Ashmore Group Plc (ASHM) Earnings Call Transcript & Summary

Morning, morning. Thanks for coming. We're going to give you Ashmore's results for the year ended June '22. Thank you for coming. At one point, there was 4 of us in here. It was really a great time, but then we had to move all the business. Here's an overview. You know I'm Mark Coombs. This is Thomas Shippey, Finance Director as ever. And we're just talking a little bit about how we see the world at the moment. It's pretty tough out there, right? I mean you've got a situation that not a lot of people have had to work through before, which is people arguing and fighting it militarily, making a big impact half's commodity prices, soft and hard. And inflationary price action through broken logistics supply chain, which have been changed coming out of the pandemic. So massive risk aversion basically going on, and you've got to work your way through that. What we do is stick to what we do. I mean, for us, it gets a whole lot more interesting here. You -- it's quite hard to trade the war, but you can trade a lot of other things. And so what you do is you do what you've always done. You say at what point the things become cheap, at what point they become expensive and trade them aggressively with a view to going net longer cheap price action, to make a lot of money over the next couple of years. And our investment performance reflects that. That's what we do. We're prepared -- depending on the strategy. I mean the strategies that are able to do that, particularly in the high yield space. Not all our strategies are in high yield. Obviously, we have a lot of investment-grade activity as well. But in the high-yield space, when we see particular sell-off in value, we look for it and we take it. And even investment grade to some extent because there's a duration story going on. And investment grade markets have taken a bigger hit than people are used to, some say it's probably even more than 94%. And so you just -- you get value at the right point you acquire, and that's we do. So we keep doing that. We stick with our strategy. We have local asset management businesses, as you know, that we've been building over the years, and we continue to do that. We look to do more of those. It's all about finding the right people. We continue to do that. The cessation of travel caused by COVID has kind of gone away now, so we're back on the bike, and that means we can do things in the local markets as well again. Difficult to put new business together you can't actually visit the markets and meet the people. So being back on the bike literally is a big plus for the business. We're very pleased to be back. Some is over too. So we're all back at it and looking forward to doing a lot. We do what we always do in terms of costs. We manage them as best we can. Our EBITDA margin is now at 64%, and we generated GBP 180 million of credit cash. So the business model is good and doing what it always does. Our stat profits reduced a lot because we've got an unrealized mark-to-market loss on the seed book. That's going to happen. We had a big unrealized gain last year, a smaller unrealized loss this year. It's going to happen. And the key thing for us is that when we sell the assets, we make a profit, which we have been -- as we withdraw seed. Balance sheet remaining strong, dividend is maintained. This is the reason we set up like we are. We don't have to run around firing people in big sways or hiring people in big sways. We're much more steady. We like to build a business where people work in it for a long time. They feel secure, and they generate value to the shares because they're all shareholders. Outlook from here, what we do is very cheap. It doesn't mean it can't get cheaper sometimes. So you always going to look at price and value and be comfortable with it. I think we're really very, very cheap here, though, both in the fixed income space, but also in the equity space. You've got U.S. equities now kind of taking a bit of a reality check. A lot is going to be driven over the next 3 months by what happens in terms of inflation and growth in the U.S. Once you get some kind of moderation of tightening, the world will take a breath and say, "Where do we go from here?" But the reason we think it's a risk of our outlook now is because people need to get that -- get through that inflationary U.S. environment to see what happens elsewhere. Fortunately, emerging markets are pretty diverse. So we have some markets that benefit hugely from cheaper commodity prices, particularly in hydrocarbons, and we have some that don't. And so that means we've got places to go to invest and places not to invest in times when there's pressure on food or commodities, et cetera. So that's a good thing. Just in terms of price, the last point here. The spread now, despite rising treasuries, is over 500 basis points on the sovereign debt index. We just using the debt as a proxy. So there's value in this. Slide 3. This is -- really the message here is that we keep doing what we do. We've got to be active. And we've got to get ourselves in a position where as things recover, we make a lot of money in that part of the cycle. That's what we always do. There again, there are different strategies to do different things across those investment rate, there's investment grade. There's local currency, there's dollar-based assets. There's equities. There's a whole series of things, frontier, small cap, all cap, active. So we need to be doing what we're doing and sticking at it, and that's the key that we just -- we continue to do exactly what we've always done. If