Ninety One Group (N91) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the presentation of Ninety One's full year results for the 2022 financial year. Thank you very much to our clients, shareholders, regulators and the people of Ninety One for the support and the hard work that contributed to these results. I will start the presentation with a business overview, including the summary results. Then Kim McFarland, our Finance Director, will present the financial review. I will then conclude with a brief outlook for the business before taking questions. You can also submit your questions during the presentation via the link on the right-hand side of your screen. This is a reminder of what Ninety One stands for. Our purpose guides our actions and reflects what really matters to us. At Ninety One, we are investing for a better tomorrow by building a better firm, investing better and contributing to a better world. Ninety One has been built organically and sustainably over more than 3 decades. Ours is a resilient and well-diversified business with an excellent long-term track record. In 2020, we became an independently listed business. The period since then has been eventful, to say the least. The cocktail of COVID, quantitative easing, crypto, China-U.S. tensions, the war in the Ukraine, and the reemergence of inflation affected the entire world, including our business. Competitive pressures in our industry remained relentless throughout. At Ninety One, we never stopped concentrating on what we do best, serving our clients and continuing to deliver results for our stakeholders while at the same time, contributing to a better world. We reported record earnings and assets under management despite worsening market conditions towards the latter part of the reporting period and maintain positive business momentum throughout. We achieved net inflows across all asset classes, regions and channels. This demonstrates the strength of our simple, yet diversified business model. Despite a challenging fourth quarter, our investment performance remains competitive. We have made meaningful progress on the sustainability front in line with our stated strategy. Finally, the staff shareholding of Ninety One increased further, which reflects our long-term commitment to the business and alignment with our shareholders. Our culture remains in good health. We worked hard to connect with, energize and energize our people as we return to the offices. Total assets under management increased by 10% to GBP 143.9 billion. This reflects portfolio growth and net inflows of GBP 5 billion. Average assets under management, the key revenue driver increased 16%, reflecting the higher asset levels over the period. As far as investment performance is concerned, aggregate asset-weighted performance measures were excellent throughout the year and looked particularly good as we entered the final quarter of our financial year. However, with the market dislocation during the final quarter, a number of our larger strategies dropped below their benchmarks as of the end of March. Significant market volatility of the kind we've experienced recently make short-term performance numbers highly dependent on the exact date used in these calculations. Our focus is performance over time -- and through that, delivering the outcomes that our clients require over the long term. Ken will cover the financial results in more detail, but I want to highlight the 13% growth in adjusted earnings per share and the proposed dividend growth of 16% for the full year. In line with our stated intention, staff ownership increased to 25.4% at year-end. For the first part of the past financial year, market conditions were supportive. We experienced positive client sentiment and an uptick in client activity from the previous reporting period. However, the Russian invasion in Ukraine in February, shook global markets and investor confidence. In addition, the rising interest rates and inflationary concerns continue to influence investor behavior. This happened against the background of already accelerating change in our industry. The sustainability imperative and evolving asset owner preferences driven by societal demands and technology are driving structural change in our industry. At Ninety One, we talk about investing for a world of change. It's not easy, but it can be rewarding in spite of the inevitable ups and downs associated with change. We know that somewhere in the discomfort of change lies opportunity. We're a battle hardened and resilient business with a good record of navigating change. In addition to the report -- reporting record assets under management, I'm delighted to confirm that we have achieved net inflows in all asset classes, all regions in both our client channels. Over the last 5 and 10 years, our assets under management grew at an annual compound rate of 9% since listing, assets under management grew at double that rate. We achieved net inflows in 4 of the past 5 years and in 8 of the last 10 years. At Ninety One, we don't change our approach because of short-term market events. We focus on the long term to deliver good outcomes for our clients. This approach has served us well over many years. In 2020 financial year, net inflows of positive markets contributed to a 10% increase in assets under management. Our assets under management remained well diversified across asset class, region and client type. Moving into a more detailed flow analysis. We are pleased to report net inflows across all asset classes. This is in contrast to the prior year when we saw equity outflows. In fixed income, we saw GBP 2.4 billion of net inflows, largely in the emerging market strategies. Equity strategies saw GBP 1.6 billion of net inflows, principally from global and thematic strategies. In multi-asset, we saw strong inflows in South Africa, while alternatives inflows were driven by the growing interest in specialist credit. We also continued to perform well in our South African platform business. I'm pleased to report that all regions also delivered positive net inflows in the financial year. The Africa client group continued to perform very well with inflows of GBP 1.8 billion. This was driven by multi-asset and global equity strategies as well as inflows from our South African fund platform. Over the calendar year 2021, we were the #1 in net inflows in the South African market. The Americas client group was a close second with GBP 1.6 billion of net inflows in contrast with outflows of GBP 0.7 billion in the prior year. The inflows were largely driven by institutional clients into fixed income, local currency and global equity strategies. Our European client group generated solid net inflows, principally driven by fixed income. A large part of this was driven by our German clients. The Asia Pacific client group generated net inflows from Australia institutional clients, largely into global and emerging markets equity strategies as well as fixed income. The U.K. client group achieved net inflows driven by global, including thematic equities in spite of the structural headwinds in U.K. equities, we continue to see good growth potential in this region. You would also have seen a range of new appointments announced in this client group to further enhance our competitiveness in the U.K. market. Finally, I'm pleased to report net inflows from both institutional and adviser channels across the world. The adviser channel saw healthy net inflows from Africa and U.K. client groups into global and thematic equities. Flows in the institutional channel were driven by Europe, Americas, and Asia Pacific client groups, mainly into fixed income strategies. Moving on to investment performance. Market conditions were supportive for the first 3 quarters with our 3-year firm-wide outperformance at 31 December 2021 at 89%. This is a really good number. Then in the final quarter, the market volatility increased substantially, as I said earlier, and impacted our performance. Our 3-year firm-wide outperformance remains competitive at 68% of our strategies outperforming their benchmark on an asset-weighted basis. Over the long term, the firm-wide outperformance remained at 80% and 86% over 5 and 10 years, respectively. Our long-term mutual fund investment performance remained competitive, though our shorter performance has deteriorated due to the factors mentioned earlier. At Ninety One, we run our different strategies in line with clearly defined processes. These tend to work over the course of the cycle and like 2020 needs some time to adjust after a market shock. This time is no different. Since we do not chop and change in periods of market volatility or in periods of underperformance, I'm confident that our shorter-term performance numbers will recover. As ever, our