Record plc (REC) Earnings Call Transcript & Summary

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

Good morning. Thank you very much. Good morning, everybody, and thank you all for joining us again. And for those of you who are new to this, welcome, a few interesting things and be delighted to answer as many of your questions as we can. We have some pre-submission questions, which we will be addressing as we work through the material as they link into some of the slides that we'll be showing. I think without more ado, we would go straight to the introduction. And we're going to go through again in a bit of detail our strategy and the progress we're making with it. And then obviously, we're going to look at the numbers and also give you a little bit of background on investment performance. So -- the first page is something which has been available for a little while now. It is a 3-year plan with the highlights of that, that we set out earlier in the year, and we are on target. It's very early days. And of course, these things never come quite neat little straight line. But as you can see from the left-hand boxes on the slide, we are showing some good trajectory in the right direction with an increase in revenue. As you can see, with an improvement in margins and all the things that we had hoped we could do, we are starting to do and intend to continue. We are on target for where we would like to be. We cannot give you at the moment quite as much detail as I'm sure you are hungry for. And it is indeed one of the questions we were asked which was, could you give us more details? I'll read it. Any more details you can give on your new products and pipeline and the scale and timing at which they might start to meaningfully contribute to results? At the moment, they are only just starting to contribute to results. I'm not sure, I won't call it quite yet meaningful. A lot of the growth we're seeing is still in currency, although there is some from other products, and we are rolling out these over the course of the next 6 months to a year. So I think there'll be a lot more information that we can give you now. Yes, go ahead, Steve. I was hoping you would jump in.

Yes. I was just going to add that I think a lot of the progress in the new products and strategies, obviously, there are various steps that we need to go through to achieve that. And some of those steps are actually on the slide. So achieving the BaFin license allows us further scope in Germany and also obviously, getting the Luxembourg Fund structure in place is an important step in allowing us to progress some of the plans that we've got on the new products as well. So these things are -- obviously, there's various steps that we need to go through. What we're showing here is that some important steps have been taken now. And we would expect sort of traction and new product launches, certainly in the next financial year. Timing is never quite known with ultimate certainty, but we would certainly expect some traction on those new products, hopefully, early in the new year.

One of the other questions we received, it was actually the fourth question. In the interims, you say we are seeking growth in revenue and profits broadly in line with expectations. What expectations are you referring to here? Because the analyst expectation for FY '23 and company expectations of GBP 60 million in revenue in FY '25? Or is there something else? And just to confirm, our expectations are linked always to the 3-year plan we have now published. So when we say we are seeing growth in line with expectations, we're referring to that plan. Hopefully, that answers that question.

Sorry. I think just to add to that, that the analyst expectations are set broadly sort of in mind based on sort of current position and run rates. And until we're able to give a little bit more color on the new products and timings and maybe some of the sizes of these new projects, the analysts rightly can't really hang any numbers to that. So I think the plan is for us to certainly give more color. Early in the new year, we have a capital markets event dated 9th of February. And at that point, we will hopefully be able to give more information on certainly two or three of those new projects where we are, what they look like, size, timings in order that the analysts can then start to put some numbers into their models. And we -- there's an expectation then that we should start seeing the upward trajectory reflected in the analyst numbers as well as are in our own internal numbers.

