Half Year 2020 Janus Henderson Group PLC Earnings Call
Cool and I won't be your conference facilitator today.
Hi.
Henderson Group second quarter 2020 earnings conference call.
All lines have been placed on mute to prevent any background.
After the speaker's remarks, there will be a question and answer period.
And the interests of time questions will be limited to want to initial and one final question.
Today's conference call.
As discussed May constitute forward looking statements.
Actual results could differ materially from those projected in the forward looking statements due to a number of factors, including but not limited to those described in the forward looking statements and risk factor section.
Companies, most recent form 10-K, and other more recent filings made with me.
And if I understand assumes no obligation to update any forward looking statements made during the call.
Thank you.
And now it is my pleasure to introduce Dick Weil, Chief Executive Officer, Janus Henderson, Mr. While you may begin your conference.
Thank you operator.
Welcome everyone to the second quarter 2020 earnings call for the Gen Sanderson group.
As usual I'm joined by Roger Johnson, our CFO.
Let me start by saying that I hope all of you and your families.
And your loved ones are all safe during this unprecedented global health crisis.
As we've said on previous calls on the circuit and the fourth quarter, we try and give a longer term perspective on our business and so in line with that promise.
Today, Roger will run through the quarterly results and I'll try and give you a bit more discussion on business strategy.
And then like usual, we'll take your questions.
Turning to slide one.
This quarter represents our three year anniversary since the closing of the Gen Sanderson merger.
Before I turn it over to Roger to go over the quarterly results I, just want to touch a little bit on the strategic journey that we've been on over these three years.
The industrial logic, the merger between Janus and Henderson was all about bringing to independently successful curbs together because they had complementary strengths.
And by joining them together, we felt we could gain the benefits of those complementary strengths and also increased scale one diversification.
As we went through the merger we identified three immediate priorities.
First we needed to learn how to deliver growth from our enhanced global platform.
Second we needed to consolidate the business footprint and the infrastructure to leverage the benefits of scale.
Third we needed to deliver cost savings.
Turning first to growth.
The promise of growth is clearly taking longer to materialize then we planned targeted or we would have liked.
In this most recent quarter, our institutional flows have been particularly frustrating given the progress that we're making across our business.
That said, we're seeing encouraging signs and we're confident that with the work we're doing to move our company the simple excellence.
To deliver better results.
Later on the call I will update you on more specific steps that we're taking to deliver are simple excellent strategy.
Which should lead us to delivering positive organic net flows and profitability growth.
Second.
We've been successful in creating a unified company with a common culture.
Oh, that's the work of years and I think we've made really good progress or in recent years and are delivering a strong global culture. We now have a very strong global product line up we've enhanced that with a truly global distribution team and we're now supported by integrated platforms and operating systems underpinning all of it.
We've made challenging but a central long term decisions to simplify our model and going forward, we're going to drive modernization across products capabilities and global client servicing while still exiting it's we have marginal businesses and reducing complexity.
Turning third to costs.
Through the merger, we successfully delivered $125 million of savings spokesman ahead of schedule and and a bit higher than we targeted.
Sounds good initial phase we've maintained good cost discipline through our business.
But discipline is not really a destination, it's a journey.
So taking a look at the fact that were three years on living in our shoes as Janus and Henderson, taking a look at the lessons that we're currently learning around the possibilities presented.
It from working at home and more electronic servicing of clients.
Thats been the break edge of this terrible dark cloud as the global health crisis.
It gets an appropriate time to take a hard look at our business structure in our expenses all the while balancing that against the appropriate investments necessary to deliver simple excellence and I'll update you in next quarter and quarters ahead, as we progress down down the road of Reexamining.
Our cost structure as well as the investments necessary to support simple excellence.
In summary, we're confident that our merger has positioned us for success has been active manager.
Although we we own and acknowledge that it hasn't happened faster.
And I'll give you more into our strategy in steps, we're taking a little bit later in the presentation.
But before I turn to Roger Let me say a word on the very important topic of diversity and inclusion.
Recent events have quite rightly.
Outrage society triggered it really important conversations about prejudice and racial and justice in our communities and institutions and our farm is no exception.
And our firm we recognize that we're stronger together and that our outlook is shaped by people's varied skill sets.
Backgrounds and cultures. This diversity helps us explore unique avenues and uncover opportunities that are unseen by others and underappreciated by others in our industry and investing we're committed to creating an inclusive environment that promotes cultural awareness and respect.
As an example, we committed to reach or women and finance target of 25% by 2022, and we've already met that target.
We are encouraged by this progress in wished to continue to build on these first steps.
In addition to reexamining, our employee demographic data to understand the measure our progress this quarter, we've launched a stronger together campaign.
It is an internal and external initiative that addresses systematic racism, social injustice allies should privilege, Mike regressions and more.
Look we realize that we have a long way to go we realize that we need to continue to get better, but we're working hard at it we're trying to make Janus Henderson.
From that.
Deepen our culture, we value diversity and inclusion and we treat all of our people with respect.
