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Edited Transcript of ASHM.L earnings conference call or presentation 6-Feb-20 9:30am GMT

Half Year 2020 Ashmore Group PLC Earnings Presentation

London Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Ashmore Group PLC earnings conference call or presentation Thursday, February 6, 2020 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mark Langhorn Coombs

Ashmore Group PLC - CEO & Executive Director

* Thomas Adam Shippey

Ashmore Group PLC - Group Finance Director & Executive Director

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Conference Call Participants

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* Arnaud Maurice Andre Giblat

Exane BNP Paribas, Research Division - MD & Research Analyst

* Bruce Allan Hamilton

Morgan Stanley, Research Division - Equity Analyst

* David Leslie McCann

Numis Securities Limited, Research Division - Director & Diversified Financials Analyst

* Gurjit Singh Kambo

JP Morgan Chase & Co, Research Division - Head of Diversified Financials Research

* Haley A. Tam

Crédit Suisse AG, Research Division - Research Analyst

* Hubert Lam

BofA Merrill Lynch, Research Division - VP

* Michael Joseph Werner

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst

* Paul McGinnis

Shore Capital Group Ltd., Research Division - Research Analyst

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Presentation

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [1]

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Thank you for coming, Ashmore Group 6-month results to the end of December '19. Let me give you an overview of how that's gone. Pretty good operating and financial performance. We're pretty happy with it. Assets under management up both year-on-year and over 6 months. Decent levels of inflows, nearly $6 billion. Revenue going up, as you'd expect, alongside that, EBITDA as well. And the adjusted margin, which Tom will take you through, 69%. EPS, diluted EPS, growing as well, and benefiting both from strong seed capital and the lower group tax rate. And we're going to push up the interim dividend by 5%.

So those numbers are good. We're happy with those. I mean you can always do better, but they're pretty good. In terms of the strategy, that's obviously important to us. Investment performance continues to do what it always does, and we're very happy that we've got the performance we expect across fixed income and excellent performance in equities. And we kind of like where the market's at, actually. We've had a nasty little volatile period since August, and that's a good thing for us.

We're seeing new clients and also existing clients top up. So really across the board, we're seeing quite interesting activity. Our business, as a whole, gets more diverse, which is good. We like that. The more product we can have and sell to as many different people as possible, that's great. And in terms of our -- the third stage of our strategy, which we've talked about before, which is about growing emerging markets, asset management companies as part of the group and increasing what we do as those sources of wealth get larger, we're on track with doing that. The first one of our partner companies listed in January with a premium valuation to the group as we expected. So this is a 30x PE in Indonesia.

The outlook is pretty good. Clients are active. I mean there are always things that make people sweaty, in this case, particularly sweaty in terms of China. But things are looking relatively good. Investors are still steadily trying to increase their allocation to what we do across fixed income equity and alternatives.

So detailed financial performance, I'm going to hand to you, if I may.

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [2]

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Thank you. I'll use the little thingy with the arrows. Okay. So as Mark said, the group performed well in the first 6 months of the year with strong AuM growth of 7% in the period, up 28% on a year ago, driven largely by broad-based client inflows. Net revenues were, therefore, still up strongly, 20% higher than a year ago on the back of 18% improvement in net management fee income. The scalability of the operating platform is demonstrated by adjusted cost growth of only 9%, with the increase being entirely driven by the profit-derived bonus pool accrual with non-VC operating costs actually falling by 6% versus the prior year. This means that the adjusted EBITDA has increased to GBP 122.5 million, up 24%, delivering a margin of 69%, a couple of points higher than this time a year ago.

The business model also continues to convert profits to cash flow with GBP 115.4 million of operating cash generated in the period and representing a conversion rate of slightly under 100%, as is usual, at the half year point. The seed capital investments delivered positive returns of GBP 8.4 million, meaning that profit before tax increased by 42%. And together with the lower effective tax rate, diluted EPS increased by 56% to 15.8p per share.

Consistent with the group's dividend policy and the Board's intention to maintain cover of at least 1.5x, the interim dividend has been increased by 5% to 4.8p per share.

Now before we run through the detailed financial performance, I thought I'd give you a brief update on Ashmore's growth strategy of sourcing and managing capital in the emerging markets. While near-term growth is likely to be driven mainly by increasing allocations by developed world investors, the capital available to be managed for emerging world clients is growing faster and provides a significant long-term growth opportunity. Importantly, structural developments, such as regulatory change that break down the banking sector's control of asset management services locally, allow independent managers with strong performance track records to capitalize on this growth. This slide gives a snapshot of Ashmore's network of local market businesses, including Colombia, Saudi Arabia, the U.A.E., India and Indonesia. These businesses are delivering good levels of AuM growth, up 16% year-on-year, and today, manage approximately $6 billion. This is predominantly capital raised locally by the in-country distribution teams, but each of the businesses also manages capital for Ashmore's global institutional clients that want to take single country or specific asset class risk and have their capital managed by the local investment teams on the ground.

