Record (LSE:REC) — Interim Results

0:00 Good morning, ladies and gentlemen, and welcome to the RECORD PLC Interim Results Investor Presentation. Apologies for the short delay today. Throughout this 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 question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your investment company dashboard, and we will notify you by email when these are ready for your review. I'd also like to remind you that today's presentation is being recorded. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Steve Cullen, CFO, and Leslie Hill, CEO. Good morning to you both. Good morning. Good morning. Welcome to our half year presentation of our of our half year results.

0:53 I think everyone or possibly everyone may have seen the slide deck that's on the website. I think the the idea for this presentation is that we just talk through a few of the key points from the presentation. I would talk around sort of the financials, and then Leslie will give a bit more information on sort of the strategy and how that's working and what we're seeing in terms of how that's impacting our business and our financial results. So I think, firstly, we'll flick through to a headline slide, which sort of, I think, gives a flavor of how the changes that we've seen over the last sort of twelve to eighteen months are now starting to come through an impact on the financials in in a very positive way. I mean, the the the main push behind the change in strategy is sort of one of the main pushes is is the diversification of RECORD's products and services.

1:51 And so what we are what we're starting to see is some of the new fund launches come through, which are on a higher margin and therefore starting to increase both our revenue and our and our profits and earnings. So it's been a very good six months for us. We're very pleased with how things are going. We've had an increase of about 38% in our revenue from $11,800,000 to 16,300,000 The management fees underlying that have gone from 11,200,000 to 16,100,000 which is an increase of 44%, which is an excellent increase half year on half year. The increase in sort of the fee rates on the higher margin products that we're now seeing is about a

2:42 significant impact on our operating profit margin, which has increased from 22% this time last year to 32%. So we're back in sort of the early to early to mid thirties in terms of our operating profit margin, which is where we were a year a year or two ago. Pretax profits almost as good as doubled from 2.6 to 5.2 versus a year ago. Earnings per share, likewise, up about 90% from one one a year this time a year ago to 2.08. And the sort of ramification of of of of of all of that put together was that the board considered the dividend and decided to sort of rebase the ordinary dividend this year based on sort of confidence that we now have in the business looking forward, which is reflected in the half year results.

3:40 So we've rebased the dividend, the interim dividend, which has increased by 56% from 1.15% a year ago to 1.8p this time around. So I think in terms of the the, you know, the the graphs, the bar charts, just it it can be seen that things are going in the right direction, and the board are very pleased with how how how the changes in the business are now starting to be recognized in terms of of the financials. So that a was a brief, sort of, high level fly through the headlines in terms of financials. I'll now hand over to you, Leslie, for a bit more of a sort of detailed talk on the strategy and what we're seeing. Thank you, Steve. Yes. So I'm dividing my comments into two portions. The first is what it is we did or are doing to change the trajectory of the business.

4:36 And the second is, can we keep growing? In other words, how much further is there to go? Is this something that's going to be a long term change? And the first piece of that is covering three areas that we identified, I identified we needed to work on to take our business from being a stable, non growing business, but should we say, perhaps a little bit mired in the past, and to fit ourselves for the future. And let's see here. Diversification, modernization, and succession planning. I note we've had a question from Derek. Derek, we've seen your question. We're going to we will address that in just one minute.

5:24 But let if you don't mind, we'll go through what we've been doing or what we are doing, and then we will take a pit stop at the volatility of the share price, which has been a feature of RECORD for quite a long time. And then we'll move on to the sustainable future, if you like. So diversification is all about moving away from products that we've managed for many years where there's a lot of fee pressure and towards managing products with both higher fees and more appropriateness to clients, things that clients want us to do. And to keep this fairly brief, I will give you an example. There are actually two obvious ones staring us in the face. One is the emerging market sustainable finance fund that we launched in June for UBS Wealth Management based in Switzerland.

6:17 We had known them for a while, and we worked together with them on this product. The change, I would say, for RECORD was rather than telling them what they should do, we were probably much more cloud focused and were better at listening to what they wanted, which is always, I think, a healthy thing to do. So the funds launched in June at 750,000,000, and it is now at 1,200,000,000. And I think they are intending, although one can never be sure, but they are intending for this to continue to grow. Now the reason why it's different for us, we've never done a sustainable finance fund before. We're also managing frontier currencies and impact bonds in the fund. Impact bonds were relatively new to us. Frontier currencies were not, but obviously, that portfolio is growing quite a lot. So that improves and increases our dedication, if you like, to that sector, which I think will be a growth sector for us. The municipal loan fund is another example of a diversifier.

7:18 There we are managing European municipal bonds for a very large German fund manager, which is called who are called Universal with an e on the end, universal with an e if you want to look them up. They manage approximately €700,000,000,000.

