Earnings Call: H1 2018

Aug 1, 2018

All right. So morning, everyone, and welcome. Now back in February, at the time of our full year results, I shared my thoughts on why we've been consistently successful to date and the reasons why I was confident that we will be as successful in the future as we have been in the past. Now just to recap, the size of the market is large and growing with a considerable savings gap that needs to be bridged. The need and demand for trusted face to face advice has never been greater, whilst at the same time, the number of qualified advisers in The U. K. Is insufficient, creating an advice gap. The perfect environment for a client focused advice business like St. James's Place. This environment means that we remain confident we can achieve our medium term growth objectives, although inevitably, as we have experienced historically, we will have quarters where we exceed our medium term objectives and quarters where we may not. Such events do not impact our medium term view. In February, I went on to say that what makes St. James' Place an attractive proposition for clients is, first and foremost, our partnership, the best and most experienced advisers in the industry, spread throughout The U. K. And now with offices in Hong Kong, Singapore and Shanghai. With our focus on developing long term relationships that span both client and adviser generations, our partners can provide a level of tailored and expert advice and service that clients truly value, advice that is ongoing and relationship based, not transaction driven. At the same time, clients have the security of dealing with St. James's Place partner knowing that the supervision and support of a FTSE one hundred company stands behind everything that they do. Without doubt, the strong relationships our partners have with their clients, coupled with the ongoing advice and service, are major contributors to our excellent and improving retention of existing funds. Consequently, we continue to see stronger growth in net flows than gross flows, with the net flow, of course, being the more important measure. Now given the importance of the partnership to our ongoing success, in addition to Craig covering the results, Ian Gascoigne will provide an update on the partnership, our growth engine. I will then wrap up at the end before opening up to the usual Q and A. Before handing over to Craig, a few words on the other announcement this morning. As you have seen, David Lamb has informed the Board of his intention to retire in early twenty nineteen. David joined the company in February 1992, a few weeks after he opened for business and was appointed to the Board in 02/2007. On his retirement, David will have completed twenty seven years of service to the company and the last twelve as a main Board Director. He has made an enormous contribution to the success of St. James's Place, spanning many areas of the business over the years, but David was particularly instrumental in the development and operation of our investment management approach. I'm therefore delighted that once David has retired, he has agreed to continue to chair our investment committee. I'm also very pleased to announce that Rob Gardner will be joining St. James' Place in January 2019. Rob will take over from David on the Executive Board and lead our investment proposition going forward, working closely, of course, with David during a handover period. Rob is 39 years of age and is Co Founder of Redington, one of The U. K. Most respected investment and pension consultancy businesses. Having worked closely with us for the last six years, Rob comes not only with a wealth of business, pensions and asset management experience, but also extensive knowledge of our business as well as knowing many of our partners and people. Rob is an important and significant new hire for St. James's Place. I'm delighted he has agreed to join, and we very much look forward to working with him over the coming years. I'll now hand you over to Craig to run through our financials. Thanks, Andy, and good morning, everyone. My presentation of our half year results is going to take a familiar course. Iain is going to cover developments in the partnership, so I'll provide a very brief update on the way in which our adviser numbers have continued to grow during the first six months. I'll then comment on both our growth in gross and net flows, followed by commentary on the cash result for the first half. I'll then cover EV, IFRS and capital. Finally, I'll comment on the interim dividend that we announced this morning. The number of advisers has grown from 3,661 to 3,810 at the June 30, which is an increase of 4%. We continue to attract high quality people from all over the financial advisory sector, and our academy continues to play an increasingly valuable contribution to our growth, with 95 having graduated between January and June. Anders mentioned the advice gap that we have in The U. Attracting the best existing talent in the industry but also providing an environment for new talent to flourish is turning this gap to our advantage. During the first half, our gross inflows grew by 15% and amounted to £7,900,000,000 Importantly, net inflows grew by 21% and amounted to £5,200,000,000 This growth, together with global market performance that was challenging in the first quarter but stronger in the second, has resulted in funds under management of £96,600,000,000 at the June 30. Our growth in the second quarter for gross and net flows is 1013%, respectively, a little lower than the growth we reported in the first quarter. But it is important to remember that in the 2017, we grew by 29%. The reality of this is that individual quarterly growth percentages will fluctuate, but we remain confident in our medium term growth target. All in all then, a very strong half year on top of what was a record year in 2017. I'll now turn to the cash result, which is the most important performance indicator for our business as it reflects the way in which cash emerges from both existing and new business. In the past two comparative years, there have been a number of changes to the pattern of cash emergence following our unit liability reassessment at the 2016. But I'm pleased to say that we're now in a steady state, and therefore, the pattern in 2018 is the same for 2017, which should make modeling and comparisons more straightforward. The increases in net income from funds under management of 12% to £332,500,000 and margin arising from new business of 18% to 70,000,000 are therefore directly attributable to the profile of funds under management during the half, together with flows out of gestation and the increase of 15% in new business year on year. There's been no change to the blended margin of 77 basis points. It's worth emphasizing that we now have £33,000,000,000 of funds under management within the gestation period. And whilst these are yet to contribute to the cash result, they will do so in time. These are funds that have already been secured and which we expect will exhibit the same consistently high levels of persistency that we