Janus Henderson Group plc Ordinary Shares

Good morning, my name is Alex and I will be your conference facilitator today. Thank you for standing by and welcome to the Janice Henderson Group fourth quarter and full year 2021 results briefing. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a questions and answer period. In the interest of time, questions will be limited to one initial and one follow up question. In today's conference call, certain matters discussed may constitute forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements due to a number of factors including, but not limited to, those described in the forward-looking statements and risk factors sections of the company's most recent form, 10-K, and other more recent filings made with the SEC. Janice Henderson assumes no obligation to update any forward-looking statements made during the call. Thank you. Now, it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janice Henderson. Mr. Weil, you may begin your conference.

Welcome, everyone, to the fourth quarter and full year 2021 earnings call for the Janice Henderson Group. I'm Dick Weil, and as usual, I'm joined by our CFO, Roger Thompson. Before we get into results, I want to take a moment to welcome Nelson Peltz and Ed Garden from our largest shareholder try-in partners to our board of directors. The company looks forward to benefiting from their valuable insights and fresh perspectives. In today's presentation, I'll give a brief summary of our 2021 result. I'll then touch on progress we've made towards delivery of our strategy of simple excellence. I also want to provide you with an update on Intech and the transaction that we've announced today. As usual, I'll then hand it over to Roger, who will take you through the results with more precision, and then, following our prepared remarks, we'll take your questions. Turning to slide three. Our full-year results show significant improvement over the prior year. Our financial results for the full year were very strong. Our adjusted diluted EPS increased 42% over last year, which was a record for Janus Henderson. Also a record, AUM of $432 billion, and our full year adjusted operating margin of 43.5%. Our increased profitability led us to generate almost $900 million in cash flow from operations in the last 12 months. This significant cash flow enabled us to reinvest both in the business as well as to continue to return capital to shareholders. Over the year, we returned approximately $630 million to shareholders, through a 4% increase in dividends per share and by repurchasing over 6% of the total shares outstanding. We also invested an additional $175 million in seed products, bringing our seed book to over $500 million. Investment performance for us remains solid in a volatile year. We certainly have some challenges that we're working on, but 54%, 58%, 78%, and 86% of our assets beat their respective benchmarks over the 1, 3, 5, and 10-year time periods. With the benefit of markets, AUM ended up at $432 billion, as I mentioned, despite challenging headline flow for the year. That said, we had good momentum in our flows compared to the prior year. The improvement is even more marked if we exclude the impact of flows from in-tech, given our near-term aim of positive net flows excluding quant to equities. I also want to update you on in-tech in a moment, as I've previously said. Excluding in-tech, net outflows were $4.3 billion in 2021 compared to $15 billion in 2020. We're not where we want to be, but it is a significant improvement year on year. Flows into our fixed income and multi-asset capabilities were positive, which was offset by net outflows and equities, and our intermediary channel was positive for the year, driven by strong client demand in Asia Pacific, EMEA, and LATAM. Turning to slide four, let me update you on the management buyout of INTECH we announced this morning. As you know, INTECH has experienced challenges in flows and investment performance for a number of years. We made the strategic decision to sell that business to its management and employees in a management buyout. We're pleased to have reached an agreement that benefits both firms. It provides Janus Henderson with increased operating efficiency and focus on our core business of fundamental active investment. And it fulfills Intech's desire to operate independently, delivering quantitative investment solutions, and gives them the best opportunity to grow their success in the future. So we've resolved the challenge from in-tech, and we're optimistic about growing our strengthened and simplified platform. Turning to the strategy of simple excellence, I want to talk you through some of the accomplishments of the year in each of its five pillars. We continue to produce dependable investment outcomes. Investment performance remains solid. There are pockets of mixed performance, and we continue to invest in people and technology to strengthen our risk-adjusted returns for clients. We also enhanced our leadership and distribution and client