Earnings Call: H2 2015

Mar 3, 2016

Okay. Good morning, and welcome to Schroders. You've seen our announcements this morning on the results and on the board and senior management changes. I'm going to run through the highlights, and Richard Keers will run through some of the numbers in more detail, and then we will take questions at the end. In what was quite a challenging year, particularly in the second half, Schroders had a very strong 2015. Record revenues, record profits, and a record high in year-end assets under management. I think all of this stems from the highly diversified business we've been building over the last 10 or 15 years, which has stood us in such good stead. Revenues were up 7% at nearly GBP 1.7 billion. Profit before tax and exceptional items was up 8% at GBP 609.7 million. Profit before tax after exceptionals was up 14% at GBP 589 million. The board is recommending an increased final dividend, which would result in a 12% increase in the dividend for the year as a whole to 87 pence per share. We did net new business of GBP 13 billion in the year, and our AUM ended 2015 at GBP 313.5 billion. We also announced this morning some important board and senior management changes. Peter Harrison will succeed me as Chief Executive at the beginning of April. I will succeed Andrew Beeson as Chairman at the same time. Massimo Tosato, we've announced, will be leaving the firm at the end of this year. I'm delighted that Mas will stay on for the balance of 2016 to work with Peter on the transition of his responsibilities. Looking at the asset management business in a bit more detail, GBP 32 billion of new mandates in our institutional business in 2015. That's the highest-ever level. If you exclude the exceptional year before with the Friends Life mandate, this is the highest level of new mandates we've ever won in our institutional business. Net inflows of GBP 8.8 billion. A particularly strong performance in Asia and in the U.K. in terms of new business. A year of transition in the United States. We had about GBP 500 million of net outflows in the U.S. This is on the back of commodities in particular. We've talked about that here before, an asset class under particular pressure, and we've seen some continuing commodities outflows. We think they're coming close to an end, but we've seen a bit of that in 2015. Some outflows in global equities as well. Again, we've talked about that. This is the residual of some performance challenges going back four or five years. We've made some important changes to the leadership of that team, and we now have a much better performance, and I believe a business that will be a major engine of growth in the future for the firm. But in 2015, we saw a few minor outflows in that business, which we also think has pretty much come to an end. We've said to you before, we think the United States, which together with Latin America, accounts for 12% of our total business. We see this growing to 20% over the next few years. We believe that the U.S. is positioned extremely well and the small outflows of the last year or two, number of one-off reasons for that, which we think we're pretty much through, and we are very pleased with the positioning of that business for growth going forward. I wouldn't for one second back off what I said to you in the past. Namely, I do believe the U.S. will get to about 20% of our total business within the next few years. We had very significant business in fixed income, GBP 7 billion of net new business in institutional in fixed income last year, and in multi-asset, again, GBP 4.4 billion. Looking at the intermediary business, GBP 4.3 billion of net inflows for the year as a whole. That was GBP 4.8 billion in the first half and GBP 500 million of outflows in the second half of 2013 as we encountered more difficult markets, and reducing investor demand, particularly in terms of redemptions. Our gross sales actually held up pretty well, but we saw a high level of redemptions in the second half of the year. Very significant flows in Asia Pacific, all concentrated in the first half. The third quarter in Asia was particularly tough in intermediary with the dislocation in the Chinese equity market, which spilled over particularly into Hong Kong and Taiwan, and we suffered a bit from that. Continental Europe was also strong for us, and we actually generated net inflows in continental Europe in the second half. So a strong first half in continental Europe, but unlike Asia, no turnaround into modest outflows, but continuing net inflows in Europe in the second half of the year. The flows were well diversified across fixed income, multi-asset, and equities. GBP 2.1 billion of net inflows in fixed income, GBP 1.7 billion in multi-asset, and GBP 1.4 billion in equities. We continue to actively manage our product range here. This is an ongoing part of our process here. We manage the product range very actively year by year. We had 47 fund launches during the year, 18 in equities, 11 in fixed income, nine in multi-asset. We closed 40 funds in 2015 because they became too small or just lack of demand going forward. Looking at the equities business, assets under management now just under GBP 130 billion. We had GBP 1.7 billion of net inflows in what I would call our core fundamental equities business, particularly strong flows in Japanese equities at GBP 2.4 billion net and in European equities at GBP 2.1 billion. Despite the dislocation in emerging markets, we had small net inflows in our emerging markets business, which continues to do very well. Outflows in U.K. equities was the biggest one, about GBP 1.4 billion, and then some small outflows in global and Asian equities, but we're talking just low hundreds of millions in each case. So GBP 1.7 billion of net inflows