focus remains on delivering competitive long-term investment performance for our clients. There is no formula to create short-term performance. We can -- what we can do is to provide our teams with the right resources and create the conditions for sustained high performance over time. This is what we really manage on a daily basis. We create the conditions where good investors can thrive over time. We also encourage innovation and creativity. At Ninety One, freedom to create is one of the key tenets of our culture. We need to remain relevant to the requirements of our clients and society at large. We borrowed this -- the format of this chart from a respected industry peer was we do read their results presentations as well. It shows what our long-term strategies launched over the last 5 years have gathered in terms of net inflows in terms of assets under management but new strategies. So on average, we launched between 2 and 3 strategies per year over the last 5 years. This added GBP 2.7 billion to net inflows in the final year, and it added approximately GBP 5 billion of assets to our book over the last 5 years. As mentioned above, this was driven by thematic equity and credit strategies. Now code for thematic equity. The biggest part is sustainable equity strategies, which obviously were quite popular. We have made good progress over the last year and sticking to our strategy of organic growth within very clear strategic parameters. We continue to invest to support long-term growth and competitiveness bolstering our investment, client and operational platforms where necessary. We made progress in the Americas and the U.K., demonstrated by the net inflows in both regions. Our South African business continued to perform well from already elevated levels against a very difficult economic and market background. Our ongoing commitment to this market has paid off. Ninety One has a solid platform for future growth. The brand has momentum. What I mean by this is that over the years, it has become progressively easier to do business anywhere in the world where we choose to do. We have long, credible organic track records, and we are a known entity in most of our major markets. Across the board, our market positions have improved over time, facilitating new business. This is because of the brand equity that we've built over many years. Here, I'm not referring to the name Ninety One, but with the positions we have carved out in our various markets through being there over the long term. This is not easy to replicate. This takes time and effort and consistent presence and good results. Our competitive position in our chosen channels is much better than 5 or 10 years ago. It is difficult to measure that, but it's easy to experience. We are continuing to scale up some of our strategies. And now we have 35 strategies larger than GBP 1 billion compared to 21 strategies in 2017. But there's a lot more we can do on this front. The strategy is larger than GBP 1 billion now represents 76% of assets under management as opposed to 66% in 2017. Scaling already successful strategies while remaining mindful of alpha generation is the best way to improve the economics of our kind of firm. Finally, I can confirm with you that our access to talent continues to improve. Ninety One is an attractive place to work for successful people in our industry. We see good growth opportunities in the North American institutional market. We are well invested here, but we have much work to do to achieve our full potential. This is where the big prize is. In the U.K., we have invested heavily in the business over the past few years, and we are starting to see results. But this is just the beginning. In the long term, we remain committed to developing our business in Asia, including China, in addition to these regional growth factors. We are optimistic about our prospects in thematic equities, especially on the sustainability front and the longer-term opportunities in the specialist credit business. Strategy is important, but execution really matters in this industry. I don't think back in January, any one of us in this room or on the call would have predicted that there would be a war, a real war in Europe with a crisis that would impact so many countries and so many people. While the direct impact of the Russian invasion of Ninety One has been minimal, the indirect impact has been substantial. No one knows how long this wall will continue or to what extent it will influence investors' perceptions of emerging markets in the near term. Given our diversified offering, we believe we can continue to serve our clients and generate flows in the long term. It is early days, but the substantial relaxation of exchange controls in South Africa could have a profound impact on the local institutional market over the coming years. And as a global fund manager, with a leading market share in South Africa, we are ready to compete for the expected flows towards international investment. This change will nevertheless be challenging for domestic industry participants, and we are a leader in the domestic industry. We continue to explore opportunities in China. Just after year-end, we've been awarded a substantial mandate from one of the most respected asset owners over there. But our strategy will take time to unfold, especially given the limitations due to the travel restrictions relating to COVID. Our commitment to put sustainability at the core of our business progressed over the past year across all -- across our entire business. Remember, we organized our sustainability effort along 3 pillars: invest, advocate and inhabit. Last year, we have introduced a clear framework called Sustainability 3.0, which focuses on real-world impact of what we do. At Ninety One, we consider climate as the immediate priority. We advocate real-world decarbonization in line with our net zero objective. We focus on inclusive transition, especially from an emerging market's perspective, not on portfolio decarbonization. We work constructively with clients and portfolio companies around the world. We continue to engage our shareholders on this important topic, and we appreciate their support and interest. This is why we will ask our shareholders to vote again on our say on climate resolution at the upcoming AGM. Finally, we have appointed a Chief Sustainability Officer, Nazmeera Moola, who is responsible for the delivery of our sustainability strategy and has been instrumental in the preparation of our own transition plans. This slide provides a summary of our approach to Ned and our interim SBTi aligned targets. In June 2021, we joined the net zero asset management initiative. Our approach to net zero is based on the pursuit of real-world, decarbonization of real-world results as opposed to portfolio decarbonization and the need for a fair transition, which includes the people of emerging markets. We also produced a transition plan with clear quantitative targets for the investments we manage on behalf of our clients as well as our own operations. Detail of our transition plan will be published in our sustainability report in June. Now let me talk to you about the most important part of our business, our people. We were pleased to see our people return to our offices following the period of social restrictions. We felt we needed to reconnect, reinforce our culture, especially for the benefit of the newer members of the Ninety One team. In this regard, we have completed 37 in-person workshops over the year with 900 of our staff. I have personally attended more than half of them, and the feedback has been positive and we can feel the buzz around our offices and in Ninety One again. Our people form an essential part of our value proposition, which is why we continue to focus on talent density, building a well-diversified and intergenerational business. Significant employee participation is fundamental to our business model. The people who work at Ninety One now form the largest shareholder block, which demonstrates long-term commitment and alignment. In summary, we are pleased to have reported record earnings and assets under management and net inflows in all our channels, regions and asset classes. Our investment performance remains competitive. We have made a solid saw solid progress in our commitments to sustainability, publishing our transition plan, and we are committed to investing for a better world and making a real difference. Finally, we increased our shareholding in Ninety One and continue to focus on our culture and people. Our consistent strategy continues to deliver results in volatile markets. Now I'll hand over to Kim McFarland, our Finance Director, to take you through the financial review before concluding with brief comments on the outlook, Kim.

