I'd now like to hand over to Caroline Waddington, Chief Financial Officer, for opening comments.
Thank you. Good afternoon, everyone, and thank you for joining the call. I'm here today with Sophia Johnson from our investor relations team. Before I open the floor to questions, I want to spend a couple of minutes reiterating the key points about the new simplified framework for reporting financial performance that I'm very pleased to have announced today. Importantly, nothing about our profitability is changing. There is no change to our financial business model, anticipated profitability, financial ambitions, or shareholder returns guidance. The new framework is purely a change in how we present our results, with the aim of making them easier to understand and better aligned with our financial business model, charging structure, and statutory IFRS reporting. Our key profit metric is being renamed from the underlying cash result to adjusted IFRS profit after tax. This is the same number, just under a new label.
As a result, we expect no material change to consensus profit expectations when you refresh your models to accommodate our new framework and associated guidance. Whilst the bottom-line number isn't changing, the way we present financial performance to get to that bottom line is different. From half year 2026 onwards, we will replace the current cash result with an adjusted IFRS profit and loss account, which will show income and expenses separately and before tax. We're also simplifying parts of our financial review to make it easier to follow. To make the best use of this call for those on it, we'd ask that questions focus on the principles of our new framework.
Of course, we recognize that you'll need to make changes to your models to adapt them to our new framework, and you may have detailed modeling questions as a result, and the IR team will be happy to assist with these offline. With that, it's over to the operator for the first question, please.
Thank you. To ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. Our first question today comes from Nasib Ahmed from UBS. Your line is now open.
Hi. Thanks for taking my question. Firstly, on the 131-basis points margin, I'd probably call it a revenue margin. If I gross it up for gestation FUM, let's say 25% is gestation, I get 175 basis points. Why is that higher than the 167 that you're charging under the new structure? Can you just kind of square the math there? Then kind of secondly, just on below the line items, below the IFRS profit after tax, I don't think there's any changes there, but can you just confirm that in terms of how we model that? And just related to that on the DA
Yes
Yep.
I think if you gross up for gestation fund, it's about 15 basis points, actually. I think that's the amount. That would be that. I wouldn't get the 175 you said whatever number you said, basis points. We think it's less than that. Then we have some tiering, and we have some investment cost differences. There are some different elements in that, but not the gestations. The gestation is the major difference, but not all of it. Maybe that's something you can go through with IR. Maybe you can go through that with IR.
Yeah, we can definitely
Yeah
go through the calculations for sure.
Yeah. On the other side, there is no difference, no?
No. No difference. The reconciling items between adjusted IFRS and pure IFRS are exactly the same as they were between the cash result and IFRS.
Sorry, I was going to ask on DAC and DIR, does that just run off over time?
The DIR does. The DAC, I think, is going to remain as an accounting concept. The DIR was very much related to our gestation fund and that six-year-
Yeah
holiday on fees, charges.
Yeah.
Yeah.
Perfect. Thank you, guys.
Thank you for the question.
Thank you. The next question is from Ben Bathurst from RBC. Your line is now open.
Hi, both. Thanks for taking my question. Mine is on the IFRS expense note and that reconciliation from adjusted to IFRS expenses. I think it's Slide 20 of the pack. Completely appreciate that nothing's changed here. Directs calling out some specific line items, but there's also an other line in that reconciliation. Is that offset by some credit items? I just wondered, are there any other items worth calling out sitting in that other line that you think should recur and we should be aware of? Thank you.
Yeah, I would say, actually, we don't have that much depreciation from our PPE. We don't have a lot on our balance sheet. I would say we don't have a huge amount of that. That's not significant. The main thing in other expenses are our sort of complaints costs and our donations to the foundation and things like that. There's nothing particularly major. It's just all odds and sods, nothing particularly material that doesn't fit neatly into the other categories.
Okay. The depreciation amortization is in there, it's just not material, would be the point.
I think it's actually within. Sorry. I've been prepping so many questions, I'm getting my brain in. This was not one of them. I think it's within people, property, and technology costs. It should be within that, I think. I think that's where we would find it.
Yeah, it was always recognized in controllable expenses previously.
Yes, it will be.
It will be
Yes, it is. It's within people, property, and technology. It's pretty small for us, because we don't have a lot of technology capitalized sort of software on our balance sheet. We don't have a lot of intangibles, so sort of through software and things like that. It's small, hence my brain having to think about it.
Understood. No, that's clear. That's very clear.
It's above the line. That's very clear. Thank you very much for that.
Yes, it is.
Thank you. The next question is from Gregory Simpson from BNP Paribas. Your line is now open.
Hi there. Maybe a few random ones here. In terms of the three-basis points movement you are talking about, clearly that is going to be quite influenced by the gestation runoff, but you are not going to disclose that going forward. I guess the question is the three basis points going to be quite a similar level each year, three basis points? Are you going to kind of guide each year, will it be two or four? Just want to square that, how smooth that margin increase is.
