Good afternoon, 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 using the Q&A tab situated on the right-hand corner of your screen. 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 is appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand you over to CEO, Leslie Hill. Good afternoon.
Thank you. Good afternoon, everybody. Yes, my name is Leslie Hill. I'm the CEO of Record Financial Group, and I have with me Steve Cullen, who's our Finance Director. Some of you may have met us before. We're going to work through the results presentation methodically, but we will encourage you to submit your questions as and when they occur to you. As we have done in the past, we will attempt to answer them on the spot, if we can. I think that's good. Should we kick off now?
Yes.
Yeah.
If we start, excuse me, with the sort of financial headlines, I'll just run through these briefly. It's been a very good year, a good couple of years for us. We're very pleased with the results and with how things are going against the change in strategy that we sort of mentioned following Leslie's appointment. In terms of AUME, we continue to see growth in our AUME, currently, mainly from the hedging side of the business. We are hoping for or we expect some traction from some of the new products that we've talked about previously to start coming on board in the current financial year, FY 2024. We start the year at probably a...
Not probably, at a highest ever AUME of GBP 87.7 billion, which we're very pleased with. Revenue growth over the last couple of years, we've seen revenue growth of 76%, over the last year of 27%. We have seen some exceptional, I think, performance fees for FY 2023, which we're again, very pleased with. Albeit, these tend to be more sort of episodic and sporadic, and are market dependent. Notwithstanding that, the management fees have continued to grow year on year. I think since 2021, we've seen around a 54% increase in our management fees, and for the last financial year to FY 2023, they grew by 12%.
In terms of what that means, feeding through to our profit before tax figure, again, over the last two years, 135% growth, and over the last year, 34% growth. We are, we're very pleased, as I said, with how the strategy is on track, and how we are growing, not just in the new side of the business or the new diversified side of the business, but in the more traditional side of the business, as well. I think finally, in terms of sort of EPS and dividend, we've seen EPS growth for the last financial year of 32%, and over the last two years of 116%.
In terms of dividend, what does that mean in terms of dividends? FY 2022, we announced GBP 0.0452 per share, total dividend, and this year it's GBP 0.0518 per share. The dividends are in line with our policy, which is to sort of grow the dividend in line with the growth in profit. I think that's very high level, top line, financial headlines. We should probably now drill down, I think, a little bit more into some of the strategy, progress against strategy, Leslie?
Yeah.
An update on strategy.
Yes. Quite small print, actually.
Yes.
Thank you very much. That's great.
Mm-hmm.
As you will all see from that, this picture that you're looking at, we set out our plans a couple of years ago, and they included three main areas of evolution. We wanted to modernize the tech stack so we could continue to offer the business we've always offered, but more efficiently and more able to scale the business to respect and respond to new clients. We've had some asset management clients come on board this year, which is a relatively interesting development for us. We needed to modernize for lots of reasons, and we're doing that. Have done some of it, doing more. We diversified because we recognized that currency as a standalone was a rather niche activity.
We have got a German subsidiary, we have a BaFin license, and we're rolling out a suite of investment products and funds across a raft of different possible opportunities. We're building some partnerships, have built and are building partnerships with either specialist asset management providers, which fit in with our open architecture idea of an asset manager, who offers their clients, their own ideas, but ideas from others as well. We've launched a string of new funds and have more to launch. That's so far what we've achieved in diversification, although there's a great deal more to go. The third piece was we needed to build a really robust succession plan, which we've been doing, both by creating share incentive plans for those people we wish to promote through the ranks into more senior positions.
Also by giving the younger people in the business, who have shown aptitude, more responsibility, which they are responding to very well. Neil has retired now. He is in the process of retiring. I think it's this month. We have a new Chairman-elect , who I've known for a while, and has known Record for a while, but who comes from a very innovative and interesting area of the venture capital world, which is proving extremely useful to us. I noticed that there is a question from Steve. The question is: "Performance fees were described by the other Steve as episodic, and analysts seem to forecast these at zero. Is this appropriate or does it understate likely company performance?
In terms of the analyst forecast, they did used to forecast at zero. We can now deliver performance fees on a fairly regular basis for the last, sort of, three or four years, albeit at different levels, hence the sort of episodicness of the performance fee. The analysts are actually now baking in roughly between GBP 1.5 million and GBP 2 million of performance fees to their numbers, certainly for FY 2024 and going forward. Not a huge amount, but there is a change in terms of they do now baking a small amount of performance fees versus, you know, not previously doing so.
Hopefully that answers the question.
Is sorry, I'll just explain that we can get performance fees from.
Yeah
... slightly different resources. We've got, tenor- managed, Passive Hedging product, where we can, earn performance fees, and that's the product that performed particularly well, for FY 2023. We also have Currency for Return mandates that have, some of those are linked to performance fees as well. I think the likelihood of performance fees on a forward-looking basis are greater than they have been on a backward-looking basis, and therefore, that's recognized by the analysts in the fact that they now assume a low level of performance fees in their, in their numbers.
Certainly the performance fees for this year were very, were higher than we would have anticipated. Well, hopefully not our traders, but certainly we had not baked it in, so it was, it was good to get. We wouldn't necessarily always expect that level every year, obviously, as Steve has alluded to.
