Rathbones Group Plc (RAT) Earnings Call Transcript & Summary

Well, good morning everybody. Very nice to see everybody. Believe it or not, after all this short spirits space of time, this is the Rathbones half year 2024. I don't know where all that time has gone. But hopefully, we've got an opportunity to run through the results of the first half. So thank you very much for everybody joining us in person and of course, online. And of course, usual rules, we are recording today's presentation. So we'll be grateful, particularly those in the room, if you could do the usual thing with your mobile phone. Thank you very much. So this morning, you have 2 -- these photos have to improve, I have to say. I'm joined by Iain Hooley, our Group CFO and Iain will take you through the financial results in due course. But before we do that, maybe I'll take you through some of the highlights of the last 6 months. Now as usual, there'll be plenty of time for questions coming from the room and equally afterwards online. So just as I reflect back, I think we started 2024 very much with a very ambitious agenda for Rathbones, certainly balancing a need to demonstrate some cohesion and indeed stability in that period following the combination with Investec Wealth and Investment but also some tangible delivery on our technology agenda, completion of some historical asset migrations, which were important and of course, navigating what was quite a busy regulatory environment, too. And the results and matters that we're reporting today, I hope, demonstrates sound process -- progress rather against these ambitions. So let's look at these in a little bit more detail. So in summary, what we're reporting today, total funds under management increasing 3.4% in the first half to GBP 108.9 billion, benefiting from what were more positive markets for investors, thankfully, but importantly, also for much better second quarter flows, particularly gross flows, up 7.8% in the second quarter versus the first and outflows in IW&I falling 23.7% Q1 to Q2, and this reflects an environment which is much more conducive to investing, but also more stability in the business. Today, we're reporting an underlying operating profit of GBP 112.1 million for the first half, which itself represents an underlying operating margin of 25.1% versus 21.3% a year ago. So results are resilient and Iain will take you through more of the details of those in just a moment. Other headlines for this half year period are that the IW&I integration is very much on track. InvestCloud is now a live system in the business and perhaps I can talk about those a little more in a second. Maybe before I do that is just step back a little bit and take a more holistic view and just report on an industry that even in this first half continues to consolidate. And I believe Rathbones is very well positioned today to compete effectively in that market. It's a well-established and trusted brand in the U.K. in a market that continues to grow structurally. I still believe that our propositions provide a valued service that can be easily tailored to adapt to client circumstances and meet advisers' preferences. And of course, Rathbones is -- now has 800-some strong client-facing professionals that themselves work across 23 offices in the U.K. and Channel Islands, and that's a pretty strong distribution network, but also it's benefited from dedicated investment in sales and marketing professionals. They themselves build client networks that themselves are complemented by other strategic partnerships like Vision Independent Financial Planning and Investec Bank. So quite a formidable distribution capability. And as we sit here today, we've got a stronger digital engagement capability and also better infrastructure. And this supports what is effectively a dedicated high-quality workforce to deliver our service to our clients. And we remain keen to develop this capability going forward, taking advantages of the many efficiencies and service enhancements that can come from what is a rapidly evolving space, particularly in AI and robotic processing. Our aim, of course, remains the same to build lasting relationships with clients and, of course, providing investors a dependable long-term annuity, and we're well on our way to delivering that positioning. Of course, a key next step for us, though, is to complete the integration of Investec Wealth and Investment. And until we complete the migration of Investec clients onto the Rathbones platform, we continue to operate 2 separate but increasingly aligned businesses. Now much of what we offer across the group is very similar, and we're continuing to streamline propositions and pricing, as you might expect. We've also been working proactively to optimize and grow other services. For example, in July, we launched IW&I SIP administration service across the group, very much welcomed on the Rathbones side. And in the second half, we intend to enhance IW&I's on platform managed portfolio service which has been a key priority for us post the combination. After migration, of course, we look forward to offering all client-facing teams the chance to avail themselves of Rathbones' managed service and select solutions alongside other specialist offerings such as Green Bank. Our interactions with Investec Bank remain very positive, and that's -- I mean I've already seen some early examples about how that interaction can bring different lending solutions to clients as well as offering some distribution the other way. We've made steady progress, I think, to implement a common investment philosophy, and that's across the wealth business now, establish a stronger research team, which is for the better of both firms. We also have an exciting future opportunity to leverage the capability of Rathbones Asset Management across the wider group, which is increasingly a USP in the U.K. marketplace. We have, of course, as you might expect of us, continue to prioritize employee engagement and have appointed many key leadership positions in the first half. Our employees are working incredibly hard to deliver on integration targets and maintaining high standards for business as usual, and I want to thank all of them. We have employees in 6 of our major offices now working from common locations, which is absolutely terrific to see, but also shows significant progress on how we've executed against our aspirations. And that includes our London office that is now located in 30 Gresham Street. We are also very pleased to report last time that we'd relet all of our premises in 8 Finsbury Circus. So a lot of the risk that was associated with that is now minimized. We look forward now to the last big 2 for the second half, which is our offices in Bristol and indeed Liverpool. Today, we're reporting GBP 20 million of run rate synergies, very much in line with expectations, and it's good to report that client-facing staff turnover remains very low. So very briefly on that client migration to give you a little bit more background on that. Client migration is very much key to delivering future synergies and important that we can welcome IW&I clients onto the Rathbones platform. And work, as you might imagine, is well underway. We have contacted around 25,000 clients out of 58,000 in total. We're doing this in batches. It's quite a lot to do. But acceptance rates have been very positive indeed and much as expected, and we certainly expect to contact all remaining clients by the end of September. It's worth commenting at this stage that the consent process that we're dealing with here is much simpler than it was for Saunderson House, which required more advice in order for that consent to be achieved. The IW&I migration is much more similar to the migration we took on post the acquisition of Speirs & Jeffrey in 2009 when 98.5% of clients migrated. And just briefly touching on Saunderson House because we're very much near the end of that migration and indeed integration, which is largely substantially complete. Funds under management at June was GBP 4.3 billion, of which only GBP 0.8 billion continues to reside in Saunderson House Limited. And of this, we expect to retain a client relationship with those clients that have about GBP 0.6 billion of that and only GBP 0.2 billion yet to engage in the process. And annualizing revenue and margin from June 2024 funds under management, giving you some idea of a 12-month revenue of around GBP 37.3 million at a revenue margin of 114 basis points gives you some idea of what the annualized revenue margin should be for that, and that's very much in line with what we expected it to be. The chart on the right shows how that's split between the various segments that we're reporting. We expect to complete the remaining close down activity in Saunderson House in the second half and complete all of the expected cost synergies. Let me turn now to our digital agenda. We -- as I said earlier, we are now live with some 1,200 users on the InvestCloud CLM platform. It was launched in July with what I would call first stage functionality. Investment teams now have a consolidated view of our new and existing business pipeline and contract this from an early stage from prospecting through to onboarding, enabling us to target resources much better towards growth areas. This is a solid digital foundation for Rathbones and will enable us to enhance the experience continually over time, both for investment managers and for clients. We continue to expect to improve the product very much in the second half, and that is very much targeted to be a head of the IW&I migration in the first quarter to make sure that the right functionality is firmly in place before that migration takes place. Further into the future, of course, we really look forward to taking advantage of the opportunities to benefit from InvestCloud's own product road map, which, of course, will include new capabilities such as AI and a number of third-party integrations that exciting company has in mind. Costs for our digital program remained very much in line with guidance and development in 2025 onwards will be from normal change budgets. So it's been a busy half year, but I haven't talked much about numbers. So I thought what I would do now is hand over to our expert. Iain?