I will start with that one. You see, I stopped you asking multiple questions. I will let you ask another question in a minute. On the three basis points. Obviously now we are using total FUM, which helps to simplify everything. That means you do not need to worry about the amount that is actually maturing. It is linear, but not totally linear. It does act in a sort of linear way, but not 100%. What we will do every year is the circa three basis points will stand every year. What we will do is we will give you the range of sort of where we think the average margin will be every year. We will reset the 47-49 basis points every year, and then it will be a circa three basis points rise every year after that.
that's what we will be doing in our guidance, if that makes sense.
Yeah, okay. Got it. A few smaller ones, but just, you're excluding share-based compensation from your adjusted figures, just to confirm that's the case and maybe the rationale.
Yes.
The second one would just be-
Yeah, go on
just to confirm the Asia and Rowan Dartington revenues are all in your income from FUM kind of topline, right? The cost of the-
Yes
yeah.
Yes. We've taken the opportunity just to simplify everything. I'll start with the last one. Yes, we've taken the opportunity to simplify everything and put things in their type of income rather than splitting it out by Asia and DFM. Yes, it's all in the income from FUM and, sorry, profit from FUM, profit from inflows and PPE. That's where we split it out to. Yes, on the Asia and DFM. On the second one, the share-based compensation, it's the equity settled is actually excluded from the cash results. Number one, that's aligned, sorry, the adjusted IFRS now, but was the cash result. It's aligned across both. We've done the same thing in both. Just the rationale for that is that we can do that via either, obviously, issuing shares or purchasing shares. Only one of those impacts cash.
We do adjust it out, because obviously there is that it's not necessarily a cash item. When we do that, we will do that out of our retained distribution. Out of the 30% we retain; it would be part of that if we do then purchase shares for that. That's the rationale for it, and it is consistent with our previous treatment under the cash result.
Okay, got it. Thank you.
Thank you.
Thank you. The next question is from Charles Bendit of Rothschild & Co. Your line is now open.
Thanks. Hi, Caroline. One question on investment return and net finance income, which I think is driving GBP 121 million out of the GBP 600 million of adjusted PBT. I think the slide says it reflects the income accruing on shareholder investments and net interest paid on borrowings. Can I ask a couple of clarification questions? One would be, can you remind us what the investments are that are generating the GBP 86 million investment return?
Yes.
The second is, if I think about the finance income, is that net interest margin that you're generating on the roughly GBP 9.6 billion in cash that's reported with your FUM, and where I'm coming from is I'm just trying to understand the net interest margin you're generating on client cash, and the process you go through when thinking about idle cash that sits in SJP accounts versus being sent to Flagstone, which I think is excluded from FUM.
Yes, it is. I'll try and take that. The investments that we talk about is where we have put our working capital shareholder funds, money market funds. That's our investment return. It is literally a money market fund, nothing more exciting than that. On the second one, on the sort of finance income, this is predominantly interest on partner loans, and any cash and cash equivalents that are ours. We don't make any interest on client balances. In fact, what we generally do with client balances is we invest them in money market funds for them. We don't have, which other people will have, where we make money on cash of our clients. We don't have that situation.
All of that is our shareholder money or working capital money effectively, either on money market funds, which comes in the investment returns, or cash, and then obviously the interest we earn on partner finance comes into the finance income.
Yeah. Nothing at all to do with the GBP 9 billion sat within our FUM.
Yes. Okay. Can I just follow up on that? On the client money notice section of your website, it says that the cash that's placed by clients gets placed in money market funds or bank accounts with treasury partners, and that there was a rate change effective 1st of January where a rate on cash was being reduced from 1.7% to 1.6%, which I think would be different from the return that a money market fund generates. Do you know what this is referring to? It seems like there's a net interest margin there somewhere, but maybe I'm misinterpreting it.
We'll get back to you on that one, actually. We'll get back to you on that.
Okay. Sure.
Off top of head, no. Yeah, we'll get back to you.
Okay, perfect. Thanks.
Thank you, Charles.
Thank you. The next question is from Andrew Crean from Autonomous. Your line is now open.
Hi there. I just wanted to ask, as we go down through the different lines, mainly expense lines, can you talk us through areas where you think there is seasonality between first half and second half that we ought to think about?
Where would there be seasonality? We don't have a huge amount of seasonality. I think probably our main one is within the FSCS, and some of our regulatory fees, where those payments come out in the first half of the year. We do tend to get some more of that. We don't tend to, certainly in our expenses, have as much of that sensitivity. I don't know, Sophia, if you've
Last year was a little bit of a quirk, where we had higher expenses in the first half of the year compared to the second half.
That's true.
It was only very marginal; it was something like 50.5 in the first half and 49.5 in the second half. Typically, we have a slightly higher H2 weighting, but by similar amounts, only just over the 50%. Apart from FSCS, everything else is pretty even, in general.
Well, I just want to take you up on that. Performance-related costs were GBP 26 in the first half, GBP 39 in the second. Other expenses, GBP 28 going down to GBP 18. People, project costs, GBP 256, GBP 269. I can see that that's just general progression. I'm just thinking on the income side, is there anything on the income from inflows or from FUM which seasonally might be different? I'm just trying to think about when doing the first half 2026 forecast.
