Ninety One Group (N91) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. And welcome to the results presentation of Ninety One full year ending 31 March 2024. It sounds like a long time ago. Today, we are reporting robust numbers in the context of another challenging year for our industry. As previously announced, assets under management fell marginally to GBP 126 billion from GBP 129 billion last year. Net flows were slightly better, but still negative at GBP 9.4 billion. Like last year, there has been -- it has been driven by lower gross inflows rather than higher-than-normal gross outflows. Despite the flow picture, basic earnings per share rose by 1% to 18.4p; adjusted earnings per share, which is our preferred metric, was down by 8% to 15.9p. The proposed full year dividend is 12.3p per share, which is 7% lower than last year. Our adjusted operating profit margin remains healthy at 32% compared to 32.7% of last year. These results show financial discipline and a commitment to investing in future growth despite challenging operating conditions. We continue to see low investor appetite risk-on public strategies, particularly equity strategies. Demand for emerging markets in general remain subdued. On the sustainability front, a combination of regulatory complexity, a change in political mood and a lack of clarity among investors has dampened institutional demand. Our offering, which is centered around active global, international and emerging market public equities, emerging market debt, including specialist credit and dedicated sustainability and impact solutions is not in the current demand sweet spot. Indeed, demand has been centered on developed market fixed income and credit, money market, passive equities and private markets. On the financial side, our performance was solid given the backdrop I have summarized. Despite 2 challenging years, we retained our growth mindset. Our response to these conditions was to sharpen our focus. We are not chasing current momentum, but we are positioning ourselves for an eventual pickup in demand in our areas of expertise. We acknowledge that it takes a long time to build credible market positions and track records in this business. We are resisting the urge to jump on the bandwagon of current demand without any guarantee of success against well-established competitors. Instead, we back ourselves to win by committing to our core competencies. Within our focus areas, we continue to evolve our offerings to meet expected demand. Over the past year, we have developed a highly differentiated emerging market transition debt strategy which includes public as well as private credit. Imminently, we will be closing our first European private credit fund. Our international equities offering for the U.S. market has crossed the important 5-year threshold with compelling numbers, and we see this as a future growth driver. Our demand -- staff remained committed and motivated as you can see by the increased shareholding. Our focus is on investing in and improving our existing investment and client engagement capabilities to grow our market share meaningfully as demand returns. Our long-term track record is something we share with you every year to put the present into historic perspective. What's important in the trajectory and in fact is that since the COVID period, our assets under management and revenues have grown even though we have been operating in extremely challenging market conditions. Our business model has not changed. This is central to our equity story. Investors are invited to participate in a client-focused, people-centric, capital-light and technology-enabled enterprise. We've built our global business organically from emerging market origins. And a substantial part of the assets we manage on behalf of third parties continues to be deployed in emerging markets. We've consistently cultivated a culture of ownership, which allows us to attract and retain top talent, be nimble in flexing costs and align with our shareholders. Our owner culture is a key ingredient to our formula, which has kept us competitive over more than 3 decades. In this business, culture is critical. In tough times, it is important to remind ourselves that this business is about talented people working together to achieve optimal investment and service outcomes for our clients. To get the best out of good people, they need to work in a modern technology-enabled environment. So our purpose remains relevant. We tried to invest for a better tomorrow on behalf of our clients. And every day, we strive to improve investment processes and serve our clients better. By building a better firm, we can ultimately contribute to a better world. Allow me to explain the business conditions we experienced. Challenges persisted but they were different from the year before. Interest rates are no longer rising, but it stabilized at higher levels than initial consensus have predicted and may remain there for longer. This has changed the risk calculus of our clients. They can wait longer to allocate to risk assets, and they get paid while they wait. At the same time, we've seen some of the most disruptive geopolitics since the end of the Cold War. These conditions have curtailed risk taking and dampened demand for risk assets, particularly for emerging market assets. The extremely narrow equity market performance broadened in the second half or towards the end of the second half of last year, hinting at potentially better conditions for active managers going forward. But industry outflows persisted across the emerging markets and active equities as asset owners adjusted to these new realities. Client engagement has been intense and our pipeline of opportunities has grown in recent months. In South Africa, where we are the leading domestic player, our team has done an excellent job. The domestic industry has had to contend with the opening of the market to international competition and the impact of a stagnant economy on the amount of capital available for long-term institutional investment. Let's unpack the demand picture further. The active public markets industry flow picture was not pretty. Over the last quarter of the financial year, demand for active fixed income turned positive. These are fund flow numbers, not total industry, but the picture looks exactly the same, except I could get the last quarter which wasn't available in the full Broadridge survey. So in contrast, flows into passive were mostly positive for more than a decade. So that's the red and blue, fixed income and equity. The extraordinary circumstance of the post-COVID world and the different approach taken by developed market and the emerging market central banks resulted into an investment environment which encouraged developed market capital to remain at home. And you can see, emerging markets have largely been in outflow in both asset classes for more than 2 years. The availability of attractive absolute and relative yields at home in cash, bond and credit markets have dampened demand for international investment. Emerging markets continue to struggle to attract flows as they navigated geopolitical tensions and uncertainty and comparatively low growth rates and mixed asset price performance. For most of last year, technology stocks dominated equity markets. And with most of these stocks listed in developed markets, particularly in the United States, American emerging market equities did not attract much flow. In developed markets, index investing proved efficient due to the -- to achieve exposure to the large tech stocks. As the market broadens, active investors will come into their own, but this has not yet happened. So although market data, excluding China, was marginally supportive of Ninety One, this was a very tough place to be from a potential flow point of view. With 58% of our assets under management invested in emerging markets and most of the rest in active public equities, we operated in a very difficult space. We experienced outflows across all our major asset classes, fixed income, equities and multi-asset. These were only marginally offset by our South African fund platform. We also managed to achieve net inflows into our alternatives unit. But as you know, the alternatives part of our business is still small relative to the rest of our business. In terms of our client groups, we saw outflows across the board, except once again in our South African business, which managed to keep its head above water. The South African performance was excellent and we see further opportunity to grow and expand market share in that market. Towards the end of the reporting period, we have actively promoted younger talent to leadership roles and refreshed the focus of our client groups. We are confident that this will bear fruit in the years to come. From September to now, our investment performance has slightly weakened. But I remind you that point-to-point performance evaluation is dangerous because one month end may be very different from another. However, some of our major strategies have been struggling against their benchmarks, as thematic factors limited big tech exposure. This should stabilize once the environment broadens and become suitable to active management. At its core, Ninety One is a performance-driven business, and we are deeply aware that we live by investment performance and service. No effort is being spared on these fronts, whether on the process or people side. The variable component of our compensation turned downwards in alignment with our business outcomes. Alignment is fundamental to our shareholder proposition. Our variable remuneration model gives us the flexibility to avoid disruptive cuts in fixed costs in down cycles. These are times when we need the capacity not only to generate alpha but to provide the services for which our clients trust and pay us. During the reporting period, we have exercised head count discipline. We continue to refresh and renew talent pools as we deliberately build a lasting intergenerational business. I'm now going to hand over to Kim McFarland, our Finance Director, to take you through the financial results.

