Rathbones Group Plc (RAT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to all of those who are here physically. Thank you for coming and to all of those electronically, welcome to our 2021 year-end results. My name is Clive Bannister. I'm the Chairman of Rathbones and it gives me great pleasure for this to be my first reporting year and to be able to say that you're going to hear in a few minutes about a very strong set of results. It was the Chief Executive at breakfast, who reminded me that my role today was entirely decorative today, entirely decorative on what is a complicated day. So there are bigger issues afloat, but it gives me great pleasure to hand over to Paul and his colleagues who will take you through this strong set of results. Thank you very much.

Thank you very much. And if I can add my own very warm welcome to everybody in the physical which is great. And also welcome people in the nonphysical who are joining us today because we are doing a live webcast, which is great. Lots of formats to do these results in over the last couple of years. This is about the closest we get in terms of a return to normality. Now because we are streaming live for those of you with these things called mobile phones, I would be extremely grateful if you could just do one last check of those just so that we don't disrupt our proceedings this morning. Now I can see a couple of familiar faces in the audience, which is nice to see, but I thought after such a long period away of seeing physical beings, I thought I would just call out [indiscernible] who won't be joining us today. Obviously, there was the untimely death of Jeremy Grime last year, and we will miss him. We will also miss Bill Barnard and Paul McGinnis, who are regulars. I've been at Rathbones now for 13 years, and both of them have been regulars for all of that time and following their recent retirements. We will miss their challenges and insights today, but all three of them would have been very candid and just told me get on with it, which is great. So I will try to do that. So certainly, I wasn't expecting a 2-year pandemic period to be reporting on after we set out our strategy 2 years ago. But that strategy created a lot of momentum in the business, and that's translated it not only into organic growth, but also delivery against a lot of what we said strategically as well as, of course, absorbing acquisitions and beating targets on those. So today, as a result of that strategy, you can see the results that have come from it. And that's a 24.7% increase in funds under management, underlying PBT growth of 30.5% and an operating margin of 27.7% and dividend growth of 12.5% year-on-year. So a lot of changes in the business, and I'll be talking a little bit later about how Rathbones is currently positioned and how we're looking into 2022. But before I do that, we ought to get to the numbers, and I'll introduce you to the speakers today. Aside from that rather useful looking photograph of me, there is Jenny, who's going to take us through the numbers in a moment. And we're joined today by Andy Brodie, who's our Chief Operating Officer, who will tell us a little bit more about our digital plans as we head into 2022 and 2023. And so for now, I'll come back a little later on. But if I can hand over to you, Jenny.

