REC Record Plc

RECORD PLC

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2024

Continued AUM growth and launch of €1bn Infrastructure Equity Fund

Record plc ("Record" or "the Company"), the specialist currency and asset manager, today announces its unaudited results for the six months ended 30 September 2024 ("H1 FY25").

Financial headlines:

·      Continued AUM growth and launch of €1bn Infrastructure Equity Fund

·      4% growth in Assets Under Management ("AUM") during the period to a new high of $106.0bn (H1 FY24: $84.5bn, H2 FY24: $102.2bn)

·      Revenue down 2% to £21.1m (H1 FY24: £21.5m) in line with expectations following a restructuring of a large client mandate

·      Profit after tax attributable to Record plc shareholders of £5.0m up 5% (H1 FY24: £4.7m)

·      Basic EPS attributable to Record shareholders up 4% to 2.58 pence (H1 FY24: 2.48 pence)

·      Interim dividend maintained at 2.15 pence per share (H1 FY24: 2.15 pence per share)

·      Strong financial position with net cash of £14.3m (H1 FY24: £14.8m) and shareholders' equity of £27.7m (H1 FY24: £28.5m)

Key developments:

·      Launch of Infrastructure Equity Fund with over €1.1bn in long term commitments to be deployed over the next 3 years

·      Currency Management resilient with AUM and management fee growth, and performance fees of £1.6m (H1 FY24: £1.5m)

·      Expanded the team at Record Asset Management bringing a track record of origination and structuring

·      Hiring of in-house IT team completed with clear development roadmap

Commenting on the results, Jan Witte, Chief Executive Officer of Record plc, said:

During my first 6 months as CEO of Record, the business has again demonstrated the strength of its unique product offering, growing AUM to a new record of $106.0bn. We have continued to focus on delivering best-in-class solutions to clients in our six core product areas, and we are seeing increased demand for our Hedging for Asset Managers and FX Alpha products in particular. I am especially delighted to announce the launch of our Infrastructure Equity Fund. This is an important milestone in the growth of our Asset Management offering, which will deliver sustainable long-term revenues and where we continue to develop our pipeline.

We have also made important investments during the period. We have expanded our Asset Management team with new hires bringing origination and structuring experience. We have rolled out a new technology roadmap under new IT leadership; and we have signed the lease on an exciting new office space providing a fantastic, modern workplace for our people and our clients.

Trading for the full year remains in line with the Board's expectations.

Analyst presentation

There will be a presentation for analysts at 9.30am today held via a Zoom call. Please contact Elliot Hance at h2Radnor via ehance@h2radnor.com for further details. A recording of the presentation will be made available on the Group's website at www.recordfg.com.

For further information, please contact:

Record plc                                                                                                                               +44 (0) 1753 852 222

Jan Witte - Chief Executive Officer                                       

Richard Heading - Chief Financial Officer

h2Radnor                                                                                                                                +44 (0) 2038 971 830

Elliot Hance

Panmure Liberum                                                                                                                 +44 (0) 2078 862 500

Corporate Broking: David Watkins

Corporate Advisory: Atholl Tweedie

Chief Executive Officer's statement

Strategic progress

I'm pleased to report the results for the first half of FY25, my first full six months as CEO of Record. Our renewed focus on our core suite of products has delivered progress towards each of our strategic objectives: organic growth, quality of earnings, and operational excellence.

Record's market position remains strong, with total AUM reaching a new high of $106.0 billion at the end of the period. This is a 4% increase from the FY24 year-end, and a 25% increase ($21.5 billion) over the past 12 months. Our flexibility and expertise in structuring unique solutions allows us to respond to ever-changing markets and client demands, and creates a solid foundation for sustained organic growth.

The first half of FY25 brought challenging conditions from the perspective of an FX manager due to reduced divergence in monetary policy globally. Additional geopolitical uncertainty, particularly surrounding tensions in the Middle East and numerous elections worldwide, has provided a headwind in emerging markets.

