Record plc (REC) Earnings Call Transcript & Summary

Good morning, and welcome to the Record plc Full Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives in the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to [ note ] the following [ poll ]. I'd now like to hand over to Leslie Hill. Good morning to you.

Good morning. Thank you very much, and good morning to everyone who might be calling in. Thank you very much for your interest in Record. Steve Cullen is our Finance Director. I'm Leslie Hill, the CEO. We're going to go through some slides, which describe in more detail the annual results. We're very happy to take questions that we can answer. I've already got one that is pre-submitted, which is actually focusing on how we fund the various remuneration and option schemes that we offer our staff. And I would propose to answer that. I think it's good answer. But I would also propose that we answer that at the moment where we're talking about costs and remuneration, if that's okay with the person whose name I'm not sure who that is.

[indiscernible] .

[indiscernible]. But there will be an answer available, and I think you'll -- I hope you will like the answers we give you. So let's turn to the first slide. Steve, I'm going to ask you, if I may, just to run through the highlights of the results and the financial pieces. And then we'll talk about the strategy next.

Yes. So I think just taking a step back and looking at sort of the changes compared over the last 2 years since the change of leadership and changing strategy, FY '21, which was the previous year was what we saw as our transitional year, where we were changing resources and starting to invest more in technology under the modernization strand of our strategy. And consequently, we did see a dip in our operating profits last year and the inevitable lag between investing in systems and new products and the sort of revenue stream starting to come on board last year. So what we've now seen this year is as we're reopening, all the revenue stream starting to come on board and the sort of the benefits, if you like, of the year of investment that we had in FY '21. So in terms of financial headlines, the revenue, we've seen a 38% increase in our revenues. We've seen our operating margins sort of the balance that we expected after the transitionary year last year, from 24% back into sort of the lower 30s, 31%, and we've seen our pretax profit increased to GBP 10.9 million. So that's a 76% increase in pretax profit. And similarly, basic EPS, a 64% increase in our earnings per share, and what that's allowed us to do, which we actually did at interim this year was to reset our ordinary dividend level. On a forward-looking basis, we expected a good set of results this year. And so we reset our ordinary dividend at interim to 1.8p per interim, and we're going to match that as a final ordinary dividend of 1.8p. So total ordinary dividend of 3.6p, and similarly to the last 2 or 3 years, we are also paying out the special dividend. We've got the balance, if you like, of the earnings, which equates to 0.92p per share. So sort of a full payout ratio, 100% payout ratio similarly to last year, which I think indicates the confidence that we and the Board have in the business and the prospects of the business and the pipeline looking forward. And I mean, we've tried to -- we changed slightly the dividend policy. We can talk about it a little bit more about that on the relevant slide when it comes up. But we've given an indication of the range that we would expect our ordinary dividends to be going forward, between 70% to 90% of earnings, which allows us the flexibility to adjust the payout ratio depending on the requirements of the business in terms of its capital. But again, reiterating, it's been a very, very good year. We're very, very pleased, I think, with the way things are going and the fact that the financial benefits are now starting to show through, following a couple of years of change and transition of the business. Leslie, do you want to click on to the strategy pages, and we can talk a little bit around the strategy.

Yes, exactly. Right. So obviously, you'll be thinking about what's going on, and what's been happening. Some of you who [indiscernible] last time remember some of the things I said. But just in order to reiterate the strategy and clarify what we have now been saying for a couple of years. And the seeds that we watered passing to bear fruit. And there are 3 pillars or groups, areas that we've been working on strenuously. The first was to modernize -- a need to modernize our business, not only the delivery of new services but the way we deliver the more traditional services. We were falling behind, technologically speaking, and our CTO, Becky Venis who appears in our annual report, and you can read what she says. She's done a great job of bringing us in the 21st century, a lot more use of the cloud and hybrid solutions, there's a lot more used than innovative software to remove manual processes, and that's proving very beneficial and extremely attractive to the clients. So we're very happy with that. We do not see the modernization as a -- we don't see the modernization as an end point. I think, like any asset manager, we probably mostly associated with constantly going to be investing in technology and have a budget for it, which is already baked in. Fortunately for us, the software that we can buy to help us with these projects is getting cheaper and cheaper. So we can do a lot with the money that we're devoting to project. And -- so that's one aspect. Probably more relevant from the growth perspective in a sense is the diversification agenda. And I'm sure I'm not alone in believing that currency is a niche market, if you like, it's a niche interest and it's hard to make a truly successful and modern asset management firm. If you're too specialized, you're okay, you've got to pick where you concentrate your efforts. But [indiscernible] I'm glad just to diversify and out of pure currency and derivatives into more mainstream asset management, particularly some aspects of fixed income, which I will go into more detail in a minute. We have tended to focus very much on client-led opportunities. What we tended to do in the past was we very often would think of an idea, let's say, a euro rate [indiscernible]. It doesn't matter what the idea is, but it would be either we liked as currency manager, we [ invented ] and then the sales team, that I mean go look for people who believe as we did. Now we've changed. That in the sustainable finance plan which we launched just a year ago with UBS Wealth is a good example of this. They don't want, they say we can't find any manager like your debt manager we like and you build us to fund with impact bonds, i.e., fixed income and emerging markets and project guarantees and then we will [ feed ] it and we'll work with you to develop it. So client end opportunities, there are a lot more of those in the pipeline that's going real well in that respect. So that's a form of diversification away from your currency into asset management, fixed income and a few other areas, which will be coming later, should we say, maybe not in this presentation but in future presentations. We've also diversified our geography a little bit, which is helpful. We've diversified the type of person. So we had a bit of a reshuffle of staff, bringing in a few specialists and structuring and fixed income, in particular, areas of fixed income and in sustainable finance, and that's also bearing fruit, which is good. The third and last but by no means least, and for me one of the most important things is I know that if we're going to do a really good job on this. We need the right people in right jobs, we need to keep them, we need to attract them and keep them. And so succession plan has been a big part of the work I've been doing. It's very much, again, bearing fruit. We've got the right people in the right jobs. There are quite a few other places we could expand into, but that's a work in progress. Extremely happy with all the people we've got now in the position in which they find themselves and moving forward.

