Aberdeen Group Plc

Good morning. Thank you all for joining us. I hope most of you know me, but for those who don't, I'm Douglas Flint. We're joined by Keith Skeer, Martin Gilbert, Bill Rattray. Before I turn over to Keith and the team to discuss the performance last year, I want to touch quickly on the directorate changes that we announced this morning. Regarding those changes, we've been clear for some time that this arrangement would be temporary. The question was always what would trigger the change. And what's triggered it is the fact that we've made significant progress over the last couple of years so that we're now 75% complete in our integration. And, in fact, it was Martin who initiated the discussion, saying that the co-CEO structure was increasingly becoming a distraction, both internally and externally. That led to deliberation. And so, with effect from this morning, Keith has become the sole chief executive responsible for leading the business as we take the business forward and recognising the critical importance, and I mean that, the critical importance of Martin's client-facing responsibility. Martin becomes the vice-chairman of Standard Life Aberdeen, chairman of Aberdeen Standard Investments, and of course remains an executive director on the board. We've also announced that after an extraordinary and outstanding career of 34 years, Bill is going to retire from the board at the end of May, and we're delighted that he's going to be succeeded by Stephanie Bruce. who will take on his position as Chief Financial Officer. And we're very delighted that Stephanie is going to be joining us. I'm sure there'll be questions on this. We'd be very happy to take them in due course. But now let me hand over to Keith to take you through last year. Keith.

Thanks, Douglas. And let me add my welcome to Standard Life Aberdeen's 2018 finals presentation. In a moment, we'll hear from Martin on the market, client and customer background that helped shape the results. Bill is going to take us through, as usual, the detailed financial results. And I'll come back. an update on our strategic progress but what I thought I'd do to kick things off was give a brief overview of the results and how we performed on what we think was one of the most challenging years for the industry in over a decade. Our reaction to that challenging year as a management team was to continue to focus on what we can control to deliver our strategic transformation and achieve our long-run ambition of creating a world-class investment company. And I believe, and the team believes, that today's results do provide evidence of that potential. Our resilient performance that left adjusted profit for continuing operations broadly flat, we believe, was built on strong foundations. First, our focus on financial discipline reduced operating expenses by 10%, helped by the fact that our integration programme is 75%. complete and ahead of schedule. Second, we continue to build strong relationships with our clients and customers. Investment performance is starting to show signs of improvement and our gross flows in a difficult year actually increased by 4%. We remain ranked in 43 institutional strategies by consultants. And we now have access, as a result of the Virgin Money JV, our new relationship with Phoenix to around 16 million potential retail customers. Third, we continue to invest in our future through adopting shared values, through innovative fund launches and bolt-on acquisitions to bolster our extensive investment capabilities. Finally, we remain very focused on creating value for our shareholders as we reshape our business to take advantage of the forces that continue to disrupt the industry. To that end, in a very challenging environment, we also completed the transformation in 2018 to a capital-light business, returned over 1.3 billion of capital to shareholders, maintained our dividend, and through the offer for sale in India, continued to reshape our strong balance sheet. for the benefit of shareholders. At that point, I'll hand over to Martin.

