Jupiter Annual Report 2010 - Jupiter Asset Management

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Business review | Directors’ report Figure 4 Mutual Fund flows were consistent across 2010 800 600 During the year, segregated mandate net inflows were £0.4bn, driven by new mandate wins and additional assets from existing customers. Private clients flows of £0.1bn were behind the previous year, primarily as a result of the one-off effects associated with hiring new managers during 2009. Investment trusts saw a £46m outflow related to the restructuring of the Jupiter Dividend & Growth Trust plc. None of the investment trusts which we manage reaches the end of its planned life before 2014. £m 400 200 Net sales: (2009: £1.8bn) £ 2.3bn 0 AUM As at 31 December 2010, we had increased our AUM to £24.1bn (31 December 2009: £19.5bn). -200 Q1 09 Q2 Mutual Funds Q3 Q4 Segregated Q1 10 Other Q2 Q3 Q4 AUM by product 31 December 2010 £m 31 December 2009 £m Mutual funds 18,418 14,692 Figure 5 2010 saw steady growth in AUM Segregated mandates 3,259 2,754 Private clients 1,693 1,355 £bn 25 20 15 10 5 0 1.0 2.1 10.1 Q1 09 1.0 2.4 11.5 Q2 09 1.3 2.7 14.0 Q3 09 1.4 2.8 14.7 Q4 09 1.4 3.0 16.0 Q1 10 1.4 2.5 15.2 Q2 10 Mutual Funds Segregated Mandates Private Clients Investment Trusts Hedge Funds 1.6 3.0 16.9 Q3 10 1.7 3.3 18.4 Q4 10 Investment trusts 527 546 Hedge funds 181 175 Total 24,078 19,522 The Group’s AUM is predominantly made up of mutual funds, which at 31 December 2010 increased to £18.4bn (31 December 2009: £14.7bn), representing 76 per cent. of total AUM (31 December 2009: 75 per cent.). We were the fifth largest fund manager of UK retail mutual funds by AUM at 31 December 2010. Investment performance Investment performance has remained strong for the majority of our funds and products. At 31 December 2010, 22 mutual funds representing approximately 66 per cent. of mutual funds, by AUM, had delivered first and second quartile investment performance over a three year period (31 December 2009: 19 mutual funds representing approximately 60 per cent. of mutual fund AUM). We saw an encouraging improvement in the one year record, as 55 per cent. of mutual funds at the year end were above median (31 December 2009: 46 per cent.). EBITDA EBITDA was £124.6m for the period (2009: £91.2m), 37 per cent. up on the prior year, primarily as a result of the scalability of our business model as net revenues rose sharply alongside a modest increase in fixed costs. As a result, the Group’s EBITDA margin rose to 54 per cent. (2009: 50 per cent.). The Group’s disclosed EBITDA includes a £2.0m charge in relation to the closure of our West Malling office after the outsourcing of our unit trust administration operations to IFDS in August. KPIs The group performance and the key performance indicators of the Group are also discussed within the Strategy & key performance indicators section within Who we are. Annual Report & Accounts 2010 20 Jupiter Fund Management plc
Business review | Directors’ report Net revenue Figure 7 Underlying fixed costs up 6% 2010 £m 2009 £m Net management fees 204.7 158.4 Net initial charge 20.1 18.5 Net performance fees 5.7 5.2 TOTAL 230.5 182.1 Figure 6 Net management fees up 29% 2009 £m 2010 158.4 204.7 Net revenue for the period was £230.5m (2009: £182.1m), 27 per cent. ahead of 2009. This was mainly due to an increase of 29 per cent. in net management fees, reflecting 20 per cent. higher average FTSE 100 levels at 5,465 (2009: 4,541) and the contribution from net inflows over the last two years. The net management fee margin for the year was 98 basis points, slightly above the full year 2009 margin. This was due to the increased proportion of mutual funds as a percentage of average AUM (76 per cent. versus 74 per cent. in 2009), as these assets typically tend to have a higher margin. However, we expect net management fee margins to decline slowly over time, as distributors take an increasing share of fees and the Retail Distribution Review alters industry pricing structures, although the rate and angle of decline is uncertain. Net management fee margin 2010 2009 Average FTSE 5,465 4,541 Average AUM £bn 21.1 16.3 Net management fee margin bps 98 97 Net initial charges and commissions increased by £1.6m to £20.1m (2009: £18.5m), reflecting higher levels of gross sales and redemptions versus 2009, driving higher box profits. Performance fees of £5.7m (2009: £5.2m) are in line with the previous year. Approximately £3.2bn of our AUM attracts a performance fee, the majority of which has a calculation period ending in the second half of the financial year. 2009 £m 2010 Fixed staff costs Non-staff costs 38.4 39.1 Figure 8 Variable staff costs increased while the variable compensation ratio remained stable 32.5 30.5 68.9 33.7 72.8 Administrative expenses 2010 £m 2009 £m Fixed staff costs 39.1 38.4 Other expenses 35.7 28.1 Total fixed costs 74.8 66.5 Variable staff costs 32.5 25.8 Charge for options over pre-Listing shares 7.8 – Administrative expenses 115.1 92.3 Figure 9 EBITDA up 37% 2009 £m 2009 2010 25.8 Variable staff costs (£m) 2010 21.0 21.0 Compensation ratio (per cent.) 91.2 124.6 Administrative expenses of £115.1m were £22.8m higher than 2009 as a result of increased variable compensation costs arising from improved profitability in 2010 and charges for options over pre-Listing shares. Fixed staff costs of £39.1m remained stable (2009: £38.4m), with headcount reduced by 75 in August as a result of the outsourcing of UTA operations to IFDS. This has improved operational scalability within the business and moved our fixed cost base to being more aligned with our activity levels. Occupancy costs were increased by £2.0m for a provision for the closure of our West Malling office after the UTA outsource in 2010 but were also reduced in 2009 by a non-recurring lease provision release of £2.4m which relates to 4 Grosvenor Place. Excluding these two items, underlying fixed costs of £72.8m (2009: £68.9m) were 6 per cent. up on the prior year. Variable staff costs increased in line with the higher profitability of the business in 2010. Variable compensation as a proportion of pre-variable compensation operating earnings was 21 per cent. (2009: 21 per cent.). This excludes a £7.8m charge for 2010 in respect of options granted prior to the Listing over the remaining shares in the pool established for employees at the time of the MBO in June 2007. We expect the variable compensation ratio outlined above to rise to the high twenty per cents over the medium-term as the incentive schemes put in place as part of our Listing build to maturity. Annual Report & Accounts 2010 21 Jupiter Fund Management plc
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Page 3 and 4: Introduction 01-06 Highlights Chair
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4038-04.11 SG Registered address: 1
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Jupiter Annual Report 2010 - Jupiter Asset Management

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