On the income side, you'd expect us to move up within the 47-49 basis points profit from FUM range over the course of the year as gestation FUM unwinds across the year. Yes, you'd expect the profit from FUM margin to be higher in the second half than it is in the first half. That is driven by the income side rather than the expense side in general. Of course, there'll be some fluctuations, so how we accrue for our bonuses in the performance-related line may vary as our assessment of business performance changes over time. In general, a pretty even split on expenses is where we would suggest you are.
Okay. Great. Thanks.
Thanks, Andrew.
Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad now. The next question is from David McCann from Deutsche Bank. Your line is now open.
Yeah. Afternoon. Thanks for taking my questions. Two from me, please. Caroline, on the pre-recorded remarks this morning, you were walking-
Oh. We've lost David
down to the 131 that you're disclosing. Sorry.
Sorry, David, we just lost you for a second there. Can you just start your question again, please?
Yeah, of course. Yeah. Sorry about that. On Caroline's recorded remarks this morning, she mentioned that there was obviously a gap between the 167 for investment bonds and pensions and the 159 basis points for unit trusts and ISAs per the disclosures, comparing to the 131 that you're disclosing within the data today. Obviously, much of that is going to be the gestation difference. If I do three times six, three basis points times six, that's obviously about 18 basis points. It doesn't explain all of it. I think it was also mentioned that the actual fund selection will have a bearing on that. Can you just do a waterfall for us, if you like, between what's roughly 160 basis points down to the 131? How much of that gap is gestation? How much is other stuff?
If you could sort of break that out by category, that'd be great. The second question sort of relates to the same thing. Of the three-basis points guidance of increase in the effective revenue margin, are you assuming any underlying fee compression within that? Or is the three basis points solely due to the gestation unwind?
On the first one, Sophia, with the waterfall.
Yep. Getting it up from the headline rates of 167 for bonds and pensions and 159 for ISAs and unit trusts down to the 131 we've actually reported. As you say, the most significant thing is gestation fund. The next largest thing is the variation in investment charges. Those headline illustrative rates just give an example for one particular fund, but we have quite a lot of variation across our investment portfolio. Depending on where clients have chosen to invest, the charges are quite significantly different. We also have things like tiering going on in there, which brings down the margin. We'd expect over time, as more of our gestation fund matures, that that margin will trend upwards.
Can you put some rough numbers on those things?
In the same way that our profit from FUM margin, we suggested we'll increase it around three basis points a year, but we'll give you formal forward guidance for one year in advance. That three basis points would also apply to the income from FUM line because gestation FUM comes through free of any additional expenses in the way it always has. A 3 basis points increase due to gestation is what we'd expect out of 2031 annually.
On the fee compression, I think the way we look on this is obviously the same way we've always looked at it. We think advice is something that with the scarce resource in the industry is something that will be one of the latter things to see any compression, if any, because of the obvious lack of advisors in the market. I think on the investment margin, that's something we're looking at, and we're permanently reviewing that and seeing what that passes through to clients. On the product, we obviously look at that. As we get economies of scale, that may well be something that we'll look at as time goes on and we get those economies in scale and what we do with them, and that's where we probably see it happening. Within our margin, we obviously have some degree of conservatism in for that.
I think that's how we sort of see it going as time goes on.
Our old 43-45 basis points.
Does the three basis points, is that exclusively the gestation unwind effect, or is there anything else in that number?
That is the gestation unwind effect.
Yeah.
Thank you
43-45 bps margin range, that did assume, as you move out to 2031, that we could give up a bp or two on product charges. So, to get down to the same level of profitability, because the cash result is exactly the same as adjusted IFRS profit after tax, we've got that same level of prudence in our profit from FUM guidance range too.
Thank you.
Thanks, David.
Thank you. We have a follow-up question from Nasib Ahmed from UBS. Your line is now open.
I was just picking up on what Sophia said on the three basis points. Your profit from FUM growing at three basis points, expenses aren't growing, so it seems like the income from FUM is going to grow at less than three basis points, right? Because you're getting operating leverage, correct?
No, we think that it will be three basis points on income from FUM and on profit from FUM.
Okay.
Yep.
As a final reminder, if you'd like to ask any further questions, please press star followed by one on your telephone keypad. That concludes our questions for today. Sadhna, I'd like to hand back to Caroline to close the session.
Thank you. Thank you, everyone, for attending and listening and asking your questions today. I want to leave you with my key takeaways. First, our new framework provides a simpler, clearer way of presenting the financial performance of our business. Second, there's no change to profitability, just a better way of showing the key drivers behind it. Third, we'll be implementing the new framework for our half year 2026 results, which we'll announce on the 29th of July. Thank you all for your questions, and please do get in touch with our team for any further queries. Thank you.
This concludes today's call. Thank you for joining. You may now disconnect your lines.