Unless anyone has any questions on the quick progress run through, I would now remind you all, if you have seen it before, and tell you about it, if you haven't, that a year ago, we were encouraged by everyone, market analysts and investors and the board, to put forward a three-year plan, which we did, which was everyone felt was quite a bold plan, but which was very carefully couched in real opportunities we were working on, that we could see have real chances to either match or succeed and exceed our expectations. The revenue we are targeting in two years' time is GBP 60 million, and we are aiming for as high an operating margin, as close to 40% as we can achieve.
We are somewhat hampered to an extent by inflation like everyone else, but many of the new products that I've alluded to are at higher margin, higher fees than we're used to seeing in currency markets or in the currency world. If we do more of that, and we keep our costs under control, that should inexorably improve the operating margin in the future. We have a dividend, a payout target range, which we propose to keep, and again, we've kept it for this year. As I've mentioned, and Steve has too, performance fees are giving us opportunities to do even better than we had hoped. On the left-hand side is something which I think we've sort of hit on already, but I'll quickly run down. Anyone has a question, let me know.
We are moving from being a niche FX manager to a more widely based asset manager. We're growing our revenue, but across a much broader product range. We are looking for, and I think, achieving innovative, higher revenue margin products to improve our margins and to improve the stability and robustness. I think that's the word, robustness of the business. We have recruited people who wish to be more entrepreneurial, and that means they come with good experience, broader expertise, and that's serving us very well. Our BaFin license and our Raiffeisen Lux fund structure are now up and running, and we are rolling out a range of funds, as we speak. Not always as quickly as we would like. The wheels of bureaucracy can be excruciatingly slow, but we are on track to do what we want to do.
That comes with the growth in the pipeline of opportunities, both at Record Asset Management and at Record Currency, but also in Record Digital Assets. We have been able to increase performance fees, as we've already mentioned. Hold on, here's Alistair. Right. What's Alistair saying? "We're targeting revenue of GBP 60 million for FY 2025, but the forecast of revenue GBP 50.7 in FY 2025 and GBP 52.2 in FY 2026. Are the analysts being too conservative?" Okay. They do have a particular way of attacking our forecast. When I say attack, I don't mean being negative about them, but the way they approach it is that they tend not to put anything in until it's pretty much in the bag. By the nature of a three-year plan, we are obliged to look somewhere further out.
That doesn't mean that it isn't something we can see, that we have clients for, that we're actually working on or launching or negotiating, but it does mean that I don't know if it's too conservative, but they typically, I think, do take a conservative line.
I think it's fair to say, just going back to the slide, that the pipeline of opportunities that we refer to are tangible pipeline of opportunities. They're not, you know, a finger in the air type estimates. The issue maybe that we've had, and I think Leslie's already alluded to, is that, you know, some of the timing of these things are outside of our control. We had a slide in our Capital Markets Day presentation that alluded to some of the opportunities that were a bit closer in terms of timing. They're all still very tangible opportunities, most of them have had a degree of slippage in terms of timing.
From an analyst perspective, I think the view is, you know, we appreciate that there's a tangible pipeline of opportunities there, but until we can hang some numbers on a definite revenue stream, then, you know, we will build those in as we go. The plan is on a quarterly basis, we do trading updates, and we will keep the market up to date on where we are on certain, certainly in terms of our AUME, but on certain fund launches on the asset management side as well. We will start to report those sections, currency management, asset management, and then potentially digital, set on a separate basis going forward. As we do that, the analysts obviously will bake that into their numbers.
I think are the analysts being too conservative? That's a question, I suppose for them to answer. They're being cautious, and they're not. You know, they will report the revenue as and when they see some tangible progress, which kind of, I suppose, is fair for them.
I think it's fine, yes. There's a question that I can't... Oh, here we go. Great. This is from Tom. "Great to see the progress you are making. How confident are you in hitting your 2025 targets? What do you see as the greatest risk?" Good question. They wouldn't be there if we didn't have a high degree of confidence we can achieve them. We believed that a year ago, and the evidence so far to suggest, would suggest we can. What I would say, though, I think, is that timing is always an issue, getting things off and running. Our UBS fund, which has been a great success, was, I think, four months or five months delayed. Was supposed to start at GBP 400 million and surprised everyone by starting at GBP 750, which is the right way around, of course.
You, you do get surprises. We are working on an infrastructure deal with a group of Swiss funds and a Dutch fund, which is a fabulous deal if we can do it, and I think we will. two of the partners in that deal were separate investors, five separate investors on one side and the Dutch fund on the other, and we were in the middle. Of the five, two were UBS and Credit Suisse. For a while, you know, everybody sort of rushed around frantically saying, "Well, maybe they can't, maybe they can't invest. Maybe they can only do half. What entity is going to invest?
Should they still carry on separately, since they are separately organized at the moment? They ended up going ahead, but in the meantime, we had collected two other subscribers from Swiss clients who had asked to join, but we had said they couldn't straight away. It delayed us by a month whilst they had meetings, and, you know, UBS and Credit Suisse ran around quite distressed about what they should do. So these things happen, but I feel we're okay. I feel we're okay. You guys will hear if we think we're not okay, because it is our intent to be as clear and transparent and never over-promise and under-deliver.
I think it's fair to say that this time last year, I think these can be seen as ambitious targets. We do feel that we can hit them. It's probably a little bit harder now than it was 12 months ago due to the slippage and inflationary pressures that we've seen.