experience. We made a number of critical senior appointments globally in sales and consultant relations and client experience that should serve to deepen our relationship with our clients going forward. Another very important appointment for our firm was the addition of J.R. Lowery, who joined in the newly created role of Global Chief Operating Officer in October. He's already made significant contributions in strengthening our infrastructure and helping us run our business and he's added further strength to our very talented executive committee. Operational efficiency continues to be a key focus for our business. We continue to make substantial investments in technology and data architecture in our CRM and in our order management systems. These are transformational projects which are expected to significantly improve the way in which we work. We've also continued to make enhancements to simplify and strengthen our platform in order to deliver future growth. For example, earlier this year, we made changes to our former Perkins team and brought them under the Janus Henderson brand umbrella. And today, we announced the strategic decision to sell in-tech. Our risk and control environment is not something I'm going to spend much time discussing, but the work we've been doing is critical in building long-term growth foundations and enabling us to actively pursue expansion opportunities. This year, some of our work has been evidenced by lower regulatory capital requirements. This has assisted us in our efforts to return more capital to shareholders. During the year, we started to make real progress in developing new growth initiatives. We had our most active year in launching new products. These new products were spread across our focused areas of growth, including active ETFs, ESG, fixed income, and alternatives. We successfully launched 24 new products globally. These included a suite of five sustainable ETFs in the U.S. and a U.S. real estate ETF. In Australia, we launched our successful global sustainable equity strategy, including as an ETF. In Europe, we launched two Article IX funds under the EU sustainable finance disclosure regime, including a sustainable technology fund that we also extended to a U.K. vehicle. We continue to focus on the rollout of Article 8 and Article 9 funds. By the end of the month, we expect approximately 55% of AUM in our CCAV range to be designated Article 8 or Article 9. Globally, we extended the reach of our glowing multi-strategy hedge fund. This product has gained momentum since we launched it in both CCAV and UCIDS funds in June of 2020. It has exceeded $1 billion in net inflows in 2021, and we look forward to its bright future. We expect that growth will continue with the fine work of that team. In addition to our product launches, we had some early successes in growing relationships with model portfolio providers in the U.S. Again, we look forward to continuing to grow that success. We also continued to invest substantially in growing our ESG teams in both investments and products. We more than tripled the size of our central ESG team within investments to better support our portfolio managers and the delivery of sustainability across their investments. Finally, we made big strides in our ESG data architecture, which is a key foundation in building a credible and strong ESG platform. Last year was a year of real progress, strengthening our operating platform and gaining momentum and flows. We've put the right building blocks in place to start capturing growth opportunities organically, and I'm very optimistic Janice Henderson is well-placed to deliver organic growth in the future. Let me now turn it over to Roger, who can take you through the results with more precision.

Thank you, Dick, and thank you, everyone, for joining us. Starting on slide six with the fourth quarter results. As Dick's already discussed, our solid investment performance and our AUM at the end of the year, I'll touch briefly on flows and EPS. Net outflows were $5.2 billion in the quarter, primarily as a result of $4.2 billion of outflows of intake. The remaining outflows were driven by equities, which were partially offset by inflows into fixed income and multi-athlete capabilities. The financial results continue to be strong, with EPS of $1.05 compared to $1.16 a quarter ago and $1.04 in the same period a year ago. Before moving on, I wanted to make a few comments on how we will be discussing investment performance and flows in the light of today's announcement regarding the sale of Intech. We've shown total investment performance and flows for the quarter, including Intech. However, we will also show and discuss the investment performance and flow results excluding Intech, as this represents how our business will look going forward after the transaction closes. Moving to slide seven and investment performance. Investment performance remains solid, with the majority of assets beating their respective benchmarks over all periods as of 31 December. Performance of fixed