Thank you, Hendrik, and good morning to you all. After another challenging year, I'm once again pleased to present another set of robust financial results for the year ended 31 March 2024. The highlights are as follows: Adjusted operating revenue decreased by 6% to GBP 595.8 million. Adjusted operating expenses decreased by 5% to GBP 405.3 million. This resulted in an adjusted operating profit of GBP 190.5 million, a decrease of 8%. Then considering the adjusted net interest income and the share scheme in net credit in the year, this was an expense last year, Ninety One profit before tax increased by 2% to GBP 216.8 million. The effective tax rate for the period was 24.4%, up from 23% last year. The increase was largely driven by the increase in the U.K. corporate tax rate. The above factors resulted in a profit after tax of GBP 163.9 million. Some points to bring to your attention. The interest expense on our lease liabilities for office premises of GBP 3.5 million is reported in adjusted operating expenses. And the share scheme net expense of the prior year has reversed to a share scheme credit. Now this is owing to a greater proportion of staff deferred bonuses being invested in Ninety One shares. We are required to amortize this expense over 4 years. However, we prefer to recognize this expense fully in the year allocated in the adjusted operating expenses. The adjusted operating profit margin decreased marginally from 32.7% to 32%. And our adjusted EPS showed an 8% decline to 15.9p in line with the fall in adjusted operating profit. Some more details on the adjusted operating revenue, which decreased to GBP 595.8 million. Management fees decreased by 8% to GBP 557.9 million and this was driven by the decrease in average AUM from GBP 134.9 billion to GBP 123.9 billion, an 8% decrease as there was no fall in the average fee rate, which remained at 45 bps. Performance fees were higher at GBP 30.6 million, and this is largely due to our performance in 2 investment strategies, namely emerging market fixed income and quality equity. Always a challenging number to forecast, but we'll assume this to be down next year. Other income increased to GBP 7.3 million and consists of operating interest, FX and some seed investment recognition plus a share of profits from associates. So this is an analysis of the movement in adjusted operating expenses. Adjusted operating expenses decreased by 5% to GBP 405.3 million. Employee remuneration reduced to 64% of the total expense base. In 2023, it was at 65% and decreased by 6%, GBP 260.1 million. This was driven by a decrease in both fixed and variable remuneration. Average headcount over the period decreased by 2% to 1,187. Over 50% of employee remuneration is variable and the resulting compensation ratio was 43.7%. Business expenses decreased by 4% to GBP 145.2 million. All cost categories decreased, except for travel and some overheads. We've analyzed the cost changes, and at a high level we have broken down the movements as follows: inflation-linked increases of approximately GBP 3.6 million for those costs that are impacted by inflation and FX-linked reduction of approximately GBP 10.4 million, which is mainly the USD and ZAR based expenses. So the actual costs increasing by approximately GBP 1.4 million. The year-on-year split of these expenses remained relatively unchanged from last year, and the large expense category remains client and retail fund administration. Looking ahead, we're expecting the business expense to continue to be impacted by inflation and FX plus some proposed additional IT system spend. However, we hope to recoup any increases with tighter cost controls elsewhere. I'm showing this slide again, which is showing the business expenses and total expense as a percentage of average AUM in basis points over a 6-year period. From this, you can see that we continue to maintain cost discipline and achieve a level of operating leverage. Total expenses have only marginally increased since last year relative to average AUM. However, the business expenses of basis points of average AUM has returned to levels last seen around FY 2020, but this has largely been driven by the lower average AUM. And so to summarize, the analysis of the absolute movement of adjusted operating profit from FY '23 to FY '24. The adjusted operating profit for FY '23 was GBP 206.9 million. Management fees decreased by GBP 49.8 million. This was partially recovered through performance fees increasing by GBP 11.2 million, other income items by GBP 1.4 million. Notably, employee remuneration decreasing by GBP 15.4 million and business expenses by a further GBP 5.4 million, resulting in adjusted operating profit of GBP 190.5 million for FY '24. And the capital position at the end of the financial year. Ninety One qualifying capital was GBP 323.7 million at the end of the financial year. In line with our dividend policy, the Board has recommended a final dividend of 6.4p taking the full dividend to 12.3p per share, a decline of 7%, in line with the fall of adjusted EPS of 8%. After this dividend payment, there will be an estimated capital surplus of GBP 153.3 million, and this will result in a capital coverage of 237%. At the interim, I mentioned the 2 buyback programs which were completed in November last year. This resulted in a return of capital of GBP 25.4 million and reduction of 15.3 million shares to 907.4 million shares in issue. Noting the capital position, we will with the Board consider future buyback programs. There are no plans to increase the number of shares in issue nor to encumber the balance sheet with debt. Thank you. I'll now pass back to Hendrik.

