Janus Henderson Group plc Ordinary Shares

Good morning, my name is Adam 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 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 each. In today's conference call, certain matters discussed may constitute forward-looking statements. Actual results could material differently 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. It is now my pleasure to introduce Ali Dibash, Chief Executive Officer of Janice Henderson. Mr. Dibash, you may begin your conference.

Welcome, everyone, and thank you for joining us today on Janice Henderson's fourth quarter and full year 2024 earnings call. I'm Ali Dabaj, and I'm joined by our CFO, Roger Thompson. In today's call, I'll start with some comments on the momentum being generated across the business. Roger will then go through the quarterly results, and after that, I'll provide an update on the strategic progress we made over the last 12 months. After those prepared remarks, we'll take your questions. Turning to slide two. 2024 demonstrated several signs of clear progress at Janus Henderson. This progress was a result of colleagues who locked arms collaboratively as one firm to continue building our momentum by accomplishing many new and major milestones that support our purpose of investing in a brighter future together and our strategy. We're encouraged that our net flows turned positive in 2024, finishing the year with $2.4 billion of net inflows. This is a tremendous accomplishment and has vastly improved from only two years ago when we experienced $31 billion of net outflows. Delivering positive active flows is a key differentiator for Janus Henderson in an industry with well-documented active flow headwinds. The positive net inflows resulted from a diversified set of regions and investment strategies. In the intermediary channel, North America, EMEA Latin America, and Asia Pacific all delivered positive flows in 2024, And at the firm level, there were 29 investment strategies that produced greater than $100 million in net inflows, a roughly 40% increase compared to the prior year. In addition to the net inflows, Janus Henderson generated new net revenue in both the third and fourth quarters. Fee pressures are relentless in this industry, and not all AUM is created equally. So we are pleased with that result. We're seeing success across a mix of capabilities and regions, including higher fee strategies such as hedge funds and thematics. This has enabled Janice Henderson to maintain a relatively resilient fee rate. Our 2024 net management fee rate of 48.6 basis points has decreased only one basis point over the last two years. Given feedback from shareholders, we are also happy bringing in new business where the headline fee rate may deviate from our current blended fee rate if and only if it has an attractive profitability profile. our fee rate and profitability management are two of the key competitive differentiators for Janus Anderson. We are executing our strategic vision, which consists of three pillars, protecting grow our core businesses, amplify our strengths not fully leveraged, and diversify where clients give us the right to win. Under the diversify pillar, we expanded into differentiated private market capabilities for clients with the acquisitions of NBK Capital Partners in September and Victory Park Capital in October. As I said before, Both are skating to where the puck is going on behalf of clients. NBK allows Janice Henderson early entry into the rapidly expanding emerging markets private capital space, and VPC specializes in asset-backed lending. Both have unique origination that is the envy of some of our larger alternative peers. Within the Amplify pillar, we acquired Tabula Investment Management in July and have moved quickly to begin leveraging the business with our first European ETF launches occurring in the fourth quarter with more to come in 2025. In September, we announced a unique and innovative affinity partnership with the American Cancer Society. Through this pioneering partnership, Janus Henderson is donating the equivalent of 50% of its management fee revenue from all AUM and our government money market fund, This partnership allows us to enter the undifferentiated $6 trillion and growing money market category with a distinctive product that is extremely hard to replicate and benefits an incredible cause. We invested in our brand to strengthen our profile, drive our business forward, and communicate our purpose of investing in our brighter future together for the over 60 million people globally who directly or indirectly rely on Janice Henderson for their financial well-being. We are investing in technology, including AI, as part of our ongoing efforts to improve the ways we work by embracing innovative technologies. An example is leveraging AI and machine learning in our North American client group to deepen existing client relationships and establish new ones. We also launched a collaborative tool for our RFP team, which was the first generative AI tool developed internally and put into production by Janice Henderson colleagues. Janice Henderson is home to incredibly talented people, and we believe we are becoming a destination of choice in the industry. Attracting and retaining the best talent enables us to deliver for clients and execute our strategy over the long term. Finally, our strong financial results and cash flow generation enable us to return $458 million of cash to shareholders in 2024 through the quarterly dividend and share repurchases while maintaining the flexibility to invest in the business on behalf of clients. The 2024 results on slide four illustrate our tangible progress in the business. Long-term investment performance remains solid, with over half of our AUM ahead of benchmark on a three-, five-, and ten-year basis. Total AUM increased 13% in 2024, mostly reflecting strong markets, alpha generation, and positive net flows. Ending AUM of $378.7 billion is 5% higher than the 2024 average AUM, providing a tailwind as we begin 2025. As I discussed earlier, net flows were positive, improving for the second consecutive year and resulting in a 1% organic growth rate. Financial results remain solid, and our financial performance and strong balance sheet continue to provide us the ability to invest in the business organically and inorganically and return cash to shareholders. I'll now turn the call over to Roger to run you through the detail of the quarterly financial results.