Now it may well be not a bad moment actually to answer the first question about how we manage.

So let me read the question.

Let's read the question, yes. So appreciate the question. Apart from salaries and pantries, your remuneration package has to be additional strands, the EBT, group profit share and the Record plc Share Scheme. These schemes will dilute to the group shareholders. Can you confirm that the various schemes are funded via purchases in the market rather than an issuance of new shares. And what are the limits? In other words, how much balance sheet is committed? Steve?

Yes. I think. So firstly, I think, the EBT is really just a vehicle through which we hold shares, [indiscernible] shares to satisfy our option and other share schemes. Historically, and as a general rule, we -- well we -- historically, we haven't studied or had any dilution. We have always purchased in the market and to satisfy our option schemes. I don't think we plan on changing that currently. I think everyone, including the Chairman and the other directors are of the view that now we want to avoid dilution, if we can. We do have the ability to issue shares up to a limit of 5% of share capital, and I think that's going to be really -- hopefully reapproved in July's AGM. So I think -- the answer is the -- we avoid dilution wherever was possible, and we have historically avoided dilution, but we do have the ability, I think, to issue up to 5% against when necessary, we'll talk for whatever reason, and that will be renewed in this year's AGM. So I think that one answers that question. Hopefully, I answered that question. Leslie let's go down to the...

Yes, we have got one other question from [ Roger ]. I will just -- I will just take it for one moment. It's [indiscernible] question about the Swiss franc, which we will get to you because it's a very specific question. Now...

So if I go on to the next slide, Leslie, we can talk around...