Thank you, Paul, and good morning to everyone here in [indiscernible] and to everyone joining us virtually today. So on this slide here, first up, a slide a very positive headline KPIs. Strong funds under management growth have driven a performance on operating income up 19.1%. This delivered a 30.5% increase in underlying PBT and over 100% increase in statutory PBT. As a result of this strong performance, the Board is pleased to announce a total final dividend of 54p per share for the year, bringing the total 2021 dividend to 81p per share. That's an increase of 9p or 12.5% on last year. And this is consistent with our progressive dividend policy and supported by our robust capital position and conservative and strong balance sheet. Now let's take a look at funds under management in a little more detail. 2021 saw organic growth across all areas of the business. During the second half of the year, we increased our financial advice capability and client base with the acquisition of Saunderson House, and that brought GBP 5 billion of FUM to the group. The combination of organic growth, acquisition synergies and market performance has enabled us to deliver an enhanced operating margin of 27.7%. Underlying EPS to 29% to 172p. And for those of you familiar with how we've been treating [indiscernible] at the Speirs & Jeffrey acquisition costs in recent years, in 2019 and 2020, the statutory EPS suppressed that writing somewhat. This significantly reduced in 2021 despite acquiring Saunderson House which is much smaller in value, in terms of consideration and the statutory EPS grew 169% to 133p. So as you can see, that statutory EPS is now better reflected the underlying profits coming through in the year. Let's take a look at the segments of our business and net organic flows. In our Investment Management business, we grew FUM by 12.5% to GBP 50 billion year-on-year. Net organic inflows of GBP 800 million. And this shows the continued momentum for growth in the business that I reported to you at the half year and a significant recovery from the flows in 2019. This momentum has been contributed by the effort and focus of our strategic investments, and I'll touch on just 2 areas where this is feeding through. Our client development team, which we've built over 2019 and 2020 have enhanced our marketing proposition to financial intermediaries like lawyers and accountants, and they've built a new business development toolkit for our investment management teams. So all investment management teams have now had bespoke training on better targeting client segments and intermediary more -- a wider range of intermediaries and demographics. And that combined with our sort of one Rathbones approach to client need and prospecting is starting to yield results. Another area of strategic investment was our distribution sales team where organic flows have continued to grow through the important IFA channel in 2021. Turning to the funds business, 33% growth to GBP 13 billion in the year, an outstanding result over GBP 2 billion of net organic growth. Whilst all funds grew, the most significant inflows we've seen in the global opportunities, ethical bond and across our multi-asset range. We've been ranked fifth in 2021 by Pridham for total net retail sales up from ninth in 2020. An outstanding result demonstrating, as we've said before, the quality, range and growth momentum in this business. Moving to the next slide, Slide 7, to take a look at operating income. So the operating income is up 19% on 2020 at GBP 436 million. That's an increase of GBP 70 million and more importantly ahead of the growth in costs. Within this growth in the investment management funds and investment management funds fee income, you'll see there 25% and 39% increases, which are well ahead of the key benchmark indices on the slide at the bottom left here in terms of the average FTSE 100 and the PIMFA MSCI index. Our strategy is to continue to grow high-quality fee income over commission income, and I hope you feel that these results bear that out. I'll go into a little more detail on investment income on the next slide, but just very briefly the other lines here. Net interest income is being suppressed by low interest rates for some time now, but we expect this revenue stream to grow in 2022. And fees from advisory services, most importantly here now, we have 2.5 months of our Saunderson House revenues coming through, which were just over GBP 6 million, that aside, our advisory services within the Rathbones Group, continue to grow, as you've seen in previous results, so that across our financial planning, Vision and Trust business is growing 14%. So just taking a moment to look at the investment management margin in a little more detail here on Slide 8. You can see a longer timeline view of the key revenue contributors and the trends are clear. The majority of our business is from the discretionary fees, and that's grown in recent years. As you might recall, I'll hopefully remind you the Speirs & Jeffery transfer to standard discretionary tariffs took place in quarter 4 2020. So on the 2 charts on the left on this slide, you'll see the full year effect of that coming through with the growth in the discretionary fees and the reduction in the -- the corresponding decrease in the commissioning margin. So just to note on the commission margin, you'll see that the long-term trend is generally 11 to 13 bps, and that's where we expect it to continue with 2020 being an outlier due to that higher volatility in the market during that year. Top right, advisory fee income, you can visually see there now the add-on of Saunderson House, but the momentum and growth from targeted investment in our advisory businesses in the group. And bottom right, makes it very clear that suppressed collapsing interest rates in 2020, and we look forward to these growing in '22. So turning to Slide 9 and looking at the costs. As our business grew in 2021, costs grew in line with plans and expectations and a rate -- and slower rate and revenue, growing at 15%, while facilitating our change plans was more than covered by the revenue growth of 19%. So as I've discussed with you in previous results, we are investing in the business to facilitate our organic growth strategy. And that investment is across a number of fronts. It's across digital solutions, client proposition and investing responsibly to name just 3 areas. At the same time, in our run-the-business infrastructure, we've been keeping our processes and systems upgraded to keep them relevant and efficient. That allows us to have a more stable and digital-friendly infrastructure from which to take advantage of further digital investment and ultimately, a simplified operating model. So we're doing this with a combination of hiring new talent and capabilities into the group as well as partnering with some expert partners. You'll see here the increase in fixed cost at 10% reflects over 200 new hires in 2021. These hires are across all areas of the business but very targeted at where our strategic initiatives are focusing. Variable staff costs reflect the strong growth and performance I've already touched on and operating expenses up 21% and GBP 17 million. This reflects the nonstaff investment in the change that we've been focusing on in '21 as well as some impact of Saunderson House. And I'll go into some more detail on this on the next slide, so Slide 10. The top chart here demonstrates to you the impact of those hires, not only in 2020 but '21, the full year effects coming through. We've created dedicated transformation teams, and we've invested in client-facing areas in financial planning, research, Green Bank as well as our private client business. Leaving the largest item on that top chart being the performance-related pay, which reflects the higher net FUMA revenue and profit. So turning to the bottom chart on other operating expenses, you'll see that the largest item is how much we've invested in our strategic initiatives. We've been busy upgrading our custody and settlement system, and we fully launched our MyRathbones client portal and app, which has had a number of upgrades throughout the year. We've improved our IT infrastructure. We've leveraged cloud technology. We've enhanced our cyber security, and we've equipped ourselves for hybrid and remote working capabilities. Another area we've invested in is our responsible investment propositions. And whilst we've got a long-standing and deep expertise in this area, it's a key focus for us to continue to invest strategically and Paul will touch on this later. So a number of these upgrades, finally, further to this, final point there, we're preparing for the next phase of our digital strategy. And we've been looking at vendor selection, we've done our vendor selection, built the delivery team, and Andy will give you a bit more detail on this shortly. So a number of these upgrades have been incurred in operating expenses, and as we invest in modern cloud-based systems, we take those expenses to operating expenses and no longer capital expenditure. That allows us to move away from investing in traditional proprietary systems that are treated as CapEx. There is, in part, a corresponding reduction in depreciation for the year, and you'll see that in the slide in the appendix and they will then reduce over time. So two final points I must highlight the FSCS charge saw a modest increase in 2021 of GBP 0.5 million, now standing at GBP 6.8 million. Let's hope that level holds in 2022. And finally, on this slide, again, just to remind you, once again, we have 2.5 months of Saunderson House financials in the 2021 results, showing a total of GBP 5 million of total expenses. Excluding these costs, on a like-for-like basis, costs grew not by 15%, but 11.5%. So I hope that gives you a bit more detail on where we've been selectively investing in the business in 2021 and a little more on 2022 to come in later slides. Turning to Slide 11 and looking at the profit results in a little more detail. Underlying profit before tax up over 30% to nearly GBP 121 million, a strong performance whilst investing in the business. The successful delivery of acquisition synergies, organic growth plus the recent acquisition that provided the operating leverage to drive higher profits. The acquisition-related costs were much lower for Speirs & Jeffrey as that is now substantially complete and Saunderson House costs are much smaller due to the consideration structure of that deal. The tax rate as a result of the effective tax rate will reduce to 2 to 4 percentage points above the statutory rate of tax in 2022 and basic EPS, which was somewhat suppressed in recent years, by this acquisition has tracked growth in underlying profits much more closely in 2021. Turning to our capital position. Now despite an acquisition in the year, as guided at the time of that acquisition, our capital position remains strong with the surplus over requirements of GBP 115 million. Since we spoke at the half year, we've refinanced our Tier 2 loan notes, which has added a further GBP 27.8 million to our own funds. We do expect to hold a management buffer over requirements, and our surplus is certainly running much higher than that. And as Paul and I have shared before, we hold this for investment in our organic growth strategy and the inorganic opportunities that come along that enable us to advance our organic growth strategy. And finally, before I hand you back to Paul, our dividend track record. Whilst the dividend was uncovered in 2019 and 2020, the dividend we have declared was fully covered by statutory earnings. So this shows we delivered on our progressive and sustainable dividend policy, even when statutory earnings are impacted by acquisitions. This is what you should expect from us over time. The dividend formed an important part of total shareholder return that has consistently outperformed the FTSE oil share over the past 10 years. So subject to the shareholder approval at our 2022 AGM meeting on the fifth of May, the dividend will be paid on May 10. So with that, I look forward to any questions you might have later, but I'll hand you back to Paul, who will take us through our strategic update.

