Record (LSE:REC) — Full Year Results Presentation

0:01 Good morning, and welcome to the RECORD PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Leslie Hill, CEO. Good morning to you.

0:33 Good morning. Thank you very much, and good morning to everyone who might be calling in. Thank you very much for your interest in RECORD. Steve Cullen is our finance director. I'm Leslie Hill, the CEO. We're going to go through some slides which describe in more detail the annual results. We're very happy to take questions that we can answer. I've already got one that is presubmitted, which is actually focusing on how we fund the various, remuneration and option schemes that we offer our

1:03 staff. And I would propose to answer that. I think it's a good answer, but I would also propose that we answer that at the moment where we're talking about costs and remuneration, if that's okay. With the person whose name, I'm not sure who that is. There's no name. There's no name. Yeah. But there will be an answer available, and I think you will I hope you will like the answer we give you. So I'm going to turn to the first slide. Steve, I'm going to ask you, if I may, just to run through the highlights of the results and the financial pieces, and then we'll talk about the strategy next. Yes. So I think just taking a step back and looking at sort of the changes we've had over the last two years since the change of leadership and and changing strategy, FY '21, which was the previous year, was what we saw as our transitionary year where we were changing resources starting to invest more in technology under the the modernization strand of our strategy.

2:09 And consequently, we we did see a dip in our operating profits last year and the inevitable lag between investing in systems and new products and the sort of revenue stream starting to come on board last year. So what we've now seen this year is is the is the revenue all the revenue stream starting to come on board and and

2:31 the sort of the benefits, if you like, of the of the year of investment that we had in FY '21. So in terms of financial headlines, the revenue, we've seen a 38% increase in our revenues. We've seen our operating margin sort of the bounce that we expected after the transitionary year last year from 24% back into sort of the the lower thirties, 31%. And we've seen our pretax profit increased to 10,900,000. So that's a 76% increase in pretax profit. And similarly, basic EPS, 64% increase in earnings per share. And what that's allowed us to do, we'd actually did at interims this year was to reset our ordinary dividend level.

3:21 We we on a forward looking basis, we we expected a good set of results this year. And so we reset our our ordinary dividend at interim to 1.8 for interim, and we're gonna match that as a final ordinary dividend of 1.8. So total ordinary dividend of 3.6. And similarly to last two or three years, we are also paying out a special dividend with both the balance, if you like, of the earnings, which equates to 0.92p per share. So a sort of a full a full payout ratio, a 100% payout ratio, to last year, which I think indicates the confidence that that we and and the board have in in the business and the the prospects of the business and the pipeline looking forward.

4:09 We've tried to we changed slightly the dividend policy. We can talk about it a little bit more about that on the relevant slide when it comes up. But we've given an indication of a range that we would expect our ordinary dividends to be in going forward of between 70% to 90% of earnings, which allows us the flexibility to adjust the payout ratio depending on the requirements of the business in terms of its capital. But, again, you know, reiterating, it's been a very, very good year. We're very, very pleased, I think, with the way things are going and and and, you know, the the fact that the the financial benefits are now starting to show through following a couple of years of of change and transition of the business. Thank you. Leslie, do you want shall I click on Yeah. To the strategy pages, and we can talk a little bit around the Yeah. Exactly.

5:03 The strategy. Right. So, obviously, you'll be thinking, well, what's going on? What's been happening? Some of you may

5:10 have listened last time and remember some of the things I said. But just in order to reiterate the strategy and clarify on what we have now been saying for a couple of years, and as Steve said, what is starting to bear fruit, there are three pillars or groups, areas that we've been working on

5:30 strenuously. The first was to modernize and is to modernize our business, not only the delivery of new services, but the way we deliver the more traditional services. We were falling behind technologically speaking, and our CTO, Becky Venice, who appears in our in our annual report, and you can read what she says. She's done a great job of bringing us into the twenty first century, a lot more use of the cloud and hybrid solutions, a lot more use of innovative software to remove manual processes. And that's proving very beneficial and extremely attractive to the clients. So we're very happy with that. We don't see the modernization as a we don't see the modernization as an endpoint. I think, like any asset manager, probably most businesses, we're constantly going to be investing in technology and have a budget for it, which is already baked in.

6:34 Fortunately for us, the software that we can buy to help us with these projects is getting cheaper and cheaper, so we can do a lot with the money that we're devoting to project. And so that's one aspect. Probably more relevant from the growth perspective in a sense is the diversification agenda. And I'm sure I'm not alone in believing that currency is a niche market, if you like. It's a niche interest,

7:03 and it's hard to make a truly successful and modern asset management firm if you're too specialized, although, clearly, you've got to pick where you concentrate your efforts. But my plan has been to diversify out of pure currency and derivatives into more mainstream asset management, particularly some aspects of fixed income, which I will go into more detail on in a minute. We have tended to focus very much on client led opportunities. What we tended to do in the past was we very often

7:38 would pick an idea, you know, let's say a euro breakup fund. It doesn't matter what the idea is, but it would be an idea we liked as currency manager we'd invented. And then the sales team led by me would go and look for people who believe as we did. Now that we've changed that in the sustainable finance fund, which we launched just under a year ago with UBS Wealth, is a good example of this. They come to us. They say we can't find an emerging market debt manager we like. Can you build us a fund with impact bonds, I. Fixed income and emerging markets and frontier currencies, and then we will seed it, and we'll work with you to develop it. So client led opportunities, there are a lot more of those in the pipeline that's going well and well in that respect.