I'll now turn it over to Roger to walk through this quarter's results.
I'd stick and thank you everyone for joining us.
I sincerely hope everyone in your friends family and colleagues the safe and healthy.
Looking at the second quarter's results.
Okay. That's back during the quarter provided a significantly better backdrop right you win and financials compared to when we spoke last Tobey I called out in school.
Net outflows of 8.2 billion a disappointing however, with a strong markets are you have increased 14%.
Several folks pick up most the strong at important rebound in the intermediary business.
Investment performance remained solid with 60% of more about that speaking their respective benchmark side of the one three and five year time period.
Adjusted EPS of 67 cents was better compared to the 60 cents, a 61 cents for the prior quarter and let's say parity yoga.
And finally, we returned 88 million of cash to shareholders during the quarter by dividends or share repurchases.
Moving to Slide school, one investment performance.
The rest performance remains solid with 60%, 62%, 68% firmwide assets, beating their benchmarks in a one three and five year basis other people effect here.
Shorts have improvements came primarily from our equity and fixed income capabilities.
We're encouraged by Intechs yesterday performance, however, the love except performance remains a concern.
Relative performance compared to peers is strong with at least two thirds about you have represents tend to talk to Morningstar cortiles on a one three and five unit basis.
The majority of which it into first quarter <unk>.
Now turning to total company close.
For the quarter net outflows were $8.2 billion compared to 12.2 billion last quarter.
Well flows improved quarter over quarter. The result is not where we expected to be.
The quarterly flow number reflects the continuing trend positive flows into our intermediary business, whilst institutional significance outlays.
And to me to close a publicly for the quarter across the U.S. EMEA and Asia Pacific.
Our UK business within EMEA posted its first positive results since the fourth quarter of 2017, and its best quarter since the merger.
Why do you intend to me to it flows remain positive and relatively diversified you after tax investment underperformance in are you at Smith and mid cap growth strategies could impact flows in the second half of the yeah.
We remain encouraged with the institutional pipeline than its diversity across strategies in regions. The focus now is to realize some of those opportunities.
I could speak more about strategy on distribution later in the presentation.
Moving to slide six which shows the breakdown of flows in the quarter by capability.
Hi, good teammates outflows for the second quarter with $4.2 billion compared to 6.9, but even in the prior quarter.
Improvement was primarily due to better market conditions.
The equity result reflects the 1.6 billion reception from in EMEA clients, that's experienced strong performance I'm with whom we continue to maintain a strong multi product relationship. This redemption was simply a de risking if that portfolio.
Floating to fixed income when negative 700 million in the quarter, primarily due to that to a few small amount. They protections. However in retail we continue to see positive flows with several strategies producing inflows, including strategic fixed income absolute return income European investment grade high yield.
Yes, Jbs had been data.
But those fixed income ats with $600 million positive for the quarter, just under 1 billion net inflows for the first half of the yet.
Intake outflows were $3.9 billion.
Multi asset flows of 700 million positive, what's driven by strong flows into the strategy.
Alternative Mets outflows improved to $100 million frequently our UK absolute return strategy to positive during the quarter, reflecting its good performance.
Slide seven is a founder presentation at the U.S. GAAP statements that income.
First one item to mention impacting the GAAP results this quarter, which is nonrecurring events nothing things in the adjusted results.
The recent announcement by an unrelated issues to dealer to dealer velocity Sherry together.
Back to the value of intangible assets, which resulted in payments of $26.4 million.
I remind you that this is a noncash adjustment.
Moving to slide eight spring <unk> summary, financial results adjusted second quarter operating results was down compared to the first quarter, primarily from lower average AUM.
Well I UN recovered join in second quarter average or you were still decreased 8% given the lifestyle figure you and entering the quarter.
We entered the third quarter with 4% high ready when compared to the second courses average.
Total adjusted revenues in the quarter decreased 7% compared to the prior quarter on the no rabbit, Jay you win partially offset by better performance space.
Hi management fee margin as a result, a strong markets outflows from lower fee assets had inflows into high if these strategies.
Adjusted operating income in the second quarter of $138 million was down 16% over the prior quarter driven principally by another revenue.
Second quarter, adjusted operating margin was 33.5% compared to 37.2% to the prior quarter, 35% CEO Doug.
Finishing up the financial results adjusted diluted EPS was 67 cents for the quarter compared to 60 cents for the prior quarter 61 cents a year ago.
Despite the lower operating income the quarterly EPS benefited from month to market will take capital Mutual fund share awards and other investments.
On slide nine we've outlined the revenue drivers for the quarter.
Lower average assets with the biggest driver the quarterly change and adjusted total revenue.
That management fee margin for the second quarter was 45.7 basis points up 45.1 basis points in first quarter of 44.9 basis points a year ago.
The margin remains resilient, how does increase for three straight quarters. The quarterly increase is primarily due to mix shift focus on quality flows.
Performance fees was $17.2 million in the quarter versus 14.6 million in the prior quarter and up to three and a half million dollars in the second quarter of last year.
