Aberdeen Group Plc

Good morning and thank you for coming along today. I hope you'll do what I've just done and remember to switch off your mobile phone or Blackberry or whatever. I'm joined on the platform today by my fellow executive directors, Luke Savage, our CFO, Paul Matthews, the CEO of UK Europe Pensions and Savings, and Colin Clark, head of our global client group. We're also joined in the audience by some of our executive team, including Rod Paris, our CIO, Barry O'Dwyer, who's head of workplace and retail, and Raj Singh, our chief risk officer. There is much to be pleased with in these interim results. We delivered good and well-diversified growth in what can only be described as a challenging environment. Growth in assets and in flows from a broad range of customer environments. and clients. We continued to grow our global network, increased our stake in HDFC life. We're building out our presence in the advice and intermediary markets in the UK through 1825 and the acquisition of the Elevate platform. Importantly, we also maintained our financial discipline to deliver growth in fee-based revenue, profits, and cash flows. All of this allows us to continue our unbroken record of delivering a progressive dividend whilst maintaining a strong capital position. In my view, the first half demonstrates that our strategy to build a world class investment company is delivering. I'll return to talk about markets and what we're doing to accelerate our pace of strategic delivery, which will then be followed by Q&A. But first, I'll hand over to Luke, who's going to lead us through our results for the first half of 2016. Luke.

thank you keith and good morning ladies and gentlemen um i'm going to start this morning by a quick look at performance against our simple and hopefully to many of you by now familiar business model as you can see we've delivered continued growth in assets under administration up from 307 billion pounds at the year end to 328 billion pounds at the half year As Keith mentioned, that includes good net flows in challenging markets. And it's helped by the diversity of the book, both in terms of asset mix and also FX gains at the end of the period. Moving across, you can see fee income, which is, of course, based on average assets under administration, not period end, was up 4% to nearly 800 million. And at the same time, we continue to reduce our cost to income ratio down 1% to 62%. In combination, we increased underlying performance by over £40 million, some 14%, earnings per share by 16%, and cash generation by 10%. That has allowed us to increase our dividend by 7.5% to 6.47 pence per share, continuing our unbroken progressive dividend track record, and we've done this whilst maintaining a strong Solmty 2 surplus. Here are those figures in tabular form. In the top couple of rows, you can see that we've continued to drive our fee-based revenues, which contribute well over 90% of total income. A reminder that there's a core component of our business model with little of our revenues coming from traditional spread risk-based insurance activities. If we turn for a moment to non-operating items, we guided at the end of the year towards a significant reduction in 2016 with a number of one-offs falling away and recurring non-operating expenses trending down. And you can see we've delivered on that guidance here with a figure down by nearly £100 million. In terms of a couple of particular line items, we closed our DB pension scheme, to all further contributions with effect from April this year and you can see the last of the associated charges coming through there and as a reminder we did that from a position of strength with the DB scheme having a surplus up from the year end and now in excess of one billion pounds you can see that restructuring is continuing to trend down notable within the figures are two items The integration of Ignis is now substantially complete, with a full first year of the £50 million of synergies coming through in 2017. And it also includes restructuring costs in Germany, where post-closure to new guarantee business last year, we've been reshaping the business and will, by 2017, have reduced total costs by over 25% versus the run rate prior to the changes. So overall, much reduced on last year, and I'd guide you towards a similar level of restructuring costs in the second half. Let's now drill into the first pillar of our model in a little more detail, asset for some flows. Here you can see over £4 billion of net inflows via our growth channels. Reduced outflows on our mature books, which are in natural runoff, down to £2.9 billion this year from £3.6 billion last year. and towards the right-hand side, the market movements, which have benefited from the diversity of our AUM, both in terms of asset class and currency mix. Overall, we've increased AUA across all four growth channels. That said, the operating environment across our four channels is different, so let me walk you through each of those in a little more detail. You can see here the flow figures for our institutional and wholesale channels. Starting with wholesale, you can see our flows turn negative. Now to give context, the Pridham survey for the first quarter stated that this has been the worst period for the wholesale markets in 20 years. They're