RNS Number : 8463Y
Jupiter Fund Management PLC
28 February 2013
Jupiter Fund Management plc
28 February 2013
2012 was another positive year for Jupiter as we continued to position the business for growth.
1 Earnings before interest, tax, depreciation and amortisation ("EBITDA") is a non-GAAP measure which the Group uses to assess its performance. It is defined as operating earnings excluding the effect of depreciation and the charge for options over pre-Listing shares.
Edward Bonham Carter, Chief Executive, commented:
"Our strong investment performance, brand and distribution capabilities have helped Jupiter steer a steady course through another challenging year for financial markets. This, combined with our increasingly robust balance sheet and confidence in our growth prospects, has led the Board to recommend increasing our total dividend by 13 per cent. to 8.8p."
There will be an analyst presentation at 8.45am on 28 February 2013.
The presentation will be held at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. The presentation will be accessible via a conference call for those unable to attend in person. To attend the presentation or dial in to the conference call, please contact Laura Ewart at FTI Consulting on +44 (0)20 7269 7243 or at email@example.com. Alternatively, sign up online using the following link: http://mediazone.brighttalk.com/event/Jupiter/3501672ebc-7113-intro.
The Results Announcement will be available at www.jupiteronline.com and copies may also be obtained from the registered office of the Company at 1 Grosvenor Place, London SW1X 7JJ. The Annual Report will be published in March 2013 and will be available at www.jupiteronline.com.
During 2012, we have continued to deliver value to clients and shareholders, via the successful execution of our business model through investment outperformance, effective distribution and efficient operations.
While equity markets posted positive gains for the year, this performance masked significant underlying volatility, particularly during the first half of the year, as investors grappled with continued turmoil in the Eurozone.
Our focus on investing in quality companies which we believe are able to deliver strong results throughout the market cycle typically results in stronger performance in challenging market conditions. The majority of our funds outperformed over the three year period typically used by financial advisers, as well as over one year. Over the three years to 31 December 2012, 79 per cent. of mutual fund AUM was above median with 56 per cent. above median over one year. Furthermore, our institutional clients saw excellent returns last year with all mandates beating their benchmarks.
Our managers continue to be recognised for their investment skills, and in October, Jupiter won S&P Capital IQ's Diversified Group of the Year 2012. We also continue to have a high number of funds recommended by independent analysts and financial advisers. Financial Express, for example, awarded 'Alpha' manager status to 12 Jupiter managers in 2012 - more than any other asset manager in the UK.
While the overall environment for savings remained below historic levels and flow patterns were unfavourable in our core UK and European markets, 2012 was another good year for net inflows into Jupiter products. The Group recorded net inflows of £1.0bn in 2012, up from £0.7m in 2011 which, combined with market movements, led to record assets under management of £26.3bn at year end. Mutual fund net inflows in the year were particularly strong at £1.6bn, driven by our strong investment performance, recognised brand, increasingly diverse product set and international distribution reach. This is shown by AUM in fixed income and convertible bond products totalling £2.6bn at 31 December 2012, and our SICAV range, sold predominantly to international clients, having AUM of £1.9bn. Our overall flows were, however, held back by the withdrawal of a single large segregated mandate of £0.6bn.
In September 2012, Maarten Slendebroek joined Jupiter in the newly created role of Distribution and Strategy Director. He has many years' experience of building asset management operations and will play a key role in building further on our increasingly diversified distribution capabilities in the UK and abroad.
Our scalable operating platform allowed us to deliver steady results in 2012. EBITDA margins remained above 50 per cent. and underlying EPS was down one per cent. at 19.0p after reinvesting the savings from deleveraging our balance sheet in our people, platform and distribution reach. Continued cash generation has seen us reduce our gross debt to £78m and we have an increasingly robust balance sheet with a net cash position of £69m at year end. This has allowed us to raise the total dividend by 13 per cent. to 8.8p, reflecting the Board's confidence in the Group's growth prospects.