While each business is tailored to the local market opportunity, there are some common characteristics that underpin the growth and value creation potential for the group. The group's global operating model is deployed across each local market business, delivering a simple and consistent operating platform, meaning there are no complex legacy systems to be maintained. The global and local businesses use a single front office trading system, the same fund accounting system and operate on a single general ledger. This simplifies portfolio risk management, compliance oversight and management reporting.

Now consistent with our relatively early stage of development, the businesses have higher revenue margins than the group and expanding profit margins as AuM growth delivers positive operating leverage. Most of the platforms now manage in excess of $1 billion, and the largest, Indonesia, manages over $2 billion. As Mark said, Ashmore Indonesia achieved an important milestone last month when it listed. The premium valuation of 30x earnings and a market cap of almost $250 million, demonstrates the inherent value of these businesses to the group. And while only a small amount of primary capital was raised, none of the existing shareholders sold down into the offering. And so there continues to be strong, long-term alignment of interest between Ashmore and the local team through their ongoing equity ownership. This successful IPO and the listing provides a potential route map for the group's other local businesses to follow the appropriate point in their development.

Turning now to the operational performance of the business in the first half. There was strong growth in assets under management, driven predominantly by net inflows of $5.7 billion. Gross subscriptions of nearly $15 billion were diversified across the client base and investment themes, demonstrating the ability of Ashmore's global distribution resources to raise capital from a broad range of new and existing clients.

The ongoing trend of high AuM allocations is evident in these flows with 3 quarters of institutional net new money coming from existing clients as they address their underweight positioning by adding to that mandate. Redemptions of just over $9 billion was higher than a year ago, reflecting the impact of redemptions from short duration strategies following some price volatility and underperformance in late summer. Towards the end of the period, there was early -- there were early signs of a performance recovery in these strategies and, consequently, flows turned net positive.

The intermediary retail business continued to grow in the half with net inflows of $0.4 billion and total AuM from intermediary clients now just under $13 billion, or 13% of group AuM. Consistent with the group's diversification strategy, the equities team delivered net inflows of $0.6 billion in the half with good growth in the active and all cap equity strategies. The diversified nature of the group's client base means that the broad mix of AuM splits by both client type and geography remains pretty consistent. And finally, investment performance added nearly $1 billion to give a total increase of $6.6 billion or 7% over the 6 months, resulting in closing AuM of $98.4 billion.

Looking now at revenue. Adjusted net revenue growth of 20% was delivered on the back of strong AuM growth and an 18% increase in net management fees, which includes a 2% contribution from the lower average cable rate compared with the prior year period. The average net management fee margin was 46 basis points, down 1 basis point from the preceding 6 months and 3 basis points lower than the period a year ago. The main factors behind this year-on-year movement on mix, notably higher average levels of overlay capital, external debt and local currency and the impact of large mandates, both new funds and incremental allocations to existing large institutional accounts.

My guidance continues to be for approximately 1 basis point of underlying margin drift each year, but with the possibility that size and mix effects can result in a different outcome as has been seen in the recent period.

Performance fees of GBP 3.4 million were generated in the half. Based on current market levels, I wouldn't expect any significant additional performance fee income to be earned in the second half of the year.

Adjusted operating costs increased by 9% year-on-year due to the strong financial performance being reflected in the formulaic 20% bonus pool accrual at the half year point. Ashmore's business model and operating infrastructure is consistent globally and has been built to adapt to varying levels of AuM. So notwithstanding the 20% growth in revenues, non-VC operating costs actually reduced by 6% in the period.

Looking at this in a bit more detail. Fixed staff and other operating costs, i.e., excluding depreciation and amortization, increased by only 2% year-on-year, of which half was due to FX. This shows there continues to be disciplined control of operating costs and demonstrates the scalability of the platform in a period of strong asset and revenue growth.

Two other quick points to note on the cost side. First, the group's intangible assets have now been substantially amortized through the P&L. And so the amortization charge in the period was GBP 2.3 million lower than the prior year at only GBP 0.1 million. And as signaled in September, the adoption of the IFRS 16 changed the accounting for the group's property leases by removing rental expense and introducing a depreciation charge. The net effect of which was a GBP 0.1 million benefit to operating costs compared with the prior year. There's also a small finance effect to come through in finance income.

In terms of seed capital, the group's actively managed program continues to deliver value and contributed GBP 8.4 million to profit before tax in the half, of which GBP 1.5 million was realized. While the profit contribution itself is valuable, the true measure of success of the investments is the fact that more than $13 billion or 14% of the group's total is in funds that have been seeded historically. These funds are now delivering more than 20% of the group's net management fee income.

