JANUS HENDERSON GROUP PLC (JHG) FY 2021 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview
We are an independent global asset manager, specializing in active investment across all major asset classes. We actively manage a broad range of investment products for institutional and retail investors across five capabilities: Equities, Fixed Income, Multi-Asset, Quantitative Equities and Alternatives.
Segment Considerations
We are a global asset manager and manage a range of investment products, operating across various product lines, distribution channels and geographic regions. However, information is reported to the chief operating decision-maker, the Chief Executive Officer (“CEO”), on an aggregated basis. Strategic and financial management decisions are determined centrally by the CEO and on this basis, we operate as a single segment investment management business.
Revenue
Revenue primarily consists of management fees and performance fees. Management fees are generally based on a percentage of the market value of our AUM and are calculated using either the daily, month-end or quarter-end average asset balance in accordance with contractual agreements. Accordingly, fluctuations in the financial markets have a direct effect on our operating results. Additionally, our AUM may outperform or underperform the financial markets and, therefore, may fluctuate in varying degrees from that of the general market.
Performance fees are specified in certain fund and client contracts, and are based on investment performance either on an absolute basis or compared to an established index over a specified period of time. These fees are often subject to a hurdle rate. Performance fees are recognized at the end of the contractual period (typically monthly, quarterly or
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annually) if the stated performance criteria are achieved. Certain fund and client contracts allow for negative performance fees where there is underperformance against the relevant index.
2021 SUMMARY
2021 Highlights
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Solid long-term investment performance, with 54%, 58%, 76% and 84% of our AUM outperforming benchmarks on a one-, three-, five- and 10-year basis, respectively, as of December 31, 2021. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | AUM increased to $432.3 billion, up 7.6% from the year ended December 31, 2020, due to positive markets, partially offset by net outflows. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 2021 diluted earnings per share was $3.59, or $4.28 on an adjusted basis. Refer to the Non-GAAP Financial Measures section for information on adjusted non-GAAP figures. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | During the year ended December 31, 2021, we acquired 11.4 million shares of our common stock for $372.1 million, resulting from both our share buyback program and the Dai-ichi Life secondary offering. |
Financial Summary
Results are reported on a U.S. GAAP basis. Adjusted non-GAAP figures are presented in the Non-GAAP Financial Measures section.
Revenue for the year ended December 31, 2021, was $2,767.0 million, an increase of $468.4 million, or 20%, compared to the year ended December 31, 2020. Key drivers of the increase include the following:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | An improvement of $395.3 million in management fees and $51.5 million in shareowner servicing fees due to an increase in average AUM primarily driven by market appreciation. |
Total operating expenses for the year ended December 31, 2021, were $1,943.6 million, a decline of $197.2 million, or (9%), compared to operating expenses for the year ended December 31, 2020. Key drivers of the variance include the following:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | A decrease of $391.8 million in intangible asset and goodwill impairment charges. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | An increase of $87.2 million in distribution expenses driven by an improvement in average AUM. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | An increase of $74.7 million in employee compensation and benefits due to higher variable compensation charges. |
Operating income for the year ended December 31, 2021, was $823.4 million, an increase of $665.6 million, or 422%, compared to the year ended December 31, 2020. Our operating margin was 29.8% in 2021 compared to 6.9% in 2020.
Net income attributable to JHG for the year ended December 31, 2021, was $622.1 million, an increase of $460.5 million, or 285%, compared to the year ended December 31, 2020. In addition to the aforementioned factors affecting revenue and operating expenses, key drivers of the variance include the following:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | An increase of $146.2 million in our provision for income taxes, primarily due to the enactment of Finance Act 2021, which increased the UK corporation tax rate, as well as an increase in pre-tax income driven by fewer impairment charges of our goodwill and intangible assets. |
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| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Investment gains, net moved unfavorably by $56.7 million in 2021 compared to 2020, primarily due to fair value adjustments in relation to our seeded investment products and derivative instruments and the consolidation of third-party ownership interests in seeded investment products. |
Investment Performance of Assets Under Management
The following table is a summary of our investment performance as of December 31, 2021:
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| Percentage of AUM outperforming benchmark | 1 year | 3 years | 5 years | 10 years | |||||
| Equities | 39 | % | 37 | % | 68 | % | 81 | % | |
| Fixed Income | 91 | % | 96 | % | 96 | % | 98 | % | |
| Multi-Asset | 99 | % | 96 | % | 96 | % | 97 | % | |
| Quantitative Equities | 8 | % | 58 | % | 53 | % | 21 | % | |
| Alternatives | 91 | % | 100 | % | 100 | % | 100 | % | |
| Total | 54 | % | 58 | % | 76 | % | 84 | % |
Assets Under Management
Our AUM as of December 31, 2021, was $432.3 billion, an increase of $30.7 billion, or 7.6%, from December 31, 2020, driven primarily by market appreciation of $51.3 billion, partially offset by net redemptions of $16.2 billion.
Our non-USD AUM is primarily denominated in Great British pounds (“GBP”), EUR and AUD. During the year ended December 31, 2021, the USD strengthened against GBP, EUR and AUD, resulting in a $4.4 billion decrease in our AUM. As of December 31, 2021, approximately 31% of our AUM was non-USD-denominated.
