Janus Henderson Group plc Ordinary Shares

Good morning, my name is Megan and I'll be your conference facilitator today. Thank you for standing by and welcome to the Janice Henderson Group second quarter 2024 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 predicted 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 in 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 Ali Dabaj, Chief Executive Officer of Janice Henderson. Mr. Dabaj, you may begin your conference.

Welcome, everyone, and thank you for joining us today on Janice Henderson's second quarter 2024 earnings call. I'm Ali Dabaj. I'm joined by our CFO, Roger Thompson. In today's call, I'll provide some thoughts on the quarter before handing it over to Roger to run through more details. After Roger's comments, I'll provide an update on our strategic initiatives, brand strength and positioning, and our progress towards delivering consistent results over time. They'll take your questions following those prepared remarks. Turning to slide two, despite a persistent unsettled macro backdrop, Market gains, continued alpha generation provided by our world-class investment teams, the exceptional services provided by our client teams, and the productivity and execution of our operations and support teams in technology, operations, legal, finance, risk and compliance, human capital, marketing, and other functions, again, enabled Janice Henderson to deliver a good set of quarterly results. Investment performance is consistently solid, with at least 63% of assets beating respective benchmarks on a 1, 3, 5, and 10-year basis. Assets under management increased 3%, so $361.4 billion, which is the highest quarterly AUM figure in over two years and 12% higher compared to a year ago. Net flows were positive $1.7 billion. Improvement in net flows came from our intermediary channel and the institutional channel, which benefited from over 10 distinct mandate fundings ranging from $100 million to $400 million, illustrating our efforts to grow a broad range of client sizes for our institutional business. We are encouraged by the net inflows in the quarter. Recall that we previously said that intermittent quarters of neutral to positive net flows would be an indication that our strategic plan is starting to bear fruit. The net inflows mark our second quarter out of the last six with positive flows, demonstrating tangible improvement towards our aspiration for delivering consistent organic growth over the long term. Our financial results remain solid. Positive markets, net inflows, apt performance delivered by our investment teams, plus expense management and increased productivity resulted in adjusted diluted EPS of 85 cents, a 37% increase compared to the same period a year ago. Our financial performance and strong balance sheet continue to provide us the flexibility to invest in the business, both organically and inorganically, and return cash to shareholders. In summary, While there's always work to do, the second quarter demonstrates we are squarely on the path to delivering consistent results for the long term. Investment performance and financial results are strong. Net inflows reflect areas of momentum in our business. We have a strong and stable balance sheet. And each person at Janus Henderson, individually and collectively, continues to execute on our strategy. I'll now turn the call over to Roger to run you through the detailed financial results.

