Ninety One Group (N91) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to our results presentation. The past year was another tough year for the active asset management industry and even more challenging for those who offered emerging market and international active strategies like Ninety One. However, I'm delighted to report that we performed in line with our expectations set at the half year stage. We did significantly better over the second half, recording positive net flows and benefits from higher -- benefited from higher average assets under management. We also delivered credible investment performance, and the overall performance picture is stronger than a year ago. The market for new business remains extremely competitive. During the year, we have sharpened our focus and continued to pursue strategic clarity. This is starting to work for Ninety One. Our business was calm and stable amidst a sea of industry uncertainty and negative sentiment. We announced our transaction with Sanlam in November last year, which has been progressing well in the intervening period. Our people remain committed, motivated and significant shareholders. We are working hard to evolve our business into the active investment manager of the future. Assets under management increased by 4% over the reporting period to GBP 130.8 billion. Despite this increase, the past year was not easy. Net outflows were GBP 4.9 billion, which is significantly better than the GBP 9.4 billion of the prior year, after which we turned flow momentum during the second half of this reporting period. Basic earnings per share declined by 7% to 17.2p per share. Adjusted earnings per share declined by 3% to 15.5p. This is our preferred earnings metric. The full year dividend is down by 1% to 12.2p. The adjusted operating profit margin came in at 31.2%. Despite the general negativity, I would like to remind our shareholders that this is one of the few businesses or there are very few businesses as capital efficient, margin-rich and cash flow generative as a well-run investment management firms. After the business review, Kim McFarland, our Finance Director, will cover the financial results in more detail. Let me give you a summary of significant events and developments of the past year. The Sanlam transaction has been well supported by our stakeholders. Our clients understand the logic and our shareholders have supported the issuance of shares subject to regulatory approval. We have facilitated and encouraged the use of AI throughout Ninety One. You will hear more on this towards the end of the current financial year. We opened 2 offices in the Middle East and have intensified activity in the region. The flow turnaround is happening in our focus areas. And as a reminder, these are global, international and emerging market equities, emerging market fixed income, including specialist credit and sustainability and impact strategies. As always, we continue to invest in talent. We have promoted new leaders in 2 of our client groups, and we have attracted a few key investment professionals that could make a substantial difference in the years to come. Ninety One builds through the cycle and tough markets do not divert us from the long-term task of investing in our business. In November last year, as I said, we announced the transaction with Sanlam, Africa's largest nonbank financial services group. This grows assets under management by approximately GBP 17 billion. It also offers preferred access to their distribution network. This does not only add scale, but also strengthens Ninety One in parts of the South African market where we are relatively underrepresented. Sanlam will also be an anchor investor in our international credit strategies. It goes without saying that this arrangement is explicitly -- will explicitly respect Sanlam's fiduciary duty to its clients. This strengthens our business and supports our growth prospects. At results time, I always remind you of our long-term track record. And you can see this business has been carefully, patiently and organically built over many years. We have developed deep and lasting relationships with our clients. We are now in the maelstrom of a fast-changing world. In 2019, we started using the tagline, Investing For a World of Change. Little did we know how much the world would really change over the ensuing 5 years. My sense is that this is only going to accelerate in the coming years. Although we pursue sustainable organic growth over the long term, you can see from the past that we have often had periods of either asset stability or asset drawdown. We have always come out stronger, and we intend to do exactly the same now. We are working hard to get Ninety One future fit. Our near-term objective is to define and build the active investment manager of the future. At its core, our business model has not changed and will not change; however, the tools, the efficiency and the effectiveness required will have to change. Our clients, the most sophisticated asset owners and intermediaries in the world will demand nothing less. Our business model is client-focused, capital-light and people-centric. And now it is not only technology-enabled, but increasingly must be AI-enabled. We are pushing all our people to use the available AI tools for more efficiency and effectiveness. As we look ahead, we anticipate even faster change. In other words, we must adapt to the new realities of this ever more competitive marketplace and the massive advances in technology and, in particular, AI. We believe that the impact of the AI revolution will be profound. If you want to get a taste of the opportunity and what we are doing, please watch a recent presentation by Khadeeja Bassier, our Chief Operating Officer, called Gutenberg to GPT, AI as the next frontier in Asset Management, which is available on our website. AI is a huge opportunity, but also poses significant risks. We are and want to remain a differentiated global specialist. We dedicate the firm to best-in-class active investing and client engagement. We intend to build a better and a stronger Ninety One. To win in this business, you must be better than simply good enough. We do not chase fads to satisfy short-term growth demands from transient stakeholders, but we build for the long term. This requires relentless drive for improvement across our firm. This is what we've signed up to do, and this is what will distinguish us in the years to come. Despite the moderately rising equity markets, volatility related to geopolitical tensions has impacted markets and investor behavior. These changes have significant implications for the investment management business for society and adds additional risks to financial markets. Regional performance profiles have changed meaningfully over the past year. Markets have also broadened from the very narrow U.S. tech-dominated markets we experienced in 2023. Then as I mentioned earlier, competition for client assets has become extremely intense and pricing pressure remains. Nevertheless, these volatile conditions should present opportunities for active investment management. To back this up, let me quote one of the world's leading asset owners, the Managing Director of the KIA, his excellency, Shaikh Saoud Salem Abdulaziz AlSabah, who recently stated, active investing is back. The recent growth in our assets under management was largely driven by investment returns because we continue to experience net outflows of GBP 5.3 billion for the first half of the year. In the second half, we turned momentum positive and delivered net inflows of just under GBP 0.5 billion, GBP 0.4 billion. It is encouraging to note that the demand recovery accelerated into the fourth quarter, and that has continued into the new financial year. Net flows by asset class. Here is the flow picture by class. And you can see it's looking a bit better in the second half. Multi-asset suffered outflows on the back of a structural movement to specialist allocations in the South African market and less than compelling peer relative investment performance. We are working hard to address the competitiveness in this area. Most net outflows were from equity-only portfolios and were mainly from global and sustainable equities. Fixed income, which is largely emerging markets for Ninety One, suffered outflows of more than GBP 1.7 billion for the full year in spite of good relative performance against peers and, importantly, against developed market fixed income benchmarks. The positive net flow in the South African fund platform and in alternatives accelerated in the second half. This reinforces our view that we are on track in respect of building new revenue streams with high growth potential. Here is the flow picture by client group. Whatever the flow momentum, our priority always remains meeting the expectations of our existing client base. A substantial part of the net outflow related to the rebalancing away from equities and a reduction in emerging market exposure rather than the termination of entire relationships. This is important. In our case, net outflows did not equate to client loss. The majority of our client groups, but not all reversed the outflow momentum of the first half. The Asia Pacific, Europe and Africa client groups were positive in the second half. The United Kingdom has of late been a very difficult place for active investment managers and has not yet turned the corner. Looking ahead, we have confidence in the rejuvenated leadership team and focus of our U.K. business. In the Americas, we have seen modest outflows throughout the year, but we are excited by a range of very real substantial opportunities in the pipeline. We have a strong team in the Americas and remain confident that this could become a much larger part of our business. Our core task is to meet the performance expectations of our clients in the medium to long term. Ninety One is proud of its long-term and recent track records. Firm-wide performance has improved over all periods when compared with the previous full financial year. This puts us in a better position to grow the business than a year ago. I want to congratulate our investment teams for the way in which they have navigated these treacherous markets. The message here is that Ninety One has investment offerings, which can compete effectively for client capital in the new financial year and beyond. Our business remains people-centric and capital-light. People and culture really matter. We are building an intergenerational business, and we continue to replenish and strengthen our human capital. In our business, it goes without saying that compensation must be aligned with outcomes to achieve business success. You've seen this year that we have shown discipline on that front and that our compensation is results related. Our staff now own just under 33% of Ninety One. This shows commitment and alignment. I attribute the resilience of the past year to our healthy and vibrant culture. I will now call on Kim McFarland, who will take you through the full year results. Kim?