8:24 So that's a form of diversification away from pure currency into asset management, fixed income, and a few other areas which will be coming later, should we say, maybe not in this presentation, but in future presentations.

8:39 We've also diversified our geography a little bit, which has been helpful. We've diversified the type of person, so we've had a bit of a reshuffle of staff, bringing in some specialists and structuring and fixed income particular areas of fixed income and in sustainable finance, and that's also bearing fruit, which is good. The third and last, but by no means least, for me, one of the most important things is I know that if we're going to do a really good job on this, we need the right people in the right jobs, and we need to keep them. We need to attract them and keep them. And so succession plan has been a big part of the work I've been doing. It's very much, again, bearing fruit. I've got the right people in the right jobs. I've got a few other places we could expand into, but that's a work in progress.

9:30 Extremely happy with all the people we've got now in the positions in which they find themselves

9:37 and moving forward. Now it may well be not a bad moment, actually, to answer the first question about how we manage Should we read the question then? Let's read the question. Yes. Okay. So a pre submitted question. Apart from salaries and pensions, your remuneration package has three additional strands, the EBT, group profit share, and the Rackle PLC share scheme. These schemes will dilute have to do dilute ordinary shareholders. Can you confirm that the various schemes are funded via purchases in the market rather than the issuance of new shares?

10:12 And what are the limits? In other words, how much dilution is permitted? Steve? Yeah. I think

10:19 so firstly, I think the EBT is is really just a vehicle through which we hold shares, warehouse shares to satisfy our option and other share schemes. Historically, and as a general rule, we we well, we no. Historically, we haven't had any dilution. We have always purchased in the market to satisfy our option schemes. I don't think we plan on changing that currently. You know, I I think everyone, including the chairman and and and the other the other sort of directors are of the view that, no, we want to avoid dilution if if if if we can. We do have the ability to issue shares up to a limit of 5% of very strong And

11:11 we have have have dilution wherever possible, and we have historically avoided dividend. Dilution, And but we do have the ability, I think, to issue up to 5% against when when when necessary necessary for for whatever reason, and and that would be renewed in in issues a AGM.

11:34 So I think that one answers that question. Hopefully, it answers that question, Lesley. Shall I go on to the the Yes. We have got one other question from Roger f. I will just I will just table it for one moment. It's a very interesting question about the Swiss franc, which we will get to because it's a very specific question. Now So if I click on to the next slide, basically, we can talk around. Yes. Okay. This is So having set in set the scene for the three important things we need to do, modernize, diversify, and plan for succession, We then moved to something we've not done traditionally, which was something that we, as a management team, spent a lot of time thinking about.

12:19 The first two years of of my work were,

12:23 as Steve has said, management changes, reconfiguring the business, refocusing a lot of work, a lot of difficult work actually, as it always is when you are inside setting the annual report renovating house. We're now at the point where I think it's probably I like to be as honest, open, and transparent as we possibly can be, at least open and transparent as much as we can with all our investors. And so I thought it was a good idea to show the sort of revenue targets we've set ourselves. I should stress, and that's in the top target, if you like, on on the top line. I should stress this is not pie this is not finger in the air.

13:09 Maybe we'll think of something in 2024 that will add a lot of revenue. I've spent a good deal of time with the management team and the sales team and investment team, and these are all projects that we have either seeded already or that we are about to seed or can see coming through the pipeline. It's genuine business. Now, of course, I haven't built in massive attrition. We're in a growth mode. And I believe but I do believe this is eminently doable. Otherwise, I wouldn't put it in there. And so I think it is helpful for investors to get a sense of our aspirations and our aspirations to grow the margin some more, which I believe we can because what we do is eminently scalable once we get fixed costs paid for and once we set a fund in motion or a project in motion, which can attract a good amount of assets.

14:00 As Steve said, we intend to continue to pay our ordinary dividend and stick to the target ratio, that we have described. There is a possibility one day I might come to the shareholders and outline a project which would require some of that dividend. But at the moment, what we generate in the way of cash and what we have is cash in the bank is quite enough for our purposes. So we don't need to change that policy at all.

14:28 The only other minor point is this after three years without performance fees, couple one particular one of our products stopped generating positive returns during COVID. In fact, it lost money. But luckily for us, our clients stuck with us, and that product has now returned to health. We've recouped all the way back and above the high watermark that have been set when we set the product up, so we will be generating performance fees this year for that product.