Second quarter has a significant portion that you I'm eligible to outperformance space, including the Sicad Horizon range I know you translate return strategy.
And the cost of we're pleased to both of those ranges of funds and performance space, reflecting a much improved investment performance.
You asked mutual fund performance phase in the second quarter were a negative $4 million.
Finishing off adjusted revenue other revenues declined 3.1 million.
Primarily on lower average assets as well as lower revenue from the ATM business going forward, we'd anticipate this line to be slightly lower on a run rate basis due to the uncertainty around the items, which make up a small portion of other revenue.
Turning to operating expenses on slide 10.
Adjusted operating expenses in the second quarter, 275 million, which is a 1% decline compared to the first quarter.
Outside of the increase in LTL, right, which is market driven and asked about control the quarterly expenses reflect a profit based variable comp structure cost discipline and focus on running an efficient business, we remain committed to managing our costs in the lots of the on in the likes of the elevated uncertainty being created by this level pandemic.
Adjusted employee compensation, which includes fixed and variable staff costs went down 6% compared to prior quarter.
Fixed costs were down 3% and variable compensation was lower by 10% due to lower profits sale.
Adjusted LPR was up 46% from the first quarter from from the absolute impacts of the mark to market adjustments in both quarters in the appendix, we provided updated dates out on the expected amortization of existing drugs.
The second quarter adjusted come to revenue ratio was 47.1%. This high ratio reflects the significant mark to market and I've LCR expense in the second quarter and when looking at the first tougher to get the comp ratio on average is 40%, 44.7%, which is in line with our mid Fortys guidance.
Adjusted non comp operating expenses without 11% compared to the prior quarter.
The decrease is primarily related to full quarter impact to cope with 19, and our strong cost control, particularly around gionee and marketing.
For the yet we now anticipate saw noncomp expenses to be down low single digits compared to 2019.
And finally, our recurring effective tax rate for the quarter with 22.9%, which is just below the statutory rate guidance of 23% to 25%.
Lastly, slide 11, it didn't look it up capital management.
Cash and cash equivalent sway $880 million associated June, which John its hendersons portion was 837 million.
You should think about the amount of cash we have on the balance sheet as what the board and management to comfortable operating the business with.
Regulatory requirements, a conservative working capital buffer.
Yes, Thats decides to me 2025 debt maturity.
As we said previously we remain committed to returning excess for future cash flow generation to all shareholders.
During the second quarter, we paid approximately $66 million in dividends to shareholders. That's a day declared a 36 cents a share dividends to be paid on the 26. The goal was to shareholders of record as at the 10th of August.
And we purchased 1.1 million shares of our stock for $22 million in the second quarter.
Our board and management is committed to maintaining a strong balance sheets, which is why given the low market levels at the start of the quarter. The buyback was lower in the second quarter.
Well folks around the buyback have not changed.
We believe it is a good use of our excess cash.
The next stage of the 200 million authorized buyback shortly.
Now I'd like to tenants I have to take for an update on our strategy.
Thank you Roger.
I mentioned at the beginning of our call that our strategy is simple excellence and underneath that strategy. We have five strategic priorities that I'd like to talk to you a little bit about right now.
Turning to slide 13.
Our strategy is centered on the belief that a combination of relentless focus and disciplined execution across the fundamental parts of our core business that will drive future success as a global active asset manager specifically our strategy is designed to deliver organic growth and increasing profitability.
Look at each of the pillars individually.
Turning to slide 14.
I'd like to highlight some of the work that we've undertaken towards our goal of producing dependable investment outcomes.
We have world class investment teams and they have overwhelming we demonstrated industry, leading results exceeding both benchmarks and peers since the merger.
The downturn was a shock in many strategies and admittedly set us back in some places long term investment performance remained strong and our teams remain stable and focused.
We're pleased that our one year performance numbers have improved since last quarter.
And the first half of the year, we have taken steps to further strengthen our investment team. We've recruited some excellent talent, Greg Lewinsky joined US earlier. This year is the head of U.S. fixed income.
Per I'm joined US in April as director of research and in addition to those crucial positions. We've made several high quality additions to our already strong group of analysts. So we're very pleased that we continue to be able to recruit the talent at the top of the market. The very best that we see in the marketplace.
Turning to slide 15, we take a look at.
How we have developed their client experience and enhanced our global distribution platform.
As you know Suzanne team joined US as head of global distribution, just over a year ago.
And she's brought real energy and focus and globalized what do you have a substantial degree had been pretty regional efforts, she's revitalizing consolidated or teams under it truly global distribution umbrella.
But this has enabled us to do is to take a more focused and strategic approach to global distribution.
That includes both products and clients and it is stands on our ability to leverage our client tools more globally as a small example of this in the U.S., we have our portfolio construction services portal RPC US, which is a dedicated award winning a service that we offer intermediary clients and it's.
Very very popular and well received in the U.S.. We just recently launched that in the UK admitted available started making it available when he went to UK clients. It's been well received and we're very optimistic that that will enhance our ability to build the right kinds of relationships with UK clients.
