Janus Henderson Group plc Ordinary Shares

My name is Kaziz and I will be your conference call facilitator today. Thank you for standing by and welcome to the Janice Henderson first quarter 2023 results briefing. All lines have been placed on mute during the presentation portion of the call to present any background noise. After the speaker's remarks, there will be a question and answers period. In the interest of time, questions will be limited to one initial and one follow-up question. in today's conference certain matters discussed may constitute forward-looking statements actual results could differ materially from the project projected in the forward-looking statement due to the number of factors including but not limited to those described in the forward-looking statements the risk factors section of the company's most recent form 10k and other more recent filings made in the set sec Janice Henderson assumed no obligation to update any forward-looking statements made during this call. Thank you. It is now my pleasure to hand the call over to Ali Dibaj, Chief Executive Officer of Janice Henderson. Mr. Dibaj, please go ahead.

Welcome, everyone, and thank you for joining us today on Janice Henderson's first quarter 2023 earnings call. I'm Ali Dabaj, and I'm joined by our CFO, Roger Thompson. In today's call, I'll start with some thoughts on the quarter before handing it over to Roger to run through the details. After Roger's comments, I'll provide a progress update against our strategic initiatives, and then we'll take your questions following those prepared remarks. Turning to slide two, market conditions have remained volatile and difficult to navigate. Recession fears, higher interest rates, banking sector worries, particularly regional banks, and increasing cautious market sentiment have all contributed to an uncertain market environment. Even with this market backdrop, we are pleased to have delivered a good set of results this quarter. Assets under management increased 8% to $310.5 billion due to positive markets, FX, and $5.5 billion in net inflows. The quarterly flows are from improvements in all channels. Significant inflows into the institutional channel, are the result of the hard work and dedication of teams across the firm, as well as nascent confidence among some of the most sophisticated clients and consultants in the world that our firm is on the right track. Last earnings call, I said that we would expect to deliver intermittent quarters of neutral to positive net flows as an indication that our strategic plan is taking hold, which is what happened this quarter. And while we are encouraged by the net inflows, one quarter does not make a trend. We are not at a point where we can consistently deliver positive flow results from quarter to quarter yet. For example, we need to rebuild our institutional pipeline, which takes time, our retail flows continue to be negative, and as part of our fuel for growth, there will be pockets of unprofitable AUM that we will look to exit, which will impact flows negatively. Again, there's reason to be encouraged by the efforts of our talented and hardworking Janice Henderson team as manifested by our flow result this quarter. and there's still much work to be done to deliver organic growth over the long term consistently. We continue to expect one to two quarters of positive flows over the next one to two years. Turning to investment performance, it is solid in aggregate, with 70% of assets ahead of benchmark on a three-year basis. It's during difficult times like these when our clients and their clients need our differentiated insights, investment discipline, and world-class service the most. We are in a period where money is no longer free and going forward, differentiating between the good companies and bad companies, the haves and have-nots will be the key to generating alpha. This is what our world-class investment teams in equities, fixed income, multi-asset, alternatives, and more around the world do, and it positions us well to deliver the best possible investment outcomes for our clients and their clients. Net-net, our financial results are good, our strategy is starting to take hold, We have much work to do to become consistent, and we have a strong and stable balance sheet. I'll now turn the call over to Roger to run you through the details of the financial results.

