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Executives

Robert Bogart – SVP and CFO

Blake Goldring – Chairman and CEO

Rose Cammareri – EVP, Retail Distribution

Mario Causarano – President and COO, AGF Trust Company

Rob Badun – EVP, Investments

Analysts

Geoff Kwan – RBC Capital Markets

Doug Young – TD Newcrest

Stephen Boland – GMP Securities

John Reucassel – BMO Capital Markets

Jeff Fenwick – Cormark Securities

Paul Holden – CIBC World Markets

AGF Management Limited (AGF.B) F2Q10 (Qtr End 05/31/10) Earnings Call Transcript June 23, 2010 11:00 AM ET

Operator

All participants thank you for standing by. Welcome to AGF’s second quarter 2010 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 conference call is being recorded, Wednesday, June 23, 2010. Your speakers for today are Mr. Blake C. Goldring, Chairman and Chief Executive Officer of AGF Management Limited; and, Mr. Robert J. Bogart, Senior Vice President and Chief Financial Officer of AGF Management Limited.

Today's call and 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 the caution regarding forward-looking statements which is contained at page two of the presentation, AGF's MD&A for the three months ended May 31, 2010, and AGF’s most recent annual information form.

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

Robert Bogart

Thank you, operator. Good morning, everybody. I am Bob Bogart, CFO of AGF Management Limited. It's a pleasure to have you join us for today’s call. Please note that 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 AGF’s second quarter results. Also joining us on the call and available to answer questions are Mario Causarano, President and COO of AGF Trust; Martin Hubbes, Executive Vice President and Chief Investment Officer; Rob Badun, Executive Vice President, Investments; and Rose Cammareri, Executive Vice President, Retail Distribution.

And with that, I’ll turn over to Blake.

Blake Goldring

Thank you, Bob, and welcome to everyone listening to today's conference call. This quarter has been an interesting one for the markets to say the least. Sovereign debt crisis in Europe brought with it a return to volatility and fragile confidence that's been rebuilding was shaken once again. At AGF, we continue to forge ahead and have confidence in our long-term strategy despite the short-term challenges.

Many of you joined us at our annual stakeholder day last month and my message from then has been unchanged. Just to recap, we are committed to running a cost-effective efficient operation that’s profitable, successful and delivers value for all our stakeholders. Our overall financial picture remains strong and we continue to plug away at the redemption trend focus on our product development, which I will speak to in a moment.

Let me begin by providing with our financial highlights for the last quarter. Similar to the previous quarter, we continue to track well on all fronts. For example, our AUM, assets under management, is up year-over-year. At quarter end, AUM was at $42.9 billion, up 14.6% from 2009.

Consolidated revenue remains relatively steady from the previous quarter ending at $153.8 million for the quarter. EBITDA also increased by 27.8% year-over-year to $62.6 million. On the Trust side of the business, our financial picture was equally positive and our capital position remains strong. Bob will get into more detail of our Trust in a few minutes.

Finally, after adjusting for some one-time items, our diluted earnings per share were $0.35 in the second quarter compared with $0.19 last year. Bob is gone to have more to say about those items very shortly. You may recall from Q1 that we increased our dividend which today remains at $0.26.

Moving to the next slide, I want to share with you the latest developments in our product lineup. During the quarter, we introduced five new products spanning our major business lines. In response to demand, we launched new Global Resources mandate for institutional clients, leveraging the strength we already have on the retail fund side in this category.

You may recall from stakeholder day that we were also in the process of preparing to launch an Asia ex-Japan and Global ex-US mandate to expand our institutional offerings while leveraging our Investment Management bench strength. As you know, the institutional sales cycle is a long one, but we've seen steady growth.

Our retail fund lineups saw us add two new products, AGF Pure Canadian Balanced Fund and the AGF Traditional Income Fund. We also announced the launch of AGF Global Aggregate Bond Fund, which was made available for sale earlier this month. These funds support our strategy to focus our sales efforts on the fund categories we believe are the greatest opportunity for short-term net sales. Investors continue to look for income and growth and our new funds are designed to generate income, preserve capital and deliver sustainable long-term returns.

