Aberdeen Group Plc

Right, good morning, everybody. Thank you all very much for joining us here today. I'd like to welcome you all to our results presentation for the first half of 2024. I'm joined on the stage by Ian Jenkins, who many of you know already, who's our interim CFO. And with me here in London, I have a number of my colleagues in the front row. So in terms of running order today, I'm going to start with some initial observations on our strategic priorities. and then a short overview of our performance from the first half at a group level and across our three businesses. I'll then hand over to Ian, who will give us more detail on the financial performance and make some comments on the outlook. Then, obviously, we'll open up the Q&A. So, turning first to my initial observations and our key priorities for the group. I joined Aberdeen as CFO in October last year, and I was appointed interim CEO just over two months ago, as you might imagine. It's been a very busy few months in the run-up to these results. I've been out and about meeting with clients, colleagues, and spending a lot of time with the leadership team. And I thought I would start out by setting out some of my initial observations. It's clear to me that we do have solid foundations upon which to build. Our three core businesses, investments, advisor and interactive investor, have established scale positions in attractive markets. Markets that are expected to grow significantly, driven by long-term demographic and structural customer needs. Of course, in investments, the structure of that market is evolving very fast. In terms of headline numbers, our focus is on improving profitability, and that's showing some early signs of success. With group adjusted operating profit of £128 million in the first half, a small increase on both the first and second halves of 2023. However, this is not close to the level of profitability we aspire to. it's clear to me that all three of our businesses are yet to realise their full potential, and there is significant headroom in each one. Turning to the top three priorities, which are all about execution and delivering. First, transform performance. We'll drive a significant uplift in profitability, in particular in investments, and meet the cost commitments we set out in the transformation programme we announced earlier this year. That means investing in technology, automation and AI, as well as simplifying our processes to drive efficiency. Second, focus on client experience. My overriding objective will always be to support our clients to achieve their investing goals. That means improving investment performance and winning in UK wealth by differentiating ourselves through customer experience. And third, talent and culture. We are, after all, a people business. The heart of our success will be the engagement and motivation of our people. There's no quick fix, and we need to take action on multiple fronts. Critical to this will be streamlining decision-making. We must also create the right culture to attract and retain talent as a modern organisation. Putting this all together in financial terms, our objective is sustainable, profitable growth along with higher net capital generation. It's not going to be easy. Turning around performance never is. But I'm confident that by executing relentlessly against these priorities and by harnessing the energy and enthusiasm of our colleagues, we will build the foundations for long-term success across the group. Turning now to the three businesses. As we head into the second half of 24, our focus is on realising the significant potential in each of our three businesses. The CEOs and I have developed these strategic priorities together. In doing this, we've recognised that each business faces different challenges and benefits from different market opportunities and competitive positioning. The common theme is it will require a relentless focus on delivery, starting with investments. Performance has been challenging in parts, with industry headwinds and a lack of appetite for active equities and emerging markets. Combined with our quality-focused investment style, it has put pressure on our investment performance, in particular in equities. Against this, we've seen good net inflows and investment performance in fixed income, quants and liquidity. As you know, our focus here has been on transforming the cost base, and we've made good progress on that while also improving our client proposition. In parallel, we will look to accelerate our growth where we have strong performance and, of course, continue to improve performance elsewhere, which together with the cost transformation will lead to materially higher profitability. Next advisor. Where simply put, our focus is on returning the business to positive net flows to benefit from the structural growth that we see in this market. Redemptions did remain elevated, owing to factors affecting the market as a whole. As a result, net flows remained disappointing in the first half, despite gross flows increasing 7% to £3.1 billion. So to realize the benefit of the significant investment we've made in this business, we will enhance our proposition and pricing, complete the in-flight projects, and significantly strengthen the advisor's leadership team. An interactive investor. Through this business, we have a leading position in a significant and rapidly growing D2C savings and wealth market. II benefits from a compelling subscription-based pricing model, leading technology, and excellent user experience. Our focus now is on innovating and broadening the proposition and investing in marketing to target attractive customer segments to drive strong organic growth. I'll turn now to the performance in the first half. Ian will provide more detail about the financial performance, but