Thanks, Ali, and thank you for joining us on today's call. Starting on slide five, I'm going to look at our quarterly results. As Ali has discussed our solid investment performance, I'll touch briefly here on AUM, flows, and EPS. Net flows were positive for the third consecutive quarter at $3.3 billion, and ending AUM was down 1% from the third quarter as adverse markets and currency adjustments offset the net inflows. Our financial results are strong. Better top line revenue provided by positive markets, a stable net management fee rate, net inflows, and outperformance delivered by investment teams coupled with operating leverage resulted in adjusted diluted EPS of $1.07, a 30% increase compared to the same period a year ago. Our financial performance and strong balance sheet continue to give us the flexibility to invest in the business, both organically and inorganically, and return cash to shareholders. On slide six, we'll look at the investment performance in more detail. Investment performance versus benchmark remained solid with the majority of aggregate AUM beating their respective benchmarks over all time periods. The lower five-year number compared to the prior quarter is primarily driven by the US mid-cap growth strategy within our equities capability and was impacted by the narrow leadership driving market gains in the US for small and mid-cap growth stocks, which weighed on relative returns to benchmark. Performance for the strategy compared to peers remained solid and it's in the first or second Morningstar quartile over all time periods. Overall, investment performance compared to peers is very competitive, with at least three quarters of AUM in the top two Morningstar quartiles over one, three, five, and 10-year time periods. Slide seven shows total company flows by quarter. Net inflows for the quarter were $3.3 billion, compared to net inflows of $400 million last quarter, and a significant improvement over net outflows of $3.1 billion a year ago. The year-over-year improvement was primarily driven by a 42% increase in gross sales and marked the best quarterly gross sales result in almost three years. The increase in gross sales compared to the prior year is across a broad range of regions and strategies, including ETFs, balanced, global small cap, Australian fixed income, thematics such as life sciences and technology, hedge funds, and global adaptive multi-asset. Turning to slide 8 and flows by client type. The positive trends in the intermediary channel continued with fourth quarter net flows of positive $3.5 billion. For the year, intermediary net inflows were $8.7 billion, a 5% annual organic growth rate. In the fourth quarter, the U.S. and Asia Pacific regions experienced net inflows, with small outflows across EMEA and LATAM. In the U.S., net flows were positive for the sixth consecutive quarter, with the last five quarters each delivering at least $1 billion in net inflows. Several strategies delivered net inflows in the fourth quarter, including most of the active ETFs, multi-sector credit, and hedge funds. US Intermediate is a key initiative under our Protect and Grow strategic pillar, and we're pleased that we're gaining market share. Under our Amplify strategic pillar, we've talked about amplifying our investment and client service strengths using various means, including vehicles in which to deliver our products. In addition to ETFs, flows into CITs, SMAs, and hedge funds in this channel were all positive in the fourth quarter and for the full year. Moving to the EMEA and Latin American intermediary segment. Here we've spoken previously about expanding our strategic efforts. And whilst fourth quarter net flows in these regions were slightly negative, net flows were positive for 2024 and the best annual results since 21. In APAC intermediary, net flows were positive for the second consecutive quarter and positive for the year. Within APAC, Asia had a particularly strong 2024 and he is carrying momentum into 25. Institutional net inflows were $900 million compared to net outflows of $500 million in the prior quarter. Institutional net flows were aided by 10 distinct fundings between $100 and $500 million. We're working to create a sustainable pipeline. We're pleased with the work our distribution team is doing, and we're encouraged by the leading indicators and increasing number of opportunities across all of our regions. Net outflows for the self-directed channel, which includes direct and supermarket investors, were $1.1 billion flat to the same period a year ago. Slide nine is flows in the quarter by capability. Equity flows were negative $2.5 billion, which declined compared to the last quarter, but improved from negative $3.2 billion a year ago. Despite a challenging environment for active equities, the annualised growth sales rate for equities improved to 14% from 13% on a year-over-year basis. Fourth quarter net inflows for fixed income were $5.2 billion, which is a 26% annualised organic growth rate. Several strategies contributed to the positive fixed income flows. In the intermediary channel, fixed income active ETFs, delivered strong positive flows of $4.9 billion in the quarter, led by flows in JAAA. Other strategies contributing to the intermediary positive flows were multi-sector credit and Australian tactical income. In institutional, fixed income flows were also positive and led by Australian fixed income strategies. Net flows for the multi-asset capability were positive for the first time in three years at $100 million, improving from net outflows of $400 million and $1.4 billion in the prior quarter and prior year. The fourth quarter result was led by positive flows into the global adaptive multi-asset and the balanced strategies. Balanced, which is our largest strategy, had its first quarter of positive flows since Q4 of 2021. And finally, net inflows in the alternatives capability were $500 million, driven primarily by pooled hedge funds. Moving on to the financials. Slide 10 is our US GAAP Statement of Income. Before moving on to adjusted financial results, GAAP results