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RNS
Jupiter Fund Management PLC   -  JUP   

Results for the year ended 31 December 2018

Released 07:00 01-Mar-2019

RNS Number : 5172R
Jupiter Fund Management PLC
01 March 2019
 

 

Results for the year ended 31 December 2018

 

 

1 March 2019

 

·        Strong investment performance, with 77% of mutual fund AUM above median over three years

·        Fall of £7.5bn in AUM, including net outflows of £4.6bn

·        Net management fees1 increased marginally to £395.7m

·        Underlying earnings per share1 decreased by 2.5p to 31.7p

·        Basic earnings per share decreased to 31.8p

·        Profit before tax decreased by £13.7m to £179.2m

·        90% of underlying earnings returned to shareholders, giving total dividends per share of 28.5p

 

 

 

 

Year ended

31 December 2018

Year ended

31 December 2017

% change

 

 

Assets under management (AUM) (£bn)

 

42.7

50.2

-15%

 

 

Net (outflows)/inflows (£bn)

 

(4.6)

5.5

 

 

 

Net management fees1 (£m)

 

395.7

392.4

+1%

 

 

Profit before tax (£m)

 

179.2

192.9

-7%

 

 

Underlying earnings per share1 (p)

 

31.7

34.2

-7%

 

 

Total dividends per share (p)

 

28.5

32.6

-13%

 

 

Adjusted cost/income ratio1

 

55%

54%

+1%

 

 

1 The Group's use of alternative performance measures is explained on page 8.

 

 

Maarten Slendebroek, Chief Executive, commented:

 

"With market volatility continuing during the year, it was encouraging to see that our strategy of diversification underpinned solid business performance for the period. Most pleasing is that we delivered strong fund performance for our clients during the year with 77% of our mutual fund assets under management outperforming the median over three years. As reported throughout the year we saw net outflows, primarily in our fixed income strategy which impacted closing AUM. Gross sales remained strong as we saw client demand for active asset management continue. Our robust capital position means that 90% of underlying earnings will be returned to shareholders through a total dividend of 28.5p."

 

Analyst presentation

 

There will be an analyst presentation at 9.00am on 1 March 2019.

 

The presentation will be held at The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ and is also accessible via a live audiocast for those unable to attend in person. To attend the presentation, please contact Justin Griffiths at Powerscourt on +44 (0)20 7549 0999 or at justin.griffiths@powerscourt-group.com. Alternatively, sign up online to access the live audiocast using the following link:

https://secure.emincote.com/event/default1.php?eventid=1660&media=flash 

 

The Results Announcement and the presentation will be available at http://www.jupiteram.com/corporate/Investor-Relations/Reports-and-results and copies may also be obtained from the registered office of the Company at The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ. The Annual Report will be published in March 2019 and will be available at http://www.jupiteram.com/corporate/Investor-Relations/Reports-and-results.

 

 

For further information please contact:

 

 

 

Investors

Media

 

 

 

Jupiter

Alex Sargent/Investor Relations

+44 (0)20 3817 1534/1065

Kate O'Neill/Corporate Communications

+44 (0)20 3817 1196/1278

 

 

 

Powerscourt

Justin Griffiths

+44 (0)20 7549 0999

Justin Griffiths

+44 (0)20 7549 0999

 

Forward-looking statements

 

This announcement contains forward-looking statements with respect to the financial condition, results of operations and businesses of the Group. Such statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by forward-looking statements and forecasts. Forward-looking statements and forecasts are based on the Directors' current view and information known to them at the date of this announcement. The Directors do not make any undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast.

 

Chief Executive's review

 

As announced on 22 January, I will be stepping down as CEO of Jupiter on 1 March 2019, making this my final letter to shareholders after leading the company for five years. I would like to take this opportunity to thank you for the support you have shown during my time at the company. I am confident that Jupiter will continue to go from strength to strength as a truly active, client-centric fund management business.

2018 was not an easy year for Jupiter as we faced outflows from a key strategy and declining market valuations. As a consequence, assets under management went down from their record high, ending the year at £42.7bn. This was put into particularly sharp relief having experienced such a strong 2017 as a business.

With market volatility continuing during the year, it was encouraging to see that our strategy of diversification underpinned solid business performance for the period. Most pleasing is that we delivered strong fund performance for our clients during the year with 77% of our mutual fund assets under management outperforming the median over three years. As reported throughout the year we saw net outflows, primarily in our fixed income strategy which impacted closing AUM. Gross sales remained strong as we saw client demand for active asset management continue.

It was also a tough year for asset managers in general, who faced a challenging environment as market sentiment towards the sector experienced a significant shift. Headwinds such as rising compliance and regulatory costs negatively affected the industry.

This was exacerbated by the prospect of rising long-term interest rates and the uncertainty of the impact of Brexit on the British economy and UK equities. In the first nine months of the year, higher interest rates also had an impact on investor sentiment towards fixed income products. In the five years to 2017, the Jupiter Dynamic Bond Fund contributed net inflows of £8.7bn, but 2018 saw a reversal of some of the inflows we had recorded the year before.

We have continued to invest in our investment capabilities to ensure we are meeting our clients' evolving needs. The last 12 months have seen the launch of six new funds which added to our capabilities in alternatives and further built out our multi-asset capability. Our multi-asset income strategy has seen early traction and we are confident it will become an increasingly important part of the product mix as the franchise matures.

Our commitment to delivering outperformance relies upon our active approach to investing. Jupiter fund managers are independent thinkers, they are given the freedom to follow their convictions when seeking to identify and invest in strong sustainable businesses. We believe that effective stewardship is a key part of achieving the best risk-adjusted returns for our clients. Our investment teams and governance specialists work together to integrate stewardship into our investment approach, ensuring that we understand how governance and sustainability themes can influence long-term performance. A key part of our fund managers' governance process is based on engaging with the companies we invest into in a meaningful and impactful way. Each year, we hold more than 1,000 company meetings. Our fund managers also exercise their responsibilities as stewards of clients' money, not just through active engagement with management and the Board throughout the year, but at investee companies' AGMs as well.

In line with our strategy to diversify by product, client and geography, we continued to strengthen our distribution capabilities to support Jupiter's growth in international markets. We opened a new office in The Netherlands and appointed an experienced country head to help us establish the Jupiter brand amongst Dutch investors. We also made a senior hire to develop our presence in the Latin American and US offshore markets. Further, we appointed an adviser to expand our footprint in the Middle East and Africa across all sales channels. I have always believed diversification builds resilience and, while we remain a leader in the UK mutual fund market, it is equally pleasing to see that non-UK markets represent an increasing share of our total assets; Europe, for instance, now accounts for 18% of our total assets under management, up from just 8% in 2013.

From a client perspective, we have been expanding into the retail channel in our European and Asian markets. We also have a promising institutional business, which provides opportunities to expand our client base in the UK and internationally.

Elsewhere, there was good progress made on the delivery of key operational projects such as the implementation of a single investment platform, MiFID II and our preparations for the embedding of the Senior Managers Certification Regime throughout the business. We have already realised the benefits of a more streamlined approach to accessing first class investment research for the benefit of our clients.

The establishment of a Luxembourg-based management company, which will manage the activities of Jupiter's European offices, will allow us to continue to look after our European clients without any disruption post-Brexit, despite the political and economic uncertainty that it may bring. 

As a people business, identifying and retaining talented people is of paramount importance. So I am especially proud of the good progress that has been made in delivering impactful leadership and development programmes as well as attractive and competitive staff benefits to underpin our commitment to our diverse and talented colleagues.

All of this investment has been possible because we have maintained a strong balance sheet allied with a commitment to financial discipline that has also helped deliver the capital returns you expect from us. Our robust capital position means that 90% of underlying earnings will be returned to shareholders through a total dividend of 28.5p.

 

As I prepare to hand over the reins to my successor, I would like to say it has been a privilege to work at Jupiter alongside so many talented colleagues.

I leave Jupiter in good health and I wish my successor, our shareholders, clients and colleagues every success for the future.

 

 

 

Maarten Slendebroek       

Chief Executive Officer          

 

 

28 February 2019

 

Operational review

 

Net (outflows)/inflows by product

2018

£m

 

2017

£m

 

 

 

 

Mutual funds

(4,437)

 

5,100

Investment trusts

(22)

 

14

Pooled funds

(4,459)

 

5,114

Segregated mandates

(167)

 

364

Total

(4,626)

 

5,478

 

Gross sales in 2018 were strong, with inflows of £11.9bn (2017: £16.5bn). However, these sales were more than offset by redemptions in the year, of which our Dynamic Bond fund was the largest contributor. Dynamic Bond had been the major contributor to net inflows in 2016 and 2017, as well as helping lead the way in our international expansion in the last few years. This reversal in flows came from a number of factors, but was principally a result of short-term relative performance in the fund, allied to an industry-wide withdrawal from global fixed income products. For the business as a whole, total net outflows were £4.6bn, compared with net inflows of £5.5bn in 2017.

 

Assets under management by product

31 December 2018

£bn

 

31 December 2017

£bn

 

 

 

 

Mutual funds

36.9

 

43.8

Investment trusts

1.2

 

1.2

Pooled funds

38.1

 

45.0

Segregated mandates

4.6

 

5.2

Total

42.7

 

50.2

 

Market and exchange rate movements and our investment outperformance resulted in a decrease in AUM of £2.9bn during the year. At 31 December 2018, our total AUM stood at £42.7bn, down 15% on a year earlier, including SICAV AUM of £10.0bn (31 December 2017: £14.1bn).

 

Investment performance

 

At 31 December 2018, 77% (2017: 81%) of our mutual fund AUM delivered above-median performance over three years, with 44% achieving first quartile performance. Over one year, 83% (2017: 47%) of our mutual fund AUM delivered above-median performance. These measures are based on weighted averages; how our larger funds perform therefore significantly impacts the result.