I'd like to give you a high level overview of our progress over the last six months. Group adjusted operating profit was 128 million in the first half. This represents a slight improvement relative to the same period last year and an increase of 5% over the second half of 23. The headline performance itself reflects differing trends across our three businesses. In investments, operating profit was stable compared to prior year at £34 million. Actions taken to transform the cost base reduced operating expenses, offsetting the expected reduction in revenues. Advisor contributed significantly, adjusted operating profit of £65 million, up a third since the first half of last year. The 16% increase in revenue indicated compared to 2023, largely reflected the revised arrangement with Phoenix in respect of SIPs, which I talked about with the full year results. An interactive investor, adjusted operating profit was £55 million. After stripping out the sale of discretionary fund management, this was 7% lower than the first half of 2023. reflecting our active decision to prioritise investment in marketing and product development to support growth, with customer numbers up 4% in the half. Group-adjusted capital generation of £144 million was slightly up on the prior year, providing dividend cover just over 1.1 times. Net capital generation was £104 million, which is more than double the first half of last year, in part reflecting lower restructuring costs. I'm pleased to see this on the right path, but improving this metric remains a key priority. And finally, Aberdeen benefits from a strong balance sheet, which does support investment in our business to sustain the long-term capital generation. Turning now to the performance of each business, starting with investments. Critical to turning around Aberdeen is getting our investments business back to a healthy level of profitability. While we still have a long way to go, there are some signs of improvement. Overall, we saw outflows of one billion pounds in the first half. This represents a materially better outturn than the equivalent trends seen over the previous 12 months. Within this, we have seen a significant improvement in flows across our institutional and retail wealth business, with the return to modest net inflows of 0.4 billion, which is encouragingly 11.6 billion pounds better than the second half of 2023. This was driven by strong inflows in fixed income, quants, and liquidity. However, equities continue to experience outflows with 4 billion in the half. Insurance partners' business saw net outflows of £1.4 billion, or approximately 1% of AUM. Underlying this trend, gross inflows from Phoenix's defined contribution pension business and bulk purchase annuities, with more expected in H2, were offset by outflows from heritage business in run-off. Turning now to investment performance... Overall, our one-year performance, 70% of AUM outperforming benchmark, has increased from 55% six months ago. We've continued to achieve strong performance on a one-year and a three-year basis in fixed income, quants and liquidity. Building on the change we've implemented with multi-asset strategies, which are already yielding tangible results... We have also implemented significant enhancements to refine and modernize our equities processes. These include team restructuring and integration of data and behavioral analysis tools to refine portfolio construction. While equities performance is currently below our targets, particularly in Asia and emerging markets, We are seeing positive momentum in areas such as small-cap and Asia country strategies, for example, India. Also, our emerging market income strategies continue to deliver top-portal performance across multiple horizons. We remain committed to our bottom-up quality investment style. We expect a combination of the internal steps we have in train with better external market dynamics, for example, peaking real yields, to drive improved performance over the next 18 months. In year-to-date, we've seen an improvement in equities performance with 39% AUM outperforming compared to 23% on a one-year basis. Turning now to the first half highlights and priorities for investments. Following the significant industry headwinds of the last few years, which did create a challenging risk-off environment, market conditions have been more supportive in the first half, obviously with last week's intervention. As a result, our total AUM in our investment business increased £3 billion to £369 billion, there are some signs that momentum is returning to the investments business. With our institutional retail wealth business, gross flows, which is a good indicator of our success, were up 16% year-on-year to 18.5 billion. The total value of one not-funded mandate has increased by 68% to 9.4 billion compared to the year-end. And the number of RFPs has increased by 23% compared to the first half of last year. Looking ahead, we have three critical priorities for investments. First, focus. We'll target growth in products and services where we have genuine strength, continuing to focus on where we can win. We'll build on the progress made in sharpening our investment specialisms while also increasing our cross-business collaboration and leveraging our strategic partnerships to drive further growth. Perform. Our success is predicated on delivering reliable outcomes, service and experience for clients. To do this, we'll continue strengthening our investment processes while also developing client-centric products and solutions. And finally, modernise. We'll continue to invest in technology, automation, and AI to improve efficiency and operational agility. As part of this, we'll upgrade our systems and tools while also streamlining and simplifying our operating model. We'll also invest in marketing and