Good morning, and welcome to the Record plc full year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated in the right-hand corner of your screen. Just simply type in your questions and press Send. 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 submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to run the following poll. I'd now like to hand you over to Leslie Hill, CEO. Good morning to you.
Good morning. Thank you very much. Good morning to everyone who might be calling in. Thank you very much for your interest in Record. Steve Cullen is our Finance Director. I'm Leslie Hill, the CEO. We're going to go through some slides which describe in more detail the annual results. We're very happy to take questions that we can answer. I've already got one that is pre-submitted, which is actually focusing on how we fund the various remuneration and option schemes that we offer our staff, and I would propose to answer that. I think it's a good answer, but I would also propose that we answer that at the moment where we're talking about costs and remuneration, if that's okay with the person whose name I'm not sure who that is.
There's no name.
There's no name.
There will be an answer available, and I think you will, I hope you will like the answer we give you. We're going to turn to the first slide. Steve, I'm going to ask you, if I may, just to run through the highlights of the results and the financial pieces, and then we'll talk about the strategy next.
Yes. I think just taking a step back and looking at sort of the changes we've had over the last two years since the change of leadership and the change in strategy. FY 2021, which was the previous year, was what we saw as our transitional year, where we were changing resources and starting to invest more in technology under the modernization strand of our strategy. Consequently, we did see a dip in our operating profits last year and the inevitable lag between investing in systems and new products and the sort of revenue stream starting to come on board last year.
What we've now seen this year is the revenue streams starting to come on board, and the sort of the benefits, if you like, of the year of investment that we had in FY 2021. In terms of financial headlines, the revenue we've seen a 38% increase in our revenues. We've seen our operating margin, sort of the bounce that we expected, after the transitional year last year, from 24% back into sort of the lower thirties, 31%. We've seen our pre-tax profits increase to GBP 10.9 million. That's a 76% increase in pre-tax profit. Similarly, basic EPS, a 64% increase in our earnings per share.
What that's allowed us to do, which we actually did at interims this year, was to reset our ordinary dividend level. On a forward-looking basis, we expected a good set of results this year, and so we reset our ordinary dividend at interim to GBP 0.018 for interim, and we're gonna match that, as a final ordinary dividend of GBP 0.018. Total ordinary dividend of GBP 0.036. Similarly to the last two or three years, we are also paying out a special dividend. We've got the balance, if you like, of the earnings, which equates to GBP 0.0092 per share.
A sort of a full payout ratio, 100% payout ratio similarly to last year, which I think indicates the confidence that we and the board have in the business and the prospects of the business and the pipeline looking forward. We've changed slightly the dividend policy. We can talk about it a little bit more on the relevant slide when it comes up. We've given an indication of a range that we would expect our ordinary dividends to be in going forward of between 70% to 90% of earnings, which allows us the flexibility to adjust the payout ratio depending on the requirements of the business in terms of its capital.
Reiterating, it's been a very, very good year. We're very, very pleased, I think, with the way things are going and the fact that the financial benefits are now starting to show through following a couple of years of change and transition of the business. Leslie, do you want? Shall I flick on
to the strategy pages, and we can talk a little bit around the
Exactly.
the strategy.
Right. Obviously you'll be thinking, "Well, what's going on? What's been happening?" Some of you may have listened last time and remember some of the things I said. Just in order to reiterate the strategy and clarify what we have now been saying for a couple of years, and as Steve said, what is starting to bear fruit, there are three pillars or groups, areas that we've been working on, strenuously. The first was to modernize, and is to modernize our business, not only the delivery of new services, but the way we deliver the more traditional services. We were falling behind technologically speaking, and our CTO, Becky Sherwood, who appears in our, in our annual report, and you can read what she says. She's done a great job of bringing us into the 21st century.
A lot more use of the cloud and hybrid solutions. A lot more use of innovative software to remove manual processes. That's proving very beneficial and extremely attractive to the client. We're very happy with that. We don't see the modernization as an endpoint. I think like any asset manager, probably most businesses, we're constantly going to be investing in technology and have a budget for it, which is already baked in. Fortunately for us, the software that we can buy to help us with these projects is getting cheaper and cheaper. We can do a lot with the money that we're devoting to the project. That's one aspect. Probably more relevant from the growth perspective, in a sense, is the diversification agenda.
I'm sure I'm not alone in believing that, currency is a niche market, if you like. It's a niche interest. It's hard to make a truly successful and modern asset management firm if you're too specialized. Although clearly, you've got to pick where you concentrate your efforts. My plan has been to diversify out of pure currency and derivatives into more mainstream asset management, particularly some aspects of fixed income, which I will go into more detail of in a minute. We have tended to focus very much on client-led opportunities. What we tended to do in the past was we very often would pick an idea, let's say a Euro breakup fund. It doesn't matter what the idea is, but it would be an idea we liked as currency manager, and we'd invent it.