Thank you, Hendrik. I'm here to present another set of robust financial results for the year ended 31 March 2025. I would like to highlight that our core operating business has produced strong results considering the challenging environment. To note, management fees and adjusted operating expenses both increased by 2%, resulting in the core business recurring results holding flat from the prior period at GBP 152.4 million. Management fees were at GBP 567.1 million. This is as a result of the increase in average AUM from GBP 123.9 billion to GBP 129 billion, alongside a decline in the average fee rate to 44 bps. Adjusted operating expenses of GBP 414.7 million includes the interest expense of the lease liabilities of our office premises and the full bonus payments, but excludes corporate-related professional fees. The adjusted operating profit of GBP 187.9 million is only 1% down from the prior year. This decline is as a result of 2 items, both by 10%, namely lower performance fees of GBP 27.5 million and higher other income of GBP 8 million. Other income is predominantly a combination of operating interest and a number of fair value adjustments on seed investments, offset by FX losses driven by the stronger sterling to U.S. dollar. The adjusted operating profit margin decreased from 32% to 31.2%. This is an improvement from the interims where we reported the adjusted operating profit margin of 30.5%. Ninety One's profit before tax, considering the adjusted net interest income, the small share scheme net credit and corporate-related professional fees decreased by 6% to GBP 204.3 million. We fully expensed the bonus payments within adjusted operating expenses irrespective as to how settled. IFRS requires the amortization of the bonus-related share awards over 4 years, which has resulted in the share scheme net credit. The effective tax rate for the year was 26.5%, up from 24.4% in the prior year. The increase was largely driven by the nondeductible expenses and the introduction of the global minimum tax rules. The above factors results in a profit after tax of GBP 150.1 million, down 8% from the last year. And our adjusted EPS shows a 3% decline to 15.5p, more than the fall in the adjusted operating profit of 1p, primarily due to the higher effective tax rate on the adjusted operating profit. This is the analysis of the movement in adjusted operating expenses. Adjusted operating expenses increased by 2% to GBP 414.7 million. Employee remuneration represents 63% of the total expense base. In the prior year, this was 64% and increased marginally by GBP 1.2 million to GBP 261.3 million. This was driven by an increase in fixed remuneration consistent with the increase in headcount and inflationary increases. Over 50% of employee remuneration remains variable and the resulting compensation ratio was 43.4%, down from 43.7% in the prior year. Business expenses increased by 6% to GBP 153.4 million. We began to analyze the cost changes and at a high level, have broken down the movements as follows: inflation-linked increases of GBP 2.2 million for those costs that are impacted by inflation. FX-linked impact was negligible. There's been a pickup in technology spend of GBP 2.3 million, which will continue as we invest in our front office systems. Other costs increases of GBP 3.5 million, largely linked to an increase in business activity, namely third-party administration costs. I'll note that nearly all the cost categories increased marginally in the year. Looking ahead, we're expecting the business expenses to be impacted by inflation and the proposed additional technology spend. This comment excludes the Sanlam cost impact, which will be predominantly headcount driven, employee remuneration and the resulting general office cost increases. However, we still anticipate the Sanlam transaction to enhance our operating profit margin. This is showing the business expenses and total expenses as a percentage of average AUM in basis points over a 6-year period. The adjusted operating profit margin over the period is also reflected here at the top. Irrespective of the movements in AUM, business expenses have marginally increased over the period, largely driven by the investments in our core IT systems. Total expenses have, in fact, declined as we've been disciplined with regards to employee remuneration. The adjusted operating profit margin has remained in the range of 31% to 35%, reflecting sensible cost management in relation to fluctuating revenues. This is the analysis of absolute movement in adjusted operating profit from FY '24 to FY '25. It clearly shows that management fees increased, but this increase was largely offset by the increase in business and mainly technology expenses and to a lesser degree, by the increase in employee remuneration. And the capital position as at 31 March 2025. Ninety One's qualifying capital was GBP 327.3 million at the end of March 2025. In line with our dividend policy, the Board has recommended a final dividend of 6.8p, taking the full year dividend to 12.2p per share, a decline of 1% in line with the fall in adjusted operating profit. After this dividend payment, there will be an estimated capital surplus of GBP 160.9 million, and this will result in a capital coverage of 253%. During the period, we continued with our buyback programs. This resulted in a return of capital of GBP 17.1 million and a reduction of 10.6 million shares. As of the close last night, we've returned a further GBP 19.1 million of capital, resulting in a closing share count of 883.3 million. In line with our capital-light model since listing 5 years ago, we've returned over 50% of our initial market capitalization to our shareholders. A few points regarding the Sanlam transaction. On the 6th of March, the parties signed the related operative agreements. And on the 9th of April, shareholders almost unanimously approved the issue of shares for the consideration. The Sanlam transaction is planned to complete in 2 tranches. It is anticipated that the U.K. transaction will close mid-June and the South African transaction by the end of the calendar year after we've received all the necessary regulatory approvals. As a result, it is expected that Ninety One will issue approximately 13.7 million shares in June for the U.K. transaction and the balance of 112 million shares later in the year for the SA transaction. Now due to the significant number of shares we issued to Sanlam for the next year's results, we expect to amend the number of shares to determine adjusted EPS by weighting the shares in issue to Sanlam. This is a one-off calculation adjustment for the Sanlam transaction only. Thank you. I'll now pass you back to Hendrik.