Thank you very much, Paul. Good morning, everyone. I will begin with looking at the performance headlines for the 6-month period, some of which Paul has touched on. Funds under management and administration or FUMA increased 3.4% to GBP 108.9 billion at the 30th of June. That reflects both improvement in market conditions and better net flows in the second quarter. Operating income was 88% higher than the comparable period of the prior year, rising to GBP 447.4 million. That reflects the inclusion of IW&I for the period, but also reflects 11.6% growth in the legacy Rathbones business, which we'll look at more a little later on. Underlying profit before tax increased 2.2x to GBP 112.1 million, similarly reflecting inclusion of IW&I for the current period. And that figure is net of our continuing investment in our digital program, which amounted to GBP 7.1 million during the period. As a consequence of the growth in underlying PBT, we can report continued progression in our underlying operating margin, which increased from 21.3% for the prior period to 25.1% for the 6 months to the 30th of June. That's in line with our guidance of a mid-20s margin for the current year and shows the expected progress towards our delivery of a 30% margin from September 2026 being the third anniversary of the completion of the IW&I transaction. Moving on to statutory PBT. PBT reports on a statutory basis increased 2.5x to GBP 65.3 million. That reflects the benefits of the inclusion of IW&I, which more than offset the increase in the related goodwill amortization and the cost relating to the IW&I integration during the period. And this we -- as we look -- we'll look a little further into non-underlying costs as we go through the presentation. Underlying earnings per share increased 21% to 80.4p, the increase relative to the prior period is after taking into account the impact of the shares we issued last year to fund the IW&I transaction, but also, of course, reflects the benefits of the combination. We're declaring an interim dividend of 30p, which is an increase of 1p or 3.4% relative to the prior period. That reflects a continuation of our progressive dividend policy as we look through the short-term impacts of the IW&I integration and the investment in our digital program. We'll look now at FUMA and flows during the period. So the table shows FUMA by our 2 operating segments of wealth management and asset management. The wealth management and asset management columns show the FUMA for each segment on a stand-alone basis for the segment. We have GBP 5.5 billion of FUMA held within wealth management portfolios that are invested in funds in the asset management segment, and hence, that's eliminated on consolidation to arrive at the group FUMA figure of GBP 108.9 billion at the 30th of June. Gross inflows amounted to GBP 6.1 billion for the period, representing continuing strong annual growth rate on a gross basis of 11.6%, which illustrates our ability to drive new business. Whilst FUMA increased by 3.4% overall, net outflows for the period amounted to a net outflow of GBP 0.6 billion, reflecting some continuation of the wider economic factors, which will put upward pressure on outflows, including the effects of higher interest rates and cost of living, which is resulted in existing clients removing -- withdrawing a portion of assets from their portfolios. However, we have seen, as Paul touched on earlier, a marked recovery in net inflows -- in net flows in the second quarter, which is shown by the chart on the right. Net outflows reduced substantially in the second quarter to GBP 30 million. That improvement was driven by the wealth management segment, which we'll look at in more detail in a moment. If I move on to that now. So the slide shows the analysis of the total FUMA and flows for the wealth management segment by service in the case of Rathbones Investment Management or RIM as showing IW&I and Saunderson House separately. So RIM Discretionary and Managed Services reported positive net inflows throughout the first half despite some continued upward pressure on gross outflows. IW&I outflows were elevated in the first quarter, reflecting an expected peak in outflows relating to investment managers who left IW&I prior to the announcement of the combination, following which investment management -- investment manager turnover has remained low. This peak in outflows, which affected the final quarter of the 2023 financial year and the first quarter of this financial year, subsided in the second quarter, in addition to specific factors, which we've referred to previously, which contributed to higher outflows in the first quarter not being repeated. So consequently, as a result of that, IW&I returned to a position of net inflows in the second quarter amounting to GBP 0.2 billion for the quarter. Whilst this significant improvement relates to just a single quarter, it's nevertheless a significant improvement, and we see reasons for greater optimism in the outlook for net flows going forward. Turning now to income. Total income increased by 88% to GBP 447.4 million, again, reflecting the inclusion of IW&I for the period. The legacy Rathbones business reported growth of 11.5% in income overall with income -- with all income lines showing significant growth relative to the prior period. Fee and funds income benefited from the higher levels of FUMA. Commission income was driven higher by increased trading volumes in Q1. There is typically some seasonality and higher volumes in the first quarter as portfolios are positioned as the end of the U.K. tax year approaches. By activity, this year was notably higher than the prior period following a period of rising markets. Interest income shows the continuing benefits of our banking license. The interest revenue rose, of course, during 2023 as interest rates increased. And the run rate of that margin at the end of 2023 is carried through into 2024, increasing income relative to the prior period overall. Advice income continued to grow as we continue to develop our advice proposition. And other income includes net interest income earned on IW&I client money. You may recall, IW&I remains on the client money model for the time being, and we'll move on to RIM's banking model at the point that clients migrate. With regards to our income margins, the slide shows the annualized income margin for the combined business for the current period only. Historic margins related to the legacy Rathbones business and now are less relevant. So we're focused on the annualization of the margins for the current period. The margins are calculated on using gross FUMA for the relevant segment. Income margins we've reported