Aberdeen Group Plc

Well, good morning and welcome everyone. I hope for those of you who have been with M&G, you've had time for a short break. This is the first time that I'm speaking with you all together. Of course, I'm sure you would rather be here in person as I would. And as restrictions ease, I'm sure that will happen. For now, we're here in a COVID secure environment and I'm here with Stephanie, our CFO. I'm going to take you through my SWOT analysis of the business and our new strategy for growth. I'm then going to invite Stephanie to cover our 2020 results and our financial outlook before coming back to address the topic of capital and why I view this business as a compelling opportunity from a shareholder perspective. We'll then have a five minute break after our presentations and we'll open up the lines and have a discussion. Over the next few slides, I'm going to take you through my initial assessment of the business and based upon that, the actions that we have already taken to create momentum in 2021. I'll then outline our strategic priorities for growth, and how we've structured our team across three vectors, investments, advisor, and personal. I'll then show you what you can expect the journey to look like from a financial standpoint as we grow revenues and become more efficient over the next three years. My priority when I joined the business was to get under the skin of it quickly, to understand it inside out, I met a lot of people, I listened to a lot of people, clients and colleagues and shareholders, so that I could understand the business and what expectations you had of us. I wanted a realistic picture of our strengths and our weaknesses and our opportunities and threats. You can see this on this slide. What I learned was that we've got a great company with a breadth of global capabilities, a full suite of asset classes and strategies, strong client relationships and a network of partners across the world. Importantly, our investment performance has been steadily improving and this is feeding through quite strongly now into asset retention and flows. Supporting this, we have a strong balance sheet and deep capital resources. On the other side, of course, there had been a reliance, an over-reliance, on a small number of what I call hero funds. GARS, global emerging markets, and we also had undervalued a couple of our businesses. For example, our advisor platform in the UK, and our UK savings and wealth business. The net effect of all of this was we'd had declining revenues, and costs that were too high, and hence an uncompetitive cost-income ratio. But we had significant opportunities. Client-led growth is the most sustainable form of growth. We were not configured as well as we could be to execute well against our growth opportunities. And we were not properly recognizing and addressing the different types of buying behavior in our client base. Our business needed to be simplified and we had to do fewer things to a higher standard. I also saw, and you know this very well, that the industry itself remains under pressure. There is continued pressure on margin due to the shift to passive investment and the commoditization of traditional asset management. Consolidation of players in the industry continues as competitors seek to find scale to compensate for these factors, to compensate for the decline of traditional asset management and the decline of fees. And, of course, there is disruption. The emergence of new data-driven digital competition who use new technology to deliver their services. Turning to slide five, I really want to emphasize how quickly we have moved. We've taken a series of actions to create momentum and configure ourselves for growth. Our investments team remain very focused on driving improved performance, and we are being successful. Today, a full two-thirds of our funds are ahead of their three-year benchmarks, That's up from 60% last year and up from 50% the year before. We know that we must deliver performance. We also know that that directly correlates to improving asset retention and flows, and Stephanie is going to detail that for you shortly. We were also agile in choosing to sell portions of our stakes in HDFC asset management and life. This strengthened our balance sheet as we did that. When I arrived in the business, one of the first things I did was to review our program of transformation. The clean execution of these programs was and remains essential to deliver the savings that we promised you, but also to build a base from which we can grow efficiently. Stephanie is going to show you these programs and she'll show you that they remain on track and that our team is doing a great job of delivery. I have focused intently on clients. I've listened to clients in Asia, Europe, UK, the US, and I've invested an appropriately large amount of time reconfiguring our relationship with Phoenix, our largest client. This culminated in the simplification and strengthening of our relationship with Andy Briggs and his team. We announced that just two weeks ago. I'm delighted to say that this partnership will continue until at least 2031. Phoenix reported a strong set of earnings yesterday, and as we build solutions for them, the solutions we create for Phoenix not only help them grow, and when they grow, we grow, but they also help us develop solutions for the broader insurance market. Simplification and focus is a big part of the revised relationship with Phoenix. Across the business more generally, it was clear that we also had to simplify and focus so that we could be clear on where we would grow and that we would have clear accountability for who was delivering that growth. That's why we reorganized last October into the three vectors of growth. And I'm going to explain that shortly. Our structure is flatter today, more focused, and more importantly, it's aligned to the buying behavior of our clients. When simplifying the business, a key part of the process is deciding what we're not going to do. This led us to the proposed divestment of Permenean, which is happening as I speak, And the reason for doing that was we already had a leading position in our advisor business in WRAP and Elevate, and they ran in common technology. So Perminion was a solid business, but it was not additive to our growth ambitions. Likewise, when we studied our private markets real estate business, we wanted to get out of old style real estate business. And that's why we divested of our Nordics business and get into 21st century real estate, a la Amazon warehouses. And that's why we acquired Tritax. Similarly, when we studied Asia, we could see that we were not fully participating in the tremendous growth of that region. And I'm going to detail that later. We re-evaluated our approach and among other decisions there, we decided to exit