Thank you, Kim. In conclusion, we worked hard to regain momentum in the second half. Since the beginning of 2025, we have experienced better business conditions, investment performance and pipeline improvements. The Sanlam transaction will strengthen our footprint and support growth in the long term. We will continue to double down on areas of specialization. In this competitive world, focus is absolutely essential. We are relentlessly striving to build a better business, modernizing it and innovating. This motivates good people and good people are key to future success. Looking ahead, we are planning for further macroeconomic uncertainty against -- and rapid technological change. The good news is that demand seems to be shifting towards our offering, we are indeed seeing an expanding set of business opportunities. Our focus is on clients and investment performance. Technology and AI will facilitate efficiency and effectiveness while we continue to invest for growth. Where few do, we see an opportunity for active investment management in the years ahead and will pursue that with vigor. Thank you very much. We can turn now to Q&A and let's start with those in the room before those online. And Hubert Lam's hand is up before he even got the mic. From Bank of America.

It's Hubert Lam from Bank of America. I have 3 questions. Firstly, on flows. Good to see the second half turning mildly positive. Do you think we've turned the corner now? And how much of the improvement there is driven by, I guess, maybe still early days by a rotation of possibly the U.S. into more international EM products. Maybe talk about the trends there.

I think, Hubert, there are 2 trends we see. Firstly, there's interest from existing clients who are thinking reweighting their portfolio, so the usage of active long-only equities to be the banker for private commitments seems to be slowing down, which that means a rebalance not driven by the performance rebalance you've seen in the past, but by one saying, look, I actually appreciate some liquidity. I come back to my trusted suppliers and I weight up. So that's part of it. The other part is there's definite interest in the emerging market complex. It is still difficult because it depends on what day of the week and after which press conference of the White House you're talking, but the structural research work and investigation and the busyness, I mean, I -- today, even in the office there, if you are allowed upstairs, you'll see some clients you probably recognize. But they're not bringing money, they're coming to look, and that has definitely lifted the engagement and the interest. Long-only investment management was a very lonely place 18 months ago, I can tell you. It feels less lonely, but it's not clear what part of that is simply a rebalancing and what is a structural growth. What I will remind you of is just use the simple math. U.S. is 70% of the world's mobilized money, rough number. If asset owners ex U.S. down weighed slightly, impact on the smaller bit is double the size of the fact on the large bits. So it could be very significant. Secondly, with a dollar opening, which I spoke about last year, and now seems to be policy in the White House, whatever they say, it seems to be policy. And it seems to be appreciated in the rest of the world. That means reweighting towards revenue streams. Now U.S. public equities also have almost half nondollar revenue, but reweighting towards something different and the euro has been a beneficiary. And finally, what at the margin could happen, which has been very, very skewed against us is the fixed income diversification could become more interesting. You have noticed that local currencies have done well. You've noticed that emerging market debt has been quite solid in spite of the tariff fears. And at a point that would become compelling, which is not yet. So those are sort of the 3 waves. I hope at half year to give you more concrete feedback. All we're saying is there's more interest, there's some reweighting coming. There are some flows in the pipeline, and we happen to have reasonably competitive performance, but it's not yet boom time. So let's not go out and party. It's not time for that yet.

