Aberdeen Group Plc

And welcome to Standard Life's Aberdeen's interim results presentation for the first half of 2020. This is my final results presentation as CEO. In a few minutes, I will provide an overview of the business. First, however, let me brief you on the logistics for this call. Even though this is a webcast, we need to display the disclaimer. And here it is. After my presentation, I'll be joined by Stephanie Bruce, our CFO, who will take us through the financial detail. I will then return to provide a summary of the first half. We will then be joined by Sir Douglas Flint, our chairman, Rod Paris, our CIO, Campbell Fleming, our global head of distribution, and Noel Butwell, the CEO of Standard Life. all of whom will be available to answer your questions at the end of the presentations. I have to say that the first half of 2020 has been the strangest six months that I've experienced in the 40 years I've been involved in financial markets. That's a period, by the way, that straddles four recessions in the UK and 10 major financial crises around the world. Yet we've never before seen the savage swings in either economic activity or markets that characterize the COVID-19 pandemic. Our results clearly show that the main impact of the COVID crisis on our business is through its impact on revenue, which is adversely affected by both the volatility in markets and the slowdown in gross flows that accompanied the shift to lockdown. Within those COVID-affected headlines, which Stephanie will analyse in more detail, the first half also reinforced the underlying resilience in the business and the progress we continue to make on matters within our control. I'm incredibly proud of both our people and their hard work during these unprecedented times as we've continued to focus on those things that we're able to control. We reduce costs by 11%. We remain on track to deliver the synergy targets associated with the transformation programme. We continue to innovate as we launch new products and adapted to new ways of working. The improvement in investment performance continued at that vital three-year time horizon, and its impact can clearly be seen in the lowest redemption for three years, excluding the funds transferred to Schroders from the Lloyds Bank Group. by our distribution teams as they shifted from working face-to-face to remotely, help keep the turnaround in net flows in place. At the same time, we continue to improve our financial strength and the quality of our balance sheet, enabling us to pay an interim dividend of 7.3p and continue with our £400 million fund. buyback program. We enter the second half of the year in a position of operational and financial resilience. And by focusing on the things we can control, we continue to lay down strong foundations for future growth. Right at the heart of these actions is our purpose-led response to the Covid crisis, with clear communications, increased connectivity and a clear shift to a common culture supporting the overall resilience of this business. This has been clear to colleagues, clients and customers and our local communities through a set of demonstrable actions. Within two weeks of the initial lockdown, 99% of our colleagues in the UK and 95% around the world transitioned to working from home. They seamlessly navigated two quarter ends supported by each other and the rollout of technology and equipment to facilitate more agile working when they were away from the office. Our distribution and thought leadership teams quickly shifted to ensure our client and customer touch points were largely digital. We were also one of the very few firms to keep our customer and service centres open throughout lockdown. We made a concerted effort to ensure that our community support programmes were quickly pointed towards the most vulnerable in the local communities we operate in, whether that's supplying ventilators in Malaysia or indeed helping food banks in Edinburgh or Philadelphia. These changes to the way in which we work have been underpinned by the move to a common culture. For me, the standout area where we continue to make great progress is the creation and embedding of a common culture across the group. We've conducted several mood surveys during the crisis and the latest taken in mid-July showed very positive findings. 73% of our employees say they're proud to work for Standard Life Aberdeen. Only 7% registered a negative response. 72% were positive about their work. 44% said they were benefiting from a better work-life balance. 81% felt well supported by their manager and 79% felt their teams were adapting well to working remotely. These scores represent a dramatic improvement from the dark days of 2018 when only 53% were proud to work for Standard Life Aberdeen and the fact that the improvement is spread throughout the business is a clear sign that three years on from the merger there is evidence that a common culture has formed. One area where this is most visible to the market is the sustained turn in investment performance. Performance has remained robust in the face of very volatile markets, providing evidence that the performance enhancement plans put in place by Rod Paris and his team over the last few years have made a critical difference. The all-important three- and five-year numbers are robust. 