Indonesia. Why? Because we were too small and the prospect of relevance and scale was simply too far away. Last two things on this slide. It was clear that in an industry beset by challenge, And in a business that had underperformed for the last few years, we had to be explicit about strengthening our culture. We must have a performance culture where we think and act as owners. We have great people here. What we have to do is have a culture that gets the very, very best out of them. We must be known as a place where the very best talent know that the only limit on their progress is their contribution, their creative contribution, irrespective of whether they're sitting here in Edinburgh, Singapore, Hong Kong, London or Philadelphia. Last topic in this slide is an important one. Everyone told me that having five brands was confusing. They found that the Phoenix Standard Life licensing arrangement was confusing and that our hybrid corporate name lacked the differentiation to cut through in a crowded marketplace. For that reason, you will see us announce in just a few weeks a new, refreshed brand identity that unifies us, brings us together and is going to result in much more efficient and effective marketing. On this next slide we show our six clear strategic priorities. Let me spend some time taking you through each of them and after that I'm going to bring them to life in the vectors for growth where you'll see the specific actions that relate to these priorities in each of our vectors. First of all, growth in Asia. The economic gravity of the world is moving east. The centre of gravity is moving east. Already, more than half of the world's population live in Asia and it will become home to half of the world's middle class. Asian economic growth over the next five years is forecast to be about 4% per annum, easily outpacing the US and the EU. China will likely become the largest economy in the world in US dollar terms within this decade. Investment assets are predicted to grow at a 12% per annum rate, resulting in a fifth of the world's assets being in Asia by 2025. It's a region that represents a massive opportunity for us. It's a region where I spent the last two decades. Building on our legacy in this region, is and must be a major focus. We are well known already in Asia and we have a good footprint there. We expect demand for global capabilities to grow as individual investors in Asia and savings institutions expand their investment horizons beyond their own markets. Through our regional presence and through a stronger emphasis on distribution partnerships, we're aiming to grow this region. Let me turn to solutions. Our institutional, wholesale and insurance clients are facing an increasingly complex array of challenges. These are well known to you. Increasing longevity and increasing pension burdens. Companies and countries are on transition to net zero. All of this is happening against the backdrop of sustained low interest rates. That means that we are more focused than ever on delivering specific outcomes for our clients to meet these complex needs. We will get better at utilising our existing capabilities in research and in modelling our clients' multi-year obligations. That in turn will allow us to get better at designing solutions on a whole of portfolio basis, on an asset agnostic basis. Overall, that will leave us better able to meet the needs of our clients today and tomorrow. Private markets. Let me talk about that. We live in a world of low expected returns from liquid assets. There are fewer public companies and where the traditional approaches to portfolio diversification are less efficient. In that environment, private market opportunities are playing an increasingly important role in making our clients better investors Private markets are forecast to grow at double-digit rates for the next five years, and that strongest growth will take place in Asia, Europe, and the US. We are focused on the growth themes that are better accessed through private markets, whether it be real estate, infra, equity, or credit, and in strengthening our team in this area. Client ecosystems. What do we mean by this? We mean an ecosystem of technology amongst our trusted partners that acts as an extension of our own capabilities today. This allows us to bring the right solution to the right client at the right time. You don't have to own everything today. Think of a digital journey from personal to advisor to an ASI product. This is all about how we access new and growing customer segments through a digitally connected world, accessing them through our partners and through our partners to their clients. Technology. We are nearing the full integration of the ASI investment platforms and the operational and the cost benefits that come from a single technology infrastructure. But that's not the end of it. We know that agile technology, advanced data analytics, machine learning and cloud computing are all essential capabilities for a client-led investor. These capabilities deployed well will allow our investment teams to better serve our clients today and tomorrow. Let's talk about the UK. Individual investors will be a major growth engine for UK assets. Increased longevity, pension freedoms, increased demand for advice driven by this complexity and choice, and the looming great intergenerational wealth transfer. All of these factors are playing out in the UK. Our advisor and personal businesses face into these opportunities directly. We can access the UK retail, advice, savings and investments market through these businesses and our plans are for these businesses to make a significant contribution to our growth ambitions through time. Some of the stats here are quite compelling. 27% of over 55s in the UK see COVID impact on their pensions as their biggest financial worry. The World Economic Forum predicts that people in the UK will outlive their pensions by an average of 10 years. That's a scary prospect. An FCA study recently highlighted that the impact of advice on UK adults meant that they would benefit from advice in planning their financial future. But how many of them are getting that advice? Today, only 8%. Over 20 million adults in the UK could benefit from this advice. They're not currently aware of it or not being served by the marketplace. Clear opportunity for us and we've got the capabilities and the technologies to build into that marketplace. So those six priorities are very, very clear. These strategic priorities. But they're supported by enablers. It's critical that we finish transformation first. that we simplify the business, that we have brand clarity, and that we start to generate positive operating leverage. And the last point, we have very strong capital resources, a strong balance sheet, and we are careful stewards of that capital. And as we develop