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

[Audio Gap] But regrettably, due to the current restrictions imposed on us by COVID-19, we are unable to convene our AGM in the normal way. The AGM will take place on Thursday, the 6th of May, but to ensure the well-being of our staff and our shareholders, it will be held as a closed meeting. We're asking shareholders to exercise their right to vote by submitting proxy votes in advance of the meeting. Details of how to undertake this are included in the AGM notice which is available on our website. To make sure our shareholders can fully engage in the business of the meeting, we are holding a webinar before the deadline for submitting your proxy votes, which is 11 a.m. on the 4th of May. Firstly, I would like to introduce my fellow Directors who have joined the webinar today. We have Andrew Formica, who is the Group CEO; Wayne Mepham, who is our Group CFO; and Edward Bonham Carter, our Vice Chairman. We then have our Non-Executive Directors, Roger Yates, who is Chairman of the Remuneration Committee and our Senior Independent Director Designate; Polly Williams, who is Chairman of our Audit and Risk Committee; Jonathon Bond, our Senior Independent Director; and Carl Sternberg. I'd also like to introduce you to Chris Parkin who was appointed to the Board in July 2020 and will be standing for election by shareholders for the first time this year. Edward Bonham Carter and Jonathon are stepping down from the Board at the conclusion of the AGM, and I would like to thank them both for their huge contribution to Jupiter over their respective tenures. Jonathon has served on the Board for nearly 7 years and as Senior Independent Director since 2017. Jonathon led the recent Chairman succession process and has provided invaluable support and counsel since I started as Chairman. Edward has devoted over 26 years to Jupiter, and as a former CEO, has played a key role in building a firm into what it is today. While sad that he is stepping down from the Board, we are delighted he will continue to work with us in his new role as Director of Stewardship and Corporate Responsibility. A quick overview of the format for today's webinar. Andrew will shortly provide an update on Jupiter's performance and strategic priorities. I will then provide you with a brief overview of the resolutions which have been proposed for approval at the AGM, and we will then move to Q&A. [Operator Instructions] Before passing over to Andrew, I just wanted to highlight a few things from this year. Jupiter has delivered a resilient performance in exceptional circumstances, which has enabled us to maintain the ordinary dividend at 17.1p per share and declare an additional special dividend of 3p per share. That means subject to shareholders approving the final dividend of 9.2p, a final dividend and special dividend amounting to 12.2p will be paid to shareholders on the 14th of May 2021. We have stated that going forward, we will consider additional returns of capital on a less frequent basis, with the next additional return being considered in respect of the year ended the 31st of December 2022. In addition to delivering a resilient performance, we have made significant progress on a number of strategic objectives, which Andrew will provide further information on. This is due to the hard work and dedication of our people, and I would like to extend our thanks on behalf of all stakeholders for their commitment over this challenging time. I shall now pass on to Andrew.

