Foresight Group Holdings Limited (FSG) Earnings Call Transcript & Summary

Today, Gary and I will take you through Foresight's FY '26 financial results, which describe our delivery of double-digit percentage growth year-on-year across Core EBITDA pre-SBP, EPS and DPS. Since IPO in 2021, core profitability has now nearly tripled, supporting dividends that have already paid out a cumulative total of over GBP 100 million to shareholders over the last 5 years. During and post FY '26, we've also sought to streamline the business through the agreed sale of our public markets division, Foresight Capital Management, which we announced to the market earlier this month. Going forward, Foresight will focus on private markets, leveraging our competitive advantages to deploy long-duration capital across our core Real Assets and Private Equity divisions. I'll now pass to Gary to take you through operational highlights and financial results.

Thank you, Bernard. As I mark my first full year as CEO, I want to be clear about how I see Foresight today. We are a specialist private markets investment manager with a strong platform, attractive market positions and a business model capable of delivering profitable growth. My priorities are deliberately practical. First, growth and distribution, extending our retail and institutional fundraising capability in areas where we have competitive advantages and where the market opportunity is clear. Second, investing ourselves beyond the capital we manage, maintaining discipline across origination, ownership, stewardship and exit so that we continue to earn the trust of clients and create value through the full investment life cycle. Third, operational maturity, scaling the business through a clearer operating model, product focus, strong leadership depth and better technology. This is about building a platform that can grow without adding unnecessary complexity. Fourth, operating leverage, converting AUM growth into margin expansion, cash generation and returns for shareholders. That requires growth, but it also requires discipline on cost, capital allocation and execution. Following the agreed sale of Foresight Capital Management, Foresight is more clearly focused on specialist private markets. We manage GBP 13 billion of AUM across Real Assets and Private Equity with exposure to institutional and retail investors and all of our AUM and long-duration capital. That matters because it gives the business visibility. Our capital base is diversified across investor channels, real asset themes and private equity strategies, and that diversification reduces reliance on any single product, fundraise or market. The group now has a sharper focus, a specialist platform built around areas where we have deep capability, market relevance and a credible path to scale. The market opportunity across our 2 divisions remains substantial. We are focused on specific areas where long-term demand, investor need and our capabilities overlap. In real assets, energy security, decarbonization, grid investment and lower clean technology costs continue to support investment demand. The presentation references $296 billion of European clean-energy supply investment in 2025, which illustrates the scale of the market we are addressing. Our fundraising priorities align to those trends, including FEIP II in European energy, ARIF in Australian renewables and our natural capital strategy. In private equity, the opportunity is different, but equally clear. The U.K. and Ireland SME funding gap remains a structural issue. Our regional model gives us local origination, active ownership and a strong basis for supporting growth companies outside the most crowded parts of the market. We are currently addressing that opportunity through 16 active institutional regional funds and our specialist retail products, including business relief and flagship VCTs. The common thread is our specialist capabilities apply to long-term markets where capital demand is real and where Foresight has a reason to win. Fundraising in FY '26 showed the value of having both institutional and retail routes to market. Retail was a clear strength. We raised GBP 630 million across business relief products and our flagship VCTs and retained our #1 position in annual unquoted business relief fundraising. That performance reflects adviser relationships, product relevance and our investment track record. Institutional fundraising is progressing, but we are also realistic that the market remains selective and timing can be uneven. FEIP II has raised EUR 595 million to date against a EUR 1.25 billion target, and our regional private equity business launched its 16th active fund. The conclusion is that our fundraising platform is working, but execution remains critical. We need to convert pipeline, deepen investor relationships and maintain investment discipline as we scale. We continue to take a disciplined approach to deployment across both divisions to deliver strong investment performance. In real assets, deployment increased by 96% year-on-year, supported by progress in FEIP II and by a strong pipeline. Around 85% of full year '26 real assets deployment was into energy transition. And looking ahead, we have more than GBP 3.6 billion of future deployment rights in international real assets. In private equity, deployment remains steady and aligned with our fundraising cadence with GBP 1 billion now deployed over the last 5 years. Our regional presence continues to be an important differentiator in sourcing and supporting businesses. We are deploying into strategies where we understand the market, where our teams have experience and where we believe the risk-adjusted opportunity is attractive. Turning to realisations. Australia is a useful example of the strength of our track record against an evolving market backdrop. We have seen redemption pressure in parts of the Australian LP market. Our response is a planned realization program over at least 3 years designed to meet those redemptions while protecting value and where possible, retaining future