Thank you, Hendrik, and good morning to you all. Once again, I'm pleased to present another set of strong financial results for the year ended March 2022. The highlights are as follows: adjusted operating revenue increased by 10% to GBP 663.9 million. Adjusted operating expenses increased by 9% to GBP 433.5 million. This resulted in an adjusted operating profit of GBP 230.4 million, an increase of 12%. I will go into more detail on these figures over the next few slides. And taking into account adjusted net interest income, the share scheme net credit for this year and Silica profit for the prior year only Ninety One' profit before tax and exceptional items increased by 20% to GBP 252.2 million. Consistently, I've reported adjusted operating profit by removing the impact of Silica third-party revenue and expenses in the prior year as well as the contra impact of the revaluation of the deferred employee benefit scheme. As I mentioned at the interim results, we completed on the sale of Silica to FNZ in April 2021. The interest expense on our lease liabilities for our office premises of GBP 3.8 million for FY 2022 is reported in adjusted operating expenses. All remuneration expenses, including the share scheme allocation have been included in adjusted operating expenses. The share scheme net credit has arisen as a result of the accounting requirement to amortize the share scheme expense over the vesting period. The reason for the increase in this number is a significant equity participation in the share scheme by our staff. It was immaterial last year. The adjusted operating profit margin increased from 34.2% to 34.7%. And our adjusted EPS shows a 13% growth, reflecting a set of strong financial results for the year. Saying that, I will just caution here for a more challenging year ahead. We are confident that the adjusted results as referred to here reflect the true operating position of the business. Continuing from there, the exceptional items of GBP 14.9 million reflects the pretax profit received on the sale of Silica in April 2021. In financial year 2021 expenses reflected the spend relating to the completion of the rebranding of Ninety One. The effective tax rate for the period was 23.1%, down from 24.3% in 2021. The above factors result in profit after tax increasing by 33% to GBP 25.3 million. This slide provides further details on the adjusted operating revenue, which increased to GBP 663.9 million. Management fees increased by 13% to GBP 632.8 million. And this was predominantly driven by the increase in average AUM from GBP 119.9 billion to GBP 138.6 billion, a 16% increase. This AUM growth drove the increase in management fees but was offset by a decline in the average fee rate to 45.7 bps from 46.8 bps. In the main, this is due to a change in the mix of strategies owned by our clients. The fee rate was unchanged in the second half of the year as we maintained our price discipline. However, we do continue to have pressure on fees. And with the client mix changing, we'll guide -- we'll guide closely to this being marginally down in the year ahead. Performance fees continue to decrease from the high levels seen in 2021, although still a positive contribution of GBP 31.1 million. And this was driven by a fairly equal mix of relative and absolute investment outperformers in the selection of South African strategies. Again, we don't foresee this increasing in the year ahead. The foreign exchange gain of GBP 1.2 million was mainly due to the translation of U.S. dollar assets with the weakening of the pound sterling in the year from 1.38 to 1.34 as of the end of March 2022. The rand also strengthened the last month against the pound to 19.03, which had a positive impact on our closing AUM. Other losses of $1.2 million arose primarily from mark-to-market revaluations of seed capital. The next slide shows a buildup of the adjusted operating expenses year-on-year. All areas showing an increase from the prior year, with the total adjusted operating expenses increasing by 9% to GBP 433.5 million. A key driver was once again employee remuneration, which remains at 68% of our cost base, increasing by 9% to GBP 294.4 million, and this was principally driven by variable remuneration, which is over 50% of employee remuneration and which grew in line with the increase in adjusted operating profit. Overall, this resulted in a compensation ratio of 44%, down 1% from the prior year, and average headcount grew by 1%. I've said the business expenses into post-COVID-related spend, which is travel and promotional and then all the other expenses. As expected, there was a fair -- there was an uptick in the post-COVID expenses as restrictions were eased, and this was coming off a very low base. Importantly, other expenses only increased by 6%, in line with business activity and inflation. The largest cost being client and retail fund administration. The year-on-year split of these expenses largely remains unchanged. Looking ahead, we're expecting the fixed cost to increase with inflationary pressure and continued business momentum. Noting there's nothing material planned in the financial year ahead. This slide is showing the business expenses and total expenses as a percentage of average AUM and bps over a 6-year period, so covering the period pre and post listing in March 2020. A single message here is the consistency of business expenses as the business has grown and developed, and scale is being achieved on a moderate level. And if anything, this chart demonstrates our cost control and discipline as the bps have declined slightly over the period, while our assets under management have increased. And so to summarize here, this is a graphical representation of the absolute movement and our profit before tax from FY '21 to FY '22. Our profit before tax and exceptionals of FY '21 was GBP 210.1 million. Management fees increased by GBP 71.8 million. Performance fees decreased by GBP 14.3 million. And employee remuneration increased by GBP 23.1 million. Business expenses also increased by GBP 13.1 million. When adjusting for the increase in other items such as the share scheme net credit, FX gains and losses and adjusted net interest income of GBP 20.8 million. The profit before tax and exceptional items was GBP 252.2 million. And an exceptional item of GBP 14.9 million from the sale of Silica resulted in FY '22 profit before tax of GBP 267.1 million as reflected in the earlier slide. So my final slide summarizes the Ninety One' balance sheet and capital position at the end of the financial year. Ninety One qualifying capital increased to GBP 340 million. And as we move into the new regulatory capital regime in the U.K., you can note here, the minimal impact to our qualifying capital with the decrease largely driven by adjustments for deferred tax. Estimated regulatory requirements increased in line with the growth of underlying expenses. And in line with our dividend policy, the Board has recommended a final dividend of 7.7p, taking the full dividend to 14.6p per share. After this payment, there will be an estimated capital surplus of GBP 128.8 million. This will result in a capital coverage of 213%. This is above the trend coverage we've been targeting and up for the 172% in the prior year. In line with these proposals, the capital and this capital buffer, we remain committed to a capital light model. And furthermore, at this time, there are no plans to increase the number of shares in issue nor encumber the group with an group balance sheet with debt. Thank you. And I'll pass back to Hendrik .

