Tatton Asset Management plc (2T7.SG) Earnings Call Transcript & Summary

Released their results last week on the back of which we published a research note, which you can find on our website @equitydevelopment. Management is going to talk us through the presentation, and then at the end, there will be an opportunity for Q&A. Please feel free to submit any questions as we go along. I'm also going to launch a poll. So if you could please answer that as well. But without further ado then, I will hand over to Paul Hogarth to take you through the presentation.

Thank you, Hanna, and a very good afternoon. Yes, please. And if we could go to Slide 6, that would be great. I think we just skip to it. I mean, that shareholder poll removed. How do we do that? Can you remove the shareholder poll? Hanna?

Hanna, you still have got the shareholder poll visible in the front of the screen.

That's specific to you, but I can end it for everyone if that's all right.

Can we -- mark [indiscernible] as well.

There we go.

Okay. Start number two. So just on Slide 6, and we're just showing the group with the two separate divisions. The Investment Management, Tatton Investment Management on the left-hand side. Basically, that is the growth division of the whole organization. I would say the majority of the reason why shareholders will purchase our shares in the past. We are a discussion fund manager dealing exclusively on platforms, U.K. advisor that platforms and exclusively through the IFA community. We were a bit of a price disruptor, many moons ago when we launched at 15 basis points, and we remain 15 basis points, which again is still competitively priced in today's world. Growing to GBP 15 billion of management, but I'll come back into further specifics about the Investment Management division later. Looking to the right-hand side, then we've got IFA Support Services division on membership, and that's got Paradigm Consulting, which is an IFA support services business, which has over 400 firms that helps and works with -- from a business consultancy point of view, keeping those firms on the right side with the regulator, but it's not responsible for the errors and emissions of its membership. And Paradigm Mortgage Services, it's a mortgage aggregation business, which is purely for mortgage advisers, where we can get them the very best firm-funded -- sorry, the very best type of product, whether it's banking or lending or whether it's protection and the insurance environment. So with our size and scale, we get the very best terms, that the mortgage adviser can utilize, which is going to be a better term that you can get outside of the club, and we retain an element of a clip from all the transactions that are done throughout that membership business. So that's Slide 6. If we move forward to key highlights. Absolutely delighted with this exceptional set of numbers, especially when you look at the sort of the macro position that we're working within. So very, very proud to say over the last six months we've had organic net flows at GBP 910 million. So we're bringing around about GBP 150 million of new flows every single month. And consistently, we've done that now for 22, 23 months. And post the end of the interim period, in October, we've done another GBP 150 million. And November, we've done another GBP 150 million so far. So effectively, those flows are exceptional. When we look at everything else going on in the world, it's lovely to see those flows coming through. And we've now gone through the GBP 15 billion mark, so that was GBP 14.8 billion at the interim date, but now through -- because of the extra funds that we received over that period. So a real strong performance, a strong performance across the group from Paradigm Consulting too and the mortgage numbers increasing. So the mortgage members have increased by over 5.4%. But I think one of the very interesting stats apart from the obvious ones, you can read in that are shaded in green is the fact that we have 114,650 actual individual accounts now and a little bit of math that basically takes you that our average client account size is GBP 130,000. So we've really brought discretionary fund management to the mass market, which we believe is well served by the IFA community and why we remain IFA only. We've got over 914 firms supporting us and giving us business on a weekly basis. And again, if you look at that GBP 130,000 and work on our 15-bps explicit fee, that means that effectively clients are getting a full discretionary service for just under GBP 200 per annum, which we think is exceptional. Again, it sort of fits beautifully into the consumer duty legislation that we are all working under with the new legislation from the regulator. And we will have a slide that addresses consumer duty and why we believe we're very well placed with consumer duty, and we might even receive a little tailwind moving forward for more assets to come our way. So that's it on Slide 8. On Slide 9, we're basically showing our strong financial performance over a sustained period. So you can see the CAGR there of 24% on profitability and improving the margins as we go through. So as we get more and more assets under management, the margin operational gearing improves and my other colleague, Paul Edwards will take you through that within his deck coming up shortly. And then the next slide, slide 10, is our bragging slide effectively, which shows how the funds under management have come towards us from March 2013 when we launched getting our first billion in 2013, our second in 2014, our third in 2015, and we've kind of built on from there and now over the GBP 15 billion that I mentioned earlier. So without further ado, I'll pass you over to Paul, who will take you through the financial performance.