previously have been based on net FUMA after group eliminations. The treasury and income interest yield relates to the RIM business only given that IW&I remains on the client-only model for the moment until migration. So IW&I client money balances are off balance sheet for the time being. And as a slide show, all income margins have remained solid during the period. We'll now move on to look at costs. It's appropriate to highlight with regards to costs. The distinction between the RIM and IW&I cost basis is increasingly becoming less meaningful as we deliver cost synergies and integrate certain operational functions. So therefore, whilst there remains a clear distinction in terms of FUMA and income, for the 2 entities of IW&I and RIM until migrations completed, the same doesn't apply to the cost basis. So we're, therefore, presenting on the cost on a combined basis. Costs for the current period reflect the inclusion of IW&I, of course. And with regards to the specific lines that we show on the table, fixed costs reflect the impact of inflation and recruitment in the prior period. Headcount, however, was reduced by 89 on a full-time equivalent basis since the 31st of December, mostly as a result of synergy delivery albeit costs in the current period reflects only a portion of the full annual benefit of that synergy. Whilst variable costs have increased in absolute terms, reflecting both the inclusion of IW&I and stronger business performance, the cost is reduced as a percentage of underlying PBT. Other operating costs of GBP 7.1 million -- sorry, other operating costs include GBP 7.1 million relating to our digital program and the investment in our InvestCloud Client Lifecycle Management, or CLM capability. The total spend in relation to that project so far is GBP 37.8 million. The project investment in the CLM project will continue in the second half as we complete the planned phase of post-implementation enhancement, but the project will be completed by the end of 2024, and we expect the total cost to remain within the GBP 45 million we've communicated previously. From 2025 onwards, as Paul referenced, the CLM system will fall within our BAU system and maintenance and development expenditure alongside our other systems and technology infrastructure. I'd like now to move on to look at a bit more detail of delivery synergies relating to the IW&I integration. We've stated previously that we expect to deliver synergies of GBP 60 million per annum as a result of integrating the IW&I and RIM businesses and that we expected to deliver 25% of those total synergies of GBP 15 million on a run rate basis during the course of 2024. At the 30th of June, we've achieved annualized synergies on a run rate basis of GBP 20 million, so ahead of expectations. And whilst we're pleased to report the delivery of synergies ahead of target so far, we continue to expect the total value of synergies to be consistent with our original guidance of GBP 60 million. albeit, of course, our objective remains to maximize the overall opportunity for synergy realization as we go through the integration process. We continue to expect synergy delivery in 2025 and 2026 to remain in line with previous guidance, with 70% of total synergies delivered by the end of 2025 and all synergies delivered by the end of 2026 on the cumulative run rate basis. Turning now to non-underlying costs, which for the period comprise amortization of intangibles of GBP 22 million, reflecting the increase in the annual charge resulting from the IW&I transaction. Integration costs relating to IW&I of GBP 22.1 million on a P&L basis and GBP 2.7 million relating to the Saunderson House transaction, which reflects the portion of deferred consideration, which is conditional upon the recipients remaining in employment and hence is expense as a remuneration cost. We set out at the 2023 year-end that the total cost of the IW&I integration were expected to be GBP 177 million, comprising cost to achieve the integration and synergies of GBP 98 million on a -- on a cash basis, incentive awards for employees are a key to the success of the integration of GBP 65 million and the fit out of our London premises at 30 Gresham Street where the combined offices -- London office is now located. GBP 14 million of which is expected -- is net of the lease -- expected lease incentives. So you may also recall that GBP 45 million of that total cost of GBP 177 million has been funded by the Investec group under the terms of the transaction via excess capital remaining within IW&I at completion. Integration costs of GBP 22.1 million have been incurred during the period, as I said, on a P&L basis. The P&L expense is net of certain noncash credits, which amount to GBP 12.1 million, mainly in relation to property accounting in respect of our exit from the premises at 8 Finsbury Circus. So the integration cost on a cash basis during the period, therefore, amounted to GBP 34.2 million. Integration costs remain very much in line with our expectations, and we continue to expect to complete the integration process within the total of GBP 177 million we've communicated previously. Just looking now at our capital position. We continue to maintain a robust capital base, with a capital surplus increasing to GBP 146 million at the 30th of June and the CET1 ratio increasing to 18.1% as the business continues to generate regulatory capital resources. The strong capital base enables us to maintain our progressive dividend policy whilst we incur the cost of integration ahead of the full benefit of the synergy realization. We expect to be able to confirm later this year, subject to regulatory approval. The benefit to our capital position resulting from the pension scheme by an arrangement, which was entered into during the period. So following what has been a strong first half, which has seen growth in underlying profit and EPS, an increase in our underlying operating margin to 25.1% higher FUMA supported by a marked improvement in net flows in the second quarter. Synergy realization running ahead of plan and further progression in the interim dividend to 30p. With regards to the outlook, we continue to expect during the second half to complete our digital investment in CLM, as I mentioned earlier, within our existing guidance of GBP 45 million. We expect the underlying operating margin to remain in the mid-20s range for the full year. We remain committed to our progressive dividend policy, and we continue to expect the synergies resulting from the IW&I integration to reach the GBP 60 million on a run rate basis in 2026 following completion of the integration process. Thank you very much. I'll hand back to you, Paul.

