Janus Henderson Group plc Ordinary Shares

Good morning. My name is Jordan and I'll be your conference facilitator today. Thank you for standing by and welcome to the Janice Henderson Group fourth quarter and fall year 2023 results briefing. All lines will be placed on mute to prevent any background noise. After the speaker's remarks, there'll 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 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's my pleasure to introduce Ali Dabaj, Chief Executive Officer of Janus Henderson. Mr. DeBage, you may begin your conference.

Welcome, everyone, and thank you for joining us today on Janus Henderson's fourth quarter and full year 2023 earnings call. I'm Ali DeBage, and I'm joined by our CFO, Roger Thompson. In today's call, I'll start with some comments on the year. Roger will then go through the results, and after that, I'll provide an update on the strategic progress we made in 2023. After those prepared remarks, we'll take your questions. Turn to slide two. After one of the most challenging market backdrops in 2022, most global markets rebounded and experienced growth in 2023, as concerns about inflation, progressive monetary policy, recession fears, and shocks to the banking system in early 2023 were overshadowed by inflation coming off peak levels, resilient economies, particularly in the U.S., and the expectation of the end of rate hikes. Even with positive market returns for the year, headwinds remain, as global markets look set to remain conflicted with the consequences of historic rate hikes finally manifesting themselves. Amidst this volatility, we ended the year strongly with fourth quarter results that delivered underlying net flows, revenue, operating expenses, margin, and EPS that were all ahead of or in line with external expectations. And on top of that, our teams delivered better than anticipated performance fees and tax rates. As I reflect upon the year, there were several signs of clear progress at Janus Henderson. This progress was the result of the collaboration, hard work, and perseverance of colleagues across the firm that is squarely on the path to achieving our ambitions of organic growth and delivering superior outcomes for our clients, their clients, colleagues, shareholders, and other stakeholders. We're executing our strategic vision, which consists of three pillars, protecting our core businesses, amplify our strengths, not fully leveraged, and diversify where clients give us the right to win. Later on in the presentation, I'll provide detail on the progress made for some of our strategic initiatives. 2023 net outflows of $700 million improved markedly from 2022 net outflows of $31 billion. The improvement was driven by lower redemptions and large wins in global institutional and a turnaround in the North American intermediary business, both of which are strategic initiatives that we've emphasized at Janus Henderson and previously discussed here. In early 2023, we re-energize our culture by introducing our mission, values, and purpose company-wide, and we continue to embed this critical mindset across the firm. Cost efficiencies or fuel for growth, which allow for reinvestment in Janus Henderson's strategic initiatives on behalf of our clients, were realized at a faster pace than expected and at a higher dollar amount We achieved run-rate cost efficiencies of more than $50 million by the end of 2023, compared to the original $40 to $45 million by the end of 2024. All of these cost savings have been or will be reinvested in the business. We simplified our operating model with the go-live of a significantly upgraded order management system, which transformed a crucial platform. And we delisted from the ASX, allowing us to focus on a sole, more active exchange and reduce costs. Our improving financial results and cash flow generation, along with a strong and stable balance sheet, enabled the board to authorize a share buyback program. This buyback program, coupled with our quarterly dividend, enabled Janice Henderson to return $321 million of cash to shareholders in 2023. Importantly, this return of cash to shareholders does not impede our pursuit to diversify the business through M&A, where clients give us the right to do so. The 2023 results on slide three illustrate how our improvements in the business are starting to bear fruit. Long-term investment performance remains solid, with the majority of assets ahead of benchmark on a three-, five-, and 10-year basis. Total AUM increased 17% in 2023, mostly reflecting strong fourth quarter markets and currency translations. Ending AUM of $334.9 billion is 7% higher than the 2023 average AUM. As we discussed on the previous slide, Net flows show tremendous progress during 2023, resulting in an organic growth rate of less than negative 1% compared to negative 8% in 2022. Financial results remain solid. Our financial performance and strong balance sheet continue to provide us the flexibility to invest in the business organically and inorganically and return cash to shareholders. I'll now turn the call over to Roger to run into the detail of the quarterly financial results.