in our fundamental equities business, but offset by GBP 2.5 billion of outflows in quant equities. This is a business that we've grown very successfully to in excess of GBP 20 billion now. Very rapid growth three, four years ago. Recently, we've had these outflows for two reasons. First of all, one of the biggest strategies in this category is value, which has obviously suffered in the market generally. We're actually seeing a bounce in value now in 2016. Some of it has been related to that. But more importantly, we won some very big mandates three or four years ago from single clients, multi-billion-pound mandates, and we knew that this was going to be a transition stage before they appointed other managers alongside us and that they would then pull some of that money, and that's been happening. The relationship continues. It was simply they were parking some of these funds with us while they assessed our other manager lineup before making some other moves. Our quant business, I think, is in great shape, and I do believe it will return to a growth tack pretty soon. We do not see any challenges or problems with this, but that did account for the overall result, which was a small net negative in equities overall in 2015. GBP 6.2 billion of net new business in multi-asset, which is now up to £78 billion of assets under management. And very diversified in institutional and intermediary, so good net sales in both channels. And diversified across four outcomes, broadly. Risk mitigation, which is essentially LDI. Risk control growth, our diversified growth funds, which have continued to be very successful. Income, which has been a big thing for us. And inflation protection. We are looking at a number of new initiatives in what I would call liquid alternatives. Our GAIA platform, which is our UCITS hedge fund platform where we have external managers and Schroders managers on that platform, is now over $4 billion. And we had some interesting new fund launches last year, and we have some others in the pipeline for 2016. A very strong year in fixed income. I have talked to you in the past about the effort we are putting behind our fixed income business, investing behind strengthening the talent base, improving processes, diversifying strategies. This has been a big theme for us in recent years, and it is very good to see it paying off so well. 2014 was a very good year for us, and 2015 has been even better. £9.1 billion of net new business diversified across a number of different strategies, in particular, U.S. and European bond beta. This is buy and hold long-term, quite significant bond mandates. Global multisector. U.K. and European credit, where we have an outstanding track record and I think great traction. EMD relative return. This is separate to our absolute return business. This is a business we started in New York three or four years ago, and we have seen good flows in that asset class in 2015. And also Asian bonds. We have a number of new fund launches coming up, in particular, a European credit absolute return fund, which we are very enthusiastic about building on our capability in European credit, which we think will do well. Last year, we started an infrastructure debt capability for the first time in this firm in France. And we have won our first clients, and this is an interesting, I think, diversification for our fixed income business, and we are looking for other opportunities in this regard in ABS, MBS, asset-backed securities, and potentially in loans, which we are quite likely to do, we think, in the next few quarters. Turning to wealth management. Net revenues were 207.1 million, but you should remember that there was nine million of one-off performance fees and loan loss provision write-backs in the 2014 numbers. So underlying net revenues up about 2% on the year. Profit before tax and exceptionals, again, headline flat at 61.3 million, but most of that nine million of one-off revenues would have fallen to the bottom line. So the underlying increase in profit is around 15% or so. Richard Keers will talk more about that in a second. The financial trend, I think, is coming through well. The cost control has been very good. CASM synergies have been delivered. We are pleased with where we are from a financial point of view, and we have hit our 70% cost-income ratio target, which I have talked to you about in the past. We are now there, and that is a blend of something like 65% in our U.K. business and a higher number in our small, in some cases, ex-Switzerland, very small international wealth management businesses, which are more in a startup or growth phase. We are pleased to have hit that cost-income ratio target. We had net inflows in the U.K. of GBP 200 million. A slowdown in the second half, I think around markets, around volatility, around private clients being slower to make decisions. We also, as always, suffer from the fact that in our charities business, which is part of wealth management, and particularly in our sort of ultra-high net worth family type clients, we are seeing a consistent drawdown of income or other funds to fund outgoings. We reckon that at the beginning of each year, we probably have 1%-2% of assets under management, which will be drawn down during the year. This is not losing a client relationship. This is charities spending money, private clients maybe giving money away or spending it. We have that headwind every year in our business. I do not know that all other managers report these numbers in this way, but we include this in our fund flows. If someone is drawing down income, we include that as a net outflow. You should bear in mind that I do not think it is necessarily consistent across the industry. We are starting with a 1%-2% negative drawdown just to fund