The sales team, led by me, would go and look for people who believed as we did. Now that we've changed that, and the sustainable finance fund, which we launched just under a year ago with UBS Wealth, is a good example of this. They come to us, they say, "We can't find an emerging market debt manager we like. Can you build us a fund with impact bonds, with i.e. fixed income and emerging markets and frontier currencies, and then we will seed it, and we'll work with you to develop it." Client-led opportunities, there are a lot more of those in the pipeline. It's going rather well in that respect. That's a form of diversification away from pure currency into asset management, fixed income, and a few other areas which will be coming later, should we say.
Maybe not in this presentation, but in future presentations. We've also diversified our geography a little bit, which has been helpful. We've diversified the type of person, so we've had a bit of a reshuffle of staff, bringing in some specialists in structuring and fixed income, in particular areas of fixed income and in sustainable finance, and that's also bearing fruit, which is good. The third and last, but by no means least, for me, one of the most important things is I know that if we're going to do a really good job on this, we need the right people in the right jobs. We need to keep them. We need to attract them and keep them. A succession plan has been a big part of the work I've been doing. It's very much, again, bearing fruit.
I've got the right people in the right jobs. I've got a few other places we could expand into, but that's a work in progress. Extremely happy with all the people we've got now in the positions in which they find themselves, and moving forward. Now, it may well be not a bad moment actually to answer the first question about how we manage.
Shall we read the question now?
Let's read the question. Yes. Okay. A pre-submitted question. Apart from salaries and pensions, your remuneration package has three additional strands: the EBITDA, the group profit share, and the Record plc share scheme. These schemes do dilute ordinary shareholders. Can you confirm that the various schemes are funded via purchases in the market rather than the issuance of new shares? And what are the limits? In other words, how much dilution is permitted? Steve.
I think, firstly, the EBT is really just a vehicle through which we hold shares, warehouse shares, to satisfy our option and other share schemes. Historically and as a general rule, we haven't had any dilution. We have always purchased in the market to satisfy our option schemes. I don't think we plan on changing that currently. I think everyone, including the chairman and the other sort of directors are of the view that, w e want to avoid dilution if we can.
We do have the ability to issue shares up to a limit of 5% of share capital, and I think that's gonna be hopefully reapproved in July's AGM. I think the answer is we avoid dilution wherever possible, and we have historically avoided dilution. We do have the ability, I think, to issue up to 5% against well, when necessary for whatever reason, and that would be renewed in this year's AGM. I think that one answers that question. Hopefully answers that question, Leslie. Shall I go on to the
Yes. We've got one other question from Roger F. I will just table it for one moment. It's a very interesting question about the Swiss franc, which we will get to because it's a very specific question.
If I flick onto the next slide, Leslie.
Yes.
-we can talk around-
Yes. Okay.
Having set the scene for the three important things we need to do, modernize, diversify, and plan succession. We moved to something we've not done traditionally, which was something that we as a management team spent a lot of time thinking about. The first two years of my work were, as Steve has said, management changes, reconfiguring the business, refocusing, a lot of work. A lot of difficult work actually, as it always is when you are, as I've said in the annual reports, renovating a house. We're now at the point where I think it's probably. I like to be as honest, open and transparent as we possibly can be. At least open and transparent as much as we can with all our investors.
I thought it was a good idea to show the sort of revenue targets we've set ourselves. I should stress, and that's in the top target, if you like, on the top line. I should stress this is not finger in the air, maybe we'll think of something in 2024 that will add a lot of revenue. I've spent a good deal of time with the management team and the sales team and investment team, and these are all projects that we have either seeded already or that we are about to seed or can see coming through the pipeline. It's genuine business. Now, of course, I haven't built in much of attrition. We're in a growth mode, and I believe. But I do believe this is eminently doable, otherwise I wouldn't put it in there.
I think it is helpful for investors to get a sense of our aspirations to grow the margin some more, which I believe we can, because what we do is eminently scalable, once we get fixed costs paid for and once we set a fund in motion or a project in motion, which can attract a good amount of assets. As Steve said, we intend to continue to pay our ordinary dividend and stick to the target ratio that we have described. There is a possibility one day I might come to the shareholders and outline a project which would require some of that dividend. But at the moment, what we generate in the way of cash and what we have as cash in the bank is quite enough for our purposes.
We don't need to change that policy at all. The only other minor point is this year, after three years without performance fees, one particular one of our products stopped generating positive returns during COVID. In fact, it lost money. Luckily for us, our client stuck with us and that product has now returned to health. We've recouped all the way back and above the high watermark that had been set, when we set the product up, so we will be generating performance fees this year for that product. I don't think there's any more questions that I see down the side apart from Roger's question about the Swiss franc.