It is possible the current rally in financial markets will be sustained, assuming the ECB continues to support weaker economies and the US recovery is not derailed. However, in reality, not much has changed from a year ago and markets are still facing several long term challenges.
While savers across Europe remain squeezed in the short term due to low wage growth and increases in the cost of living, the structural growth drivers for the savings market remain intact. Jupiter is renowned for its brand strength and ability to deliver outperformance over the long term and we are looking forward to capitalising on the growth opportunities available to us, both in the UK and internationally, in order to deliver strong returns for clients and shareholders.
Edward Bonham Carter
We realised net inflows in the year within mutual funds of £1.6bn (2011: £0.5bn). These flows were concentrated into funds at the cautious end of the risk spectrum, although we saw increased demand for equity products as client risk appetite increased towards the end of the year. Looking at the wider product range, this was partially offset in the first half of the year by a single segregated outflow of £0.6bn, leading to our achieving overall net sales of £1.0bn (2011: £0.7bn). Flows in Private Clients were held back by the withdrawal of a single large client portfolio.
Assets under management increased to a record £26.3bn at 31 December 2012 (31 December 2011: £22.8bn) due to net inflows and market appreciation across the year. The majority of those assets continue to be in mutual funds, at 79 per cent. (31 December 2011: 75 per cent.).
In the key three year investment period, at 31 December 2012, 33 mutual funds representing approximately 79 per cent. of mutual
funds, by AUM, had delivered above median investment performance (31 December 2011: 26 mutual funds representing approximately 74 per cent. of mutual fund AUM). Looking across the shorter term period of 2012 only, in a period of continued market instability, our funds continued to perform well with 28 mutual funds above median over one year, representing 56 per cent. of mutual fund AUM as at the year end (31 December 2011: 26 funds representing 82 per cent. of AUM).
RESULTS FOR THE YEAR
The financial performance of the Group is discussed below.
Net revenues for the year were £244.5m (2011: £248.5m), two per cent. behind 2011. While net management fees remained flat, broadly in line with average market levels (the FTSE 100 averaged 5,742 compared to 5,680 in 2011), net revenues fell due to lower initial charges and performance fees. The reduction in initial charges was due to a less favourable pattern of sales versus redemption activity across individual funds and the expected reduction in net amortised front end fees.
Net management fees continue to contribute the majority of our net revenues (2012: 92 per cent., 2011: 91 per cent.). The net management fee margin for the year was 93 basis points, slightly below the 2011 margin of 95 basis points, but in-line with our expectations and previous market guidance. We continue to expect net management fee margins to decline slowly over time, although the rate and angle of any such decline continues to be uncertain.
Administrative expenses of £128.4m (2011: £123.8m) rose by four per cent. Total fixed costs of £81.0m (2011: £77.4m) were five per cent. above the prior year as we reinvested the savings from deleveraging our balance sheet in our people, platform and distribution reach. Throughout the uncertain external environment during the last 18 months, we have continued to exercise careful cost discipline, mindful of both prevailing market conditions and our desire to grow the business over time.
Fixed staff costs of £39.5m (2011: £38.7m) increased due to investment in our distribution and operating platforms during the year. We also continued to seek further efficiencies in our operating platform, closing the Bermuda office and signing a contract to outsource the administration of our private client accounts. This will enhance the services proposition to our private client investors and establish a more efficient and scalable platform for future growth once complete in 2013.
Variable staff costs of £40.1m (2011: £36.8m) increased by nine per cent. due to the continuing roll out of the post-Listing compensation structure. The primary drivers of this were a further year of awards under the LTIP scheme and the third full year of the accounting charge for the Deferred Bonus Plan. This was partially offset by a reduction in the cash bonus charge in line with reduced earnings and lower performance fees, and the run off of the pre-IPO deferral scheme during the year. Variable compensation as a proportion of pre-variable compensation operating earnings was 25 per cent. (2011: 22 per cent.). This excludes a £7.3m charge (2011: £9.6m) 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 to remain in the mid to high twenty per cents range over the medium-term as the incentive schemes put in place as part of our Listing build to maturity.