expenditure, nothing to do with a lost client relationship. The first half was good for us in the U.K. We did GBP 400 million of net new business. The second half, we saw net some withdrawals for the two reasons I have mentioned. But first half, we were absolutely on our long-term growth target for that business. In Switzerland, we had GBP 300 million of net outflow. This I think is pretty much the end of our restructuring phase in Switzerland. As you know, the offshore private banking market is basically gone. We have been restructuring our business. We have been managing out some clients. Some of these flows, our choice, moving away from clients that did not fit our business going forward. I would hope that process is now pretty much at an end, and we may look to flat flows in Switzerland this year before resuming the growth attack thereafter. Overall, for our wealth management business, we see good growth opportunities in the U.K. We have an excellent position here, built on the strengths of Cazenove and Schroders. We are going to be more, I think, ambitious in terms of getting that message out to the market. I think we need to be more active. The process of integration has been very well managed. Virtually no client losses, no talent losses. We have not missed a beat. People have seen the logic of that combination, and now we need to take that message in an ambitious way to the marketplace because I think we have an exceptional client offering when I look at alternatives out there. We have long term. This is not going to result short term in a significant pickup in organic growth, but I think long term, we remain very positive about the growth potential for that business. In our overseas businesses, Switzerland being reshaped, the small business in Italy, Hong Kong, and Singapore, potentially growth potential there. We see wealth management as having delivered very satisfactory financial returns, and then longer term now we're looking for higher levels of organic growth. I'm going to go over one other thing. Not unimportant. We talked this time really in more detail than usual about some of our associates, joint ventures, and partnerships. This has been quite an important part of our strategy for the last 10 years, which is to say we see significant growth opportunities in our own core business, but we also wanted to partner with other firms to enter new markets, to complement an existing presence, to extend our investment capabilities, or just as a financial investment. I've given you some examples here under each of those categories, starting with our joint venture, which serves principally retail clients in China, Bank of Communications Schroders. Assets under management in that entity are now in excess of GBP 45 billion. We do not include that number in our reported assets under management. Our share of after-tax profit on our 30% shareholding, our share is GBP 11.1 million. That's been a highly successful venture over the last 10 years, significant growth, and we see with a very strong partner, a very interesting ongoing opportunity in what is a massive market. We've pursued a very similar strategy in India, this time with the third largest private sector bank, Axis. We own 25% of their asset management business, and since we bought it, which was only about two or three years ago, assets under management have moved from GBP 1.2 billion to GBP 3.6 billion. We're just about now top 10, and we think that Indian mutual fund market long term is going to be a very interesting opportunity. We have a close partnership with Nippon Life. We have joint ventures in Singapore and London and a very good relationship in Tokyo. This really complements our own existing business in Japan, which is a very significant and very rapidly growing capability. We've done some partnerships recently in terms of extending our investment capabilities. First of all, in insurance-linked securities with a Swiss company called Secquaero, where we took a minority stake. We've just increased that now to 50.1%. In the two years since we've owned that, we've taken assets under management from GBP 200 million to GBP 1.3 billion, leveraging our much stronger distribution capability. We did something similar in Switzerland in convertibles three or four years ago. We then brought that capability in-house, and we now have our own convertibles capability. As I said earlier, we're looking at something very small but I think potentially interesting in loan space, which will be complementary to our existing fixed income capabilities. Then there's investment opportunities. We took, as you know, a stake in Nutmeg, an 11% stake a few years ago. That is growing nicely since we took that shareholding. We took a 45% stake in RWC, where assets under management were GBP 1.5 billion when we took that shareholding, and are now GBP 7.9 billion. They having done GBP 4 billion of net new business in the last three years, GBP 4 billion, which is an excellent performance. You've seen in the statement that our profit in 2015 from that shareholding was well up on the previous year. I'll now hand over to Richard Keers to take you through the numbers in a bit more detail. Well, good morning. 