There will be some more underneath. Should we have a look and see what they are? It's Roger again. Actually this question from Roger, which is a different one to the Swiss franc one. I am gonna read this one out because I think it's very important because it actually is testing, stress testing our strategy, shall we say. Roger says, "Given the rocky situation forecast for all the markets this year, how are you going to protect yourself from the adverse market movement that you had in 1920? I see 42% of underlying assets in passive hedging." Was it other? I think that means other currencies, right?
Can you shed some light on this? Do you manage these assets in-house or outsource?" Okay, very good question. Right. You're right. A lot of our income is in foreign currencies. The bulk of it, in fact, in dollars, in euros, in Swiss franc's, Canadian dollars, Australian dollars. We are always very mindful of that, and we hedge. Generally speaking, we hedge in a fairly passive way those assets, which all those revenues, all that does is effectively delay. We do agree with you that we do need to protect ourselves from the adverse market movements. The best protection for us is to diversify the type of products we offer. Much less of our returns come from passive hedging this year than would have done a couple of years ago.
Less of our returns will come from currency in the future, less of our revenues. The more we can diversify so that no one product can dominate, and in fact, no one currency can dominate our revenues, we feel we can deliver, continue to deliver, stable and growing, revenues and returns for our investors. Diversification, moving into more active, products in fixed income and currency, all of these things help manage the risks. We also do some hedging in order to smooth the returns.
I have to say, I think there is every reason to suppose that hedging less of our foreign income for the time being is a good thing, because I don't know that there's very many people out there who believe that sterling, which is our base currency, and the currency in which we receive only a relatively small amount of our revenues, is likely to be the strongest currency in the universe for the foreseeable future. It's a good question. We manage through diversification and some hedging, and we've actually got a slide where we can show that the split of our revenues has changed. We haven't got it by currency, I don't think, have we?
No.
We've got it by type.
No.
Of. Do you want. Shall we-
Shall we go on to that?
All right.
As we go through the slides.
Sure. Okay.
I think one other point, I think maybe I don't. Maybe the question is also linked to Roger mentions market movement, so the impact on our assets.
Good point.
Arising rather, from market movements. We certainly did see quite a big market movement. I think you, Roger F, refers to 1920. That a year 1920. That would have been March 2020 when we saw the decrease from the market. I think the market was fairly severely impacted, 20-25% down, I think, FTSE. We saw about a 7% decrease. I think the benefit that we've got is that, if you look at our passive hedging clients, since that's what Roger F alluded to in his question, the underlying portfolios of our clients are very, themselves are quite diverse as well, Leslie. There's not, there's not.
Not all equities.
It's not all equities, for example. There is a, there's a certain amount of dilution there in terms of market impact. It's not to say there isn't a market impact, but there's certainly a dilution there. We saw that in the March 2020 market movements arising from COVID. Hopefully, I think between the two of us, we've answered-
That was a very good answer.
We've answered the question.
You answered it better than I did. Very good.
Is there anything else lurking down there at the bottom that we should just know about?
Yes.
Yes.
Performance fees on passive hedging.
Yes. Roger again. Notes of the last meeting say that performance fees on passive hedging were influenced by interest rate differentials, which were then tight. Did I understand that right? You did. The interest rate differentials are now much wider. What can you say about the implications of this? Okay. Yes. As I think I've already alluded to in my previous statement, the performance fees have returned, which is good. They are episodic, but they do return. It shows some evidence to you, Roger F, I hope, and anyone else who's interested, that the opportunities in the particular hedging product which generates performance fees have returned.
Yes.
We are reaping the rewards of that.
Actually, that was reinforced, I think, in the Q4 trading update that we did, excuse me, in April, back in April. We did allude to the fact that the 500 million pounds was linked to products linked to the interest rate differentials, if you like. I think, yes, the answer is absolutely.
That's good for us. It is episodic, as we know. It's not always there. We did have to wait and fight our way back, if you like, to performance fee territory, during the period that's just passed.
I don't know if there's anything else down there, is there?
There is. We've got to be careful because we're gonna sit here and answer questions all-
Oh, well, that's a good question.
Yes. I tell you what, there's just one here, and I wonder whether we should just do that.
We can do. Josh-
Joshua.
Joshua.
Do you want to read it?
Sure. Joshua M has asked, "Given the long track record of paying dividends, are current shareholders likely to be supportive of a cut to fund growth?" I'm not sure where the idea of a cut to fund growth has come from. I mean, it's certainly not what we're planning.
