Liontrust Asset Management (LSE:LIO) — Full Year Results

0:00 Good morning, and welcome to the LIONTRUST ASSET MANAGEMENT PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Simon Hildre, Chief Marketing Officer. Good morning, sir. Good morning. Thank you very much for joining the LIONTRUST presentation. This morning, I'm joined by John Irons, CEO Binnie Able, CFO and John Hussleby, Head of Multi Asset Investment. It's just under a week since LIONTRUST released their full year results.

0:48 John, I just want to start, though, by looking at the last few months. We've seen a reduction in net outflows. Could you talk a little bit about what's driven that and how you've seen the progress of LIONTRUST over the last few months? Yeah. Good morning, everybody. Welcome to the presentation. Looking at the half year, I mean, we said that, you know, our strategy would lead to a better shape of the business and a more diversified client base, and, you know, a positive business pipeline. And that strategy, that progress has been meaningful and deliberate. And you can see it in the results. We have broadened out our distribution which further to, according to 800,000,000 of institutional mandates.

1:35 And that, you know, has helped the overall flow reduction mix, reduced to a little under 300,000,000 for this quarter. Now, that's I suppose the way we've broadened out the business has provided us with a bet better mix of things. It's still been a very challenging period for for the industry, a challenging period for active managers. But in the past, we've talked about the heavy concentration, you know, in in markets and investors looking for areas in which, you know, active managers can add value. And as we've begun to sort of move through this year, we've seen an improvement in performance. You know, we've made funds now in the first and third quarter, you know, over a year first quarter over a year over three years.

2:26 That's three of the global products, strong performance of our European fund, and the fixed interest funds. And that sort of broadening out of our performance, and our product suite combined with a very strong with a brand identity and distribution franchise we've had has has that led to this improvement in flows. So we've sort of a challenging period, but one of our things was to look at how do we how do we broaden out our client base. We had an office in Luxembourg. We we closed that down. We've some got an office in Switzerland and set and sales discovery in Europe. But we've also opened up to an office in Abu Dhabi in The Middle East where the last time we were beginning to see the strong incoming demand from institutions, from consultants, but don't be initially based around the European product.

3:26 And inquiries coming in there, and that's where you see inflows coming. But those inquiries are from The Middle East, from Japan, from Asia. That pipeline continues to go and to develop. And but that you've seen that in the the in the flow profile improving. One of the other things we did was to merge the two fixed interest teams together. That gave it all sort of size, credibility. We transferred some of the assets that were managed by external managers to that team. And so to bulk that up combined with the strong performance those teams have have enabled us to get very much on the front foot there and, to start to begin to see quite useful institutions both in Latin America and, in Europe going forward.

4:21 The expansion of the distribution base is not to put any less emphasis on The UK retail market. It's still a heart and and the core business. But as we said from really last year, we began to see institutional investors look for areas to invest other than than The US. We think that's very much more of a leading indicator as to investor demand is going. That's continued to increase it, improve. And the the assets of the European product probably were around 1,000,000,002, two and a half years ago and it's standard 4,500,000,000, today. It goes to show that if we have the the the strong product and the right product, we have the roots to market and the brand strength to be able to to do that. The brand's maintained its resilience.

5:17 We've had two very challenging years flow wise. And quite often I think people get brands and performance caught up. So having gone through a more challenging period performance wise for the brand to stay in the position it has stayed in, and still one of the preeminent brands in the retail space of The UK, is a testament to the levels of engagement that we have with our clients. So John Husby, can we dive into we're going to dive into some of these improvements. Can we start with the capabilities and what we've done with the capabilities recently? Yes. I mean, as John said, we're not just waiting for markets to rotate back into our favor. We are actively continue actively broadening our investment capabilities. And that's because the environment has changed. We're living in a world now where globalization is contracting, fragmenting and geopolitics is very much reshaping the global supply chains.

6:16 Governments themselves are increasingly influencing markets through changes in taxation, changes in regulation and sort of policy. And at the same time, we're seeing sort of technology, particularly AI, accelerating across industries. So what's that doing? It's creating different winners, different losers in terms at a much faster pace than we've seen before. And what we're seeing is investors actively seeking diversification, seeking active decision making rather than relying just upon passive exposure. As John said, we looked within our capabilities within LIONTRUST, one of the things that after seeing the reset in bond markets, yields, obviously, clearly a lot higher than they are today than they were three, four years ago. We've seen demand for fixed income. We've taken the opportunity to integrate our two teams. It's already seeing some good results. This is our high yield bond fund that we're showing up on the screen. You can see good performance, top quartile performance against peers and outperforming their relative primary benchmarks as well. But we're seeing it beyond single strategy.

