Aberdeen Group Plc

Good morning and welcome to the Aberdeen first half results for 2022. I'm joined by Stephanie Bruce, our CFO, Richard Wilson, CEO of the Personal Wealth Vector, Noel Butwell, CEO of the Advisor Vector, and Chris Dimitrio and Rennie Bulman, CEOs of the Investments Vector. Firstly, I will cover our performance as a group and show you how the strategy of diversification and investing our capital in growth areas is beginning to benefit the group results. Secondly, Stephanie will go through the detailed financial performance and then I will look at the impact of the market environment on the timing of the delivery of our strategy, our capital stance on dividend returns and how we see the near-term outlook before opening to questions. In the first half, revenue was 8% lower, adjusted operating profit 28% lower, and cost-income ratio increased by 4%, all compared to the first half of last year. Net flows overall recorded a creditable performance in this market, with net outflows at 1% of opening AUM. At the half-year, assets under management, including liquidity and Lloyds, were 6% lower than the start of the year. The group results have been reduced principally by the market impact on revenues within the investments vector, where profits were 40% lower, while the advisor and personal vectors were up 3% and 75% respectively. The latter bolstered by one month's contribution from Interactive Investor. I'm pleased to report that II is performing ahead of our expectations when we signed the deal last year. We deliberately structured the group into three vectors, two of which have grown, even in the most challenging of markets. When I joined what is now Aberdeen in late 2020, I said that we would pursue a strategy of refocusing our investments vector to areas of strength and growth potential, and that we would expand our reach in the higher growth and higher margin UK savings and wealth market. Despite the challenging market context, we are doing exactly that. While a worsening market environment inevitably means that it will take longer to deliver our stated financial targets, we have the right strategy and we have the team, the right capabilities and the capital resources to execute it well. We have now successfully addressed the significant gap that we had in our business model by acquiring II, which has transformed our position in the UK savings and wealth market. Our balance sheet remains strong, even after significant returns to shareholders and a significantly stronger dividend commitments. As we now have greater clarity on the capital needs of the business, we will continue to allocate capital to deliver shareholder returns, returning capital in excess of business needs as further stake sales that will accrue from management actions are greatest. The pro-cyclical nature of asset management means that it has been most impacted by the fall in markets. And this illustrates precisely why our strategy of diversification for Aberdeen performance in interactive investor and the plans that we have for the future growth of the personal vector. Turning to the investments vector. This is the business with the greatest foundations in people and process. However, it has been hampered by having to deal with legacy issues and a lack of modernization. The rebuilding program is already underway, and we will show you the progress to date, as well as outlining in detail our approach to addressing an unacceptable cost-income ratio. financial result lower revenue and 40% lower operating profit and an increase in cost-income ratio to 86%. As the business continues to build out from its legacy position in traditional core equity and multi-asset strategies, it is no surprise that we have seen the majority of AUM declines in those areas. Pleasingly, areas of more recent strategic focus that generate longer-term revenue streams and attractive revenue margins, such as real assets and other alternatives, have delivered AUM growth in the first half, despite the challenging environment. We are progressing well with reshaping our equity franchise to focus on Asia, sustainability and thematic capabilities. Our multi-asset capabilities provide the crucial foundations for the delivery of repositioning of real assets. This gave us exposure to the warehouse and logistics distribution sector. Since its acquisition, AUM has grown by 33%. TriTax works closely with our established Aberdeen Real Assets team and, as an illustration of how we're working together, has contributed to the win to lead on capital raising for the British Volt Power and Electrification Project. The addition of TriTACs to the vector has added capability specifically in the logistics ecosystem and green energy area, and the collaborative approach to delivering growth, scale and client access. I draw specific attention to this acquisition because it demonstrates commitment to our strategy. The role of bolt-on acquisitions demonstrates how we can grow even in tough markets. Of course, the prime driver of flows in the long term is investment performance, which is best viewed relatively. Over one year, Our performance shows 53% of AUM ahead of benchmark, 3 years 63% and 5 years 61%. We have seen the impact of market conditions result in mixed performance across asset classes. Performance in real assets, alternatives and fixed income is highly competitive over the short and longer term. Our performance in equities and multi-asset remains a critical focus and both were impacted in the period by the market derating of growth and rotation into value. We are reshaping these franchises to be considerably more focused. Our overarching goal is to achieve more consistent investment performance and we are investing in our people, processes and technology to make that happen. We outlined how the investments vector strategy fitted into the group strategy in March last year. And while the environment has changed dramatically across all economic indicators, we remain fully committed to delivery. Indeed, we will step up the pace of change in this market dislocation. We