EBITDA was £124.2m for the year (2011: £134.9m), an eight per cent. decrease on the prior year, primarily as a result of the reduction in amortised front end fees and the anticipated increase in variable costs. Despite this, the Group's EBITDA margin remained above 50 per cent.
Amortisation of intangible assets
Amortisation of £39.7m (2011: £39.9m) included £38.7m (2011: £38.7m) relating to intangible assets acquired as part of the MBO on 19 June 2007 at a value of £276.7m. These assets relate to investment management contracts (acquired for £258.0m) and the Jupiter brand name (acquired for £18.7m), amortised on a straight line basis through to June 2014 and June 2017 respectively. The remaining £1.0m relates to the amortisation of acquired computer software.
During 2012, the Group recognised an exceptional gain of £5.0m in relation to a refund received from the Financial Services Compensation Scheme (FSCS) for a levy that was recognised as an exceptional cost in 2010.
Finance expenses of £7.4m (2011: £14.3m) decreased by 48 per cent., primarily due to a decrease in interest payable on the bank loan from £9.5m in 2011 to £5.6m in 2012. This was due to the outstanding bank loan being paid down from £283.0m at the start of 2011 to £78.0m at the end of 2012. The positive effect of the loan repayments was partially offset by an acceleration in the recognition of the debt issuance costs of £0.5m (2011: £1.6m). Finance expenses were further reduced due to a £0.3m reduction in the fair value of the swap in 2012, compared to a £1.6m reduction in 2011.
Profit before tax ("PBT")
PBT for the year was £73.6m (2011: £70.3m).This increase of five per cent. was driven by the reduction in finance expense and the recognition of exceptional income in 2012, partially offset by reduced operating earnings.
The effective tax rate for 2012 is 24 per cent. (2011: 27 per cent.). This is lower than the standard rate of corporation tax of 24.5 per cent. mainly due to capital gains in the year being offset by prior year capital losses and the effect of adjusting the opening deferred tax balances in light of the forthcoming changes to the standard rate of corporation tax.
Underlying profits and underlying earnings per share ("EPS")
Underlying profit before tax and underlying EPS are non-GAAP measures which the Board believes provide a more useful representation of the Group's trading performance than the statutory presentation. The Group's basic and diluted EPS measures were 14.9p and 14.2p respectively in 2012, compared to 15.6p and 15.0p in 2011.
The 2012 underlying EPS was 19.0p (2011: 19.1p). This one per cent. fall came as lower operating earnings were mostly offset by reduced finance expenses and the lower statutory tax rate.
The Group has a high conversion rate of operating earnings to cash, generating positive operating cashflows after tax in 2012 of £110.6m (2011: 107.1m). This cash was primarily used for payments of £33.9m in respect of the interim and final dividends to shareholders and repayments of £65.0m of bank debt, thereby reducing future interest charges. In addition, a net £6.8m was invested in seed capital investments during the year, returning this balance to its targeted level of around £50m. As a result of these movements, overall cash held decreased slightly by £3.4m to £147.0m (2011: £150.4m), though this position is flattered by £11m of client settlement balances shown on the balance sheet at the year end.
ASSETS AND LIABILITIES
Helped by reduced financing costs from the deleveraging of the balance sheet during 2010 and 2011 alongside the generation of significant cash amounts through trading, the Group strengthened its net cash position at 31 December 2012 to £69.0m (2011: net cash of £7.4m). This balance was flattered by £11m of cash from unsettled client trades, in the absence of which net cash would have been £58.0m.
The bank facility contains no financial covenants and is not due for repayment until June 2015. Despite this horizon, we expect to pay down the debt in tranches ahead of 2015 as there are no penalties for early repayment. Accordingly repayments were made in June, October and December 2012 of £33.0m, £18.0m and £14.0m respectively. There is no specific timetable for any further repayments and the Board will continue to monitor the level of debt in combination with the level of cash generated.