2015 has been another successful year for us. Let me start with some of the highlights. Net revenue was up 7% to just under GBP 1.7 billion. We generated strong levels of new business in 2015, plus the full year impact of the high inflows at the end of last year. Pre-exceptional profit before tax was up 8% to GBP 610 million. That's above the growth in net revenues and is due to good cost control. Post exceptional profits were up 14% to GBP 589 million, as exceptional items have reduced year-on-year. Basic EPS was up 6% to 176.9 pence before exceptional items. You'll remember we told you we were moving towards a 50% dividend payout ratio. We've moved from 47% in 2014 to a payout ratio of 49% this year. That means a final dividend of 58 pence, which brings the total dividend for the year to 87 pence. That's an increase of 12%. Clearly, a good set of results and ahead of consensus. Now, let me take you through the increase in our revenues and explain the presentation changes we made this year. What you need to know is that net revenue now includes the contribution from associates and joint ventures, as well as all of the group's income from financial instruments. This new way of presenting the numbers reflects how we look at revenues internally and provides a more relevant measure of performance. Please bear in mind it is a presentational change only, and there are further details in your pack. The key impact is on our revenue margins. In calculating these, we're now using net revenue, net operating revenue. They're similar to net revenue under the old definition, but excludes some income relating to financial instruments and also transactional effects. The change reduces our 2014 asset management margin by one basis point. This new approach strips out some of the noise and provides a more stable measure of performance. It gives a cleaner view of revenues generated through our clients and results in a small decrease in our reported margins. As I mentioned earlier, net revenue was up 7% to just under GBP 1.7 billion. Net new business accounted for GBP 68 million of that increase, and a further GBP 38 million came from growth in our assets under management. This is a strong performance given the market uncertainty that characterized the second half of the year. The diversity of our business model means we are not reliant on the performance of any single market, product or strategy. Instead, our diverse product offering and our geographical reach mean we are well-placed across the cycle. Our associates and joint ventures further add to this diversity, and together contributed profit after tax of GBP 21.5 million. That is an increase of GBP 11 million from last year. I have not split out performance fees on this chart. They were similar to last year at GBP 36 million. They represent less than 2% of our revenues and are not a material part of our business. Performance fees are difficult to predict, particularly in periods of market volatility, but we are again budgeting fees of GBP 40 million. Looking at operating revenues from each of our channels. Starting with institutional. Net operating revenues were GBP 629 million. That is up 10%. As we have highlighted at the half year, and Mike has already discussed, we have seen good levels of new business, particularly in Asia, along with good flows towards the end of last year, which also contributed to that revenue growth. Before performance fees, the institutional revenue margin was 34 basis points, down from 36 last year. That decrease is in line with the guidance I gave at the half year. It reflects the success we have had with strong sales in fixed income and LDI, and the impact of a large mandate that funded late last year. As you know, change in business mix is the key driver of movements in revenue margins. We are continuing to focus on building scale in fixed income and multi-asset. In line with this strategy, we expect the current trend in margins to continue. Consequently, the institutional revenue margin could fall a further basis point in 2016. Turning to intermediary. Net operating revenues were up GBP 48 million to GBP 765 million. The growth reflects the GBP 4.3 billion of net inflows, driven by strong demand from clients in both Europe and Asia, as you have heard from Mike. Before performance fees, revenue margins were 74 basis points, down from 76 basis points in 2014. That decrease was mainly driven by changes in business mix, although as we flagged before, we are seeing some external pressure on fees. We are budgeting for a further decrease of one basis point. Moving to wealth management. You are aware we have been focusing on improving our profitability, and we are now at that 70% cost income ratio that Mike has referred to. As a result, profits before exceptionals of GBP 61.3 million was ahead of consensus and is a 16% increase after excluding last year's one-offs, being the release of a loan loss provision and the high levels of performance fees in 2014. Net revenues were down slightly at GBP 207 million due to the same one-offs. As you have heard from Mike, underlying operating revenues were up slightly, driven by higher average AUM across the year. Net banking interest was up 7% to GBP 15.5 million. This is because we have enhanced our treasury activities to offset the impact of negative interest rates in Europe. As I have just explained, the main factor affecting our revenue margins in our asset management business is the mix of business, and the same is true in wealth management. Within wealth management, it is also complicated as we have a diversity of clients as well as a greater range of revenue streams. We manage charities, ultra high net worth, and high net worth clients. We also have different revenue streams such as interest and transactional income, as well as custody and management fees. The impact of regulation such as RDR also has an impact. The mix of clients, revenue streams, and regulation led to a decrease in margins from 67 basis points in 2014 to 65 basis points in 2015. We are budgeting for a further decline to 64 basis points next year. This is because we transferred the remaining GBP 900 million of our charities business into wealth management from institutional. I now move on to operating expenses. Compensation costs make up 70% of our cost base. 50% is fixed, and the remainder is made up of discretionary