Jenny, thank you. And certainly, a strong year despite some very deliberate investment that we've made that has obviously impacted margins, but still a strong margin result. I mentioned earlier that I would take you through a little bit how we're positioned as we look into 2022 and some of the strategic initiatives that we've undertaken. And I think particularly in such a potentially volatile market as we head into 2022, it's important to bring out a couple of structural points that are important to our business model. Firstly, you all know the wealth sector is still growing and still expected to do so. And positioning Rathbones in that as a high-quality brand is very, very important, not only in terms of how we face clients, but equally how we're able to attract talent into the organization. We have plenty of opportunity with the Rathbone brand to invest in it further and to reach the next generation of wealth that's upcoming. And secondly, to promote some of the specialisms that's so important in the business. As we stand here today, Rathbones has a very compelling set of propositions to face both clients and advisers, with both discretionary and fund-based solutions operating side by side. And this is supported by a very robust investment capability that we've been investing in over the last 2 to 3 years in particular. And that's why our 1-, 3- and 5-year investment performance compares favorably against relevant indices. We also, of course, have a bit of a history in responsible investment, and I'll come across that issue in just a second. In addition to that, we have obviously just acquired Saunderson House and very pleased to do so, but we have a growing advice footprint to leverage across the business. And I didn't think I'd be saying this. I knew I would eventually, but having a banking license also is relatively positively impactful as we face future years too. So this is a strong set of attributes, which depicts a quality model in a structurally growing market. Overlaying that, of course, was a clear and focused strategy set out 2 years ago, and as I said, very much driven the results of today. That strategy started with centering on providing relevant propositions. Those propositions serving a wide range of client preferences, and that's always been our goal. Supporting that with deeper investment and indeed our financial advice capability, we'll continue to improve client experience and the investment we made in product development, let alone the digital agenda, that Andy will comment into a second as well as our ESG position places us in a very strong position. And growth as well. We're very deliberately invested in investment and financial planning teams. There are nearly 550 client-facing professionals out there talking about Rathbones today. For 2019, that number was 450. And we will continue to invest in that headcount to grow our client networks, manage succession, create capacity for future growth and support specialist sectors. Of course, our people are very important, continue to be critical, and we are committed to creating an engaging and efficient workplace for an ever diverse employee force. There's lots of opportunities still in Rathbones today to improve productivity. And that's why we're focusing -- Andy is joining us to talk about this later. In a nutshell, the pandemic has not changed the strategy we set out a couple of years ago. It's actually accelerated more than a few parts of it. Now I mentioned earlier that we are facing the market with a mixture of wealth management and asset management solutions. So I thought I'd show that on Slide 17. As you can see for each of those product sets, services, we have clear ambitions on the right-hand side of that slide, where we're going to grow. Perhaps the most important piece on this slide, though, is where we've positioned our multi-asset funds in the Managed Fund Solutions arrow there, facing the wealth management market. And that's really important for 3 or 4 key reasons. The first is that these funds are all weather long-term funds, very much akin to a wealth management proposition. Secondly, the mandates that we've set up for those funds to work to are entirely consistent with the risk profiles and objectives in our discretionary business. Thirdly, a common framework of investment process covers both our discretionary business and the multi-asset fund process. And lastly, these funds can be wrapped as required by advisers who have obviously different preferences as to how they want to act and record client suitability. So it provides a lot of flexibility to support the advice market working with third-party advisers. This split is going to be very important because what I hope you've seen from the announcement today there's a lot more data supporting how we are going to analyze our organic growth going forward. This is shown on Slide 18. And what it shows is a considerable amount of momentum in organic growth across Rathbones as we sit today. The top left chart here shows that growth coming from two main sources not only the success of multi-asset funds, which have been successful for the reasons I've just articulated, but secondly, comes from a growing and more important discretionary business growth. And adding those up gives an organic growth rate of 4.1%. That's bringing in a net GBP 1.8 billion in 2021 compared to a net GBP 480 million in 2019. The chart below that also notes where that discretionary net new business has come from in terms of channel, both direct, as you can see, and indeed in the indirect channel as we increase our penetration into the financial advice markets. We are very confident that this growth will continue and that's for 3 or 4 key reasons. The first is, over the last 2 years, as I've been talking about, we've been investing in capacity to grow, and we are beginning to see the fruits of that investment. We have a leading approach to responsible investment, which is resonating very well with clients and advisers. And that traction generally in terms of how we are approaching the financial advice market, is clearly shown in the chart on the bottom left, as you can see here. All of that is going to point to greater frequency and quality of client engagement. Adding to that are newly created, if you like, in financial planning capability with Saunderson House is a big opportunity, and we've invested obviously and given some targets that I'll talk about in just a moment. Adding to that, of course, is our green ESG capability. And again, I'll touch on that. But certainly, in 2021, adding to our multi-asset range there and having Green Bank multi-asset funds, is a natural extension of what we do. And again, it will resonate very highly as we go forward. So moving to our fund business. Those multi-asset funds fit very neatly in what is now a much more balanced business between equity-orientated funds, fixed income-orientated funds and, of course, the multi-asset funds. And the chart on Page 19 shows you how they've grown over the last 2 years. Now as you would expect, with the rotation from growth to value, there are going to be some impacts on those funds. But our focus is very much going to be continuing a long-term approach to investment, sticking to the mandates that we're known for and obviously keeping clients informed in some of those growth-orientated funds as to what we're doing. At the same time, the other funds that potentially have not contributed too much to growth in the last 2 years like income fund or total return fund or high-quality bond or strategic bond funds, will become more attractive to more conservative investors as we get into '22 and 2023. It's great after a period of such growth to be able to appoint a separate CIO for our funds business, and we very much welcome him. He was here yesterday evening. It's very nice to see him. And also, we are positioned more generally to invest in the business, which Andy will talk about very specifically, again, adding to our investment capability to promote performance, which, of course, drives growth. So moving a little bit on to Rathbone Greenbank. Of course, Greenbank is our specialist investment team providing tailored ESG solutions to the market. Its funds this year, up 20% year-on-year on one of those specialist areas I was referring to earlier. In 2021, however, Greenbank has been helping us build a much deeper capability for responsible investment across the firm, adding data capability, enhancing investment process, and generating a firm-wide approach to responsible investing that we will be talking to clients across Rathbones about next year -- of this year, 2022 and 2023. And early engagements with clients in that area have generated a very positive response. Success in the responsible space, we believe, will only come if ESG is right at the heart of what we do. And a lot of work we've done this year on skills and training and preparation for those client engagements, I'm confident will bear fruit in 2022. And that work also includes training all of our investment managers with CISI responsible investment qualifications, 100% of them have passed them and got that in 2021, which just shows that that's what we're trying to do. And again, that will improve the quality of engagement in a very important space. Adding that to what is already a very highly regarded stewardship record of Rathbones will be a compelling proposition and one that has been recognized in 2021 by the FT Investors' Chronicle Awards, which presented us in an extremely favorable light. We'll equally be investing in Rathbone Greenbank itself to build its own infrastructure and indeed, business development capability. So that's certainly a large part of our story. So moving to financial planning. This was, of course, another key part of our strategy and great to see advisory revenue growing 50% year-on-year, albeit with the help of 2.5 months of Saunderson House, as Jenny mentioned earlier. That's growth in both Rathbone Financial Planning and our network vision throughout the year. Our future model will combine an employed adviser model, which will largely be delivered by Saunderson House and Rathbones Financial Planning, two high-quality businesses that we'll be getting together in 2022 for the benefit of not only serving Rathbone clients, but facing externally to the very important wealth sectors that Saunderson House are well known for. And we will be keeping Vision very separate as a self-employed adviser group I'm looking that Vision will grow its adviser base from 131 million you see here over the next 3 years, much closer to a number like 200 in the next 3 years. We will continue to focus on adviser quality and wouldn't sacrifice volume for quality at any stage. And obviously, bear in mind operating margin, but very much we're looking to grow the adviser base much more to be a 50-50 split between investment management and advice over the next 3 years. Page 22 reminds everybody I think, and Jenny mentioned the Speirs & Jeffrey transaction that reminds everybody of our track record there and very important that we have done more than we expected in terms of a success for Speirs & Jeffrey. I'm personally extremely excited by the GBP 11 billion plus we are managing in Scotland are already creating more opportunities and getting on more lists than we were before. It's a very, very strong team in Scotland and now with that critical mass will make a big difference. We've also been enjoying our relationship with Saunderson House, very collaborative, very strong. And at the moment, we're working on a combined proposition that will combine not only their quality advice proposition but we'll also combine that with the quality of Rathbones' investment proposition together, two strengths that will make a very good story to both Saunderson House clients existing and indeed new clients going forward. And there will be lots of opportunities as we put the businesses together to share talent and share resources and best practice. And we're already seeing some good examples of that. So in a nutshell, we continue to see encouraging growth and revenue growth potential from that acquisition. And today, I'm very happy to reaffirm the return on capital target of 12% an EPS accretion target of 10% third year after acquisition. Of course, as I said earlier, we'd be nowhere without our people. So 1 or 2 comments on those. A great team. And throughout this hybrid period of remote working, engagement scores in Rathbones remain very high. We've also built flexible platforms to make sure that we continue to take soundings from our employees and that's gone very well. We will continue to make the workplace, their well-being a priority and great to see more people returning to the office as a level of camaraderie and the level of interaction is also going to support quality investment advice and financial advice as well as an opportunity to attract new talent from new sectors. So we will be going hybrid. I don't think anybody has got the solution there just yet, but there will be a hybrid model developing from Rathbones as we continue to drive our diversity targets as well. Now one thing our people are very excited about, aside from the momentum that's already in the business, is our tech and change, our digital agenda. So perhaps it's best now that I turn it over to you, Andy. Warm welcome to you and take us through that.