14:59 I don't think there's any more questions that I see down the side apart from Roger's question about Swiss franc. There will be some more underneath. There will be some more underneath. Should we have a look and see what they are? Which Roger again? Hang on. Oh, okay. Yes. Okay. So, actually, this question from Roger, which is a different one to the Swiss franc one, I am gonna read this one out because I think it's very important because it actually is testing stress testing our strategy. She will say that. So Roger says, given the rocky situation forecast for all the markets this year, how are you going to protect yourself from the adverse market movement that you had in 1920? I see 42% of underlying assets in passive hedging. Was it other? I think that means other currency. Right? Yeah. Can you shed some light on this? Do you manage these assets in house or outsource? Okay. Very good question. Right.

15:52 So you're right. A lot of our income is in foreign currencies, the bulk of it, in fact, in dollars, in euros, in Swiss francs, Canadian dollars, Australian dollars. So, we are always very mindful of that, and we hedge, generally speaking, we hedge in a a fairly passive way those assets, which all those revenues, all that does is effectively delay. But we do agree with you that we do need to protect ourselves from the adverse market movements. And the best protection for us is to diversify the type of products we offer. So less of our returns come from passive hedging this year than we would have done a couple of years ago. Less of our returns will come from currency in the future, less of our revenues. So the more we can diversify so that no one product can dominate, and in fact, no one currency can dominate our revenues.

16:55 We feel we can deliver continue to deliver stable and growing revenues and returns for for our investors. So diversification, moving into more active products in fixed income and currency, All of these things help manage manage the risks, and we also do some hedging in order to smooth the returns. But I I have to say, I think there is every reason to suppose that hedging less of our foreign income for the time being is a good thing because I don't know that there's very many people out there who believe that sterling, which is our base currency, and the currency in which we receive only a relatively small amount of our revenues is likely to be the strongest currency in the universe for the foreseeable future.

17:42 So it's a good question. We manage through diversification and some hedging, and we and we've actually got a slide where we can show that the split of our revenues has changed. We haven't got it by currency, I don't think. Have we? No. But we've got it by the time No. Of do you want should we We we can we can we should we go on to that Alright. As we go through the slides? I think one other point, I think, maybe I I don't the question is also linked to what Roger mentioned's market movement. So the the impact on our assets Good point. Arranging from arising rather from market movements.

18:20 And we we certainly did see quite a big market movement, and I think you what it refers to 1920. So that a year year 1920. So that would have been March 20 when we saw the decrease from the market. And I think the market was fairly severely impacted 20%, 25% down, I think, in FTSE. And we saw about a 7% decrease. I think the the benefit that we've got is that if you look at our passive hedging clients since that's what Roger sort of alluded to in his question, the underlying portfolios of our clients are very themselves are quite diverse as well. There's not all equities, for example. So there's a certain amount of dilution there in terms of market impact. It's not to say there isn't a market impact, but there's certainly a dilution there.

19:07 And we saw that in the March 20

19:11 movements arising from COVID. So hopefully, I think between the two of us, we've answered the question. Yeah. You answered it better than I did. Very good. Hello? Is there anything else lurking down there at the bottom that we should just know about? Yes. Yes. Performance fees on passive hedging. Yes. So, Roger, again, notes of my last meeting of the last meeting say that performance fees on passive hedging were influenced by interest rate differentials, which were then tight. Did I understand that right? You did. The interest rate differentials are now much wider. What can you say about the implications of this? Okay. Yes. So as I think I've already alluded

19:50 to in my previous statement, the performance fees have returned, which is good. They are episodic, but they they do return. And it is an it shows some evidence to you, Roger, I hope, and anyone else who's interested that the opportunities in the particular hedging product, which generates performance fees, have returned. And we are reaping the rewards of that. And and, actually, that was reinforced. I think in the q four trading update that we did, excuse me, in April back in April,

20:18 we did allude to the fact that the £500,000 was linked to products linked to the interest rate differentials, if you like. So I think, yes, the answer is absolutely. That's good for us. It is episodic as we know, and it's not always there. And we did have to wait and and fight our way back, if you like, to performance in territory during the period that's just passed. Yeah. I don't know if there's anything else down there, isn't it? There is. But we we gotta be careful because we're gonna sit here and answer questions. Well, that's a good question. Yes. Oh. Yes. I tell you what. There's just one here, and I wonder whether we should just do that. Yeah. We can do. So Josh Joshua has read it? Yeah. Sure. Joshua m has asked, given the long track record of paying dividends, our current shareholders likely to be supportive of a cut to fund growth.