You are thinking about the margin?
I'm thinking about the margin, yeah.
Yeah.
you know, there are certain things that are beyond their control, but we do still think that they're achievable, but they are dependent on certain timings and, you know, fund launches and clients and due diligence processes, et cetera. But I think the answer is.
Yes.
Yes, we are, we still remain confident.
There are two elements to add to that. One is that the new business, when it comes on board, is at higher fees than we're used to seeing from currency, so that's good, which should help us with the margins, to reach better margins than we're at now and approach the 40 that we're aiming for. I think. Oh, hang on. Sorry, this is another question about slippage. "Is, with the projects that have slipped, is it slippage likely to be more like weeks, months, quarters, or longer?" When there is slippage, well, the one I described with UBS and Credit Suisse, it was a month. I think months is probably fair. That's, you know, weeks, you probably don't worry too much, but once it's two or three months, then obviously it does have an effect.
I don't want to be pessimistic. We're just being kind of realistic, really, about what we're doing. I said there were two factors that were relevant. One was the fact that the new products were of higher margin, and of course, I now can't remember what the second was, but it'll come to me, so we'll come back to it. Now, that's that page. Oh, wait.
There's one.
Here we are. Vivek. "Reading the annual report, I felt the diversification strategy seemed to lack focus." Oh, Vivek, you're so cruel. "I see what stick type of approach. Can you please provide color on how you approach which opportunities to investigate and go on to pursue?" Actually, Vivek, that was what I was going to talk about, that I kind of briefly forgot, and what I was going to say was: There is a balance to be struck between focus. We know all about that because we did currency for 37 years or however long it's, yeah, 37 years, only currency. As you say, a sort of rush around and sort of see what happens, see what sticks. I would say the opportunities that we can investigate, our aspirations are bounded only really by one thing, but it's a big thing.
That is the available pool of talent that I can recruit, exceptional talent, to drive a project forward to completion. Our Head of Sales , now CEO of Record Currency, our CTO, and some of the guys at RAM that we've hired and others. When I can find someone who says to me, "I would like to build a digital strategy. This is what I want to do. These are the partners I want to bring in. Here are the guys who want to deal with us," I don't think, "Oh, that's one too many things." I do think: Is it possible? Is it feasible? Is it commercial, and can we cope with it? I think we're about where we need to be right now in terms of diversification, because we have several RAM strategies. We have emerging markets, sustainable finance.
We also have Becky, our CTO, and her digital strategies, and we have the mainstream business. We aren't utterly unfocused, but we are focused not on, "Oh, I'd really like an equity strategy, so I think I'll have one," but more on, very important, what do the clients want? What do clients ask us for? Secondly, have I got someone who I can turn to and say, "Can you bring this in?" They go away and do it. That means I need to motivate them with good salaries and bonuses and equity shares. That is the limit of our aspirations, not some sort of mythical sort of asset allocation, where we should be in every asset class. I hope that answers.
I think maybe two, probably the two best examples of listening to clients and developing products based on what they need or want are the EMSF fund, which we launched two years ago.
Yeah.
Has been very successful, performance very good, and we will be looking to roll that out and develop that going forward. Also the infrastructure fund, which we've touched on, which again, was an approach by existing clients, asking us to put together an infrastructure fund on their behalf. It's not a hazard sort of approach. It's a listen to clients type approach. What do they need? What do they want? You know, we, if we can partner with some experts, infrastructure experts, as an example, and help us do that together, then that's what we do.
Exactly. Hopefully that does answer the question. I know you'll come back if it doesn't.
Shall we move on to the next slide?
All right.
which sort of tries to show the evolution, if you like, of the group structure, Leslie?
I mean, I do know what's up there, so I probably don't need to. It's good to have a look. Three years ago, if you looked at Record, you would have only seen the dark blue boxes, and not all of those. That was all our traditional, Passive and active hedging and Currency for Return . And obviously, we wanted to diversify away from just that. We did add the Emerging Market Sustainable Finance Fund that Steve has alluded to, which is also a dark blue box, because it is principally a currency fund, even though it includes some fixed income, some impact bonds as well.
In the quest for diversification, and perhaps partly to address the next question about how we choose opportunities, we found a team who had been at Citi, who were 20-year veterans and wanted to start their own asset management firm to distribute and also do investment management on funds, because they were expert at funds and structuring, for existing clients that they had or knew of with existing managers and partners, some of whom they knew of or had approached. We were getting a BaFin license, so that means we were able to take them on.
Initially, I think they planned to do it all themselves, which I totally understand, but they did find that the weight of regulatory effort, time, money, all the stuff that goes with being an asset manager, it's expensive to set up an asset management firm from scratch today, and very challenging. I think even if you have good clients, to build the track recording and stay alive through, you know, the early stages. What we provide, I think one of the things we provide, is a house where people can bring their ideas and their entrepreneurial, enthusiasm and energy and experience, and we can help them build it.
On that right-hand area, either the funds we distribute, the Trade Finance Fund, digital lending, and bank loans, or the funds which we've launched where we are the investment manager, and one of them is the infrastructure deal, which I alluded to in the bottom right box, and another one we're just launching is a Protected Equity Fund. Perhaps if it makes sense, I might just touch on that briefly to give you a taster for how we go about things. We had a Dutch family office, who one of our RAM guys knew very well. In fact, I think he'd had them as a client in the past.
