St. James's Place plc (STJ) Earnings Call Transcript

Good morning, everyone, and welcome to the St. James's Place half year results Q&A. My name is Brika, and I will be coordinating your call today. [Operator Instructions]. I will now hand you over to your host, Mark Fitzpatrick, CEO at St. James' Place to begin. So please go ahead, Mark.

Thank you, and good morning, and thank you for joining us today to Mark FitzPatrick here. I'll do for questions shortly. But before then, I just wanted to reiterate 3 key takeaways from the half year results announcement. Firstly, is in good shape, performing well and growing. We achieved net inflows that were double what they were in the first half and our FUM stood at a record 198.5 billion at the end of June. This is a testament to the value that more than 1 million clients place in their Pfizer and SJP to help them secure their financial futures. Secondly, a strong period for new business has been mirrored in a strong financial result. Growth in the underlying cash result of 17% was a result of improving new business flows rising FUM and cost control. This result highlights the benefits of our simple, scalable business model. And timidly, we're making good progress against our key programs of work and delivering on our strategy. I said 6 months ago that 2025 would be another year of heavy lifting for the business, but we're getting the work done. We're on track to implement simple comparable charges less than a month from now. We're taking costs out of the business, as we said we would, and we're moving forward with the revised approach to our review into historic ongoing servicing. And this means we've been able to release some of the provision we held against this, which we will be returning to shareholders through a buyback. So it's been another period of hard graft but a successful 1 that positions SJP for sustained growth and success. We've still got plenty of work ahead, but we're confident in our ambition to double the underlying cash result by 2030. So let me pause there and hand over to the operator so that we can open up for questions.

[Operator Instructions]. The first question comes from Andrew Sinclair with Bank of America.

Three for me as usual, please. First, just there was a big step-up in the cash most such an improvement in H1 this year. That margin in percentage stances been going down for the last few years. So [indiscernible], but just keen to understand more about what's going on there. Second was just on adviser headcount. Just wonder if you can tell us in the run up to the new charging structure and with the productivity ex any change in departures in H1? And third was just on the Academy, just how many trainees graduated in H1 and how many are in the academy today.

Great. Andy, thank you. Why don't we start off with the -- I'll hand over to Caroline for the element of the new business and then I'll pick up the adviser headcount in the gate.

Yes. Thanks, Andy. So you're right, the margin on new business is higher. So we've got about 23% due to the increase in gross inflows, but it has been higher at like 40%. The rest is operational leverage, where we do actually have not everything, not all the costs are actually linear all connected to the rise with the increase in business. So that's purely what it is or some fixed costs, and we're getting a positive operating leverage from that.

And on the [indiscernible] Advantage over the first half, I haven't seen any shift or change in the underlying patterns of joiners or departing very busy heads down, really focusing on clients, really focusing on supporting clients through what has undoubtedly been quite a volatile market, lots of geopolitical and broader uncertainty in the world, and that's the time when clients look to their advisers for support reassurance, and that's when the advisers really stand up and support their clients in a very meaningful way. So there's nothing in particular that stands out in any of the underlying numbers around adviser headcount. We continue to work with our advisers and with our teams in terms of broader productivity we are spending time and working hard to try and improve as well some of our technology to make it easier for advisers to spend more time in front of clients, and therefore, less time on admin and related matters and paperwork. So trying to get the [indiscernible] system to do most of that and to automate a lot of that. And on the Academy, the Academy continues to be a very, very important part of St. James's Place, not just for us, but I think for the whole industry, we attract in a large slice of all the new joiners to the profession. We will continue to do that. We think it is a very, very important role we pay, as I said, not just for SAP, but for the industry as a whole. The advice gap is enormous in this market, and we need more advisers in the market. We need high-quality advisers to be able to support more and more clients because I think more and more people are realizing they cannot rely upon the stage for pensions and the like, and therefore, they need to take [indiscernible] into their own hands. And generally, you're going to need adviser to help you do the right thing. So advisers graduating through the year and no major changes on that and advisers in training at the period end is all kind of in line with what we've what we've seen in the past, no major changes to that component. We will continue to look in the same way as we have with the partner productivity. We're also going to look to see how do we actually try and make sure that we get higher quality through the academy so that more people that join actually make it through towards the end. So that's one of the things we're going to be addressing over the course of the next 12, 18 months. but we're delighted to be bringing more young people into the academy and a lot more women coming in than generally we see across the industry because we're seeing more and more women actually gaining financial wealth, and we want to be able to give clients greater choice about who serves them who works with them along the way. So we're really pleased that we'll be able to contribute to the profession as a whole, helps shape the profession in terms of demographics and in terms of gender mix.