bonuses linked to the group's performance. Average headcount was up 6%, reflecting the growth in the business together with our continued desire to invest in new opportunities. This has driven the increase in our comp costs. Based on our new measure, compensation to net revenue was 44%. We are budgeting at 45% in 2016, which reflects two things. Firstly, the continued investments we are making, and secondly, the weakening of sterling. As always, we will revisit this ratio later in the year. Non-comp costs, excluding exceptional items, were GBP 315 million, right in line with the guidance I gave at the start of the year. It includes the impact of investment in IT systems, as well as some significant increases in market data costs. Cost discipline is something we take seriously. As a management team, we have taken a decision to make a strategic investment in our front office IT systems over the next two years. This investment is an important enabler for realizing future operational efficiencies. It will allow us to manage greater volumes of complex mandates, which will drive future profitability. As you are aware, the weakening of sterling also hurts our cost base. At current rates, it would result in a GBP 10 million increase in non-comp costs, although it has a positive impact on revenues and profit. Putting this together, we expect non-comp costs to be around GBP 340 million this year. Our total cost before exceptional items was 63% of net revenue. That is 2% better than our long-term target. Finally, with exceptional items of GBP 19 million, that is down significantly following the completion of the Cazenove and STW integrations last year. The reduction also reflects the partial release of a provision that was not fully required. Looking forward to 2016, we expect exceptional items to be around GBP 20 million. Let me now pull it all together for you. Net revenue was up GBP 109 million. This was only partially offset by increased operating expenses. Comp costs were up GBP 46 million and non-comp costs up GBP 18 million. Profit before tax and exceptional items was therefore GBP 609.7 million. We have a tax rate before exceptional items of 20.7%. This means a tax charge of GBP 126 million and gives a profit after tax but before exceptional items of GBP 483 million. We expect the tax rate to be about the same next year. After exceptional items, profit after tax was GBP 467 million. Now a word on our capital position. Regulatory capital decreased slightly to GBP 653 million as the PRA reduced our capital requirement. Other operating capital also reduced by GBP 31 million to GBP 253 million. Investment capital was GBP 942 million, up from GBP 725 million as a result of the group's profit after tax. Seed capital was up GBP 66 million to GBP 229 million as we continue to invest in new products and strategies. This strong capital position we see as a valuable competitive advantage. It means we are not going to be knocked off our course of doing the right thing in a tough market. Good examples include investing in our people and our front office IT systems, which I referred to earlier. In summary, I hope you have a good feel for how we have progressed in the past 12 months. Thanks to our strong capital position and our strong management team, we feel confident as we look to our future. Thank you. I now hand you back to Mike. Quite a choppy start to the year, obviously in markets. We have had a good start in institutional. Good levels of net new business, and we have a pipeline of business we have won, but which has not yet been funded. It has been partially offset by outflows in our intermediary retail business, as you would expect and as the industry is seeing generally with clearly in this market environment, retail investor demand being quite weak. Net at the end of February, we are about a positive GBP 1 billion in terms of net new business. We see a lot of long-term growth opportunities for the firm. In our core business, I would say in all channels, in institutional, in retail, in high net worth, in all asset classes across equities, fundamental and quant, fixed income, multi-asset, and alternatives. Frankly, in all regions, we see good long-term growth opportunities right across the business, irrespective of any short-term challenges around markets. We are also seeing a higher level of new opportunities coming to us in terms of hirings of teams, hiring people, starting new partnerships. I have seen in the last year or so more opportunities than I have for a long time, and I think that this is also quite interesting. We see a lot of interesting long-term growth potential. The succession plans we announced this morning have as their objective continuity and stability, and I think that we have spoken to our major shareholders, we have spoken to a lot of clients, and I think everybody understands the logic behind this. There are some people where governance will be a challenge for them, but I think everybody understands the sense of it. I think certainly most of our clients or all the clients I have spoken to embrace this and see it as a very positive step for the firm. Thank you for your attention, and now I will throw it open to questions. Could you just say your name and your company? Thanks. Morning, it's Anil Sharma from Morgan Stanley. Just three questions, please. On the first one, I was just wondering about the product changes that you mentioned, the closures and the opening. Is that linked in any way to the FCA review that's going on? If you could perhaps give us your thoughts as to what you think they might particularly be focusing on. Do you mean the FCA review? Yes. If you think they've managed to narrow down their scope at all since the start of the year. Secondly, in terms of the global equity