Impax Asset Management Group Plc (IPX) Earnings Call Transcript & Summary

Right. I think that's most people. Welcome, everybody. We're very pleased to welcome you to the review of Impax's interim results. A couple of bits of administration from myself first. This presentation is being recorded. So if you miss part of it, don't worry, you can watch it again. We're very keen with the management to address any questions you might have. Please submit them via the Q&A button at the bottom of your screen, and we'll try and deal with them after the formal presentation. And the deck that Karen and Ian are going to be using along with lots of other useful pieces of information is available on the Impax Investor Relations website. So we're very pleased to welcome back CFO, Karen Cockburn and the CEO and founder, many years ago of Impax, Ian Simm, and I'm now going to hand over to Ian to start proceedings.

Okay. Thank you, Andy. So yes, let's just go to the summary slide, which might be the one before that one. So the blue one, there you go, the one after that. Thank you. So just for those who don't know Impax, I started the business in 1998. And from the outset, we've been an investment manager targeting the institutional and wholesale space around the world with an investment philosophy that effectively says that what we call the transition to a more sustainable economy is a source of potential investment outperformance from a pure capitalist perspective. So although many of our clients are interested in, if you like, the ethical side of green investing, then our strong pitch is that there's money to be made by -- on a risk-adjusted basis by investing in businesses that are going to benefit from this transition to a more sustainable economy. So roughly speaking, by the end of March, we were about $50 billion or maybe GBP 40 billion under management with a couple of hundred institutional investors and wholesale clients and the wholesale clients are reaching retail type investors around the world. Only 22% of our client base by assets is from the U.K. And so relative to other U.K. peers in that midsized space, we're pretty unusual in having such a low exposure to the U.K. market, which, of course, had problems with the amounts of liquidity in it. So today, we've investment teams out in the U.S. and in Hong Kong and then further teams in Tokyo and Dublin and shortly, we'll be organizing and setting up an office in Copenhagen, as I mentioned. So that's a summary of the business. And then on the next slide, the investment philosophy essentially is that in the context of a constrained planet and rising population with rising expectations of standard of living, then there is money to be made by companies that are, first of all, providing solutions to resource efficiency and environmental solutions. So for example, air quality, water quality, sustainable green type food, but also businesses in the financial sector or health care sectors that are benefiting from the sustainability trends. So what we've done for just over a quarter of a century has assembled a sophisticated investment team, which is analyzing alpha opportunities in 3 asset classes, listed equities, fixed income, which is a public fixed income rather than private debt and private equity with a focus on value add around infrastructure markets in the renewable energy space. Next slide. And this is the history of the business going back to day 1, which was a GBP 15 million or $25 million mandate from the World Bank. And you can see it took us quite a long time to get to GBP 1 billion under management. But the last 5 or 6 years or so, we've really expanded very rapidly, on the back of much bigger investment opportunities and real globalization of interest in this space. Last few years, as we all described the last kind of 2 years, we've been fairly flat for reasons that we'll go into. But we do have a very well-established global brand in this area, which is increasingly of interest to both capitalist asset owners in the pension and fund insurance space, sovereign wealth fund and private banking areas, but also those ethically minded investors who are looking to have a nonfinancial impact. Next slide, please. So just summarizing the reports that we put out very recently, which is the half year report to the end of March 2024. So 6-month period. So you can see here that we've expanded assets under management quite nicely, nearly 6% over that time period to that GBP 39.6 billion. We've really developed our product range. We've a couple of new products. We've expanded our distribution in certain parts of the world, and we've been the -- very focused on operational management and efficiency in the context of quite choppy markets. So a big push to introduce more IT and scalable business processes with a view to underpinning the next phase of growth of the company. And then on the right-hand side there, you can see a number of the investment awards that we've won in the last 6-month period. Thank you. So this shows how the assets under management have changed. So the top half of this page is the reporting period, 6 months showing that the market movements, ForEx, et cetera, were significantly beneficial. That's the black line there. And then the net flows, inflows minus outflows were negative in the last 6-month period, so I'll explain that in a moment. If you contrast that with the previous 6 months, which is from 1st of April 2022 to 30th of September. That's what's shown in the bottom half of the page. So actually, markets against us in that period flows also net negative, but to a lesser degree. Next slide, please. So here, you can see a mapping of the various financial results. So please focus on the dark blue lines here, which contrasts with the previous 6 months in green and the 6 months before that in orange. So this is consistent with the 25-year AUM chart that I showed earlier. So I think it's pretty flat for the last couple of years, the 6 months that we're reporting on, as shown in the top left section of this slide, everything slightly down in terms of revenue and profits relative to the previous 6-month period. And that in simple terms is because the assets under management on average were down slightly and the cost is pretty flat. So you can see the operating margin just hitting 30% bottom left of this chart. However, we're, as a Board, been very confident in the prospects of the business. And so the interim dividend as shown in the bottom right here is going to be exactly the same as the interim dividend from the previous financial year. Next slide. So investment conditions, I mean, clearly, as I'm sure everybody knows, it's been quite a tricky couple of years for investment, particularly around