Okay. Yes. Thank you, Paul. Yes, I'd just probably reiterate really great set of results in this interim period, six months at the end of September. I would say also, to some extent, it's also relatively vanilla from our standpoint in that the growth is all organic. And as you saw in one of the previous slides, we remained on our growth track since IPO. Yes, so really good growth in revenue, just under 10%. As normal, the main drivers of Tatton, helped by a really resilient performance from Paradigm as well. And which I think given the lesser optimal conditions that we've had over the past six months, is a really good position to be in. We've delivered operating profit growth of 11%. But more importantly, the operating gearing that Paul referred to has come through even from a group perspective as well with margins increasing to just under 51%. We've had our normal adjusting items, the share-based payments and amortization of intangibles. But a key point for us, which doesn't particularly stand out on the slide, but is our debt facility expired in this period. And the interest that you see there, which is a minus for us will turn into a positive interest of somewhere between GBP 300,000 to GBP 400,000 in H2. And then along with obviously, the corporation tax increased to 25%, the earnings per share has increased broadly in line. And then finally, we want to talk about the dividend, where you see a significant increase in the dividend there year-on-year, 77.8%. Just for clarity, the dividend policy remains the same. So we're paying 70% of earnings. All we've done here is really just change the profile from 1/3, 2/3 to 50-50, which has actually been really well received by our investor base. Moving on to the next slide, Tatton, really strong growth in AUM in the period, just under GBP 15 billion sits up now. And as Paul mentioned, actually, as we sit here today, I see slightly over GBP 15 billion, just driven really by organic net inflows this year, GBP 910 million, which has really been consistent over that period. So you'll see there on the slide, Q1 to Q2, very consistent, but broadly pretty consistent month-on-month as well. Our investment performance has been good in relative terms to the market and to our peers on ARC. That said, we've only benefited GBP 100 million in this period. And actually, when you go over the last 18 months, actually markets have taken away GBP 300 million from us over that period. So we really have no help from markets over recent history. Overall translates to GBP 40.5 million of revenue, 13.4% growth, which is really strong. And Tatton actually now contributes 83% of revenue for the group. So it really is the vast majority of the group now. So the growth in operating profits, obviously, has come through as well, really strong gearing in Tatton with margin increases to 62%. And we generally get a question is where will they get to? And the reality is that the nature of our business model is such that we sit through the platform where the technology is and where the investment is in terms of future technology and where all the assets are held. And then obviously, the IFA who deals with the 113,000 clients, where we're actually dealing with 914 firms. So that operating model is such that we have a relatively low-cost base. And as long as we continue to deliver 44 portfolios that we currently have, there's no reason why the operating gearing should not continue to come through and margins increase. And then moving to Paradigm. Yes, given the context around the housing market recently, we're really pleased with the resilient performance, as we said earlier. We've seen a modest 5.5% decrease in completions, albeit from a slightly different mix to normal. So as an example of that, product transfers, typically, there'll be about 33% of the overall completions. They've then increased to 50% and a sort of home buyer or a move of mortgage, like a new mortgage has decreased from 38% from -- decrease, sorry, to 38% from about 47%. And that mix is actually a lower margin mix for us. That said, the impact on revenue has been relatively modest. It's been obviously helped by the increasing number of firms, but also an increase in protection income, too. So as you'll see from the operating profit and margins, look, we continue to invest in the business. We've taken that choice. And while it has a short-term impact on profit, we think that's the right thing to do. I think more importantly, I think as we look forward, there are signs for optimism. I think the first increase we've seen in house pricing on service since March. Lender competition is increasing and driving down pricing and the number of available products is actually now a record over 5,600, which is a record since the last 14 years, I think, if I understand correctly. And then obviously, the reason for inflation has helped and that will certainly help in the medium term with helping obviously with affordability and ultimately, hopefully, lower interest rates as we move forward. Looking at the balance sheet on the next slide. Look, we have a really strong but simple balance sheet with very, very little movement year-on-year. Key highlight really is that the group has a very low capital requirement heading to GBP 24 million of cash on the balance sheet that you see there after paying the final dividend of last year. And cash being still the largest item on the balance sheet. As said, we know the group may save GBP 40 million net assets. You'll see on the right-hand side on the table, our capital resource, which we hold is 211% of the requirement. So really strong headroom, and that's obviously after paying the interim dividend or the increasing interim dividend that we proposed earlier. And then on the cash flow, again, simple balance sheet, also relatively simple cash flow, strong cash conversion. The business shows off lots of cash, so GBP 8.3 million generated from operations. All the other uses of cash of pretty vanilla and obviously year-end dividend and corporation tax payments. Probably the only one that just stand out is approach of our own shares. We made a capital allocation decision to do that this year, mainly because a number of our shareholders have been selling shares. They've had the liquidity requirements themselves through redemptions and we swept some of our own shares, which is really just a hedge for the future options that we have. So we spent GBP 2.6 million at the half year and actually just increased that slightly to about GBP 3.2 million in October as well. And then just looking at the outlook into H2, we've made a pretty strong statement there. We're on track to deliver expectations in that first bullet there. We've got 4.5 months ago. We know that and as Paul said and I mentioned earlier, flows have been very consistent, and that's been maintained into the first six weeks of the second half. So I think it's really a very positive statement. We continue to invest in the business to support that growth. So that will be necessary in H2 as well. But then with my accountants, I guess, on a cautious stand, the world is in a certain place at the moment. This impacts markets and therefore, the volatility persists. And while inflation has fallen, it's still relatively high and therefore, some impacts in confidence. So overall, when we look at Paradigm, the implication for us is that we broadly believe that the Paradigm will do pretty much H2 broadly in line with H1.