During the 6 months, new investments of GBP 15 million were made in support of asset growth in corporate debt and equities and previously committed capital was drawn down by the alternatives products. Client flows into seeded products meant that matching redemptions of nearly GBP 35 million were achieved, primarily from the equities and local currency themes. At the period end, therefore, the total market value of seed investments was GBP 255 million. And together with committed amounts, the total value of the seed capital program is approximately GBP 275 million. Nearly 2/3 of the market value is in the equities and alternatives themes, supporting the group's growth initiatives in these areas. While the size of the seed capital program will vary according to client flows, market performance and other factors, for the time being, I'd expect it to remain in the recent range of approximately GBP 250 million to GBP 300 million.

Finally, in terms of the P&L. The strong operating performance, combined with the seed capital return, meant that profit before tax increased 42% to GBP 132 million. The effective tax rate for the period of 13.7% was lower than the anticipated marginal U.K. rate of 18.5% for the current financial year, primarily due to 3 factors. First, the impact of a higher share price on the value of the deferred tax asset relating to employee share awards, which effectively increases the deductible for tax purposes; second, the effect of nontaxable unrealized seed capital gains; and third, the geographic mix of profits with some of the group's earnings these days being in jurisdictions with lower tax rates than here in the U.K. While the impact of the first 2 factors could not necessarily be predicted, looking at the geographic mix of profits, the underlying effective tax rate for the group is around 16% going forward.

The strong operating performance, the financial return on seed capital and the lower tax rate results in a 56% increase in diluted EPS to 15.8p per share. And on an adjusted basis, excluding seed capital and FX translation effects, diluted EPS grew 35% to 14.7p.

As we've said, consistent with the policy and the desire to maintain cover of 1.5x, the Board has declared an interim dividend of 4.8p, up 5% on a year ago.

Turning now to the cash flow. Ashmore continues to generate meaningful operating cash, a total of GBP 115.4 million in this period and uses it in very consistent ways. After paying corporation tax and ordinary dividends to shareholders, the group bought GBP 41 million worth of shares to satisfy employee share awards and realized a net GBP 19 million of cash from seed investments. The movement in cable over the 6 months had a negative translation effect of GBP 17.8 million. Therefore, given the bias of cash payments to the first half of year, in particular, the prior year final dividend, cash on the balance sheet reduced from GBP 463 million to GBP 417 million at the end of December.

And then finally, for me, an update on the balance sheet. The structure remains consistent and conservative and continues to support the group's business model and strategic growth objectives through market cycles. Total capital resources of GBP 700 million, the group maintains a significant excess regulatory -- excess over regulatory capital requirements and ensures that majority of the balance sheet is held in liquid instruments, either cash and cash equivalents or in the case of seed capital investments, in funds with at least monthly dealing frequency.

In terms of currency exposure, there continues to be a natural bias to U.S. dollars, given the nature of the group's revenues and seed capital investments and the profit before tax sensitivity to a $0.05 move in cable remains approximately GBP 4 million.

With that, I'll pass you back to Mark to talk about investment performance and outlook.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [3]

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Thanks, Tom. Okay, investment performance. Two things to pick up on here. But again, for those of you who've followed us for a while, this is kind of typical for us. We list the different things that we do. And in the 1-year performance, we have been buying risk in difficult markets, and that's been working pretty well. We're pretty happy with that. And we continue to maintain strong 3- and 5-year performance, which is kind of the key for everything. So we are exactly where we should be at this time in the cycle. When you have a difficult market, we like to take risk into that. And as a result, we outperformed very strongly over 3 and 5 years.

One particular thing that I want to pick up on here because I think it's important. We've been in the equities game for a while. We've had very good performance from some of our local subsidiaries in the past and from some of our specialist products in terms of Frontier, et cetera. We've now got 2 very strong global products, and they're performing extremely well, and we're beginning to see flows as a result of it, which is what you'd expect. So we have an all cap equity product that as you can see is producing significant amount for over 1, 3 and 5 years, and the same with our active equity product, which is giving good numbers. And this is something that is very important for us in terms of our organic growth.

So outlook. I mean you've obviously got to caveat what happens in terms of short-term impacts from things like disease and the coronavirus drama. But if you take that out of it and look -- try and look through, as we try and do when we invest actually, sort of slightly for the longer term, this is why we buy risk and when people are nervous. We're looking pretty good, I think, in EM. We have to see the impact in terms of growth, which tends to be fairly short-term for things like shocks like coronavirus-type stuff. But otherwise, the growth premium is rising again for EM over DM. And this is good for equity and currency, usually, in particular. Real rates in EM are pretty strong. So we should be in a very good spot right here. And we're feeling pretty good about it because with strong real rates and the fact that people are desperate for return and really lower negative returns in fixed income in the developed world, plus the growth premium, so it's positive for equity and currency. We're in a pretty good spot for solid returns in EM against DM over the next 12 months. So we really quite like where we're at. Plus there's been a hiccup, so we've had some nice value in fixed income. So this is really feeling very good for us.