this strategy, and I'll explain later more deeply how we think about our capital resources. Turning to the next slide, these are our three vectors. As I mentioned, one of my first actions was to structure a leadership team in a clear way along these three vectors. First, investments. Our global asset management business with clients in 80 countries with 457 billion of AUMs. This is our core and our largest business, serving governments, pension funds, insurers, banks and charities, as well as individual investors. Second, our advisor business. This is a market-leading business here in the UK, and it's been undervalued. Already, we have half of the IFAs in the UK accessing our platforms. The personal business, 13 billion. This is a more nascent opportunity for us. It's a smaller business, 13 billion of AUM, that faces into the UK retail advice, savings and wealth market. And I'm going to show you how we're going to configure this business. Now let me turn, now I'd like to walk through the individual strategies and the actions that we're taking in each of the vectors of growth. First of all, talking about investments. Here we are looking at the growth in Asia. Let me explain what we've been doing in the Asia platform. We're reconfiguring Asia for growth. We're focusing on the two-way opportunities that exist in Asia, the two-way flow of Asian assets to the world and from the world into Asia. And we're partnering to maximise our wholesale opportunity. Our wholesale, we recently announced the partnership with Citibank. We also announced the partnership with China Construction Bank International in Hong Kong. And we also have a partnership in Asia with Hub24 in Australia. On the right-hand side of this slide is private markets. Here, we're enhancing our capabilities in infrastructure, private credit, and direct private equity. We're leveraging our logistics expertise with TriTax. Indeed, TriTax will become the heart of our logistics capability in private markets. We are accessing in these two areas the high exogenous growth of markets. Let me turn to the next slide. Page nine. Here we are, solutions. So let me talk about solutions here. What does this actually mean? On this slide, I'm going to show you how we're addressing the changing nature of investor behavior. As I stated earlier, by developing whole of portfolio solutions, outcome-oriented solutions on an asset agnostic basis, we will be better able to access client opportunities that are not available through traditional asset management. We already have a business of considerable scale and solutions, 124 billion of AUMs, and these assets are profitable and have good persistency. The target clients for the solutions are business are global pension and insurance companies. Global wealth solutions are essential for our advisor and their personal vectors as well as we build those businesses out. We have formed a global product and client solutions team to address this specific opportunity and we're continuing to invest in agile technology advanced data analytics and next-generation computing to enhance our outcomes and investment efficiencies. Let me talk about responsible investing. 2020 has been the year where our long-term responsible investment approach has really started to pay off as demand for ESG has grown. We have a well-established ESG integration across all of our public and private markets and we've generated institutional and wholesale flows in 2020 through sustainable fixed income, and we expect that to continue this year. We have done significant work on our product offering in 2020. We have a pipeline of ESG-related products coming through this year, and that will underpin and demonstrate our deep competence across equity, fixed income, and multi-asset. We are also developing solutions, particularly in net zero directed investing, and we've created these for Phoenix. The solutions that we've created for Phoenix are increasingly relevant, as I mentioned earlier, to our other clients too. We have recognized the importance of demonstrating our ESG integration to our clients, and to that end, we have built stronger data foundations. These investments will deliver insightful client reporting in 2021 itself, and we have already begun to roll out carbon footprint and climate scenario analytics, as well as a proprietary ESG house score. We also have an engagement tracker. that helps us demonstrate more clearly to our clients the benefits of active ownership and the outcomes that we drive as stewards of our clients' assets. Let me turn to how we are using ETFs and technology on this slide on page 10. The huge growth of ETFs as an asset class is very well recognized. That's the reason that we view this as a critical complement to our active capabilities. We have a small, successful ETF business in the US. In fact, we doubled our AUMs there last year. For us, ETFs are about an efficient delivery mechanism for active content. And it's clear that our clients value the transparency and the lower costs that come with that delivery mechanism. We are looking to expand their offerings beyond the US and combining this capability of combining active and passive into what we call thematic strategies. Technology. We're continuing to invest in agile technology and in advanced data analytics and next generation computing. These are critical capabilities for us, not only to become better investors and develop better outcomes, but to be able to make our business future and forward compatible. Slide 11. Let me turn to the UK and the exciting opportunities that exist here. Our advisor business is a real hidden gem. We have an opportunity to capitalise on what is a leading position in this UK market. Our vision is to bring institutional grade research, investments and technology to the UK wealth management market. Our goal is to be the platform of choice that makes it easiest to serve your clients and grow your business as an IFA. We're starting from a very strong position. We have a full 50% of the 27,000 IFAs in the UK already using one of our platforms. In the summer, as we integrate WRAP and Elevate, we will enhance our services and strengthen this position that we already have and position our business to access the consolidation in the UK advice market. We have an active programme of development in this area and we're improving our capabilities. For example, improvements in retirement, intergenerational wealth transfer and investments, and especially in bringing ESG solutions. As shown on page 12, our focus is to compete on the basis of content and experience. We know that this will help us be the primary partner to our advisors. Many IFAs use more than one platform, but when you're the primary partner for those IFAs, you enjoy superior returns, and that is our focus. Our goal is to become completely indispensable for