Press Release

Janus Henderson Reports Second Quarter 2017 Diluted EPS of $0.28, or $0.68 on a Pro Forma Adjusted Basis

Company Release - 8/8/2017 5:00 AM ET

(All currencies presented are U.S. dollars unless otherwise noted)

LONDON & DENVER--(BUSINESS WIRE)-- Janus Henderson Group plc (NYSE:JHG, ASX:JHG) published its second quarter and interim results for the three month and six month periods ended 30 June 2017, its first set of results as a combined Group.

The Group presents its financial results in accordance with U.S. GAAP which includes the results of Janus Capital Group from the merger closing date. However, in the opinion of Management the profitability of the Group and its ongoing operations is best evaluated using additional non-GAAP financial measures on a pro forma adjusted basis. See Adjusted Pro Forma Statements of Income reconciliation below for additional information.

Janus Henderson today reported second quarter 2017 net income of $41.7 million, or $0.28 per diluted share, compared with first quarter 2017 net income of $42.6 million, or $0.38 per diluted share, and net income of $46.3 million, or $0.41 per diluted share in the second quarter 2016.

Second quarter 2017 net income on a pro forma adjusted basis, adjusted for acquisition and transaction related costs, was $139.8 million, or $0.68 per diluted share. First quarter 2017 net income attributable to Janus Henderson on a pro forma adjusted basis was $102.3 million, or $0.50 per diluted share.

EXECUTIVE SUMMARY

  • Assets under management increased to $345 billion, up 4% on a pro forma basis from the first quarter 2017, driven by positive markets and foreign currency translation gains.
  • Investment performance was strong and improved notably from the prior quarters to, as at 30 June 2017, 69%, 71% and 89% outperformance of benchmark on a 1-, 3- and 5-year basis, respectively.
    • 31 March 2017 50%, 60% and 82% outperformance of benchmark on a 1-, 3- and 5-year basis, respectively.
  • Total Group net outflows of $1.0 billion, on a pro forma basis, reflect a $6.0 billion improvement from the first quarter 2017, driven by positive Equity flows and moderation in Quantitative Equity outflows.
  • The Board declared a dividend of $0.32 per share.
  • Solid progress with integration and accelerated delivery of cost synergies.

MERGER INTEGRATION UPDATE

Since closing the merger on 30 May 2017, we have been focused on integration. We are very pleased with the results of the integration thus far and execution is ongoing. As part of these efforts, we have completed $57 million of net run-rate cost synergies, as of 30 June 2017, comprised largely of savings from a reduced combined headcount. Additionally, we are now expecting that we will be able to realize at least $85 million of net run-rate synergies by the end of the first 12 months of the combination, and we remain confident that we will be able to achieve at least $110 million of recurring annual run rate pre-tax net cost synergies within three years post completion.

RESULTS FOR ANNOUNCEMENT TO THE MARKET

These results for announcement to the market include the interim information required to be provided to the Australian Securities Exchange (ASX) under Listing Rule 4.2A and Appendix 4D.

SUMMARY OF FINANCIAL RESULTS

 
Six months ended
30 June

(dollars in millions, except per
share data or as noted)

2017   2016   % change
 
Revenue $ 614.3 $ 511.5 20.1 %
Operating expenses $ 506.8 $ 389.5 30.1 %
Operating income $ 107.5 $ 122.0 -11.9 %
Operating margin 17.5 % 23.9 %
Net income attributable to JHG $ 84.3 $ 97.8 -13.8 %
Diluted Earnings per share $ 0.64 $ 0.86 -25.6 %
 
 
Three Months Ended
(dollars in millions, 30 June   31 March   30 June
except per share data or as noted) 2017 2017 2016

GAAP basis:

Revenue $ 384.8 $ 229.5 $ 257.1
Operating Expenses $ 328.1 $ 178.7 $ 200.7
Operating Income $ 56.7 $ 50.8 $ 56.4
Operating Margin 14.7 % 22.1 % 21.9 %
Net Income Attributable to JHG $ 41.7 $ 42.6 $ 46.3
Diluted Earnings per Share $ 0.28 $ 0.38 $ 0.41

Pro Forma adjusted basis:

Pro Forma Adjusted Revenue (1) $ 482.2 $ 406.0 $ 418.4
Pro Forma Adjusted Operating Income (1) $ 199.5 $ 143.6 $ 133.7
Pro Forma Adjusted Operating Margin (1) 41.4 % 35.4 % 32.0 %
Pro Forma Adjusted Net Income Attributable to JHG (1) $ 139.8 $ 102.3 $ 98.9
Pro Forma Diluted Earnings per Share (1) $ 0.68 $ 0.50 $ 0.47
 

DIVIDEND

On 7 August 2017, the Board of Directors of Janus Henderson Group plc (the “Board”) declared a second quarter dividend in respect of the three months ended 30 June 2017 of $0.32 per share. Shareholders who are on the register on the record date of 18 August 2017 will be paid the dividend on 1 September 2017. Janus Henderson Group plc does not offer a dividend reinvestment plan.

   

Amount per security

Franked amount per
US dollar security US dollar
 
2017 second quarter dividend per share $ 0.32 $
 
Record date 18 August 2017
Payment date 1 September 2017
 

A first quarter dividend in respect of the three months ended 31 March 2017 of GBP 0.0185 per share was paid on 19 May 2017.

Going forward, dividends will be declared on a quarterly basis.

Net Tangible (Liabilities)/Assets per Share

   
30 June 2017 US dollar

30 June 2016 US dollar (2)

 
Net tangible (liabilities)/assets per ordinary share $ (1.51) $ 4.44
 

Net tangible (liabilities)/assets are defined by the ASX as being total assets less intangible assets less total liabilities ranking ahead of, or equally with, claims of ordinary shares.