21:13 I'm not sure where the idea of a cut to fund growth has come from. I mean, it's certainly not what we're planning. We you know, the dividend policy is set to the range, as we've previously said, of 70% to 90%, and we would expect the ordinary dividend to grow progressively in line with our profitability. I think there could be an example. There isn't at the moment that I that I or Leslie can think of where we would need to cut dividends. But, you know, potentially, if it's to fund future growth in the business, then I would hope that the investors would be supportive. But there certainly aren't any plans at this current time. And we're cash generative. And we can do what we need to do with the monies that we are earning and have got.

22:03 So and and our dream, if you like, is to be a stable, strong business with a growth

22:11 pattern, so as to attract people who like growth shares and an attractive dividend. That would be ideal. That's what we're striving to achieve. I think it's also worth pointing out on dividend that, you know, there are plenty of businesses out there over the last two years that have actually cut their dividends or actually stopped them completely. That's not something that we've done. We've stuck with a policy throughout the two years, and we've continued to pay both ordinary and special dividends. So that hopefully gives a bit of a feel for, you know, the the view that the board take in terms of, you know, if we don't need the capital for a certain requirement, then we are we are happy to pay that out. And that's exactly what we've done over the past well, over the past at least five, six, seven years and certainly through the last two years where there's been a huge amount of disruption and uncertainty.

23:01 So, Leslie, I think should we move on? Yes. Let's do that. I'm conscious of the Swiss franc question, which we'll come to. We'll come to. Yeah. So I think we've got a couple of slides on sort of sustainability in ESG. Yeah. Do you wanna talk around those? Well, yes. I think probably what I would say rather than going into any great detail, we have a very comprehensive report on this whole subject, which will be on our website in a week's time. We're quite proud of it. We think we're doing a good job, we

23:29 hear from our advisers that the material is good and high quality. It is important to us for lots of reasons. As you can imagine, it's important because it appears in all these submissions we are asked to make to clients. It's important to us because we want to be a responsible company. We're still quite small. We're 92, 93 people with computers, so we're not going to save the world. But everything we can do that's sensible and practical, we want to do.

23:56 Yeah. And I think it's fair to say that as a small company, a lot of the requirements strictly, you know, we we don't have to comply with, but as a business, we want to comply with them. Yeah. So we're looking at things like gender diversity and and also, you know, modern slavery act, etcetera, which as a as a company, we fall below the threshold. But we are actively looking at these and and and

24:21 ensuring and endeavoring to to to make sure that we're in line with with those requirements. We want we want to be seen as a company that that, you know, is fully behind those sort of commitments. These are two very, very small slide. They don't go into any real detail. But if anyone is genuinely interested, we would recommend the website, and we would also be happy to answer any questions that anyone might have on that subject. Now where are we here? So Let's see. Are we now getting to some of the products? I think what might be interesting in the interest of time would be, Steve, to move to the slide which deals with our new launched fund a year just under a year ago with UBS Wealth Management, which is, I think, number twelve Thirteen. 13. Yeah. And and I've picked this for a reason, not just because well, obviously, partly because the performance is quite good, but that's not the point. The point here is that we launched it under a year ago. We launched it with, as I keep saying, UBS.

25:21 It started with 700,000,000 and currently has 1,200,000,000 in it. It was launched as an alternative to emerging market debt, and therefore, the bench the benchmark that we are you we're measured against by UBS is an emerging market debt benchmark. And that has fared ill, of course. We all know the reasons in the last year, and we have done quite well. The important thing for an investor in this context is that we believe that now that we're reaching our first anniversary,

25:53 we will see more inflows. We believe we know we should see more inflows from UBS, but also that other people are showing signs of interest in this. The key will be that our green line, which looks okay, in fact, now is at the latest date, we've generated one and a half percent return in the year in an environment where the benchmarks have been down, you know, 15%. So we look good, top decile. The key is I say to our investment team, we obviously don't want to give it all back. So the critical thing will be to maintain that lead or that gap, and then I think we will see quite a lot of opportunity for us to build out this product range, evolve it, change it, then not not all clients want exactly the same thing. It is typically emerging market and frontier currencies.

26:42 It is impact bonds, and it has short positions in developed market currencies. So that gives you a sense for the structure of that home. Is it worth talking just briefly around the dynamic hedging that that sort of forms quite a big chunk of our revenues now? One of one of the questions that Roger asked, Roger F, is can we do we anticipate things at the Swiss franc raise in interest rates? Do we do we forecast? Are we I suppose it's a way of saying are we forecasters. So for the Swiss clients, most of what we do is passive hedging, not all, but most. So inevitably, we're not expected, not required or wanted to predict movements in interest rates. However, we do have an active hedging product. I'm sorry this slide is a bit dense, but what I would simply say is this slide, it shows you what can be done with our active hedging product.

27:36 This is for US clients. There are several of them. And what we are required to do, as Roger would say, to anticipate is when the dollar is strong, because these are dollar based clients who have invested in foreign equities, we must generate positive cash flows, positive money through our hedging to offset some of the losses. So here, you have a green line which shows the losses that a client would suffer had they not, used a hedging program, and the light blue line which shows you what we have achieved, for clients. This is not an easy product to explain or sell to clients for several reasons. The results, as you can very clearly see, are episodic and come when the dollar is strong. In this case, it can work for a euro or Swiss or or other currencies as I would say trend.

