Jupiter Fund Management Plc (JUP) Earnings Call Transcript & Summary

Thank you all for joining us today. I'm Nichola Pease, the Chairman of Jupiter Fund Management. I was appointed in March this year, and the 2020 AGM was going to be my first opportunity to meet with you. Regrettably, due to the current restrictions imposed on us by COVID-19, we are unable to convene our AGM or our general meeting to approve the acquisition of Merian Global Investors in the normal way. The meetings will take place on Thursday, the 21st of May. But to ensure the well-being of our staff and our shareholders, they will be closed meetings, and unfortunately, shareholders will not be able to attend. We are asking shareholders to exercise their right to vote by submitting proxy votes in advance of the meetings. Details of how to undertake this are included in the AGM notice and circular to shareholders, which are available on our website. To make sure our shareholders can fully engage in the business of both meetings, we are holding this shareholder engagement session before the proxy voting deadline on the 19th of May. I will shortly pass over to Andrew, who will provide an update on the business and the strategic rationale for the proposed acquisition of Merian. I will then provide you with a brief overview of the resolutions proposed at the AGM and subsequent general meeting, and we will then move to Q&As. Before this, I'd like to say a few words on my first months at Jupiter, which have been somewhat unconventional. Fortunately, my induction was undertaken before the lockdown began, and I was able to meet in person with many people across the business. I have been impressed by the number of talented individuals and the commitment and dedication showed by all to our clients and to Jupiter. This has only been amplified by the lockdown and how our employees have continued to deliver a high standard of service to our clients, adapting to the challenges that come with remote working. I would like to take the opportunity to thank all our employees on behalf of the Board and shareholders for their continued hard work. I shall now pass over to Andrew.