(1)   See Adjusted Pro Forma Statements of Income reconciliation for additional information.
(2) 30 June 2016 share number was updated for the share consolidation.
 

ASSETS UNDER MANAGEMENT AND FLOWS

Total Group Comparative Pro Forma Flows

 
Three Months Ended
(in billions) 30 June 2017   31 March 2017   30 June 2016
 
Total assets under management $ 330.8 $ 319.2 $ 321.4
Sales 20.2 19.4 18.2
Redemptions (21.2 ) (26.4 ) (20.1 )
Net sales / (redemptions) (1.0 ) (7.0 ) (1.9 )
Market / fund performance / FX 15.9 18.6 (1.6 )
Acquisitions / (disposals) (0.7 )    
Total $ 344.9   $ 330.8   $ 317.9  
 

Note: Numbers may not cast due to rounding

Second Quarter Pro Forma Flows by Capability

           
(in billions) Equities

Fixed
Income

Quantitative
Equities
Multi-Asset Alternatives Total
 
31 March 2017 $ 162.3 $ 76.3 $ 46.2 $ 28.6 $ 17.4 $ 330.8
Sales 10.6 5.3 0.7 1.2 2.3 20.2
Redemptions (9.4 ) (6.2 ) (2.5 ) (1.5 ) (1.5 ) (21.2 )
Net sales / (redemptions) 1.2 (0.9 ) (1.8 ) (0.4 ) 0.8 (1.0 )
Market/fund performance / FX 9.9 1.9 2.1 1.1 0.8 15.9
Acquisitions / (disposals)   (0.1 )     (0.7 ) (0.7 )
30 June 2017 $ 173.4   $ 77.2   $ 46.6   $ 29.4   $ 18.4   $ 344.9  
 

Note: Numbers may not cast due to rounding

Average Pro Forma Assets Under Management(1)

 
Three Months Ended
(in billions) 30 June 2017   31 March 2017   30 June 2016
Average assets under management:
Equities $ 169.7 $ 160.4 $ 150.1
Fixed Income 76.8 75.5 74.9
Quantitative Equities 47.4 48.2 48.9
Multi-asset 28.5 27.9 28.4
Alternatives 17.5 17.0 20.1
Total $ 339.9 $ 329.0 $ 322.4
 
(1)   Assets under management have been reclassified between capabilities following the completion of the merger.
 

INVESTMENT PERFORMANCE

% of assets outperforming benchmark
(as of 30 June 2017)

     
Capability 1 year 3 years 5 years
Equities 68 % 77 % 84 %
Fixed Income 93 % 92 % 91 %
Quantitative Equities 6 % 48 % 91 %
Multi-asset 97 % 21 % 100 %
Alternatives 97 % 67 % 100 %
Firm-wide 69 % 71 % 89 %
 

% of mutual fund AUM in top 2 Morningstar quartiles
(as of 30 June 2017)

     
Capability 1 year 3 years 5 years
Equities 53 % 87 % 90 %
Fixed Income 38 % 41 % 98 %
Quantitative Equities 3 % 58 % 100 %
Multi-asset 79 % 80 % 97 %
Alternatives 63 % 24 % 69 %
Firm-wide 54 % 74 % 90 %
 

Note: Includes Janus Investment Fund, Janus Aspen Series and Clayton Street Trust (US Trusts), Janus Capital Funds (Dublin based), Dublin and UK OEIC and Investment Trusts and Luxembourg SICAVs. The top two Morningstar quartiles represent funds in the top half of their category based on total return. On an asset-weighted basis, 79%, 79% and 82% of total mutual fund AUM were in the top 2 Morningstar quartiles for the 10-year periods ended 31 Dec 2016, 31 Mar 2017 and 30 Jun 2017, respectively. For the 1-, 3-, 5- and 10-year periods ending 30 Jun 2017, 53%, 64%, 72% and 65% of the 215, 193, 170 and 139 total mutual funds were in the top 2 Morningstar quartiles.

Analysis based on “primary” share class (Class I Shares or Institutional Shares for US mutual funds; share class with the longest history or as defined by Morningstar for other funds). Performance may vary by share class.

ETFs and funds not ranked by Morningstar are excluded from the analysis. Capabilities defined by Janus Henderson. Data presents the pro forma assets as if the merger had occurred at the beginning of the period shown. © 2017 Morningstar, Inc. All Rights Reserved.

SECOND QUARTER 2017 EARNINGS CALL INFORMATION

Co-Chief Executives, Andrew Formica, Dick Weil and Chief Financial Officer, Roger Thompson will present these results on 8 August 2017 in a conference call and webcast to be held at 10pm AEST, 1pm BST, 8am EDT.

Those wishing to participate should call:

   
United Kingdom

0800 404 7656 (free call)

US & Canada 888 427 9414 (free call)
Australia 1 800 094 765 (free call)
All other countries:

+1 719 325 2157 (This is not a free call number)

 

Access to the webcast and accompanying slides will be available via the investor relations section of Janus Henderson’s website (www.janushenderson.com/IR). A webcast replay will be available for a period of at least seven days following the call.

About Janus Henderson

Janus Henderson is a leading global active asset manager dedicated to helping investors achieve long-term financial goals through a broad range of investment solutions, including equities, quantitative equities, fixed income, multi-asset and alternative asset class strategies.

As at 30 June 2017, Janus Henderson had approximately US$345 billion in assets under management, more than 2,000 employees and offices in 27 cities worldwide. Headquartered in London, the company is listed on the New York Stock Exchange (NYSE) and the Australian Securities Exchange (ASX).