7:36 And what we're doing for them, we brought them some ideas at their request. Could you could you be an asset manager for us, they said, on a municipal bond fund? And can you can you also find us some ways to enhance the return because German municipal loans obviously yield negative returns? We introduced them to one of our other clients. We're getting several options. And this fund, is launched in Luxembourg,

8:01 either in the next few couple of weeks or after the Christmas break, very, very scalable. We will be the municipal bond manager. We will structure and launch the fund for them in Luxembourg. That's what we've been doing or are doing. And our partner, informal partner, is a sister is a supply chain finance house based in Asia who will produce a portfolio of European invoices for them. This is not a record specialty. We've introduced them, but we're not obviously running supply chain finance. We're just putting the package together for them, and that will increase the yield on the fund. So this gives you, hopefully, a flavor for how diversification moves us away from pure currency to bonds, which we've always done, but we do more of now, other derivatives, and potentially other things in the future. And it is my aspiration, our aspiration, to become not just a currency manager, but a specialist asset manager, as I've said here in point two.

9:03 Building on long standing client relationships to find ways we can help them to broaden our scope with them, but to become known not just as a currency manager, but able as a manager able to do other things too. Modernization. What does that mean?

9:20 What that means is our tech stack, frankly, was getting a little bit out of date. And if we are going to offer hedging services and currency execution, spot execution services, if you like taking the role that traditionally the banks have taken. We would we would not be using our own balance sheet the way a bank does, but we would be structuring hedging and spot execution transactions for clients. We're seeing a lot of interest from asset managers in this area who would rather do their hedging with us because our pricing is transparent and because we offer a full suite of services and are quite flexible about what they can do. But to do that, we're in the process of modernizing the the the fintech that is that our company employs, if you like.

10:07 The tech stack is, I think, the usual jargon term for that. And what that what the reason we can do that is we're starting to find that, as many people have, all the asset managers see this, the sort of software we need

10:21 and can bolt on to what we've already got is getting cheaper and cheaper, so it's actually quite inexpensive to do this. We were a little bit paralyzed by tradition and conservatism and long term management ideas that we should do everything in house. That has changed. We employ external experts as well, and that's proving very, very successful. I think in the next year, we will start to see

10:48 that this can bear fruit by allowing us to take on a lot more hedging clients. Those will be at low margins, unlike the sustainable finance fund, which is obviously at much higher margins. But it's very stable, sticky business, and it's very scalable. So we would like to make that part of our diversification element. You're all asking lots of questions. And because I'm talking, I'm not really reading. I think I think, Lizzie, what we'll do is we'll we'll go through we'll go through and talk around some of the presentation slides, and then we'll take We'll just just keep an eye in case we can answer as we go along because I know it's annoying when

11:19 you have a question not to get it answered. And finally, succession plan, and then let's answer Derek's question about the share price. Succession plan. So we prided ourselves on our stability, conservatism, the long service record that we have for many of our staff. And that, of course, is a powerful argument when you're filling in a request for proposal for a project. However, it also meant that in a way we have bed blockers, if I can call them that, people where where the young people who were not yet equity partners, but who were very talented, didn't really see a way forward for them because there were people who were been here twenty years and weren't going anywhere. That has changed. Some of the people have retired or become advisers to RECORD, and that means that we're able to employ both our options granting scheme and our JSOT scheme to give quite significant share opportunities, equity opportunities to, let's say, half a dozen people who are identified as people that will be the future of RECORD so that we can hopefully become a multigenerational asset manager rather than one that only lasts for the lifetime, if you like, professional lifetime of the founders.

12:29 These people have already demonstrated their abilities. They include the head of sales. They include our chief technology officer. They include our HR director because, course, we're a people business. And we plan that succession plan is really is really happening now as opposed to what we've done in the past, which was talk about it, but not really do very much. And I think that will make RECORD infinitely stronger than it even is today. And, therefore, there's a lot more to go for there. We've alluded to the capital position. We're not planning to change the dividend policy. And if we have an idea for some investment we want to make, we would highlight that with all of you, anyone who's an investor or is interested, so we've been very transparent. But at the moment, we think we can do what we need to do to really significantly continue to grow the business without dipping into the capital in any meaningful way.

13:23 Before we go on, poor old Derek's waiting for his answer. Yeah? One of the problems we've got with RECORD is the free float is quite small.

13:32 Shall I just read out the question? Sorry. That's okay. So Derek's asked, if things have gone so well, how can you explain the share price drop since it was at £1 and again today?

13:42 Now I think in terms of our share register, I think it's fair to say that we are still fairly sort of concentrated. Although we have had more institutional investment more recently, we are still fairly concentrated on sort of the retail side. And unfortunately, as natural result, any sort of any very small movements in sort of shares moves the price fairly significantly, which and that's what we've seen over a number of years. The general direction of travel, obviously, has been upwards over the last couple of years, which is pleasing. And I think the spike of a pound was was back in sort of end of June, sort of July, or on the way up to to to the launch of the new fund. And then it it subsequently sort of came down. We we've had natural sort of profit taking, I think, by certain shareholders.