On the sales side of the equation, we continue to increase our client facing activities. I've recently been on the road, myself with Rose, Martin and a number of our fund managers meeting with advisors at our due diligence events that was been held across the country. What I can tell you from our discussions is that we are gaining traction and have solid support. We're going to continue to focus on building up those relationships, aggressively pursuing strategic partnerships and moving our sales back into positive territory. We are confident that over the long term our frontline activities, constant communication and strategic adjustments to our product mix will all pay off.

Finally on the Trust side of our business, we are repositioning for future growth with product enhancements and new product development. We launched a prime residential mortgage product in the advisor channel in Ontario in the second quarter and will be rolling it out nationwide over the remainder of the year.

To date, interest and response levels have been very encouraging for this product. We continue to look for opportunities to leverage our Investment Management expertise and our strong relationships with advisors.

Now let me turn it over to Bob to discuss our financials in greater detail.

Robert Bogart

Thank you, Blake. I’ll begin with a summary of our consolidated financial results for second quarter 2010 compared to 2009. As Blake mentioned, AUM increased 14.6% year-over-year. This was due to improvements in global markets combined with net inflows from new institutional mandates.

Trust loan assets declined 17.6% to $3.4 billion reflecting the normal reduction of loans for amortization and loan payoffs. Trust capital position remains strong and we are repositioning for future growth with new product enhancement and development. As Blake mentioned, we launched a prime mortgage product through the advisor channel during the second quarter and we anticipate good momentum from that channel moving forward.

Consolidated revenue was up approximately 7%, driven by a revenue increase in the Investment Management segment. For the current quarter, consolidated revenue includes one-time accounting charges of $5.5 million related to AGF's investment in Smith and Williamson. As a reminder, AGF has a 30.5% interest in Smith and Williamson. These charges were primarily related to goodwill impairment and recognition of cost related to investment team recruitment arrangements.

Smith and Williamson has been a solid investment for AGF over the years. We've seen good growth and profits and increasing cash dividends over the last five years.

Overall, SG&A was up slightly approximately 3% mainly due to increased operational activities in our investment operations and at AGF Trust.

EBITDA was up almost 28% to $62.6 million. Net income for the quarter was $27.5 million, up nearly 60% year-over-year. Free cash flow continues to be strong, increasing 59% to $46.7 million. Finally, diluted earnings per share were $0.30 versus $0.19 a year ago.

Turning to slide seven, here we show our trend in EPS both on an actual and adjusted basis over the last five quarters. The adjusted line excludes the impact of one-time items in Q4 ‘09 and Q2 ’10, and reflects that our normalized earnings have a more stable trajectory. Our adjusted EPS for the second quarter of 2010 was $0.35, a slight improvement on a sequential quarter basis and an 84% improvement over Q2 ‘09.

Moving to slide eight, second quarter revenues in our Investment Management segment were up 17% year-over-year to $132 million, which is directly correlated to the higher average AUM levels. SG&A expenses have held fairly constant over the past five quarters. They were up approximately 2% to $39.3 million on a year-over-year basis and essentially even with the prior quarter. We may see modest increases going forward related to building out additional operational capacity as well as higher sales and marketing costs associated with new product promotion.

EBITDA of $55.4 million increased 32.5% on a year-over-year quarter. On a sequential quarter basis, EBITDA shows a slight increase. Overall, EBITDA margins were 41.9% for the quarter as compared to 37% from a year ago.

Turning to slide nine, we presented this slide during our last call to display our Investment Management results over time and smooth some of the volatility of the markets. So lets you see our EBITDA segment performance on a longer-trended basis.

This slide shows our Investment Management segment revenue, operating expenses and EBITDA as a percentage of average AUM on the current quarter, a trailing 12-month basis, and the prior year's quarter. Note that the quarters have been analyzed. Q2 ‘10 average AUM is up roughly 3% over the trailing 12-month period and has increased 25% since Q2 ’09. As a result of our success in garnering assets within the institutional line of business, our revenue rate described in basis points has trended lower both on a trailing 12-month basis and as compared to Q2 ’09. This is due to the changes in our mix of retail and institutional assets as highlighted on the slide.