They had a Protected Equity Fund that they ran for themselves, and they're a sizable family office, which had an equity manager and a protection factor, let's call it a risk-off manager, equity manager, so options-based. It had run, it had worked well, and they wanted to offer it to other clients and other families, people that they knew, but they didn't want to build a fund, and they didn't want to asset manage it themselves. Find the clients, they would do the strategy, the oversight, but in terms of the day-to-day, they wanted someone like us. We've launched that fund for them with our Luxembourg structure, and they are a client, but their clients will also be, or the new clients they want to bring in, will also be clients of ours. That's an example of where.
Someone brought us an idea which we were able to help them realize. We can bring other clients into it. We are not limited. It's not closed, it's not a closed-ended fund, and it's not one where it's by subscription only. People can join, and it's done well. That's a good example. There are two other boxes on this page, and I don't want to spend too long on it. One is the light green, the Eau de Nil box, which says Record Digital Assets. There, for example, we have a number of strategies in early stages. We've invested directly with one or two businesses, and we've also invested small amounts of money in a couple of funds to get our toe in the water.
Any of you who came or, no, not came, but listened to the Capital Markets Day, which I think you were able to do, we had our CTO, Rebecca Venis, who described what we were doing. We're now at the stage of launching a fund. We've signed a agreement with a cryptocurrency manager who's been trading for 10 years, very successfully, for himself and his clients, and wants to become more of an institutional manager, and, or should we say, he wants to bring it into the world of regulation institution. He sees that as the future, which I think is good, and we're helping him build that fund in Luxembourg. He pays for it, but he generously, quite very generously, shares his fees and performance fees with us for doing that.
If we bring five clients to him, as opposed to him bringing the clients to the fund, which is the way we envisage it at the moment, we would get a greater share of the revenue. That's a very nice diversifier. He comes with a very good pedigree. He's an excellent person, and very clever and talented. He's been mining coins since he was really quite young. He started very young, and he's sort of 30, I think, now. He's an interesting guy, and he came to us because he liked us, because we allow him to run his own business the way he wants to, because we're supportive. He gets on very well and works very closely with our CTO, and I don't think we would have him coming to us were it not for her.
It's an interesting avenue. It's a diversifier. It will never take over. It will never be other than a share, relatively contained share of the business, but it is an opportunity for us to earn performance fees from another source and to learn more about the world of cryptocurrency, tokens, and stable coins and all that stuff, which Darren is teaching us and which we hope to be able to show to some clients, although we don't need our clients for this to be successful because he brings his own clients. I think there's an opportunity there, and in coming years, I think this whole world will become more acceptable and more institutionalized, so we see the merit there in doing that. That's the pale green box, but it's... There's a couple of things we're doing.
She's doing some other stuff, too, but we will talk about that.
I would just add to that. I think, I mean, the crypto is one project underneath that particular sort of, subsidiary, but I think you described it on another presentation as the whole world of digital assets.
Yes.
As a business, what we must do, can't ignore, is the speed of innovation on the digital assets, sort of sector, and how that impacts you know, the financial services sector that we, that we're in business in. It gives us the opportunity to sit down next to experts in these different fields to learn and to understand and to build relationships and, hopefully build products in the future to service that sort of client set.
Exactly. Exactly. That sort of segues quite neatly into the last box, the light blue box, the sky blue box, which was just buried inside all the dark blue boxes a couple of years ago, because we only had Record currency. Therefore, everything we did to support our business was living there. We've now split that into Record Group Services. There is a number of ways. First of all, we're modernizing the technology which lives in that box because the technology is available to all the people who are part of the group. Then we transfer price so that they, everyone pays fairly for what they need. It also includes finance and legal, HR, compliance, very important, risk management, also very important, operational services, trading, that sort of thing.
At the moment, it's a cost center in the sense that it provides shared services to the group. We are starting to see, particularly with Record Digital, where things like our expertise in compliance and risk monitoring can be sold to those guys who are busy with their own activity, but once they get involved with the institutional world, they want someone else to take care of managing the compliance necessary, that their presentations should all be appropriate, all the things we do as a matter of course, KYC, you know, all that sort of stuff. That block box is not a profit center and may never be very profitable, but it can perhaps help to support itself over time by providing shared services to clients as well as to everyone in our group.
It's not essential for us to meet our targets, but it is potentially an interesting avenue we can explore. That's what we look like now. What's next?
There's a product performance section. Next, we can talk briefly about the performance on the EMSF.
Yeah. Why don't we do that? Oh, hang on. That's summary, isn't it?
Summary and outlook, yeah.
What's that?
It's still small up there, isn't it?
It's a little bit tiny.
It's on the left-hand side.
Okay. Here is just a recap, which I know might be useful for some of you. I won't dwell on it too much. As I think you've heard, we've made some good progress with diversification, modernization, and succession, and plan to continue to. Hold on. Michael has appeared with a question. In terms of modernization, is there further work to be done, and is further investment required for your digital offering? Good question. I'd like to split the modernization of the business away from the digital side of the business. For modernization, yes, there is further work to be done. We're sort of two-thirds of the way through, I think, roughly, where we want to get to as a stage one.