Well, the dividend policy is set to the range, as we've previously said, of 70%-90%, and we would expect the ordinary dividend to grow progressively in line with our profitability. I think there could be an example. There isn't at the moment that I or Leslie can think of where we would need to cut dividends. Potentially, if it's to fund future growth in the business, then I would hope that the investors would be supportive. There certainly aren't any plans afoot at this current time to-
We're cash generative.
To cut dividends.
We can do what we need to do with the monies that we have, are earning and have got. Our dream, if you like, is to be a stable, strong business with a growth pattern, so as to attract people who like growth shares and an attractive dividend. That would be ideal. That's what we're striving to achieve.
I think it's also worth pointing out on dividend that , there are plenty of businesses out there over the last 2 years that have actually cut their dividends or actually stopped them completely. That's not something that we've done. We've stuck with our policy throughout the two years, and we've continued to pay both ordinary and special dividends. That hopefully gives a bit of a feel for , the view that the board take in terms of , if we don't need the capital for a certain requirement, then we are.
We should pay it out.
We are happy to pay that out, and that's exactly what we've done well over the past at least five, six, seven years, and certainly through the last two years, where there's been a huge amount of disruption and uncertainty. Leslie, I think, should we move on?
Yes. Let's do that.
I'm conscious of the Swiss franc question, which we'll come to.
I think we've got a couple of slides on sort of sustainability and ESG.
Do you wanna talk around those, Leslie?
Well, yes. I think probably what I would say, rather than going into any great detail, we have a very comprehensive report on this whole subject, which will be on our website in a week's time. We're quite proud of it. We think we're doing a good job. We hear from our advisers that the material is good and high quality. It is important to us for lots of reasons. As you can imagine, it's important because it appears in all the submissions we are asked to make to clients. It's important to us because we want to be a responsible company. We're still quite small. We're 92-93 people with computers, so we're not going to save the world. Everything we can do that's sensible and practical, we want to do.
I think it's fair to say that as a small company, a lot of the requirements strictly, we don't have to comply with, but as a business, we want to comply with them.
We're looking at things like gender diversity, and also the Modern Slavery Act, et cetera, which as a company, we fall below the threshold. We are actively looking at these and ensuring and endeavoring to make sure that we're in line with those requirements. We want to be seen as a company that, is fully behind those sort of commitments.
These are two very, very small slides. They don't go into any real detail, but if anyone is genuinely interested, we would recommend the website, and we would also be happy to answer any questions that anyone might have on that subject. Now where are we here?
Let's see. We now get into some of the products. I think what might be interesting in the interest of time would be, Steve, to move to the slide which deals with our new, launched fund a year, just under a year ago with UBS Wealth Management.
Sure.
Which is, I think, number 12.
13.
I've picked this for a reason, not just because, well, obviously partly because the performance is quite good, but that's not the point. The point here is that we launched it under a year ago. We launched it with, as I keep saying, UBS. It started with GBP 700 million and currently has GBP 1.2 billion in it. It was launched as an alternative to emerging market debt, and therefore the benchmark that we're measured against by UBS is an emerging market debt benchmark. That has fared ill, of course. We all know the reasons in the last year, and we have done quite well. The important thing for an investor in this context is that we believe that now that we're reaching our first anniversary, we will see more inflows.
We know we should see more inflows from UBS, but also that other people are showing signs of interest in this. The key will be that our green line, which looks okay, in fact, now as at the latest date, we've generated 1.5% return in the year, in an environment where the benchmarks have been down, 15%. We look good, top decile. The key, as I say to our investment team, we obviously don't want to give it all back. The critical thing will be to maintain that lead or that gap, and then I think we will see quite a lot of opportunity for us to build out this product range, evolve it, change it, because they're not all clients want exactly the same thing. It is typically emerging market and frontier currencies.
It is impact bonds, and it has short positions in developed market currencies. That gives you a sense for the structure of it, I hope.
Is it worth talking just briefly around the dynamic hedging?
Yes.
That sort of forms quite a big chunk of our revenues now.
Yes. One of the questions that Roger F asked is, can we and do we anticipate things like the Swiss franc raise in interest rates? Do we forecast? Are we? I suppose it's worth saying, are we forecasters? For the Swiss clients, most of what we do is passive hedging. Not all, but most. Inevitably, we're not expected, not required or wanted, to predict movements in interest rates. However, we do have an active hedging product. I'm sorry this slide is a bit dense, but what I would simply say is this slide then, it shows you what can be done with our active hedging product. This is for U.S. clients. There are several of them.