Thank you, Paul. Moving to Slide 19. Now we just want to look at the strategic side of life. This slide really is very good in describing how the market has grown in DFM MPS. So if we go back to 2017, you can see in the green box there that the actual size of assets from adviser-led platforms, which was GBP 25 billion in the DFM MPS space, and now we sit in 2023 with the number of being GBP 103.5 billion. So being an incredible increase of GBP 25 billion to GBP 100 billion. And actually, the market consultants are basically saying that they think that GBP 100 billion will actually go to GBP 200 billion by 2027. And that's a number that we concur with. We can very much see that happening with the momentum that's coming. So MPS is maturing very, very well indeed. As you can see, our market share in 2023 was 13.4%. And if we can maintain that and even grow that a little bit, we would be delighted over the next 4 years as that market increases. So we have got a lovely market dynamic going on here. And I think, again, when we look at consumer duty, you'll see that it might even help and accelerate those flows further than what is predicted. But I know as a management team, we look constantly at what we're doing and what is available in the financial services arena. And there's no finer place to be right now than MPS. There are numerous MPS providers. I think at the last time, there were 80 DFM MPS. So you can imagine that there's a very long tail of smaller ones out there. But there is a myriad of choice, and we have got to remain right at the forefront, and we evolve our proposition. But we believe that 15 basis points is the right price. And at the moment, when you look at the average pricing, the average pricing is still 22 basis points. So we're well below the average. There are one or two players who have come in that are cheaper than we are, but aren't necessarily winning the assets that you may expect them to get. The GBP 14.8 billion number there, showing GBP 14.3 billion is basically working on the old GBP 103.5 billion. So that might be inflating our market share a little bit because we think that GBP 103.5 billion has already grown. So I'd rather work on the 13.4%, 13.5% market share for your purposes of calculation. And then on Slide 20, we're basically showing that road map to growth. We did predict that we'd move from GBP 9 billion to GBP 15 billion over a 3-year period. And that obviously expires in March 2024. So we're six months ahead of plan. We're now through that GBP 15 billion. The makeup has been slightly different. To be honest, we thought the makeup would be GBP 3 billion of new organic flows and GBP 3 billion of effectively M&A or inorganic flows. It's not turned out to be the case. It's been GBP 4.1 billion has been organic and GBP 1.9 billion has been M&A activity. And actually, M&A activity because of the importance of MPS in today's world is becoming quite difficult. Most MPS providers are either building up their asset base for a sale or partnership later on. But those ones that we have been discussing with have got huge expectations on the value of their business, and I'm afraid that we would not be paying those valuations because there wouldn't be earnings enhancing for the group. So we've had a couple of potential M&A activities that were being [ designed ] and we've had the [indiscernible] as well. So as you know, M&A activity is binary, but I'm happy to say that the organic piece has definitely stood us in good stead, and we have a really good pipeline looking forward. Slide 21 just really reiterates what I said before about the MPS proposition and how it remains so well positioned in today's financial services arena. Obviously, asset managers have had a real torrid time with redemptions. Wealth managers, a little bit of growth in platforms, a lesser amount of growth than they've had in the past. But we continue to trade very well, and that's because not only do we get brand-new business from the IFAs, but we're always talking to them about converting their legacy book which is already on platform across to us. And we have a very, very good proposition to migrate assets as quickly as we possibly can. Slide 22 is a new one. And that's really been, your peers have asked us to have a look at and show how we've grown in the number of firms and what kind of assets do we still maintain for those firms that have joined us over each individual year. So you can see that we had 102 to start off with. And you can see from the light grade green that we've still got -- those assets are still improved, although it flattens out quite a bit as you can see, but it moves forward. And I think for us, it shows how sticky the investments have been. And then if you go further up, you can see as we've taken more numbers on, we're actually getting a little bit more efficient in getting their assets across or certainly the start of the assets coming across in a bigger lumpy element. So that's all good news, too. Slide 23 shows you just how we started off, obviously, with the Paradigm firms because they were part of the club. They were the ones who said that they needed a new investment management proposition, and we gave them what they wanted. And then of course, the direct firms, so non-Paradigm firms have been joining us since we closed in 2017, and that number of firms has gone up to 914 in total. So 752 are direct and 162 are Paradigm firms. So you can see how the assets over time now favors the new firms as opposed to the old ones, which again is a signpost that we gave out a few years ago. Looking to Slide 24, which is our penetration slide, this further depicts what we've just said. So on average, Paradigm firms have given us GBP 33.6 million per firm and the new ones that have joined us post 2017 have given us GBP 11 million. So a simple bit of arithmetic and to assume that we could get as close to the non-Paradigm firms as we have with the Paradigm ones, we've got a latent potential opportunity of GBP 17 billion now. Now I'm kind of staggered by that number because that number gets bigger and bigger. If you go to the bottom of the table in September '18 with the number of firms that we had and where we were, we only had the potential of GBP 5 billion. Now we've got a potential of GBP 17 billion. So there's a lot of growth we can get just by working with our existing firms. But of course, we want to build that hopper up in size by bringing more and more