28:27 But the point is when the dollar is strong, we need to generate returns. As you can imagine, just recently in the last few months, we've generated very large positive returns for these clients who run very big programs, and they've been extremely happy because their the value of their equities has fallen as the equities fell, but also as the dollar rose because these equities are foreign. But we've generated money to recompense them, and that is absolutely what this product is designed to do and has been doing for a very long time. So we're very proud of this product. It does exactly what it says on the can. The problem is these are very big programs. The clients have to trust you implicitly. They take a big risk when they hire you because the programs are so big, and the results only appear in this instance when the dollar is strong. And sometimes people have to be patient.

29:17 And patient investors who have a horizon where they review their returns every three to six months are are not easy to find. Patient and disciplined. But if they are, they can generate with us very good results, and that is what this slide, I hope, shows. And I kind of hope I've sort of answered Roger's question. But if I haven't, I've got a feeling you'll come back and ask me another one. Should we talk in a little bit more detail around some of the financials? Yeah. Let's do that. Let's talk a bit more about the financials. So Steve, can you I mean, we've we've touched on some of the headlines. This is really just a bit of a repeat of of what we already introduced from the very start. So let's drill down a little bit into some touch touch on the dividend policy. So there's a question on the dividend policy earlier on or dividends earlier on. I think this is just to reiterate really that, you know, in in terms of dividend payments, we we have long history of paying ordinary dividends and more recently, special dividends over the last sort of three or four years. The view of the board is that we if, you know, if we don't need to retain any capital for specific purposes, that we are obliged, if you like, to to return it to shareholders.

30:35 And and that's exactly what we've done. We took the opportunity this year, as I said earlier, to reset the the level of ordinary dividend. At the interims, we went from 1.15p to 1.8p. And obviously, full year, we've gone from 2.3p to 3.6p, so 57% increase in our ordinary dividends for the year. And again, just repeating that excess capital, I think, from the ordinary dividend to the earnings of 0.92p is also being returned under a special dividend. So the policy, as I said again, and I think it's quite an important point, no changes over the last two years. Ordinary and special dividends have continued. We've now put in this payout ratio range with a target payout ratio range of where we expect to be going forward, subject to any future requirements of the business. For example, if our regulatory requirements increase, then obviously, that we will look to make sure we've got enough capital against that.

31:39 And we are targeting progressive and sustainable dividend growth in line with profitability. So hopefully, that's quite a clear dividend policy and gives an idea of how we see it going forward. There are no questions on that, so I think we'll move forward just to give a bit more clarity on movements in our assets under management and equivalents. Again, inflows continued from last year. We saw $2,400,000,000 worth of inflows. Reassuringly, was across various different product lines. So we saw inflows into dynamic hedging of $1,400,000,000 classic hedging of 1,100,000,000 and currency for return, there was a net inflow of £400,000,000 which included almost £1,000,000,000 of inflows into the EM, emerging market sustainable fund, sustainable finance fund. So again, a diverse set of inflows for the year, which is promising. I mean, we're talking about diversification, and that is one of the main strands of the strategy.

32:49 I think it's also true to say that the hedging part of the business still forms a very important part of the business and the revenue streams for us. And actually, a lot of the long standing sort of client relationships that we've built up over many years through the hedging side of the business are forming quite a large part of the strategy going forward in terms of clients collaborating with us on ideas and product development going forward. So I think a good example of that, which we've probably mentioned before, was we did the hedging for the UBS pension fund Switzerland for many years. And then the head of the trustee board was also the head of the wealth management team at UBS and came to us to help design the sustainable finance fund. So it was their experience of us in another context which gave them the confidence to come to us and ask them if ask us if we could help them with the new project. And we're seeing quite a lot of that.

33:44 Currency is a niche interest. It affects everyone, but not everybody is interested in it. And so having other things to talk about and other projects is very, very valuable for us. Yes. And just continuing on the sort of basis of assets under management and reinforcing the message, really, I think looking over the last sort of two years since the inception of the or the start of the new strategy, I think, you know, we've seen 25% increase in our passive hedging AUME. We've seen 324 increase in our dynamic hedging AUME. Currency for return is up 92% over the last two years. And multi product is is also up 50%. There was a temporary inflow last year from a client which came in and then went out again. So there was there was a there was a bit of a peak last year at 5.2.

34:37 But over the last two years, a 50% increase is is is still quite impressive, and and and we're very happy with that. Think Quite an interesting question here from Patrick about Patrick L Yes. Who was asking, and this is in the context of assets under management. So it's a good question. How sticky are these dynamic mandates? I e, if the general perception is for a weak US dollar going forward, could they easily be withdrawn? And the answer is a good is it's a very good question. So for the dynamic hedging mandate to work, Patrick, we run a a portfolio of hedges, which we're constantly reviewing every day and address and adjusting across all of most of the currencies that the clients are exposed to.

