Liontrust Asset Management (LSE:LIO) — Half 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 they can be submitted at any time using 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 received during the meeting itself. However, the company can review your questions submitted today and publish responses, which is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, John Irons. Good morning to you. Good morning, and welcome to LIONTRUST company update in conjunction with the half year results for 2025.

0:45 I'm John Irons, Chief Executive of LIONTRUST and with me are Vinny Abrall, Chief Financial Officer, Simon Hildre, Chief Marketing Officer and Stephen Corbett, Head of Investor Relationships. At LIONTRUST, our purpose has always been clear to deliver long term value through disciplined active investment management and exceptional client service. These beliefs have guided us through every market cycle, every challenge and every opportunity. We believe in consistency of process because markets will always test conviction. We believe in transparency and integrity because trust is earned every day. And we believe in service excellence because performance alone doesn't build enduring relationships, partnerships do.

1:31 While it's been another challenging period for flows, there are more reasons for optimism looking forward. We see more demand coming through particularly internationally and from institutional investors. It is just taking longer than expected for the potential pipeline to be realized. We have won two mandates that are funded funding imminently worth a combined £250,000,000 an illustration of how long flows are taking to be realized, the process for these institutional mandates started around March of this year. Several factors are expected to drive demand for active management: lower expected market returns compared to the past decade, making alpha generation more critical valuation opportunities in The UK and European equities, particularly small caps and greater market volatility and dispersion, which favors stock selection over passive exposure and client need for diversification away from concentrated US mega cap positions.

2:36 LIONTRUST believes these conditions will create a more favorable environment for active managers over the next few years. If we look at the headline of the results, adjusted profit just under GBP 16,000,000 and still a strong capital position, which is reinforced by the up to GBP 10,000,000 share buyback that we announced with our half year results last Thursday. At this level, we do believe it's appropriate use of capital to buy shares back, given the confidence we have in the outlook of the business and the current valuation of the shares. Share buybacks do split opinions and I always want to divide share backs from the question of whether we have cash to make acquisitions. However, at current market levels of share price, if we find the right transactions to execute on, we'll be less worried about the finances, more about finding the right deal to do.

3:36 The other development I want to highlight is the fact it will generate further annual cost efficiencies of around GBP 1,500,000. Here's a list of the headwinds that we've talked about for the past year or so. Slide also shows some of the tailwinds that are emerging that add to our optimism and the outlook. Without dwelling on each of those, will pick up on a few of the points. Go to the next slide, Stephen. For much of the post global financial crisis period, quality was a dominant style, as you can see in this chart, as is up there. Right, with UK equities, lower interest rates, subdued economic growth and persistent uncertainty meant investors rewarded companies with strong balance sheets, high returns on capital and predictable cash flows and low leverage.

4:30 But that regime changed when inflation surged post COVID, interest rates rose sharply and the cost of capital increased. In that environment, growth also rolled over as long duration cash flows were discounted more heavily. Meanwhile, value, particularly financials, energy, cyclicals and commodity linked companies, benefited from rising interest rates and the recovery in global activity. The combination of higher discount rates and a cyclical upturn created one of the strongest periods for value leadership in over a decade. Quality hasn't collapsed, its fundamentals remain robust, but the market cycle simply flavored value. As now, we've to our next eyes, there is now a strong case building for a meaningful rebound in quality.

5:21 Peaking interest rates reduced the valuation headwinds for companies with long term sustainable cash flows, slower global growth increases the premium investors place on earnings visibility and resilience, normalizing inflation favors businesses with strong margins and pricing power, Broadening market leadership after a value dominated period historically supports quality as investors rebalance. Corporate balance sheet strength becomes a greater advantage as refining costs rise. Today's equity indices are more concentrated than ever. A handful of mega cap stocks now dominate returns. Passive investors are forced to keep buying the winners of the last cycle regardless of valuation or fundamentals.