But we recognize our flows are not where we aspire or need them to be particularly in institutional which as I mentioned earlier has seen a frustrating second quarter, but our efforts are beginning to pay off in many important ways.
Annualized organic net growth in our eating intermediary channel for the quarter was 3% our gross sales momentum is strong and weve substantially recovered from the market dislocation in March.
We're capitalizing on strong was to focus products with high growth potential we're launching select new vehicles to ensure our products have the appropriate global reach for example in the quarter, we extended our market, leading global sustainable equity offering to the us with launches of a 40 act and an estimate.
We also launched our global multi strat fund and they use it structure and with the Australian domiciled feeder for distribution in Europe, and also Asia Pacific.
Despite elevated year to date outflows in institutional despite the fact that the cobot crisis has created delays in searches and then funding of one business. We remain optimistic about the potential we see across the strong and diverse pipeline in our institutional business for the second half for the year.
In addition, we continue to make changes in Globalizer institutional business to further enhance how we successfully worked with clients, who often share common objectives and faced common challenges. Despite the fact they are in different places around the world and we're learning and positioning to do better.
Institutional business globally.
Our distribution efforts are complemented by our client experience program, where we've been enhancing and redesigning our most important client journey.
The improving feedback loops that we're building our driving improved client experiences.
That we intent to.
To market, leading status done well, we're confident that this global client centric approach will produce more sustainable relationships.
Allow us to increase market share and build longer duration client assets.
For everyone's benefit.
Turning to slide 16, I'd like to highlight some of that work, we've been doing around increasing focus and driving efficiency in our business.
We operate a complicated global business its diversified across regions across channels across products.
We believe it is critical for us to keep a focus on what's important to have strong prioritization to operate with excellence and invest in the best infrastructure to support our teams around the world.
Looking at focused so I'll give you a small selection of initiatives that we completed we wound down Australian equities product, we divested Geneva, we outsource some of our middle and back office functionality to BNP Paribas.
On the efficiency front, we've moved largely to a single global operating model, maintaining global platforms underpinning our business.
All the while we've maintained a balanced approach between costs and investing selectively.
Finally, as I look to the future we're undertaking a host of actions to strengthen modernized modernize our infrastructure, which among other things include implementing a major upgrade to our LMS and portfolio risk systems, we're enhancing in modernizing our data architecture and our data stewardship, we're upgrading our CRM.
And our client analytics.
These these are important investments and will help drive towards the goals of simple excellence.
Let me remind you that we delivered 125 million and merger related cost synergies ahead of schedule.
And while we are maintaining cost discipline efficiency isn't a destination, it's a journey and what we need to do is keep pressure on that so we're not going to sacrifice, making the appropriate a necessary investments in order to deliver simple excellence, but we are going to renew and we dedicate our focus ask ourselves the hard questions around our.
Cost structure, and as I said I'll be getting back to you.
So that balances in future quarters.
Slide 17 covers our four strategic priority of proactive risk and control environment frankly, if you don't do this you're not going to get a chance to do much else, having a strong proactive risk and control environment, a strong compliance culture.
If necessary to to maintain the trust of clients to maintain the trust that regulators and to deliver for our owners and our employees. It's just essential so I won't go through the the specifics highlighted on this page, but know that it is a crucial thing for us perhaps especially during this time in so many people are worth.
Working from home that we maintain a focus on proper compliance proper risk proper control environment.
Turning to slide 18, where we give you some insight into new growth initiatives.
I mentioned strategy is centered on leveraging current investment in distribution strengths that means were largely led by strength.
Combined with where our clients are moving.
Focus also in that effort on delivering profitable growth.
On the product side right now, we're supporting our growth in the ETF business, where we've already seen really good momentum, our Vienna law and our Gmbh Cts ranked fifth and 15th in year to date flows out over 100 actively managed fixed income F.
And today in Australia, we listed our second active fixed income GTF in that market.
Regionally, we are committed to expanding our presence both in Asia Pacific and in Latam, where we see increasing client demand and underlying growth characteristics that can help us achieve our aspirations.
Finally, we remain alert to other expansion opportunities, which complement our strategy and our operating model.
In conclusion before handing over to the operator for questions I'd like to wrap up my view of the second quarter or for you.
Despite extraordinary challenges driven into a significant you said by the global Cobot 19 pandemic.
We've delivered strong financial performance in the second quarter and our long term investment performance remains solid.
Our intermediary channel remains strong with 900 million the positive net flows and a 3% annualized organic growth rate for the quarter and it's driven by a really nice diverse set of products and across a diverse set of regions.
Progress across our business in this quarter really was masked by recent institutional outflows.
But we continue to have good opportunities in pipeline to improve as institutional flow results in the future.
We are convinced that we are on the right path to organic growth into increasing profitability with our focus on our strategy simple excellence.
We will renew our strong focused on cost balanced against appropriate investments to achieve central excellence.