14:32 But I think as a board, we're generally quite pleased with the how the how the movement in the share price is going. That's that's not the main driver for everything we do, but it's it's it's obviously very pleasing to see that that's the the the impact on the financials is starting to feed through to the share price. We focused on maybe trying to make the share ratio less concentrated around certain areas so that sort of the natural profit taking day to day transactions don't affect the share price as much as they currently do. I think this is something that that that a lot of smaller PLC companies are are maybe prone to, but I I think that's probably the answer that that that I would that I would I would say for Derek or anyone else who's interested, I strongly believe we can have ever higher lows. We may not necessarily have a very much larger free float. I would like to

15:25 think we will. There are certainly long standing holders who are ex ex employees who might conceivably sell and contribute to the float. And Neil has very kindly offered to help us by releasing some shares into our JSOT scheme so that we can continue to build the equity piece of our pie, if you like, for the young grow the young talent that we are nurturing very carefully. Think of it as our higher lows, hopefully. That's what I expect. I don't think we're anywhere close to where we can be if we get this right, if we manage to diversify the way I've described, if we manage to modernize the way I've described, and if our succession plan continues to evolve the way it has. Hopefully, that answers your question. Yeah. There was another one or a couple of months. Well, there's there's one other thing on that as well. I think we've because we've literally just passed the record date for the dividend, we usually see a slight increase pre and then a decrease post. So, you know, maybe that's maybe that's in the mix as as well. I I know it's irritating for it to go up and down like that, but I, you know, I think it's hang on. No. It's fine. Right. So I think we'll just carry on with the slides.

16:36 Yeah. Should we go to the next slide, Leslie? Yeah. Let's go to the next slide. So I think this is current the the

16:42 sort of current environment Yes. Of business. So this is where what we've I suppose that covers what I was mentioning as the first of my two categories. The first was what have we done? What are we doing? Strategic partnerships are becoming much more important than they were. People like UBS and Universal and others

17:02 where we can bring our currency expertise, our derivative expertise, our fund structuring expertise, and our client base to bear on a wholesale or or strategic partners problems or issues. The significant refresh of the management team is now done. Everybody that wanted to retire or wanted to become an adviser is has done it or is doing it and is in the process of doing it, which means we have the new team pretty much entirely in place now. That's not to say there are one or two things we'd like to boost, but by and large, we're in position, which is good. We've got who we need. We're getting them shared up as much as we can. We're looking after them. We're flexing our bonus scheme such that we reward the people generously who are transforming the business, which is obviously critical if we're going to keep them in place and make them feel that they could see RECORD as a place where they can make their career, which I believe they do see.

18:07 Diversification both in client type, I. E. More asset managers, more strategic partners, and also geography. We now have our first Japanese client that we're hedging an exposure for, and I think there's a lot more of that to come. We've applied for a bathroom license, which we're awaiting award of. We understand it will be awarded, but can't seen it yet. And we're building a European sales team who are now in place and to take advantage of that once that's up and running. We can expand our client base opportunities and, obviously, our client base, and the technological advances. If you imagine that the if you think of all of the currency services and products out there, we probably covered about this much with our old tech stack. We couldn't handle asset managers who wanted to do hundreds of trades a day, who wanted to do daily rebalancing, who wanted to do lots of spot transactions, but we will be able to cover all of that.

19:05 The one thing we won't do or don't do is to use our own balance sheet the way a bank does and become a principal in the way, for example, someone at AlphaFX does, two FX trades. I'm not ruling it out completely, but it's not on the cards at the moment. We haven't got a lot of capital anyway. We've got some.

19:22 We could deploy it if we thought it was valuable, but I would come to everyone and just explain how we'd come to conclusions and show their finances if we thought that was worth doing. For the moment, no change in dividend policy, no change in our planned investment, but a good deal of focus on the technological advances which can transform the delivery of our products and services. So that's that one. There were what's next? I think probably avoiding too much detail on products and services, although, of course, we're very happy to take questions. There was a question from we could go to look. I I I don't ah, here we go. That's right. That was the question I just saw from Michael.

20:07 Is the Luxembourg based municipal loan fund on track, and what excites you about this opportunity? Well, that's a good question right now because we're talking about what we've been doing. Yes. It's on track. It was approved by the Luxembourg regulator in late November. We're now oops. What is it called? We lost our slides, and we've got large picture of ourselves. You can work on that. Yeah. I'll do that. Yeah. Okay. So it's on track to launch. It should have launched in early December. We're waiting for the seed funding. The thing that excites us about this opportunity, Michael, is that it's hugely scalable. As I mentioned, Universal managed €700,000,000,000. There is a potential for us to make this really quite large. We can manage the municipal loans very happily in house. We know how to do that.

20:57 And so it could be, although the fees are not as high as the sustainable finance fund, nonetheless, it could be a very material opportunity and I think very stable business. It's also the first strategic partnership we've done in Germany. So that's very exciting. In terms of fees, it's probably it's probably worth noting that the the fees will sort of roughly be the same as an average dynamic hedging sort of mandate, but on a on a passive type Yeah. Exercise. So so it's it's very good in terms of, you know, the level of of of input required for slightly for both the higher fees versus that that passive hedging, for example. So manageable, scalable, sticky German fund manager, that's a that's a powerful powerful thing.