distribution to drive our commercial performance. Our ambition for investments remains to improve efficiency and to return to growth, and through this, to restore the business to a much higher level of profitability. Turn now to the advisor business. As highlighted earlier, our advisor business delivered a strong financial performance in the first half of the year, with assets under administration also up by 2% to £75 billion. While gross inflows of 3.1 billion were 7% higher than the first half last year, net flows were disappointing at 2.5 billion. Customer numbers reduced by 3% compared to the end of 2023. Redemptions remained elevated and advisor continued to suffer from factors affecting the market as a whole, such as cost of living and IFA consolidation. Notwithstanding, we did maintain our market share of assets under administration, and we also saw a modest uptick in primary partner AUA. Going into the second half, we have three priorities for the business. We've already made a start in delivering against each of them. First, service and proposition enhancements. Our priority of returning to net inflows can only translate into sustainable growth if it is backed up by service excellence and a market-leading consumer proposition. We've recently launched on-platform cash solutions for our customers and have developed a sharper roadmap of further proposition enhancements, including the launch of an on-platform SIP in due course. Second, strategic reprice. It is unavoidable that price plays an important role in attracting and retaining customers. So in May, Knoll announced changes to the pricing of our RAP platform with simpler and reduced charging, improving our competitive positioning in the market, which will drive increased value over the medium term. Changes were made for new clients straight away, with plans to extend to all clients by the end of Q1 next year. And third, investment in people. We have enhanced the senior leadership team under Noel with the appointment of a new dedicated chief technology officer to drive the timeliness of our project delivery. And I'm excited that we also hired a new chief distribution officer, as announced yesterday, and she has a strong track record in improving customer acquisition and she will start later this year. Benefits from these actions will take some time to realise, but we are focused on returning the business to a net inflow position as soon as possible. And now turn to Interactive Investor. In the first half, Interactive Investor delivered 4% organic customer growth to 422,000 customers, and within this, 17% growth in SIP customers. In a growing and competitive market, II saw record inward transfers over the six months, generating net inflows of £3.1 billion, compared to £2.8 billion for the whole of 2023. And in the first half of the year, trading activity returned to that last scene since COVID, with increased levels of investor confidence. Daily average retail trading volumes are 23% higher than last year. Interactive investor has three key priorities to drive consumer growth. First, proposition enhancements. These include the recent launch, in conjunction with the investments business, of a managed ISA. This is a great example of how the businesses across Aberdeen can work together to add value for our customers. With nearly half of the assets held in the managed ISA accounts invested in Aberdeen funds. Looking forward, the II team have an exciting roadmap of product and proposition developments. These include the launch of a managed SIP account later this year, to be followed in 2025 by II360, an advanced trading platform, and II Advice, a digitally-led financial planning offering. The second priority is consumer engagement. The trading capabilities and wrappers available through our platform continue to drive increased customer value and engagement. We continue to launch new research tools and features. Further roadmap delivery will bring iiCommunity, a social trading app, later this summer, and a new premium service bundle will follow. Our third priority is around brand awareness. ii has many strengths. It ranks number two in the market based on asset value and has an award-winning SIP, which has been repeatedly recognised by which. It is also valued by its customers with a high Trustpilot rating of 4.7. However, the ii brand is still punching below its weight. We're addressing this by investing in marketing to drive general brand awareness. Early indicators suggest our campaigns have been successful, with brand awareness up 10 percentage points compared to Q3 last year. Turn now to our third priority. Talent and culture is something that we just absolutely must get right. In fact, the value from getting this right cannot be overstated. We must focus on creating the best possible environment for our people to succeed. These are the principles that we will hold ourselves to. The corporate center will be leaner, with all customer facing activity delegated to the business CEOs. We'll apply consistent framework for ways of working, rolled out group wide. We'll streamline our processes, eliminating any cumbersome decision making. We'll invest in our people, their development, and the bench strength of our leadership teams. And finally, and importantly, we'll foster a diverse and inclusive, forward-looking organisation that has focused and deliverable sustainability commitments. From this work, I expect a range of benefits, including faster decision-making, improved efficiency, better risk management, rigorous performance management, and the greater ability to attract and retain people. and most importantly, will nurture a culture in which our people are motivated and engaged with the belief and confidence to unlock the opportunity in Aberdeen. I'll now hand over to Ian, who will go over the financials.