you look at the past few years, normally, you get a shock and a recovery. And the shock takes probably, 1 year or 18 months to go through. Sometimes it can be 6 months. And then you get a 3-year recovery that turns into a 2-year recovery. Past few years, we've seen a bunch of very quick cycles. So the growth year of '18, COVID of '20, reopening inflation by middle of '21 and the Russian Ukraine invasion '22, which has created a whole lot of nervousness generally. So geopolitical fears, higher rates and current inflation that we're not expecting to come off for a few months. And that just makes people sweaty. So against that backdrop we say, okay, what does that do for the market? What does that do to the technicals? But let's make sure that we acquire risk, and we often take profit quicker than we might do in sort of one directional market. People oversell in the fear. People oversell selling in nervous. August, you buy it, you can even trade it in September. That's fine. So as you've got here on the right, you can see this -- we're just using the MBGD, which is the external debt index in emerging markets, the sort of a proxy and showing the spread. So we were sub-300 in '18. That's no way the cheapest. It's been cheaper than that before. And we spiked up to 700 and then back up to 600 this year. So we're -- we've had some pretty aggressive risk selloff, but it means that we're not super expensive, and that gives us an opportunity to invest. In terms of the bottom chart on the right, that's just to give you an idea of how we perform and how we trade. So we picked 3 things here, right, the taper tantrum in the mid-teens. So June '13 through to December '16, we're showing you some data here, 1-year and 3-year numbers. So this is a percentage of group assets outperforming. So going into the taper tantrum, we were at 1 year and 3 year, we're up at sort of what is that 85%, 90%, 95% outperforming. Then you get the taper tantrum and you get a very big sell-off because now what we don't do is panic and throw the baby out with the bath water and we're prepared to add risk as we think people are mispricing things. So if we go to sort of a complete change of 3-year outperformance dropped to sort of 10% of the assets, a year later, we're back at above 75%, 1 and 3. COVID, similar story. Outperforming very highly across June '19. By June '20 after the big curve it selloff, underperforming everywhere. So pretty much everywhere, so down to sort of 15% to 10%, both 1 and 3 year. And then strong recovery as we -- the risk that we took through that 3-month, 6-month period paid off. And then we've walked into the Ukraine-Russia war situation, and we're now at a position where we're back down below 50% outperformance in 1 year and about 25% in 3. This is typical. We're doing what we've always done. These graph bars will be back up again as we come through this over the next 12 to 24 months. It's what we do. So we keep at it. When bid offer spreads are wider, obviously, you get negative marks. There's a lot of value in what we do. We feel we're in good shape here. We feel we're in good shape. We have to speak to clients all day to make sure that they're comfortable. This is what we keep doing. It's certainly true that every single client always sells risk at the wrong time. There are some geniuses, of course, that don't. And they are always the ones that remind you of that when everything is great. But it means high level of client contact. Remind them why they're in it and what they're doing with it and remind them that as we -- as the beta gets better, our alpha gets much, much better. We're levered to the upside. That's what we do. This is the investment performance graphs in a bit more detail. We always show you these. So this is giving you a familiar pattern. Just starting in the little black boxes or blue boxes, bottom right of each of these sets of tables. So a year ago, we were 96% outperforming over 1 year because of our investment through the COVID crisis, big outperformance, 57% over 3 and 79% over 5. We're now 45% over a year, 28% over 3 and 48% over 5 years. And it's completely conceivable in our investment process that that could be worse because we're deliberately taking risk steadily not all in one go into down markets. So that's actually -- that could easily have been lower. Just in terms of shape, as you can see, local currency has been -- in terms of the fixed income space, local currency has been the best performer certainly over the last 12 months. The least good performer has been the corporate space and blended, and that's obviously because corporate fits into blended at some point. There's been a lot of drama in the corporate sector in terms of what's going on into European countries. There's been the China real estate situation has even themselves in the Latin place, all of which I think comes back quite strongly. And particularly the China story, everyone just kind of gave up, which is ridiculous. And we're beginning to see some flickers and some start. That's beginning now to outperform again. So that gives you a rough idea of where we're at, and this is normal. And in terms of us as a firm, outperforming in local, global equity and investment grade, underperforming in the high-yield space. Because what happens in the high-yield space as people tend to first panic and go to U.S. high yield and then panic about U.S. high yield. So we've done what we always do. We've added risk selectively and we'll continue to do that through the next 3 months. I would see we get further opportunities to do that. I'm going to hand over to Tom for a little bit.