21:45 I was just gonna pick up actually. Scalable. Scalability is is quite an important word because we are seeing or we're expecting the the business both through sort of new product launches, but also through sort of the investment in technology that we're making to make the business much more scalable than it's been historically. And that and that that lends itself as well to the new products as it does to the old products. And and Leslie's already alluded to, you know, the the the width of the sort of passive hedging that we were able to previously do. The investment in technology will allow us the plan is it will allow us to do it much, much more efficiently and then be a much more scalable product. And we can say yes to certain types of mandates that we previously not been able to take on board. So the scalability of the business right across the board, I think, is improving vastly going forward. But here we have a question from Graham that I think is very relevant to this. What are we doing to minimize the risk of moving to new software?

22:42 Because, of course, that is where all the trouble can be.

22:46 I think it's safe to say that we have a suite of, should we say, delivery, way we deliver our products, which is working. It's always worked. We manage, you know, 78,000,000,000, and it's fine. It's a little old fashioned, and there's probably a bit too much manual intervention, but it's worked really, really well for many, many years. So what we are doing is sort of what you would do if you were renovating a house if you could. You build a parallel process, if you like, and a lot of the software we're using is very well tested. It's not brand new. People things like Acceptor, which is one of the data transformation tools, which is relatively inexpensive that a lot of the banks use. So as long as we can parallel test as we've been doing, that works really well.

23:33 We can really kick the tires and see whether what we're doing is better than what we've got, which we're obviously doing. And, also, there's some fundamental things. If I tell you that we had our own servers here in Windsor in our head office, which was really outdated, and if I told you that that we've now moved or in the process of nearly finished moving to a new infrastructure with much stronger cybersecurity, which is effectively a a hybrid solution. Many asset managers do it. They have some of their stuff in the cloud. Obviously, that helps. We can access certain software tools you can only get through the cloud, but also our own servers, but not here at a big server site in Slough that all the banks use. So we are you I I love this phrase. I never know if it's a real word. Robustersize.

24:19 I think it probably isn't, but I like it anyway. So we are creating more of a robust framework. And the other thing that's critical is as opposed to seeing software is a little bit like giving birth. You know, it's a terrible thing. You do it. And well, when I say terrible, painful as a mother. But you get a baby at the end, and then you're all like, no. I'm never doing that yet. We're going to see software more as at the heart of our business and IT at the heart of our business as opposed to something you only do when you have to, and then you hope you won't have to do it again.

24:51 And that's how we used to look at it. Whereas now if I think if you bring, IT and fintech into the heart of your business as every asset manager needs to do, you minimize the risk of danger because you're constantly evolving in a small way. There isn't a big bang. And the reason you don't want a big bang is we've got all these clients who are happy with what they've got. And, obviously, you don't want them to say, well, hell, I mean, I didn't what I had before, was it no good? No. It wasn't that it wasn't any good. It wasn't as good as it could be. So we're evolving rather than doing something that would be high risk. I hope that answers your question. Yeah. And I would add, I think we've got sort of all the control checks and balances and controls in place and and parallel testing. We've got sort of internal auditors and, you know, various external parties as well that that help us external expertise on on on these projects.

25:44 So I think we're we're being as as as thorough as we possibly can be on on that. There was a question about supply chain finance. If you go back up, I can't remember who it was, but it's the one above here. Yes, James. James is saying, if you're involved with supply chain finance, if one of your strategic partners is a supply chain finance house, they're called V Team, if anybody wants to look them up, are you not worried about green cell related reputational risk getting involved with the supply chain finance, albeit through a partner? And it's a very good question. There are really two answers to that. First of all, yes, of course, we reputational risk is always something you worry about when you get involved with a partner. One of the advantages we have to doing hedging for people is we get to know our clients and partners really well. We get to see a lot about how they run their businesses.

26:38 And in this particular case, the supply chain finance house we're working with, we're very comfortable. They've been in business twenty years. They haven't had the kind of concentration risk or the concentration that Greensill have. They haven't done the things Greensill did. Now that clearly is not the total answer because you can never know everything about a business. And things can, of course, go wrong. And that is where I would circle back to my first point that I made, James, which is it's critical that we diversify. Of course, there will always be risks about any partnership, even someone like UBS. You just never know, you know, what might happen. Clearly, they are pretty safe as a partner and extremely high quality, but nonetheless, as soon as it's not in house, you have reputational risk. And therefore, we do the very best we can to get to know our partners well by working with them, sometimes doing their hedging, sometimes structuring a fund for them. And then we also diversify so that we don't have all our eggs in one basket.

27:35 Hopefully, that answers that one. We have a picture up here on page 12, which is our stable finance fund. And I know there was some interest in how that has gone because it's been launched in June, And the emerging market universe has been quite volatile with all sorts of, as we all know, toing and froing on what was really going on with COVID and vaccination in emerging market countries, etcetera. And as you will see, UBS is very happy at the moment because they hired us to outperform an emerging market debt benchmark.