markets where investment decisions are typically made at short notice and are largely sentiment driven. So it's perhaps not surprising given the economic uncertainty and political uncertainty we've seen that investors have been taking risk off the table. That was in contrast to our institutional flows, where mandates reward is a function of long-term investment goals, performance and capabilities. Here flows were strong, particularly into real estate in terms of asset class. And in terms of client diversification, we saw good flows from DB schemes, including into ILPS, our integrated liability plus solution. And as we look forward in institutional, that pipeline remains strong. When it comes to workplace and retail channels, we've continued to drive strong and resilient net flows of 2.8 billion pounds. Now, the retail flows are indicative of the strength of our proposition, where our platform continues to attract favour with IFAs, and we've signed up nearly 50 more firms year to date, as well as seeing existing IFAs continue to consolidate assets onto our platform. It already has the largest share of flows in the advised platform market, and with the acquisition of the AXA Elevate business, based on current activity, flows would be approximately twice the size of our nearest competitor. Not only does it give us increased flow, but it also enables us to expand our capability from the high-end advisory market into the more generalist market. To give some perspective on that acquisition, the Elevate platform has got around £10 billion of assets under administration on it and has been losing close to £20 million a year. But once we've integrated it, we expect it to contribute profits close to £20 million a year, in part from increasing SLI content on the platform. We expect to complete on the transaction in the coming months and to spend a little under £100 million in total on the acquisition, the integration and restructuring, which should take around 24 months to complete. In Workplace, we continue to auto-enroll over 200 schemes a month. largely through our good-to-go online capability. Now, with those schemes, we are now at the small end of the market, but they will earn us an annual scheme admin fee of £1,200 per scheme. And over time, we'll grow assets in which we earn fees both within our pensions and savings business, as well as around 70% of the assets then being managed by SLI and earning us fees there as well. And that growth in auto-enrollment is contributing to the annualized three billion pounds in regular premiums we now attract into workplace. If we turn now to how those asset movements translate into revenue, you can see here that we've grown free revenues through our growth channels by 8% year on year. That 8% growth is despite the impact of the regulatory-driven changes to our operating model in Hong Kong, as a result of which reduced fee growth came down by about 2%. But overall, we grew fee revenues by an excess of $30 million. As for our spread risk margin, we took advantage of volatility in credit spreads during the period to capture additional yield pickup in the management of the back book, and you can see that coming through there at 10 million. Now, the timing and quantum of such opportunities are hard to predict, but it would guide to a further 5 to 10 million pounds over the course of the second half. In addition to ALM activity, we benefited from an acceleration of cash flows from the Heritage with Profits book as a result of a change to the scheme of demutualisation driven by the adoption of Solvency 2. And you can see £22 million coming through there in respect of that. So if we turn to the third pillar of our model, costs, the cost-to-income ratio has been reduced by 1% to 62%. And whilst absolute costs have increased, in part that's because we're continuing to invest in growth initiatives. Specifically, we've been making good progress in the build out of our in-house advisory capability. Keith will come back to the strategic importance of this later, but you can see here seven million pounds in expenses related to that build out. We're very pleased with the progress we're making there, and we expect 1825 to reach break even during 2017. Remain expenses have risen by £26 million as a function in part of higher AUA, together with continued investment elsewhere across the business. Now, by its nature, that investment can be somewhat lumpy, and I'll come back to that when I talk about the pensions and savings business in a moment, but would stress that we see strong cost discipline as a key lever in us continuing to drive down the cost to income ratio. Now, I've talked about most of the individual items on this slide up to now, so pulling all that together, all I would add is that our overall underlying fee-based performance has grown by 7% year-on-year, just showing the strength of our diversified business model in the current difficult environment. How does that break down by business unit? You can see here that we've achieved an improvement across every business line item, with the exception of Hong Kong, where I touched on the changes there a moment ago. I'll come back to the major line items separately, but whilst we're on this side, let's touch briefly on Europe, pensions and savings. For some time, we've