Second question is on the operating margin. I know it came at 31.2% and the range is 31% to 35%. Is 31% the floor? I know this is before the...

We do not target the operating margin. What we do know is that we -- you -- given volatility in markets and revenue stream, you have to keep a space, but you can't run as tight as a business with contractual revenues. But I don't know, Kim, do you want to add to that?

No, I think that's right. And I think we get asked the question every single year the same point about do we sort of set a floor or target? No, but we have enough levers in the business to try to keep it within that sort of range, which is what you've seen in the past. So it's a comfortable position for us to be sitting in.

And we're reaching a point where technology used to be only expensive. It's working in your favor in terms of certain things, and you need to be able to arrest structural cost inflation, but we do not run for a specific margin. And some of our peers are very comfortable in the late 20s and seem to be quite happy there. We just -- it is where we are.

And the final question is on the Sanlam deal. Maybe you can share with us like some client feedback on the deal, both on the Sanlam side plus the Ninety One side?

I mean, again, we -- competition realities, competition commission realities stop you from speaking to the third-party client base. So we have not had interaction. But what we sense in the market is that our client base, at least has understood the logic and seen that it wasn't a crowding out of what they were getting. In fact, it's complementary and, therefore, they have a stronger provider who can -- with more resilient and more robust. And the relationship with the Sanlam people who, in the end, whatever the bosses commit to us, the people on the ground have to deliver. That we have been building and is in a very good space and the contractual negotiator is Jonathan Shaw, who did most of the -- a lot of the work. That is done and dealt. So you haven't got this idea of, okay, I'm still negotiating things and there's bitterness and all that. We are very clear. There's a joint project to serve a new set of savers, which Ninety One can serve really well on behalf of an organization, which accumulates those savers, Sanlam. So that is working well. We will have to see where we get to, but our indications are, and again, many of those clients have other touch points with us that it is perceived to be positive. And in fact, that we will also have some additional investment talent in our business, which you know what happens with a good football? Who is your football team? Do you have one or you are...

No.

Oh, no. Common now. Sorry, I have to apologize to the rest of the audience. But you know in a football team, if you bring people from other teams in who may not be as expensive or as highly regarded and they play in the new team, they become the star. So we think we're going to get access to some excellent talent in the new formation will be unleashed and do very well. So we're very positive about the longer term. And let me be very clear when you model, not -- don't get too carried away in the first 1 or 2 years. This is a 15-year plus relationship. The benefits are going to come bigger and bigger down the line if we do it well, just as we do with any of our other big distribution relationships, which we have around the world and in South Africa. Another question? You normally ask 3.

He did ask 3.

Oh, 3, is it? Sorry. David? You got the earnings right, David.

David McCann from Deutsche Bank. Three from me, if that's okay as well. And just continue on flows. You've touched on some of the product swings that happened, but it looks like Asia Pacific from the geographic location, the client was the big swing factor second half versus first. And maybe is there something that you could talk more about there, what's driven more flow from that region? That's the first question.

I mean we've -- firstly, the world center economic gravity in spite of what they say in the White House is slowly shifting East and it's been going on year after year. So the institutional heft is growing there because savings pools are growing. And we have an installed base of clients and some of them have started to upweight earlier. That's really what it was. It's an upweighting. It's not a change in the business or very different. These are very large clients who were probably early-ish in the up-weighting process. And on the basis of good past performance and service delivery, I think that's what we got. The excitement that I relayed about our 2 new offices in the Middle East and what we want to do that's slightly innovative and different there, that hasn't come through in the top line yet. That's actually been a cost up to now. And Neil is looking at me here from finance side. That's been a cost, not a cheap place to operate. But we are excited about that, which is later. This was sort of existing client base upweighting on the basis of their views on investment markets.

Second one on the fee rate. Obviously, it dropped about 1 basis point over the year. Exit rate looked like it was more like 43 bps in the second half. So there is a drop there from the first. So maybe you can talk what's driven that? Is it mix? Is it something else? Is it -- is it tied to the flows in some way?

No, jumbo upweighting. In other words, small -- if you win retail and it's all the same fee, but if very large clients who have good relations and are actually very high-margin clients, high profit margin clients, but lower fee clients come back in, you get some pressure. So if we see the Americas, which is a higher fee jurisdiction, I don't know how they get away. They've got the biggest assets and the biggest fees. But if you see the Americas starting to run, you will accumulate at higher fees. And then if you win business in Europe where nobody wants to pay any fee, it's less -- it puts pressure on your fee margin. So that's roughly -- there hasn't been a -- and Kim, correct me if I'm wrong. There hasn't been an identifiable asset class effect in this sort of margin.

No, I think, we've -- 2 other factors. It's big clients coming in. We've seen some on the South African platform business where we've seen a lot of activity. And I can just link that to why a number of our business expenses increased, which I mentioned to do with additional third-party administration because a lot of that is activity based. We've...

But that's expenses, that's also...

No, no. It also links to the fee. I'm linking 2 points here. So one is we've seen a fall. Some of that impact has been to do with the increase in activity there and the business that's come onboard there. The other thing, as Hendrik mentioned, is new large inflows coming in. And then where we've had losses. Some of those have been on higher fees as well. So it's almost the outflow on some of -- on the out book as well. You can almost put almost 1/3, 1/3, 1/3 to each of those sort of categories when we look to it.