experience as a group. Each of the cohorts will start to contribute to cash emergence six years after being written. And as a guide, once the entire balance matures, it will contribute an extra $0.02 £5,000,000,000 of net income to the underlying cash result without any further attributable cost. This will, of course, be supportive for future dividend growth. Expenses being in line with our expectations, but there are two pre operating cash items that merit comment. Firstly, the FSCS appears on the face of it to have shown some improvement, but I'm afraid this isn't the case. What has actually happened is that the billing period for our 2018 accounts has been reduced from twelve months to nine months, reflecting a decision by the FCA to move its compensation levy period in line with its own financial year. This is, therefore, a one off timing difference that will only benefit 2018. The underlying reality is that although we are supportive of the importance of FSCS for clients of our industry, the costs associated with supporting it remain at a frustratingly high level. Secondly and briefly, tax relief from capital losses has run at a faster rate in the first half, and this is largely driven by market conditions, particularly in the first quarter. Operating cash has therefore increased by 18% to £164,300,000 You will, however, recall that for the full year, we said we're going to move Academy costs to above the operating cash line. Investments in the Academy, which in the first half amounted to 4,200,000.0 represents a significant current investment in future growth and cash generation. Past investments in the Academy is already contributing very strongly to our results, and so we now see this change as the best way to present future results. There's a pro form a in the back of your packs, which shows the operating cash results, including Academy, above the line, and it therefore shows the comparatives you can expect to see in future statements. Our other areas of investment below operating cash continue to grow and develop in line with plan. As I mentioned back in February, the strategies for both Asia and DFM remain one of continued investment, but with growth in income from these businesses offsetting much of that additional cost of investment. Our additional cash our underlying cash results, taking these investment activities into account, has increased by 20% to £147,100,000 which results in an underlying basic cash EPS of 28p, which is 19% up on the last half year. The first half has seen significant activity levels on back office infrastructure development and migration. In June, we successfully migrated our drawdown plans, which involved over 38,000 accounts and £5,300,000,000 of funds under management. I'm pleased to say this migration went smoothly. We've also, this month, started to migrate part of our preretirement account pensions book using a phased approach by location. This is the start of a significant phase. And once again, I'm pleased to say that it's progressing well. We now have £40,000,000,000 of our funds under management on Blue Door and 70% of all new business written in the 2018 was written on the new system. We continue to approach the systems migration with great care, and our number one priority is to do it well and to do it safely. We continue to expect to have substantially all activity on migration complete by the 2019, at which point you'll see a substantial fall in the associated costs. I'll now turn to the embedded value results where EUV operating profit has increased by 23% to 4 and £89,600,000 There are a number of factors that contribute to this increase, the most obvious one being the growth in new business. We're also, however, benefiting from the longer term contract boundary within the new retirement account, which, whilst leaving costs for the clients unchanged, allows for the full benefits of pension business pre and post retirement to be recognized in embedded value. Investment return variances reflect market conditions with a weak first quarter somewhat offset by a positive second. But taking all of this into account, our EV net asset per share now stands at £11.15 But as a reminder, our pre retirement account book, currently in the course of migration on to Blue Door, has a significant embedded value attaching to it that is not recorded in our statement because of the way in which the contract is written. We have no plans to novate these contracts. But if we were to, modeling periods would be extended, and we would record somewhere in the region of £400,000,000 of additional embedded value, which would increase embedded value per share by around 75p. I won't comment too much on IFRS, but the background is very much the same as it has been. And as usual, there's a reconciliation to the cash result in your packs. If you focus, however, on IFRS profit before shareholder tax, you see modest growth of 3.6% to £82,500,000 There's also little for me to say about capital since very little has changed since we presented our results for 2017. As I indicated then, our capital needs will grow broadly in line with growth of the business. It's worth reiterating, however, that our business model, which involves ensuring client assets are matched at all times, means that not only are client investments with us supported by the specific underlying assets that they've selected, but that as a result of that, the shareholder is not exposed to the financial and, therefore, the capital risks that would otherwise be present. Finally, I'll turn to the interim dividend that we announced this morning. And we've taken a very simple and consistent approach to the interim dividend, and the growth of 20% is a direct reflection of the increase in the underlying cash result. As we said back in February, we expect to distribute around 80% of our underlying cash result for the year, which we believe strikes a sustainable balance between providing returns to shareholders and continuing to grow the business. So in summary, advisers are up by 4%. Gross inflows are up by 15%. Net inflows are up by 21%. Underlying cash is up by 20%. And there's an interim dividend reflecting this success also up by 20%. All in all then, a very strong performance during the first half that we look forward to building on over the coming months. I'm now going to hand over to Iain, who's going to speak a little bit more about developments in the partnership. Thank you, Craig, and good morning, everyone. I'm delighted to be speaking today. Andy has asked me to say a few words about the partnership and to try and give a real flavor of what's happening under the bonnet of what Andy correctly refers to as our growth engine. Those of you who have followed us for some time will already be familiar with our growth model, a very simple model to understand but quite complex and challenging to execute. However, we have been extremely successful. We have grown by 9% compound across both metrics over the last ten years. However, this only tells half the story, and Andy wanted me to bring some real life case studies into the meeting this morning. And