Thank you, Jason, very much indeed. Good morning, everybody. Nice to see you all again. Let me begin with a summary of the 24 half-year group results. The group delivered adjusted operating profit of 128 million, slightly higher than both H1 and H2 last year, and largely benefiting from the progress we are making in efficiency savings. Net operating revenue of 667 million was 7% lower than H1-23 and slightly lower than H2-23 last year. and this primarily reflects the cumulative impact of the prior year net outflows and revenue given up through business disposals. Recognising these revenue headwinds, we have taken actions to reduce operating costs, which fell to £539 million in the first half of 2024. This was 9% lower for the first half and 3% lower for the second half of 2023. IFRS profit before tax of £187 million this half year compares to a loss of 169 million in H1 of 23. This improvement was mainly driven by lower mark-to-market adjustments to the value of our significant listed investments and an 88 million gain on the sale of the European headquartered private equity business. Adjusted capital generation was up slightly on H1 23 at 144 million, while net capital generation of 104 million which takes into account below-the-line items, more than doubled, benefiting from lower restructuring and corporate transaction costs, which were £40 million compared to £92 million in H123 net of tax. This improvement, together with our strong capital position, supported maintaining our interim dividend at 7.3p in line with guidance. Moving to the businesses. AUM at the end of June rose to £506 billion compared to £495 billion at the end of last year. And adjusting for the £7 billion sale of the European headquarter private equity business, this was an increase of £18 billion, primarily from positive market movements across all three businesses, of £17.2 billion and net inflows, including liquidity, of £0.8 billion. Across the investments business, fixed income reversed the net outflows of 23 to a net inflow of 1.2 billion. And we delivered strong liquidity net inflows of 2.4 billion. So excluding fixed income and liquidity, the investments business saw a net outflow of 4.6 billion, largely in equities. And as Jason has already covered, the market backdrop continues to present challenges for active management in equities, particularly in Asia and emerging markets. Within Advisor, net outflows were 2 billion, reflecting the higher redemptions in the period. And as you've again heard, we are taking action to address this. Interactive investors' strong momentum continued, with net inflows of $3.1 billion, demonstrating good organic growth with particular strength in the SIP products. Turning to revenue and margins. Group revenue of $667 million was 7% lower than H123, 38 million of this was driven by the impact of net outflows, primarily from the prior year and revenue margin decline across the investments business of 21 million, reflecting asset allocation changes. Advisor and interactive investment margins increased revenue by 17 million, which includes 13 million from a revised distribution agreement with Phoenix in respects of the RAPSIP, along with higher trading and FX commissions and interactive investor. positive markets and foreign exchange also benefited our revenue by 11 million. And the disposals of the discretionary fund management business and the US and European private equity businesses, partly offset by the acquisition of Tecla in October last year, had a net impact on revenues of 22 million. Looking now at revenue margin and trends. Within Advisor, margin increased to 31.4 basis points compared to the first half of last year, reflecting additional revenue from the revised distribution arrangements with Phoenix in H2-23. Across investments, as expected, the impact of asset allocation changes resulted in a margin decline to 22 basis points. Together, this resulted in a group revenue of 24 basis points compared to 25.7 basis points in H1-23. So let's turn now to adjusted operating expenses to illustrate how we are proactively dealing with these revenue headwinds by taking action to improve efficiency. Compared to H1 last year, operating expenses were lower by 9% at $539 million. benefiting from 53 million of cost-saving initiatives, principally within our investments business. This reflected both the work done in 2023 and, of course, the cost transformation programme we announced in January 2024, which I will talk to shortly. As we indicated at our full-year results, we're reinvesting some of our cost savings across the group, And you can see this within Interactive Investor, where we have added to marketing, proposition development, and operational resources, providing the capacity to support organic growth. The lower adjusted operating expenses also benefited from corporate actions, which contributed net 17 million, primarily the sale of the discretionary fund management business last year. So now, turning to business performance. Within investments, cost improvements offset revenue reduction to leave adjusted operating profits stable at 34 million. The reductions in revenue were primarily due to the net outflows and changes in the asset mix. And we continue to take steps to stabilise and then grow revenues through sharpening our focus on areas where we have the right to win. Moving to advisor. Adjusted operating profit increased to 65 million This includes a £30 million benefit from the revised SIP distribution agreement with Phoenix and a £2 million increase in Treasury income to £17 million. Costs remain flat at £54 million and continue to benefit from the temporary third-party outsourcing discount of £7 million, again in line with H123. However, we do expect this discount will cease with the delivery of the Aberdeen SIP functionality. Across Interactive Investor, we exclude the discretionary fund management business sold last year. We delivered revenue growth of 5%, with an increased trading and foreign exchange commissions accounting for most of that movement. The growth in costs arises from the investment to provide capacity to support future organic growth, and we have indeed targeted and delivered record high SIP transfer in volumes. So looking now at the progress on cost transformation that we announced in January this year. So this is an area where I've particularly become very involved since last October, working closely with the rest of the leadership team. And as we said in January, we are targeting annualized saves to operating expenses of at least $150 million by the end of 2025 compared to the full year 2023, with approximately 80% of the savings benefiting the investment business. Around $60 million of these saves are on track to benefit the group full year 2024 numbers. with actions taken in the