Aberdeen Group Plc

And welcome to Standard Life's results presentation. With me on the platform are Luke Savage, our Chief Financial Officer, Colin Clark, our head of our global client group, and Paul Matthews, chief executive of pensions and savings. Unfortunately, for the last time, Paul has chosen to retire after 28 years at Standard Life, so I thought I'd give you plenty of advance notice. This is your last chance to ask questions of Paul. We'd be grateful if you can make sure your phones and other devices are switched off and once you've read the compliance slide I'll get the presentations underway. Over the next 40 minutes or so I'll give a brief overview of our 2016. Luke will then go through the results in some detail and I'll come back and set 2016 in its strategic context. We'll then move to question and answer where Luke, Paul, myself and a whole bunch of executives in the front row will do our level best to answer your questions. 2016 was a year when Standard Life made good progress towards creating a world-class investment company. As we promised at the interims, we increased our pace of strategic delivery. We continued with our targeted investments in diversification and growth. We improved our financial discipline with a focus on driving greater cost efficiencies. We also strengthened our long-term relationships with clients and customers, including the long-standing customers in our mature books. Our focus on strategic efficiency. strengthened the resilience and sustainability of our simple capital light business model, which continued to deliver for clients, customers, our people and shareholders. We grew assets by 16% and fee-based income by 5%. But the benefits of the investments we made in diversification were most visible in our growth channels. Here we saw asset growth of 20%, revenue growth of 10%, and net inflows of 4.1 billion. This robust and well-diversified growth was more than enough to offset the impact on revenues of both the 4.3 billion outflows from GAAS and the continued long-term runoff of our mature book of business. We also improved our financial discipline. We lowered the cost-income ratio to 62% through careful cost management. We delivered the integration of IGNES early, enabling standard life investments to deliver the 45% EBITDA margin one year ahead of schedule. The benefits of a well-diversified customer and client base, combined with the improvements in our operating leverage, helped us deliver a 9% increase in operating profit and cash generation. That provided support for continued dividend growth. Our final dividend of 13.35p takes the total to the year to 19.82p. and marks a decade of unbroken dividend growth at Standard Life. With that, I'll hand over to Luke, who will go through the detail, and I'll come back and talk about 2016 in its strategic context.

Luke. Thank you, and good morning, ladies and gentlemen. As Keith said, this is a strong set of results. And if we turn first to the summary P&L, You can see in the first two rows that that growth in income has been driven by our fee business, which represented 95% of our £1.75 billion of underlying income. Income from our spread risk business remains steady at £92 million and it's reflection of our move towards a capital light business that doesn't tie up balance sheet that the PRA have recategorised standard life from a major life group to a retail life group. We'll look at the individual components of our profit in more detail later. But before I move on, I would point out how the growth in fee revenue, combined with a sharpened focus on efficiency, has allowed us to increase the underlying performance by 8% to £681 million. And behind that sits an 11% increase in the underlying performance of our fee business, now standing at £596 million. You can see we continue to benefit from favourable assumption changes, largely with respect to longevity, adding £42 million and almost unchanged on last year, and helping to drive that operating profit, as Keith said, up 9% to £723 million. So a strong set of results. But what about our non-operating? We said a year ago that we expected non-operating costs to fall in 2016, and annuity provision aside, which I'll come back to, you can see that we've delivered on that, with non-operating costs down £158 million from £257 million down to £99 million this year. So in terms of annuity provision, you remember that we announced in October that the FCA's review of annuity sales showed that a number of sales that we made since July 2008 did not adequately explain to customers that they may have been eligible for an enhanced annuity. Now, to us, that is obviously disappointing. What we also said at the time was that we'd be undertaking a past business review of these non-advised annuity sales, and as a result of that commitment, we've made a provision of £175 million to cover both the possible customer address, together with the sizeable programme costs of undertaking the review itself. I would, however, stress that we are not at this point taking credit for any PI