I'm of the belief that if you are an asset management firm in the 21st century, who offers a service offering, if you like, as well as products, you will need to be a fintech. You will have to be a tech firm because that's how the economies of scale are achieved, that's how you produce the kind of reporting that clients want, the kind of attribution, the kind of data, how you store it and manipulate the data cost effectively. I don't think we'll ever, Michael, I don't think we'll ever get sort of there, and then it stops. In fact, we did do that in Record once before, and it was a bit of a mistake. We did a big project, probably 15, 12 years ago.
12 years ago, yeah.
We were all so exhausted when it was over. It was like, "Oh, that's enough of technology. We won't do any more of that." Of course, it just doesn't work that way, and it doesn't work that way anymore. We were behind the curve, and we're catching up, but we're not there yet. As far as the digital offering is concerned, at the moment, we'll build a fund for Darren, we will invest either indirectly or directly with certain people, we are working on an infrastructure, very interesting green energy infrastructure offering, which I will park for the moment because it's a bit of a way out there. For the digital offering, we don't need to change our technology. We are not planning to do cryptocurrency trading in-house.
Darren will bring his business into the fund, acting pretty much the way he does now and always has, and successfully. In a way, we provide the framework, but the plumbing or the engineering, we don't need to spend money on to achieve what we want. Well, what that means in the future, I suspect that will change, too. I suspect things like the dreaded AI that everyone always talks about is something we will use more and more of, and we'll probably find ways to be much more cost-effective on what we offer. Everything, you know, from compliance to trading, to analysis and everything else. We will be investing in our mainstream business to scale the currency side of the business, more than investing in speculative digital technology, I would say.
Yeah, I think what we are seeing on the Record Digital side, with some of the projects, and contacts, relationships that we're building, is that the speed of innovation in that, in general, is just very, very quick.
Yeah.
What it does is, you know, being involved and being in the mix allows us to understand what's happening.
Cool.
Apologies. What's happening with the innovation, and we are much more open now to external kind of development in terms of digi IT. I think Leslie mentioned it earlier, we were much more inward-focusing a few years ago. We are now completely, almost a 180- degree turn, and we're now outward focusing and able to sort of plug into relevant systems and software as needed.
Yeah
... where we can see that they improve our efficiency and our speed of delivery. I don't think there's, as Leslie said, there's no end destination, but some of the larger projects, the heavy lifting, we are making our way through, and I can see a decline in that sort of.
Yeah
... expenditure over the next couple of years.
That seems to be the direction of travel. Just to continue on the summary and outlook briefly, and again, I think I've alluded to most of these. We're looking for higher margin products and finding them and diversifying our assets. We're improving skill sets, and that's what I mean when I talk about the RAM, the Record Asset Management team, the man who we've described, who is a cryptocurrency expert, but also in-house here at Record, more technological expertise in-house as well as outsourced. All of this really helps us build a much more robust business. We've got our license. It's been with us for a while now. We've got the new Luxembourg restructure up and running.
We've got the RAIF, the Lux fund, which we're hoping to launch as soon as we possibly can, with Darren and his cryptocurrency clients. We're building new partnerships, as I think we've mentioned, including the U.S.-based syndicated loan manager that we've alluded to before, who knows nothing of the European market. We have a very interesting project with a Texan-based big family office called CAZ Investments, which is coming along nicely, and we continue to work with V-Team, which is a 20-year-old supply chain finance platform, which has done well. Our capital position continues to be strong. As I think you all know, we have a dividend policy, which we are continuing. The board's confidence in future growth is underpinned by the dividend, using our current dividend policy.
None of that is, well, it's exciting, but none of it's entirely new to any of you, if you've listened to this before. We can look at the financials, or we could look at performance. Should we look at the performance of a couple of the products?
Yes. If we look at the EMSF, because we can talk a little bit about plans.
Yeah.
Plans for that this year.
Yeah, that's good. That's good. This is the Emerging Market Sustainable Finance Fund we launched with UBS two, it's actually two years ago. On the right-hand side are the assets, and on the left-hand side is the performance versus an emerging market debt group or benchmark. The performance has been good. The asset base started higher than we thought, went up a lot higher than we expected, and then they did some rebalancing. They haven't sold out their assets, they reliably inform us, because we aren't doing well, but obviously relative to benchmark, we are doing well.
We are ready to market it more widely, and to that end, we have now retained someone who will make this part, this business, this fund, and all the other funds that come from it, their remit, and will be the CEO of the sustainable finance effort for Record. He will join us later this year, but has already started helping us out as an advisor. Oh, Vivek is back. Hang on. It's a good fund. I think it's doing well. I think there's lots of opportunity to use it as either a sustainable finance fund or just as an EM debt fund, which is what this gentleman in question feels would be another option, to replace existing EM debt managers or add to the roster, in a group of EM debt managers. Can we talk a little...
Vivek asked, "Can you talk a little bit more about the partnerships and what the relationship is?" Yes. "Is Record providing a feeder fund, acting as a distribution partner, managers acting as a European regulation entity that appoints partners as investment advisors to Record as manager? It seems quite an eclectic mix, from private credit to trade finance to tail risk hedge fund, if it's the same universe. Who would be responsible for investment performance, compliance, or fund operations?" Okay. Yeah, it's a good question. It is a little bit of an eclectic mix. You're absolutely right. If we go back up to what you first, the first sentence. Okay. A feeder fund group, which is the Luxembourg structures that we're building, we can be a number of things.
