St. James's Place plc (STJ) Earnings Call Transcript & Summary

Good afternoon, and welcome to the St. James's Place Q&A call on the new framework for reporting financial performance. [Operator Instructions] I'd now like to hand over to Caroline Waddington, Chief Financial Officer, for opening comments.

Thank you. Good afternoon, everyone, and thank you for joining the call. And I'm here today with Sophia Johnson from our Investor Relations team. Before I open the floor to questions, I want to spend a couple of minutes reiterating the key points about the new simplified framework for reporting financial performance that I'm very pleased to have announced today. Importantly, nothing about our profitability changing. There is no change to our financial business model, anticipated profitability, financial ambitions or shareholder returns guidance. The new framework is purely a change in how we present our results with the aim of making them easier to understand and better aligned with our financial business model, charging structure and statutory IFRS reporting. Our key profit metrics being renamed from the underlying cash result to adjusted IFRS profit after tax. This is the same number just under a new label. As a result, we expect no material change to consensus profit expectations when you refresh your models to accommodate our new framework and associated guidance. Whilst the bottom line number isn't changing, the way present financial performance to get to that bottom line is different. From half year 2026 onwards, we will replace the current cash result with an adjusted IFRS profit and loss account, which will show income and expenses separately and for tax. We're also simplifying parts of our financial review to make it easier to follow. To make the best use of this call, for those on it, we'd ask that questions focus on the principles of our new framework. Of course, we recognize that you'll need to make changes to your models to adapt them to our new framework, and you make detailed modeling questions as a result, and the IR team will be happy to assist with these offline. With that, it's over to the operator for the first question, please.

[Operator Instructions] Our first question today comes from Nasib Ahmed from UBS.

So firstly, on the 131 basis points margin, I probably call it the revenue margin. if I gross it up for gestation from, so let's say, 25% is gestation. I get 175 basis points. How why is that higher than the 167 that you're charging under the new structure. So can you just kind of square the math there? And then kind of secondly, just on below the line items below the IFRS profit after tax. I don't think there's any changes there, but can you just confirm that in terms of how we model that? And just related to that on the.

Yes. On the first I think if you gross up a gestation firm, it's about 15 basis points actually. So that's -- I think that's the amount. So that would be that. And then we've got some Yes. So I wouldn't get the 170 would the number you said basis points. So we think it's less than that. Then we have some tiering and we have some investment cost differences. So there are some different elements but not the gestation on the just so only the major difference, but not all of it. So maybe that's something you can go through with IR. Maybe you can go to that with the calculation per. Yes. And on the side, there was no difference, though.

No difference to the reconciling items between adjusted IFRS and pure are exactly the same as they were between the cash result and IFRS.

And sorry, I was going to ask on back and did that just run off over time?

The DRs, the DAC, I think, is going to remain as an accounting concept, but the dirt was very much related to our gestation fund and that 6-year holiday on fees, charge? So yes.

The next question is from Ben Bathurst from RBC.

Mine is on the IFRS expense and that reconciliation from adjusted to IFRS expenses. I think it's Slide 20 of the pack. Completely appreciate that nothing's changed here. the reps calling out some specific line items, but there's also an other line in that rack, is it fair to assume that depreciation and amortization of PPEs sitting within that other line? And is that offset by some credit items I just wondered, are there any other items worth calling out sitting in that other line that you think should recur and we should be aware of?

Yes. I would say actually, we don't have that much depreciation from our PPE. We don't have a lot on our balance sheet. We have our -- so I would say we don't have a huge amount of that so that's not seeing. The main thing in other expenses are sort of complaints costs and our donation to the foundation and things like that. So there's nothing particularly major. It's just all odds and sods that don't really -- nothing particularly material that doesn't fit neatly into the other categories.

Okay. So the depreciation at is in there, it's just not material, would be the point.

I think it's actually within -- sorry, I mean I've been facing so many questions I'm getting my brain and this was not 1 of -- I think it's within people property and technology costs. It should be within that. I think that's where we would find it.

Yes, it was always recognized in controller Breese previously. Yes, it will be it's within poncho. -- it's pretty small for us. So it's because we do have a lot of technology capitalized sort of software on our balance sheet. We don't have a lot of intangibles. So sort of through software and things like that. So it's small, hence, my brain. I mean to think about it.

Understood. That's clear. That's very clear. It's above the line. That's very clear.

The next question is from Greg Simpson from BNP Paribas.

A few random ones here. The -- in terms of the 3 basis point movement you're talking about, clearly it's going to be quite influenced by the gestation runoff that you're not going to disclose that going forward. So I guess the question is, is 3 basis points -- is the 3 basis points going to be quite a similar level each year, 3 basis points are you going to kind of guide each year will it be 2 or forward? Just want to square that kind of how smooth that margin increases?