That makes sense. There may be a question on that and if there is, we will see it in the box. Why don't we move -- in the absence of another question, why don't we move on to the next page, which, in a sense, is simply a summary of what we've just said. I will work through these bullet points quickly just to make sure everyone has got the information they want and that we are methodically approaching the material. So as I've said, we are progressing both in terms of our diversification, in terms of the growth in revenue and profits. Our modernization plan is very much on budget and on target, which I think is big success. And we're working very hard -- continue to work on our succession plan, which is rolling out very nicely. We have a good platform. We have a very clear vision. We know exactly, I believe, how to get to where we want to be at the end of our plan, which, of course, is not the end of time. We have plans beyond that as well, but these will evolve and be revealed, if you like, in the coming months and years. One of the key points is to divest what faraway from pure currency, not abandoning currency, but recognizing it's not enough alone to make us into a really material business. It's a bit of a niche business. We can live and survive. And in some measure, prosper with currency, but we can prosper a great deal more with much more diversification. And the diversification means we need to improve our skill sets, which we're doing with new investment management skills, with new distribution agreements and partnerships and your ability to manage new instruments and derivatives. As Steve mentioned, we have now got our BaFin license and our Luxembourg range structure in -- Luxembourg is nearly done. We're just putting all that together, and there are a number of projects waiting to go once that is available for investment. These projects could come in the form of a client asking for a specific fund or a group of clients asking for us to build a specific fund or it could come from a partner of ours, potentially someone like mentioned in the next bullet point, AGL, the U.S.-based syndicated loan manager with whom we partnered, who would like us to build funds in Europe. And that is also true for the VTeam Group, who we've worked with for a number of years now who are a large supply chain finance platform of some 20-year standing. So we combine the ability to distribute products, build funds, manage funds with the ability to build new combinations of investment ideas. The digital economy. We've spent the last 2 years thinking very hard about how to approach this, whether to and how to, and we've now just started to make investments in three areas. One is small with some of our spare cash venture capital investments that give us three opportunities: #1, as heat at the table with some very interesting people who are doing good work in this area; #2, an enhancement to the return on our loose cash to justify -- the fact that we have this cash above and beyond our regulatory cash. We shouldn't keep it unless we can use it; and thirdly, to learn about this area, which is evolving so quickly. I see a question from Peter B. Does the proposed investment of excess capital into venture capital signal the end of special dividends? No. We hope not. The special dividends are declared when we can. We're not intending to increase our cash pot at the moment. We might decide we need more, but we are a cash-generative business, so we could hold back a little bit more. Later on, we will be talking about our dividend policy and perhaps we can give you a little bit more information on that. Actually, you know what, I can't quite keep up with the questions. You're all very wide awake this morning, hold on. It seems like an unnecessary distraction and risk to venture into something like venture capital. All right. Let me just address that. I don't want to be distracted away from the summary, but I think it's a really good question. The reason we're doing is the following: as a currency company, we want to cover the spectrum of all kinds of currencies, everything from developed frontier and cryptocurrency. But we want to do it in a sensible and organized way. We want to be mister and misses sensible in this space, and there is definitely a need for this kind of help for our clients who are very intrigued by not only the world of cryptocurrency, which is only one piece of the whole digital and blockchain environment, but also the evolutions in technology. And the way it's changing, the way assets are managed and approached. So we don't think it's a distraction because clearly, we want to be diversified, but we do think we need to be very carefully focused. In that respect, Peter, you're quite right. I would say that taking 2 years as we have to think very hard about it, looking at lots of opportunities at the risk of being [ privilege ]. We've had to kiss a lot of frogs. I would say probably for every 8 opportunities we looked at, we're really only going with 1, 1 out of 8, something like that. And it is part of our integrated asset management strategy. It isn't outside of it. I am going to make very sure that no one piece of our diversification strategy can ever overwhelm the other pieces. So we don't want it to be a damaging distraction. We want it to be an additive activity, and I believe it can be.

I think it's -- sorry, I think it's worth noting as well that this is us as a business, trying to make sure that we keep up to speed with the future changes in finance. So the world of finance is changing rapidly. And as a business, it's our job to stay up to speed with those developments. And this isn't just focused on any one part of cryptocurrency, so it's a broad base across the board in terms of the digital asset space. And it's -- I think it's an absolute necessity that as a business we keep up to speed and we use the technology, and we understand the technology and we can give our clients' products and services that use the technology going forward. And this is the first step in us sort of understanding that and knowing how it all fits together and works.