both the advisor and the end client by making the experience best in class. Our strategic partnership in this space with FNZ has helped us reduce our costs and it will allow us to scale the business efficiently. The announced purchase of WRAP and SIPP The RAPSIP and the onshore bond from Phoenix as part of our transaction there also provides a simplification and an improvement of the profitability of the advisor vector, as well as giving us direct control of the client experience. Let me turn to the personal vector here. We see the same strong prospects for growth that I've described in the UK. It's driven by the same factors I've described earlier. Pension freedoms, transfer of responsibility from state and institutions to individuals. And every published report that we read confirms that the wealth gap in the UK is actually expanding. As I highlighted earlier, there are now 20 million adults for whom advice would prove beneficial, but who are not being served. COVID and economic downturn has exacerbated this same issue in the UK. More people than ever have a need to be given advice and are being underserved by the UK industry. But as this slide shows, it's not one market. It is a whole series of segments, and it's crucial to take a segmented approach to the market in order to deliver the right services. We will provide a spectrum of support based on life stage, personal preferences, and financial goals. from very simple self-service capabilities at the base of the pyramid, all the way through trust and estate planning for the higher net worth further up. Here in slide 14, you can see the model that we are building out. It's based upon individual business units that we already have in our platform. But the individual units we have are somewhat disjointed And there's confusion at the brand and the proposition level. Our 1825 business, for example, provides holistic financial planning to clients, typically with more than $250,000 in savings. Within that, we have a range of propositions that are tailored to different needs, including more specialist advice for the higher net worth clients. Through acquisitions, and we've established a national footprint for 1825, and we have created a compelling and recognised offer, the FT has ranked us as number five in the advisor list, a testament to the quality of the offering and to the professionalism of our advisors. Aberdeen Standard Capital provides discretionary fund management. Our 1825 clients use and benefit from this investment solution as part of their proposition. ASC also provides a range of solutions for advisors, charities and institutions. The recent launch of our digital retirement advice service has tested incredibly well in the UK. In fact, Boring Money told us it was by far the best that they had seen. That will help us provide simple and appropriate advice at scale. This is part of our approach to closing the advice gap that I described earlier, and it will help UK investors plan for their futures. Our overall strategy in the personal vector is to reorient around client needs, rather than around the historic business units. We're building our personal vector in modules, allowing client choice at all stages. We will offer the full range of support for our clients, whether they want to deal directly, receive advice, or indeed receive bespoke client management. We'll also make it easy to move between the various support levels, recognising that client needs change all the time throughout their lifecycle. In execution only, our Choices app, which will launch later this week, will provide the key open banking tool that allows our customers to review their personal budgets and assess how much they want to save and invest for the future. Choices is a product roadmap already, including the soon to be launched choice makers and pensions. Where clients use savings wrappers, for example, we will connect to the underlying savings platform in our advisor business. The reuse of shared capabilities will drive economies of scale and allow us to constantly upgrade and improve efficiently. The full range of investment offerings across the group can then be leveraged depending on client needs. We can offer a rich set of research, advice and investments to our clients in the UK based upon the strength of these capabilities. So now, let me turn to what this will look like over the next three years from a financial standpoint. I describe our growth ambitions here on this slide in slide 15. This is an important slide. Our clear goal is to return the company to revenue and earnings growth. Since the merger, we have suffered revenue declines and narrowing margins and have not been able to reduce our costs quickly enough to compensate for that. Our strategy now is to grow and open up positive operating leverage. We believe that we can grow our revenues in the high single digits over the next three years. This will yield the benefits of improving fund performance and the higher flows that come with it. We believe that we can stabilise our yield and book a higher proportion of higher yielding business. That's through the focus that I just described on wholesale, private markets and in the UK advisor and personal vectors. We're seeking to reduce the proportion of our cost base that's fixed, introducing much needed flexibility such that we can adapt to different market environments. There is clear synergy between each of our vectors, where a personal client provides a benefit to the advisor vector by using the RAP platform and a benefit to the investments vector by using their funds. This is how the whole can become greater than the sum of our parts over the next three years. Stephanie will now take you through our 2020 results, after which I'll come back up to talk about our capital position and outline the opportunities that I've described and give a clear view of how these fit in our business model. Please, Stephanie.