Okay. Thanks, Mark. And good morning, everybody. So before I get into the detail, let me provide you with a summary of Ashmore's financial performance for the year, which reflects the challenging market conditions that Mark has described. Assets under management of $64 billion at the period end were 32% lower than at the start of the year, primarily driven by the market decline and net outflows as global investors sentiment we can follow the Russian invasion of Ukraine in the second half. In turn, the lower AuM level delivered a 13% reduction in adjusted net revenue to GBP 257 million, including a 10% decline in net management fees. As you would expect in such an environment, we've continued to exercise strict control of our operating costs and, despite a return to more normal working practices, reduced expenses by 7% compared with the prior year. Notably, the employee bonus pool was reduced by 15%, more than the drop in revenues. This means that the adjusted EBITDA margin of 64% was maintained at a similar level to the prior year. While in absolute terms, EBITDA declined by 16% to GBP 164 million. The group's business model continues to generate meaningful cash flows with operating activities delivering GBP 185 million of cash in this period. The significant decline in global capital markets in the second half of the year reduced the value of the seed portfolio, resulting in a mark-to-market loss of GBP 50 million. It's important to note that this is unrealized and as such does not affect cash flows for the period. On a statutory basis, therefore, reflecting the seed capital result, profit before tax fell by 58% to GBP 118 million. Adjusting for foreign exchange translation effects and the impact of the seed capital, adjusted diluted EPS of 18.7p was 20% lower year-on-year. Therefore, having taken into account a range of factors, including the unrealized nature of the seed capital loss, the Board has recommended maintaining the dividend at 12.1p to give total dividends per share of 16.9%, unchanged on the prior year. Looking at assets under management. You can see from the chart how the deterioration in market conditions and investor sentiment in the second half of the year had a pronounced effect. More than 75% of the market impact on assets and net outflows occurred in this period with the bulk of the move in the final quarter as markets reacted to the Ukraine war, inflation and higher interest rates. Gross subscriptions of $13.1 billion were approximately 25% lower year-on-year. Demand remains relatively broad-based across the liquid equity and fixed income investment themes, and there continues to be decent levels of ongoing interest in investment-grade strategies and opportunities in high-yield credit. While client activity in the first half was comparable to the previous year, subscription levels were lower in '22 as global investor risk appetite declined. That said, towards the end of the fiscal year, we began to see certain clients topping up their mandate to take advantage of the highly-attractive valuations available, consistent with behavior seen after previous market selloffs. Redemptions increased year-on-year to $26.6 billion, and again, were weighted towards the second half. Lower market levels meant that the size of overlay mandates reduced by $6 billion, accounting for just over half of the year-on-year increase. Other institutional redemptions were largely driven by derisking as global markets became more volatile and investors reduced their exposures, irrespective of asset class or fund performance. Finally, there were some redemptions as a result of underperformance in strategies with a high-yield bias. On a net basis, institutional outflows were broadly split between overlay funds and other institutional mandates. And while there continued to be some net outflows from intermediary retail clients, these are around 25% lower than the prior year level. As usual, the summer months have been somewhat quieter, and our expectation is that activity levels will begin to pick up post the coming Labor Day weekend. Before turning to the P&L in detail and update on the third phase of Ashmore strategy, which focuses on sourcing assets from within the emerging markets, including through the establishment of local asset management operations on the ground. Collectively, these businesses now manage approximately $7 billion, a figure that was little changed year-on-year, demonstrating the resilience and diversification benefit of these platforms to the group. Underneath this headline figure, each individual business is delivering according to their specific domestic growth objectives. In recent years, Ashmore Colombia has broadened its product range to include listed equities and real estate, and then this period successfully raised its third infrastructure-focused private equity fund. The listed equity franchise is delivering strong investment performance and showing good growth momentum, while the alternative strategies have a decent pipeline of fundraising activities over the next 12 to 24 months, including in real estate and infrastructure-related credit. Ashmore Indonesia continues to perform well and has today announced record profits together with a 62% EBITDA margin comparable to the groups. During the year, it uses its own balance sheet resources to launch a blended debt strategy and is broadening its access to clients through a digital distribution joint venture. And finally, Ashmore Saudi Arabia has increased assets over the period to $1.5 billion. And today, its product range is developed to cover a range of liquid, fixed income and equity funds as well as alternatives products, including a recently launched health care project, which builds on the group's successful partnership with King's College Hospital in the UAE. The local platform is very important component of Ashmore's long-term strategy. We continue to see meaningful growth opportunities within the existing portfolio offices, together with the potential to expand the network over time to other countries as the independent asset management sector develops across the emerging world. Looking now at revenues. The reduction in assets delivered a 13% drop in adjusted net revenue to GBP 257 million. Net management fees declined by 10% or 11% on a constant currency basis, primarily reflecting a 7% drop in average AuM compared with the prior year. While year-on-year, the reported net management fee was 2 basis points lower at 39 basis points, it was broadly stable at this level throughout the 12 months. The main factors behind the 2 basis point year-on-year difference were the impact of higher-margin intermediary net outflows, mix effects such as lower levels of high yield versus investment-grade product and the ongoing impact of competition. There was no overall impact from investment theme mix as the effect of lower average AuM levels in the higher-margin fixed income themes was broadly offset by the reduction in low-margin overlay mandates, growth in average equity AuM and higher margin alternative capital raising. Similarly, there was no net impact from large mandate flows with large mandates and top-ups by our existing clients into large accounts, broadly offset by the impact of reductions from other institutional mandates. Notwithstanding the broader market environment, the group was able to deliver GBP 4.5 million of performance fees in the year. And while there were no material performance fees recognized at the end of August, based on current market levels, I would expect performance fees in the current year to come in at a slightly lower level than the '22 financial year. And finally, given the weaker sterling over the year drove -- sorry, weaker sterling in the year drove foreign exchange gains of GBP 6.3 million. Turning now to costs. There's a familiar picture that illustrates the flexibility of