Foresight Group Holdings Limited (9LR.F) Earnings Call Transcript & Summary

Good morning. I'm Bernard Fairman, Co-Founder and Executive Chairman of Foresight Group. I'm delighted to welcome you to Foresight's half year results for the period ended September 2025, which I'm presenting today with our CEO, Gary Fraser. We offer institutional and retail investors a diverse range of private and listed investment solutions in real assets located in the U.K., Europe and Australia and growth capital for SME businesses across the U.K. and Ireland. Before addressing the group's performance over the last 6 months, I want to provide you with a reminder of our core strengths. The group delivers high-quality earnings with 85% to 90% recurring revenue and over 90% of long-duration capital within our LP and evergreen vehicles. This provides considerable revenue visibility each year and results in compounding growth that underwrites the group's performance. We take a boots on the ground approach in the U.K. and internationally, enabling us to build deep local relationships that support a strong investment and investor pipeline across all of our strategies. These seek to address the significant investment opportunities within rapidly growing markets, driven by structural shifts in the global energy mix, increasing electricity consumption, national initiatives to increase energy security and also by the SME funding gap in the U.K. and Ireland. Reinforced by our leadership in tax-efficient investing, this diversified investment platform of strategies and funds across 3 business divisions of real assets, private equity and Foresight Capital Management provides us with resilience through economic cycles and positions us uniquely within the sector. It is these key strengths of the group that have combined to build our significant track record of profitable growth, nearly tripling our profits since IPO in 2021. Performance that has been driven by both organic and inorganic growth and the average management fee rate benefiting from a mix shift following successful fundraising across our highly profitable U.K. tax-efficient and regional private equity products. This shift bugs the trend of reducing fee margins across the broader asset management industry and is a key benefit of our specialized skill set. I'll now pass to Gary to take you through the financials and our operational updates.