Thank you, Stephen, and good morning, everyone. So today we are setting out details of our changes to our segments for reporting and our financial metrics. So up to 2020, we have reported under two segments. Going forward, we will have four. This reflects the changes we have made to operate across the three vectors of growth, investments, advisor and personal. The new reporting structure also corresponds with how our clients interact with us and therefore how the business is now being managed and reported. These changes simplify our reporting and will enable transparency of the performance of each vector, aiding evaluation of the business. The 2020 results in the new segments are set out in the release called Changes to Financial Metrics and Segments Used in External Reporting, which we have issued today. Excuse me. In addition, the share of profits from associates and joint ventures has previously been included in adjusted profit before tax, which was a key performance indicator. With the change of associate status for Phoenix from February and HDFC life from December, their contribution to profit is no longer included in adjusted profit. Rather, it's shown in the balance sheet at fair value. Going forward, the key metrics will be both adjusted operating profit and adjusted capital generation, the latter measure identical to that which we have used historically. all other aspects being equal, this will have the effect of reducing adjusted diluted earnings per share as it will be based on adjusted profit, but this metric will no longer include the share of profits from JVs and associates. There is no change on adjusted capital generation or on diluted EPS, which is based on statutory profit. So having set that scene, I will now just move on to talk on this slide about our clients, because as Stephen has made very clear, our clients are our priority. Now, this slide summarizes the focus of our teams as they engage with our clients across the globe. At 457 billion assets under management, the investments vector manages over 80% of our assets and generated over 80% of our revenue in 2020. A couple of areas to highlight here. In our institutional client base, many have been clients in excess of 10 years. Our wholesale client base is particularly strong in Europe and we are targeting other regions using a number of different partnerships such as Citi and Hub24 in APAC and Skipton Building Society in the UK. Our largest client is Phoenix at 172 billion of assets under management and our partnership is focused on enhancing growth through solutions which serve the complex needs of the insurance customer base. In the advisor vector, we manage 67 billion and our clients are in the UK, comprising both national and regional advisors and discretionary fund managers. As Stephen has touched upon, we have 50% of advisor firms in the UK on our platforms and we have a track record of generating positive flows. We typically keep those assets on our platforms for an average of six years, and this is increasing as are our client numbers. Overall assets under management and administration have increased by 7% for the year. In our personal vector, our clients are in the UK and our private clients, financial advisors, charities and trustees. This is currently the smallest part of our business, but is a vector that generates positive flows and we see significant opportunity, particularly as there is an advice gap in the UK and the market capacity to address the gap is currently limited. In 2020, we have seen growth in clients of 11% in Aberdeen Standard Capital and assets under management and administration has increased this year in this factor. So turning now to the summary of our results for 2020. I will expand then on a number of the points and then go into more detail later. Investment performance has again improved in 2020. We saw net outflows in the year, but these are significantly down at £3.1 billion. Fee-based revenue is £1,425 million, 13% below prior year, while operating expenses at £1,206 million have reduced by 10%. Adjusted operating profit is £219 million and the cost-income ratio is 85%. Adjusted capital generation of 262 million was 21% below the prior year. Adjusted diluted earnings per share is 18.1 pence. The dividend per share is 14.6 pence and our regulatory capital surplus is 2.3 billion, an increase of 35%. So overall, the improvement in investment performance and an encouraging underlying net flows trajectory has created momentum in 2020. So let me turn to revenue. At 1.4 billion, revenue was 13% below prior year. This reflects principally the impact of net outflows in 2019 and a 77 million reduction due to the Lloyd Banking Group exits. We also saw the impact of lower revenue yield as clients held 71% more in liquidity assets during the volatility of 2020 than had been the case in 2019. And some are still choosing to hold higher liquidity levels. A further impact of the uncertainty from the COVID environment was that clients were slower in making allocations and advisors were faced with lower activity. Areas where we saw higher revenue in the year include fixed income and private markets, reflecting client preferences in this period. Markets did improve in the latter part of the year and generated a 3.5% improvement on opening AUMA, translating to a revenue impact of 89 million in the year. Turning to the Prophet. The adjusted profit before tax is £487 million, a reduction of 17%, reflecting lower adjusted operating profit of £219 million and £247 million from the share of adjusted profits from associates and JVs. In adjusted operating profit, the 13% decrease in fee-based revenue is not fully offset by the 10% improvement in operating expenses, and the contribution in adjusted profit from associates and JVs was flat year-on-year. Capital management movements principally reflect, in accordance with accounting requirements, the mark-to-market values of our seed and co-investment funds. This has been adverse in this period. The key adjusting items in 2020 are principally in two areas. Firstly, our stakes in HDFC Life and AMC, where we recorded a profit of 803 million on disposals of our holdings, together with an accounting gain of 1.1 billion on HDFC Life, as the remaining holding is now reported at fair value. The second adjusting item is the impairment and amortization of 1.3 billion, which we highlighted at the half year, and relates to goodwill and intangibles, which are non-cash adjustments. For the full year, our impairments are lower than prior year. It's worth noting that after the stake sales in 2020, the holdings in HDFC Life and HDFC AMC are still worth in excess of 2 billion. Adjusted EPS for the period is 18.1 pence, a reduction of 6% from the prior period, with an increase in diluted EPS to 37.9 pence, reflecting the fourfold increase in statutory profit. The conditions of the COVID environment have endured much longer than any of us would have wanted. From a financial perspective, our strength has meant that we have not relied on any UK government schemes. We made our dividend payments in 2020. We have continued our approach to management of the Indian stakes and continued the buyback programme, which was finally completed in February 2021. While EPS is impacted by the lower revenue levels, the buyback program has benefited adjusted EPS in 2020 by 6%. Now, despite the decline in revenue, we have started to create momentum in a number of areas during 2020. The combination of improving investment performance, increased consultant ratings, increased pace of progress across our wholesale distribution is most visible in our flows. On net flows, we have seen an improved position. Leaving aside the impact of the Lloyd Banking Group exits, the net outflows at 