In certain cases, we can be the distributor of the fund, acting as the salesperson, as we might perhaps do for someone like V- Team, the supply chain finance guys. We can also act as the manager, investment manager, which might mean that we calibrate between two or three Protected Equity. The Protected Equity. There's a balance to be struck between the long equity and the protection, and the two managers operate independently underneath the umbrella, and we're on top calibrating and making sure that the client gets the balance that they want. That's driven by their recipe that they've chosen, but they want us to do it independently for them. We are a regulation entity in Europe with a BaFin license, so we can appoint partners as sub-advisers to a Record fund. The EMSF fund is a Record fund.
The cryptocurrency fund will be a DAiR, D-A-I-R Record fund. The RAM funds are, some of them are Record funds, some of them are not. It is a mix. It is client-led and opportunity-led. The reason it's eclectic is the one thing that holds all those things together, from private credit to trade finance, to other things, is the available pool of talent to manage these projects forward, as I think I've said. Therefore, if the RAM team come to me and say, "We've got a good trade finance, supply chain finance guy, we've got a good syndicated loan guy, and we've got some clients who'd quite like to put those two together," we can accommodate that. It's eclectic, and it's also fair to say that not all clients will ever be in all things.
There's a sort of a spread of clients across there, too. If you want to diversify, a mix, as long as you're not unfocused, a mix and as little correlated as possible mix, is the secret to success. I mean, it was pioneered by GAM many years ago, the open architecture type of an asset management approach, where you provide clients with the opportunity to dip into third-party providers and third-party funds, so long as the commercials work for the client and obviously for us. Responsible for investment performance, compliance, et cetera. Right. Fund operations is generally us. Compliance is generally us. Investment performance, it will depend. On EMSF, it is us. On the DAiR Capital fund, it will be Darren. On the RAM funds, depending on who it is, it could be partly us and partly the sub-adviser manager.
It's a mix.
Okay.
What else have we got?
We, there's still a few slides in the performance section, but they're based roughly on the, on the hedging.
Yeah, I don't think. Well, we didn't do that last time.
No. I can go through... I'll probably go start to go through the financials then.
Yes. Well, that's a good idea. Now I can have a rest.
Yes. Okay. I think the first slide is just really a bit of a repeat of what we've already seen at the introduction. Again, all the bars going in the right direction, and we're very pleased, and things feel to be on track. I think the operating margin, as we might have already said previously, you know, we saw a 1% increase year-on-year. I was gonna say slightly disappointing, not disappointing as such, but we've seen a, obviously, quite a strong headwind from inflation over the year, which is continuing, but hopefully somewhat abated in the current financial year.
I think the expectation, again, I think just to repeat what we said earlier, the expectation now that some of the new products with higher revenue margins are starting to near fruition, in terms of some fund launches, we will start to see some of those new revenue streams coming through. The expectation is that will have an impact on the operating margin as well. Slightly flattered, I think, this year by performance fees. They were exceptional, this year's GBP 5.8 million versus GBP 500,000 last year. But again, as we said earlier, I think, there is an element of performance fees that we bake into the analyst numbers now going forward. That is part of the business model.
More part of the business model now than it was previously a few years ago. We're very happy with how things are going at the moment. This is a bit of a repetition. I think we show this just to sort of reiterate, I think, the reasons behind the change in strategy back in February 2020. Just very briefly, although we were seeing a slight increase year-on-year in revenue, which I think mainly due to the lack of investment in technology, we were adding costs and adding headcount, which was having an impact on our profitability.
You know, at the point that we decided to make the change, we saw a bit of a hit in FY 2021, and then we've seen since then, over the last two years, the subsequent bounce, obviously in revenue and likewise in profitability, which hopefully, you know, gives some reassurance that the strategy is doing what we hoped it would do, diversifying the business and giving us higher margin revenue revenue streams. Assets under management. We actually reported our highest ever assets under management at 31st of March of GBP 87.7 billion, from GBP 83.1 at the beginning of the year. Net inflows of just over GBP 9 billion.
Again, reassuringly sort of dispersed across both Passive Hedging and Dynamic Hedging , and some multi-product as well, which is a slightly higher revenue margin for us. I think it's worthy of note, actually, that over the last four years, year-on-year, we've seen net positive inflows. It's good that the traditional, or the more traditional side of the business, as we kind of view it, is still seeing, you know, very positive growth.
Actually, over the last four years, we've added almost GBP 26 billion in assets, net inflows of assets under management on that side of the business, which provides a very strong and sort of fundamental foundation, if you like, on which to further build the business on the asset management side. I think this slide really just is there to show a bit of diversification within the currency management products. We've had quite a high jump, but we can see that proportionally, the share of assets under management that are going to the higher Dynamic Hedgin g revenue side of the business are growing, which is a more profitable business line for us.
The impact that that has on the revenue mix can be seen, if we go back, I don't know, six, seven years, we can see that over 50% of our revenues were down to Passive Hedging , which has now decreased to about 34%. Dynamic Hedging has gone up to about 31%, which again, underlines the growth, I think, in the higher revenue margin, Dynamic Hedging , side of the business within the currency management side. I think Leslie alluded to the dividend policy earlier on. I think we changed the policy slightly this time last year to include a range to an ordinary payout range of between 70% and 90% of EPS.