firms into the frame. And in fact, the last stuff that I saw from Brewin Dolphin before it was taken over by RBC, I think they had 1,600 firms that supported them on a weekly basis. And of course, we've got 914. So lots of potential there. On Slide 25, we're just showing how we've evolved the MPS offering. So we now allow IFAs to co-brand the situation with us, so we're going to have a co-branded MPS, so the IFA, including Tatton. And we can also go a stage further and basically wide label the portfolios and name them for the IFA. So people like Niche, [ Ampa ] and Caltik we have personalized and created their own portfolios. And then we can go stage further where we actually invite one or two of the IFAs to join us on the investment committee and help make the decisions, although we have the pen and have the final decision on what's invested. So really, these opportunities, as I say, is evolving. We still get all of the 15 basis points. So we haven't given any of the 15 basis points away. And so everything is there at 15. It makes it even more sticky because obviously, the IFA has got their own name, up on the door frames, so to speak. So we really like it. And the third advantage is we get the assets from those IFAs very, very quickly and they're exclusive approach. So moving on to Slide 26, just to show how we've retained the asset. A key point, I think last time, it was 1.2%. It's now 1.1%. So we're showing a 1.1% attrition to the consolidators who are very active in the IFA community. Some are more aggressive than others. And those aggressive ones insisted the clients to move on to their own fund management and their own platform. We tend to find that the smaller firms are kind of attracted to that, and the bigger firms really wouldn't be -- they would not want to move the asset just to further purposes of receiving more consideration for their practices. So consolidation is out there. There's a Yin and a Yang with that. I think we've said that earlier or in previous presentations. We think it's a good thing for the IFA community that consolidation seems to be working. We also think it's a good thing when IFAs are building their businesses for everyone that's for sale, another one wants to buy. And it's good to see effectively sons and daughters and finally members joining existing IFA practices because they can see they're building up value over time. Consumer duty, a big point. And we are now in receipt of a dear CEO letter from the regulator and to say that, that letter is putting a mark. And they've got some key focuses. And the key focuses are price and value. Effectively, what are the client outcomes? I'd like to say that right from the start, we had client outcomes right at the forefront of everything that we did. And if you remember, we led with 15 basis points, which was half the growing rate in the DFM MPS well at that time. So we've always put price as an important feature, and value comes from the investment performance you get to the portfolios you've chosen. I'm happy to say we have a long term very, very consistent return on assets invested through the Tatton portfolios. Our performance has been very, very consistent for in excess of a 10-year period. I think, Lothar, has got more in his pack to take you through 1, 3 and 5-year performances. So I think we ticked the box for client outcomes, price and value. The other focus has been around about the interest rate clip that some platforms have been taken from interest on deposit. And of course, we don't take any of that, and we've launched our money market models, which is there as an alternative to utilizing the cash within these platforms. And again, Lothar will take you through that. So we don't benefit from that. So we can tick the box with the DCO letter on that one. And then the other one that the DCO letter goes on about complexity and overtrading. I know you're overtrading because you receive revenue from that overtrading. And again, we don't receive any revenue from any rebalances or trading that we do within the portfolios. And we're certainly carpeting a complex variant. Everything is very, very vanilla. So I think with consumer duty, I think we can be fairly sanguine. But I also believe that in the course of time that IFAs will start to look at the assets that they've invested in other high-cost areas where the OCF is higher and maybe the performance hasn't been any better than MPS. And you could see a nice tailwind attracting BPS to MPS over the future and [indiscernible] years. So I think we then move on to our strategy. Pretty much sticking with the same strategy that we've had before. So there's nothing absolutely brand new in here. We know that the market is expected to go to GBP 200 billion, and we've said that we want to at least maintain our market share. But if we can improve that, then we would. That means growing more firms, getting more firms, working closer with them. And we also want to get as close as we can to those existing firms that we work with to get that saturation or penetration point up further. And we've invested a little bit of money in some telephone account management to actually get that underway. So you can see that our partnerships are bearing fruit. The Fintel relationship is working well, the Tenet one is, and we're obviously working with other areas as well. And we're now deploying presentation teams across the country. So last week, we were in front of 300 IFA businesses in seven different presentations. So that's a sort of thing that we love to see managing this business. We get more and more throughput. In fact, we had a webinar this morning, and we had 250 IFAs on that webinar this morning, which was nothing short of exceptional. So happy with that, happy with the growth. Grow the relationships, get as close as we can and then maybe ultimately take advantage of some M&A opportunities if they come about. But as I say, right now, we haven't got anything because of that pricing change. Turning to Paradigm and Paradigm Mortgages. Paul has taken you through the improvements in the number of firms, the protection side has gone really well for us as well. So there's been a remapping or refocusing of mortgage advisers into protection and try product transfer as you'd expect. And even Paradigm Consulting has grown a little bit, but also done a lot of work preparing all of the IFA folks to consumer duty. So I think that it's now time to pass it over to Lothar.