book, could you just again tell us where we are in terms of how much residual risk you see there, in AUM and potential outflows? Then finally, Richard, this time last year you mentioned we were going to walk up towards a 50% payout ratio, and I think you highlighted at the time that was more of a longer-term target. But it seems like we've got there quite quickly. I'm just wondering, given the capital build in the company, how should we be thinking about dividends and dividend payout? Okay. Max, maybe I can ask you to talk about products in a second. Sure. Let me deal with your other points. As far as the FCA review is concerned, we haven't seen much change. We are engaging, like everybody, with them actively in a very constructive way. The shape of it I don't think has changed very much. We're in the middle of the process where we're feeding them a lot of information as requested, and we have a very constructive relationship with the FCA on that basis. The global equity book, I don't want to tempt providence, but I see very little risk in the global equity book. We may see a little bit more, in terms of outflows from our quant business, for the two reasons I discussed earlier. But long-term, we're very positive about that business. I think in terms of the active global and EAFE equities business, we're delighted with the progress that's been made, with the existing team complemented by the arrival of Alex Tedder to head that team. It's exactly where we wanted it to be. Good performance. We're now beginning to see new business opportunities. I really think that I would not see much of any risk in that book at all. I see it as a growth opportunity. On the payout ratio, we said 45%-50%, but I've said here, and so has Richard, that our target is basically at the higher end of that level, 50%. We're at 49% in relation to 2015. I think you can assume that that is our target over a cycle of 50%. Sorry, on products and the product range, fund closures and fund openings, Massimo. This is a quite normal activity we've been performing for over 10 years now. Our objective is to constantly innovate and have a fresh, in-demand, all-weather product range. There are multiple reason for fund closure. There might be just shelf space, there might be changing patterns in customer demand, there might be performance track record, there might be some local taxation or regulatory aspect. It's a constant process that has been happening every year. On the other side, we constantly try to move our product range towards what we believe are going to be the strong long-term trend of customer demand. You have seen a lot more in solution, a lot more in total return, a lot more in absolute return. It's just a normal process. We have only explicitated the number this year. To this scope, in 2015, we built within marketing a new team called marketing intelligence unit, which is working on data as data scientists that constantly try to monitor the competitiveness of our product range, the trends in flows, and alert us about changes, either tactical or strategic, that we have to apply to our range. Yeah. Good morning. It's Hubert Lam from Bank of America Merrill Lynch. Two questions. Firstly, can you just give us some color in terms of institutional inflows this year? What kind of products? Is it any fixed income, multi-asset, et cetera? Second question, on the Friends Life mandate, just wondering if is there any risk on that where Aviva may take it back in-house or not? Any update on that? Thank you. When you say institutional flows this year, do you mean in 2016? '16. Massimo, I don't know whether you have that information on institutional flows, but let me talk about Friends Life first. We've had the mandate for 15 months. Obviously, when we took it on, it was a different partner. We know that Aviva has a different strategy of building their asset management business and building their multi-asset business. I can't give you an answer on that other than I think we're doing the job we were hired for. We have a good relationship with the client, and we still have the mandate. Max, on institutional flows this year, do you have any? Sure. Geographically, the main driver of new flows has been in Japan, a major success and turnaround, Japan institutional. In there, we had interest in multiple areas. But one of the strongest one has been in the buy and maintain credit sector. The second strongest area net has been in the U.K., and that has been in the LDI sector as the defined benefit industry continue to de-risk. Those are the two main geographic focus. In terms of the product range, we've also seen interest in European equities as well as in Japanese equities. Hi, good morning. It's Chris Turner from Goldman Sachs. One question and one clarification, if I may. The question is, in terms of the U.S. business, you said, I think I caught you saying, you want 20% of your AUM ultimately to come from the U.S. Can you give us a feeling for the roadmap there? Is it just with this new management team in place, with the performance turning around, is that sufficient or is there more that you need to do to get there? On the clarification, you've given some very useful color in terms of flows year to date. I just wanted to check I caught you correctly. I think you said you've had GBP 1 billion net flows year to date, but you also mentioned you have some mandates yet to fund. Is that included in the GBP 1 billion or is that potentially on top? Thank you. That's on top. That's on top. This is net funded positive GBP 1 billion. On the United States, the purpose of setting a target is internally and externally to say we are intent on growing this business and we think it's a big opportunity. As I've said before, you can reach a target two ways. Everyone else can do