Thank you, Kim. I'd like to remind you that in spite of current headwinds, we are focusing on our core skills. Our global and international equity strategies have long and competitive track records and compete in substantial asset pools. This is also the case for our highly differentiated emerging market equity strategies. Our emerging market fixed income platform, including specialist credit strategies, has a well-established position in a market with attractive long-term growth fundamentals. And then, of course, our sustainability and impact strategies allow us to compete in a structural growth vector, particularly in the much-needed energy transition space. We continue to analyze these opportunities carefully, and they align with our strategy of being well recognized in our key markets and winning share when the opportunity arises. Just to remind you, we put this chart up a while ago, and we calculated that there was a sizable opportunity for us to participate in. This has grown even further, standing at approximately GBP 10 trillion today. And it is up to us to gain our fair share within these asset pools. Our shares in each of these pools range from negligible to almost 4%. In some pools we have achieved even higher market shares, in some of the sub pools. This chart, which shows the segments within which Ninety One competes and intends to build market share, is something we will show you from time to time as we progress. Our 33 years in business have taught us that demand patterns are cyclical. Matching sustained commitment to market segments with performance and service is vital for long-term growth in this business. At the half year presentation, we explained that market conditions were likely to remain challenging. That has indeed materialized. Though it is too early to call a full risk-on phase at this stage, pipelines are building up. We must caution that recent allocations have been smaller and more competitive to come by than in the past. We will continue to innovate and improve in our focus areas to meet long-term client needs. During the past year, we have sharpened our client focus and prioritized investment in capabilities where we stand the best chance to differentiate ourselves. In conclusion, we are doubling down. We are confident in our ability to regain growth momentum as the market normalizes. Intensity and focus will be key success factors. Through the tough period in which we find ourselves, our people have stayed motivated and fully invested in a business which has a clear strategy. Delivering competitive investment performance and maintaining deep client relationships are key to continuing our multi-decade track record of successful business building. It sounds simple but it's hard to do. We know we can do it. Thank you very much. We can now move to questions and answers. If you're watching on the webcast and have a question, please submit via the Q&A function, stating your name and organization. But we'll take questions in the room first.

Hubert, your line is up as usual. Three questions or one?

Three.

Go for it.

It's Hubert Lam from Bank of America. I've got 3 questions. Firstly, on your institutional outflows, how much of it was due to derisking or switching to strategies? And how much of it was due to switching into passive funds? Because if it's the latter, then the likelihood of you getting it back even when things turn could still be quite difficult.

