Janus Henderson(JHG) - 2021 Q4 - Annual Report

PART I Business Janus Henderson Group plc (JHG) is a global asset manager with $432.3 billion in AUM, offering diverse investment products and focusing on a 'Simple Excellence' strategy - JHG is a global asset manager with approximately 2,200 employees and $432.3 billion in AUM as of December 31, 2021[15] - The company's strategy, "Simple Excellence," is centered on sustained organic growth and opportunistic inorganic growth, based on five strategic priorities including producing dependable investment outcomes and excelling in client experience[20] - On February 3, 2022, JHG announced the strategic decision to sell its 97%-owned Quantitative Equities subsidiary, Intech Investment Management LLC, to refocus on active, fundamental investing[16] Financial Highlights (GAAP Basis, in millions) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $2,767.0 | $2,298.6 | $2,192.4 | | Operating income | $823.4 | $157.8 | $540.9 | | Operating margin | 29.8% | 6.9% | 24.7% | | Net income attributable to JHG | $622.1 | $161.6 | $427.6 | | Diluted earnings per share | $3.59 | $0.87 | $2.21 | Assets Under Management by Client Type (as of Dec 31, 2021) | Client Type | AUM (in billions) | % of Total AUM | | :--- | :--- | :--- | | Intermediary | $215.0 | 50% | | Institutional | $127.2 | 29% | | Self-Directed | $90.1 | 21% | Human Capital The company fosters a collaborative culture, emphasizing DEI initiatives and adapting to hybrid work models post-pandemic - The company's culture is driven by collaboration and connection, with values centered on putting clients first, succeeding as a team, and acting like owners[41] Employee Headcount by Region | Region | 2021 Headcount | 2020 Headcount | | :--- | :--- | :--- | | EMEA | 983 | 824 | | North America | 1,061 | 1,040 | | Asia Pacific | 191 | 189 | | Grand Total | 2,235 | 2,053 | - JHG has made significant strides in Diversity, Equity, and Inclusion (DEI), including meeting its 2022 Women in Finance Charter target for senior management in the UK, achieving an 83% DEI Employee Engagement score, and signing the CEO Action for Diversity & Inclusion pledge[49] - In response to the COVID-19 pandemic, the company has maintained focus on strategic priorities while implementing a hybrid working model, enhancing benefits, and modifying business practices to ensure employee health and safety[54] Competition and Regulation The investment management industry is highly competitive, with JHG facing extensive regulation in the U.S. and internationally - The investment management industry is highly competitive, with pressure on fees from the trend toward lower-cost passive strategies[57][58] - The company is subject to extensive regulation in the U.S. by agencies such as the SEC, DOL, FINRA, and CFTC, which impose significant compliance costs and grant broad administrative powers[59][60] - Internationally, JHG is regulated by authorities including the FCA in the UK, and is subject to EU directives like MiFID II and AIFMD[71][72] - The UK's withdrawal from the EU has resulted in the loss of 'passporting' rights, requiring adjustments to service EEA clients[77] - Operations in other key regions are also regulated by local authorities, including the Commission de Surveillance du Secteur Financier in Luxembourg, the Monetary Authority of Singapore (MAS), and the Australian Securities and Investments Commission (ASIC)[78][79][80] Risk Factors The company faces diverse risks including market volatility, intense competition, operational vulnerabilities, and complex regulatory environments Market and Investment Performance Risks Risks include COVID-19 impact, AUM fluctuations due to market declines, investor redemptions, and foreign currency exchange rate exposure - The COVID-19 pandemic has had, and may continue to have, an adverse effect on the business, potentially leading to increased market volatility, decreased AUM, and operational disruptions[95][96] - Revenues are primarily dependent on the value of AUM, which is subject to fluctuations from declines in equity and fixed income markets, and poor investment performance[101][102] - Redemptions and withdrawals by investors, driven by adverse market conditions, poor performance, or reputational damage, could significantly reduce AUM and profitability[105] - The global nature of the business exposes the company to foreign currency exchange rate risk, which can adversely impact revenue and income reported in USD[114] Business and Strategic Risks Key risks involve intense competition, dependency on