 

Investment performance for our segregated mandates and investment trusts, making up 14% of our total AUM, was disappointing. At 31 December 2018, 46% of AUM in segregated mandates and investment trusts were above their benchmarks over three years. We compare performance to benchmark for these funds as there is no industry-wide data to allow comparison against peers. Comparison to benchmark shows whether we are meeting our performance targets and is therefore a suitable proxy.

 

 

Financial review

 

RESULTS FOR THE YEAR

 

Net revenue (see page 8) for the year was £412.7m (2017: £409.5m). Over the year, average AUM was marginally higher than the prior year, leading to a small increase in management fees. Higher performance fee receipts were offset by the loss of box profits which ceased in January 2018 following the Group's decision to move to single pricing in its unit trust range.

 

Net revenue

 

2018

£m

 

2017

£m

 

 

 

 

Net management fees

395.7

 

392.4

Net initial charges (excluding box profits)

1.4

 

 1.6

Performance fees

14.9

 

 1.9

Net revenue before box profits

412.0

 

395.9

Box profits

0.7

 

13.6

Total

412.7

 

409.5

 

The Group's revenue is substantially earned in the form of recurring management fees. Net management fees were broadly flat at £395.7m (2017: £392.4m). Average AUM was marginally higher in 2018, principally driven by strong asset gathering in the second half of the prior year, which was substantially reversed over the course of 2018 by a combination of net outflows and asset depreciation, with markets unsettled by global economic and political uncertainty.

  

 

 

 

2018

 

2017

Net management fees (£m)

395.7

 

392.4

Average AUM (£bn)

47.5

 

46.2

Net management fee margin (bps)

83

 

85

 

The net management fee margin for the year was 83 basis points (2017: 85 basis points). This decrease was a result of gross outflows in historic higher margin business, and the more rapid and significant change in business mix in 2017 compared to 2018, which resulted in the Group's average AUM in 2018 being more highly weighted to the lower margin fixed income product range. We continue to expect margins to decline by 1-2 basis points a year over the longer term as a result of changes in business mix.

 

Administrative expenses

 

2018

£m

 

2017

£m

 

 

 

 

Fixed staff costs

61.5

 

54.3

Other expenses

91.0

 

77.8

Operating expenses

152.5

 

132.1

Variable staff costs

72.6

 

82.7

Administrative expenses

225.1

 

214.8

 

Operating expenses of £152.5m (2017: £132.1m) rose by 15% due to rises in both fixed staff costs and other expenses.

 

The 13% increases in fixed staff costs reflects the increase in average headcount from 504 to 533 as we added to our talent in the fund management and distribution teams.

 

As part of a disciplined approach to resource management, we continually look at where we deploy our resources within the business. During the year, we incurred charges of £2.2m associated with this.

 

The rise of 17% in other expenses related primarily to costs associated with investments in our operating platform, which are designed to support our strategy of continued diversification and growth, and, as previously advised, the recognition of £5.0m of research costs in the Group's income statement for the first time. Cost actions led to savings in the year of £1.2m and are indicative of management's focus on continued investment in the business.

 

The adjusted cost/income ratio was 55% (2017: 54%), in line with guidance.

 

Variable staff costs

 

2018

£m

 

2017

£m

 

 

 

 

Cash bonus

27.1

 

41.5

Deferred bonus options

18.7

 

17.8

Deferred bonus fund unit awards

19.4

 

5.9

LTIP, SAYE and SIP

7.4

 

17.5

Total

72.6

 

82.7

Variable compensation ratio

27.9%

 

29.8%

Total compensation ratio

32.5%

 

33.5%

 

Variable staff costs reduced 12% to £72.6m (2017: £82.7m). The variable compensation ratio decreased by 1.9% from 29.8% to 27.9%, within our previous guidance.

 

Cash bonus costs were down 35%, from £41.5m to £27.1m. This reduction resulted partly from lower profitability, but more significantly from the implementation of regulations concerning the deferral of bonuses paid to employees within certain parts of the business, which require increased levels of deferral of awards over specified thresholds.

 

Other variable compensation principally comprises share-based and fund-linked awards. The equity-settled nature of previously awarded deferred bonus and LTIP schemes means that their costs are fixed at the time of grant and subsequently do not change if future earnings rise or fall, although social security costs vary with the Group's share price. The year-on-year increase of 10% was the net impact of four different drivers: charges for deferred compensation awarded in prior years increasing by 16%, fewer awards being made in the current year because of lower profitability, the requirement to increase the proportion of deferred awards to meet regulatory requirements (see above) and the fall in the Group's share price in 2018, which meant that share-price linked accruals for social security charges on historic share awards were significantly lower than in 2017.

 

We adopt a consistent approach to remuneration and expect the variable compensation ratio to remain within guidance in the mid to high 20% range, and for the overall compensation ratio to remain within the low to mid 30% range, both over the medium term.

 

Other income statement movements

 

Other losses of £6.5m included losses from seed investments, net of hedges, of £5.3m (2017: losses of £0.9m). These losses occurred principally from downward market movements in the second half of the year on positions in liquid alternatives style strategies where there is no suitable hedging instrument to mitigate exposures.

  

Profit before tax (PBT)

 

PBT for the year decreased by 7% to £179.2m (2017: £192.9m). This was driven to a large extent by the changes announced in 2017 for the cessation of box profits and the recognition of research costs which created a headwind of £17.9m, which was partially mitigated by strong performance fee receipts, offset by losses on seed investments.

 

Tax expense

 

The effective tax rate for 2018 was 20.2% (2017: 19.8%), against a headline UK corporation tax rate of 19% (2017: 19.25%).

 

We have a published tax strategy, which is available from our website at: http://www.jupiteram.com.

 

Earnings per Share (EPS)

The Group's basic and diluted EPS measures were 31.8p and 31.1p respectively in 2018, compared with 34.5p and 33.7p in 2017. Underlying EPS, used by the Board to determine the ordinary dividend, was 31.7p (2017: 34.2p), down by 7%.

 

CASH FLOW

 

The Group generated positive operating cash flows after tax in 2018 of £170.5m (2017: £194.6m), representing 119% (2017: 126%) of profit after tax. After investing £70.1m in seeding funds during 2017, the Group made further net investments of £48.0m in the year, providing meaningful support for recently launched products to enable them to build a track record. The Group actively manages its cash flows to ensure that relevant funds have access to seed investment both at launch and at certain points during their life. Outflows from financing activities included dividend payments of £151.2m to shareholders; in addition, £28.7m of shares were purchased by the Employee Benefit Trust to avoid future shareholder dilution from compensation schemes. The net decrease in cash in the period was £32.5m (2017: £24.7m).

 

ASSETS AND LIABILITIES

 

The Group's cash position at the year-end date was £201.7m (31 December 2017: £234.2m), as trading profits were offset by dividend payments to shareholders and an increase in seeding of funds. Of this, we would expect to use £94.3m on dividends in April and £23.0m on cash bonuses and related social security costs.

 

The Group has no debt (31 December 2017: £nil). The revolving credit facility of £50m was not drawn in the period. As outlined in the Equity and Capital Management section, it remains our intention to return a high proportion of surplus cash to shareholders as it arises through the declaration of special dividends.

 

SEED INVESTMENTS

 

We deploy seed into funds to ensure an effective launch and to accelerate the timescale over which the funds can pass through critical size thresholds.

 

As at 31 December 2018, we had a total investment of £138.4m carried at fair value in Jupiter funds (31 December 2017: £96.6m). We hold a further £19.5m of investments in our own funds to hedge our obligation to settle amounts payable to employees in relation to Deferred Bonus Plan awards.

 

These investments are shown on the Group's balance sheet under the appropriate heading for the relevant level of ownership in each fund. The Group only invests in liquid funds so that investments can be redeemed to improve the Group's cash balances and liquidity if required. Investments not denominated in sterling are hedged back to sterling. In terms of market risk, seed is either hedged or invested in absolute return or fixed income products. As a result, the residual risk exposure to the Group is generally limited to the alpha (positive or negative) generated by the funds.

 

EQUITY AND CAPITAL MANAGEMENT

 

Total shareholders' equity decreased by £15.9m to £624.4m in the year, with the continued profitability of the Group being substantially offset by distributions to shareholders, in line with the Group's capital management and dividend policy below.

 

Capital and regulatory position

 

The Group assesses its capital position and requirements on a regular basis throughout the year. The capital requirement is formally set annually through the ICAAP and adjusted intra-year if risk exposures change significantly. The ICAAP document, which is approved by the Board, makes estimations and judgements to establish whether the Group holds an appropriate level of regulatory capital to mitigate the impact of its key risks in the event of these crystallising.

At present, the Group has a comfortable surplus over regulatory requirements, holding qualifying capital of around £182.1m against a requirement of £64.4m, an indicative surplus of £117.7m, after allowing for the full-year and special dividends.

During the year, the Group elected to change the way it calculated its regulatory surplus, in line with FCA rules, moving from the previously-elected Illiquid Assets approach to the default Material Holdings methodology. Under this approach, the Group is no longer required to deduct the carrying value of its non-current tangible assets from its capital resources, but instead records a deduction for any significant holdings in the capital or subordinated debt of credit and financial institutions. As the Group's balance sheet includes the former, but not the latter, changing to the default method increases the Group's surplus capital. In addition, under the Material Holdings approach, the adoption of IFRS 16 Leases in 2019 will not have a material impact on the Group's regulatory capital position from 1 January 2019, a change to previous guidance.

This position of capital strength enables us to be agile when assessing and pursuing market opportunities in which we see the potential for value creation.
 