We're confident we're on the right path to deliver for our clients our owners and our employees as well as to continue to make really positive contributions to the communities in which we operate.
With that let me turn it over to the operator to get your question.
Thank you.
Ladies and gentlemen at this time, we will conduct a question and answer session.
And just a time questions will be limited to one initial and one follow up question.
If you would like to ask a question. Please press star one on your phone now and you will be placed in the queue in the order received.
You are using a speakerphone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Once again, please press star one to ask a question and we'll pause for just a moment, however, everyone an opportunity to signal for questions.
And we'll take our first question, Ken Worthington JP Morgan.
Hi, good morning.
I wanted to follow up on your comments on the institutional business or institutional distribution.
The assets they are contracted this quarter, while other channels are growing.
We know intact as a big part of that institutional.
Channel, but at this point, it's less than half of the assets.
How are the non in tech parts of your insight institutional distribution performing and maybe what is the past growing.
To sell assets, even as in tech continues to suffer outflows.
Thanks, Ken Mustier from you.
Institutional flows were were.
Now, we'll just a little bit less than half INTECH.
And then it was a fairly diverse set of other things we mentioned I think already in the comments that we had a substantial redemption from a strong multi product client with whom we continue to have a great relationship, but they were de risking your portfolio that was part of it.
We had.
The redemption in our global value strategy at a Perkins in Chicago, we had some in.
Other places as well it was sort of a smattering of.
To me somewhat surprising.
Hopefully one off events that that nailed us in this quarter.
Our institutional business is not as strong as we needed to be but we think with Suzanne canes leadership with Mcadams, who runs that business out of London, we're taking the right steps to strengthen it and and clearly looking at our contacts and communications with clients. We have opportunities ahead to do a substantially better than this.
Mark.
But that that has to be delivered.
As Roger.
Roger likes to point out you don't count it until the cash comes in but.
We're taking steps to strengthen the process strengthen the technology strengthened team.
For the non INTECH institutional business.
And we're confident that is going to work.
The institutional business takes takes time and its subject to lumpy flows one way or the other.
In this case in this quarter.
The lumpy flows were against us and.
So, we're just going to rededicate ourselves to making sure that doesnt happen again.
Okay. Thank you and then on the direct channel you.
Open the direct channel.
Well it was close that maybe Janice didn't invest in some of the basic tools that some of your direct channel peers were making so why have their risk to the intermediary channel from opening that direct channel diminished and are you considering investing in the direct channel.
And if so what are you planning.
Yeah, we closed the direct channel in 2009, when investor preferences shifted and investors change their their.
Choices from doing business with a single fund company to doing businesses with platforms in that that offer them a choice of many many different.
Asset managers funds and.
And we were concerned as you point out I think about the potential for competition between.
Adviser led distribution in our direct distribution and so since 2009, that's been close we've now reopened.
You should be share class on July six and.
It's do you still too early to assess how effective that's going to be in March and in improving flows in our in our direct channel business in the us but.
It's not a month, it's not a huge investment in sort of competing with fidelity. It's a it's a way to better serve the needs of the existing.
Shareholders, and then folks close to them it won't be a broad open retail.
Push across the United States, but we think there's a good chance that we can improve the flows in our historic direct business.
With this.
Moderate effort.
On reopening and it's just too early to say, if it's going to work, but but we're optimistic.
Well move on to our next question from Ed.
Ill say.
Thank you taking my questions.
Just a couple from me just further onto the floor is obviously youve touched again on on the strong pop on it and what you're doing there can you just run through our gross sales and the movement, especially in maybe from month to month ticket it going to feel of how that's tracking, especially in equities, which if you look in equities on the gross sales of trended down.
For the last three three quarters on slide 24.
Yes, I think gross sales.
Gross sales have moved around certainly in the quarters.
One of the biggest effects of that is what's happening in the relevant marketplaces.
You know, especially in retail where you see gross sales.
We're pretty substantial participant in most of the large retail markets that are important to us around the world and we're not going to escape.
Huge trends that happened in those retail market places.
I don't think Theres, a bigger message to the gross sales number then that were not drawing.
Drawing one.
From the small changes that you see.
It has a lot to do with investor appetite, but as we've said our investment performance remains strong and.
And we're going to be subject to things like cold in the first quarter and some summertime seasonality in the second quarter and Youre going to see some of that across every player in the industry.
But we're not drawn big messages from the changes in gross sales at this point.
And just on that would obviously covered heating early in the quarter did improve.
Towards June towards the end of the towards the end the call.
No I am dividend.
Yeah, there's ups and downs in different markets, so sorry the.
I guess I guess right at the beginning we were still covenants. So like what was my main stream of putting better than April, but again I wouldn't draw any huge logs from it.
Our next question comes from Mike Carrier from Bank of America.
Good morning, Thanks for taking the question.
I just have one Roger you mentioned you sign some of the U.S. growth strategies and the other side.
Side, you some weaker performance Eddie can you just indicated maybe on the second half it could impact flows I just wanted to clarify it was that on the institutional side or retain more on the unity intermediary side I know you just like raising a flag just because the performance is a little weaker.