Yes. I mean I'll start with that 1 you see I'll stop you asking multiple questions, but we'll ask you to let you ask another question in a minute. So yes, on the 3 basis points as is our way of -- obviously, now we're using total fund, which helps you to simplify everything. That means you don't need to worry about the amount that's actually maturing. It is linear, but not totally linear. It's sort of -- it does act in a sort of linear way, but not 100%. So what we will do every year is the 3 basis circa 3 basis points will stand every year. But what we will do is we'll give you the range of sort of at where we think the average margin will be every year. So we'll reset the 47 to 49 basis points every year. And then it will be a circa 3 basis point rise every year after that. So that's what we will be doing in our guidance, if that makes sense.

Yes. Okay. Got it. And a few smaller ones, but just you're excluding share-based compensation from your adjusted figures just to confirm that's the case and remember the rationale. And the second one would just be just to confirm Asia and the Asia and Rowan Dartington revenues are all in your income from kind of top line mine and the cost yes.

Yes, we've taken the opportunity just to simplify everything by put things. So I'll start with the last one. Yes, we take an opportunity to simplify everything and put things with -- in their type of income rather than splitting it out by Asia and DFM. Yes, it's all in the income from farm and -- I'm sorry, profit from fund profit from inflows and PPE. So that's where we split it out to. So yes, on the Asian -- on the second one, it's the share-based conversation, it's the equity settled is actually excluded from the cash results. That's a line -- number one, that's aligned -- or sorry, the adjusted IFRS now, but was the cash result. So it's aligned across both. We've done the same thing in both. And just the rationale for that is that we can do that via the obviously issuing shares or purchasing shares and only 1 of those reasons -- only 1 of those impacts cash. So do adjust it out because obviously, there is that it's not necessarily a cash item. And then if we -- when we do do that, we will do that as par retained distribution. So out of the 30% we retain, it would be part of that if we do then purchase shares for that. So that's the rationale for it, and it is consistent with our previous treatment under the cash result.

The next question is from Charles Bendit of Rothschild & Co.

One question on investment return and net finance income, which I think is driving GBP 121 million out of the GBP 600 million of adjusted PBT so I think the slide says it reflects the income accruing on shareholder investments and net interest paid on borrowings. Can I ask a couple of clarification questions. One would be -- can you remind us what the investments are that are generating the GBP 86 million investment return? The second is, if you think about the finance income is that net interest margin that you're generating on the roughly GBP 9.6 billion in cash that's reported with your fund? And where we're coming from? Is it -- I'm just trying to understand the net interest margin you're generating on client cash and the process you go through when thinking about idle cash that sits in SGP accounts versus being sent to Flagstone, which I think is excluded from FUM.

Yes, it is. So I'll try and take that. So let me -- so the investments that we talk about is where we have put our working capital to money market funds. So that's our investment return. So it is literally a money market funds, so nothing more exciting than that. And on the second one, on the sort of financing income. This is predominantly interest on partner loans and cash -- any cash and cash equivalents that are ours. So we don't make any interest on client balances. In fact, what we generally do with client balances is we invested in money market in money market funds for them. So we don't have which other people will have where we make money on cash of our clients. We don't have that situation. So all of that is our shareholder money or working capital money effectively, either on money market funds, which comes in the investment returns or cash and then obviously, the interest we earn on Finance comes into finance income.

So nothing at all to do with the GBP 9 billion?

Okay. So can I just follow up on that? On the client only notice section of your website. Is that the cash that's placed by clients gets placed to money market funds or bank accounts with treasury partners and there was a rate change effective first of January where a rate on cash was being reduced from GBP 1.7 billion to GBP 1.6 billion, which I think would be different from the return that money market fund generates. Do you know what this is referring to. Just it seems like there's a net interest margin there somewhere, but maybe I'm misinterpreting it.

We'll get back to you on that one, actually. We'll get back to you on that top of the head, no. So -- but yes, we'll get back to you.

The next question is from Andrew Crean from Autonomous.

I just wanted to ask, as we go down through the different lines, mainly expense lines, can you talk us through areas where you think there is seasonality between first half and second half that we all think about.

So there's not -- where would there be seasonality -- we don't have a huge amount of seasonality. I think the main -- probably our main 1 is within the and some of our regulatory fees where we get -- where those payments come out in the first half of the year.

So we do tend to get some more of that. But I don't think we don't tend to -- certainly, in our expenses, have as much of that sensitivity. I don't know every -- so last year was a little bit of work where we had additional higher expenses in the first half of the year compared to the second true -- it was only very marginal. So it was something like 50.5% in the first half and 49.5% in the second half. Typically, we have a slightly higher H2 weighting, but by similar amount, only just over 50%. Apart from FSCS, everything else is pretty even in general.