It's very difficult to give you a straight answer on that. I think what happened is the combination of passive plus aggressive private market posture has changed demand in some institutions. Are those -- and I was just in North America last week at -- actually at a gathering of major institutional clients. What struck me is that they each of -- they are all different. And so making a general point is dangerous. But I think the general point is passive to save costs because you're putting a lot of money in private markets, what next phase is going to be negotiate your private market cost down and probably start taking some active risk where inefficiencies manifest themselves in public markets. And on inefficient side, I don't mean trades. I mean, longer term inefficiencies, which means mispricing. So I would say that's been part. But my sense is, as you can see from our fee position, the sort of pressure from passive is largely -- it's largely happened. I think what was easy is clients could put overlays on to make sure they track the market. Rather than allocate to very specialist active managers in style boxes, they just went and covered the market -- the active market risk while the Magnificent 7 represents 30% of the world's largest index. I think that's what happened. And by the way they get paid to wait because they sit on cash and they get very cheap bonds, and that's what's taken their attention. It would be interesting to see how this evolves. But what is interesting, and I just looked at it yesterday, is the fee pools. If you look at the latest BCG work and that -- and I hadn't looked at it for a while, I was sort of a few years ago, a numbers in my head because I don't read these things every year because they tend to be the same. And it's interesting the nominal amount of the fee pool for active management is the size of -- the entire active management ex private markets is the size of the entire pool in about 2017, 2018. So there's still enough going around. It's a question of whether you can get in front of the demands, but the consideration has been very thoughtful from institutional investors rather than rushing into their traditional buckets. And that at the margin has made a difference.

Yes. The second question is on your alternatives. I think it's mainly private credit, and you mentioned it alternatives as a percentage of the whole, for you, it's pretty small. Like how much of a focus is this going forward? Would you expect it to grow from the current percentage? How much are you investing in the business? There's a lot of demand for private credit. So I was just wondering what your thoughts are?

Hubert, firstly, I mean the highlight -- to talk about alternatives is ridiculous now. It's sort of more than half the revenue pool. So firstly, alternative is mainstream and running long equities is deeply alternative. What we call alternatives is what the market calls it, which is non-benchmark potentially private strategies. And what we're trying to build is a solid credit platform to enhance our emerging market fixed income position. Now many credit skills reside in developed markets. Now what we say at Ninety One there's no point for us to go into the most mature credit market in the world, U.S., and try and compete. We're just not going to make it way. Whereas Europe is still a bank-oriented market, very similar to emerging markets. So -- but there are some good skills in Europe. So why don't you do some things in Europe, which will eventually be very useful in your emerging market platform and slightly a more mature financial arenas. And so we have decided to develop as part of -- because we have a multi-asset credit offering, which actually is pretty competitive, where we've got good market share, although allocations aren't large. We say we need private credit skills inside that because it's going to evolve from a pure public markets offering in time to a public private. Therefore, we do some European, and we found good talent. What we didn't do is go buy a credit boutique at a ridiculous price, which you guys investment bankers you have been trading and you've made a lot of ex-bankers very rich. I want to see that good will be repaid. So what we've done, we hire really good promising talent. We also, in the emerging markets for 15 years, been more than -- about 15 years been in the private credit business, particularly infrastructure and with a very good track record, very good loss ratios, but not covering the full emerging market universe. We're going to expand and then be able to offer in what will soon be the largest part of the global economy, a credit offering, which is interesting, differentiated and attractive to developed market asset owners. That's the longer-term build. It's kind of the -- it's sort of where development, finance, sustainability and emerging market growth plus less sophisticated banking sector merges. That is our alternative strategy. We're not going to do liquid market hedge funds. We're not going to do private equity because it's a different and less scalable game and it's not an adjacency that helps what we do because we already have a significant corporate bond and emerging market credit business. That's the growth vector for us. On the other hand, the equity side, public equities, we're very committed. And we just must see how investors will slice and dice it. I mean one of the things that held back any allocation to emerging market is the debate of whether it's China or ex China, whether it's India alone, Brazil alone or whether it's the whole package, and clients or asset owners are rethinking their risk buckets. And that obviously then leads to a less tailored, slower process. Can you do this for me? Yes, yes, no, yes, but the price is high type of conversation. I think once they settle down and they know where they go and once the relative interest rates have corrected -- because remember, right now you can get easily get 6%, 7% in dollars in a developed market or if you want to buy a low-quality stuff, you can get double digits. Then you say, Well, why don't I buy the low-quality stuff right here at home instead of going to a country which I won't describe in President Trump's terms, but which they think is very risky and they probably think it's more risky than it is. And they say, well, let's just use the opportunity here, and that's where the analytical attention in asset owners has gone. I think that will change once interest rates roll over, once we -- and we have seen it this year, again, once the growth power of emerging markets is appreciated. And I guess once we have a slight -- and that's a big question, once we have a more predictable relationship between the United States and China because I think that underlies us. So we've had -- I mean the reality is what I've explained to you is the storm we faced, which has been pretty enormous. I don't think -- someone asked me this morning, have you been -- have you seen such headwinds in active management or in international investment management before? And I said, Well, actually, I don't. I think this is pretty tough; short of a war. This has been pretty challenging. So I think that's why investor caution is actually quite justified.