Thank you very much, Nichola. Good afternoon, everyone, and welcome to the call. I'm Andrew Formica, Chief Executive of Jupiter. I do hope that all of you and your families have kept safe and well since we last spoke this time last year. I'm sorry that, again, we cannot meet face-to-face for this year's AGM. But as we move out of lockdown and with the vaccine program in full swing, I do hope that we will be able to next year. Jupiter has displayed a remarkable level of adaptability and resourcefulness over the last 12 months in the face of all the challenges posed by the COVID-19 pandemic. We moved overnight to remote working, and our fund managers continued to deliver strong investment performance for our clients. Last year, we also had the added challenge of integrating the newly acquired Merian business into our operations. Despite the difficult conditions, Merian has strengthened our foundations, accelerated our strategic growth plans and has already made a significant contribution to our financial results. Along with the Merian purchase and the successful start to our partnership with NZS Capital, we also carried out an internal reorganization to align ourselves around our growth focus. So I'm proud to say the hard work of the last year is starting to pay off with significant progress made towards meeting the strategic objectives that we have previously set out. The Merian operations are now fully integrated within the group and all Merian funds, with a very few exceptions, have been brought under the newly refreshed Jupiter brand. The deal has exceeded our expectations, making a significant contribution to group profit, all within just 6 months of ownership. So as we look over the progress we've made through 2020, we do so with cautious optimism for the year ahead and to the outlook for the business, helped by the knowledge that as society we may finally be turning a corner in the fight against COVID-19. So let's take a look at some of the key financial highlights from last year, which is shown here on the slide. 2020 was a year in which we focused on strengthening the foundation of the business. Thanks to the hard work of all of our people, we've been able to deliver a resilient set of results and made significant progress towards our strategic goals. Taking a closer look at the numbers, assets under management climbed to a new high of GBP 58.7 billion, thanks largely to the contribution from Merian. Clara, I think it's a slide before, if you could just go back to that. Thank you. Net outflows, whilst reduced from 2019, was still high at GBP 4 billion. Most outflows came in the first quarter of 2020 as the pandemic increased demand for liquidity. The final 3 quarters of the year did see a return to positive flows for Jupiter branded products, although this reversed in the first quarter of 2021. Our fund managers, meanwhile, continued to do a great job with 70% of our assets under management performing above the median over 3 years, which I'll touch on in a bit more detail later on. Net management fees rose to GBP 384 million in 2020, and underlying earnings per share held steady at 28.7p. And our ordinary dividend comes in unchanged at 17.1p per share, supported by an additional return of 3p per share through a special dividend. Now those numbers we achieved last year were only done so through the hard work we did to reshape the business. Clara, if we can move. Thank you. We proved that our new brand statement, The Value of Active Minds, is no empty slogan as our managers helped deliver a strong investment performance for our clients. We successfully acquired and integrated Merian on time despite extremely challenging conditions. We accelerated our investment in ESG, further integrating the principles of ESG and stewardship at a corporate level and across our investment teams. We supported further investment in technology and data science. And with Merian on board, we've broadened our investment proposition moving to areas such as gold and silver and systematic equities, adding scale in emerging market equities and extending our capabilities in the alternative space. We also expanded our capability further with our partnership with NZS Capital to add their global unconstrained growth process to our investment capabilities. This more diversified investment capability has put us in a better position to service a broader range of clients, both in and outside the U.K. We now have, for instance, a good range of funds that would appeal to institutional clients, an area where we want to grow. Internationally, we continue to expand our reach with our first office in the U.S. and broader exposure to markets in Latin America, the Middle East and South Africa. These are just some of the key pillars that will support our future growth, which in turn will improve client outcomes and ultimately deliver stronger returns to you, our shareholders. Of course, 2020 was no ordinary year. As a business, we wanted to make sure our people, our clients and our communities felt supported through the pandemic. For our people, a support focus on their health and well-being, giving them the means to work effectively from home and broadening benefits to those with carrying responsibilities. The result is a strong level of employee engagement. Our latest employee survey in January revealed an 84% employee engagement score, significantly above the financial services benchmark. For our clients, it was about focusing on the day job, maintaining strong investment performance, but also increasing our communication with them at a time of heightened market volatility. And in our broader responsibilities to society, we increased our charitable support to help those most impacted and gave our employees more opportunities to help out in the wider community with additional volunteering leave. As a high conviction active manager, delivering strong investment performance for our clients is absolutely critical to our ongoing success. 2020 certainly provided a number of challenges for our investment teams. Markets were particularly volatile, with a sharp fall in equity market in the first quarter, followed by a swift recovering rally to new all-time highs by the year-end. We've seen record lows in bond yields, the tight spreads of credit on record and significant proportion to the fixed income markets trading at negative yields. In addition to those challenges, our fund managers have had to seamlessly transition to a remote working environment as well as welcoming around 40 new investment professionals following the Merian deal. So I'm proud to say that despite those challenges, our fund managers have remained singularly focused on delivering for our clients. We have produced another strong year of active returns with 70% of our assets in mutual funds in the first or second quartile of their respective peer groups over a 3-year period. And it's worth noting that whilst the 3-year number for Jupiter brand strategies would have been even higher, the Merian products have delivered some really strong performance in the short term with almost 80% of those assets above medium up to the end of December 2020. If we now take a quick look at the flows for the first quarter of this year, which we released to the market earlier this week. Assets under management slightly increased to GBP 58.8 billion but we saw total net outflows of GBP 800 million in the first 3 months. There are, however, a few key highlights I'd like to pull out. We continued to see positive inflows into fixed income products, most notably the dynamic and strategic bond funds. The Golden Silver Fund, which was a product we highlighted during the Merian acquisition, also saw client demand, and there was a positive -- there was a return to positive flows for the Global Equity Absolute Return Fund. There's also a successful capital raise of around GBP 300 million by the Chrysalis Investment Trust as well as continued client demand for NZS Capital's global equity products. However, these positive flows were more than offset by an ongoing lack of demand for U.K. and European equity strategies, which continued to see net outflows. So to finish, I'd just like to again highlight the significant progress we made through 2020. I've just passed my second anniversary as CEO of Jupiter. I inherited a well-regarded business, but one that needed a reset to achieve its full potential. Talking to people around the business, I found an openness to change that was both refreshing and an acknowledgment that we had to move forward. Firstly, and most importantly, this was a business that had a clear focus on active management and a track record to back it up. Last year, we continued that excellent result. With that strong base, over the last 2 years, we have focused on reshaping and strengthening the business to ensure its future prosperity. We set about building a culture centered around our clients and focused on agility and collaboration. The acquisition of Merian was an unexpected opportunity to accelerate that process of change and bring us closer to achieving our strategic goals and is already adding significantly to the group. Now with so many fantastic new investment capabilities and products, in 2021, we are in a position to pivot from the internal activities that have been so vital to restructuring the business and now focus our energies on the growth areas that will deliver consistent net inflows and generate the revenues and profits from which we can invest and share with our shareholders. Successfully making this pivot this year will be an important markup in Jupiter's growth trajectory over the longer term. So thank you for taking the time today, and we'll open for questions towards the end of this meeting. But for now, I'd like to hand you back to Nichola.