Thank you, Paul. And as you've heard from Jennifer and Paul today, we've already been investing in our digital strategy.and we've achieved a great deal in 2021, and we've created a platform for digital change and have a very clear road map for the next 2 years. During 2021, we have successfully upgraded our custody and settlement system and improved our underlying technology infrastructure, leveraging the cloud. We've also launched a new client and adviser portal and app called, MyRathbones. And I'm really pleased to say we now have nearly 43% of our clients actively using both the portal and the app. In addition, we've also identified key strategic partners to take us on the journey over the next two years, and I will touch on that in a minute. We've also commenced the design process for our future digital solutions and what we're seeing so far is really promising and very pleasing. We now have an excellent opportunity to enhance the client's and adviser experience and improve productivity by putting the client at the heart of our designs. During 2022, we will be simplifying our CRM systems, and we'll be launching a unified system to improve our client prospecting, onboarding and servicing capability. We will be removing the duplication of data across the firm. We'll be removing the need for paper forms. We'll be improving the digital interaction with our clients, and we will be speeding up our onboarding process. We will also be deploying new portfolio management tools into our very successful funds business to support their growth and to help them maintain an efficient operating model. And we will also be leveraging further MyRathbones by adding more new self-service features into MyRathbones and looking to increase the number of clients using it. And we will also be upgrading our client reporting to make that much more client friendly and enable them to interact with us more fully. And as we turn to 2023, we will be looking to further improve our client investment management tools to help our investment managers on the ground manage their portfolios. And we will also be further improving and launching dynamic client reporting, enabling our clients to engage with us much more interactively around the information that we provide to them. We have placed a large emphasis on designing our digital solutions to deliver a client and adviser experience that will delight and will also make it easier to do business with Rathbones. New capabilities will be phased into the business and will free up time for colleagues. It will reduce complexity, it will improve productivity, and it will increase the number of digital processes across our business. Once completed, we will have a blended human and digital experience for our clients and advisers that would delight them, and it will support the one Rathbones concept and it will stand us apart in the marketplace. If we turn to Slide 25, we appreciate that this is a significant investment. And as a result, we will be putting in place a simplified operating model that will derisk our delivery. We are in a strong position, having already upgraded our custody and settlement system and have stable technology infrastructure, which is a key enabler to the success of digital strategies. This is not, therefore, a replatforming exercise, so this will significantly reduce our delivery risk. We've also hired a very strong delivery team which is now in place. And I'm really very pleased that we've been able to attract such strong talent into Rathbones to help us on this delivery journey. In addition to that team, I'm also very pleased today to say that we'll be -- we have got three key strategic partners that we are committed to working with over the next 2 years. Objectway will continue to provide and support our custody and settlement system and might also continue to help us grow MyRathbones. We also, though, are now partnering with InvestCloud, who will provide us with modern and imitative client life cycle management technology and also help us become flexible in the future to react to changing client and adviser needs as we move forward. I'm also pleased to say that Charles River will be providing a proven portfolio management capability into our ever-growing funds business. These strategic partners alongside a strong Rathbones delivery team will enable successful delivery. We are making sure, as I've said, that all of our digital capabilities are based on client and adviser -- client and user-led design, and we'll put the client and the user at the heart of those designs, which will make it very simple for them to use the future technology. Work is progressing as planned and the early client and user feedback is very positive, which is really pleasing to see. In parallel, and this is an important point, we are also placing a large emphasis on improving our data quality as we believe this is very key to the success of a digital strategy. We have a very simple premise, and that is to enter data once and reuse it across the group. Finally, we are adopting a digital -- agile digital delivery principles, and we'll be phasing our delivery and the phasing of that delivery will help us reduce delivery risk and add incremental value to the business over the next 2 years. A simplified operating model that I've outlined will derisk delivery, and it will deliver a leading client and adviser experience into our business. These digital tools once delivered, will be a key enabler for our business strategy and will contribute to improving our operating margin by greater efficiency. And I will now hand to Jennifer, who will outline how this work fits into our financial outlook.