28:08 They would also like us to make money, of course, by which I mean on a total return basis. But as you can see, the green line there is the benchmark we were hired to outperform. We were pretty confident we could because we tracked it very carefully for a long time, and we knew what the differences were between what we do and what the benchmark does. But so far so good. As I said, the fund has grown from 750,000,000 to 1,200,000,000 so far. I don't think we've missed any questions. Let's move on to the next piece. Yes, please. I was going to talk to you a little bit about oh, sorry, Steve. Did you want to are we going to do financial reports? Actually, just before we do that, if you remember what I said at the beginning was there were two pieces. Then what have we done to what's changed, and how do we keep it going? How do we make more of it?

29:00 How do we not sort of run out of steam, if you like? And I think the key thing there are a couple of key things. The first is now that we are open for business, for strategic partnerships, and now that we are not dedicated to only selling our own ideas and really not listening as much as we could to clients, if you like having an intellectual,

29:24 I hesitate to call it, superiority. The idea that we know everything about currency, you listen to us, and we'll tell you what to do. We've moved much more to listening mode, and it is definitely bearing fruit. And I think once you are locked into that, you get lots of opportunities, and we're getting lots of opportunities of things we could be doing. So I'm very comfortable that there will be continued opportunities for strategic partnerships and to grow some of our new products like the sustainable opportunity that we're working on that we're working with UBS on with other partners as well. So I think we're really at the beginning. If it's an alphabet, we're a b,

30:04 maybe c, not very far down. And then the other key there is that if we get this tech stack right, and, clearly, we need to get it right, and we need to be very careful about how we do it, which is why I'm very grateful to have such a good CTO who's doing such a great job putting it all together and a much larger external team now solving our problems with us. That opens the door for us to do huge amounts, a lot more hedging business for, for example, asset managers who are already coming to us and saying they're interested in working with us. As long as we can embed our fees in the spread, which is critical for them because they have no way to pay an invoice, so it has to be part of the total expense ratio on fund, which we can now do. We didn't used to be able to, but we can now.

30:49 I think there's huge opportunities there. And I'm not touching on some of the things that are several steps back in the sort of pipeline, if we call it that. We've been approached by people who would like us to build funds, for example. We've been approached by clients asking us to help them with cryptocurrency. So there's an awful lot we can do, a lot further to go. Once we have now we have the new team in place, If I can keep them all and keep them motivated and happy and not get in their way too much, then I think we are very much at the early stages of what can be achieved. I hope that answers

31:27 that sort of a question. I I there's a touch of the hand waving because I I don't like to talk about things till I know they're gonna happen. We're very careful about that because there's nothing worse than disappointing. But I'm confident that there will be more things to talk about the future. I think yeah. I mean, there there some of those are very early stage, but I think the main the main thrust or the main message is that we've pivoted from being sort of a a product led business. So where we would come up with products and then try and sell them to our clients So very much a a client led and technology led business. We listen now to what

32:00 our clients are asking for or need, and we are developing those products in conjunction with both the client and and partners. So that that that's it's almost a it's almost a 180 degrees sort of pivot. And and, obviously, that's starting to pay dividends for us in terms of new fund launches and new new products and higher margins or revenue streams as well. I'm just conscious of the fact. I don't know whether there was another I don't know if we can answer all the questions, but I think there was another one. I I sort of saw it flip by. I think You've got them all, have you? Yeah. I think they're all there. Yeah. Okay. Lizzie, should I cover a few few sort of headline before? I think that would be a good idea in case anybody has any specific financial questions. Okay. I think we've sort of covered broadly the the financial headlines at the at the beginning.

32:48 So I won't go through I won't go through each of the bar charts in in a in a lot of detail. But, you know, needless to say, I think that things are going in a in line with expectations, I think, and and and very well and and starting to impact very favorably on on the on the P and L account, which is which is very encouraging. It's probably worth talking about the change in in interim dividend. So as we've already alluded to, no changes in policy itself.

33:19 But I think in light of sort of the increasing operating margin of the business and on a forward looking basis, having the new fund launch and prospective newly fund launch ahead, the board felt it was time to sort of, as I said earlier, rebase the ordinary dividend. We had a bit of a drop last year because of the sort of huge transition that's going on. There still is transition in the business as as you've heard, but we sort of feel comfortable enough now to reset the ordinary dividend level. Still, there is just the flexibility that we would want at the end of the year to maybe decide whether or not the the top level, if you like, of of of of earnings over ordinary dividends is needed for any investment in the business.

34:08 Otherwise, under the policy, again, that that's we can we can can pay out a special dividend. So we haven't changed the policy. All we've done is sort of rebased, I think, based on current position, half year results, and and forward looking, the confidence that that that the board has going going forward. And where's that nice one, which you showed the way that the fees are here it is? Okay. So if we so in terms of the higher revenue

34:38 products starting to feed through into our management fees, we're We're obviously starting to see an evolution now in in terms of how the management fees have changed this half year versus twelve months ago, where twelve months ago, over half of our management fees were received from our passive hedging products, which is very stable, sticky, long standing, good business for us, solid business, but very low margins. And now if we jump twelve months forward to the current half year, you can see that sort of that's gone down from 54 to 36% of our total revenue. So still a a decent proportion of our revenue, but the diversification is starting to show in our management fees now. We've had seen an increase in our dynamic hedging fees, which again is positive. That's a higher margin revenue for us.