So you could see something more theres something.
Like actually already known maybe that could impact the outlook.
Slide seven.
Yeah. Thanks, Yeah, Thanks Cliff on awesome, Okay I think.
We got a REIT strategies to something that fantastic. Our overall performance as we talked about is pretty damn good.
Yes, there's some things, which we think again my thoughts to European equity outsized it on the front.
For the first some of the while so thats great to see if you're starting to say that come through it all.
European flows but off.
US smitten mid strategies, which have been fantastic for many years.
I had a tough FEMA, Sony and just recognizing that.
Strategies.
As short term performance as being pretty challenged but that I've been fantastic strategies for a very little time deposits.
But I guess, we're just we're just putting that out.
And its retail it's not im sorry.
Yes, yes, right, Okay, all right. Thanks a lot.
Okay, and well take our next question from Simon Fitzgerald.
Evensen partners.
Thank you very much for taking my question I'll just got one Dick you mentioned before that is going to be going over a few of how your cost structure could look.
And sort of a deep dives into how that cost structure might unfold wanting you to elaborate a little bit more whether this is part of the water review about products and strategies. This my therefore late.
Well attained so a small amount of head count or anything like that maybe you could just sort of give us a little bit more of a feel that what's behind that.
Sure so.
This is a constant effort when you're managing the business and it's been a constant effort for US I gave some examples in my earlier comments about some areas, where we've simplified the business and step back from some things that we were previously doing.
And we'll continue to look at choices like that on an ongoing basis and we also look at trying to find more efficient ways to continue to deliver the the Bu.
Responsibilities and improve the quality of client service. So basically what we're seeing is we think three years on from the merger a and B in light of the lessons that we're learning from.
From a working remotely and the power that the technology can have for our business. We think it's a really appropriate time to sort of renew our commitment to that exercise its not a new exercise its a continuation of what we've been doing but you know.
We'll raise it up on the priority list will talk about it more and will drive to.
Conclusions that we can come back and share with you all and and we haven't prejudged anything in terms of whether there are choices to be thinking about further simplifying the business.
Those are but those are important questions to ask and we weren't sure from asking.
All right. Thank you very much.
And we'll take our next question from Dan Salmon Jefferies.
Hi, This is James steel filling in for Dan Thanks for taking my questions.
So just firstly.
Thanks for providing some additional color on where the institutional outflows are coming from and I understand the one I think it was 1.6 slightly media clients year of saying I'm, just curious as especially since those as performance related if theres any opportunity to.
Keep those assets in house, maybe move to different strategies.
Especially if you are seeing activities going to continue.
Yes. Thank you. Thank you.
Good question. It's the same question I ask when I see a flow like that since we have a great relationship the decline, we didnt happen to succeed in keeping those assets enhance.
At this time.
But it's what should be on all of our mines and what we're trying to do and obviously, we have plenty of more conservative.
Places for a client is reallocating their asset allocation, but in this case the funds left that didnt come back to us, but you're right to highlight.
We have to do a better job of continuing to try and keep those flows in house.
In our institutional business and.
You know it's terrific that we built this great strong relationship with the client.
And we look forward to being able to recapture maybe some of those future flows back in other ways in the future, but but this this in this instance, we weren't able to keep it in house.
Okay. Thanks, and then just as my follow up.
I believe you mentioned in the prepared remarks sounded like there's a delayed funding in one of the institutional businesses related to kill that.
You can quantify that or provide any additional color on asset class that suppose expected consult Philadelphia.
No not really on a specific client by client basis, but but what I was trying to indicators like last quarter. We came to you. All we said we felt that the institutional pipeline was looking.
Better than it had looked in awhile and then we've come this quarter and we say the institutional flows were pretty substantially more negative than than what we wanted or expected.
And we're frustrated by that and we're just trying to be transparent about those two truce.
And say.
Some of the stuff that we were hoping to achieve is still.
It's still hopefully coming.
But a lot of clients have gone slower through their process of moving from pipeline in finals to funding and that's a fairly broad truth, maybe it's related to two changing the processes to to working from home or you know your guess is as good as mine in many ways, but but we have noticed across the.
The institutional business that the the process of moving from a pipeline to final decision to funding at each stage has has gone a bit slower than than it has in some some prior times and so we're still hopeful that we have.
Good opportunities to do better on a go forward basis, but we have to deliver.
And we have to prove it we're just trying to be transparent with you through that process.
Understood. Thank you.
We'll take our next question Nigel pit away from Citi.
Yes.
Hi, Good morning, guys. Just first of all just focusing a little bit more again on the intermediary channel I mean, let's say you talking out 900 million a slows in threeq, the same price, but I still sort of a relatively small.
None, but compared to the level of some but here that you have in that channel 11.
Obviously, it's like the headwinds from small to mid cap price, but some pricing European equities I mean, do you think that's sort of any possibility that this could start to grow more substantially in in reasonable timeframe. So or is it just sort of a slow burn and.