Iain, thank you. And some encouraging first half results. I hope you all agree that demonstrates some resilient progress against our original ambitions. And I've summarized, I think, in the tiles that are in this slide something just to -- that we would point to you to say that this is the Rathbones of today. Let's be realistic. There's still a great deal to do to complete an integration of the size of Investec Wealth and investment, but we've made some great progress so far. But I continue to believe that the combination benefits are still out there, and there's a lot of exciting opportunities to grow what will be a strong and lasting business that shareholders can depend on. And of course, the clients and advisers can feel increasingly reassured and proud to be associated with. So plenty to do, but plenty delivered to date. I'll now hand over to -- this floor to see if we can answer some questions for you. Let's start with everybody in the room, and then we'll take some questions online.

It's Ben Bathurst from RBC. I've got one on digital investment for Iain to kick off. As you move towards the end of the investment program and reached the GBP 45 million spend, I wondered if you could just provide a little bit more color on the impact on expense progression looking into FY '25. Is the right way to think about this that the GBP 15 million expense is going to effectively fall away next year? Or will that be, as I think you alluded to before, some sort of recurring BAU expense and how much might that be? And then secondly, on NII, market expectations for a rate cut in the second half of '24? Should we expect the group to absorb those reductions? Or will this be shared with clients? And then thirdly, on capital, are you able to offer any clues as to the potential quantum of the benefit from the buy-in transaction that you mentioned you've engaged in, in the first half?