Thanks Ali, and thank you everyone for joining us on the call today. Starting on slide three and investment performance. As Ali mentioned, investment performance versus benchmark remained solid with more than 60% of aggregate AUM beating their respective benchmarks over all time periods. Looking at further detail, at least half of each capabilities AUM is ahead of benchmarks over all time periods, reflecting consistent investment performance across time periods and capabilities. Overall investment performance compared to peers is competitive, with almost three quarters of AUM in the top two Morningstar quartiles over the one, three, five and 10 year time periods. Slide four shows total company flows by quarter. As Ali mentioned, net inflows of $1.7 billion for the quarter compared to $3 billion of net outflows last quarter. We're pleased with the result. and believe it shows that we're making progress towards our goal of delivering consistent organic growth over time. On slide five are flows by client type. Second quarter net flows for the intermediary channel were positive $2.4 billion, equating to a 5% annual organic growth rate. The quarterly flow results were supported by a 45% increase in gross sales year over year and was the best quarterly gross sales figure in over two years. The U.S. intermediary channel was positive for the fourth consecutive quarter, with net inflows in several strategies, including most of the active ETFs, multi-sector credit, international alpha, and U.S. mid-cap growth. As we've spoken about previously, U.S. intermediary is a key initiative under our Protect and Grow strategic pillar. We're pleased by the results for the quarter and that we're gaining market share. Under the Amplify strategic pillar, we've talked about amplifying our investment and client service strengths using various means, including vehicles in which to deliver products. In addition to ETS, flows into CITs, SMAs, and our biotech innovation hedge fund were positive in the second quarter in this channel. Moving to the EMEA and Latin American intermediary segment. Here, we've spoken previously about expanding our strategic efforts. In the region, net flows improved for the third consecutive quarter, finishing slightly positive this quarter, and we increased market share. Similar to the first quarter, both continental Europe and Latin America delivered positive flows, while the UK remained in net outflows. Institutional net inflows were positive $200 million, which improved meaningfully compared to the $3.1 billion of net outflows in the previous quarter. Reiterating Ali's commentary, institutional net flows were aided by over 10 distinct fundings of between $100 and $400 million, demonstrating that our efforts to fill the missing middle, as we call it, in our institutional client base are beginning to bear fruit. Notably, each of these fundings went into a different strategy spanning all capabilities. We continue to work to create a sustainable pipeline. We're pleased with the work our distribution team is doing, and we're encouraged by the increasing number of opportunities across all of our regions. But the continued development and maturation of the pipeline will still take time. Net outflows for the self-directed channel, which includes direct and supermarket investors, were flat to the prior quarter at $900 million. Slide six is flows in the course of by capability. Equity flows were negative $1.4 billion compared to negative $1.1 billion in the first quarter. Pleasingly, in a challenging environment for active equities across all regions, we continue to take equity market share. Net inflows of fixed income were $3.3 billion. Several strategies contributed to positive fixed income flows in the intermediary channel, led by fixed income ETFs, which had positive flows of $4.1 billion in the quarter led by flows into JAAA, but also including 600 million into the JBBB CLO and 100 million into JSI, the Securitized Income ETF, both at a fee rate in the mid to high 40s. Other strategies contributing to the positive flows were multi-sector credit, global buy and maintain credit, and Australian tactical income. And offsetting these net inflows were net outflows in the lower fee institutional channels. Total net outflows for the multi-asset capability were $800 million. And finally, net inflows in the alternatives capability were $600 million, driven by institutional fundings in absolute return, global commodity enhanced index, and multi-strategy. Moving on to the financials. Slide seven is our US GAAP statement of income. And on slide eight, we explain the adjusted financial results. Adjusted operating results improved compared to the prior quarter and the prior year. The improvement was primarily due to higher average AUM, good investment performance generating high performance fees and strong operating leverage and lower LTI expense. Adjusted operating income improved 28% and EPS improved 20% quarter over quarter. Improvements over a year ago were even stronger. with operating income and EPS up 36% and 37% respectively. Looking at the detail. Adjusted revenue increased 7% compared to the prior quarter and 14% compared to the prior year, primarily due to higher management fees and higher AUM and improved seasonal CCAV and UK OEQ performance fees. Net management fee margin declined slightly from the prior quarter, but more importantly, was unchanged year on year at 48.5 basis points. Our roughly stable net management fee margin continues to be a differentiator compared to many peers, considering fee pressures experienced in the asset management industry. While we're not immune to these fee pressures, we do see our competitively resilient fee rate as a differentiator, given the mix of capabilities and channels where we're seeing success and our strong investment performance. Continuing on to expenses. Adjusted operating expenses in the second quarter declined 2% to $294 million. Adjusted LTI declined nearly 30% compared to the prior quarter, largely due to seasonal payroll taxes driven by annual vestings in the prior quarter. And in the appendix, we've provided you with the usual table on the expected future amortization of existing grants if you're using your models. The second quarter adjusted comp to revenue ratio declined to 42.8% from 48.2% in the seasonally higher first quarter and declined from 45.6% year over year, demonstrating the leverage in our business. Our 2024 expectation of an adjusted compensation ratio range of 43 to 45% remains unchanged. adjusted non-comp operating expenses increased 5% compared to the prior quarter, primarily due to higher G&A expenses and increased marketing and advertising expenses. Compared to the prior year, adjusted non-comp operating expenses were flat, reflecting our disciplined expense management and our commitment to operate more efficiently while reinvesting in the business. Similar to my comments last quarter, We still anticipate adjusted non-compensation costs to accelerate in the second half of the year and resulted in an annual growth of mid to high single digits compared to the prior year. We expect non-compensation expenses to increase as a result of investments supporting areas of opportunity in our business. Examples being higher expected marketing, advertising, and T&E. We also expect higher operational expenses such as increased investment administration expenses, and the addition of NBK and tabular expenses in the second half of the year. As I said earlier, adjusted operating income increased 28% compared to the prior quarter and increased 36% over the same period a year ago to $165 million. Compared to the prior year, operating income increased $43 million on $56 million of incremental revenue. Our second quarter adjusted operating margin was 36%, an increase of 570 basis points from a year ago, demonstrating the operating leverage in our business. Adjusted diluted EPS was $0.85, up 20% from the prior quarter and up nearly 40% from the second quarter 2023. The increase in adjusted diluted EPS primarily reflects higher operating income. Skipping over slide 9 and moving to slide 10 and a look at our liquidity profile. Our capital position remained strong as we generated over $220 million in cash flows from operations in the second quarter. Cash and cash equivalents were $985 million as of the 1st of June, an increase of 9% and 2% from the prior quarter and prior year respectively. During the quarter, We funded our quarterly dividend and repurchased approximately 1 million shares for $34 million. The Board has also declared a 39 cent per share dividend to be paid on the 28th of August to shareholders of record as of the 12th of August. Slide 11 looks in more detail at our consistent return of capital to shareholders. We've maintained a healthy quarterly dividend and have reduced shares outstanding by over 20% since 2018. During the first half of 2024, we returned $241 million, including $115 million via share repurchases. As we've communicated previously, our return of capital reflects our positive financial outlook, our cash flow generation, and a strong and stable balance sheet. But it does not impede our ability to buy, build, or partner should opportunities arrive to diversify where clients give us the right to win. With that, I'd like to turn it back over to Ali for an update on our strategic progress.