6:11 That concentration creates hidden risk. In just a few names, a falter the whole index suffers. This is where active management can potentially shine. Active managers can diversify, avoid overvalued positions and tilt towards sectors or stocks with better risk reward. Goldman Sachs is forecasting lower annualized equity returns over the next ten years compared to the last decade. In this environment active management becomes even more important. Active managers can rotate across sectors, regions and factors and exploit structural or thematic opportunities and manage concentration risk that passive investors cannot.

6:59 Earlier this year, the Investment Association data showed a clear rotation out of US equities following the tariff announcement. What really stands out is the renewed confidence in European equities. Investors are recognizing that Europe offers compelling valuations, broader sector diversity and a strong base of high quality global businesses that have been overlooked during the long US bull market. At the same time, the move signals that investors are increasingly aware of the concentration risk in The US market and are willing to relocate capital when the risk return balance shifts. For active managers, this rotation is a major opportunity.

7:44 Clients are seeking thoughtful regional diversification and want exposure to markets like Europe where fundamentals and valuations are working in their favor. And that plays directly to our strengths across both equity and as well as our multi asset strategies. If we go where LIONTRUST are particularly well positioned in distribution and brand, if I hand over to Simon now to talk about the strength of the brand. Thank you, John. This slide is designed to show that the Lantus brand has maintained its strength. The stats on this slide illustrate that LIONTRUST has strong awareness, familiarity and engagement among both professional intermediaries and retail investors.

8:30 This familiarity and engagement should mean that it's more likely that clients will both potentially invest in LIONTRUST funds and retain their holdings. As this slide shows, LIONTRUST scores well for investors seeing and engaging with our videos and advertising, rating our client service and communications very highly and are very familiar with our brand. This has been supported recently by direct feedback we have received from our clients. At a recent client dinner for our multi asset team, for example, we asked all the clients what we could do better. The response was universally that our service and communications is excellent and is superior to other brands that they work with. We then held an investment conference with over 200 professional clients attending in Central London.

9:21 The feedback was extremely positive and there was wide recognition of the fact that we offer a much broader range than sustainable in UK equities and some attractive offerings that Stephen will talk about shortly. Thank you, Simon. The strength of the brand despite the challenges over the last few years is still there and high and engagement is good. On the distribution side, LIONTRUST has secured new institutional mandates and added strategies to our other by list across wealth managers, domestically and internationally, areas including South America, Australia, South Africa and The Middle East. The sales team has increased engagement with its Tier one clients globally, and the pipeline includes significant opportunities across regions.

10:14 International distribution eyes have further broadened this reach. These initiatives position LIONTRUST to deliver diversified solutions across equities, fixed income and multi assets and alternatives. You can see on the slide that we now have of the seven teams all are at a billion or above and therefore that sort of critical mass an element to be able to engage on a broad range with the client base. And if I hand over to Stephen for a little bit more detail on some of the strategies. Thanks, John. And again, as John said, taking a closer look at some of the great things we see day to day at LIONTRUST, we've lifted out nine funds in focus, which in addition to our sustainable and economic advantage funds, the sales team are taking out to investors.

11:04 Our seven teams are laid out here, all with active funds offering investors distinctive solutions to their diversified portfolios. Notwithstanding the headwinds for sustainable and The UK, the sales team have kept busy on the front foot with a raft of other funds at LIONTRUST, so looking at a few of them. The European Dynamic Fund continues to see inflows and has grown to £2,400,000,000 in AUM from being £1,600,000,000 a year ago. We've had a recent buy list and mandate wins for the fund from both international and UK clients. Managed by the team since launch in 2006, the cash flow solution investment process delivers a truly differentiated, high conviction portfolio of equally weighted stocks.

11:49 This is active management, high active share, delivering for investors. The European Long Short Equity Fund is one of our alternative funds, a flexible long short approach to European equities. It has delivered annualised returns of 7.9% with low volatility. Again, conviction, actively managed. Two actively managed bond funds have also been consistently delivering for investors. Surprise stars of the show at our investment conference a couple of weeks ago. The monthly income bond fund is a sterling corporate bond fund. It is actively managed with 69 holdings. That's compared to an average of two ninety one holdings for other funds in the sector, delivering an average income yield of 5.5% since launch versus its peer group average of 3.1%.

