REG - abrdn PLC - Final Results - Part 2 of 8
28/02/2023 07:00
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RNS Number : 2984R abrdn PLC 28 February 2023
abrdn plc
Full Year Results 2022
Part 2 of 8
At abrdn, we are reshaping our business to serve a wider range of clients to
plan, save and invest for the future.
By diversifying our business, we are positioning ourselves for growth in a
changing investment landscape.
This annual report and accounts 2022 for abrdn plc, and the strategic report
and financial highlights 2022 are published on our website at
www.abrdn.com/annualreport
Access to the website is available outside the UK, where comparable
information may be different.
APM Certain measures such as adjusted operating profit, adjusted profit before
tax, adjusted capital generation and cost/income ratio, are not defined under
International Financial Reporting Standards (IFRS) and are therefore termed
alternative performance measures (APMs).
APMs should be read together with the Group's consolidated income statement,
consolidated statement of financial position and consolidated statement of
cash flows, which are presented in the Group financial statements section of
this report. The revenue APM included within adjusted operating profit has
been renamed from fee based revenue to net operating revenue. Further details
on APMs are included in Supplementary information.
See Supplementary information for details on assets under management and
administration (AUMA), net flows and the investment performance calculation.
The calculation of investment performance has been revised to use a closing
AUM weighting basis. 2021 comparatives have been restated. Net flows in the
Highlights page excludes liquidity flows as they are volatile and lower
margin. It also excludes Lloyds Banking Group (LBG) tranche withdrawals
relating to the settlement of arbitration with LBG.
Adjusted operating (APM) IFRS (loss)/profit before Full year dividend per
profit
tax
share
£263m (£615m) 14.6p
2021: £323m 2021: £1,115m 2021: 14.6p
Investment performance Net flows MSCI ESG Rating
(% of AUM above benchmark over three years) (Excl. liquidity and LBG )
65% £10.3bn AAA
outflow
2021: 78% 2021: £3.2bn outflow 2021: AA
At a glance
Resilience
from diversification
Our clients' worlds are changing, and so are we
Global investments UK savings and wealth platforms
Investments Adviser Personal
- Insurance companies - Pension funds - Financial advisers - Individuals
- Sovereign wealth funds - Platforms - Discretionary fund managers
- Independent wealth managers - Banks
- Family offices
As industry trends and client behaviours have evolved, so have we.
We have focused on diversifying the earnings profile of our business - moving
away from a reliance on the market-driven revenues of a traditional asset
manager and, through the earnings potential of our Adviser and Personal
vectors, positioning ourselves to leverage opportunities in areas that are
being driven by attractive structural factors.
Investments Adviser Personal
Adjusted operating profit Adjusted operating profit Adjusted operating profit
£114m £86m £72m
Note: Adjusted operating profit in 2022 is £263m, including a loss of £9m
from Corporate/strategic which is excluded from the diagram above.
Our strategy is
to deliver client-led growth
Our four strategic priorities are
Asia Sustainability Alternatives UK savings
and wealth
Our three businesses are
Investments Adviser Personal
Our capabilities in our Investments business are built on the strength of our Our Adviser business provides financial planning solutions and technology for Powered by the UK's second largest direct-to-consumer investment platform, our
insight - generated from wide-ranging research, worldwide investment expertise UK financial advisers, enabling them to create value for their businesses and Personal business enables individuals in the UK to plan, save and invest in
and local market knowledge. their clients. the way that works for them.
AUM Cost/income ratio AUA Cost/income ratio AUMA Cost/income ratio
£376bn 89% £69bn 54% £67bn 64%
AUA Cost/income ratio
£69bn 54%
AUMA Cost/income ratio
£67bn 64%
Our purpose is
to enable our clients to
be better investors
Chairman's statement
Progressing against our strategic priorities
This period has provided a stress test to economies, financial markets and
indeed to our own business; the learnings are invaluable.
Sir Douglas Flint Chair
2022 turned out to be a year like no other in recent memory, with a series of
unexpected events across the globe.
Most significantly, the Russian invasion of Ukraine brought scenes of chaos,
destruction and human suffering on a scale not seen in Europe since the Second
World War. Already fragile geopolitical tensions intensified, in particular
between the United States and China. Energy costs rocketed, impacting all
sectors of the economy and requiring fiscal intervention to prevent business
collapse and unacceptable hardship for people experiencing exceptionally high
bills. Food supplies also faced disruption contributing to the high levels of
cost inflation.
As inflation re-emerged from its dormancy, Central Banks increased policy
interest rates across most of the major Western economies to temper
inflationary expectations. Critical economic cross-border dependencies became
apparent, precipitating an exhaustive global examination of supply chain
resilience. China's unwinding of its zero-COVID policy at the end of 2022,
while long encouraged in the West, may in the near term add to global supply
chain uncertainties as its economy, health systems and population adjust to
living with the virus.
And here in the UK we saw unprecedented political instability, with three
Prime Ministers and four Chancellors within a four-month period to the end of
October. We have entered 2023 facing strikes across much of the public sector,
threatening both economic growth and higher inflation.
We adjusted our business model to meet our clients' needs
It was against this backdrop that we adjusted our business model and
investment priorities to meet client and customer needs and to make our own
business more sustainable and resilient for the future.
As we stand back to reflect, we observe this period has provided a stress test
to economies, financial markets and indeed to our own business; the learnings
are invaluable.
Embedding resilience as our three-vector model takes additional shape
Perhaps the most important lessons for us are the need for resilience in our
business model and, as an investor, the enduring importance of fundamental
analysis to deliver long-term value through our investment processes.
The unexpected and dramatic events noted above had understandable adverse
impacts both on market levels at various points in the year and on flows as an
unprecedented level of withdrawals was made from equity funds across the
industry. We were not immune from these impacts. What was encouraging was that
the impacts were largely seen across public markets in the Investments vector
with real assets and our other two vectors in Personal and Adviser proving
much more resilient - reinforcing the decisions made to direct more of our
capital towards these businesses.
We made further progress against our priorities in 2022. The development of
the three-vector model introduced in 2021 took additional shape during the
year, most markedly through completion of the acquisition of interactive
investor (ii). On top of this, the refocusing of the Investments vector to
improve productivity and play to competitive advantage moved from the planning
phase to execution with much more to come in 2023. Some examples include fund
rationalisation, where we are on track to consolidate or close some 80 funds
this year, having consolidated or closed 58 in 2022. Additionally, we are
focusing our real assets business on areas such as the living sector
(including residential and student), where we are one of Europe's largest
residential fund managers, and on industrial and logistics real estate where
our subsidiary Tritax has grown assets under management by over 40% post our
acquisition. Activity to support repositioning has also included moving to
distribution partnership models in Taiwan and Australia. This report
elaborates on the progress made in the Investments vector on pages 16-19.
Financial performance reflects expanded Personal and Adviser contributions
Adjusted operating profit at £263m was 19% lower than that achieved in the
prior year (2021: £323m); the decline was concentrated in the Investments
vector primarily for the reasons highlighted previously and reflects the
further work required to refocus the Investments business. ii contributed
£67m in its first seven months of our ownership, ahead of our business case
modelling on acquisition, benefiting from the rise in interest rates on
uninvested cash balances. Together our Personal and Adviser businesses
contributed 60% of adjusted operating profit in the year, a contribution that
is expected to grow taking into account the full year contribution from ii
from now on. Our IFRS pre-tax loss amounted to £615m (2021: profit £1,115m)
which included the impact of impairments of intangible assets mainly in the
Investments business and lower share prices for our significant listed
investments.
Stephen and Stephanie provide greater insights into performance across our
vectors in their reports.
Continuing strong capital management discipline
Capital management discipline was strong during the year and remains a core
philosophy of the company. We augmented capital resources outside of operating
activity through further disposals of non-core stakes realising £0.8bn; we
completed share buybacks amounting to £0.3bn and we invested c£1.5bn in the
acquisition of ii. We declared an interim dividend of 7.3p per share which was
paid on 27 September 2022 and the Board is recommending a final dividend also
of 7.3p per share to be paid on 16 May 2023, subject to shareholder approval
at the AGM in May. Our regulatory capital position remains strong. Stephanie
covers all of this in more detail in her report.
Board matters
As foreshadowed in my statement last year Catherine Bradley, Mike O'Brien and
Pam Kaur joined the Board during the course of 2022. They have made
significant contributions to our discussions and we are delighted with how
well they have integrated into the rhythm of our Board meetings which happily
are now primarily in person again.
Cecilia Reyes advised us in September that she would not seek a second term
when her first term concluded at the end of that month. Cecilia brought great
insight and experience to the Board, Risk and Capital, and Remuneration
Committees. We wish her well in her future endeavours.
Additionally, Brian McBride has advised that he will not seek re-election at
our Annual General Meeting on 10 May 2023 and will stand down from that date
as a Non-Executive Director and as a member of the Remuneration Committee. On
behalf of the Board and all my colleagues, I would like to thank Brian for his
significant contribution to abrdn. He served on the Board, several subsidiary
boards and the Remuneration Committee. We will all miss Brian's insights and
guidance. His direct experience of private market investments and
consumer-facing businesses has brought significant value to our Board and
Committee discussions. We wish him all the best as he pursues his many other
interests.
Finally, I am sure shareholders will wish to join with the Board and our
colleagues in congratulating our former CEO, Sir Keith Skeoch on his
well-deserved knighthood in the recent New Year Honours.
Looking forward to a more sustainable world
Notwithstanding the severity and combined impact of the events noted in my
opening paragraphs, they cannot compare to the existential threat that
continues to grow relatively unabated from failure to make progress on
constraining global warming to the agreed target of 1.5°C.
COP27 held last year in Sharm el-Sheikh largely failed to expand commitments
made a year earlier, in our native Scotland, to phase out fossil fuels. The
one major step forward was the agreement of a deal that has been sought for
over 30 years to launch a fund for 'loss and damage' to support nations most
exposed to the consequences of climate change, but details and financial
funding remain to be agreed.
Already we can observe much greater incidence of extreme weather events which
are having devastating effects on the impacted economies and are contributing
to the risk of a steady but dramatically expanded flow of migrants towards
more hospitable climates. Notwithstanding the imperative of reaching the
agreed target, 2022 saw the resurgence of investment in hydrocarbon capacity
to build resilience of supply-absent inflows from Russia. We also saw growing
pushback by many US states dependent on oil and gas activity against financial
firms restricting future investment to this sector. These actions make
navigating our commitments to contribute to the net zero targets more
challenging, but we remain resolute.
Against the many current challenges lie the opportunities - addressing climate
change both in mitigation and solution requires trillions of dollars of
investment annually for the next three decades at least; reconfiguring supply
chains, building security of supply for energy and food, replacing inefficient
infrastructure for transportation and energy supply and distribution, funding
the science base and applied research needed to create the solutions not
available today, rebuilding Ukraine - all of these add further billions of
dollars of investment demand in the coming years. The investment industry is
better equipped than ever to steward capital into productive assets that meet
society's expectations of it.
Policymakers are at last seeking to remove obstacles that constrain investment
flows from long-term savings pools into infrastructure and early-stage
science-based investments, both of which require patient capital. Industry
leaders are prioritising capital investment over share buybacks, particularly
in Europe and employment prospects are strong, particularly for younger
workers as many older workers who were close to retirement brought that
forward during the COVID-19 pandemic. In addition, many of the mega trends
that have caused concern are forecast to improve in 2023: markets are
discounting moderation in inflation and interest rate outlooks by the end of
the current year; gas prices in Europe have fallen back to levels pre the
invasion of Ukraine; wage levels are rising in most countries although below
inflation; China's removal of most COVID-19 restrictions and the re-opening of
its economy should in due course be positive for global growth and the
alleviation of inflation; and all these factors should boost business and
consumer confidence unlocking investment funds.
Well-positioned for 2023
As in prior years we enter the new year supported by a strong capital
position, a committed leadership team and colleagues throughout the
organisation energised by the many opportunities to make our business more
relevant and valuable to our clients and customers as we support their
ambition to become better investors.
Sir Douglas Flint
Chair
Chief Executive Officer's review
A stronger abrdn is emerging
Stephen Bird outlines the progress made during 2022, and how our strategy is
positioning our business for growth
Key highlights
- Completed the acquisition of ii in May 2022.
- Delivered £0.8bn of value through divestments.
- Returned £0.6bn of capital to shareholders through buybacks and
dividends.
- Strong progress on fund rationalisation in Investments, where overall
costs were down 2%.
- Retained position as leading adviser platform.
The global economy changed dramatically during 2022
2022 was one of the hardest investing years in living memory. Almost all asset
classes dropped in value as the cost of money soared to quell the rising tide
of inflation. Although market conditions have had an impact on overall group
performance, abrdn's more diversified model has proved resilient.
The world in which we and our clients are operating today is radically
different from the environment of the past decade. The changing macro
environment is resulting in the acceleration of key investment trends, notably
the rise of Asia, a move to more sustainable offerings and, at an asset class
level, the growth of alternatives and increasing client interest in fixed
income.
We are also actively assessing the impact of these new market dynamics on
pension funds and insurers, to ensure that we provide solutions to meet their
complex needs. Each of these trends very much plays to our existing strengths,
and we are well positioned to help our clients navigate this new investing
world.
Building a stronger business model
Against this challenging backdrop, the company continued to progress as it
completed the second year of its three-year strategy. We have transformed and
built upon our asset management heritage and abrdn is now positioned for
growth across its three businesses: Investments, Adviser and Personal.
The shape of the group is now settled following the 2022 acquisition of ii.
This significantly expands our reach into the higher growth UK savings and
wealth platform market, which is forecast to grow at a realistic rate of 11%
by 2027. Leveraging the subscription-based model of ii, and the wider
structural trends in the savings and wealth market, we benefit from income
streams less exposed to market volatility. Looking ahead, we are set to
exploit the synergies our new model offers.
2022 performance shows our growing resilience
The group's adjusted operating profit of £263m is 19% lower than in 2021. In
line with the sector, the Investments vector faced headwinds in the market.
Despite the progress made on its transformation journey, adjusted operating
profit fell by £139m, principally due to a decline in revenue. Our focus on
simplifying and streamlining the Investments business reduced its overall
costs by 2%, although we know we have more to do to drive this down further.
The adjusted operating profit for Adviser and Personal combined increased by
£76m including a £67m contribution from seven months of ii. With the
Investments vector impacted by market conditions, these businesses contributed
76% of adjusted operating profit in H2 2022, clearly demonstrating the
benefits of the new abrdn model.
Overall, we are reporting an IFRS loss before tax of £615m reflecting the
reduction of £187m in the value of the listed stakes held on our balance
sheet, and impairments of £369m largely due to a fall in market levels, 2022
performance and lower projected revenues. However, with the strong discipline
applied to our capital management, I'm pleased to report that our dividend for
2022 remains unchanged at 14.6p per share. Stephanie talks more about our
performance in the Chief Financial Officer's overview.
Scaling-up our UK savings and wealth businesses
The acquisition of ii in 2022 delivered a substantial scaling-up of our
presence in the UK savings and wealth market. This direct-to-consumer
capability now sits alongside our established Adviser business, which I'm
pleased to report remains the number one adviser platform in the UK by AUA,
with 50% of the UK's advice businesses using our platforms. Customer
satisfaction as at end 2022 was 95%. The recent delivery of technology
enhancements to our platforms will further support advisers to unlock capacity
and grow their client bases.
In the seven months since joining abrdn, ii delivered £114m in net operating
revenue and £67m in adjusted operating profit, at a cost/income ratio of 41%.
Based on the seven months profits, the £1.49bn purchase price represents a
multiple of 16 times annualised post-tax adjusted earnings.
Reductions in gross and net flows in Personal Wealth this year include the
impact of market uncertainty which has resulted in lower and more muted
activity by individual investors. Looking ahead, we see substantial
opportunities to evolve the newly combined Personal vector to deliver an
end-to-end customer proposition, that stretches from simple online
transactions to more complex financial advice.
At a societal level, individuals are having to take more responsibility for
building and managing their own savings, investments and retirements, while at
the same time becoming increasingly accustomed to using direct-to-consumer
platforms and digital tools for financial transactions. The democratisation of
financial services, supported by technology, is driving structural change in
the investment market and we are now well positioned to serve this growing
opportunity.
Refocusing Investments
After previously competing across a very broad waterfront, the Investments
business is becoming much more focused on the areas in which we have both
strength and scale.
We have a long heritage in public markets, including through our capabilities
in Asia and emerging markets and our strong fixed income franchise. Although
2022 has been a challenging year, particularly for equities, we are well
placed to benefit from evolving conditions in China and in the bond markets.
Our already strong position in alternatives is growing. Here we manage around
£87bn in assets in areas such as real estate, infrastructure, logistics and
private credit. A highlight has been the performance of Tritax which saw c25%
growth in average AUM last year.
By focusing on these areas of strength, all underpinned by our sustainability
credentials, we believe we are in a better position to deliver products that
are more closely aligned with current and future client demand.
In the Insurance sector, the changing approach to asset strategies represents
a headwind for the margin of this business activity. We expect continued
changes from certain active equity and fixed income strategies to passive
quantitative strategies which, together with related pricing changes, is
expected to lead to further margin contraction for our Insurance business in
future periods. Stephanie discusses this in more detail on page 51.
Disciplined management and deployment of capital
Our strong capital position provides resilience in uncertain times and enables
targeted investment to accelerate the growth of the group. As at 31 December
2022, our surplus regulatory capital was £0.7bn.
In 2022, we generated £1.1bn of capital through organic cash generation and
efficient stake sales, investing £1.4bn in the acquisition of ii, and
returning £0.6bn to shareholders in buybacks and dividends. Over the near
term, as we continue to build capital through a focus on profitability and
ongoing monetisation of listed stakes, we continue to expect to invest in
inorganic opportunities where we see capabilities we need that offer
compelling value. We are committed to returning a significant proportion of
proceeds from further stake sales through share buybacks, and reconfirm our
stated dividend policy of 14.6p per annum until at least 1.5x covered by
adjusted capital generation from when it can grow. We will continue to take a
disciplined approach to capital allocation as we drive sustainable growth,
relevance and scale for our business, in a way that also generates value for
our shareholders.
Progress on climate
We have a critical role to play as stewards of our clients' capital, and the
relationships we have with investee companies enable us to drive positive
change through engagement.
We are targeting a 50% reduction in the carbon intensity of our portfolios by
2030 versus a 2019 baseline. We are on track with a 27% reduction across
in-scope public market portfolios as at 31 December 2022 and a 31% reduction
for in-scope real estate as at 31 December 2021. Assets in scope for our
target represent 30% of our total AUM. This is driven by data availability,
maturity of methodologies and control over decision making (more on page 38).
We recognise that methodologies may continue to evolve over time and we will
review our approach as appropriate. We have also been developing our net zero
solutions, including an Active Climate Transition proposition in equities and
fixed income. In compliance with level one of the EU's Sustainable Finance
Disclosures Regulation (SFDR), we have also been converting our range of SICAV
funds to comply with SFDR Article 8 and 9 - reflecting the importance of ESG
considerations in the investment opportunities we seek. In 2022 we converted
27 of our funds to Article 8 and 9. In Asia, one of our key growth markets, we
launched our MyFolio Sustainable Index range of funds during 2022, and our
Sustainability Institute is helping us hone our expertise to deliver for our
clients.
We know that leading by example starts with our own operations. We have a
corporate target to be net zero in our operations by 2040, and an ambitious
interim target to achieve a 50% reduction in operational emissions by 2025,
against our 2018 baseline. Colleague engagement remains critical to delivering
on this.
While a significant amount of work remains to be done, I am proud of the
progress we have made to date. We will continue to drive towards our
commitments with a focus on transparency - through reporting and data
disclosure - and by engaging with our clients, investee companies and wider
stakeholders, with the aim of achieving a cleaner, greener future together.
Building a culture that supports colleagues and delivers for clients
Our culture and how it feels to work here are fundamental to our success. We
want every one of our colleagues on board - believing in our purpose and
focusing on our strategy and their role in delivering
for clients.
Throughout 2022 our leaders worked with colleagues across the globe to create
a new set of commitments and values that resonate with their collective
beliefs, identifying these as Client First, Ambitious, Empowered and
Transparent. We're creating a culture that gives talent the chance to thrive,
and that empowers colleagues to take ownership of client outcomes. A culture
of constant improvement is critical for success.
We ran our most recent all-colleague survey in January 2023 where it was
pleasing to see a positive response from colleagues around areas like our
people leaders and our strategy. Amid highly challenging market conditions and
ongoing change within the business, employee engagement held steady, and we
will continue our focus on driving progress in this area. For more information
see pages 41 and 42.
It's critical that diverse perspectives have an active voice in
decision-making processes. I'm pleased that we've reduced our gender pay gap
for the fifth year in a row, and that we have more women on our Board, in
senior leadership and in investment decision-making roles. But there is still
much more to do. Our industry and our wider talent pipeline need to be more
representative of the diverse society we live in, and we're focused on facing
up to this.
In a very challenging year for the sector, in which we have continued to go
through significant change as a business, the commitment and professionalism
shown by everyone across abrdn has been truly inspiring. Those qualities are
what give me so much confidence about what lies ahead. On behalf of the senior
leadership and my fellow Board members, I'd like to place on record our
sincere thanks.
Focusing on the future
Although the external market environment remains challenging, we have the
right strategy, and we have the team and the capital resources to execute it
well. Diversification of revenue streams is putting the group on a sustainable
growth trajectory.
In the Investments vector, there is further to go. This was always the
longest-cycle transformation given the structural challenges and the nature of
change in active asset management. We have taken the hard decisions and built
the foundations for future growth. We're simplifying our product range and
reducing cost and complexity so that we are focused on delivering higher
margin products with the right performance. This work should deliver net cost
savings of around £75m in the Investments vector in 2023.
Stephen Bird
Chief Executive Officer
Our business model
Building a stronger business model
We are building a stronger business model which is designed to support the
successful delivery of our growth strategy by harnessing the combination of
strengths in our business.
Our areas of strength Global investment capabilities with expertise No.1 adviser platform by Broad capabilities in the UK wealth market including ii, the UK's second
in a range of asset classes.
AUA in the UK powered by leading technology. largest direct-to-consumer investment platform.
Sustainable investment considerations integral to Enduring client Strong capital resources to drive shareholder value.
our investment process.
relationships built on trust
and experience.
Channelled Investments Adviser Personal
through our
three
businesses
Collaborating across Leading platform for Offering a range of
advisers in the UK,
multiple capabilities creates forward-thinking investment solutions to meet
continuously improving solutions to create a financial services to support clients at all stages of their financial
seamless experience that empowers them to work efficiently and journey.
clients' needs.
at scale.
How we make money
We earn money mainly from asset management and
platform fees based on AUMA. We also earn revenue from
subscription and trading fees, and earn an interest margin
on client cash balances.
Channelled
through our
three
businesses
Investments Adviser Personal
Collaborating across Leading platform for Offering a range of
advisers in the UK,
multiple capabilities creates forward-thinking investment solutions to meet
continuously improving solutions to create a financial services to support clients at all stages of their financial
seamless experience that empowers them to work efficiently and journey.
clients' needs.
at scale.
How we make money
We earn money mainly from asset management and
platform fees based on AUMA. We also earn revenue from
subscription and trading fees, and earn an interest margin
on client cash balances.
How we Controlled processes Efficient operations Talent
operate
Our control environment helps us manage risk effectively, provide business We are building our Our talent model
security and maintain operational resilience.
operating model for agility, speed and efficiency, supported by technology
constantly strives for excellence, with diversity
which aims to deliver the best possible experience.
and inclusion at its core.
Delivering For clients For our people For society For shareholders
value for our stakeholders
We focus on We aim to attract and develop the best people for leadership roles, and to We have important responsibilities to society and the environment. We combine We aim to create sustainable shareholder value over the long term. We have a
delivering outcomes that truly matter to our clients. We draw on our expertise offer clear pathways for career advancement. the power of responsible investment with the positive impact we have through strong track record of returning value to shareholders.
and insight with the aim of delivering long-term investment performance. our operations.