3.1 billion represent an 82% improvement on the prior year, with redemptions 25% lower than the levels seen in 2019, which in turn had improved on the low points seen in 2018. We saw positive flows in all our activities, except insurance. By its nature, this part of our business reflects the spiky profile of mature books and the policyholder drawdowns for their life events, offset by the timing of any new purchases of insurance books. Our gross flows have reduced on the prior period, principally for two key reasons. In 2019, you may recall there was a £5 billion one-off low-margin advisory mandate win which did not reoccur in 2020. Within insurance, we saw £6 billion lower gross flows as a result of the Lloyds Banking Group policyholders who have now exited. It is pleasing to see the improvement on redemptions. In the second half of 2020, redemptions were 23% better than the second half of 2019. The momentum in improving flows has been continuing, and since Q3 2020, we have seen increasing client preference for risk-based assets and increases into equities, multi-assets, and private markets. Turning to revenue yields, Now, these yields do vary across our vectors. On average, the yield has decreased by one basis points with movements largely caused by the mix of assets held. The move in the advisor vector of 2.9 basis points reflects the repricing impact that we put through in our wrap and elevate platforms during the back end of 2019 and 2020. Now, on the right-hand side of this slide, you will see the movements in yield on the underlying assets in institutional and wholesale. Notably, we are not seeing dramatic movements within asset classes, except in multi-asset, where the mix continues to change from absolute return to the myfolio range, and a particular impact from the 2019 movements. Aside from normal market pressures, we are continuing to see the improved investment performance drive the choices for clients seeking higher yield in their portfolios. So turning to the performance of our growth vectors. In investments during 2020, the revenue levels were impacted by prior year outflows and also reduced by the 77 million from the Lloyds Banking Group exits. During the year, we saw positive movements in flows, aided by the improvement in redemptions. Since 2019, there has been a 25% improvement, and this is most obvious in equities and multi-assets. And you can see this very clearly on this slide. In investments, our activities are in institutional and wholesale and insurance. In an institutional wholesale overall, we saw small positive net flows in 2020, which is a significant improvement from the negative flows recorded last year. There have been improving quarterly trends during 2020 and the lowest redemption since the merger. In particular, the redemptions in equities and multi-assets were 26% and 61% better than last year as we have been successful in defending key franchises. We do still have work to do as redemptions are still challenged in UK focus on change and in our core global strategies. We have seen increases in levels held in liquidity assets in the year as clients chose this asset class in times of uncertainty. We have also seen positive flows and new client wins in our focus funds across equities and fixed income with many achieving top quartile rankings in terms of cross-border net sales. Equities and fixed income have both increased gross flows year on year and this was evident in all sub-asset classes other than emerging markets. On absolute return, outflows have continued in this space linked to the underperformance pre-2019, but with the performance recovery and sustained defensive efforts, flows have stabilised and there is growing positive feedback and rating upgrades from consultants and agencies as performance recovery enters the third year. On innovation more widely, we have generated 4.6 billion in-year of net flows on the funds launched in the last three years, with strengths in private markets, multi-assets, and quantitative investing funds. In insurance, the net outflows were 7 billion for the year, which is double that seen in the prior period due to higher levels of inflows in 2019. As I said earlier, there is an inherently more lumpy pattern in this arena, and we did see some spiked activity in H2 versus H1. From a geographical perspective that's worth just touching on, wholesale activity in EMEA has been very positive. During 2020, we have also increased our business levels in the US. In both EMEA and the US, it is clear that our clients have preferences for our Asian and UK strategies. More than 60% of the funds from clients in EMEA and the US are managed by our Asian and UK teams. In APAC going forward under Rennie's new leadership, the level of funds generated locally for local or global investment will be a key driver in determining our ability to develop the scale of the business in APAC. Investment performance. As many of you already know, investment performance drives the success with our clients. The important three and five year numbers are robust at 66% and 68% respectively. On that crucial three-year benchmark, the 66% figure is up from 60% in the prior period. This represents sustained improvement and has remained robust in the face of the volatile markets seen in 2020. We should also remember, of course, that 2018 was one of the worst years ever for investment return. The improvements we have seen reflect the hard work and quality across the team to implement the performance improvement plans. Equity performance strengthened significantly through 2020 with two key drivers here. The growth priorities represented in our focus funds continued to deliver consistent outperformance and top quartile results. And within areas such as GEM and Japanese equities, there was substantial recovery in relative return and competitive positioning. In the absolute return suite, the rebuild of the track record is well advanced, with two years now of consecutive returns above target and peers. Two areas where performance remains challenged are the myfolio active ranges and real estate where performance is impacted by retail. The robust and sustained improvement on investment performance has generated further improvements in the number of consultant ratings. We now have 52 rated strategies up from 46 in 2019 and 43 at the time of the merger. We have also seen a 29% increase in the number of funds which carry four and five star ratings at Morningstar. So turning to the advisor vector. Here the assets being managed have increased in scale during 2020, reflecting an increase in clients and the average size of holding. The revenue level has been impacted by the repricing undertaken in Elevate and RAP platforms in 19 and 20, which is delivering the objective of increasing the number of clients and flows. The vector continues to be in net