L1 Group Limited (L1G) Earnings Call Transcript & Summary

Welcome to the L1 Group Limited Half Year Results. [Operator Instructions] I would now like to hand over the conference over to Mr. Julian Russell. Please go ahead.

Thank you, operator, and good morning to everyone. Thank you for joining today's call to go through our first half results for financial year '26. I'm joined in the room by Andrew Stannard, our Finance Director. Let me start by saying we are very happy with this results, the integration progress and the broad-based momentum across our business. Touching briefly on the agenda. I'm going to talk through the highlights for this half, including our financial results, the integration activities and the overall business performance before moving on to our outlook. We'll then finish up with your questions. In the first instance, let me turn to Slide 4, a snapshot of our key metrics. In summary, our funds under management is up over 8% since June, driven by L1 Capital inflows and strong performance. Our revenue was up over 23% and costs were down about 15% compared to the first half in '25. The consequential positive jaws are reflected in our profitability metrics. EBITDA was up 61% and NPAT was up 63%. I'll expand on this performance in more detail on Slide 5. L1G had very strong results, driven by top line growth and margin expansion. The latter has been delivered through early execution of cost synergies with circa $25 million realized or about 70% of our target achieved over the last few months. As I mentioned, our funds under management has seen growth in the half. While there have been outflows in our Platinum strategies, these have been more than offset by inflows and performance in L1 Capital strategies. We have broad-based momentum in L1G coming off the back of a solid year. Our flagship funds have delivered exceptional returns for our clients, which in turn means that we have earned the full year benefit of the in-perimeter performance fees during this half. This fund outperformance will potentially add incremental clients and net flows as we broaden out our distribution footprint for the first time into North America and Europe. Our capacity for growth is supported by our strong balance sheet, which provides further flexibility to execute our strategy. I'll expand on each of these points in detail through this presentation, starting on Slide 6 with our financial results. This first half result reflects a strong momentum across the group in terms of financial performance. There are many positives in this result, but our margin expansion importantly highlights our group's operating leverage. Relative to PCP, our EBITDA margin has increased from 50% to 65%, and our NPAT margin has increased from 34% to 46%. This in part was driven by the cost reduction outlined on Slide 7. This chart illustrates the run rate cost base annualized at December '25. Compared to the starting point back in June '25, we've now extracted $24.8 million against a target range of $30 million to $35 million. With the vast majority of synergies realized, we are updating our target to the top end of this range being $35 million. We recognize that it is difficult for our shareholders to get forecast and precision on the full year impact of cost synergies. In that context, we are providing OpEx guidance for FY '26 of circa $100 million and FY '27 of circa $95 million. I'll touch on this again later. One of the most pleasing trends in our business is our funds under management. I'll run through this in more detail starting on Slide 8. For simplicity, we have reported our funds in 3 segments: L1 Long Short, L1 Affiliates and Platinum. L1 Long Short funds under management has increased by over 53% or $2.6 billion over the last 6 months. This was driven by a combination of net inflows, outstanding investment performance and the public launch of the global Long Short strategy in November. L1 Affiliates FUM has pleasingly expanded over 18% in the half year. Following the merger, we shifted the management of Platinum International under the stewardship of David Steinthal at L1 International, so as to improve the proposition for clients and moderate the outflows. Platinum funds, both Asia and specialist funds have broadly outperformed but had been experiencing persistent outflows premerger and some further outflows post-merger. These outflow trends have recently moderated, supported by fund performance. And while it is too early to call, we do expect Platinum FUM to stabilize within 15 months. This is consistent with what we had flagged at the time of the merger back in October last year, and we have a clear plan to achieve that. Each of the strategies are broken down on the following slide by FUM and segment for your reference. I'll now move on to Slide 10 to talk about our clients. The diversity of our client base is an important and underappreciated feature of our business. If you look at the funds under management by client type in the middle of the slide, you can see that the vast majority of our FUM is from noninstitutional clients and only 9% of our revenue comes from institutional clients. That diversification by having many thousands of decision-makers across retail, high net worth, family office, wholesale, staff and LICs is a real strength of our business, and it means we can invest in the business and our funds for the long term. From the chart to the right of this slide, it's useful to know that less than 20% of FUM has been managed by Platinum, which in turn is supported by L1G. I'll expand on this over on Slide 11. Platinum Asia, which is run by Cam Robertson, represents $1.8 billion in funds under management. Since his time as sole portfolio manager, this strategy has outperformed its benchmark. And in calendar year '25, it generated a 24% net return. The 5 Platinum specialist funds have all delivered double-digit returns since inception. This represents an attractive long-term track record, particularly as they were established on average more than 25 years ago. Combined, the specialist funds represent $1.7 billion in funds under management, and each fund is profitable and covers its cost of capital. We are actively providing L1G distribution support to reinvigorate the client proposition and shine a light on these funds, and we will ultimately seek to return these funds to growth. While it's only been a few months since the merger, an early example of a successful turnaround in a Platinum managed fund was Platinum Capital Management, or