It's very difficult to see that maybe fluid anymore than it currently is.
Hey enough time to attract so yeah, absolutely as Elsa and I think we started that going into it.
How does the fact cancel out yet but intermediary flights.
Positive at the half year.
By the fourth quarter, we did 1.7 billion a positive flows.
Instead of the first quarter over first quarter coal. The first six weeks of the year, which was at that level or actually slightly ahead of that level. So.
We are progressing pretty wet at that stage website as well how was it at that everyone else in the second six weeks.
But there was plenty of dollars of intermediary flat as compared to the first quarter.
Yeah, we're pretty happy with the audit.
It is certainly isn't where we intend to site.
And we've got we've got a lot of things going the right way, whether they be in fixed income whether they be an equity.
No they paid in multi asset with tablets in olts with new caps that Rita.
So there is a good tribe that we've got a focus mr. products, which are performing very well.
You're right we have pulled out.
With Us Smith made.
If I may slow us down a little bit in the second half, but we've got an awful lot of things so far.
Okay. Thanks for that and then the second question is just on the elsewhere, but as you went through you said it was asset you control and couldn't buy markets, but if we do look at what you've sort of shyness on slide four say it does suggest that to seek has taken a fair sort of probably more than it say shed would make.
BMP away to describe it in terms of L. tape and whats coming in the remaining two quarters associates that true and secondly, given that you will instead of states the related cost to income right sorry compensation ratio was mid fortys, probably struck at the low at the market is that going to Scott. So that's the that's an amazing fluid.
For the second half of the question the answer is yes guidance.
Going into the earliest low to mid low to mid Fortys.
We said it was more likes the mid Fortys with weather markets, where at the end of the first quarter with where they are now you should expect it to be more low to mid fortys since we got the beginning of the yet.
In terms of the LTE FBI charge in the quarter that purely is about to market on it some of that is hedged. Therefore, that's part of the investment guiding you see below the line.
So just what.
You want to take a rough with assays are back in Q1, we had very low pick up and that number came down in Q2. It goes up so.
Saying, it's sort of out of about controlled we hedge what we can the hedge part of that comes through below the line.
So I think you should look you should look at the first half on average.
And I should say in the appendix of 40 was showing what the.
We will try and what the future charges that would be.
Given markets, where they are at the moment.
And our next question comes from Alex Blostein from Goldman Sachs.
Hi, good morning, everybody.
So they can appreciate the strategy update.
And I guess on this journey into symbol excellence, what are the key financial and operating targets, we should keep in mind and I guess part of the y'all stuff for yourself and your management team as you progress in this process and over what timeframe.
Yes, we have internal measurements for the different parts of the of the story I've tried to give you a sense of some of the underpinnings in this call, but I don't have more specific stuff to give you look the big score the scoreboard is.
Earnings.
And flows and what we've told you is the big score is we need to get to positive organic growth in growing.
Profitability and those are the main metrics that are targeted in the strategy of simple excellence and.
I don't think I can do a better job of highlighting the underpinnings of that then I have done.
Okay, I guess I guess.
Sorry on extending to I'd I'd add to that is.
It around.
So if we don't look at Florida isolation, we look at we look at quality flow.
So it is about growing the profitability golf business and I think the fee margin is something which shows that the assets were adding.
Quality assets and again, that's something we look to do over here.
Yes, no question that makes sense.
I guess as a follow up to that so when you talked about the second our I guess why the pillars pop from this is revisiting the cost structure again more holistically I guess one of things you mentioned this all mass portfolio risk system that et cetera can you just remind us and guess what are you guys spending across buckets today.
Is that all insource or is that outsource and what is really the opportunity you see there to rationalize some of that kind of tech stack and some of these services.
Yes, let me pick up they pay off pay off pretty chunky investments as Dick said they are bail in our guidance, but you shouldn't be concerned that there is a bunch of cost coming down in the coming down the track.
Some of those things should have some improvement around the tech stack as you point out.
I'll take that allow us to further simplify the business, which is a sticks pointed out its cost of the strategy.
But the main reason we're doing those things.
For the improved tools for.
For a fund managers or CRM for our sales forces.
Yes, so it's a routes.
Getting access to the best information, we want to have the best technology.
We got to what to do that.
Investments were making but that is baked into the current costs and you have it that we'd like to think system simplification of the back end of it.
But it's more around improving improving the tools for our stuff.
Yes, I'll just add look we need to be excellent or we should all go home and in order to be excellent you Gotta has the proper tools and they have to be.
Implemented in a simple way, which can be will make them cost efficient and also more reliable.
And we have scope to do much better across some of our infrastructure systems, and and data architecture and stewardship and those sorts of things and we're making.
Investments and we'll continue to make investments in those areas.
And that's about driving two simple excellence, it's not as much about reducing the cost base.
But in order to two to fund those investments and also to continue to deliver.
You know distributions and share buybacks and such to our owners, we've got to be as efficient as humanly possible on on how we're spending the money and so it's a balance right. It when it's not a new balance, but we're renewing or commitment to that.