Yes. Okay. Having certain -- certainly seen for the 3 important things we need to do, modernize, diversify and finance succession. We then move to something we've not done traditionally, which was something that we, as a management team, spent a lot of time thinking about. The first 2 years of my work were as Steve has said, management changes, reconfiguring the business, refocusing a lot of work and a lot of difficult work actually as it always is when you are in, as I've said in the annual report, renovating house. We're now at a point where I think, it's probably -- I like to be as honest, open, and transparent as we possibly can be and be as open and transparent as much as we can with all our investors. And so I thought it was a good idea to show the sort of revenue targets we set ourselves. I should stress, and that's in the top target, if you like, on the top line. I should stress this is not -- this is not figuring the year. Maybe we'll think of something in 2024 that will add a lot of revenue. I've spent a good deal of time with the management team and the sales team and investment team, and these are all projects that we have either seeded already or that we are about to see or can see coming through the pipeline. It's genuine in business. Now of course, I haven't built in massive attrition, and we're in a growth mode. And I really -- I do believe this is eminently doable. Otherwise, I wouldn't put it in there. And so I think it is helpful for investors to get to thirst for our aspirations, and our aspirations to grow the margin some more, which I believe we can because what we do is eminently scalable. Once we get fixed cost pay for once we set a fund in motion or a project in motion, which can attract good amount of assets. As Steve said, we intend to continue to pay our ordinary dividend and stick to the target ratio that we have described. There is a possibility one day I might come to the shareholders and outline a project which would require some of that dividend. But at the moment, what we generate in the way of cash, and what we have is cash in the bank is quite enough for our purposes. So we don't need to change that policy at all. There we've a minor point is this year after 3 years without performance fees, a couple -- one, particular one of our products stopped generating positive returns during COVID and that's lost money. But the thing for us, our client [indiscernible] and that product has now returned to help recruit all the way back and above the high watermark that have been set when we set the product up. So we will be generating performance fees this year for that product. I don't think there's any more questions that I see down the side apart from Roger's question about Swiss franc. There will be some more underneath. [indiscernible] hang on. Okay -- yes. Okay. So actually, there's a question from [ Andre ], which is a different one to the Swiss franc. And I am going to read this 1 out because I think it's very important because it actually is testing, stress testing our strategy to that. So [ Roger ] says, given the rocky situation forecast for all the markets this year, how are you going to protect yourself in the adverse market we have in '19, '20. I see 42% of underlying assets in [indiscernible] currency. Can you shed some light on this? Do you manage these assets in house or outsourced. Okay. Very good question. Right. So you're right. A lot of our income is in foreign currencies and the bulk of it in fact in dollars, in euros in Swiss franc, Canadian dollars, Australian dollars. And so we are always very mindful of that, and we hedge. Generally speaking, we hedge in a fairly passive way in those assets, which are all those roads, all that does is effectively delay. But we do agree with you that we do need to protect ourselves from the adverse market movements. And the best protection for us is to diversify the type of products we offer. So much less of our returns come from passive hedging this year than we would have done a couple of years ago. Less of our returns will come from currency in the future, less of our revenues. So the more we can diversify. So that no one product can dominate and in fact not one currency can dominate our revenues. We feel we can deliver -- continue to deliver stable and growing revenues and returns for our investors. So diversification, moving into more active products in fixed income and currency. All of these things help manage the risks, and we also do some hedging in order to smooth the returns. But I have to say, I think there is every reason to suppose that actually less of our foreign income for the time being is a good thing because I don't know -- there's very many people out there who would need to sterling, which is our ace currency and the currency in which we receive only a relatively small amount of our revenues is likely to be the strongest currency in the universe for the foreseeable future. So it's a good question. We manage through diversification and some hedging, and we've actually got a slide where we can show that the split of our revenues has changed. We haven't got it by currency, I don't think [indiscernible]...

No. No.

We got it by type of, and what should be...

Can we -- should we go through our slides. As you guys [indiscernible]. I think one other point, I think maybe -- I don't -- maybe the question is also linked to [ Roger ] mentions market movement. So the impacts on our assets, like ranging from arising rather from market movements. And we certainly did see quite a big market movement. And I think you've -- what refers to '19/'20, so that year '19, '20, so it would have been March '20 when we saw the decrease from the market. And I think the market was pretty severely impacted, 20%, 25% down. I think we could see and we saw about a 7% decrease. I think the benefit that we've got is that if you look at our passive hedging clients since that's what [ Roger ] sort of alluded to in his question, the underlying portfolios of our clients are very -- themselves are quite diverse as well. There's not -- it's not all expertise, for example. So there's a certain amount of dilution there in terms of market impact. It's not say there isn't a market impact, but there's certainly a dilution there. And we saw that in March '20 market movements arising from COVID. So hopefully, I think between the 2 of us, we've answered the question.

You answered it better than I did. Very good. Is there anything else lurking down there at the bottom that we should just know about.

Yes. I see some passive hedging.

Yes. So Roger again, note in my last meeting -- of the last meeting, saying that performance fees on passive hedging were influenced by interest rate differentials, which were then typed. Did I understand that right? You did. The interest rate differentials are now much wider. What can you say about the implications of this, okay? Yes. So as I think I've already alluded to in my previous statement, the performance fees have returned, which is good. They are episodic, but they do return and it does show some evidence to you, Roger, I hope that anyone else is interested that the opportunities in the particular hedging product, which they're as performance fees have returned, and we are reaping rewards of that.

And actually, that was reinforced. I think in the Q4 trading update that we did in April -- back in April, we did allude to the fact that the GBP 0.5 million was linked to products linked to the interest rate differentials, if you like. So I think yes, the answer is absolutely.

And that's good for us. It is episodic as we know, it's not always there. And we did have to wait and fight our way back, if you like, to performance fee territory during the period that's just passed. I don't know if there's anything else down there, is there?

There is. We've got to be careful because we're going to sit here and answer questions.

That's a good question. Yes. Yes. I tell you what, there's just 1 here, and I wonder whether we should just do that.

Yes, we can do [indiscernible].

You want to read it?