FINANCIAL DISCLOSURES

 
JANUS HENDERSON GROUP PLC
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data or as noted), (unaudited)
 
  Three Months Ended
30 June   31 March   30 June
2017 2017 2016
Revenue:
Management fees $ 296.0 $ 197.5 $ 222.9
Performance fees 57.7 14.8 13.9
Shareowner servicing fees 9.9
Other revenue 21.2   17.2   20.3  
Total revenue 384.8   229.5   257.1  
 
Operating expenses:
Employee compensation and benefits 123.6 70.4 67.2
Long-term incentive plans 47.3 16.4 30.2
Distribution expenses 60.7 47.1 57.3
Investment administration 9.7 10.2 12.8
Marketing 10.1 3.2 3.7
General, administrative and occupancy 67.3 25.1 23.9
Depreciation and amortization 9.4   6.3   5.6  
Total operating expenses 328.1   178.7   200.7  
 
Operating income 56.7 50.8 56.4
Interest expense (2.0 ) (1.1 ) (1.4 )
Investment gains (losses), net 9.8 (0.9 ) (8.9 )
Other non-operating (expenses) income, net (2.0 ) 1.3 (3.2 )
Income tax provision (21.0 ) (7.5 ) (2.7 )
 
Net income 41.5 42.6 40.2
Net loss attributable to noncontrolling interests 0.2     6.1  
Net income attributable to JHG $ 41.7   $ 42.6   $ 46.3  
 
Net income attributable to JHG $ 41.7 $ 42.6 $ 46.3
Less: Allocation of earnings to participating stock-based awards 1.1   1.1   0.9  
Net income attributable to JHG common shareholders $ 40.6   $ 41.5   $ 45.4  
 
Basic weighted-average shares outstanding (in millions) 140.2 109.3 109.3
Diluted weighted-average shares outstanding (in millions) 143.8 110.6 110.2
 
Diluted earnings per share $ 0.28 $ 0.38 $ 0.41
Average assets under management (in billions) $ 204.3 $ 127.6 $ 133.1
 

Pro Forma Statements of Income

The table below reflects the pro forma results of Janus Henderson for the three months ended 30 June 2017, 31 March 2017 and 30 June 2016, as though the merger had taken place on 1 January 2016:

 
Pro-forma results

Three Months Ended
30 June 2017

  Three Months Ended
31 March 2017
  Three Months Ended
30 June 2016
 
Revenue:
Management fees 454.3 427.6 440.8
Performance fees 52.3 1.0 5.6
Shareowner servicing fees 29.5 28.6 28.4
Other revenue 30.0   29.9   34.2  
Total revenue 566.1 487.1 509.0
Operating expenses:
Employee compensation and benefits 185.7 163.3 152.8
Long-term incentive compensation 61.2 34.5 49.2
Distribution expenses 83.9 81.1 90.6
Investment administration 9.7 10.2 12.8
Marketing 23.2 21.7 10.6
General, administrative and occupancy 98.7 56.0 54.2
Depreciation and amortization 15.2   14.4   15.4  
Total operating expenses 477.6   381.2   385.6  
 
Operating income 88.5   105.9   123.4  
 
Interest expense (5.1 ) (4.8 ) (5.0 )
Investment gains/(losses), net 9.9 0.5 (8.2 )
Other non-operating (expenses)/income, net (1.6 ) 2.4   (2.0 )
Income before taxes 91.7   104.0   108.2  
Income tax provision (31.7 ) (28.2 ) (26.7 )
Net income attributable to JHG 60.0   75.8   81.5  
Noncontrolling interests (1.0 ) (1.4 ) 4.9  
Net income attributable to JHG 59.0   74.4   86.4  
 

Adjusted Pro Forma Statements of Income

The following are reconciliations of pro forma basis revenues, operating income, net income attributable to Janus Henderson and diluted earnings per share to adjusted revenues, adjusted operating income, adjusted net income attributable to Janus Henderson and adjusted diluted earnings per share based on the combined results Janus Henderson on a pro forma basis for the three months ended 30 June 2017, 31 March 2017 and 30 June 2016, as though the merger has taken place on 1 January 2016:

 
Three Months Ended
30 June   31 March   30 June
2017 2017 2016
Reconciliation of pro forma revenue to pro forma adjusted revenue
Pro forma revenue 566.1 487.1 509.0
Distribution expenses(1) (83.9 ) (81.1 ) (90.6 )
Pro forma adjusted revenue 482.2   406.0   418.4  
 
Reconciliation of pro forma operating income to pro forma adjusted operating income
Pro forma operating income 88.5 105.9 123.4
Employee compensation and benefits(3) 25.4 3.6 1.6
Long term incentive plans (3) 13.2
Marketing(3) 14.4 14.5
Depreciation and amortization(2) 7.8 7.6 7.8
General, administration and occupancy(3) 50.2   12.0   0.9  
Pro forma adjusted operating income 199.5   143.6   133.7  
 
Pro forma operating margin 15.6 % 21.7 % 24.2 %
Pro forma adjusted operating margin 41.4 % 35.4 % 32.0 %
 
Reconciliation of pro forma net income attributable to JHG to pro forma adjusted net income attributable to JHG
Pro forma net income attributable to JHG 59.0 74.4 86.4
Employee compensation and benefits(3) 25.4 3.6 1.6
Long term incentive plans (3) 13.2
Marketing and advertising(3) 14.4 14.5
Depreciation and amortization(2) 7.8 7.6 7.8
General, administration and occupancy(3) 50.2 12.0 0.9
Investment gains (5) (10.2 )
Interest expense (3) 0.7
Other non-operating expenses, net(4) 2.6 0.9 4.2
Income tax provision(6) (23.3 ) (10.7 ) (2.0 )
Pro forma adjusted net income attributable to JHG 139.8   102.3   98.9  
 