insurance recovery, but we are aiming to recoup up to £100 million. Let's look now in more detail at the first component of our business model, increasing assets. Despite volatile markets, we gathered over £4 billion in net new flows through our growth channels, helped by the diversity of our business. We also completed on the acquisition of Elevate, adding a further £11 billion of assets, while our mature fee businesses, which are in long-term structural runoff, saw net outflows of £6.2 billion down from £8 billion last year, helped by the winning of a £1.2 billion mandate from Phoenix in the fourth quarter. A combination of rising markets and the weak pound helped add over £40 billion through market movements to give us total assets under administration of £357 billion, up 16% on the year. And within that market movement, roughly one third was FX and two thirds from other market movements. Before we take a look at the drivers behind the 4 billion of net inflows across our growth channels, we can see how they break down here. And we've shown not just the strong net flows, but the strong gross inflows that we generated by channel at 38.6 billion pounds, little changed year on year. So if we turn now to institutional and wholesale, it's worth starting off by saying that gross flows here have also remained strong, at £27.7 billion this year compared to £30.5 billion last year. And at the net level, we've delivered £1.1 billion of net institutional flows from a business increasingly diversified by geography, by customer type and by investment solution. In wholesale, along with most of the entire industry, which, according to the Pridham report, was the worst the industry has seen for 20 years, we've had a challenging time. The uncertainty over the euro, the US elections and so on, has driven a trend of investors taking risk off the table, with us seeing net outflows of 1.7 billion. But to put that into context, that is against closing wholesale assets of £50 billion and a UK market share that remains strong at 4.7%, a testament to the strength of our franchise across a broad range of asset classes. We're seeing the benefits of our investment in our capabilities and global distribution that we've been making with growing demand for an increasingly broad range of investment solutions. So whilst demand for gas was weaker in 2016, as Keith said, 4.3 billion of net outflows, largely from the more reactive wholesale channel, demand for other products continued to grow. In 2016 alone, we launched 16 new funds, many in the new active space, and attracting average margins broadly in line with the rest of the book of business. And as you can see from the chart on the left, we've more than doubled both gross and net flows into products other than gas over the past three years. Despite the challenging environment, in 2016, we saw gross inflows into those products increased by 30% to 17.5 billion, with strong net flows of 3.7. And on the right-hand side, you can see that we delivered strong growth in net inflows in areas such as other multi-asset, fixed income, private equity and myfolio. And myfolio is now broken through the £10 billion mark of assets under management. So our long-term diversification agenda is clearly delivering. Let's turn now to our workplace and retail channels, which continue to attract steady and resilient net flows. In 2016, these amounted to some 7% of opening assets and were also boosted by the acquisition of Elevate and the £11 billion of assets that came with it. Our total AUA is up an impressive 33% year-on-year, breaking through the £100 billion mark up from just £45 billion five years ago. In terms of a bit of colour, we continue to sign up new auto-enrolment schemes, around 8,000 in total. And that has increased our regular workplace contributions to 3.1 billion pounds per annum. Now these are very sticky and very steady flows and they now constitute about 75% of our gross flows into workplace. And as the minimum contribution rates in auto-enrolment increase in April 18 and then again in April 19, we expect that to perpetuate the ongoing growth. Furthermore, our workplace business continues to feed assets into our retail business, some £2.2 billion in 2016 alone, £0.3 billion of which went into drawdown, and in total we've now grown our assets in drawdown by 21% to £16.4 billion. In retail, our award-winning RAP platform continues to attract strong net flows, and in 2017 we expect our already leading market position to be boosted by our acquisition of Elevate, itself another award-winning platform. Now, as we've indicated previously, the total cost of acquisition and integration for Elevate will be in the order of £100 million. And that is a little over £30 million for the acquisition and the balance for the integration. As we said before, we expect that to take about two years. And by the time we finish, we have turned around a business which had been losing close to £20 million a year. into a business making a profit of a similar amount, largely through cost reduction, and we're