And last question is on the operating margin. You managed to protect the operating margin at 32.0%. Should we consider that to be the floor?

Margin is not a target. Margin is an outcome. If we -- we were very clear, we have a growth posture because we don't buy businesses, maybe we'll buy a small skill set if we need it. But because we don't do big M&A, our cost line is our investment line. And that means we have a lot of skilled people sitting here not operating at a 32% margin. There are people operating at a higher margin and there are people who are building new businesses and new offerings that may be relevant to client, and we will -- we have to continue to do that. I think we will do our damnedest to have a solid margin to protect us against unexpected moves in market beta. So what you don't want to do is panic when the market goes down 10%, and that's why these businesses are not suited to being leveraged. That's why Kim has told you, we will keep the balance sheet clean because you cannot take operating leverage to the extent that this industry assumes plus financial leverage. But what you want to have is safety to go -- to be able to deliver the service you've promised your clients because once you break that promise -- and quite frankly, Hubert, our focus is investment performance. Our performance is not good enough at the moment and that's where we've got to focus. It's no disaster. And I've given you the explanation that, for example, one of our big equity platforms has technically underperformed, but in its style bucket hasn't underperformed and therefore won't lose clients, we'll actually win clients. So it's not looking as bad as there, but you want a very strong performance, a platform from which to engage in an industry where competition is tighter and the bar is higher. And that's the one thing I can tell you, the bar in our business, whether that's on the private side or the public side, is going up. And if you're not committed to doing that -- and how do you commit to meet the standards client set, you have to continue investing in your cost line and therefore -- and what is our investment, 2/3 of it is people. And therefore, you've got to retain people. So our focus over the next year or 2 would be much more on the retention of our key people, then protecting some financial metric for the sake of it for you to write a nice report. Because once you've written the report, it happens and after that, what then. David and then Angeliki.

David McCann from Deutsche Numis. Actually neatly following on from that question you just answered to Hubert. I mean you obviously talked about investing in the business in the presentation as well. But obviously, Kim did mention some reduction in business expenses coming through this year. And obviously, last year, it sounds like you did cut some fixed headcount costs. So can you just square those to potentially contradictory statements across? And how -- to the extent we should think about investment in the business going forward, how much of a burden should we think about it in terms of the cost base? That's the first one. There's a couple of more technical ones.

Can I just answer the cost question, and Kim you can add here. I think it's trimming rather than cutting muscle because you always in good times you accumulate fat, no matter how disciplined you are. And it's that fact that we're constantly trimming rather than saying we're going to -- and of course, we're going to have technology increasingly adding productivity. So one of the things we have to do is match productivity, measure productivity far better in this business. And you don't need to be a genius to know that you're going to find some places where productivity can be improved. And that's where the -- we haven't cut the headcount line in any sort of major exercise like some other guys or some other firms have done.

Yes. I think it's true. I think that you saw the 2% down on headcount and if you look back to where we were a year ago, I think we made the point that we were seeing headcount creeping up. We were seeing some of the business costs starting to creep up as well, and we did some deep analysis almost through the year. And I think we were asked last time about what are you doing about it. And I said, it's -- we're going through area by area just to take out more the fat that we've found that it sort of slipped into the business in certain areas. But in the same breath, I mentioned there is going to be some additional IT spend this year. I'm looking in many ways to see how we're going to offset some of those costs. And that's really just -- it's not massive, but it's really improvement in some of our front office systems which we've been talking about. And those will hopefully come into play this year and then more importantly and probably in the following year as well. So I don't -- it's more, as Hendrik indicates, it's a cutting of the fat that we started to find creeping in in the business. Almost that post COVID, you came back to the office, you started to dig into certain areas and there are areas that we could remove. But at the same time -- and it's often the challenge that we have in the business that we want to expand here, we want to invest and we want to invest, and I'll say yes, but there's going to be a give on the other side as well.

Great. And then just sticking with the cost theme. So last year, I think you articulated that maybe 55% of the staff costs were variable. And this year, you said in excess of 50%. Could you -- I guess, I would assume that it's a bit more balanced this year and probably closer to 50-50. Can you give a bit of color around that?

I think I normally always say, it's over 50%. The variable capital spend always sit around -- always sort of...

I think in the presentation to one of the questions and my question, you maybe clarify...