All great news. Just -- have you got the numbers there any chance for how many people are in it and [indiscernible].

Not in front of me here, Andy. I think the general tone that we're trying to do is an element of where we're going with this. It continues to be -- it continues to be important, continue to be something we've invested.

Your next question comes from Nasib Ahmed with UBS.

Three questions from me as well. Firstly, on just derisking the car structure change on the 26th of August. Can you talk a little bit more about how much testing you've done, how comfortable you are that it's not going to cause any disruption? And maybe within that kind of talk a little bit about how you've traded in the first month of this quarter. Second question on targeted support and the FCA's kind of ambitions around that. Are you still committed to just face-to-face advice? Or are there other things that you're kind of looking at to support that ambition from the FBA. And then finally, on the provision release. I guess the question is the face interest rate is changing as well is coming down. You've had some experience around kind of paying claimants. But is there as you develop more experience, should we expect another reassessment of the provision at some point in the future as well.

Thank you for the broadly three questions. On the simple comparable charging, we have done extensive testing. We did address reversal of the whole transition recently. That went well. That's given us the confidence to be able to contact clients now ahead of the change, which we have now done. So all clients now informed of the change. So a high level of testing has been done and we are as confident as you can be on these things going into that public [ holiday ] weekend. I'm not minded to give a running. Kind of notes of kind of trading, suffice to say, July normally, July, August 10 to be the quieter months of the year. And as people go away and holiday clients go away in the holiday, so you shouldn't be surprised to see that, that might be kind of following that kind of broader footprint. But that being said, our partners, advisers are still very busy because there's still a lot of clients and a huge advice gap out there. So the guys are working hard. And we've seen over the first half an increase in volume of cases and for the first time in a while an increase in the value, a modest increase, but an increase in the value of cases as well. So both are up this half. In terms of the second question around targeted support, technically at the moment, the consultation paper from the FCA does not allow does not suggest that appointed reps are going to be able to take or go down the targeted support route. Now that's because the rules of the legislation has been written limiting what appointed rep can do. Treasury has recently announced that they are going to consider opening that and extending that component. For the time being, we consider that actually we are it's a key part of our purpose statement that we believe in the power of advice and the value of the price. So we think that actually providing clients with advice is a very, very important thing and providing clients with individualized advice is a very, very important thing. Targeted support, we see is going to be net positive for the industry for the market, for the U.K. for consumers, helping people take -- to start to take a little more ownership and starting to think a little bit more about their investments. That's got to be a good thing. And we're really, really keen to support that. It could in time be on ramp for individualized advice. But we don't expect it in any way to cannibalize our business. We do expect it to get people to stop thinking and engaging in a way that they really should. So we see it as a big positive. And in terms of the provision cover?

Yes. So yes, as we said, this is a 2- to 3-year program. I think last year, just as a reminder, obviously, we do a lot of builds into this year and then -- and incorporated that into our reverse methodology. And then we've also had more experience as we've gone through the program. So we've incorporated those and that's how we've calculated our best estimates of the provision now. And obviously, then we have a release from that. So H2, we can continue to execute. We will -- with all provisions, we will be reassessing it as we go through and we get more experience. But I'd say this accommodates obviously the FDA guidance and experience to date. So yes, it's -- I'm comfortable where we're at now, but we'll continue to reassess again at the year-end, obviously, if we've got some [indiscernible].