Thank you, Andy. Exciting developments ahead, and I hope that gives you a bit more context about the digital strategy we want to deliver. So now I want to take a moment to take you through the financials of this investment. What Andy just detailed will cost up to GBP 40 million over 2 years. That's across the financial years of 2022 and 2023, which aligns to the road map Andy just outlined. Now a key point here is this will be incurred in operating expenses, not capital expenditure. As I described earlier, we're investing in modern, cloud-based software-as-a-service operating model and will no longer be developing legacy proprietary systems, which means this spend does not qualify as capital expenditure. The upside of this is a simplified operating model and gives us as a group the ability to leverage the latest digital solutions. In addition, we don't incur depreciation costs over many years. And that instead, will fund it through the operating leverage and growing profits in the business. CapEx will continue to remain around GBP 10 million per annum, but you'll see a mix in that with lower tech and an increase in property as we've got a few properties coming up that we need to relocate or renew leases on. In light of the digital investment and continued growth strategy in other areas of our business, we continue -- we plan to continue to recruit to support that future growth. And as mentioned earlier, salary inflation and net insurance increases will be seen in 2022. Taking all of this into account, our operating margin guidance will remain as mid-20s for 2022 and 2023. But beyond this investment, we expect to return the operating margin to the higher 20s guidance from 2024 onwards. So operating margins returning to 27% to 30% by the end of 2024. Finally, you should expect us to continue our progressive dividend policy and nothing you've heard today to detract from that. I'll now hand back to Paul, but look forward to any questions you have shortly.