12:37 And like the rest of our stable, sustainable range of funds, it has the new SDR labeling. For the high yield bond fund, it's all about the income: actively managed, diversified portfolio of 77 issuers consistently strong performance, yielding 7% currently. The team there are carefully selecting high yielding bonds less sensitive to those exogenous forces. The fund is growing and attracting a lot of interest. The global innovation team have been delivering superb returns since we formed the team in 2019. The three funds have been growing in AUM, now over GBP 1,000,000,000, pounds and the team have been building on their reputation in the market through amazing client engagement and delivering their investment process. Crucially, they're not just investing in US mega cap companies, but instead finding those global innovators across the market caps.

13:28 They're nimble, sensitive to valuations and fully immersed in the world of innovators. Investors love meeting them and it's great to be able to take them out. The Global Equity Team was formed in May 2024 when Mark Horton and team joined LIONTRUST. Since then, the team have transferred across the Global Alpha long short fund that you can see there and maintained Mark's long term track record. They've also taken on the management of the Global Alpha Fund and now manage GBP 1,200,000,000 in AUM across their 10 funds. A hugely experienced team delivering superb returns for investors and gaining traction in the market. So that gives you a flavor of nine funds at the top of their sectors, gaining that traction in the market and keeping our sales team very busy at the moment. We continue to strive to make the business more efficient and efficiency improvements include the operating model overall, including outsourced trading and debt services to the Bank of New York and implementing a land for risk management and portfolio management.

14:31 If I hand over now to Vinay to talk a bit further about the operating platform. Thanks, John. So over the last few years, we've overhauled our operating model, partnering with BlackRock, implementing their enterprise portfolio management system in our front office, further expanded our relationship with BNY across front office and middle office support, and in the data ecosystem using BNY's Data Vault product. We've also outsourced fact sheets and regulatory reporting to Broadgate, thereby reducing our headcount. More recently, in the first half of this year, we outsourced our trading to BNY's buy side trading solutions team, giving us much greater capability and 20 foursix trading in global equity and fixed income.

15:20 Looking forward, our focus is on embedding the enhancements that we've made to our operating model to make sure that we make maximum benefit from them. I'll now move on to the financial results for the half year ended year ended 09/30/2005. So yes, I'll take you through that. Average AUM over the period was 22,400,000,000, which is down 17% half year on half year, with a revenue margin, excluding performance fee revenues, of 0.56%, reducing by 7% half year on half year, mostly as a result of margin mix. This resulted in gross profit of £63,300,000 down 22% from last year, and includes £200,000 of performance fees.

16:12 Administration expenses are also down, 14% reflecting reduced compensation costs, which are down 22, and other admin costs, including depreciation, which is down 1%. Additional cost efficiencies of circa GBP 1,500,000 on an annualized basis have been identified, should be implemented by the end of June twenty twenty six at a cost of £1,000,000 Our adjusted operating margin is 23.8%, which reflects that most performance fees are earned in the second half. And as a guidance, our full year adjusted operating margin will be in the mid-twenty percent levels for FY 'twenty six. Adjusted profit before tax is GBP 15,700,000, which is down 39% from last year, and adjusted EPS of 18.7%, down 38%.

17:03 Adjustments to the of 8,400,000, down 37% when compared to last year, and of that GBP 4,600,000 relates to the amortization of intangible assets. Expectation is that adjustments will be much lower in FY 'twenty six compared to FY 'twenty five. The Group continues to have a strong capital position, with net cash of £46,300,000 and surplus capital after foreseeable dividends of over £30,000,000 Under our new capital allocation policy, the first interim dividend will be of 7p, which has been declared and will be payable on the 01/07/2026, going XD on Thursday, November 27. And given the strong capital position of the group, the Board intend to put a share buyback programme in place that will purchase up to £10,000,000 of LIONTRUST shares to be phased over the period to the end of June twenty twenty six.