Yes, sure. Joshua [ N. ] has asked, given the nontrack record of paying dividends, our current shareholders likely to be supportive of a cut to fund growth? I'm not sure where the idea of a cut to fund growth has come from. I mean it's certainly not what we're planning. We -- the dividend policy is set to the range as we've previously said, of 70% to 90%. And we would expect to see ordinary dividend to grow progressively in line with our profitability. I think -- there could be an example, there isn't at the moment, that I honestly can think of where we would need to cut dividends. But potentially, if it's to fund future growth in the business, I would hope that the investors would be supportive, but there certainly aren't any plans at this current time.

We're cash generating, and we can do what we need to do with the monies that we have got. So -- and our dream, if you like, is to be a stable, strong business with a growth pattern, so as to attract people who like growth shares and an attractive dividend. That would be ideal. That's what we're striving to achieve.

I think it's also worth pointing out on dividend that there are plenty of businesses out there over the last 2 years that have actually cut their dividends or actually stop them completely. That's not something we've done. We've started our policy throughout the 2 years, and we've continued to pay both ordinary and special dividends. So that hopefully gives us a bit of a feel for the view that the Board take in terms of if we don't need the capital for a certain requirement, then we are happy to pay that out, and that's exactly what we've done over the past, well, over the past at least 5, 6, 7 years and certainly through the last 2 years where there's been a huge amount of disruption and uncertainty. So there's the other thing. Should we move on?

Yes, let's do that. I'm conscious of the Swiss franc, a question which we'll come to.

We'll come to. Yes. So I think we've got a couple of slides on sort of sustainability and ESG.

Yes.

Do you want to talk around ESG?

Yes, I think it's probably what I would say rather than going into any great detail. We have a very comprehensive report on this subject, which will be on our website in a week's time. We're quite proud of it. We think we're doing a good job, and we hear from our advisers that the material is good and high quality. It is important to us for lots of reasons. As you can imagine, it's important because it appears in all the submissions we are asked to make to plan. It's important to us because we want to be a responsible company. We're still quite small, we're 92, 93 people with computers, so we're not going to save the world. But everything we can do that's sensible and practical we want to do.

Yes. And I think it's fair to say that as a small company, a lot of the requirements are strictly, we don't have to comply with. As a business we want to comply with them. So we're looking at things like gender diversity and also more than save, react, et cetera, which as a company we fall below the threshold, but we are actively looking at these and ensuring and endeavoring to make sure that we're in line with those requirements. We want to be seen as a company that is putting behind those sort of commitments.

These are 2 very, very small slides. They don't go into any real detail. But if anyone is genuinely interested, we would recommend the website, and we would also be happy to answer any questions that anyone might have on that subject. Now, where are we here?

So...

Let's see. We're now interested just some of the products. I think what might be interesting in the interest of time would be -- Steve, can you move to the slide which deals with our new launch from the year -- December a year ago with UBS Wealth Management, which is, I think, #12. And I picked this for a reason, not just for good well, obviously, hardly because of the performance is quite good, but that's not the point. The point here is that we launched it under a year ago. We launched it with, as I keep saying, UBS, and started with GBP 700 million and currently has GBP 1.2 billion in it. It was launched as an alternative to emerging market debt, and therefore, the benchmark that we're measured against by UBS is an emerging market debt benchmark. And that has fared ill, of course, we all know the reasons in the last year, and we have done quite well. The important thing for an investor in this context is that we believe that now that we're reaching our first anniversary. We will see more inflows. We believe we know we should see more inflows from UBS, but also that other people are showing signs of interest in this. The key will be that our green line, which looks okay. In fact, now as the latest state, we generated a 1.5% return in the year in an environment where the benchmarks have been down 15%. So we look good. To top this [indiscernible]. The key, as I see from our investment team, we obviously don't want to give it all back. So the critical thing will be to maintain that need or that gap. And then I think we will see quite a lot of opportunity for us to build out this product range, evolve it, change it, then not all clients want exactly the same thing. It is typically emerging market and frontier currencies, it is impact bonds, and it has short positions in direct market currencies. So that gives you a sense for the structure that I have.

Is it worth talking just briefly around the dynamic you that sort of forms quite a big chunk of our revenues now?