To say, but let's go back and re ask the hard questions and we'll get back to you about both sides of that about about progress, we're making on on the retooling of the infrastructure and making the appropriate investments as well as the cost control side.
In the future.
And we'll take our next question from Andre Nick <unk> Morgan Stanley.
Oh no. Good morning, good afternoon, I, just want to tough two questions firstly.
You say me not calling Sims, where the retail flows actually seeding stopped the September quarter with.
That said it in a month in July.
All right, we're not really talk about about month Wi Fi as you can say that we can say that publicly but as we set out flows the flows into his way to be slows in the third quarter of positive in all three regions across the us in EMEA UK in the UK, particularly strongly.
And in finding out in Australia as Dick mentioned, we just launched.
You fixed income meets the epic, Australia that will hopefully I suppose intermediary flows.
Yeah, I mean, we what we've been able to co. We've just we've just father I a preliminary.
Registration for a new see alive, yes in the U.S. So these are all things that we're moving that we're moving forward with.
But yeah, we're saying, let's say inflows across all regions.
Thank you lot while I must.
Then patches and another question just at Citi.
Mechanical one but in terms of the operating margin.
They have ctwenty.
The last call you mentioned lowest said it spread in margin would be more lots you but.
We've seen something to err on the cost revenue sudden maybe headed with a better what should we be thinking about engines.
In terms of operating margin at this point, yeah, I mean similar off the to my question Nigel earlier with the guidance, we gave at the middle of the yet at the beginning of the year was was mix was mid thirties, we revised down with the market to a level.
So you should be expecting mid thirtys margins sort of similar to some of that than 2019.
Thank you.
Our next question comes from Robert Lee from KBW.
Great. Thanks.
Good morning, Thanks for taking my question.
I was hoping maybe drill and the every channel.
Right.
Please.
That is.
Maybe.
On a bid.
Yours.
In that so maybe some channels and follows.
No.
I was.
So more problems.
Additional bonds versus.
Model.
No.
Products.
Yes.
Almost any color line.
While houses are a channel.
But once again we're.
Yes.
Rob a bit of it difficult to behave so perhaps we can follow up with you off whether it was in route around the different parts of U.S. intermediary Oxynitride only certainly growing it's certainly going well.
Let's pick up we will pick up with you offline wasn't vehicle.
Hey, Thank you sorry about that.
And we'll be taking.
Question today from James Corden some credits.
Hi, guys that thanks for taking my question just.
An inquiry and the balance fund.
Had some changes they're interested in knowing what the response of declines in saying that there's been any engagement the writing houses and how comfortable they I would that change payment.
Sure. So yes, we've seen that.
That Mark Pinta has announced that at the end of this coming March.
After a 26 year career he'll be stepping down from the fund.
The client reaction has been.
As good as we would hope at this point, but obviously, it's really too early to say.
What effect that will have on a go forward basis. You know marks successor has been a co portfolio manager with him for a number of years Jeremiah bucket has.
You know when excellent a co portfolio manager with Mark. So if you threw up as sort of an ideal transition.
I think this would probably fulfill all those conditions that you might describe that said a transition is always a moment is higher.
Higher risk for one of your big very successful strategies and certainly Mark has been.
Just absolutely first class four for our business and for his clients in the balance on for a long long time.
And he will be missed as a person is a leader as an investor.
But what he has done for the firm is give us.
Great succession in terms of a partner carrying on in exactly the same style and given lots of warning and doing all the appropriate things in terms of client meetings and communications.
To make sure that this goes as smoothly as possible. So you know if fingers crossed it is a transition and transitions are moments of heightened risk, but I don't know how we could have done this transition better.
Alright, Thanks, and maybe just one to Roger on the buyback I mean, you completed about 10% or that the terminal a buyback in the last quarter.
And yet you still committed to it so big expect purchases to increase in can't checked quotas.
Yes, Tonight that up and I get tied into that or what have you. What are your plans and the prices can neighbor acquisition, maybe you could remind us about again.
Okay. So as you say, we take a little bit slaughtering in Q2 and that was as we said that the beginning of the quarter. Obviously, there's a lot about a secondary markets where the lifecycle.
So we did with it guys slow at this quarter. We're also kept that the market a few days because the 5% rolled in Australia.
So that the buyback was was pretty light a mclaughlin levels, where were you all have yeah, you'd expect us to be stepping that up in.
In Q3, the buyback at the buyback is a 200 billion buyback.
Thrives true through the end of Q1 next year.
So we thought about 50 million of it.
So you'd expect to face back into market. Shortly after they've got an increased at an increased level, but again being very careful.
I'm looking at looking at volatility.
They are that you need a piece is part of all is part of our regular.
Cash and cash and capital is I guess is part of the 200 million, but the bulk connected to.
At the end of the first quarter.
And ladies and gentlemen that was our final question.
Well that does conclude today's conference. We appreciate your participation today you may now disconnect.
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