You're going to stay here because we're going to ask questions. So before I move to the outlook, let me remind you to submit your questions via the button on the right-hand side of your screen. We're grateful to have reported good results, but there are challenges ahead. We focused on serving our clients and sticking to our strategy, our track record, experience and stability give us confidence for the future. Sustainability is central to our future. We are positioning Ninety One on the right side of history. We have substantial growth opportunities within our strategic parameters. Our focus is on the execution of our strategy. In spite of near-term challenges, we face the future with confidence. Thank you very much. We're now ready for questions.

Hubert. You're always first. Go for it.

It's Hubert Lam from Bank of America. I have three questions. Three questions. Firstly, on operating margin. You had 35% for this year, probably expect it to come under pressure just because of the markets and on revenues. At the same time, you do have a high degree of cost variability as well. So how should we think about operating margin for this year? What are you targeting? Second question is on products. Obviously, traditional asset classes are under pressure, both fixed income as well as equities. Just wondering what clients are looking at now? Or what do you see are the main product you can sell this year, just given the macro context. And last question is on China. As the last question on China. Last question is on China. You said you reiterated that this is a key market for you. Some of your peers have gone into the market by having joint ventures with other banks and some of them have also created the other management company. Just wondering what your approach is in penetrating the Chinese market.

May I ask us to answer in reverse. And because -- and just remind me your second question, you were talking about -- I mean the first one is margin, the second one.

Operating margin, segments on products, how do you see the product mix going forward on the market?

So let's start with the kind of commercial discussion, China products and then get to the outcome, which is margin, which frames the operating margin point for us as an outcome rather than a short-term objective because we don't run the business or target, we don't run the business to near-term targets because of the high beta and the volatility. Of course, we care about bands. But on the China point, if you were -- I mean just taking a step back, if you came from Mars and you looked for growing investment management markets in the world, the one it will scream at you is China, particularly the domestic market. There's not much that much happening cross-border. There's some happening, but the domestic market is expanding. We don't believe, number one, that China is uninvestable. Number two, we've seen our peers, very respected peers who have been in that market for years. And that's one of the reasons why they could evolve their business as fast because they were actually in there. They didn't go there. They had a Zoom call from London or New York and actually the guys on the ground were developing the business. So we said we should be cautious in this period because we don't -- we're kind of old fashioned. We don't do online dating. We actually want to see people talk to people understand, but we are committed to the exploring the opportunity that the Chinese market is offering, noting that we're a very experienced investor in China. We have very substantial amounts of money deployed there. We know the place and we have some very good client relationships. So that's the reason why we keep flagging it because other firms have said, I'm not interested I'm dealing with Western Europe or U.S. So really, a key point, even if the emerging market universe evolves to something where China becomes an entity by itself and maybe not even treated as part of the emerging market universe. It's an area of interest, and it's an area where we're going to spend strategic time. However, we didn't feel comfortable that given the restrictions, particularly initially in the Western lately imposed on China, it made sense to go and rush it. So that's the first point. In order of priority, as I said in the presentation, the North American price is a closer one, if I talk of regions outside our, what I would call, our domestic regions, okay. On the product front or what we intend to do long run, we feel that if we do well, what do we do well, as we've shown with a growth in thematic equities over the last few years, there are significant opportunities in our -- within our strategic parameters for those who do well. It is more volatile. Yes, it's great to get -- you get a higher rating if you compete in a private markets but it takes a long time -- and we've decided to focus on the credit end as opposed to the equity end, and we've decided to add a thematic flavor to our mainstream business. But we believe in the mainstream active business, if you do your job well, you generate your alphas over time. There will be demand for and particularly for managers at our scale. Our answer may not be the same if we were standing here as a $2 trillion manager. So I understand the difference. And go and look at, for example, [indiscernible] prices numbers. I mean, fantastic if you look at what they've achieved over time, they're significantly larger. They're very focused on. And from a fee rate point of view, we are not really interested in going into areas where we do business for at very low fees just to generate flow. So that's our philosophical point. So we would like to migrate towards higher value part of the industry, but we recognize how hard it is and very importantly, staying focused, staying in our lane doing it really well, I might just have a price on the other side, while many others are defocusing their operations into other areas. So that's the framework within which we develop our business. Kim, on operating margin, I think you can talk about that.