Jenny, thank you. And I hope you can see the strategy becoming really in action now and also creating some significant aspirations as we face 2022 and 2023. The investment that Jenny has just been referring to in the technology that we recognize is a significant step, but we've taken that very much because it's not only critical to the business and will help us secure future growth, but it's also the backdrop of a strategy that is creating momentum in terms of organic growth. And that's what supported our confidence in giving the 2-year time frame for investment. We're funding it out of margin. And secondly, to give out some operating margin guidance 2 years hence. So we see a lot of growth momentum in the business, and we balance that with the investment, which I hope comes through today. So what do you expect from Rathbones over the next couple of years? And that's really in Slide 27. You can expect us to think, act and invest responsibly. You can expect us to grow wealth and financial security for our clients and continue to be committed to that. And with a bit of luck in 2 years' time, I'll be able to say absolutely definitively that we're easy to do business with as a result of the investment that we're making. And that overlays a personal service, fully supported seamlessly with digital interaction, supported by a quality investment process and advice process in a business that is responsible and has high standards of responsibility and governance. Surely, that's reassuring in such unreassuring times. And our goal is very much aligned with investor outcomes, building trust, building our reputation, growing long-term value and growing generally is what we're about, and we hope that, that comes through in the presentation today. We very much look forward to an exciting 2022 and onwards and thank you for listening today. Now without further ado, I very much welcome questions from the floor. And I think we have an audience that is in virtual that we can't see. So we don't know where the questions are going to come from, but we should be able to hear them. Let's start with the floor here. Ben, good morning.

It's Ben Bathurst from RBC. I've got, I think, three questions, if I may. I'll start with one on technology. I just wondered in terms of the MyRathbones app, have you got any findings in terms of user experience so far? I know it's relatively early days, but are you finding in terms of the clients that are engaging and they tend to be younger clients. Have you noticed any trends among those clients around maybe propensity to put inflows in or better client retention that might be worth sharing with us? Secondly, on Saunderson House, you mentioned, Paul, about the new proposition. I just wondered if you could give a bit more clarity around or reminder possibly around when we can expect that revenue synergy to come through with respect to Saunderson House and the new proposition you alluded to? And then I wondered if I could ask a question to Mike around the funds business as well. Just to hear his views on how that segment is positioned in light of the sort of the tech sell off year-to-date? Are there any funds that have seen a relative improvement in performance perhaps this year versus the ones that we now have a growth bias. Also interested to hear his views on whether or not the distribution model for the funds business will help to provide maybe some insulation with respect to flow performance from any short-term underperformance of the funds?