already making progress in that direction. The second component of our business model is also delivering. In 2016 we grew revenue by 5% with growth channel revenue up 10% while fee revenue on our mature books was 8% lower impacted by lower performance fees down 14 million as well as lower premium based income in Europe. That said, our mature free business in the second half was 6% up on the first half, off the back of market movements and FX, which also helped drive closing assets in our mature books up by some 8% versus opening AUA. And over time, revenues from our growth channels, the dark blue bars on the left, are up over 70% in the past four years, whilst revenue from our mature books in the light blue bars has remained relatively constant, boosted a little by the Ignis acquisition in 2014. And in terms of revenue margin across our growth channels, we continue to see little pricing pressure, and that comes through in the stable margins on the right-hand side of the chart, with the small year-on-year movements being up one basis point for both SLI and workplace, and down one basis point in retail. And as I say, the small moves we do see are a function of mix, not of pricing. By channel, we expect SLI third-party revenues to remain stable in the low 50 bps, Workplace has stabilised as a function of our success in the auto-enrolment market. And retail margins are supported by increasing volumes of drawdown and the build-out of 1825. Now, it is worth noting that the Elevate pricing, as we've said before, is lower than our own pricing. So, all other things being equal, we can expect the average retail yield to drift down by about two basis points in 2017. Turning to spread risk margin, as I said earlier, it's only 5% of our underlying income comes from spread risk activities. As announced at the half year, we had a one-off gain of 22 million pounds from changes to the scheme of demutualization arising from the adoption of Solvency II. We'd guided ALM activity to be down from 30 million pounds last year to around half that this year. But as it was, we took advantage of periods of market volatility to generate £25 million of income, so only down £5 million in the end. But once again, we would guide towards up to £15 million of ALM activity in 2017, although as in 2016, that will be very much subject to market conditions. Finally, on this slide, the negative other of 26 is made up of a host of small items, the most notable being related to negative mortality experience in the year of £8 million. The third component of our business model is our focus on lowering unit costs, where we previously articulated a commitment to see the cost-income ratio trend down to below 60% over time. On the left is the result of our efforts in 2016, down one percentage point to 62%. And that improvement is after the drag from taking on Elevate and building out 1825, our advisory proposition. In part, that reduction has been achieved by strong cost discipline in SLI as responded to the challenging market conditions over the course of the year. On the right-hand side, you can see we've broken out Elevate and 1825, excluding which you can see that our underlying costs are up just 2%. And let's not forget that that 2% includes the significant ongoing investment in other aspects of our business beyond 1825 and Elevate. And if we pull all that together, we've given an 11% increase in our fee-based performance. Within the second and third bars, you can see a drop-through rate for between revenue down to profits of over 60%. And that's the 64 million in blue versus the 24 million in grey. It's a sign of our financial discipline and operational leverage in our scalable business and proving that we are delivering results. If we look back over five years, we can see that our fee revenue has grown by 60% to 1.7 billion pounds, driven by a near doubling in our fee revenue from our growth channels, now standing at 1.2 billion. And that revenue growth, combined with our scalable business model, has fueled a threefold increase in profits from our fee business, which now stands at almost 600 million pounds. And is this fee business growth that is the drive for underlying performance more than doubling to 681 million? Let's look now at how this breaks out by business unit. I'll go into SLI and UK pension savings in more detail on the subsequent slide, so let's just deal with other minor items before moving on. In Europe, we saw a four million gain on the move to Solent C2, together with five million of positive experience in year. In combination, they help drive profits to £39 million. But the solvency to gain will not repeat. We do not presume to gain from positive experience. So over the medium term, we will continue to guide towards a £30 million profit level for Europe, although this is a market where we do see good long-term growth opportunities. Our associates and joint ventures included on the slide here are our life businesses because we include HDFC asset management within SLI. And you can see underlying performance is up over 60%. HDFC