68% of funds are ahead of benchmark at three years and 65% at five years. It's worth reminding ourselves, if we look in the left-hand panel of the chart, that 2018 was one of the worst years for investment return on record, followed by one of the best in 2019, to be followed by one of the most volatile I've ever seen in 2020. I'll comment on the outlook for markets in my closing remarks, but the fact that we continue to improve our medium-term record speaks volumes about the quality of our investment teams. The majority of our equity funds outperformed during the first half, with notably strong performances in smaller companies and long-term quality funds in developed markets. Credit and emerging market debt funds continue to outperform after a wobble in March, and multi-asset is well into absolute return territory for the year to date. The combination of robust investment performance and the creation of a common culture has also generated a significant improvement in consultant rankings. And 51 of our strategies are now ranked by consultant compared with 43 at the time of the merger. This combination of improving investment performance and consultant rankings is most visible in our flows. Despite subdued industry flows in the first half, our flows remained resilient. This was helped by 9 billion of inflows into cash and liquidity funds, the highest we've seen in three years. Gross flows were 5% up on the first half of 2019. However, the biggest improvement was in redemptions, excluding the Lloyds Bank Group. While we saw outflows of $38.1 billion in the first six months, this compared with $51.3 in the second half of last year and peak outflows of $61.8 billion in the final half of 2018. The combined effect was to continue the momentum seen in the second half of last year and maintain the momentum back into net inflows. Our pipeline of client wins was robust with 7 billion of mandates won but not yet funded, similar to the pipeline at the end of 2019. At a time when the pricing pressure on traditional mandates remains intense, the quality of our offer to clients and customers has never been more important. The pattern of flows continues to benefit from our track record on innovation. We've generated 14 billion of AUM from new funds launched since merger at an annual management charge of 50 bps, significantly above the 39.5 bp yield on the historic book. In institutional and wholesale, we are seeing strong flows into our ETFs, especially gold. We continue to win emerging market debt mandates and our China A-shares fund continues to move from strength to strength. Though not strictly in the first half, I should also mention the merger between Murray Income and Perpetual Income and Growth to create a combined trust of over £1 billion sterling, attesting to our growing reputation in equity income. While the COVID crisis has delayed the planned presentation on our wealth businesses, we continue to make progress, particularly on the digital front. Digital retirement advice is now available for those customers receiving advice. Our choices app is in beta testing and utilizes open banking to engage with younger savers and provide them with direct access to our savings products. We are encouraged by these new routes to markets. Throughout our offering, we also continue to develop our ESG franchise and now have 25 billion of AUM that are categorized as responsible investing. ESG has also been central to our engagement with clients during the first half of the year. We have also had ESG-specific engagement with some 216 companies in the first half and voted at over 3,000 general meetings. We wrote to all of our actively held FTSE 100 companies detailing what we expect of them during the COVID crisis and just as important what they can expect from us. While the force of the COVID crisis pointed our attention towards the well-being of colleagues, clients, customers and our local communities, we also maintained our focus on executing for shareholders through managing the investments on our balance sheet. We continue to work to build a strong strategic relationship with Phoenix and our AUM has benefited from the bulk purchase annuities that they announced in their results yesterday. In difficult market conditions, we also raised over 700 million from completing the minimum public shareholding for HDFC asset management. And we sold down our stake in HDFC life to just over 10%. This has been a terrific long-term investment which has delivered an IRR in excess of 30% on our initial investment of 290 million and enabled us to raise 3 billion from monetising these stakes. That's been instrumental in improving the quality of the balance sheet, as evidenced by the increase in gross liquid resources to 2.8 billion, and helped ensure that we deliver on our strategy of deploying our financial strength for the benefit of shareholders. This is reflected in the Board's decision to pay an interim dividend of 7.3p. The same is in 2019. So in summary, in this strange six months, thanks to the magnificent efforts of our people, our business has been operationally resilient, has formed a common culture, and has improved its financial strength, allowing us to continue to build momentum and lay down the foundations for future growth. I'll now hand over to Stephanie, who will walk us through the financial detail for the first half. Stephanie.