when he asked me to do this, I wanted to find something that was recent, relevant and representative. I looked through my diary and came up with my attendance in June at an office opening of a practice I have known for over twenty years. Now to counter any accusation that I have cherry picked this business, it is based in the financial hotbed of Wrexham, one of the most deprived parts of The United Kingdom. And the story starts in 2001 with two bank assurers leaving NatWest and Lloydsbank, respectively, to form two sole trader businesses with SJP. In 02/2006, they approached us to merge into one joint business. And at that time, I must confess, we were slightly reluctant. Obsessed with our gross partner numbers, such a merger would be a minus off the partnership total. And those two individuals were bringing in between about £3,500,000 and £4,000,000 of gross funds each on an annual basis, solid citizens of the classic model. Now since then, they have, with our help, been developing their business, just like hundreds of other partners at SJP. Now last month, as I said, I attended their office opening. They've moved into the old Wrexham Brewery building. And just to prove the point, here is a picture of me at the event. So let's take a closer look at just how this business has developed. Well, here we see Warren and Medwin joined by a new co director, James. James is a 28 year old graduate who joined SJP in 2013 and the practice in 2015. He bought into the business, utilizing access to loan capital facilitated by SJP. And as such, he became a shareholder and codirector of the business, the first step in a sensible succession plan. And the advisory team has grown significantly since the days of those two single partner businesses. Here we see Tom, Gwyn, Ben and Howard, each with an interesting story to tell and representative of the interface between the partnership and SJP. Tom and Gwynn are the sons of the founders, university graduates and graduates of our own Next Generation Academy, as is Ben. Ben and Gwyn are both chartered advisers, having benefited from our own in house workshops as we look to increase the professionalism and the qualifications of the partnership. And such is our commitment in this area, you may be interested to know that 40% of all chartered advisers in The United Kingdom who qualified in 2018 currently work for St. James' Place. Howard is interesting for another reason, representing our ability to retain talent at the other end of careers. Having run his own practice, Howard wanted to work part time, so he sold his practice into Hadlow Edwards, allowing him to capitalize his business but to continue to work part time with his key valued clients, something appreciated by them and allowing Howard to focus on advising with the practice providing the support and all the other mechanisms that are necessary. Two further advisers, Mandy and John, complete the advisory team, with John specializing on the provision of mortgages. Now a team of nine advisers in twenty eighteen needs specialist support, and this is provided by a fully qualified paraplanning team. And the whole business is supported by a further nine PAs and secretaries. This whole operations team is managed and supervised by Don Richmond, who is an experienced manager, who himself is also a chartered financial planner. The business utilizes its own website hosted by SJP, which provides access to regular e briefings to clients and updates on developments to our fund range, any changes to taxation, etcetera. So when we talk about the development of small SMEs, this is what we mean. Warren and Nedwin, the senior directors in this business, are now responsible for total funds under management of £400,000,000 and are on track this year to attract gross inflows of £60,000,000 And as you've seen, the two sons of the founders are in the business, ensuring stability and succession and reassurance for the 2,700 clients of the business. Now the business also provides strong support for our own charitable foundation, and the business supports three local charities in Wrexham, social responsibility and giving something back being important components of our culture. The business coexists with SJP, and here we see how the practice is supported by us. We provide support across a range of areas ranging from training and development, technology, technical support, marketing, risk management. Now am I confident about the business? Yes, I am. Is it unique within the partnership? No, it isn't. We currently have six thirty seven multi member businesses on the very same journey as this one. So beneath our headline numbers, you will see the development of an increasing number of multi member practices co investing, developing and building for the future. Here, you can see how the development of these businesses has been taking place over the last five years or so. The dark blue columns are the numbers of our high performing single partner practices. In 2012, you can see this stood at about 1,500. And on the top of the dark blue column, you can see our small, medium and large businesses. In 2018, our single partner businesses have grown, but the major growth is in the small, medium and large businesses. Such has been the growth that now over 50% of our capacity is in such business structures. 58% of the advisers within these businesses have been with us for less than three years. And we know that their productivity will increase dramatically over time as they mature and become more experienced. Now I went to Wrexham for that example, but I could have just as easily selected almost any town in The United Kingdom. But it's a good representative of what we're seeing across the country. Investment by partners in their own infrastructure and support the development of the next generation of advisers client retention through ordered succession the ability for new advisers to buy into existing businesses facilitating that succession younger next generation advisers accessing younger next generation clients and businesses that are terribly future orientated. So that's enough of Wrexham. I now wish to move on to the Academy. I mentioned how the Academy had assisted the development of that business, and I thought it might be worth updating you on the increasing contribution it is making to our business. Our earlier Academy intakes were predominantly London based, and it's here where the graduates are making a significant contribution to the new business. They have been with us a little bit longer. Here, we see the percentage of new business that our graduates are making to our London offices. That over onefour of our new business from one of our largest offices comes from Academy graduates is a strong testimony to the success of the program. Nationally, across the business, the total Academy contribution is about 11% of new business, but that will increase as the graduates start to develop from our centers in Solihull, Manchester and Edinburgh. We currently have over 300 individuals across the four centers in training with an average age of 37 and with a far more representative