35:29 And we've also seen only a slight increase this time around because we've only we've only had a quarter's worth of the new fund launch in our management fees. But the currency for return sort of category, if you like, is is again a higher higher margin revenue stream for us. And and that will grow going forward as as the full impact of the the emerging market sustainable finance fund start to show into in our numbers. So I think that's an important message in terms of the diversification, which is one of the main sort of streams of the new strategy that is now starting to flow through into our management fees. We have a question from James about how often should we expect to earn performance fees and another question about the current COVID the new COVID variant, which we'll do in a minute. Why don't you do the performance fees then? Yeah.

36:18 It's it's it's it's it's a good question, James, but it's quite a difficult one to answer. We are we we our performance fee clients are split between sort of two two product types. We have performance fees on what we call our enhanced passive hedging mandates, some of our enhanced passive hedging mandates. And those sort of mandates rely on sort of interest rate differentials for us to sort of make any any to save any money for our clients on our on our spreads, on our trading. They've been very, very tight more recently, and it's been quite difficult for us to sort of make those cost savings for clients. As interest rates start to diverge, there's potentially an opportunity for us to to to make a bit more money on those, but it's it's it's it's dependent on on what happens out in in in the markets.

37:09 Similarly, on on our multi strategy clients, we have performance fees as well. We saw a dip in the performance of those after or during the COVID sort of period. We are we are clawing that back slowly. We are not sort of quite there. There were high watermarks that we need to reach and and exceed before the performance fees again start to kick in. I think as a board, we we don't we don't plan or budget around what we think our performance fees are gonna be. The performance fees really are a bit of a the top layer of the cake for us, Leslie, I think, aren't they? We we base we base our decisions and our sort of day to day management of the business on what we know in terms of management fees and expectations on p and l. Any performance fees, as I said, are sort of the icing on the cake? Very much so.

37:56 It's certainly not an intrinsic part of the plan for growth that we should be very much performance fee driven at all. Again, diversification amongst clients, amongst products, and amongst fee types is the best the best defense, I think. On the COVID, very quickly on the cove new COVID variant, we are able to run our business entirely remotely if we have to. Indeed, we did the first time around. So we're really not worried at all about that. I don't see it as a problem. It's not going to impede our growth in any way, if that's a good answer. Additional costs, but there's one above that. Patrick's asked broker EPS financials were paired back after the interim despite revenue upgrades. Can you elaborate on the additional costs in h two and where the unexpected?

38:43 No. The costs are really critically all around staff. Obviously, they are our largest cost. We've spent a good deal of money on promotions and people. We've had some one off costs of advisory fees for departing staff. But other than that, we've changed our bonus structure marginally. We're allowed pay between 2535% of profits as bonuses, and we're at 35%, up from 33 and a half before. So that's cost a bit more money. But critically, whenever we grab these share options or JSOCs, we hedge those. We buy the shares in ourselves to cover the cost, and that's expensive. So all of these things are about rewarding key staff, keeping and promoting key staff, not unexpected, probably will continue, but I think the critical thing to note is this does not, I believe, prevent us from increasing our margins.

39:40 So we should still see better margins, I hope, in the future as indeed we have done even though we have to spend a bit more money. And the critical thing is can we get our margins up to a really attractive level as some of our asset managers have done? And I and I believe there's a good chance we can do that. Yes. I think I think we are, as we've said, we're investing we're investing in the business to achieve the the the growth potential that we believe the business has. We we've got to get the right people in the right places. Yeah. And, you know, going back to some of the stuff that Leslie was talking about earlier in terms of sort of internally promoting people where we've we've spotted them as the sort of future talent, if you like. And and basically making sure that, you know, they don't that they're happy to stay, they want to stay. We've gotta give we've gotta remunerate them properly in order to be able to to to do that. So we do expect we do expect the full year sort of personnel cost to increase as a as a as a result of that. As Leslie said, we have invested in sort of the the option schemes that we're able to offer the the the company, but these specifically more specifically, these people. And, obviously, there's a there's a share based valuation charge that hits the profit and loss account as a result of issuing these options. So we are seeing an increase in that cost. We are controlling those, I think, pretty well.

41:02 But that that overall, that's the investment that we are making in in the business to sustain the business and to achieve the growth that that we know the business can achieve going forward. I don't there was we did the one on COVID. I think there was another one, Mark. I don't know if there's another question. I'm sure I I keep saying that you're whizzing by, and then I can't quite Okay. But here we go. Leslie, Neil. Oh, hang on. Long. It's a long one. Is from Paul, and it's a long one. You often state you're focused on succession. It is mentioned regularly. And while you are revving things up sales wise, opening up their offering, investing in the company and their people, and well done for that, maybe succession means more than renewal of management and refreshing the company. Maybe it also means a change of ownership and renewal of the shareholders. 40% with your record, 20 Leslie 8%.