Well, I just want to take you up on that. performance-related costs were GBP 26 million in the first half in the second. Other expenses GBP 28 million going back to 18 and people project costs, GBP 256 million, GBP 269 million, I can see that sort of just general progression. I'm just saying on the income side, is there anything on the income from inflows or from FUM, which seasonally might be different I'm trying to think about when doing the first half '26 forecast.

So on the income side, you'd expect us to move up within the 47 to 49 bps profit from fund range over the course of the year as gestation from unwinds across the year. So yes, you'd expect the profit from fund margin to be higher in the second half than it is in the first half. That, that is driven by the income side rather than the expense side in general. Of course, there will be some fluctuations. So how we accrue for our profits bonuses in the performance-related line may vary our assessment of business performance changes over time. But in general, a pretty even split on expenses is where we would suggest you are.

[Operator Instructions] The next question is from David McCann from Deutsche Bank.

Two for me, please. Caroline, on the recorded remarks this morning, you're walking? [Technical Difficulty]

Sorry, David. We just -- we lost you for a second there. Can you just start your question again, please?

Yes, of course, yes, sorry about that. So on the current lines recorded remarks you mentioned that there was obviously a gap between the 167 investment bonds and pensions and the 159 bps for unit trust and Ice disclosures comparing to the 11 that you're disclosing within the data today. Obviously, much of that is going to be the gestation difference. -- if I do 3x 6, 3 basis points time, that's obviously about 18 bps. It doesn't explain all of it. I think it was also mentioned that the actual fund selection will have a bearing on that. So can you just do a waterfall for us, if you like, between what's roughly 160 basis points down to the 131. So how much of that gap is gestation? How much is other stuff? And if you could sort of break that out by category, that would be great. And then the second question sort of relates to the same thing. Of the fee guidance of increasing the effective revenue margin, are you assuming any underlying fee compression within that? Or is the 3 bps solely due to the gestation unwind?

So on the first one, with the waterfall.

Yes. So getting from the headline rates of 167 and Pension and 159 for down to the 131 we've actually reported a as you say the most significant thing is gestation fun. The next largest thing is the variations in investment charges. Those headline illustrative rates just give an example for 1 particular fund, but we have quite a lot of variation across our investment portfolio. And so depending on where clients have chosen to invest, the charges are quite significantly different. We also have things like tiering going on in there, which brings down the margin. So we'd expect over time as more of our gestation from majors that, that margin will trend upwards.

And then can you put some rough numbers on those things?

Yes. So in the same way that our profit from fund margin, we suggested will increase around 3 bps a year that will give you formal forward guidance for 1 year in advance. That 3 bps would also apply to the income from FUM line because gestation fund comes through fee and additional expenses in the way it always has. So 3 bps increase due to gestation is what we'd expect at 2031 annually.

Okay. So on the fee compression, I think the way we look on this is obviously, the same way we we think advice is something that with the scarce resource in the industry is something that will be one of the latter things to see any option of any because of the sort of -- obviously, lack of advisers in the market. I think on the investment margin, we always -- that's something we're looking at, and we we're permanently sort of reviewing that and seeing what we pass through to clients. And on the product, we look at that as we get economies of scale that may well be something that we will look at as time goes on and then we get those economies of scale and what we do with them, and that's why we probably see it happening. Within our margin, we have some -- we obviously have some sort of some degree of conservatism into that. But yes, I mean, I think that's how we sort of see it going as we -- as time moves on.

Yes, the 3 basis points, is that exclusively the gestation unwind effect? Or is there anything else in that number?

That is the gestation unwind effect.

Yes. But as we had in our 43 to 45 bps margin range. That did assume as you move out to 2031, that we could give up a bit or to on product charters. And so to get down to the same level of profitability because the cash result is actually the same as adjusted IFRS profit after tax, we've got that same level of prudence in our profits and fun guidance range to.

We have a follow-up question from Nasib Ahmed from UBS.

I was just picking up on what Sophia said on the 3 basis points. Your profit from growing at 3 basis points, expenses aren't growing. So it seems like the income from is going to grow less than 3 basis points, right, because you're getting operating leverage? Right?

No, we think that there will be 3 basis points on income from firm and on profits and fund.

[Operator Instructions] That concludes our questions for today. So now I'd like to hand back to Caroline to close the session.

Thank you. Thank you, everyone, for attending and listening and asking your questions today. So I want to leave you with my key takeaways. First, our new framework provides a simpler, clearer way of presenting the financial performance of our business. Second, there's no change to profitability, just a better way of showing the key drivers behind it. Third, we'll be implementing a new framework for our half year to '26 results, which we'll announce on the 29th of July. So thank you all for your questions. And please do get in touch with our team for any further queries. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect your lines.