One of the questions that Roger asked is can we and do we anticipate that the Swiss franc rates and interest rates. Do we forecast? Are we -- I suppose it's what I'm saying, how do we forecast this. So for the first slides, most of what we do is passive hedging, not all, but most. So inevitably, we're not expected, not required or wanted to predict movements in interest rates. However, we do have an active hedging product. And so in this slide is a bit dense. But what I would simply say is this slide, it shows you what can be done with our active hedging product. This is for U.S. clients. There are several of them. And what we are required to do, as Roger will say, to anticipate, is when the dollar is strong because these are dollar-based clients who have invested in foreign equities, we must generate positive cash flows, positive money through our hedging to offset some of the losses. So here, you have a green line, which shows the losses that the client would suffer had they not used a hedging program and the light blue line, which shows you what we have achieved for clients. This is not an easy product to explain or sell to clients for several reasons. The result, as you can very clearly see are episodic and come when the dollar is strong in this case. It can work for a euro or Swiss or other currencies, as obviously trend. But the point is when the dollar is strong, we need to generate returns. As you can imagine, just recently in the last few months, we generated very large positive returns for these clients who run very big programs, and they've been extremely happy because the value of their equities has fallen as the equities fell, but also as the dollar rose because these equities are foreign. But we've generated money to recompense them. And that is absolutely what this product is designed to do and has been doing for a very long time. So we're very proud of this product. It does exactly what it says on the can. The problem is, these are very big programs. The clients have to trust you implicitly. They take a big risk when they hire you because the programs are so big. And the results only appear in this instance when the dollar is strong, and sometimes people have to be patient. And patient investors who have a horizon when they review their returns every 3 to 6 months are not easy to find, patient and disciplined. But if they are, they can generate with us very good results, and that is what this slide, I hope, shows. And I kind of hope I sort of answered Roger's question, but if I haven't, I've got a feeling he'll come back and ask me another one.

Can we talk in a little bit more detail around some of the financials?

Yes. Let's do that. Let's talk a bit more about the financials. Sorry, Steve.

I mean, we've touched on some of the headlines, this is really just a bit of a repeat of what we already introduced on the very start so let's drill down a little bit into -- touch on the dividend policy. So there's a question on the dividend policy earlier on or dividends earlier on. I think this is just to reiterate really that in terms of dividend payments, we have a long history of paying ordinary dividends and more recently, special dividends over the last sort of 3 or 4 years. The view of the Board is that if we don't need to retain any capital for specific purposes that we are obliged, if you like, to return it to shareholders. And that's exactly what we've done. We took the opportunity this year, as I said earlier, to reset the level of ordinary dividend. At the interims, we went from 1.15p to 1.80p. And obviously, full year, we've gone from 2.3p to 3.6p, so a 57% increase in our ordinary dividends for the year. And again, just repeating that excess capital, I think, from the ordinary dividend to the earnings of 0.92p is also being returned under a special dividend. So the policy, as I said again, and I think it's quite an important point, no changes over the last 2 years. Ordinary and special dividends have continued. We've now put in this payout ratio range with a target payout ratio and where we expect to be going forward, subject to any future requirements of the business. For example, if our regulatory requirements increased then obviously, we will look to make sure we got enough capital against that. And we are targeting progressive and sustainable dividend growth in line with profitability. So hopefully, that's quite a clear dividend policy, and it gives an idea of how we see it going forward. There are no questions on that. So I think we'll move forward just to give a bit more clarity on movements in our assets under management equivalents. Again, inflows continued from last year. We saw $2.4 billion worth of inflows. And reassuringly, that was across various different product lines. So we saw inflows into dynamic hedging of $1.4 billion, passive hedging of $1.1 billion, and Currency for Return , there was a net inflow of $0.4 billion, which included almost $1 billion of inflows into the EM, emerging market sustainable fund -- sustainable finance fund. So again, a diverse set of inflows for the year, which is promising. I mean we're talking about diversification, and that is 1 of the main strengths of the strategy. I think it's also true to say that the hedging part of the business still performs a very important part of the business and the revenue streams for us. And actually, a lot of the long-standing sort of client relationships that we've built up over many years through the hedging side of the business are forming quite a lot as part of the strategy going forward in terms of clients collaborating with us on ideas and product development going forward. So...

I think a good example of that, which we probably mentioned before, was we did the hedging for the UBS hedging fund in Switzerland for many years. And then the Head of the Trustee Board was also the Head of the Wealth Management team at UBS who came to us to help design the sustainable finance funds. So it was their experience of us in another context, which gave them the confidence to come to us and ask them if -- us specifically could help them with their new project. And we're seeing quite a lot of that. Currency is a niche interest. It affects everyone, but not everybody is interested in it. And so having other things to talk about and other projects is very, very valuable for us.

Yes. Just continuing on the sort of basis of assets under management and reinforcing the message really, I think looking over the last sort of 2 years since the inception of the [indiscernible] the new strategy, I think we've seen 25% increase in our passive hedging, AUME. We've seen 324% increase in our dynamic hedging, AUME. Currency for Return is up 92% over the last 2 years. And Multi-product is also up 50%. There was a temporary inflow last year from a client which came in and then went out again. So there was a bit of a peak last year at 5.2%. But over the last 2 years, a 50% increase is still quite impressive, and we're very happy with that.