It's roughly in the same sort of ratio. It's probably coming down just because you're assuming your fixed base is actually sitting there and your variables we're on flexing it to a greater degree. So the flex would be more on the variable. So by saying 55%, you're right, it will be for close down below that number, which makes sense just between the fixed and variable split.

Yes. And also small things make a difference. I mean, I don't know when you guys have last been to New York, but this place is off the charts expensive. We loaded up on people there because we want to go for that market in a big way, and that's done. So there's no addition. But if you take the last 3 years, there's been an significant expansion in people who then became much more expensive relative to who can't -- they have to be there. They have to operate in the U.S. The revenue pools are there. But we don't see that type of expense growth, again, because we think we're reasonably fully invested. And what we know about is productivity out of our platforms and that really means chasing topline. But maintaining a healthy discipline and particularly alignment, I mean that's the big speech to our people, as you're aligned with your clients and shareholders, you are shareholders. The outcome must be the same. And once people understand that, they can walk the path with you. But if you break that promise -- so you mustn't come and complain when we do well in a few -- in a reporting period or 2 from now, and they say, your comp ratio has gone through the roof. Well, it is going to be good. Okay? Because that's what carries people through the tough times. And I think that variability is what protects us. On the fixed cost, we just -- I've got to contend with Kim. I have done so for 3 decades. She doesn't like to spend money. And that ultimately is the balance we try to drive in our business. But if I could, I'd probably be as aggressive as possible now preparing for a change in mood of the market. My big worry is, David, that the market comes to us and we're not in place to harvest because fewer people are getting the flows. Clients are far more discerning, demands or standards are higher in terms of who they deal with. And what happened a few years ago is the market wanted choice. Now the market is saying, actually, you know what, I can only deal with so many suppliers. I can deal with so many relationships. It is better for me to have fewer trusted parties to deal with than too many. So you've got to be able to take that installed base and turn it into revenues and money with your client base. Now what we have is the face time, but the world is very competitive. I mean everyone's opened offices in the Middle East of late. Everyone is going for the same money pot, right, including us. But you need to be there, you need to be there at the right time, you need to be there with the right offering and the right performance. And that is a trade-off for running a capital-light business. So that's the uncertainty that drives us to work very hard, but not to under-invest in our business.

That's a nice segue into the final question as well in one sense. So fee rate stayed stable at 45 bps. So is that more a function of just the equity markets rallied and therefore the mix effect on that number? Obviously, historically, you have seen typically a basis point or so decline. So to your point about competition intensifying, is 45, given it seems to have been more stable last year, should we think about more stability in this? Or should we still be thinking about decline?

I think in the end, it was less of a concern. In other words, you've negotiated down, down, down. People have reached a price point. I don't think 45 is the end -- it depends on the business mix. And we've had some higher mix flows, positive flows where we had outflows. And also, in some cases, the lack of -- the new -- the people who set most on the money with a very large asset owners who would come at the lower price points. So I'm not saying 45 is there forever. But it's very clear in the last few years, the decline rate has slowed, and that's all we're pointing out. I think what one can do is in some of the old classes and also if demand for equity comes back, one can probably reasonably try to defend that. But it's the biggest cut in price, and we're not that exposed to that has been in the consolidation in the adviser or what you call the retail market in the U.K. where that's where really big buyers have created strong platforms. Today, there's no difference between whether you deal with UBS or whether you deal with a pension or with a big pension scheme in America. So I think that's where the bag you're wearing those guys, that's where the real pressure is, whereas on the institutional end, I think it's kind of rational. It's a percentage of expected alpha and then they pay all this money to the private guys where that's where they're going to be focusing, I think. So yes, it's not up, but it's not down at the rate of -- at the historic rate that we communicated. And that's just the feeling. I don't know, Kim. You sit on the pricing forum.

I agree with that. I agree with that comment.

I used to sit on the pricing forum. I can't anymore because it's a Friday afternoon, and it's like a fight, and we see the poor guys just won a big mandate back and say, we don't want to take the money. And we've become quite recalcitrant even in tough flow times because you can't reprice your book, that's a very dangerous thing to do. And so -- but the pricing fights or the noise has become less. Angeliki, sorry. Right. I should have given you before David because you had your hand up early, but David always has 3. Have you got 1 or 2 or 3?

2. Coming down as more analysts came. It's Angeliki Bairaktari from JPMorgan. So one question on sort of the flow outlook. If I look at consensus expectations based on Bloomberg for this year, fiscal year '25, the sell-side expects an improvement in the flows. They have around GBP 1.4 billion of positive flows for '25, which is a big turnaround relative to the GBP 9.4 billion outflows you reported. So first of all, do you think this is realistic? And if yes, under sort of which scenario, what kind of conditions do we need to see out there?