PMC, covered on Slide 12. PMC was historically managed by Platinum International and was trading at a persistent discount to NTA. It also lacked relative liquidity. L1 acquired a significant stake in PMC and lobbied the former Board of PMC for positive change, including a large and aggressive share buyback to narrow the discount to NTA, which was successful. After running a competitive process for a new manager, the investment mandate was awarded to L1G to manage the GLSF strategy and the LIC was renamed GLS. The Board of GLS subsequently did a one-for-one capital raising to broaden the register and enhance liquidity. From the time L1 got involved with the independent Board of PMC, the share price has increased by about 50% and it now trades at a premium to NTA. Having been seeded in January '25, the L1 GLS strategy returned 78.2% net for the calendar year '25. Like GLS, the performance of all L1G funds has been very strong. These returns are outlined on Slide 13 and 14. I won't present to the next 2 slides, but I will make some relevant points. Our flagship L1 Long Short fund has been the top-performing Australian focused Long Short fund since inception in 2014, generating an average 20% return per annum over that period. In calendar year '25, it generated a 46.8% net return. The same Long Short team seeded the global Long Short strategy in January '25, which I mentioned a few moments ago. That strategy has been highly successful, and we expect it to be a meaningful contributor to fund growth over the near and medium term. The last callout is our Gold Fund, which returned 159% net to December in just 9 months. The performance of our other funds are there for your reference, but I'll skip now to Slide 15 to talk about our balance sheet and what it means for our strategy. We have $250 million in cash and $300 million in seed investments, which will provide us with the firepower to support a range of organic and inorganic options in front of us, including 2 new fund launches in calendar year '26. This balance sheet strength provides us with the flexibility to deliver our strategy, which is described in more detail over on Slide 17. Our strategy has 4 pathways: growth of existing funds through performance and flows, extension strategies using our existing investment teams to expand into high-quality strategies like what we did on GLS, new joint ventures where we can attract new talented teams to launch products and also the acquisition of investment managers should a strategic and value-accretive opportunity arise. As you might expect, a number of these pathways are very active, and we have the balance sheet now in place to provide us with the flexibility on all fronts. I'll now move on to our earnings outlook on Slide 18. The purpose of this slide is to provide you with clarity on our earnings drivers broadly separated into the near term being FY '26 and FY '27 period and the medium term, so FY '28 and beyond. We do have some moving parts near term, such as the Platinum integration period, the GLS fee holiday and cost synergies realization. In terms of direction, we expect moderate fund growth such that L1 Capital will more than offset further Platinum outflows. In the medium term, we expect growth will come from existing funds through performance and flows and from new funds or affiliates, bolt-on acquisitions and the general deployment of our balance sheet. As it relates to revenue, for the GLS LIC, we offered shareholders a management fee holiday for the first 12 months. This is second half of '26 and the first half of '27, which is equivalent to about $14 million per annum in management fees on $1 billion of GLS FUM. Beyond that, we expect GLS management fees to be paid from the second half of '27. We are actively working on 2 new fund launches that we hope to launch this calendar year. While they are unlikely to deliver major revenue or earnings in FY '26 or FY '27, they offer medium-term upside with minimal incremental costs. Given the outstanding performance in Long Short funds, the in-perimeter performance fees have been paid in this half for the full year FY '26. Please note that this fee will not repeat in the second half of this financial year. Further performance fees from other L1G strategies and recently raised funds may generate performance fees in the second half, subject to their performance. Finally, on synergies, we are very pleased to have already executed on $24.8 million of cost reductions from a run rate perspective at December. There will be more value to extract over the coming period and into the medium term. As I mentioned earlier, we have provided some guidance around group operating costs for FY '26 being around $100 million and FY '27 being around $95 million. This may change with the various products and partnerships that we are actively looking at. But as we sit here today, we have confidence in those numbers. Let me wrap up on the last slide. Off the back of a very successful GLS raise, we have 2 new funds coming this calendar year, and we already have the resources and investment teams in place. We are actively looking at a number of partnerships with new affiliates where their strategies will provide L1G with equity ownership of a high-quality manager and valuable co-investment opportunities. The outperformance of our flagship Long Short strategies provide a timely opportunity for the international expansion of our distribution team. We are actively hiring in the U.K. and North America. As I have mentioned, the Platinum integration has been progressing at pace with strong financial benefits delivered through the early realization of synergies. We are updating synergies to the top end of the guidance range being $35 million. Finally, we're actively assessing a small number of M&A opportunities, but we will remain very selective and we'll only do a deal that will deliver significant benefits to our shareholders. In wrapping up, it's been a very busy period since we merged Platinum in October '25. After a strong start with the integration and the broader momentum across our business, we're very positive on the go forward. This positivity stems from strong fund performance, timely expansion of international distribution, upcoming new fund launches and the potential for new partners coming on board, supported by a strong balance sheet. In that context, we feel like we're in a great position to deliver continued growth for our shareholders. Now with that, I'll hand back to the operator for questions.