exposure through separate managed accounts and continuation structures. The partial sale of Kinetic is a good example. It allowed us to crystallize performance, generate performance fees and retain a 30% stake for future upside. These are the moments where investment discipline matters. We need to realize value when appropriate, manage investor liquidity requirements responsibly and preserve exposure to assets where we still see long-term value. The underlying Australian energy transition opportunity remains strong. The country has an aging coal fleet and a 2030 target of 82% on grid renewable electricity generation with this figure at 46% today. That supports the long-term relevance of our platform in this market. Turning to our financial highlights. FY '26 has been another year of strong and consistent performance. Overall, these results reflect profitable growth, a high-quality earnings profile and a business that continues to scale effectively. AUM from continuing operations increased by 8% over the year to GBP 13 billion. That growth was driven primarily by record retail inflows and continued institutional progress, partially offset by realizations in Australia. The retail result is a clear highlight with GBP 630 million of gross inflows across business relief products and flagship VCTs. Institutional fundraising included steady progress on FEIP II and the launch of a regional private equity fund. Exits were largely driven by Australian realisations. These reduced AUM where assets were sold, but also generated performance fees and demonstrated the value created in those strategies. Foreign exchange was also a positive contributor, recovering part of the historical FX reduction since the acquisition of our Australian business. The message is balanced. AUM growth was solid. The retail platform performed strongly. Institutional capital formation continues to progress, and we managed realizations in a disciplined way. Revenue increased by 11%, supported by net fundraising of GBP 646 million and higher year-on-year performance fees from real asset realisations. Core administrative costs increased by 8%. That reflects wage inflation, fundraising-linked compensation, selective headcount growth and continued investment in IT infrastructure. We are investing where it supports scale, but we remain focused on cost discipline. As a result, core EBITDA pre share-based payments increased by 10%. The result demonstrates the operating strength of the business and the benefit of a more focused group structure following the agreed sale of FCM. The financial profile remains underpinned by high-quality earnings and a significant recurring revenue base. Looking more closely at revenue, the business continues to benefit from a substantial recurring revenue base. Total revenue increased by 11% and recurring revenue increased by 6%, supported by FUM growth and a doubling of performance fees, largely because of stronger real asset realizations in Australia. Recurring revenue represented 82% of total revenue in FY '26. While this is below our target range of 85% to 90%, this was because performance fees were higher, not because the recurring revenue base weakened. We continue to target 85% to 90% recurring revenue over time, and the recurring base is supported by effectively all of our AUM being long-duration capital. That gives us visibility, but we also expect performance fees to become more important in years when mature funds realize value. So the revenue model remains resilient with recurring revenues at its core and upside from disciplined realisations. On costs, we've continued to invest in the business while keeping growth in core costs to single digits. Core costs increased by 8% in FY '26. Staff costs remain the largest component of the cost base, representing more than 70% of operating expenses and increased in line with wage inflation, fundraising-linked compensation and selective headcount growth. Other administrative costs increased by 9%, reflecting inflation and continued investment in IT infrastructure. We are investing where it improves scale, productivity, decision-making and resilience. At the same time, we expect the platform to show operating leverage as AUM and revenues grow. Cost discipline remains key to delivery of our FY '29 guidance. Core EBITDA pre share-based payments is the clearest measure of the operating performance of the continuing group. In FY '26, it increased by 10% to GBP 68.6 million. Over 5 years, it has delivered a 24% compound annual growth rate on a continuing operations basis. The margin remains strong at around 42%, and that reflects the quality of the revenue base, the contribution from performance fees and continued cost control. Looking ahead, our focus is to grow the platform in a way that expands margin rather than simply add scale. For shareholders, the result translated into growth in earnings and dividends. Adjusted earnings per share increased by 13%, and we have announced a final dividend of 19p per share, bringing the total dividend per share to 27.1p, a 12% increase and consistent with our approach of paying out 60% of adjusted profit. This adds to our strong EPS and DPS track record and reflects the Board's confidence in the cash generation of the business while preserving flexibility to invest in growth and strategic opportunities. Capital allocation remains a core part of how we create value for shareholders. Alongside the FY '26 dividend, we also repurchased a net GBP 9.6 million of shares as part of our buyback program. The agreed sale of FCM is also strategically important. It simplifies the group and allows management to focus capital, people and leadership attention on the private market strategies where we see the strongest long-term opportunity. We remain open to targeted M&A and corporate activity where it accelerates growth, strengthens capability or improves access to capital and distribution, but our approach will remain disciplined. Our priority is clear, balanced returns to shareholders with the investment in the next phase of profitable growth.