35:25 It takes a while to build up, and it needs to be constantly monitored. So for example sorry. Oh, there's no oh, hang on. I'm being distracted here. Sorry. Stop. Stop. Stop with the questions. One minute. I'll answer the first one. Anyway, yes. So it takes a while to build up. It needs to be monitored going forward. It does require patience. So for example, it isn't something you can flip on and off like a switch. Otherwise, it would be easy. As Patrick says, you just buy buy record when the dollar when you think the dollar is going up and sell them when you think it's going down. Now most people don't feel they're very good at predicting timing or currency, so they are willing to pay our fees, which do look higher when we're not generating positive cash flows, and then they look really cheap when we generate large positive cash flows. What we tend to say to clients, the best client, Patrick, is someone who looks at it holistically. So they say, gosh. RECORD's delivered me some positive cash. The dollar's gone up. My equities are fallen. I'm happy.

36:26 Next year, equities are strong, and the dollar's weak. And RECORD hasn't delivered me any cash, but they haven't cost me very much. So it's almost like an option style of program, and you need to be in it to win it, if I can use a silly analogy. So it isn't easy for clients to turn it on or off. And most clients that we have, we've had for many years. One of them we've had for twelve years, and they're still very committed to this program. It's a sophisticates program. You need to understand how it works and the relationship between the underlying assets, which are equities over which we have no control, and the symbiosis between our positive returns when the dollar is strong and the fact we can be very cheap, although we can't cost nothing because we're not good at 100% prediction, we can still make for optionality, which net net makes money over time, more than they would have made if they hadn't had us, if that helps. And now Roger had another question. That Roger is full of questions. I'm assuming it's the same Roger. Okay. Roger, just to make sure I understand dynamic hedging, did I hear you say that it really scores if you're a dollar investor and the dollar strong?

37:38 Yes. That is true. If you're a euro investor and the euro's strong, it scores. If you're a sterling investor and the sterling is strong, it scores predicated on the fact your benchmark is unhedged. Are you doing nothing? Are you saying that if you feel in the case that the dollar is forecast by either you or the investor to weaken that it should not work? I have difficulty understanding this. Yes. Okay. So I've partly and hopefully answered it. We will make positive cash returns into a bank account, a client's bank account when the if we're using a dollar investor, when the dollar is strong. So the hedge is mature value are valuable. The dollar goes into dollars go into the client's account, and they partially offset the losses they're seeing because they own they own foreign equities. I hope that's clear. If it's not, we could take this offline.

38:26 On the other hand, when the dollar is weak or flat, doesn't move, we cost the money. So we are creating we're effectively option replicating. We're creating the effective earning options, which means we might put a hedge on, and then the dollar doesn't move. It it it matures worthless, or perhaps it costs money. So the client has to understand the optionality of how useful we are when the dollar's weak. We're allowing them to harvest all that money that's in their equity accounts from currency and the positive cash we give them when the dollar's strong. Understanding that symbiosis is at the heart of this and getting trustees and pension funds to put the two together and not think of us as some kind of currency alpha manager is a bit of a struggle sometimes, but it is the challenge to making this work well. And then you can have a really good relationship with the client as we do with some of them, and they're very happy. How reliant are you on your top oh, p to b. How reliant are you on your top or more clients?

39:29 Top or more clients. Seems to be a large concentration of revenue and profit emanating from your top 10. How risky do you view this, and to what extent are you looking to reduce such a level of concentration? Yes. We're always looking to reduce the concentration. It's a lot better than it used to be. The risk resides in product families. So for example, dollar dynamic hedging clients represent one group. Sustainable finance client would and and would represent another. Passive hedging would represent another. And it's very important that we diversify across those. Fixed income represents another. So we don't want to be dependent on one dynamic hedging client or one sustainable finance client. So that is in a way you're playing to my the same tune as me, Peter, because I believe very much in diversification.

40:18 And in fact, we have a slide that shows how we've chose there it is. This shows how our management fees are evolving away from a real dependence on hedging. Slowly but surely. So shall I take it, Lucy? You may take it. Thank you. So I think on the left, it's and this is an important slide and and and, you know, one that that that sort of links into the strategy, if you like. Again, over the last two years, you know, passive hedging formed over half of our management fee revenue. And as you can see year on year, it's getting it's forming less and less of a of a proportion of our total revenues. Although in terms of actual revenue, it's still maintaining sort of its its its level, if you like, at or around between 11.5 and 12,000,000 a year. So the the the impact of of the other products coming on board, higher revenue products, higher rep operating margin revenue products coming on board can be seen in the dilution of of of the overall impact of passive hedging.