Central banks are dovish in DM, which is always a bit worrying, but they are. And that -- but that doesn't do it any harm at the margin. It does produce low interest rates there, which means dollar or euro-based income and EM fixed income assets do very well.

Reforms are continuing, and the growth of the asset class is continuing. China local currency bond index inclusion happens this year. So that adds a huge amount more capital and scale to that index, which is already a decent size. Investors are generally underweight, wherever they are. They're generally underweight, whether some of them want to stand away, but they're progressively increasing that. And one of the things, as I say, that's been interesting is the drive in fixed income for people to say we want positive real carry in dollars and euros. And we can get that in EM sovereigns and corporates, so that which is interesting.

Main risks. Obviously, global macro kind of things. You've got U.S. elections. You've got what might happen in the Middle East. You've got disease issues around people getting concerned in China vis-à-vis economic activity dropping off quite quickly in terms of shutting down plants, et cetera. All of these things are there. They tend to be relatively short term, but it's not like we haven't seen any of this before. So we feel pretty comfortable that we'll ride through this as well, if not better than most people.

So just to sort of summarize before we turn to questions, we're really -- we're feeling pretty good. I mean one of the reasons we've bumped up the interim is things are looking pretty good, so both financially and in terms of the way we manage money and the way we raise it and the way we keep it. And we're happy with our global businesses and our local business is growing nicely, and equities is now beginning to grow nicely, too. So things are feeling pretty good. Inflows are pretty broad-based, so getting on to $6 billion. EBITDA are up 24%, adjusted EBITDA, that's nice. Progress against the strategy, people are still looking to add to what we do. We're seeing people still putting money into the market. Even at a time of hiatus, there's still 2-way flow, it's not just 1 way, which is a sign of more maturity, which is good. And diversification for us is getting better all the time. We're happy that we've got Indonesia listed, and that's the natural progression in terms of those subsidiaries, and we'll hope to see more of that. Very proud of those guys. They've done a great job and continue to do a great job. And the outlook looks pretty good, particularly compared to DM, which is, of course, we're in a relative game in that way, right? Where else do you put your money? If you don't put it in us, you might put it in DM. So that's it really. So pretty good. We're quite happy where we are now. Happy to take questions. I'll give them all to Tom.

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Questions and Answers

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [1]

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Arnaud?

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Arnaud Maurice Andre Giblat, Exane BNP Paribas, Research Division - MD & Research Analyst [2]

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It's Arnaud Giblat from Exane. I've got 3 questions, please. Firstly, on the dividend. You reiterate your guidance of wanting to achieve 1.5x coverage. It looks like -- I mean if markets stay where they are, you should be getting there this year. How do we -- how should we think about dividend going after that -- going forwards after that? Does the dividend grow in line with the earnings?

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [3]

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Okay. Yes, I always say, and we always have a bit of a scrap in the Board about this. I would say it's at least 1.5x. So we want to be conservative. So we've got ourselves to that point, as you say, so we're happy to grow the dividend as we grow from there. That doesn't give us a problem. But it doesn't -- it's not micromanaged to 1.51, it could be 1.7 and I'd be delirious. But we -- the trick with us, right, we never want to cut the dividend. So -- because I just think that's not cool. So we're going to try -- we'd rather slowly grow it than try and shoot it up like crazy, and then, oh, my God, throw it out completely out the window and have to drop it. So we'll try and be -- you know us pretty well now. We're going to try and be conservative, progressive, not screw up and generally increase the return to shareholders through dividends as well as in terms of improving the equity price, we hope, when people see we're running a good business. So steady. We want that minimum. Of course, we'd be happy to grow it.

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Arnaud Maurice Andre Giblat, Exane BNP Paribas, Research Division - MD & Research Analyst [4]

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Makes sense.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [5]

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Conservative. And would you want to add anything to that? You don't disagree? Good. Thank God for that. Could have been ugly.

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Arnaud Maurice Andre Giblat, Exane BNP Paribas, Research Division - MD & Research Analyst [6]

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The listing in Indonesia, so you haven't sold one. So perhaps, could you tell us a bit about the logic of this listing? What's the upside? Does it improve visibility? I mean, what's the (inaudible)?