65% 50% No.1 14.6p
Three-year investment performance Employee engagement Ranked asset manager by Full year dividend
score
World Benchmarking Alliance
Delivering
value for our stakeholders
For clients For our people For society For shareholders
We focus on We aim to attract and develop the best people for leadership roles, and to We have important responsibilities to society and the environment. We combine We aim to create sustainable shareholder value over the long term. We have a
delivering outcomes that truly matter to our clients. We draw on our expertise offer clear pathways for career advancement. the power of responsible investment with the positive impact we have through strong track record of returning value to shareholders.
and insight with the aim of delivering long-term investment performance. our operations.
65% 50% No.1 14.6p
Three-year investment performance Employee engagement Ranked asset manager by Full year dividend
score
World Benchmarking Alliance
Read more about how we have engaged with our stakeholders on pages 44 to 45.
Our strategy
Diversified client-led strategy for growth
As we diversify our business, our focus on four strategic priorities enables
us to meet the changing needs of clients across a range of markets. They
are also fundamental to the continued transformation and resilience of
our business.
1. Asia 2. Sustainability
Asia remains a key market for our Investments business and we are well Many of our clients seek more from their investments than simply financial
positioned to drive growth. In 2022 we celebrated the 30th year of our returns. We have created a specific suite of sustainability-focused solutions
Investments business in Asia Pacific and we use this expertise to support to meet client needs. We also believe that the consideration of ESG factors is
clients in navigating this complex but vibrant market. Asia also holds strong essential to more constructive engagement and better-informed investment
opportunities as we aim to be a leader of sustainable investment solutions. decisions to help our clients achieve their financial goals. Insight through
This is supported by our strong Asia-specific research and insight tools such as climate scenario analysis helps our clients to better identify
capabilities. investment risks and opportunities.
2022 progress
- Refreshed the leadership of our Client Group in Asia Pacific, with new - Launched our MyFolio Sustainable Index range in support of clients' ESG
heads of Wholesale, Institutional, Marketing and Client Servicing. goals.
- Focused our regional footprint by exiting Taiwan and Australia and - Converted 27 funds within our SICAV range to meet the requirements for
introducing distribution partnership models. Article 8 and 9 funds under the Sustainable Finance Disclosure Regulation
(SFDR).
- Improved the performance of our flagship funds - including our Asia-ex
Japan Equity funds, which have outperformed their benchmarks over three years; - Emerging Markets Sustainable Development Corporate Bond fund passed
and our China A Sustainable Equity fund, which is top quartile over one, three through the $100m mark in its first year.
and five years for funds in its sector.
- Initiated a two-year engagement programme with the highest-financed
emitters in our equity holdings, identifying clear milestones.
3. Alternatives 4. UK savings and wealth
The growing trends for urbanisation, digitalisation and decarbonisation create As financial responsibility continues to move more towards individuals, we
significant investment opportunities in real assets. Our Alternatives business have successfully repositioned our business towards an increasingly attractive
includes our capabilities in real assets, which comprises real estate, and growing UK savings and wealth market, as well as focusing on creating more
infrastructure and commodities. Our Alternatives business also offers clients capacity for advisers to serve more clients and reduce the savings and advice
access to major areas of European private credit, as well as compelling gap. We are now operating across the full client spectrum to help individuals
opportunities in the hedge fund sector. in the UK plan, save and invest for the future.
2022 progress
- Within real assets, our logistics and industrials AUM has risen since - Acquisition of ii transformed our position in the UK savings and wealth
the acquisition of Tritax to £16.9bn. market, delivered a significant acceleration of group revenue diversification
and brought over 400,000 new customers to the abrdn group.
- Launched Inflation-Linked Infrastructure Debt fund in November 2022.
- ii launched Investor Essentials, a part of its subscription service
- Continued to grow our real estate footprint by partnering with the John designed to appeal to investors with less to invest and those at the beginning
Lewis Partnership to build 1,000 residential rental homes in the UK. of their investment lifecycles.
- Became largest external investor in regulated digital securities - Remained the only platform business 'A' rated for financial strength by
exchange Archax and joined the governing council of distributed ledger leading independent consultancy firm AKG - with financial strength a key
technology firm Hedera. consideration for advisers when selecting their primary platform.
Performance overview
Performance impacted in a difficult macroeconomic environment
Our full year results largely reflect the challenging global economic
environment and market turbulence that impacted across the industry. These
impacts were largely seen in our Investments vector. The reduction in
profitability in the Investments vector is disappointing, with detailed plans
of work to improve the operating margin now underway. Performance in our
Adviser and Personal vectors were more resilient to the market conditions.
Financial performance summary
£1,456m Net operating revenue(1) (£615m) IFRS loss before tax
reduced by 4% to £1,456m (2021: £1,515m) mainly reflecting adverse market of £615m (2021: profit £1,115m) was impacted by impairments of goodwill and
movements which particularly impacted high revenue yielding equities. intangibles in the Investments vector of £369m, restructuring and corporate
transaction expenses of £214m and losses of £187m from the change in fair
value of significant listed investments.
£263m Adjusted operating profit (£10.3bn) Net outflows
(excl. liquidity and LBG tranche withdrawals)
reduced by 19% to £263m (2021: £323m) due to the impact of adverse markets
on revenue. The 2022 result includes seven months profit contribution from ii
of £67m. of £10.3bn (2021: £3.2bn), representing (2%) of opening AUMA, largely
reflected lower gross inflows which included the impact of the uncertain
market environment.
82% Cost/income ratio
worsened to 82% (2021: 79%) as a result of the lower revenue. We acknowledge
that costs in the Investments vector remain too high. Read about our actions
to reduce costs on page 51.
(£615m) IFRS loss before tax
of £615m (2021: profit £1,115m) was impacted by impairments of goodwill and
intangibles in the Investments vector of £369m, restructuring and corporate
transaction expenses of £214m and losses of £187m from the change in fair
value of significant listed investments.
£263m Adjusted operating profit
reduced by 19% to £263m (2021: £323m) due to the impact of adverse markets
on revenue. The 2022 result includes seven months profit contribution from ii
of £67m.
(£10.3bn) Net outflows
(excl. liquidity and LBG tranche withdrawals)
of £10.3bn (2021: £3.2bn), representing (2%) of opening AUMA, largely
reflected lower gross inflows which included the impact of the uncertain
market environment.
82% Cost/income ratio
worsened to 82% (2021: 79%) as a result of the lower revenue. We acknowledge
that costs in the Investments vector remain too high. Read about our actions
to reduce costs on page 51.
1. The revenue measure included within adjusted operating profit has been
renamed from fee based revenue to net operating revenue.
Our capital resources provide strength to allow investment in the business,
support the dividend policy and enable capital returns. Now that the shape of
the Group is largely settled following the acquisition of ii, we expect
inorganic actions on a more modest scale.
Capital performance summary
£0.7bn Surplus regulatory capital £1.3bn Value of listed stakes
remains strong at £0.7bn of £1.3bn (2021: £2.3bn) excluded from the regulatory capital position.
Reduction includes impact of further stake sales which generated net proceeds
(2021: £1.8bn), with a reduction reflecting the ii acquisition. of £0.8bn
(2021: £0.9bn).
£300m Shareholder return programme £1.7bn Cash and liquid resources
of £300m completed in December 2022. We are committed to returning a remained robust at £1.7bn (2021: £3.1bn) following the £1.5bn ii
significant proportion of proceeds as further stake sales are realised. acquisition. These resources are high quality and mainly invested in cash,
money market instruments and short-term debt securities.
14.6p Full year dividend per share
was maintained at 14.6p
(2021: 14.6p). Our dividend policy remains unchanged.
£1.3bn Value of listed stakes
of £1.3bn (2021: £2.3bn) excluded from the regulatory capital position.
Reduction includes impact of further stake sales which generated net proceeds
of £0.8bn
(2021: £0.9bn).
£300m Shareholder return programme
of £300m completed in December 2022. We are committed to returning a
significant proportion of proceeds as further stake sales are realised.
£1.7bn Cash and liquid resources
remained robust at £1.7bn (2021: £3.1bn) following the £1.5bn ii
acquisition. These resources are high quality and mainly invested in cash,
money market instruments and short-term debt securities.
14.6p Full year dividend per share
was maintained at 14.6p
(2021: 14.6p). Our dividend policy remains unchanged.
Read more about our financial and capital performance in the Chief Financial
Officer's overview section of this report.
Our vectors - Investments
Refocusing our Investments business
Our investments solutions are built on the strength of our insight - generated
from wide-ranging research, worldwide investment expertise and local market
knowledge. Our teams collaborate across regions, asset classes and
specialisms, connecting diverse perspectives, working with clients to identify
investment opportunities that suit their needs.
"We have refocused our offering to areas where we provide a differentiated "We aspire to be the go-to place for global investors seeking exposure to
proposition to our clients." sustainable solutions across Asia, particularly in China. We are also focused
on supporting clients across Asia as they seek to access global investment
Chris Demetriou opportunities."
CEO, UK, EMEA and Americas, Investments René Buehlmann
CEO, Asia Pacific, Investments
Highlights Investment performance
£88bn 1 year
Leading active 41%
Asia and emerging markets (2021: 66%)(3)
manager(1)
£145bn 3 years
AUM from insurance clients 65%
(2021: 78%)(3)
£120bn 5 years
AUM from our 58%
fixed income capabilities(2) (2021: 77%)(3)
Read more about investment performance on page 55
1. Refers to total assets invested in Africa & Middle East, Asia
Pacific and Latin America.
2. Includes Insurance assets.
3. The calculation of investment performance has been revised to use a
closing AUM weighting basis. 2021 comparatives have been restated. See page 55
for more information.
Our investment capabilities
We have simplified and focused our investment capabilities on areas where we
have both the skill and the scale to capitalise on the key themes shaping the
market, through either public markets or alternative asset classes.
Public markets Alternatives
AUM(1)
AUM(1)
£289bn £87bn
Our broad global reach and expertise(2)
Our broad global reach and expertise(2)
Americas UK EMEA APAC
AUM AUM AUM AUM
£46bn £256bn £58bn £16bn
Revenue Revenue Revenue Revenue
£137m £655m £114m £164m
1. Public markets and Alternatives AUM includes Insurance assets.
2. AUM is based on client domicile and revenue is allocated based on
legal entity revenue recognition. Revenue is shown for the Investments
business only, see Note 2(c) of the Group financial statements for a breakdown
of total group revenue by geographical location.
Our capabilities
Public markets
Fixed income
We are one of the UK's leading global fixed income managers with £120bn of
AUM across credit, government bond and money market funds in developed and
emerging markets.
The outlook for fixed income is very positive following the 2022 reset of bond
prices and years of operating in a low-yield environment. abrdn's deep and
proven credit expertise positions the business well to support clients as
flows into fixed income accelerate against a backdrop of economic recession
and the resulting pressure on corporate earnings.
Equities
Our equities franchise is organised into two segments.
Our Asia and emerging markets capabilities, reinforced by robust investment
performance in China A and Asia Pacific strategies, position abrdn well in
this segment as China reopens.
Our Global Developed Markets team generates investment ideas aligned to three
distinct outcomes: Sustainability, Income and Small Cap. Leveraging a
globally-situated research capability, the team is becoming more focused on
these specific areas of specialism, where we are able to offer both strength
and scale.
Multi-asset
Our multi-asset team designs solutions to meet the needs of three client
segments.
Through our historic expertise in insurance, we help to provide clients with
solutions to their complex needs, most notably our strategic partner Phoenix
Group.
Our breadth and depth of experience supporting pensions results in a broad
range of solutions, including our UK Defined Benefit Master Trust, launched in
2022.
There are significant growth opportunities in the UK and Asian savings and
wealth markets. In the UK we currently manage £16bn of AUM in packaged
solutions, including MyFolio and Diversified Income and Growth, which,
combined with the customer access afforded by our Adviser and Personal
vectors, position us well in this space. We have also established our
WealthTech Hub, a cross-team group focused on commercialising our
market-leading UK investment technology solutions in Asia.
Alternatives
Real assets
We are a leader in UK and European real estate with notable specialisms in
residential and logistics. This is evidenced by our recent partnership with
John Lewis and our management of Tritax Big Box, the UK's largest listed
investor in quality logistics warehouses and owner of the UK's largest
logistics-focused land platform.
In 2022, we commenced fundraising for abrdn Core Infrastructure III, targeting
a fund size of €1bn, and by
31 December 2022 the fund had raised over €400m. The fund aims to invest in
opportunities across the utilities, energy, transportation and digital
segments.
Private credit
We offer clients access to the major areas of European private credit,
including commercial real estate debt, infrastructure debt, corporate private
debt and fund financing among other areas.
Private equity
Our private equity and venture capital team operates as a bespoke business
unit, providing capabilities in pooled and segregated vehicles to clients
seeking diversified exposure to primary, secondary, venture and co-investment
opportunities.
Hedge funds and ETFs
We use our global knowledge and access to hedge fund managers to identify and
bring together the most compelling opportunities the sector can offer. We
offer global hedge fund and diversification strategies across the liquidity
spectrum. Using a disciplined and proven research-driven investment process,
we create portfolios to target a range of investor outcomes and risk-reward
requirements.
For the third straight year, abrdn's range of commodity ETFs generated
positive inflows, finishing the year with £6bn of AUM.
Our progress in 2022
Achieving strategic clarity
In 2022, we made further progress on the refocusing of the Investments vector,
away from a broad waterfront approach towards our goal of a simpler business
that is concentrated on those areas where we have strength and scale. To
achieve this, we have adopted a strategy designed to focus on our core
competencies, across the two distinct public markets and alternatives groups.
Our Public markets business generated revenues of £746m in 2022. We have
three clear strategic objectives with respect to the Public markets business:
- Narrow our focus to our core investments competencies.
- Improve investment performance to underpin a return to growth,
reinforced by our recent appointment of Peter Branner as Chief Investment
Officer, joining in Q2 2023.
- Increase operational efficiency through rationalising funds, improving
systems and closing non-core capabilities and markets.
Demonstrating our continued commitment and confidence in the closed-end fund
space, in December 2022 we announced that we were set to acquire and
reorganise four funds from Macquarie Group subsidiary, Delaware Investments.
This would see approximately $750m merge into three existing abrdn closed-end
funds, with minimal additional operating cost and estimated revenues of
approximately $10m.
Our Alternatives business generated revenues of £324m in 2022. Benefiting
from market trends such as growth in urbanisation and infrastructure
development, this business has strong track records across the significant
majority of its AUM and has delivered resilient flows and revenue growth. Our
strategic focus for this business is to accelerate asset raising.
Simplifying our business
In 2022 we undertook a review of our fund and product suite to ensure we
continue to offer what our clients want. Having reviewed c550 funds, we
concluded that only 20%, covering AUM of around £7bn, were sub-scale,
inefficient or no longer aligned with our core strengths. We have taken steps
to merge funds where viable to reduce duplication and simplify our offering.
Globally we merged or closed 58 funds in 2022, primarily within equities,
fixed income and multi-asset. In 2023, we intend to merge or close a further
80 funds. As funds are merged, we minimise decline in revenue associated with
these funds while improving our cost/income ratio and continuing to deliver
client outcomes.
As part of our commitment to exiting non-core businesses that no longer align
to our overall strategy, we have taken steps to simplify our footprint in Asia
Pacific. In July 2022, we announced the closure of our office in Taiwan,
appointing Manulife Investment Management (Taiwan) as abrdn's Master Agent. We
have also announced the closure of our Australia office and our intention to
establish a strategic partnership with SG Hiscock. These partnerships help us
to reconfigure global operations around our growth strategy and focus on our
core markets.
Consolidating our middle office services onto a single arrangement is an
important step towards increasing capacity and delivery of client service. We
completed this consolidation in October 2022, which included migrating onto a
single provider for performance and client reporting.
Further simplification steps are planned for 2023. A significant process
execution event occurred during 2022 which resulted in a loss and has been
thoroughly investigated. See Note 34 of the Group financial statements for
further details.
Evolving our client proposition
During the year we accelerated fund development and launches in areas of
growth, with net flows into products launched in 2022 exceeding £800m. We
launched six new products in 2022, the same number as we did in 2021,
including:
- Commercial Real Estate Debt fund II, with net flows of £205m.
- Eclipse HFRI 500 fund, with net flows of £115m.
- Global Risk Mitigation (GRM) fund, with net flows of £178m.
We are continuing to develop new funds to support clients' sustainability
goals including the MyFolio Sustainable Index range launched in 2022. In
compliance with level one of the EU's Sustainable Finance Disclosures
Regulation (SFDR), we have also been converting our range of SICAV funds to
comply with SFDR Article 8 and 9, which reflects the importance of ESG
considerations in the investment opportunities we seek. In 2022 we converted
27 of our funds to Article 8 and 9.
The sustainable index strategies which we manage and developed in partnership
with our client Phoenix are used for over 90% of the assets within Standard
Life's new default workplace pension solution, raising over £10bn in assets
in the year.
Read more about our strategic focus on sustainability on pages 28 to 39.
We are strengthening our position in the development of the digital assets
ecosystem, establishing partnerships to help our clients benefit from the
digital assets value chain. In becoming the largest external investor in
Archax, the UK's first regulated exchange and trading platform designed to
bring digital assets to capital markets, we are building important
capabilities and knowledge. We are also the first asset manager to join the
governing council of Hedera, which is at the forefront of enabling the
migration of traditional investments onto distributed ledger technology.
Our strategic focus
for 2023
- Complete the repositioning of our Public markets business to focus on
core strengths.
- Improve investment performance, with clear structure and leadership.
- Accelerate growth in Alternatives franchise through dedicated and
accountable leadership and resources.
- Continued focus on growth in Asia - on enabling our clients in Asia
through our global offerings, and on growth of clients globally who invest
into our capabilities managed in Asia.
- Delivery of net cost savings of c£75m are targeted in 2023 - read more
on page 51.
Our vectors - Adviser
Growing from a market-leading position
Our Adviser business provides financial planning solutions and technology for
UK financial advisers enabling them to create value for their businesses and
their clients. We offer a combination of tools and services personalised to
their needs, including access to the full suite of investment solutions that
abrdn offers as well as a wide range of open architecture investment options.
"We want to enable advisers to grow their businesses in line with their
ambitions, by helping them to unlock capacity to serve more clients. We are
building solutions that we believe make us the obvious choice for adviser
businesses to partner with because we aim to make it as easy as possible for
them to focus on what's most important, their clients."
Noel Butwell
CEO, Adviser
50% 430,000
of UK advice customers
businesses use our platforms
2,600 AKG A rating
Adviser firms for financial strength, the only platform business with this
rating
No. 1 for 97%
AUA
client retention rate
13% market share
for our primary
partners
Platinum rated Best platform
provider over
by AdviserAsset
£40bn,
and Schroders UK
Platform Awards
Gold rated
2022 - the ninth year running
by Defaqto
A compelling market opportunity Performance overview
We are well-placed to drive growth in an attractive market for UK adviser Performance and profit delivered in 2022 reflect our resilience in a
platforms. challenging environment.
'Optimistic' Adviser AUA
platform market
growth by 2027(1) £69bn
+16%
'Optimistic' Adviser Adjusted operating profit
platform market
growth by 2027(1) £86m
+11%
Adviser platform
market AUA(1)
+16%
abrdn
Adviser AUA
£69bn
1. Source: Fundscape Q3/Q4 2022 releases.
A compelling market opportunity
The need for individuals to take on more personal financial responsibility
continues to drive the demand for quality financial advice. The current
macroeconomic environment has created uncertainty and, for customers, the need
for advice in such environments increases in order to navigate volatility.
However, as the demand for advice continues to far outpace supply, the savings
and advice gap in the UK could run well beyond 20 million people. Advisers
also remain capacity- constrained, the key constraint for which is fragmented
technology for servicing clients through the whole cycle of onboarding,
reporting and review.
Our technology solves that pain point for advisers. We put abrdn's strength to
work for advisers, enabling them to look after their clients' data securely,
while providing insight to make better decisions in areas ranging from
regulation to taxation. We deliver client-led outcomes by building technology
and investment solutions around advisers' and their clients' needs, delivering
a personalised service to suit every type of business and client.
Our adviser platform is ranked number 1 in the UK with a leading share of AUA
on our platform at £69bn. We partner with over 2,600 UK adviser firms with
around 430,000 customers in total. This market for financial advice is
compelling and we can see strong growth patterns. Over the last 10 years, the
assets in the adviser platform market have grown at a 19% CAGR and the
realistic forecasts from Fundscape for the period through to 2027 indicate
growth at an 11% CAGR in spite of the current market conditions.
Growing from a market-leading position
Our leading position by AUA in the market places us right at the centre of
this opportunity. Our focus is on expanding our service to our existing
clients by creating capacity for them to further grow their business and to
attract new clients of their own.
We are building solutions that we believe make us the best partner for
advisory businesses. Our service proposition makes it as easy as possible for
them to focus on their clients, reducing the administrative work and enabling
them to focus on delivering high quality advice. We offer fast, self-serve
solutions, along with live support that enables advisers to simplify the way
they operate, increase capacity and therefore allow more time to focus on
meeting their clients' needs.
We have focused our proposition on the top five things that advisory
businesses tell us they value when they are selecting their primary platform.
They want:
- good online functionality
- financial strength and stability
- lower overall cost
- efficient administration
- a full range of wrappers.
Today we have a strong position in this space, with tools and technology
underpinning our operating model. Our Adviser Experience Programme is driving
us further forward, with huge strides being made in these key areas. Despite
some challenges around timescales, the recent delivery of technology
enhancements to our platforms will further support advisers to unlock capacity
and grow their client bases:
- Our online functionality continually evolves, from the basics of the
look and feel moving to modern processes, to the rewiring of journeys to
remove unnecessary steps or make them more intuitive.
- As we grow the functionality we further improve the value for money.
- We have invested in our service technology, with clients able to benefit
from new contact centre tools, rich management information and tracking, and
we are pushing this further with fully online processes and transaction
tracking.
- We have added the Junior ISA, with more to come including the Junior
SIPP and access to third-party products.
- We are the only platform A-rated for financial strength by AKG, an
independent organisation offering assessments, information and support to the
financial services industry.
- We are targeting world-class customer satisfaction scores, building on
our end of 2022 Net Promoter Score of 57 and Customer Satisfaction Score of
95%.
According to research from Investment Trends, advisers want to increase client
numbers by an average of 16%. Their challenge is to unlock capacity
constraints in their businesses. This is the opportunity for us as our
technology is cutting edge and solves that pain point for advisers. The more
advisers who use our technology, the more customers we can serve.
Our progress in 2022
1 Putting our strength to work for advisers and their clients
Our Adviser Experience Programme has informed our investment decisions and we
have enhanced our offering in 2022, which has included the launch of our
Junior ISA and continued work to simplify our processes. We have invested in
delivering a new contact centre and customer portal, and we committed to
delivering in early 2023 a new adviser interface with increased
personalisation.
We have partnered with industry leaders such as Salesforce and Amazon to drive
cutting edge technology into client engagement. This technology measures and
improves service in real time. It is therefore critical to improving the
experience for advisers and their clients and freeing up advisers' capacity to
take on new business. We answer more than 1,000 phone calls a day, with an
average speed to answer of nine seconds on our Wrap platform, so efficiency is
critical to client service.
We launched the Junior ISA in response to increasing demand from advisers for
more family wealth planning solutions that can be managed alongside their
existing client investments. The Junior ISA is the first step we are taking to
create a family office environment on the platform and we will be developing a
Junior SIPP as part of our overall solution.