But it's very difficult to model and to know because unlike an alternative, where the book churn is not so much in a traditional long firm, a very big percentage of the book churn is sort of on client demand rather than on factors we control or drive. So I would say we're still on the roughly the same. But if you look ahead, what is happening in the market, there's a narrowing of -- 10 years ago, clients wanted to buy the best, fees were the fees, they were slightly negotiated. Now you're moving into a relationship-driven market where large distributors or large asset owners say, okay, I want to deal with you 4 or 5 asset managers, but I'm going to be loyal, I need a package. And it turns -- it could result into better business for us, i.e., more stable, higher operating margin business, but not necessarily higher fee business because for the loyalty, for the long-termism, there's a quid pro quo. And I think that is becoming quite prevalent in certain -- particularly in the U.K. If we start winning in the U.K. as we think we will, you will see us building a higher quality, more focused book, but that has a certain commercial sting in the tail. It's not fee cutting in the sense of just dropping fee to get a mandate. It's an arrangement. And I think that has definitely changed in our industry in the last 10 years, which actually should improve the quality of your business. So don't look blindly at the headline fee, look at the quality of the book and look at who the people deal with. And so we take that calculation. So every pricing decision in Ninety One is signed off by a pricing committee if it's outside the advertised pricing range. It's not done by client-facing people who just want to produce volume. And so that's why we've held our fee better than others. We're very thoughtful about it, but we're also realistic about where the market is going.

Great. And the third one, just on the other income line. Obviously, it's always volatile. You alluded in the second half, you had some FX benefits and some seed gains. There's obviously been a lot of movements in those lines, I suspect, since the end of March. So where we're sitting today, what would that number look like for the 2 months to date?

We're allowed to tell him, but -- smile always smile.

Yes, we're allowed to tell you -- exactly. To be honest, I struggle to forecast that number because, as you said, it's a mixture of the valuation at points in time. If I was going to model it, it would probably be a lower figure.

But she's a pessimist.

A lower positive number?

Yes, but she's is a pessimist.

A lower positive number.

David, she's a pessimist. Okay. It's -- no major impact is the answer.

Yes.

No major impact.

It's not a major impact, but I always appreciate it's the hardest one to model, that one and the share scheme credit as well, which is the other one that's difficult to model, but that's a below-the-line adjustment.

Rahim, you are in the first row, so you'll get the answer first.

Rahim Karim from Investec. I've got 3 as well, if I may. If I heard you correctly, Hendrik, you talked about a strong pipeline in the Americas or that was building. Maybe if I could ask you to allude on that a little bit. We're seeing that investment that you've made for a number of years beginning to turn?

I see it's -- the investment is cash generative, right? So unlike any of the tech business, you can for 10 years, lose money and you guys gave a sky high multiple. In this business, we try to become cash generative as soon as possible and then grow modestly within the means we have rather than throw tons of money at it. What's happened in that business is it's -- we put one of our best leaders there a year ago on a proven business track record. And what I'm very confident at is that business is well focused on the right client base, and that client base is asking questions about our areas of expertise, which is international and emerging markets. I've been preaching about it for about 3 years saying we're not going to change. We're going to stick to it. And I mean, an example, our international -- our quality investment capability is one of our strong capabilities. We seeded and built an international franchise strategy from nothing. I think we started 7 years ago, the PM joined us. It's now got 5-year track record. It's well through the GBP 1 billion. Now suddenly, it can compete. It couldn't really compete if you -- a small strategy in the U.S., people don't look at it. They want -- so that homework has been done. If that starts happening and we know where to go, now you've still got to win the finals. I mean in the last quarter, 6 months, we've lost a few where we came right to the final and then you get punched on the nose by a giant like PIMCO or someone, and you would have just got to take it and play again, but you don't win them all. But if your win rate starts increasing and you can get to the opportunity. All I've told you is we have -- we can see opportunity and we are going for it, we now have to convert. There is a gap between the 2, and you can play really well and still not convert enough. But what I see -- and our market is -- our client base is very, very focused. So we know exactly who they are. We spent the time, you know them better, which means your chance -- my experience is in the second or third finals you typically win. You come in once, they look at you, you do well and then they're going to put you in the cooler box and say, how will they perform, how are they doing? And when someone who won first time when falters, you get in. And I think we're getting closer to that. So -- and half year would probably be a better stage, the evidence would be there or not. The team tell me, they're excited. They had an offsite, but whether that's just because the offsite was good, I don't know.

Which offsite is bad, I mean...

The Americans.

Second question was just around capital surplus, obviously, up year-on-year despite some of the buyback having kind of gone through. Could you perhaps walk us through your thoughts around what that level is in the short term whilst the Sanlam transaction concludes and completes and whether you're happy with that remaining at 200% in the medium term and whether we should expect more buybacks over the next year?

Before Kim answers, can I just say one thing, which kind of excites me is the Sanlam U.K. leg is going through in June. We have bought back more than those shares already, okay? So now the SA one obviously is bigger. But if you calculate this thing with the dilution of the shares, but the dilution has gone at some point in time, the accretion obviously increases. But that's a conceptual view. Kim will give you...