active investments. So 2022 calendar year was impacted dramatically by the Russian invasion of Ukraine and that was a major contributor to the extension of uncertainty around economic growth and also inflation. So that was generally a flight to money market funds and to fixed income funds in 2022, which was considerably extended into 2023 when there was actually a strong surge around interest in the so-called main 7 stocks with an AI exposure where we've had a little bit of coverage, but definitely underweight relative to passive indices. So in that sense, the last 2 years, in contrast to the 5 or 6 years beforehand have been quite challenging environment to be investing in what essentially are quality growth businesses. So at the same time, though, the transition to a more sustainable economy has been underpinned by some quite strong secular growth trajectories. So further commitments around targets for both renewable energy and switch to electric vehicles around the world and also the increasing evidence that climate-related risks, including hurricanes, general storm, droughts, were impacting share prices of individual companies and in some cases, undermining the ability of regulators to provide reassurance including, for example, regulated insurance markets in many of the states in the U.S. are now very, very fragile or almost nonexistent in some cases, given the scale of the recent losses. So very happy to come back to questions about that. It's a bigger macro picture, if anyone would like to at the end, but let's just move on to the next -- the next slide. So in that context, as I said, the investment performance of the quality growth-oriented portfolios we've been running has been relatively behind markets and generic benchmarks for the last 2 years, having been significantly ahead for the previous 4 or 5 years, the so-called Specialists Strategy, which is our longest established equity strategy going back to 2002 with our investment trust to 1999 on an advisory basis has derated quite considerably as shown in the PE chart at the bottom there, now back to the median level over the last 10 years. But as you can see from the top right of this chart, then the growth rate of the underlying portfolio companies is considerably ahead of the growth rate of companies in the generic index. And so even though the valuation is a little bit ahead on the price earnings to growth ratio basis, then this portfolio is looking particularly cheap, and therefore, set for a mean reversion over the next period, which, of course, depends on a number of catalysts, but we're pretty confident that over the next 12 to 18 months mean reversion will happen in which case, this type of strategy should significantly outperform global equity indices. Next slide. So this is a bit of a dashboard of how our assets under management look. So you can see on the top left, the green area is our thematic equity products, half a dozen or so strategies that are focused on environmental markets, in particular, renewable energy, energy efficiency, water and air pollution control and also materials efficiency and sustainable food and agriculture. So relative to our more broad-based products in the so-called sustainability lens space, we've seen a somewhat reduced coverage there as the sustainability lens products have proven relatively more attractive to new clients. That's broken out into a little bit more detail on the top right where you can see in the donut chart, the breakdown of how the 2 types of fund break down by different strategies, so leaders, specialists, et cetera, for the environmental markets area. In the chart on the bottom left, you can see the geographic breakdown and see how the EMEA region has shrunk slightly as a result. We explained that in a couple of slides how that's originated. But U.K., North America have been growing relative to EMEA exposure. And we've also seen a slight increase in our own label funds relative to third-party funds and in particular, BNP Paribas, third-party funds that we submanage for them, which I explain in a moment. Next slide, please. So yes, I think just pulling that out in a bit more detail. So we've seen a very strong increase in AUM because of the investment performance of the underlying strategies on an absolute basis. But the net outflows that we've reported in the 6-month period to end of March have been 77% from one client, which is a BNP Paribas channel and roughly another 12% from -- or 11% rather from the St. James's Place U.K. channel. So 88% of the net outflows have come from just 2 clients who are wholesale clients. And meanwhile, we've seen a net increase in the institutional clients, and I think a very satisfying retention of clients in the institutional space. So we're quite firmly marketing our services in the institutional spaces offering a chance of outperformance over a 3- to 5-year time period. So generally, with 1 or 2 years of underperformance, then that's more often treated as a buy signal by institutions, then it is a sell signal. On the next slide, this is a bit further breakdown with the blue, again, being the most recent 6-month period, green being the previous 6 months to the end of September 2023. So this is just more detail around what I've already said. So anything to the left of the vertical line for each chart is net outflows. St. James's Place switch from net inflows to net outlfows in that time period. And BNP Paribas, you can see the elephant in the room there, that's the 77% of the total, which is quite extraordinary. What's going on there seemingly is that the central asset allocation team within BNP Paribas, particularly the private bank, have been bearish -- unusually bearish about equity markets for the last 12 months or so, and that's in contrast to particularly North American asset allocators in similar situations who've been positive about equity since November or so last year. And therefore, that the North American equity flows generally have been positive, not completely in the context of Impax are shown in the top right, which is a slightly complicated story. But essentially, there's 1 or 2 North American investors who've been allocating to fixed income. And then you can see in Asia Pacific on the bottom right, we've still maintained slightly positive flows, as we've with the segregated accounts in the U.K., whereas the rest of Continental Europe outside BNP Paribas has also been slightly negative in aggregate. So that's a bit further detail of how the flows have panned out. Next slide, please. So one of the points that we've been drawing attention to in our communication in the last 9 months or so has been the opportunity in the fixed income area, where we've had capabilities since our