Against this backdrop, Currency Management AUM increased by a further 6% since H2 FY24 to $103.5 billion, and we are seeing increased demand for our Hedging for Asset Managers and FX Alpha products in particular. We onboarded a large new FX Alpha relationship during H1 FY25, and there is a solid pipeline of opportunities we expect to develop over the second half of FY25. Hedging for Asset Managers continues to see growth from both new client wins as well as the expansion of existing relationships as clients launch new funds supported by our services.

We are building a team and track record of delivery that will allow us to continue to grow our Asset Management business, offering solutions and products that complement our core Currency Management business. Overall AUM in Asset Management fell during the period, however the Custom Solutions product category is now comprised almost entirely of our fund solutions, all of which are long-term, and where we are better positioned for future growth.

People

During the period we have expanded our Asset Management team, adding expertise in deal origination and structuring as well as building the operational support needed to support growth. Under new technology leadership, we have also completed the hiring of an in-house development team.

We aim to hire exceptional people throughout our business and provide opportunities for our talented colleagues to maximise their potential, by providing support in the form of internal and external coaching, and learning and personal development, such as by studying for professional qualifications.

We have also recently signed the lease for our new London office. This is an important investment to ensure we continue to attract and retain the best talent and provide a modern, state of the art working environment to promote collaboration and operational excellence. It will also be a fantastic space into which to welcome clients.

Operational excellence

At the end of FY24 we took the important decision to bring our  IT infrastructure and development teams in-house. During the period we have rolled out our new strategic IT development plan with a clear roadmap that aligns our technology investment with our operational priorities. That has been achieved at a cost run rate slightly below the second half of last year.

Private Infrastructure

Following the successful launches of our GP Stakes and Protected Equities funds last year, I am excited to announce the launch of our much-anticipated Infrastructure Equity Fund with initial commitments totalling approximately €1.1 billion. This Luxembourg-based fund offers investors access to stable, inflation-adjusted returns, while providing diversification across sectors such as renewable energy, data infrastructure, transport, and network utilities.

The fund will primarily invest in minority equity stakes of infrastructure assets worldwide, with a particular emphasis on brownfield assets, which are existing infrastructure projects that require renovation or improvement. The fund seeks to identify high-potential opportunities and deliver returns that outperform traditional bonds over a multi-year horizon.

Outlook

We currently see an elevated degree of political and economic uncertainty which we expect to persist for some time and to include periods of currency volatility. These are conditions in which we expect to see increased client demand for our risk management services and may present good opportunities for return generating strategies.

The commitments to the Infrastructure Equity Fund will be deployed over the next 3 years, with the first investments expected towards the end of FY25. Record will earn management fees on deployed funds at the upper end of the range of what we have historically earned on Custom Solutions mandates, and the minimum holding period of each investment is expected to be 15 years.

Our expectations for the full year FY25 are unchanged. We expect the H1 FY25 run rate of management fees and expenses to continue through H2 FY25. We will provide updated guidance on our medium-term growth plans when we announce our full year results.

Jan Witte

Chief Executive Officer

14 November 2024

Interim management review

AUM development

AUM composition by product and movement analysis

AUM finished the period at $106.0 billion, up $3.8 billion since the start of the period, an increase of 4% (FY24: $102.2 billion).

Record's AUM is affected by market movements because substantially all the Passive and Active Hedging, and some of the mandates within Custom Solutions, are linked to equity, fixed income and other market levels. Market movements increased AUM by $1.1 billion in the period ended 30 September 2024.

Approximately 77% of the Group's AUM is non-US dollar denominated. Therefore, foreign exchange movements have an impact on AUM when expressing non-US dollar denominated AUM in US dollars. Foreign exchange movements increased AUM by $4.9 billion in H1 FY25.

As at 30 September 2024, the split of AUM by base currency was 57% in Swiss francs, 23% in US dollars, 8% in sterling, 8% in euros and 4% in other currencies. Fees are earned in the base currency of the AUM.