Even with this change to the revenue rate, our business continues to deliver at the EBITDA line. To date, we have achieved this by leveraging the current operational capacities of the organization as we bring on new assets. Of course, executing on our growth strategy both in the institutional and retail mandates may require additional resources at some point, which would be done in a thoughtful and prudent manner.

Moving to slide 10, let's take a look at the Trust results for the quarter. Trust revenue for Q2 ‘10 is $24.8 million, that's a decline of 12% on a year-over-year basis, but up nearly 4% on a sequential quarter basis. The year-over-year decline is directly attributable to the decline in average loan balances. The increase from Q1 ‘10 can be attributed to an improvement in the average cost of funds as well as two extra fee earning days in the second quarter of 2010. These items offset the impact of the decline in average loan balances over that same period.

SG&A expenses were up 13% year-over-year and up 6.7% on a quarter-over-quarter basis. Expense increases are associated with incremental labor and IT cost to support our new product development initiatives.

EBITDA increased to $10.4 million, up from $4.9 million in the second quarter of 2009 and was down approximately $700,000 or 6.3% on a sequential quarter basis.

Turning to slide 11, the Trust segment’s net interest margin continues to hold steady increasing approximately 20 basis points to 260 basis points on a sequential quarter view. As I noted earlier, this increase was due to a modest improvement in funding costs.

And slide 12 shows the significant decline in our provision for loan losses since last year, which has contributed to solid result to Trust. Trust experienced a reduction of 67% in loan loss provision expense on a year-over-year basis and on a sequential quarter basis the loan loss provision has increased by approximately $1 million due to an increase in RSP loan provisioning.

Overall, the loan book is performing to expectations and short-term volatility in the loan loss provision is not unexpected. Although not reflected on the slide, the Q2 ‘10 allowance for loan losses has decreased 29% year-over-year to $34.9 million, and this is directly in line with the decline in loan book over the same period.

And with that, I will turn the call back to Blake for his concluding remarks.

Blake Goldring

Thank you, Bob. Well, in closing, I want to reiterate our commitment to delivering value to all our stakeholders. We're confident that our long-term strategy can withstand the challenges of the short-term market volatility. Just to recap then, what we're going to be doing is focusing on executing our strategy plans in area of product development, we are going to ensure that we have the right product mix for the current environment, and make sure it’s going to support our sales efforts. We're also going to continue to look for opportunities to leverage our distribution partners and investment management capabilities across all our business lines.

With that I want to thank you all for listening and that ends our formal comments. And now we will open it up for some questions.

Question-and-Answer Session

Operator

(Operator instructions) The first question will be from Geoff Kwan at RBC Capital Markets. Please go ahead.

Geoff Kwan – RBC Capital Markets

Hi, good morning. First question I had was can you talk about the net sales activity that you're seeing so far in June and how that relates relative to what we saw in May?

Blake Goldring

Perhaps, Rose, could you answer that?

Rose Cammareri

Yes, I can take that over. In terms of net sales, Geoff, we continue to focus in on our income and growth with a particular emphasis on the new traditional income fund that we just launched with Peter Frost. As Blake mentioned earlier, we had four due diligences that we took right across the country. We actually met with the mutual fund analysts as well to introduce these products. They were well attended. The portfolio managers did an excellent job in communicating the message. So we continue to focus on the right products, the income and safety and growth component.

And it’s just now a matter of time of just focusing on right activities throughout the entire summer. We have a whole schedule of activities for the fall that we have lined up from September all the way to December. So it’s just continuing to work with the Investment Management team, with the sales team and with advisors and making sure we get the message out, and having quality impactful meetings with those advisors.

I will point out that May was a very challenging month and it was a challenging month right across the industry. We haven’t seen those kinds of levels, not seen since 1991.

Geoff Kwan – RBC Capital Markets

So, would it be fair to say that June is looking relatively better relative to May. Obviously, there may be some seasonal factors into that.

Rose Cammareri

Yes, exactly. And now we are getting into the summer as well. So we get that seasonal factor as well.

Geoff Kwan – RBC Capital Markets

So, sounds a little bit better in June relative to May, then? Or –.

Rose Cammareri

I would say it’s moving in the right direction.