Thank you, Keith. Good morning, everyone. Our performance in this period reflects both the resilience and diversification of our business activity. In these six months, we had the backdrop of an uncertain environment, market volatility, and the completion of further exit of the Lloyds Banking Group assets. Lower markets have reduced the assets under management and administration of the existing business. Market sentiment has also slowed the extent and nature of new flows from the levels we had seen in the second half of 2019. With the market pressures, revenue in the six-month period was 13% below the prior period. In these markets, therefore, more than ever, our focus is on what we can control. So it's pleasing that the continued improvement in the core fundamental of our investment performance is making a difference, particularly on redemptions. In addition, our focus on financial discipline is key, and we've continued to make good progress on controlling and targeting our costs, such that costs are 11% lower. I will cover both revenue and costs in more detail shortly. Moving down the slide, capital management movements principally reflect, in accordance with accounting requirements, the mark-to-market values of our seed and co-investment funds, and overall these have been adverse in this period. We expect this to be temporary if markets improve. Moving to JVs and associates, the reductions in profit reflect principally the reduced holdings in our Indian stakes compared to prior period. The adjusted profit before tax for the six months to June 2020 is £195 million, a reduction of 30% on the prior period. The IFRS result before tax is a loss of £498 million, reflecting the impairment of £1.2 billion for Goodwill and Intangibles as a result of increased market uncertainty in the COVID environment. These non-cash adjustments have been offset in part by the cash generated from the further successful stake sales of HDFC Life and HDFC AMC Holdings, creating a gain of £651 million. After these sales, these holdings continue to retain a value of £2.4 billion. The conditions of this COVID environment have been tough for all. As a business, our focus has been our clients and our colleagues. From a financial perspective, our strength has meant that in this period we have not needed to rely on any UK government schemes We made our final dividend payment in May. We have continued our approach to management of our Indian stakes and the buyback programme that we commenced in quarter one. While earnings per share is impacted by lower revenue levels in this period, the buyback programme has benefited adjusted earnings per share by 6%. Our business delivers our services to clients and customers through specific channels, institutional, wholesale, strategic insurance partners and platforms and wealth. Each channel represents different opportunities for us to bring the best of our capabilities to those clients and customers. And this therefore determines our focus to ensure that we respond to changing needs and to do so profitably by adapting the cost to serve, particularly in the changing environment. In institutional and wholesale, revenue decreased by 13%, reflecting the impact of market levels and net flows in recent years, particularly impacting revenue earned from holdings in equities and multi-asset, which are 19% and 30% lower than the prior period. Offsetting this position, we have seen revenue grow in fixed income by 6% and private markets by 19%, together with a 17% increase in revenue from flows into liquidity holdings, as clients have changed their risk profiles. In the strategic insurance partners channel, the underlying business is represented by mature books, which naturally run off. The majority of the movement here relates to the Lloyds Banking Group exits. But leaving this aside, in this six-month period, revenue in this channel has been largely stable, as the runoff in this book is replaced by top-ups of existing business and bulk purchase annuity activity in the insurance client base. In platforms, where we recorded another period of positive net inflows in WRAP and Elevate, we have seen a decrease in revenue, reflecting the lower pricing on Elevate in 2019 and WRAP in this period. In wealth, the revenue has been aided by continued positive net new flows and the benefit from the Grant Thornton and BDO purchases in the second half of the year. In revenue yield, we have seen an equivalent pressure as in the prior period of approximately 1%. The decrease in the average revenue yield reflects principally a lower average in institutional wholesale and in platforms. For institutional and wholesale, this reflects offsetting factors in this six-month period. Positive movements have been evidenced on equities and fixed income, reflecting the benefit of flows into China A-shares and emerging market fixed income. Adverse movements have been evidenced in multi-assets and quants. In multi-assets, this reflects net outflows in absolute return strategies of 1.2 billion, partly offset by net flows into myfolio, which are lower margin at 25 basis points. In platforms, the decrease in yield reflects the impact of the price changes in Elevate and the price change in WRAP that I mentioned earlier. For all areas, but equities in particular, we are now