the business model when faced with weaker parts of market cycles. Total adjusted operating costs were reduced by 7% year-on-year or 8% in constant currency terms. This primarily reflects the 15% reduction in variable compensation, slightly more than the 13% decline in revenues, reducing the VC charge by GBP 8 million and continuing to align the interests of employees with those of shareholders. The fixed salary component of employee costs increased by 4%, reflecting higher headcount, particularly in the local offices to support their continued growth and broader diversification, together with some impact from industry-wide wage inflation. Other operating costs increased by 6% as expected with the majority of offices reopening and staff beginning to return to more normal levels of travel as COVID-19 restrictions were lifted. In the current financial year, I would expect similar factors to continue to drive operating costs. The full year effect of the reopening of the office network and recent hires, higher travel costs as activity levels for distribution and research teams normalize and a further modest increase in head count, which together with the continuing pressure on salaries, is expected to increase fixed salary costs by an amount similar to that seen in '22. In aggregate, I would expect these elements to add a couple of million pounds to current run rate operating costs over the financial year, broadly in line with the increase we saw last year. Looking now at seed capital. For over a decade now, Ashmore seed capital program has successfully supported growth and improved asset diversification while providing realized investment gains and generating positive cash flows. Our consistent approach is to realize the value of seed capital investments profitably once they've delivered the fund's desired scale or investment objective. In this period, continued client flows into the group's equity products, together with distributions from alternative funds, resulted in profitable seed capital redemptions and therefore strong net cash flows of approximately GBP 55 million. This led to a relatively small realized gain being recognized in the current financial year. However, including the gains recognized in prior periods, total profits of GBP 19.4 million have been crystallized on the redeemed positions. As I mentioned earlier, new investment activity centered on Ashmore's local businesses, supporting long-term growth in local AuM and the diversification that these platforms offer. The group seed capital investments are valued on a mark-to-market basis. And consequently, the significant drawdown in global capital markets in the second half resulted in an unrealized mark-to-market P&L loss of GBP 49.9 million for the year. As the chart shows, the benefit of event-driven uplift in valuations on certain alternative assets in the first half meant that the overall mark-to-market impact was lower than the fall in the major emerging market indices over the 12-month period. Critically, the mark-to-market loss was unrealized at June, and therefore, the modest recovery in asset prices over the summer months has delivered a positive uplift in the value of the group seed capital portfolio since then. Lastly, on seed capital. The total value of the program is around GBP 285 million at the end of June. And subject to our usual caveats around markets, new investment and redemption opportunities, I would expect the size of the seed capital book to remain in the recent range of GBP 250 million to GBP 300 million. To finish down the P&L, the combination of the operating performance and the seed mark-to-market resulted in profit before tax of GBP 118.4 million, 58% lower than the prior year. The effective tax rate of 22.4% was higher than the U.K. rate of 19% due to certain seed losses being nondeductible for tax purposes and the impact of a lower share price on the taxable value of shareholders. Putting these factors to one side, the group's underlying effective rate for this financial year and based on the current geographic mix of profits is approximately 17%. Assuming tax rates in the U.K. and the U.S. increase as expected, this will have a combined impact of approximately 2 percentage points on the group's effective tax rate for the 2024 financial year. Statutory diluted EPS as reported was 12.6p per share. While adjusted diluted EPS, which removes the unrealized capital loss and the impact of FX translation, fell by 20%p to 18.7p per share. In considering the recommended level of the final dividend, the Board took into account a range of factors, including the unrealized nature of the seed capital results, the strength and liquidity of the group's balance sheet and the positive medium-term outlook. And consequently, the Board has recommended an unchanged final dividend of 12.1p to give total dividends for the period of 16.9p. Before I hand you back to Mark, a brief overview of the group's cash generation in the period and the balance sheet position. As you can see from the chart, Ashmore continue to generate significant cash flows from its operations with a total of GBP 185 million delivered this year. In addition to the payment of corporation tax and dividends to shareholders it's also funded GBP 34 million of share purchases by the Employee Benefit Trust. The EBT purchases were a little bit higher than usual as the Trust opportunistically bought shares at attractive price levels, effectively prefunding future equity awards to employees. As I described earlier, the seed capital program delivered nearly GBP 55 million of net cash flows and the impact of weaker sterling particularly against the U.S. dollar resulted in a mark-to-market translation gain on cash at the 30th of June of GBP 40 million, which is reported in reserves. Therefore, over the 12 months, the group's cash balance increased by GBP 96.3 million to GBP 542 million, demonstrating that Ashmore's model effectively delivers cash flows for shareholders through market cycles. And finally, for me, a few words on the balance sheet. As you may be aware, the regulatory capital rules for U.K. asset managers changed in January. And since then, we have been reporting on a quarterly basis under the Investment Firms Prudential Regime or IFPR. Notwithstanding this change in the regulatory regime, Ashmore's strategy and business model remain consistent, including continuing to maintain a well-capitalized and liquid balance sheet to support the business through market cycles and to deliver upon our strategic growth objectives. Under the IFPR, by March 2020, firms need to produce an ICARA, which essentially replaces the ICAAP. The ICARA requires an assessment of regulatory capital requirements based on the potential harms a firm can cause to clients, to markets and to itself and a new additional assessment of liquidity requirements. Given Ashmore's substantial and liquid financial resources of almost GBP 800 million, the balance sheet is comfortably able to satisfy the new capital and liquidity requirements. Ashmore will finalize its assessment of these requirements under the IFPR by the end of calendar '22, and we'll publish the conclusions in our interim results in February '23. In the meantime, to provide you with an updated understanding of the capital requirements of the group, the Board has implemented a consistent ICAAP methodology to the group's operations and balance sheet as at 30th of June to calculate a total capital requirement for the group of GBP 125 million. This is around GBP 31 million lower than a year ago, principally due to lower market risk as a consequence of the reduction in the value of the seed portfolio in the period. Considering the group's total capital resources of GBP 788.7 million, this means that the current excess capital is over GBP 663 million, equivalent to 93p per share. With that, I'll hand you back to Mark.