Exactly. I think there's a really relevant question here from Joseph. He says, I appreciate you can't give us any details, but is there any chance you could give us a sense for whether achieving the targets will be the result of many small wins or one or two large ones? And how much of pitching would be involved in getting to the target versus mandates that already won and scaling? What kind of win rate do you assume? So I would say that the diversification strategy involves a number of quite large targeted project evolution strands and not -- lots of small wins. There are some quite large -- very large clients that we're working very closely with. Most of them, not all of them. Most of them are at the stage of final negotiation or in the case of, what I suppose, you would call pitching, we're doing due diligence. So we're getting along very well. We did not face GBP 60 million on some kind of pie in the sky finger in the end number, we had a very clear picture. What I would also say is, obviously, not every project is hugely successful. So we need more opportunities and strands we're working on in order to be certain that the GBP 60 million and more, hopefully, in the future, is achievable. We don't -- interestingly enough, we don't have to do a lot of RFP type pitches for this sort of business, which is very attractive to us. So it's where we are working with either existing clients to develop something to order or working with a partner, external partner to build a fund for the clients that they're bringing to us. So it's quite a nice way to build business. We're not in the let's do 10 RFPs and see if we win one. It's much more of a partnership with our clients. It goes back to what I said at the beginning, listening -- several years ago, listening to the clients, they'll tell you what they want, if they like you, and many of them have been with us many years, and they will work with you to evolve a product range, which can then be marketed. I appreciate, Joseph also says he knows we can't give him any details, but he would like to know what asset market, equity, fixed income, et cetera, do you need to add to hit the GBP 60 million target? I would say we need currency. We need a broadly-based derivatives. We need fixed income, which we're already building. We also have aspirations to move into the infrastructure space, not as experts, but has fundbuilders for other experts. We have a Shariah-compliant component that we're building and very close to seeding. And we have -- which you'll see is not an asset class in itself, but it's a particular strand of revenue. And then we have the whole digital project, which is just starting to get off the ground. How much, if any, natural inflow is that into your existing AUM, the mandatory pension contributions. The way we get inflows is indeed when the pension fund does our pension funds or clients do new investment strategies. But I would say, we don't really see inflows when directly in the way you described. So pension funds might increase in size because of contributions and they might then come to us and reallocate. But we are -- it's not usually transparent to us. Are there negatives related to diversification into new funds? And the reason I'm taking all these questions guys is because they're very relevant to the summary and outlook. So I'm trying to -- although Joseph is giving me a lot of questions here. Joseph slow down. I can't keep up. Are there any negatives related to diversification into new funds? Assets stickiness be reduced. It's a really good question. Particularly for things like our infrastructure project, I think potentially for the first time, we may find ourselves in a position where we have -- excuse me, I'm just going to could you just. Sorry, I'm getting a lot of noise in the background. Asset stickiness, I think, will increase with the diversification into some of the new funds that are contemplating. It won't be every strand, but certainly something like the infrastructure project would have something we've never seen before, which is much more locked in fee structures, which is -- and also attractive fee structures. So I think that's a positive for us. Now where are we here? Let me just see. There's one more question from Joseph that I can see here. You mentioned growth in the pipeline of opportunities in new and existing products. Is this beyond your expectation? Is it beyond what is needed to get to GBP 60 million? Well, we have been conservative in our GBP 60 million plan, which doesn't mean that we have been, should we say too conservative, but I would hope that we can do, -- certainly, get to the GBP 60 million, and I think I know exactly how to do that. So perhaps we can do more. Let's just see, you will note, we've returned to earning performance fees, which are episodic and not quite of the same quality of earnings as management fees, and those cannot always be relied on, but can provide a nice positive surprise from time to time. Does the recruitment of experienced hires than clients and funds with them? Or is it more speculative? Are there costs already embedded in the income statement with little revenue in cash? Recruitment of experience to hire will bring clients, I believe, on funds, our European team are the ones who brought us the infrastructure opportunity. There aren't really cost embedded without revenue attached, except in as much as the question says, are the costs already embedded in the income statement with little revenue attached. I would simply say that the cost of our modernization project, which is on target and on budget doesn't bring naturally revenue attach from day 1, but does allow us to scale our existing business, particularly currency, where fees are always under pressure. And therefore, I would say, it does link to revenue, but not necessarily on day 1. Joseph, I've got an opportunity for, Steve, question here, which is probably we'll hold it until we get to the financial results because it's about the tax rate. So we were nearly at the bottom of our summary and outlook. There were 2 bullet points. I'm clinging on to it. I'm thinking out here. A strong capital position, committed strategy, I think you all can understand that. I think I've given you some of that and obviously, the interim dividend, which we announced, which is very much in line with our existing dividend policy.

So let's see here. We've got a few more questions, but they seem to be starting to relate to investment performance, which is probably opportune. What comes next Steve on our slide pack that you can?

We kind have got a small section on product investment performance, so we can run through there, Leslie, quickly.

So Patrick has given us a question about performance fees, Patrick, I'm going to take that one in the next slide, not this one, because that's where the performance views arrived. This is just a quick example, and I don't want to get into so much detail that everyone gets exhausted, but we have long-standing U.S. dynamic hedging plans. Our dynamic hedging product has been running, Believe it or not, since 1983 and was invented by our founder, Neil Record. And it's still running today. It's evolved, but it still runs. If you're an American client, you are receiving from records the bright blue line, we generate positive returns for you when the dollar rises, and we all know it has risen precipitously this year, and we have delivered results accordingly. I just want you to understand that this product, the results are episodic. I don't need to tell you that. You can see it from the line. They deliver -- the product delivers what it says on the can. It earns money for our clients when the dollar rises. And this is incredibly important for those people who have invested overseas and wish to protect themselves, -- the disadvantages of having to make a call from home, but I had to shut them all up now. So we'll go on. Right, Dynamic hedging, I think, covered. We've had these clients a long time. They're quite hard to win because the results are episodic and the programs have to be big. But when they deliver the clients are very happy as indeed they are at the moment. I think there was nothing about that particular product in the question. So shall we move on to the one relating to forward season. So we have a hedging product, we deploy in Europe where we keep the hedge ratios constant, but we vary the tenants, the horizon of the hedges against a 1-month benchmark, which is the classic -- one of the classic benchmark clients can use and we can own performance fees for improving the performance of the hedges vis-a-vis the benchmark. And indeed, for a number of years, we did earn performance fees through COVID, we actually lost money. And we have a permanent high watch mark for these clients. We have now returned to health. Steve, you'll be able to remind me exactly how much we have earned so far in performance fees as they came back. But Patrick's question, is, can you give us some color as to the length of typical measurement period, quarterly or annual? And if, for example, the performance fees earned on the last day of a quarter, when would it be recognized? So I think this is a timely question, Steve, for us to address.