gender split. They also bring a great energy and diversity into our business. However, that doesn't mean we're not continuing to grow our capacity through traditional recruitment. We've had a record number in the first half for recruitment, a record number of applications this year, such that our adviser numbers, as you've heard, are up 4%. And we continue to turn away applicants who do not meet our entry standards. And within those new joiner figures is our largest ever recruit business, a firm with 10 advisers within it. And we're also beginning to attract a few significant joiners from stockbroking backgrounds. This is a new source of recruits for us, and they're beginning to see SJP as a suitable home for them to advise and service their clients. We're sifting through 41 applications in the first half of the year to join our Asia business, and we've already appointed some significant hires in Singapore and Hong Kong. Now we try not to PR in the trade media every time a significant hire joins the partnership. We prefer to grow organically, modestly, but relentlessly. So I hope that's given you a flavor of what's happening under the bonnet of the business. The organic growth of our partner businesses the continued and growing contribution of the Academy and, of course, our commitment to attracting the very best professionals throughout the country. We often say our business model is simple, not easy. It requires relentless focus and high levels of partner contact and a certain resilience. It is not easy to replicate because as well as the hard yards, it has to be underpinned with a strong culture and a set of values. It also needs a large number of high quality employees who care about the partnership and their clients, which is something we're very lucky to have. You cannot replicate this model based on random acquisitions thrown together under the banner of industry consolidation. The demand for high quality advice has never been higher, and I remain extremely confident and I very much look forward to the partnership continuing to provide for their clients with the advice they need in a time of increased complexity and uncertainty. Thank you very much. Thank you, Ian. And hopefully, that provides you with a good insight on how our partners are investing in their businesses, their infrastructure and their future. Now corporately, SJP is also investing for the future across a number of initiatives. So let's have a look at these. Firstly, the key priority is to maintain and develop the support to our partner businesses, in particular, providing the tools to support their client relationships. Now here, we use technology far more than I believe is understood. Ian showed the partner website for Hadlow Edwards, which we design, we maintain and we host and through which we can send out e briefings and other communications direct to clients but personalized from the partner business. To support partners in their client relationships, we also have our client portal called the Online Wealth Account, which enables clients to access up to date valuations of their investments as well as see detailed performance reporting, performance reporting which allows not only for all charges and fees specific to each individual client but also taking into account the client's own actual cash flows. We believe this is unique in the industry. Clients can also, through their online wealth account, choose electronic or paper correspondence for business administered on the BlueDoor platform. They can receive notifications by e mail or by text and, of course, make online payments. This online wealth account is also available to clients as an app for both iOS and Android phones. We also provide digital tools to help partners run their business through what their partner portal, which we call My Practice. This enables partners to see key information about their business, such as continuing professional development records, information about clients and the ability to identify, for example, which clients have not used our ISO allowance this year. All this is about making it easier for partners to do business with SJP and for clients to do business with their partner. Partners also have access to our portfolio app, which we have developed in house. This app incorporates the client's actual investment holdings along with BlackRock's Aladdin system, featuring portfolio construction as well as stochastic modeling. This enables a partner to work with their clients to understand their investment experience and, if necessary, rebalance so that the client stays on track to achieve their overall objective. Alongside this, a number of partners use a CRM system called Curo, which integrates with both SJP and third party systems. Curo also integrates with Voyant, a cash flow planning tool enabling partners to create bespoke personal financial plans for their clients. Another key system we provide for our partners is called iBusiness, our partner back office system. This is integrated with SJP systems to produce illustrations as well as third party tools to source, for instance, whole of market protection quotes. Partners are able to electronically submit business to both SJP systems as well as many of our third party providers. We will continue to invest to make SJP the place of choice for advisers and clients, a place where it's easy to do business by using relevant and appropriate technology. And staying with the partnership, Iain touched on the Academy, an initiative where we are investing £10,000,000 in 2018 and have recently agreed to increase the spend in future years, an investment that will play an important and growing role in developing our next generation of financial advisers. This will provide partner succession, support retention of long term client relationships as well as build an intergenerational bridge to both manage and capture the significant intergenerational transfer of wealth in future decades. Craig has also covered the progress of our Blue Door program, a significant multiyear investment. Such major IT transformations can be tricky as the experience of others over the years have shown. Hence, we are being cautious, going for bite sized developments and migrations rather than attempt a one off big bang. Whilst this caution means the project takes longer and costs more, it's safer and therefore, it's the right approach. That said, whilst we have broken the back of the project and can see the end in sight, we still have much to do and we're not complacent. This is an important and necessary investment for us to ensure that we have the right processes and systems for the future. It will provide the capacity and capability for our future growth and supports the continued development of those client and partner portals I spoke about a little earlier. Now as well as making it easier for partners to do business with us and investing in our administration capabilities, it is of equal importance we continue to invest in our investment management approach, thereby ensuring we always have sufficient investment capacity for our future growth. And we are