Our first question comes from Lafitani Sotiriou with MST Financial.

Can I start with Slide 17, which -- wanting to -- it sounds like things have progressed with potential sort of partnerships or joint ventures or M&A. Can you just give us a bit more color and you've got a lot of runway with what you've already got on your plate, but where are we sitting with potential joint ventures, what's the priority? And is anything would I say, in the later stages?

Thanks, Laf. It's Julian here. Thanks for your question. In terms of sort of the -- if I start on the bottom left-hand corner on Slide 17, the extension strategies, they're most likely the 2 products that we'll bring to the market in this calendar year, which I just mentioned on the call there. In terms of joint ventures and affiliates, we've looked at many, and we've taken a pass on many because we're quite highly selective. I think our selection criteria is really does it broaden our product suite? Is it something we'll put our own money into? And will it generate decent sort of returns for our shareholders over time? I'd like to think we're pretty close on a couple of partnerships, but probably too early to mention on this call. In terms of M&A, broader M&A, we're highly selective. We'll only do a deal that will generate significant returns for our shareholders as you'd appreciate. And so I think it's the same criteria that we apply. It's would we put our own money into it, would it generate a strong return for our shareholders? And would it offer some investment capability or distribution capability that would add value for our shareholders? So probably too early to talk about in details all off, but thanks for your question.

No worries. Can I also ask around some of the Platinum strategies that came across? Last time we spoke, you said that some of the smaller strategies you will review to see whether you put more resourcing behind it or consider to be a broader strategy. Can you just give us an update because we can see that there's been a performance bounce, relative performance bounce in a lot of the strategies. How you're thinking about that stable that came across and about potentially even possibly winning some money?

Yes, sure. So we've given ourselves 18 months from the time of the merger, which from this balance sheet date is 15 months. So we -- if I go to your last question first, I think in terms of relative growth of FUM, we expect L1 Capital to do the heavy lifting. I mean, it's 80% of our FUM today in L1 Capital and affiliates. We expect that to sort of continue to generate moderate FUM growth, offsetting some of the outflows that we're seeing in Platinum, albeit those outflows, we've seen some seasonal moderation in those outflows. I think as it relates to the sort of the general, the smaller strategies. We started with the larger ones, which is Platinum International that's gone into David Steinthal's stable. And then Platinum Asia, the team we felt was somewhat under-resourced with Cam Robertson. So we've added another analyst into that team and the performance in that team is exceptional. And they're constantly over benchmark, which again is a really great achievement from Cam and the team. That represents about half of the residual Platinum managed pieces. And then the other sort of 5 specialist funds, we're giving distribution support, and we're shining a light on those strategies because double-digit returns since inception for nearly over an average of 25 years is really, really strong. And we'll look to add further sort of support to them during this period. I mean it's been 3 months from the merger, but we had to prioritize the bigger rocks in terms of synergies and in terms of arresting the outflows, but we will spend a bit more time in this half with those specialist strategies.

Our next question is from Fraser Noye with UBS.

Julian, just interested, you saw some good positive jaws in the half. And I know the first half, second half skew with the impact of the improvement of performance fees. But just interested in your view of where the undisturbed EBITDA margin can drift up to as the headwinds of the fee waiver in the Global Long Short fund unwind over the medium term?

Yes. Sorry, you go, Julian.

Sorry, no go ahead, Andrew.

Yes. So I guess 3 or 4 months ago we put something out, which is a little bit more forward-looking in terms of our margin expectations over time, which were definitely to improve from where we are into the mid-60s. But that's not a forecast, of course. That is kind of how we think about this business. And if you think about comparable strongly growing hedge fund businesses, what sort of margins can they get, and that is the sort of -- those sorts of margins are possible in these businesses. So hopefully that answers your question.

There are no further questions. I'd like to pass the call back over to Mr. Russell for any closing remarks.

Great. Thank you for that, and thanks, everyone, for joining the call. I might just take the opportunity to thank our L1G clients and our shareholders as well as the staff of L1G Group. But with that, I'll close the call. Thank you.