41:49 They are 68 and 66 old. Yes. I know. And then there's the appointment of Christina to the board. Christina Novak joined our board last month and the commentary from NEO RECORD that her appointment, her expertise in succession planning will be a particular bonus in this period of transition for RECORD. Is RECORD up for sale? What plans do you have for retirement? What plans does B and D have to do with the 40% Board directors. Yeah. Board of directors. Yeah. Yes. Good question, and I'll answer it as best I possibly can. Yes. We are old. I'm sort of on my perhaps my last hurrah, if you like, and I would prefer not to have taken this job. But it did become clear to me because, as you say, I have all my life savings tied up in record really broadly, that we needed to get things sorted out.

42:36 I think there will be a change of ownerships, I hope, organically. That would be the ideal, and Neil has very kindly said he would be willing to release some shares to the JSOT. He actually was heroic in that he gave up quite a bit at thirty p or thirty five p. I mean, not the bulk of what he owns, obviously, but a good amount knowing as I knew and I think he knew that they, you know, that we were gonna be able to do much better than that. So he has already started to help and can do more. And one of the things he said to me when I took the job, and I think he's absolutely right with your job, Leslie, is to get the right people in the right jobs, which sounds quite simple. Of course, it isn't easy, however simple it may sound. And this has been a big effort we've made over the last eighteen months. So to get the right people in the right jobs, now we need to reward them.

43:22 We're definitely not up for sale. However, what I would say is we're meeting strategic partners all the time who really like us. I don't know what the future brings. It is not our intention. I would love it if all the guys who I really have my put my faith in could own the business, enough of the business to really for it to matter to them and for it to matter to for them to be able to manage the business effectively, that would be the ideal. That would be the dream. And, hopefully, we'll be able to do it. But as Steve said, that's not cheap to do because we have to buy the shares in. We have to get them from Neil or from whoever. From old stable holders, people who are ex employees, quite a few of whom have quite a lot of shares, but they haven't quite a record for some of them more than ten years.

44:08 What plans do I have for retirement? As you say, I'm 66. I can go on for a bit, but I don't want to be a bed blocker. I do not want if junior team show me, and they're probably, I would say, like, sort of very late teens, early twenties, I don't mean in age. I mean, in business maturity, I would like to get out of the way at the right moment. So I don't need to be around forever, but I really want to make this get this to the stage where it's really taken off and it's got its own momentum, if you like, and that the people who are running it, people who've got the ideas for the future as opposed to looking always at what we'd always done, the stability of the tradition, which was such a big part of what we did. We don't wanna lose it entirely, but it's clearly not the future.

44:54 I hope that's a fair answer. I I I would just add. I think on a general level, I think there's an acknowledgement by all of the board and and Neil himself that it's time for generational change. You know, the the status quo just simply isn't isn't the right answer. So and and, you know, we're aware of that. We acknowledge that. And plans are, as we've already described, plans are already afoot in in terms of starting to think about how that sort of change and transition looks going forward. And, you know, that so so that's definitely I mean, it's top of the agenda, and it's it's, you know, it's it's one of the three sort of pillars of the new strategy, if you like. Yeah. So it's a good question, and it it's definitely something that the board will think about. And that's reflected, as you say, in your in your question by sort of the appointment of Christina to the board who who brings that sort of expertise with her. I would say that some of the guys that we've got, the new people that I'm talking about, they may not be new to RECORD. Many of them have worked with us for many years or quite a few years, but we never really had a chance to show what they could do.

45:54 They're much better than I am. So our CTO, our head of sales, I was quite a good salesperson. I managed to make the business grow a little bit. And, of course, we had a period in the early part of the last decade that was spectacular. But my head of sales now, I think, is really amazing. I'm not just saying that. I think he is very creative. He's more like an investment banker in many ways. One of our clients called him, you are the investment banker I can trust. Nobody quote me on that. He's got very creative ideas as to how to put together the various pieces of our business and external partnerships to create new funds to solve problems. Our CTO is amazing. Our HR director is amazing. So I think so I think it bodes well for the future, if that helps. Alistair's got a currency question here. Do you expect the yen carry trade to return if US interest rates rise?

46:47 Noting that Japanese inflation forecast remain below 1%. And if so, will this reopen a profitable currency for return line for you? Yes. So, yes, the the burning question is whether interest rates will rise. We have two lines of business which focus on interest rate well, three, really, interest rate differentials. One is hedging actively. And, clearly, if there are interest rate differential, that makes hedging either more attractive or less attractive depending on which side of the fence you are. If the carry trade returns and if you look at real rates, there actually is carry, but the trouble is in nominal terms, it doesn't look very meaningful. It will open a profitable opportunity for us. Probably more profitable and more relevant for us for the future is not the traditional dollar yen, but some of the other pairs, particularly, for example, emerging markets where we can now do hedging for emerging markets because, for example, in Brazil, the interest rates used to be 12%.