doing exactly that and have just announced the launch of a new diversified asset fund that will be managed by KKR. This provides an exclusive opportunity for our clients to invest in a diversified portfolio of public and private market assets assets within a single investment fund, a strategy which has historically only been available to institutional investors. We have also announced the appointment of Impact's Asset Management to manage the renamed Sustainable and Responsible Equity Fund. With the addition of the diversified asset fund, together with the recent appointments of IMPACT's GMO, Wellington and Jennison, we now have an investment approach that spans 39 investment management firms from across the globe with 36 exclusive strategies for U. K. Retail investors. In the 2018, we also continued to enhance both the depth and breadth of the services we make available to our clients, adding, for example, new protection and medical insurers to our approved third party providers as well as introducing a new foreign exchange and international payment service. We also continue to invest in other areas. Our Asian operations are progressing well, and they have had a good first half. Gross inflows were up 51%, ahead of plan, whilst net flows were up 47%, taking funds under management to over £550,000,000 increasing by 32% during the six months. In addition, we have launched an international discretionary fund management service in Hong Kong with a view to replicating this offering in Singapore and Shanghai in due course. Rowan Dartington also continues to build scale, with funds under management now above £2,300,000,000 having almost doubled since the business was acquired in 2016. The number of investment executives continues to grow, up from 46 to 51 since the start of the year. Of note, the current slide shows the growth in RD funds under management month by month, the yellow bars, together with the proportion of total funds that have been introduced by the partnership represented by the black line and which now stands at 25%. Hopefully, this gives you more information on how we are investing to support our future growth and how we are scaling our business to manage this growth. So to summarize, the challenges individuals face in planning for and managing their wealth both before and after retirement as well as when considering the transfer of wealth to their next generation are considerable. Consequently, we continue to see a growing demand for trusted face to face client focused financial advice and support. At the same time, it is a fact that there are not sufficient qualified individuals to meet this growing demand and an advice gap exists. Furthermore, we, and very importantly, our partner businesses, continue to invest in our respective infrastructure to ensure we are well placed for future growth. The environment we are operating in, together with these investments, provides us with the confidence that we can continue to achieve our medium term growth objectives. And supporting these objectives is a strong balance sheet with the knowledge of a growing income from existing business. Both of these are supporting a growing return to shareholders as shown by the 20% increase in the interim dividend. So thank you for your attention. A summary of the key financials are shown on the current slide, continued strong growth across all key financial metrics. And I will now ask Iain, Greg and David to join me for the usual Q and As. Thank you. Got a couple at the front here. It's Blair Stewart from BoA. A couple of questions. Firstly, could you talk a little bit about the Blue Door costs? The operational aspects seem to be on track. I just wonder if you can update on costs and the outlook. And by 2019, does that just drop away completely? Secondly, just interested if you can put any numbers around the productivity opportunity. I think you talked about a significant number of the advisers in the larger firms being inexperienced with less than three years' experience. I wonder if you can just talk about that productivity opportunity. And finally, just on the some of the other investments you're talking about at the end there, Andy, with technology. It seems very interesting. Just wondered what you're spending there and where that's shown. Does that just come through in establishment costs or is it somewhere else? Yes. So if I take the last one first. Look, we are spending all the time on IT, and that's just included in the establishment costs. So there is no separate line that we'll be showing you in the future. Above the line, yes, yes, above the line. Is that accelerated? I wouldn't say as a particularly as a proportion of total cost. No, it's going up every year, but our costs are going up every year as well. Another major area we invest in is cybersecurity quite naturally. Craig, do you want to take the question on Luedor costs? Yes. The guidance we gave back in February was that this year would see an annualized run rate equal to the run rate that we saw in the second half of last year, which I appreciate is a bit of a mouthful, but there was a change in intensity at the back end of last year, which continues into this. And that guidance largely holds. So I think if you look at the results in the cash results, it's probably running somewhere at around £1,000,000 ahead of where we might have expected. But as Andy referenced earlier, the important thing with this is to get it done well and to get it done right. We're not taking the cheapest approach to this. I mentioned the migration of pensions business. I think if you took a pure cost based approach to that, you'd go for a big bang approach. You do everything at once. Our experience, and I think the experience of others, is that, that might not be the best approach. So we are taking this piecemeal because it gives us an opportunity to check, fix, check, fix all the way through. Having said all of that, I would say the guidance for this year, keeping it simple, if you were to look at somewhere in the region of double what we have for the first half, that would be, I think, a fairly accurate position. Iain, do you want to take the productivity question? Yes. I'm not sure I've kind of got the actual numbers for you, but what we do know is that partners in their first three years are not as productive as partners who've been with us five to seven years. We also know that at seven years, there are some partners who plateau and some partners who continue to grow. So I think we're very confident that we can look at the population of the people who joined us in the last two or three years, which is quite a substantial population, and we know they're going to grow their productivity year on year on year for the next four to five years. How many partners have we got? How many advisers and partners? Less than three. Let me come back to you. I'll give you I'd rather give you the exact number of the number we've got in the first three years. We have some questions on the next. Oliver Steel, Deutsche Bank. You said that the quarterly performance was occasionally above and occasionally below the