Dividends

 

Jupiter has a progressive ordinary dividend policy: our intention is for the ordinary dividend pay-out ratio to be 50% of underlying earnings across the cycle. In the event that current year profits are lower than in previous years, the Group maintains the ordinary dividend at the previous high water mark pence per share level. The Board expects to retain up to 10% of earnings for capital and growth, with the remaining balance, after taking account of any specific events, returned to shareholders. In current market conditions, shareholders have indicated that their preferred method of capital return is a special dividend.

 

The Board considers the dividend on a total basis, taking into account our resilient balance sheet and long-term approach to running the business. The Board's intention is to use profits and cash flow to pay shareholder dividends, to retain sufficient capital to maintain a strong balance sheet and meet regulatory requirements, and to return excess cash to shareholders according to market conditions at the time.

 

The Board has declared a full-year ordinary dividend for the year of 9.2p (2017: 10.3p) per share. This results in a total ordinary dividend for the year of 17.1p (2017: 17.1p), maintaining the ordinary dividend at last year's level, representing an ordinary dividend pay-out ratio of 54% of earnings. Due to the current high level of political and regulatory uncertainty, the Board has decided to retain 10% of earnings (2017: 5%), declaring a special dividend of 11.4p (2017: 15.5p) per share.

 

Dividend progression

2018

Pence per share

 

2017

Pence per share

 

 

 

 

Ordinary

17.1

 

17.1

Special

11.4

 

15.5

Total

28.5

 

32.6

 

The full-year dividend payment will be paid alongside the special dividend on 11 April 2019 to shareholders on the register on 15 March 2019. The Board does not seek approval for dividend payments at the AGM, which means that full-year and special dividends can be paid together before the AGM.

 

Taking both ordinary and special dividends together, the Board is declaring a total dividend of 28.5p (2017: 32.6p) per share, down 4.1p, or 13% on last year.

 

We believe our distribution policy and the consequent yield this delivers, allied with our growth prospects, is an attractive model for shareholders.

 

LIQUIDITY

 

The Group has a robust free cash position, supported by an undrawn RCF of up to £50m and hedged seed investments. The Group has maintained a consistent liquidity management model, with core cash (after earmarked needs) run at levels sufficient for the needs of the business.

 

 

THE USE OF ALTERNATIVE PERFORMANCE MEASURES ("APMs")

The Group uses the following APMs:

 

APM

Definition

Reconciliation/data sources

Reason for use

Adjusted cost/income ratio

Administrative expenses divided by net revenue before box profits

Pages 4-5

C

Net management fee margin

Net management fees divided by average AUM

Page 4

A

Net management fees

Management fees less fee expenses

Page 4

A

Net revenue

Revenue less fee and commission expenses

Page 4

A

Operating expenses

Administrative expenses less variable staff costs

Page 5

A

Ordinary dividends per share

Interim and full-year dividends (does not include any special dividends)

Page 7

B

Total compensation ratio

Total staff costs as a proportion of net revenue

Pages 4-5

C

Underlying EPS

Profit before tax less tax at the weighted average UK corporation tax rate divided by issued share capital

Page 6

D

Variable compensation ratio

Variable staff costs as a proportion of net revenue less operating expenses

Pages 4-5

C

 

A.    to draw out meaningful subtotals of revenues and earnings, together with ratios derived from such measures, commonly used by asset managers after taking into account items such as fees and commissions payable, without which a proportion of the revenues would not have been earned, and administrative expenses which often have a direct link to revenues through the use of compensation ratios to set remuneration. 

B.     to present users of the accounts with a clear view of what the Group considers to be the results of/distributions from its underlying operations, thereby enabling consistent period on period comparisons and making it easier for users of the accounts to identify trends.

C.     to provide additional information not required for disclosure under accounting standards. The information is given to assist users of the accounts in gauging the level of operational gearing and efficiency in the Group and in predicting future variable cost and therefore profit levels. 

D.     Used by the Board to determine the Group's ordinary dividend. Also used in the measurement of one of the criteria for legacy share-based awards to senior staff with performance conditions.

  

All APMs relate to past performance.

 

Changes in the use of APMs

1.      In prior periods, the adjusted cost/income ratio used net management fees as its denominator. The advantage of using this measure rather than net revenue is that it excluded box profits, which did not generally vary in line with costs and which were therefore not a meaningful contributor to the ratio. In the current period, we have changed the denominator to net revenue before box profits. This enables us to continue to exclude box profits (although these ceased in January 2018), but also include performance fees, which significantly impact administrative expenses. The change in measure has no significant impact on previously reported comparative ratios.

2.      The Group has previously used underlying administrative expenses, underlying profit before tax (PBT) and underlying EPS as performance measures, principally to present users of the accounts with a clear view of what the Group considers to be the results of its underlying operations, thereby enabling consistent period on period comparisons and making it easier for users of the accounts to identify trends. There are currently no material differences between Jupiter's underlying APMs and actual IFRS measures. As a result, underlying administrative expenses and underlying PBT have been removed as performance measures. We have retained the use of underlying EPS as it is a component in the calculation of the Group's ordinary dividends per share.

3.      We have discontinued the use of operating earnings as an APM. This measure, defined as net revenue less administrative expenses, had been used as a subtotal on the face of the Group's income statement but, because it was not widely used internally to assess the Group's performance or as a component of other APMs, the Group feels it is not necessary to continue using or quantifying this term.

Section 1:  Results for the year

 

Consolidated income statement

 

For the year ended 31 December 2018

 

 

Notes

 

2018

 

2017

 

 

 

 

£m

 

£m

Revenue

 

1.1, 1.2

 

460.5

 

460.2

Fee and commission expenses

 

1.1

 

(47.8)

 

(50.7)

Net revenue

 

1.1

 

412.7

 

409.5

 

 

 

 

 

 

 

Administrative expenses

 

1.3

 

(225.1)

 

(214.8)

Other (losses)/gains

 

1.4

 

(6.5)

 

0.6

Amortisation of intangible assets

 

3.2

 

(1.8)

 

(2.3)

Operating profit

 

 

 

179.3

 

193.0

 

 

 

 

 

 

 

Finance income

 

 

 

0.1

 

0.1

Finance costs

 

 

 

(0.2)

 

(0.2)

Profit before taxation

 

 

 

179.2

 

192.9

 

 

 

 

 

 

 

Income tax expense

 

1.5

 

(36.2)

 

(38.1)

Profit for the year

 

 

 

143.0

 

154.8

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

Basic

 

1.6

 

31.8p

 

34.5p

Diluted

 

1.6

 

31.1p

 

33.7p

 

 

 

 

Consolidated statement of comprehensive income

 

For the year ended 31 December 2018

 

Notes

 

2018

 

 

2017

 

 

£m

 

£m

 

 

 

 

 

Profit for the year

 

143.0

 

154.8

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

 

Exchange movements on translation of subsidiary undertakings

4.2

0.3

 

(0.2)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income/(loss) for the year net of tax

 

0.3

 

(0.2)

 

 

 

 

Total comprehensive income for the year net of tax

 

143.3

  

154.6

  

 

 

Notes to the financial statements - Income statement

 

1.1    NET REVENUE

 

The Group's primary source of revenue is management fees. Management fees are for investment management or administrative services and are based on an agreed percentage of the assets under management (AUM). Initial charges and commissions are for additional administrative services at the beginning of a client relationship, as well as ongoing administrative costs, and until January 2018, included profits earned on dealing within the unit trust manager's box, known as box profits. Performance fees are earned from some funds when agreed performance conditions are met. Net revenue is stated after fee and commission expenses to intermediaries for ongoing services under distribution agreements.

 

The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018. The adoption of this standard has not resulted in any changes to the way the Group accounts for revenue or costs of sales. No judgements or changes in judgements were made as a result of application of this standard.

 

 

2018

£m

 

2017

£m

 

 

 

 

Management fees

442.8

 

441.6

Initial charges and commissions

2.1

 

3.1

Performance fees

14.9

 

1.9

Revenue before box profits

459.8

 

446.6

Fee and commission expenses

(47.8)

 

(50.7)

Net revenue before box profits

412.0

 

395.9

Box profits

0.7

 

13.6

Net revenue

412.7

   

409.5

 

 

Disaggregation of revenue

 

The Group disaggregates revenue from contracts with customers on the basis of product type and geographical region, as this best depicts how the nature, amount, timing and uncertainty of the Group's revenue and cash flows are affected by economic factors.

 

The Group's product types can be broadly categorised into pooled funds and segregated mandates. Segregated mandates are generally established in accordance with the requirements of a specific institutional investor. In contrast, pooled funds, which include both mutual funds and investment trusts, are established by the Group, with the risks, exposures and investment approach defined via a prospectus which is provided to potential investors.

 

 

2018

£m

 

2017

£m

Revenue by product type

 

 

 

Pooled funds

440.8

 

440.8

Segregated mandates

19.7

 

19.4

Revenue

460.5

   

460.2

 

1.2    SEGMENTAL REPORTING

 

The Group offers a range of products and services through different distribution channels. All financial, business and strategic decisions are made centrally by the Board of Directors (the Board), which determines the key performance indicators of the Group. Information is reported to the chief operating decision maker, the Board, on a single segment basis. While the Group has the ability to analyse its underlying information in different ways, for example by product type, this information is only used to allocate resources and assess performance for the Group as a whole. On this basis, the Group considers itself to be a single-segment investment management business.

 

Management monitors operating profit for the purpose of making decisions about resource allocation and performance assessment.