We continued to support advisers with understanding and meeting their
regulatory requirements. The Financial Conduct Authority's new Consumer Duty
rules, for example, represent a significant piece of regulation for raising
standards of consumer care across the financial services industry. We created
practical guidance and materials to help advisers ensure that they were ready
to take the immediate steps required in 2022, as well as to understand the
longer-term impacts.
2 Performance and efficiency in a challenging environment
We are building on our Adviser Experience Programme to drive growth in gross
and net flows, through a focus on three key pillars:
- Expanding wrappers per customer amongst our existing base.
- Increasing the number of primary firms we partner with (46% of AUA at
the end of 2022 was from our primary partners).
- Growing our adviser base through advocacy and experience.
Flows have been impacted industry-wide in 2022 by economic pressures including
rising inflation and higher interest rates. Despite this, the core drivers of
medium-term flows remain and our Adviser business saw another year of net
inflows at £1.6bn (2021: £3.9bn). Despite challenging market conditions and
lower assets under administration, the Adviser vector's strong and
higher-margin business model has also delivered another year of revenue and
profit growth. Net operating revenue increased by 4% benefiting from rising
interest rates and a broadly stable platform charge. Coupled with continued
cost management, this has delivered an adjusted operating profit of £86m, up
16% compared to 2021.
Our long-term strategic relationship with FNZ to handle custody and
administration of our platform leverages the scale of FNZ to secure an
advantageous low-cost model.
3 Measuring our progress
Industry recognition can make an important difference when advisers choose who
to partner with. As well as our 'A' rating by AKG for financial strength,
which is one of the stated top reasons for advisers selecting their primary
platform, we are 'platinum' rated by AdviserAsset and 'gold' rated by Defaqto.
We also won the Schroders award for the best large platform for the ninth year
running, which importantly is voted on by advisers throughout the UK.
We have continued to see an increase in the number of adviser firms using us
as their primary partner. In 2022 there was a 1 percentage-point increase in
primary users of abrdn Wrap, up to 11% from 10% in 2021. When advisers use our
solutions as their primary platform, we see new business increase. Our
research tells us that more than 70% of new business from an adviser firm goes
on the primary platform, as our processes and capabilities become more
embedded in their own business. As a result, client retention also improves.
Our strategic focus for 2023
- Continuing to focus on delivering new platform functionality through
phase 2 of our Adviser Experience Programme, to maintain our market-leading
position and deliver increased capacity for our clients.
- Launch of our new fully online abrdn SIPP and Junior SIPP products,
creating new revenue streams with no additional cost to clients.
- Establishing new growth opportunities associated with model portfolios
for advisers across the UK, more firmly integrated into our platform
solutions.
- Increase in the number of products held by existing customers through
the launch of a new SIPP, Junior SIPP and increased consolidation within
existing wrappers.
- Extending our primary partnership penetration by leveraging our total
offering to all sizes of IFAs in the UK.
- Preparing our clients for the successful and safe launch of the Consumer
Duty later in 2023.
Our vectors - Personal
A leading direct-to-consumer business
Powered by the UK's second largest direct-to-consumer investment platform, our
Personal vector enables individuals in the UK to plan, save and invest in the
way that works for them. The acquisition of interactive investor (ii) has
transformed abrdn, positioning us for growth as one of the UK's leading
personal wealth businesses in a market with strong long-term structural
dynamics.
"The continuous evolution of our proposition will help us to deliver better
customer outcomes. With ii joining the abrdn family, we are positioning the
vector to serve customers at all life stages, harnessing abrdn's broader
capabilities to develop and grow what is already one of the UK's leading
direct-to-consumer wealth platforms."
Richard Wilson
CEO, Personal
AUMA Adjusted operating profit
£67bn £72m
Interactive Personal
investor
Wealth
402,000 27,000
Total customers Clients(1)
29,000 £440m
New customers added in 2022 Financial planning gross flows to
abrdn Wrap
£435 Top 10
Revenue per customer UK financial
planning platform
for gross flows (Finscape, 2022)
£134,000
Industry-leading
AUA per
customer
17.3k
Daily average
retail trading
volumes
Focus on ii
We completed our acquisition of ii, the UK's second largest investment
platform for private investors and the number one subscription-based provider,
in May 2022. The acquisition has transformed our position in the UK savings
and wealth market. ii's platform enables retail investors to access a broad
range of investment and savings products and its simple subscription-based
pricing model helps to set ii apart. ii brings additional growth opportunities
and diversification to abrdn's revenue streams and its subscription-based
model and efficient operating model provide a high degree of financial
resilience.
As well as helping us to build a leading position in the UK direct investing
market, ii complements and adds strength to our existing offering for
individual investors where our financial planning capabilities support clients
with larger, more complex financial needs.
Challenging market conditions in 2022 have impacted short-term investor
confidence and customer acquisition has decreased from the highs seen in 2021
as a result. However, ii's leading proposition and platform have led to ii
continuing to increase its market share of AUA compared to prior year (Source:
Compeer Q3 2022 report) and deliver strong growth in both revenue and
operating profit.
Financial performance
Results for ii are included within abrdn's full year 2022 results only for the
seven-month period to 31 December 2022 following the completion of the
acquisition.
For comparative purposes, ii's results for the 12 months to 31 December 2021
and 2022 are set out below:
FY 2022 FY 2021 Change
12 months
12 months
£m
£m
excl Share(2)
Net operating revenue(3) £176m £128m 38%
Adjusted operating expenses (£82m) (£83m) (1%)
Adjusted operating profit £94m £45m 109%
Cost/income ratio 47% 65% (18ppts)
Key operational metrics:
FY 2022 FY 2021
12 months
12 months
AUA £54bn £59bn
Net flows(4) £3.6bn £5.8bn
Total customers at period end 402k 403k
Total customers excluding EQi and Share Centre migrated customers 300k 292k
New customers 29.2k 47.4k
AUA per customer £134k £145k
Daily average retail trading volumes 17.3k 21.9k
ii performance highlights (full 12 months)
- ii has performed ahead of our original expectations and is on track to
deliver the planned double-digit earnings accretion in 2023.
- Revenue was up 38%, with a reduction from lower trading transactions
being more than offset by an increase in treasury income as interest rates
recovered from the historic lows seen in 2021.
- ii's operational leverage achieving an efficiency ratio of 15bps/AUA
means this translates into a 109% increase in adjusted operating profit with
cost/income ratio improving to 47%.
- Total customer numbers were 402,000 at 31 December 2022, compared with
403,000 at December 2021. Over the year ii added 29.2k new customers. This was
offset by the loss of mainly less active customers who had been brought onto
the platform through historic customer book acquisitions. Excluding the tail
run-off of the two most recently acquired books, Share Centre and EQi, net
customer growth for the year was 3%.
- Net flows remain strongly positive at £3.6bn albeit down from the
record levels seen in 2021.
- AUA per customer of £134,000 is industry-leading.
1. Includes double count of clients of both the discretionary
and financial planning businesses.
2. Adjusted operating profit for FY 2021 has been presented to
exclude losses relating to Share Limited ('Share') to provide a more
meaningful comparison to the go-forward position. The FY 2021 adjusted
operating profit of £45m excludes losses relating to Share of £9m while part
of this business was wound down. Including losses from Share, the FY 2021
adjusted operating profit was £36m. The FY 2022 impact was £nil. See Section
9.1.4 of Supplementary information for further details.
3. Net operating revenue includes trading transactions,
subscription fees and treasury income. See Section 9.1.4 of Supplementary
information
4. Cash dividends which are retained on the ii platform are
included in net flows for the ii business. See the Glossary for further
details.
Transforming our position in the UK savings and wealth market
More and more people are now investing independently of the institutions they
previously relied on. With improved direct-to-consumer technology and lower
costs to investment many are now accustomed and confident to operate
self-service for investments and other financial transactions. Better tools
continue to be developed to help these consumers make informed investment
decisions for themselves and to enable participation of many others in the
market. This notwithstanding, we see an enduring need for the reassurance of
financial guidance, support and advice, demand for which, we believe, will
continue to grow.
Within our Personal vector, we empower clients to be better investors at all
stages of their financial journey. To maximise growth synergies, we realigned
our existing Personal Wealth business - discretionary, digital advice and
financial planning - to sit under Richard Wilson's leadership when he was
appointed CEO of our entire Personal vector in August 2022. Richard joined the
abrdn group in May 2022 as CEO of ii.
We aim to leverage the deep knowledge within the Personal vector and its
digital operating platform to transform ii from the UK's leading
subscription-based self-directed platform into the UK's leading D2C wealth
platform.
Together, the high-tech, high-touch models of ii and abrdn offer a range of
propositions to enable clients to become better investors. Richard is evolving
the newly combined Personal vector to deliver an end-to-end client
proposition, from simple online transactions to more complex financial advice,
ensuring its offerings and scale are appropriate to deliver growth in revenue
and operating profits.
The Group has agreed the sale of avrdn Capital its discretionary fund
management (DFM) business to LGT. The sale is expected to complete in the
second half of 2023, following satisfaction of certain conditions, including
receipt of customary regulatory approvals.
In order to succeed in the longer term in the DFM market abrdn's view is that
this part of the business would need to build much greater scale. With abrdn's
strategy for its Personal vector focused on integrating the high-tech,
high-touch model of ii with financial planning, abrdn has concluded that
another owner would be better placed to invest to deliver greater scale in the
DFM business.
abrdn's Managed Portfolio Service (MPS) business which is currently part of
the DFM business is better aligned to its group strategy and will be carved
out and retained prior to completion of the transaction. abrdn views MPS as an
important growth channel that aligns well to the way that the UK personal
investment market is developing. The MPS team will be moved to sit within
abrdn's Adviser vector in order to maximise opportunities available through
that business distribution model.
A resilient operating model benefiting from strong operational leverage
The current economic environment in the UK remains challenging for all
industry participants. Volatile market conditions and increasing economic
uncertainties have impacted the rate of new customer acquisition and, since
the first half of 2022, the levels of customers' trading activity.
ii has diverse sources of income which continue to record strong overall
growth in continually changing market conditions. This is underpinned by its
subscription-based model which means ii is less dependent than others on stock
market levels. This model is favoured by customers because customers' costs do
not increase with the value of their investments, which means more money
working for them.
Revenue from subscriptions has continued to grow, increasing by 17% to £56m
for the full 12 months, reflecting growth in average numbers and quality of
customers. Despite flat year-on-year total customers, the number of customers
holding a SIPP account increased by 17% to 51.5k.
Although ii's share of the UK cash market trades increased by 2 ppts to 25%
(Source: Compeer Q3 2022 report), ii's daily average retail trades reduced to
17.3k as a result of the reduction in investor confidence, leading to a drop
of 30% in revenue from trading transactions to £55m. Whilst down from the
peak experienced in 2021, they remained above the levels seen pre-COVID.
Revenue benefited from interest rates rising significantly throughout 2022
following the exceptionally low levels in 2021. Treasury income contributed
£71m compared with £9m for 2021. Over the year ii's average cash margin was
120bps and the indicative ii average cash margin for 2023 is 160-170bps.
Customer cash balances at 31 December 2022 were £6.0bn, around 11% of AUA.
ii's operating model also benefits from strong operational leverage. This is
combined with a focus on cost effectiveness which is embedded across the
organisation. This means that ii has delivered a net operating revenue
increase of 38%.
Our progress in 2022
In 2022 we made significant progress towards our objective of becoming the
UK's leading direct-to-consumer wealth platform. This has been driven by ii,
which is the largest part of our Personal business. Its growth is underpinned
by three drivers: strength of the platform, compelling pricing and scale of
the customer base.
1 Strengthening our platform
ii already has a highly scalable platform powered by future-fit digital and
data infrastructure that will support substantial further growth. The ii
platform was further strengthened over the past year:
- Expanded its pension offering, launching a low-cost, standalone Pension
Builder SIPP.
- Upgrades delivered to its mobile trading application, with enhancements
to information on transaction history, cash withdrawals and regular
investments.
- Core website improvements implemented in January 2023.
The strength of the platform has also been recognised externally:
- Consistently rated 'Excellent' on Trustpilot, with more five-star
ratings than the combined total of the rest of the D2C sector.
- Platform of the Year and Best Low-Cost SIPP at the Celebration of
Investment Awards, as voted by readers of Investors Chronicle.
- ii's SIPP is recommended by Which? and gives people choice and
flexibility to support a wide range of direct pension investors.
- ii's Stocks and Shares ISA was rated the best low-cost ISA over £50,000
by Boring Money.
2 Compelling pricing
ii continues to innovate its subscription-based pricing bundles. The Friends
and Family pricing bundle is designed to attract younger customers and those
with smaller investment portfolios. It enables up to five friends and family
of existing customers to each join ii without paying a monthly subscription
fee.
In February 2023 ii launched Investor Essentials, an entry-level addition to
its subscription service. Through this service plan customers can now invest
up to £30,000 for £4.99 a month. They benefit from free regular investing
and competitive trading fees of £5.99 for funds, investment trusts and UK/ US
shares, all with the same choice of investments.
3 Evolving the customer base
An important focus during 2022 has been on growth through ii's existing
customer base:
- ii has substantially increased the scale of our Personal vector, adding
over 400,000 customers.
- While the impact of market conditions and increasing economic
uncertainties meant that customer numbers remained relatively flat during
2022, ii has seen a continuing trend for a reduction in customer lapse rates -
the rate at which customers choose not to renew their accounts - across all
segments. In 2022, ii added 29.2k new customers. This was offset by customer
lapses. After several years of acquiring customers through customer book
acquisitions, ii's customer lapsing rates remained inflated in 2022 from the
natural lapsing and inactivity of some low value acquired customers. Acquired
customers were migrated from Share Centre and EQi in 2021 and in 2022 books
had lapse rates of 12%, compared to the wider customer base where lapsing was
5%.
- ii's focus on its SIPP continues. ii has 51.5k SIPP customers, which
represents 13% of ii's customer base, and there is potential for that to
increase significantly to peer levels which are around 25-30%. SIPP customer
lapse rates are significantly lower than non-SIPP holding customers.
- The launch of Investor Essentials allows ii to attract a new customer
demographic. This plan is designed to appeal to investors with less to invest
and those at the beginning of their investment lifecycles. This product is
well positioned to deliver strong customer growth and we also expect ii to be
able to upsell these customers to its full offering during their investment
journey.
As we move ahead, there is an increasing focus on diversifying the client base
through the connectivity within the vector and our three-vector model:
- We are increasing the digital content and online capability for clients
through online tools and resources in addition to the support they receive
from an adviser.
- We are exploring how we connect ii and abrdn clients so that they can
benefit from all of our offerings. This ranges from simple online
transactions, advice and support with investing, to wealth management for
private clients, including tax, trust and estate planning.
The need for financial advice is increasing. In November 2022 the FCA outlined
plans to create a new regime aimed at giving 'mass market' consumers access to
simplified advice. This presents an opportunity for ii to explore new customer
segments, as the wider financial services industry looks to find simple
solutions that can break down barriers to advice, increase customer confidence
in accessing investment markets and thereby, crucially, reduce the advice gap.
Our strategic focus for 2023
- Integrate our Personal vector and ii, and leverage abrdn capabilities in
investments and advice.
- Focus on organic growth with targeted investment in brand, marketing and
product.
- Introduce auto-investing solution.
Sustainability priorities - 2022 in review
Strategic focus on sustainability
Delivering for our clients, our people, and supporting
a credible transition toward
a better world.
While a significant amount of work remains to be done, I am proud of the
progress we have made to date.
Stephen Bird
Chief Executive Officer
The existential challenges the world is facing are evolving at an
unprecedented rate and continue to increase in complexity. The pressures on
businesses to take stronger stances and help solve these crises have also
increased. Our role is to enable our clients to navigate the sustainability
impact of their investments, lead by example in our own operations and by
collaborating with partners and third sector programmes to drive societal
change.
Climate change continued to dominate the sustainability landscape in 2022,
with extreme weather devastating many parts of the globe. At the same time, it
is estimated that over 90% of global GDP has been committed to net zero(1).
However, there is increasing scepticism around the credibility of
decarbonisation actions towards net zero by 2050. COP27 was an important
milestone focused on addressing climate justice and adaptation but did little
to provide the credible policy incentives needed to limit warming to 1.5°C.
However, we saw encouraging progress in moving action forward to preserve
natural capital through the Global Biodiversity Framework.
2022 was also a year in which the spotlight has been put on transparency, with
some progress being made towards disclosure standardisation. Expected changes
to mandate clear, comparable disclosures from companies across jurisdictions
and a focus on greenwashing mean the landscape has, and will continue to,
evolve awareness, and increase expectations. We are supportive of consistent
mandatory disclosures as we believe they will provide decision-useful
information for investors and drive positive change from a corporate
perspective. That said, it is acknowledged that international standards are
yet to coalesce and there are uncertainties related to interoperability
between jurisdictions. This will be a challenge to manage both as a corporate,
and as investors as we assess the relative risks and opportunities of the
companies we invest in on behalf of our clients.
Evolving our transparency
We continue to evolve our governance frameworks, most notably in 2022 through
increased collaboration with our finance and audit functions. We are focused
on this in readiness for the emerging global standards for sustainability
disclosure.
In 2022, a new phrase entered the sustainability vocabulary - 'greenhushing',
as the antithesis of 'greenwashing', is used to label companies lacking
transparency as to their sustainability-related actions, and intentions. The
introduction of greenhushing highlights the delicate balance between
overstating our actions and being transparent about our activities. To help
manage this, we have increased our efforts to drive education across our
business and evolve our marketing and communication approval process.
Taking collective action
If 2022 was the year of transparency, 2023 must be a year of collaborative
action. A significant acceleration of activity - individually, collectively,
and globally is required to address material sustainability topics.
We are focused on addressing our material sustainability topics and our public
targets address the issues commonly considered material for our business - as
we look to reduce the impact we have on the climate and support a fairer and
more inclusive society.
The evolving sustainability landscape means periodic assessments of material
sustainability topics are more relevant than ever to ensure we understand the
potential impacts to our business, communities, and the natural world. Our
most recent assessment, completed in early 2023, reflects our latest
understanding and will support our thinking as we increasingly integrate
sustainability into our business and strategy. We detail the process, and
outcome of our assessment in our Sustainability and TCFD report on pages 83 to
86. Our strategic focus on sustainability is a commitment to invest in our own
capabilities, follow our view of best practice, and enable better investment
for our clients.
1. Net Zero Tracker. Energy and Climate Intelligence Unit, Data-Driven
EnviroLab, NewClimate Institute, Oxford Net Zero. 2022.
Environment
Progress and ambition
Our focus - Reducing the carbon intensity of our portfolios and absolute emissions
from our direct operations.
- Acting as a positive catalyst for the net zero transition and
influencing real-world decarbonisation.
Our targets - Reduction of the carbon intensity of assets we invest in by 50% by
2030 from a 2019 benchmark.
In-scope assets for this target represent 30% of our total AUM with Phoenix
accounting for 30% of the total public market assets in-scope as at 31
December 2022. Read more on page 38.
- We are targeting net zero(1) by 2040 in our direct operations, with an
interim target of a 50% emissions reduction by 2025 versus our 2018 base year.
Read more on page 39.
Our progress - We set our target for the reduction of the carbon intensity of assets
we invest in 2021 and report our first progress against this target. As at 31
December 2022, in-scope public market portfolios achieved a carbon intensity
reduction of 27% versus a 2019 baseline. As at 31 December 2021,
in-scope real assets achieved a 31% reduction in carbon intensity versus a
2019 baseline.
- We have reduced our operational emissions by 56% since 2018 (2021:
62%), with emissions from business travel increasing in 2022 following the
easing of travel-related restrictions associated with the COVID-19 pandemic.
Our Task Force on Climate-related Financial Disclosures (TCFD) summary report
is on pages 30 to 39 and our full TCFD disclosure is included in the
Sustainability and TCFD report, available at www.abrdn.com/annualreport
Social
Inclusivity and opportunity
Our focus - Increasing diversity, equity, and inclusion at all levels, and in all
areas, of our business.
- Supporting a fairer and more inclusive society and creating
opportunities for our communities.
Our targets - Board and senior leadership targets of 40% women, 40% men and 20% any
gender by 2025.
- Equal gender representation in our global workforce by 2025 (+/-3%
tolerance).
- One additional board member who identifies as ethnic minority by 2025.
Our progress - Board comprised 45% women, 55% men and Senior Leadership comprised 39%
women, 61% men at 31 December 2022.
- Gender representation of global workforce was 43% women, 57% men at 31
December 2022.
- We have reduced our UK gender pay gap for the fifth year in a row and
are listed as having the highest percentage of female fund managers of any
large firm in Citywire's Alpha Female Report.
- 52% of graduates joined abrdn from a diversity partnership in 2022 (up
from 37% in 2021).
- We continued to support tomorrow's generation through our charitable
giving. More on this on page 43 and in our Sustainability and TCFD report at
www.abrdn.com/annualreport
You can find out more about our people strategy, including more detail on our
targets, on pages 40 to 43.
Governance
Integrity and transparency
Our focus - Operating with integrity and transparency at all levels of our
business.
- Continuing to integrate sustainability risks and opportunities into
our strategy and decision-making.
Our progress - In 2022 we integrated climate-related performance metrics into our
executive remuneration scorecard. The scorecard continues to include people
metrics. Read more on pages 103 to 130.
- We received a AAA MSCI ESG Rating in April 2022 and continue as
constituents of the Dow Jones Sustainability Indices (DJSI) in the 2022
assessment year.
Read about our stakeholder engagement and Section 172 statement on pages 44 to
47.
1. See the Glossary for definitions of key climate-related terms including
net zero.
Sustainability - Environment
Our commitment to tackling climate change
Last year, we outlined our net zero-aligned ambitions and continue our
progress, with a focus on enabling clients to achieve their climate goals
through real world impact.
To achieve a credible and just net zero transition, we all need to do more.
Globally, 2022 was another year of rising emissions and limited progress for
climate policy that provides effective incentives to decarbonise at the pace
and scale needed to achieve net zero by 2050.
Our ambition is to be a catalyst for net zero, in support of Paris Agreement
objectives, and we can report progress against our target to reduce the carbon
intensity of the assets we invest in on behalf of our clients. We are
targeting a 50% reduction in the carbon intensity of our portfolios by 2030
versus a 2019 benchmark and we are on track with a 27% reduction across
in-scope public market portfolios as at 31 December 2022 and 31% reduction for
in-scope real estate as at 31 December 2021. Assets in-scope for our target
represent 30% of our total AUM. This is driven by data availability, maturity
of methodologies and control over decision-making (more on page 38).
It is important to reflect that this process will not be linear and that a
credible transition requires real-world decarbonisation, not just in
portfolios. Our climate strategy therefore centres on active investments in
transition leaders and backing firms on paths from high to low carbon
intensity. It is not enough to simply divest from carbon intensive companies,
which is why a focus on transition credibility is key to our process. We
assess this through proprietary analysis and through direct engagement with
our highest-financed emitters where we believe we can actively influence
decision-making(1).
In our own operations, we are targeting net zero by 2040, with an interim
target of a 50% emissions reduction by 2025 (versus our 2018 base year). We
continue our progress towards this target and a 56% reduction as at 31
December 2022. Our own transition to net zero is underway and we will outline
our pathway in line with the UK Transition Plan Taskforce Disclosure Framework
in 2023.
The 27th United Conference of the Parties on Climate Change (COP27) took place
in Egypt in 2022 and we joined others in advocating for binding policy
commitments to address the implementation and credibility gaps we have
observed. Alongside highlighting the role investors can play in achieving
real-world decarbonisation, which we believe requires an enabling policy
environment with the right incentives for capital allocation.
Statement of the extent of consistency with the TCFD framework
We continue to support disclosure against the recommendations of the TCFD
framework. This is critical for us as investors as we assess our exposure to
climate-related risks and opportunities beyond our physical operations.