I can did 3 questions there, but -- well done, Ben. Let's get those questions. They're all for you, Iain. So I thought I'd give you a couple of seconds to think about it. And then all yours.

Thank you. I'll start with the last one first, Ben. So on the buying, we need to go through the process with the regulatory process on that. So we're not able to say anything more later, but I expect to be able to confirm that by the end of the financial year. In terms of the digital investment, I mean, clearly, as we move off the project of implementation and getting the system and running as we'd like it to be. The level of development will start to move into a more BAU mode. As always, with all systems, there's always things you'd like to do with them in this maintenance and further development that can be undertaken on all of our systems. It will fall within that general part of development spend that we incur as a business and which is reflected in our margin guidance. Just on NII, yes, of course, I mean, as interest rates increased, we shared the benefit of that rise with our clients. We pass on more than half of the benefit to clients of the total interest take. Similarly, as interest rates decline, we expect that to apply in reverse. So we will -- we will see a reduction in rates as rates come down. But of course, we look at the -- we want to pay a competitive rate to our clients, and we'll be very mindful of that. I think whilst the immediate impact will be softened by our treasury strategy. So whilst a substantial portion of our total liquidities with the Bank of England, some of it's in our treasury strategy of [indiscernible] and things. So there won't be an immediate impact on that. But as we expect once interest rates really start to -- the decline starts to happen to be beneficial to equities. And I think we're more geared to the benefits of higher revenues from the equity markets than we are from the -- on the interest margin. So that's how we expect that to play out.