Thanks very much, Nichola. It's a pleasure to have this opportunity to address you ahead of our Annual General Meeting. Firstly, I hope you, your family and friends are all keeping safe in these exceptional times. And as shareholders in our business, I'd like to thank you for your continued support. I'd also like to join Nichola in thanking our staff for their collective effort in keeping the business running with minimal disruption to our client. It's a testament to the quality of our people that we've been able to adapt so quickly to this challenging situation. I'd like to single out Paul Kay and our IT department for the extraordinary efforts they have put in to make sure we continue to function so effectively through this period. All our employees have been working from home since mid-March, and the company has put in place a range of services to support them. This includes the launch of our homeworking and well-being site and access to trained mental health first aiders. The Executive Committee at Jupiter communicate regularly with staff via e-mail and video conference, and managers are encouraged to stay in daily contact with their teams. We are also supporting our communities in these unprecedented time. As a firm, we've donated over GBP 100,000 to COVID-19 charities, and our Board, senior management team and staff have all made significant personal contributions more than matching this amount. We've also increased the amount of time we give staff for volunteering purposes so they can help the communities they live in. We will continue to support our clients, our staff and our communities in this difficult time. I would now like to turn to our 2019 results. As you can see, Jupiter delivered a resilient performance in 2019 despite volatile market, difficult industry conditions and internal challenges caused by the succession of one of our key fund managers. It was another year of strong investment performance, with 72% of mutual fund assets under management outperforming over 3 years. This is a key metric for us, and I will touch on this more in the coming slides. Driven by our investment performance and market movements, assets under management held steady at GBP 42.8 billion. This was despite net outflows of GBP 4.5 billion during the period, which was primarily driven by the departure of the long-standing lead manager in our European growth strategy. Our underlying earnings per share for the year decreased by 11%, which was principally due to a lower than average assets under management over the year. Our ordinary dividend policy remained the same, and we declared a final dividend of 9.2p, which was paid to shareholders on the 9th of April. This meant the full year dividend for 2019 was 17.1p a share, in line with our distribution in 2018. Turning to the first 3 months of 2020. It's been a challenging start to the year for Jupiter and our industry in general, driven by the shock of the COVID-19 pandemic and its impact on the world at large. In the first quarter, Jupiter's assets under management fell from just under GBP 43 billion at the end of December to just under GBP 35 billion at the end of March. This was driven from outflows by clients of GBP 2.3 billion and a further GBP 5.5 billion in negative market movements. This is no surprise given the scale of the issues that societies and economies are facing globally, but clearly still a significant impact on our business. And looking at the partner we are acquiring, Merian Global Investors, their assets under management also fell over the same period from GBP 22.4 billion to GBP 15.6 billion, driven by GBP 2.6 billion of client outflows and GBP 4.1 billion of market movements. On a more positive note, outflows stabilized for both businesses in April with Jupiter seeing slight inflows for the month. Over this period, however, I'm also particularly pleased to report that Jupiter's clients have been well served by our fund managers. This period has seen most asset classes experience significant falls in value, and our client portfolios have not been immune from these, though our relative investment performance has strengthened with 80% of our assets under management above median over 3 years and including now 75% of those in the top quartile. This level of performance on behalf of our clients is testament to the expertise of our investment teams and reaffirms our conviction in active management and our belief in our ability to deliver long-term returns to our clients through our strategy of high conviction active management. I would add that this period of severe market volatility has only strengthened my belief in the strategic rationale for our proposed acquisition of Merian. By combining our companies, we will be better able to weather future black swan events such as COVID-19. I thought I'd also remind you of the strategic priorities we set out for the business in 2019 at our first Capital Markets Day in December and shown here on this slide. These are especially important in the context of our proposed acquisition of Merian as the deal will accelerate many of our strategic plans, especially around our recommitment to our core U.K. market and will extend the high-quality active investment capabilities we offer to our clients. I won't talk in detail to every point here, but the acquisition of Merian will go a long way towards addressing several of the goals we have set out for the business. I'd like to now take a moment to look at our proposed deal to acquire Merian. We've agreed to acquire Merian in an all-share deal worth approximately GBP 200 million at today's price. Key Merian management shareholders may receive a further GBP 20 million on the fourth and fifth anniversary after completion, subject to conditions. Merian's key management shareholders have given their full backing to the transaction. They manage just under 90% of the firm's assets under management, so winning their approval is a real vote of confidence in Jupiter's strategy and the transaction. Once the deal is completed, Merian shareholders will hold around 17% of Jupiter with the bulk of those shares held by TA Associates. We know TA Associates well and are pleased they will once again become a significant long-term shareholder of Jupiter. For those of you who've been our shareholders for some time, you'll know TA Associates as they were the ones who backed the management buyout of the firm in 2007. It was a successful relationship, and we look forward to working with them again. The Executive Committee at Jupiter will remain unchanged and take the lead on ensuring that our well-developed integration plan is fully executed to move Merian onto our operational platforms. Our recent investments in our platforms mean we have the scale and ability to comfortably handle the significant increase in assets. When the opportunity arose to acquire Merian, the strategic benefit of doing so were clear. The 2 companies share the same culture and investment philosophy, and Merian's fund range would both complement and add to our client offering. For our shareholders, this means the acquisition should deliver a boost to underlying earnings from 2021 and increasing from 2022 onwards. In our discussions with Merian, early on, we agreed on how the enlarged group would operate. This included agreement on the adoption of the Jupiter brand, the shape of the management team and the location of the business. Having that shared vision and clarity of key decisions upfront will ensure a successful integration of the two firms. With this acquisition, Jupiter is really locking in its position of one of the U.K.'s leading active asset managers with over GBP 51 billion in assets under management. This acquisition though is not only about what it does for us today but what it enables us to do tomorrow. So how does this deal help us for the future? In investment management, for instance, it will boost our position as an attractive home for leading investment talent. Our greater scale and resources means we'll be able to invest more of our resources in tools such as data science to help our managers deliver Alpha. With our U.K. retail base bolstered by the acquisition, we can be more confident of our diversification strategy, supported by greater brand and marketing spend across the enlarged organization. Merian also accelerates our entry in the U.S. and other markets such as the Middle East, Asia Pacific and Latin America. It sends out a strong message to clients in these markets that we're committed to building our business in their region. We'll also have greater capacity to develop and seed new funds. It means we can react more quickly to client needs by accelerating fund launches. And on the operations side, it provides scale. The enlarged company allows for further investment in technology that should lead to more automation of our processes and faster delivery to our clients. In the competitive market we operate in, the client experience is critical. When they engage with Jupiter, I want them to come away thinking Jupiter's client service is second to none. Part of that client experience is knowing they're engaging with a firm they can trust and that their money is safe with us. The enlarged firm will continue to have a strong balance sheet and hold ourselves to the highest standard regarding the rules that regulate our industry. Jupiter, with Merian fully integrated, will have a stronger voice in the industry debates. There is no doubt 2019 marked a new phase in Jupiter's development since listing 10 years ago, with a renewed focus on strategy, supported by fresh leadership, we set new goals for the company. And I'd just like to remind you what those goals are. I said the Merian deal would take us more quickly along the route to achieving those goals. And why is that? Well, we're combining forces with a company which shares our goal of consistently achieving superior investment performance. If we deliver on that superior performance, we will meet our goal of achieving top quartile net new money growth from our clients. Our client reach, investment capabilities and client channels will all be broader than they are on our own. And these 3 goals will deliver the fourth, namely, a significant increase in both our client assets and, hence, profitability and returns for you, our shareholders. I hope this provides you with an understanding of our current trading and the rationale for the acquisition of Merian. I'm going to hand you back over to Nichola now.