personnel, reputational harm, and potential impairment of goodwill and intangible assets - The investment management business is highly competitive, with downward pressure on fees due to the trend toward lower-cost passive funds and new technology like robo-advisers[116] - The company's success is highly dependent on its ability to attract and retain key personnel[117] - The announced retirement of the CEO effective March 31, 2022, may cause business disruptions[118] - Harm to the company's reputation from factors like litigation, regulatory action, operational failures, or underperformance could lead to a loss of clients and reduced AUM[125][127] - Goodwill and intangible assets totaled $3.9 billion at year-end 2021[130] - These assets are subject to impairment risk, which could adversely affect results of operations[130] Operational and Technology Risks The company faces risks from cyberattacks, reliance on proprietary models, third-party vendor failures, and business continuity disruptions - The company is susceptible to cyberattacks and security breaches which could result in the loss of confidential information, liability, remediation costs, and reputational harm[136][137] - The investment process of the Intech subsidiary (approximately 9% of AUM) is highly dependent on proprietary mathematical models and key employees, posing a risk if these models fail or key personnel depart[141] - The business is vulnerable to failures of systems and services provided by third-party vendors for critical functions like fund administration, accounting, custody, and market data[147][148] - A significant disaster or business continuity problem in key geographic locations (UK, U.S., Luxembourg, Australia) could cause material financial loss and reputational harm[150] Legal and Regulatory Risks Risks include changes in laws, Brexit-related disruptions, and challenges from the withdrawal of benchmark indices like LIBOR - The company operates in a highly regulated industry, and changes in laws or enforcement actions could adversely affect AUM, results, and financial condition[153] - The exit of the UK from the EU (Brexit) could cause disruptions, create legal uncertainty, and harm operations if a sustainable financial services relationship is not established between the UK and EU[164] - The withdrawal and replacement of benchmark indices like LIBOR with alternative rates such as SOFR and SONIA introduce legal, financial, pricing, and operational risks[168][170] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[185] Properties The company operates out of 27 leased offices globally, with major facilities in London and Denver - JHG has 27 offices across the UK, Europe, North America, Asia, and Australia, all of which are leased[186] - The corporate headquarters in London occupies approximately 130,000 sq. ft. with a lease expiring in 2028[186] - Significant operations in Denver occupy approximately 162,000 sq. ft. with the primary lease expiring in 2025[186] Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 20 of the Financial Statements and Supplementary Data - The information regarding legal proceedings is incorporated by reference from Part II, Item 8, Financial Statements and Supplementary Data, Note 20 — Commitments and Contingencies[187] Mine Safety Disclosures This item is not applicable to the company - Not applicable[188] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities JHG's common stock trades on the NYSE, with details on stock performance and significant share repurchases in 2021 - In February 2021, JHG repurchased 8,048,360 shares of its common stock from Dai-ichi Life for approximately $230.0 million as part of Dai-ichi Life's sale of its entire stake[196] - In July 2021, the Board approved a new share buyback program authorizing the repurchase of up to $200.0 million of common stock[197] - During Q4 2021, 1,538,376 shares were repurchased for $66.9 million under this program[197] On-Market Repurchases of Common Stock and CDIs (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Value Remaining in Program (millions) | | :--- | :--- | :--- | :--- | | Oct 2021 | 2,289 | $45.68 | $125 | | Nov 2021 | 546,755 | $47.20 | $99 | | Dec 2021 | 995,992 | $41.47 | $58 | | Total | 1,545,036 | $43.50 | $58 | Management's Discussion and Analysis of Financial Condition and Results of Operations JHG's 2021 performance saw AUM growth, significant revenue and operating income increases, strong liquidity, and continued capital returns 2021 Summary and Assets Under Management AUM increased to $432.3 billion in 