income, multi-asset and alternatives is excellent and very competitive. Equity is more mixed, but with real strengths in some areas and significant improvement in strategies such as US mid-cap growth. We're pleased that relative performance compared to peers improved again this quarter, and we now have over 60% of AUM represented in the top two Morningstar quartiles over all periods. Slide eight shows total company flows, including in-tech. Although I won't speak about the flow results including in-tech, we've provided the fourth quarter flow results. Turning to slide nine to focus on flows excluding in-tech, which reflects how our business will look going forward. For the quarter, Net outflows excluding insects were $1 billion compared to $800 million last quarter. The flow result, whilst negative and not yet where we expect it to be, continues a much improved trend compared to the prior year. The net organic growth rate for the fourth quarter and for the full year of 2021 was negative 1% compared to the negative 5% and 6% in 2020 and 2019 respectively. As I will show you shortly, our average fee rate remains strong as clients have been buying higher fee product than they've been redeeming. Slide 10 shows the breakdown of flows in the quarter by client type. Net outflows for the intermediary channel were $100 million. The quarterly result was impacted by the significant slowdown in retail flows in December that was experienced across the industry. By region, intermediary flows were positive in Asia Pacific and Latin America, which were offset by outflows in the US and EMEA. In the US, which is our largest pool of assets in the intermediary channel, the outflows were dominated by our US mid and mid-cap growth strategies due to 2020 performance challenges in those strategies. Pleasingly, investment performance in those strategies has improved dramatically, and we're optimistic that the pace of outflows will slow in 2022. In the APAC region, the fourth quarter marks the seventh consecutive quarter of positive intermediary flows. For 2021, the organic growth rate for the Asia-Pacific intermediary business was 19%. To continue and accelerate that growth, we're delighted that Andrew Hendry has recently joined Janet Henderson as our head of distribution in Asia. Moving to institutional, which had $100 million of outflows in the fourth quarter, excluding Intex. In 2021, we've taken further steps in globalising the institutional team and have infused the business with new leadership. Our diverse pipeline resulted in the top 10 mandates in 2021 occurring in 10 different strategies, and we remain confident this strong and diverse mix will continue for 2022. Finally, net outflows for the self-directed channel, which includes direct and supermarket investors, were similar to prior quarter at $800 million. Slide 11 shows the breakdown of flows in the quarter by capability. Equity net outflows in the fourth quarter were $3.2 billion. The quarterly outflows were driven primarily by US mid and mid-cap growth strategies in US retail. As I've mentioned, investment performance in these strategies has improved significantly, which is encouraging for the flow trends in the future for these strategies. Areas of flow strength included global sustainable equity, global real estate, US Small Cap Enhanced Index, and UK Enhanced Index. Flows into fixed income are $100 million in the quarter. Fixed income continues to see positive flows in retail across a wide range of strategies, including our AAA CLO ETF, and also we're pleased to have launched our BBB CLO ETF this quarter, Australian Tactical Income, and Develop World Bonds. Total net inflows into multi-assets were $2.1 billion, driven primarily by inflows into the balance strategy. The quarter has also benefited from a sub-advised mandate win in the insurance channel for the adaptive portable output strategy. Whilst performance remains strong and we continue to see strong flows into balance from all geographies, I do want to provide an update on an outflow in the first quarter of 2022. Structural changes within one client will result in a $2.2 billion redemption from our $52 billion balance strategy. Finally, alternative flows will break even for the quarter. Slide 12 is our standard presentation of the US GAAP Statement of Income. Moving to slide 13 for a look at the summary financial results. First, for the full year's results. A 20% increase in average AUM enabled improvement across all adjusted financial metrics compared to 2020. The higher average AUM, coupled with a higher net management fee margin, led to a 21% increase in adjusted total revenue for the year. Full year adjusted operating margin improved 5.5 percentage points over 2020 to 43.5%. As Dick just mentioned, this is a record for the firm. An adjusted diluted EPS for the year was $4.28, up 42% on 2020. Now looking at the quarter-to-quarter comparison. Management fees are very similar to the prior quarters, with a 1% quarterly increase in total revenues due to seasonal performance fees. Adjusted