41:21 Dynamic hedging as well is a hedging product. It's a higher revenue margin product for us. Again, that's grown over the last couple of years. And specifically, the currency for return proportion, which is the highest revenue margin product is growing year on year. And that's where the currently, the emerging market sustainable finance fund sits. And the FY 'twenty two year includes only a proportion of the total $1,200,000,000 of current assets under management on that. So our expectation this year would be that this portion continues to grow even without additional inflows, which Leslie alluded to earlier, we're hoping to see going forward. So we can see the strategy working as it starts to flow through into our revenue streams, and the diversification element is an important element.

42:17 And we're very happy, I think, with the shape of that at the moment. So, yeah, I think that one's nice. 10 clients. I don't remember now what I I should know this. What they represent. They used to we used to have top five reps. Oh, you've got a company. You see it somewhere. You see it somewhere. Oh, we're gonna find it. Is it at the back? I mentioned. No. My instinct is and I don't remember. Here we we Here we go. 73%. Yes. So Peter's quite right. Well, the good news is that those are that 73% represents at least three, possibly four different product categories, all of which operate differently and work differently at different times with different requirements. So it's it's not as bad as it could be.

43:05 But I'm very much hoping, Peter, if you're still interested in us in a year's time when we look at the next four years results, we will see more and more diversification across clients. Yes. That's the plan for logical reasons. And sticking on sort of the the the the clients, if we go back to slide 20 oh, sorry. I've got the shot. Sorry. Again, I think this is linked to the question actually. The longevity of our clients is is always been sort of an important point that we like to to raise. The type of business that we are and sort of relationships that we form over long periods of time with our clients means that they stay with us and that they are happy to be involved in in sort of collaborating on on new products.

43:51 So there, you know, there's the ability for us to retain the hedging sort of part of business with those clients, And they're also interested in getting involved in maybe some of the newer product lines going forward, and they trust us. We've got very long standing and very strong client relationships. And I obviously don't intend we don't intend for that to to change going going forward. And again, we keep going back to it, but the the the sustainable finance fund was was a very typical and a very good example of that where we've been hedging for UBS for a number of years. And, you know, they they came to us and asked us to collaborate on a new product for them and and which launched and has been very successful. So that that's I think that's quite an important point. Yes. I've got a question here from Patrick L. Can we outline the current status of the German municipal bond fund? That's a very good question. So we have now launched it, and we're in the process of accruing subscriptions.

44:49 And it's been slow and and taken a long time to get going with a great deal of many, many due diligences. I would allude to it a little bit. One might imagine an ocean liner. It's taken a long time for the tugs to put it out into the harbor, but we're now underway. The good news about it is I other bad news is it's taking a long time to get going. Good news is I think it will be potentially quite a large fund for us in time once it gets going. And that just like an ocean liner of the the sponsors of this fund, those who support it, the people who are gonna invest in it, tend to stick with you. And once they get ahead of steam, it can really start to move quite fast. So we're getting there, as they say.

45:36 Right. What will Roger asks, what will be the main themes of the next two board meetings as you currently see things? Good question. One of the things we're thinking quite hard about, our largest cost is our salary bill, of course. There is no explicit link between inflation and our revenues. There is some link in some respects, but it's not implicit. So we are thinking very hard because, as I mentioned, chief succession planning is so important. If I can get the right people in the right jobs, my job is a lot easier. In fact, my job is done because they get on and do amazing things. So we need to reward them appropriately. We need to be sure we don't just, in a knee jerk fashion, put salaries up, which we can never take away again.

46:23 So the cost structure vis a vis inflation is something we've been thinking about very hard. And the other main theme that we talk about and continue have talked about, continue to talk about is how is the new strands of work that we're doing. We're working very hard on a project, which we hope might come quite soon to provide Sharia compliant investments, which will be a new area for us, and we have a very good partnership on that. So we talk quite a lot about what the resources are we need to create the new opportunities and and how to fund those properly. Those are the two most recent things I think that I can think of. We've also talked about dividend policy and our cash position.

47:08 How much cash should we have? What should we do with it? How can we use it to improve our business to invest in new products and new ideas? I hope that answers your question. Yeah. And and I think from my point of view, obviously, the focus on trying to control costs as much as we possibly can in terms of, you know, the inflationary sort of pressures that the business and and alongside every other business is is seeing at the moment. You know, the unfortunate position, unfortunate if that's the word, is that, you know, we tend not to be able to pass inflationary increases onto our clients. And so it's very important that we take control as far as we can on those increases, inflationary increases. We've got to get a balance. We've got to keep make sure that, you know, our our people feel that they're being fairly compensated and and whilst, you know, not wanting to erode our operating margins at at at the same time. So there's a lot of focus obviously on that as you would expect at the moment as well.