Seed capital investments
We deploy seed capital into funds to assist us in building a track record from launch or to give small but strongly performing funds sufficient scale to attract external money. As at 31 December 2012, we had a total investment of £53.8m in our own funds (2011: £39.1m) as seed capital returned to targeted levels. 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 into liquid funds and chooses to hedge market and currency risk on the majority of its holdings of seed capital investments, with 99 per cent. of seed capital either hedged or invested in absolute return products. As a result, the value of these investments is stable and available to improve the Group's cash balances and liquidity if required.
EQUITY AND CAPITAL MANAGEMENT
Total shareholders' equity increased by £34.4m to £459.0m as a result of the Group's continued profitability, partially offset by the final and interim dividends.
In February 2012, the Group was granted a new investment firm consolidation waiver. This will run for the three years from June 2012 to June 2015. The FSA's policy is not to grant waivers in respect of periods where projections do not support the requirement. However, the FSA have confirmed that should market or other conditions change prior to June 2015 such that a consolidation waiver may be required, a new application would be considered in the usual way.
The Board has implemented a progressive dividend policy, with dividends determined by taking into account historic and anticipated profits, cash flow and balance sheet position, with the split between the interim and final dividend weighted towards the final dividend. Due to the Group's increasingly robust balance sheet and the Board's confidence in Jupiter's growth prospects, the Board is recommending an increased final dividend for the year of 6.3p (2011: 5.3p) per share to ordinary shareholders, making a total payment for the year of 8.8p. (2011: 7.8p). This payment is subject to shareholders' approval at the Annual General meeting and, if approved, will be paid on 23 April 2013 to shareholders on the register on 8 March 2013.
Financial statements (audited)
For the year ended 31 December 2012
For the year ended 31 December 2012
1.1 NET REVENUE
The Group's primary source of revenue is management fees. Management fees are based on an agreed percentage of the assets under management. Performance fees are earned from some funds when agreed performance conditions are met. Other revenue items include initial charges, which are based on a set percentage of inflows to our funds, and commissions earned on box profits and private client dealing charges. Net revenue is stated after fee and commission expenses to intermediaries for ongoing services under distribution agreements.
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, this information is not used by the Board to make decisions on an aggregated basis. The information used to allocate resources and assess performance is reviewed for the Group as a whole. On this basis, the Group considers itself to be a single-segment investment management business.
Management monitors operating earnings, a non-GAAP measure, for the purpose of making decisions about resource allocation and performance assessment.
1.3 ADMINISTRATIVE EXPENSES
Administrative expenses of £128.4m (2011: £123.8m) include staff costs of £86.9m (2011: £85.1m). Staff costs consist of:
1.4 EXCEPTIONAL INCOME
During 2010, a charge of £5.2m was recognised in relation to the contribution made to the Financial Services Compensation Scheme (FSCS) second interim levy for 2010/11. In 2012, £5.0m of this levy was refunded and recognised as exceptional income.
There was no income arising in 2011 which the Group considers to be exceptional.
1.5 FINANCE EXPENSE
1.5 FINANCE EXPENSE (continued)
During the year, £65.0m (2011: £140.0m) of the senior bank debt was repaid. This resulted in an acceleration of £0.5m (2011: £1.6m) in the amortisation of the debt issue costs.
Interest rate swaps
In November 2010, the Group entered into two interest rate swaps, both with a notional value of £35.0m with interest settling quarterly. One is for a period of three years paying a fixed interest rate of 1.33 per cent., the other is for a period of four years paying a fixed interest rate of 1.6175 per cent.
1.6 INCOME TAX EXPENSE
Analysis of charge in the year:
The weighted average UK corporation tax rate for the year ended 31 December 2012 was 24.5 per cent. (2011: 26.5 per cent.). The tax charge in the year is lower (2011: higher) than the standard rate of corporation tax in the UK and the differences are explained below:
1.7 EARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year, less the weighted average number of own shares held.
Diluted EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during that year 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 over the years reported. The weighted average number of ordinary shares during the year used for the purposes of calculating EPS is as follows:
1.7 EARNINGS PER SHARE (continued)
The weighted average number of own shares is deducted from the weighted average number of ordinary shares. 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.