Well, we have a written one in front of them. We're okay now. Thank you. Is that where you were -- Yes. Thank you. So outlook. Well, obviously, there's potential for improving macro. Macro's been pretty ugly, right? So there's definitely potential for us to improve. There is a premium in terms of growth in the EM, EM grows better. It's starting from a lower base, and as it gets bigger that degree of growth in EM reduces, but it's still significant. EM Central banks on the whole move much earlier than the U.S. and Europe and U.K. in terms of addressing inflation. They got well ahead of it, partly because they've seen it before and they know that tends to change government. Nobody likes that very much, so they go on with it. And really, I think, in certain cases, did very well in terms of getting ahead of inflation. Pressure is still out there. That should normalize. Obviously, as base effects washed through, it's still going to feel pretty ugly, I think, for the next 3 to 6 months. But I think that as you start to see those numbers come down, the central banks may feel more comfortable, and the developed world becoming a bit less hawkish. And they'll become nervous about being so hawkish as we move through election cycles, particularly in the U.S. In China, the interesting point there is obviously, October is pretty important in terms of what happens or doesn't, to Mr. Xi, in terms of going forward. That sort of run up to those regular reelection side course, often creates pretty low levels of activity in China politically. Everybody wants to sort of be ready, and I suppose it's true in every market and be ready to get the next job and make sure that they do the right thing, and so that normally means things get a little bit quieter. What is interesting this time around is the zero COVID policy is still being trumpeted and as a key part of what they want to do, and that makes things a bit stop start. And so the question is coming through and we come past that election, does that policy change? I think it's probably quite difficult to publicly change a policy like that, but I do think they're pretty aware now at the top. It's taking a little bit of time because people are often nervous to tell people things upwards. But there's some stimulates coming back into particularly the real estate sector, which is a big part of the GDP. And they've realized that they need to -- first of all, people need to have houses and apartments finished. And secondly, if it's 1/3 of your GDP, we're getting that way. If people stop ordering things, paying for things, et cetera, it can become quite ugly. So we're now seeing significant stimulus beginning to come through, which is surprising even pre-October. And I suspect where we go from here is once a year after October, there's a bit more of that. But I still think it's going to be a little bit stop start. For the -- obviously, global markets, we have geopolitical risk. The big one people worry about is what happens to Taiwan now that we've seen Russians mess around in Ukraine. The base case is that they don't invade Taiwan we don't get a big spat. I don't think you've got to kind of trade for that live for that. So what can you do? You need to diversify? You need to say where are the places where I can benefit from what's happening in terms of inflation, global supply chains, commodity prices. And you need to diversify, and emerging markets let you do that. So that's what we do within our network. I think in terms of valuation, we feel pretty good. I mentioned external debt spreads are at 500. They were less than 300 pre-COVID. Local bond yields are now 400 basis points higher than U.S. Treasuries. And one of the interesting cause for us is what happens to the dollar. We were entering pre-Russia, Ukraine, we were feeling local currency was due quite a big bid. We just felt the dollar was extremely expensive, having had one of those strong cycles, sucking a lot of capital in. We just felt the U.S. equity markets were expensive as markets generally are expensive. And of course, you get an invasion, you're going to get a big flight to the dollar. So that's deferred things a bit. But we think the dollar looks pretty expensive here. So absent completely melting down markets, we think local denominated assets and that can run through to equity, too, become much more attractive than dollar denominated ones. So while there's a big risk aversion moment, that tends to not be something that feeds through, but you tend to be want to be set up for when that risk aversion drops a little bit and people start thinking away. Why is the dollar price here? So we think that's quite -- we're quite an interesting moment for the dollar in the next 6 months or so, especially when the Fed starts. But when they stop increasing rates, it's quite an interesting moment and the technical washes through from Q2. And then equities are 20-year PR, low against the S&P, which is interesting. So we think the outlook for EM is relatively good. We want people to calm down. People tend to not do much when they're frightened, and so we want to come back from the summer. Risk aversion gradually drops. We think we could be in for a relatively decent year for EM from here, and it could be a very strong one. Summary. I think for the third time, we're saying it's challenging global markets. We're focused on what we do. Everything is about price. So make sure you follow your risk process, but whether it be equity, bonds. Whatever it is, stick to your process. Make sure people think about that. Make sure your investment teams are staying on it, focused on deciding to take the benefit of where at the COVID is not over, but we're all planning to try and live with it, we will get back on our bike. We get back into markets. We set our research process getting back in front of people, getting -- making sure that governments and companies and shareholders, we're all engaging with them. Do what we've always done and make sure it's happening. Then on the client side, you've got to be talking to clients. They're all going to be going, "Oh my God." They're going Oh, my God on a whole lot of things. They lost a huge amount of money in dollar assets, be it equities or fixed income. Some of the more risk averse ones that based in the states immediately buy U.S. assets, but almost exactly the wrong time. That happens every single crisis. Remind them of that, accept that 99% of them will still do it and make sure you're in front of them when they start going, "Oh, that's performing a bit better now." So a high level of client contact, make sure you're talking to them. And then remind everybody that valuation is good here. We've had a big selloff. We had a big selloff, and we were kind of 2/3 into a recovery. Another big selloff from there because of the invasion. That doesn't mean anything is changed. It just means it's cheaper. So stick to your process, talk to your clients and get on with it. And make sure you run a business where you're quite -- you're set up in a way that you have operating leverage. Everybody can still do what they do. There's no big, "Oh my god, I'm going to lose my job" crisis. It's, "Hey, we're going from here, let's grow the platform." So that's how we see it. Any questions?