Geoff Kwan – RBC Capital Markets

Okay. Next question I had was just the debt that you have on the balance sheet, if I read it right, it’s maturing at the end of next month. Just wanted to see if there's anything potentially material that comes out of it and any indications on loan repricing, that sort of thing?

Robert Bogart

You are talking with respect to AGF ML, Geoff?

Geoff Kwan – RBC Capital Markets

The revolver on the balance sheet.

Robert Bogart

Yes, we will be renewing that revolver with better pricing.

Geoff Kwan – RBC Capital Markets

Okay. Were you going to add something there or –?

Robert Bogart

No.

Geoff Kwan – RBC Capital Markets

Okay. Last question I had was just for Mario on the Trust side. Two things. One, the SG&A expense kind of ticked up quarter-over-quarter, just wondering if this might be indicative of the new level or is there some spend that – expenses that are – or IT spend that are getting expensed right now, but may not show up in future quarters? And the second question I had was when I look quarter over quarter, a couple of the categories particularly on the mortgage side were ticking up a little bit, looking at the 90-day buckets in particular for the mortgages and HELOCs, and in general the HELOCs looks like they were deteriorating a little bit quarter over quarter. Just wanted to get some color on that.

Mario Causarano

Okay, thanks, Geoff. With respect to expenses, I mean they were up as of the mortgage program that you heard Blake and Bob talk about. So we’ve been putting some investment into that. We still got a little bit of ways to go because we have the launch through the rest of the country, but there is no major IT spends that are in there. In terms of the overall quarter-over-quarter in terms of some of the loan metrics, there's nothing really in there that's – that is of any significant. On the HELOC program, that book has performed very well and that's a bit of an anomaly, we haven't really had much movement in that book from a performance perspective at all.

Geoff Kwan – RBC Capital Markets

Okay. Thank you.

Operator

Thank you. You next question will be from Doug Young at TD Newcrest. Please go ahead.

Doug Young – TD Newcrest

Hi. Just a few questions. Can you tell us what your net flows, your focus funds were for the quarter?

Blake Goldring

Rose, can you give them?

Rose Cammareri

At the stakeholder day, I don't have that number right in front of me, but I –

Doug Young – TD Newcrest

Was it in the stakeholder day presentation?

Rose Cammareri

It was in the stakeholder day presentation.

Doug Young – TD Newcrest

And you don’t have any update to that number?

Robert Bogart

Doug?

Doug Young – TD Newcrest

Yes.

Rob Badun

Doug, it’s Rob. Just through Q2 2010 – excuse me, just for the second quarter, focus funds were about $158 million.

Doug Young – TD Newcrest

Okay. And then on the institutional side, I am wondering what the net flows were in quarter, I guess other parts to the question, were there any institutional wins in terms of getting on lists that you can talk about and how does the price line look on the institutional side?

Rob Badun

Doug, it’s Rob. Yes, there were wins during the second quarter, both on the platform front and among the institutional clients. The wins were pretty well distributed by investment group and by region. So there is no real concentration in that regard. In terms of the pipeline it has – it's fair to say it has slowed a little bit I think from the pace that we were on last year, though last year if you recall from earlier comments I made was pretty robust and wasn’t likely to be repeated this year. So we had a more steady pace. Still lots of good activity but down from what we experienced in ’09.

Doug Young – TD Newcrest

In terms of net flows?

Rob Badun

Net flows, year to date and in the quarter are down from what we saw last year, again reflecting the fact that last year was an extraordinary – a bit of an extraordinary year.

Doug Young – TD Newcrest

And do you have any numbers on net flows in quarter?

Rob Badun

We have – in thinking about that aspect of the business, Doug, we’ve opted not to get into specifics, and would rather just provide guidance that way I have.

Doug Young – TD Newcrest

Okay. Bob, on the Smith and Williamson, just to make sure I have this correct, the $5.5 million pre-tax, $3.9 million after-tax was the impact. What line on the income statement did that go through? Was that in the dividend and interest income line or where did that go through?

Rob Badun

It’s in the other revenue.

Doug Young – TD Newcrest

Other revenue line. And are there any other updates with regards to the prospects of IPOs around the Smith and Williamson?