positive flows despite the impacts of the UK market conditions in Q2 and Q3 of 2020, which really increased the uncertainty for advisors and clients. The first lockdown in particular impacted the activity of our advisors and this in turn impacts the volumes that we see. The volumes improved in Q4 as advisors started to see increased interest and activity and this momentum is continuing with Q4 seeing increased net flow levels comparable with those of the prior year before the pandemic. On the personal vector, revenue improved with the full year benefit of the activity we acquired from Grant Thornton and BDO in late 2019. This created a 14% increase through greater coverage and increased number of advisors. In particular within ASC, the team have grown the AUMA to its highest level with specific benefit from deepening our charities activity, launch of sustainable portfolios and improved functionality on the portal. Now turning to costs. Our continued focus on cost management delivered a reduction in operating expenses of £127 million, 10% versus 10% below the prior year. We have continued to look at all areas of the business and target the areas that are subscale or not profitable. For example, we commenced the review of the Nordics early in 2020 and this is almost now complete. After allowing for inflation and other investments in staff, net staff costs were reduced by £73 million to £643 million. This reflects actions taken to reduce headcount and contractor and agency spend. Non-staff costs were reduced by £54 million to £563 million after allowing for inflation and other investment of £25 million. There was also a 9 million increase in outsourcing costs, which reflects our actions to build further leverage from the core services of our third-party relationships. Specifically, year-on-year reductions in consultancy, change and other spend, such as information services and promotion, reflects our ongoing cost control. Further reductions were a result of corporate activity, specifically the disposals of Standard Life Asia and savings relating to the development costs in Parmenion, which is also now being sold. We estimate that approximately 20 million of costs overall relate specifically to COVID factors, such as the reductions on travels and events given all the temporary restrictions, offset by the increased costs from software and other technology costs relating to remote working. However, due to the 13% reduction in revenue that I highlighted earlier, we have not been able to improve our cost income ratio, which is 85% for the full year, as also highlighted at the half year. Overall, we achieved our target for synergies in 2020 through our transformation programmes. The teams have done sterling work to continue to make those operate in a COVID environment, and we remain on track to deliver against our annualised synergy target of 400 million later this year. Sorry, I've just got a small block on my slides. Perfect. During this year, we also maintained very much our focus on executing for shareholders through managing the investments on our balance sheet. Stephen has already described the work completed with Phoenix and on HDFC Life and AMC. We realized proceeds of 0.9 billion during 2020 in difficult markets. In H2, the further stake sale in HDFC Life takes us to an 8.89% holding and we intend to continue our strategy of realising this stake. The £400 million share buyback completed in February 2021 at an average cost of £2.53 per share. Our liquid resources remain strong. Adjusted capital generation is 21% below prior year, reflecting our lower adjusted operating profit in year, while the generation of capital from our associates has stayed largely constant. If I now turn to how we're looking at the evolution of revenue, our focus in the near term is arresting the decline of revenue through generation of positive flows. Bearing in mind, we have a further exit of Lloyds Banking Group assets to complete. In addition, we expect to be onboarding the revenue benefits from the acquisition of TriTax as we increase our presence in logistics. Also, there will be reduced revenue post the sale of Parmenion. In this period overall, we expect the growth rate in revenue to be low. Thereafter, we are expecting growth across our vectors. In investments growth, we are expecting growth in all regions, strongest in Asia given the lower starting point, but we will also expect to get growth from our focus on building the wholesale franchise and also the development of our solutions and private markets activities. In advisor and personal, we are targeting growth from increased penetration and volumes. After the impact in 2022 of the final Lloyds Banking Group exit, these actions are designed to increase growth to high single digit growth. In terms of yield, we are expecting overall stabilisation in the near term and then increasing given the expected preference of our clients for risk based assets, including those in private markets. Now, if I then turn to how we're looking at the evolution of costs. The key area of cost currently impacting our cost income ratio is the level of non-staff costs, which will remain high as we go through the last stages of transformation in 2021. Looking ahead beyond 2021, we are forecasting continued evolution in the cost base as a result of finishing transformation and simplifying the business, which are both key to cost discipline and enabling our resources to focus on that growth agenda. We will have a more efficient model which will help us control the level of these costs and can accommodate our ambitions for scale of activity. In addition, as transformation completes, we expect reductions in staff numbers in some areas and investment in staff areas, particularly in those areas of growth. And we do also anticipate an increase in variable compensation to reflect our improved performance. Reductions in non-staff costs will be driven by three main factors, supported by continued rigor over expenditure more generally. Firstly, operational separation from Phoenix, which eliminates the outsourcing charges associated with our TSA arrangements. Optimizing and consolidation of information and data services. And thirdly, harmonization and simplification of the brand and marketing activity that Stephen referred to earlier. Importantly, we will also continue to make greater leverage of key third-party relationships, particularly in the provision of operations and technology services. Our recent new agreements with FNZ, for example, enables a more efficient model for our advisor and personal vectors. These strategic relationships provide greater flexibility in our cost base and provide the scalability to deliver the forecast revenue growth profitably. We're also managing the new branding program under strict budgets to ensure that we achieve the benefits