life benefited from both our stake increase from 26% up to 35% as well as us growing underlying premium income by 18%. While in Heng An Standard Life, our Chinese joint venture, sales were up 39%, hoping to drive increasing profitability. And in both of these markets, we see strong growth opportunities going forward, given both demographic changes and the nascent pensions markets in each of those countries. Turning to our major business units, in SLI we've grown assets by 10% to 278 billion pounds in the top right hand corner. And fee revenue is up 42 million, a 5% increase Our discipline in pricing and focus on new active investment solutions has enabled us to lift revenue yield up one basis point to 53 basis points, three quarters of the way down the right-hand side. And importantly, through the effective integration of IGNIS and strong cost discipline, we've delivered that target EBITDA margin, as Keith said, of 45% a year ahead of our original guidance. Now, as we said before, we don't expect revenue yields to go any higher. And alongside our ongoing investment in growing the business, it means we maintain our previous guidance that the EBITDA margin should track in the low to mid 40 basis points going forwards. Finally, across the bottom of the slide in the yellow dots, our short-term investment performance has been mixed, although it remains strong at the all-important three- and five-year time horizons that our focus on change methodology targets so effectively. In our pensions and savings business, we've grown total fee AUA up by 23%, in part through the acquisition of Elevate, in part through sustained strong net inflows into our growth channels, and in part through favourable market movements. And that is despite the long-term run-off of the mature books of business within those figures. Again, good pricing discipline and a more favourable mix of business, including the success of things like Good2Go, the build-out of 1825, and things like Click2Switch, has allowed us to maintain the average revenue yield across our growth channels, with the overall total coming down by just one basis point. And the proportion of fee assets from growth channels has increased from 69% to 74%. And while the headline cost-to-income ratio in the bottom right-hand corner slide has nudged up from 59% to 62%, if you exclude the impact of our start-up activities in 18, 25 and Elevate, the cost-to-income ratio of our underlying business has remained largely flat and would have come down if not for the reduction in spread risk margin. And Keith will touch on some of the initiatives we have in place to continue that downward drive when he comes back to speak in a moment. When it comes to balance sheet, we continue to run a strong Solmity surplus. Now, as we explained back in August, we focus on investor view of capital, which eliminates dilutions arising from the anomalies within the Solmity 2 framework. Now, we've repeatedly said that given the fee-based nature of our business, that our surplus was relatively insensitive to markets. And that's demonstrating the result unchanged year on year at £3.3 billion and a ratio of some 214%. From a pure regulatory perspective, much of the capital that we previously did not recognise at Group is now recognised, off the back of our work to agree methodology changes with the PRA, together with changes to the Companies Act that recognise the Solent E2 regime. And as a result, we've increased our regulatory surplus view by £1 billion to £3.1 billion. The lack of volatility in our surplus is demonstrated here. When we apply the same univariate stresses that we've used in previous reporting, the surplus is stable across a wide range of scenarios. You can see it moves by a maximum of 200 million pounds in the second blue bar along, which is equities down, and in the penultimate bar on the right-hand side, which is a reduction in mortality rates. So as we've said, we believe it's very stable. However, as we've also repeatedly said, regulatory capital is not a constraint on us. Our focus is on cash generation. It is cash generation that funds reinvestment in organic growth. It is cash generation that funds inorganic growth. And importantly, it is cash generation that underpins our progressive dividend policy. On the left, we show that we've tripled the cash generated in just the past six years, now breaking through the 500 million pound mark. And as you would expect from a fee-based business, our cash generation is closely aligned to our IFRS earnings. On the right, our PLC-level liquid reserves at £0.9 billion remain strong, down a little on 2015, primarily because of our stake increase in HDFC life. And it's the strength of our cash generation and the strength of our cash reserves that once again enable us to increase the dividend by 8% for the full year to 19.82 pence per share. That gives us an unbroken record of a decade of progressive dividends and confidence that our fee-based model should enable us to maintain that policy going forwards. Thank you. And Keith, back to you.