Your next question comes from David McCann with Deutsche Bank.

Congratulations on some decent numbers this morning. Yes, 3 questions inevitably from me as well, please. I'll start with the provision release since that's obviously very topical. I mean, can you confirm how much of that release that 20% release was sort of methodology change from the FDA guidance and so forth versus the experience change that you've got. Is there a way of roughly quantifying that? I don't expect it to be [indiscernible] and then on that program more broadly, when do you anticipate you'll actually start sending the letters out to clients which you think are affected more broadly? And then sort of turning to the flow numbers. What drove the improvement do you think in net flows in the second quarter? What are the anecdotes you're hearing from advisers on the ground? Is this client appetite? Is it easy in cost of living pressures. Is there anything in there related to the upcoming fee structure changes that with the incentives that are going to change for both the advisers and the fee covers declined. Is there any sort of front running, if you like, of the charging or anything in the flows for that or just curious as to what's caused the improvement?

David, last pick up the provision release piece first, and then I'll come around to the letters and the flow.

Yes. And I'm not going to go into detail. I think, look, it is a combination of the two. Which we take both into account, but I'm not minded to give you the detailed breakdown on that.

[indiscernible] will be going out next week to clients. So the correspondence will be start across form has been going for a little while, but it will be ramped up under the new methodology from the element of next week. So clients will start getting things out so we'll stop moving very quickly. And on the element of flows, second quarter more generally, I think we saw was the second of April liberation Day, we saw a huge uptick in terms of client questions, inquire affairs, et cetera. So we saw a lot of activity. We've also with the government talking about and there's been a lot of speculation about is what's going to happen there. As everybody knows, we don't offer a cash is, but it got people, I think, thinking a lot more about us and have I used my allowance adequately or properly. And we have seen -- you have seen from the numbers, an impressive uptick in terms of the investment bonds. And I think that's a consequence of the pensions and the inheritance tax linkage going forward through this government. So it's a combination of factors. I think the U.K. consumer is kind of holding up well. I think last year, earlier this year, seen kind of real wage growth. I think with growing -- potentially growing unemployment coming into the U.K. later on this year. There's a sense of inflation decide that's going to give rise to less wage pressure and that might slow down real wage growth. So it will be interesting to see how that plays out in the back end -- back half of this year, early next year. We are all expecting I think, banks to reduce rates. And I think that lifts up a little bit of enthusiasm and a little bit of confidence. We're seeing a relatively stable housing market. So consumer, I think, is as weather the storm incredibly well in the U.K. The big [indiscernible] have full government generally and for Treasury is just trying to read as much certainly in stability. I think extended period of speculation is dangerous and unhelpful. We saw that at the back end of last year for consumers. It may be short-term helpful for us. But for the economy and for consumers at large, it's not a great thing. So we're really, really keen on stability and certainty. But that being said, while there isn't a lot of that, we do advisers of their talking to clients and generally takes clients to move or customers to move in a different way. So it's a combination of those. In my wondering around and speaking with partners around the country and going to visit them in their practices, they're all saying they are super busy. The issues of last year, early last year, are so far in the recesses that clients don't talk about these things anymore. They're really back to talking about them, their affairs how they protect themselves and what they need to do to look after themselves and their families. So that's a conversation that should be taking place and that's probably the conversation that got lost for about 12, 15 months over the course of [indiscernible].

[indiscernible] around that if it's all due to the fact that you've already mentioned?