this quarter include an expected $42.6 million non-cash, non-operating accounting release of accumulated foreign currency translational losses related to subsidiary entities liquidated this quarter. This amount is removed from adjusted results. Continuing to slide 11 and the adjusted financial results. Fourth quarter and full year 2024 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 operating leverage. Adjusted operating income improved 20% and EPS improved 18% quarter over quarter. Improvements over the fourth quarter of last year were even stronger, with operating income and EPS up 31% and 30% respectively, and year on year were up 31% and 34%, showing the consistency of our improvement. Adjusted revenue increased 16% compared to the prior quarter and 25% compared to the prior year, primarily due to higher management fees of higher average AUM and improved performance fees. Net management fee margin was 48.6 basis points, a slight increase over the prior quarter. Our full year net management fee margin of 48.6 basis points was down less than half a basis point compared to 2023 and only one basis point lower than 2022. Janice Henderson's net management fee margin continues to be a differentiator compared to many of our peers, given the fee pressure headwinds experienced in the asset management industry. Fourth quarter performance fees of $68 million included performance fees of $74 million generated primarily from a number of funds and capabilities with December 31 crystallization dates. Partially offsetting this revenue was negative $6 million from US mutual fund performance fees. Whilst negative US Mutual Fund performance fees have improved significantly compared to the negative $17 million in the fourth quarter of 2023. Continuing on to expenses. Adjusted operating expenses in the fourth quarter increased 14% to $363 million, primarily reflecting higher incentive compensation and previously communicated expected increases in non-compensation expenses. Adjusted employee compensation, which includes fixed and variable costs, was up 18% compared to the prior quarter, primarily from higher incentive costs on higher revenues and fixed costs related to the consolidation of acquisitions beginning in the fourth quarter. Adjusted LTI decreased 6% compared to the prior quarter, largely due to mark-to-market or mutual fund share awards. In the appendix, we've provided the usual table on the expected future amortization of existing grants, along with an estimated range for 2025 grants. The fourth quarter adjusted comp to revenue ratio was 42.4% and our full year comp ratio was 44% in line with previously provided expectations and improved from 2023. Adjusted non-comp rating expenses increased 15% compared to the third quarter, primarily due to expected higher marketing and G&A expenses. On a full year over year basis, adjusted non-comp expenses increased 9% which is in line with our expectation of the percentage growth to be at the higher end of mid to high single-digit growth. As I mentioned on previous earnings calls, we anticipated adjusted non-compensation costs to accelerate in the second half of the year related to attractive ROI investments supporting areas of momentum in our business and the consolidation of VPC beginning in the fourth quarter and the full costs of NBK. With respect to 2025 expense expectations, We expect a compensation ratio in the range of 43 to 44% in 2025 compared to 44% in 2024. This range assumes AUM as at the 31st of December and zero market assumption in 2025. For non-compensation, we expect mid to high single digit percentage growth as a result of the investments supporting strategic initiatives and operational efficiencies, as well as inflation, and the full year impact of the consolidation of VPC, MBK and Tabula. To offset where we can, we'll continue to be mindful of our discretionary cost base and be disciplined in our cost management. Finally, we expect the firm's tax rate on adjusted net income attributable to JHG to be in the range of 23 to 25%. Our fourth quarter adjusted operating margin was 36%, an increase of 180 basis points from a year ago. Fully a 2024 adjusted operating margin was 34.4%, an increase of 350 basis points. Adjusted diluted EPS was $1.07, up 18% from the prior quarter and up 30% from the fourth quarter 2023. Skipping over slide 12 and moving to slide 13 in the liquidity profile. Our capital position remains strong. Cash and cash equivalents were $1.2 billion as at the 31st of December, which is roughly flat to the end of last year as excess cash flow generation was used to support our inorganic investments, fund our quarterly dividend, and to repurchase 6.1 million shares in 2024. Our 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. In September 2024, we successfully completed a $400 million issuance of senior unsecured notes at a coupon rate of 5.45% due in 2034. In November, the proceeds of that issuance were used to execute a make-whole call to repay the $300 million of notes due in August 2025. The Board has declared a 39 cent per share dividend to be paid on the 27th of February to shareholders of record as at the 11th 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 14 looks at our annual return of capital to shareholders. We've been disciplined in consistently returning excess capital to shareholders as the historical data reflects. Since 2018, we've returned 70% of our cash flow from operations, or $3 billion, to shareholders in the form of our quarterly dividend and accretive share buybacks. Our dividend has increased 11% and we've reduced shares outstanding by 21.1% since our first accretive buyback programme commenced in the third quarter of 2018. In 2024, we returned 66% of our cash flow from operations to shareholders, including $250 million in dividends and $208 million in buybacks. Our capital allocation philosophy has not changed. We reserve cash for our regulatory capital requirements and our liquidity needs and then set aside capital for contractual obligations. We then look to use 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.