Currency Management

Passive Hedging AUM increased to $68.3 billion driven by weakening of the US dollar against the Swiss Franc, the underlying currency for many of our passive hedging mandates. Excluding the impact of FX, Passive Hedging AUM decreased by $1.9 billion from a combination of outflows and lower asset values. 

AUM movements in other products were driven primarily by flows. Active Hedging AUM increased to $16.8 billion, a 2% increase with net outflows more than offset by positive market movements. Hedging for Asset Managers AUM increased by 18% over the period reflecting strong client wins and increased allocations from existing clients. FX Alpha products also saw strong client inflows of $0.7 billion, which, combined with further AUM increases from net FX and market movements, increased FX Alpha AUM by 33% to $6.0 billion.

Asset Management

The composition of Custom Solutions saw a change after the end of FY24, with the previously announced switch of one client mandate from Custom Solutions to a traditional passive allocation. The combination of this change and the discontinuation of a tactical interest rate swap portfolio during the period is the predominant driver behind the $2.3 billion AUM outflow from Custom Solutions in H1 FY25. Following those changes, the Custom Solutions product category is now comprised almost entirely of our fund solutions, all of which are long-term allocations.

Interest in the EM Debt space remains strong, resulting in $0.2 billion in AUM inflows since H1 FY24. Additionally, the recent launch of our Infrastructure Equity Fund, which has already secured initial commitments exceeding €1 billion, positions us well for the future.

Financial Review

Headline revenue of £21.1 million, including performance fees, represents a small decrease of 2% from H1 FY24 (£21.5 million). Excluding performance fees, underlying management fees decreased by 3% versus H1 FY24, but are broadly flat compared to H2 FY24.

Administrative expenses were £0.4 million higher than H1 FY24 at £15.4 million. However, they were £0.3 million lower than H2 FY24 as we have managed our cost base in line with management fees, while still making important investments in operations, technology and our Asset Management team. The result is an operating margin of 27% and pre-tax profit of £5.9 million. Against a challenging backdrop for management fees and having made some important investments for the future, this is a satisfactory result and leaves us well positioned for profitable growth.

Revenue Analysis

Management fees from Currency Management products grew by £2.0 million, a 14% increase on H1 FY24, in line with higher AUM. In addition, we earned performance fees of £1.6 million, a slight increase on the prior year (H1 FY24: £1.5 million). Management fees from Asset Management products fell by £2.6 million, reflecting the impact of the previously announced restructure of a large client mandate from Custom Solutions to Passive Hedging.

Revenue by product

We continue to see opportunities for earning performance fees in some of our Passive Hedging mandates, with £1.6 million earned in the period compared to £1.5 million earned in H1 FY24. However, the exceptional performance fees of £4.3 million earned in H2 FY24 are unlikely to be repeated in the second half of this year.

Passive Hedging management fees for H1 FY25 were £5.8 million. This is £1.5 million higher than the equivalent period last year (H1 FY24: £4.3 million), reflecting higher AUM.

Active Hedging management fees have increased by 1% compared to the same period last year, reflecting the increase in the average AUM over the period being partially offset by unfavourable exchange movements.

New client wins for Hedging for Asset Manager products saw management fees increase by 14% to £1.7 million compared to the same period last year (H1 FY24: £1.5 million).

FX Alpha products saw good AUM inflows resulting in increased FX Alpha management fees to £0.8 million. This is a £0.2 million increase compared to the same period last year (H1 FY24: £0.6 million).

In Asset Management, the client mandate switch, announced last year, from Custom Solutions to Passive Hedging in H2 FY24 is the predominant driver behind the £2.6 million decrease in management fees to £1.1 million compared to the same period last year (H1 FY24: £3.7 million) and a decrease of £1.5 million versus H2 FY24 (H2 FY24: £2.6 million). There will be a further, reduced impact in H2 FY25.

Interest in the EM Debt space remains strong, resulting in $0.2 billion in AUM inflows since H1 FY24. Management fees from the Emerging Markets Sustainable Finance fund have remained constant at £2.5 million compared to the same period last year (H1 FY24: £2.5 million).