long term target. And in the second quarter, gross sales were only up 10%. I don't quite get the explanation for that because I think in the 2017, you grew gross sales by 32% and then you did 21% in the first quarter of this year. Second quarter of last year, it was 29%, I think, and then it's suddenly 10%. And if we look at the third and fourth quarters of last year, it was up about 27 So clearly, something did happen, whether it was consumer confidence or something else between the first and second quarters of this year. I'm just wondering what makes you so confident that, that can then bounce back in the third and fourth? Okay. Well, I mean, I think as a long term business, we're not focused on sort of discrete quarters quite naturally. There's quite a lot of difference between 2017 and 2018. So for instance, in 2017, the ISO allowance went up 33% from 15,000 round some to £20,000 It didn't go up this year. So you wouldn't have seen a repeat of that. If you look at and I know these all sound small things, but they all count. If you look at where Easter fell in 2018, then more tax year end business would have been done in the first quarter than in the second quarter as compared to 2017. So we just look at the whole long term, medium term developments in the market and remain confident that over that period, can continue to grow our medium term growth objectives. Guys, I don't know whether anyone wants to add anything else at all. Obviously not. Well, I mean, I could throw in the Harry Kane card here and say that if we'd have got knocked out in the first round, we would have had a stronger June. I don't see any evidence of a slowdown at all amongst the partnership. The hot weather in the World Cup may have deflected Ascension for a short period of time, but the trend is very positive, and I don't sense anything happening out there. Can I just follow-up on that? Because actually, again, if I look at the growth year on year, it's all in pensions. I think you're actually down in the other two product areas. Again, any explanation for that? Well, sorry, sorry, go ahead, please. Partners are in the advice business, and they will go where people are wanting advice. And there is no doubt in the last twelve months, there's been an explosion in consumers wanting to talk to their advisers about their pensions options. Now that doesn't necessarily mean it immediately leads to a pension business, but that is what we're experiencing that people are wanting to talk about. And so it's no surprise that our pensions business is up compared with other areas to me. I was going to say exactly the same. Also, again, ICE for the balance wasn't increased this year versus what was previous year. So you wouldn't naturally have seen the growth you had done in the ICEs? Right behind you, Oliver, actually. Just pass it to Ed. It's easier. Just to pick up on Ollie's question, it's Ed Houghton from Bernstein. To Ollie's point, protections have been a significant proportion of net flows. Do you think those pension net flows might fall away as protections for higher allowances in prior years now also fall away? You've had a boost, but does that fall away? And then relatively, what proportion of those potential lost flows in pensions would you expect to see picked up in other product lines, ISIS, for example? So could I just add to the support team, we're picking up some noise at the back here. Someone talking, so I don't know whether that's something you can have a look at. Sorry, David, do you want to take that question? Yes. Think what's interesting about the pension to market is it's still in a state And it's been in a state of change, I think, as many years as I've been here, which is, as you now know, twenty seven. The current debate is about what's happened to lifestyle allowances and tax roofs and things like that. So my guess is that, that amount of uncertainty is not going to go away overnight, and therefore, pensions is not going to suddenly be a topic people won't want to talk about. Alongside that, one of the things we haven't spoken about in terms of where partners spend their time that Ian talked about is intergenerational advice and the whole rationale where people are looking at how do we help our families and how do we look after our wealth. That is a growing marketplace. So I think the marketplaces are moving and the demand for advice is very clear. What tax wrappers you end up investing in is a question of legislation and how legislation changes. So sometimes, right now, as pensions are being talked about, it could be ISIS, it could be yet another version of something that comes out in a government budget in November or in future governments. So the background is a lot of change. And change drives demand for advice, and advice ends up being invested in different tax wrappers. That isn't going to help us. Can I follow-up with one more as well? Again, I think this one is for David. You announced the launch of this diversified assets fund with KKR that allows your clients to invest in public and private assets. I'm interested in how you've approached the potential liquidity requirements of your clients in respect to what are potentially relatively illiquid assets. Absolutely. So we spent a long time looking at the design of the portfolio to enable us to balance these two things. How do you capture liquidity premium, recognizing that you've got a fund which is essentially an open ended fund, and that's not traditionally what happens in private assets markets. And the way we've solved this is to have roughly fifty-fifty between private assets and liquid credit and other forms of quoted assets so we can capture illiquidity for part of the portfolio, but maintain liquidity at the other part of the portfolio. That's a diversified approach, but it's also managed by a single manager. And that helps us in terms of deciding which parts of the illiquid market we going go into from one time to another and which parts of the liquid market we will counterbalance that with. The ultimate journey for us will be to launch a fully private assets fund. This is a very important step on that journey. I think it will be very well received looking at the conversations we've had with people. But it's about getting that balance right. We spent a long time with KKR working on that balance. It's Hayley Tan from Citi. Can I ask a quick follow-up question on back office infrastructure? Could you give us an idea of how much of the spend in the first half was actually the dual running cost? So we can maybe think about that being an ongoing cost for next year, but the rest may be dropping out. And the second question, I'm sorry to come back to new business as well. But if we think about some of the longer term trends perhaps and the changes year on year, I noticed you didn't mention anything specific about transfers from DB to DC. I wonder if you have any comment there. And also if there's any change in the competitive environment for your partners, perhaps from other businesses emulating your business model. Craig, do you want to take the dual running costs first? Yes. We