Pax acquisition in early 2018. Those capabilities in U.S. high-yield and U.S. investment grade. And so what we've been doing for most of 2023 and into 2024 is strengthening the existing teams with material new hires in the research area and trading. And then last September, we recruited into a new position, which was a Global Head of Fixed Income, somebody based in London, who comes with an excellent track record of building a fixed income business. And so he's been helping the U.S. teams to strengthen their investment process and become more appealing to institutional investors. And then with myself and 1 or 2 others, we've developed and completed this acquisition in Denmark, which is a relatively small amount of assets under management, around EUR 400 million. But what they're doing is generating some very notable alpha relative to high yield and emerging markets benchmarks, and they've got a very nice broad client base in Europe. So their current employer, Formuepleje doesn't have great distribution. And so by coming over to Impax, then we're very confident that we'll be able to accelerate their distribution. There's also scope elsewhere in the industry to be bringing onboard further teams. So we're also signaling at this stage that conversations are developing quite nicely for further inorganic expansion of this team. So we'll be back in touch as soon as that's taken a further step. So a very good progress on fixed income, and that should be a major contributor to Impax's growth going forward. And then on the next slide, you can see that in the equity space, we've developed 2 new products in the last period, the last 6 months, so the Social Leaders product, which is focused on financials and health care, in particular, and then our Emerging Markets product, which is a small extension to the Asian equities product we've been running for around 14 years and then we're close to establishing a so-called EAFE product, which is for American investors, sort of international ex U.S. equity investors. So that's something which is in the way. And then in private market space, we've had a final close for our fourth private equity fund, Fund I was established in 2005. So we've raised just less than EUR 460 million, which makes it the largest fund to date and our investment strategy, which is investing in the development and construction of renewable energy projects, mainly in Europe, but some degree in North America is continuing to produce some great investment returns. So in contrast to many operational infrastructure investors who've seen that their returns have been squeezed dramatically by rising cost of capital. Then broadly speaking, this development to construction opportunity has not seen that kind of constraint. Next slide. So distribution for the firm is a key edge. So as I said at the outset, almost 80% of our assets under management are from non-U.K. investors, which is a very sharp contrast to many of our similar sized listed peers on the U.K. market who tend to be focused, sometimes explicitly on U.K. investors. So we do have 22% of our client base from the U.K. and U.K. sales team, but we've 50 people doing distribution type work out of North America and are increasingly well positioned with both wholesale and institutional clients for U.S. distribution, and we're excited also about a relatively new relationship out in Latin America as we're in Canada. And then in Europe, we've been extending our team representatives from having somebody just covering the Benelux region to adding 18 months ago, somebody also covering Scandinavia and then that person is going to move for Germany because she's German national, and we're just bringing on board a Scandinavian expert who's based in Denmark. So careful expansion of our European distribution. And then we launched our Tokyo office in March 2023 on the back of an exciting mandate from GPIF, government pension fund, coupled with an opportunity to work more directly with Japanese pension funds and also Japanese wholesale markets. So that's adding to our Asian presence, which includes a large investment team based in Hong Kong. And then we've got a very large investment partner in the form of Fidante based in Sydney and Melbourne to come in the Australian market. Next slide. And meanwhile, we've extended and put more structure around our nonfinancial research work in the -- what we've now called our sustainability center, which of course, is a key feature of Impax's edge and brand and as well as providing investment ideas and color to our investment teams. This sustainability center is also a great appeal to our institutional client base who are very interested in the policy advocacy, thought leadership work on topics like physical climate risk and also our impact reporting. So we'll continue to invest in that area as well. Next slide, please. Corporate Services, which is everything apart from distribution and investment management is a key part of our risk assurance and quality control. So we've continued to invest in our back and middle office, legal compliance and risk management. And we do have a well-established internal audit process, which goes through a 3-plus year cycle, just checking that everything is working in line with sector best practice that's run by an external firm. And you can see here that the firm's office head count has been broadly flat, very slightly up in the previous 6 months. Again, the dark blue is the recent numbers relative to the previous 6 months in green and the one before that in orange, and you can see here the relative size of our different office spaces. So very much thinking of Impax as a sort of full-service boutique in 3 asset classes, listed equities, private equity and fixed income with the commitment to grow this area. We've been talking about getting our $50 billion to at least $80 billion over the medium term. So that's still very much the medium-term objective. Next slide, please. And then before handing over to Karen, just a quick note that we've had a couple of Board additions in the last 6 months. So you can see in the top right here, Julia Bond and Lyle Logan have joined the Board in anticipation of Sally Bridgeland, who's the Chair at the moment and Lindsey Brace Martinez stepping down at the end of July, which will be the end of their 9 year window. And so in line with sort of setting the best practice they're leaving after 9 years. The Chair position will be taken over at that point, August 1 by Simon O'Regan, who's been with us on the Board for 4 years or so and his Senior Director role will be taken by Annette Wilson. So a few changes of seats on the Board and very pleased to welcome Julia and Lyle. I think it's now time for Karen to take over.