Ben, thank you, a comprehensive list of questions. Let me take them in order. Certainly more engagement from our clients on the app. And Andy, I wonder whether you could add a little flavor to that.

Yes. So as we said earlier, we've got 43% of our clients using it in a minute, and they're actively using it. We've had 640,000 log-ons over this -- over 2021 as we've been growing the client base. They're downloading documents and client reports from MyRathbones. They're also engaging with their investment managers using the secure messaging within the app facility and the client portal, and that is really pleasing to see. We've also been regularly improving the app and the client portal over 2021, following direct client feedback. So we take feedback, we digest it, we look at it and then we improve the plant portal, and that's been well received. And we are in, I think, at about 4.6% in the App Store rating at the minute on Apple, which I think is pleasing to see, and we're looking to try and improve that as well. So we think we have a strong base with our client portal and app to continue to use it for our clients.

Andy, I think there's another important thing as well as you're probably getting very fed up on your phones of updating all your apps all the time. We are working now to a 6-, 7-week refresh cycle, which actively takes in client and indeed investment manager feedback into that cycle. So really important part of -- a little bit more of an agile approach than we've had before in Rathbones. Andy, thank you. . On Saunderson House Ben. Yes, look, as you might imagine, we're 3 months into that and to reaffirm a strong cultural link there not only with sort of Rathbones to Saunderson House corporately, but importantly, with investment managers and financial advisers at Saunderson House as well. So the chemistry remains very good. In terms of the process, if you like, for adopting our combined proposition, that will happen over a 3-year period, and we set that period mainly because clients would have to be talked through any new proposition. Currently, Saunderson House has a mixed proposition of advice and indeed a fund of funds investment solution. And of course, there will need to be a conversation with the client if that moves to, let's say, a multi-asset solution or indeed a bespoke discretionary solution, which is essentially how that's shaping up. So we've given ourselves that time frame. And so more, I think, as we go into Q2 and -- sorry, half 2 of 2022 on that particular model. But importantly, socializing our plans and engaging with advisers who obviously know their clients very well, has been very key. If there was an early sign, the early sign comes from, of course, some clients who are both Rathbone clients and Saunderson House clients. So we're watching, obviously, very closely how they react to any combined proposition. And we're using them to give some feedback on any plans that we've got. Mike was trying to hide in the corner. So thanks, Ben, for calling it out. That's terrific. Mike, a very direct question to you, I think.

Yes. Thanks, Ben. Yes. So what we've seen from the start of this year and indeed, towards the end of December last year is a rotation away from what I would call long-dated assets. So both in fixed income and in [ high peaked ] stocks. In short, if you've not been in commodities, interest rate-sensitive banks and energy stocks, you will be struggling a bit at the moment, and we're not alone in that. So yes, there are some short-term underperformance right now. We have seen some asset allocators in the market moving from growth to value, and we don't expect that to stop in the near term. So our focus has been on ensuring that all of our clients are super clear how we run money and making sure that they continue to do so rather than chase short-term performance. So that's strategy number one. The second element is that we need to change our focus somewhat to ensuring that there is a good distribution of funds like the income fund, which will benefit from more interest rate sensitive environment, strategic income, strategic bond fund and high-quality bond fund, which is a short-dated bond fund all of which we believe will have some resonance with the market. And then finally and most importantly, our multi-asset funds, we expect to continue the momentum that they've generated over the last 3 years or so, and that is because they are solutions orientated. Therefore, they are much more cold weather because people aren't buying them for a short-term view on markets, whereas our single strategy funds do tend to have a higher risk in terms of investment styles moving away from where you are positioned. In terms of, I think your second part of that question, Ben, which was, does our distribution model give us some form of protection. I would say yes, definitely. If you remember, we moved the what was the fund sales team to a rapid sales team representing the services and products across the Rathbones Group. That allows us to pivot and talk more around the spectrum of services and products that we have in the solutions-based arena. So we hope to keep the momentum going, albeit short term, a little bit more choppy.

Mike, thank you a nice summary there. Stuart?

I'm Stuart Duncan from Peel Hunt. I've got three questions as well. I think if that's okay. First one, going back to your slide on the sort of market size, Paul, I just wonder whether the broader proposition you've now got, whether that actually increases and is bigger than historically may have been the case. The second question on acquisitions. You, obviously, made two in the last couple of years. In terms of the sort of integration process, just wondering your thoughts on branding of these businesses? And whether it stays discrete brands going forward? And then lastly, on the much improved disclosure around flows, there's a figure of about 4% in terms of discretionary flows. I wonder if you go as far as sort of giving us a target on where that might get to in the coming years.