Thanks, Luke. So, despite all the headwinds that buffeted the industry and the markets in 2016, we continued to deliver growth in assets, revenue, and through our increased financial discipline, profits. That was most visible in our growth channels that increasingly drive long-term value at Standard Life. Our strategic focus, I believe, has positioned us well to benefit from the global trends we see shaping the savings and investment market. The big four trends I identified a year ago have, if anything, intensified and reinforced, I think, three important elements of Standard Life's strategy. First, standard life's purpose, to invest for a better future, to make a difference for clients, customers, our people and our shareholders. Second, the importance of innovative investment management and our new active componentry at a time when I think active management is going to become more important. Finally, the importance of a global approach. We need to compete at home with world class as well as abroad. So as we move into 2017, I and my executive team are intensely focused on our strategic priorities. Because we believe it's those strategic priorities that will deliver a world-class investment company. And it's a world-class investment company that will sustain growth in assets, revenues, and profits, and deliver value for shareholders and actually a promising future for our people. So we will continue to invest in diversification and growth by broadening and deepening our investment capabilities and attracting and retaining talented people. We will continue to improve our financial discipline by building an efficient and effective business. So we will continue to grow, but also diversify our sources of revenue and profit. By ensuring the strong relationships we develop with clients and customers are right at the centre of everything we do, that's how we'll improve the resilience and sustainability of our capital light business model. So over the next 10 minutes or so, I'm going to look at each of these strategic priorities in turn so I can set 2016 in its strategic context. We're making good progress, I believe, on deepening and broadening our investment capability. As you can see from the chart on the left-hand side, we continue to roll out a suite of new active funds throughout the risk return spectrum. We launched 16 new funds in 2016, including the SIGCHI version of my folio for the German market. We have a good track record, not just of extending our product range, but also commercialising it. So if you look beyond the gas outflows of 4.3 billion for a moment, we saw net inflows of 3.7 billion from elsewhere in our product range. And indeed, if we want to look back as far as 2012, we've attracted gross inflows of 58.3 billion in funds other than GAAS, a 150% increase over the previous five years. Put another way, GAAS accounted for 40% of gross flows in 2013, its peak. In 2016, it was 26%. So there's evidence, in my view, that the investments we've been making in diversification are paying off. For example, we've attracted 19 billion into the new active funds we've launched over the last six years. more importantly these funds have an average revenue yield of above 50 basis points that allows us to maintain our mantra a premium product for a premium price a key part of our financial discipline ensuring we have An innovative pipeline to meet changing client needs has been the bedrock of our diversification agenda for some time, and we saw the benefits continue to emerge in 2016. I say continue advisedly. And that's because, as I've said many times, the product cycle in asset management is a lot longer than people think. It can take up to seven years to get full scale in terms of profitability so you can reinvest in the rest of the business. Have a good idea? Two to three years to develop a track record. Years three, four, five, you'll see flow. Years four and five, you'll generate profitability. Years five and six, you get payback. By year seven, you have enough scale to be throwing off profit to reinvest in the business. So little surprise if you look on that slide that the bulk of the 19 billion is from product that was launched five and six years ago. I would expect momentum to continue to build over the next couple of years in the new active funds we have recently launched. And I think we will make progress in private markets, the insurance segment of the market, and we'll continue to build out our integrated liability plus solutions. But let there be no doubt, I and the team are equally focused on the other component of financial discipline, driving down unit costs to unlock the operating leverage inside a world-class investment company. This focus ensured the early delivery of the 45% EBITDA margin associated with the integration of Ignis. With the acquisition of the Elevate platform complete, the integration of the platform and the business is underway. And we will apply a similar focus to the delivery of both the strategic and the financial benefits. So far? actually so good. Business has been good with better than expected flow and better than expected asset levels. But we will also continue to search out greater efficiencies across the rest of our business. We are streamlining our customer operations through the continued use of automation and straight-through processing, we continue to make progress on the re-engineering of our legacy IT systems. As we build an efficient and effective business, we will push our cost-income ratio below 60% in the medium term. Now, investing in our diversification agenda and improving our financial discipline requires not just focus, but high levels of cooperation and collaboration throughout our organisation. World-class companies have world-class people and they need to invest in their talent and standard life investments and standard life are no different. We have made, I think, good progress in 2017. Our strategic delivery in part reflects increased cooperation and collaboration across the group. Our engagement schools did improve, especially on respect and recognition, which suggests our efforts to improve diversity are being recognised. We also have made progression, I think, on the world class front. Our sponsorships can speak for themselves. One of the things that I and the team are particularly proud of was the fact that the Boston office was