And Ben, just to give you a little help on looking at the sensitivity of that, there is some analysis in Slide 27 which will give you the idea of what our total deposits are and you can split those deposits in terms of how they're invested in terms of cash and balances with central banks. And obviously, if there's any change in the base rate, and that will immediately be reflected in the central bank balance. And that's just over GBP 1 billion out of GBP 2.3 billion. Just to give you some idea of the sensitivity of that. But as Iain says, continue to commit to paying competitive rates to our clients as we have done throughout the whole of the last decade or so. Thanks, Ben. Stuart?

I'm Stuart Duncan from Peel Hunt. I've got 3 questions as well.

Upfront about it though.

Firstly, on the SIP administration, can you just sort of talk about the benefits of bringing that in-house, given the number of parties that offer that service at different price points? Secondly, as the clients you've written as part of the migration, I just wonder if there's any sort of common themes or issues that are emerging with the ones so far? And then lastly, given the investment in digital and technology, and I guess the enhanced digital capability you've got, does that open the potential [indiscernible] fully digital clients, you don't interact with in any other way?

That's a big question. Okay. Let's take those in order. From a sort of SIP administration business, I think perspective, there are, as you say, a number of providers in this, but there's something quite reassuring about having an in-house one where it is all dealt with in house. SIP administration can be quite cumbersome and not straightforward. Thank you, Iain. I'm just leasing my technology here, sorry about that. So I think having the fact that it's all in one place, is, from a client perspective, hassle free. So that's what we tried to do. We're not aiming to grow this business, the size of some of the large SIP administration businesses. But as a sort of steady way of servicing our existing client base or indeed new clients that come in, the feedback from our investment managers who haven't had that. So we used to have that service many years ago and sold it. But now having it back in the business has actually given some service enhancements that have been really well received by the investment team. So it's a little like the benefits of the banking license. We're never going to compete with a commodity in a big U.K. bank but actually having that lending facility, so close and able to be accessed by clients is our value in quite a few circumstances. So that was the rationale, particularly as a business that's already existing in IW&I receiving similar sorts of plaudits. In terms of issues with migration, I think challenge in technical terms in a way was trying to explain to clients that going from a client money basis to a banking basis just does have some technicalities and indeed trying to explain that in words of sort of one syllable in a very clear way. We've asked for a lot of help from sort of external parties to make sure that we are speaking in English and all of that. So that was the first thing to trying it across, but that's gone pretty well. And I think the other surprise, I think, in the process has been how many of our clients have requested a paper interaction rather than a digital interaction. I raised that because that relates to your third -- your third question to some extent. There does seem to be a value in a certain sector of clients to -- that paper is a little more official a little more meaningful and is less humdrum in terms of just e-mail. So it's surprising, I think, the number of clients that have come back and said, "Can I have it in paper " which, of course, we can accommodate and all of that. So that's really been the migration. But other than that, given that the services are extremely similar, Stuart, there's really no major differences to be talking about. We're not changing prices or anything like that. So very confident that the migration will go as planned. In terms of digitization, yes, I think it almost goes back to that point earlier. I think Rathbones will continue, as you can see from the tile in the bottom middle there, is that those personal long-term relationships are hugely valued and will be a really important part of our business model for as long as I can foresee any into the future. So I think digital is always going to be a way of supplementing that rather than taking that over, I think. Now that doesn't mean to say that we can't increasingly source new clients from a nonpersonal handshake source, right? We can source that directly through digital channels, and that's very much what we're doing. But when you come into Rathbones, please meet us, I think, is the way that we'd like to run the business model. We think that's going to be of value to both clients and advisers into the future. So a good platform to be able to have the choice, though as markets, of course, change and preferences change. Any other questions in the room? David.