first half already set to deliver over two-thirds of this 60 million. Our programme is designed to deliver a step change in sustainable efficiency and restore our core investments business to an acceptable level of profitability, allowing for some needed reinvestment of the savings, but aimed at improving our net capital generation and supporting shareholder returns. There are indeed more than 60 individual initiatives within the programme, primarily within our investments business and support functions. And given the need for clear accountability and focus, we have an experienced central programme office to support, govern and oversee delivery. In the first phase, we targeted de-layering management roles through a spans and layers exercise across our organisation. And now, as the programme matures, our focus is on process simplification, leveraging data and technology, negotiating sustainable reductions in third-party spend. Let me provide a couple of examples of the work ongoing. So we've looked end-to-end across performance management, investor services, clients' reporting processes, and generally increase the efficiency of those services to our institutional clients. We're also looking at rate cards, service agreements and contracts to lower the overall costs and improve productivity. And as a last example, our people function are working towards implementing a self-service model, combining the in-house expertise that we have with market-leading technology. So overall, the transformation program is up, running, and delivering at pace. Turning now to our capital position, which obviously supports this transformation. The group continues to have a strong capital position of over $1.5 billion of CT1 resource, which covers 146% of our total capital requirements. Net capital generation of 104 million is more than double H123, but there is still more work to be done to ensure our dividend is fully covered on both an adjusted capital generation and on a net basis. Adding to our net capital generation is the impact of corporate transactions. In this half, we completed the sale of our European headquarter private equity business and our Virgin Money joint venture, generating 99 million of CET1 resource. which takes me onto the balance sheet. In addition to our CET1 resources, we have 690 million of qualifying debt before Tier 2 restriction, all issued in a lower interest rate environment. Of this, around 470 million contributes to our regulatory capital. And as previously stated, we will look to optimise our capital stack over time. The group's cash and liquid resources are 1.8 billion, and of this, just over 400 million is in the PLC or group treasury. And in addition, we have 400 million in seed capital and co-investments, and this capital is used to support product development within the investments business. As before, it's worth remembering that our regulatory capital position does not consider two other significant assets. Firstly, our stake in Phoenix, which had a market value greater than 500 million at the end of June. This is a significant asset which underpins a very important relationship. And secondly, we have a well-funded DB pension scheme, which has an IAS surplus of 800 million. And as we said at the full year results, we continue to explore options that could realise some of this value. To conclude, our balance sheet remains strong, allowing us to invest in our core business as we seek to grow and improve efficiency. So finally, financial outlook and guidance. Our focus on improving profitability and realising the significant potential of each of our businesses has good momentum as we head into the second half. We expect a relatively stable interest rate environment, supporting stability in the cash margins earned in our platform businesses in 24. Over the longer term, structural growth in the UK savings and wealth is supportive of our businesses. And while market conditions and changing client demands create a challenging environment for active asset managers, we see opportunities in areas where we have distinctive capabilities. And as we said at the full year, given the trend away from active equities, we do expect some further contraction in revenue margin within investments to below 22 basis points for the full year 24. And subject to market additions impacting the asset mix, of course. We also expect further cost improvement with approximately 80% of the cost savings program benefiting the investments business. We're taking steps to reverse the net outflows in Advisor, and we've already announced a competitive repricing with existing clients expected to benefit from Q1 2025. And we expect this to have a low single-digit revenue margin impact. We also expect the temporary third-party outsourcing discount, which we've benefited expenses, to end. The cash margin in Advisor for the first half was 263 basis points, and we expect this to be broadly stable for the full year. With an interactive investor, the cash margin in the first half was 234 basis points, and again, we do expect this to be broadly stable for the remainder of 24. The investment to provide the capacity to support future organic growth will continue, such that interactive investor costs in the second half are expected to be broadly similar to the first. And for the group, as I've said, we remain on track to deliver the targeted 60 million of cost savings this year, with adjusted operating expenses to be below 1,075 million for the full year, and to deliver at least 150 million of annualised cost savings by the end of 2025. Thank you. And now, Jason, I'll hand back to you. Thank you.

Thank you. Thank you, Ian. Before we start the Q&A, just a quick summary. With significant headroom in each of our core businesses, we've identified the key focus areas to enable them to realise their growth and profitability potential. The transformation programme is on track. It's key to delivering sustainable profitability for the group, as well as improved outcomes for our clients and colleagues. The group's balance sheet is strong, in turn supporting our ability to invest in the business to improve sustainable net capital generation. A reminder of my three priorities for the group. Transform performance, improve client experience and strengthen our talent and culture. As I said at the start of the presentation, I'm genuinely excited about the potential in Aberdeen. I'm confident that by delivering against these priorities, we can create an organisation that our colleagues can be proud to work for, delivers better outcomes for our clients and more attractive returns for our shareholders. I look forward to keeping you updated with progress as we go along. And I'd like to open up to questions. Thank you. I'll do the questions from here. Charlie's got the mic.