seeing the benefit from the focus on investment performance, as creating value for our clients and customer in turn continues to support the yield we earn in our services. Aside from normal competitive pressures, we are not seeing in these conditions systemic pricing pressure on any particular asset area, rather continued recognition of the value of investment performance in a volatile and low-yield market. Turning to the underlying activity on flows in our key channels. Overall, we have recorded positive net flows into the business, leaving aside the Lloyd's withdrawals, with the improving trend being on redemptions. Now starting on the left-hand side of this slide, the flows on strategic insurance partners again leaving aside the Lloyd Banking Group exits, depend on the profile and activity of the underlying insurance clients in replacing their business as it moves into drawdown. Now in this period we saw a net outflow in this area of 1.3 billion which represents an improvement on the first half of 2019. However this is lumpy business and we are expecting higher outflows in the second half than the recent period. The Phoenix Reassure deal has also now completed. Reassure is an existing client and we continue to see good opportunity in this partnership. Now moving to the centre of the slide, in institutional and wholesale channel we recorded a small net outflow, but pleasingly we have seen a further six month period of improvement. In particular, redemptions are at the lowest level in the last three years and are running at around 40% of the highest levels in 2018. This is further evidence of firstly the impact of the actions we have taken to improve investment performance, And secondly, our prioritisation of client service and relationships, which has continued the momentum started in the second half of 2019, even in these new working environments. We've been successful in adding new clients in these channels this period, attracted by the capabilities and services we provide. For example, a $1 billion of net flows into the ETFs in this half and our appointment by a US state pension plan to manage a $500 million emerging market debt mandate on their behalf. In our gross flows in equities and fixed income, we have seen an increase of 26% and 53% respectively on the comparative period of 2019 and a retention of the improved flows that we saw in the second half of 2019. On net flows, compared with the prior period, we have seen improved net flows across all the major asset classes. For example, we have generated improvements in equities and multi-asset of 46% and 73% respectively. Now specifically on GARS, we have seen additions of new business, but the big difference here is on redemptions, which are £1.4 billion in the six-month period compared to £11 billion for the full year last year and £6 billion for the comparative period. Now, with improved market movements on GARS, the assets under management in this space has been broadly stable with the year-end position. That's the first time in three years. Moving to the right hand side, in the platforms and wealth channel, the factors here are different. Our activity here is UK focused. The market is large and growing and we continue to have a strong record on creating net inflows. We see opportunity for gaining share in a growing market. So our focus is on building our book of business through connecting all elements of our existing strengths in this area. Our platform customer numbers have grown over the prior period, as have our advisor firms. So overall, a more pleasing picture on redemptions and growth flows doing well to perform up from the prior period. So moving to our continued financial discipline to aid the profitability of our business. We have continued to make good progress on targeting cost reductions in areas where we have low profitability or are currently loss making. We continue to look at all areas of the business for their profit contribution and to take action to improve or recognise those that are not core for our operations. As an example in this period, we commenced a review of our European real estate strategy, which has resulted in us exploring the sale of our Nordic real estate property management business. Overall, costs have decreased by 11%. Within this, staff costs have decreased by 9% on the comparative period, with the key movements being recorded in long-term contractors and temporary staff. Non-staff costs have also reduced by 12%. There have been some increases in this period, including costs for the Grant Thornton and BDO activity, which were brought into the business in the second half of 2019, and small increases in outsourcing costs as other services are transferred. These increases are more than offset by decreases that were planned changes in marketing, travel and professional spend. We have also seen additional savings in this period in respect of travel and events in particular. We were already seeking to be more effective in how we manage our impact on the environment, but the change from mid-March has been stark. We estimate 10 million of such cost savings relate to the COVID restrictions, so we do expect an element of some of these costs to come back once markets change. The further areas of investment inflation to highlight to you reflect the