Thanks, Bernard. In H1, our key financial metrics were in line with expectations. AUM over the last 6 months was up 4% with retail and institutional fundraising alongside strategic activity over the last 12 months, delivering an 11% H1 on H1 revenue increase to GBP 81.5 million. Recurring revenue remained within our 85% to 90% target range and the core EBITDA pre-SBP growth of 6% has supported a 9% increase in our interim dividend to 8.1p per share. Firstly, turning to the key movements in AUM during the period, which increased by 4% from GBP 13.2 billion to GBP 13.7 billion. Demand for our higher-margin retail products remains strong with our retail sales team successfully raising GBP 223 million via a wide range of IFA relationships, whilst the second vintage of Foresight's flagship energy transition strategy, FEIP II, also concluded its first phase of fundraising with EUR 505 million of commitments secured to date. These retail and institutional inflows were partially offset by net outflows within our Public Markets division despite recording positive performance of GBP 56 million. Moving on to the group's profitability. We have delivered an 11% increase in revenue, driven by our fundraising achievements over the last 12 months, with the continued success of our U.K. tax-efficient products also leading to a higher average management fee rate. Cost of sales increased due to the inclusion of GBP 900,000 of DIT-related performance fees payable to the investment team following strong exits with the balance of this increase due to additional fund costs principally from AUM acquired through the WHEB acquisition. Whilst core EBITDA pre-SBP grew by a healthy 6%, margin compression to 38% was driven by the negative contribution of our Foresight Capital Management division. We expect to remain stable at this level for the remainder of the year with institutional real asset fundraising being the key catalyst to future margin expansion. Turning now to Slide 9. Our consistent performance is driven by a high-quality revenue model. We remain focused on generating high-quality earnings with the recurring revenue staying within our guided 85% to 90% range and long-duration capital within closed-ended vehicles representing over 90% of AUM, providing us with excellent awareness of future revenues. In the full 4 years post IPO, the compounding effect of this focus on locked-in revenue has resulted in an additional GBP 50 million of recurring annual management fees from funds raised, providing a strong base upon which to deliver further growth. Turning now to costs. Core staff costs increased by 10% compared to the prior period. 4% of this increase related to the FY '25 acquisition of the trade and assets of WHEB Asset Management and the Liontrust Diversified Real Assets Fund, a 3% increase related to wage inflation that included U.K. employer NI requirements. And the remaining 3% primarily related to the retail sales and IR headcount growth to support our strong recent and future retail fundraising achievements as well as continued investment in our tech capabilities. And turning to Slide 11. The resulting core EBITDA pre-SBP of GBP 30.6 million is in line with expectations and builds upon the strong growth track record delivered post IPO with profitability typically H2 weighted when we usually see increased fundraising before the U.K. tax year-end. Continuing profitable growth enables strong and growing dividends to be delivered in line with the group's policy, which targets a dividend payout ratio of 60% of adjusted profit. Post IPO, the growth in total dividends has delivered a 21% 3-year CAGR and returned a total of over GBP 90 million to shareholders. Given our performance in the period, the Board is pleased to declare an increased interim dividend of 8.1p per share, which is calculated as 33% of the prior year total dividend. Alongside our 60% dividend payout ratio, we seek to be efficient stewards of capital. Free cash flow not utilized for earnings accretive M&A will be substantially returned to shareholders. During the half, we bought back GBP 8.2 million of our shares as we commenced an up to GBP 50 million share buyback program to be carried out over the 3 years to FY '28. The shares purchased by the program and subsequently held in treasury have been utilized to satisfy demand for the company's shares from both institutional investors and our performance share plan awards. Shares sold from treasury returned GBP 9.1 million of cash in the period. Now moving on to key operational updates from across the business in the half. Within institutional real assets, it is our specialist investment origination combined with our asset management capabilities that provide us with confidence in our ability to successfully launch multi- vintages of our fee, natural capital and our strategies. This multi-vintage approach should drive scale for the group over time. It's been a good half for the FEIP strategy, completing the first phase of fundraising for a second vintage with a total of EUR 505 million secured to date. We remain confident this second vintage will achieve its target fund size of EUR 1.25 billion by mid-2027. The extended fundraising period should have little P&L impact over the fund's life as a result of equalization fees payable for a later entry into the fund. FEIP II also made its first investment through the GBP 210 million acquisition of Harmony Energy Income Trust plc alongside one of Foresight retail funds. This provides a platform to deliver future fundraising and deployment in the coming years. In Australia, we expect our growth prospects to benefit from the strong track record of our investment team, which was further enhanced by the exit of leading independent power producer, Zenith Energy, and a valuation materially above the fund's power holding value, which generated performance fees for the group. Now taking a closer look at a key deployment example from the half, namely FEIP II's acquisition of HGIT. This was the fund's first step in developing a pan-European battery storage platform by investing in one of the most mature storage markets with a high-quality portfolio. The 8 battery storage assets across both England and Scotland are fully operational and grid connected and represent 30% of U.K. operational to our battery energy storage system capacity. This portfolio has performed strongly since acquisition, generating stable inflation-linked revenues and the team are actively exploring further optimization opportunities. Following the acquisition of HCIT, the FEIP II team are also pursuing additional deployment opportunities across energy generation, storage and grid flexibility. Turning now to Slide 17. We continue to offer a number of retail products that preserve wealth and drive investment into U.K. SMEs across infrastructure such as student housing, fiber broadband and natural capital as well as private credit. Demand for these products has continued to increase after we became the #1 investment manager in annual fundraising for the unquoted business relief product in 2025. This followed the certainty provided at the 2024 U.K. budget with regards to business relief rules and allowances with the unquoted markets retaining full 100% relief. With no material changes announced at the 2025 U.K. autumn budget last week, pensions are also due to fall into chargeable estates from April 2027 with fiscal drag continuing. As a result, we expect the business relief fundraising market to remain buoyant. We are confident in being able to remain #1 in annual fundraising due to the strength of our excellent investment performance and the quality of our distribution capabilities, expecting to raise over GBP 600 million gross per annum over the remainder of our guidance period to FY '29. Finally, turning to private equity. We continue to expand our regional strategy with the launch of a third vintage focused on the Northwest. This fund delivered a first close of GBP 90 million, a 35% increase on the second vintage and clearly evidencing investor confidence in the strategy. Whilst we already have a significant presence in the Northwest, we were particularly delighted to open 2 offices in the Southwest being Bristol and Exeter, which has long been a target for the private equity team. We anticipate launching further follow-on vintages of our regional funds in the coming years, underpinned by our performance track record and strong regional LP relationships. I will now pass you back to Bernard to take you through the current trading and outlook. Bernard?

Thanks, Gary. Post period end, we have achieved further exit success within our Real Assets division. Our diversified infrastructure trust agreed the sale of QinetiQ at a premium to holding value, further building on the track record of our Australian team. As part of the transaction, Foresight will retain a 30% stake through an SMA or continuation fund structure, continuing our support for QinetiQ's long-term growth. Foresight Natural Capital also successfully made its first afforestation exit Bank Woodland at a 1.8 multiple on invested capital. This validates our natural capital development model, demonstrating strong returns even in a high interest rate environment. Turning to the outlook. The recent U.K. budget reinforces the strong tailwinds supporting our business relief products as we continue to lead the market in fundraising, channeling further investments into U.K. SMEs. Against the backdrop of rising personal tax burdens in the U.K., demand for tax-efficient products is significant. As one of the key strategies within our diversified business model, this increasing demand alongside the expansion of our multi-vintage institutional products keeps us on track to deliver on our target to double core EBITDA pre-SBP in the 5 years to FY '29.