Quite an interesting question here from Patrick about -- Patrick [ L. ] who is asking, and this is in the context of assets under management so it's a good question. How sticky are these dynamics mandates, i.e. if the general perception is for a weak U.S. dollar going forward, could they easily be withdrawn? And the answer is it's a very good question. So for the dynamic hedging mandate to work, Patrick, we run a portfolio of hedges, which we're constantly reviewing every day and address an adjusting across all -- most of the currencies that the clients are exposed to. It takes a while to build up, and it needs to be constantly monitored. So for example -- sorry, we're being disrupted. So for the question at the moment, and I'll answer the first one. Anyway, yes. So it takes a while to build up. It needs to be monitored going forward. It does require patience. So for example, it isn't something you can flip on and off like a switch, otherwise it would be easy, as Patrick said, you just buy record when the dollar -- when the better dollar is going up going up and some when you think it is going down. Now most people don't feel they're very good at predicting timing of currency so they are willing to pay our fees, which do look higher when we're not generating positive cash flows and then they look really cheap when we generate large positive cash flows. What we tend to say to clients, the better client, Patrick, is someone who looks at it holistically. So they say, gosh, Record's delivering me some positive cash, the dollars gone up, my equities have fallen. I'm happy. Next year, equities are strong and the dollar's weak and Record hasn't delivered me in cash but they haven't cost me very much. So it's almost like an auction style of program and you need to be in it to win it, if I can use a silly analogy. So we made it easy for clients to turn it on or off. And most clients that we have, we've had for many years, 1 of them we've had for 12 years, and they're still very committed to this program. It's a sophisticated program. You need to understand how it works, and the relationship between the underlying assets, which are equity, some of which we have no control, and the symbiosis between our positive returns when the dollar is strong and the fact we can be very cheap, although we can't cost nothing because we're not good at 100% prediction. We can still make for optionality, which net-net makes money over time, more than they wouldn't make if they haven't had us, if that helps. And now Roger has another question. That Roger is full of questions. Roger, just to make sure I understand that question, did I hear you say that it really scores if you're a dollar investor and the dollar is strong. Yes, that is true. If you're a euro investor and the euro is strong, it scores. If you're a sterling investor and the sterling is strong, it scores. Predicated on the fact your benchmark is unhedged, are you doing nothing? Are you saying that if you feel in the case of a dollar's forecast, i.e. you or the investor to weaken, then it should not work. I have difficulty understanding this. Yes. Okay. So I partly and hopefully answer it. We will make positive cash returns into a bank account. Client's bank account if we're using a dollar investor, when the dollar is strong. So the hedges mature are valuable, the dollar goes into -- the dollars go into the client's account, and they partially offset the losses they're seeing because they own foreign equities. So I hope that's clear. If it's not, we could take this offline. On the other hand, when the dollar is weak or flat, doesn't move, we cost the money. So we are creating -- we're effectively option replicated, we're creating the effect of many options, which means we might put a hedge on and then the dollar doesn't move. It matures worthless or perhaps it costs money. So the client has to understand the optionality of how useful we are when the dollar is weak. We're allowing them to harvest all their money that's in their equity accounts from currency and the positive cash we give when the dollars dropped. Understanding that symbiosis is at the heart of this and getting trustees and pension funds to put the 2 together and not think of this as some kind of currency outlook manager is a bit of a struggle sometimes. But it is the challenge to making this work well. And then you can have a really good relationship with the client as we do with some of them, and they're very happy. How reliant are you on your top called [ P2P ]. How reliant are you on your top or more clients, top 10 or more clients? It seems to be a large concentration of revenue and profit emanating from your top 10? How risky do you view this? And to what extent are you looking to reduce such a level of concentration? Yes, we're always looking to reduce the concentration. It's a lot better than it used to be. The risk of resides in product families. So for example, dollar dynamics, hedging funds represent 1 group. Sustainable finance, client would represent another asset, hedging will represent another. And it's very important that we diversify across this. Fixed inc number represents another. So we don't want to be dependent on 1 dynamic hedging client or 1 sustainable finance plan. So that is in a way you're playing to my -- the same tune as me, Peter, because I believe very much in diversification. And in fact, we have a slide that shows how we've chose searches. This shows how our management fees are evolving away from a real dependence on hedging. Slowly but surely.