guided that we expect the contribution from Europe to remain stable. The first half saw Europe benefit from 4 million of the 22 million solvency spread risk-related gain that I touched on a moment ago. And allowing for that, you can see that Europe is very much on a par with last year, and that our guidance in that respect remains unchanged. Return to standard life investments. We've grown fees by 7% in contrast to just a 3% increase in expenses. It is a business where costs can and have responded quickly to firm management action, given the uncertain conditions we were operating in. And we will continue to maintain tight cost control going forward. Across the bottom in the yellow dots, you can see that at one year, 29% of assets under management were ahead of benchmark, compared to 85% and 84% at the all-important three- and five-year points. The performance of GARS has attracted some attention in recent months, so let's put that into context. Whilst performance has been below target, it has nonetheless continued to operate within its design risk envelope of around a third to the half the volatility of equities. Up to the mid-year, we have seen net inflows into gas of 0.3 billion pounds. There have been strong institutional net inflows throughout the period, offset by outflows in wholesale for reasons I touched on earlier. That said, even within wholesale, we attracted nearly £1 billion of net inflows into wholesale products other than gas, including Mifolio, which is now broken through £9 billion, and is an excellent example of the power of combining distribution with manufacturing within an investment company to drive that resilient growth. Over to the right-hand side, third box down, you can see that there's been no margin erosion, with average revenue yield increasing slightly by one basis points to 53 basis points. Whilst in the fourth box down, you can see that we've increased EBITDA from 40 to 42%. Now, I've touched on diversity kind of by currency and by client type, but I think it's also worth looking at how product diversity impacts asset and P&L volatility. You can see here in the bars on the left that since the formation of SLI in 1999 through to demutualization in 2006, to the current time in 2016, you can see how over that period, the asset volatility across the fund ranges we offer to our clients has come down as we've grown the range of asset solutions available. That's good for our clients, and as you can see from our results, it's good for our assets under management and our P&L. We are a well-diversified business. Moving on to our pensions and savings business. The 8% revenue gain we've delivered from our growth channels has been offset by the phasing of investment spend, both in our existing franchise and as I touched on earlier, the building out of our advisory capability. We are maintaining a strong cost discipline and elevate an 1825 aside, expenses in this business will come back down in the second half to leave full year expenses in line with prior year levels. Looking to the right-hand side, again the third box down, we've been saying for some time that average revenue yield compression was slowing, and here you can see in the period the margins are unchanged at 59 basis points, although the addition of elevate will give rise to a shift in mix that sees that number four slightly going forward. Let's look now at our capital position. A busy slide, for which I apologise. I know many of you attended the Solvency II session we ran post our UN results presentation, at which I went to great lengths to point out a number of key messages, and I'm going to repeat three of them now. Firstly, the nature of our business means that solvency to capital is not a constraint on us, although neither is our regulatory capital surplus a source of readily deployable capital, given that it principally consists of VIF. Secondly, I don't believe that you can take comfort from reported regulatory solvency ratios. There are just too many anomalies that go into the number to make peer-to-peer comparisons effective. Thirdly, what is important is the absolute quantum of the capital surplus and how stable that is under a range of scenarios. So with that in mind, we present here both a strict regulatory view on the left-hand side, as would appear on a regulatory turn, And then on the right hand side, we provide what we're calling an investor view, which we believe provides additional insight into how well protected our investors really are. It adjusts for gross ups, which do not represent risk to the shareholder. And it adjusts for capital fully available to meet losses, but not recognized at the parent level. You'll see that the surplus has fallen by £300 million since the year end. Of that, around £200 million represents the increase in our stake in our Indian associates, up from 26% to 35%, and the subject of the merger that was disclosed yesterday. And the remaining £100 million is the impact of a number of small movements in both resources and requirements. But I think with just a £100 million underlying movement, it demonstrates that not only in the first half of 2016 has that regulatory surplus been stable, but we remain confident that the surplus is insensitive to a wide range of market scenarios. But as I've repeatedly said, you know, regulatory