increases on employee compensation and other inflation on third-party services. And we do typically see further wage inflation in the second half as our salary increases take effect for the full period. On synergies, we continue to realize benefit through the profit and loss. Given the stage we're now at in our transformation, this realization is more lumpy. And the main areas to be realized through the profit and loss in the next 12 months are in around in our operations and technology arena as these areas complete much of their planned activities. While operating costs have been reduced in the year by 11%, our cost income ratio has increased to 85% in the period due to the revenue reduction I highlighted earlier. This revenue reduction has been concentrated in institutional and wholesale, so the cost income ratio increases principally in this space. As highlighted at the year end, we have commenced addressing the cost income ratio in platforms and wealth arena, with good improvements to date. However, an overall cost income ratio at 85% is not good enough. We had expected our cost profile to remain high in 2020 and 2021 as we complete our transformation, and this is now made more difficult in a period of uncertainty and volatile market conditions, which create additional revenue challenges. With prioritisation of financial discipline, we are staying focused on the actions to address profitability and while we expect our cost-income ratio to remain high in this transformation period, thereafter the benefits of our actions will enable the achievement of our goal for cost-income ratios to be aligned to industry averages. With our ongoing transformation activities, we are aiming to do two things. We're investing in practices that are modern and fit for the future by harnessing the benefit of new tools and technology that we did not have in the business. And secondly, we're seeking to change the nature of costs and create flexibility in services which are not core. Given the nature of the change and the complex interaction with the separation from Phoenix, it will take time to see the benefit. In terms of transforming our cost base, it is helpful to understand the progress on synergies, but also more widely on how we are transforming the nature of the base. Now, this slide shows the progression of the specific transaction synergies that we have identified. And as a reminder, this was originally 200 million in August 17, and we reported in March 2020 that we expected to realise 400 million of synergies by 2021. During this six-month period, we have continued to progress our programme of transformation despite working remotely. In respect of synergies, we have now achieved 323 million of the targets. This is over 80% of the increased target and we are well placed to obtain the next milestone of 350 million by the end of 2020, with a further 50 million taking the total to 400 million in 2021. Now there are four key activities being undertaken currently to help change the nature of our cost base, contributing to both the synergy target and other efficiencies across our business. On our investment platform, we are in the final stages of streamlining our trade order management system, middle office providers and data layers, which enables greater leverage of the cost base. On the platform experience, we are upgrading our back office activities so we can streamline the multiple sets of infrastructure, including manual processes that support our services at present. In doing so, we can then ensure the advisor and customer experience remains both relevant and enhanced with new technology. The third key aspect is our technical and operational independence from Phoenix in 2021. And this has been undertaken in a way that the new processes operated by SLA will be simpler and represent modern practices to replace the older transferred processes. One such example is then the fourth area highlighted here, in the finance arena where we are addressing the multiple older legacy processes and systems in order that we deploy a modern streamlined system and process that's fit for our business. We are ultimately focused on capital generation across the business to support returns to shareholders through both positive benefits from new investments into the business and through direct returns. One element of that strength is the extent of the surplus capital as a proportion of the total equity which has improved in this period. Now this chart highlights the key sources and uses of capital within our surplus regulatory capital in this period. We have again strengthened our capital position in the first half of 2020 despite the tough backdrop through management actions to realise value from our stakes and our focus on enhancing the generation of capital from our operating activities. Our uses of capital in 2020 to date have continued to support transformation restructuring albeit at a lower level of spend now compared to prior periods. In addition, we have used capital to undertake the buyback. As at the half year, we had completed £175 million, and as of last night, we had completed around £222 million, which was 55% of the programme. Our net liquid resources have increased to £1.9 billion, with gross liquid resources increasing to £2.8 billion. That's a 12% increase. The