Sure. I was waiting for somebody to ask that latter one. Firstly, on market size, the answer is undoubtedly. I think the combination of being able to put together a discretionary offering, an advice offering and a funds-based offering is undoubtedly reaching new markets. And that's not only in the direct space, talking to clients that have a range of wealth. We have fund-based solutions now as well as discretionary solutions that we can tailor. And as we face the third-party IFAs, we are much more choice in terms of how their clients can fit into a Rathbone suite of product. So no question that, that's giving a broader view. Equally, with the investment that we've made into investment process, we're having some very robust and sensible engaging discussions with clients at the higher end as well. So that capability to offer planning, trust, advice services. Andy and Jenny both mentioned one Rathbones as a concept. It's been very much a philosophy that we've been trying to build in the firm to bring all of our services to bear. And we have a number of very good examples as to where that has really engaged with clients and larger families, too. So the working across the group, leveraging the capability that we've got is undoubtedly making a difference. In brand terms, we will be keeping vision very separate as a separate network, and combining Rathbone financial planning with Saunderson House. We'll be working on the best positioning for that. But at the moment, Saunderson House will be Saunderson House part of the Rathbone Group and making sure that we have the brand that resonates not only internally with Rathbone clients, but also externally with the extremely important clients that Saunderson House have. So work in progress there, Stuart, and I hope we can update you as we get through the year a little bit more on that. In terms of target growth, I think the main point -- as those charts were there for a reason. We knew that in 2019, from a net outflow perspective, it was very low. So all we're demonstrating today is that there is a momentum in the business and with something like a funds-based solution, as Mike suggested, that can grow very quickly. Equally, with the momentum that we're seeing in the discretionary business that can also grow very quickly. But the important point is, is that we are subject of course to investment markets, and we are subject to sentiment. So we're going to be a little bit more realistic. So I would rather you drew your line, we've got ours. And all I can tell you is that we have a lot of aspirations. We're not happy with where the growth number is today, and we will continue to drive that number in the future. And I hope in a year or 2, I'll be drawing a graph that has broadly a straight line. But I'm not committing to anything at the moment, given those external factors that inevitably impact the business model. Any more questions?

It's Alex Medhurst from Barclays. Three questions from me, as always. Just firstly, can you talk in the cost investment piece about using duplications and efficiencies, those sorts of things. So just a question as to whether there are any cost savings embedded in the operating margin target or whether there's a sort of exit trajectory in terms of operating leverage that might be worth picking out? Second, and these two are probably more factual, can you give your interest rate sensitivity and any sort of timing issues worth bearing in mind? And finally, any impact you're seeing in the sort of investment management business from sort of weaker sentiment or when that might affect -- be affected by and some of this market volatility we see at the moment?

Alex, thank you very much. Very clear questions. I might part the first one, Jenny, if that's all right to my left.

Thank you, Paul. So as digital helps to remove paper, postage and time. So whilst there's not very large explicit cost savings built in, they do drop out of this investment, and they've reinvested in the growth in the business. So whilst we're making this investment, we're not standing still, we're still growing as a business. And it will help to fund or self-fund the future growth. So we've guided back to that north of 27% operating margin, which is where we've most more naturally been in environments where the interest rate has not been 10 bps which brings me on to your interest rate sensitivity. Yes, as you saw from the chart I put up, it's suppressed. So to give you a yard stick at 50 bps, annually, you expect that net interest income to be nearer GBP 8 million to GBP 10 million by the end of the year versus it was GBP 4 million for 2021. And up to 1.5% we have linear growth in that revenue line before the full effect that we pass on to clients because we do pass the interest margin on to clients of a certain level. So no, that's looking to returning to some of the larger basis point return that you saw on that slide earlier on.

Yes. And Alex, the full impact, of course, of that digital investment will be a mixture of revenue and costs. And that's really what's behind us giving quite explicit guidance on the operating margin in 2024 and beyond. . Talking about the Investment Management business. I mean the first thing to say is that as Mike talked to the performance of the multi-asset funds, think of that translating across the wealth business as well. It's a long-term business. It isn't constrained by any specific sectoral mandate or geographic mandate. It's much more balanced. It's looking at liquidity, it's looking at equity growth. It's looking at diversity. So it will be a little much more of a balanced outcome. Inevitably, markets like this are going to have an impact. But they're short term, and I'll just echo what Mike said, really across the multi-asset business and into the Unit Trusts business and the main business will continue to have that long-term focus. So we will see a little bit of ebbing and flowing undoubtedly in 2022, but a much more stable overall performance than you might see in the more extremes of the market. Any more questions from the floor? Because I've been dying to say this all morning, I've got to go to the phones now, I think. So anybody who can give questions, I think, from the phones. We shall await them, see if hybrid really works. .

[Operator Instructions]

That will teach them for not being here.

[Operator Instructions]

Okay. Don't worry. I'm going to give it 10 seconds. [indiscernible] relax in the room. Technology is never seamless, is it Andy? Okay. Great. There doesn't seem to be any questions from the phones. We've probably either gone on too long or they've dropped off Shelly. I know we do have 1 or 2 questions that have been sent through the webcast. So can I turn to you?

We did have questions through the webcast, but they have now actually been answered from the questions in the room. So with that, I will hand back to you.

Lovely. In that case, Shelly, thank you very much. And look, a huge thank you to everybody today. Lots of exciting things ahead. Hope we've got that across to you. I very much look forward to the next one. And we'll see you all again soon. Keep safe.