I think Hendrik has probably answered half the question. You answered a lot, so -- no, it's a key point. So yes, our view is we will continue to -- I said at the beginning -- well, during my speech, we want to remain capital light. So what does that mean? We have a clear dividend policy. I think we've made it clear how we repay. We pay dividends out to the market. It's generally around about the 80% position on our post-tax adjusted operating profit. What's left, we look continually with the Board, and we use for buybacks. I think there's some great market opportunities coming up to results over the last couple of months when the price was definitely low, so we -- I think we were very good in the sort of buyback programs we've run. And we'll continue -- so the view is keeping it around about the 200%. We've got a few -- of that, I've got to put money aside for some capital investments in a number of areas, which we sort of will target as well. After that, we'll keep it around about the 200% and look to continue to do buybacks in the market. So are you going to continue to see buybacks in the market? Yes, all things being equal.

Yes. And I think from both the capital and a cost line point of view, we think if the market starts adjusting from the very negative regime we had a few -- the last few years, there's a sort of once-off opportunity. If you don't get into the action, you're going to be frozen out until the next cycle. So our posture has shifted from -- and that's probably -- if you're a near-term earnings forecast, so you might be getting very worried and sell a share today, but it depends. Our posture has shifted from being quite defensive, making sure we survive to now going after the opportunities, which means if the decision is, do we make the investment, in other words, do we hire the person or do we invest behind an initiative, we will rather than not because the cost of not capturing the shift that we think is in the offering could be massive if you're too conservative. So again, that will be a half year conversation. We'll have a feel whether it's a real shift or whether we've just been fatigued by 3.5 hard years and I see a little bit of growth, which overexcites us. We don't know, but we would be -- and that's why Kim answers it quite cautiously because if we see a gap, we're probably going to go for it. Business has been scarce. If it comes and if new relationships are there and they ask for commitments, we'll probably make those commitments. But we won't move, and that's really important. We won't move out of our focus areas. Our focus areas, we will innovate very hard in and tangentially to it, but we won't move out of our core skilled areas where we're building long-term, call it, 100-year franchises that will over time become stronger and stronger and stronger, way behind the -- way longer than the horizons of people sitting in here. I think that's the bit that you must balance that focus. But the level of what I would call entrepreneurial vigor is going to go up because if we just sit and defend for the next year, we're probably going to miss an opportunity of a lifetime.

And finally, just on Sanlam, are there any opportunities for you to accelerate the distribution or private credit ventures ahead of the closing of the SA deal? Or are those kind of...

We have to be -- I mean, Sanlam has been a client of ours for a long time. So there is a hard commercial channel we ran in excess of $1 billion for them before they came to talk to us about the deal. That continues, and that is open. But what we can't do is risk the transaction in terms of any pre-implementation because competition authorities get very upset when you pre-implement and we understand that we can prepare. But I think we have some good things to offer, not only to them to our other clients, which we will be rolling out. And -- but there are others. I mean they're not the only partner we work with. They're not the only person. So we will -- if your question is, are you moving hard on your emerging market and sustainable private credit platforms and our smaller but very exciting European specialist credit? Yes, we are. Angeliki?

This is Angeliki Bairaktari from JPMorgan. Three questions from me as well. First of all, just to get back to the flows quarter-to-date. I mean if I look at the industry data, April has obviously been a very volatile month with most active strategies seeing outflows. May has been a little bit more constructive, especially in EM, we've seen for the first time in a long time, some inflows. So I was just wondering if you can walk us through because I am struggling a little bit to reconcile the better business momentum with the picture we saw in April.

So Angeliki, firstly, our -- we don't -- I know you and David and others model on publicly available data. Because we are not ex South Africa, a retail business, ours at sometimes driven by client, individual client conversations and timings and some of them take so much time. We should have won the business last year, and it's still going, but they have their processes. So sometimes we don't look exactly the same as a predominantly funds-driven business. We have experienced -- we've actually not experienced that seasonality you talk about. What we have seen is a consistent interest probably since the fourth quarter of the financial year, sort of, call it, just after the half year results presentation, the talk started, and it's been going in a positive direction. There's always a summer lull with our big clients. So we might be all full of ourselves now by June, July and then August, it goes dry. So we're not 100% sure, but the Southern Hemisphere tends to offset that, places like Australia, South Africa and Latin America. So we've seen a consistent increase in interest, but it's largely to do with the asset pools we operate in or we invest in rather than the market as a whole. The other bit that I was listening to -- and again, if you're one of these big U.S. fixed income giants, they've all been losing money on bonds and just getting more capital in because the yield is higher now. That's just been the game. That game at some point is -- we are not participating in that game. We have not yet seen the benefit of that game being over. So there's huge pools of liquidity hiding somewhere else now that will start moving the other way, that has definitely not happened. That's when you'll see the consistency in your retail funds, et cetera, whether ETFs or equities, these risk assets being lapped up. We're not there yet. And I think the uncertainty created by Liberation Day, et cetera, has definitely postponed that. If you spoke to us in -- if we did this presentation in March, I'd probably have been structurally more optimistic. I'm not less optimistic now because I think in the end, what is happening is undermining the U.S. dominance. But in the short term, it creates uncertainty, which then takes people back to kind of a nice, safe -- what they think is safe bond fund.

And another question on adviser specifically because we saw bigger outflows there this year relative to the institutional. So...