are changing the shape of our investments business and repositioning ourselves in higher growth asset classes that play to existing Aberdeen strengths and global trends. Through this repositioning, we are focusing and investing in growth areas, exiting subscale businesses and driving down costs. This will position us optimally when broader global economic recovery resumes. We see highly attractive investment opportunities aligned to the global trends, and we have the investment expertise that is necessary to capitalize on them. And to be clear, you will see us progressively move away from a broad waterfront offering as we focus the business on areas where we have competitive strength and scale. There are three things that we are doing in the investments vector. I've already talked about the focus on improving investment performance. Secondly, we're working to drive improved flows. And thirdly, we're reducing costs. We are continuing to accelerate fund development and launches in areas of growth. Increasingly through time, we will shape new retail offerings guided by the data that flows from our market leading advisor and personal vectors. But right now, we are executing our programs to drive transformation and reduce the cost base of the investments vector itself. Our new products and solutions are designed to capitalize on the global growth trends. Let me highlight recent launches. Asia Sustainable, China Net Next Generation, Follow-on Funds and Commercial Real Estate Debt, and Core Infrastructure. and easy-to-access packaged solutions such as MyFolio Sustainable and Global Risk Mitigation. We are confident that these new product initiatives, combined with actions to improve investment performance and our existing capabilities, will contribute to growth as market conditions improve. We are well into an ambitious fund rationalization program that will result in the closure or merger of about 110 funds. We're simplifying our organization, resulting in lower headcount and fewer management layers. Over the coming months, we will complete the transition to a single global middle office for public markets, unlocking cost benefits from strategic use of partners. As a result of these actions, we are committed to delivering gross cost savings of £150 million by 2024, and over the same period, we will reinvest £75 million in the business. Turning to advisor, we have the UK's largest advisor platform by assets under administration, with an impressive reach of more than 50% of UK advice businesses partnering with us. The strength of our existing offering and the quality of service is already highly regarded, with a 96% customer satisfaction score. We are building on that strength, investing to further enhance our technology capability and the advisor experience. We've already added new portals and new ways of engaging with us. And in the second half, we will launch our next significant upgrade, overhauling the look and feel of the platform, making it much more intuitive, streamlined, and focusing on helping the advisory businesses that we serve. By ensuring that when firms partner with Aberdeen, they can deliver more for their business success, we in turn increase advocacy, growth and retention for Aberdeen. Our continued investment and advisor experience will further enhance our leadership position in a market that is estimated to grow AUM by 19% CAGR through 2025. In this half year, the advisor vector has performed strongly, with growth in both fee-based revenue up by 6% to £92 million and adjusted operating profit up by 3% to £38 million, despite a tightening consumer environment. The acquisition of II completed at the end of May has transformed our position in the vibrant UK wealth market and delivers a significant acceleration of growth revenue and diversification for the group. The transition of II into Aberdeen has been smooth and Richard's senior leadership team ensures continuity in management and delivery of the next phase of growth. In terms of financial results in the first half, II has performed ahead of our business case expectations in terms of revenue and profitability, of which one month is recorded in the first half. Despite the less active savings market, II has grown its customer base to 408,000, adding 19,000 customers in the half, and has maintained its industry-leading assets per customer of £128,000. This has driven a 17% increase in revenue and 47% increase in adjusted operating profit on a full-year 2021 run rate basis, while the cost-income ratio improved by 9 percentage points to 56%, highlighting II's operating scale. As we said in acquisition, we believe Aberdeen is the best home for I.I. as it brings stability and certainty for the business, and we have a clear roadmap to add significant scale going forward. Growth in I.I. is underpinned by three drivers, strength of the platform, compelling pricing, and scale of the customer base. ii has a fully scalable operating platform supported by cutting-edge data that drives personalized customer content and experience this is what will enable significant future margin expansion II's transparent flat fee subscription model is favoured by customers. In our recent and over recent months, it has launched a series of offerings to further grow the existing customer base, including bundling, fixed fee pension provision and advice. As part of our growth strategy plan, we are folding the Aberdeen established personal business, wealth services, digital advice and the financial planning team under Richard, who will lead this as CEO of the entire personal wealth vector. This will enable us to offer an end-to-end customer proposition from simple online transactions to more complex financial advice. We are developing further synergies to fully serve this integrated customer group. Taken together, growth in the advisor and personal vectors will significantly increase our exposure to the fast-growing UK wealth market and will transform in line with our stated strategic ambitions. Richard is with us today for any questions. I'll hand over now to Stephanie.