We believe our own disclosure is consistent with the 11 recommendations of the
TCFD framework. In line with our 2021 approach, we provide disclosure at two
levels of granularity. The following 9 pages of this report provide a concise
overview against the 4 recommended pillars, and the full required disclosure
is provided as a discrete section of our Sustainability and TCFD report. We
believe this approach is currently necessary to reflect the detailed and
technical nature of the recommendations.
The availability of climate-related data continues to be a challenge, with
inconsistent disclosures by region. We recognise that methodologies and our
internal data processes may continue to evolve over time and we will review
our approach as appropriate. This may lead to changes in our metrics and our
reporting of progress in future periods. However, we advanced our capabilities
in 2022, with the introduction of expanded metrics related to our investments
that align with the recommendations of the Partnership for Carbon Accounting
Financials (PCAF), which we have joined. We will continue to evolve and
enhance our TCFD reporting, in line with data and industry developments.
Location in this report Location in Sustainability and TCFD report
Governance Page 31 Page 9-10
Strategy Page 32-34 Page 11-21
Risk management Page 35-37 Page 22-27
Metrics and targets Page 38-39 Page 28-37
What is net zero?
It is generally accepted that net zero is the target of completely negating
the amount of greenhouse gases produced by human activity. The following pages
outline our ambition to decarbonise in line with this view, and in support of
the objectives of the Paris Agreement. We do not yet have all the data
required to determine what 'completely negating' means for abrdn, but we do
have sufficient data to monitor our progress against specific interim
milestones, which are outlined in this report. Our next milestone will be to
produce a Transition Plan, in 2023, which will build on our existing
objectives and consolidate our long-term approach.
1. Highest-financed emitters refers to the absolute tonnes of CO(2)
equivalent that are financed across both equity and credit holdings. The
metric attributes ownership of emissions based on the percentage of enterprise
value including cash (EVIC) owned by the investor.
Governance
Our approach
In line with the recommendations of the TCFD, we have an established climate
governance framework with defined responsibilities for our Board and
Committees, alongside management's role in assessing climate-related risks and
opportunities.
We are also taking a forward-looking view and are advancing our governance
beyond climate and towards sustainability as a whole. This approach is aligned
to emerging global standards for sustainability disclosure and will strengthen
our governance due to the interlinked nature of sustainability topics. Related
risks and opportunities can manifest differently across our diverse business
and this approach will leverage the strength of our vector model as we apply
diverse perspectives, and expertise, to emergent sustainability topics. Our
intention in 2023 is to establish a group-wide sustainability decision-making
forum to ensure a cohesive abrdn view.
Our Sustainability and TCFD report illustrates our approach in more detail.
The Board's role in oversight
Climate change is a material issue for our business and this is reflected in
strategy, risk management, and company culture. The Board and Directors
oversee these matters and provide challenge and approval to management
recommendations on both defined and emergent issues.
Our Chief Executive Officer takes responsibility for climate-related risks and
opportunities and is incentivised, alongside our Chief Financial Officer,
through climate-related remuneration targets in variable bonus scorecards,
which is aligned to company objectives and set by our Remuneration Committee
(more detail on pages 103 to 130).
Our Board and Board Committees oversee a number of climate-related issues and
reports. The Board provides oversight for our Sustainability and TCFD report
and the Audit Committee provides challenge to management to support readiness
for future disclosure requirements.
During 2022, Board agenda items included discussion on progress against our
climate commitments, the challenges we face in achieving them, challenges in
data quality and availability, and how we engage with our clients on climate
change.
Management's role in assessment
Our Chief Executive Officer delegates authority from the Board to our
Executive Leadership Team, and in turn to our climate working groups, to
support the assessment of climate-related risks and opportunities and to
provide related recommendations.
We continue to benefit from the capability of our two climate change working
groups - covering both our operations and investments respectively. These
groups are key to our climate-related governance structure and consist of
subject matter experts from across the business. The groups meet quarterly to
review and discuss material climate risks and opportunities and shape
strategic approaches to climate change. These groups are key forums for
identifying material matters to be escalated through the Executive Leadership
Team and to the Board for consideration.
In 2021, a primary focus for the groups was the development of our targets and
ambitions - in 2022 the natural focus for our investments working group has
therefore been the implementation of our net zero directed investing strategy.
With specific focus on net zero aligned investment solutions, climate research
and tooling, as well as active ownership.
Our wider sustainability expertise
In early 2022 we announced the evolution of our sustainable investing approach
with the appointment of a Chief Sustainability Officer for the Investments
Vector alongside a newly established leadership team. The team takes a global
view and leads on sustainable investing, active ownership, climate strategy,
and sustainability research capabilities. This is further supported by our
Sustainability Institutes in APAC and Americas, which provide relevant
regional capabilities for our clients and wider reporting obligations. Our
abrdn Research Institutes also deliver sustainability research including our
climate scenario analysis.
Our operational activity is supported by a distinct sustainability team, which
includes a dedicated Environment Manager with focus on climate and advancing
our operational net zero ambitions.
These teams support our climate working groups through subject matter
expertise - providing insight to enable effective assessment of risks and
opportunities and as dedicated resources to support Board oversight.
Our Sustainability and TCFD report includes a visual to illustrate our
sustainability governance framework.
Overview of climate-related risks and opportunities
Our sector is exposed to material climate-related risks and opportunities. We
continue to assess the potential impacts and monitor this with a view to the
resilience of our operations and investment strategies.
The two types of climate-related risks - transition and physical - are linked
but will manifest differently. The transition to a low-carbon economy will
reflect in markets, policy, and corporate reputation. The physical
consequences of climate change will be far-reaching and impact individual
operations and communities without discretion. Our day-to-day business is
predominantly exposed to transition risk (and opportunity) in the short, and
medium term as markets, policy, and reputations come to terms with alignment
to a net zero world. This is something we monitor through our climate risk and
opportunity radar to ensure we are positioned to realise opportunities and
mitigate risks.
The focus of the radar is likelihood and impacts of material risks and
opportunities to our business in the short, and medium term. Our climate
scenario analysis enables a long-term view of potential implications for our
investments and the resilience of our strategies (page 33).
One of the most material transition risks for us relates to enhanced reporting
regulations and costs of analysing and gathering climate-related data. We
expanded our capability in 2022 but this remains an area of focus as we build
out more advanced tools and analysis. Our most material opportunity is the
anticipated need for low-carbon financial products and services in line with
global economic transitions. This also represents a significant risk should we
not be positioned to respond to shifting client preferences. We have outlined
sustainability as a strategic focus for abrdn, with further detail on page 12.
Climate-related risks Potential financial impact to abrdn
Transition Policy and legal Enhanced reporting regulations Cost of analysis, data gathering and publication
Cost of inadvertent non-compliance due to volume of regulation
Market Significant shifts on consumer preferences Reduced revenue from decreased demand for products
Research highlights a high appetite for sustainable investing but education on
the topic is a barrier and can create missed opportunities
Lack of public policy means emissions still increasing Uncertainty of pace and direction of public policy evolution creates
uncertainty for investing
Climate-related risks impact the market Lower AUMA, impacting clients and reducing revenue
Reputational Increased stakeholder concern or negative feedback Reduced revenue from decreased demand for products
Growing litigation risk - both direct and from divestment decisions
Physical Acute Increased severity of extreme weather events Cost associated with damage to office facilities
Costs associated with transport and power disruptions
Costs associated with damage to IT networks and infrastructure
Climate-related opportunities Potential financial impact to abrdn
Transition Products and services Development of lower carbon products and services Revenue opportunity from demand for lower-carbon products and services and
products with enhanced sustainability performance
Resource efficiency Move to more efficient buildings Reduced operational costs, increased quality of working environment
Use of more efficient modes of transport Reduced operating costs
Use of more efficient technology Reduced operational costs of technology
Additional detail in our Sustainability and TCFD report.
Building a more resilient strategy using climate scenario analysis
Taking a long-term view
It is vital that investors understand how climate change may affect the
investment return of the companies and markets they invest in. The impacts of
climate change will be felt across generations. Our climate scenario analysis
takes this long-term view to better understand the impacts of physical and
transition risks at sector, regional, and individual security levels.
We have been developing our scenario analysis platform for three years and
consider this to be an integral part of our climate strategy. We use a
combination of bespoke and industry standard scenarios across a range of
temperature rises (between 1.3 and 3.2˚C by 2100) and transition pathways up
to a time horizon of 2050. This includes a mean probability-weighted scenario
that captures our view of the most plausible energy transition.
This year we have expanded our scenario analysis to incorporate company
targets. It reflects that companies have the opportunity to proactively alter
their strategies and take advantage of transition opportunities. Many
companies have set ambitious targets, but some are more credible than others.
In response, we have built a bespoke credibility assessment framework to
assess target credibility, which will enable us to value securities more
accurately and draw finer conclusions from our scenario analysis. We will
publish more detail on the application of the credibility framework during
2023.
Climate scenario analysis is a strategic platform for abrdn and we are
committed to updating our insights year-on-year. Our analysis is also
expanding in 2023 to look in detail at the physical and transition risk for
our real assets. It is however important to reflect the output cannot be
applied mechanically to investment decisions due to a range of limitations and
uncertainties. Key uncertainties are present in relation to policy,
technology, and the modelling is reliant on high-quality emissions data at
company level.
Our insights from climate scenario analysis are supporting key stages of our
investment processes across research, engagement, strategic asset allocation,
and investment product solutions.
Resilience of our strategy against climate scenarios
We use scenario analysis to understand how resilient our portfolios are to
uncertain future transition pathways. Our core insight is that there is a
large dispersion of risks and opportunities both within and between sectors
but relatively little impact at the aggregate index level. In general,
downward revisions to long-term fair valuations are more common than upward
revisions, so greater discrimination in stock selection is required to capture
opportunities.
At fund level, our tools enable fund managers to use scenario analysis results
to test the valuation impact under different scenarios and against the
benchmark. It is important to reflect that this is applicable to in-scope
asset classes and the use of the platform is not mandatory for fund managers.
Our climate scenario analysis has focused on asset classes in which valuations
are largely derived from future corporate earnings streams: listed equities
and corporate bonds - our analysis focuses on the financial impacts of
climate-transition and physical risk, though in most sectors the financial
impact is largely determined by transition drivers.
Our Sustainability and TCFD report includes more detail and initial
conclusions from our year three analysis.
Our climate scenario analysis journey to date
2020 Feb 2021 Nov 2021 Feb 2022 May 2022 2023
Research Publication Research Focus on Focus on Year three
and year one analysis
sovereign
APAC energy transition
analysis and platform expansion
of our first and year two analysis
bonds
white paper
Strategic decarbonisation
Our strategy of net zero directed investing is our commitment to enable
clients to achieve their climate goals
Sustainability is a strategic focus for abrdn and climate change is near
universally recognised as a material issue. We have therefore developed a
clear investments strategy of net zero directed investing, which drives our
mitigation of climate risk and our intended realisation of climate opportunity
for our business.
Our commitment is to influence real world decarbonisation by developing the
right products for our clients and using our influence to support credible
transition pathways. Our strategy is therefore underpinned by four core
beliefs:
- Understanding climate risks and opportunities will improve long-term
return for our clients.
- We can support a net zero transition by directing capital to companies
and assets with ambition and credibility.
- Our influence as active owners is powerful and we will challenge
companies on their transition strategies.
- More ambitious climate policy is needed from governments and we are
advocates for action.
Our business is diverse and we have developed approaches for different client
needs and outcome expectations. Climate considerations are incorporated to
varying levels across mandates and we have been developing specific net zero
directed solutions. In 2021 we launched four climate investments strategies
and the long-term insights from our scenario analysis platform support our
assessment of climate-related risks and opportunities across in-scope asset
classes. Our largest client, Phoenix Group, has set a net zero 2050 goal and
we are developing strategies to match this ambition - for abrdn, realising the
opportunity from the climate transition requires us to be proactive in
developing solutions that meet client needs in the near term and we are
proactive in our approach.
Our operational climate strategy
Our exposure to climate risk and opportunity as a corporate entity is
predominately transition based as our actions must mirror our high
expectations of the companies we invest in, and reflect the ambition of our
clients. We are also subject to increasingly significant reporting obligations
with a significant focus on climate metrics. Our intention is to lead by
example and we have set an ambitious operational target to reach net zero by
2040 (more detail on page 39) and have invested in our reporting capabilities
to ensure we are able to meet the expectations of our stakeholders.
We are not complacent to physical risks - most likely to manifest as extreme
weather events - but we operate with a blended working model, which embeds the
necessary agility needed to mitigate risks from disruption. This was tested
during the COVID-19 pandemic and we remain confident that the short-term risk
is mitigated.
We aim to deliver on our commitment via three pillars of action:
1 2 3
Decarbonisation Providing net zero solutions Active ownership
We are committed to tracking and reducing the average carbon intensity of our We are committed to increasing the proportion of assets flowing into our We engage with our highest- financed emitters in our equity holdings and seek
portfolios where data is available. That means continuing to incorporate climate solutions. Around 30% of our AUM is currently expected to be managed transparency against transition milestones, which are assessed against
carbon analysis into our investment process and supporting credible transition in line with net zero 2050. This has still to be reflected in mandates and we relevant standards and our own credibility assessment framework. We support
leaders and climate solutions. We have set decarbonisation targets for our aim to increase this by continuing actively engage with our clients, credible transition and use our influence via regular engagement and voting,
investments and operations, which we report on in pages 38 to 39. developing capacity to identify climate solutions and supporting net zero where we have voting rights.
goals with our fund range.
Climate-related risk management
Identifying and assessing climate-related risks and opportunities
Our approach to identifying climate-related risk is long standing and remains
consistent with prior year reporting. We have two climate change working
groups - covering both our operations and investments - that monitor
climate-related risk to the business. Our assessment of climate-related risk
is reflected through our climate risk and opportunity radar (page 32) that is
developed using our risk and control self-assessment process. This process
assesses the inherent risk against:
- Likelihood, or the percentage chance of an event occurrence in the
next 12 months.
- Impacts, including: financial, customer, regulatory and legal,
reputational, and process.
Inherent risks are then scored with due consideration to mitigation strategies
and associated controls. Where we identify material risks to the business
within the radar we escalate this through our governance structure (page 31).
The management process determines whether we mitigate, transfer, accept or
control risks.
Acknowledging the accelerating scrutiny
Our assessment of climate-related risk highlights a predominant exposure to
transition risk. The material climate-related risks we face are tied closely
to our climate-related opportunity. Our ability to meet deemed client demand
for lower carbon products and services is linked to our reputation and
credibility in the market. Our sector is subject to increased scrutiny and
enhanced standards of disclosure.
Our goal is to lead by example - however, international standards are yet to
coalesce and there are uncertainties related to interoperability between
jurisdictions. This will provide challenge to us as a corporate entity, but
also to our ability as investors to assess the relative risks and
opportunities of the companies we invest in on behalf of our clients. We are
supporters of efforts to establish a global framework and - as early,
voluntary, adopters of the TCFD framework - we have demonstrated our support
through our actions and disclosure. We continue to invest in our capabilities
and have identified sustainability as a strategic priority for the business.
Our management in practice
One operational example of managing climate- related risk during the reporting
year relates to the integration of emissions data from ii into our
environmental management systems to ensure relative completeness and accuracy
of emissions reporting for the group. We opted to take the additional step to
include the full year of ii emissions in-scope for our annual voluntary
external assurance of this data to prioritise consistency of this data and
mitigate the risk of material misstatement.
Managing climate-related risks
Our governance framework (page 31) supports the management of climate-related
risks and we address asset manager-specific TCFD guidance for products and
engagement on pages 36 and 37.
Looking ahead toward a changing landscape
Our assessment of the regulatory landscape and developing stakeholder
expectations is that, though climate change will remain material, other
thematic sustainability will emerge as points of material focus. This is
already true to an extent, but climate-related disclosure has led the first
wave of regulatory sustainability standards. We are alert to the shifting
landscape and completed our sustainability materiality assessment in early
2023 to better inform our future priorities and understand how our
stakeholders view climate versus other emergent topics.
Our Sustainability and TCFD report details the results of our latest
sustainability materiality assessment.
Integration into overall risk management
We operate 'three lines of defence' in the management of risk with clearly
defined roles and responsibilities (page 64). Climate-related risk is included
within our Enterprise Risk Management (ERM) framework, which is subject to
Board oversight. Climate-related risk is therefore considered amongst the
principal risks and uncertainties for our business (pages 65 to 67). We do not
define climate as a singular principal risk due to its close association with
other risk categories. In other words, we view climate risk to be material,
but it is better perceived through financial or regulatory and legal risk
categories when considered at enterprise level.
Investment integration
We manage climate-related risks through our research processes, data, and
decision-making
Research is the foundation of our approach to understanding and managing
climate-related risks and opportunities. Our research provides insights on
regulatory and industry trends across regions. It also helps us understand the
physical and transition risks and opportunities, enabling us to take informed
decisions about how and where to invest.
Climate-related research is carried out by our Research Institute and
Sustainability Insights Team. Our scenario analysis platform enables us to
take a forward-looking view and we can use the results to test the valuation
impact on individual funds. Our insights are shared with investment desks and
often published publicly, in the form of research papers, articles, and
webinars. Our catalogue of original research is extensive and this expertise
supports our decision-making and effective management of climate-related
risks.
Our Sustainability and TCFD report provides more detail, with reference to key
publications from 2022.
Our climate change toolkit
We have developed a range of tools to help integrate climate-related risk into
our decision-making for our active investment process and we continue to build
our capabilities year-on-year. The underlying data is drawn from a range of
vendors with different levels of data coverage.
Data coverage is limited by various factors including lack of uniform
disclosure and methodological standardisations. This is a common challenge, as
best practice remains emergent despite accelerated efforts toward global
disclosure frameworks.
It is important to be clear that climate considerations are not integral to
every investment decision and form part of a wider decision-making process.
Our Sustainability and TCFD report, page 24, provides further detail as to the
applicability of our climate toolkit across asset classes.
Our existing toolkit:
Carbon metrics
This enables portfolio managers to understand the carbon intensity and
absolute emissions of their portfolios and holdings and it provides a baseline
for benchmarking and decarbonisation. In 2021 we expanded carbon metric
capabilities to sovereign bonds. In 2022 we introduced two EVIC-based carbon
metrics: Financed Emissions and Economic Emissions Intensity, in line with
Partnership for Carbon Accounting Financials (PCAF) methodologies. In 2022 we
joined PCAF to support industry best practice. We report Financed Emissions
metrics in our Sustainability and TCFD report, page 33.
Climate policy index
We have developed an index which builds on the Institutional Investors Group
on Climate Change (IIGCC) recommended Climate Change Policy Index,
incorporating it into our in-house climate policy expertise and adding a
weighting to reflect the central role of policy action in the energy
transition.
Climate scenario analysis platform
Used to assess impact by geography, sector, and individual company level. This
enables us to assess the financial impact of different climate scenarios and
embed this into our thinking so we can deliver two main objectives:
- Climate resilient portfolio construction: make current investment
portfolios more resilient to different climate transition pathways by
incorporating the risks and opportunities identified in the climate scenario
analysis into our portfolio construction process.
- Climate driven solution development: develop new climate driven
products and benchmarks to enable clients with climate specific goals to
achieve these in a research-founded, measurable manner.
ESG House Score
We developed a scorecard for companies using over 100 key performance
indicators (KPIs) arranged in categories aligned with industry frameworks.
This supports our analysis of the possible adverse impact of our investment
and the impact on client portfolios. The scorecard includes climate change and
provides carbon data to assess a company's response to its climate risks.
Credibility assessments
We use a number of tools and data sources to assess whether companies have
credible transition strategies. In 2023 we intend to launch our full
credibility assessment framework.
Our role as active owners
Engagement with companies and assets helps to identify and manage climate risk
and opportunities
We have a duty to our clients, which necessitates consideration of all
material risks to our investments on their behalf. Active ownership is one way
for us to manage climate-related risks and to improve the financial resilience
and performance of investments.
Our net zero directed investments strategy is focused on investments in
transition leaders, with credible pathways to long-term decarbonisation.
Understanding this credibility is key and active ownership is a tool to enable
this. We expect companies to be able to demonstrate effective management of
their own climate-related risks and opportunities and we are able to explore
this through independent and collaborative engagements.
Our climate-related engagement strategy is focused on the highest-financed
emitters in equities, and their relative commitment to decarbonisation towards
net zero. We have developed a framework, which we are using to drive our
climate-related engagement strategy with the highest-financed emitters in
equities. This framework is based on a set of factors, including the Climate
Action 100+ Net Zero Company Benchmark, the scope and coverage of greenhouse
gas reduction targets, and a focus on governance such as, climate-related KPIs
reflected in the LTIP and social impact of the energy transition. Our
expectation is that companies are alert to the long-term risks from climate
change and we have outlined a clear process for escalation should we see
insufficient progress. In specific terms, we would initially take voting
action if sufficient progress is not made, but we will ultimately recommend
divestment if the company has not shown sufficient progress over a period of
engagements.
Detail in relation to highest finance emitters is included in the
Sustainability and TCFD report at www.abrdn.com/annualreport
We are signatories to the UK Stewardship Code and report annually on the
actions we take in regards to the 12 principles.
Our full report provides specific detail on our engagement and escalation
processes. See www.abrdn.com/annualreport
Exercising voting and ownership rights
We believe that voting at company meetings is one of our most important
activities when investing on behalf of our clients. We are committed to
transparency and disclose all listed company voting decisions we make on our
website, the day after a general meeting.
Voting is a powerful tool to influence individual companies toward a more
credible transition to a low carbon world. We updated our voting policy to use
CDP indicators to identify companies that may not be fulfilling their climate
commitments in 2023. This, in conjunction with our own analysis, enables us to
hold climate inaction to account through votes against company annual reports,
or alternative resolutions.
We are also seeing increasing volumes of climate specific resolutions being
tabled at general meetings. In 2022 we voted on a total of 141 climate
resolutions (2021: 99). Our decisions are based on analysis of the specific
proposals and include our assessment of proposal credibility and
transition progress.
Climate change resolutions 2022
2022 2021
Resolutions voted 141 99
Votes in favour 56% 55%
Votes against management 26% 29%
Collaboration and influence
We work with industry associations, regulators and policymakers globally to
drive change, including through improving standards, encouraging best
practice, influencing regulation and developing capital allocation strategies.
This is a way for us to exercise our influence through our industry voice.
Notable examples from 2022 are our attendance at COP27 and response to the
International Sustainability Standards Board (ISSB) consultation, in support
of stronger climate policy and global sustainability disclosure standards.
Policy advocacy is an important part of our strategy given the critical
importance of policy incentives to enable capital allocation in line with net
zero goals. We are signatories to the Investor statement to Governments on
strengthening climate policy.
Decarbonisation of investments
We are targeting the reduction of the carbon intensity of the assets we invest
in to support the transition to net zero
In November 2021, we made a commitment to reduce the carbon intensity of the
in-scope assets we invest in by 50% by 2030 versus a 2019 baseline.
Assets in-scope for our target represent 30% of our total AUM, with Phoenix
accounting for 30% of the total public market assets in-scope as at 31
December 2022. The reported coverage is driven by data availability (Scope 1
& 2) for the underlying assets. We track our decarbonisation target with
focus on revenue-based Weighted Average Carbon Intensity (WACI), which is in
line with the original 2017 TCFD recommendations for our sector and applicable
to public markets asset classes. For in-scope real assets, we currently use a
carbon intensity metric that normalises emissions by gross asset value.
Looking ahead, we plan to complement this metric with data that supports the
calculation of emissions intensity by floor space (CO(2)/m(2)), which is less
volatile due to floor space being a static denominator. Public markets and
real asset decarbonisation progress is therefore calculated separately as the
asset classes utilise different carbon metrics. There is also a time lag
associated with the bottom-up collection, and calculation, of emissions data
for real assets. Therefore, data for real assets is reported as at 31 December
2021. We recognise that methodologies may continue to evolve over time, and we
will review our approach as appropriate. We also monitor and report additional
portfolio-level metrics based on enterprise value including cash (EVIC) (as
opposed to revenue). This is in line with evolving industry frameworks.