Thank you, Gary. Turning now to guidance and outlook. Our performance in FY '26 reinforces the strength of Foresight's specialist investment platform and the resilience of our earnings model. We delivered double-digit growth in core profitability, earnings per share and dividend per share, whilst continuing to invest in the long-term opportunities most attractive for our investors and shareholders. Our confidence in the medium-term opportunity is underpinned by 4 clear growth drivers. First, we continue to see significant demand for energy transition focused strategies. FEIP II is our flagship European energy infrastructure strategy with a target fund size of EUR 1.25 billion, whilst ARIF provides exposure to attractive renewable infrastructure opportunities in Australia. The strategic imperative for energy security, decarbonization and enabling infrastructure remains very strong, and Foresight is well positioned to convert that demand into long-duration capital. Second, our specialist retail platform remains a distinctive strength. We're targeting more than GBP 600 million of annual fundraising across tax-efficient products, supported by our distribution capability, investment track record and leading position in the unquoted business relief market. Whilst we remain alert to regulatory developments, demand for private market access, tax efficiency and investment into U.K. growth companies remains robust. Third, in institutional regional private equity, we are targeting approximately GBP 100 million of annual fundraising. The launch of our 16th active regional fund demonstrates the depth of our origination platform and continued ability to support ambitious SMEs across the U.K. and Ireland. Fourth, we expect margin expansion over the guidance period. The agreed sale of Foresight Capital Management streamlines the group and increases our focus on our core private market, real assets and private equity strategies. As we scale those higher conviction areas, operating leverage, disciplined cost management and product mix should support continued profitable growth. Finally, FY '29 is expected to be a more significant realization year across both real assets and private equity funds. Whilst percentage of recurring revenue could therefore dip to FY '26 levels as performance-related revenues increase, we continue to value and target the visibility that our typical 85% to 90% recurring revenue model range provides. In terms of current trading, the business has made a positive start to the new financial year. Assets under management and funds under management for continuing operations have increased to GBP 13.1 billion and GBP 9.2 billion, respectively, reflecting continued progress across our strategies. We're also seeing encouraging developments in separately managed account opportunities, particularly in Australia as we realize existing assets. These discussions demonstrate investor appetite for tailored exposure to Foresight's specialist capabilities in energy transition, infrastructure and private equity. We'll update the market as commitments are formally secured. The sale of the FCM division announced earlier this month is expected to complete in Q3 2026. This is an important step for the group and sharpens our focus on private market real assets and private equity. Overall, Foresight enters FY '27 with a streamlined structure, focused leadership priorities, strong positions in attractive private market segments and a clear route to profitable growth. We remain mindful of the external environment, particularly institutional fundraising timing, but the long-term demand drivers remain very compelling. We are confident in our ability to deliver against our medium-term ambitions and create sustainable value for shareholders. That confidence is grounded in delivery. Over the last 5 years, Foresight has built a strong track record through significant macroeconomic market and regulatory change. Over that period, AUM increased by 1.8x, recurring revenue by 2.4x and profitability by 3x. Reflecting the strength of our specialist platform, investor relationships and exposure to attractive growth markets. Importantly, this was disciplined growth, focused on high-quality recurring revenues, deeper specialist capability and the entrepreneurial culture that enables differentiated origination. The business has also proved resilient, navigating higher interest rates, changing investor sentiment, evolving regulation and tougher fundraising condition whilst continuing to grow, generate attractive margins and return capital through a compelling dividend. That track record supports the outlook we just discussed. Our message is one of continuity and focus, delivering sustainable growth for our investors and shareholders. Thank you for listening. We're now happy to take your questions.