18:01 Thank you, Hugh. The past five years have been extraordinary. Value investing has enjoyed a resurgence, passive strategies have grown exponentially and fee compression has reshaped the competitive landscape. At the same time, quality growth and mid and small cap stocks have faced significant challenges. But cycles turn. History tells us that periods of underperformance create opportunities for active managers with discipline and insight. Passive investing cannot exploit inefficiencies or anticipate change. It simply follows: Active management, when done well, adds value by identifying mispriced assets and positioning for the future. We also believe sustainability and responsible investing will remain central to long term success.

18:51 These are not trends, they are imperatives. LIONTRUST is prepared for the challenges and opportunities ahead. We'll continue to invest in technology, talent and global distribution. We will advocate for reforms that strengthen markets and support growth. And above all, we will remain true to our core beliefs, consistency, integrity and excellence. Thank you for your trust, your partnership and your confidence in LIONTRUST. Any questions? So we'll go straight to questions then. The first one, do you intend to make use of share buybacks in the company while the share price is at depressed levels, adding shareholder value and supporting the share price. Vinay, I think one for you. Yeah. No, yeah, I think as I mentioned earlier, we've announced a share buyback program up to £10,000,000 which will phase over the period to the end of June.

19:52 I think that is part of our capital allocation policy. We'll be starting starting soon. We'll make further announcement in due course. Okay. Thanks, Vinay. We've been asked a couple of questions here about the share price and about it underperforming some the peer group. I can probably pick up on that. I mean in terms of the brokers that cover off, have eight analysts covering LIONTRUST. We have four buys, three holds and one underperform. In our consensus across those brokers that cover us, the target price is £3.83 Some of the traditional asset managers are beginning to turn and that's a good sign. I mean, we won't all turn in unison, that's for sure. Flows are the focus of the market, but we are focused on those inputs and we're focused on doing all the right things and flows will follow and hopefully the price will follow with that too. It's worth adding just more recently for UK's mid cap, the run up to the budget, we've certainly seen quite erratic trading in mid and small caps.

21:01 I think a bit of it is confidence. Confidence is very much on flows. You can see where groups which have had products in areas where flows began to come in have started to move certainly into better flow profiles and that is quite quickly reflected in share prices. I think earlier when touched on one of the slides showing that transition out of The U. S. If you've been investing globally and you are happy with the 45% weight in The US now that it's close to the north of 70% concentration in global portfolios, what's happened since the beginning of the year is you start to see people say where can I invest my money outside of The US? That follow through to us has been very much with the cash flow team in European product suite. It's been led initially with our institutional inquiries and we've had mandate or pre requests from Asia, Korea, Japan, The Middle East.

22:05 The two latest wins are both in Europe and from European investors. And so that pipeline is taking longer to come through. On the other side of that, our biggest asset pools have historically been sustainable and UK equities. Stephen said that UK equity market made small cap position has been more challenged and certainly, well you can see it in the lack of activity in the market this week ahead of the budget, so we all wait tomorrow where we get to with that confidence and that outlook. So I think it's achieved, when I'm looking at the pipeline, it's a lot stronger than it has been and continues stronger.

22:53 That's both the engagement we have through the distribution team we have, but also incoming where international investors are looking and in areas like European equities where the team scores really highly, we've got those inquiries coming in. I think expecting everybody all to move at the same time, given the sensitivity of flows in share prices, probably isn't there, but we're optimistic that the follow through from recent wins and the future pipeline will help us move forward. Thanks, John. Another question here, where are recent outflows focused and do you see any inflection in these areas?

23:39 I think well as I touched on Ubis answer UK equities remain challenged, small mid cap stocks do as well and with the sustainable side, if you've been away from energy or carbon emitting as a mang seven from that sort of restriction from a sustainable mandate, it's led to an underperformance there. Across from that, I'd say four our teams now are either in inflows or pretty much marginally flat with the business. So our two big growth engines of the past have been had more challenging there. But as I said, this sort of remarkable period of five years of value investing doesn't mean that quality small and mid cap is broken, but it very much needs some stimulus and concentration.