What we are required to do, as Roger would say, to anticipate, is when the dollar is strong, because these are dollar-based clients who have invested in foreign equities, we must generate positive cash flows, positive money through our hedging to offset some of the losses. Here you have a green line which shows the losses that a client would suffer had they not used a hedging program, and the light blue line, which shows you what we have achieved for clients. This is not an easy product to explain or sell to clients for several reasons. The results, as you can very clearly see, are episodic and come when the dollar is strong, in this case. It can work for a euro or Swiss or other currencies as long as they trend.
The point is, when the dollar is strong, we need to generate returns. As you can imagine, just recently, in the last few months, we've generated very large positive returns for these clients who run very big programs, and they've been extremely happy because the value of their equities has fallen as the equities fell, but also as the dollar rose, because these equities are foreign. We've generated money to recompense them. That is absolutely what this product is designed to do and has been doing for a very long time. We're very proud of this product. It does exactly what it says on the can. The problem is, these are very big programs. The clients have to trust you implicitly.
They take a big risk when they hire you because the programs are so big, and the results only appear in this instance when the dollar is strong, and sometimes people have to be patient. Patient investors who have a horizon where they review their returns every three to six months are not easy to find. Patient and disciplined. If they are, they can generate with us very good results, and that is what this slide, I hope, shows. I kind of hope I've sort of answered Roger's question, but if I haven't, I've got a feeling he'll come back and ask me another one. Okay.
Shall we talk in a little bit more detail around some of the financials?
Let's do that. Let's talk a bit more about the financials. Steve, if you-
I mean, we've touched on some of the headlines. This is really just a bit of a repeat of what we already introduced from the very start. Let's drill down a little bit into touch on the dividend policy. There was a question on the dividend policy earlier on or dividends earlier on. I think this is just to reiterate really that in terms of dividend payments, we have a long history of paying ordinary dividends and more recently, special dividends over the last sort of three or four years. The view of the board is that we if we don't need to retain any capital for specific purposes, that we are obliged, if you like, to return it to shareholders.
That's exactly what we've done. We took the opportunity this year, as I said earlier, to reset the level of ordinary dividend. At the interims, we went from GBP 0.0115-GBP 0.018. Obviously full year we've gone from GBP 0.023-GBP 0.036, so 57% increase in our ordinary dividends for the year. Just repeating that, excess capital, I think from the ordinary dividend to the earnings of GBP 0.0092 is also being returned under a special dividend. The policy, as I said again, and I think it's quite an important point, no changes over the last two years. Ordinary and special dividends have continued.
We've now put in this payout ratio range with a target payout ratio range of where we expect to be going forward, subject to any future requirements of the business. For example, if our regulatory requirements increase, then obviously we will look to make sure we've got enough capital against that. We are targeting progressive and sustainable dividend growth in line with profitability. Hopefully that's quite a clear dividend policy and it gives an idea of how we see it going forward. There are no questions on that, so I think we'll move forward just to give a bit more clarity on movements in our assets under management equivalents. Again, inflows continued from last year.
We saw $2.4 billion worth of inflows. Reassuringly, that was across various different product lines. We saw inflows into dynamic hedging of $1.4 billion, classic hedging of $1.1 billion, and currency for return, there was a net inflow of $0.4 billion, which included almost $1 billion of inflows into the EM, emerging market sustainable finance fund. A diverse set of inflows for the year which is promising. I mean, we're talking about diversification, and that is one of the main strands of the strategy. I think it's also true to say that the hedging part of the business still forms a very important part of the business and the revenue streams for us.
Actually, a lot of the long-standing sort of client relationships that we've built up over many years through the hedging side of the business are forming quite a large part of the strategy going forward in terms of clients collaborating with us on ideas and product development going forward.
I think a good example of that, which we've probably mentioned before, was we did the hedging for the UBS pension fund in Switzerland for many years, and then the head of the trustee board was also the head of the wealth management team at UBS and came to us to help design the sustainable finance fund. It was their experience of us in another context which gave them the confidence to come to us and ask us if we could help them with a new project. We're seeing quite a lot of that. Currency is a niche interest. It affects everyone, but not everybody is interested in it. Having other things to talk about and other projects is very, very valuable for us.
Yes. Just continuing on the sort of basis of assets under management and reinforcing the message really. I think, looking over the last sort of two years since the inception or the start of the new strategy, I think we've seen 25% increase in our passive hedging AUME. We've seen 324% increase in our dynamic hedging AUME. Currency for Return is up 92% over the last two years. Multi-product is also up 50%. There was a temporary inflow last year from a client which came in and then went out again. There was a bit of a peak last year at GBP 5.2.
Over the last two years, a 50% increase is still quite impressive and we're very happy with that.
There's quite an interesting question here from Patrick about Patrick L.
Yes.