 

Geographical information

 

 

2018

£m

 

2017

£m

Revenue by location of clients

 

 

 

UK

357.6

 

347.7

Continental Europe

77.2

 

80.0

Asia

16.8

 

23.4

Rest of the world

8.9

 

9.1

Revenue by location

460.5

 

460.2

 

The location of clients is based on management information received from distribution partners. Where management information is not available, the location of the distribution partner is used as a proxy for the location of the client. 

 

 

Non-current assets for the Group (excluding financial instruments and deferred tax assets) are domiciled in the UK, Continental Europe and Asia, as set out below:

 

 

2018

£m

 

2017

£m

Non-current assets for the Group

 

 

 

UK

354.0

 

355.3

Continental Europe

0.7

 

0.1

Asia

0.1

 

0.1

Non-current assets by location

354.8

   

355.5

 

1.3    ADMINISTRATIVE EXPENSES

 

Administrative expenses of £225.1m (2017: £214.8m) include staff costs of £134.1m (2017: £137.0m). Staff costs consist of:

 

 

2018

£m

 

2017

£m

 

 

 

 

Wages and salaries

89.2

 

85.0

Share-based payments

26.6

 

27.0

Social security costs

11.0

 

19.2

Pension costs

5.1

 

4.8

Redundancy costs

2.2

 

1.0

 

134.1

 

137.0

 

1.4    OTHER (LOSSES)/GAINS

 

Other (losses)/gains in 2018 relate principally to losses made, net of hedging, on the Group's seed investment portfolio. These investments, along with any related hedging instruments, are held at fair value through profit or loss. Gain and losses on these investments comprise both realised and unrealised amounts.

 

 

2018

£m

 

2017

£m

 

 

 

 

Dividend income

0.5

 

0.5

(Losses)/gains on financial instruments designated at fair value through profit or loss upon initial recognition

(7.8)

 

6.8

Gains/(losses) on financial instruments at fair value through profit or loss

0.8

 

(6.7)

 

(6.5)

 

0.6

  

 

1.5    INCOME TAX EXPENSE

 

Analysis of charge in the year:

 

 

2018

£m'

 

2017

£m

Current tax

 

 

 

Tax on profits for the year

39.1

 

40.2

Adjustments in respect of prior years

0.4

 

(1.1)

 

39.5

 

39.1

Deferred tax

 

 

 

Origination and reversal of temporary differences

(3.1)

 

(2.2)

Adjustments in respect of prior years

(0.2)

 

1.2

 

(3.3)

 

(1.0)

Total tax expense

36.2

 

38.1

 

The corporation tax rate for 2018 was 19% (2017: 19.25%). The tax charge in the year is higher (2017: higher) than the standard rate of corporation tax in the UK and the differences are explained below:

 

 

Factors affecting tax expense for the year

2018

£m

 

2017

£m

 

 

 

 

Profit before taxation

179.2

 

192.9

 

 

 

 

Taxation at the standard corporation tax rate (2018: 19%; 2017: 19.25%)

34.1

 

37.1

Non-taxable expenditure

0.7

 

0.3

Other permanent differences

1.0

 

0.2

Adjustments in respect of prior years

0.2

 

0.1

Effect of differences in overseas tax rates

0.2

 

0.4

Total tax expense

36.2

 

38.1

 

 

1.6    EARNINGS PER SHARE

 

Basic earnings per share (EPS) is calculated by dividing the profit for the year by the weighted average number of ordinary shares outstanding during the year less the weighted average number of own shares held. Own shares are shares held in an Employee Benefit Trust ("EBT") for the benefit of employees under the vesting, lock-in and other incentive arrangements in place.

 

Diluted EPS is calculated by dividing the profit for the year by the weighted average number of ordinary shares outstanding during the year for the purpose of basic EPS plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

 

For the purposes of calculating EPS, the share capital of the parent is calculated as the weighted average number of ordinary shares in issue. The weighted average number of ordinary shares used in the calculation of EPS is as follows:

 

 

 

Weighted average number of shares

2018

Number

m

 

2017

Number

m

 

 

 

 

Issued share capital

457.7

 

457.7

Less own shares held

(8.7)

 

(8.9)

 

 

 

 

Weighted average number of ordinary shares for the purpose of basic EPS

449.0

 

448.8

 

 

 

 

Add back weighted average number of dilutive potential shares

10.2

 

10.9

 

 

 

 

Weighted average number of ordinary shares for the purpose of diluted EPS

459.2

 

459.7

 

 

 

Earnings per share

        2018

              p

 

        2017

p

 

 

 

 

Basic

31.8

 

34.5

Diluted

31.1

 

33.7

 

 

 

Section 2:  Consolidated statement of cash flows

 

Consolidated statement of cash flows

 

For the year ended 31 December 2018

 

Notes

2018 

 

2017 

 

 

£m

 

£m

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Cash generated from operations

2.1

213.3

 

233.3

Income tax paid

 

(42.8)

 

(38.7)

Net cash inflows from operating activities

 

170.5

 

194.6

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment

3.3

(1.7)

 

(0.9)

Purchase of intangible assets

3.2

(1.7)

 

(4.3)

Purchase of financial assets at fair value through profit or loss (FVTPL)

 

(326.5)

 

(125.7)

Proceeds from disposals of financial assets at FVTPL

 

270.5

 

65.1

Dividend income received

 

1.5

 

2.2

Finance income received

 

0.1

 

0.1

Net cash outflows from investing activities

 

(57.8)

 

(63.5)

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

Dividends paid

4.3

(151.2)

 

(132.2)

Purchase of shares by EBT

 

(28.7)

 

(26.4)

Finance costs paid

 

(0.2)

 

(0.2)

Third-party subscriptions into consolidated funds

 

63.7

 

21.3

Third-party redemptions from consolidated funds

 

(26.8)

 

(17.7)

Distributions paid by consolidated funds

 

(2.0)

 

(0.6)

Net cash outflows from financing activities

 

(145.2)

 

(155.8)

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(32.5)

 

(24.7)

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

234.2

 

258.9

Cash and cash equivalents at end of year

3.5

201.7

 

234.2

 

 

 

 

 

 

 

 

 

Notes to the financial statements - Consolidated statement of cash flows

 

2.1    CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

2018

£m

 

 

2017

£m

 

 

 

 

Operating profit

179.3

 

193.0

 

 

 

 

Adjustments for:

 

 

 

Amortisation of intangible assets

1.8

 

2.3

Depreciation of property, plant and equipment

2.2

 

2.1

Other losses/(gains)

10.8

 

(8.4)

Share-based payments

26.6

 

27.0

Cash inflows on exercise of share options

0.5

 

1.5

Decrease/(increase) in trade and other receivables1

19.9

 

(21.5)

(Decrease)/increase in trade and other payables

(27.8)

 

37.3

Cash generated from operations

213.3

 

233.3

 

1 The decrease/(increase) in trade and other receivables principally comprises the movement in total trade and other receivables, adjusted for any seed investment transactions not cash settled in the same year. At the end of 2017, seed investments with a value of £22.5m had been sold, but cash settlement did not occur until 2018. This resulted in an increase in the movement in trade and other receivables in 2017, and settlement in 2018 resulted in the reversal of this balance. There were no similar transactions at the end of 2018.

 

 

2.2    CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES

 

 

 

 

2018

£m

 

 

2017

£m

 

 

 

 

 

Brought forward at 1 January

 

36.4

 

13.0

Changes from financing cash flows

 

36.9

 

3.0

Changes arising from obtaining or losing control of consolidated funds

 

0.2

 

15.4

Changes in fair values

 

0.5

 

5.0

 

 

74.0

 

36.4

 

 

 

Section 3:  Assets and liabilities

 

Consolidated balance sheet

 

As at 31 December 2018

 

 

 

 

 

Notes

 

 

 

 

2018

 

 

 

2017

 

 

 

 

 

£m 

 

£m 

ASSETS

 

 

 

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

 

 

 

Goodwill

 

3.1

 

 

341.2

 

341.2

Intangible assets

 

3.2

 

 

5.9

 

6.0

Property, plant and equipment

 

3.3

 

 

7.1

 

7.6

Deferred tax assets

 

 

 

 

12.7

 

16.6

Trade and other receivables

 

3.4

 

 

0.6

 

0.7

Total non-current assets

 

 

 

 

367.5

 

372.1

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Investments in associates

 

3.4

 

 

-

 

32.2

Financial assets at FVTPL

 

3.4

 

 

212.0

 

110.4

Trade and other receivables

 

3.4

 

 

98.4

 

141.3

Cash and cash equivalents

 

3.5

 

 

201.7

 

234.2

Total current assets

 

 

 

 

512.1

 

518.1

TOTAL ASSETS

 

 

 

 

879.6

 

890.2

 

 

 

 

 

 

 

 

EQUITY ATTRIBUTABLE TO SHAREHOLDERS

 

 

 

 

 

 

 

Share capital

 

4.1

 

 

9.2

 

9.2

Own share reserve

 

4.2

 

 

(0.2)

 

(0.2)

Other reserve

 

4.2

 

 

8.0

 

8.0

Foreign currency translation reserve

 

4.2

 

 

2.9

 

2.6

Retained earnings

 

4.2

 

 

604.5

 

620.7

TOTAL EQUITY

 

 

 

 

624.4

 

640.3

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

NON-CURRENT LIABILITES

 

 

 

 

 

 

 

Trade and other payables

 

3.4

 

 

15.2

 

9.5

Deferred tax liabilities

 

 

 

0.4

 

0.3

Total non-current liabilities

 

 

 

 

15.6

 

9.8

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Financial liabilities at FVTPL

 

3.4

 

 

74.0

 

36.6

Trade and other payables

 

3.4

 

 

156.1

 

189.6

Current income tax liability

 

 

 

 

9.5

 

13.9

Total current liabilities

 

 

 

 

239.6

 

240.1

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

 

 

255.2

 

249.9

 

 

 

 

 

 

 

 

TOTAL EQUITY AND LIABILITIES

 

 

 

 

879.6

 

890.2

 

 

 

Notes to the financial statements - Assets and liabilities

 

3.1    GOODWILL

 

Goodwill relates to the 2007 acquisition of Knightsbridge Asset Management Limited.