Blake Goldring

No. The market, Doug, remains challenging over in the UK and management at this point, I mean, it's still out there and – but right at this stage, there's nothing imminent.

Doug Young – TD Newcrest

Okay. Thank you.

Operator

Thank you. The next question will be from Stephen Boland at GMP Securities. Please go ahead.

Stephen Boland – GMP Securities

Good morning.

Blake Goldring

Good morning, Steve.

Stephen Boland – GMP Securities

I guess, you're talking about your increase year-over-over in expenses, $3.7 million for the quarters, $4.8 million for the year – for the six months. And I guess now you're talking about more promotion activity going forward for the fall. Is it fair to assume that that number will continue to stabilize or increase on a year-over-year basis?

Robert Bogart

I think, Steve, it’s Bob. In the comments from stakeholder day and some of the comments from this call, we'll see those costs will increase slightly. But that’s all with the context of what the markets do in terms of the volatility. So we are not going to make any short-term bad decisions in light of our future growth, but we will be mindful of where the markets are and what the revenue levels are. But I think you would see a slight increase in G&A through the remainder of the fiscal year.

Stephen Boland – GMP Securities

I guess, just on expenses, on your trailers when I look over the last four or five quarters of trailers, it’s gone up sequentially, maybe $5 million or $6 million from May to May, your assets have remained fairly flat. So can you talk specifically is it the same funds that are – what’s driving that increases, is it just a individual product or people just changing –

Robert Bogart

Yes, I think it’sfirst AUM levels are up, so trailers are going to increase on an absolute basis. And on a basis points basis, there is increase – slightly increased weighting on the higher load option as well as you have matured assets that have been within the complex for a long period of time, which dealers are taking advantage of 10% fee option and converting lower load assets into a higher trails. So it’s a combination of those two Steve.

Stephen Boland – GMP Securities

As a percentage of what you mentioned on basis points, should we expect that to keep going up 1 basis point or 2 basis points a quarter or is it fairly stable you think from here on?

Robert Bogart

Yes, really all depends on the gross sales activity in terms of the overall basis points. But I think all things being equal, a static book would have an increase in trails over time, but very slow upward movement on that.

Stephen Boland – GMP Securities

Okay. Just on the Smith and Williamson, from Doug's question, I guess, can you talk a little bit the timing of why that charge is now seems kind of –

Robert Bogart

Well, it’s actually related to, what I’d call a top of the market acquisition, 2008. So Smith and Williamson has been acquiring various businesses, offices. This one was located in the European Union and it was just a 2008 acquisition where the business because of the recent markets couldn’t support the valuation.

Stephen Boland – GMP Securities

That’s it. Thanks very much.

Operator

Thank you. Your next question will be from John Reucassel from BMO Capital Markets. Please go ahead.

John Reucassel – BMO Capital Markets

Thanks. Bob, just trying to get a sense of the EBITDA margins, AGF in the past has talked about getting a 50% EBITDA to revenue margin and now you are presenting with basis points. Is there one way that you or AGF is looking at this or what is your preferred way? And if so, what are your targets over the next few years?

Robert Bogart

Well, I mean, I'd prefer to look at it in terms of basis points personally. And with respect to targets, it all really depends, John, in terms of the mix of the assets over an extended period of time. So you’ve got two different dynamics working with institutional and retail and the mix of those two assets – broad asset classes, you can use that term, will dictate EBITDA.

John Reucassel – BMO Capital Markets

Okay. So, we should expect more focus on basis points versus EBITDA to revenue?

Robert Bogart

Well, we will present both.

John Reucassel – BMO Capital Markets

Both, okay.

Robert Bogart

Yes.

John Reucassel – BMO Capital Markets

Okay.

Robert Bogart

In terms of 50%, I'm not sure that's a relevant target.

John Reucassel – BMO Capital Markets

Okay. Fair enough. And then Mario, just – I just want to make sure number's right. Looks like your allowance for credit losses were down about $3 million in the quarter from Q1. Is that correct?

Mario Causarano

Yes, that’s right.

John Reucassel – BMO Capital Markets

So would that flow through the loan loss provision?