capital is not a constraint on us. So what do we measure ourselves against? It has been and it remains cash. It is cash that funds investments, be that organic or inorganic, and it's cash that underpins our ability to stand behind our progressive dividend policy. The fee-based nature of our business provides a strong correlation between fees, IFRS profits and cash generation, which you can see here is up 10% year on year. And that is a conservative measure. We don't take credit for cash generation with our Indian and Chinese joint ventures and associates. All we recognise from them is the cash dividend streams coming in from India. If you look to the right of the chart, the chart on the right-hand side shows the amount of surplus liquid resources we hold at group level. These have dipped in the first half as a function of us investing in India, as I mentioned a moment ago. but they remain at a level which provides a strong buffer to underpin both our progressive dividend policy as well as giving us optionality to support growth. So, as you can see, we've continued to deliver for our customers, our clients, our businesses performing well, growing assets, growing revenues, growing profits and increasing cash generation. That supports our progressive dividend policy, whereby we're announcing a dividend of 6.47 pence per share for the half year, a growth of 7% year on year, and maintaining our unbroken track record of a progressive dividend policy since demutualization. And on that positive note, I'll hand back to Keith.

Thanks, Luke. We continue to make progress in building a world-class investment company. A company with investments at its heart that focuses on the needs of customers and clients and earns their trust. A business that people aspire to work for and respect. A business with strong values, teamwork and excellence pointed at delivery. I and my colleagues in the management team have a very clear focus on delivering both growth and efficiency. Together, they drive profits and cash flow for shareholders. We continually monitor our progress. And after my first year as CEO, and I think a positive outcome in a challenging first half, it's very clear to me that a sharper strategic focus can also up the pace of delivery. To understand why, let me first say a few words about markets to provide context. I think it's important to note clouds were already gathering over the global economic outlook before the UK's vote to leave the EU took place. It will take time for the full effects of the vote to be felt and understood. In my view, it would be rash to extrapolate from the economic and political noise of the last six weeks. What is clear is that the uncertainty that always accompanies economies, markets and public policy is likely to remain elevated. Volatility will continue. We'll hit air pockets. We'll have weeks and even months where markets rise quite strongly. that elevated volatility some of which is directly attributable to the uk vote to leave but also has more to do with political and economic developments around the rest of the world what's even clearer is that the recent events Reinforce the four big trends shaping the global savings and investment landscape that standard life strategy is explicitly designed to take advantage of. First, focus on fiscal policy, in my view, to support economic growth is going to increase. So public sector debt and deficits are not going away. That will put even more emphasis on individuals taking responsibility for their financial future. Whether we like it or not, trust in experts and elites is being increasingly challenged and the political debate around the world on inequality and inclusion is intensifying. A greater emphasis post-vote on international trade will mean not only that UK businesses will need to be world class to sell abroad, they will also have to compete with world class firms in their own backyard. So utilising technology and innovation to build efficient and scalable platforms more than ever is going to be a source of competitive advantage. Finally, the slow growth, low inflation, compressed return environment has been extended as markets and economies absorb the enhanced level of uncertainty and volatility. 36 years' experience in financial markets has taught me that during periods of uncertainty and volatility, and there have been quite a few, that I need to remain focused and retain our strategic discipline. Our long-run strategy is explicitly designed to take advantage of these four trends, and as they're intensifying, it's clear to me that our reaction should be to increase our pace of strategic development. delivery. What does that mean in practice? Well, it's actually very simple. We need to continue with our targeted investments in our diversification agenda to grow assets while at the same time focusing and sharpening our focus on operational efficiency. This is what will create the headroom to invest while delivering improving returns for shareholders. So turning first to diversification, as Luke's pointed out, we're already benefiting from strong long-term relationships with a broad range of clients and customers. In the first half of this year, we saw a very different mix of net flows compared with the first half of 2015. We benefited from the fact that our