48:10 Actually, on that subject, I think it's probably we can drill down a little bit into the costs analysis. It's quite a simple table and quite a simple set of costs, really. We've got personnel and non personnel costs. We've seen a 5% increase year on year to to FY '22. Just really as a result, going back to sort of the changes that we've seen, shaking the tree a little bit. You know, there's there's been a bit of a turnover of of maybe more more older or or more people that have been in business for a long time. And having the opportunity to sort of bring new skill sets into business and promote internally, which has led to sort of that 5% increase.

48:55 Looking at the current year that we're in, so FY 'twenty three, obviously, there's an expectation there that we will see increases, unfortunately, due to, as we were just talking about, the inflationary sort of pressures that are on the business. We've already had a pay increase from the first of April of 5% generally. Those pressures aren't going away. They're not just on our personnel costs. They're on non personnel costs as well. So we we we do expect those those costs to increase in the current financial year. But at the same time, we don't expect them to erode our our operating margins. In fact, we expect our operating margins to increase as we would as we showed on one of the earlier slides. Excuse me. So controlling them as as far as we possibly can, but I think it's inevitable under the current sort of environment that we will see cost increases in the in the current financial year.

49:52 I think the only other thing, because I'm I'm conscious of time, Leslie, is that we just to reiterate the the strength or the position of the balance sheet. Historically, as a business, we've we've we've maintained a a very robust and very strong and a very liquid balance sheet, which has seen us through some sort of fairly rough times in terms of the financial crisis and and the pandemic, etcetera. I don't think that's changed. I think we still we still view it as very important as having a strong balance sheet. From our point of view, I think it it sort of gives us the reassurance that we, you know, we're in a position if if needed to to fund any sort of new ventures that we might see or or or projects.

50:39 But also from a client perspective, I think it's important that they can see that, you know, we we can stand behind our our products and services, and and, you know, we're a we're a proper business in terms of the size of our balance sheet. I wasn't planning on going through on a line by line basis any of that that stuff. So I think if anyone has any questions either now or later. In the meantime, Roger has asked, are you able to get fetuses easily when needed? Yes. We haven't had any problems. We've sent people to The States, to Switzerland where we have offices, and it has been fine. I mean, we don't do it very often, but we haven't had a problem. Yeah. Actually, one point on that. I mean, we talk we talk about this, the the increase in the size of our teams over in Europe. Yes. I think it's it's probably quite an interesting point in terms of we haven't got any upfront costs in terms of those teams. So the model that we're using for those to bring in some more expertise is is is actually not to pay salaries, but to actually almost join with with with the teams and and do it and and and offer a sort of a profit share, if you like, which, you know, when when we first start off on on on that sort of exercise is is is better. We're not we're not suffering any upfront costs on that. And then, hopefully, as revenue streams start to come in at levels that we that are higher than we've historically seen on our sort of hedging type products, if you like, then, you know, that will drive our operating margin

52:09 increasingly higher. Is a different model for sales. And when I first joined RECORD in 1992, I'd forgotten this. I didn't have a salary. I worked for Neil RECORD, and I earned a share of what I could bring to him. And then I forgot all about that, and we did pay quite high salaries on spec, if you like, to sales teams or individuals. And I actually prefer the model where we have an individual or a team who is able to be quite entrepreneurial and get a bigger share of what they bring in than they would if they were pure salaried. I'm not suggesting you can't have some blend of salary and that kind of remuneration. It concentrates the mind. You don't end up with people sitting around not really delivering anything and and and costing quite a bit of money, but it does require the right kind of confidence that they can deliver results. And they are also very careful about joining RECORD and very careful what products they represent because they need to make a living out of it. So we found that very successful in Europe. We're replicating it again in The US and might continue to do that. It's a very powerful tool to acquire the right kind of of salespeople. But by the same token, we also like them to have equity partnerships if they prove successful with us because we want their interest fully aligned with ours. So we are very careful to translate that into equity partnerships once they have proved that they are able to fit into the RECORD family or group and generate

53:40 their contribution. Hopefully, that's enough. Are we at the end? What is it? An hour? I think It is it's an hour. Yeah. I mean, that's I don't know if there don't seem to be any more questions at the moment. No. No. Leslie, Steve, thank gets surprised for most questions asked, I think. Leslie and Steve, thank you very much for your presentation and also for addressing the questions during today's call. But just before redirecting investors provide you with their feedback, which I know is particularly important to the company. Leslie, could I just ask you for a few closing comments? Yes. I think so. Thank you all for listening today. We very much appreciate your time and attention. We would stress, we believe we are at the beginning of a new era for REC. We're very much at the beginning of what we can achieve.

54:26 There's an awful lot more to go for, huge amounts of things we can do, and I think we are now set fair to start to to deliver on that. So I hope you will continue to follow us and that some of you may be back next year. Do feel free to send us questions if you want to or engage with us in any way that we that you want to, we'll try and help if we can answer. But for today, thank you very much for coming. Thank you. Leslie and Steve, thanks once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of RECORD PLC, we'd like to thank you for attending today's presentation, and good morning to you all.

55:16 Thank you. Thanks.