Good morning and thank you, Stephen. As Stephen has highlighted, our results in this half have principally been impacted by market levels in 2022, which have reduced our fee-based revenue. At a group level, revenue is 8% lower due to an 11% reduction from the investments vector, with advisor and personal partly mitigating this impact through revenue growth sector, which has been significantly impacted by the market performance in equities in this half year, together with the impact of net outflows in equities in the last 12 months. This has resulted in an increase in the cost-income ratio in the investments vector to 86%. While this has been disappointing, the benefits of the actions taken to diversify the business are already evident as our vectors operating in the UK wealth sector are both delivering resilient revenue growth and profit contributions, even in these volatile markets with decreasing consumer confidence. As a proportion of the group results, profits from our UK platform and wealth management businesses have increased from 26% to almost 40%. And of course, we only have one month of II results included at the half year. Now, if we had owned II for the whole of the first half, advisor and personal would have accounted for over 50% of pro forma group adjusted operating profits in the period. Given the acquisition of II, this higher contribution of adjusted operating profits from the advisor and personal vectors is a trend we now expect to continue. The advisor team have driven increased revenue of 6% due to higher average AUA and stable yields over the period. Adjusted operating profit of £38 million was 3% higher. The cost-income ratio of 59% is a small increase on prior year and reflects the current overlap of specific outsource service as we continue to transform this business. The consolidated results for the personal vector include just one month's contribution from Interactive Investor, but given its scale, its impact has been to increase the vector's revenue by 41% and adjusted operating profit by 75%. IICR cost-income ratio of 56% will have an immediate uplift to the efficiency of the personal vector overall. To demonstrate the II impact for the group, just the one month's profit contribution is 6% accretive to the group's EPS for the half year. Now, in the management report provided today, we have provided the key financial and operating metrics for II for the full year 2021 and half year 2022. And these evidence the strong growth trajectory of the business and the resilience of its subscription-based model. Our dividend policy is unchanged and the interim dividend is 7.3 pence. Benefits from our actions to diversify the business are also evident in a change of mix in our assets under management. AUMA at the half year are 6% lower than at the year end, with market movements contributing 52 billion or 10% of opening AUM. The primary negative headwind in institutional and wholesale was within equities. This movement was largely offset by the value of II's AUA of 55 billion at acquisition. Now within overall group net outflows of 36 billion pounds, circa 90% reflects Lloyd's exits and liquidity net outflows. The Lloyd's exits are now complete with the final transfer of 24 billion executed in this half year period. Liquidity net outflows in the half year of almost 8 billion arose as corporates drew down cash built up during COVID. Now, you will recognize that these are relatively low margin products, so the revenue impact is less significant. We have been successful in retaining around 7.5 billion of Lloyd's assets in a new quants mandate, which will be run in our institutional wholesale team. Excluding these Lloyds and liquidity flows, net outflows were circa 4 billion, which at 1% of AUM is similar to prior year levels and reasonably encouraging given the challenging markets. Advisor and personal continue to attract positive new business at 1.7 billion, albeit at a lower level than the prior year, reflecting less consumer activity. Personal flows have also benefited from one month's contribution of flows from IEI. Within institutional and wholesale, our AUMA highlight increasingly different patterns of investment between the traditional asset classes of equities and fixed income compared to the real asset and alternative franchises. our increased focus on these latter asset classes has benefited performance in this half year. Since the start of the year, about two-thirds of the book, which is in traditional areas of equities, fixed income and multi-asset, saw decline in overall AUM, principally due to market impacts. In real assets and other alternatives, which represented around one-third of our book at the start of the year, we have increased levels of AUM even in these challenging times. As a result, the AUM in these asset classes have now grown during this half year to represent 43% of the total book as at June and generated 2% growth in revenue. Our focused growth strategy in the investments vector is underpinned by concentration on our areas of competitive strength. Within institutional and wholesale, Real Assets has grown to the second largest asset class, driven by the investment in TriTax, which complements our established Aberdeen capability. Decline in market-based fee revenue and performance fees accounted for the