[Operator Instructions]

It's Hubert Lam from Bank of America. I've got 3 questions. Firstly, on the fee margin. Can you confirm what the exit fee margin is and also what's your expectations for fee margin this year? Do you expect further pressure on that going forward? Second question is on client sentiment. I think, Mark, you've spoken quite a bit about it. What do you think is the catalyst that needs to happen for clients to come back into EM? Obviously, valuations are very attractive, as you mentioned. But so far, it hasn't been -- your clients haven't really acted on it. So just wondering what you think needs to be done. Or would you need -- what the clients -- what -- when market D2C first before...

So Hubert we answer that -- I'll do the second bit.

Yes, I'll go one more. And last question is...

And another one, yes.

It's obviously been like a hard 2 years for both the share price of a class. Have you thought about doing things differently, either in terms of the investment process or strategically, maybe through doing M&A or buybacks? Just anything -- has anything changed over the last few years as...

Okay. So let me try and remember all those. So strategic, dealing with the last one first. I mean, as you know, what we do is we use the market to fund the share grants to employees. So we tend to use it more when prices are cheaper than when they're not, and we quite happily do that. We obviously have approval we wanting from shareholders as I look, but we never had to dilute. We've always bought in the market, and we'll continue to do that. And shares are cheap. We much rather buy them there and then have them easily available for staff over the time. In terms of formal buybacks, yes. Like everything in life, you never say never to anything. It's not something we've decided we want to do. We think there's enough market touch from us going on in terms of doing what we do for the EBT. Never say never. But I think, frankly, for us, as we look and growing the business, we'd much rather be something that's not artificially trying to affect the share price through what we do. We're just going to do our business. If people want to short EM through us, okay. If they want a long EM, okay. So it will be 2, probably go up too high and down too low. It's life. With that vehicle, which is going to run the business. So if we run it well and the market beta turns, we'll get a whole lot of short sell, going time to get out. So we're going to be very beta-dependent. That's fine. We can't affect that, and I don't think we should. In terms of the client stuff, what normally happens in this sort of situation is they need to stop losing money. So if the BT is bad in the developed world and losing money even in U.S. equities, it tends to make them say, "Oh, my god, I'm losing money everywhere. What's marginal for me?" So they tend to be -- some of them will be esoteric product that they do, they stop doing it. They perhaps don't do so many new things in areas that they thought were totally clever before in terms of structured product or off the run staff. And in terms of EM sometimes, they do less of that, both in equity and in fixed income. That will happen. And I think in terms of there are going to be different triggers for different things. So at the minute, some of the larger investment markets are obsessing about what's happening in terms of global inflation, brackets U.S. inflation. I think everybody's treating Europe is a different problem. And I think it is a bit of a different problem. So they're not quite sure. So Europe is quite a hard one. But if I look at our client base, even the European investors who are nervous about what's happening within their markets, are probably not wanting to add to the European exposure. They're probably pushing themselves more to what they see as lower risk, which is U.S.-based. And then yes, they come to us. So what tends to happen is you need a little bit calmer. So they're going to be -- if I think about rates, right, so on the fixed income side, you probably need the Fed to say, "Maybe we'll pause here for a bit." Or -- and probably you need some people to say, "Look at the data. The base effects are cutting through. These numbers don't look quite so bad." The impact of some of the pain in the consumer sector is beginning to be felt. The equity markets are beginning to suffer a little bit, suffer quite a lot because people are not spending as much growth there, that becomes less inflation. So some people will get ahead of that. And so the data in terms of CPI, PMI, et cetera, outlook expectation is pretty important. So people will probably trade the data a bit. The really long-term institute, so I expect retail to do a bit of that. But retail is very flighty. I would expect institutional to not really do a lot of reinvesting until they see some level of the field inflation is under control to some degree. So that I think we need -- we probably need data points through to the end of the year, and you could say, through the end of March. But I can't call it, but I can feel that just in terms of what usually happens. Was that the second question? Third question?