7:31 We're also seeing demand for solutions, so diversification from solutions. We're seeing in the wider market that people are moving away from individual funds and looking for solutions. What we've got on here is our range of blended and dynamic multi asset funds, again, showing a good performance against wider peer groups. And that performance is not going unnoticed. We've recently done a roadshow around the IFA market as a third of one we've done in the last couple of years, set very much attracting attention in that respect. You talked about the rise of passes, John, and the kind of momentum driven market. Does LIONTRUST have enough capabilities? Do we have enough board enough capabilities for that? Yeah, think we should look at that concentration. A lot of people, when we think about concentration in markets, they naturally think of The U. S.

8:25 And the MAG-seven. But as this slide shows you, that concentration is global. And it's global for equity markets where wherever you look. So a small number of stocks are driving a disproportionate amount of return of the market. So we have narrow markets. We have large winners. The challenge for passive investors the biggest risk for passive investors is if one of those large winners falls over, you're going to fall with it. So that's why we see a significant opportunity for active managers providing diversification, and that's where that demand is coming from. And we're seeing that demand across all areas and all sections. So this chart here will just show you the top buy flows, the top 15 secondtors which investors are looking at. The orange bars there show you, as I said earlier on, that demand for bond, but you can see diversification right you know, that investors are seeking diversification right across asset classes, right across geographies, right across investment styles.

9:36 So you need to have a broad investment capability, and that's what we have today. And we're actively seeking to basically keep that breadth going, whether it's by asset class, by geography or by investment style. This today is how we will be set up when we're looking across equities, fixed income, but also the solutions in terms of multi asset, sustainable and not forgetting alternatives themselves. We already have funds which are delivering in the current market conditions. European Dynamic is a good example of a fund, the process and the philosophy that can deliver as the market and the leadership changes from cycle to cycle. And of course, I mentioned AI and technology earlier on. We're going through a digital transformation.

10:30 AI is changing everything. We have in the global tech fund, which is shown here on the screen now. We have first quartile performance that we're very proud of, again, against peer groups and against our chosen benchmark. Today, we're completing the River Global acquisition. Can you talk about what that will bring in terms of capability as well? Yes. Actively seeking broader investment capabilities. And one of the best ways to show you what that brings in terms of talent and investment styles to LIONTRUST is to look at the chart on the right hand side of this. It's a chart that basically divides the market into investment style, value growth, momentum and quality in that regard.

11:21 You can see with the orange bubbles here, that's what River Global brings to us. Our most success in recent years has come in that quality growth space with basically the need for diversification, the changing styles we've seen, value coming back, clients beginning to buy value again, you can see that how in terms of a jigsaw, how River Global fits very neatly into that value space that we've got. And they've got some performance besides it. And you can see here that some good numbers, not only over the short term, but longer term numbers as well, which they bring with them as well. John, you talked about distribution, broadening distribution. How will River Global help us with furthering that? I'll touch on it earlier that our star, which had been one of the most small mid cap quality growth, which possible for a lot of the largest growth where when the market moved a little bit more towards value and momentum, we didn't have a wide enough, range of of products.

12:33 If you look at the River acquisition, you know, their style is very much more value orientated. It has very good global income of proposition there. And if you look back to one of the previous charts, John was showing, that's the one area in active management that in equities that has inflows there. So I think the the issue with River was it had very talented fund managers with good performance track records. But because of the corporate instability and the lack of sort of resource, it its its roots to market were were much more, limited. So you say the deal completes today. Our fund management teams are so we'll be in our office, as of tomorrow. But we've already started, that process of engaging with our sales team and our franchise to very much to get on front foot and to unlock the potential that we see in there. So that chart there, You know, the pipeline is clearly strengthening.