Thank you, Ali, and thanks again to everyone for joining us on today's call. Starting on slide four, I'll look at the quarterly results. As Ali's already discussed our solid investment performance, I'll touch briefly on AUM flows and EPS. Net outflows were $3.1 billion in the quarter. However, ending AUM was up 9% from Q3, and adjusted financial results improved compared to the third quarter. Adjusted earnings per share increased 28% to 82 cents compared to the prior quarter. A fourth quarter EPS benefited from a stable management fee rate, strong annual performance fees, and a lower tax rate. Even without the upside from the better than expected performance fees and a lower tax rate, our core fundamentals, including flows, net management fee rates, revenues, expenses, operating income, and EPS were either ahead of or in line with street expectations. Finally, on this slide, the board declared a $0.39 per share quarterly dividend, and we purchased $62 million of our shares outstanding as part of the buyback program announced last quarter. On slide five, we'll look at the investment performance in more detail. Long-term investment performance versus benchmark remained solid, with at least 60% of AUM beating their respective benchmarks over the three, five, and 10-year time periods. The lower one-year number is driven via equity and multi-asset capabilities. In equities, the one-year performance is impacted by the narrow leadership driving market gains in the US and the low-quality rally for small and mid-cap growth stocks, which weighed on relative returns to benchmarks in the fourth quarter. In the multi-asset capability, the balance strategy, which is the vast majority of assets in this market, is marginally underperforming the benchmark on a one-year basis. Balance remains ahead of its benchmark over the three-year and longer time periods, and the performance is strong against peers, being in the second Morningstar quartile over one and three years, and in the first quartile over both five and 10 years. The balance composite performance has had a strong start to 2024, and as we sit here today, is back above its benchmark on a one-year basis. Short-term fixed income performance versus benchmark has steadily improved during 2023. Pleasingly, 79% of AEM is now ahead of benchmark on a one-year basis. The longer-term periods remain very strong. We believe our fixed income performance and differentiated breadth of products across different vehicles and anticipated movement into fixed income as interest rates stabilize and bonds provide diversification benefits to clients. Overall investment performance compared to peers continues to be competitively strong with 63, 68, 80, and 89% of AUM in the top two Morningstar quartiles over the one, three, five, and 10-year time periods. Slide six shows total company flows by quarter. For the quarter, net outflows for $3.1 billion. And we show flows by client cycle on slide seven. Net outflows for the intermediary channel will break even compared to $1.3 billion of outflows in the third quarter. This is the best quarterly result for intermediary in over two years. The quarterly result was a tale of two regions, as outflows in EMEA and LATAM were offset by net inflows in U.S. intermediary region. Outflows in EMEA were not unique to Janice Henderson in 2023, as EMEA in general has faced meaningful flow headwinds. US Intermediary had its best quarter of flows in four years, supported by strong gross sales and positive flows in several strategies, including the AAA CLO ETF, mortgage-backed security ETF, multi-sector income, and our short duration income ETF. Pleasingly, we captured market share during the quarter and for the full year 2023. As we've spoken about previously, US Intermediary is a key initiative under our Protecting Growth Strategic Pillar. We're encouraged by the results for the quarter and for the year. Ali will provide further details on the progress we've made in US Intermediary later in the presentation. Institutional net outflows were $2 billion for the fourth quarter compared to $400 million in the third quarter. In line with our previous comments, after large mandate fundings in the first half of the year, We were not anticipating large fundings during the quarter. We are pleased, though, with the work our distribution team is doing to build a sustainable pipeline, but as we've said, it will take time. Net outflows for the self-directed channel, which includes direct and supermarket investors, were $1.1 billion compared to $900 million in the prior quarter. The increase in net outflows is primarily due to seasonal year-end tax planning in the U.S. Slide eight is flows in the quarter by capability. Equity flows were negative $3.2 billion in the fourth quarter compared to negative $2.3 billion in the third quarter and negative $7.5 billion a year ago. The environment for active equities remains challenging across all regions. Net inflows of fixed income were $1.7 billion bringing total net flows to a positive $7.2 billion for 2023. We're encouraged by the improvements in short-term investment performance to go along with our solid longer-term investment performance in fixed income, and we believe we're well positioned to capture flows if an industry rotation into fixed income occurs in 2024. Several strategies contributed to positive fixed income flows, including our fixed income ETFs, which had positive flows of $3.2 billion in the quarter. Other strategies contributing to positive flows per quarter were multi-sector credits, U.S. buy and maintain credits, and global multi-sector fixed income. Total net outflows for the multi-active and alternatives capability were $1.4 billion and $200 billion, respectively. Moving on to the