I think -- yes, I think the point is that it's not a target, but you're right, it's a number that we do look at all the time. And I think we're going to see some downward. We're going to see pressure this year. I mean you all noted the inflation comments this morning. So I mean, we know there's inflation coming in. But as you quite rightly said, we do have the ability to flex some of our cost base basically on the variable side. But it was high. You're also going to have less -- I've cautioned on the performance fees, which has always been something that just dropped through and help the operating big at the same time. So really looking at it next year, we had a high operating margin being above 35%. I'm going to see that coming down, but not materially in the year ahead. And we just had the normal market pressures that we're actually seeing.

We will never go to boutique operating margins. If we go there, we will be investing. But remember, a big part of our expense is just investing in future. You can sort of milk this business and I see [ Nel Noddings ] there from finance team. We could squeeze this margin up to 40%, but that will be 3 years. And maybe if we were short-termist and we were thinking in terms of, call it, short-term horizons, we could do fancy things with the numbers and then leave a shell behind. This is not how we operate. I think another very important point about this business and the financial side is I've got to ask the question this morning by a journalist. What about inflation? Well, let me just be very clear. We don't employ workers on the bread line. our people can pay their electricity can do things. We are -- we all flex together when times are tough. This firm is not guaranteeing government style increases to people when there is no outcome for shareholders. So -- and that will be the case because no one's going to go hungry. You saw the large number of the 44% compensation ratio. So this is not a business where we like an industrial business or a mining business sitting with thousands of people on the margins, we're really feeling pain. And therefore, our inflation -- and we expect our suppliers to behave similarly. We are not going to tolerate excessive cost increases just because the oil price goes up. We don't have trucks parked outside this business.

But I think a point to notice, if we cover the inflation part ease I think something the people are going to raise here, 68% of our cost base is people. So you've got to look at the balance of what's there. And at least half of -- the other largest cost is our client of retail admin, which doesn't have an inflation linked to it either. The other big chunk is going to be a commendation there's no inflation length. So you kind of break it down to almost looking at the numbers, about half of what's left over is going to have an inflation hit, which is naturally going to come through for whatever reasons. So it's -- the fact you've got such a big chunk of people. Unfortunately, we're a March year in, so we gave increases to start in March.

And also, we don't do unguided technology investment. I mean I think Kim when she was the Chief Operating Officer, was very good at that, sometimes the point of, I guess, we constrained ourselves, but we know how much money is being blown in this industry on vanity projects. This is not -- is not what we do. David McCann from Numis. I'll give you a plug.

Thanks, Hendrik. Three questions from me as well. First one, actually just following on from the point you mentioned in response to one of Hubert's questions about wanting to position the firm kind of to hire alpha [indiscernible] contracts in the future. Where would you say on balance the businesses today between, I guess, what you would call more traditional geographic focus, traditional versus those kind of higher outlook on thematic strategy, where are we today and where would you like to get to? I guess that's question one. Question two, kind of dividend question. I don't believe the -- you actually have a progressive policy officially stated. You've obviously paid around 75% in listing. On the likelihood that when we look today, the profit may well be down, adjusted profit may well be down this time next year on this year's numbers. How should we think about the dividend? Would you defend it given the strong capital surplus you reported? Or should we expect it just to flex with the roughly 75% effective payout? And the third one is the technical one on that surplus with the new capital regime, both the nonqualifying capital deduction has gone up as well as the regulator required. Could you just talk through the drivers behind those?

I think Kim can do the first two and...

The last two...

The last 2, and I'll do the first one last. How is that, Kim?

Okay. That's fine. I mean the first one is we don't have a progressive dividend policy. You're quite right. So should our dividend payout will be looking at what our adjusted profits are next year, again, after tax. So we'll look to see what they are. And we sort of, as you've seen sort of looking around the 70%, 80% in that we did 7% at the interim, we've done 80% out of the final sort of averaging out of that sort of 75% working through with the Board. It's going to be similar to we weren't trying to defend the dividend off the back of that. Again, looking at if there are any other capital commitments we have within the business. So no, we don't forget the dividends. So I think it answers that point there. The second one is, yes, it reflects is what our profit to tax actually is. And second one on the capital, you saw there wasn't a large change in the actual capital numbers. So the main adjustment was just on the deferred tax, just how we will -- which was on the regulatory capital piece, and that's the one of the changes were there. And the risk -- I mean, our capital move is largely based on expense requirements in the various countries. It's largely a percentage of your expense base. I mean we have a few other tweaks in South Africa, but the expense base is largely moving off the back. Our expense -- our regulatory capital requirements is largely moving off the back of our expense requirements.

It was mainly the deferred tax. I don't the qualifying capital. Requirement has just changed with the excessive capital...

Excessive capital.