Less: allocation of earnings to participating stock-based awards (4.0 ) (3.0 ) (2.8 )
Pro forma adjusted net income attributable to JHG Common stockholders 135.8   99.3   96.1  
 
Weighted average diluted common shares outstanding - diluted (two class) 200.0 196.5 203.7
Pro forma diluted earnings per share (two class) 0.29 0.36 0.41
Pro forma adjusted diluted earnings per share (two class) 0.68 0.50 0.47
 
(1) Distribution expenses are paid to financial intermediaries for the distribution of JHG’s investment products. JHG management believes that the deduction of third-party distribution, service and advisory expenses from revenues in the computation of net revenue reflects the nature of these expenses as revenue-sharing activities, as these costs are passed through to external parties who perform functions on behalf of, and distribute, the Group’s managed AUM.
(2) Investment management contracts have been identified as a separately identifiable intangible asset arising on the acquisition of subsidiaries and businesses. Such contracts are recognized at the net present value of the expected future cash flows arising from the contracts at the date of acquisition. For segregated mandate contracts, the intangible asset is amortized on a straight-line basis over the expected life of the contracts. JHG management believes these non-cash and acquisition related costs do not represent the ongoing operations of the Group.
(3) Adjustments in 2017 primarily represent transaction and integration costs in relation to the merger. Adjustments in 2016 relate to costs associated with acquisitions prior to the merger. JHG management believes these costs do not represent the ongoing operations of the Group.
(4) Adjustments represent fair value movements on options issued to Dai-ichi and deferred consideration costs associated with acquisitions prior to the merger. JHG management believes these costs do not represent the ongoing operations of the Group.
(5) Adjustment relates to the gain recognized on disposal of the alternative UK small cap team (‘Volantis team’) on 1 April 2017. JHG management believes this gain does not represent the ongoing operations of the Group.

(6) The tax impact of the adjustments are calculated based on the U.S. or foreign statutory tax rate as they relate to each adjustment. Certain adjustments are either not taxable or not deductible.

 

Balance Sheet

 
JANUS HENDERSON GROUP PLC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
  30 June   31 December
(dollars in millions) 2017 2016
Assets
Cash and cash equivalents $ 640.0 $ 279.0
Investment securities 274.1 79.6
Other assets 924.2 524.8
Property, equipment and software, net 76.5 41.2
Intangible assets and goodwill, net 4,677.0 1,142.8
Assets of consolidated variable interest entities 441.0 366.0
Total assets $ 7,032.8 $ 2,433.4
 
Liabilities, redeemable noncontrolling interests and equity
Debt $ 438.9 $
Other liabilities 931.1 486.2
Deferred tax liabilities, net 1,091.8 70.7
Liabilities of consolidated variable interest entities 23.9 26.2
Redeemable noncontrolling interests 172.0 158.0
Total equity 4,375.1 1,692.3
Total liabilities, redeemable noncontrolling interests and equity $ 7,032.8 $ 2,433.4
 

Pro Forma Assets Under Management

           
(dollars in billions) Equities Fixed Income Quantitative
Equities
Multi Assets Alternatives Total (3)
 
30 June 2016 $ 146.5 $ 74.9 $ 48.9 $ 28.3 $ 19.2 $ 317.7
Sales 8.1 4.9 0.6 0.7 1.3 15.6
Redemptions (1) (9.0 ) (4.4 ) (2.3 ) (1.5 ) (1.5 ) (18.8 )
Net Sales / (Redemptions) (0.9 ) 0.4 (1.8 ) (0.8 ) (0.2 ) (3.2 )
Market/Fund Performance/FX 8.2 1.8 0.9 0.7 11.6
30 September 2016 $ 153.8 $ 77.2 $ 48.1 $ 28.3 $ 19.0 $ 326.2
Sales 10.1 7.3 1.0 1.0 1.5 20.9
Redemptions (1) (9.9 ) (6.9 ) (2.6 ) (1.5 ) (2.1 ) (23.0 )
Net Sales / (Redemptions) 0.2 0.4 (1.6 ) (0.5 ) (0.6 ) (2.1 )
Market/Fund Performance/FX (0.7 ) (3.8 ) 0.1 0.2 (0.7 ) (4.9 )
31 December 2016 $ 153.3 $ 73.8 $ 46.6 $ 27.9 $ 17.6 $ 319.2
Sales 8.3 5.8 3.1 0.9 1.4 19.4
Redemptions (1) (10.8 ) (5.4 ) (6.7 ) (1.4 ) (2.0 ) (26.4 )
Net Sales / (Redemptions) (2.4 ) 0.3 (3.7 ) (0.6 ) (0.6 ) (7.0 )
Market/Fund Performance/FX 11.5 2.2 3.3 1.2 0.4 18.6
31 March 2017 $ 162.3 $ 76.3 $ 46.2 $ 28.6 $ 17.4 $ 330.8
Sales 10.6 5.3 0.7 1.2 2.3 20.2
Redemptions (1) (9.4 ) (6.2 ) (2.5 ) (1.5 ) (1.5 ) (21.2 )
Net Sales / (Redemptions) 1.2 (0.9 ) (1.8 ) (0.4 ) 0.8 (1.0 )
Market/Fund Performance/FX 9.9 1.9 2.1 1.1 0.8 15.9
Acquisitions/(disposals) (0.1 ) (0.7 ) (0.7 )
30 June 2017 $ 173.4 $ 77.2 $ 46.6 $ 29.4 $ 18.4 $ 344.9
 

Notes:

(1) Redemptions include impact of client switches which could cause a positive balance on occasion.
(2) FX reflects movement in AUM resulting from changes in foreign currency rates as non-USD denominated AUM is translated into USD.
(3) Numbers may not cast due to rounding.
 