Thank you, Keith. Let me add my welcome to everyone here as well. I've just got a few slides just talking about the state of the industry, a bit of an overview on how we're doing. I think we're pretty well positioned, as you can see from this slide. I thought the podium was just about to fall down. That would have been a bad Feng Shui for the results presentation. As you can see, and I'll show you a slide in a minute, we are a global business with offices all around the world. We're very, very well diversified through our investment capabilities. And, again, that will come through. in the presentation. We're close to our clients. And again, you'll see that when we show you our global coverage as an organization. Strong balance sheet. I often say we've got the strongest balance sheet of any asset manager of any investment company in the world. And And I think the sale of the Indian steak or part of the sale of the Indian steak has shown what a great investment it's been by our forefathers and that we managed to get it away at such a tight discount, I think, has shown that there is real value on the balance sheet. And finally, we are very focused on shareholder value, focused on the efficiency of the balance sheet, maximizing value for shareholders. And we can see that by the buyback we've done. We're halfway through the $750 million of the second phase of the buyback after the billion being returned to shareholders. So very, very focused on shareholder value and hence the importance, I think, of the dividend announcement today, holding the dividend during this period of change in the industry. I promised to show you the strong platform that we have to... to grow globally. We've even got offices in Ayr and Reading and Basingstoke and places like that where obviously our very, very important platform business in 1825, our advice business, are run out of these offices. As you can see, 54 operating locations, clients in over 80 countries in the world. And we have 500 specialists working with those clients. And very importantly, some very strong strategic relationships, Mitsubishi, LBG, HDFC, TEDA. Sumitomo Mitsui, Mitsui Phoenix Group, John Hancock, Manulife, Becerra, Challenger, and finally Virgin Money, just to name a few. And these strategic relationships are vital for us in the distribution game of distributing our product. And just to put our figures in context, These figures that we had, the gross flow figures, I think were pretty outstanding in a year where you can see the industry had a difficult year. With quarter four 2018, you can see the size of the outflows that the industry suffered. Q1 so far has been better than Q4 2018, but it's also going to be a tough start to the year. But to a certain extent, this vindicated what Keith and I discussed way back in January 2017 as to why we should merge the businesses. We were absolutely clear that this industry was going to become tougher and hence the reason for the merger that we did in 2017. You know, as I said, we could see, we predicted these sort of things would happen in the industry. And I describe it as seismic shifts, seismic challenges to our industry. The first one is the shift to passives. Now, I don't need to tell any of you in this room that that is still unrelenting. We are still seeing a massive move to passive. Even though the final quarter of 2018 brought the benefits of active fund management through, we're still going to see that. Now, if we think, and I will come back to pricing in a minute, but if we think pricing is under pressure in the active space, I can assure you in the passive space it is even more marked. And we are seeing downward pressure on fees, but in passive it's going to zero. So it's also seeing huge, huge headwinds. The other thing we're seeing globally is from our big clients, the sovereign wealth funds, is this growth in new active investing, moving from public markets to private markets. And we need to change our business, which is what we've been doing, to gain more expertise in private markets so that when our clients do move from public to private, to private where we can get our share of that. And if you look at where the flows are going globally, you can see the big winners, the partners groups, the Blackstones, the people that are big in this new active investing space. All of that leads, as I've said many times, to the need for scale. And I still think that's going to be the other headwind that we have. Scale is going to be important. And those in the middle ground are going to find it tougher and tougher. But as I've said many times, it's a great place for boutiques. You know, if you're starting again, you would start a boutique and work in the West End. able to go for lunch, do your shopping. Much better than running, I can assure you, a global long-only asset manager. And then finally, I think, finally, I think the other thing we've got, the unsung... Part of the business is the standard life brand and the importance of individual savings. And these platforms we have, which I'll come on to in a minute, are vitally important to us. So the access to retail customers and technology is going to be very, very important for us going forward. Flows. I mean, you know, like other active fund managers, we're seeing outflows here. They look astonishingly high figures, but when you look at them as a percentage of opening AUM, we're doing better than some, not as well as we'd hoped. And I've tried to show here the... The big outflows have been in what we call our big four blockbuster products, as you can see here. And the rest of the business is doing okay. And, you know, as I say, the gross flows have been very encouraging. And we're very hopeful of the relationship with Phoenix. We do feel that over the long term, that is going to be a great deal for us. And continued growth in wrap and elevate there with about 4.2 billion of net flows, which are very, very encouraging. Just my final slide, I said that the unsung sort of bit of the business was Standard Life, that fantastic UK savings brand. And you can see here how important that is to us as a business. Even in these tough years, and they also suffered in Q4 as well, even with a tough quarter like Q4, they grew their business. And as you can see, very good profitability growing nicely, and we expect to see the profitability getting better as the retail platforms get bigger. That's all I wanted to say. Just give you a rough overview of the industry, and I will hand over to my colleague. Mr Bill Rattray and as usual I will turn the first page for you Bill.