And thank you. Can I just check, you can hear okay? Yes.

I think so. Yes.

Yes. Okay. And Andrew you can let us know if not. So look, I'll try and get through these next few slides. I look forward to your questions. But just adding a bit more color to what the headlines on the financials that Ian has taken you through. So we've reported profits for the period of GBP 25.8 million. So that's against the continued headwinds. This is revenue held up well at GBP 86.2 million. And then we'll get into bit more detail around with some strong cost discipline, we've managed to hold the costs as expected over the period, the period fairly low. Ian has mentioned this Danish acquisition, Absalon. It's progressing into half 2 and it's not yet included -- progressing well for half 2 and it's not yet included in these numbers. And when we updated our -- so looking at just the revenue in a little more detail. I'll not speculate too much, but you've seen sort of the share price if you've been following it this morning has had a reaction to a degree in terms of that sort of step back in profit. Now we reported at the end of March, that very strong growth in the AUM up to GBP 39.6 billion. And -- but what I've to point out is that came from what was probably back in September about GBP 37 billion. So the average over the period, roughly GBP 38 billion, but what that had done is followed a period in the prior 6 months or the last 6 months of 2023, where the assets started high and finished low with roughly an average of about GBP 39 billion. So despite being on -- when we look back into 2024, despite being on the upward trajectory, the average for the period has pegged back that revenue. And when you look sort of underneath the bonnet in terms of the main drivers of that reduction in -- and the AUM, it really is quite a story of 2 half. So for the first time really, we saw the significant outflow that Ian has talked about, the GBP 2.7 billion -- million rather. But importantly, that's coming from 2 very focused sort of European wholesalers, an SGP and BNP in the main. And the important message behind that is that we're seeing is our institutional clients being very sticky. So looking at that outflow of the GBP 2.7 billion on top of the annualized effect of the smaller outflow that we saw in the second half of 2023, that sort of compounds in to have the most significant impact there of GBP 5.2 million in terms of the impact of the net flows. We've recovering performance that we saw over the 6 months and markets moving more generally in our favor that that's added GBP 1 million to the overall revenue base, taking it to the GBP 86.2 million. The main question, I guess, that you maybe have is where do we see this figure go? Well, look, we're hopeful we're on that upward trajectory and see some growth in the revenue into half 2. In order to support that, what we do have to see is that markets continue in our favor that we continue with the improved performance and also that we see then a reversal in those net flows. And what I can say is that as we move into half 2, we're seeing some promising signals in terms of being able to continue on that upward trajectory. But there's many items in there that are out with our control. But really what is in our control is a very important data point is looking at the average fee margin, which I'm pleased to say has -- is remained stable at 45 basis points. Now that is quite a complex mix of our 90-plus clients that we've in a variation of different strategies. And any variability that we see plus or minus a basis point around that will be driven by mix. That's what we're seeing just now, and we're not seeing market pressure right now in terms of price. And we retain the guidance that we expect to be in the region of the mid-40s over the short to medium term and drifting slowly down over time is how we see that moving. If we can move on to the next slide, Andy, I do want to spend just a moment and sort of -- and really for me, this is Impax, how it diversifies itself relative to other asset managers. And it's really 3 things. So first of all, it's this revenue, so our revenue by strategy, we've 20-plus strategies that are focused on the transition specialist -- sorry, a specialist asset manager focused on this transition to the sustainable economy. There is a range of strategies that we've in there. And over time, as we expect, we're seeing the very specialist environmental markets, that share coming down quite significantly from 64% to 59% as we expected, with the broader focus sustainability lens coming in. And then also, as we see our listed -- our private markets business grow that, that is what's the driver in that increase in the mix from the other. And as we grow into fixed income, we expect to see that differentiate further. I think one of the strongest levers that we've here at Impax is they're moving on to the revenue that we've by region. We continue to win globally. We had new wins in the period in Sweden and in Australia. And what that's doing is allowing us, as Ian says, to differentiate away and dilute exposure to the U.K. asset management sector, which is generally facing the toughest headwinds. EMEA is now making up 44% and North America is continuing to grow and now heading over to -- well over 1/3 of the business. I expect to see that strength of that diversification that we've across the regions increase over time as we expand that footprint. And as we expand that direct distribution footprint, what you then see is sort of the third main area of differentiation and diversification is this revenue by client type. A key point to provide there is BNP now make up nearly just 1/4 of our revenue. It wasn't long ago when that was well over 30%. So what that proves to us is the direct distribution is working and we expect to see, again, that dependency upon BNP to