Thank you very much, Paul. Yes. So as we've already heard, Tatton Investment Management have done pretty well. The returns to date on the investment portfolios are positive. So if you just flick the slides a little bit. Yes, thank you. The biggest challenge, though, this year has really been on platforms, the outflows that they have seen. We haven't been that much affected by luckily because of our distribution strength, but it was the attractiveness of fixed-term deposits and cash deposits that has lowered some clients away with their money. And I think we've shown once again that we are responsive and innovative to market development. So one of the proposition enhancements that has gone down really well is the launch of our money market portfolios already mentioned by Paul, which are very straightforward -- well, competitive model to what banks have to offer, except that we actually do offer through these the Bank of England base rate without any further risk. So these are not risk plus -- cash plus. They are pure money market and literature wise, if you look it up, that is more or less the definition of risk-free asset. And that has attracted quite some assets at this point, around GBP 60 million have gone in there since the summer when we launched it. We are very happy to have provided yet again, if you like, democratization tool or making something available on platform because it is possible and the reception has been really positive. We've also taken the opportunity to offer in the upper end segment through our BPS service, a gilt portfolio, which makes use of the current [ audit ] or not audit, but you can buy very low coupon bonds, gilts where the capital return is cash free. And therefore, they produce a very high return after tax for advisers, and we've made that available through our slightly more portfolio service, and that's also gone down really, really well. So if we go on to the next slide, it is very visible how that risk profile on money market portfolio differs from the other portfolios that we have, which are obviously volatile and driven by what we have had in the markets this year, but that blue line is very, very straight. And when you think how many rate rises we have had in the interim, it just shows you how solid that portfolio performs. There is not a single kink in there. It is literally a near zero volatility portfolio proposition. So we're going to the next slide. We are now in excess of 10 years. And what I think is mostly -- is really positively perceived by investors in IFAs is the consistency of our returns, the alignment to the risk profile which we can see in the risk return graph there with the green dots being our portfolios and the black dots being the ARC peer group. The picture is not much different for the 5 years, which we've got on the next slide, and that is only sports one outlier which is the global equity portfolio, which was launched more recently. So that doesn't quite have the 10 years yet. But because that is very much allocated along the lines of the capital market capitalization around the world, the market capitalization, you've got 60% there in the U.S. which obviously, over the last decade has had exceptional performance. Whether that lasts is a different story, but that's the only reason why that is an outlier. And then last but not least, over just a year, which is on the next slide, we have also performed quite strongly and have delivered consistent returns to our -- as far as our clients. Very happy about that. On the lower end, we have got one slight underperformance there in the defensive portfolio which is mostly due to the fact that we are sticking very closely to the allocation of 75% to bonds in that which obviously, this year was a little bit of a tailwind. The last slide on the performance side shows the 5-year returns of our ethical portfolios which have had another strong and good year and perhaps after the setback last year have reestablished the attractiveness of an ethical portfolio proposition, which we have managed for longer than most of our peers which also explains, I suppose. If