STATUTORY DISCLOSURES

Associates and Joint Ventures

As at 30 June 2017, Group holds interests in the following associates and joint ventures managed through shareholder agreements with third party investors, accounted for under the equity method:

  • Optimum Investment Management Ltd. Ownership 30%
  • Long Tail Alpha Ownership 20%

Movement in Controlled Entities

There have been the following acquisitions of controlled entities in the six month period to 30 June 2017.

  • Janus Capital Group Inc.
  • Janus Capital Management LLC
  • Perkins Investment Management LLC
  • INTECH Investment Management LLC
  • Janus Distributors LLC
  • Janus Services LLC
  • Janus Management Holdings Corporation
  • Janus Capital Institutional Advisers LLC
  • Janus Holdings LLC
  • Janus International Holdings LLC
  • Janus Capital International Limited
  • Janus Capital Trust Manager Limited
  • Janus Capital (Switzerland) LLC
  • Janus Capital Asia Limited
  • Janus Capital Singapore Pte. Limited
  • Janus Capital Taiwan Ltd.
  • Janus UK Holdings Corporation
  • Kapstream Capital Pty Limited
  • VS Holdings Inc.
  • VelocityCapital Management LLC
  • Janus Index & Calculation Services LLC

Basis of Preparation

The interim consolidated financial statements contain all adjustments necessary to fairly present the financial position, results of operations and cash flows of Janus Henderson in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All such adjustments are of a normal recurring nature. Such financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with the annual consolidated financial statements and notes for the year ended 31 December 2016, which can be found in JHG’s prospectus dated 21 March 2017 as filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (File no. 333-216824).

Corporate Governance Principles and Recommendations

In the opinion of the Directors, the financial records of the Group have been properly maintained and the Interim Condensed Consolidated Financial Statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the Group and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.

FORWARD-LOOKING STATEMENTS DISCLAIMER

Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.

This document includes statements concerning potential future events involving Janus Henderson Group plc that could differ materially from the events that actually occur. The differences could be caused by a number of factors including those factors identified in Janus Henderson Group’s Registration Statement, on file with the Securities and Exchange Commission (Commission file no. 333-216824), including those that appear under headings such as “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Many of these factors are beyond the control of the company and its management. Any forward-looking statements contained in this presentation are as of the date on which such statements were made. The company assumes no duty to update them, even if experience, unexpected events, or future changes make it clear that any projected results expressed or implied therein will not be realised.

Annualised, pro forma, projected and estimated numbers are used for illustrative purposes only, are not forecasts and may not reflect actual results.

The information, statements and opinions contained in this presentation do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

Not all products or services are available in all jurisdictions.

Mutual funds in the U.S. distributed by Janus Henderson Distributors.

Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please contact your investment professional or call 800.668.0434. Read it carefully before you invest or send money.

Janus Henderson, Janus, Henderson and INTECH are trademarks or registered trademarks of Janus Henderson Investors. © Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

 
JANUS HENDERSON GROUP PLC
 
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions, Except Share Data)
 
  June 30,   December 31,
2017 2016
ASSETS
 
Current assets:
Cash and cash equivalents $ 640.0 $ 279.0
Investment securities 274.1 79.6
Fees and other receivables 346.3 165.5
OEIC and unit trust debtors 274.8 142.1
Assets of consolidated VIEs:
Cash and cash equivalents 43.7 44.2
Investment securities 384.4 313.7
Other current assets 12.9 8.1
Other current assets 85.1   28.5  
Total current assets 2,061.3 1,060.7
 
Non-current assets:
Property, equipment and software, net 76.5 41.2
Intangible assets, net 3,202.1 401.3
Goodwill 1,474.9 741.5
Retirement benefit asset, net 196.0 180.2
Other non-current assets 22.0   8.5  
Total assets $ 7,032.8   $ 2,433.4  
 
LIABILITIES
 
Current liabilities:
Accounts payable and accrued liabilities $ 330.6 $ 141.7
Current portion of accrued compensation, benefits and staff costs 205.1 147.0
Current portion of long-term debt 115.4
OEIC and unit trust creditors 273.2 137.9
Liabilities of consolidated VIEs:
Accounts payable and accrued liabilities 23.9   26.2  
Total current liabilities 948.2 452.8
 
Non-current liabilities:
Accrued compensation, benefits and staff costs 21.0 8.7
Long-term debt 323.5
Deferred tax liabilities, net 1,091.8 70.7
Retirement benefit obligations, net 6.5 11.9
Other non-current liabilities 94.7   39.0  
Total liabilities 2,485.7 583.1
 
Commitments and contingencies (See Note 13)
 
REDEEMABLE NONCONTROLLING INTERESTS 172.0   158.0  
 
EQUITY

Common stock ($1.50 par and £0.125 par, 480,000,000 and 2,194,910,776
shares authorized; 200,406,138 and 1,131,842,109 shares issued and
outstanding, respectively)

300.6 234.4
Additional paid-in-capital 3,824.5 1,237.9
Treasury shares (4,115,574 and 38,848,749 shares held, respectively) (157.9 ) (155.1 )
Accumulated other comprehensive loss, net of tax (344.1 ) (434.5 )
Retained earnings 708.0   764.8  
Total shareholders’ equity 4,331.1 1,647.5
Nonredeemable noncontrolling interests 44.0   44.8  
Total equity 4,375.1   1,692.3  
Total liabilities, redeemable noncontrolling interests and equity $ 7,032.8   $ 2,433.4  
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
JANUS HENDERSON GROUP PLC
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in Millions, Except per Share Data)
 
  Three months ended   Six months ended
June 30, June 30,
2017   2016 2017   2016
Revenue:
Management fees $ 296.0 $ 222.9 $ 493.5 $ 441.2
Performance fees 57.7 13.9 72.5 28.7
Shareowner servicing fees 9.9 9.9
Other revenue 21.2   20.3   38.4   41.6  
Total revenue 384.8   257.1   614.3   511.5  
 