Yes. I mean, performance fee, the performance fee sort of wind measurement window is -- can vary, and it depends on the client, to be quite honest. We have clients with 12-month measurement windows, quarterly measurement windows, 6 monthly measurement windows. It really does depend on the client. But I think from our perspective, the fact that we've got different sort of windows in place will hopefully potentially give us more of a steady flow performance fees in the future rather than just one same window for every client a year. So yes, it typically depends on the client requirements. -- if the performance fee is earned on the last day of a quarter, and it's on a quarterly measurement, then we will recognize it in that quarter. Otherwise, if it's on a 6 monthly, we might have to wait another quarter. So it really does depend when it crystallized is and where it is within that client sort of measurement window. Hopefully, that makes sense.

Joseph is back, and he has asked me, ask if you succeed in getting the GBP 60 million target, does it make it theoretically easier to keep building the business, i.e., do bigger funds and a broader portfolio lead to more scale and more opportunity? Yes. Definitely. There's no doubt about that. As long as the products themselves are scalable, obviously. Let's see, there is a partnership with AGL, and Vivek has asked with respect to the partnership with AGL, can you talk a little bit about the scope of the relationship? This is a very good question. It's a record acting into third-party manager, European affiliate, feeder into the AUM -- sorry, excess, I'm speculating. Let me let you answer right. So the answer there in the respect of AGL and many of -- we have several partners, and we may have a few more in the future. They have different requirements. In respect of AGL, they needed two things from us. They wanted us to help open up the European markets for them, which was not a market that we're familiar with, wanted to guide them through the regulatory issues and hurdles and they wanted us to build some funds for them in Luxembourg that they could use to market their products. And then we're also interested in combining their product, for example, with those of our -- some of our other partners. So as to produce, let's say, multi-asset funds. So they've asked us to do a number of different things. And that relationship has built and evolved and grown, and we are now working with them in an environment of the Shariah-compliant environment, which we were able to build for them with another partner, so we do a lot of different things. Joseph, oh, my goodness, Joseph is paying his complement. And I had to read a compliment. I think -- thank you ever so much from a delighted shareholder in Windsor. That's great. What I would say, Joseph, is I really do believe there's tremendous opportunity here. We could go so much further with this. We're really at the beginning. I know it doesn't feel like we're at the beginning because we've been talking to you for a little while, and we're a 40-year-old company. But we're almost a 40-year-old startup in a strange way. As long as we can keep -- the business we've got steady and building gradually the way it does, manage the fee compression with modernization and efficiencies and then build the diversifying structures around it, and never let one structure overwhelm any other. So all these trends must be managed in such a way as to create, as you rightly say, a portfolio approach. That is the challenge. It is entirely possible for things like the digital opportunity to generate fees that are much, much higher than anything we would see from traditional currency. So we need to balance that so that it doesn't get overwhelming. There is a tax question, Steve, which we'll probably have to take at some point, but I think maybe we will wait until we get to the financials there.

Sure. Okay.

Now, what's next? I would pass over the multi-strat, which is small, but I would hit on to the EMSF, I think, given the interest of time. So some of you may remember, we launched a product with UBS Wealth in Switzerland over a year ago, which was the record margin market sustainable finance fund built to their order. We can market it to other people and we'll be doing so next year. But so far, it's only been their money. As you will see, right-hand side, that's the NAV, less growth of funds. They put in [indiscernible] to start with. They then added another slug later in the year. And since then, it's the NAV is reduced, which is not because of the -- they are losing faith with the process or the fund, which has performed well, as you can see on the left-hand side of your screen. But it's principally because we're part of a portfolio of sustainable finance opportunities. And when the equity one falls, they rebalance all of them. So we are affected by that. Having said that, the emerging market sustainable finance fund is invested in EM debt, impact on green bonds and Frontier and in currency. So it hasn't been a particularly good space. If you look at how the indices have performed and indeed how some of our peers have performed, it's been a horrible period. So our performance, whilst I wouldn't say exciting in Nectar, in real sort of nominal terms has been good relative to our peers. And we believe that in the coming year, we're going to invest more time and effort in this because I think we can garner some more funds from potentially other entities beyond UBS. And I do believe UBS will come in with some more funds from their advisory group in the course of the year. We would have expected it to happen by now. But the uncertain international situation has not helped. And all the things that we see, -- this has been a very disruptive time and continues to be. So it's not easy, but I think UBS is very committed. They're very happy with how we've performed relative to the benchmark, and I think we can do more of this with them. So that's enough on performance. I think unless, of course, Joseph has a question, because Joseph has a question on everything. But if he doesn't, and nobody else does, I think we'll move on to the next bit. What have we got next, Steve?