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [7]

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Yes, it definitely does that. So we -- remember, this was started with 0. So this is not a business we bought. We started this business with 0, which is actually, instinctively, the best way to be in asset management. If you can, you grow things that takes a bit longer, but everybody is in the same culture. And we've got a great group, and they've got a great culture, and they're a really important part of the group. And a lot of what we do in emerging economies in asset management is we're kind of breaking into markets where independent asset management may not be the norm. So banks tend to control a lot of cash flows, including having domestic asset management businesses. So there's a huge amount of money held within the banking system. So you're trying to break into that and you're trying to, yes, sell through them to give where they have to provide open architecture over time. We're trying to sort of build the industry, build the profile, get people interested. So part of it is to build profile, so that people have heard of it. They see the guys ring the bell on the stock exchange. That's all good stuff. So there's definitely a profile side to it. We've got things we want to be doing there, and we use seed capital there and everything else, but we quite like to be able to seed from within the business, not have to seed from the center. We like the flexibility. So it gives us the flexibility to be able to use domestic seed capital. Other than that, we'll see what happens. We're out there in the market now. We'll give them the ability to access it if they need to. But there's no specific deal to do. We just wanted to get it out there in the market, see it grow. It helps a lot with retail in terms of profile.

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Arnaud Maurice Andre Giblat, Exane BNP Paribas, Research Division - MD & Research Analyst [8]

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Sounds good. And my last question is in developed markets. Private assets are really hot. How are you thinking about your alternatives business? Are you -- is that an area of specific focus?

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [9]

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In developed markets?

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Arnaud Maurice Andre Giblat, Exane BNP Paribas, Research Division - MD & Research Analyst [10]

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Private assets are growing very fast.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [11]

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Oh, you mean private credit and private equity?

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Arnaud Maurice Andre Giblat, Exane BNP Paribas, Research Division - MD & Research Analyst [12]

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Yes, exactly.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [13]

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Yes, they are. It's a bit spottier in EM. We do private equity, we do private credit. We've done them both dedicated. It can be a bit spotty to get different kinds of asset allocators. I think developed market asset allocators find it quite hard to allocate big chunks of capital in either of those, just EM, because they've kind of drunk the Kool-Aid in DM, and that already feels a bit risky for them. And so -- when those markets are growing and growing quite quickly, the EM private credit and private equity are there, but they're not so big. So what tends to happen is the private credit houses or private equity houses sort of chuck a little bit of EM into global product. And sometimes, it doesn't go so well. And sometimes, it does. So as a result, I think those asset classes, there is clearly private. We do some private equity in EM, and we do some private credit. We've done some dedicated product in both. It's not something we see a huge amount of demand for. It's not something we see billions of dollars begging to buy. So I think it's early stage for those markets. We've always done some, but dedicated product, it's early stage. I think there'll be more, but not in a big rush.

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Gurjit Singh Kambo, JP Morgan Chase & Co, Research Division - Head of Diversified Financials Research [14]

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It's Gurjit, JPMorgan. Just 2 questions. Just on the revenue margins, I think most areas saw sort of declines in margins, and obviously, the exceptions were alternatives and multi-asset. Is the multi-asset just driven by more retail clients? And in alternatives, is there anything sort of one-off in there that sort of boosted the margin? And then secondly, just on sort of the non-VC cost in the second half of next year, how should we think about that? Should they be trending upwards?

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [15]

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Okay. So the revenue margin, the alts for multi-asset, there's been a recategorization year-on-year out of multi-asset that was split into its constituent parts and external and equities. So you've seen the impact on multi-asset and the corresponding impact within the external debt and equities themes. In alternatives, it's probably at about the run rate now. So what you're seeing now should be what we see. And then sorry...

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Gurjit Singh Kambo, JP Morgan Chase & Co, Research Division - Head of Diversified Financials Research [16]

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Just on the cost of some of the non-VC cost.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [17]

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Yes, non-VC cost. I think the sort of underlying 2% increase that you saw half-on-half, probably about the right number to be factoring in for the second half. And no step change one way or the other.

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Haley A. Tam, Crédit Suisse AG, Research Division - Research Analyst [18]

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It's Haley Tam from Crédit Suisse. Just 2 quick questions, one for Mark. About a year ago, due to some sort of shareholder pressure, you said you would sell up to 4% of your shares to get to a more appropriate level. I just wondered any update on that. And the second question, just back on management fee margins. I noticed in particular that the corporate debt margin came down, or was that specifically due to the short duration fund? Can we now look at this as a more stable level, perhaps going forwards?

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [19]

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With the -- my share thing, let me do it. You do the other one.

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [20]

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Or did you want to...

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [21]

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I said, look, I'll sell up to 4% a year, and that's what I'll do. And if something strategic comes up that makes it more interesting to do something else, I'll do that. But meanwhile, I'll generally deal with the issue of people thinking that a Kazakh oil-type person going to steal all the shareholders' money. So I'll just keep doing that when I think it's the right time. But up to -- that's a max per year. Do you want to carry on?