However, it is important to reflect that each metric tells a different story -
and indeed can move in opposite directions - so therefore must be interpreted
with clear understanding of such implications. We outline the implications in
detail in a separate paper and these metrics are out of scope for our existing
decarbonisation target. More detail at www.abrdn.com/annualreport
Updating on our progress
Net Zero Directed Investing means moving towards the goal of net zero in the
real world - not just in specific investment portfolios.
At abrdn we seek to achieve this goal through a holistic set of actions. This
includes rigorous research into net zero trajectories, developing net
zero-directed investment solutions and active ownership to influence
corporates and policy makers. We monitor our progress in aggregate using our
decarbonisation target.
We have a duty to our clients to consider climate risks and opportunities,
which we believe is part of long-term performance, but we will not impose
carbon targets on funds unless desired by our clients. Therefore, some asset
classes and funds may contribute more towards our reported target than others.
Investing in transition leaders may also include carbon-intensive sectors,
with some industries vital to enabling a credible transition. It is important
to note that we do not expect our 2030 target to be achieved through linear
annual decarbonisation progress, but we have set an interim milestone of
achieving at least 20-30% WACI reduction by 2025.
We report our first progress against our decarbonisation target this year. As
at 31 December 2022, in-scope public market portfolios achieved a carbon
intensity reduction of 27% versus a 2019 baseline. As at 31 December 2021,
in-scope real estate achieved a 31% reduction in carbon intensity versus a
2019 baseline. Our Sustainability and TCFD report provides further commentary
as to our progress.
Using metrics to support daily decision‑making
Decarbonisation targets look backwards to annual performance. We also take a
forward-looking view and have developed the tools to support our actively
managed products and company engagement. This toolkit is available on-desk to
our fund managers and we continue to invest in our key capabilities, such as
our bespoke scenario analysis platform. We use climate metrics from a range of
industry vendors and are building a unified data platform to support
investment integration.
WACI (tCO(2)e/$m Revenue) Scope 1 & 2: Carbon Intensity (KgCO2e/£GAV) Scope 1 & 2:
Public markets decarbonisation (28% AUM)
Reale estate decarbonisation (2% AUM)(1)
1. The proportion of assets in-scope is expected to increase over time
through improved data coverage. The reported metrics may be revised as we
continue to collect a more complete dataset from our assets across Europe for
2021 and subsequent reporting periods. Such data could positively or
negatively impact the portfolio emissions intensity.
Our operational targets and emissions
We are targeting net zero by 2040 and have set out clear milestones to measure
our progress
We aim to lead by example and believe that our actions must mirror our high
expectations of the companies we invest in and reflect the ambition of our
clients. In 2021 we set out our goal to reach operational net zero by 2040 and
our interim target is to achieve a 50% reduction in emissions by 2025 versus
our 2018 base year. Our operational impacts reflect the nature of our
business. We keep offices as collaboration spaces for colleagues and to enable
us to better deliver for our global clients. Our material reported impacts are
therefore the energy use in our offices (Scope 1 & 2), business travel,
and estimated homeworking emissions (Scope 3). This means we have focused our
efforts on finding efficiencies in our estate and remaining alert to our
impacts from travel. We have consolidated our office locations and developed
more agile ways of working in recent years, which has enabled significant
progress towards our targets. Achieving our targets requires a focus on
absolute emissions reductions - but we also recognise and support other
measures such as: renewable energy, credible offsetting, and new technologies.
We will further outline the long-term role we see for these measures in our
Transition Plan, which we expect to publish in line with the UK Transition
Plan Taskforce Disclosure Framework in 2023.
Emissions intensity per full-time employee equivalent (FTE)(1): Scope 1 & 2
'18 '21 '22
1.57 0.70 0.56
We have a supplementary target to procure 100% renewable electricity in our
global offices, which we are close to achieving with 99.6% of energy procured
on green tariffs during 2022. (2021: 99.5%). Our partnership with the eco app
Pawprint also continues and we are working closely with them to engage our
colleagues to learn more about their personal carbon footprint. We also see
the potential in using the app as a tool to develop our understanding of our
homeworking emissions. Critical to our long-term progress is the support of
our colleagues and the accountability of our leaders. In 2022 we included
climate-related incentives in our executive remuneration scorecards (read more
on pages 103 to 130).
Year-on-year commentary
In 2021 we reported a 62% reduction in our operational emissions versus our
2018 base year, noting material reductions, influenced by the pandemic, to
business travel and energy use in our offices. Our expectation was that these
emissions would increase as colleagues spent more time in offices and travel
restrictions eased. We found this to be the case for business travel in 2022
and now report an 56% reduction versus our base year. Our view is that we
continue to be on track to meet our 2025 target and reflect that blended
working models supports a more travel-conscious working culture in the long
term.
Our methodology and future intent
Our reporting methodology aligns with the Greenhouse Gas Protocol and we use
an operational control boundary. We report material Scope 3 emissions where
data is available, however notable exclusions include estimated supply chain
impact and investments recorded on our balance sheet. We also reported our
estimated impacts from homeworking in 2020 and 2021 but the independent
methodology lacks standardisation and requires further refinement for
long-term utility. We provide an estimate again for 2022 but note our
intention to reflect on our approach. Further detail is provided in our
Sustainability and TCFD report at www.abrdn.com/annualreport
Total CO2 emissions (tonnes)(2) Total energy consumption (kWh '000s)(2)
14,246 13,027
1. Based on FTE at 31 December 2022 of 5,130 (2021: 4,964).
2. Scope 1, 2, and some Scope 3 categories have been independently assured
by Bureau Veritas. Bureau Veritas assurance is included in the Sustainability
and TCFD report at www.abrdn.com/annualreport
(http://www.abrdn.com/annualreport)
Sustainability - Social
Diverse leaders
We have set 2025 targets to improve diversity across abrdn
Our diversity targets have been in place since 2020 and our gender
representation targets extend beyond our Board to both our senior leadership
and global workforce. The diversity of our Board is consistent with the
expectations outlined by the FCA reporting requirements and we were also on
target in the prior year.
Building an inclusive and equitable workplace is plainly the right thing to
and we also believe it supports our long-term success, as diversity of thought
promotes new perspective that help lead to better decision-making. We serve
global clients and our diversity is a strength as we aim to deliver better
experiences and outcomes for our clients.
Our commitment is part of our purpose - learn more about our actions and
progress on the following page and in our Sustainability and TCFD report.
Statement of the extent of consistency with the FCA Listing Rules requirements
for reporting Board diversity
We are committed to creating a diverse, equitable and inclusive abrdn and
support the principle of increased transparency on progress. Our policy
applies to our Board Committees and is available publicly.
Our disclosure is consistent with the FCA Listing Rules requirements and the
following statements reflect our compliance.
The data below is our reference taken at 31 December 2022 and there have been
no changes to the composition of our Board in the interim period to
publication. The disclosed data is volunteered and subject to a limited level
of external assurance, alongside other diversity KPIs.
Over 40% of our Board are women, including our Chief Financial Officer, and
one member identifies as minority ethnic. We do not anticipate any risks
meeting Board diversity targets in 2023.
Board and executive management gender representation(1)
Number of Board members Percentage of the Board Number of senior positions on the Board(2) Number in executive management(3) Percentage of executive management
Men 6 55% 3 12 86%
Women 5 45% 1 2 14%
Board and executive management ethnic representation(4)
Number of Board members Percentage of the Board Number of senior positions on the Board Number in executive management Percentage of executive management
White British, or other White (including minority‑white groups) 10 91% 4 10 72%
Asian/Asian British 1 9% - 1 7%
Not specified/prefer not to say(5) - - - 3 21%
Global representation against targets
Target 31 December 2022 31 December 2021 Target by 2025
Women at plc Board 45% (5 of 11) 45% (5 of 11) 40% women; 40% men;
20% any gender
Women in senior leadership(6) 39% (52 of 132) 36% (62 of 171) 40% women; 40% men;
20% any gender
Women in subsidiary Director roles(7) 48% (12 of 25) 35% (7 of 20) N/A
Women in global workforce(8) 43% (2,226 of 5,147) 46% (2,297 of 5,033) 50% (+/- 3% tolerance)
Ethnic minority representation at plc Board - No. of Directors who identify as 9% (1 of 11) 9% (1 of 11) 2 Directors
ethnic minority
Our diversity data is voluntarily collected either through the onboarding
process or through our management information system, Workday, for employees.
For Non-Executive Board members, we collect data voluntarily through an
offline system. Data measuring progress against gender targets for 31 December
2022 has been independently assured by Bureau Veritas. Bureau Veritas
assurance can be found at www.abrdn.com/annualreport
(http://www.abrdn.com/annualreport)
1. Gender data for Board is self-reported, and for executive
management is obtained from existing employee data set and includes Executive
Leadership Team and Company Secretary, excluding administration roles.
2. Senior positions on Board are Chief Executive Officer, Chief
Financial Officer, Senior Independent Director and Chair.
3. Relates to the Executive Leadership Team including Company
Secretary and excluding administration roles.
4. Ethnicity data for Board and executive management including Company
Secretary and excluding administration is self-reported (using local census
data categories and collected where legally possible).
5. Includes one individual based in a country where we do not collect
diversity data.
6. Relates to leaders one and two levels below CEO, excluding
administration roles.
7. Relates to Directors of the Company's direct subsidiaries as listed
in Note 45 (a) of the Group financial statements and not classified above
as Board Directors or senior leadership.
8. 60 colleagues without gender data on our people system are excluded
from the headcount data.
Our people
We create opportunities for our people to thrive, giving them the environment,
tools and support to feed their curiosity, achieve their ambitions and make a
difference in what they do
Our progress against targets
Creating opportunities for our people starts with identifying where we need to
take action to tackle underrepresentation at different levels across our
business. Our public targets address gender and ethnic representation at Board
level and enhanced gender representation for our senior leaders and global
workforce (page 40). Our approach aligns with best practice and our
performance is incentivised through our executive director scorecard (pages
103 to 130).
Our targets are important indicators, but our focus is on making abrdn an
equitable and inclusive environment for all our colleagues. Our latest UK
gender pay gap report available at www.abrdn.com/annualreport outlined our
progress for the fifth consecutive year; a driver of our pay and bonus gaps is
that we have more men in senior roles and more women in more junior roles.
That is why many of our actions - from recruitment, development, and
succession planning - look to address this imbalance.
Identifying, attracting and retaining talent
Segmenting the approach we take for talent at early, mid and senior levels
helps us focus on specific diversity, equity, and inclusion priorities for
each career stage.
At early career stages, we have had great success improving the diversity of
candidates attracted to us globally and continue to use partnerships to help
us reach diverse talent. An example of this in action is that 61% of our
graduate intake identify as women (2021: 45%) and 47% of our UK interns went
to a non-Russell Group university (2021: 38%).
At mid-career stage, we aim to identify a strong talent pipeline and
demonstrate the value of growing our internal talent. Our development
programme, Accelerate, is available to all mid-career colleagues globally, and
includes courses that are run specifically for women. Equally, we can
demonstrate success in our returners programme as we have retained 75% of our
2021 women returners cohort in permanent roles and welcomed five new returners
in 2022.
We also ensure that our Executive Leadership Team succession pipeline has the
breadth of experience and diversity to bring the thought leadership required
in an effective team. Identifying and working with individuals with the medium
to long-term potential to be part of our Executive Leadership Team has shaped
our inclusive Advance programme. Advance is an 18-month selective programme,
which includes learning components tailored to areas of strategic importance
to our business - leadership, clients and futurist mindsets.
Our Academies framework is well established, providing dedicated support to
develop skills for the future, including digital, data and change. We will
continue to extend our senior talent programme focusing on the future leaders
of our business. In 2023, we will launch our Leadership Academy, supporting
leadership behaviours at all levels of abrdn.
Our way of working
Our priority is to make sure that our people feel connected and involved, that
opportunities and progression are equitable for all, and that managers lead in
a way that builds inclusive ways of working in hybrid teams. Blended working
is now our standard way of working across abrdn. We are focused on what we do,
and what our clients need from us and our teams, rather than where we do it.
Networks: inclusive safe spaces
Our networks are run by colleagues, for colleagues, delivering DEI events and
activities across a wide range of topics. They also have direct engagement
with our Board and our most senior leaders.
Members from the networks can influence our business processes and help shape
design through bi-monthly insights sessions. In 2021-22 teams including
workplace, talent acquisition and brand have all sought the diverse
perspectives our networks provide.
In the US, our networks have been supporting the regional theme of
'Self-Education and Brave Conversations' in 2022 with a wide range of
activities and colleague engagement. Alongside our colleague-led networks, in
2022 we set up more informal peer-to-peer 'sharing communities' where
colleagues can connect, share and learn from others in a safe space. So far,
we have communities covering topics relating to menopause, neurodiversity and
Christianity.
You can read more about our networks in our 2022 Diversity, equity and
inclusion report.
Listening to feedback and responding with action
Listening to our colleagues is at the heart of our people strategy. We have a
comprehensive plan in place which allows us to hear from our people, whether
that be through leadership engagement activity or our more formal survey tool,
which we run throughout the year to ensure we keep in tune with what is on the
minds of our colleagues and can take appropriate action. This is complemented
by our board engagement activity which is run throughout the year by our
designated Non-Executive Director and our Board Employee Engagement Plan.
76% Over
of colleagues believe abrdn is 1,600
an inclusive organisation
colleagues are members of our networks globally
Our latest engagement survey
Our annual engagement survey provides all colleagues the opportunity to share
their feedback and tell us what it is like to work at abrdn.
Over 80% of colleagues took part in the survey with nearly 14,000 verbatim
comments giving us a rich picture of where we are seeing improvements and the
areas we need to continue to focus. 2022 saw us develop our cultural
commitments and focus on the overall colleague experience through what has
been an incredibly challenging year for markets, the business and for our
colleagues.
Through 2022 we saw improvements in our areas of focus - career and talent,
inclusion and both transparency and communications. Our people leaders and
team relationships continue to be an area of strength, which we will build on
in 2023. We reported that engagement levels at the beginning of the year were
at 51% and our most recent survey in January 2023 shows we have held that
score at 50% through this year of transformational change. Whilst we are not
where we need to be, we are moving in the right direction, have clear plans in
place and are committed to continued listening through the year with more
regular check-ins on progress.
Building our culture
As a people business we want our colleagues to feel empowered to drive the
changes we need to make, to feel involved and trusted, to strive for
exceptional performance and to always be led by our clients' needs.
In 2022 we started a piece of work to define our culture and alongside our
Executive team, we worked with hundreds of colleagues across the global
business to build a set of cultural commitments. These are aspirational
statements which will help us create a business that all our people want to
work for, to shape what it feels like to be a colleague at abrdn and create an
environment where everyone can fulfil their full potential. We also trained a
group of internal facilitators to help support conversations and the embedding
of our commitments across the organisation.
Our commitments
- We put the client first. From every seat in our business, we
understand our unique role in enabling our clients to be better investors,
regardless of where we fit in the organisation.
- We are empowered. We speak up, challenge and act. We take ownership
for our work, we accept accountability for our successes and, when they
happen, our failures too.
- We are ambitious. We strive for exceptional performance. We also know
when to balance pace with perfection to get things done. We are passionate
about the positive impact we can have on our business.
- We are transparent. We have the honest and important conversations
that fuel our performance and build trusted relationships.
Our company behaviours underpin our commitments and guide our day-to-day actions
- Think and act like an owner: We think commercially about where we
focus our time, effort and money to get the return on investment for our
stakeholders.
- Focus on client and customer needs: We are continuously learning what
our clients and customers need, so they are at the heart of our decisions.
- Get it done together: By executing at pace and working across teams to
deliver better outcomes, faster.
- Build the future now: We are being bold in building today what
stakeholders need tomorrow by challenging the status quo and adapting quickly.
Our role in our communities
We can make a positive impact through our values, conduct, and charitable
contribution
Our role in society extends beyond how we deliver for our clients as we work
with others, amplify our values, and support our communities through powerful
partnerships. We outline the standards of behaviour we expect in our business
and third-party relationships in our global code of conduct (page 46). Our
minimum expectation is that we act with integrity and prioritise socially
inclusive outcomes for both our internal and external relationships.
Supporting tomorrow's generation
One of the most tangible ways we support our communities and provide our
people with the opportunity to make a wider difference, is through our
charitable giving strategy and related partnerships. Our giving strategy is
embedded in our corporate sustainability function and is focused on creating
more impact for tomorrow's generation. We aim to create fair and impactful
charity partnerships and prioritise projects that provide access to
opportunity for people and address negative impacts on the planet. Our role is
to partner with organisations with whom significant funding will enable new
capabilities and meaningful positive impacts. Our giving strategy is governed
through the abrdn Charitable Foundation, who meet quarterly to consider new
partnerships and ensure we measure progress.
In 2021, we announced our partnership with Hello World, whose mission is to
bridge the digital divide by improving connectivity for disconnected
communities. Hello World partners with communities to build 'Hello Hubs' -
solar powered internet kiosks, fitted with eight screens loaded with leading
educational software, so that children can learn, access digital educational
resources and improve their future by connecting globally.
Our initial funding of £1 million is supporting the build of 64 abrdn 'Hello
Hubs', which could provide up to 80,000 people with access to internet and
digital education content. Our investment as at 31 December 2022 has enabled
Hello World to operate at new scales and work with 26 local communities who
now have access to internet through an abrdn Hello Hub. Our partnership with
Hello World demonstrates support for tomorrow's generation and we extended our
commitment with a further £1 million donation in 2022 - and we look forward
to sharing more on the evolution of our partnership in 2023.
More detail on our charitable partnerships, including with UNESCO and MyBnk in
our Sustainability and TCFD report.
Focus on volunteering
Enabling our colleagues to support causes close to them is a key part of our
giving strategy. All colleagues(1) have the opportunity to take up to three
volunteering days annually and we enhance their support through company
matching initiatives, including payroll matched giving for UK colleagues. We
want to encourage our people to be part of our local communities, so our
volunteering leave policy extends to time spent outside of usual working
hours. We have set a goal to increase the proportion of colleagues engaging
with charitable causes and prioritise partnerships with clear opportunities to
develop meaningful connections.
1. This does not include ii, who did not have a volunteering policy as at 31
December 2022.
The abrdn Yearbook
Our partnership with Sarabande supports artists with great talent, as we lend
our financial support and expertise to help creative talent build financial
security. We brought our colleagues together in celebration through the launch
of the abrdn Yearbook and exhibition. Over 70 colleagues from our global
offices shared stories to answer the question 'What inspires you?', which in
turn formed the inspiration for painted portraits by a Sarabande artist. The
project is a powerful statement that we are all part of something bigger,
connected to others, and shaped by our experiences. We unlocked some
incredible stories, which confirm that our strength as abrdn comes from the
diversity of our perspective and the personal experiences that shape each of
us. Our business is built on nearly 200 years of history and the abrdn
Yearbook is a timely reminder of who we are today, and what inspires us to
create more tomorrow.
Sustainability - Governance
Stakeholder engagement
Our responsibility to engage with all our stakeholders plays a crucial role in
the long-term decisions we make
Our stakeholders are central to our strategy and critical to the long-term
success of our business, our Board oversees our approach to engagement as we
seek feedback and make decisions toward the long-term benefit of key
stakeholders.
Identifying our stakeholders
In our pursuit of delivering against our client-led growth strategy, we
recognise that our pool of stakeholders is growing and evolving with us. Their
needs and wants are also changing all the time. Recent additions to our key
stakeholder group include colleagues and customers of ii and Finimize since
their acquisition. We continue to group our key stakeholders into our clients,
our communities, our people and our shareholders - and are committed to
positioning them as a central factor in our decision-making.
Our clients See page 45
Our communities See page 43
Our people See page 41-42
Our shareholders See page 45
Section 172 statement
The Board recognises that the long-term success of our business is dependent
on the way it works with a large number of important stakeholders.
Our Board has responsibility to consider matters that include the:
- Likely consequences of any decisions in the long term.
- Interests of the company's employees.
- Need to foster the company's business relationships with suppliers,
customers and others.
- Impact of the company's operations on the community and environment.
- Desirability of the company maintaining a reputation for high
standards of business conduct.
- Need to act fairly between members of the company.
The Board has discussed these obligations throughout the year, including how
stakeholder engagement is incorporated into our long-term decision-making. You
can read further details on pages 74 to 78.
The Board's decision-making considers both risk and reward as our business
aims to deliver long- term value for all of our stakeholders, and protect
their interests. Awareness and understanding of the current and potential
risks, including both financial and non-financial risks, are fundamental to
how we manage the business.
Further information on how risks are appropriately assessed, monitored,
controlled and governed is provided in the Risk management section.
You can read more about how the Board engaged with and considers the interest
of stakeholders on pages 74 to 78.
Clients
Our strategy is rooted in understanding how we can deliver the outcomes that
clients expect, driven by their needs, wants and aspirations. We organise our
business to reflect the diverse needs of our clients in different markets and
the different ways in which our clients interact with us. The launch of our
single global brand also helps to remove confusion from previously having five
client-facing brands.
How we engage
In our Investments business, local investment teams, aided by global ESG
expertise, help clients anticipate, and plan and invest for future scenarios.
In our Adviser business, we provide support, expertise and technology for UK
wealth managers and financial advisers to create value for their businesses
and their clients. In our Personal business, we integrate financial planning
and discretionary investment management with digitally enabled direct
investing to enhance our offering.
We collaborate across our Investments, Adviser and Personal businesses to
connect our clients with wide ranging expertise and diverse perspectives.
As individuals take greater responsibility for their own savings needs, ii and
Finimize continue to help us respond to this trend. Both Finimize and ii are
helping us to build a bigger picture of data and insights of our customer
base.
In 2022 we have continued to build on our awareness programme around our brand
and celebrated 365 days of abrdn in July. We are continuing with the next
phase of our advertising campaign.
Showcasing our ESG insights
A notable aspect of our awareness campaign is a partnership with Bloomberg.
Through a series of micro-documentaries featuring internal and external ESG
experts, we address the most pressing issues around ESG and how the finance
sector can support credible solutions. The series is hosted on both Bloomberg
and abrdn channels, with the first episode going live in November 2022 to
coincide with COP27.
The campaign showcases our capabilities, expertise and insight across ESG
factors, while helping our clients to understand how we can help them navigate
this complex yet globally important topic.
Shareholders
The support of our shareholders is crucial to growing our business, and we
engage with shareholders to ensure that we have the support to pursue our
strategic objectives. As we deliver on our growth strategy, we also know that
generating value for our shareholders remains hugely important.
How we engage
Our Annual General Meetings offer shareholders the opportunities to interact
directly with our Chair and Board, and importantly share their views. We also
use regular mailings to keep shareholders informed about dividend payments,
financial results and shareholder meetings with institutional investors and
analysts.
In 2022, we also held a General Meeting to invite shareholders to vote on the
acquisition of ii. This was accompanied by shareholder mailings.
At this year's AGM, we will be using a new voting mechanism which will allow
shareholders to vote on resolutions remotely, live during the webcast.
Non-financial information
Our vision for a better future starts with asking more of ourselves, and we
set high standards to hold ourselves to.
Our global code of conduct describes the standards of behaviour we expect in
our business. We review it annually, and all our colleagues are expected to
read, agree and adhere to its principles. The code focuses on doing the right
thing and putting our clients at the heart of our business. This includes what
colleagues should do if they have concerns about issues such as bribery and
corruption, environmental or human rights.
The code details a number of our policies that we expect them to read and
adhere to, including our modern slavery statement. We also have a legal and
regulatory duty to prevent, detect and deter financial crime, including
bribery and corruption, to protect our business and our clients' information
and assets.