diversified client and customer base reacted in different ways to the changing environment. Institutional appetite increased as large institutions sought to reduce volatility. Wholesale retreated. We saw very little impact in workplace because people still need and are still contributing to their pensions. We also saw very little impact on intermediaries who continued to consolidate assets. The net result was good and well diversified growth. Net flows in our growth channels rose by 4% of starting assets, with revenue, as Luke pointed out, up by nearly 8% on the first half of 2015. We have a strong track record of commercializing innovation to drive diversification, and that's central to maintaining the positive momentum we have in asset growth. We spent some time talking about this at the Capital Markets Day, and I don't intend to go through the detail today, but simply to point out that while for some uncertainty and change is a threat, there is no shortage of opportunities for standard life. Our target and investment programme, which is already in place, means we are well-placed to take full advantage of them. As part of this programme... We increased our stake in HDFC Life to 35%. The proposed merger with MaxLife will create India's leading private sector life company. As a result, we will have valuable strategic stakes in the leading life insurance and let's not forget asset management companies in India, one of the fastest growing economies in the world. Driving asset growth and revenue growth across our growth channels, in my view, is the best strategic means of reducing unit costs. However, particularly in the current economic environment, we also need to focus on the second critical component of our strategy – financial discipline. In its recent past, Standard Life has a good track record of improving its operational efficiency. Our cost-income ratio has fallen by 7 percentage points since 2012. You're aware we already have programs in place that will continue to lower unit costs and delivery is on track. The integration of Ignis, which has delivered over 50 million of annual cost savings, and the replatforming of some of our IT architecture are good examples. The dynamic approach to cost control that underpins financial discipline at standard life investments delivered a further fall in the cost-income ratio and a continued improvement in profitability despite weak markets and slower net flows. However, the build-out of 1825 and the acquisition of Elevate in the near term could add more costs than income and slow the downward trajectory in the cost-income ratio. My very strong view after my first year as CEO is that we need to sharpen our focus on costs. I am determined to deliver not just well-diversified growth in assets, but also make sure it's accompanied by a world-class cost-income ratio. To this end, we've put in place three programs to ensure that the downward trajectory not only continues in the cost-income ratio, but that it falls significantly below current levels. looks at some shorter operational efficiencies deliverable over the course of the next 18 months by utilizing the more dynamic approach to cost control and budget planning that serve standard life investments so well over the last 12 years or so. And Luke is leading the delivery of that program. The second recognizes that as we see benefits from closer cooperation and collaboration across the growth channels, there is scope for for significant strategic synergies as we remove areas of duplication. And I've asked Colin Clark and Paul Matthews to accelerate the bringing together of the growth channels to make sure they cooperate and collaborate even closer. Third, parts of our business, particularly the mature book, require a more focused and transparent management approach to fixed costs if we are continued to drive that cost-income ratio even lower. So I'm announcing an enhanced approach to the management of our mature insured books. In order to ensure a greater focus on operational efficiency, I'm appointing Barry O'Dwyer to lead a management team that will be tasked with not just delivering, but making transparent the considerable value in our life insurance businesses. The efficiency and the variability of the cost base needs to and will be improved. All three programmes will report to me on a regular basis and that's going to be coordinated through LEND2, our new Chief Strategy Officer. Taken together, these programmes will improve the operational efficiency of the whole business and should allow us to drive our cost income ratio down to significantly below current levels and at the same time allow us to continue to invest in our diversification agenda and strengthen the long-term relationships we enjoy throughout our customer and client base. By doing this, we will ensure we continue to meet changing client and customer needs. We'll also ensure we grow our assets, our fee-based revenues and our profits. Increasing our pace of strategic delivery will help us to accelerate shifting the shape of standard life to a well-diversified, world-class investment company, generating sustainable long-term returns for shareholders. Thank you. Luke, Paul, Colin and I, with help from senior colleagues in the room, are now available to answer any questions you may have. Oliver.