Yes, just a little bit of a deeper dive on some of the headline financials. I think first and foremost, we are pleased with the way things are going. We've had some strong results for the 6 months. If you look at our revenue, we've had a 35% increase versus this time last year in our revenue. That does include the performance fees of GBP 2.8 million. But even if you take those out, we're still 19% up in terms of management fees versus the same time last year. So we're very happy with the progress on the revenue side. Operating margin increased to 34% versus 32% this time last year. So we are starting to see a little bit of improvement in the operating margin despite some fairly difficult...

Headwinds.

Headwinds. I think in terms of inflation and as always some sort of increases in costs across the board. But that's pretty much every business at the moment. So we're pleased with slight increase in the margin, -- sorry, Leslie.

No, no, I interrupted Joseph. I think it's probably worth everybody understanding here that for us, having the right staff in the right jobs and keeping them happy is unbelievably important. It's probably the most important thing I do, really. And in order to help them with the impact of inflation, we did do a one-off inflation payment, we say cost of living payment. We did GBP 3,000 to every member of staff, excluding the Board, which obviously has much more impact on a junior analyst or young developer who has just joined us or secretary, then it would have on a director record. And we did it as a flat payment in order to be able to contain, obviously, the cost of doing it, but most importantly, so that the people who need the help most get most help relative to their overall salary from record. And it was well received. We'd like not to have to do another one. There's no guarantees, of course, but we have noted inflation appears to perhaps be peaking in the U.S. So let's just keep an eye on that. But as Steve said, it does affect, it makes it hard for us to keep growing our margins, but we are managing to do that. And we are on target to get to much closer to 40% margins than we have at the moment, which, of course, makes us look a bit more like on the successful asset managers.

Yes. And again, I think just to follow on from that. I think the -- hopefully, going forward the efficiencies that we hope to see from the investment that we're making in sort of the technology side of the business, plus the -- some of the new products coming online with much higher revenue margins, we would expect sort of the kicker, if you like, in the operating margin, certainly, hopefully, to see something in the next financial year on that. But notwithstanding that, we've seen an increase of 46% in the profit before tax for the half year. Earnings up 57% versus same period last year, and that's fed through to the interim dividend, which we've increased by 14% versus the same time last year. So we feel that we've got a good set of results. We're very pleased with the way things are going. And we hope to see more of the same, certainly in the second half and next financial year as well.

I've got a question here Steve, which is probably appropriate, although it doesn't link directly to the financial slides you're showing, could you please talk us through the current competitive dynamics of the currency for return market? REC enjoyed immense success here before the GSE, but the reemergence of material interest rate divergence has not led to similar success. Why is this? I have to say that the currency for return market is a really patchy market. If you look back over history, it's really hard to find people who have succeeded for longer than 3 to 5 years in this market. There's a lot of -- what I can use, I would call [indiscernible] as well, let's say, enthusiastic punting around of currencies, which has really any long-term robust success. Any kind of information ratio better than 0.5. In other words, something that looks like an active return is extremely hard to maintain. It is one of the reasons why we chose to diversify because we recognize how hard it is to make sustained robust money in this market, in a way that really allows you to compete, not just with other people doing it, but with other asset classes that are available. For example, those that have emerged through the digital economy. So I think it's extremely hard to predict currency. -- somebody, I think it was Martin Wolf from the FT, once said, to predict currency, you have to predict what 7.5 billion people are going to do every day. which in some, it sounds a bit flippant. But in some respect, I get it. I can see what he was saying, and we understand that. So many of our products are based on hedging strategies, which are linked to underlying assets like the dynamic hedging project I showed you and the tenor management project I showed you. And that is the way you can make sustained money at slightly lower information ratios generally than 0.5, and it links into an overall portfolio the client is managing. So you fit within their world, if you like. Currency for return hasn't really been able to create its own genuine asset class. We're always keen to find anyone who thinks they can manage currencies over longer than 5 years, successfully, better than 0.5 as the information ratio, it's hard to find. The material -- the rate divergence issue is an interesting one. I think there's so much uncertainty at the moment, which is not really anybody's friend in investment terms. It's extremely hard to predict quite how high interest rates should go as opposed to how high they can go if you look at developed market economies who borrowed a lot of money in Canela, forward to see higher rates. So I think that has, of course, given people pause for thought. They haven't all piled in to follow the rate divergence as enthusiastically as they might have done a decade ago. I hope that helps a little bit. There's no easy answer to that question.