Thank you, Ali, and thank you again to everyone for joining us on the call today. Turning to slide three in investment performance. Investment performance versus benchmark is solid and improved over Q4, with at least two-thirds of assets beating their prospective benchmarks over all time periods. While we're pleased with the results, which includes the balance strategy moving back above benchmark on a one year basis to go along with its strong long term performance, the one year fixed income performance still has work to do. Fixed income performance has improved over the first three months of 2023, but the one year number continues to be impacted by the historically tough year for bonds in 2022. Importantly, the longer term periods remain very strong. Investment performance compared to peers continues to be competitively strong. with 70%, 61%, 81% and 90% of AUM in the top two Morningstar quartiles over the one, three, five and 10 year time periods. Slide four shows company flows. As Annie mentioned, net inflows were $5.5 billion compared to $11 billion of net outflows last quarter. This is our best quarterly result in quite some time. Although we're pleased with the result, Our goal is to deliver consistent organic growth over time, and we're not there yet. Turning to slide five for a look at flows by client type. Net outflows for the intermediary channel was $700 million compared to $3.4 billion in the fourth quarter. The improvement is attributed to significantly better results in the US, whilst a mere decline compared to the prior quarter. We've told you that U.S. intermediary is a key pillar in our strategy of Protect and Grow, and Ali will give you some more detail and information about that later. This quarter, several strategies were positive, including the AAA CLO ETF, global equity income, our mortgage-backed security ETF, overseas, and U.S. mid-cap growth. For U.S. mid-cap growth, we previously told you that performance was strong, and this return to inflows was the first quarter of positive flows, since the fourth quarter of 2019. In the EMEA region, a risk-off sentiment and higher interest rates are impacting results, particularly in the UK. Institutional net inflows were $6.9 billion. Recall on last quarter's earnings call, I said that we are winning new business in institutional and that I had no new large redemptions to tell you about. The gross sales came from a number of sophisticated institutional investors into several different strategies, including $4.1 billion across a range of enhanced index mandates from a sovereign client, $1.7 billion into Australian fixed income from a large global reinsurer, and $1 billion into global multi-sector fixed income from another sovereign investor. Reiterating what Ali said, the quarterly fundings represent a meaningful portion of the late stage pipeline, and the team is working to replenish and build a sustainable pipeline, but it will take time. In addition to the strong gross sales, the quarter included unusually low gross redemptions. We'd anticipate a higher redemption rate going forward, all else equal. Finally, net outflows for the self-directed channel, which includes direct and supermarket investors, was $700 million. Slide six is flows in the quarter by capability. Equity net inflows in the first quarter were $3.3 billion, compared to $7.5 billion of outflows in the prior quarter. As I mentioned on the previous slide, the result includes approximately $4 billion from an institutional funding into enhanced index strategies, which are part of our diversified alternatives capability. This was partially offset by continued but significantly lower equity outflows from our retail channels. Net inflows for fixed income with $3.6 billion compared to $1.9 billion of outflows in the prior quarter. We are encouraged that despite the challenging short-term investment performance in fixed income, we have a breadth of product that is able to capture flows across multiple channels and regions. Several strategies contributed to positive fixed income flows in the institutional channel, including Australian fixed income, global multi-sector fixed income, US buy and maintain credit, and multi-asset credit. In the intermediary channel, fixed income ETFs have positive flows of $780 million in the quarter, led by the AAA CLO ETF and our mortgage-backed securities ETF. Total net outflows for multi-asset were $800 million, driven by the balance strategy within the retail channels. Whilst the net outflow is in part due to 2022's short-term performance, the medium and long-term performance remained very strong. And as I said, the one-year metric is now back above benchmark, adding to its very strong long-term numbers. Finally, net outflows in the alternatives capability was $600 million, primarily from the absolute return strategy in the UK and continental European retail. Moving on to the financials, slide seven is the US GAAP statement of income. And on slide eight, we explained the adjusted financial results. Adjusted revenue decreased 5% compared to the prior quarter, primarily due to lower seasonal performance fees, which were partially offset by higher adjusted management fees. Net management fee margin for the first quarter was 49.8 basis points, which is lower compared to the prior quarter. The decline is due to mix shift resulting from the large institutional wins being at lower fees than our blended fee rate. In the near term, our success in institutional will impact our blended fee margin, but over time, we continue to anticipate a stable net fee margin as we execute our strategy. Compared to the same period a year ago, the net management fee margin increased four tenths of a basis point, which is counter to the fee rate declines at other peers. First quarter performance fees of negative 15 million are due to US mutual fund fees. Outside of US mutual funds, we have minimal AUM subject to performance fees in the first quarter. For the second quarter, we estimate aggregate performance fees of negative five to negative 10 million. This includes approximately negative 15 million from the US mutual fund performance fees, which are partially offset by other performance fees driven primarily by UK investment trusts. Looking at the full year, all else equal, we estimate aggregate performance fees could range towards the more negative of our current range of negative 35 to negative 45 million. This includes roughly negative $60 million from US mutual fund performance fees. Clearly, the result will be dependent on future performance. Continuing on to expenses. Adjusted operating expenses in the first quarter were $278 million, down 1% from the prior quarter. Adjusted LTI was up 17% compared to the prior quarter, largely due to seasonal payroll taxes triggered by annual vestings in the quarter. In the appendix, we provided the usual table on the expected future amortization of existing grants for you to use in your models. The first quarter adjusted comp to revenue ratio was seasonally higher at 50.1%. This higher rate is primarily due to the payroll taxes on annual LTI vestings at the beginning of the year reset of payroll taxes and retirement contributions, in addition to lower performance fees. Adjusted non-comp operating expenses decreased 8% compared to the prior quarter, primarily due to lower G&A expenses partially offset by the anticipated increase in marketing spend. Lower than anticipated non-compensation cost in the quarter is due to timing of our expenses. Full year 2023 operating expense expectations remain unchanged. They are adjusted compensation ratio in the range of mid 40s, adjusted non-compensation percentage growth of mid to high single digits compared to the prior year, which suggests significant acceleration in our non-compensation costs for the remaining three quarters of the year as we execute our strategy. Lower first quarter non-compensation expenses are temporary, as savings realised to provide fuel for growth have occurred sooner than the reinvestment in the business. Going forward, we anticipate non-compensation expenses to increase, reflecting areas of opportunity we discussed last quarter, including marketing and advertising in our US intermediary business and investments supporting our other strategic initiatives. Additionally, we expect amortizing previously capitalized costs through the G&A line of our P&L related to the order management system transformation project once the project goes live late in the second quarter. Moving to adjusted operating income for the first quarter, that was $106 million, down 14% over the prior quarter. First quarter adjusted operating margin was 27.5%. Finally, adjusted diluted EPS was 55 cents. The quarterly EPS benefited from mark-to-market on seed capital and other investments coupled with interest income. Skipping over slide 9 and moving to slide 10 and look at our liquidity. Our balance sheet remains very strong during this period of market volatility. Cash and cash equivalents were $830 million as of the 31st of March, which is down from the end of 2022, primarily from the payment of annual variable compensation. The first quarter cash position is typically our lowest given seasonal cash needs. Compared to the same period a year ago, our cash and cash equivalents are 6% higher, reflecting our conservative and purposeful approach to capital management in order to maintain balance sheet flexibility during this uncertain economic environment. We have a strong liquidity position and will continue to balance the capital needs and the investment opportunities of the business with returning capital to shareholders. Based on the ongoing market volatility and opportunities we see in investing in the business, organically and inorganically, at this time we do not anticipate buying back shares via an accretive programme in 2023. We will continue to return cash to shareholders through a strong quarterly dividend and the Board has declared a 39 cents per share dividend to be paid on the 31st of May to shareholders of record as at the 15th of May. With that, I'd like to turn it back over to Ali to give you an update on our strategic progress.