operating income of $240 million was down 5% compared to the third quarter, primarily due to the planned reinvestment in the business during the quarter as we guided in our third quarter call. Know that InTech contributed roughly $5 million in operating income in the quarter, which hopefully will help you with your modelling. Fourth quarter adjusted operating margin was 43.6%, roughly equal to the figure in the full year. Finally, adjusted diluted EPS was $1.05 compared to $1.16 for the third quarter. During the quarter, we recognised a non-cash, non-recurring impairment on intangible assets of 77.5 million related to certain investment management contracts, which represents the main difference between our US GAAP and our adjusted diluted EPS. On slide 14, we've outlined the revenue drivers for the quarter. Adjusted revenue increased slightly quarter to quarter due to seasonal performance fees. Net management fee margin for the fourth quarter remained at 47 basis points and is up from 45.9 basis points from a year ago, demonstrating an improved fee margin during a period when the industry is seeing fee compression. At the bottom of the page, we've added a table to show the 2021 net management fee margin by capability on this slide and compare that to 2020. 2021 was a solid year with all capabilities outside quantitative equities, showing an increase in net management fee margin versus 2020. This increase in each capability is being driven by inflows coming into higher fee margin areas, such as EMEA, LATAM, and Asia-Pacific intermediary. Turning to operating expenses on slide 15. Adjusted operating expenses in the fourth quarter were $310 million, which was up 6% from the prior quarter. Adjusted employee compensation, which includes fixed and variable costs, were down 4% compared to the prior quarter, primarily as a result of lower variable costs given lower pre-bonus profit compared to the third quarter, and the impact of finalising the cash-non-cash payout mix for the annual compensation programme. Adjusted LTI was up 22% from the third quarter, mostly due to market-to-market. In the appendix, we've provided the usual table of expected future amortization of the existing grants, along with the estimated range for 2022 grants for you to use in your models. The fourth quarter adjusted comp-to-revenue ratio was 36.9%, which reflects finalizing the variable compensation program. For the full year, the total comp-to-revenue ratio was 39.5%. Adjusted non-comp operating expenses were up, as we guided, compared to the prior quarter, primarily from higher marketing and general and administrative expenses. For the full year 2021, non-comp operating expenses were up 8% compared to 2020, which was in line with our guidance. Finally, our recurring effective tax rate for the fourth quarter was 24.1%. For the full year, the firm's effective tax rate was 22.4%. Switching to expectations for 2022 expenses. As a management team, our philosophy has always been to maintain strong financial discipline while reinvesting in the business to deliver against our strategy of simple excellence and position us for growth. As we head into 2022, areas of focus for reinvestment are in our investment teams, including still more in ESG, distribution, technology, and increased spend in such areas as T&E, where we plan for pandemic-related restrictions to ease as 2022 progresses. With that said, let's walk through expense expectations for 2022. First, looking at compensation. With the investment we've made in our people in 2021 and the impact of anticipated higher LPI amortization in 2022, we'd expect the adjusted comp ratio to be in the low 40s. Secondly, for non-compensation expenses, we'd expect to see a percentage increase in the low teams. This increase is due to the investments being made in the business that I've mentioned previously. Finally, the firm's statutory tax rate is expected to be similar to 2021 at 23% to 25%. The overall effective rate will be impacted by various differences which arise quarter to quarter. Finally, turning to slide 16 and a look at our liquidity. Cash and cash equivalents were $1.1 billion as of 31 December. This is virtually flat compared to last year as robust cash flow generation has been used to fund dividends, buy back shares and importantly invest in new products through further investment in seed capital. The JHT portion of the consolidated seed book is over $500 million and represents our largest investment in seed capital ever. During 2021, we paid $256 million in dividends to shareholders, and today declared a 38% per share dividend to be paid on 28 February to shareholders of record as of 14 February. For the year, we purchased 11.4 million shares of our stock for a total of $372 million, and we have $58 million of the current $200 million accretive buyback authorisation remaining. Since we started our buyback program in Q3 2018, it has been roughly 16% increases. Now I'd like to turn it back over to Dick for some final thoughts before we open it up for Q&A. Thank you.