haven't given an analysis of the figure, so we don't publish a dual running cost proportion. But I think the simple way to look at that figure within the cash results is the whole lot falls away once migration is complete and we turn the old systems off. So gradually, where we're able to identify clear obvious dual running costs, we're building that into a figure that will disappear from the cash result. I can't quite hear the Sorry, at the 2019, does the dual mining cost fall away? Yes. Yes, the dual I mean, in any project, you're going get some decommissioning. I think we referred to that at the previous results presentation. But yes, essentially, the dual running costs cease the moment we get everything on the new systems that we switch the old ones off Because it's not just the systems, it's the surrounding bits of the system as well that create that dual running inefficiency when you're going through a migration. And I'll just add that, obviously, we're showing it all separately, so it's not impacting the underlying cash results and therefore not impacting the dividend sort of conversation. If I do the transfers, the there's two parts to the transfer market, and I'm going to talk about the defined contribution market first. So more and more people don't have the benefit of defined benefit pensions. They've been sort of accumulating funds in DC pots. They no longer need to take an annuity. And actually, in our marketplace, they probably didn't have to previously. And more and more individuals are going into income drawdown. We expect that market to continue to grow, and all the statistics we got from other external commentators would suggest that. And we see that as a big market. People accumulating their various small pension pots and bringing them into one to go into income drawdown. The second part where we've seen more interest, and if you bear in mind, we're the sort of largest advice brand in The U. K, it's not surprising. There's a lot more interest in DB transfers. This is a very, very complex area. And for lots of people, it just isn't appropriate. We are taking a continued cautious approach to this. And so we see relatively low numbers in absolute terms, but each number tends to be a larger transfer. We haven't disclosed it. We're not planning to disclose it. But that market is still there, but we are just treating it with real caution. Question about competition? Sorry, competition. Thank you. Yes. I don't think our partners are experiencing any increase in competition business at all. Compared with the kind of massive opportunity in terms of the baby boomer generation, the advice gap, increased IHT, pensions complication, that far outweighs the opportunity far outweighs any experience of a new kid on the block or anything, which I'm not aware of, and I don't think any of our partners are saying to me that they're finding competitive pressures at all. Okay. Think should we try down the slide then? We've got Gordon and Ben. Gordon goes first, and then over to Ben. Gordon Aiken from RBC. Just a first question follow-up on the pensions. Obviously, such a big part of gross sales now, but I mean can you give a rough split of you talked about consolidation of POPs and then DB to DC. I mean you've always said it's of POPs that's the big driver, but is that continuing to be still the case? And the second question on outflows. I mean, I guess the two main buckets that you lose flows to are probably number one, deaths and number two, Bank of Mum and Dad. Can you talk a bit about both of those and what you're doing to reduce the impact? Maybe back a moment, is it becoming a bigger threat? I'll do the outflows first. So where we see outflows are people taking regular income withdrawals. I mean that's exactly what we expect. They're into income drawdown or in the investment bond arena, they're taking regular income. The other area we see is, as you say, through deaths, where we will see some money that leaves because people have reached the end of their investment time horizon. And I'm sure there's some to do with Bank Mum and Dad. But the other thing that we have is the ability for Bank of Mum and Dad to borrow funds off their secured on their investments, and that certainly is quite a popular thing. I wouldn't say we're seeing any large outflows as a result of Bank of Mum and Dad. In terms of pensions, and again, I might turn to David in a minute, but how much an individual can save in pensions on a regular basis these days isn't a huge sum of money. So the majority of the pensions business will be transfers and predominantly DC transfers. David, I don't know if you want to add anything to that. No, I'll just point out demographic move. We talked about next generation wealth transfer. And there's a big demographic move in terms of people coming into that stage where they're thinking about retirement, and I have some experience with that process. And what that means is we're seeing that's still ongoing right now. So that's a very live marketplace, and it's not a it's a growing marketplace. So the transfer market, DCDB, and the ability to not have to take an annuity via an income and use pension plan as an IHT planning tool, that's a large part of the conversation in retirement marketplace in terms of planning terms. That cohort or that demographic cohort is not yet mature. That's still coming. We're probably just beginning to see the first generation of non final salary pension retirees in The U. K. So there's quite a lot of growth in this part of the market. Gordon, do you want to pass the mic over to Ben? Ben Bathurst from SocGen. First question is on the Academy. I think Andrew mentioned that you've agreed to increase the spend in that area. I just wondered if you could give some guidance on the quantum of that increase. I think that's new information today. And then secondly, on interest rates, I think market expectations for the MPC to increase interest rates this week. At what level do you think the attraction of the higher returns from cash might start to eat away demand for your investments? Craig, do you want to do the Academy? Yes. The Academy investment that we were referring to will it sort of starts now and continues. I would imagine if we were to think of it in terms of somewhere between 1015% for next year, subject to an update at the end of the year, I think that would be a reasonable amount to go for. So not material amounts? David, do want to do the interest? On the interest rate one, it's interesting. When we talk to clients about investing, try to make it really clear that you need to keep some money to one side for all the emergency things that happen in lives you don't expect, and that's the cash element. Whether you earn a 025% or 05% or 075%, that is not a conversation about investment. When you're investing, you're investing for the longer term. And there, your expectations of return are much higher, albeit there are different risks. So a move from zero five to zero seven five on base rate is not going to alter that conversation, alter the demand for investments. A few more on down this side, if we