Yes so should I take the [ pressie ]? Thank you. So I think on the left, this is an important slide and one that sort of links into the strategy, if you like. Again, over the last 2 years, passive hedging formed over half of our management fee revenue. And as you can see, year-on-year, it's forming less and less, a proportion of our total revenues. Although in terms of actual revenue, it's still maintaining sort of its level, if you like, at or around between GBP 11.5 million and GBP 12 million a year. So the impact of the other products coming on board, higher revenue products, higher operating margin revenue products coming on board can be seen in the dilution of the overall impact of passive hedging. Dynamic hedging, as well is, albeit a hedging product, it's a higher revenue margin product for us. Again, that's grown over the last couple of years. And specifically, the Currency for Return proportion which is the highest revenue margin product is growing year-on-year. And that's where the -- currently the emerging market, sustainable finance funds is. And the FY '22 year includes only a proportion of the total GBP 1.2 billion of asset -- current assets under management on that. So our expectation this year would be that this portion continues to grow even without additional inflows, which we have alluded to earlier, we're hoping to see going forward. So we can see the strategy working as it starts to flow through into our revenue streams and the diversification element is an important element. And we're very happy, I think, with the shape of that at the moment. So, yes, I think that undermines...

Clients, I don't remember now what -- I should know this, what they represent. They used to -- we used to have top 5 or 6. You've got it...

Could you see it somewhere? You see it somewhere? Is it on the back?

I mentioned. No. So my instinct is, and I don't remember any of that. Yes. So Peter is quite right. Well, the good news is that those are at 73% represents at least 3 possibly 4 different product categories, all of which operate differently and work differently in different times with different requirements. So it's not a size, it could be. But I very much hoping, Peter, if you're still interested in us in a year's time when we look at the next full year's result, we will see more and more diversification across clients.

Yes.

That's the plan.

And sticking on sort of the clients, if we go back to Slide 20 -- sorry. I think this is leading to the question actually, the longevity of our clients has always been a sort of important point that we'd like to raise. The type of business that we are on sort of relationships that we formed over a long periods of time with our clients means that they stay with us and that they are happy to be involved in sort of collaborating on new products. So there's the ability for us to retain the hedging sort of part of the business with those clients and they're also interested in getting involved in maybe some of the newer product lines going forward. And they trust us. We've got very long-standing and very strong client relationships. And I obviously -- we don't intend for that to change going forward. And again, we keep going back to you, but the sustainable finance plan was a very typical and a very good example of that where we've been hedging for UBS for a number of years. And they came to us and asked us to collaborate on a new product for them which launched and has been very successful. So that I think that's quite an important point.

Yes. I've got a question here from Patrick [ L. ]. Can we outline the current status of the German municipal bond fund? That's a very good question. So we have now launched it, and we're in the process of accruing subscriptions, and it's been slow and taken a long time to get done with a great deal of many, many due diligences. I would allude to it a little bit, one might imagine an ocean liner. It's taken a long time for the tugs to put it out into the harbor, but we're now underway. The good news about it is -- the bad news is it's taken a long time to get going. Good news is I think it will be potentially quite a large fund for us in time once it gets going. And just like an ocean liner, the sponsors of this fund, those who support it, the people who are going to invest in it tend to stick with you. And once they get ahead, decision making really start to move quite fast. So we're getting there, as they say. Right, what Roger asks what will be the main themes of the next 2 board meetings as you currently seat it? Good question. One other things we're thinking quite hard about. Our largest cost is our salary bill, of course. There is no explicit link between inflation and our revenues. There is some link in some respects, but it's not implicit. So we are thinking very hard because, as I mentioned, key succession planning is so important. If I can get the right people in the right jobs, my job is a lot easier. In fact, my job is done because they get on and do amazing things. So we need to roll them appropriately. We need to be sure, we don't just in a ninja fashion put salaries out which we can never take away again. So the cost structure of this is that the inflation is something we've been thinking about very hard. And the other main thing that we talk about and continue to have on track, continue to talk about is how is the new strands of work that we're doing. We're working very hard on a project, which we hope might come quite soon to provide shariah-compliant investments, which will be a new area for us, and we have a very good partnership on that. So we talked quite a lot about what the resources are we need to create the new opportunities and how to fund those properly. Those are the 2 most recent things, I think, that I can think of. We've also talked about our dividend policy and our cash position, how much cash should we have, what should we do with it? How can we use it to improve our business, to invest in new products and new ideas? I hope that answers your question.

