Liontrust Asset Management PLC (LIO) Earnings Call Transcript & Summary

Good morning, and welcome to the Liontrust Asset Management PLC Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Simon Hildrey, Chief Marketing Officer. Good morning, sir.

Good morning. Thank you very much for joining the Liontrust presentation. This morning, I'm joined by John Ions, CEO; Vinay Abrol, CFO; and John Husselbee, Head of Multi-Asset Investment. It's just under a week since Liontrust released their full year results.

John, I just want to start, though, by looking at the last few months. we've seen a reduction in net outflows. Could you talk a little bit about what's driven that and how you've seen the progress of Liontrust over the last few months?

Yes. Good morning, everybody. [indiscernible] presentation, look at the half year, I mean, we said that our strategy would lead to a better shape of the business and a more diversified client base and a positive business pipeline. And that strategy progress has been meaningful and deliberate. And you can see it in the results. We have broadened out our distribution further with GBP 800 million of institutional mandates and that has helped the overall flow reduction mix reduced to a little under GBP 300 million for this quarter. That's I suppose the way we've broadened out the business has provided us with a better mix of things. It's still been a very challenging period for the industry, a challenging period for active managers. But in the past, we've talked about the heavy concentration in markets and investors looking for areas in which active managers can add value. And as we began to sort of move through this year, we've seen an improvement in performance. We have 8 funds now in the first and third quarter over a year -- over 3 years of the global products, the strong performance of our European funds and the fixed interest. And that sort of broadening out of our performance and our product suite, combined with a very strong brand identity and distribution franchise that has led to this improvement in flows. So we still got a challenging period, but one of our was to look at how do we broaden out our client base. We had an office in Luxembourg. We closed that down. We shifted the office in Switzerland and sales in Europe. But we've also opened up an office in Abu Dhabi in the Middle East, where the last time we were beginning to see strong incoming demand from institutions from consultants predominantly initially based around the European product and inquiries coming in there, and that's where you see inflows coming. But those inquiries are from the Middle East, from Japan, from Asia. That pipeline continues to broaden and to develop. And you've seen that in the flow profile improving. One of the other things we did was to merge the 2 fixed interest teams together that give more sort of size and credibility. We transferred some of the assets that were managed by external managers to that team. And so the bulk of that combined with the strong performance those teams have enabled us to get very much on the front foot there and to start to begin to see inquiries from institutions both in Latin America and in Europe going forward. The expansion of the distribution base is not to put any less emphasis on the U.K. retail market, still a heart and core of the business. But as we said from really last year, we began to see institutional investors look for areas to invest other than the U.S. And we think that's very much more of a leading indicator to where investor demand is going. That's continued to increase and improve. And the assets in the European product probably were around GBP 1 billion 2, 2.5 years ago and stand at GBP 4.5 billion today. It goes to show that if we have the strong product and the right product, we have the routes to market and the brand strength to be able to do that. The brand maintained its resilience we've had 2 very challenging years flow-wise. And quite often, I think people get brand performance quarter. So having gone through a more challenging period performance-wise for the brand to stay in the position it has stayed in and still one of the preeminent brands in the retail space in the U.K. is a testament to the levels of engagement that we have with our clients.

So John Husselbee, can we dive into -- we're going to dive into some of these improvements. Can we start with the capabilities and what we've done with the capabilities recently?

Yes. I mean, as John said, we're not just waiting for markets to rotate back into our favor. We are actively continuing -- actively broadening our investment capabilities. And that's because the environment has changed. We're living in a world now where globalization is contracting, fragmenting and geopolitics is very much reshaping the global supply chains. Governments themselves are increasingly influencing markets through changes in taxation, changes in regulation and sort of policy. And at the same time, we're seeing sort of technology, particularly AI accelerating across industries. So what's that doing? It's creating different winners, different losers in terms at a much faster pace than we've seen before. And what we're seeing is investors actively seeking diversification, seeking active decision-making rather than relying just upon passive exposure. As John said, we've looked within our capabilities within Liontrust, one of the things that after seeing the reset in bond markets, yields obviously clearly a lot higher than they are today than they were 3, 4 years ago. We've seen demand for fixed income. We've taken the opportunity to integrate our 2 teams. It's already seeing some good results.This is our high-yield bond fund that we're showing up on the screen. You can see good performance, top quartile performance against peers and outperforming their relative primary benchmarks as well. But we're seeing it beyond single strategy. We're also seeing demand for solutions. So diversification from solutions. We're seeing in the wider market that people are moving away from individual funds and looking for solutions. What we've got on here is our range of blended and dynamic multi-asset funds, again, showing a good performance against the wider peer groups. And that performance is not going unnoticed. We've recently done a roadshow around the IFA market, the third of one we've done in the last couple of years very much attracting attention in that respect.

You talked about the rise of passives, John, and the kind of momentum-driven market. Does Liontrust have enough capabilities? Do we have enough capabilities?