 

 

2018

£m

 

2017

£m

 

 

 

 

Goodwill

341.2

 

341.2

 

341.2

 

341.2

 

No additional goodwill was recognised in the year (2017: £nil).

 

The Group has determined that it has a single cash generating unit (CGU) for the purpose of assessing the carrying value of goodwill. In performing the impairment test, management prepares a calculation of the recoverable amount of the goodwill, using the value in use approach, and compares this to the carrying value.

 

The recoverable amount for the acquired share capital was based on the net present value of the Group's future earnings. The net present value was calculated using a discounted cash flow model, with reference to the Group's projected cash flows over a period of 5 years, long-term growth rates of 8% (2017: 14%) based on dividend history and forecasts, and a cost of capital of 12% (2017: 18%), which is based on the Group's cost of equity as the Group has been debt free since 2014. The projections assumed declining revenue margins of 1-2 basis points a year and reductions of approximately 1% a year in the Group's adjusted cost/income ratio. A significant headroom was noted, and therefore no impairment was implied. Adverse movements of 50% in growth rates and/or the cost of capital would not result in the recognition of impairment losses.

 

No impairment losses have been recognised in the current or preceding years.

 

3.2    INTANGIBLE ASSETS

 

At the balance sheet date, the Group held fully amortised intangible assets still in use in respect of its 2007 acquisition of Knightsbridge Asset Management Limited. This acquisition gave rise to the recognition of intangible assets relating to investment management contracts and the trade name of the Group. The other intangible assets recognised are computer software.

 

The Directors have reviewed the intangible assets as at 31 December 2018 and have concluded there are no indicators of impairment (2017: same).

 

 

2018

£m

 

2017

£m

 

 

 

 

Intangible assets

5.9

 

6.0

                                                                   

5.9

 

6.0

 

The amortisation charge for the year was £1.8m (2017: £2.3m). During the year, the Group acquired software with a value of £1.7m (2017: £4.3m).

 

3.3    PROPERTY, PLANT AND EQUIPMENT

 

The net book value of property, plant and equipment at 31 December 2018 was £7.1m (2017: £7.6m). During the year, the Group acquired property, plant and equipment with a value of £1.7m (2017: £0.9m).

   

3.4    FINANCIAL INSTRUMENTS

 

Financial instruments by category

The carrying value of the financial instruments of the Group at 31 December is shown below.

 

 

As at 31 December 2018

 

Financial assets at FVTPL

Loans and receivables

Financial liabilities at FVTPL

Other financial liabilities

Total financial instruments

Non-financial instruments

Total

 

 

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

Goodwill

 

-

-

-

-

-  

341.2

341.2

Intangible assets

 

-

-

-

-

-

5.9

5.9

Property, plant and equipment

 

-

-

-

-

-

7.1

7.1

Deferred tax assets

 

-

-

-

-

-

12.7

12.7

Non-current trade and other receivables

 

-

0.3

-

-

0.3

0.3

0.6

Financial assets at FVTPL

 

212.0

-

-

-

212.0

-

212.0

Current trade and other receivables

 

-

91.1

-

-

91.1

7.3

98.4

Cash and cash equivalents

 

-

201.7

-

-

201.7

-

201.7

Non-current trade and other payables

 

-

-

-

          (9.9)

(9.9)

(5.3)

        (15.2)

Deferred tax liabilities

 

-

-

-

-

-

          (0.4)

          (0.4)

Current trade and other payables

 

-

-

-

(142.1)

(142.1)

(14.0)

(156.1)

Current income tax liability

 

-

-

-

-

-

(9.5)

(9.5)

Financial liabilities at FVTPL

 

-

-

(74.0)

-

(74.0)

-

(74.0)

 

 

 

 

 

 

 

 

 

Total

 

212.0

293.1

(74.0)

(152.0)

279.1

345.3

624.4

 

 

 

 

 

 

 

 

 

As at 31 December 2017

 

Financial assets at FVTPL

Loans and receivables

Financial liabilities at FVTPL

Other financial liabilities

Total financial instruments

Non-financial instruments

Total

 

 

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

Goodwill

 

-

-

-

-

-  

341.2

341.2

Intangible assets

 

-

-

-

-

-

6.0

6.0

Property, plant and equipment

 

-

-

-

-

-

7.6

7.6

Deferred tax assets

 

-

-

-

-

-

16.6

16.6

Non-current trade and other receivables

 

-

-

-

-

-

0.7

0.7

Investments in associates

 

32.2

-

-

-

32.2

-

32.2

Financial assets at FVTPL

 

110.4

-

-

-

110.4

-

110.4

Current trade and other receivables

 

-

133.3

-

-

133.3

8.0

141.3

Cash and cash equivalents

 

-

234.2

-

-

234.2

-

234.2

Non-current trade and other payables

 

-

-

-

          (5.9)

(5.9)

(3.6)

        (9.5)

Deferred tax liabilities

 

-

-

-

-

-

          (0.3)

          (0.3)

Current trade and other payables

 

-

-

-

(168.2)

(168.2)

(21.4)

(189.6)

Current income tax liability

 

-

-

-

-

-

(13.9)

(13.9)

Financial liabilities at FVTPL

 

-

-

(36.6)

-

(36.6)

-

(36.6)

 

 

 

 

 

 

 

 

 

Total

 

142.6

367.5

(36.6)

(174.1)

299.4

340.9

640.3

 

 

3.5    CASH AND CASH EQUIVALENTS

 

 

 

2018

£m

 

 

2017

£m

 

 

 

 

Cash at bank and in hand

177.9

 

195.8

Short-term deposits

-

 

30.0

Cash held by EBT and seed investment subsidiaries

23.8

 

8.4

Total cash and cash equivalents

201.7

 

234.2

 

Cash and cash equivalents have an original maturity of three months or less.

 

Cash at bank earns interest at the current prevailing daily bank rates. Short-term deposits are made for varying periods of between one and 33 days, depending on the forecast cash requirements of the Group, and earn interest at the respective short-term deposit rates.

 

Cash held by EBT and seed investment subsidiaries is not available for use by the Group. 

 

 

Section 4:  Equity

 

Consolidated statement of changes in equity

 

 

For the year ended 31 December 2018

 

 

 

 

 

 

Share 

capital 

 

 

Own 

share 

reserve 

 

 

 

Other 

reserve 

 

Foreign 

currency 

translation 

reserve 

 

 

 

Retained  earnings 

 

 

 

Total equity 

 

 

£m 

£m 

£m 

£m 

£m 

£m 

At 1 January 2017

 

9.2

(0.2)

8.0

2.8

590.6

610.4

 

 

 

 

 

 

 

 

Profit for the year

 

-

-

-

154.8

154.8

Exchange movements on translation of subsidiary undertakings

 

-

-

-

(0.2)

-

(0.2)

Other comprehensive income

 

-

-

-

(0.2)

-

(0.2)

Total comprehensive income

 

-

-

-

(0.2)

154.8

154.6

Vesting of ordinary shares and options

 

-

0.1

-

-

1.4

1.5

Dividends paid

 

-

-

-

-

(132.2)

(132.2)

Purchase of shares by EBT

 

-

(0.1)

-

-

(26.3)

(26.4)

Share-based payments

 

-

-

-

-

26.7

26.7

Current tax

 

-

-

-

-

1.5

1.5

Deferred tax

 

-

-

-

-

4.2

4.2

Total transactions with owners

 

-

-

-

-

(124.7)

(124.7)

At 31 December 2017

 

9.2

(0.2)

8.0

2.6

620.7

640.3

 

 

 

 

 

 

 

 

Profit for the year

 

-

-

-

143.0

143.0

Exchange movements on translation of subsidiary undertakings

 

-

-

-

0.3

-

0.3

Other comprehensive loss

 

-

-

-

0.3

-

0.3

Total comprehensive income

 

-

-

-

0.3

143.0

143.3

Vesting of ordinary shares and options

 

-

0.1

-

-

0.4

0.5

Dividends paid

 

-

-

-

-

(151.2)

(151.2)

Purchase of shares by EBT

 

-

(0.1)

-

-

(28.6)

(28.7)

Share-based payments

 

-

-

-

-

26.4

26.4

Current tax

 

-

-

-

-

1.1

1.1

Deferred tax

 

-

-

-

-

(7.3)

(7.3)

Total transactions with owners

 

-

-

-

-

(159.2)

(159.2)

At 31 December 2018

 

9.2

(0.2)

8.0

2.9

604.5

624.4

 

 

 

 

 

 

 

 

Notes

 

4.1

4.2

4.2

4.2

4.2

 

 

 

 

Notes to the financial statements - Equity

 

4.1    SHARE CAPITAL

 

 

2018

£m

 

2017

£m

 

 

 

 

457.7m ordinary shares of 2p each

9.2

 

9.2

 

9.2

 

9.2

 

4.2    RESERVES

 

(i)      Own share reserve

The Group operates an EBT for the purpose of satisfying certain retention awards to employees. The holdings of this trust, which is funded by the Group, include shares that have not vested unconditionally to employees of the Group. These shares are recorded at cost and are classified as own shares. The shares are used to settle obligations that arise from the granting of share-based awards.

At 31 December 2018, 11.0m ordinary shares (2017: 9.5m), with a par value of £0.2m (2017: £0.2m), were held as own shares within the Group's EBT for the purpose of satisfying share option obligations to employees.