We paid out 80% last year, and we've paid out 76% this year of EPS, but we also paid out a special dividend as well. I think going back to what I said about performance fees, we had an exceptional year in terms of performance fees, so what we wanted to do was to make sure that we could still deliver a year-on-year, a decent growth in the ordinary dividend. Hence the reason for dialing back slightly from the 80% payout last year to the 76% this year.
Now, as we said earlier, we're confident in the targets that we've set ourselves, we also want to make sure that we allow for certain factors such as timing, et cetera, that are beyond our control, and therefore may sort of push slightly some of the revenue streams backwards. We feel confident and happy with the way that the dividend policy is working at the moment. We don't allow ourselves to pay more than the earnings, so it retains the robustness, if that's the right word, of the balance sheet as well, which is important for us and I think for our clients and investors. Income statement.
I've got the last sort of two years in there, rather than just the last one, just to sort of emphasize again, in terms of revenue, sort of roughly GBP 25 to GBP 35 to almost GBP 45. We, you know, we're very pleased with the trajectory of the business at the moment. Bearing in mind that the vast majority of this growth, in terms of the management fee side of the business, is still on the traditional side of the business. We've yet to see the impact from those higher revenue margin products coming on board, which we expect to see in the current financial year. The trajectory, I think it's kind of underlined there in both the management fees, but also the total revenue side of the business.
Consequently, we've seen the growth in the operating margin year-over-year. I just talked about the operating margin. We expect that to increase. The target is to reach, get as close to the 40% operating margin as we can. We said that this time last year. Obviously, it's been a quite a headwind from inflation this year. Without that, we would have hoped to have been slightly ahead at this stage. We, you know, we hope that that will change and increase going forward with the new products coming on board.
How are we doing on time?
We've got 10 minutes. I was just gonna talk about costs quickly.
Yeah, good idea.
In terms of costs, again, it comes back to the sort of inflation and growth aspects of the business. Personnel, we've seen just under 20% increase in personnel costs year on year. Obviously, we want to support our employees in terms of the cost of living. We've agreed to sort of some one-off payments as opposed to increasing sort of the base salary levels. We continue to keep an eye on that. We want to make sure that our employees are... We'll help our employees as much as we can without impacting, I think, the overall profit margin by too much. We've grown in size in London.
We took a London office this time, actually, no, it was earlier than this time last year. We are investing in our resources. We're attracting new talent to the business, so we've already outgrown the first office, and we've had to move in London to a bigger office. We're spending about GBP 1.5 million a year at the moment on office costs. We're looking at that fairly closely in terms of how that works alongside people working from home and more remote working situations. I think a lot of the increases in costs are down to the new products. We're paying more for new data licenses. That's it. As I said, we've got increased office space.
We're helping employees with cost of living, increases, et cetera. The impact has been quite big in terms of the non-personnel costs as well, so just over a 30% increase. The current financial year, we will continue to see, I think, the full year impact of those inflationary increases in FY 2023, but not at the same level that we've seen, that we've just seen for FY 2023. That is a definite focus, you know, of ours, in terms of, are we, you know, are we using our money as efficiently as possible, in terms of the cost base? That's a continuing sort of focus. Very briefly, just moving on to the balance sheet, which we spoke about earlier.
We do keep a fairly sort of sizable, robust balance sheet in terms of net assets of around GBP 28 million. A large portion of that is effectively cash, so about GBP 14.5 million of that is cash. Keeping or maintaining that amount of cash on the balance sheet is really for two reasons: A, as well as a capital requirement, we now have a liquidity requirement under IFPR, which means that we have to keep a fair amount of cash in fairly short term and liquid investments or accounts.
Also, it allows us to invest in opportunities as they arise, and because we are a very cash-generative business, we can continue that ongoing cycle of investment and maintaining the level of the balance sheet, ongoing. There's just a, another question, actually.
Yeah. Vivek has a question: "Notwithstanding the execution of the diversification strategy, would I be correct in thinking that the company benefited from market conditions, volatility, and in particular, interest rate differentials? Do you expect such conditions to sustain or act as a relative headwind going forward?" I would say we did benefit from market conditions, particularly, as you say, interest rate differentials between the dollar and European currencies. It's a good question, isn't it? What we would expect to see, whether interest rates will come down again quickly. It would appear that in some countries, there'll certainly be differentials, 'cause in some countries, like the U.K., the inflation seems to be more embedded than it appears to be in other countries. We don't need benign conditions.
What we need is differentials, as you say. We tend to benefit from volatility, as long as it's not chaotic. I would say it's probably going to help us going forward. The big question for us with active mandates, we have a lot of active mandates which have a dollar base as the base currency. A strong dollar for us is a good thing from the perspective of the clients. Strong foreign currencies against the pound is obviously a good thing for us, vis-à-vis our income or our revenue that comes in, because we will hedge it, but we will also see some benefits from a weak pound. I expect that probably the conditions will continue and will help us. Maybe not quite as much as they have, but probably to some extent.
I think the fact that we are diversifying in terms of the products that rely on different market conditions, helps.
Yeah
sort of robustness of the, the income streams as well.