Thank you, Andrew. The next slides are a reminder of the resolutions being proposed for approval at the Annual General Meeting and are considered standard business as passed at previous year's AGMs. This includes a number of resolutions to reappoint the directors. Bridget Macaskill, the Chairman of our Remuneration Committee, is stepping down at the conclusion of the forthcoming AGM. Bridget has served on the Board for 5 years, and the company has greatly benefited from her expertise and commitment to Jupiter's business. I would like to thank her for her contribution during a period of significant growth for Jupiter. Our CFO, Wayne Mepham, and I will both be standing for election as it is the first AGM since our respective appointments to the Board. All our other directors are standing for reelection at the AGM. The final slide is the resolution to approve the acquisition of Merian Global Investors and the issuance of shares as consideration for the acquisition. As a Board, we strongly support the adoption of these resolutions and encourage shareholders to vote in favor of them, as we intend to do with our own beneficial shareholdings. I would now like to move to the Q&A. We have received a number of questions in advance, and we will respond to these first before moving on to the questions submitted during the meeting.

Thank you, Nichola. I'm Jupiter's Company Secretary, Lisa Daniels, and will be moderating the Q&A session. As Nichola said, we have received some questions in advance, and I think the first one is for our CFO, Wayne Mepham. Wayne, can you confirm how the pricing for the Merian transaction has moved given the changes in the market over the recent weeks?

Thank you, Lisa. So as Andrew said, this is an all-share deal, which in these volatile markets, has given our shareholders downside protection in a way that a cash offer could not. The purchase price is settled in the form of just over 95 million Jupiter shares, which was established based on our share price in February. Both shares are worth less today than when we first announced the deal at around GBP 200 million, largely because our share price has been affected by the impact of COVID-19 on financial markets. We also incorporated an important clause into our purchase agreements designed to give further protection to our existing shareholders. This is referred to as the purchase price adjustment mechanism. In simple terms, it allows us to claim cash back from TA Associates if the Merian AUM falls due to certain net outflows and by certain amounts from the date of our shareholder meeting next week on the 21st of May to 31 December 2021. So while we're confident we won't have to use this mechanism, it does give us an ability to call back up to GBP 100 million in that scenario. I hope that addresses the question.

Thanks, Wayne. The next question relates to our dividend, and I shall direct that to Nichola. Nichola, can you please outline what we should expect on the dividend given the cancellation of the special dividend for this year?

Thank you, Lisa. Our dividend policy remains unchanged. The special dividend is designed to distribute excess capital to shareholders not needed elsewhere in the business. Given that we will be taking on some debt as a result of this deal, we'll be using a portion of our capital generation to reduce that debt rather than paying a special dividend for the full year for 2019. We do remain committed to returning capital in excess of needs to shareholders. Our ordinary dividend policy remains to target a payout of 50% of our underlying EPS and an ordinary dividend of no less than we paid in the previous year.

Thank you, Nichola. And the next question, this is for Andrew or Wayne. Can you confirm the thinking behind the Merian transaction, as it appears to be a doubling down of the existing business rather than taking the business into new areas?

Lisa, perhaps, I'll take that one. It's Wayne Mepham. I think a very compelling aspect of this deal is that it both reinforces our existing business, but it also diversifies us into attractive new product gaps and geographies. The rationale is entirely consistent with what we set out at the Capital Markets Day as our strategic objectives in December last year. The thinking about -- behind our acquisition, I think, can be summarized as follows. When the deal completes later in the year, we'll become one of the largest managers of retail assets in the U.K. We said before that maintaining our focus and strengthening our U.K. franchise was a priority for us. We will welcome great new investment talent that extends our capabilities into exciting areas such as global systematic equity, some liquid alternatives and continued capital. It also increases our scale in growth areas, such as emerging market debts, multisector bonds, corporate bonds and equity. The acquisition will diversify us by geography, giving us meaningful AUM in places like the Middle East, Asia Pacific and U.S. offshore and by AUM and increasing the number of funds we have with over GBP 1 billion. Financially, the deal will give us greater capacity to invest in our organic growth through our talents and developing capabilities and also enable us to deliver our shareholders attractive EPS accretion, which Andrew already set out through the achievement of cost synergies. So overall, we're very excited by this transaction. It is rare, I think, to find an opportunity that -- to acquire such a high-quality business that is actually also so complementary to our own culture and investment philosophy.

Thanks, Wayne. And we've had no further questions received. So I think that ends the Q&A session.

Thank you. If shareholders would like to ask further questions, please note, you can e-mail them to the address provided on the AGM section of our website. We will provide a direct response, and answers to frequently asked questions will be made available on our website. We shall announce results of both the AGM and general meeting and publish them on our website as soon as practicable after the meetings. I hope you and your families remain safe, and we wish you all the very best.