13:36 That diversification driven by the institutional and the international activities there. But the conversion still remains key with the institutional marketplace. There's a a longer lead in time to that there. But I also wanna stress, and it's not just the European franchise that was there. One of the larger mandates that we won earlier this year was with the sustainable team. The sustainable team much more challenged performance wise because of the types of stocks that are driving the markets do not necessarily fit into that sustainable, criteria. But for those clients that are committed to investing in in in that way, the strength of the franchise and the proposition, holds holds up well, And we we want a large mandate from an existing investor in that space. With The UK smaller companies side, there's ongoing interest there against the market in a separate place that that has halved in size over the last two or three years. So where where we can identify, you know, opportunities, we will decide you know, the the numbers on the right show you the level of, you know, activity and the intensity that the focusing and, you know, on the right types of clients and then the right types of contacts within that. And obviously, all of the client events

15:06 that are around that to support that. You talk a lot about international institutional, John, but obviously the vast majority of assets are still in kind of The UK retail wholesale market. What's going on there in terms of improving that? I think good engagement, you know, you're I think the broadening of the product suite with the global ink pad coming from from River, having more of the value propositions from River will help broaden, you know, if you like, the products we can engage with clients with. So I said, you know, the week The UK retail marketplace, like, economy is is more mixed in its outlook at the moment. But where you have good, strong, you know, investment for positions, there's still areas in which, you know, you can is that up? So a lot of the work John is doing and looking at, you know, the strength of the products at the position.

16:07 We have an excellent brand. We have excellent distribution in that retail marketplace. And I think by broadening out the range of products we have, we'll create further opportunities. Great. Vinay, turning to you and financials, can you talk about CAP which came in a year ago and how that's worked out? Yeah, I will do. And as we recap, we introduced a new capital patient policy last June and really it was as a result of what we saw in FY '25 so year ended 03/31/2025 where we paid out cents to pence and dividends compared to earnings earnings per share of $50.70.

16:53 So clearly not a sustainable market under the old policy. So we put in place a new capital allocation policy covered off as we probably do with our our cash and plus dividends, investment in the business, and share buybacks. And maybe I'll just talk a little about how we performed against that new capital allocation policy over the financial year. So come to the end of March twenty six, cash was healthy. We had 50 to £151,000,000 of cash on the balance sheet, and our surplus capital above regulatory requirements was just under $30,000,000 So the business was well capitalized. We've cleared a dividend of £19 for the full year, so £12 final dividend, which is just over 50% of our adjusted diluted earnings. So our earnings were 36.7p per share. So we're paying out 52p 52% of our our earnings. So, again, in line with our new policy of sustainable dividend.

17:57 In terms of investment in the business, you know, we look to use cash after we pay the dividend to put organic investment in the business. And an example of that, we've invested in reorganizing our fixed income capability, bringing that together in one team or two teams, and inorganic opportunities. So we've announced the River Global acquisition that we talked about earlier. We announced that at the end of middle of March. And although the consideration is being satisfied with shares, there's considerable cash spend in reorganizing that business and bringing it onto our target or trade model. And the final element of our capital allocation policy is share buybacks. So if we have excess capital, know, AMAT cannot attempt to do so, we will buy back shares.

18:49 In November last year, we announced a share buyback of £10,000,000, up to £10,000,000 to be paid by the end of June. So today is the last date. So so we bought back 3,700,000 shares. So it's about 5.8% of the company over that buyback. Given that share buyback and the dividend being down, can you talk about the financial strength for the business? Yeah. And so I'll I'll talk about that and maybe just go through the results that shows you, you know, how how this has formed and how runs in profits. It should have up you against failure. So so our revenues in the year got a 123 per mid. So down a bit of the previous year, a little bit to know where the market would make the news for dealing with a revenue margin of 55, not point 55%, but very unimagined.

19:48 Our admin expenses were down 16%. So, you know, staff costs down overall staff costs down 20% and other admin costs down 9%. So a very credible performance in terms of cost management and really we see the benefit of the cost efficiencies that we've announced in November 24, January 25 and November 25. So those cost efficiencies have been coming through and a good example of that is we've seen our headcount reduced from two ten people in November 24. We first announced the cost efficiencies to a headcount pre the River Global acquisition or completion of 170. So we've managed our headcount on our costs. So that's given us an adjusted profit of 30,500,000 which is pretty much in line with what the market was expecting. So down from last year on lower AUM, but very much in line with what the market is expecting with adjusted operating margin of 24%.