The interest rate divergence does give us more opportunities on the performance fees on the tenant management so it doesn't.

You have to structure your currency business very carefully. Passive doesn't earn you a lot of fees but generates operational risk. Hedging has decent fees, but they're not hugely exciting the programs, however, are large or can be large. Currency for return has patchy results for us and others, and it's not easy. And I have seen some other hedge funds, currency hedge funds actually even turning to start doing hedging to, let's say, diversify their activities. I believe diversification needs to be broader than that to really make a success of your business, and that's what we're doing. Right. What else we got here? Is there anything else that we need to -- has anybody else come back with a question?

Yes, there's another question from [indiscernible] do you want me to take it?

I do, if you know what the answer is.

I'll give it a go. The question is have compensation costs been accrued in line with the higher performance fees recognized. And is the Group Bonus Scheme independent of the revenue composition? Or will this change as the business diversifies its product suite? I think the first half of that question, the answer is yes. The Group Owner Scheme is directly linked to the pre-bonus operating profit of the business. So performance fees do impact besides of the bonus pool. Is the Group Bonus scheme independent of revenue composition. So, no is the answer to that. It's not the current -- not at this point in time, it's not -- there aren't any plans to change that at this point in time. That's not to say that in the future, we won't change things. But certainly, at this point in time, as the bonus scheme is linked to sort of the group operating profit, including performance fees.

What I do like and what we are doing quite a bit of and trying more of is to encourage particularly those people who are identified as future leaders of the business to take bonuses in shares as much as they are able and willing to do it, grant them actions. We now have LTIP scheme and JSOP scheme. All of these schemes are rather complicated but allow people to be granted the opportunity to accrue shares. That for me is one of the most important pieces of our succession plan. I know this is not a direct answer to your question, Vivek, but compensation in the round, I think, is very important, both keeping our salaries competitive, reflecting people's performance in their bonus and particularly sales and investment team to deliver revenue or deliver investment performance and allowing people to accrue shares and become earners. And in a way that's meaningful to them, I'd like to feel that people could build up a stake that is equivalent to the other largest investment they might have in their portfolio, whether it's their home or an investment portfolio or other things. It needs to be really matter to them because then their behaviors are very much the way we wish them to be. Now there's a question from James about the dividend policy and also a question about how much we committed on digital assets. The digital one is quite quick. As you all know, we have quite a lot of cash in excess of our regulatory cash to date. We have committed -- we're ready to commit up to GBP 2 million in the digital asset venture capital investment. This represents five investments at the moment. And we've committed GBP 1 million of our loose cash, and we called that to our cryptocurrency project with a gentleman who's been trading cryptos now for 6 years, and he is going to be a very exciting partner for us if we're successful in finalizing our negotiations with him and launching a fund for him, which is what he'd like us to do. I think so far, we commissioned about -- we've invested 1.5 and committed 2, I think, is that right, Steve? Or we are not...

Yes, that's probably right, yes. yes.

Dividend policy. So it's a small piece, but I'm hoping it can grow both in terms of its value, but also what it means for us and in terms of what we learn and how we evolve as a business in this area. As I've said, I want to be mister and misses sensible here. I think everyone should have 1% or 2% of their assets devoted to this exciting new area. But you don't want to be defrauded, you want to go to someone who understands governance, who has a long history of experience in the world of currencies, who understands how to manage carefully a risk-diversified portfolio. And we think maybe we can be those people or one of them, and that will be a very opportune -- and there will be great opportunities for us in that area. Now Steve has turned to the dividend policy because Jamie has asked a question. And he says, are you going to talk about dividend policy and specials? And how they relate to core earnings and performance fees, which can be lumpy and variable, correct? Steve.