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [22]

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I'll cover that. There are 2 things going on there. One is the short duration redemptions that we saw sort of August, September, October time, were typically retail-intermediated clients. So there's a slightly higher margin than the sort of core corporate debt product. So there's that averaging effect coming through in the half. And also, some of the large institutional allocations that we've seen in this last period have been into corporate debt mandates. So we've had a number of notable big increases into large accounts and corporate debt, which are priced for size, obviously. So that's also brought it down a bit.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [23]

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There's one more question there.

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Michael Joseph Werner, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst [24]

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Mike Werner from UBS. Just 2 questions. I guess, coming back to the private markets, the alternatives. I think it was 2.5, 3 years ago that you raised the private credit fund in South America, the private equity fund in the Middle East. So I was just wondering where you are in terms of committing that capital into investments. And when we might think of a new stage in theory of -- in fundraising? And then second, in the release this morning, it indicated that about 25% of the flows came from new clients. That was the first time I've seen that percentage number. How does that compare to the recent past?

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [25]

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Well, let's do the inverse. You do the flow one.

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [26]

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The second one? So that 75-25 has been kind of a consistent issue over the last 12, 18 months. We've probably seen a slight increase in bias towards existing. So it might have been 2/3, 1/3, 12 months or so ago. So it's moved a bit towards existing, which gives us a bit of confidence when we talk about this trend of increasing allocations, it clearly seems to be existing clients. You've Mark words -- in Mark's words, they've got the joke doing more with that over time. We're still happy to be raising $1 in $4 from people who haven't invested with us in the past, because that gives us the opportunity to grow them and what they do with us going forward.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [27]

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And then what was the other question, Mike?

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Michael Joseph Werner, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst [28]

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The question is on the private market, the end market.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [29]

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Oh, yes. So yes, we've always done private markets even within some of our funds, which can accept some level of illiquidity, but we have what we've done there. Because you're right, we've done dedicated product from time to time. The private credit that we raised, we've kind of made the money, we're giving it back, actually. So that -- and we found that there was some opportunity, but not massive in terms of enough investment that was low enough for us to be diverse enough. So it's -- there's money to be made there. There's stuff to be done there, but the large scale, dedicated capital for a 5-year lockup-type private credit, we're not seeing a lot of demand for that kind of money that can already access the bond market or is so small that it's not worth doing or is super risky mezzanine stuff, which we can do in the credit funds anyway. So that little tier we were trying to access, we made -- we may own now 5% or 6% on it, which is kind of what we thought we'd make, but it's not a massive opportunity set. So it doesn't mean we're not going to do it. We'll do some of it, but a large-scale debt-dedicated fund raise, I don't see that in the near-term there.

Private equity, we tend to focus on particular things. So we have been very strong. So Middle East, yes, that's gone well. We'll probably do some more there. But again, these are not billion-dollar fund raises. These tend to be $100 million , $200 million, $300 million-type fund raises. So that will keep happening. We'll do something every year in private equity. Gentleman at the front was, I think, next.

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Bruce Allan Hamilton, Morgan Stanley, Research Division - Equity Analyst [30]

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Yes, it's Bruce Hamilton, Morgan Stanley. Just 2 for me, if that's okay. Obviously, the growth in assets is very strong. You're diversifying in terms of equity inflows and so forth. Retail obviously generates decent net new money. Do you feel your distribution footprint for retail is where you want it? Or is there any sense that you would like more sort of partnerships to tilt over time more to kind of retail and high margin?

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [31]

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Yes. I think on that one, do you -- can I answer in that way? That way, I won't forget the second one.

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Bruce Allan Hamilton, Morgan Stanley, Research Division - Equity Analyst [32]

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Sure. Yes.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [33]

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Yes, it's never good enough, right? Your distribution is never good enough. So our retail distribution is in much better shape than it was 2 years ago. It's -- that's a bit about people, a bit about sticking asset and education. We would still like it better in the biggest market. In the U.S., we'd still like to get much more flow there. That's a market itself that's going through a serious trauma because everyone's saying active managers are all useless and buying passive. And so they're going through such a large trauma, that gets varied people very sweaty. But actually, that's been an opportunity for us because we're an active manager that actually earns alpha. So that's actually been -- that's why we're beginning to sell quite well there. But we -- I'd like to be bigger there. That's not -- it's not necessarily about people. It's just about getting the message out there and keeping at it. So beginning to see some flow in equity is good there. So we're beginning to see a bit of action on all of what we do. So retail, we could definitely be better, and we're happy to do more things with partners, and we're open to anything.