We strive to build effective and supportive relationships with our third
parties, and we expect them to follow the same standards and principles that
our teams and colleagues do. Our global third-party code of conduct sets out
these expectations, and we expect them to demand the same from their own
supply chains. It also details the whistleblowing procedures that we make
available to them as well as to our colleagues. On a regular and risk
proportionate basis, we carry out due diligence of our third parties, covering
key social issues.
Measuring our progress
Global code of conduct
Each year, colleagues complete an online training module to confirm they
understand and will comply with our global code of conduct. This module also
included training on modern slavery issues. The completion rate in 2022 was
99% and our 2023 module launched in February this year. This percentage is
reported in aggregate and includes individuals out of the business on extended
leave, for example, who are exempt from training until returning to work.
Where employees fail to complete mandatory training, we have taken steps to
ensure that managers and HR are made aware.
Respect for human rights
We are committed to identifying and upholding the human rights of our people,
clients, communities and everyone impacted by our suppliers, partners and the
companies we invest in. In our investments, we use our internally developed
human-rights index to help identify high risk geographies, and we have
published position statements on integrating human rights into our investment
approach. We also publish the outcomes of our engagements with investee
companies, including engagements on human rights matters in our annual
Stewardship Report. Our Modern Slavery Statement sets out our approach to
tackling all forms of modern slavery. This ranges from human trafficking and
forced labour, to bonded labour and child slavery. We are particularly alert
to the human-rights risks from interconnected supply chains and our annual
statement reports additional information on the actions we are taking, as we
take steps to enhance our due diligence, track specific metrics, and support
third party suppliers with fair and inclusive practices. More detail at
www.abrdn.com/annualreport
Financial crime prevention
We have an effective approach to managing financial crime risks, both within
our business and among suppliers and partners. Following an independent
assessment of our anti-money laundering framework, we launched a
multi-year transformation programme in 2021 focused on implementing ongoing
enhancements to the framework, and carried out extensive work to define and
implement consistent anti-money laundering standards across the company.
Mandatory compliance training
abrdn provides mandatory training to colleagues to ensure clear understanding
of critical regulatory and legal obligations on the organisation and
individuals. Training is tailored to individuals depending on their role and
location, with topics including Anti-financial crime, Conflicts of interest,
and Privacy and Data Protection. The content is refreshed annually and
delivered via e-learning modules, and we maintain an associated compliance
training policy to outline requirements, and disciplinary actions linked to
failure to complete the learning. 99% of mandatory training had been completed
by abrdn colleagues globally as at 31 December 2022.
Non-financial and sustainability information statement
We aim to comply with the Non-Financial Reporting requirements contained in
sections 414CA and 414CB of the Companies Act 2006. This information is
intended to help stakeholders better understand how we address key
non-financial matters. Details of our principal risks and how we manage those
risks are included in the Risk management section.
Reporting requirement Relevant policies and publications Where to find more information
Environment Our sustainability overview and TCFD report overview Sustainability overview (pages 28 and 29)
Sustainability - Environment (pages 30 to 39)
Employees Global code of conduct(1) Sustainability - Governance (page 46)
Employee policies Sustainability - Social (pages 40 to 43)
Human rights Global code of conduct(1) Sustainability - Governance (page 46)
Modern slavery statement(2) Sustainability - Governance (page 46)
Social matters Our people and communities Sustainability - Social (pages 40 to 43)
Global third-party code of conduct(1) Sustainability - Governance (page 46)
Other matters Anti-bribery and corruption Sustainability - Governance (page 46)
Business model Our business model (pages 10 and 11)
Non-financial KPIs Sustainability - Environment (pages 38 and 39)
Sustainability - Social (pages 40 and 42)
1. Group policy published on our website at www.abrdn.com/annualreport
(http://www.abrdn.com/annualreport)
2. Group statement published on our website at www.abrdn.com/annualreport
(http://www.abrdn.com/annualreport)
Key performance indicators
Our key performance indicators
Net operating revenue(1 KPI APM) Cost/income ratio (KPI APM)
£1,456m 82%
This measure is a component of adjusted operating profit and includes revenue This ratio measures our efficiency. We are focused on improving our
we generate from asset management charges, platform charges and other cost/income ratio by increasing revenue and continued cost discipline.
transactional/advice charges and treasury income.
Adjusted operating profit (KPI APM) Adjusted diluted earnings per share (KPI APM)
£263m 10.5p
Adjusted operating profit is our key alternative performance measure and is This measure shows on a per share basis our profitability and capital
how our results are measured and reported internally. efficiency, calculated using adjusted profit after tax.
IFRS (loss)/profit before tax (KPI) Full year dividend per share (KPI)
(£615m) 14.6p
IFRS profit/loss before tax is the measure of profitability set out in our The total annual dividend (interim and final) is an important part of the
financial statements. As well as adjusted profit, it includes items such as returns that we deliver to shareholders and is assessed each year in line with
restructuring costs, profit on disposal of interests in associates and our stated policy to hold at 14.6p until it is covered at least 1.5 times by
goodwill impairment. adjusted capital generation.
Adjusted capital generation (KPI APM)
£259m
This measure aims to show how adjusted profit contributes to regulatory
capital.
Investment performance(2 KPI) Employee engagement survey (KPI)
(Percentage of AUM above benchmark over three years)
( )
65%
50%
This measures our performance in generating investment return against This measure is important in gauging the engagement and motivation of our
benchmark. Calculations for investment performance are made gross of fees people in their roles. It also enables our managers at all levels to take
except where the stated comparator is net of fees. local action in response to what their teams are telling them.
Other indicators
AUMA Gross inflows
£500bn £69.0bn
Net flows - Total Net flows - excl. liquidity and LBG
tranche withdrawals
(£37.9bn)
(£10.3bn)
IFRS dilusted earnings per share (APM) Alternative performance measures
(26.8p) We assess our performance using a variety of performance measures including
APMs such as cost/income ratio, adjusted operating profit, adjusted profit
before tax and adjusted capital generation.
APMs should be read together with the Group's IFRS financial statements.
Further details of all our APMs are included in Supplementary information in
the ARA 2022.
1. The revenue measure included within adjusted operating profit has been
renamed from fee based revenue to net operating revenue. See page XX for more
information.
2. The calculation of investment performance has been revised to use a
closing AUM weighting basis. 2021 comparatives have been restated. See page XX
for more information.
Chief Financial Officer's overview
Performance impacted in a difficult macroeconomic environment
The impact and confluence of the challenging events of 2022 could not have
been predicted. The IFRS result is a loss before tax of £615m (2021: profit
£1,115m) including the impact of lower market levels on revenue, impairment
of intangible assets in the Investments vector, and lower values for our
significant listed investments.
Our diversification of the business in order to harness the changing market
trends and improve the resilience of the financial performance has proved
beneficial in these markets and has delivered results in 2022. While adjusted
operating profit of £263m (2021: £323m) is 19% lower, this comprises a
reduction of £139m in Investments, principally due to the decline in revenue,
which is significantly offset by the increase of £76m in profits from Adviser
and Personal, including seven months of ii and both businesses growing revenue
and profits.
The contribution from Adviser and Personal, both operating in the UK savings
and wealth arena, represented 60% of the group's adjusted operating profit in
2022. The shape of the group has been transformed following the acquisition of
ii which completed in May 2022 and marked an important step forward in
delivering the strategy. Following the ii acquisition in May, Adviser and
Personal vectors contributed 76% of adjusted operating profit in H2 2022.
Our discipline on both targeting cost savings and reinvesting in areas of
growth has continued. Following gross cost savings of £267m in 2020 and 2021,
further savings of £84m or 7% benefited the results in 2022. All vectors
reduced costs over 2022 (assuming 12 months of ii) although in Investments,
responding to inflationary pressures on staff costs contributed to the lower
reduction of 1% in the second half of 2022. The weak operating margin in
Investments reinforces why the simplification of the operating model is
underway and is now expected to deliver net c£75m savings in 2023.
Acquisitions of ii, Tritax and Finimize which are all generating revenue,
increased costs for the group by £65m (5%) in 2022. Foreign exchange impacts
of c£20m were notably higher in the second half of 2022 but were more than
offset by the benefits in revenue.
Our disciplined approach to capital management continues, resulting in £1.1bn
of capital resources generated in 2022, including £0.8bn of capital from
listed stake sales. We redeployed £1.4bn for the purchase of ii which has
been immediately earnings accretive. We returned £0.6bn to shareholders by
way of £0.3bn in dividends and £0.3bn in share buybacks. At 31 December
2022, our capital position remains strong, with cash and liquid resources of
£1.7bn and surplus regulatory capital of £0.7bn.
Drivers of revenue performance in 2022
Assets under management and administration (AUMA) have been impacted by three
key factors in 2022: market levels, the final withdrawals of LBG assets and
the acquisition of ii. At 31 December 2022, AUMA was £500bn, 8% lower than
prior year and average AUMA in 2022 was £478bn (excluding ii), 10% lower than
2021. This decrease is concentrated in Investments. While there had been some
signs of markets improving in July, the second half of the year saw continued
volatility with the main global market indices ending the year lower, with the
exception of the FTSE 100. abrdn's investment bias in Asia and emerging
markets increased the impact suffered in revenue during 2022 as those indices
experienced double digit losses.
Given the reliance on market levels, the impact on net operating revenue of
lower AUMA is most marked in Investments, contributing c£95m of the £161m
reduction in Investments' revenue. Average AUM in Investments declined by 11%,
largely driven by LBG tranche withdrawals and adverse market movements,
particularly in equities. In combination, this reversed the progress seen in
2021, resulting in 13% lower Investments revenue in 2022. Within the asset
classes, revenue in Public markets (equities, fixed income, multi-asset,
quantitatives and liquidity) declined by 18% to £746m, while in Alternatives
asset classes (real assets, alternatives, private equity and private credit)
revenue of £324m, was 2% higher, benefiting from a full year contribution
from Tritax.
While AUMA as a driver has been negative for Investments in 2022, our focus on
diversification of the group's revenues has benefited performance. ii's
subscription model does not rely on market levels and account fees, together
with higher net interest margin on customer cash balances (treasury income) in
2022, more than offset lower trading activity by customers. For the period
since acquisition, ii contributed £114m to revenue in 2022. While Adviser is
impacted by market levels, continued net positive inflows in 2022, combined
with the benefit from higher treasury income, increased revenue by 4% to
£185m. Treasury income totalled £69m across the Personal and Adviser vectors
due to increased interest rate levels throughout 2022.
Overall, the diversification that now drives our sources of revenue has helped
to mitigate the impact of the market volatility in 2022, with an overall
reduction in net operating revenue of £59m (4%), to £1,456m.
Changing nature of our flows during 2022
Excluding LBG tranche withdrawals and liquidity, total net outflows were
£10.3bn, representing 2% of opening AUMA, compared with c0.5% last year.
Total net outflows were £37.9bn (2021: £6.2bn) reflecting the final LBG
tranche withdrawal of £24.4bn.
Client and customer activity and resulting flows varied by vector in these
volatile markets.
In Investments, net outflows of £13.4bn (2021: outflows £7.6bn) (excluding
LBG tranche withdrawals and liquidity) represent 3% of opening AUM, reflecting
the uncertain market environment which impacted the wider industry.
Insurance flows are now largely represented by Phoenix after the final LBG
exits were completed this year. Insurance activity benefited from £2.9bn of
gross inflows from bulk purchase annuities and £5.4bn of gross inflows into
low margin quantitatives which were offset in the last quarter by the
withdrawal of £6.3bn of actively managed equity funds reflecting Phoenix's
change in investment approach. Reflecting the annualised revenue reduction of
this withdrawal of £9m, a one-off contractual payment was received in the
last quarter, equivalent to a year's revenue.
Within the insurance sector more broadly, the changing approach to asset
strategies represents a headwind for the margin of this business activity. We
expect continued changes in this area from certain active equity and fixed
income strategies to passive quantitative strategies which, together with
related pricing changes, will result in further contraction of yields. The
impact in 2023 will be dependent on the timing of these changes during the
year.
Overall, gross inflows in Investments (excluding liquidity) were 14% lower in
2022, reflecting lower client demand for equities and fixed income funds.
Redemptions (excluding LBG tranche withdrawals and liquidity), were 3% lower.
Our UK wealth and savings businesses continue to deliver net positive inflows,
although lower than 2021 due to overall muted levels of retail customer
activity in the second half of the year. Within Adviser, net inflows of
£1.6bn are 59% lower than 2021 reflecting lower client activity across the
industry due to ongoing market uncertainty. Activity in Personal is dominated
by ii where net flows remain robust, while lower than the record levels seen
in 2021.
Continued reshaping of operating expenses
We have focused on what we can control. We have made further improvements in
the shape of our cost base by investing in areas of growth through the
acquisition of ii and Tritax, together with introducing further variability
into the cost base by outsourcing specific activities across the group and
reducing FTE (excluding ii) by 14% over 2022. Operating margins in both
Adviser and Personal are efficient, while in Investments, the operating margin
continues to be inefficient for the AUM and revenue generated in this vector,
reinforcing the activity required to simplify the operating model.
Overall adjusted operating expenses were flat compared with last year. Cost
savings were 7% in 2022, largely driven by disposals and staff and technology
reductions, while other cost actions were lower than anticipated due to
increased staff cost inflation in Investments in the second half of the year.
This was offset by 5% higher costs due to investments into revenue generating
acquisitions, and adverse foreign exchange movements which increased reported
costs by 2%.
Our ambition of a 70% cost/income ratio for the group remains, however this
requires us to significantly improve the cost/income ratio in the Investments
vector. In 2022, Investments costs were 2% lower as a result of lower staff
and variable compensation levels. With the investment platform integration
completed in 2022, the simplification of Investments' operating model
commenced achieving small early successes. This informed the expected savings
profile. With the detailed work on simplification now well underway, delivery
of net cost savings of c£75m in the Investments vector are now targeted in
2023. This excludes any cost reductions that may arise from non-core disposals
in the vector. While non-core disposals are an important component of the
plan, given the unpredictable nature of the timing of any non-core disposals,
these are excluded from our expectations on costs movements until such time as
these transactions occur.
In Adviser, costs reduced by 5%, reflecting reduced headcount as some of our
colleagues transferred to our major supplier under an improved outsourcing
arrangement.
Within Personal, ii's costs of £47m reflected the period since acquisition.
Costs in both Adviser and Personal are expected to grow in 2023 reflecting
growth in revenue, benefiting the group from their efficient cost models.
The overall group cost/income ratio (CIR) increased to 82% from 79% in 2021.
At a vector level, Adviser and Personal, CIRs were 54% (2021: 58%) and 64%
(2021: 91%) respectively, while Investments CIR at 89% (2021: 79%) reflects
lower revenue levels
Disciplined approach to capital allocation delivers shareholder value
Adjusted capital generation of £259m is 29% lower than 2021. During 2022, we
completed a further buyback of £300m at an average cost of £1.68 per share
and reducing the number of shares by 179m, benefiting earnings per share by
3%. Reflecting the lower profit in 2022, adjusted diluted earnings per share
reduced to 10.5p (2021: 13.7p) and the IFRS diluted earnings per share was a
loss of 26.8p (2021: profit 46.0p).
We also redeemed £92m of debt in December 2022 which had a rate of 5.5% and
due to reset at a higher rate. We now have in issue £210m of AT1 debt paying
fixed interest of 5.25% which was issued in December 2021 and Tier 2 debt of
£569m swapped into sterling and fixed at 3.2%. The debt stack is now
optimised for our funding needs, with interest rates locked in prior to the
rate increases experienced in 2022.
Following actions taken in recent years to reduce risk in abrdn's principal
defined benefit pension plan, we are working with the trustee on next steps.
In connection with this de-risking work, the trustee expects to submit a
petition to the Court of Session during H1 2023 that will seek direction on
the destination of any residual surplus assets that remain after all
plan-related obligations are settled or otherwise provided for. Any such
residual surplus would be determined on a different basis to the IAS 19 or
funding measures of the plan surplus. The IAS 19 defined benefit plan asset is
not included in abrdn's regulatory capital surplus.
Restructuring expenses of £169m (2021: £224m) comprised severance, platform
transformation and specific costs to effect savings in Investments, which
reflected additional costs to complete platform transformation and the
acceleration of staff exits compared to previous expectations. Corporate
transaction costs of £45m (2021: £35m) are higher than 2021 largely in
relation to ii.
During 2022, we returned £0.6bn to shareholders, £0.3bn through buybacks and
£0.3bn in dividends. The dividend cost has reduced to £295m, and cover at
0.9x on an adjusted capital generation basis equates to a net impact on
capital of c£35m. Our dividend policy for 2022 remains unchanged at a total
annual dividend of 14.6p per share until such time as the dividend is covered
1.5x by adjusted capital generation.
The IFRS loss before tax of £615m reflects principally the reduction of
£187m in the value of the listed stakes in HDFC Life, HDFC Asset Management
and Phoenix and impairments of £369m, comprising £328m in Investments and
£41m for Finimize which was purchased in 2021. These impairments reflect
lower projected revenues as a result of the lower markets, macroeconomic
conditions and 2022 results being below previous expectations. For
Investments, the key impairment drivers also include the expected reduction in
Phoenix revenue from asset strategy and related pricing changes, and the
further work required to reduce the cost/income ratio and to improve net
flows.
Our strong capital position provides us with resilience during periods of
economic uncertainty and volatility. We have a disciplined approach to
generation and allocation of our capital:
- Our major capital investment in ii was completed at a time when the
impact of the current economic conditions could not have been envisaged. ii is
performing ahead of our expectations, including a stronger performance in
treasury income. It is evident that ii will be double digit earnings enhancing
for the group in the first full year of ownership. Based on the last seven
months of 2022, the £1.49bn purchase price represents a multiple of 16 times
annualised post tax adjusted earnings.
- We will redeploy the proceeds from non-core disposals into the
business to support growth, including covering future restructuring costs to
improve the efficiency of the business. Restructuring costs (excluding
corporate transaction costs) are expected to be c£0.2bn in 2023, primarily
related to the continued reshaping of the Investments vector.
- Subject to economic conditions, we will continue to explore inorganic
investments that are bolt-on in nature and we expect to allocate capital to
support such opportunities.
- Our capital strength also benefits from the value of our listed stakes
in HDFC Asset Management, HDFC Life and Phoenix, which at 31 December 2022 had
a total value of £1.3bn and is additional to the regulatory capital surplus.
- As part of our approach to allocating capital, the buffer of £0.5bn
provides a level of management flexibility and capital strength and resilience
during periods of volatility.
- We are committed to return a significant proportion of capital
generated from further stake sales by way of further share buybacks which will
continue to reduce the share count, benefiting earnings per share and lowering
the absolute cost of the dividend.
Looking forward
The outlook for global markets remains uncertain and while this presents
risks, we are taking actions to put our Investments business on a better
footing through both focusing on our key areas of strength to drive revenue
growth and simplifying the operating model to enable an efficient cost base.
In the short term, additional headwinds arise from changing client demand and
preferences. The benefits of diversification are already evident with our
Adviser and Personal vectors on a stronger trajectory of growth with more
efficient operating margins.
We will continue to be disciplined in our allocation of capital, to invest in
the business in order to drive growth and to support continued returns to
shareholders. We understand the importance of dividend income to a large
portion of our shareholder base and are committed to our stated dividend
policy, together with returning a significant proportion of proceeds from
further stake sales through share buybacks. We returned £0.6bn of capital to
shareholders by way of dividends and buybacks in 2022, and intend to return a
similar level in 2023.
Results summary
Analysis of profit 2022 2021
£m
£m
Net operating revenue(1) 1,456 1,515
Adjusted operating expenses (1,193) (1,192)
Adjusted operating profit 263 323
Adjusted net financing costs and investment return (10) -
Adjusted profit before tax 253 323
Adjusting items including results of associates and joint ventures (868) 792
IFRS (loss)/profit before tax (615) 1,115
Tax credit/(expense) 66 (120)
IFRS (loss)/profit for the year (549) 995
The IFRS loss before tax was £615m (2021: profit £1,115m) largely due to
adjusting items of £868m:
- Impairments of goodwill and customer intangibles were £369m (2021:
£nil). See page 59 for more details.
- Losses of £187m (2021: losses £298m) from the change in fair value
of significant listed investments (HDFC Asset Management, HDFC Life and
Phoenix) as a result of the fall in the share price of these companies in
2022.
- Restructuring expenses were £169m (2021: £224m). Corporate
transaction expenses were £45m (2021: £35m) reflecting principally the
acquisition of ii.
- Adjusting items in 2021 benefited from a profit on disposal of
interests in associates of £1,236m.
Adjusted operating profit was 19% lower than 2021, largely due to 4% lower
revenue as a result of lower market levels which particularly impacted high
yielding equities. The 2022 results include a contribution from ii for the
seven months to 31 December 2022 which benefited net operating revenue by
£114m and adjusted operating profit by £67m.
Net operating revenue(1)
Net operating revenue reduced by 4% reflecting:
- Impact from net outflows(2) excluding LBG of 2%
(2021: 4%), and adverse yield movements.
- Significant c£109m impact of adverse markets on AUMA.
- Net benefit from corporate actions of c£100m mainly due to £114m from
ii. This was partly offset by the net impact of other corporate actions during
2021 and 2022 relating to the disposals of Parmenion, Nordics and Bonaccord,
and acquisitions of Tritax and Finimize.
- Other includes a benefit from FX movements of c£24m and the £9m
one-off Phoenix payment, partly offset by the impact of lower LBG revenue
following the final tranche withdrawals. Performance fees were £30m (2021:
£46m) from Asia, real assets and insurance.
Adjusted operating expenses
2022 2021
£m
£m
Staff costs excluding variable compensation 527 517
Variable compensation 85 126
Staff and other related costs(3) 612 643
Non-staff costs 581 549
Adjusted operating expenses 1,193 1,192
Adjusted operating expenses were broadly flat after the inclusion of £47m of
ii expenses for the post acquisition period, reflecting:
- 3% lower staff costs (excluding variable compensation and ii), with
the benefit of lower FTEs (14%), partly offset by wage inflation.
- Lower variable compensation in line with Investments vector
performance.
- 6% increase in non-staff costs, principally due to ii. Excluding ii,
non-staff costs increased by 1% with cost savings offset by the impact of
inflation, IT costs associated with regulatory change and c£20m from adverse
FX movements.
The cost/income ratio increased to 82% (2021: 79%) as a result of the lower
revenue in Investments.
1. The revenue metric included within adjusted operating
profit has been renamed from fee based revenue to net operating revenue. For
2022 this measure is aligned to net operating revenue as presented in the IFRS
consolidated income statement. For 2021 this measure of segmental revenue
excludes £28m of net operating revenue as presented in the IFRS consolidated
income statement which was classified as adjusting items. See page 177 for
more information.
2. This reflects the estimated impact on net operating revenue
of net outflows in both current and prior years, as a percentage of prior year
revenue.
3. See Supplementary information for a reconciliation to IFRS
staff and other employee related costs.
Investments
Adjusted Net operating Net operating Net flows
operating profit
revenue yield
(excl liquidity & LBG)
revenue
£114m
25.4bps (£13.4bn)
£1,070m
Total Institutional and Wholesale Insurance
2022 2021 2022 2021 2022 2021
Net operating revenue(1) £1,070m £1,231m
Adjusted operating expenses (£956m) (£978m)
Adjusted operating profit £114m £253m
Cost/income ratio 89% 79%
Net operating revenue yield 25.4bps 25.9bps 36.1bps 38.8bps 10.5bps 10.0bps
AUM £376bn £464bn £231bn(2) £253bn £145bn(2) £211bn
Gross flows £59.3bn £63.4bn £36.5bn £41.9bn £22.8bn £21.5bn
Redemptions (£100.3bn) (£74.0bn) (£48.1bn) (£47.0bn) (£52.2bn) (£27.0bn)
Net flows (£41.0bn) (£10.6bn) (£11.6bn) (£5.1bn) (£29.4bn) (£5.5bn)
Net flows excluding liquidity(3) (£37.8bn) (£7.6bn) (£8.4bn) (£2.1bn) (£29.4bn) (£5.5bn)
Net flows excluding liquidity and LBG(3,4) (£13.4bn) (£7.6bn) (£8.4bn) (£2.1bn) (£5.0bn) (£5.5bn)
Investments vector faced market headwinds
Adjusted operating profit Net operating revenue
- £139m (55%) reduction compared to 2021, reflecting 13% lower revenue
- 13% lower than 2021 largely due to lower market performance impacting
and 2% lower costs. average AUM, particularly in equities.