24:32 The underlying companies, I think one of the earlier charts I showed shows you where that their relative valuations are and the discount to historic trading ranges sit where that sits. And sustainability, it's still very much that long term theme, but I think strong performance in the fixed interest area. We put the fixed interest team into multi part of our multi asset side, We've bolstered the size of the funds there and that has already enabled us to get broader engagement certainly in the institutional marketplace where funds that historically had good performance but were not over a large enough size and now meet that size criteria and engagement is good with institutional investors going forward and some of the wealth managers in The UK are now looking to add those funds to their lists.

25:34 I think the frustration is just the time and the caution and hence is there, things are moving more slowly. If you can see what I see every day in the business and drive the determination of the people that are there, that's what helps fuels the optimism. Thank you. Are you considering new product launches to capture the shift towards active diversification from U. S. Mega caps? We always look at new products and pipelines. I mean, Mark Horton's team came on board. We recently looked with a long short global alpha fund. We're looking at an international version of that product. As I said, we've made enhancements with the fixed interest team as well. I think the old adage though of launching products to gain flows is much more challenged. There were an awful lot of products out there, in fact if anything there were too many products in the marketplace.

26:38 So really where our concentration is, is to make sure that the products we have, will be the engine of future growth and to make sure they are as robust and well positioned as possible to capture new fund flows. Thanks, John. I've got a question here about distribution. It's a long question, I'll try and summarize it. Thank you for sending that in. International distribution our efforts there and broadening out, how's that process going? Well, as I said a bit earlier, we've had inquiries from Australia superannuation filings, seven or eight inquiries internationally from Japan and in The Middle East where we've got good traction there.

27:32 In Latin America we've got good action with the South American pension fund market, specifically in Chile, and are looking into broaden out the range of products, specifically on the fixed interest side that are available to the Chilean pension fund industry. So it's taken a while, but again through this, you know, the big change or the big up stage has been the international investors have started to ask that question. If I'm not going to invest, you know, or have as much concentration in The US, where are the next opportunities? And it is Europe ex UK, I may add, that we're seeing those inquiries and putting in the extra resource internationally has enabled us to service and to with those inquiries better and to promote products.

28:29 You can see that in the short term with the two awarded yet to be funded mandates that we've mentioned, but a strong pipeline that follows through. Thank you, John. Question here, Hopefully, Phil, we've answered a chunk of this question through the presentation. But despite the general growth in markets this year, the share price is down. How does management intend to address the slide? Mean, everything we said, I mean, do you have anything to add to that? I mean, the the slide in the share price is it for management as it is for shareholders, really. I will all of us here are significant shareholders in LIONTRUST. Beliefs, you can see from the promotion of the share buyback. I said earlier, share buybacks draw opinion if you're buying back your shares, does that mean you don't have other things that you can augment the business with, rather than just buying your own shares in?

29:27 But I think that is a commitment sign from us that we believe that price is wrong, is undervalued, it offers great opportunities. What we all we can do though to make that is to execute on the strategy that we have in place and to turn the flows from the negative position they are in into put gradually into positive flows and that will aid and boost the share price and I should think significantly. Thank you, John. There was a question on AUM, which I think we've covered. If anyone has has any further questions, please email me directly and we can come back to you if you feel that you need some more color on anything we said, please let us know.

30:16 Okay. That concludes the presentation. Thank you very much for your support engagement. It's been a difficult challenging period, but we believe that by sticking to the core of LIONTRUST, we have reasons to be optimistic going forward. Thank you. That's great. Thank you very much indeed to the team presenting from LIONTRUST. Ladies and gentlemen, please don't close the session as we now automatically redirect you the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of management team of LIONTRUST PLC, we would like to thank you for attending today's presentation and good morning to you all.