It's David McCann from Deutsche. Two questions from me. As you've got on your slide there, well positioned for growth except in the business kind of got back to about breakeven in the second quarter. There were some temporary factors, which you've alluded to, suppressing growth at the moment. I guess the question is when the business is firing on all cylinders as one business, some of those temporary factors fade away, what does organic growth look like sort of medium term for this business? Or rather, what would you like it to look like for this business? That's the first question. And the second one is you talked about the progressive dividend. So should we think about that as being roughly the 2/3 payout ratio in practice you've done in recent years with a progressive feature in the event that it fell in a particular year? Or should we be thinking about it more in terms of a [ pent ] per share gain? Any thoughts on that? Just some color would be useful.

Okay. I'll let Iain do that. Yes. Look, David, I think there are a number of factors that have impacted organic growth. And I think one of those, of course, is that we are in the -- the part of the market where a lot of our clients are coming to the end of their accumulation phase and are beginning to sort of managing their retirement. I mean that's a huge valuable relationship, but that's at this stage of life, I think, where -- where clients have got enough money to warrant a service like Rathbones. So inevitably, we're going to always in the business model be subject to clients doing all things like spending their own money. And trends, of course, as you rightly point out, particularly with high interest rates and repayment of debt has been a short-term factor that has impacted those outflows, notwithstanding some of the lumps and bumps that inevitably come with acquisitions. But once those are settling down, I think I would look to the trends in gross inflows, and that's why Iain and I are pointing out the increase in those gross inflows are quite encouraging. So if you take out the 2% or 3% or so that might be for -- is the noise and the outflows right now. That's the sort of implied growth rate that we would be looking at. But this is a business where we will continue to be subject to sort of trends and the economic environment at the time. As the investment climb improves, we would expect gross flows to improve similarly and have an opportunity to do that. So that will ebb and flow. But that's -- that gives you a broad idea, I think, as to where we're looking.

I take dividend question. So I think, yes, our focus, of course, as I've alluded to at the moment is to maintain the progressive policy, which means really for the time being in the immediate term, to look through the integration costs we're incurring and maintain this trajectory that we've established over the recent past few years. So I'd look at it in those terms until we get through to the other side of the integration process. Of course, once we're through that, integration costs fall away, we'll be enjoying the full benefits of synergy realization. Of course, we'll take stock of our -- a best use of our capital base at that particular point in time.

Any other questions in the room? Shelly, I'm sort of looking to you to see if there are any other questions online.

There are. I will take them one at a time. The first one is probably one for Iain. In terms of IW&I cost synergies, which are tracking ahead of schedule relative to current year guidance, can you give us color on what specifically has been going better than we anticipated?

Thank you. I think the property integrations, in particular, where we now achieve 6 property integrations. Those have been realized ahead. Some of the technology and infrastructure costs, we've been able to accelerate and other certain operating areas. And I think just in terms of our ability to take advantage of natural turnover in the head count base and convert that into synergy realization as well. So it's more of a -- which a timing point, as I say, we'll still expect to remain on track for the overall figure of GBP 60 million, but that we've been able to deliver some of that ahead of schedule.

Perfect. There is another one for you, Iain. Could you comment on the overs and unders in operating expenses for the first half of this year versus the second half with similar digital migration expenses in the second half of '24? Could greater run rate synergies support a higher underlying PBT margin in the second half of '24 compared to the first half of '24?

It's quite low in that question.

Yes. Thanks so much.

And I think -- I mean there were some things that affected in the second half of the last financial year with -- we got effects of recruitment and inflationary impacts and impacts of salary reviews, which affected the second half. I think in terms of the overall margin guidance, we continue to expect to see that progression through that. Sorry, Shelly you just give me some of the other elements of that question again?

Did we cover the digital migration expenses?

Digital migration, yes. So the GBP 7.1 million we've incurred in this first half of this year. It was -- again, that it will be a similar sort of GBP 14 million to GBP 15 million overall for the year. That was similar to the level of spend last year. So that year-on-year spend is broadly the same. But as I say, as we go forward, and we move into a more BAU phase with regards to the CLM system. We will see that move into the BAU phase and part of our overall spend, which we expect to remain relatively consistent, and we've woven into our overall margin guidance.