Revenue markets [indiscernible] fair amount going on underneath the hood, given the various different impacts on the margin, but 39% is a good exit rate assumption. I'm sorry, going forward, the same. So putting mix and size to one side, the sort of gradual amortization that we've seen over the last 3, 4, 5 years of a basis point or so every 12 to 24 months still feels right.

It's Dave McCann from Numis. The first one, just actually following on in from Hubert's question to some senses, he asked about, I guess, clients independent flows. My question would be, what would it take for your investment performance to improve? Are there any meaningful things and maybe some of them are the same? But just some thoughts there would be interesting. And then just a couple of more technical ones, just on the guidance you gave around cost, that GBP 2 million, I think you mentioned, was that combined across both staff fixed and nonstaff fixed cost lines? Or I didn't quite get the messaging there around -- I think you were saying something what's going to happen to the staff element and some to the other part, but I think you mentioned to possibly total. But if you could just clarify that, that would be great. And then finally, on the new capital regime, can you give us a sense, directionally? Do you expect it to be up or down based on the 125 you just mentioned?

Do you want to do those 2? And I'll do the one on...

So cost of the couple of million encompasses the 3 different elements that I described. So the run rate coming out at the end of the year was a little bit ahead of GBP 50 million. So it's been adding to that on the costs. On the capital guidance, I think direction is likely to be a little bit lighter. So I don't think there will be quite as much capital that will be required to be held under ICARA than under ICAAP. There's a very precise reading of the ICARA rules that would imply that. There's been limited guidance from the FCA. So we're in the process of working through that at the moment, which is why I haven't been specific today on exactly what we expect that number to be, but I expect it will come down a touch.

Is that both? Is he held off both questions?

I've done 2 out of the 3. One for you on the performance.

So on the investment performance. Remember, the investment performance is different in different places. So I tried to -- and perhaps I didn't spell it out properly. So we look at the local businesses, they're obviously running their investment performance processes. There's a framework they've run their own processes. And the performance ranges from outstanding to good from Saudi, where has been outstanding lease activity through Colombia, Indonesia, where it's been good, and that continues. So they do what they do. That's worked well. Within the global themes, again, it's different things in different places. So within fixed income, within all the fixed income things, investment grade has been good. Price has been doing what it's doing. And that's tracking along quite happily. Within equity, again, there was the sort of event, the shock event caused by Russia, which had a pretty big impact on Russia with some further pass-through of some of the Koreas and India, et cetera. Again, now tracking along quite nicely. Within the high-yield side of fixed income, we're doing what we always do. So we've got particular calls on particular risk themes that hurt us mark to market. And that's -- we do what we do. So we take -- what has to change for it to perform in some of those to start coming through? They will.

It's Arnaud Maurice Giblat from Exane BNP. I've got 3 questions, please. Firstly, just to come back on pricing. Could you talk a bit about pricing on the front book? I heard your guidance, but I'm just wondering in terms of where pricing is coming out. My second question is on building out local businesses. You talked about briefly during the presentation about building up new countries. Is there anything imminent there? And whilst you are on the new countries, if you could expand a bit a bit more on the EBITDA margins. I think you talked about 62% EBITDA margin in Colombia, where the margins at in other countries? And what will it take to get to national margin?

I can do the margin a bit brief then you can add them in. So scale typically is what gets you up and gets your margin better. So I think that to do was actually Indonesia, wasn't it. Yes. So they're reaching very good scale. Obviously, our model, our margins, if you like, been as a management industry high for a long time. Sustaining it, there's always a challenge, particularly when you've got a base cost that's pretty low. So one of the hardest things for us to do is to sustain our margin as high as it is, and we focus on everything we can do to do that. But it means that local asset management businesses, they may not all get to that margin, and that's just fine. If they get considerable scale, we don't mind if that's a little bit margin dilutive. We're happy to grow the business and accept lesser margins on a bigger platform. So I think having said that, I think the margin should be improving in all of them still because they haven't really got big enough in what they do, but they're getting there. They're definitely getting there, and I think it's a question of time. They run their businesses, they're performing well, assets are growing slightly. That's that. What was the other bit? Yes. We were actually going into COVID, we were talking about something specific. But we all agreed that it was a good idea not to do something when COVID hit. We'll dust that off and look at that again and see what we see and whether that makes sense. So we would like to see some additional country activity in next year. But we're not going to race to do it without being sure. The key thing in all of these things is going to be the right platform. The lower fee has got to be right to be able to build an independent asset management business, so both regulation, numbers of people where they are, what they're doing, how you access them, but also competition. So we're not going to do for the sake of it. But yes, I can see -- we like -- we -- the whole part of the third part of the strategy is to find ways to have more emerging market investment teams in more countries doing more things. So yes, it's definitely on the agenda. It's going to be the right thing. You covered your bit. Or was there...