And David, coming back to our product mix or what we offer clients. I think we're living in one of the most exciting, fast changing times in human history. I mean even the tech story that started with the dot-com crash basically is only playing out. There are enormous opportunities. We sense that in the thematic space, there will be newer long-term opportunities. Right now, we're very focused on the sustainability and we've really recently expanded our sustainability offering across the board for investors who want both in the illiquid and the liquid spaces and in the debt and the equity space. This movie has only started. It doesn't mean you are oblivious of the fact that there is right now a commodity boom and that markets are different. But institutional asset owners also have targets to meet around changing their portfolios or evolving and they need help. And we think firms like us who well grounded in general investment disciplines can add. So -- and there will be more themes rolling out. And if I can mention a whole lot to you, but many of that are really early stage, and I wouldn't want to mention that in the public market that we will add to our mainstream strategies. But the big money will take years and years or very long to move from mainstream, and we don't think the entire world is going to be parked in private assets. We just don't think so. We think it's a great growth opportunity, and I would have loved to be Blackstone today and present my results to you or in that position or in the markets they are. But we think public markets are going to remain a very important part of the mix and a part where once -- and I keep saying that we're not there yet. Once our industry is fully repriced to passive as cheap as it should be, the fee budgets and significant amount of fee budgets are going to very expensive illiquid strategies. Actually, we think the fee pressure in the middle for really good offerings will be less. And we've reached a point where we can operate in the kind of 45, 40 to 50 basis point world, and we don't think it's going to go to 20 or 25 basis points. And therefore, adding the necessary scale to strategies, becoming a haven for talent, where often that talent in firms pivoting away feel underappreciated is a sensible strategy for us. So we quite got around the world, not many 30% plus operating margin industries in the world. So we so depressed about ourselves. Actually, operating with a very light balance sheet at very big operating margins in a market which is very, very large. If you take the combined revenue of our -- in the revenue pools of our industry. So we find that attractive. And we think if we stay focused on it and not get confused by sort of near-term narrative or fatigue of the narrative because one of the big things is the fatigue of the narrative gets you. And then you want to go and do something crazy and then you're going to pay a multiple of 45 for a small boutique to change your business and then you find out the cultures don't work and things like -- so we are very cautious about those risks. But what we must do, and I think that's the qualifier. We must be very close to where our clients, the asset owners and the ultimate owners of the real money and risk where they want to evolve to and what they are thinking. And quite clearly, they are telling us if you want to be in the active game, you've got to be good. If you mediocre, as you guys predicted or worse than mediocre, you charge a high fee, you're going to be out of business. We accept that given the calculations or given the return opportunities in our industry. And that's, I think, why our position looks as if it is a pure defense of the traditional, it isn't. It's an upping of the game in a business which is naturally maturing but with very substantial opportunities given our scale in particular. So that's the sort of -- but that doesn't mean we're not going to get a hiding if we do badly for 3 or 4 years in a row. That doesn't mean that are happy to take that risk was that our business. Rahim. I want to give you up -- oh sorry, Gurjit from JPMorgan.

Just a few questions. In terms of the U.S., obviously, you've made some good progress there in terms of flows. What differentiates Ninety One? So why does the client in the U.S. come to Ninety One versus all the peers out there globally. First question. And secondly, just what are the sort of key hires you've made this year? If you could maybe highlight a few of the areas where you've been investing for growth. And then finally, just on the mutual fund investment performance. If I look at the sort of 1- and 3-year numbers, they look sort of average sort of around 50% in 3 years this year and also last...

1 year.

So even -- I think the 3 years was also 50%. I think 49% -- and that's been sort of stable versus 2021, so it hasn't really changed much. So what's going on there on the mutual funds and no particular funds suffering...

Next year, if I get this question, the Chief Investment Officers who are sitting here will answer, but I'll answer this year. And the point is -- and I said it in the presentation, actually, last year, when we hit -- literally, when we hit the sort of year-end, things were quite average in one part, but the numbers were actually excellent over 3 years from the year before. We had a massive improvement. That improvement continued into December and January, then the world kind of changed. Now if you have systematic processes, you tend to take a bit of time to adjust. And the correlations go to one in spite of the diversity investment strategies you have. If you were -- no, I thank, God, we were not a growth investor. That wouldn't have looked a lot worse. But we need to get our way back. We need to call our way back. Interesting, our 3-year performance haven't really been that much affected over the period. In the mutual fund case, you must also look we look at quartiles and in those quartile boxes, you have very different strategies in one box. So I would rather look at the institutional benchmark related one as a true performance indicator because, for example, one of our best-selling strategies, quality has been relatively modest -- doing modestly against indices, but because it's solid and secure and it's the kind of stuff people can sleep on, the clients are very comfortable that it's doing what it's supposed to do when they keep buying it. So there's another level of sophistication, which can take us a long time. But in time, if those aggregate numbers don't look good and competitive, you will be affected. So I would rather look at it over a 3- to 5-year period. And so how many -- many excuses have you come with here rather than looking at one particular very volatile moment, which I think will wash out towards the end of the year. How quickly, I don't know. And that is why it's really key to make sure your teams retain their confidence and do what they do. And so we're not going in there disrupting, telling them what to do, et cetera. We were very happy with those processes when they were working. We now need to apply them properly, and we need to learn from our mistakes. So I would say I'm actually not that concerned. But if it persists and if you're -- it's really important in this industry, if the clients -- and it's not so much shareholders, the clients get a sense that, okay, the house is not performing in general, it does have a general impact on your ability to produce business. I don't think we're there yet. What we were doing is highlighting that we're very alert to that challenge and that we're going to give it our best shot to make sure our numbers get to where they are. But I'm not uncomfortable given the diversity. That's the first question. Your other question was the hires. I think where we put some investment in was in our sustainable equity team in particular. We've brought it in -- we've built it out to offer an emerging market version to offer a global version and to have a positive inclusion strategy, which has actually attracted good flows, our global environment strategy. We've invested substantially in our skills around not many people, but in being very close to the wind in the sustainability world, not just Nazmeera but around we've strengthened the team to be close to asset owners. So in areas like the SMI in efforts like the sustainable markets initiative or G fans, there's a huge amount of work going on between managers, owners, et cetera. We are very close to that, and we understand what's happening and we are thinking solutions oriented with them. And that's the solutions business we want to bring. We're not bringing the classic solutions business of taking a consulting firm and giving a client a whole solution, which is what some of our peers are doing very credibly. I mean some of them doing extremely well there. We've decided that's not our fight. Our fight is to provide active solutions in the repositioning towards more sustainable portfolios for the long term, and we think there is a very substantial potential. It's -- but we need to be much more concrete before we could talk details to you. So that's where we've largely invested. But we generally -- what we do is we don't create one big new -- and of course, in our specialist credit, which I've signaled now it will take a number of years. One of my peers, the other day said, I spoke to him about all his private market stuff. He says, This is great, but it's going to be for 2 generations of management after me, benefiting from it. And these things are slow burns. So there's some of that investment happening in that cost base that Kim mentioned.