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Bruce Allan Hamilton, Morgan Stanley, Research Division - Equity Analyst [34]

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And then secondly, just in terms of the -- obviously, the end markets are deepening. But are there any areas where you worry, given your growth around capacity constraints in any of your products and, therefore, not soft closing, but having to...

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [35]

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Yes -- no, we always -- absolutely. We're always worried about that. I mean, remember, our big thing is that we'll give you your money back if you need it. So we get very obsessed with liquidity. So we stay very, very tight on that. We run pretty aggressive limits in terms of what we do by issue, issuer and by country across the piece and whether it's equity or fixed income. What we tend -- what we're doing there is always on a rolling basis, looking at what capacity is and what it could be. And if we're getting -- if we break through what we said was a limit, then we stop and we reset and whether do we want to soft close or not. So it's absolutely something we're aware of. We've done that in the past. We've closed. What's tended to happen on the soft close thing, and we're -- again, we're trying to avoid this a bit, it is the last great clever short-term idea. Those things tend to -- everyone says, "Oh, yes." I'll give you an example, Argentina. You should do an Argentina fund. Okay, but for how long? What is the opportunity? How big is it going to get? Do we want to turn everyone? And of course, then all the sales people get super excited because it's something different, and you sort of turn them off, selling the bread and butter for 3 to 4 weeks while they push that out. And so we do, do occasional product like that, but these things tend to have capacity issues. And so the -- it's got to really make a huge amount of sense. We're not just in it for a 1-year fantastic return for $300 million worth of capital. We would much rather build things that are bigger. So the smaller stuff tends to be like that. And it tends to be stuff that's sort of very specialist theme or in a regional strategy rather than one of the global ones or the local markets, once again, there may be capacity in those. But it has happened. We have an Eastern European product we shut because we couldn't -- the opportunity kind of went away and we ended up being a very focused fund on one country. So you have to keep an eye on it.

Just right behind you.

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Hubert Lam, BofA Merrill Lynch, Research Division - VP [36]

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It's Hubert Lam from Bank of America. A couple of questions. Firstly, on the short duration fund, if you can give us some investor feedback on just the performance of the fund. I know it's been relatively weak over the past year. Is it holding back inflows coming from retail clients which were a big driver of your flows over the past couple of years? So that's the first question.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [37]

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Sure. Well, I mean, the short duration fund is doing exactly what it's supposed to do. We've said to everybody, this is a credit fund. It is a very short duration. It's going to look to make about 6% in dollars over a rolling period. There will be years when it makes 2 or 3x that. They're going to be right after this some hiccup in a corporate story, where there's a big opportunity to take a lot of risk, where people panic about the short end, massively oversell the short end, and we'll be a bid for that. That can happen in corporate and in sovereign. That would -- that sort of thing has happened since sort of August of last year through August through kind of December time -- August through November time really. And great, that's when we buy a bunch of stuff to lock in that 3-year performance. So that's good into -- so it does what it's telling people.

Now what does that do to flows? You're right that in a way, that the more successful you are in attracting people to something like that, when they're not getting dollar-positive carry and they like the idea of daily liquidity in short duration. The risk is that they don't understand it even though they said they do. And of course, that's always true. So you always get the Herbert who says, "Oh, my God, this is not quite what I expected." But we did show you this, and this did happen 3 years ago. And so you do get a bit of redemption around that.

But we're set for that. We have no problem with that. We manage pretty aggressively to make sure we can handle that kind of thing. So we saw a lot of 2-way flow from about August, September. But it has been 2-way flow, and it's -- the fund is a decent size. I think publicly, what did it get down to? GBP 5 billion or something?

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [38]

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GBP 5 billion and a bit.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [39]

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GBP 5.5 billion? From a peak of GBP 7.5 billion or something. And now it's GBP 7 billion, GBP 6.5 billion to GBP 7 billion. So the kind of natural evolution of flow is happening. We're seeing -- now at these days, we're seeing like a 2-way flow like it was all through last year. So you're always going to get that everybody goes when the markets are bad and nobody comes when they should come and then they start buying when things are fabulous. So things are great. We'll see order flow whether we're making 6% instead of making 13%. But we are interestingly seeing 2-way flow. We started to see 2-way flow. So it's all a bit rabbit in the headlights, August. September, there were 1 or 2 large outflows, but not massive outflows. And then we've seen 2-way flows since about October, November.

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Hubert Lam, BofA Merrill Lynch, Research Division - VP [40]

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And that's continued, you said, year-to-date, I think you had mentioned that there are positive inflows coming and going into that fund.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [41]

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I haven't got the exact numbers on top of it because it's still 5 weeks. But yes, we're seeing 2-way flow, and the fund is larger than the low point, which was October or November or something. So...