financial strength we have created provides enhanced resilience, which is even more important in challenging markets. The operating result is generating a lower level than we are targeting longer term, so looking at growing the capital generation from our operating activities, we will be continuing our focus on streamlining the cost base so it is fit for the future. In addition, a key priority will be generation of greater growth in wholesale, particularly in solutions for the changing needs of the public and private markets, and in platforms and wealth activities, given the scale of the need for, and therefore the opportunity for, investment savings and advice. Our operating performance, together with the strength and quality of our balance sheet, have enabled the Board to maintain our interim dividend of 7.3 pence at a cost of £159 million. We are also continuing our buyback programme that we commenced in quarter one. Even after taking account of this further return, the surplus capital will have increased to 1.8 billion. As the deterioration in economic conditions resulting from the COVID environment and the uncertainty in markets and resulting pressures are expected to continue for some time, we are, through our normal planning cycle, reviewing and assessing the challenges and opportunity for our business in these changed markets. So in summary, this has been a difficult environment for everyone, but this business has been resilient in its operations. And despite the conditions, we have stayed focused on our clients and generating new business that is diversified across our strengths. Our financial discipline remains central so that we grow profitably and think return in all our investments and in how we deliver for shareholders. Our financial strength is strong and has continued to improve and that is even more valuable in such uncertain times. I will now pass back to Keith.

Thanks Stephanie. As I said earlier, this is my final presentation before I step down as CEO. It's the 12th time I've led a results presentation, but my 30th time on the results podium since we floated standard life back in July 2006. Two common themes over the intervening 14 years are the continuing and accelerating pace of change in the industry and that volatile markets have actually become a fact of life. FTSE last night closed at 6,027, which is only 2.3% higher than on the day of the IPO 14 years ago. But of course, it's been as low as 3,512 and as high as 7,877 in the meantime. I've always believed in taking a long-term perspective. and would argue, given the strange circumstances we find ourselves in, that it's never been more important. So what about the outlook? From my perspective, the economic and market environment looks tough and uncertain amidst increasing hopes of a V-shaped recovery. That V is very dependent on the development and deployment of another V, a vaccine that would deliver victory over COVID-19. We know from history that recessions induced by pandemics and bear markets without a financial crisis tend to be short-lived. If that were the case, the pattern we saw in markets in 2018 and 19 could well be repeated, and the FTSE would test new all-time highs in 2021. However, I've got to say these are very special circumstances, given that the average efficacy of the flu jab hovers around 40% for some strains. Never have the economy, markets and health been so interlinked. We have yet to see the full economic effects of lockdowns around the world or the after effects of the current pickup in infection rates. High debt levels in part of the corporate sector, the inevitable phasing out of government support, all point to a further significant increase in structural unemployment and a period of slow growth. If this is right, then the equity markets outside the US tech sector are reasonably priced and may only deliver single digit returns, which would imply it may take several years to make it back to peak levels for the FTSE. In addition, the COVID crisis changes many things. The way we work. the importance of household financial resilience, the clear need for parts of the corporate sector to de-lever and re-equitise, as well as an increasing acceptance of government intervention. All factors that will inevitably reshape the nature of client and customer demand and also suggest that the tough operating environment is likely to persist for some time. In my view, Standard Life Aberdeen is well placed to deal with these challenges. The actions taken to improve our investment performance, reinforce our operational resilience, enhance our financial strength and create a common culture put in place strong foundations for future growth. These will help the business adapt under Stephen Bird's leadership to changing circumstances, as the business has actually done throughout its 195-year history. So, as I prepare to step down and return to my research roots, I would also like to thank everyone on the call for their support. their engagement, and occasional forthright challenge during those 30 results presentations. I wish you all well, but would also leave you with a challenge to make sure you all take the long view. Thank you. Stephanie, Rod, Campbell, Noel, Sir Douglas are now available to answer any questions you may have. Operator, over to you.