debt to EBITDA. Is that how the covenants are written?

Robert J. Bogart - EVP and CFO: It’s the latter.

John Reucassel - BMO Capital Markets: Net debt to EBITDA?

Robert J. Bogart - EVP and CFO: No, that would be the former.

John Reucassel - BMO Capital Markets: Former, sorry. So, it would be the debt to EBITDA. Not that I want to know the covenant, but this covenant hasn’t impacted your ability to buy back stock. Has it?

Robert J. Bogart - EVP and CFO: And whatsoever.

John Reucassel - BMO Capital Markets: You don’t expect it to, okay. So, you expect, I think you’ve said this, I just want to confirm it. You haven’t bought back any stock in the last few months but you hope – you expect to use all the NCIBs this year assuming the pricing is right?

Robert J. Bogart - EVP and CFO: That’s right.

Blake C. Goldring - Chairman and CEO: We were only opened for 30 days and then we were back at blackout. So once the NCIB was approved in late January, there just wasn’t a lot of time to (enact) the NCIB.

Operator: Doug Young, TD Newcrest.

Doug Young - TD Newcrest: Most of my questions have been asked. I guess just to not to belabor the CRA, but you did mention, Bob, I think that you have done some provisioning for potential adverse outcomes on tax ruling. Can you quantify – I mean should we be taking a look at that $356 million of cash and then potentially moving $40 million as the worst – plus I guess, interest and penalties as the worst case? Or can you quantify how much of provisioning you already have?

Robert J. Bogart - EVP and CFO: I won’t provide that level of transparency, Doug. I think it’s prejudicial to our position and just a lack of clarity within the process itself. But the provisioning wouldn’t have anything to do with the cash. So to the extent that you want to move some cash off the balance sheet, I mean I’ll leave that you for your estimates, but the provisioning wouldn’t have anything to do with that.

Doug Young - TD Newcrest: Blake, obviously you reviewed the dividend on a quarterly basis. You’ve got the CRA overhang, you’ve got your debt covenants, which I guess I am not fully sure of what they are. How – what’s the discussion and how do you approach looking at that dividend, because in your last slide you’re talking about maintaining the dividend, there seems to be a lot of headwinds here. Just wanted to get a sense of how you’re looking at that and how the Board looks at it?

Robert J. Bogart - EVP and CFO: The Board looks at the dividend on a quarterly basis, Doug, and clearly you got very strong cash flow here and have a good coverage. So there is say it was a – it have very short discussion this quarter.

Operator: Phil Hardie, Scotia Bank.

Phil Hardie - Scotia Bank: I apologize to beating a dead horse on the CRA assessment, but I mean is it safe to assume that once if you do in fact you get the letter of the formal assessment that your definitive deposit with the entire estimated liability just to avoid or mitigate penalty charges and interest expense?

Robert J. Bogart - EVP and CFO: Yeah, normally you would generally put a 50% of the proposed adjustment while the issue is being disputed, that’s correct.

Phil Hardie - Scotia Bank: 50%, okay.

Operator: Scott Chan, Canaccord Genuity.

Scott Chan - Canaccord Genuity: Just a question on if there is any update on the acquisition front, are you seeing the opportunities and anything in this market?

Robert J. Bogart - EVP and CFO: We have been seen a lot of opportunities actually Scott, none that are really attractive within the framework that we’ve agreed to with the Board, but there is lots of activity and (Mike Clapp) has been quite busy.

Scott Chan - Canaccord Genuity: Just on the customer client checks, is that really due to Acuity acquisition?

Robert J. Bogart - EVP and CFO: Which customer contacts you referenced?

Scott Chan - Canaccord Genuity: Just in terms of the decline on the amortization, if I did it right, the unamortized version, there were redemptions in the quarter. So you had to expense the unamortized and that’s why it was a big quarter-over-quarter drop. I am just trying to get a sense of that going forward.

Blake C. Goldring - Chairman and CEO: So any amounts of the purchase prices that were allocated to the management contracts or customers' contracts would be written off once the assets left the building. So that would include all of our acquisitions. So Highstreet is including, Acuity is included.

Scott Chan - Canaccord Genuity: Highstreet is included as well, okay. I noticed from the December filing that Highstreet won a big (EC) mandate. Is that right? I thought it’s like $375 million gross inflow. Was that entirely new or is that kind of – because I didn’t see that before?

Robert J. Bogart - EVP and CFO: Well, you said what public notice?

Scott Chan - Canaccord Genuity: On the institutional side, you had the ending assets for December. I just noticed the Highstreet had an uptake despite the (multiple speakers)..

Robert J. Bogart - EVP and CFO: I’m sorry, Scott, it was a reallocation under elements to the street with all okay but if you didn't answer the questions at this time I will now turn back over his remarks. Thank you. Operator of an individual is, a holding place on June 26, 2013. We will review our second quarter results for fiscal 2013 details of the website following the audio webcast please call is going to be available the best relations section of our website. Thank you hundred and 26, this concludes today's conference. Thank you for participating in a now disconnect