For the year ended 31 December 2012
2.1 CASH GENERATED FROM OPERATIONS
As at 31 December 2012
On 19 June 2007, the Group acquired the entire share capital of Knightsbridge Asset Management Limited which gave rise to a goodwill asset being recognised.
No additional goodwill was recognised in the year (2011: £nil). The Group has determined that it has a single cash generating unit (CGU) for the purpose of assessing the carrying value of goodwill. The recoverable amount for the acquired share capital was based on a fair value less costs to sell calculation using the Company's year end share price. No impairment was implied.
3.2 INTANGIBLE ASSETS
In 2007, the Group acquired the entire share capital of Knightsbridge Asset Management Limited. This acquisition gave rise to the recognition of intangible assets relating to investment management contracts and trade name of the Group. The other intangible assets relate to computer software. The Directors have reviewed the intangible assets as at 31 December 2012 and have concluded there are no indicators of impairment.
The amortisation charge for the year was £39.7m (2011: £39.9m). No additional investment management contracts were acquired in the year (2011: £nil).
3.3 PROPERTY, PLANT AND EQUIPMENT
The net book value of property, plant and equipment at 31 December 2012 was £1.6m (2011: £1.6m). During the year, the Group acquired property, plant and equipment with a value of £0.8m (2010: £1.1m).
3.4 FINANCIAL INSTRUMENTS
Financial instruments by category
The carrying value of the financial instruments of the Group at 31 December is shown below.
3.4 FINANCIAL INSTRUMENTS (continued)
3.5 CASH AND CASH EQUIVALENTS
Cash at bank earns interest based at the current prevailing daily bank rates. Short-term deposits are made for varying periods of between one day and three months, depending on the forecast cash requirements of the Group, and earn interest at the respective short-term deposit rates. The overdraft in 2011 arose during the ordinary course of business and relates to a settlement timing difference over the year end.
3.6 LOANS AND BORROWINGS
The Group has a syndicated loan which is repayable on or before 19 June 2015. The loan is secured by a charge over the assets of a subsidiary company, Jupiter Asset Management Group Limited. The restrictions which arise under the terms of the loan facility prevent intercompany loans between certain subsidiaries and prohibit assets being sold, leased or disposed of other than in the ordinary course of business.
As shown below, the carrying value of the loan is disclosed net of unamortised debt issue costs which were capitalised on issue.
3.6 LOANS AND BORROWINGS (continued)
The movement on the carrying value of the loan is shown below:
Interest was payable at a rate per annum of three month LIBOR plus a margin of 3.75 per cent. The Group has two interest rate swaps in place to hedge its floating rate exposure. Details on these are given in Note 1.5 Finance expense.
For the year ended 31 December 2012
4.1 SHARE CAPITAL
(i) Share premium
The share premium account represented amounts received on the issue of share capital in excess of nominal value and was not a distributable reserve. On 9 June 2011, the Company's share premium reserve was, with the sanction of the Court, cancelled and an amount of £255.7m was transferred to a distributable reserve.
(ii) Capital redemption reserve
On 9 June 2011, the Company's capital redemption reserve of £54.1m was, with the sanction of the Court, cancelled and an amount of £54.1m was transferred to a distributable reserve. Thus the balance on the Company's capital redemption reserve at 31 December 2012 and 2011 was £nil.
(iii) Own share reserve
At 31 December 2012, 42.5m (2011: 82.5m) ordinary shares beneficially owned by senior employees were subject to restrictions which, in some circumstances, require the Group to repurchase the shares at their nominal value, and this liability is shown within current trade and other payables. These restrictions are released over the next three years with the majority being released in 2013. The shares are held within the Group's EBT and, together with a further 20.9m (2011: 20.9m) shares held for the purpose of satisfying share option obligations to employees, are treated as own shares with a cost of £1.3m (2011: £2.1m).