Yes. Look, I think the -- the overlay really is, of course, we're reporting synergy and synergy is on a cash basis sort of run rate basis right now. And of course, as you'd imagine, the second half, all of that begins to feed into run rate P&L. So we would expect some uptick in that. There are 1 or 2 things like our friends, the financial services compensation scheme costs where all the costs are booked in the first half. And so as you look into the second half of this year, that's all done. So usually also sort of seasonal things, but it will be the synergies that will be driving the margin improvement.

I think just with regards to that first half, second half split, the seasonality point is important. The transaction base commission income in the first half is normally better in the first half than it is in the second. And of course, the annual salary reviews take effect in either April or in the case of IW&I in June. So that will be a greater impact on the second half of the year than it was on the -- on the first. So that as well as continued synergy benefits of the overall things that are affecting that first half, second half split, reflecting the overall mid-20s guidance for the full year.

Perfect. Iain, a question on the RAM, the asset management business. Could you please talk about how we ensure relevant conflicts are avoided, especially given the implications of consumer duty? And in general, how do we think about investing and growing this part of the business going forward, given it is a smaller part of the group post IW&I?

Yes. Look, so a couple of points, I think, in terms of overall that. Plenty of opportunity to invest in Rathbones Asset Management, a very capable business some good investment performance that has undoubtedly fared an awful lot better than the industry flows, as I hope some of the disclosures I've talked about. We've always run that business standing on its own 2 feet. It stands on -- lives or dies on its own performance. And we don't influence at all the choice made by the wealth business in terms of its funds. Where we do use the fund business very specifically in the wealth business is in the multi-asset space. And that's very clearly either managed by restricted financial advisers who are offering those multi-asset funds. So very clear to clients where that -- where those funds are going to and that they are internal to Rathbones. And indeed, any execution only fund decisions made by the clients, again, very clear that they're in internal funds. Other than that, it's just as easy to choose an alternative fund provider to James Thompson or Brian Jones fund as it is to manage the internal. That's not to say that there is an opportunity for the Investec wealth investment managers to look across at the fund range and appraise that, perhaps a little more closely than they may well have done as a wealth competitor in the past. So that's very much something that we would encourage. There's a good track record in all of those key funds, and they do stand on their own 2 feet. So we very much look forward to leveraging that. And also, we just invested into the Rathbones Asset Management business in terms of its adoption of Charles River. Now it's very standard for a lot of the larger asset management players. But for us, that's a major step forward. and we'll generate an institutional-type investment process across the business, but now can get access to a number of other options in terms of the institutional market and other segregated mandates that we can now begin to service. So it's a great team, lots of cohesion, lots of opportunity to work and supplement the wealth business. I think it's a proper USP. And they have, of course, made the point to me that now that we've completed this combination, they are much smaller, even though they're now managing GBP 15 billion. I think when I joined, they were GBP 7 billion. So the business is growing quite a lot in spite of what is a -- what is a tough market. So we're optimistic about that business. And of course, it's got a lot more scalability embedded in it than the wealth business. So very pleased to have it.

Iain, just another question for you on the synergies. Could you confirm that any cross-sell opportunity with Investec is excluded in our forecast? And what do you believe could be the longer-term prospects for these, given the positive interactions between the businesses?

So yes, so the GBP 60 million doesn't include the benefit of any opportunity with coming from the strategic partnership with Investec Bank. We're very much focused on ensuring that we utilize that opportunity in order to make sure we put the best service we can in front of clients and give them the optionality for broader banking services that the Investec Bank can provide. So that's not in that -- not in those figures in the GBP 60 million. We're continuing to build that opportunity. The certain practical things we need to put in place in order to fully maximize that. But we do expect it to make a meaningful contribution to net flows going forward.

That's all the questions online. Are there any questions on the conference call?

We currently have no further questions on the audio side. So I'll hand back to the management team.

Probably, in which case, thank you very much for not asking any questions about consumer duty. It seems to be the order of the day, certainly the last presentation. So listen, suffice to say, thank you very much for the time this morning. I hope it's been helpful if there are any other follow-up questions any of you have, please feel free to get in touch. Thanks a lot.

Thank you.