20:49 So which when you compare to our peer groups is a very credible performance in terms of operating margin which is essentially sends you each pound that we earn in revenue drops down to the bottom line. So that has led to a strong balance sheet. So Simon's question about strengthening the business. So I already mentioned we have 51,000,000 of cash on the balance sheet and we have just under 30,000,000 of surplus capital surplus on the balance sheet in terms of regulatory requirements. So the business is in strong shape and the capital allocation policy ensure that we have a distribution allocation capital allocation policy that is standard test of time and sustainable.

21:48 ET MANAGEMENT PLAYS. The growth is it's gonna come from diversification, which, you know, job fee wise in terms of distribution, client type of institutional and retail, and product growth with the the recent, River acquisition. The platform now covers value growth, quality, and momentum invested. So we have a much broader, suite of of of products to suit clients' requirements in Alen that sort of materially diversifies us sources of performance, and and price solutions. And, you know, John touched earlier on the multi asset side, it would change the risk profile of funds three years ago. That is, you know, sort of build improvement, in performance, and that this is going to be now flows into small all inflows. So it's about focusing on what we've got, looking to the opportunities to broaden and diversify that investment capability, and it can exploit those opportunities and the expansion, you know, of of the client base.

22:59 It's improving the mix, you know, of of flows and you can see that, you know, it's it's reduced there. It's not a, you know, precise inflection point, but, you know, the underlying business has got a groovy drop of this. The pipeline is expanding. There's, you know, broader engagement across a a more diversified client interest. I think also, I think, you know, with with the app with the recent river acquisition, you know, clients, consultants are now seeing M and A not as a, you know, a disruptive influence on a business, but a way of getting things done, a way of moving to, you know, point of what you need, how how can you move forward. The industry is still, you know, highly fragmented, with different capabilities, but it's distribution that you need, burn strength, scale.

23:54 The investments we've made in the operating platform of the business, from outsourcing trading to implementing Aladdin, to middle and front office with Bank of New York, to the adoption of that data vault for in a depth analysis going forward. So we've got a very strong, you know, platform in place. We combine that with, you know, excellence in the brand and the distribution. This broadening out of our investment capabilities makes me more confident that, you know, going forward, we could continue to improve the flow profile. Great. Thank you. We have got some questions that have come in.

24:43 Obviously, a reminder to everyone, if you do want to ask a question, just please submit it and we will try and answer them. First question, just picking up on flows, I mean, this is a question I think you must get asked a lot. When will we actually get back to positive? I think it's a question of looking at the underlying drivers. If you think about a year or two years ago, outflows were made up a lot about of The UK book and that all mid cap space. You know, that that business has has gone from, you know, billion to around 2,500,000,000 now. So by definition, you know, the the flow the flows was have slowed down down on that side of the business. If I look also, you know, at the opportunity set, the fact that I mentioned earlier, we have a couple of, institutional inquiries in that small cap space. There's no denying. You can see it from some of the M and A activity going on either equity or looking to take out some of the talk at this. There's no denying that the value sits But the market is the market is very and we have, you know, out to the lowest historic weightings.

26:00 In fact, global you know, all you global international funds have a bigger weight in The UK now than, you know, we we have in our domestic market. So I think one side there, sustainable is still challenged despite the win with the institutional mandates and the quality of the franchise is there. But, you know, that is along to trend and theme and no denying that continues to piece it in pause. You know, what we've seen, you know, with this heavy concentration in markets is when investors have put products together before, you put a value manager with a growth manager and it's a bit like a rolling ball, you know, at any one point in a market cycle, you know, you've got that insurance.

26:55 Over the last sort of, you know, two years, the delta has been so big between those styles that clients have moved away from that because if you're not in the right place, the detraction, you know, to the portfolio is severely punishing. I think, you know, we go back to what John was saying where we start to get, you know, risk now is that concentration. We are beginning to see is that people are looking to active managers who can involve alpha in areas where that you have got these deep discounts. So I think the environment's getting better. I think the institutional marketplace has certainly, you know, identified that and is looking to search for managers going forward.

27:42 I think the retail side will take time to catch up because it it flows. It's interesting if you look at the data now. You know, we've got three years of a value market. And if you look at the top performing funds that are bought by retail investors, they're all in that value space. That's to show that, you know, what do they do? They follow the numbers. So for us, it's about strength of our marketing, it's about strength of our distribution and getting and targeting the client base to get that message out to those clients where we book the value. And I think that connectivity was put in place. So I think the outlook is improving, but as I said earlier, you know, it's not an inflection point. I just think we've got a better mix and a broader suite, you know, of of both product and product type to help improve that picture and to continue to drive it for.