 

(ii)     Other reserve

The other reserve of £8.0m (2017: £8.0m) relates to the conversion of Tier 2 preference shares in 2010.

 

(iii)    Foreign currency translation reserve

The foreign currency translation reserve of £2.9m (2017: £2.6m) is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

 

(iv)    Retained earnings    

Retained earnings of £604.5m (2017: £620.7m) are the amount of earnings that are retained within the Group after dividend payments and other transactions with owners.

 

 

4.3    DIVIDENDS

 

 

2018

£m

 

2017

£m

 

 

 

 

Full-year dividend (10.3p per ordinary share) (2017: 10.2p per ordinary share)

46.1

 

45.7

Interim dividend (7.9p per ordinary share) (2017: 6.8p per ordinary share)

35.6

 

30.5

Special dividend (15.5p per ordinary share) (2017: 12.5p per ordinary share)

69.5

 

56.0

 

151.2

 

132.2

 

Full-year and special dividends are paid out of profits recognised in the year prior to the year in which the dividends are declared and reported.

 

The EBT has waived its right to receive future dividends on shares held in the trust. Dividends waived on shares held in the EBT in 2018 were £3.1m (2017: £2.8m).

 

A full-year dividend for 2018 of 9.2p per share (2017: 10.3p) and a special dividend of 11.4p per share (2017: 15.5p) have been declared by the Directors. These dividends amount to £42.1m and £52.2m respectively (before adjusting for any dividends waived on shares in the EBT) and will be accounted for in 2019. Including the interim dividend for 2018 of 7.9p per share (2017: 6.8p), this gives a total dividend per share of 28.5p (2017: 32.6p).      

 

 

 

Section 5:  Other Notes

 

Notes to the financial statements - Other

 

5.1    BASIS OF PREPARATION

 

The financial information set out does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2017, but is derived from those accounts. The Auditors have reported on the 2018 accounts; their report was unqualified, unmodified and did not contain statements under section 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered in due course.

 

The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and related IFRS IC Interpretations (IFRS as adopted by the EU) and with the provisions of the Companies Act 2006 applicable to companies reporting under IFRS.

 

In the current reporting period, the Group has adopted the following new standards:

 

 

Endorsed by the EU

Summary

Impact of adoption

 

IFRS 9 Financial Instruments

 

Replacement project on financial instruments consisting of three phases:

Phase 1: Classification and measurement of financial assets and financial liabilities

Phase 2: Impairment methodology; and

Phase 3: Hedge accounting

 

 

No changes to accounting treatment or disclosures resulted

 

IFRS 15 Revenue from Contracts with Customers

 

Established a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. It supersedes the previous revenue standard IAS 18 Revenue

 

No changes to accounting treatment. Additional disclosures have been made.

 

In respect of IFRS 9, the Group holds instruments such as derivatives and non-controlling interests in consolidated funds (NCIs) at fair value, the former held for trading and the latter designated at FVTPL. Under the new standard, derivatives will continue to be held for trading (and therefore at FVTPL). Similarly, the option to designate an instrument at FVTPL to avoid an accounting mismatch has been carried over into IFRS 9. In the case of NCIs, the liability at fair value matches the assets of the fund, which are required to be held at fair value (if equities or derivatives) or which we elect to hold at fair value (if they are hedged debt instruments).

 

Trade and other receivables and payables principally comprise short-term settlement accounts and accruals, neither of which are held for trading or meet the definition of items that could be carried at fair value. Such instruments therefore remain at amortised cost.

 

In terms of impairment, the majority of Jupiter's revenue comes from management fees due from the funds for which we provide management services. These are paid to the Group monthly, a few days in advance of the month end. Therefore, at each month end, receivables are low as we have already collected amounts due from the majority of our clients. Typically, receivables comprise unpaid sales contracts and expropriations (together, settlement accounts), which are receivables in transit between funds and end clients and which are required to be settled within four days. Other trade debtors comprise amounts due from institutional clients. Cash collateral is paid over by the Group to satisfy counterparty requirements in respect of open derivative positions.

 

It is very unusual for Jupiter to suffer any impairment in respect of trade receivables: unpaid settlements do not result in losses, but instead oblige the Group to purchase units in funds which are then subject to market risk until they can be sold. Institutional debtors rarely default, given that the Group manages assets worth many multiples of any outstanding fees on behalf of those clients, although it should be noted that the Group is not generally permitted to remove cash from managed segregated mandates in order to receive settlement. Cash held with banks or held by other companies as collateral could be at risk should the financial institutions holding it fail. We have not experienced and do not expect to experience credit losses to arise from these counterparties.

 

In the Group's consideration of the impact of IFRS 15 on its financial statements, we have employed the five step model to determine the timing and quantification of revenue. Our implementation included the identification of all material revenue sources, including management and performance fees, upfront fees and also upfront revenue-related costs. We undertook a review of customer contracts to determine our performance obligation and the associated recognition timing. The Group's accounting policies under IAS 18 Revenue were aligned with the requirements of IFRS 15 in respect these revenue sources, thus the adoption of IFRS 15 has not resulted in any significant impact to the Group. 

 

New standards and interpretations not applied

The International Accounting Standards Board and IFRS IC have issued a number of new accounting standards, amendments to existing standards and interpretations. The following new standard, which has been endorsed by the EU, is not applicable to these financial statements, but is expected to have an impact when it becomes effective. The Group plans to apply this standard in the reporting period in which it becomes effective.

 

 

 

Summary

Effective for periods beginning on or after

 

IFRS 16 Leases

 

Provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. It will supersede the current guidance found in IAS 17 Leases

 

 

1 January 2019

 

There are no other IFRSs or IFRS IC interpretations that are not yet effective that would be expected to have a material impact on the Group.

 

There are transition options available on adoption of the standard. The Group has elected to apply this standard retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application in accordance with paragraphs C7-C13 of the standard. This option accounts for leases as if the Group had always applied IFRS 16.

 

The Group expects the adoption of IFRS 16 to increase the Group's total assets by £53.2m and liabilities by £55.6m as a result of the requirement to capitalise both the right to use leased assets and the contractual payments to be made under lease obligations. The liability is calculated using an appropriate discount rate for the Group and the nature of its leased assets. As a result, the income statement charge for lease payments is expected to be larger in the earlier years of a lease, and smaller in the later years. We estimate a £5.7m charge in 2019. In addition, the 2019 rental charge, previously recognised as a single administrative charge within the income statement, will be split into a depreciation charge relating to the capitalised asset (within administrative expenses) and a finance cost representing the unwinding of the discount.

  

Changes in the composition of the Group 

The Group is required to consolidate seed capital investments if it is deemed to control them. The following changes have been made to the consolidation of the Group since 31 December 2017:

 

Included in consolidation

Excluded from consolidation

Jupiter Global Sustainable Equities

Jupiter Merlin Real Return

Jupiter Global Fund SICAV: Eurozone Equity

Jupiter Global Fund SICAV: Flexible Income

Jupiter Global Fund SICAV: US Equity Long Short

Jupiter US Small and Midcap Companies Fund

 

 

5.2    FINANCIAL INSTRUMENTS

 

Financial instruments held at fair value are carried at a value which represents the price to exit the instruments at the balance sheet date. The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. Where a quoted market price is not available, the Group establishes fair value using valuation techniques such as recent arm's length market transactions, reference to current fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models.

 

The Group used the following hierarchy for determining and disclosing the fair value of financial instruments:

 

·        Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

·        Level 2: other techniques, for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

·        Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data (unobservable inputs).

 

As at 31 December 2018 and 31 December 2017, all financial instruments held by the Group were classified as Level 1 or Level 2.

 

 

5.3    RELATED PARTIES

 

The Group manages a number of investment trusts, unit trusts and overseas funds and receives management and, in some instances, performance fees for providing this service. The precise fee arrangements are disclosed within the financial statements of each investment management subsidiary of the Group or within other publicly available information. By virtue of the investment management agreements in place between the Group and the collective investment vehicles it manages, such funds may be considered to be related parties. Investment management and performance fees are disclosed in Note 1.1.

 

The Group acts as manager for 40 (2017: 38) authorised unit trusts. Each unit trust is jointly administered with the trustees, National Westminster Bank plc. The aggregate total value of transactions for the year was £3,091m (2017: £3,526m) for unit trust creations and £4,127m (2017: £2,581m) for unit trust redemptions. The actual aggregate amount due to the trustees at the end of the accounting year in respect of transactions awaiting settlement was £3.9m (2017: £30.2m). The Company also acts as the management company for the Jupiter Global Fund and Jupiter Merlin Fund SICAVs, made up of 25 sub funds (2017: 22) and four funds (2017: four) respectively.

 

The amounts received in respect of gross management, registration and performance fee charges were £346.4m (2017: £343.8m) for unit trusts, £126.1m (2017: £131.7m) for SICAVs, £22.6m (2017: £9.4m) for investment trusts and £19.7m (2017: £18.3m) for segregated mandates. At the end of the year, there was £19.1m (2017: £23.4m) accrued for annual management fees, £3.3m (2017: £4.1m) in respect of registration fees and £0.8m (2017: nil) in respect of performance fees.

Included within the financial instruments note are seed capital investments and hedges of awards in fund units in mutual funds managed by the Group. At 31 December 2018, the Group had a total net investment in such funds of £137.3m (2017: £105.9m) and received distributions of £0.5m (2017: £0.5m). During 2018, it invested £110.8m (2017: £75.4m) in these funds and received £52.3m (2017: £42.1m) from disposals. 