(iv) Other reserve
The other reserve of £8.0m (2011: £8.0m) relates to the conversion of Tier 2 preference shares in 2010.
(v) Available for sale reserve
The available for sale reserve of £6.6m (2011: £11.4m) relates to the uplift in the fair value of the Group's holdings in investments classified as available for sale.
(vi) Foreign currency translation reserve
The foreign currency translation reserve of £7.1m (2011: 7.4m) is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
(vii) Retained earnings
Retained earnings of £429.8m (2011: £390.7m) are the amount of earnings that is retained within the Company after dividend payments and other transactions with owners.
Dividends of £1.8m (2011: £1.2m) were paid on shares held in the EBT, beneficially owned by the Company. Net dividends paid were therefore £33.9m (2011: £31.7m).
A final dividend for 2012 of 6.3p per share (2011: 5.3p) amounting to £28.8m will be proposed at the Annual General Meeting on 18 April 2013 and will be accounted for in 2013.
5.1. BASIS OF PREPARATION
The financial information set out does not constitute the Company's statutory accounts for the years ended 31 December 2012 or 2011, but is derived from those accounts. The Auditors have reported on the 2012 and 2011 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 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered in due course.
The presentation of the financial statements has been reformatted in 2012 to enable greater understanding of the financial results and position of the Group. Where appropriate, the comparative information has also been reformatted for better comparison.
The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and IFRIC Interpretations ("IFRS as adopted by the EU") and with the provisions of the Companies Act 2006 applicable to companies reporting under IFRS.
5.2. RELATED PARTIES
The Group manages, through its subsidiaries, a number of investment trusts, unit trusts and overseas funds. The subsidiary companies receive management fees from these entities for managing the assets, and in some instances, receive performance fees. The precise fee arrangements for the different entities are disclosed within the financial statements of each entity or within other information which is publicly available.
The Group manages a number of collective investment vehicles and, by virtue of the investment management agreements in place between the Group and these vehicles, they may be considered to be related parties.
The Group acts as manager for 38 (2011: 36) 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 £2,831.2m (2011: £2,572.8m) for unit trust creations and £1,819.4m (2011: £1,855.0m) 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 £11.5m (2011: £1.4m). The amount received in respect of gross management and registration charges was £301.3m (2011: £294.3m). At the end of the year, there was £8.4m (2011: £6.7m) outstanding for annual management fees and £1.3m (2011: £1.0m) in respect of registration fees.
Investment management and performance fees are disclosed in Note 1.1.
Included within the financial instruments note are seed capital investments in funds managed by the Group. At 31 December 2012, the Group had a total net investment in collective investment vehicles of £53.8m (2011: £39.1m) and received distributions of £0.1m (2011: £0.2m). During 2012, it invested £29.1m (2011: £nil) in seed capital investments and received £19.8m (2011: £8.3m) on disposal of them.
TA Associates, L.P. is also considered a related party of the Group. There were no transactions with TA Associates, L.P. in the year.
Key management compensation
The Group also considers transactions with its key management personnel as related party transactions. Key management personnel is defined as the executive Directors together with other members of the Executive Committee. The aggregate compensation paid or payable to key management for employee services is shown below:
The Directors are responsible for preparing the Annual Report and Accounts, the Directors' 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 parent Company financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union. In preparing these financial statements, the Directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board (IASB).
Under company law, the Directors must not approve the financial statements unless they are satisfied that they 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. In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether applicable IFRSs, as adopted by the European Union and IFRSs issued by IASB, have been followed, subject to any material departures disclosed and explained in the financial statements; and
· prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that 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 Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulations. They are also responsible for safeguarding the assets of the Company and the Group and, hence, for taking reasonable steps for the prevention and detection of 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, confirms that, to the best of his or her knowledge:
· the Group and Company financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the Group; 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, Directors' reports shall include 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 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
Chief Financial Officer
27 February 2013
There is a risk that our clients' portfolios will not meet their investment objectives due to underperformance.
Poor investment performance may lead to our products being uncompetitive, resulting in a decline in Group AUM and revenues.