may. Ashik Musaddi from JPMorgan. Just a couple of questions on investment performance. I mean first half has been a bit volatile, first quarter more volatile than second quarter. Any thoughts on how your active investment management investment managers have done relative to their peers? Any numbers on that would be really helpful. Secondly, I mean, given that you're adding KKR, which is more of an alternative investment idea, how should we think about the fees that you're paying to them? Is it similar to what you have been doing with others around 30 basis 35 basis points? Or is it more on the higher side? Any thoughts on that? Should we be does that lead to any sort of margin contraction overall? I know it could be very small because this is just one of the many 39,000,000 you have, but any implications for the forward looking margins? I'll let David take both of those. Good job he's not retired yet. I'll take the second one first. So KKR, no impact on margin whatsoever because we have our standard charge and then the external management fees added on to that. And so the KKR fee will be on top of our normal charge, margin, no impact. In terms of Q1, Q2, it's really interesting this year. So first quarter, negative second quarter, much more positive for markets. If you look at the fund performance and look at both relative in terms of peer groups and other competitor funds, This time last year, our overseas funds and global equity funds are doing really well. UK are behind the curve. This time this year, our UK funds were way ahead of the curve in terms of markets, but our overseas funds are about fifty-fifty. The interesting one to look at though is look at rolling three year, rolling five year client returns. It's been really stable over the last four or five years now, 7% to 9% in that sort of relatively tight band. That's still happening. And I think that's an important thing to focus on. I'm conscious of time, so we'll take two more questions, Barry and Andrew. We're around afterwards for coffee, but I know some of you need to get away. Andrew Keenan, Autonomous. Can I get back to the Blue Door thing? Could you be clear, what is the likely spend in 2019 over 2018 and then the drop off in 2020? I think that's what people are trying to ask for. And then secondly, a slightly more nebulous question. You talk about growth in funds under management related to the number of partners and things like that. But do you do any analysis of the amount of money that you manage for each customer and whether you can capture more of their assets? I suppose related to that, you were talking about the apps and stuff like that, which the clients can get access. Do they actually use them? Is there much engagement? Who can answer the app question? The partners there's a range of partners and there's a range of partner styles in their interactions with their clients. So some partners are very techy, use cash flow forecasting, use all the technology and work with their clients in a very in-depth and analytical, report driven approach to financial planning. Other partners don't do any of that and are more talk about concepts and savings and having a relationship and I'll look after you. And such a feely journey with the person, both trying to help the client achieve their financial goals. So who uses what is very, very relative to the actual style of the specific adviser and the practice they're in. So some are very techy, some aren't. The important thing is that we facilitate all approaches and styles, and we have that available. The important thing is that we want to see technology supplementing the partner relationship, not replacing the partner relationship. That's the key of our approach. And on the funds and management piece, what's interesting is that you see clients' funds and management with us increase with the relationship duration. So in other words, you look at the average investment in the first three years and look at it again three or four years later, you'll see an increase, not just because of fund growth. Actually, as the relationship develops and mature, we end up having a deeper relationship with our clients and it increases over time. Craig, do want to just You do the can't measure that at all, can you? We do measure some of those metrics, yes, do. We don't publish them, though. Craig, do you want to just clarify the Blue Door? Yes. So the figure that I'm referring to that will fall away in the cash result for the 2018, there's £15,200,000 net. Just for the sake of really simplistic modeling, let's imagine that, that 15,000,000 were to turn into £30,000,000 to the end of the year. And this isn't guidance for next year yet, but let's imagine that, that also repeated itself in 2019 as we complete the migration of bonds, then that same £30,000,000 would not reappear in 2020. Thanks. Okay. I'll just pass it back to Barry. Recall this is the last question, so I know there's a few other hands, but we are around afterwards and say conscious people need to get away. Barry? Thank you. A couple of questions. Barry Corn, Pemulke. Andy, you mentioned the not everyone takes the DB to DC transfer. It's not appropriate for everyone. Can just give us a flavor of what sort of percentage either don't get advised or don't take that switch, please? Paul, again, that's quite hard. So we have advice guidelines. So on a regular basis, our clients will be or clients will be having conversations with partners where the partner says, you should not even contemplate transferring a pension. We don't actually capture that information. So I can't give you an accurate one. What I will say is every defined benefit pension transfer we do has to be preapproved by an independent compliance team in Cirencester. Okay. And the other question I had was on the FSCS. I appreciate there's a timing issue this year round. But going back a few years, I think you talked about how high it was for specific reasons and hoped that it would come down. Any signs of that happening? Craig, your word now. I still hope it will come down. It's probably the main thing. I think the construct of what it is FSCS is dealing with has probably changed and evolved over the last few years. What we saw a few years ago was some very big obvious cases that required attention and bailing out. It's still not uncommon to read of organizations that you've never heard of that impose actually a pretty heavy demand on FSGS. So whilst I'd love to say that there'll be a beneficial impact of improvements in the way the world is working, I'm not sure I can point to anything like that. There are also some consultation papers out there that could reshuffle the way FSCS is charged. And I don't actually see there being a terrific amount of net threat or net benefit in that either. And I'm afraid other than that, there's not much more I can say. But I like to be positive and hope it stabilizes and come down. Okay. Thank you. Okay. Thank you very much, everyone. Appreciate there were a couple of hands we didn't get to, but we are here, as I say, if you want to come up and grab us. Thank you for coming today.