What we've seen -- and I can't give you a forecast, but what we've seen since the beginning of the financial year is a slower rate of outflows. We haven't seen the turn. I think that's not unreasonable. Our client group, if you go and speak to them, they are -- they always have -- because they're driven by goals. They'll tell you they'll do better. I don't know. It could be 1 or 2 clients that make -- we've got 1 or 2 clients make a difference on that -- could make a difference on that number decisions. So yes, I would say it's not unreasonable, but have we seen a turn, a decisive turn? No. Are we running demand? So the risk in our business is -- the risk is the outflows accelerate, right? So we -- whether it's performance, whether it's clients making decisions on the back door, I think the front door, we are seeing a better pipeline than before, but not as good yet. And when you get -- and one of the challenges we have and all firms in our space have your finals are more contested and your finals are -- there's no one with capacity closed today, right? That was a fashionable thing in '21, '22. Everyone is out there at every potential opportunity. Therefore, your probability of closing is lower. And I think that's just a function. Until the volumes come back to where it was before and the clients are having to allocate fast chasing the market, you're having extremely drawn out competitive processes, which then slow the probability of a win even if you thought you were well positioned. And it's slightly more customized the demand as opposed to very standard, which means sometimes you can be good enough, you can get there and then the client says, actually, you know what, I want it slightly different and shop XYZ down the road does it really well, I'm going to go to them. So I think you're not unreasonable in the model, but at half year we'll give you a proper update and we don't do predictions, but I don't think it's unreasonable.

And with regards to the adviser channel, can you provide some color on the outflows there? And I think I read that they were particularly driven by the U.K. So are there any specific channels or products that are responsible for those outflows in the retail segment?

I think we are increasingly going to lose that differentiation because actually our redefinition and we've not covered ourselves in glory in the U.K., but it's been the toughest of markets, as you know. What we're increasingly focusing on is asset owner or asset platform organizations. And we're picking the market a number, in this case, between 20 and 30, probably max 35, and we have to understand them very well. They have to know what we have. And if they don't have demand for what we do, we just have to continue the relationship and wait for them to have demand, but actually deeply understand them and make sure we can slightly tailor to what we do. So I wouldn't see that -- I would see that as the old adviser business rolling off, being consolidated in these -- in the U.K. in these wealth BMOs who have a slightly different way of dealing with it. So ironically, as private equity and others are buying these businesses, consolidating them, and often the logic is now different from the way they used to buy. They used to buy in the regional office. You had to go out, talk to people. It's now much more consolidated. It's much more driven by ultimate economics rather than maybe what the client wants. And that adjustment is difficult, particularly in our case, where we're not a big brand spender where the client probably didn't even know they were dealing with Ninety One. Whereas if you're a branded shop, there's some break to this consolidation. So we've just said, we adjust to the reality. We're not really going to fight the rearguard, we're going to look ahead and therefore build a more appropriate business. So in our case, if you look forward, Ninety One, you should see as an institutional business dealing with 300 asset owners, asset platforms around the world ex the South African market where we're a broader, deeper business. Next week, we'll have 100 leading -- lots of leading financial advisers from that market here where we deal with at adviser level. Now the rest of the world, we deal at organizational level and today's private bank or banking platform is exactly the same as your large institutional asset owners or sovereign wealth platform that put the same kind of people in the data in the same way and that's what we are adjusting to. And the model we have is -- I always say it's 100 by 100 by 100. We want to deal with 100, and it's actually 350 to be exact, but want to deal with 100 asset owners for 100% of the time we want to engage them. We may not have a mandate with them 100% of the time, and we want to build a 100-year relationship. If you can get those 3 things right, you're going to get a really valuable business. Whether -- but it's tough, it's difficult and that's the adjustment our firm -- even the institutional market is not anymore the old market of where your consultant intermediated. You get on to a buy list, you want [ 5 ] you show a chart with alpha, you go into finals, you're going to get your piece. Now the consultant is an asset owner. They're OCIO business. They have different logic. So you're actually dealing with a series of asset owners. You have to understand their investment logic and you have to understand why your offering fits or doesn't fit before you expend sales energy but you have to expend a huge amount of relationship energy so that they know and competence energy that they know that you are competent at what you do and you are worth engaging with. So that's been a change over the last, call it, 5 years. And it's now implementation stage and rubber meets the road. Sadly, we just got this extraordinary interest rate environment and a multipolar world and a war in Ukraine, et cetera, et cetera at the same time. So -- and the narrowing of U.S. market. So that's why when I look ahead, I'm a little more sanguine and confident, but if we don't play this new game correctly, there isn't a huge space for us. So we've got to play it correctly. Rahim.

It's Rahim Karim from Investec. Two questions, if I may. The first is just around investment performance. I'm trying to get it square in my head when you talk about a more competitive landscape, the fact that you're concentrated with your clients and your investment performance, at least from a headline perspective, isn't moving in the right way. So it does feel -- I kind of share your sentiment. Things are going to improve and hopefully soon. How do you make sure that those things align such that you are a partner that they choose?