Who is asking, and this is in the context of assets under management, so it's a good question: How sticky are these dynamic mandates? I.e., if the general perception is for a weak US dollar going forward, couldn't they easily be withdrawn? The answer is it's a very good question. For the dynamic hedging mandate to work, Patrick L., we run a portfolio of hedges which we're constantly reviewing every day and adjusting across most of the currencies that the clients are exposed to. It takes a while to build up, and it needs to be constantly monitored.
No.
I'm being distracted here.
That's all. Carry on.
Sorry. Can't stop. Stop with the questions. One minute, I'll answer the first one. Anyway, yes. It takes a while to build up. It needs to be monitored going forward. It does require patience. For example, it isn't something you can flip on and off like a switch. Otherwise, it would be easy. As Patrick says, you just buy Record when you think the dollar's going up, and sell them when you think it's going down. Now, most people don't feel they're very good at predicting timing on currency, so they are willing to pay our fees, which do look higher when we're not generating positive cash flows. Then they look really cheap when we generate large positive cash flows. What we tend to say to clients, the best client, Patrick, is someone who looks at it holistically.
They say, "Josh, Record's delivered me some positive cash. The dollar's gone up. My equities have fallen. I'm happy." Next year, equities are strong and the dollar's weak, and Record hasn't delivered me any cash, but they haven't cost me very much. It's almost like an option style of program, and you need to be in it to win it, if I can use a silly analogy. It isn't easy for clients to turn it on or off. Most clients that we have, we've had for many years. One of them we've had for 12 years, and they're still very committed to this program. It's a sophisticated program.
You need to understand how it works and the relationship between the underlying assets, which are equities, over which we have no control, and the symbiosis between our positive returns when the US dollar is strong and the fact that we can be very cheap, although we can't cost nothing because we're not good at 100% prediction. We can still make for optionality, which net-net makes money over time, more than they would have made if they hadn't had us, if that helps. Now Roger F has another question. That Roger F, he's full of questions. I'm assuming it's the same Roger F.
Roger.
Okay. Roger F., just to make sure I understand dynamic hedging, did I hear you say that it really scores if you're a dollar investor and the dollar is strong? Yes, that is true. If you're a euro investor and the euro is strong, it scores. If you're a sterling investor and the sterling is strong, it scores. Predicated on the fact your benchmark is unhedged, i.e., doing nothing. Are you saying that if you feel in the case that the dollar is forecast by either the euro or the investor to weaken, then it should not work? I have difficulty understanding this. Yes. Okay. So I've partly and hopefully answered it. We will make positive cash returns into a bank account, a client's bank account if we're using a dollar investor, when the dollar is strong. So the hedges' maturity value are valuable.
Dollars go into the client's account, and they partially offset the losses they're seeing because they own foreign equities. I hope that's clear. If it's not, we could take this offline. On the other hand, when the dollar is weak or flat, doesn't move, we cost them money. We're effectively option replicator. We're creating the effect of owning options, which means we might put a hedge on, and then the dollar doesn't move. It matures worthless or perhaps it costs money. The client has to understand the optionality of how useful we are when the dollar's weak. We're allowing them to harvest all that money that's in their equity accounts from currency and the positive cash we give them when the dollar is strong.
Understanding that symbiosis is at the heart of this and getting trustees and pension funds to put the two together and not think of us as some kind of currency alpha manager is a bit of a struggle sometimes, but it is the challenge to making this work well. Then you can have a really good relationship with the client, as we do with some of them, and they're very happy. Oh, Peter B. How reliant are you on your top four or more clients?
Top 10 or more clients. Seems to be a large concentration of revenue and profit emanating from your top ten. How risky do you view this, and to what extent are you looking to reduce such a level of concentration? Yes, we're always looking to reduce the concentration. It's a lot better than it used to be. The risk resides in product families. For example, dollar dynamic hedging clients represent one group. Sustainable finance client would represent another. Passive hedging would represent another. It's very important that we diversify across those. Fixed income represents another. We don't want to be dependent on one dynamic hedging client or one sustainable finance client. That is, in a way, you're playing to my, the same tune as me, Peter, 'cause I believe very much in diversification.
In fact, we have a slide that shows how we've changed.
Yes.
There it is. This shows how our management fees are evolving away from a real dependence on hedging.
Yes.
Slowly but surely.
Shall I take it, Leslie?
You may take it.
Thank you. On the left is. This is an important slide, one that sort of links into the strategy, if you like. Again, over the last two years, passive hedging formed over half of our management fee revenue. As you can see, year-on-year, it's forming less and less of a proportion of our total revenues. Although, in terms of actual revenue, it's still maintaining sort of its level, if you like, at or around between GBP 11.5 million and GBP 12 million a year.