financials, slide nine is our U.S. GAAP Statement of Income, and on slide 10, we explain the adjusted financial results. Adjusted revenue increased 12% compared to the prior quarter due to high performance fees, partially offset by lower average AUM. Average AUM in Q4 was $315 billion, but period end AUM was $335 billion, giving a tailwind into Q1. Fourth quarter performance fees of $42 million include annual performance fees of $58 million generated primarily from a number of funds and capabilities with December 31 crystallisation dates, the largest of which is our healthcare franchise. Partially offsetting this revenue was negative $17 million from the US Mutual Fund for performance fees. Net management fee margin was 48.7 basis points, consistent with the prior quarter. Our full year net management fee margin of 48.9 basis points was down by less than the basis point compared to 49.6 basis points in 2022. The slight decline was primarily due to large, lower fee institutional fundings in the first half of the year. Continuing on to expenses. Adjusted operating expenses in the fourth quarter were $299 million, an increase of 7% compared to the prior quarter. Adjusted employee compensation, which includes fixed and variable costs, was up 4% compared to the prior quarter, as higher incentive costs on higher revenues was partially offset by lower fixed compensation. Adjusted LCI, was up 18% compared to the third quarter, largely due to mark-to-market or mutual fund awards. And in the appendix, we provided the usual table on the expected future amortization of existing grants, along with an estimated range for the 2024 grants V2Us and year models. The fourth quarter adjusted comp to revenue ratio was 42.9%, and our full year comp ratio was 45.8%, in line with expectations which we previously provided. Adjusted non-comp operating expenses increased 8% compared to the prior quarter, primarily due to higher G&A expenses. On a year-over-year basis, adjusted non-comp expenses increased 2.5% compared to our revised expectation of percentage growth in the mid-single digits, reflecting our commitment to strong cost management. Adjusted operating income increased 25% over the prior quarter to $156 million in the fourth quarter. and our fourth quarter adjusted operating margin improved over 300 basis points to 34%. Adjusted diluted EPS was 82 cents up 28% from the prior quarter and up 34% from the same quarter a year ago. Fourth quarter adjusted diluted EPS primarily reflects higher operating income coupled with a lower tax rate. With respect to 2024 expense expectations, Having fully delivered on our fuel for growth targets, we've identified further fixed compensation and non-compensation operational efficiencies. And as a result, we anticipate a compensation ratio in the range of 43 to 45%, down from almost 46% in 2023. For non-compensation, we anticipate percentage growth of mid to high single digits as a result of investments supporting our strategic initiatives, as well as inflation and amortization. To offset where we can, we'll continue to be mindful of our discretionary cost base and be disciplined in our cost management. Net-net, we're comfortable with external expectations of our 2024 total operating expense dollar costs. Finally, we expect the firm's tax rate on adjusted net income attributable to GHG to be in the range of 23 to 25%. Skipping over slide 11 and moving to slide 12 and a look at our liquidity profile. Our capital position remains strong. Cash and cash equivalents were $1.1 billion as of the 31st of December, which is roughly flat to the end of last year, as excess cash flow generation was used to fund our quarterly dividends and to repurchase 2.3 million shares for $62 million in the fourth quarter. This return of excess cash is consistent with our capital allocation framework. We'll look to return capital to shareholders where there isn't an immediately more compelling investment, either organically or inorganically in the business. The board has declared a 39 cent per share dividend to be paid on 28th of February to shareholders of record as at the 12th of February. In summary, we've maintained a strong liquidity position and we continue to balance the capital needs and the investment opportunities of the business with returning capital to shareholders. Finally, Slide 13 looks at our annual return of capital to shareholders. We've been disciplined in consistently returning excess capital to shareholders, as this historical data reflects. Since 2018, we've returned over 70% of our cash flow from operations, or $2.5 billion, to shareholders in the form of our quarterly dividends and accretive share buybacks. Our dividends have increased 11%, and we've reduced shares outstanding by 18.5% since our first secretive buyback programme commenced in the third quarter of 2018. In 2023, we returned 73% of our cash flow from operations to shareholders, including $259 million in dividends and $62 million in buybacks. Our capital allocation philosophy has not changed. We reserve cash for our regulatory capital requirements and liquidity needs, and then set aside capital for contractual obligations. We then look to utilise cash for organic and inorganic reinvestment in the business, and then consider returning excess cash via dividends and share repurchases. Our return of capital reflects our positive financial outlook, our cash flow generation, and a strong and stable balance sheet. Our buybacks and stable dividends do not impair our ability to execute M&A should the opportunity arise, and we continue to actively look to buy, build, or partner to diversify where clients give us the right to win. With that, I'd like to turn it back over to Ali to give an update on our strategic progress.