Operating expenses:
Employee compensation and benefits 123.6 67.2 194.0 134.6
Long-term incentive plans 47.3 30.2 63.7 51.3
Distribution expenses 60.7 57.3 107.8 111.9
Investment administration 9.7 12.8 19.9 24.5
Marketing 10.1 3.7 13.3 7.1
General, administrative and occupancy 67.3 23.9 92.4 48.9
Depreciation and amortization 9.4   5.6   15.7   11.2  
Total operating expenses 328.1   200.7   506.8   389.5  
 
Operating income 56.7 56.4 107.5 122.0
 
Interest expense (2.0 ) (1.4 ) (3.1 ) (5.6 )
Investment gains (losses), net 9.8 (8.9 ) 8.9 (2.1 )
Other non-operating expenses, net (2.0 ) (3.2 ) (0.7 ) (2.6 )
Income before taxes 62.5 42.9 112.6 111.7
Income tax provision (21.0 ) (2.7 ) (28.5 ) (16.9 )
Net income 41.5 40.2 84.1 94.8
Net loss attributable to noncontrolling interests 0.2   6.1   0.2   3.0  
Net income attributable to JHG $ 41.7   $ 46.3   $ 84.3   $ 97.8  
 
Earnings per share attributable to JHG common shareholders:
Basic $ 0.29 $ 0.42 $ 0.66 $ 0.88
Diluted $ 0.28 $ 0.41 $ 0.64 $ 0.86
 
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on available-for-sale securities $ $ 0.4 $ (0.4 ) $ (0.5 )
Foreign currency translation gains (losses) 51.2 (95.5 ) 74.5 (134.6 )
Actuarial gains   0.1     0.1  
Other comprehensive income (loss), net of tax 51.2 (95.0 ) 74.1 (135.0 )
Other comprehensive loss (income) attributable to noncontrolling interests 15.9   (8.3 ) 16.3   (7.2 )
Other comprehensive income (loss) attributable to JHG 67.1   (103.3 ) 90.4   (142.2 )
 
Total comprehensive income (loss) $ 92.7 $ (54.8 ) $ 158.2 $ (40.2 )
Total comprehensive loss (income) attributable to noncontrolling interests 16.1   (2.2 ) 16.5   (4.2 )
Total comprehensive income (loss) attributable to JHG $ 108.8   $ (57.0 ) $ 174.7   $ (44.4 )
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
JANUS HENDERSON GROUP PLC
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Millions)
 
  Six months ended
June 30,
2017   2016
CASH FLOWS PROVIDED BY (USED FOR):
 
Operating activities:
Net income $ 84.1 $ 94.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15.7 11.2
Stock-based compensation expense 30.9 20.2
Losses from equity-method investments (0.7 )
Investment gains (losses), net (8.9 ) 2.1
Impairment of equity-method investment 3.9
Contributions to pension plans in excess of costs recognized (11.7 ) (4.3 )
Other, net 9.0 11.9
Changes in operating assets and liabilities:
OEIC and unit trust receivables and payables 2.6 (2.0 )
Other assets (107.9 ) 11.2
Other accruals and liabilities 47.8   (64.8 )
Net operating activities 61.6   83.5  
 
Investing activities:
Cash acquired from acquisition 417.2
Proceeds from:
Investment securities - VIEs, net 139.9
Investment securities - seed capital, net 22.9 5.3
Dividends received from equity-method investments 0.3
Purchases of:
Investment securities - seed capital (50.2 )
Property, equipment and software (8.4 ) (9.6 )
Net cash paid on settled hedges (7.3 ) (16.5 )
Net investing activities 564.3   (70.7 )
 
Financing activities:
Proceeds from settlement of convertible note hedge 59.3
Settlement of stock warrant (47.8 )
Proceeds from issuance of option 25.7
Proceeds from stock-based compensation plans 2.1 8.5
Purchase of common stock for stock-based compensation plans (39.1 ) (46.1 )
Dividends paid to shareholders (128.6 ) (115.9 )
Repayment of long-term borrowings (215.0 )
Distributions to noncontrolling interests (0.5 )
Third-party sales (redemptions) in consolidated seeded investment products, net (148.8 ) 40.7
Principal payments under capital lease obligations (0.1 )  
Net financing activities (277.8 ) (327.8 )
 
Cash and cash equivalents:
Effect of foreign exchange rate changes 12.4   (19.3 )
Net change 360.5 (334.3 )
At beginning of period 323.2   583.7  
At end of period $ 683.7   $ 249.4  
 
Supplemental cash flow information:
Cash paid for interest $ 0.3 $ 7.7
Cash paid for income taxes, net of refunds $ 25.0 $ 14.0
 
Reconciliation of cash and cash equivalents
Cash and cash equivalents $ 640.0 $ 204.9
Cash and cash equivalents held in VIEs $ 43.7   $ 44.5  
Total cash and cash equivalents $ 683.7   $ 249.4  
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
JANUS HENDERSON GROUP PLC
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(Amounts in Millions)
 
          Accumulated      
Additional other Nonredeemable
Number Common paid-in- Treasury comprehensive Retained noncontrolling Total
of shares stock capital shares loss earnings interests equity
Balance at December 31, 2015 1,131.8 $ 234.4 $ 1,237.9 $ (175.3 ) $ (189.6 ) $ 759.5 $ 44.1 $ 1,911.0
Net income 97.8 (3.0 ) 94.8
Other comprehensive income (loss) (142.2 ) 7.2 (135.0 )
Dividends paid to shareholders (115.9 ) (115.9 )
Purchase of common stock for stock-based compensation plans (46.1 ) (46.1 )
Vesting of stock-based compensation plans 65.8 (65.8 )
Stock-based compensation plan expense 20.2 20.2
Proceeds from stock-based compensation plans           8.5     8.5  
Balance at June 30, 2016 1,131.8   $ 234.4   $ 1,237.9   $ (155.6 ) $ (331.8 ) $ 704.3   $ 48.3   $ 1,737.5  
 