very badly, and you just stay still and you get to 20%. That's obviously not the way we want to do it. I said before, I think every part of this firm has growth potential. I think by implication, I'm saying I think the United States has more growth potential relative than the rest of the firm because our market share is very small and it's a colossal market. We have taken some very significant steps to strengthen our business in the U.S. In the United States itself, building out our distribution team, which is much stronger than it was. Acquiring STW on the U.S. fixed income side of the business. Building out further asset classes which are managed on the ground in New York. Then strengthening capabilities here in London, particularly in global and EAFE, which is a big product for the U.S. market. Our emerging markets business, I said we had small positive net inflows despite the challenges in emerging market equities last year. That's a big player in the U.S. market as well. I think that we've taken some very significant steps to strengthen further vis-à-vis the opportunity in the United States. On the retail side of the business, it's a relatively new business for us. We've only had it about 8 to 10 years. It's done quite well, but we want to accelerate growth there as well, and we think we can. I do believe that over the next five years, we're going to see the U.S. grow probably faster than the rest of our business. I think we're well-positioned now. I said the last two years for me were a bit of a hiatus. I don't think it's a reversal of the strategy or capability at all. I'm really very positive about what we can do in the U.S. going forward. That's organic, and there may be inorganic opportunities to complement that. We're not factoring that into our thinking. We're not looking at anything currently. There are no obvious gaps, but it's not impossible that we might find another STW type opportunity. Very clear. Thank you. Thank you. It's Hayley Tan from Citigroup. Two questions, please. Firstly, just on the intermediary outflows you've seen year to date, just a similar question to the institutional one really. Any color you can give on products or geographies in terms of trends there? The second question, it's tempting to look at the increased prominence you've given to the associates and joint ventures this time around as perhaps a signal of intent to do more activity in that area, especially given the build-up of capital in your balance sheet. Any thoughts on that statement, please? Thank you. If I deal with the last, then can you deal with intermediary flows? I think we've highlighted it because it is quite a significant part of our strategy, and actually it's becoming quite a significant part of our results. I think it's a very significant part of the growth opportunity. When I look at China, if you just take China as an example, we have our own business in China, out of Shanghai and Beijing, where we address the sovereign wealth funds, insurance companies, institutional mandates. Through our joint venture, we address the retail marketplace. We have a twin-track approach to this colossal market, and I think that it's obviously done extremely well. We invested a very small amount of money up front in that business, and it's given us terrific returns, and I think it has great growth potential, and we're getting brand awareness there because our brand is being used jointly with Bank of Communications. I could say the same about India and other places. In terms of does it presage more activity, possibly because our experience here has been very good. Where we can find great partners who share our long-term vision of building a business, who have strengths that complement our own, then yes, we're very open to doing things like that, and I think it's quite possible that we may be doing more of this kind of thing in the future. Massimo, on retail flows this year, do you want to comment? We have seen some outflows across asset classes, possibly with more intensity in equities. Each country and each channel has its own characteristic depending on which product was more dominant in that sector. But it's quite widespread, especially in January up to mid-February. The situation has been calming down since then. This was in a context of a global industry where mutual funds have suffered 60 billion net losses just in January, $60 billion. So it's just part of a trend of a flow of industry, and there isn't any specific product problem. Mike, yes. This is Mike Warner from UBS. Two questions. First one, can you let us know what the cash balances were at the end of the year that were available for corporate use? Then second, if you can elaborate a little bit about the statement you made in your press release about taking advantages of a period of dislocation. Are there specific opportunities out there that you see right now with regards to potential investment in terms of where markets are? Thank you. Sure. I'll deal with the second question. Richard, if you pick up the first question in a second. We have, through periods of market dislocation, focused more on growing the business and investing than we have on cutting costs. Some of our competitors have said, "We're going to cut GBP 50 million out of our cost base." We've never said anything like that. If I take the financial crisis of 2008, we actually saw this as an opportunity to differentiate Schroders from some competitors by saying we'll invest. That means potentially hiring talent, investing in new products, putting seed capital behind new product launches, building new distribution relationships. That served us well, and we've done about GBP 100 billion of net new business since then. That will be our philosophy going forward. If we are in a much tougher