2021 due to market appreciation, with solid long-term investment performance across capabilities - AUM increased by $30.7 billion (7.6%) to $432.3 billion in 2021, driven by $51.3 billion in market appreciation, partially offset by $16.2 billion in net redemptions[216] - Long-term investment performance remained solid, with 76% and 84% of AUM outperforming benchmarks on a five- and ten-year basis, respectively, as of December 31, 2021[211][215] AUM and Flows by Capability (Year ended Dec 31, 2021, in billions) | Capability | Closing AUM 2020 | Net Sales/(Redemptions) | Markets | FX & Other | Closing AUM 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Equities | $219.4 | $(9.2) | $36.0 | $(1.9) | $244.3 | | Fixed Income | $81.5 | $1.1 | $(1.1) | $(1.9) | $79.6 | | Multi-Asset | $48.0 | $4.2 | $7.7 | $(0.2) | $59.7 | | Quantitative Equities | $42.0 | $(12.0) | $8.0 | $0.0 | $38.0 | | Alternatives | $10.7 | $(0.3) | $0.7 | $(0.4) | $10.7 | | Total | $401.6 | $(16.2) | $51.3 | $(4.4) | $432.3 | Average AUM by Capability (in billions) | Capability | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Equities | $236.4 | $187.7 | $189.4 | | Fixed Income | $80.6 | $73.3 | $73.5 | | Multi-Asset | $53.2 | $41.5 | $35.0 | | Quantitative Equities | $41.3 | $40.2 | $47.1 | | Alternatives | $10.5 | $10.0 | $12.1 | | Total | $422.0 | $352.7 | $357.1 | Results of Operations Revenue grew 20% in 2021, with operating expenses significantly decreasing due to reduced impairment charges, impacting the effective tax rate Revenue Breakdown (in millions) | Revenue Type | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Management fees | $2,189.4 | $1,794.1 | 22% | | Performance fees | $102.7 | $98.1 | 5% | | Shareowner servicing fees | $260.7 | $209.2 | 25% | | Other revenue | $214.2 | $197.2 | 9% | | Total revenue | $2,767.0 | $2,298.6 | 20% | Operating Expenses Breakdown (in millions) | Expense Type | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Employee compensation and benefits | $693.3 | $618.6 | 12% | | Long-term incentive plans | $181.0 | $170.1 | 6% | | Distribution expenses | $551.6 | $464.4 | 19% | | Impairment of goodwill and intangible assets | $121.9 | $513.7 | (76)% | | Depreciation and amortization | $40.7 | $49.2 | (17)% | | Total operating expenses | $1,943.6 | $2,140.8 | (9)% | - The significant decrease in operating expenses was primarily driven by a $391.8 million reduction in impairment charges for goodwill and intangible assets compared to 2020[212][262] - The effective tax rate for 2021 was 25.1%, impacted by the enactment of the UK's Finance Act 2021, which increased the future corporation tax rate from 19% to 25% and resulted in a non-cash deferred tax expense of $29.0 million[273] Liquidity and Capital Resources The company maintains strong liquidity with over $1.1 billion in cash and cash equivalents, supported by operating cash flows and a revolving credit facility Key Liquidity Data (in millions) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,106.0 | $1,096.9 | | Investment securities | $551.0 | $407.6 | | Debt | $310.4 | $313.3 | Summary of Cash Flows (in millions) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating activities | $895.4 | $645.7 | $463.2 | | Investing activities | $(283.3) | $129.4 | $(389.3) | | Financing activities | $(588.1) | $(491.0) | $(207.0) | - Cash used for financing activities in 2021 was primarily due to $372.1 million in share repurchases (including from Dai-ichi Life) and $256.0 million in dividends paid to shareholders[298] - The company maintains a $200 million unsecured revolving credit facility maturing in February 2024, with no borrowings outstanding as of December 31, 2021[301][302] Critical Accounting Policies and Estimates Key accounting estimates involve valuation of investment securities, goodwill and intangible asset impairment, retirement benefits, and income taxes - Key estimates involve the valuation of investment securities, accounting for goodwill and intangible assets, retirement benefit plans, and income taxes[318] - Goodwill and indefinite-lived intangible assets are tested for impairment annually (as of October 1) or more frequently if indicators exist[325][326] - In 2021, impairment charges of $121.9 million were recorded against certain trademarks and investment management agreements[327][328] - The main defined benefit pension plan, the JHGPS, had a surplus of $2.7 million on a technical basis as of the December 31, 2021 triennial valuation[315] - The funded status is sensitive to changes in discount rates, inflation, and