Another pricing. So new business pricing.

Well, if you look at the shape of the business, there's obviously 2 things going on. People tend to try and pay less if markets are going down, there's always -- they always try and spend less money on a manager. So there's always going to be that pressure. It's a permanent part of the business. What helps us a bit is the shape of what we do and where we're raising, where we're particularly seeing asset interest tends to be in slightly higher margin areas at the minute, although not completely. So investment grade is actually quite low margin business, but the margin is pretty tight there anyway, so I don't see so much pressure there. My view is margins and fixed income almost never go up for us, given how light we are in equity. Margins are better in equity, and so they tend to be margin accretive for us given where we're starting from.

It's Bruce Hamilton from Morgan Stanley. Just 2 quick questions for me. On the dividend, there was a pretty reassuring robust message. But I guess in a scenario where your sort of adjusted earnings were slightly below the 16.9p, how should we think about it? Obviously, the balance sheet is very strong. It sounds like the capital position might actually get a slight improvement from what Tom said. So how do we think about other imports the Board would look at in a scenario where the markets remain tough and the earnings are on an adjusted basis below that level? And then secondly, in terms of the investment process, I know it's been very consistent over time, but given the sort of increased importance of sort of food energy independence, has that kind of changed either where you think valuations are attractive for a country that's importing energy, say, or taking some countries off you wouldn't invest in. Or has it impacted and changed your kind of investment approach?

We're taking the second question first, absolutely, you've got to look at commodity price in terms of both food and NGM, it's all the same. I mean it matters completely. And also, the thing that continually matters is political robustness and clarity and how that transmits into economic management. So the process remains the same. But it does mean that different countries become less attractive but more attractive. Absolutely right. It definitely means that. And so it isn't simply about value, it's about value in the context of what's going on and what will go on with predicted cash flow for country and company. Absolutely. That changes. That was the second question. And the first one, Bruce? Yes. Well, the Board, obviously, it's its job to work in the best interest of shareholders not over the 5 minutes, but over the long term. We look at a whole series of things, really whether -- we want to have a business that's stable. We don't want to be a business that's knee-jerk in any way. We want to be consistent in what we do. We've done it for a long time. We want to continue it for a long time, and the plan is to be able to do that. We've deliberately avoided things like special dividends, which we think are kind of a waste of time in terms of shareholders. So that's nice -- but it's okay, what else you're going to do for me? So that's kind of -- there's no real point to that. I talked a bit about buyback earlier in Hubert's question. I think the Board will take a very measured approach and say how much money we're making, and we should do the right thing for shareholders. And obviously increasing dividends isn't a good idea because why would you do it just for the sake of it if you weren't comfortable. Reducing them is the same thing. You've got to think in around what makes sense. And it seems to us that a sensible thing to be doing here is to maintaining where we are. We've always told shareholders that we're not going to try and be get rich quick, pay all the money out, move on kind of, and we won't. So don't take all the views they should take. Do you want to add anything, Tom?

This is the degree in which the statutory earnings didn't cover dividends this year was around about a reserves cost, if you like, about GBP 30 million. If you look at consensus for next year versus a flat dividend, about half. So in the context of the shape and the structure of the balance sheet, without prejudging next year's decision or next year's earnings, that would be absorbed.

For next year, anything, yes.

Just one follow-up question. I guess we clarified that point on the operating cost. I mean what you're saying is if the kind of more fixed operating costs go up by a couple of million. You're talking about roughly 4% inflation money. You did also mention some selective headcount and some normalization of the travel spend. So I guess in this inflationary environment that's affecting all businesses in all sectors, it seems in different ways. Does that kind of focus which might be kind of free of real inflationary costs. Does that feel plausible in this environment? And I guess how do you expect to deliver on that?

Certainly, it's in line with our budgeting, which we've just been through. So as you know, we focus religiously every year on every single cost item and make sure that we're not getting driven higher by data suppliers or travel costs, et cetera. So every year when we go through the budget, we're trying to strip out data fees that we don't need, indexes that maybe no longer required, et cetera. So there's, I think, a fairly focused approach to the cost base on an annual basis. The guidance I've given today is consistent with the budgeting that we went through a month or so. So obviously, we're 1 month in. We have 11 months or to go. We'll see where we come out, but the guidance I've given is consistent with the budgeting process that we go through.

Any other questions in the room? Okay. Well, thank you very much for coming. Good to have and see you again. Thanks for your interest. Somebody forcing away. I hope you arrived first. We're covering. Thanks a lot. We'll see you at the half year. Thanks very much, everybody.