VelocityShares ETNs and certain index products are not included within our AUM because we are not the named adviser or subadviser to ETNs or index products. VelocityShares ETN assets totaled $0.2 billion and $0.6 billion as of December 31, 2021 and 2020, respectively. VelocityShares index product assets not included within AUM totaled $1.9 billion and $2.7 billion as of December 31, 2021 and 2020, respectively.
Our AUM and flows by capability for the years ended December 31, 2021, 2020 and 2019, were as follows (in billions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Closing AUM | | | | | | | | | | | | | | Closing AUM | |||||||||
| | | December 31, | | | | | | | | Net sales | | | | | | | Reclassifications | | December 31, | |||||
| | | 2020 | | Sales | | Redemptions(1) | | (redemptions) | | Markets | | FX(2) | | and disposals(3) | | 2021 | ||||||||
| By capability | | | | | | | | | | |||||||||||||||
| Equities | | $ | 219.4 | | $ | 34.7 | | $ | (43.9) | | $ | (9.2) | | $ | 36.0 | | $ | (1.9) | | $ | — | | $ | 244.3 |
| Fixed Income | | 81.5 | | 22.1 | | (21.0) | | 1.1 | | (1.1) | | (1.9) | | — | | 79.6 | ||||||||
| Multi-Asset | | 48.0 | | 12.3 | | (8.1) | | 4.2 | | | 7.7 | | (0.2) | | — | | 59.7 | |||||||
| Quantitative Equities | | 42.0 | | 0.6 | | (12.6) | | (12.0) | | 8.0 | | | — | | — | | 38.0 | |||||||
| Alternatives | | 10.7 | | 4.7 | | (5.0) | | (0.3) | | 0.7 | | (0.4) | | — | | 10.7 | ||||||||
| Total | | $ | 401.6 | | $ | 74.4 | | $ | (90.6) | | $ | (16.2) | | $ | 51.3 | | $ | (4.4) | | $ | — | | $ | 432.3 |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Closing AUM | | | | | | | | | | | | | | Closing AUM | |||||||||
| | | December 31, | | | | | | | | Net sales | | | | | | | | Reclassifications | | December 31, | ||||
| | 2019 | Sales | Redemptions(1) | (redemptions) | Markets | FX(2) | and disposals(3) | 2020 | ||||||||||||||||
| By capability | | | | | | | | | ||||||||||||||||
| Equities | | $ | 204.0 | | $ | 32.8 | | $ | (49.1) | | $ | (16.3) | | $ | 33.6 | | $ | 2.2 | | $ | (4.1) | | $ | 219.4 |
| Fixed Income | | 74.8 | | 28.9 | | (30.0) | | (1.1) | | 4.6 | | 3.2 | | — | | 81.5 | ||||||||
| Multi-Asset | | 39.8 | | 11.4 | | (7.9) | | 3.5 | | 4.8 | | 0.1 | | (0.2) | | 48.0 | ||||||||
| Quantitative Equities | | 45.2 | | 2.4 | | (11.8) | | (9.4) | | 6.0 | | | 0.2 | | — | | 42.0 | |||||||
| Alternatives | | 11.0 | | 2.8 | | (3.9) | | (1.1) | | 0.2 | | 0.5 | | 0.1 | | 10.7 | ||||||||
| Total | | $ | 374.8 | | $ | 78.3 | | $ | (102.7) | | $ | (24.4) | | $ | 49.2 | | $ | 6.2 | | $ | (4.2) | | $ | 401.6 |
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| | | Closing AUM | | | | | | | | | | | | | Closing AUM | |||||||||
| | | December 31, | | | | | | | | Net sales | | | | | | | | Reclassifications | | December 31, | ||||
| | 2018 | Sales | Redemptions(1) | (redemptions) | Markets | FX(2) | and disposals(3) | 2019 | ||||||||||||||||
| By capability | | | | | | | | | ||||||||||||||||
| Equities | | $ | 167.6 | | $ | 29.2 | | $ | (41.4) | | $ | (12.2) | | $ | 47.8 | | $ | 0.8 | | $ | — | | $ | 204.0 |
| Fixed Income | | 72.4 | | 22.1 | | (26.0) | | (3.9) | | 5.4 | | 0.9 | | — | | 74.8 | ||||||||
| Quantitative Equities | | | 44.3 | | | 1.5 | | | (12.3) | | | (10.8) | | | 11.6 | | | 0.1 | | | — | | | 45.2 |
| Multi-Asset | | 30.2 | | 9.4 | | (6.3) | | 3.1 | | 6.4 | | 0.1 | | — | | 39.8 | ||||||||
| Alternatives | | 14.0 | | 3.0 | | (6.6) | | (3.6) | | 0.5 | | 0.1 | | — | | 11.0 | ||||||||
| Total | | $ | 328.5 | | $ | 65.2 | | $ | (92.6) | | $ | (27.4) | | $ | 71.7 | | $ | 2.0 | | $ | — | | $ | 374.8 |
| Column 1 | Column 2 |
|---|---|
| (1) | Redemptions include the impact of client transfers, which could cause a positive balance on occasion. |
| Column 1 | Column 2 |
|---|---|
| (2) | FX reflects movements in AUM resulting from changes in foreign currency rates as non-USD-denominated AUM is translated into USD. |