Yes. So the dividend policy was changed slightly at the end of last financial year where we decided to give more of an idea to shareholders on what the ordinary payout ratio might look like going forward. So we put in sort of a payout ratio, a target payout ratio of between 70% to 90% of earnings. We don't feel at this point in time that we need to build the balance sheet at all. We've got a very cash-generative business model. So what we want to do is to show sort of progressive and sustainable dividend growth in line with the plans for increased profitability. So we've gone from sort of 1.15p interims in 2021 to 1.8p last year to 2.85p this year. So we are seeing a gradual and sustained dividend growth in line with those profits. The split between the sort of ordinary and special is exactly, Jamie, I think what you spotted in or what you've asked in your question. We want to lead ourselves to flexibility whilst having -- setting a progressive ordinary dividend policy to be able to pay specials, it's sort of linked to the performance fees as well as within the business. So setting the ordinary level of sort of if we strip out the performance fee element of the earnings per share, I think the 2.85p broadly equates to about 80% of the nonperformance EPS, if you like. So again, we're almost smack bang in the middle of the 70% to 90%. And that's kind of the way I view it, certainly going forward is that we want to -- we want to allow ourselves flexibility if we need a little bit more to come down slightly to the lower end of the 70%. But if we don't need the cash, I think the feeling is we're happy to return that to shareholders. It's not our money after all. So you're right, the variability of earnings with performance fees, we sort of -- we want the core ordinary dividends to show progressive steady growth and the sort of the top layer of the cake, if you like, which is the performance fees. We will have the ability to pay out or maybe retain some and if we need some for a special project or further investment, but there are no plans for that at this point in time.

Graham E has asked, could you give us an update on your succession plans? So in the course of the last couple of -- yes, we can. In the course of the last couple of years, we've had quite a few changes at the top of the business. Obviously, myself as CEO, we've had a new CIO. We have a new CTO. And the top level was really where we needed to make some changes because just like me, there were people who've been in the business for a very long time. And I think it was holding us back from evolving the business because they have very clear ways of working and things that they wanted to do, and it didn't really include the sorts of things I think we needed to do to make us a more successful business. The succession -- the changes at the top gave us the opportunity to bring in a number of new people and those new people, they weren't necessarily new to record, but they were new in their roles -- they have definitely proved themselves and have demonstrated that they can take the business in a very exciting dynamic new direction, can help with modernization, can build our revenue base. I want more of that. I don't think a couple or three or four of them is enough. We need more. And not everyone can be in that position, but we definitely on the hunt for more talent all the time and are finding it. And then my job is to keep it, to manage the people in such a way that they are in the right jobs and are happy and they stay with record and make record their career. That is my plan. And if we are successful in doing that, then the succession plans will be self-evident, I think. We've had more promotions in the last couple of years then we've had in the preceding 10, I think that was the number that my HR Director told me. Now on the one hand, that's quite disruptive because clearly, business as usual is steady, conservative, stable. You kind of know what to expect. But the people are rising to the challenge. They're really enjoying it, I think, most of them. There are a few who want the change in terms of the remuneration, but find it difficult to cope with change. And so what they really like is more money, but no change. And that's quite difficult to achieve, but they are coming around and people take a while to get used to change. Some people embrace it enthusiastically. I'm one of the ones that does. I find that quite easy and enjoyable and always have, but not everyone the same. So some people chose not to say, some of the senior people who left were still good friends with them, they still act as advisers to us. But the way we were going was not for them. And that's absolutely fine if you've been in the business longer than 20 years and you're approaching your seventh decade, shall you say. So are there any other updates? I think not. We will continue to do what we're doing, searching for new talent, promoting from within, giving new people opportunities to show us what they can do, bringing in a few selected partners from outside. I plan to say definitely probably a little bit beyond the 3-year plan, although I did promise the Board, I would stay that long. I've got past the horrible bit which was where the house is all dirty and messy and you're kind of cleaning it and you're putting in the new plumbing and the new wiring, and it's all the disaster. And now it's starting to be a lot more fun because now it's about building and calibrating and refining and building on success, which I think we can do really well. So I'm very happy to be doing it, and I'm enjoying it, and I would like to keep doing it for a bit, if I can. Hopefully, that answers that one. Is there anything else -- is there anything else we need to talk about today? Oh, how much time are we need to spend? I forgot.

We've got another sort of 12 minutes or so.

So I don't know if there's any other. At the moment, there are no more questions. So there was one further back, which I didn't know the answer to, Steve. Are we allowed to invite people to Capital Markets Day if they're not an institution?

Yes. So I'm going to answer it. A question from Alistair about the Capital Markets event on the 9th of February. I think the answer is yes, Alistair, we will try and make sure that there's an opportunity for people to join by remotely, hopefully. That's not confirmed as yet, but I think the plan is to have as many people able to attend as possible. But we will certainly put some information now on that near at the time.

