Janus Henderson Group plc Ordinary Shares

Good morning. My name is Seb and I will be your conference facilitator today. Thank you for standing by and welcome to the Janice Henderson Group first quarter 2022 results briefing. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question 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 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, 10K, 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 Roger Thompson, Interim Chief Executive Officer and Chief Financial Officer of Janus Henderson. Mr Thompson, you may begin your conference.

Good morning and welcome everyone to the first quarter 2022 earnings call for Janus Henderson Group. I'm Roger Thompson, CFO and Interim CEO. Before I discuss our quarterly results, I'd like to start by giving a few updates. First, as we announced back in late March, we're extremely pleased that Ali Dibaj has been named as the next CEO of Janus Henderson. Ali is highly regarded and well respected in the asset management industry and the feedback we've received both internally and externally has been overwhelmingly enthusiastic and positive. I've had the chance myself to meet with Ali and I echo that feedback. I, along with the rest of the executive committee, am excited to work with Ali and we look forward to meeting with clients and shareholders and employees when he begins as CEO next month. As we transition to a new CEO, it's important to emphasize that in the interim, the firm continues to operate as business as usual, and we continue to make progress in delivering our strategic initiatives. In that context, I'm pleased to announce that we have completed the previously announced sale of Intech as of the 31st of March. The closing of the transaction was a culmination of the efforts by dedicated teams on both sides, and we wish Intech all the very best for the future. We also continue to grow our active ETF franchise, with assets now exceeding $5 billion. During the quarter, we launched two ETFs, a BBB CLO ETF in the US, further capitalizing on the back of the success of our AAA CLO ETF, which raised $800 million in the first quarter and now has $1.1 billion of AUM. And in Australia, we launched a Net Zero Transition Resources ETF, which was also one of the five US sustainable ETFs that we launched in September 2021. With that, let me turn you to the quarterly results starting on slide three. Our investment performance remains solid with 62% of our assets beating their respective benchmarks over three years, which is up compared to 58% of assets last quarter. Assets under management are down due to the closing of the InTech transaction at the end of March, the effects of markets and net outflows. Excluding Intec, net outflows were disappointing at $6.2 billion, driven primarily by outflows in equities and the institutional redemption in the balance strategy that we communicated to you all in the last quarter's earnings call. Our financial results remain solid, but are down compared to the prior quarter, primarily from weaker markets and lower performance fees. And finally, we remain committed to returning excess cash to shareholders, In the quarter, we completed $43 million of share buybacks, and the Board has authorised a new buyback of $200 million to be completed prior to the 2023 AGM. Additionally, given strong earnings growth in 2021 and our progressive dividend policy, we are pleased to announce a $0.01 increase in the quarterly dividends to $0.39 per share. Moving to slide four, we're going to look at investment performance. While one-year investment performance reflects the very challenging environment, long-term investment performance remains solid, with 62% and 74% of assets beating their respective benchmarks over a three- and five-year time period, as at the 31st of March. Performance of multi-asset and alternatives is excellent across all time periods. Equity is more mixed, but with continued improvement in strategies such as US mid-cap growth, which is now above the benchmark over all periods presented. and fixed income investment performance is doing well despite an extremely challenging quarter for bonds in the first quarter. Switching to relative investment performance compared to peers, this remains solid, with over 60% of AUM represented in the top two Morningstar quartiles over all periods. Slide five shows company flows excluding Intec. For the quarter, net outflows excluding Intec were $6.2 billion compared to $1 billion last quarter. Over the next few slides, I'll provide insight into the outflows, but in summary, the quarter saw continued outflows in equities, coupled with the outflow in the multi-asset capability previously disclosed. Let's turn to slide six, which shows the breakdown of flows by client type. Net outflows for intermediary were $1.7 billion. By region, intermediary flows were negative in the US, EMEA, and Latin America, and positive in Asia-Pacific. In the US, the outflows were dominated by our US mid and mid-cap growth strategies due to the performance challenges we saw in 2020. But with the strongly improving performance that I previously mentioned, we're optimistic that we're beginning to see the pace of outflows slowing. In looking at the first quarter highlights in the US intermediary channel, the SMA channel had $800 million of net inflows coming primarily from the concentrated growth strategy. And net inflows into ETFs were $800 million, with the majority coming from the AAA CLO product. As I mentioned, our ETF business is now over $5 billion in assets and we're well positioned with our AAA and BBB CLO strategies in a rising rate environment. Similar to trends across the industry, EMEA growth inflows slowed compared to the fourth quarter due to a risk-off sentiment caused by the Russian invasion of Ukraine, inflation, and tightening monetary policy. Institutional outflows were $3.6 billion, which was primarily the result of the $2.2 billion redemption of the balance strategy. The pipeline has a broad and diverse range of opportunities, but results will be lumpy quarter to quarter, as we saw this quarter. Finally, net outflows for the self-directed channel, which includes direct and supermarket investors, was $900 million. Slide 7 shows the breakdown of flows in the quarter by capability. Equity net outflows for the first quarter were $3.8 billion, compared to $3.2 billion in the prior quarter. The outflows were primarily driven by US mid- and mid-cap growth strategies in US retail and institutional. Areas of