reduce further. So I think all in all, it's -- the AUM -- the average AUM is down, but we're on the upward curve on that equation. I think, all in all, a solid revenue performance and we're hopeful that those early signals carry through the rest of half 2. Moving on to the next slide, if I can, very quickly to just look at the costs that we're reporting cost growth of just 1% over the period. And there's a number of drivers in there on top of just very, very strong cost disciplines that we've at Impax. What we've now done, I think and most importantly is that over the past maybe 2 years, finishing mid-2023, where we've been adding costs that we reached a point of stability. And that's really where we're importantly at now and as we face into sort of these more challenging, tightly more challenging revenue headwinds is that we're not under pressure to add cost to our listed equity business. And we've built it. And what we're serving now is really the leverage that we believe we've built into that business now primed for when revenue growth returns and favorability returns to asset management more generally. We've also been running an efficiency program really focused on technology and removing redundant processes, adding sales force payroll. What that's done has created a bit of headroom, but it also has allowed us to cautiously invest into organically, into fixed income. We've launched those 2 new listed equity strategies, and we're able to grow our private market business. So driving ahead with the strategy at the same time. Looking over to the right-hand side, you can see we've only added a small number of heads, 6 heads actually in the period, and the majority of those were into the fixed income business. And lastly, just looking at the cost breakdown, the shape of the costs have remained very similar with about 70% of the cost base in our staff costs and therein includes our bonus where we retain the policy of paying up to 45% of profits before bonus. And you can see a small uptick in the non-staff costs driven by some revenue related, and that really is the closing that we had on the private markets fund. Moving on then just bringing -- or so in terms of a bit of guidance on that. So we've done, I think, extremely well to hold those costs. I think there'll be a bit of inflationary pressure into the second half. So sort of looking at the second half, maybe, lets say, single digit -- low single-digit growth into the second half. Bringing that together then on the next slide, just looking at the operating margin. It is, I guess, those revenue headwinds that are pegging back the operating margin, I think, a fairly credible outturn at 30%. And we remain committed to sort of the growth of the business. We're building a business for the medium term. And we believe that the operational leverage, particularly in the listed equity business is now there. So with markets in our favor that we remain committed to returning the overall operational -- the operating margin into the mid- to high 30s in the medium to longer term. That remains a key target for the business. If I then move on finishing there on the P&L. Just looking very quickly into the balance sheet, starting with sort of the cash generation. We continue to generate healthy levels of cash, finishing the period at GBP 60.8 million. Just to call out, that's the low point in the year having paid bonus and dividend in the first half. And I expect with normal trading conditions in the second half of the year for that to return closer to certainly the 80-plus region by the end of the financial year. Ian has mentioned that we're holding the dividend flat despite sort of those earnings sort of stepping back. And what we've also done is we've adjusted our dividend policy, which previously had been to pay out in the range in normal circumstances between 55% and 80% and we're changing that really removing the cap such that the dividend policy going forward will be to pay at least 55% of the adjusted profits after tax whilst retaining sufficient capital in the business to take advantage of the growth opportunities that we've. And really, we've done that just to provide flexibility. It's a commitment to the growth, the conviction that we've and the growth of the business, the strong balance sheet that we've and really just gives us the flexibility to be able to maintain and grow the dividend at all times, including when there is some earnings pressure. And then finishing off, if I can, on the last slide, in terms of sort of our balance sheet and balance sheet management. Again, a very stable position, I'd call it out. We still have no debt in the business. And the capital surplus has increased just marginally, but along with plans over the period. And then how do we think about that surplus capital that has increased is look, we like to, first and foremost, hold a capital buffer and strong capital buffer. We then will continue to be buying funding shares that we purchased to share awards that we put into our EBT, thus avoiding -- we don't want to issue thus avoiding any dilution of the shareholder base. As mentioned, we're seeking to sort of maintain our dividends. And then that does leave us with sufficient collateral to support future growth. And as Ian has mentioned, particularly focus on opportunistic organic growth within the fixed income space. So all said, looking back over the 6 months, it's -- we're finishing sort of on the upward trajectory, which is good. We've sort of the outflows have been challenging, but potentially, we're seeing those reversing as we move forward. I think we're in a very good position relative on costs, and the business is very well positioned for growth when we see that return and moving it through half 2, beginning to see early, but some positive signals. If I can pass back to Ian before we can take your questions.