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Hubert Lam, BofA Merrill Lynch, Research Division - VP [42]

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Okay. The second question is maybe you can just give us a sense in terms of your positioning in terms of your investments? In which countries are you generally overweight? Underweight?

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [43]

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Well, yes, I probably don't want to go through all of that, to be honest with you. We -- that's kind of a bit of what we do, right? That's kind of how we get -- make the money. But we're overweight in some good ones and underweight in some bad ones. Thank you for the question. There's a guy behind you. I think he's got a question.

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David Leslie McCann, Numis Securities Limited, Research Division - Director & Diversified Financials Analyst [44]

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I'm Dave McCann from Numis. A couple of technical ones and then a third one, probably for Mark. The first one, just on the tax rate. You referenced in the presentation, 18.5%, which suggest to me you're assuming that the U.K. corporation tax does go down to 17% after April. But obviously, the conservatives have announced that's not going to happen anymore. So you then also get the 16% guidance kind of going forward. So is that assuming 17% or 19% within the U.K.? That's the first question.

And then on the dividend of at least 1.5x cover. Is that kind of based on the statutory EPS, the adjusted EPS? So obviously, in this half, we've had a few positively beneficial items in there. So is it going to include or excluding those?

And then the third question, the less technical one. Reading between the lines on some of the closing remarks there, and some of those additional, I guess, risk to capital flows, does that imply that at the margin, people have -- investors got a bit more nervous in 2020, particularly around coronavirus and other things? Or am I overreading between the lines into that?

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [45]

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Should I go first because...

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [46]

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You can go.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [47]

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Then, we can go for hours then. I'm going to have a cup of tea. People are all -- events create stasis for a bit. And then unless it's super big -- it can be big panic and then stayed, so you just get a lot more people talking about stuff. We -- I mean we haven't seen an impact to flow yet. But people will -- you would expect there to be a bit of one. And it can be -- what it would tend to do is reduce both flows, unless it's a meltdown-type panic and then it'll be a big jump in redemptions, but we're not seeing that. So I think you just -- I would expect -- and who -- but look, I'm not -- we're not seeing it, but I wouldn't be surprised if someone gets a cold when they come back from Singapore. They probably think I'm going to go to bed or I'm going to go sweat somewhere. So just a bit less activity and more nervousness. But we're not seeing it yet. I mean investors are -- when people have made a lot of money, they get nervous, right? So people had a pretty good year last year. So it tends to make people a bit jumpier. So they tend to do a bit less for a bit. But we're still seeing flow we're not seeing billions of dollars a day, either way, but we're still seeing reasonable flow.

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [48]

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And then on the 2 more technical questions, I'm afraid, it's a very technical answer to a technical question. The first one, in terms of accounting, you can't adjust the tax rate until it's been enshrined in law. So while the conservatives have announced they won't get down to 17%, it's actually got to be enacted. So both the 18.5% and the forward-looking guidance is based on the 19%. We're waiting until it goes through and then we can adjust.

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David Leslie McCann, Numis Securities Limited, Research Division - Director & Diversified Financials Analyst [49]

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Because if it doesn't go through, then the 16% should probably really be something more like 18% then presumably.

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [50]

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I wouldn't go up to 18%, but it will be a little bit high. And the 1.5x is on statutory.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [51]

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Has anybody else got a question? Yes.

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Paul McGinnis, Shore Capital Group Ltd., Research Division - Research Analyst [52]

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Paul McGinnis from Shore Capital. Just returning to the revenue yields. You explained the sort of the 3 basis points drop from the same period last year on the basis of mixture of size and asset class effects. So the 1% deflation guidance per annum -- sorry, 1 basis point guidance going forwards, is that assuming there's -- that's an underlying sort of like-for-like effect, stripping out -- it has nothing in there for sort of anything to do with mix or size within that, that's the underlying deflation?

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [53]

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Correct. Yes, which in recent periods has been offset a little bit by some more retail and other factors as well. So the 1 basis point is pricing competition, margins gradually coming down broadly in the industry. That's what we're seeing.

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Paul McGinnis, Shore Capital Group Ltd., Research Division - Research Analyst [54]

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Okay. And the fact that you've framed that in terms of basis points rather than percentage points, obviously, over time, that becomes a bigger effect as you come down. Or is that -- did you mean it to -- for that to be the case?

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Thomas Adam Shippey, Ashmore Group PLC - Group Finance Director & Executive Director [55]

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I'm not casting my mind forward to a 30 basis point or 25 basis point margin. Just at the moment, 1 to 1.5 every 12 to 18 months or so feels about right.

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Mark Langhorn Coombs, Ashmore Group PLC - CEO & Executive Director [56]

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Anybody else? Well, thank you very much for coming. Nice to see you again. Very kind of you to come and listen to us.