Balance at December 31, 2016 1,131.8 $ 234.4 $ 1,237.9 $ (155.1 ) $ (434.5 ) $ 764.8 $ 44.8 $ 1,692.3
Share consolidation (1,018.6 )
Net income 84.3 (0.5 ) 83.8
Other comprehensive income (loss) 90.4 (16.3 ) 74.1
Dividends paid to shareholders (128.6 ) (128.6 )
Distributions to noncontrolling interests (0.5 ) (0.5 )
Derivative instruments acquired on acquisition 54.4 54.4
Noncontrolling interests recognized on acquisition 16.5 16.5
Settlement of derivative instruments (11.5 ) (11.5 )
Purchase of common stock for stock-based compensation plans (39.1 ) (39.1 )
Issuance of common stock 87.2 130.8 2,551.2 2,682.0
Redenomination and reduction of par value of stock (64.6 ) 64.6
Acquisition adjustment in relation to unvested awards (81.3 ) (81.3 )
Vesting of stock-based compensation plans (13.9 ) 36.3 (22.4 )
Stock-based compensation plan expense 21.0 9.9 30.9
Proceeds from stock-based compensation plans     2.1           2.1  
Balance at June 30, 2017 200.4   $ 300.6   $ 3,824.5   $ (157.9 ) $ (344.1 ) $ 708.0   $ 44.0   $ 4,375.1  
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

JANUS HENDERSON GROUP PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 — Basis of Presentation

In the opinion of the management of Janus Henderson Group plc (“JHG” or “the Group”), previously Henderson Group plc (“Henderson”), the accompanying condensed consolidated financial statements contain all adjustments necessary to fairly present the financial position, results of operations and cash flows of JHG in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the annual consolidated financial statements and notes included in the Henderson annual financial statements for the year ended December 31, 2016, which can be found in JHG’s prospectus dated March 21, 2017, as filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (File No. 333-216824) (the “Prospectus”). Events subsequent to the balance sheet date have been evaluated for inclusion in the accompanying financial statements through the issuance date and are included in the notes to the condensed consolidated financial statements. Certain prior period balances have been reclassified for conformity with current period presentation. There was no impact on the results.

The Group had $9.9 million and $20.2 million of stock-based compensation costs and nil and $8.5 million of proceeds from stock-based compensation plans included in retained earnings during the six-month periods ended June 30, 2017 and June 30, 2016, respectively. Prior to the Group’s Extraordinary General Meeting (“EGM”) on April 26, 2017, the Group’s articles of association did not allow the Group to recognize these items in additional paid-in-capital. A change in the Group’s articles of association was approved at the EGM and from April 26, 2017, all costs in relation to stock-based compensation will be recognized in additional paid-in-capital. The accumulated balance in relation to stock-based compensation plans within retained earnings as of June 30, 2017 and December 31, 2016, was $(105.4) million and $(92.9) million, respectively.

Share Redenomination and Consolidation

On April 26, 2017, Henderson redenominated its ordinary shares from Great British pound (“GBP”) to U.S. dollar (“USD”) resulting in a change in par value from £0.125 to $0.1547 per share. At that time Henderson had 1,131,842,110 shares in issue and as a result the ordinary share nominal capital became $175.1 million. The difference between the revised ordinary share nominal capital balance of $175.1 million and the previously stated ordinary share nominal capital balance of $234.4 million (converted at the historic exchange rate rather than the rate required for the redenomination under Jersey company law) was recognized as a component of additional paid-in-capital. Consequently, the additional paid-in-capital balance was adjusted from $1,237.9 million to $1,297.2 million.

Additionally, in accordance with a special resolution passed by the shareholders on May 3, 2017, the par value of the shares of Henderson was reduced to $0.15 per share from $0.1547 per share and the total ordinary share nominal capital became $169.8 million. In accordance with that resolution, the reduction in the total ordinary share nominal capital of $5.3 million was credited to the additional paid-in-capital account which moved from $1,297.2 million to $1,302.5 million.

On April 26, 2017, the shareholders approved a 10-to-1 share consolidation, which took effect on May 30, 2017. As a result of the share consolidation, the number of shares in issue was reduced by a factor of 10, and the par value of the shares became $1.50.

Merger with Janus Capital Group Inc.

On May 30, 2017 (the “Closing Date”), Janus Capital Group Inc. (“JCG”) and Henderson announced the completion of an all-stock merger of equals (“the Merger”). JCG is a U.S.-based asset manager. The Merger is expected to accelerate the Group’s strategic objectives for growth, diversification and the creation of a global active investment manager. Based on an evaluation of the Merger agreement provisions, Henderson was determined to be the acquirer for accounting purposes and the historical financial statements and notes included herein represent Henderson.

Prior to the Merger, Henderson’s functional currency was GBP. After consideration of numerous factors, management concluded that the post-merger functional currency of JHG will be USD.

The Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017, include JCG results from the Closing Date. The Condensed Consolidated Balance Sheet reflects the financial position of JHG at June 30, 2017. See Note 2 - Acquisitions, for more information on the Merger.

Recent Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new revenue recognition standard. The standard’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. The revenue standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Group is evaluating the effect of adopting this new accounting standard, including the amending Accounting Standards Update (“ASU”), and is focused on the assessment of its mutual fund performance fees and the related applicability of the new guidance. Currently, JHG does not expect a change in accounting treatment for mutual fund performance fees or other operating revenues upon adoption of the new guidance. However, the Group’s evaluation is ongoing and not complete.