28:37 Vinay, we've had a question really about alignment. It's about remuneration for for directors given the cut in dividend and the and the outflows. Can you talk about that? Yeah. No. Yeah. I think we have a strong alignment between the executive directors and shareholders. Both John and I hold, I think, about 1.7% of the company in shares. So we're aligned in terms of share ownership. In terms of remuneration and variable remuneration, obviously, the dividend is down just over 70% to bring it more in line with our earnings. And the variable remuneration for the executive directors is down 100%. So I think there has been strong alignment there. We've got a question, obviously, partly in light of River Global, but are we looking at further M and A opportunities?

29:31 And what do you see as the opportunities? And how do you get the economies to get all those synergies out of that? I think M and A has always been part of DNA inside of LIONTRUST. Because the first and foremost, it's the organic growth. The things that management team can affect on a daily basis happen inside of our business, so that's got to be our priority. John was talking about, you know, what we're doing on the Andrew side, and you've seen what we've done with the brand and distribution. But where we've used MANAGEMENT it's if you like to fast forward or take provide solution for us either in sort of manufacturing investment talent or broadening of distribution groups.

30:18 If you look at the backdrop or the background of the last three years, it's been a very challenging environment, you know, for active managers specifically, and that in itself throws up opportunities. It's very difficult to grow your business if you haven't got a strong financial position. If you you know, over the last three years, we've continued to be able to invest in the operating platform to put a lot in it, to add to also our trading. We've continued to be able to invest in the department and broaden the distribution routes and marketing. If you're having to cut your cost to cut back to to level, it's very difficult to keep that engagement with clients move forward. River was a classic example of that. Good strong underlying performance, but starved of the oxygen of brand and and and distribution.

31:14 So from point of view, I think opportunities are there. I think scale does become more important now. I think the speed at which we've been able to integrate River and to bring forward that integration shows you the strength of our underlying platform and the operating efficiencies, we can make of it. As I said in the past, I mean, I looked at a bit of a block and consultants and clients now are very much looking at as part of that strategic direction and that's when and how does it get you to the right place, the solution. The key though is always to make those decisions that to know you do day one and not to get caught in that sort of caught by rubbing decision. So to have a clear vision and a clear outlook for the business and to be brave enough to make those decisions going forward.

32:08 We've got a question that could be answered by either of the Johns here. It's really about how do you track money flows into active rather than trackers, the passives. Maybe John has to be Yeah. I mean, as I said, we have the my role as head of Aussie Asset and selecting funds is sort the key roles that or data that we look at on a on a regular basis. So that data is available. You can see, course, not only what asset class the flows are, but then you can start breaking it down into the sectors and into the funds. And then you can break between active and passive. So you can see those flows. And it's important to see basically where the money has come from, where the money is coming today, but also to try and, you know, make a call of perhaps where the flow is going. John said earlier on, you know, it never in this industry, it never ceases to amaze me that, basically, how eventually, you know, the flows sort of attract the winners, but it does take time. Value has been outperforming.

33:13 You know, you could see an inflection point in value in most markets, part of The US. Obviously, The US market hasn't quite got the message yet. But in most markets around the world, value has been outperforming for two to three years. It's only now, particularly year to date, the numbers are quite strong year to date, we're starting to see the flows into value. Okay. Thank you. Thank you for the questions. John, you've obviously covered a lot of ground but do you want to do a short kind of concluding remarks? It's not an inflection point, but I think a lot of the strategic sort of implementation that's taking place last year, and we're beginning to see it now coming through in that flow.

33:59 You know, the underlying drivers of the business are improving. You know, we have a broader pipeline and that pipeline, you know, continues to grow. We've got broader engagement, you know, across the client base, not just The UK retail but internationally as well. And we're beginning to see, you know, more of the old order client interest in the types of products as an underlying improvement in, you know, the performance, the addition of the river funds gives us a broader suite to move forward to. So I think still, navigating through, you know, a difficult environment, but with a much stronger underlying business to achieve success. Thank you. And thank you to everyone watching. That concludes the LARCHEST presentation.

34:46 That's great. Thank you for updating investors today. Can I please ask investors not to place the session and should now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This may take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.