we go to the next slide, which shows the distribution of our assets under management across the different risk profiles while they're -in the right-hand slide -- right-hand column, you can see that our Ethical portfolio is now taking in pretty much exactly the same as we're getting inn inflows. So if that's a zero in there or near to zero, it means it's just going very proportionally with our inflows, whereas the positive numbers tell us a relative growth, which we still have in the tracker portfolios which in this environment are still performing quite strongly. Otherwise, the mix is not particularly changing at the moment. We're seeing a little bit of an uptick now in the higher risk portfolio, the higher equity portfolios, which is perhaps a little bit of a pity now that the bond world has had its reset and we can actually work with bond returns again. Even if we go equity underway, we can now earn a decent enough carry through the bond holdings that we may go into. Now just on the last three slides, a quick look into what we are seeing in the markets. So first and foremost, for 2023, the big surprise was that markets, or the economy rather has held up really well, much to the surprise of many economists who had very solidly forecast a recession to strike, which never happened. Strong job markets paired with some fiscal support in Europe and the U.K. because of energy in the U.S. because of the transition to a more sustainable energy backdrop has meant that demand has stayed relatively strong and thereby, earnings as well. And the major headwind had been the increase in bond yields and particularly the scare of this last tick up that we had until a couple of weeks ago, which was probably mostly to do with term premium given inflation expectations have fallen. Therefore, that was not the reason why yields have increased further, but perhaps the risk that inflation might return over the next years has meant that bond investors now once again see a slightly higher term premium than may have been the case in the past. So on the next slide, where are we at the moment? Well, the picture is changing slowly. The variables are now moving towards perhaps a lesser perceived risk of a central bank policy era now that they have not only suspended further interest rate rises, but there's also first talk about perhaps this higher for longer, and not being quite as long. And central banks acknowledging that inflation is coming down quite rapidly. So that's been taken very positively by the market at the moment, although we have to admit it is mostly a revaluation on the back of falling bond yields because the outlook for earnings is still somewhat shaky. And the whole reason why investment banks can't take their foot off the brake somewhat or at least go into neutral is because the global economy is slowing, which is never a great thing for corporate earnings. So, there's still a bit of a period ahead of us where we might not want to go quite equity over our risk overweight, if you like, even though we have put into portfolios selective positions and certainly locked in the higher yields that were available at the longer end of the maturity bond. Our investment outlook for next year is more positive. So that's on the next slide with volatility probably continuing. But as long as the drop market remains as strong as it currently is. There is a chance that the central banks can actually succeed in manufacturing that soft landing, but there's also still a risk that the high yields eventually are leading to more defaults and, therefore, a credit cycle that could worsen the economic slowdown. However, in that situation, we would proly see a very rapid reduction in interest rates by the central banks, and that would be an obviously tailwind for valuations, again, as long as earnings don't decline too much. But with the positive outlooks that we're already seeing and that we would broadly agree with for next year, I'm cautiously optimistic that 2024 will offer better than the somewhat pedestrian returns that have been able to extract from capital markets during 2023.