So I want to drop that classification actually because in our adviser, we have some very large financial platforms just because they serviced by what used to be called our adviser team. We don't actually have that split ex SA in any serious way. In South Africa, you have a deeper adviser business driven off a funds platform, which is actually operating by a slightly different logic, more of a distribution than an alpha logic because it's deep relationships with people who use you as an admin back office and as a consequence, just use your funds as well when they kind of -- they're not necessarily picking the best. They also pick us for the best, but -- so it's a different gig. What we've had here is a few large financial institutions or fund platforms, which have changed strategy or downweighted something. Take, for example, a U.S. warehouse or something. It -- new CIO, it changes what it does. It doesn't actually fire you, but it downweights product Y from which you benefit a lot because you're a component to selling product X now, which you're not necessarily in. They're busy. What are they doing in the U.S. now? Democratizing private markets, wonderful. It's finding liquidity for things you couldn't sell otherwise. But anyway, that process now takes a lot of attention. It doesn't take an attention of the main one. So I'm just using an example here. This is not what happened. But in some big financial institutions, there were fairly large shifts. So I would almost see it as institutional. If you model us, you should look at us as an 80% plus insti business actually or 85%. So don't spend time on the adviser-institutional split because, by the way, the fees are roughly the same, again, except where we are properly represented in a middle market adviser business, which is different.

And my last question on partnerships, just more broadly after the Sanlam partnership, would you consider doing more of that? We are seeing a trend of consolidation overall in the asset management industry. You are -- obviously, you have scale, but you're not the largest player out there. And in active, we are seeing more and more partners. So...

So where we will not go, not because we don't think it's successful, it's immensely successful, but we will not go into an Amundi model where you effectively buy your flow for the next few years through a tight transaction because that is a different business, a different -- ours is relationships with select distributors where we think we can add something to them and they can accelerate our growth or add stability of book. So in the Sanlam case, the benefits were in South Africa, we reached the limits of the channels we -- not the limits, but we were getting full on the channels we were good at. This was a retail channel. We have a number of distribution partners. In fact, others there as well, but this was a particular one and particularly access to the insurance book was interesting for us. Also, this was a client that came to us and a client with which we had a great cultural affinity. I think we will see in our credit business elsewhere in the world, there could be more asset owners, which are actually aligned with what we do and would be willing to accelerate because they need to expose. But would we go and do a whole lot of deals like that? No, because we are still -- we're an alpha house. We compete on Alpha. That's where our main focus is. But stability of book and acceleration of growth opportunities are the 2 things we search. And we have many partners around the world. And in fact, we have many conversations with partners. But what we won't want to do, and again, where you sit as an analyst is a buyer, in other words, an issuer of shares at the top to acquire growth. We want to earn growth, which means we'll partner with someone, build something up from the bottom up rather than buy an existing book of someone who is exiting a business. The Sanlam is different because it was in a market where we could very easily absorb that and where true scale benefits would accrue to us, which in the rest of the world is probably not the case. But I don't know, Kim, would you like to add to that?

No, I would absolutely support what you said there.

But we are very open for partnership arrangements with people who don't want to directly employ the kind of skilled people we employ to achieve their investment objectives or satisfy their client bases, that we are very open to. And that is, in fact, an increasing part of -- I mean, let's look at the KKR-Capital deal recently. KKR didn't have the advisers in the U.S. Capital has them. Capital had no desire to build private markets for themselves. They are a fantastic excellent public markets business of 3 trillion under management, and they did a deal. I think you'll see a lot more of that type of thinking in our industry. Sorry, I didn't catch your name...

Jonas.

Jonas. You introduce yourself to me and I...

Jonas Døhlen from Deutsche Bank. Two quick questions from me. One follow-up on the regulatory capital requirement. If you could just talk to why that has fallen by GBP 7 million, the regulatory capital requirement?

The regulatory requirements fallen largely just looking internally in the business at what our -- when we did an analysis internally. It's not specific to a particular point, but just really reviewing our risk position and our risk appetite internally. And then also on the effective tax rate, that's gone up slightly. If you could just talk to the drivers behind that and if that's a good rate to base up going forward? It's driven by 2 factors. One of them was to do with the fact we had certain expenses, which were nondeductible for tax purposes, which are those that are reflected below the line, which you can see. The second one is the minimum tax rules that came in. So that's more of a permanent adjustment that you're seeing coming through. So you can basically see what was nondeductible by what's below the line, which will be your corporate expenses, the minimum tax rule that is now going to be baked in.

You guys should go lobby that investment bankers can be tax deductible again. But I think it's an important point that tax one -- government is back in our world. And government is back in every business. And if you're an [ OMS ] manufacturer, you say great because governments are your clients. I think our industry really needs to get the fact that government is a key player in markets now. And not only from a regulatory point of view, they're starting to be venture capitalists, they're starting to be capitalist. And it's so ironic that you hear the people point fingers at China, government is involved. Well, the U.S. government is involved in almost everything today. The U.K. government, Boris Johnson started the whole venture capital business, which now it owns steel. Government is back, everywhere. And that makes our business more complicated because rules are regionalizing, not globalizing. So the simple notion of scale, which brings me back to the Middle East business we want to do is we would like to find another place where we can intermediate a domestic flow of capital or a regional flow of capital, right? Because then you know you work within certainty, you work in a context which works. So if you could do like you guys, why are you doing well because you're in Europe, Deutsche because you're within an environment which is okay. But the moment you go across the big boundaries, you're starting to deal with very divergent issues and challenges. And I think our industry, it's not a net positive for us going ahead because we have to be attuned to that. And so government is back, taxes are going to be higher in time. It's not going to be lower. Yes, get used to that. Varuni. Online?

We have some questions online. The first one is from James Slabbert from SBG Securities. Regarding the Sanlam deal, you mentioned markets in South Africa where you were underrepresented. Please could you add some more color around what these markets would look like post the transaction?