Yes. So just one final slide on the outlook. As Karen said, we do feel that the business is very, very well placed for further growth. We do have global investment capabilities, both in equities and in fixed income. Global client base, almost 80% outside the U.K. and established funds with long-term track records. So in the context of an end of inflation and a steady reduction in interest rates, which hopefully is just around the corner, then equity should continue to perform well and the quality growth equities are due for a re-rating and relative outperformance. So that's -- that should stand as a good stat. And meanwhile the secular trends around the transition to a more sustainable economy, including new industries like renewables, electric vehicles and risks around climates and resource availability continue to create alpha opportunities. So very optimistic about the medium to long term. And I think depending on the outturn for 2022, then we're in a good place for re-rating of many of our investment strategies. So happy to switch back to Andy and take some questions.

That's great. Thank you both very much indeed. Very clear and indeed, 1 or 2, I think, uncertainties when people first look the results, stay neatly cleared up. So a number of questions already in. Let's dive straight in and remind people you can submit more. Firstly, I mean, you just mentioned renewables as, if you like, a subset of sustainable investing. We've got a question perhaps from someone who's quite new to Impax drilling down to stocks that you invest in. Looking at the energy sector, does that constrain you from only looking at pure-play renewables such as solar, wind or hydrogen? Or would you, for example, invest in technologies that are going to help drive the nuclear energy industry?

No, we'd very much consider investing in businesses that are helping to expand the nuclear energy sector, similarly energy efficiency. And our thresholds for investment for the thematic area are actually for specialists of 50% revenue requirement. So what happens in the rest of the business, the 100 minus 50 or more, we're indifferent to. So some of the businesses that we're investing in can be supporting, for example, through consultancy service, the oil and gas sector, but we're just wanting to make sure that there isn't of any oil and gas exposure that we don't think it's going to drag the business in question down.

Okay. Karen, maybe one for you. Just to clarify on the new dividend policy. Obviously, you can't make forecasts or projections, but analysts like ourselves are forecasting a maintained dividend through 2024 and indeed in full year '25. Are people misinterpreting your new policy as a material change in payouts?