named as the best place to work in the United States for a medium-sized asset manager. No mean feat when you look at the track record of most UK firms operating in one of the toughest markets in the world. So our particular blend of global and local, I believe, all goes well for the Singapore and Tokyo offices that we opened in 2016. One area where we expect to make a good deal of progress in 2017 is across the distribution teams at Standard Life. Colin Clark has been leading the drive to greater levels of cooperation, collaboration and improved efficiency across our distribution networks to help even stronger relationships with clients and customers. So whilst 2016 undoubtedly brought its challenges for active managers, we actually continued to see strong levels of activity, either through pitches or RFIs. And a notable beneficiary of that activity has been our broad multi-asset offering. and that's already resulted in a new partnership with Challenger announced a week ago. Challenger is a major Australian post-retirement house. The partnership with Challenger comes on top of the benefit that we're receiving from the partnership with Becerra, which was announced earlier in 2016. So we have an increasing global presence, 29 locations serving clients and customers in 45 countries. And our increasingly well-diversified customer and client base is a major strength for standard life. I think as 2016 illustrated clients and customers react in different ways to the same set of events. That was clearest in our pensions and savings business. Consolidation is accelerating. Low interest rates and historically high transfer values are triggering increased activity by wealthy individuals, and they're moving from DB to DC to take advantage of pension freedoms. The advice market is now almost totally platform-based, and we are a clear beneficiary, because our WRAP and Elevate platforms lead the market and serve over 3,000 advisor firms. We also continue to see regular and predictable flows into workplace. We've auto-enrolled more than a million employees since 2012. Interestingly, we're also seeing some evidence that that so-called pensions fatigue is ending. And it's pleasing that even the biggest schemes appear to be impressed with the breadth of the functionality that standard life can offer. It might be too early to claim a major change in client attitudes, but it does feel like the workplace pensions market is changing in a way that plays to standard life strengths. So as Luke and I have said many times, the benefits of our strong relationships are most visible in the growth channels that drive long-term value. Here, assets grew by 20%. to 237.6 billion, and represent two-thirds of assets under administration. More importantly, fee-based revenue rose 10% to 1.2 billion, and that is 73% of total fee-based revenue. Furthermore, as you can see from this chart, Revenue is well distributed across our four largest channels. The largest channel, institutional, represents 360 million out of 1.2 billion, so around about 30%. Wholesale and retail are around 20% each. Wholesale, of course, was where we experienced the bulk of GA's outflows, 3.9 of the 4.3 billion. But note that total outflows were 1.7 billion, only 4% of opening assets, as we continued to see inflows into areas where we had good performance. In particular, Myfolio and Gilb, global index linked bonds. It's also, I think, quite important to note that not all channels are as sensitive to short-term performance as wholesale. The institutional channel, where we saw positive inflows, we saw positive inflows in five out of seven asset classes. That reflects the strength and depth of our ratings from consultants. So one of the great benefits of our well-diversified business and strengthening relationship with clients is the stability of our revenue use. The investments we have made in diversification and growth together with our improved financial discipline is delivering well diversified growth across our business. The strength of the growth channels which you can see on the left hand side is offsetting the runoff in our mature books. This is a feature I'd expect to persist over the next couple of years. We also get diversification benefits from our life associate and JVs, which you can also see from the chart on the left-hand side. These now account for 10% of operating profit, and we'll see further progress when HDFC Life is able to merge with Max Life. So, in summary, 2016 was a year when, once again, Standard Life increased assets, grew revenue, lowered unit costs. We generated a 9% increase in operating profit and cash flow to support our progressive dividend. Our strategic focus has helped us make good progress in delivering a world-class investment company. And that's where the focus of I and my executive team will remain in 2017. When it comes to targeting investment and diversification and growth, I can assure you we are as focused as we ever were on investment performance. Investment performance is recovering, and that does include gas. We are due to launch around about a fund a month in 2017, and we'll probably... hit the 16 number again as we continue to build out private markets and integrated liability plus solutions. Focusing on driving cost efficiency, you should be in no doubt, absolutely no doubt, we are very firmly focused on delivering a cost income ratio which falls below 60% in the medium term. Strengthening long-term relationships with clients and customers. Well, it started, I think, pretty well in 2017. Better than expected flows on the Elevate platform. Better retention. And, of course, we've announced a new relationship in the post-retirement market down in Australia. Making world-class our standard. I think 2017 has also started well enough. very dangerous to extrapolate from a single month. But so far, reflecting markets, reflecting the pick-up in performance, we have seen positive net flows across our business. I can assure you that rather than focusing on the long term, my focus and that of my team will remain on delivering for customers, clients and shareholders. Thank you. And with that, Luke, Colin, myself, the executive team, and particularly Paul, will be more than happy to try and answer your questions. Thank you. John, I think the mic will come around in a moment. I'll go in the center, move over here, and then move.