Absolutely. Peter B has come in with a question. I admire the intention to be mister and misses sensible in the digital space, but showing investment in the VC digital crypto space carries higher risk with the potential for possible future provisions, right? So there are two answers to that question because it's a very sensible one. The first is we would never allow too much of our investment or our loose cash to be drawn into this area in a sort of get-rich-quick type of approach. We are using only a very small amount of money. So we would always ring-fence the risks to the business. So we would not need to make future provisions against this. I mean -- and to be honest with you, even if we lost some money I've got GBP 2 million, and yet overall, the project was successful, I would be fine with that. I don't mean losing it through fraud in the way that we've seen recently with the index of collapse. But clearly, every venture capital investment has its risks. And people like Block Scholes who are doing really well, which is one of our investments or Fasanara or indeed like [indiscernible], so things can't go wrong. But nonetheless, I don't think we'll need to worry about provisions. What I would also say is, remember that the investment in this area, together with the risks, assuming you can ring-fence and manage them, carries very much higher fees. So for example, if we launch a cryptocurrency fund which we can very carefully manage access to, and we can very carefully manage the size of. If you imagine that on passive hedging, we are 1, 2, 3 basis points in something like cryptocurrency fund, it looks more like [ 20 ]. It looks like a hedge fund. And if the results are good, and our partners, the ones we're looking at have had excellent results over many years, not just 1 or 2 years. Then obviously, it gives us a really nice diversification of fee structure where we get higher fees on smaller amounts for, as you say, a more volatile asset, but not beyond the management potential for us to risk manage. Juxtaposed with long-standing management fees for things like infrastructure, which are nice and sticky and quite high fees, but obviously not as high as the digital environment. and then a bedrock of lower fees on the traditional business that we continue to manage in currency. And that, together, is a really attractive proposition. We don't want any one piece to overwhelm, Peter, any other piece that's the point. But it doesn't mean -- just because it carries higher risk and higher returns and higher fees, doesn't mean you should stay away from it completely. It just means you should be very clear on your intentions, very clear on your commitments, the limits of your commitments and any contagion risk. So I think it's worth the risk so long as we do it sensibly and properly. And I believe that amongst a lot of people who might look at this, we're very well equipped to do this. And if any of you are able to join our Capital Markets Day, you will meet our Chief Technology Officer, who is masterminding this project with me, and she will answer some questions in such a way that I hope she will give you a lot of confidence in our abilities to navigate the space.

Leslie, can you still hear me?

I can. I can't see you.

Yes. No, Apologies for some reason, the camera has decided to switch itself off, so apologies.

Is there anything else we need to address, do you think? I can't think of anything particular. You've done the overall highlights of the finances. We've answered the questions, I think -- the tax, those tax questions, do you remember that? That was the last one, wasn't it.

Yes, a tax question from Joseph. The tax rate, are there any opportunities you have to offset the increase to 25% -- to the 25% tax rate? It's a good question. I mean we do as much as we can, Joseph. We have a research and development sort of team that helps us with -- on the R&D side. There aren't any opportunities at this current point in time that I can think of that we can offset the 25% tax rate with other than things like R&D, which we're already doing. But we're certainly [indiscernible] with our tax advisers to make sure that we're maximizing any potential offsets that we can.

And to be fair, I mean, it is our job to maximize shareholder return. And therefore, obviously, we would always be looking for ways to minimize the tax, but also we're members of the society. And in this society, we're all in this together. And the tax burden is there for a reason. We know there's been things that have happened that were untoward inflation, COVID, the war, et cetera. So we want to be good citizens and we want to pay our way, obviously. And at the same time, be as fair as we can be to shareholders. So we're kind of trying to juxtapose the 2. I don't want to pay higher taxes. I know I'm going to, and I don't want record to, and I know we're going to. But I also understand the reason. And as long as the government uses our money wisely, which is all other debate, and then I'm willing to do my bet. Yes. And -- is that enough of all of that. Are we done? Do we think gentlemen?

Well, I think you've addressed most of those questions, if not all of them. And obviously, the company will review all the questions submitted today, and we'll publish those responses on the Investor Relations Company platform. But just before redirecting investors to provide you with their feedback, which now is particularly important to you both. Leslie, I'll just ask you for a few closing comments.

Of course. Well, we're on the journey here. As I think I mentioned, we've been around for 40 years, but we're in some respects a bit like a start-up with a nice strong capital base. So this is a journey guys, and I'm glad you -- some of you are on it with us. And I think there's a lot further to go. We can do some really good stuff with the support of our shareholders and our staff and our clients. I have mentioned clients, we have had fantastic support from our clients who are trying new things with us and really building our future with us, which is very, very exciting. So thank you for attending today. And I think there's a lot more we can do, and I hope you will all be interested to follow it with us.

Leslie, Steve, thanks once again for updating investors today. Could I please ask investors not to close this session as you'll 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 moments to complete, but I'm sure will be greatly valued by the company.

It will.

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, everyone.