Yes, I think we should look at that concentration. A lot of people when we think about concentration in markets, they naturally think of the U.S. and the Mag 7. But as this slide shows you, that concentration is global. And it's global for equity markets wherever you look. So a small number of stocks are driving a disproportionate amount of return of the market. So we have narrow markets. We have large winners. The challenge for passive investors, the biggest risk for passive investors is if one of those large winners falls over, you're going to fall with it. So that's why we see a significant opportunity for active managers, providing diversification, and that's where that demand is coming from. And we're seeing that demand across all areas and all sections. So this chart here will just show you the top by flows, the top 15 sectors, which investors are looking at. The orange bars there show you, as I said earlier on, that demand for bond, but you can see diversification right -- that investors are seeking diversification right across asset classes, right across geographies, right across investment styles. So you need to have a broad investment capability. And that's what we have today, and we're actively seeking to basically keep that breadth going, whether it's by asset class, by geography or by investment style. This today is how we will be set up when we're looking across equities, fixed income, but also the solutions in terms of multi-asset, sustainable and not forgetting alternatives themselves. We already have funds which are delivering in the current market conditions. European Dynamic is a good example of a fund and a process and a philosophy that can deliver as the market and the leadership changes from cycle to cycle. And of course, I mentioned AI and technology earlier on. We're going through a digital transformation. AI is changing everything. And we have in the global tech fund, which is shown here on the screen now, we have first quartile performance that we're very proud of, again, against peer groups and against our chosen benchmark.

Today, we're completing the River Global acquisition. Can you talk about what that will bring in terms of capability as well?

Yes, actively seeking broader investment capabilities and one of the best ways to show you what that brings in terms of talent and investment styles to Liontrust is to look at the chart on the right-hand side of this. It's a chart that basically divides the market into investment style value growth momentum and quality in that regard. You can see with the orange bubbles here, that's what River Global brings to us. Our most success in recent years has come in that quality growth space with basically the need for diversification, the changing styles we've seen of value coming back, clients beginning to buy value again, you can see that how -- in terms of a jigsaw, how River Global fits very neatly into that value space that we've got. And they've got some performance besides it. And you can see here that some good numbers, not only over the short term, but long-term numbers as well, which they bring with them as well.

John, you talked about distribution, broadening distribution. How will River Global help us with furthering that?

I touched on it earlier that our style, which has been one of more small mid-cap quality growth, which responsible for a lot of growth. When the market moved a little more towards value and momentum, we didn't have a wide enough range of products. If you look at the River acquisition, their style is very much more value orientated. It has a very good global income proposition there. And if you go back to one of the previous charts John was showing, that's the one area in active management in equities that has inflows there. So I think the issue with River was it had very talented fund managers with good performance track records. But because of the corporate instability and the lack of sort of resource, its routes to market were much more limited. So the deal completes today, their fund management teams will be in our office as of tomorrow. But we've already started that process of engaging with our sales team and our franchise to very much to get on front foot and to unlock the potential that we see in there. So that chart there, the pipeline is clearly strengthening. That diversification driven by the institutional and the international activities there. But the conversion still remains key. But the institutional marketplace, there's a longer lead in time to that there. But I also want to stress, it's not just the European franchise that is there. One of the larger mandates that we won earlier this year was with the sustainable team. The sustainability much more challenged performance-wise because of the types of stocks that are driving the markets do not necessarily fit into that sustainable criteria. But for those clients that are committed to investing in that way, the strength of the franchise and the proposition holds up well. And we won a large mandate from an existing investor in that space. With the U.K. smaller companies, there's ongoing interest there against a market in a sector place that has halved in size over the last 2 or 3 years. So where we can identify opportunities, we will. The slide -- the numbers on the right show you the level of activity and the intensity there, the focusing on the right types of clients and then the right types of contacts within that. And obviously, all of the client events that are around that to support that.

You talk a lot about international institutional, John. But obviously, the vast majority of assets are still in kind of the U.K. retail wholesale market. What's going on there in terms of improving that?

I think good engagement. I think the broadening of the product suite with the Global Income Fund coming from River, having more of the value propositions from River will help broaden, if you like, the products we can engage with clients with. So the U.K. retail marketplace economy is more mixed in its outlook at the moment. But where you have good, strong investment propositions, there are still areas in which you can that up. So a lot of the work John is doing and looking at the strength of the products and the positioning. We have an excellent brand. We have excellent distribution in that retail marketplace. And I think by broadening out the range of products we have, we will create further opportunities.

Great. Vin, turning to you on financials. Can you talk about cap, which came in a year ago and how that's worked out?

Yes, I will do. And I'll just recap, we introduced a new capital allocation policy last June. And really it was as a result of what we saw in FY '25, so year ended 31st March '25, where we paid out 72p in dividends compared to earnings -- earnings per share of 57p. So clearly not a sustainable under the old policy. So we put in place a new capital allocation policy covered off as what we do with our cash dividends, investment in the business and share buybacks. And maybe I'll just talk a little bit about how we performed against that new capital allocation policy over the financial year. So come to the end of March '26, cash was healthy. We had just under GBP 51 million of net cash on the balance sheet and our surplus capital above regulatory requirements was just under GBP 30 million. So the business is well capitalized. We declared a dividend of 19p for the full year, so 12p final dividend, which is just over 50% of our adjusted diluted earnings. So our earnings were 36.7p per share. So we're paying out 52% of our earnings. So again, in line with our new policy of sustainable dividend. In terms of investment in the business, we look to use cash after we pay the dividend to -- for organic investment in the business. And an example of that, we've invested in reorganizing our fixed income capability, bring that together in 1 team from 2 teams and inorganic opportunities. So we've announced the River Global acquisition that John talked about earlier. We announced that at the end of middle of March and although the consideration is being satisfied in shares, there's considerable cash spend in reorganizing that business and bringing it on to our target operating model. And the final element of our capital allocation policy is share buyback. So if we have excess capital and [indiscernible] to do so, we will buy back shares. And in November last year, we announced a share buyback of GBP 10 million, up to GBP 10 million to be completed by the end of June. So today is the last date. So we bought back 3.7 million shares. So it's about 5.8% of the company over that buyback.