The impact of the other products coming on board, higher revenue products, higher operating margin revenue products coming on board, can be seen in the dilution of the overall impact of passive hedging. Dynamic hedging as well is, albeit, a hedging product, it's a higher revenue margin product for us. Again, that's grown over the last couple of years. Specifically, the Currency for Return proportion, which is the highest revenue margin product, is growing year on year. That's where currently the EM Sustainable Finance Fund sits. The FY 2022 year includes only a proportion of the total GBP 1.2 billion of assets under management on that.
Our expectation this year would be that this portion continues to grow even without additional inflows, which Leslie alluded to earlier, we're hoping to see going forward. We can see the strategy working as it starts to flow through into our revenue streams. The diversification element is an important element. We're very happy, I think, with the shape of that at the moment. I think that underlines.
The top 10 clients, I don't remember now what, I should know this, what they represent. They used to. We used to have top 5 represent. Oh, you've got it. Oh, you've got it.
It's here somewhere.
Yes.
It's here somewhere.
Oh, we're gonna find it.
Is it at the back?
Mentioned.
No.
My instinct is, and I don't remember.
Here we go.
Here we go.
73%?
Yes. Peter's quite right. The good news is that 73% represents at least three, possibly four different product categories, all of which operate differently and work differently at different times with different requirements. It's not as bad as it could be. I very much hope, Peter, if you're still interested in us in a year's time when we look at the next full year's results, we will see more and more diversification across clients.
Yes.
That's the plan for logical reasons.
Sticking on sort of the clients, if we go back to slide 20. Oh, sorry. I went a short slide. Again, I think this is linked to the question, actually. The longevity of our clients is always been an important point that we like to raise. The type of business that we are and sort of relationships that we form over long periods of time with our clients means that they stay with us, and that they are happy to be involved in sort of collaborating on new products. There, there's the ability for us to retain the hedging sort of part of the business with those clients, and they're also interested in getting involved in maybe some of the newer product lines going forward. They trust us. We've got very long-standing and very strong client relationships. We don't intend for that to change.
Going forward. Again, we keep going back to it, but the EM Sustainable Finance Fund was a very typical and a very good example of that, where we've been hedging for UBS for a number of years. They came to us and asked us to collaborate on a new product for them and which launched and has been very successful. That's, I think that's quite an important point.
Yes. I've got a question here from Patrick L. Can we outline the current status of the German Municipal Bond Fund? That's a very good question. We have now launched it, and we're in the process of accruing subscriptions. It's been slow and taking a long time to get going with a great deal of many due diligences. I would allude to it a little bit, one might imagine an ocean liner. It's taken a long time for the tugs to pull it out into the harbor, but we're now underway. The good news about it is. The bad news is it's taken a long time to get going.
Good news is I think it will be potentially quite a large fund for us in time, once it gets going, and that just like an ocean liner, the sponsors of this fund, those who support it, the people who are gonna invest in it, tend to stick with you. Once they get a head of steam, it can really start to move quite fast. We're getting there, as they say. Right. Roger F asks, "What will be the main themes of the next two board meetings as you currently see things?" Good question. One of the things we're thinking quite hard about, our largest cost is our salary bill, of course. There is no explicit link between inflation and our revenues. There is some link in some respects, but it's not implicit.
We are thinking very hard because, as I mentioned, key succession planning is so important. If I can get the right people in the right jobs, my job is a lot easier. In fact, my job is done because they get on and do amazing things. We need to reward them appropriately. We need to be sure we don't just, in a knee-jerk fashion, put salaries up, which we can never take away again. The cost structure vis-à-vis inflation is something we've been thinking about very hard. The other main theme that we have talked about and continue to talk about is how the new strands of work that we're doing.
We're working very hard on a project which we hope might come quite soon to provide Sharia compliant investments, which will be a new area for us, and we have a very good partnership on that. We talk quite a lot about what the resources are we need to create the new opportunities and how to fund those properly. Those are the two most recent things I think that I can think of. We've also talked about our dividend policy and our cash position. How much cash should we have? What should we do with it? How can we use it to improve our business, to invest in new products and new ideas? I hope that answers your question, Roger.
I think from my point of view, obviously, the focus on trying to control costs as much as we possibly can in terms of, the inflationary sort of pressures that the business and alongside every other business is seeing at the moment. The unfortunate position, if that's the word, is that, we tend not to be able to pass inflationary increases on to our clients. It's very important that we take control as far as we can on those increases, inflationary increases. We've gotta get a balance. We've gotta keep making sure that, our people feel that they're being fairly compensated, and whilst, not wanting to erode our operating margins, at the same time.