majority of the reduction in revenue in this half year. There was a small net £4 million negative impact on revenue from disposals and acquisitions versus the comparative period, the biggest of which was Parmenian. It is important to note that net outflows and yields each had less than a 1% impact on revenue. Revenue was concentrated with inequities, which remains the largest source of fee-based revenue in the investments vector at 42%. There were reductions in revenue across most other asset classes other than alternatives and real assets, which saw a £7 million increase largely due to Tritax. Now looking forward into the second half, we have revenue tailwinds from a full six-month contribution from II and certain specific fee uplifts of £9 million. In addition, our performance fees are skewed to the second half and we expect continued positive flows in advisor and personal wealth. Market levels have shown some signs of improvement in July, and if this trend continues, provides a further tailwind. With a greater contribution from II, our sensitivity to market-based fee revenue will be lower. With net outflows at 1% of opening AUMA, flows activity has been relatively stable in these challenging markets. Insurance flows continue to be lumpy, and we had minimal benefit in this first half of 2022 from levels of bulk purchase annuity activity by our insurance clients. In addition, the continued de-risking is impacting us. We expect these market conditions to drive continued volatility in the pattern of both flows and mix of business in these mandates. Advisor flows have been resilient. As Stephen highlighted, there are a number of new products and service improvements coming in 2022 and 23, which are aimed at growing assets on our platforms. Personal flows, 0.3 billion, include the flows from II of one month that we are consolidating. II's net flows for the full six months to 30th of June were 2.2 billion, gaining 2% market share in the period. Now, as I explained at the full year, we are reshaping the cost base by reducing the core structural costs required to operate our investment activities, improving efficiency and creating the capacity to invest in our chosen growth areas. We have continued with cost actions in the first half of 2022, which of course have been undertaken in a changed environment for both inflation and interest rates. Overall, the adjusted operating costs at half-year are 2% lower than the prior comparative. The first half cost benefited about £20 million from the disposals made in 2021, namely Permenean, the Nordics real estate business and the Harkin Bon Accord businesses in the US. This broadly offsets the increased costs from Tritax, Finamise and IEI. Across the three vectors, excluding II, we have reduced the headcount by circa 10%, from around 5,500 at June 21 to 5,000 at June 22. Even with the additional costs from acquisitions, notably TriTax and II, for full year 2022, we have a clear pathway in current markets to lower overall operating costs. We aim to deliver a similar percentage level of cost reduction for full year 2022 to that we have achieved in H1. This will be driven by cost management within the investments sector, a further reduction of headcount by about circa 10% and continued cost control across the group. If we are to achieve our cost income ratio target, we need to deliver growth of revenue in the investments sector, as well as reducing the cost base. Looking forward, three factors in the investments vector are now impacting the timing of the achievement of our objective of high single-digit revenue CAGR by the end of 2023. The current significant uncertainty in global markets, the associated impact on flows and the shift in client asset allocations to lower risk and lower margin products. This adds priority to our continued focus on delivering the programme of cost savings through the rationalisation, simplification and streamlining of activities in the vector which we have previously reported in March. Now on this slide, each of the five areas of activity are designed to realise substantial savings and are already well underway. A few areas that I'll highlight. We have now reviewed circa 550 funds and concluded that 20% with an AUM of about 7 billion are subscale, inefficient or no longer aligned with our core strengths. These will be merged or closed, resulting in simplified fund ranges across the UK and Luxembourg domiciled funds, removing duplication and simplifying our product offering and freeing up resources. This programme of work will continue through the second half of 2022 and into the first half of 2023, resulting in a product shelf aligned to our key strengths and to client demands. Although there will be a revenue impact from actions which target both fund rationalisation and disposal of non-core activities that are inefficient or subscale, once completed, the overall cost-income ratio of the group will improve as a result of these initiatives. As our clients' asset allocation profiles are changing, we continue to review the cost of servicing these complex mandates across the equity and multi-asset businesses. We are confident that we can unlock savings in technology and information servicing costs as we change how we service such mandates. We will continue to exit non-core businesses which