And just in the U.S., the U.S. market...

The U.S. market -- U.S. market. What differentiates us. We don't have the JPMorgan label. That would have been nice. But ours is one of a focused specialist also hiring high-quality client-facing people who probably like to work in smaller, more entrepreneurial environments, but want to have a substance of a strong investment platform and a diversified investment platform behind them. Often, you find really great client-facing people, but they don't want to just call the client once a year on one strategy, they want to do more. So we try to provide that mix but also a place where they can really feel they build it. And then from an investment point of view, what do we do well, global and international investing, including EM. Now as the U.S. or as the North America starts thinking about rebalancing, I remember last year, everyone was in 5 stocks -- you didn't have to do anything else except by 5 stocks. Actually, there was going to change and he's changing right in front of our eyes. So people are looking wider. They have complex questions to ask about international investment. That is where we come in as an authentic emerging market rooted and global investor having both the sort of London face and the emerging market face to them. And therefore, we have a conversation. So I think it's -- in this industry, you're only marginally differentiated. No one is completely differentiated unless you're dominant in a class. Clearly, that -- if we achieve that, we'll telegraph it and you will give us a multiple of 25 or 30, but that's not yet any. Rahim from Investec.

I'll stick with the tradition of three questions.

Can we have some buy-side guys off there. I'll ask one.

So the first is you gave some usual stats in terms of scale of the business. I was wondering if you could perhaps talk about capacity and how you think about that. The second was around talent. Again, you mentioned that a lot. If you could perhaps talk about the competitive landscape, what you're seeing and pressures in terms of cost and pricing there? And then finally, I think it's probably an impossible question to answer, but I'll ask it anyway around performance fees. This time last year, you gave the [ grey guidance ]that it should be down and you obviously talked about the importance of operational leverage. So if you have any inkling of where we should be putting our number in that, that would be helpful.

Okay. Performance fee number, we can't really going more than we said. But understand that we've got a mix of absolute and relative strategies, okay? And so when you are done with absolute ones, drop inflation plus -- inflation is so high. So that's why Kim guided downwards. Then help me with your question, sorry, three, I've just got on the first one. I didn't listen properly?

The first was on scale.

Yes, let me do one by one. The scale, the scale one is -- but what's interesting, we also closed a -- when things don't work, we start really small because we don't see it. Kim always makes the point, we don't have a big seed capital book we're going to find a friendly client, which is really hard. By the time you've got the friend client, you've probably got a proposition that's good enough to go to market. So we don't start too many things. It's really hard to start something here when you get it going. But if it either disappoints or doesn't deliver, you -- in order to retain the relationship with our clients, you also sit down on the client, you say that this is not going to deliver what you expect, cut it. So we are quite disciplined in terms of the number of strategies we starting back. And firstly, how we let it through. And even if it's in the immature phase, and it looks as if it's not going to achieve, even if it is okay, we would probably go to the client or the backer and say that this is just not it. And unless they insist to stay in it, we will then deploy resources elsewhere. So we're quite disciplined about the strategies. Going on to capacity, we -- if I can have my life okay, again, very few regrets, and the CIOs are smiling there at the back. We would not plan anything which has a near-term capacity limit because the problem of that is, if you're in the West and in the hedge fund world, and you charge 2 and 20, and you close your fund, you go on retirement, it's all fine. In our case, if you switch off the large asset owners at some point, when they wanted to deploy and they've done work on your teams and they thought about you and you say no, they don't come back that easily. We've got a few strategies here, which -- where we didn't think through the capacity implications earlier, and we actually had more capacity, and we closed too early because we were just concerned. Then other people replace you. So we focus on designing scalable strategies, not obviously not scalable to BlackRock' size, but scalable strategies that could be substantial in our business, and we stick to them. And when it is a what I would call a niche strategy, we are very clear about the purpose and about not taking it into our whole network. So I think we've, by and large, after 3 decades kind of grown away from creating our own capacity problems. What we are sensitive, though is if our portfolio managers tell us, I have no liquidity in this market. I need more. I struggle to work. I can't cope with flows, then we will go and have a word with our clients and switch it off even if it is a commercially expensive decision because the result for the client comes first. Right now, I don't know. I don't think we have any strategies where we so overwhelmed by clients that we have to close. And I think we will hold our price line well when it is a truly capacity-constrained strategy. I don't believe that pure liquidity is -- if you have genuine long-term investors, they can be in fairly illiquid strategies, but they understand the implications. The problem is in mutual funds. When you open mutual funds to -- you put exotic strategies in your mutual funds and you get liquidity problems when everyone is now disappointed about the latest fad not having worked and that's what we definitely -- we don't even go near there. I don't think there's one of our mutual funds that has anything of that kind in. So conservative strategies, scalable, but very honest about alpha and therefore, willingness to close. And we do not use capacity as a way to artificially price up either because that is not -- that doesn't work for good long-term client relations. I don't know whether any of our colleagues want to add something here.

But I think you also asked a question about operational capacity or you're talking about investment capacity?

More on investment capacity. I'm happy to hand answer the question.

I think operating capacity is what -- you have an infrastructure platform. So I can answer. I mean, when it has a platform you have the infrastructure. And as almost a point earlier, you could basically just squeeze out and not invest. Where you struggle in this industry always to get the operational scale on the back of it is that you're continuing investing. At this point, we could just squeeze the business and improve our operating margin if we wanted to, but then where we would be in 3 years' time. So it's almost the scale you're achieving of the platform you're using to reinvest into other opportunities.