Additionally, the recent launch of our Infrastructure Equity Fund, which has already secured initial commitments exceeding €1 billion, positions us well for a promising second half of the year.

Expenditure Analysis

Total administrative expenditure (excluding the Group Bonus Scheme) for H1 FY25 was £13.0 million, an increase of 5% on the equivalent prior year period (H1 FY24: £12.4 million). However, this is a decrease of 6% versus the second half of last year (H2 FY24: £13.9 million), reflecting the actions we have taken to manage our cost base as we committed to do at the beginning of this financial year.

People costs of £7.4 million (excluding Group Bonus Scheme) followed a similar pattern, up 4% versus prior year (H1 FY24: £7.1 million) but 5% lower compared to the second half of last year (H2 FY24: £7.8 million). We continue to invest in the business in line with our plans for operational excellence and in sourcing the right skill sets at the right level.

The increase in overheads and other costs is primarily linked to our overseas expansion and growth, IT-related support and data costs, and professional fees, as well as the expected effects of inflation. Total overheads and other costs of £5.6 million for the period represent an increase of 6% over the same period last year (H1 FY24: £5.3 million) and a decrease of 8% versus the second half of FY24 (H2 FY24: £6.1 million), excluding the one-off impact of the £1.9 million impairment recognised at the end of FY24.

Group Bonus Scheme

During the period, we have accrued £2.4 million for the Group bonus scheme, a decrease of 8% (H1 FY24: £2.6 million), in line with the reduction in operating profit.

Cashflow

The Group generated £5.6 million of cash from operating activities before tax during the period (H1 FY24: £7.3 million). Taxation paid during the period increased to £3.5 million compared to £1.3 million for the same period last year, although this increase is primarily due to a change in the timing of the Group's quarterly instalment payments.

The Group paid dividends totalling £5.9 million in the period (H1 FY24: £6.0 million), more information for which is given in note 6 to the condensed financial statements.

Dividends and capital

The Board has declared an interim dividend of 2.15 pence per share in respect of the six-month period to 30 September 2024 (H1 FY24: 2.15 pence). This will equate to a distribution of approximately £4.2 million (H1 FY24: £4.1 million), following which the business will retain cash and money market instruments on the balance sheet, which sufficiently cover financial resource requirements required for operations and regulatory purposes. The Board remains confident that our redesigned strategic focus on organic growth, quality of earnings, and operational excellence is the right direction for the Group and it remains the Board's intention to pay a progressive final dividend.

The Group has no debt and is cash-generative with capital and dividend policies aimed at ensuring continued balance sheet strength to support future growth. Shareholders' funds were £27.7 million at 30 September 2024 (H1 FY24: £28.5 million).

Principal risks and uncertainties

The principal risks currently facing the Group and those that we anticipate the Group will be exposed to in the short term remain broadly the same as those outlined in the 2024 Annual Report.

These risks are:

·      Strategic - the top two strategic risks are concentration and competitive threats, other notable strategic risks are delivery of strategy, regulatory trends, product innovation, third-party products and exogenous;

·      Operational and systems - primarily trade configuration and execution, as well as cyber and data security risks;

·      Investment risk - we naturally embrace the risk that our products underperform, while market liquidity is a risk we continually review; and

·      People - key person and succession, as well as talent acquisition and retention.

Cautionary statement

This Interim Report contains certain forward-looking statements with respect to the financial condition, results, operations and business of Record. These statements involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied in this Interim Report. Nothing in this Interim Report should be construed as a profit forecast.

Statement of Directors' responsibilities

The interim financial report is the responsibility of the Directors, who confirm that to the best of their knowledge:

·      the condensed set of consolidated financial statements has been prepared in accordance with UK-adopted IAS 34 - "Interim Financial Reporting"; and

·      the Interim management review includes a fair review of the information required by:

o  DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

o  DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the Annual Report 2024 that could do so. Related party transactions are disclosed in note 10.

The Directors of Record plc are listed on the Record plc website at: https://recordfg.com/team-member-groups/record-plc-board/