period, then potentially, in relative terms, this benefits Schroders because I think our financial strength, the diversity of our business, means we have good, strong defensive characteristics at a time like this, and we will be using our balance sheet, our financial strength to invest in the business. It comes back to what I said in saying about the number of new opportunities we're seeing. People who are coming to us to say, "Schroders has a great platform. It's a great capability. It's a great brand. It's a great distribution. It's global. We would love to work with you to leverage that." I think that we'll see more of that going forward. Richard. In terms of cash available for corporate use, the way I look at it is, it was in my capital slide. The investment capital, GBP 942 million, is basically all relatively liquid and available to spend. On top of that, we have other operating capital in our businesses globally, which is largely represented by cash of GBP 253 million. Ultimately, that is capable of being spent, but it is more difficult to extract on a short-term basis. But it's there. But the investment capital is certainly available for corporate use. Yeah. Hi. Good morning. It's Peter Lenardos from RBC. I had two points of clarification, please. First of all, on the GBP 1 billion in net inflows year to date, is that across the business or just institutional? The second point would be on the 50% payout. Since you're already at 49%, you're investing for growth, the revenue yield's coming down and expenses are going up. Are you prepared to pay over 50% to maintain the dividend in 2016 if earnings do indeed decline? The 1 billion is the net number. Inflows in institutional, partially offset by outflows in intermediary net, positive 1 billion. I don't think Schroders will, in the foreseeable future, consider cutting its dividend. Thank you. Good morning. Daniel Garrod from Barclays. A couple of questions on costs again. Given your comments about taking advantage of dislocation opportunities, you increased headcount by 6% in 2015. Could you see a faster rate of increase of headcount in the current year, 2016? Then second question, the GBP 25 million increase, Richard, that you highlight in non-comp costs. Could I just clarify, you're saying GBP 10 million of that is FX related, is the bulk of the rest of the IT spend? What are the benefits on the IT spend side in terms of capabilities or revenue generation? Thank you. On headcount, we have budgeted a headcount increase. Part of that will be linked to IT. We're probably going to be doing some quite significant IT projects which will include headcount increases. Obviously, in a tougher environment, we review some of those plans. But I think you could expect absolutely to see a headcount increase at Schroders this year. Richard? The GBP 340 million of non-comp costs, that was inclusive of the GBP 10 million of FX. 315 plus GBP 15 million real like for like cost increase, plus GBP 10 million FX. The GBP 15 million, there is a significant IT component there, which I referred to, but also market data costs continue to go up. Otherwise, it is across the board. As I said, we are very focused on cost discipline. We see 2016 as a year to do the right thing, build for the future. In terms of what we are building on the front office IT systems, it is difficult to be precise in terms of quantifying the benefit. What it would enable us to do is run significantly greater volumes of assets on our platform for a lower future cost. We do have a desire to be a much larger manager in the future. We are not content with running GBP 313 billion. If we want to run GBP 500 billion of assets, we need to make this investment now. It is a future benefit. Thank you. Morning. Dave McCann from Numis. I just want a further point of clarification just on the 45% comp ratio guidance you gave for this year. Just clarify whether that is on the new kind of operational net revenues or the total net revenues number. Thank you. It's on the new basis. Thank you. Anything else? Ray. Ray Miles, Cencos. Not a question per se, but a thank you, Michael, for your time as Chief Exec. I was thinking back to 2001 and when you joined, and exactly how different the business was. With the wonders of technology, because my memory is fading, I did find a Wall Street Journal article which relates to your early tenure. The company said pre-tax profits before adjustments were as much as 10% below recent market estimates of GBP 70 million. Things have changed. Because of client losses and because of tricky markets. Things have obviously moved a long way from there. At this long distance, can I apologize because I was your corporate broker at the time, and clearly my forecasts were too high. Subsequently, I did manage to get it right, so that's better. But thank you on behalf of your shareholders and from the analysts as well for your help and guidance in helping us understand Schroders over these many years. And can we wish you the very best in retirement. Thank you very much, Ray, I appreciate it. And thank you very much. Applause. Thank you. Thank you very much. I've enjoyed these 28 sessions I've had with you. I'd like to pay tribute to Massimo Tosato because he's been my partner in this journey. He's been here 21 years, longer than me. But we've worked very closely for 14 and a half, and he has built an exceptional distribution capability. I think you know that, and I think he widely recognized that. It's one of the drivers of Schroders' success, and I think it's a major competitive advantage. He's been a phenomenal colleague and done a great job. I'm delighted he's, as I said before, staying through the end of the year. But I want to pay tribute to Mas, too, because he's done a great job. Thanks a lot. Thank you.