flow strength included US concentrated growth, global equity income, and the biotech innovation hedge fund. Flows into fixed income were flat in the quarter, which is a good result against the tough backdrop for bonds during the quarter. In the US, our fixed income strategies captured retail market share and were led by inflows into the fixed income ETF strategies. Total net outflows for multi-asset were $2.2 billion, entirely made up by the one-off redemption in the balance strategy that I told you about in the last quarter. Alternative flows were negative 200 million for the quarter. Before moving on, I do want to call out two redemptions that will impact 2022 flows. First, A long-standing European insurance client has made the decision to bring the management of a sterling buy and maintain credit mandate in-house. This was unrelated to either Janus Henderson's investment performance or client service and due to an internal decision to build their own investment management capabilities to support their growth. The mandate was low fee with total AUM of approximately $7.3 billion and $2 billion has already been redeemed in April. The balance will redeem over the remainder of 2022 in tranches yet to be confirmed. Secondly, we recently announced the sale of our UK property fund, which will result in an estimated $1.4 billion outflow in the second quarter. Moving on to the financials, slide 8 is our standard presentation of the US GAAP statement of income. Slide 9 is a look at the summary financial results. Before diving into the financial results, Note that the sale of Intex closed on the 31st of March. Therefore, Intex financials are included in the entire quarter. However, as I stated last quarter, Intex impact to the consolidated results is not meaningful. Adjusted first quarter financial results were down compared to the prior quarter and prior year, primarily from lower average AUM and performance fees. Adjusted revenue in the quarter decreased 13% compared to the prior quarter due to lower average AUM, performance fees and fewer calendar days. Adjusted operating income in the first quarter of $180 million was down 25% over the prior quarter, principally driven by lower revenue. First quarter adjusted operating margin was 37.4%. Before moving on, I wanted to clarify the difference this quarter between US GAAP and adjusted diluted EPS. The primary difference was the $33 million non-cash tax adjustment on the impairment of goodwill that we recognised in 2020, with other small adjustments including the loss on the sale of Intec and LTI accelerations on departed executives. On slide 10, we've outlined the revenue drivers for the quarter. Net management fee margin for the first quarter declined to 46.8 basis points compared to 47 basis points in the prior quarter. However, it splat to a year ago, highlighting the strength and stability of our fee rate. The quarterly decline is due to the mixed shift resulting from weaker markets. Excluding INSEC, the net management fee margin for the first quarter was 49.4 basis points. First quarter performance fees were lower compared to the prior quarter due to US mutual funds and seasonally high performance fees from segregated mandates in the fourth quarter. Regarding the US mutual fund performance fees, the first quarter was negative $14 million compared to negative $7.7 million in the prior quarter. Looking at 2022 performance fee revenue, based on current investment performance, we expect full year performance fees to be negative in aggregate. U.S. mutual fund performance fees are projected to be approximately negative $60 million if we assume benchmark performance for the rest of 2022. Based on current investment performance, these negative fees would only be partially offset by performance fees generated from segregated mandates, CCABs, UK OITs, and investment trusts. Turning to operating expenses on slide 11. Adjusted operating expenses in the first quarter were $299 million, down 3% from the prior quarter. Adjusted employee compensation, which includes fixed and variable costs, was up 3% compared to the prior quarter, primarily as a result of annual merit increases and seasonally higher payroll and retirement costs, which were partially offset by lower variable costs given the lower pre-bonus profit. Adjusted LTI was down 10% from the fourth quarter, mostly due to mark-to-market. In the appendix, we've provided the usual table on the expected future amortization of existing grants for you to use in your models. The adjusted comp to revenue ratio was 42.5%, which is in line with the guidance we've given, and less than the 44.2% ratio in the first quarter of last year. For the full year, we anticipate a comp ratio in the low 40s. Adjusted non-comp operating expenses were down 10% from the prior quarter, primarily from marketing and general and administrative expenses. For 2022, the expectation of non-comp operating expense growth in the low teens remains unchanged. Finally, our recurring effective tax rate for the first quarter was 26.1%. For the full year, the firm's statutory tax rate is still expected to be in the range of 23 to 25%. Finally, slide 12 takes a look at our liquidity. Cash and cash equivalents were 782 million as of the 31st of March, a decrease of approximately $324 million, resulting primarily from the payment of annual variable compensation. The first quarter cash position is typically our lowest given seasonal cash needs. We returned $107 million to shareholders via the dividend and share buybacks. We purchased $1.3 million of shares of our stock for $43 million, and we paid $64 million in dividends And as I previously mentioned, the board has approved a 3% increase in the quarterly dividend to 39 cents per share. This increase aligns with our capital philosophy of paying a progressive dividend that grows with profits. Finally, the board has approved an accretive share buyback authorization of $200 million to be completed prior to 23 AGM. I look forward to Janet Henderson continuing on its journey of organic growth in Q2 and by being joined by Ali in our Q2 earnings call in late July. Now I'll open it up for Q&A. Operator?

Thank you. If you would like to ask a question, please press star one on your telephone keypad now. If you change your mind and wish to withdraw your question, please press star two. In the interest of time, questions will be limited to one initial and then one follow-up question. Our first question today comes from Dan Fannin, Jefferies. Dan, please go ahead.