 

Key management compensation

 

Transactions with key management personnel also constitute related party transactions. Key management personnel are defined as the Directors, together with other members of the Executive Committee. The aggregate compensation paid or payable to key management for employee services is shown below:

 

 

2018

£m

 

2017

£m

 

 

 

 

Short-term employee benefits

4.4

 

4.3

Share-based payments

5.0

 

4.9

Post-employment benefits

0.3

 

0.3

 

9.7

 

9.5

 

5.4     EVENTS AFTER THE REPORTING PERIOD

On 22 January 2019, it was announced that the Group's CEO, Maarten Slendebroek, would be stepping down. He will be replaced by Andrew Formica, effective 1 March 2019. On 26 February 2019, it was announced that the Group's CFO, Charlotte Jones, would be leaving Jupiter in the third quarter of 2019, and that a further announcement regarding her successor would be made in due course.

 

Section 6:  Statement of Directors' responsibilities

 

The Directors are responsible for preparing the Annual Report, the Remuneration Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the

Directors have prepared the Group and Company Financial Statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union ("EU"), and related IFRS IC interpretations and with the provisions of the Companies Act 2006 (the "Act") applicable to companies reporting under IFRS.

 

The Directors undertook a detailed review of the Financial Statements in January and February 2019. Following this examination, the Board was satisfied that the Financial Statements for 2018 give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. Before approving the Financial Statements, the Board satisfied itself that in preparing the statements:

 

·        suitable accounting policies had been selected and consistently applied;

·        the judgements and accounting estimates that have been made were reasonable, necessary and prudent; and

·        where applicable IFRSs, as adopted by the EU, have been adopted they have been followed and that there were no material departures.

 

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

 

The Financial Statements have been prepared on the going concern basis, the Directors having determined that the Company is likely to continue in business for at least 12 months from the date of this report.

 

Supported by the Audit and Risk Committee, the Directors have completed a robust review and assessment of the principal risks in the business making use of the Enterprise Risk Framework which is now functioning in all areas of the Company. The framework ensures that the relevant risks are identified and managed and that information is shared at an appropriate level. Full details of these risks are provided in the 'Risks to our Strategy' pages of the Strategic report. The Board subjected the Enterprise Risk Framework to a detailed review in December. The Directors found it was an effective mechanism through which the principal risks and the Company's risk appetite and tolerances could be tested and challenged.

 

The Directors have examined the accounting records kept in the business and have determined that they are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration report comply with the requirements of the Act and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors have examined the steps in place for ensuring the prevention and detection of fraud and other irregularities. The procedure is examined and tested on a regular basis. The Board is satisfied it is understood and is operated well, and accordingly that the assets of the Company are safeguarded and protected from fraud and other irregularities.

 

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Each of the Directors (whose names and functions are listed in the Directors' profiles set out in the Governance section) confirms that, to the best of his or her knowledge:

 

·        the Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of  the assets, liabilities, financial position and profit of the Group;

·        the Company Financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities and financial position and profit of the Company; and

·        the Directors' Report contained in the Annual Report and Accounts includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

 

In accordance with Section 418 of the Act, the Directors' report includes a statement, in the case of each Director in office at the date the Directors' report is approved, that:

 

a)      so far as the Director is aware, there is no relevant audit information (as defined in section 418(3)) of the Act of which the Company's auditors are unaware; and

 

b)      he/she has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

 

On behalf of the Board

 

 

 

Charlotte Jones

Chief Financial Officer

 

28 February 2019

Section 7:  Principal risks and mitigations

 

The Board has ultimate responsibility for risk management. To help the Board discharge its responsibilities, the Group has a comprehensive approach to identifying, monitoring, managing and mitigating risk.

 

Our Enterprise Risk Management framework clearly defines essential information about the Group's risks and provides a process for escalation through our governance structure, which enables continuous and robust oversight by the Audit and Risk Committee and the Board.

 

Risk appetite

An important part of the Board's remit is to determine our risk appetite and the tolerances within which we must operate. This is defined as the amount and type of risk we are willing to accept in order to achieve our strategic and business objectives. This takes into account the interests of our clients and shareholders, as well as the Group's financial strategy and other regulatory requirements.

 

The Board formally considers our risk appetite, taking into account our strategic plans, the business environment and the current and likely future condition of our business and operations. The Board sets our appetite for seven categories of risk. These are:

 

·        Strategic risk

·        Investment risk

·        Operational risk

·        Capital adequacy risk

·        Liquidity risk

·        Counterparty/credit risk

·        Market risk

 

Risk themes/impacts

As a business, we have a relatively low appetite for risk, particularly for those that could lead to negative conduct or reputational outcomes.

 

Conduct risk

The Group defines conduct risks as risks which result in customer detriment, negative impact to market stability or restrict effective competition. Conduct risk is not considered to be a separate risk category. Risks in the strategic, investment and operational risk categories may result in conduct risk impacts.

 

Reputational Risk

The risk of loss or other adverse impact arising from the unfavourable perception of the Group on the part of clients, counterparties, employees, regulators, shareholders, other stakeholders, the media or the general public. The Group treats reputational risk as a potential impact that may arise from operational risks and operational risk incidents.

 

Emerging risk

Emerging risks are considered a condition, situation or trend that could significantly affect the Groups financial strength, competitive position or reputation within the next five years. These are raised by the business and challenged by Executive risk owners to consider estimates of likelihood, impact, timing and any action required.

 

Risk management process

Our risk management processes enable us to identify the most significant risks that we face. The risk assessment process is the foundation of our risk framework and is conducted across the Group by department heads, senior managers, Executives and the Board.

 

Top-down risk assessment

All significant risks have a named owner, which is either a member of the Executive Committee (ExCo) or, for a small number of risks, the ExCo as a whole. We define the potential impact of each key risk and monitor it using key risk indicators (KRIs). We set thresholds for each KRI and use them to keep the Board informed about the Group's position in relation to its risk appetite. This enables us to identify trends and take action if it seems likely we will exceed this appetite.

 

Bottom-up risk assessment

Each functional business area is responsible for completing a risk and control assessment at least annually, and more frequently when required.

The assessment identifies and rates key risks and associated key controls by considering the operating environment, processes and controls, roles and responsibilities as well as risk incidents that have occurred.

 

Where process or controls are seen to be insufficiently robust, line management is required to define improvements to the operating environment to ensure they pose a minimal (or acceptable) level of risk to the Group.

 

Risk registers and risk assessment observations are reviewed by relevant senior managers and Executives.

 

The Group's risk management assurance programme is closely linked with its compliance monitoring programme. Any breaches found by the Compliance department are recorded in the in-house error database and are considered as part of the risk and control assessment process.

 

 

INVESTMENT RISK

 

Sustained fund underperformance

 

Owner: Chief Investment Officer

 

Board risk rating at year end

2017: Low

2018: Medium

 

Risk

There is a risk that our clients will not meet their investment objectives, due to poor relative performance by one or more of our funds over a prolonged period.

 

Potential impact

Weak financial markets specific to our funds or poor performance by our fund managers may lead to our products being uncompetitive or otherwise unattractive to new or existing clients. This could result in clients not receiving their desired investment outcomes, outflows from Jupiter (and the related decline in revenues) and a failure to attract new business and thus not meet our strategic growth objectives.

 

Mitigation/controls

Jupiter maintains a diversified range of flexible investment products, and aims to deliver long-term value to our clients across different market conditions. Our investment process seeks to meet investment objectives within clearly stated risk parameters.

 

Our Investment Risk team works closely with fund managers to challenge fund risk profiles, assess the risks across the portfolios and to further

develop our capabilities. This challenge process is formally reported to, and overseen by, our Risk and Finance Committee, which meets quarterly (and more frequently when required).

 

2018 impact

Challenging market conditions coupled with defensive positioning within many of Jupiter's strategies led to challenging performance during much of 2018. Q4 2018 saw stronger relative performance giving rise to 77% of mutual funds being in the top two quartiles over 3 years.

 

STRATEGIC RISKS

 

Failure to deliver strategy

 

Owner: Chief Executive Officer

 

Board risk rating at year end

2017: Low 

2018: Medium       

 

Risk

The risk of failure to achieve our strategic objectives, through internal or external factors, which could impair our ability to deliver value to our stakeholders.

 

Potential impact

A failure to achieve one or more strategic objectives could result in a reduced pool of available profit for distribution to shareholders. This would limit growth and potentially long-term viability.

 

Mitigation/controls

The Board sets the strategy and is responsible for ensuring the Group has the right structure, leadership and culture to execute it.

 

The Board and the Executive Committee regularly review the strategic options, opportunities and threats. Plans, budgets and targets are set to be aligned with delivery of the strategic goals. Progress is monitored and where necessary corrective action is taken.

 

2018 impact

In 2018 the Board reconfirmed its agreement with the Group's strategy whilst recognising the short-term challenges of current market conditions.

An operational efficiency review enabled cost actions to be taken in 2018 and delivered cost savings enabling Jupiter to deliver its strategy of a progressive dividend policy in 2018 in spite of the difficult market backdrop.

 

Ability to attract and retain critical staff

 

Owner: ExCo

 

Board risk rating at year end

2017: Low 

2018: Low        

 

Risk

The risk of failure to attract or retain the people critical to successfully delivering investment outperformance to our clients and all other aspects of our strategy.

 

Potential impact

The unplanned departure of a senior fund manager or member of our leadership team could lead to significant redemptions from our funds, failure to deliver our strategy or failure to run our business efficiently, resulting in a material impact on corporate performance.

 

Mitigation/controls

Our culture is a key differentiator for us, enabling us to attract, motivate and retain talented individuals, which in turn drives outperformance. We give autonomy coupled with personal accountability, and encourage independence of thought and challenge.

 

Our investment function is arranged around 12 strategies, providing a framework for repeatable performance, but the teams themselves are small and nimble. This culture and structure gives us clarity of purpose and helps us to attract and retain the best active fund managers. We actively manage succession and transition.