for the business. So through both staff and non-staff costs, we are expecting a better balance of fixed to variable costs, which aligns with a performance culture. Overall, Overall, we are targeting an improvement in our overall cost income ratio to circa 70% by the time we exit 2023. Our vectors do have different characteristics and they do deliver different results. And over this period, that will continue to apply. The advisor vector is leading with the most efficient model and does have ambitions to improve this further. And then finally, if I just turn to how we're looking at capital going forward, the new IFR regime is anticipated for the start of 2022. And we anticipate that the application of the thresholds for insurance and tier two will impact to the extent of about 1 billion. On that basis, our adjusted surplus as at this year end would be of the order of 1.2 billion. And we are comfortable that this is appropriate level for our current investment plans and completion of transformations. This has been a difficult environment for everyone and our business result in 2020 is lower as a result. The board has assessed the strategic plan and the objectives for growth. In the last few years, the dividend has not been covered. This is not sustainable as we consider the dividend should reflect the return to shareholders in respect of the earnings of the business. We have assessed our projection of sustainable earnings and have re-based the dividend to 14.6 pence, which is a level that we consider is supported by our current projections of growth of the business and the expected status of markets. We intend to hold this level until cover of 1.5 of adjusted capital generation is achieved and then we expect to adopt a progressive policy such that the dividend grows with the benefit of sustained earnings growth. Thereafter, as we realise other elements of our strategic holdings, such as HDSC life through 2021 and 2022, we will execute our investments to enable the strategic plan in accordance with robust return hurdles for shareholder returns. And I will now hand back to Stephen for his views on capital.

Thank you, Stephanie. That was very clear. So before we go to Q&A, I'm going to talk about capital and then talk about our business model, and then I'll be joined by my colleagues for Q&A. We have a very disciplined approach to our capital. That starts by ensuring that we configure our business for consistent growth. We've taken the decision to rebase the dividend such that it will be sustainable and supported by earnings. Our goal is to achieve one and a half times cover and then be in a position to grow the dividend through time. We are investing in our business. This will improve our competitive position and help us grow in the future. We recognise that our model has suffered from being pro-cyclical, overweight in traditional asset management and underweight in the advisor and personal vectors. Our goal is to diversify our sources of revenues and improve the consistent delivery of performance for a more balanced net result. As well as investing in and growing our business organically, we have a duty to assess acquisitions of businesses, portfolios of clients, or capabilities that would strengthen our position and strengthen our model, in particular in the areas of advisor and personal. We are assessing our opportunities in the marketplace as you would expect us to do, and we're being careful and disciplined as careful stewards of capital as we evaluate any potential use of it. As I summarise here in this slide, in slide 36, we're pursuing client-led growth. It's based on investing in areas of higher exogenous growth, such as Asia, solutions, private markets, and yielding the full benefits of transformation. We have configured our team against these opportunities. Here in the UK, we're focused on accelerating the growth in advisor and personal. We have a strong balance sheet, as we've detailed, and we'll deploy it carefully in order to build sustainable results and rewards for shareholders. On my last slide here, before questions, I want to detail our business model. Client-led growth is the highest quality growth and that is our goal. This is because it's rooted in understanding client outcomes, driven by needs, wants and aspirations, which in turn allows the delivery of intuitive and satisfying client experiences. There's a lot on this slide, and it reflects our view of the changing world and how we've designed our business model to be able to address these compelling growth opportunities. We are futurists. This means that we harness the compounding power of time. We research the trends that our clients can act now to benefit in the future. We leverage technology to connect with our clients and to invest intelligently. as we channel the relentless curiosity of our team so that their learning and their improvement every day feeds through to results. The talent of our team, when harnessed correctly to enable client goals, enables our clients to be better investors. As I said, our business is made up of three vectors, investments, advisor and personal. And supporting these vectors is technology, soon to be a single brand, research and partnerships. Underpinning our strategy is our imperative to invest responsibly to build back a better world. Through the products that we create for our clients, as they transition to more sustainable investment portfolios, through our direct engagement with companies that we invest in to influence their behaviour, and also through our own commitment to net zero. ESG is not a hygiene factor. When you're committed to being true futurists, ESG is the core of everything that you do. The world is changing quickly, not only on a path to net zero, but political structures, global trading relationships. Disruption is happening industry after industry. As buying behaviours change, more and more business is done directly. All of this was happening and continues to happen in the face of a global pandemic. When you recognise the full scope of these changes, it's very clear that you have to shift your whole business model into a better and more futurist mode. This will ensure that we remain relevant today and tomorrow. In short, this is a compelling proposition for shareholders because we have the capabilities and the positions to access these high growth opportunities. This business was founded in 1825. Four years from now, we'll cross the dateline into the start of our third century. Our mission is to put this business in its best possible shape as it enters its third century of growth. I hope you share my enthusiasm and my conviction for bringing this vision to its full potential. We're now going to take a short five minute break and then I'm going to be joined by Rod, Noel and Alex and Stephanie and I will take your questions. Thank you.