- Cost reduction driven by lower staff costs, reflecting lower FTEs and - Performance fees of £30m (2021: £46m) including strong performance
lower variable compensation. This is partly offset by the impact of staff cost fees from real assets, albeit the overall total is lower than the level seen
inflation in H2 2022 and higher IT costs associated with regulatory change and in 2021.
the adverse impact of FX.
- Revenue in 2022 includes £9m one-off benefit as compensation for the
£6.3bn Phoenix asset withdrawal.
- £139m (55%) reduction compared to 2021, reflecting 13% lower revenue
and 2% lower costs.
- Cost reduction driven by lower staff costs, reflecting lower FTEs and
lower variable compensation. This is partly offset by the impact of staff cost
inflation in H2 2022 and higher IT costs associated with regulatory change and
the adverse impact of FX.
Net operating revenue
- 13% lower than 2021 largely due to lower market performance impacting
average AUM, particularly in equities.
- Performance fees of £30m (2021: £46m) including strong performance
fees from real assets, albeit the overall total is lower than the level seen
in 2021.
- Revenue in 2022 includes £9m one-off benefit as compensation for the
£6.3bn Phoenix asset withdrawal.
Institutional and Wholesale
Net operating revenue Revenue yield
- 13% lower at £878m (2021: £1,012m) due to £14bn reduction in
- 2.7bps lower to 36.1bps largely due to the decrease in the higher
average AUM to £236bn (2021: £250bn). This reflects lower market values in margin equities average AUM impacting the asset mix. Equities are 24% (2021:
equities, fixed income and multi-asset AUM, partly offset by a full year of 28%) of average AUM at a yield of 62.5bps while real assets accounted for 18%
revenue in Tritax, compared with nine months in 2021, and c25% growth in (2021: 14%) at 44.4bps.
Tritax average AUM.
- Multi-asset revenue yield has declined as in 2022 MyFolio accounts for
the majority of AUM in this asset class.
Gross flows Net flows
- Excluding liquidity, £9.0bn (25%) lower at £26.3bn (2021: £35.3bn)
- Net outflows were £6.3bn higher than 2021 at £8.4bn (excluding
mainly in fixed income and equities. This reflected the client response to the liquidity), largely due to the lower level of gross inflows partly offset by a
uncertain market environment which impacted the wider industry, as many £2.7bn improvement in redemptions.
clients delayed investment decisions.
- Excluding liquidity, net outflows represent 4% of opening AUM compared
with 1% in 2021.
- 13% lower at £878m (2021: £1,012m) due to £14bn reduction in
average AUM to £236bn (2021: £250bn). This reflects lower market values in
equities, fixed income and multi-asset AUM, partly offset by a full year of
revenue in Tritax, compared with nine months in 2021, and c25% growth in
Tritax average AUM.
Revenue yield
- 2.7bps lower to 36.1bps largely due to the decrease in the higher
margin equities average AUM impacting the asset mix. Equities are 24% (2021:
28%) of average AUM at a yield of 62.5bps while real assets accounted for 18%
(2021: 14%) at 44.4bps.
- Multi-asset revenue yield has declined as in 2022 MyFolio accounts for
the majority of AUM in this asset class.
Gross flows
- Excluding liquidity, £9.0bn (25%) lower at £26.3bn (2021: £35.3bn)
mainly in fixed income and equities. This reflected the client response to the
uncertain market environment which impacted the wider industry, as many
clients delayed investment decisions.
Net flows
- Net outflows were £6.3bn higher than 2021 at £8.4bn (excluding
liquidity), largely due to the lower level of gross inflows partly offset by a
£2.7bn improvement in redemptions.
- Excluding liquidity, net outflows represent 4% of opening AUM compared
with 1% in 2021.
1. Includes performance fees of £30m (2021: £46m).
2. Following completion of the LBG tranche withdrawals, the
remaining LBG AUM of c£7.5bn which has been retained was reallocated to
quantitatives in Institutional/Wholesale.
3. Institutional and Wholesale liquidity net flows excluded.
4. Flows excluding LBG do not include the tranche withdrawals
of £24.4bn (2021: £nil) relating to the settlement of arbitration with LBG.
Insurance
Net operating revenue Gross flows
- 12% lower in 2022 at £192m (2021: £219m), including the impact of LBG
- £1.3bn higher than 2021, with £5.4bn of gross inflows into low margin
tranche withdrawals and lower average AUM, offset by the £9m one-off Phoenix quantitatives partly offset by lower bulk purchase annuity inflows of £2.9bn
compensation in 2022. (2021: £5.2bn).
Revenue yield
Net flows
- Net operating revenue yield improved slightly to 10.5bps. Excluding the
- Net outflows of £5.0bn (2021: outflows £5.5bn) excluding LBG tranche
one-off Phoenix compensation of £9m, the yield was flat at 10.0bps. withdrawals of £24.4bn.
- Net outflows include withdrawal by Phoenix of £6.3bn of UK equities in
AUM Q4 2022 due to a change in Phoenix's approach to asset allocation strategies.
This is partly offset by the higher gross inflows into low margin
- LBG AUM within Insurance is £nil (2021: £33.6bn). This reflects the quantitatives highlighted above.
final tranche withdrawal of £24.4bn in H1 2022 with c£7.5bn of assets
retained under a new quantitatives mandate included within Institutional to
better reflect how the relationship is now being managed.
- Phoenix AUM decreased £32bn or 18% largely due to £28bn of adverse
market movements.
- 12% lower in 2022 at £192m (2021: £219m), including the impact of LBG
tranche withdrawals and lower average AUM, offset by the £9m one-off Phoenix
compensation in 2022.
Revenue yield
- Net operating revenue yield improved slightly to 10.5bps. Excluding the
one-off Phoenix compensation of £9m, the yield was flat at 10.0bps.
AUM
- LBG AUM within Insurance is £nil (2021: £33.6bn). This reflects the
final tranche withdrawal of £24.4bn in H1 2022 with c£7.5bn of assets
retained under a new quantitatives mandate included within Institutional to
better reflect how the relationship is now being managed.
- Phoenix AUM decreased £32bn or 18% largely due to £28bn of adverse
market movements.
Gross flows
- £1.3bn higher than 2021, with £5.4bn of gross inflows into low margin
quantitatives partly offset by lower bulk purchase annuity inflows of £2.9bn
(2021: £5.2bn).
Net flows
- Net outflows of £5.0bn (2021: outflows £5.5bn) excluding LBG tranche
withdrawals of £24.4bn.
- Net outflows include withdrawal by Phoenix of £6.3bn of UK equities in
Q4 2022 due to a change in Phoenix's approach to asset allocation strategies.
This is partly offset by the higher gross inflows into low margin
quantitatives highlighted above.
Investment performance
% of AUM ahead of benchmark(1) 1 year 3 years 5 years
2022 2021 2022 2021 2022 2021
Equities 30 37 63 74 65 65
Fixed income 65 58 72 79 79 81
Multi-asset 13 72 50 73 22 70
Real assets 57 86 63 58 52 62
Alternatives 88 87 100 98 100 98
Quantitative 17 99 27 15 29 42
Liquidity 84 89 97 92 97 92
Total 41 66 65 78 58 77
Investment performance over the key three-year time period has weakened, with
65% of AUM covered by this metric ahead of benchmark (2021: 78%). The sharp
rotation in equities from growth to value in late 2021 and H1 2022 impacted
many of our equity strategies which focus on quality and growth outcomes.
One-year performance was particularly impacted, however longer term equities
performance remains robust.
Over the key three-year time period, we have consistently delivered strong
performance in alternatives as well as fixed income in the unprecedented
interest rate environment. Multi-asset performance over one, three and five
years was weaker with absolute return strategies relying on traditional
portfolio diversification, primarily equities and fixed income, suffering
negative returns.
Real assets valuation yields have weakened given the higher interest rate
backdrop which has impacted one-year performance, however, long-term sector
conviction remains strong.
1. The calculation of investment performance has been revised to use a
closing AUM weighting basis. 2021 comparative has been restated. We believe
that this approach provides a more representative view of current investment
performance. Calculations for investment performance are made gross of fees
except where the stated comparator is net of fees. Benchmarks differ by fund
and are defined in the investment management agreement or prospectus, as
appropriate. These benchmarks are primarily based on indices or peer groups.
Further details about the calculation of investment performance including the
revised methodology are disclosed in the Supplementary information section.
Adviser
Adjusted Net operating Net operating Net flows
operating profit
revenue yield
revenue
£1.6bn
£86m
26.1bps
£185m
2022 2021
Net operating revenue £185m £178m
Adjusted operating expenses (£99m) (£104m)
Adjusted operating profit £86m £74m
Cost/income ratio 54% 58%
Net operating revenue yield 26.1bps 24.9bps
AUA £69bn £76bn
Gross flows £6.6bn £9.1bn
Redemptions (£5.0bn) (£5.2bn)
Net flows £1.6bn £3.9bn
Resilient performance from leading Adviser platforms
Adjusted operating profit AUA
- Profit increased to £86m, against a backdrop of challenging market
- 10% decrease in 2022 due to adverse markets, partly offset by net
conditions. inflows.
- Cost/income ratio improved to 54% with lower operating expenses - Retained our number one position in UK adviser platform market by
benefiting from outsourcing activity in 2022. AUA(1).
Net operating revenue
Gross flows
- 4% higher than 2021 with net interest margin on client cash balances
- Sales activity reduced by 27% in 2022, reflecting muted client
increasing to £11m activity across the industry due to ongoing market uncertainty and focus on
(2021: £1m), reflecting the rise in interest rates. This was partly offset by short term spending goals amongst the UK consumer base.
the impact of lower average AUA.
Net flows
- The average margin earned on client cash balances during 2022 was
- Reduction in net inflows to £1.6bn reflects lower gross flows and
c85bps. The indicative Adviser average cash margin for 2023 is 160-180bps. included a £0.2bn impact from a client exit in H1 2022 due to the acquisition
Revenue yield by a consolidator.
- Increased to 26.1bps. due to the higher revenue explained above.
- Average AUA of £71bn is 1% lower than 2021.
- Profit increased to £86m, against a backdrop of challenging market
conditions.
- Cost/income ratio improved to 54% with lower operating expenses
benefiting from outsourcing activity in 2022.
Net operating revenue
- 4% higher than 2021 with net interest margin on client cash balances
increasing to £11m
(2021: £1m), reflecting the rise in interest rates. This was partly offset by
the impact of lower average AUA.
- The average margin earned on client cash balances during 2022 was
c85bps. The indicative Adviser average cash margin for 2023 is 160-180bps.
Revenue yield
- Increased to 26.1bps. due to the higher revenue explained above.
- Average AUA of £71bn is 1% lower than 2021.
AUA
- 10% decrease in 2022 due to adverse markets, partly offset by net
inflows.
- Retained our number one position in UK adviser platform market by
AUA(1).
Gross flows
- Sales activity reduced by 27% in 2022, reflecting muted client
activity across the industry due to ongoing market uncertainty and focus on
short term spending goals amongst the UK consumer base.
Net flows
- Reduction in net inflows to £1.6bn reflects lower gross flows and
included a £0.2bn impact from a client exit in H1 2022 due to the acquisition
by a consolidator.
1. Source: UK Adviser platform, Fundscape Q3 2022.
Personal
Adjusted Net operating Net operating Net flows
operating profit
revenue yield
revenue
£1.9bn
£72m
59.2bps
£201m
Total interactive investor(3) Personal Wealth
2022 2021 7 months to N/A 2022 2021
31 Dec 2022
Net operating revenue £201m £92m £114m £87m £92m
Adjusted operating expenses (£129m) (£84m) (£47m) (£82m) (£84m)
Adjusted operating profit £72m £8m £67m £5m £8m
Cost/income ratio 64% 91% 41% 94% 91%
Net operating revenue yield(1) 59.2bps 61.0bps
AUMA £67.1bn £14.4bn £54.0bn £13.1bn £14.4bn
Gross flows £5.6bn £1.7bn £4.1bn £1.5bn £1.7bn
Redemptions (£3.7bn) (£1.1bn) (£2.5bn) (£1.2bn) (£1.1bn)
Net flows(2) £1.9bn £0.6bn £1.6bn £0.3bn £0.6bn
Accelerating revenue diversification with acquisition of ii
Adjusted operating profit Revenue yield
- Higher profit reflects the inclusion of £67m for the seven months
- Personal Wealth revenue yield decreased to 59.2bps resulting from
results for ii. pricing pressure and changes in product mix. Average AUMA was £13.5bn, 4%
lower than 2021.
- ii has continued to perform well against an uncertain market
AUMA
environment, with profit performance remaining ahead of our expectations.
- Personal Wealth's adjusted operating profit in 2021 included a one-off
benefit of c£3m which when excluded highlights stable underlying performance - ii's AUM of £55bn at acquisition was reported as a corporate action
in 2022 at £5m. in the year. As at 31 December 2022, ii's AUA of £54bn reflects the benefit
from net inflows offset by adverse market movements and includes customer cash
- Cost/income ratio improved to 64% as a result of ii's efficient balances of £6.0bn.
operating leverage.
Net operating revenue - Personal Wealth AUMA decreased to £13.1bn reflecting lower markets
through 2022.
- The increase in revenue reflects inclusion of £114m from ii.
- Total discretionary clients increased by 4% to c16,600 (2021:
- ii revenue continues to benefit from diverse revenue streams. Treasury c16,000).
income for the seven months contributed £58m, benefiting from interest rates
rising significantly throughout H2 2022. Revenue from subscriptions continued - ii customer numbers were broadly stable at c402,000 (2021: c403,000).
to grow, including the benefit from increased average customer numbers Excluding the tail run-off of the two most recently acquired books (Share
compared with 2021. Trading revenue was impacted by muted levels of customer Centre and EQi), net customer growth for the year was 3%.
activity given the uncertain market conditions.
- Number of ii customers holding a SIPP account increased by 17% to
- Personal Wealth revenue reduced by £5m due to adverse market c51,500 (2021: c43,900).
movements impacting AUMA and lower margins from pricing and product mix.
Gross and net flows
- Total net flows of £1.9bn included £1.6bn for the seven months of ii
flows.
- Reductions in gross and net flows for Personal Wealth include the
impact of market uncertainty which has resulted in lower and more muted
activity by individuals across the industry. This included a more modest tax
year-end period.
- Higher profit reflects the inclusion of £67m for the seven months
results for ii.
- ii has continued to perform well against an uncertain market
environment, with profit performance remaining ahead of our expectations.
- Personal Wealth's adjusted operating profit in 2021 included a one-off
benefit of c£3m which when excluded highlights stable underlying performance
in 2022 at £5m.
- Cost/income ratio improved to 64% as a result of ii's efficient
operating leverage.
Net operating revenue
- The increase in revenue reflects inclusion of £114m from ii.
- ii revenue continues to benefit from diverse revenue streams. Treasury
income for the seven months contributed £58m, benefiting from interest rates
rising significantly throughout H2 2022. Revenue from subscriptions continued
to grow, including the benefit from increased average customer numbers
compared with 2021. Trading revenue was impacted by muted levels of customer
activity given the uncertain market conditions.
- Personal Wealth revenue reduced by £5m due to adverse market
movements impacting AUMA and lower margins from pricing and product mix.
Revenue yield
- Personal Wealth revenue yield decreased to 59.2bps resulting from
pricing pressure and changes in product mix. Average AUMA was £13.5bn, 4%
lower than 2021.
AUMA
- ii's AUM of £55bn at acquisition was reported as a corporate action
in the year. As at 31 December 2022, ii's AUA of £54bn reflects the benefit
from net inflows offset by adverse market movements and includes customer cash
balances of £6.0bn.
- Personal Wealth AUMA decreased to £13.1bn reflecting lower markets
through 2022.
- Total discretionary clients increased by 4% to c16,600 (2021:
c16,000).
- ii customer numbers were broadly stable at c402,000 (2021: c403,000).
Excluding the tail run-off of the two most recently acquired books (Share
Centre and EQi), net customer growth for the year was 3%.
- Number of ii customers holding a SIPP account increased by 17% to
c51,500 (2021: c43,900).
Gross and net flows
- Total net flows of £1.9bn included £1.6bn for the seven months of ii
flows.
- Reductions in gross and net flows for Personal Wealth include the
impact of market uncertainty which has resulted in lower and more muted
activity by individuals across the industry. This included a more modest tax
year-end period.
1. Net operating revenue yield is shown for Personal Wealth
only. Revenue for interactive investor is not aligned with AUA and therefore
revenue yield is not presented.
2. Cash dividends which are retained on the ii platform are
included in net flows for the ii business. See the Glossary for further
details.
3. Results for interactive investor included following the
completion of the acquisition on 27 May 2022.
Overall performance
Adjusted IFRS loss Adjusted
operating profit
before tax
capital
generation
£263m (£615m)
£259m
Adjusted operating profit AUMA Net flows
Segmental summary 2022 2021 2022 2021 2022 2021
£m
£m
£bn
£bn
£bn
£bn
Investments(1) 114 253 376 464 (13.4) (7.6)
Adviser 86 74 69 76 1.6 3.9
Personal 72 8 67 14 1.9 0.6
Corporate/strategic(2) (9) (12) - - - 0.3
Eliminations - - (12) (12) (0.4) (0.4)
Total 263 323 500 542 (10.3) (3.2)
Liquidity net flows (3.2) (3.0)
LBG tranche withdrawals (24.4) -
Total net flows (including liquidity and LBG) (37.9) (6.2)
Analysis of profit 2022 2021
£m
£m
Net operating revenue 1,456 1,515
Adjusted operating expenses (1,193) (1,192)
Adjusted operating profit 263 323
Adjusted net financing costs and investment return (10) -
Adjusted profit before tax 253 323
Adjusting items including results of associates and joint ventures (868) 792
IFRS (loss)/profit before tax (615) 1,115
Tax credit/(expense) 66 (120)
IFRS (loss)/profit for the year (549) 995
Adjusted net financing costs and investment return
Adjusted net financing costs and investment return resulted in a loss of £10m
(2021: £nil):
- Investment losses, including from seed capital and co-investment fund
holdings, were £34m (2021: gain £4m) due to adverse market conditions in the
year.
- Reduced net finance costs of £5m (2021: £21m) reflecting a higher rate
of interest on cash and liquid assets.
- Higher net interest credit relating to the staff pension schemes of
£29m (2021: £17m) reflecting an increase in the opening discount rate due to
a rise in corporate bond yields.
Adjusting items
2022 2021
£m
£m
Profit on disposal of interests in associates 6 1,236
Profit on disposal of subsidiaries and other operations - 127
Restructuring and corporate transaction expenses (214) (259)
Amortisation and impairment of intangible assets acquired in business (494) (99)
combinations and through the purchase of customer contracts
Change in fair value of significant listed investments (187) (298)
Dividends from significant listed investments 68 71
Share of profit or loss from associates and joint ventures 2 (22)
Loss on impairment of interests in associates (9) -
Other (40) 36
Total adjusting items including results of associates and joint ventures (868) 792
Profit on disposal of interests in associates of £6m relates to the sale of
our stake in Origo Services Limited in May 2022. The 2021 profit of £1,236m
primarily related to one-off accounting gains of £965m following the
reclassification of our HDFC Asset Management and Phoenix shareholdings from
associates to investments measured at fair value. 2021 also included a £271m
gain from the sale of a 5% stake in HDFC Asset Management.
Profit on disposal of subsidiaries and other operations in 2021 primarily
related to the sales of Parmenion and Bonaccord.
Restructuring and corporate transaction expenses were £214m, comprising
restructuring costs of £169m in severance, platform transformation and
specific costs to effect savings in Investments, and £45m of corporate
transaction costs largely in relation to the ii acquisition. Further details
are included in the Supplementary information section.
Amortisation and impairment of intangible assets acquired in business
combinations and through the purchase of customer contracts increased to
£494m, mainly due to the impairment of goodwill and customer intangibles of
£369m (2021: £nil). The impairments comprise £328m in Investments and £41m
for Finimize which was purchased in 2021. These impairments reflect lower
projected revenues as a result of lower markets, macroeconomic conditions and
2022 results being below previous expectations; and for Investments the
expected reduction in Phoenix revenue from asset strategy and related pricing
changes, and further work being required to reduce costs and grow to a net
inflow position. Further details are provided in Note 13 of the Group
financial statements.
Change in fair value of significant listed investments of negative £187m from
market movements is analysed in the table below:
2022 2021
£m
£m
Phoenix (44) (82)
HDFC Asset Management (105) (164)
HDFC Life (38) (52)
Change in fair value of significant listed investments (187) (298)
Dividends from significant listed investments relates to our shareholdings in
Phoenix (£52m), HDFC Asset Management (£15m) and HDFC Life (£1m). In 2021,
dividends received from Phoenix were £69m (prior to the reduction in our
shareholding from 14.4% to 10.4% in January 2022) and £2m from HDFC Life.
Share of profit or loss from associates and joint ventures increased to a
profit of £2m. Phoenix and HDFC Asset Management were classified from
associates in 2021. The reduction in HASL reflects mainly lower investment
returns in 2022. Other relates principally to the share of loss from our
shareholding in Tenet Group Ltd.
2022 2021
£m
£m
HASL 7 19
Virgin Money UTM - (6)
Phoenix - (56)
HDFC Asset Management - 21
Other (5) -
Share of profit or loss from associates and joint ventures 2 (22)
Loss on impairment of interests in associates of £9m relates to an impairment
of Tenet Group Ltd.
Other adjusting items in 2022 primarily relates to a single process execution
event provision of £41m. See Notes 11 and 34 for further details. Other
adjusting items in 2021 included a one-off £25m net release of deferred
income following the transfer of workplace pensions marketing staff to
Phoenix.
See pages 172 and 186 for further details on adjusted operating profit and
reconciliation of adjusted operating profit to IFRS profit. Further details on
adjusting items are included in the Supplementary information section.
1. Investments net flows exclude Institutional/Wholesale
liquidity and LBG tranche withdrawals.
2. Adjusted operating loss consists of net operating revenue
£nil (2021: £14m) and adjusted operating expenses £9m (2021: £26m). 2022
comprises of only certain corporate costs. 2021 also included the Parmenion
business which was held for sale. The sale of Parmenion completed in June
2021.
Tax policy
We have important responsibilities in paying and collecting taxes in the
countries in which we operate. Our tax strategy is therefore guided by a
commitment to high ethical, legal and professional standards and being open
and transparent about what we are doing to meet those standards.
Tax expense
The total IFRS tax credit attributable to the loss for the year was £66m
(2021: expense £120m), including a tax credit attributable to adjusting items
of £88m (2021: expense £94m), resulting in an effective tax rate of 11% on
the total IFRS loss (2021: 11%). The difference to the UK Corporation Tax rate
of 19% is mainly driven by:
- Goodwill impairments that are not deductible for tax purposes.
- Movements in the fair value of our investment in HDFC Asset Management
being tax effected at the Indian long-term capital gains tax rate, which is
lower than the UK Corporation Tax rate.
- Fair value movements relating to our investments in Phoenix and HDFC
Life not being subject to tax.
- Offset by dividends from significant listed investments not being
subject to tax in the UK.