So it's not an -- it's certainly not intended to be a material change in payout. It is, as I said, sort of that conviction that we've to the growth of the business that we're just not in a position just now where we think it's the right thing to reverse the dividend. So look, we'll maintain. We really want to -- sort of a key part of the statement is that we'll retain sufficient capital within the business to satisfy the growth opportunities. And as we return to growth and start seeing the operating margin open back up again, that I think we'll operate below the 80% anyway. So it really is just a little flexibility as we manage our way through, and we think we're navigating our way through challenging markets that we do believe we're beginning to see a more consistent forward momentum in. And it really was just about flexibility rather than any material change in how we think about dividend.

Yes. I hope that clarifies that.

Can I just add one another thing to that.

Sorry, Ian. Yes.

Yes, sorry. So in the past, we had a progressive dividend policy, but we replaced that with the policy of paying out between 55% and 80% of distributable profits. Few years ago, if you look at our track record, we've maintained a progressive dividend over that latter time period. And as Karen says, it's our intention to try as much as possible to not let the dividend go backwards. I think we're not saying that we'll definitely pay out at any certain level of income at the final year. That does depend on what happens in the second half, of course, but as she says, it's our intention to go backwards -- not to go backwards in terms of the amount paid out. And if that means paying out slightly more than 80% this year, then this removal of the upper limit would allow us to do that.

Makes perfect sense. And another clarification requested on the timing of your AUM updates, one investor got the impression that they'd only be on a quarterly basis through this calendar year, but there was an update with the AGM and perhaps that led to expectations of another update as of today. So could you just clarify, looking forward, when do you anticipate releasing AUM updated?

Yes. Up until the back half of last year, we were producing and publishing monthly AUM updates, but we did find on a couple of occasions that we were having to explain intra-quarter why the AUM has changed, and that produced a bit of a lumpy communication. So given that I think all our peers produce no more frequently than quarterly the AUM update, we had agreed with our Nomad and main corporate brokers that we'd switch from monthly to quarterly. So yes, you're absolutely right. At the AGM, we did give a snapshot because we felt at the time that we were standing up in front of investors. It was helpful just to give the end of February data. But we're not going to do that at the end of every quarter because otherwise, we'll sort of slip back to the previous policy. So yes, it's a bit of a sort of fine judgment, but I hope everyone understands that is empathetic to that policy.

Karen, if you can. Can you give some explanation on the fee margins that Absalon and/or indeed the fixed interest group are and might deliver in the future?

So I can say that -- so the current -- I'll maybe take a step back. So we currently have our fixed income business that we acquired with the Pax acquisition back in 2018. And it has a margin above 50 basis points. And we -- so that's sort of our start point. Added to that is the very high quality assets that we're getting with this Absalon acquisition. We're actually very excited about these assets and how that will help us grow out that fixed income business. They're focused on high yield and emerging markets and also have margins in the high 40s into 50s. So that's how we expect to see that business grow. It will be small. So that's why it's not going to add significantly in the short term to the 45 basis point plan for the business. But over time, we're expecting that to take the margin up rather than down, provided our focus is -- provide -- we'll develop over time, but certainly with our early focus on developing out the high yield and the emerging markets that we expect it to be adding to the margin.

Very clear.

I just want to add a couple of things to that. So at the moment, our plan for fixed income is under development. As Karen says, we're currently operating fixed income strategies that are relatively niche or constrained in terms of capacity. And as a result, we're able to charge quite high revenue margins, as Karen indicated. I think it's an interesting strategic question going forward, whether we need to stop at that point because there are definitely many clients out there who like to see their managers switch between different types of fixed income strategy depending on how risk and return are moving in response to external market conditions. So I think we're likely to be able to maintain high margins for new fixed income products, but it's out of the question that we end up with a core fixed income product with a lower than 45 basis point margin just to make sure that we can move client money into that strategy of external market conditions suggest that for a period of time, that's the right thing to do.

And keeping on the fixed income theme, there is a couple of questions relating about your aspirations, starting from a small base organically and Absalon not having a huge amount of assets under management relative to the scale of the group. On a 3- to 5-year view, what do you think you might see fixed interest as a proportion of total AUM move up to without making a significant acquisition, which doesn't sound to be on your agenda when there are teams and smaller businesses that can be added on?