There's a lot of focus obviously on that, as you would expect at the moment as well. Actually on that subject, I think we can drill down a little bit into the costs analysis. It's quite a simple table, and quite a simple set of costs really. We've got personnel and non-personnel costs. We've seen a 5% increase, year-on-year to FY 2022, just really as a result, going back to sort of the changes that we've seen, shaking the tree a little bit. T here's been a bit of a turnover of maybe more older, or more people that have been in the business for a long time.
Having the opportunity to sort of bring new skill sets into the business and promote internally, which has led to sort of that 5% increase. Looking at the current year that we're in, FY 2023, obviously there's an expectation there that we will see increases, unfortunately, due to, as we were just talking about, the inflationary sort of pressures that are on the business. We've already had a pay increase from the first of April of 5% generally. Those pressures aren't going away. They're not just on our personnel costs. They're on non-personnel costs as well. We do expect those costs to increase in the current financial year. But at the same time, we don't expect them to erode our operating margins.
In fact, we expect our operating margins to increase as we showed on one of the earlier slides. Excuse me. Controlling them as far as we possibly can, but I think it's inevitable under the current sort of environment that we will see cost increases in the current financial year. I think the only other thing, 'cause I'm conscious of time, Leslie, is that we just to reiterate the strength or the position of the balance sheet. Historically, as a business, we've maintained a very robust and very strong and a very liquid balance sheet, which has seen us through some sort of fairly rough times in terms of the financial crisis and the pandemic, et cetera. I don't think that's changed.
I think we still view it as very important as having a strong balance sheet. From our point of view, I think it sort of gives us the reassurance that we we're in a position if needed, to fund any sort of new ventures that we might see or projects. Also from a client perspective, I think it's important that they can see that , we can stand behind our products and service we're a proper business in terms of the size of our balance sheet. I wasn't planning on going through on a line by line basis any of that stuff.
I think if anyone has any questions, either now or later. In the meantime, Roger F has asked, "Are you able to get visas easily when needed?" Yes. We haven't had any problems. We've sent people to the States, to Switzerland, where we have offices, and it has been fine. I mean, we don't do it very often, but we haven't had a problem.
Actually, one point on that. I mean, we talk about this, the increase in the size of our teams over in Europe.
Yes.
I think it's probably quite an interesting point in terms of we haven't got any upfront costs in terms of those teams. The model that we're using for those to bring in some more expertise is actually not to pay salaries, but to actually almost join with the teams and do it and offer a sort of profit share, if you like, which when we first start off on that sort of exercise is better. We're not suffering any upfront costs on that.
Hopefully as revenue streams start to come in at levels that are higher than we've historically seen on our sort of hedging type products, if you like, then that will drive our operating margin increasingly higher.
Well, it is a different model for sales. When I first joined Record in 1992, I'd forgotten this. I didn't have a salary. I worked for Neil Record, and I earned a share of what I could bring to him. I forgot all about that, and we did pay quite high salaries on spec, if you like, to sales teams or individuals. I actually prefer the model where we have an individual or a team who is able to be quite entrepreneurial and get a bigger share of what they bring in than they would if they were pure salaried. I'm not suggesting you can't have some blend of salary and that kind of remuneration. It concentrates the mind. You don't end up with people sitting around not really delivering anything and costing quite a bit of money.
It does require the right kind of confidence that they can deliver results. They are also very careful about joining Record and very careful what products they represent because they need to make a living out of it. We found that very successful in Europe. We're replicating it again in the U.S., and might continue to do that. It's a very powerful tool to acquire the right kind of salespeople. By the same token, we also like them to have equity partnerships if they prove successful with us because we want their interests fully aligned with ours. We are very careful to translate that into equity partnerships once they have proved that they are able to fit into the Record family or group and generate their contribution. Hopefully that's enough. Are we at the end? What is it, an hour?
I think so.
It is. It's an hour.
I don't know. There don't seem to be any more questions at the moment.
No, Leslie, Steve, thank-
I wonder where-
I wonder where surprise the most questions are.
Leslie and Steve, thank you very much for your presentation and also for addressing the questions during today's call. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Leslie, could I just ask you for a few closing comments?
Yes, I think so. Thank you all for listening today. We very much appreciate your time and attention. We would stress, we believe we are at the beginning of a new era for Record, very much at the beginning of what we can achieve. There's an awful lot more to go for, huge amounts of things we can do, and I think we are now set fair to start to deliver on that. I hope you will continue to follow us, and some of you may be back next year. Do feel free to send us questions if you want to or engage with us in any way that you want to. We'll try and help if we can answer. For today, thank you very much for coming.
Thank you.
Leslie and Steve, thanks once again for updating investors today. Could I please ask investors to not 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 minutes to complete, but I'm sure will be greatly valued by the company.
Thank you.
On behalf of the management team of Record plc, we'd like to thank you for attending today's presentation, and good morning to you all.
Thank you.
Thanks.