Thank you, Lothar. So that takes us to our summary slide and questions. We'll leave that summary slide up, I think. And over to you, Hannah.

The performance AUM has been incredibly robust and much stronger than some of your competitors. Can you confirm what the competitive dynamics and risks that may be on the horizon from your competitors?

I think the only thing you obviously, you've got to keep a real watchful eye on the competition. And we have lots and lots of competitors, as I said earlier. They need to have a good price. They need to also have consistent investment returns. But there are other things that you need to watch out for as well. So we -- our service standards, I think, are absolutely excellent and our communications, the way we feed information into IFA practices. So when the client comes on the phone, that's fully armed with whatever we're busy with within the Tatton operation. And I think if you put the whole lot together, price, investment returns, service standards and comes. And also your distribution, we've got a fantastic distribution landscape. I think they are the sort of key elements that will keep us ahead of the curve. But we always need to keep an eye on our competition like any other business.

Can you confirm capital allocation framework dividend versus using cash for acquisitions in terms of potential acquisition opportunities to scale up the business?

Paul, do you want to deal with that one?

Yes, sure. I mean we're pretty much committed to continue to pay our progressive dividend, which is broadly in line with growth in earnings. So that's 70% of earnings. And we do have headroom to utilize our cash flow in terms of headroom in our capital adequacy to utilize our cash flow, small opportunity acquisition. That said, there's nothing on the horizon at the moment. So, in terms of as we look forward to sort of next 6, 12 months, that dividend policy will stay in place. And anything of any scale from an acquisition standpoint, we'd probably come to the market too or anyway.

You are clearly successful at growing organically, but I wonder if you could be a little more aggressive and spend some of your profits on supercharge and organic growth. So lifting on a theme here, or adding more sales and marketing as another use of cash.

Yes, it's a very good question. And it's one, again, that we mull over consistently and continually. So we think we have invested in more and more marketing. We could spend some more. It's not necessarily a proven route that it would bring more FUM in. If we thought for example, we doubled our business development managers, it would double our FUM, I just don't think it's as straightforward as that, to be honest. It's just something where we will continue to invest where we see is necessary to help and improve the marketing. And yes, we've just got an element of cost that will build into it, but it's not going to be a big step change.

And again, on the same theme, but is M&A feasible as any target is likely to have higher fees than yours?

Oh, yes. I mean as we said, on average, being over 22 basis points. So that's another issue if you're looking to buy businesses because if you bought them and they're on a higher fee charge, you'd have to do some kind of reconciliation of a piece, wouldn't you? So it's another reason why it is difficult to buy. But the real big reason is just people's expectation on price.

Can you talk a little bit more, please, about succession plans in terms of next generation of leaders within the business?

That's a very good question, especially me with probably that one. No, we've got a fantastic management team. We are always thinking of how we can expand and improve the gene pool, if you like. So we're constantly looking at that. And I think, basically though, all of the key managers in the roles that we are presenting here today are very, very happy. And we're not really in a position that we need to be too concerned about succession right now. But obviously, in a business the size that we are, it's something that we will be building towards and are building towards. So yes, probably more on that later, but no plans for anybody to step down at this stage.

Well, that is it now for questions unless anyone -- we can take a beat, if anyone has anything else they want to submit. I did see someone trying to put up their hand. If they could type in the question instead, that would be helpful. And failing that, we can, of course, direct any later questions on to management after this.

Always, yes. Very happy to take question.

Good. Well, thank you to the three of you for your time. We look forward to receiving an update in six months' time on further progress.

Yes, fantastic. Thank you, Hannah. Thanks to everyone. Thank you.

Thank you, everybody. Bye.

Bye-bye.