In an undynamic uncompetitive market. Scale would be brilliant in this industry. The problem is the guys across the road, they are consistently improving their offering to clients. They're consistently putting better people. Have you noticed, every asset manager now as an institute. That's a whole army of research people producing intelligent things of no revenue, okay? But that's a service for clients, technology experience. I hope, at some point, we're going to have the reverse, i.e., positive technology leverage. But I haven't seen that now. And I think, if I look at the JPMorgan numbers, and I look how much you guys spent, I also haven't seen the leverage in many places. So it's something that's coming down the line. But for us, we are in an increasingly competitive industry and you've got to run hard. And that is probably the key message is to retain those kind of numbers and metrics, you've got to be better, you can't stay the same. Okay. anything -- any other questions?

Just ask for an answer on the question?

I'm sure here, so you can ask another question. I know you're not conflicted.

The second question in terms of talent and the pressure?

The talent market, I think I've never seen -- at the same point we made around brand. And it's not, as I said, the Ninety One brand, it's the brand of our people in the market. I've not seen -- except for the very difficult and hot market is the North American market. It's really hard to get to many of our peers, European peers say exactly the same thing. It's just so hot and so competitive, although we think we've got good people because they want to be with us, they want to provide a culture fit. But in most of the markets we operate, we're seeing really top-level people either talking to us of own volition or being open to talk to us where we discuss and think about new opportunities or improving. And we typically hire in the just north of the marzipan and just north of the marzipan layer, so the talented number 2s and 3s. The market is really open. It's a question -- our question is always, can we deliver for these people as well as they can either at their existing organization or where they can go? But it's been a lot easy -- progressively becoming easier which then puts us in a better position to accelerate growth. We've got to show you the results store. But I must say the talent conversation is one of the easier conversations we have in this firm because our proposition is so clear, which means people we previously would have tried to recruit will select themselves automatically because they know this is not where they want to work.

Yes, I've just got two questions, which is quite to be a relief to her. But just specifically, outlook questions at the risk of asking you to sort of fill our models inverse. But on torque ratio, so you've done 3.8% last year. We've talked about more different markets, some of the performance numbers a little bit weaker into the beginning of this year. So I mean, do you think positive torque is still a realistic prospect for this year?

Well, we don't give forward guidance. What we're telling you is we think we've got enough lines in the fire, and we could definitely going to give it a go. Torque ratios of -- when you have near-term numbers to restore that torque ratios of north of where we were last year, we'll be kind of demanding because your assets haven't fallen that much, and I hope it's not going to fall that much more because the more it falls, the better the torque ratio, as you know. So I would say just noting industry long-term figures. Last [ Chris ], is 1.5% is kind of our peer group, if you exclude the lions of the world, which had these extraordinary growth rates. If you look at the sort of mainstream, 2 to 4 is acceptable, above 4 is really good. So we tend to sort of look like that. We came into the year with a lot of optimism. I think when we're sitting in May, a little more guarded, but we're going to give it a hell of a go. The risk is you get this surprising reallocations from large asset owners. Now we're not exposed to 1 single client in any way. But we have some fairly substantial asset owners or networks we're exposed to. Take the example of a change in management in large banking group, which is not unusual, by the way. That means a whole new team comes in. They have a different strategy. You may fit in. It may not even have anything to do with your performance. And I think that this is the kind of year we go in when organizations are a bit more fluid when they look for you, and then bold new strategies come and you can either be a winner or a loser. We don't know the outcome. Obviously, we're doing our best. And given our diversity, we're quite confident that we will find some money but I wouldn't be promising you high torque ratios in this year unless I could signal something in half year that is very exciting.

Okay. That's great. That's very clear. And maybe the same question on the fee rates. So you're at 45.7 I think you talked in the past about a basis point a year being the attrition -- normal attrition rate. It looks like the flows are a bit more skewed to the fixed income side in the second half. And I guess the environment probably suggests that may continue. I think 1 basis point a year is still the right sort of attrition number to.

Yes, we had 1.1. We had flat second half actually. We had no pressure, all the pressure was in the first half. So I think that's still a fair guide.

The conservative guidance to work on that sort of number.

And if the equity book live ends up, you could get the other way. It depends whether it up with new client relationships or existing ones where you hit the scale. Remember, you contract these fees for some clients who contract up to GBP 10 billion, okay? So you get the first GBP 1 billion, we're all happy at a nice time. And as it grows, the client calls the ops, but in my contract, remember second 5. And by the way, I've been a client I've been around for a long time. So there's some of that, that is kind of working out. So I would stick to the current one. I wouldn't see it going into a 300 basis point for or for that matter, a sharp rise. Okay. Your model is now sold out. I can't give you the torque -- if I had it. The Board asked me yesterday, tell them, I don't know. Anything else?

We've got one question from [ Jan Mantios with Banca Capital ]. Given that you have reached your stated excess capital level, why would you not pay out 100% of your profits?

Jan wants the dividend there anyway, Kim, you answer.

Why would we not pay because I think we will caution on it, and we will also look to see if there's any capital commitments that we may want to look at in the future. But it's one of these things that we will consider -- I don't think it ever pay out 100%, but we'll look to consider what our dividend ratio will be, our payout ratio will be at the interim and at the final next year, but really in consideration with the Board at the same time. I think it's important at this stage to hold a decent buffer on the balance sheet and also to consider any other commitments we may have.

I think the other thing, I think in addition, Jan, knows our shareholder very well, who is now distributing the stock. We are there in a big, rough old world. Something we don't know what can happen. The last thing we want to go and do is an emergency equity issue, okay? You need a little bit of extra capital just to make sure you navigate and you can pursue growth opportunities when they come. Growth opportunity is not M&A, as Kim said, but it's some of the less liquid strategies require some seeding which we don't traditionally do. So we just want to keep our powder dry. And Jan, we are shareholders like you. So we would love the dividend flow. It's a good thing. So we're on your side, but it's just a question of margin and safety. No questions. Thank you very much, ladies and gentlemen. May the year be less volatile than the last quarter.