In January 2016, the FASB issued amendments to its financial instruments standard, including changes relating to the accounting for equity investments and the presentation and disclosure requirements for financial instruments. Under the amended guidance, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification (changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values. The amended guidance also requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category (e.g., fair value, amortized cost, lower of cost or market) and form of financial asset (e.g., loans, securities). The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Group is evaluating the effect of adopting this new accounting standard.

In February 2016, the FASB issued a new standard on accounting for leases. The new standard represents a significant change to lease accounting and introduces a lessee model that brings most leases onto the balance sheet. The standard also aligns certain of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. Furthermore, the new standard addresses other concerns related to the current leases model. The standard is effective for fiscal years beginning after December 15, 2018. The Group is evaluating the effect of adopting this new accounting standard.

In March 2016, the FASB issued an amendment to its principal-versus-agent guidance in the FASB’s new revenue standard. The key provisions of the amendment are assessing the nature of the entity’s promise to the customer, identifying the specified goods or services, and applying the control principle and indicators of control. The amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. In addition, entities are required to adopt the amendment by using the same transition method they used to adopt the new revenue standard. The Group’s principal-versus-agent assessment is focused on treatment of distribution fees collected from mutual fund assets and whether such fees should be reported as revenue (1) on a gross basis or (2) on a net basis, where such fees are reduced by distribution fees paid by the Group to intermediaries. The Group’s assessment is ongoing and not complete.

In August 2016, the FASB issued an ASU to clarify guidance on the classification of certain cash receipts and cash payments in the statements of cash flows. The FASB issued the ASU with the intent of reducing diversity in practice regarding eight types of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Group is evaluating the effect of adopting this new accounting standard.

In November 2016, the FASB issued an ASU to clarify guidance on the classification and presentation of restricted cash in the statements of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Group is evaluating the effect of adopting this new accounting standard.

In January 2017, the FASB issued an ASU that simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. The ASU requires goodwill impairments to be measured on the basis of the fair value of the reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. The ASU is effective for annual and interim impairment tests for periods beginning after December 15, 2021. Early adoption is allowed for annual and interim impairment tests occurring after January 1, 2017. The Group is evaluating the effect of adopting this new accounting standard.

Note 2 — Acquisitions

Merger with JCG

On the Closing Date, pursuant to the Agreement and Plan of Merger dated as of October 3, 2016 (the “Merger Agreement”), by and among JCG, a Delaware corporation, Henderson, a company incorporated in Jersey, and Horizon Orbit Corp., a Delaware corporation and a direct and wholly owned subsidiary of Henderson (“Merger Sub”), Merger Sub merged with and into JCG, with JCG surviving such merger as a direct and wholly owned subsidiary of Henderson. Upon closing of the Merger, Henderson became the parent holding company for the combined group and was renamed Janus Henderson Group plc.

Upon closing of the Merger, holders of JCG common stock received 0.47190 fully paid and non-assessable JHG ordinary shares with a par value of $1.50 per share (the “Ordinary Shares”) for each share of JCG common stock held, plus cash in lieu of any fractional shares based on prevailing market prices. Effective immediately prior to the closing of the Merger, Henderson implemented a share consolidation of ordinary shares at a ratio of one Ordinary Share (or Chess Depositary Interest (“CDI”), as applicable) for every 10 ordinary shares (or CDIs, as applicable) outstanding.

The fair value of consideration transferred to JCG common stockholders was $2,600.7 million, representing 87.2 million shares of JHG transferred at a share price of $30.75 each as of the Closing Date, adjusted for a post-combination stock-based compensation charge for unvested shares in relation to JCG share plans.

The issuance of JHG shares in connection with the Merger was registered under the Securities Act of 1933, as amended, pursuant to JHG’s registration statement on Form F- 4 (File No. 333- 216824) filed with the SEC on March 20, 2017 (the “Registration Statement”).

Preliminary Fair Values of Assets Acquired and Liabilities Assumed

Preliminary estimates of fair values of the assets acquired and liabilities assumed are based on information available as of the closing of the Merger. The Group is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the closing of the Merger.

The preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed is presented in the following table (in millions):

 
Preliminary
purchase price
allocation
Assets:
Cash and cash equivalents $ 417.2
Investment securities 270.4
Fees and other receivables 133.7
Other current assets 119.4
Property, equipment and software 32.3
Intangible assets 2,785.0
Goodwill 697.9
Other non-current assets 10.6
Liabilities:
Long-term debt 481.8
Deferred tax liabilities 1,025.6
Other current liabilities 243.8
Other non-current liabilities 55.2
Noncontrolling interests 59.4
Net assets acquired $ 2,600.7
 

Goodwill

Goodwill primarily represents the value JHG expects to obtain from growth opportunities and synergies for the combined operations. Goodwill is not deductible for tax purposes.

Intangible Assets

Acquired intangible assets include the value of investment advisory agreements for mutual funds, separate accounts and exchange traded products (“ETPs”). Also included are the values of acquired trademarks, which include trademarks for Janus Capital Management LLC (“Janus”), INTECH Investment Management LLC (“INTECH”), Kapstream Capital Pty Limited (“Kapstream”), Perkins Investment Management LLC (“Perkins”) and VS Holdings Inc. (“VelocityShares”). Preliminary estimates of acquired intangible assets and their related estimated useful lives are presented in the following table (in millions):

   
Estimated Estimated useful
fair value life (in years)
Investment management contracts - mutual funds $ 2,155.0 Indefinite
Investment management contracts - separate accounts 202.0 13-22