are no longer aligned to the overall strategy and where we do not have scale or a strong growth franchise. Recent examples are Hark and Bon Accord and the Nordics real estate businesses. We do not expect any further such disposals to impact the revenue or cost base before 2023. We are simplifying our investments operating model to realize efficiencies. By creating a single middle office operating model, we increase capacity and delivery of client service. While our reshaping of the vector has recently unified the UK and European equities teams in order to streamline processes. The full suite of actions in TRAIN is targeted to deliver net savings of £75 million with gross savings of circa £150 million before reinvestment of £75 million to support growth. The majority of the initiatives will impact 2023 with benefits fully realised in 2024. Additional restructuring costs associated with these actions are expected to be broadly funded by proceeds from the disposal of our non-core assets. We continue to have a strong balance sheet, even after the acquisition of II and an uncovered dividend due to the capital actions we have taken. Movements in capital in the first half were dominated by the consideration for II, which was settled in cash from our group liquid resources. We benefited from the sale in January of part of our Phoenix stake, which raised 0.3 billion. At June, available capital is £2.3 billion, comprising a regulatory capital surplus of £0.6 billion and £1.7 billion of additional but unrecognised capital from our value of listed stakes. We will continue to restructure and invest in the business to support organic growth across our diversified business model in order to achieve our ambitions for sustained revenue growth and a 70% cost-income ratio. We use an internal management buffer for the regulatory surplus simply as a management tool to support a disciplined approach to capital management with the objective of supporting both our growth ambitions and continued shareholder returns. We are conscious of disappointment in our share price and remain focused on growth of return for shareholders. We announced our intention to return £300 million to shareholders and commenced an early July £150 million share buyback programme, which we estimate will take H2 to complete. As previously stated, we will continue to monetise the Indian stakes as a key element of our disciplined approach to capital management. As a result, and as we deliver our priorities in investments and generate performance from all three vectors, adjusted capital generation will more closely track profits. Given the scale of our resources, we can support investment in our businesses as well as our stated dividend policy. Where we generate capital beyond the needs of our business, we will continue to make capital returns to shareholders. Such returns will reduce the overall cost of servicing future dividends as the share count is reduced. And back to Stephen.

The dramatic shift in the global economy has impacted the industry and our financial results. Despite these headwinds, by concentrating on what we can control, We have continued to deliver our strategy of building a much more durable business through the three vector model based around diversification of revenue sources. The current market turbulence strongly reinforces that this is the right strategy. The two vectors operating in the UK wealth market have both delivered resilient performance and are on track to increase our diversification into higher growth, higher margin businesses. Performance in the investments vector was, like all of the sector, hit by market turbulence, combined with us being in a period of restructuring. We are doubling down on focusing the business on the strengths that lean into the micro global growth trends, cutting costs and driving efficiency. The current economic and market conditions mean that our ambition for group revenue growth and cost income improvement will take longer to deliver, depending, of course, on the speed of the market recovery. We are continuing to execute on our client-led growth strategy, first by improving the performance of each vector and then by extracting value across all three. We are confident our approach will diversify earnings, improve efficiency, deliver our revenue and cost ambitions, and ensure optimal use of capital. Now that the shape of the group is largely settled, you can expect inorganic actions on a more modest level. These will likely include both further divestments and selective reinvestment where we see capabilities that we need and compelling value. We are announcing a half-year dividend today of 7.3 pence. As I said earlier, our disciplined approach to allocating capital is focusing on delivering shareholder returns and we will continue to return capital in excess of business needs as further stake sales are realized. While the global economic outlook remains very uncertain, we are focusing on what we can control. namely the continued execution of our strategy, and that will provide diversification of revenue streams and put the group on a sustainable growth trajectory. That concludes our presentation. We'll now take a short break and resume for your questions. Thank you. Welcome back. I'd like to ask the operator to open up for questions, please.