In terms of saying one product becoming unpopular or changing. Hold on, Joseph, if you do achieve your targets, when, thank you for that, and the smiley face. I like that, Joseph. The shares of Record are going to look very cheap indeed. Are you not tempted to buy back shares using some of the cash on the balance sheet or cancel the specials to buy back shares? To be perfectly honest with you, if I was going to buy back shares, however we did it, I would use those shares to incentivize the staff who are building this new business with us. Some of us, like me, had the advantage of starting at Record in 1993, when I did, and built up a shareholding before we went public, which was obviously beneficial when we did go public.
Some of the people, like our CTO and our new CEO of Record Currency and the RAM guys, they've got some shares. Certainly, Becky and Jan have got quite good shares because we've done an LTIP scheme for them. They could do with more. Although I recognize that from a shareholder perspective, it's advantageous, really, to reduce the number of shares out there, I'm balancing that. I want the shareholders to understand that a quick fix from getting, you know, an advantage from a $1 share buyback is not nearly as powerful or as valuable to their long-term value. I like people who would like to hold the shares for a long time, if at all possible.
That it'll be much more valuable for us if we can get people like Becky, Jan, Andreas, maybe Darren as well, the RAM guys, and, you know, all these other guys involved as partners, which is hard to do when you've got a share price. Although we've been very cheap, and as you would suggest, we are perhaps a little cheap, then it's hard to do to get them to pay and to get them to forgo some of their bonus to participate in the LTIP. It's not easy work to get them a few million shares each, but I would very much like to try and achieve that if we can, and we're on the way to doing that.
Yeah.
We won't buy them back. Steve will buy them back and keep them in his back pocket for the LTIP scheme.
I think one of the issues in terms of the share register, is the number of historical shareholders that we've got, either ex-employees or, you know, ex-directors.
Yeah.
partners of ex-employees.
Relatives.
Relatives.
Relatives of ex-
That is one focus that we do have, I think, in terms of what are the sort of levers that we might be able to use to maybe shake the tree a little bit and free up some of the free float, going forward, and try and make a bit more of a market in the shares. I don't think we're alone in that. I think lots of businesses that have come from our size and are growing have got similar problems.
Yeah.
It's certainly something, with the help, hopefully, of our new chairman coming on as well, we can get some ideas and try and sort of release some of those shares.
Back into the market.
Back into the market.
Where they can float about.
Indeed.
Good. Okay, let's see. Do we have a summary page, or did we already do it?
Um...
Oh, we're done.
No.
was that-
No, I think that was the summary page was at the beginning that addressed the strategic.
It's always good to summarize at the beginning.
Well, we did.
Hold on. Oh, Joseph's back again. Hang on a minute. Right. Joseph, now, thank you. One more, if I may. Okay. While I totally appreciate the point about slippage, perhaps pushing back the FY 2025 target, when you think about the FY 2026-2030 opportunities, has that become broader, more exciting since you started on the journey? Yes, I'm seeing more and more things all the time, and I think, weirdly, if you have, like, a village, and you start with a cheese shop and a butcher or something like that, I live near Barnes, so I know about villages. It then attracts maybe a guy who's a, you know, bakery or whatever, it doesn't really matter. It attracts more people, so you get the kind of cluster effect.
One thing I do see is that people are now starting to come to me and say, "Oh, I've got an idea. I think I'd like to do this. Maybe I could try that," or, "I'd like to start an asset management firm, but I don't think I can cope with all the stuff you have to do, and I don't have the cash." I think we will get more opportunities going forward, and then the focus will be between... I think it was Vivek who said, you know, "Stay focused. Don't sort of run about like chickens, you know, with your heads cut off." You've got to be very focused about what you do. In terms of slipping the targets back beyond the FY 2025, I don't think we need to do that.
If we do need to do that, we will do it, and I will explain to everyone why in a very clear and transparent way. It was a challenging target, but I still think we're on target to do it. I wouldn't want to change that now. Hopefully, that answers your question, but we do believe that for investors to trust us and stick with us, we need to share with them everything we can, as soon as we know it, and we can talk about it, which we always would. I think, let's stay with it, Joseph, for the time being, and, you know, we'll see how we do. Watch this space, and maybe we won't have to do anything.
Maybe we will achieve it easily or who knows? Do better. I don't know.
Yeah, just picking up on your point about FY 2026-2030, I think we spoke with someone earlier, and he said, "Success breeds success." I think once we've shown that we can deliver, which hopefully we've done, you know, for the last couple of years, if that continues, I think the available opportunities, you know, will still continue to be there and grow. Yeah, I mean, hopefully, that, and that gives us obviously a much broader opportunity set, if you like, going forward.
Wouldn't it be great if we're all sitting here in a few years, Record Currency represents 30% of the revenue, and RAM represents, you know, another 30% and, or each, they're each 35%, and RDAM is another, you know, 30%, 25%, 30%? That would be great, because then you'd be able to look at us and say, "Yes, they are a truly diversified and a strong business that can weather, whatever the world tries to throw at them in the future." That is our game plan, although clearly, it cannot be achieved very, very quickly. I think we're done.
Yes.
I think... Oh, are they going to shut us down?
Leslie, Steve. Yeah, thank you very much indeed for your presentation and for addressing the questions as they came up. Of course, the company will review all questions submitted today and publish those responses on the Investor Meet Company platform. Could I please ask investors not to close this session, as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations. This will only take a few moments to complete, and I am sure will be greatly valued by the company. On behalf of the management team of Record PLC, we would like to thank you for attending today's presentation. Good afternoon to you all.