47:43 Nobody hedged that. So there are a lot of opportunities that open up if the carry trade reappears. I'm not entirely sure that governments will be able to afford to put their interest rates up given the level of debt they have to service short term debt. So I think there'll be a lot of talk. It's a bit like Peter and the wolf. They'll probably make a lot of noises and hope that, you know, hope that that will be enough. But, certainly, if interest rates start to rise, that opens up hedging opportunities for us. It opens up currency for return opportunities as well and something called tenant management, which is enhanced passive hedging. You don't need to worry about the details. So, yes, sorry. Long answer to a short question. Yes. Carry returning is good for us.

48:29 Not essential, but good. Yes. How are we doing? Seven minutes and counting, Steve. I think I just wanted to in the absence of any further questions, I'm just gonna reiterate, I think, the the sort of strength of the balance sheet that we we continue to to to hold. You know, we we continue to hold a high degree of capital, and that's seen us through, well, the financial crisis and and and sort of the the pandemic and very strong balance sheet. We don't intend to change that unless the opportunity comes along, you know, do do that. Think it's good for us. It's good for our clients like us to have a robust balance sheet as well. So, you know, twenty five million of of equity, which is a lot over our regulatory capital, which is about 9 and a half currently. So we do hold we do hold about just under twelve months worth of of fixed overheads, if you like, within the business.

49:41 No no plans to change that at the moment, but, you know, depending on what what what opportunities arise That's right. That could well change. Well, certainly, I would say if I was going to get a question and put a question up on the board, I would say, well, what's the point of having all that cash? You know? Mhmm. Why aren't you going to do something with this? And it was something that we were criticized before when the business wasn't growing. Why aren't you doing something with the cash? And so the question I will always be asking is once we've got enough to cover our needs and maybe a little bit extra in the bank, what can we do with that money that's better than what you as our investors could do with it if we gave it to you? So we need to always be thinking in those terms, and we will be. There are some things we might be able to do, which are worth considering, but they will be, coming attractions, shall we say, for the next time or the time after that when we talk again.

50:30 Yes. Agree. I think that was probably all Is that enough? I think that was probably all We have got a summary in Outlook, but I feel like I've been summarizing and out looking all the way I I think we've kind of I think we've probably covered enough. I think we've probably covered the made on implementing the change. Hopefully, you guys can all see that. We've got a good platform for revenue growth, absolutely, and diversification. Focus on innovation and product development exactly, including further opportunities and sustainable investment? Yes. Yes. We're kind of comfortable now. We know how to run this business with 90 people sitting in their, you know, spare rooms and not all of them because some of them do come into the office. And, of course, we're here today, and I've got other meetings today.

51:15 But, certainly, it's not a problem for us to continue in that way. Amazing what you can do on Zoom, isn't it? Some of the biggest deals we've done in our history have been done over Zoom over the last couple of years, so that's incredible, that's meant. Investment future growth, capital position, we've said. Yes. I think it's all, it's all self I hope self explanatory. And given that there's been no more questions for the last five minutes, I think everybody's run out of steam I think that's probably I think something you said in your CEO statement was that, you know, we are we have been in transition for sort of eighteen months now. We are still in transition. There are still changes to be made, but we are starting to see the fruits of our labor coming through in terms of the financials now, which is positive.

52:01 And looking forward, the board, I think, have confidence and that's reflected in the resetting of the ordinary dividend you know, with the knowledge of of the new fund that's launched, the one that's about to launch and also the sort of the the opportunities that we can see going forward as well. Exactly. And I'd like to thank everyone who joined today because we're very grateful for your interest and we're very happy to field any questions that we honestly can answer and answer them as transparently as we possibly can. So please stay interested in us. There's a lot more to come. Thank you. Leslie, Steve, thank you very much for your presentation. I think you actually managed to address all questions from investors today. Excellent. And with four minutes to spare. Exactly. And, of course, the company will review any further questions if they come through. Yes. Of course. We're very happy to try and answer any questions you may have. Leslie, just before redirecting investors, I was just wondering if you could give a few closing comments.

52:54 I know you already have, but just to clarify anything. Or Well, we're a very unusual business. We're when were we launched? '82. So we're a forty year old startup in a weird way. I have a good friend who is a venture capitalist. And when I've described what we're doing, he said that's what we do when we go into a business as venture capitalists to reform it. And so we are at every level reforming a business but building on what we've already got. So we don't want to destroy what is there, which is good, which the best thing we've got is fabulous client relationships that have lasted a long time. We're very loyal and very interested and very supportive of what we're doing. So let's build, hopefully, on what we've got, not throughout the things that are great, but also be inexorable about our desire to improve, which I genuinely think we can continue to do. Is that enough, do you think? I'm getting a bit sick of the sandalwood. I think that's enough. Yeah. I think that's fine.

53:52 That's perfect, Leslie. Leslie, Steve, thanks for updating investors today. Glad please ask investors not to close the session as you'll now be automatically redirected for the opportunity provide your feedback in order that the management team will better understand your views and expectations. This will only take a few moments complete and is 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. That now concludes today's session, and good morning to you all. Thank you.