Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rathbones Group PLC (LSE:RAT, Financial) reported a 3.4% increase in total funds under management, reaching GBP108.9 billion, driven by positive market conditions and improved net flows.
- The company achieved an underlying operating profit of GBP112.1 million, with an operating margin increase from 21.3% to 25.1%, indicating improved profitability.
- The integration of Investec Wealth and Investment (IW&I) is on track, with GBP20 million in run rate synergies already realized, ahead of expectations.
- Rathbones Group PLC (LSE:RAT) has enhanced its digital capabilities with the launch of the InvestCloud CLM platform, supporting better resource targeting and client engagement.
- The company maintains a strong capital position with a CET1 ratio of 18.1%, allowing for a progressive dividend policy and continued investment in growth initiatives.
Negative Points
- Despite overall growth, Rathbones Group PLC (LSE:RAT) experienced net outflows of GBP0.6 billion, influenced by economic factors such as higher interest rates and cost of living pressures.
- The integration process of Investec Wealth and Investment is ongoing, with the need to operate two separate but aligned businesses until full migration is completed.
- Digital investment costs remain significant, with GBP7.1 million spent in the first half, and similar expenses expected in the second half, impacting short-term profitability.
- The company faces challenges in client migration, particularly in explaining the transition from a client money basis to a banking basis, which requires clear communication.
- Rathbones Group PLC (LSE:RAT) continues to navigate a competitive market environment, with pressure to maintain competitive rates for clients amidst fluctuating interest rates.
Q & A Highlights
Q: As you move towards the end of the digital investment program, can you provide more color on the impact on expense progression looking into FY25? Will the GBP15 million expense effectively fall away next year, or will there be some recurring BAU expense?
A: As we transition from the project phase to a BAU mode, the level of development will decrease. However, there will always be maintenance and further development costs for our systems, which will be reflected in our margin guidance.
Q: With market expectations for a rate cut in the second half of '24, should we expect the group to absorb those reductions, or will this be shared with clients?
A: As interest rates decline, we will share the reduction with clients, similar to how we shared the benefits of rate increases. Our treasury strategy will soften the immediate impact, and we expect the decline to benefit equities, which we are more geared towards.
Q: Can you discuss the benefits of bringing SIP administration in-house, given the number of parties offering that service at different price points?
A: Having SIP administration in-house provides a hassle-free, integrated service for clients. While we don't aim to compete with large SIP administration businesses, the service enhancements have been well received by our investment team.
Q: Given the investment in digital and technology, does this open the potential for fully digital clients who don't interact in any other way?
A: While digital channels can source new clients, Rathbones values personal long-term relationships. Digital will supplement rather than replace personal interactions, maintaining our business model's value to clients and advisers.
Q: Regarding IW&I cost synergies, which are tracking ahead of schedule, can you give us color on what specifically has been going better than anticipated?
A: Property integrations and technology infrastructure costs have been realized ahead of schedule. We've also taken advantage of natural turnover in the headcount base to convert into synergy realization.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