The tax expense attributable to adjusted profit is £22m (2021: £26m), an
effective tax rate of 9% (2021: 8%). This is lower than the 19% UK rate
primarily due to the benefit of certain deferred tax assets being expected to
arise after the UK Corporation Tax rate increases to 25% in 2023.
Total tax contribution
Total tax contribution is a measure of all the taxes abrdn pays to and
collects on behalf of governments in the territories in which we operate. Our
total tax contribution was £443m (2021: £447m). Of the total, £186m (2021:
£190m) was borne by abrdn whilst £257m (2021: £257m) represents tax
collected by abrdn on behalf of the tax authorities. Taxes borne mainly
consist of corporation tax, employer's national insurance contributions and
irrecoverable VAT. The taxes collected figure is mainly comprised of
pay-as-you-earn deductions from employee payroll payments, employees' national
insurance contributions, VAT collected and income tax collected on behalf of
HMRC on platform pensions business.
You can read our tax report on our website www.abrdn.com/annualreport
Earnings per share
- Adjusted diluted earnings per share decreased to 10.5p (2021: 13.7p)
due to the lower adjusted profit after tax and the interest payment on the AT1
debt. This was partially offset by a benefit from the share buyback.
- Diluted earnings per share was a loss of 26.8p (2021: profit 46.0p)
reflecting the factors above, impairments and fair value losses of significant
listed investments.
Dividends
The Board has recommended a final dividend for 2022 of 7.3p (2021: 7.3p) per
share. This is subject to shareholder approval and will be paid on 16 May 2023
to shareholders on the register at close of business on 31 March 2023. The
dividend payment is expected to be £142m.
External dividends are funded from the cumulative dividend income that abrdn
plc receives from its subsidiaries and associates (see below for details of
cash and distributable reserves). The need to hold appropriate regulatory
capital is the primary restriction on the Group's ability to pay dividends.
Further information on the principal risks and uncertainties that may affect
the business and therefore dividends is provided in the Risk management
section.
As a result of the decline in revenue in the year, dividend cover on an
adjusted capital generation basis was 0.9 times.
The adjusted capital generation trend and related dividend coverage is shown
below:
It remains the Board's current intention to maintain the total annual dividend
at 14.6p (with the interim and final both at 7.3p per share), until it is
covered at least 1.5 times by adjusted capital generation, at which point the
Board will seek to grow the dividend in line with its assessment of the
underlying medium-term growth in profitability.
Return of capital
On 6 July 2022, we commenced a £300m return of capital to shareholders which
completed on 12 December 2022. A total of 179m shares were repurchased at an
average price of £1.68 per share.
Capital and liquidity
Adjusted capital generation
Adjusted capital generation, which shows how adjusted profit contributes to
regulatory capital, decreased by 29% to £259m.
2022 2021
£m
£m
Adjusted profit after tax 231 297
Less net interest credit relating to the staff pension schemes (29) (17)
Less AT1 debt interest (11) -
Add dividends received from associates, joint ventures and significant listed 68 86
investments
Adjusted capital generation 259 366
Net movement in IFPR surplus regulatory capital
The indicative surplus regulatory capital at 31 December 2022 was £0.7bn
(2021: £1.8bn) following the acquisition of ii. Disposal of part of our
Phoenix, HDFC Asset Management and HDFC Life stakes in January 2022, August
2022 and September 2022 respectively generated sale proceeds of £0.8bn.
Key movements in surplus regulatory capital are shown in the table below.
Analysis of movements in surplus regulatory capital (IFPR basis) 2022 2021
£bn
£bn
Opening surplus regulatory capital(1) 1.8 1.2
Sources of capital
Adjusted capital generation 0.3 0.4
HDFC Life, HDFC Asset Management and Phoenix sale proceeds 0.8 0.9
Parmenion and Bonaccord sale proceeds - 0.1
Issuance of AT1 debt - 0.2
Uses of capital
Restructuring and corporate transaction expenses (net of tax) (0.2) (0.2)
Dividends (0.3) (0.3)
Acquisition of interactive investor(2) (1.4) -
Acquisitions of Tritax and Finimize - (0.3)
Share buyback (0.3) -
Other - (0.2)
Closing surplus regulatory capital 0.7 1.8
1. The Group reported capital under CRD IV until 31 December 2021. 2021
figures are therefore indicative.
2. Acquisition price of £1.5bn less capital resources acquired.
The full value of the Group's significant listed investments is excluded from
the capital position under IFPR and represents additional value for
shareholders.
Note 43 of the Group financial statements includes a reconciliation between
IFRS equity and surplus regulatory capital and details of our capital
management policies.
Cash and liquid resources and distributable reserves
Cash and liquid resources remained robust at £1.7bn at 31 December 2022
(2021: £3.1bn) following the £1.5bn ii acquisition. These resources are high
quality and mainly invested in cash, money market instruments and short-term
debt securities. Further information on cash and liquid resources, and a
reconciliation to IFRS cash and cash equivalents, is provided in Supplementary
information.
At 31 December 2022, distributable reserves were £3.2bn (2021: £2.8bn),
benefiting in July 2022 from a £1.1bn transfer from the capital redemption
reserve.
IFRS net cash flows
- Net cash inflows from operating activities were £110m (2021: inflows
£14m) which includes outflows from restructuring costs net of tax of £111m
(2021: £179m) and corporate transaction costs, net of tax, of £38m (2021:
£11m). 2021 inflows were reduced by working capital movements.
- Net cash outflows from investing activities were £86m (2021: inflows
£755m), primarily reflecting a £1.4bn outflow for acquisition of ii (net of
cash acquired) offset by £1.3bn net proceeds from the sale of financial
investments (mainly £0.8bn from the Phoenix and HDFC stake sales and £0.4bn
from the net sale of money market instruments primarily related to ii
transaction funding).
- Net cash outflows from financing activities were £761m (2021:
£243m). The higher outflows reflected the 2022 £0.3bn share buyback and the
£0.1bn repayment of subordinated liabilities. 2021 included the £0.2bn
proceeds from the Additional Tier 1 debt issue.
The cash inflows and outflows described above resulted in closing cash and
cash equivalents of £1,166m as at
31 December 2022 (2021: £1,875m).
IFRS net assets
IFRS net assets attributable to equity holders decreased to £5.7bn (2021:
£7.6bn) mainly due to the IFRS loss before tax, the reduced pension scheme
surplus discussed below and dividends paid in the year:
- Intangible assets increased to £1.6bn (2021: £0.7bn) as a result of
the ii acquisition (see Note 1), partly offset by impairments of intangibles
(see Note 13).
- The principal defined benefit pension scheme, which is closed to
future accrual, continues to have a significant surplus of £0.8bn (2021:
£1.6bn). The reduction in surplus in 2022 is primarily due to higher yields
and other market movements, and reflects that the investment strategy aims to
protect the surplus on a different basis to the IAS 19 accounting basis.
Financial investments decreased to £2.9bn (2021: £4.3bn) primarily due to
the £0.8bn stakes sales, £0.2bn reduced values in our significant listed
investments and £0.4bn net sale of money market instruments. At 31 December
2022, financial investments included £1.3bn (2021: £2.3bn) in relation to
significant listed investments (Phoenix £634m, HDFC Asset Management £477m
and HDFC Life £203m).
Viability statement
Longer-term prospects
The Directors have determined that three years is an appropriate period over
which to assess the Group's prospects. In addition to aligning with our
business planning horizon, this reflects the timescale over which changes to
major regulations and the external landscape affecting our business typically
take place.
The Group's prospects are primarily assessed through the strategic and
business planning process. These prospects have been enhanced as a result of
actions taken during the year, in particular the acquisition of interactive
investor.
The assessment reflects the Group's focus on its strategic priorities as set
out on pages 12 to 13 and how this is expected to drive client-led growth in
abrdn's three vectors.
In forming their assessment of the Group's longer-term prospects, the
Directors have also taken into account:
- The Group's capital position as set out on page 61.
- The Group's substantial holdings of cash and liquid resources as well
as holdings in listed equity investments as set out on page 61.
- The Group's principal and emerging risks as set out on pages 64 to 67.
Assessment of prospects
The Directors consider the Group's focus on its strategic priorities will
deliver growth while allowing the Group to maintain its strong regulatory
capital position and the dividend policy described on page 60.
Viability
The Directors consider that three years is an appropriate period for assessing
viability as this is in line with the horizon used for our business planning
and stress testing and scenario analysis processes.
In considering the viability statement, the Board performed a thorough
assessment of the Group's principal risks in order to understand potential
vulnerabilities for the business. In addition to this, the Directors assessed
the Group's viability taking into account:
- Output from the Group's business planning process.
- Results from the Group's stress testing and scenario analysis
programme.
- Results from the Group's reverse stress testing exercise.
- Work performed in connection with the UK's FCA and PRA rules on
operational resilience.
The business planning process includes the projection of profitability,
regulatory capital and liquidity over a three year period, based on a number
of assumptions. This includes assumptions regarding the economic outlook which
reflect various factors including the changing market conditions following the
significant geopolitical and economic developments of 2022.
The Group has no debt maturing over the next three years and, based on
business planning projections, there is no expectation that the Group will
need to draw down on its £400m revolving credit facility described on page
234.
The Group's stress testing and scenario analysis programme applies severe
stresses to the business plan to understand the Group's financial resilience.
This includes (i) exploring the impacts of market-wide stresses, (ii) stresses
that are specific to abrdn, and (iii) stresses that combine both these
elements. Whilst all of the Group's principal risks could potentially impact
on the Group's financial resilience, our combined stress testing scenarios
focused on those risks expected to have the most significant impact:
- Financial risk was considered under a range of stresses to market
levels, flows, and margins. The scenarios that were explored included revenue
reductions due to (i) equity markets falling approximately 22% in Q1 2023 and
net outflows occurring over the planning horizon reducing the year end AUMA by
up to 11% and (ii) the UK Base rate falling to 0.1% by Q1 2024.
- Operational risks were considered in the context of the Group incurring
£40m of operational losses which were assumed to represent the cumulative
impact of a number of severe losses across a range of principal risk
categories, such as: process execution and trade errors, technology risk,
security and resilience risk, or fraud and financial crime risks.
All the scenarios explored resulted in the Group experiencing reduced
profitability and, in some cases, losses over the planning horizon.
Projections of capital and liquid resources fell as a result of these losses.
The Group had sufficient capital and liquid resources to withstand all of the
stresses and did not need to take any management actions other than those
assumed within the business plan. This reflects the strength and quality of
the Group's financial position.
In the event that the Group was to experience more severe stresses than those
explored under the Group's stress testing and scenario analysis programme, the
Group has a diverse range of management actions it would be able to take,
including a number of sizeable management actions wholly within the Group's
control. This includes drawing down on the revolving credit facility, reducing
discretionary expenditure, and dividend management actions.
During the year, additional stress testing and scenario analysis was performed
to support the Group's capital management activity. The results of this were
also taken into consideration in the Directors' assessment of viability.
The Group is considered to be resilient to adverse climate change over the
three year horizon; the stresses to market levels and flows explored under the
stress testing and scenario analysis programme are deemed to capture the
possible consequences of climate change over this period.
Reverse stress testing involves exploring the quantitative and/or qualitative
impacts of extreme scenarios which could threaten the viability of our
business model. For this year's exercise, we investigated possible economic
conditions that could lead to non-viability. This involved exploring more
extreme versions of the scenarios developed under the stress testing and
scenario analysis programme, focusing on increasing the size of the equity
market shock in Q1 2023.The reverse stress testing exercise highlighted how
the Group's risk appetite monitoring processes, including defined escalation
processes, support the early identification of possible issues and provide
time for actions to be taken before these issues crystallise.
The exercise found that equity market falls required to threaten viability
were viewed as being very remote. This, and the Group's range of mitigants in
place to respond to the scenario, supports the assessment of viability and no
qualification is considered necessary.
Over recent years the Group has also explored reverse stress tests including
the failure of a critical third party administrator in the Investments vector,
the loss of critical staff and a significant cyber attack. The work performed
concluded that these events had a low likelihood of occurrence and were not
considered likely to threaten the Group's viability. These conclusions are
considered to remain valid.
Operational resilience reflects the ability of firms and the financial sector
as a whole to prevent, adapt and respond to, and recover and learn from
operational disruptions. In addition to causing potential harm to customers
and threatening market integrity, such operational disruptions and the
unavailability of important business services have the potential to threaten
viability.
The UK's FCA and PRA introduced new regulations on 31 March 2022 requiring
that by March 2025 abrdn is able to operate the important business services it
provides to its clients and customers within set impact tolerances in order to
avoid causing 'intolerable harm'.
The Group has identified the important business services that it provides to
clients and customers and, during 2022, performed operational stress testing
against a severe but plausible operational scenario to determine whether the
Group could remain within the set impact tolerances. This work highlighted
that the Group's important business services could operate within the set
impact tolerances and there was no threat to the Group's viability.
Assessment of viability
The Directors confirm that they have a reasonable expectation that abrdn plc
will be able to continue in operation and meet its liabilities as they fall
due over the next three years.
Risk management
Managing risk for better outcomes
Our approach to risk management
A clear and effective Enterprise Risk Management (ERM) framework underpins our
commitment to put clients and customers first and safeguard the interests of
our shareholders. Our Board has ultimate responsibility for risk management
and oversees the effectiveness of our ERM framework.
ERM framework
We operate 'three lines of defence' with defined roles and responsibilities.
There is ongoing evolution in our ERM framework to ensure that we meet the
changing needs of the company and to make sure it keeps pace with industry
best practice. In 2022, improvements to the framework included:
- Refinements to risk appetites.
- Extending our risk taxonomy.
- Enhancing our Conflicts of Interest framework.
- Reviewing our policy register.
We commenced a review of our Risk and Control Self Assessments during 2022,
and this will continue during 2023.
Business risk environment
The commercial environment was challenging during 2022 as the Russian/Ukraine
conflict led to a surge in energy prices, higher inflation and a rapid
tightening of monetary policy by central banks thereby putting pressure on
asset prices. These conditions impacted market levels and client flows over
the year.
The acquisition of interactive investor in the first half of 2022 helped to
diversify our earnings drivers away from ad valorem fee revenues. The
incorporation of ii into our risk governance framework was handled smoothly.
Though we started 2022 dealing with the effects of Omicron, the impact of
COVID-19 on our operating environment was much less pronounced as 'blended
working' became the default arrangement for our people.
Client and customer interests are at the heart of our business. We keep close
focus on the outcomes which we deliver across our businesses. During 2022, we
progressed the company-wide programme to implement the FCA's new Consumer Duty
within the relevant regulatory timelines.
A significant process execution event occurred during 2022. This has been
thoroughly investigated and appropriate remedial actions are being taken.
We continue to manage a lot of change across the business which creates
operational stretch on top of our core client servicing activities. We have
also put a strong emphasis on simplification of our operating environment and
greater automation.
An additional challenge in this area is an uptick in staff turnover across
various skillsets in the financial services industry post-COVID. That said,
this also creates opportunities in the management and development of talent.
We maintain heightened vigilance over risks to our operations from financial
crime and cyber intrusion. Given the complexity of our business, we have
rolled out a comprehensive and consistent suite of financial crime standards
that are in-line with jurisdictional requirements and we continue to
strengthen our operating models to understand the risk profiles of our clients
and customers effectively and efficiently.
Evolving and emerging risks
We are vigilant to risks that could crystallise over different horizons and
impact our strategy and operations. These risks vary in nature as they cover
geopolitical, economic, societal, technological, legal, regulatory and
environmental themes. We distil internal and external research to consider how
risks could emerge and evolve
Some notable risks (and opportunities) for our business include tightness in
labour markets, rising input costs, evolving cyber threats, disruptive
financial technologies, unprecedented market shifts and climate change.
Sustainability risks(1)
We have a responsibility to shareholders, clients, customers and all
stakeholders to assess, report on, manage and mitigate our sustainability
risks. As a FTSE100 investment firm, we need to consider both the impact of
our corporate activities and the impact of the investments that we are making
on behalf of our clients. We continue to deepen our understanding of these
risks for the benefit of all stakeholders and use these insights to advocate
for positive policy change.
Against a backdrop of a complex and challenging regulatory environment, during
2022 we made good progress against a number of key milestones, including EU
SFDR deliverables; enhancing our climate and carbon analytical tools;
completing the integration of ESG data into our investment data platform for
2023 regulatory reporting; and the use of the ESG screening and exclusion
tool.
1. See Note 35 for disclosure relating to the financial impact of
climate-related risk on the 2022 financial statements.
Principal risks and uncertainties
We categorise our risks across 12 principal risk categories which have both
internal and external drivers. Within our ERM framework, we have developed a
more detailed taxonomy of risks under these principal risk categories. This
allows us to systematically monitor the risk profile of our business.
Principal and emerging risks are subject to active oversight and robust
assessment by the Board. These risks are described in the following table.
Risk to our business How we manage this risk
1 Strategic risk
- These are risks that could prevent us from achieving our strategic aims We continued to develop our single global brand during 2022. As well as
and successfully delivering our business plans. materially diversifying our revenue base, the acquisition of interactive
investor further strengthened our position in the marketplace.
- These could include failing to meet client expectations, poor strategic
decision-making or failure to adapt. Each of our vectors has a clear organic growth strategy. Inorganic growth,
such as through acquisitions, is rigorously assessed, drawing on market
intelligence, for its contribution to our core strategy and the opportunities
it presents to help us better understand different client needs.
2 Financial risk
- This is the risk of having insufficient financial resources, suffering Business planning and stress testing is used to project our financial
losses from adverse markets or the failure or default of counterparties. It is resources under a range of scenarios and confirm the financial resilience of
impacted by our flows experience, global market conditions and the fees we our business. During 2022 we had the first year of operation of the UK
charge on investment mandates, platforms and wealth management services. Investment Firms Prudential Regime which determines regulatory capital and
liquidity requirements for the group and a number of its key entities. We
- Our strong capital and liquidity position enabled the acquisition of monitor the adequacy of our financial resources in line with regulatory
interactive investor and the launch of a share buyback programme during the requirements and also taking into account risk events which either occur or
year while still maintaining a strong capital position. are classed as near misses.
Our Treasury Policy includes minimum standards for managing liquidity, market
and counterparty risks, including the credit quality of our counterparties.
3 Conduct risk
- Our business relies on our ability to deliver good service and fair Being client and customer-led is an essential aspect of our culture. This
client and customer outcomes, and there is a risk that we fail to achieve this means having a continuous focus on client and customer outcomes in all that we
through our operational activities and the implementation of our change do.
programmes.
Our ERM framework supports the management of conduct risk with clear
- This could lead to customer and client harm, reputational damage and expectations around conduct goals and responsibilities. In 2022 we refreshed
loss of income. our framework for managing conflicts of interest and launched a programme to
implement the FCA's new Consumer Duty.
4 Regulatory and legal risk
- High volumes of regulatory change can create interpretation and We monitor the regulatory landscape globally using an automated scanning tool.
implementation risks. This allows us to identify potential areas of change early and communicate
internally as required. We also invest in compliance and monitoring activity
- Compliance failures can lead to poor customer and client outcomes, across the business. The evolution of regulatory divergence between the UK and
sanctions, reputation damage and income loss. EU rulebooks is a particular focus for the group in view of our business
footprint.
- During 2022 the company managed a heavy programme of regulatory
implementation, including in relation to ESG investment, anti-money Our relationships with key regulators are based on trust and transparency
laundering, operational resilience, fund liquidity risk management and the new while our compliance and legal teams support senior managers across our
Consumer Duty. business.
Operational risks (5-12)
Risk to our business How we manage this risk
5 Process execution and trade errors
- This is the risk that processes, systems or external events could We have well-established disciplines for managing incidents, risk events and
produce operational errors. Some of these errors can arise from operational issues. We monitor underlying causes of error to identify areas for action,
complexity and manual activity. promoting a culture of accountability and continuously improving how we
address issues. Any systems outages were dealt with using established incident
- During 2022 there was continued management focus on process execution management processes.
and trade errors.
Many of our business improvement initiatives are aimed at reducing complexity
and where possible eliminating manual activity.
Incidents that adversely impact our clients are investigated and appropriate
remedial actions taken.
6 People
- In line with the wider economy, employee turnover has increased in all We have responded to increased competition for talent in our industry, using
regions as a consequence of tight labour markets conditions, increases in the targeted approaches to support retention and recruitment for our key business
cost of living and continued labour market adjustment following the pandemic. functions.
- The risk associated with increased turnover includes knowledge loss, Since the onset of the pandemic we have successfully adapted, providing online
operational inefficiencies and the potential for fraud. tools to support collaboration and moving our learning and development
offering online.
- Engaging with our people, and supporting their wellbeing, is critical to
our strategy and the success of our business.
7 Technology
- There is a risk that our technology may fail to keep pace with business We have an ongoing programme to invest in and enhance our IT infrastructure
needs. There is also the significant risk of unauthorised access of our controls. We benchmark our IT systems environment to identify areas for
systems and cyber-attack. improvement and further investment.
- These risks are relevant to a wide range of potential threats to the We maintain heightened vigilance for cyber intrusion, with dedicated teams
business including internal failure, external intrusion, supplier failure and monitoring and managing cyber security risks. We carry out regular testing on
weather events. penetration and crisis management.
- Our current IT estate is complex and there are dependencies on third
party suppliers that need to be managed in a dedicated way.
8 Security and resilience
- Incidents that can impact business resilience and continuity include We continue to enhance our operational resilience framework and strengthen our
environmental issues, terrorism, economic instabilities, cyber-attacks and response to disruption. Crisis management and contingency planning processes
operational incidents. are regularly reviewed and tested, enabling us to minimise disruption as the
balance of hybrid working has shifted over the year. We completed our
- The risk of disruption from inside the organisation is broadly stable. programme to implement FCA/PRA Operational Resilience regulations, which came
However, tools for exploiting IT vulnerabilities are becoming more widely into force during 2022.
available globally and are frequently used by criminal groups to enable
ransomware attacks.
Risk to our business How we manage this risk
9 Fraud and financial crime
- As a business that handles clients' money, we are exposed to the risk of Processes are in place to identify client activity linked with financial
fraudulent and dishonest activity. crime, globally. These include controls for anti-money laundering,
anti-bribery, fraud and other areas of financial crime. A company-wide
- As we engage with a wide number of external parties, we have to be programme to invest in systems, controls and processes to improve our
vigilant to the risk that these parties are connected with criminal behaviour, management of these risks is in progress.
or subject to sanctions by national or global authorities.
During 2022 significant work was carried out globally to revise and implement
consistent anti-money laundering and sanctions policies and standards. This
included a targeted remediation, to these standards, of the due diligence
information held for high risk customers.
We continue to work with the financial authorities and our industry peers to
assist those targeted by scams.
10 Change management
- As a diverse, global investment firm, we are continually implementing For major change projects, we have established governance processes with
change to improve our business or meet regulatory expectations. As well as ring-fenced project resources and clearly defined roles across the three lines
being costly, failure to deliver change effectively can lead to poor client of defence.
and customer outcomes and/or regulatory non-compliance.
11 Third party management
- We outsource various activities to third party suppliers who specialise Our Third Party Risk Management framework is well embedded and continues to
in the delivery of certain services. While managing resource, specialisation evolve in line with external developments, industry practice and regulatory
and cost risks in this way, we are exposed to a variety of delivery, developments. We monitor the quality of third party oversight and take actions
regulatory and reputational risks as a result. where weaknesses are identified.
We actively monitor delivery from third parties and take action where we have
concerns.
12 Financial management process
- We have extensive financial reporting obligations to clients, customers, Our financial reporting activities align to external reporting standards and
shareholders, regulators and other stakeholders. Failures in these processes industry best practice. These activities are subject to extensive Internal
could impact decision-making and lead to regulatory and litigation risk. control and appropriate governance.
The cover to page 67 constitute the Strategic report which was approved by the
Board and signed on its behalf by:
Stephen Bird
Chief Executive Officer
abrdn plc
(SC286832)
28 February 2023
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