Yes. And I think from my point of view, obviously, we focus on trying to control cost as much as we possibly can in terms of the inflationary sort of pressures to the business and alongside every other business is seeing at the moment. The unfortune position, unfortunately, if that's the word, is that we tend not to be able to pass inflationary increases on to our clients. And so it's very important that we take control as far as we can on those increases, inflationary increases. We've got to get a balance. We've got to keep making sure that our people are still being fairly compensated. And whilst not willing to erode our operating margins at the same time. So there's a lot of focus obviously on that, as you would expect at the moment as well. Actually on that subject, I think it's probably we can drill down a little bit into the costs analysis. It's quite a simple table and quite a simple set of costs really. We've got personnel and nonpersonnel costs. We've seen a 5% increase year-on-year to FY '22. Just really as a result, going back to sort of the changes that we've seen shaking the tree a little bit. There's been a bit of a turnover of maybe more older or more people that have been in business for a long time. And having the opportunity to sort of bring new skill sets into the business and promote internally, which has led to sort of that 5% increase. Looking at the current year that we're in, so FY '23. Obviously, there's an expectation there that we will see increases, unfortunately, due to, as we were just talking about, the inflationary sort of pressures that are on the business. We've already had a pay increase from the 1st of April of 5% generally. Those pressures aren't going away. They're not just on our personnel cost there. They're on nonpersonnel costs as well. So we do expect those costs to increase in the current financial year. But at the same time, we don't need to expect them to erode our operating margins. In fact, we expect our operating margins to increase as we would as we showed on 1 of the earlier slides. So controlling them as far as we possibly can, but I think it's inevitable under the current sort of environment that we will see cost increases in the current financial year. I think the only other thing because I'm conscious of time, is, is that we just to reiterate the strength or position of the balance sheet. Historically, as a business, we've -- we've maintained a very robust and very strong and a very liquid balance sheet, which has seen us through some sort of fairly rough times in terms of the financial crisis and the pandemic, et cetera. I don't think that's changed. I think we still view it as very important as having a strong balance sheet. From our point of view, I think it sort of gives us the reassurance that we're in a position, if needed, to fund any sort of new ventures that we might see or projects, but also from a client perspective, I think it's important that they can see that we can stand behind our products and services. And we're a proper business in terms of the -- so is our balance sheet. I wasn't planning on going through on a line-by-line basis, any of that stuff.

So if anyone has any questions either now or later. In the meantime, Roger has asked, are you able to get figures of the [indiscernible] when needed. Yes, we haven't had any problems we've set people to the States to Switzerland, where we have offices, and it has been fine. I mean, we don't do it very often, but we haven't had a problem.

Yes. Actually, 1 point on that, I mean, we talked about the increase in the size of our teams over in Europe and it's probably quite an interesting point in terms of we haven't got any upfront costs in terms of those teams. So the model that we're using for those to bring in some more expertise is actually not to pay salaries but to actually almost join with the teams and do it and offer a sort of profit share, if you like, which when we first start off on that sort of exercise is better. We're not suffering any upfront costs on that. And then hopefully, as revenue streams start to come in at levels that we -- that are higher than we've historically seen on our sort of hedging type products, if you like. Then that will drive our operating margin increasingly higher.

It is a different model in sales. And when I first joined Record in 1992, I put on with this. I didn't have a salary. I worked for Record and I earned a share of what I could bring to the table. And then I forgot all about that, and we did pay quite high salaries on spec, if you like to sales teams or individuals. And I actually prefer them on the way we have an individual or team who is able to be quite entrepreneurial and get a bigger share of what they bring in and they would if they were pure salaries and not just to mean you can't have some blend of salary and that kind of remuneration. It concentrates the mind. You don't generally have people sitting around, not really delivering anything and costing quite a bit of money but he does have the right kind of confidence that they can deliver results, and they are also very careful about joining Record or very careful what products they represent because they need to make a living out of it. So we found that very successful in Europe. We're replicating it again in the U.S. and might continue to do that. It's a very powerful tool to acquire the right kind of salespeople. But by the same token, we also like them to have equity partnerships if they prove successful with us because we want their interest fully aligned with ours. So we are very careful to translate that into equity partnerships once they have proved that they are able to fit into the Record family or group and generate their contribution. Hopefully, that's enough. Are we at the end? What is it? An hour? There don't seem to be any more questions at the moment.

Leslie, Steve...

Robert gets the prize for the most questions asked.

Leslie, Steve, thank you very much for your presentation and also for addressing the questions during today's call. But just before we direct investors to provide their feedback, which I know is particularly important to the company. Leslie, Can I just ask you for a few closing comments?

Yes, I think so. Thank you all for listening today. We very much appreciate your time and attention. We would stress, we believe we are at the beginning of a new era for Record very much at the beginning of what we can achieve. There's an awful lot more to go for, a huge amount of things we can do. And I think we are now set fair to start to deliver on that. So I hope you will all continue to follow us. And some of you may be back next year. Do feel free to send us questions, if you want to or engage with us in any way that we -- that you want to, we'll try and help if we can answer. But for today, thank you very much for coming.

Thank you. Leslie and Steve, thanks once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few minutes to complete, but surely will be greatly valued by the company. On behalf of the management team of Record plc, we'd like to thank you for attending today's presentation, and good morning to you all.

Thank you.

Thanks.