Mario Causarano

That’s right.

John Reucassel – BMO Capital Markets

And so if we look at end quarter loan loss provision, I guess I am just trying to sense is the $4.9 million a good number going forward or should we think of $4.9 million plus $3 million that went through the ACL.

Mario Causarano

Well, on the $4.9 million, there's some – the reason that is up quarter-over-quarter is with respect to that RSP portfolio, I mean, it is a little bit and has always been variable and that’s why it’s up. On a longer term basis, we look at that portfolio on a long-term basis and it’s performing according to our expectations. So we don’t see anything in that increase that would – that you need to worry about.

John Reucassel – BMO Capital Markets

Okay. So I guess ask another way, is there still room for you to draw on your allowance for credit losses?

Mario Causarano

Well, that's formula-driven, John, so – and we are pretty tight in terms of how that formula works and as a result we don't play with it at all.

John Reucassel – BMO Capital Markets

Maybe I'll try asking it another way. Sorry, Mario. If you looked at your provisioning over a cycle and you looked at it relative to your asset base what would that number be, would you assume be 50 basis points, 30 basis points, 75 basis points, what would you expect that number to be over a cycle?

Mario Causarano

Well, it really depends on the portfolio, John. I mean, I'm not going to – each portfolio performs differently, and where it’s tracking right now according to the way that we expect it to track. So I can’t give you any further guidance than that.

John Reucassel – BMO Capital Markets

Okay. And Blake, one last question for you, and I missed the stakeholder day, so I'm sure you answered this question. But if you could just remind me of kind of priorities for your cash flow, you continue to reduce some of your debt here. Are we going to see some buyback or not, are you going to focus on growth? Could you just give us your – in order, your top priorities with the free cash flow?

Blake Goldring

Yes, absolutely. We're big believers in dividend and obviously we increase dividend, it really show strength in this organization in a very tough market. In the acquisition front, there are really very few acquisition opportunities and anything that would be out there be something we’d have to take a very hard look at given the market environment we are in. So it looks – then, frankly, where our stock is, I mean, you know, I've got to tell you it’s looking very reasonably priced on a relative basis and obviously looking at the future. So we're generating good cash and obviously dividend number one and buybacks, something we'll have to think about for sure. We have the approval to the normal course issuer bid and that is active.

John Reucassel – BMO Capital Markets

Okay. Thank you.

Operator

(Operator instructions) And our next question will be from Jeff Fenwick from Cormark Securities. Please go ahead.

Jeff Fenwick – Cormark Securities

Hi, good morning. Just a follow-up on the trust area. You mentioned the new initiative to get mortgage referrals from this advisor arrangement. Can you just give us some background here, have these advisors sold this type of product before or is there kind of an educational process that you have to go through before you think you will start to get some traction with that initiative?

Mario Causarano

In fact, they've had this program for a number of years with another financial institution; probably in the neighborhood of about seven have been added so far, so we have the opportunity to take that program, they're well aware of how it works. They've obviously had to make some adjustments for our model and how we do that, but we're well underway with respect to that program.

Jeff Fenwick – Cormark Securities

And are you already seeing some originations come through that channel then?

Mario Causarano

I mean the good thing that we are seeing with the originations and that’s what's the most encouraging is the quality of the book. I mean, it's – they're higher credit scores, better loan to values, and the profitability is in line with historically profitability, but a much better quality book. So from that perspective we are pleased with the way we are getting started here.

Jeff Fenwick – Cormark Securities

Should we be anticipating a pretty material expansion in your origination activity through Q3 here? And it’s pretty – down sequentially from the first quarter and still quite a low level if you look historically. So how do you feel about the direction there, origination activity?

Mario Causarano

Well, it will be the driver of our origination definitely for 2010 and has an impact going into 2011 as well. We're putting all our resources on this area of origination right now.

Jeff Fenwick – Cormark Securities

I think most of my questions have been answered. I guess, Blake, we did see one high-profile Canadian firm announce they're converting their multi-voting shares, any thoughts on that from your perspective with AGF?

Blake Goldring

Well, you know, you'll be the first to know. You'll be the first to know it.