Yes, James, good question. You would have noticed we gave roughly the same number in additional assets under management than before and markets have been all over the place since we announced. And we're quite confident. We haven't given the actual number because we're not at the completion of the transaction date. But the point is there's a big fixed income component in those portfolios. We have been a reasonable fixed income player, but there were spaces of the fixed income market. And those of you who don't know South Africa, it's a very sophisticated institutional market. It's like a little Australia almost in terms of financial sophistication. And there's a very strong fixed income component. Many of those niches, we haven't been playing as -- or we haven't been leading the frame. We've got a good fixed income business, but in slightly adjacent spaces. So that's what I mean by that. It's not directly on top, but it gives us access to new opportunities in a market, which we've been playing, but not in exactly the same way. And the people who have the skills are coming along with us. So that's an example that covers probably, I don't know, John -- Chris, 2/3 of the book, a big part of the book.

So the next questions are from Jaimé Gomes from Laurium Capital. You've actually touched on answering some of these already, but I'll read them out anyway in case you've got anything to add. How large would you say the market served by the Sanlam retail distribution network is? And then secondly, please, can you provide some color to the extent to which the Sanlam deal will change your asset mix?

I think the latter, we've sort of answered that it's becoming slightly less equity heavy. I think the former -- for us, really, it's not just the book. It is a -- South Africa is not getting richer per capita. Economy has been stagnant for a long time, but it's a very well intermediated business and people are making provision for themselves by saving. It's a highly financialized economy. And that means the markets that Sanlam largely and some of our other major insurance and other clients serve, and we've got a number of others. Those markets are growing because people are actually moving. There's less corporate provision. There's less formal employment, but people are saving either through policies or other things, and there's some significant cash flows there, but they are clients of a size and of a -- in nature who we don't normally reach. Through the insurance product and the savings products and, in this case, Africa's largest nonfinancial or nonbank financial institution is offering, flows will come in, which will have to be deployed according to specification. And therefore, we get access to actually a growing pool of flows. If you're going to look at their results or you're going to look at any of the financial firms like Capitec and the big banks, you'll see there's a lot of money in motion. And that is what -- this is what it will help us access that, which normally as a primarily institutional firm or an upper-end wealth manager and IFA facing firm, we wouldn't have had access to. And a large portion of that is fixed income. A large portion is -- or a portion is equities, but it's not in -- it doesn't get delivered in the same way as to, say, a sophisticated wealth manager. It gets delivered in a different way.

The next 2 questions are from Jan Meintjes, Denker Capital. The first one, how do you manage the conflict between staff buying more shares and buybacks?

There's no conflict, Jan, in a sense that we -- the corporate does what it has to do. There is a market. We have very clear rules, very segregated processes, very segregated decision-making, and it's being done on a decentralized basis. Is that right, Kim?

Yes. I'm saying correct next to you here. It's absolutely kept separate. It's managed through different routes. Yes, so there's very clear rules around this to manage that very point because it's an important point.

And the second question from Jan is, given where the share price is, are there pressures on the funding vehicle for staff shareholding? And does this bring any risk to the business?

Look on your screen.

Short answer, no.

No. No, we're very conservative people. So we sort of planned for the second world war, and that hasn't happened yet. Third one hasn't happened yet. But no, it's pretty conservatively funded.

We've got another question just in from James Slabbert at SBG Securities. And his question is, can you give any commentary around what you see over the medium term for savings and investments in South Africa? Some of your competitors have expressed that this does not look terribly hopeful and so should continue to contribute to outflows for them. Do you agree with this?

I think, James, in some parts of the market, you are right and the competitors are right. But we believe there are huge opportunities in that market to serve it differently and more appropriately. So I've made the point about flows moving into the discretionary savings or the insurance space away from the pension space. There is also a vast amount of liquidity in fixed interest and money deposits, which are not taking enough -- those pools are not taking enough risk, in my opinion, to meet the long-term liabilities of those wealth owners whoever they are. If we can evolve the way we deliver it so that and I'm not -- I don't like the word financial inclusion because it's often lending to the poor at a high rate. But if you can financially include the poor in effective savings, there is a vast amount of liquidity in that market that hasn't been added to our industry. We are very clearly thinking about that and saying how can we serve those investors better. And then it has been a very stable pool. Even though it hasn't been a growing pool, it's been a pretty stable pool. And in a world -- and James, you haven't operated in the rest of the world trying to offer people things like emerging markets, it's been a port in a storm for us. So South Africa to us is not a high-growth option, it's a stable option. And if we innovate fast enough, we will be able to access enough relative to our size to make -- give our business a modest but real growth path in the future. And that's why it's important. And also, we can then translate some of those ideas to other markets. So once we -- you understand how to serve certain channels and certain institutions, you can translate the skill. So for Ninety One, which is a predominantly non-African business, this is really interesting. If you were caught 100% there, I think we would also have a pretty negative narrative on a results statement because we don't know where to go. We actually did that homework 20 years ago, and we positioned ourselves. But it is a very interesting market. And I think how we are set up today is positive rather than negative. And in a market like that, when you -- if you can accrue the benefits of leadership properly, you also accrue the benefits of talent acquisition, et cetera, and then you build and -- and in this industry, there are very few moats and they're very shallow, but you can build something akin to a trench. And that will then add value to the business. But the bottom line is the South African economy, and it's the same in Europe, but wherever the economy needs to grow, the wealth pools will then grow and then the opportunity sets will increase. And if that doesn't happen, it's a tough kick. Thank you. Thank you very much, ladies and gentlemen. We hope that some of these things happen. Thank you for your time, and see you in November. Thank you.