Our investment process seeks to meet investment targets within clearly stated risk parameters. We use tools and governance principles within our investment risk framework and we review performance that lies outside expectations. Fund performance is monitored as part of the investment performance risk management process and is formally overseen by a portfolio review committee which meets quarterly.
Failure to retain key staff
We are a human capital business and our staff are a significant component of successfully executing our strategy.
The departure of a high profile fund manager could lead to a significant level of redemptions from their funds, having a material impact on our levels of AUM and revenues.
We believe that high levels of employee engagement and equity ownership drive business outperformance and we strive to ensure we have an attractive working environment and a competitive remuneration structure. We also develop, monitor and maintain succession planning for all key roles.
Significant mandate breach
Our funds are managed in accordance with investment mandates and restrictions agreed with our clients. Failure to adhere to these mandates would reflect a poor level of client service and may jeopardise relationships with our clients.
If investments are made or managed in breach of an investment mandate, we may be required to unwind the relevant transactions and could be liable for any losses suffered by an affected party in doing so.
All Jupiter's portfolios are monitored on an ongoing basis by our Compliance and Portfolio Analytics departments, with functionality coded into the order management system to allow the pre and post trade checking of investment activity. Portfolios are subject to peer reviews and periodic valuation checks, and undergo formal scrutiny at the Portfolio Risk Committee in addition to being subject to review by trustees and/or administrators.
A significant regulatory investigation or action against the firm could have a detrimental effect on our reputation and business.
Regulatory censure and the related adverse publicity may lead to a loss of confidence by our clients as well as having a negative impact on our ability to generate new business.
Our Compliance department conducts a robust programme of internal monitoring to ensure that regulatory controls are adhered to. Our risk governance structure and whistleblowing policy are designed to ensure that any regulatory issues can be escalated to senior management in an open and timely way, ensuring the maximum appropriate amount of regulatory protection for clients.
Changes in distribution and product trends
The risks reflect potential future changes in our fee structures, or in the appetite of clients to invest in our products.
Our ability to generate flows may be jeopardised by fundamental changes in distribution patterns or by a sustained market appetite for products Jupiter does not offer.
We undertake ongoing analysis of the markets in which we operate in order to ensure that we maintain a diverse suite of products that continue to appeal to our existing and potential future customers. A well-defined product development process enables us to deliver new products or enhancements to target client groups in a timely and efficient manner.
Operational error or fraud
A material error in the execution of a key business process, or a fraud being successfully carried out against us or our clients.
A significant error or successful fraud may lead to negative financial impact on the Group due to the cost of redressing any issues.
We rely on efficient and well-controlled processes. The potential impact and likelihood of processes failing and operational risks (including fraud) materialising is assessed by each operational area on a regular basis. Where these likelihoods are felt to be outside our appetite for risk, management actions and/or control improvements are identified in order to bring each potential risk back to within acceptable levels.
Failure of third party supplier
The failure of a provider to which we have outsourced key business processing activities may lead to our not delivering the required level of service to our clients and shareholders or fulfilling our regulatory obligations.
Our relationships with key stakeholders may be jeopardised in the event of our providing an inadequate level of service, resulting in the loss of clients or regulatory/financial censure.
All third parties to whom we outsource material aspects of our business are subject to ongoing oversight, providing assurance that they are of the required standard.
Business continuity incident
Business operations, systems and processes are liable to disruption from fire, power loss, systems failure or external events.
Inability to carry out our business activities.
Continuity and business resumption planning is in place across our business in support of all of our key activities. Alternative premises, including a dedicated office suite equipped with all key portfolio management and support systems, should our normal business systems or premises become unavailable.
The failure of a trading or depository counterparty with which we have a relationship.
The loss of or inability to access material amounts of our or our clients' funds.
We seek to diversify our exposures across different counterparties and actively monitor their creditworthiness using a suite of key risk indicators including market data and credit agency ratings. Any deposits are placed according to agreed limits which may be amended in the context of any relevant changes.
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