Jeff Fenwick – Cormark Securities

I guess if you could get the same pricing. Well, that’s it from me. Thank you.

Blake Goldring

Thank you.

Operator

Thank you. The next question will be from Paul Holden at CIBC. Please go ahead.

Paul Holden – CIBC World Markets

Yes, thank you. Wanted to ask you about the HSTs coming to effect very soon, what are you plans with tackling HST? Any potential impact on costs for yourselves in Q3, as well what are you kind of hearing through the sales channels in terms of potential impact on the demand for mutual funds in general?

Robert Bogart

Rose, do you want to take the second part first?

Rose Cammareri

Okay. Demand for fund in Q3, Q4, I think, Paul, there's always a demand and a fit for a fund whether you are an IIROC or an IDA advisor; it's just making sure that you have the right product for the right advisor at the right time. And so that’s something that we continue to position our products of how it would fit with that advisor's book.

As I mentioned, EM, we're going to continue to push that because we think there's a 10-year period where you can still make money on the developing market resources, Global Resources, we still are promoting the high yield and our inflation fund and then the traditional income fund with Peter Frost, as well as on the strategic account management product, we are really trying to focus on that pure Canadian balance play which is unique and it fits nicely with some of the platforms that they have.

So the advantage there is just making sure you're right there at the right time. And with the HST, I am going to pass it over to Bob.

Robert Bogart

Just with respect to the question, we haven’t seen any real negative noise in the marketplace with respect to –

Rose Cammareri

HST.

Robert Bogart

the acquisition of mutual funds because of the oncoming HST. With respect to the corporate side, Paul, there hasn’t – there won’t be any material impact.

Paul Holden – CIBC World Markets

Okay, great. And Rose, if you can provide an update on any progress you've made towards getting on in any third-party platforms.

Rose Cammareri

Yes, I can tell you that we had two good meetings recently. And one in particular, we just billed – we have two RFPs out there. We met with them just couple of weeks ago. Now it’s just a matter of waiting and hearing before they make their selection. And in some cases they don’t make their decision until the summer which gets you onto the fall. And so now we do have things in the pipeline but we just have to wait and hear now – hear back from them.

Paul Holden – CIBC World Markets

Okay, thanks. And Mario, maybe going back sort of the growth in the loan book, is there a point in time that we can look to in terms of where we can expect the loan book to return to a growth phase again.

Mario Causarano

Well, we're definitely as I said starting with this mortgage program and all our efforts are going there. Early indications are that we are getting some good traction with that program and then we will start to move from there in terms of what we do with – I mean, we'll be back into RSP season in probably the next quarter. We are already starting to get inside of that one. So we will go through that next. Then we will look at what we do eventually with the ILP portfolio. So we're moving as I think Bob mentioned in his comments towards putting more growth back on to the balance sheet in a controlled fashion.

Paul Holden – CIBC World Markets

Okay. And with respect to net interest margin, it’s trended up quite well since Q3 or Q2 last year. Can you provide any color in terms of how you think the trend may look going forward?

Robert Bogart

Well, we’ve done I think a real good job at maintaining our margin in spite of the spread compression. And we should continue to do that through the next little bit here. So we are pleased that we’ve had a chance to do that. This new product that we are putting on meets our expectations in terms of the spreads that we are getting on on that portfolio. So that’s only going to keep some stability on that line going forward.

Paul Holden – CIBC World Markets

Okay. That’s all the questions I had. Thanks.

Robert Bogart

Thank you.

Operator

Thank you. And there are no further questions registered at this time. So I’d like to turn the meeting back to Mr. Robert.

Robert Bogart

Thank you, operator. Thanks very much for joining us today. Our next earnings call will take place on September 29, when we will review our third quarter results for fiscal 2010. Details of the exact date and call will be posted on our Web site. Finally, an archive of the audio Webcast of today's call with supporting materials will be available in the Investor Relations section of the Web site. Good day everyone.

Operator

Thank you. The conference call has concluded. You may disconnect your telephone lines at this time, and we thank you for your participation.

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Source: AGF Management Limited F2Q10 (Qtr End 05/31/10) Earnings Call Transcript
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