Janus Capital Group Inc. ( JNS)

Q4 2010 Earnings Call Transcript

January 27, 2011 10:00 am ET

Executives

Dick Weil – CEO & Director

Greg Frost – EVP & CFO

Analysts

Craig Siegenthaler – Credit Suisse

Cynthia Mayer – Bank of America

Roger Freeman – Barclays Capital

Ken Worthington – JP Morgan

Michael Kim – Sandler O’Neill

Jeff Hopson – Stifel

Bill Katz – Citigroup

Jonathan Casteleyn – Susquehanna

Michael Carrier – Deutsche Bank

Roger Smith – Macquarie

Presentation

Operator

Good morning. My name is Carlando your conference facilitator today. I would like to welcome everyone to the Janus Capital Group’s Fourth Quarter and Full Year 2010 Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. In the interest of time, questions will be limited to one initial and one follow-up question.

Before the company begin, I would like to reference their standard legal disclaimer which also accompanies the full slide presentation located in the Investor Relations area at janus.com.

Statements made in the presentation today may contain forward-looking information about management’s “plans,” “projections,” “expectations,” “strategic objectives,” “business prospects,” “anticipated financial results,” “anticipated results of litigation” and “regulatory proceeding” and other similar matters.

A variety of factors many of which are beyond the company’s control affect the “operations,” “performance,” “business strategy” and “results” of Janus and could cause actual results and experiences to differ materially from the expectation and objectives expressed in their statements. These factors include, but are not limited to, the factors described in Janus’s reports filed with the SEC, which are available on their Web site, www.janus.com and on the SEC’s Web site, www.sec.gov.

Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as for the date on which they are made. Janus does not undertake to update such statements to reflect the impacted circumstances or events that arise after the date these statements were made. Investors should however consult any further disclosures Janus may make in its report filed with the SEC. Thank you.

Now, it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Capital Group. Mr. Weil, you may begin your conference.

Dick Weil

Thank you, operator. Good morning, everyone. Welcome to the fourth quarter and full year call for Janus Capital Group. In particular, welcome to those of you who have braved the storm in the northeast, we hope you are safe and well, and we thank you for your interest in our company.

In the fourth quarter of 2010, we generated earnings per share of $0.36 which is up from $0.18 in the third quarter. Importantly, about $0.12 per share of that operating and non-operating items that Greg will talk to you about in some more detail, a little later in the presentation.

Our operating margin in the fourth quarter of 2010 increased to 34.7%, up from 23.4% in the third quarter with assets under management rising to 169.5 billion at 12/31, which is up over 5% from September 30.

The long-term net flows in the fourth quarter were minus 4.7 billion versus minus 2.9 billion in the third quarter. An important part of this net outflow was a very surprising $2.6 billion redemption in fundamental equity by one large non-US institutional client. We were notified in December that this client was redeeming their assets, which was a surprise to us because we had done our job, both in terms of excellent performance and in terms of building a good relationship with the operating folks on the ground level.

This client had serious concerns about fee structures. It’s been long time negotiating a performance fee structure and it turned out when our performance was really great. They made the decision to pull those assets in-house. And that was obviously, a deep disappointment to us.

On a run rate basis, projected sort of more normal levels of performance, this would not have been a very significant asset flow, but Greg will talk to you about the effects on our performance fees for this quarter, where we did have exceptional performance in this year later in the presentation.

So full year, adding this quarter with prior, long-term net flows were minus 10.8 billion primarily driven by minus 10.5 billion inflows in our mathematical strategies.

We took important steps forward in our balance sheet during the fourth quarter. We called $121 million of debt in subsequent to the fourth quarter, where we gained our investment grade rating.

Turning to the next page, Page 3, I made some statements in my first year about what our 2010 priorities were on prior calls, and I’d like to review how we’re doing against those targets. First, we emphasize we wanted to act with financial discipline. We told you we expected that in time we could deliver margins in excess of 30%. We’re pleased to have achieved that level in the fourth quarter.

We also told you it was important for us to strengthen our balance sheet and regain our investment grade rating. And when that happen that is an important message for our clients and our employees, and we’re pleased that we’ve accomplished that important goal.

The next item is superior long-term investment. With 64% and 92% and complex-wide mutual funds assets in top two Lipper quartiles on a three-year and a five-year return basis, we think we’re still delivering good performance for our clients, but we must acknowledge that with 33% of our mutual fund assets in the top two Lipper quartiles on a one-year basis, we’ve some shorter-term challenges that we must effectively address.

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