 

2018 impact

We have successfully recruited new lead fund managers in multiple strategies including Multi-Asset, and Emerging Market Debt, and have continued to develop and promote a number of Assistant Fund Managers and Analysts to Fund Manager roles.

 

In 2018 we launched a new Learning and Development Curriculum to develop our employees, part of which included a future leadership course as part of our succession planning.

 

Ineffective product, client and geographic diversification

 

Owner: Global Head of Distribution

 

Board risk rating at year end

2017: Medium

2018: Medium

 

Risk

The risk that our product range, distribution partnerships, client type or geographic diversification are ineffective at growing AUM particularly in light of continued change and disruption in the competitive landscape.

 

Potential impact

Our ability to generate fund inflows and prevent outflows may be jeopardised by fundamental changes in distribution patterns or by a sustained market preference for products we do not offer. This would have a detrimental impact on profitability and shareholder value.

 

Mitigation/controls

We continually analyse our markets to ensure we maintain a diverse product suite that appeals to existing and potential clients. We focus on investment outperformance after fees. In response to the rising demand and supply of passive investment products, we focus on the clear differentiation of our active strategies and routes to markets where active solutions are in strong demand.

 

Our well-defined product development process enables us to deliver new products or enhancements, so we can target client groups in a timely and efficient way.

 

2018 impact

In 2018 we continued our strategy of diversification by client, product and geography with the launch of six new pooled funds, both for the UK and internationally, and the development of a number of new strategic distribution partnership relationships, especially in Asia.

 

These initiatives, combined with prior diversification initiatives such as continued development of our European offices meant that whilst 2018 was a challenging year for net flows, gross flows held up.

 

Sustained market decline

 

Owner: ExCo

 

Board risk rating at year end

2017: Medium

2018: Medium

 

Risk                                                          

The risk of a severe market and economic downturn which affects all fund managers and all asset types across all geographic markets.

 

Potential impact

A secular downturn could result in a reduction in assets under management leading to a decline in revenue and capital levels. There may be additional outflows as investors switch to non-financial assets.

 

Mitigation/controls

Our investment philosophy allows our fund managers to pursue their own investment styles and the flexibility to adjust strategies as far as possible to retain value during unfavourable market conditions. We have a broad range of investment strategies which enables us to offer products suitable for different market conditions.

 

We regularly review our discretionary expenditure and cost base to ensure sustainability. Our strong capital position and relatively low cost base means we are well placed to cope with this risk.

2018 impact

Our assessment of capital adequacy included regular modelling of six stress tests which determined that the Group remained sufficiently capitalised under severe but plausible conditions.

 

Continued diversification by product, strategy and asset class during 2018, such as the recently launched Multi-Asset strategy has reduced our exposure to market direction.

 

Whilst we've experienced weaker markets in 2018, risk of further declines is still high and, therefore we maintain a risk rating of medium.

 

OPERATIONAL RISKS

 

BREXIT

 

Owner: ExCo

 

Board risk rating at year end

2017: Medium

2018: Medium

 

Risk

Due to the uncertainty regarding the implications of Brexit, the risk that we are not ready to comply with post Brexit requirements which could restrict our ability to operate within the EU.

 

Potential impact

An unexpected change in regulation (for example, the loss of delegation rights from our fund management function in London), could mean that we are not operationally ready to comply with post-Brexit requirements which delays our ability to manage, distribute and market our funds to investors in EU countries. This could result in reduced inflows and increased outflows over the period.

 

Mitigation/controls

In advance of Brexit, we have established a Management Company in Luxembourg, Jupiter Asset Management International ("JAMI"), for our SICAV product range; the effective date of JAMI's appointment as Management Company is 1 March 2019.

 

Throughout the current period of uncertainty, we have been closely monitoring communications from and developments with respect to the UK and EU governments and regulators to ensure we remain aware of and responsive to the latest industry guidance with the support of specialist experts.

 

2018 impact

As part of JAMI's set-up, we obtained the required regulatory approvals and set up six new branch entities of JAMI to facilitate the continued distribution of the SICAV product range in the EU. We have hired Luxembourg-based conducting officer staff who will enable JAMI to perform its role as Management Company and oversee the provision of services to it/the SICAVs by both delegates and service providers.

 

ESMA and the UK regulator have come to an agreement to allow delegation of portfolio management to the UK to continue as it is now in the event of a 'hard' Brexit. Based on this, we are on track to be ready for our 1 March 2019 effective date, and we rate the risk as low.

 

Operational control environment

 

Owner: Chief Operating Officer

 

Board risk rating at year end

2017: Medium

2018: Medium

 

Risk

We could suffer a material error executing a key business process, or from our systems or business premises being unavailable.

 

Potential impact

A significant error or breach of a client agreement may result in additional costs to redress the issue and could lead to outflows. The unavailability of our key systems or business premises could mean we are unable to act on behalf of our clients and/or perform other time critical activities to ensure the smooth running of our business.

 

Mitigation/controls

We have efficient and well-controlled processes and maintain a comprehensive risk management framework which enables the business to focus its efforts on key activities.

 

We have continuity and business resumption planning in place to support our critical activities. We have implemented remote working, including core system access for all our essential staff if they cannot travel to our offices. If our normal business systems or premises become unavailable, we have alternative premises including a dedicated office suite equipped with all of our critical business systems.

 

2018 impact

Our governance, risk and control (GRC) framework is critical to our success. It ensures we protect the interests of our clients, people and shareholders, and that we meet their expectations of us. It also ensures that we are proactive in meeting all new regulatory requirements.

 

We have invested significantly in our GRC environment in recent years, so it remains fit for purpose as the business grows and new regulations are introduced. We continue to enhance our governance, process and controls, and to evolve the management information and reporting that supports our decision-making.
 

Failure of a critical outsource partner

 

Owner: Chief Operating Officer

 

Board risk rating at year end

2017: High

2018: Medium

 

Risk

The failure or non-performance of a third party provider who we rely on for business processing may lead to us failing to deliver the required service to our clients and/or regulatory non-compliance.

 

Potential impact

Our relationships with stakeholders may be jeopardised if we provide inadequate service, resulting in the loss of clients or regulatory or financial censure and negative financial consequences.

 

Mitigation/controls

We subject all third parties who provide us with critical services to a high level of ongoing oversight, through our established Supplier Management framework, giving us assurance that they meet our required standards. Jupiter has formal guidelines for managing and overseeing all third-party relationships, ensuring they receive a level of scrutiny that reflects their potential risk to our business.

 

2018 impact

In 2018, our assessment of suppliers reported one critical supplier that had an overall risk rating as high. During the last 18 months we have worked extensively with this supplier to oversee an agreed programme of work to deliver the management actions required to address our concerns.

 

Significant progress was evidenced over this period which has resulted in the reclassification of this supplier's overall rating from high to medium. We continue to work closely with this supplier to complete the remaining work which will reduce the supplier's rating further over time.

 

Cyber crime

 

Owner: Chief Executive Officer

 

Board risk rating at year end

2017: Medium

2018: Medium

 

Risk

The risk that a successful cyber-attack or fraud attempt could result in the loss of clients' assets or data or cause significant disruption to key systems.

 

Potential impact

A significant attack could undermine client confidence in our ability to safeguard assets, which could affect our ability to retain existing clients and attract new business. This could drive negative financial consequences.

 

Mitigation/controls

We commit considerable human and technological resources to preventing a cyber security incident. Our server environments are housed in two data centres provided by a specialist third party and offer fully resilient and secure facilities. We have established a security awareness programme to extend knowledge and understanding within the business. Jupiter applies best practices from the ISO 27001 controls framework with additional reference to SANS Critical Security Controls in order to prioritise our technology defences. We have produced an extensive Cyber Security Incident Response plan to ensure departmental heads can adequately respond to the growing threat of cyber crime.

 

2018 impact

To ensure we remain well placed to identify and implement preventative measures against current and emerging cyber threats facing the industry, we joined the Investment Association Cyber Security Committee and also successfully maintained our Cyber Essentials Plus certification in 2018.

 

We continued to promote cyber training and awareness initiatives across the Group to educate the business on potential threats and good practice. This included workshops held with members of the Executive and focused education sessions made available for all employees supported by periodic testing.

 

Work continued with an ongoing programme of work to review the security posture of critical and important third party suppliers in conjunction with our Supplier Management Team.

 

Regulatory change

 

Owner: General Counsel

 

Board risk rating at year end

2017: Medium

2018: Medium

 

Risk

The risk that changes in regulation restrict or impact our ability to do business or that we fail to implement changes required to meet new regulatory requirements.

  

Potential impact

Our ability to do or support our business may be inhibited, which could lead to negative financial consequences. Potential regulatory censure and any related negative publicity could damage our clients' confidence in us and affect our ability to generate new business.

 

Mitigation/controls

We continually monitor regulatory developments to assess potential business implications. We invest in the expertise, systems and process change necessary to enable compliance with regulatory requirements by the required dates. We maintain a robust compliance culture and require all relevant employees to undertake training on regulatory matters.

 

Our Compliance department supports the business in implementing and maintaining appropriate regulatory controls.

 

2018 impact

Substantial time and resource was committed through 2018 implementing the necessary change programme to ensure that the implications of the Brexit referendum vote, particularly the possibility of a "hard Brexit" would not detrimentally impact the Group's operations and its ability to continue providing investment services to our clients and investors in its funds.

Good progress was made in the Group's preparations for the Senior Managers and Certificated Regime (SMCR) through a dedicated project team comprising key business stakeholders.

We successfully implemented our MIFID II and GDPR programmes.


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Results for the year ended 31 December 2018 - RNS