Thank you, Andrew. So moving on to Slide 9. The next slides are a reminder of the resolutions being proposed for approval at the AGM. The majority of resolutions are considered standard business and a part at each AGM. There are 3 resolutions I would like to draw your attention to. Resolution 3 relates to the approval of the Directors remuneration policy. In line with requirements, we seek approval of a revised remuneration policy every 3 years. This is a binding vote. And if approved, all payments to Directors must be consistent with the policy, unless approved separately by shareholders. Resolution 5 seeks approval for the payment of a final dividend in the amount of 9.2p. In previous years, in order to ensure prompt payment to shareholders, we paid this dividend as an interim dividend, which has not required shareholder approval. However, in accordance with evolving best practice, we have proposed this as a final dividend and are seeking approval from shareholders. Moving on to Slide 10. Resolution 19 is a special resolution, which requires 75% of shareholders voting to approve the resolution. It proposes the adoption of new Articles of Association, which have primarily been amended to enable us to hold hybrid general meetings. As a Board, we strongly support the approval of all of the resolutions and encourage shareholders to vote in favor of them as we intend to do with our own beneficial shareholdings. We will now move on to the Q&A. [Operator Instructions] We have received some questions in advance of the webinar, and we will respond to these before moving on to the questions submitted during the meeting. I would like to pass over to our Company Secretary, Lisa Daniels.

Thank you, Nichola. As mentioned, we've had a number of questions, so we shall start with these. I think the first one is for Andrew. Andrew, what is Jupiter's approach to ESG?

Thanks, Lisa. ESG is an area we've worked really hard to expand upon in the last sort of 6 to 12 months. That's both at our investment strategy, so how we invest on behalf of our clients, but also what we do in the wider culture and business as a whole. We really see there's a huge opportunity for us to challenge ourselves in this area, and we've set some ambitious goals and targets for the group, some of which you may have seen as announced earlier this year. We've become a signatory of the net zero asset management initiative, which supports the goal of net zero greenhouse gas emissions by 2050 or sooner. It means setting long-term decarbonization targets at the corporate level. For our fund managers who already actively engage with portfolio companies on climate, it will mean a more systematic approach to their engagement across all portfolios and all their investment strategies. We've also become a signatory of the UN Global Compact, which aims to promote sustainable development and good corporate citizenship centered on the pillars of human rights, labor, environmental and anticorruption. And we also became a member of the Good Work Coalition, which looks to encourage investment engagement to improve the working conditions in the U.K. This includes making sure that companies pay the living wage and reduce the levels of insecurity in work by tackling issues such as 0 hour contracts, call benefits and so on. So we've made quite a significant commitment to the companies we invest in and in the corporate social responsibility we have on -- over the last 6 months. And as Nichola also pointed out in her opening remarks, even though Edward is standing down from the Board, he's taking on a greater role within the firm around our corporate responsibility and stewardship.

Thanks, Andrew. The next question is definitely for Nichola. Nichola, how do you find your first year at Jupiter?

Well, I joined at the beginning of March, 2 weeks before lockdown. So it's certainly been interesting. But I have been really impressed by the commitment of the staff who've continued to deliver for clients throughout the period. The teams have achieved a great amount, not only in ensuring that the clients can continue to receive uninterrupted service and that the business operates as normal, but also in closing and integrating the Merian deal; expanding internationally, particularly in the United States; and developing the partnership with NZS, all while under lockdown. So this has been really a great achievement. What Jupiter is, it's committed to its clients and that is what I've seen so clearly, and it's committed to active fund management. And we do have a great product offering. And as you've heard from Andrew, we have got strong performance numbers. And I think I put this down to the quality of those working here across the board. I mean it's certainly been a year -- and it's not been without its challenges. But I've really enjoyed getting to know Jupiter's culture, its people, understanding its business, and I look forward to helping Jupiter with its strategic growth ambitions.

Thank you, Nichola. The final question we've had in -- on e-mail relates to the Merian acquisition. Wayne, perhaps this is you -- is one for you. Did the Merian acquisition and integration come in on budget?

Thank you, Lisa. Yes, the deal was delivered on time. We completed the integration in line with our plans. And the transaction integration costs were better than our cost estimates, and we delivered all that despite the challenging backdrop of COVID-19. So we originally announced that we indicated transaction integration costs of between GBP 40 million and GBP 45 million back in February last year, we delivered an improvement on that at GBP 39 million.

Excellent. Thank you, Wayne. Nichola, we do not have any further questions.

Well, thank you, Lisa, and thank you, everybody, for attending. And we very much hope that we'll see you in person next year.