So Rahim, in this -- in the period since you've covered us as a public company, we have had some phenomenal performance quarterly results, which we showed and some pretty mediocre ones, because the market has been all over the place. And it didn't really affect the short-term flows. So that's my first point, just to hang my hat on that. Clients look through, they look through their experience, they look at rolling. But if you don't get that rolling position or ultimately the point-to-point right, you are problematic. This year's results, I said to the Board yesterday, it is -- performance is #1 on our agenda for the coming year But it's not as if we're in a moment of panic. Why? Because some of our regional markets have underperformed where we could -- where we don't see a lot of growth, okay, in the asset pool and 1 or 2, and I can mention that quality equities have not met their benchmarks, but had done well against their peers and done well and have done the job in a portfolio that they should do, right? But they didn't have -- they weren't full of the Magnificent 7 because that is not what they're paid to do. Where actually the value guys have done really well, but they're not very big in our book. So you're going to continue winning and one of those strategies I pointed out is the U.S. international is a quality strategy, and I think it's going to really grow. It's done exceptionally well, but it's not -- in a crude way -- and we have to measure aggregate firm performance in a very crude way to be consistent year after year and keep the auditors happy and not get into trouble with someone reading a footnote in our annual report. So it's really a kind of very high level thing. So I think it's slightly better than that high level at the moment, but it's not yet so good that you can predict the firm is going to be so flush with inflows because of this great track record that you should take the multiple and double it to 20. That is not what you should do. But it's a reasonable platform to bet on. But if we have a negative performance surprise, it would not be good for us. So if we have a problem of performance, I promise you I'll tell you, and I'll say -- and actually, some of the recent underperformance have come in markets where we're very strong, where we have very long track records that are good. It's just dipped down, and we know a few stocks can change it. So that's where we are at the moment. I mean what's really interesting is our growth areas, which is the international equities, which is the emerging market debt platform, the alpha is good, and that's where your big net inflows are going to come. So I'm pretty comfortable. What I don't want to do, I could have done it, given you the detailed breakdown per competitive area. The problem is that I turn our portfolio managers into many listed companies and Hubert will be modeling them and phoning them up and say, what are your flows, and they will be diverted from the task at hand is actually to beat their competitors in the market. So that's why -- I understand the frustration that you can't see through it. Take it from me, it's something that's high on the agenda. It's not a situation, a warning situation or anything like that. But we know to win in a market where the buy is higher, this is a necessary but not sufficient condition.

The second question, around capital allocation. I mean it's great to see the surplus grow healthily. Just help us understand what the Board is thinking about when they consider buyback in terms of share price, capital levels, and then how we can kind of look for the signs that something might be coming down the road.

So before Kim tells you how she would engage with the Board, I think it's key for us as a capital-light business to over time reduce the claims on this income stream and reward the long-term owners with that claim rather than someone who temporarily owns it and sells it again. So therefore it's logical that in times when you see value, when you don't see you overpaying too much to reduce the share count as long as we generate adequate capital. I don't know, Kim, is there anything about the engagement with the Board?

Yes. I mean we will -- it was a long discussion at the Board meeting we had yesterday. Looking at -- and I made a clear point actually in the presentation, you can see the buildup of capital there about the sort of 200% mark that we tend to aim for. You go through the debate of whether you're going to pay a higher dividend or whether you're going to look to do buybacks. The view that we've had with the Board is let's hold the additional capital. It's also good to be in the current market to do so. But we'll spend time looking at the share price, seeing where it's value, where it's positioned, look at the external market factors as well and that allow us to determine what's the level and what, when and how we will actually undertake any further buybacks in the marketplace.

And I think importantly, we are developing our alts business. Your alts business needs a little more capital. It's richer in fees, but it's more capital intensive than your public markets business because LPs expect you to make a small commitment. And therefore you just got to keep the powder dry, but if you're not going to use it, what do you do with it? Don't make people used to that dividend because sometimes you may use it, which is why we're building up a bit, but it's not big stuff. I mean, what -- if you ask me what the fairy godmother must bring us, the fairy godmother can bring us seed capital to accelerate some of our new businesses and without trying to own our business, that would be great. But that's the fairy godmother. So we have to do it slowly and deliberately and diligently as we've done it over the last 30 years. Remember, I always go back, your current employer has invested $1 million once in this business, okay? There's -- what is it, well over $2 billion paid out and a $2 billion residual. So that's a pretty good, very good return, if you are patient. So again, we have to balance that with needs to grow and satisfy the market. Any questions? Any questions there with Chloe? Right. I think we can close and thank you very much for your attention, and may the performance gods and the interest rates gods and the polities gods be with us for the coming year. Thank you very much.