The big thing to remember, David, is that these are not spontaneous actions from clients. Very few clients wake up suddenly say, right, I need to do ex need to do why vis-a-vis this particular part of the world. So at the edges, there may be an element, but we think it's at the agents will only be able to get to see that later on. Because bear in mind, from a client perspective, the delta is not particularly large. And we're encouraging clients to do things that they should be doing and making the most tax advantages ideally that they should be taking advantage of that are available. And that's why pensions is still such an important part of the investing landscape.

Your next question comes from Enrico Bolzoni with JPMorgan.

So one, you say that you will introduce a positive range within your Polaris product. So can you give us some color perhaps on whether you see in the immediate term that more as an opportunity or a threat? So I'm thinking do you see clients that want passive location and because you cannot offer that yes, they are currently allocating somewhere else? Or do you think that, that could have a bit of an impact on your margins per up and put some pressure there? So that's my first question. My second question is on the dividend policy. You clearly are performing exceptionally well. When shall we expect a potential reversal in the capital distribution policy and therapy, again, higher dividends being paid. And finally, on the cash balances, you had quite a bit of money with Flagstone. Can you give us an update there, perhaps on the amount and whether you think that this will eventually move back into investment products anytime soon?

Thanks, Enrico. I'll take the first and third and then hand over to Caroline for the second on the dividend piece. In terms of [indiscernible] we see it as a net additive because at the moment for clients who want to have some type of exposure to index tracking funds and the like. We can't offer that today. And therefore, those assets will set outside of the SP guidance. Ideally, what we'd like to do is be able to expect. And we've deliberately called the Polaris multi- calling at the large multi-index levering fantastic success that we've had with Polaris so far. So we see it as a net additive. In terms of margin, when it comes -- once we have regulatory approval, then the guys will be able to talk a lot more about what we think the margin on this is going to be and the overall picture. But suffice to say, we're doing this because we think it's going to be the right thing for clients. We think it's going to be very helpful to our advisers and we think it's going to be good for shareholders as well because it's going to be an incremental value and incremental FUM coming into the garden. On cash balances with Flagstone, Flagstone balances have gone up. I think they're $5.2 billion at the half year. We have seen more clients putting money there. The average client balance is slightly down from where it was previously, but we have seen more clients linking in there. We are looking during the course of the first half of next year to explore what and how we might do things ever slightly differently with -- but it's working really, really well for our clients. It's really working really, really well for our advisers in terms of being able to have that offering. And I think what it probably speaks to is just you would have seen us with the banks reporting out earlier this week. It's just people saving just with a little bit of a niggle and growing uncertainty in their minds going forward, just hedging the bets a bit in terms of diversification. We're seeing good intake and good uptake in this as you saw flows, people actually investing in the market. But there are, I think, people as well saying, I'm just going to hold a bit of cash for the time being, just given some of this uncertainty that's out there. Now cash, I believe, and I've said this to the chancellor is an important part of everybody's portfolio. That being said, we are concerned across the U.K. as a whole that people are probably slightly over safe and underinvested. And that's something that our advisers are continually talking to our clients about. It's not something I think our clients really struggled, but it's a broader U.K. consumer but it is something, I think, that we are mindful of. And as confidence builds, we're looking to make it easier and easier for people to be able to move from Flagstone into the SJP Garden to be able to invest and Polaris multi-index may provide a useful avenue, useful opportunity and catalysts to drive some of that. But let's see. Caroline, on the dividend policy.

Yes, Enrico. So as we're aware, we have set our return guidance for '24 -- or '25 and '26 as we go through the period of transition. And just a reminder, really, we set this to give certainty in the returns during a real period of change that we're going to in the business. And I know that we've had a good start to the year. We're also making good progress with our key programs to work. But I can say there is still a lot of work to do. We still got a lot of that going on. And obviously, there's a lot of some uncertainty in the sort of macro environment, although we can obviously that strategy, the importance of advice, obviously. So look, as a capital allocation, it sets out, we always consider returning excess capital to shareholders in we will assess the longer-term cap returns that will go to the board at the appropriate point in time, but I'm not going to preempt them by put any data on that.