life expectancy[338] Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure primarily stems from AUM-linked fees, investment securities, derivative instruments, and foreign currency fluctuations - Management fee revenues are directly affected by fluctuations in financial markets as they are based on a percentage of AUM[345] Market Price Risk on Investment Securities (as of Dec 31, 2021, in millions) | Investment Type | Fair Value | Fair Value with +10% Change | Fair Value with -10% Change | | :--- | :--- | :--- | :--- | | Seeded investment products | $646.6 | $711.3 | $581.9 | | Deferred compensation plans | $50.3 | $55.3 | $45.3 | | Total | $702.3 | $772.5 | $632.1 | - The company uses derivative instruments, including futures and swaps, as economic hedges to mitigate market volatility of certain seeded investments and to manage balance sheet foreign currency exposures[348][349] Foreign Currency Exchange Sensitivity (Impact of 10% weakening vs USD, in millions) | Currency | Impact on Net Income | Impact on Other Comprehensive Income | | :--- | :--- | :--- | | Great British pound | $(13.8) | $197.8 | | Australian dollar | $(1.3) | $17.0 | | Euro | $(2.8) | $7.4 | Financial Statements and Supplementary Data This section presents the audited consolidated financial statements, including balance sheets, income statements, cash flows, and notes, along with the independent auditor's report Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on JHG's financial statements and internal controls, noting intangible asset impairment as a critical audit matter - PricewaterhouseCoopers LLP issued an unqualified opinion, stating that the consolidated financial statements present fairly, in all material respects, the financial position of JHG and that the company maintained effective internal control over financial reporting as of December 31, 2021[360] - A Critical Audit Matter was identified relating to the impairment assessments of certain indefinite-lived intangible assets composed of investment management agreements, due to the significant management judgment involved in determining their fair value[367][368] Consolidated Financial Statements and Notes Key financial statements highlight total assets, liabilities, equity, revenue, and operating income, with details on Intech's buyout and senior notes Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $6,727.5 | $6,690.8 | | Cash and cash equivalents | $1,107.3 | $1,099.7 | | Intangible assets, net | $2,542.7 | $2,686.3 | | Goodwill | $1,374.3 | $1,383.9 | | Total Liabilities | $1,900.9 | $1,871.2 | | Long-term debt | $310.4 | $313.3 | | Total Equity | $4,663.2 | $4,733.8 | Consolidated Statement of Comprehensive Income Highlights (in millions) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total revenue | $2,767.0 | $2,298.6 | $2,192.4 | | Total operating expenses | $1,943.6 | $2,140.8 | $1,651.5 | | Operating income | $823.4 | $157.8 | $540.9 | | Net income attributable to JHG | $622.1 | $161.6 | $427.6 | - Intech, the Quantitative Equities subsidiary, is subject to a management-led buyout agreement announced subsequent to year-end 2021[482] - As of December 31, 2021, the company had $310.4 million in carrying value of its 4.875% Senior Notes due 2025[537][538] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes in internal control - Based on an evaluation as of December 31, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[615] - There were no changes in internal control over financial reporting during the fourth quarter of 2021 that have materially affected, or are reasonably likely to materially affect, these controls[618] PART III Directors, Executive Compensation, and Corporate Governance Information for Items 10-14, covering directors, executive compensation, and corporate governance, is incorporated by reference from the 2022 proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's definitive proxy statement for its 2022 Annual General Meeting[622][623][624] PART IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits, including CEO/CFO certifications and material contracts, some incorporated by reference - The financial statements and the report of PricewaterhouseCoopers LLP are included in Part II, Item 8[628] - No financial statement schedules are required to be filed with this report[629] - Exhibits filed with the report include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, a list of subsidiaries, and various material contracts[630] Form 10-K Summary The company has not provided a summary for the Form 10-K - None[641]