REG - abrdn PLC - Final Results
28/02/2023 07:00
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RNS Number : 2983R abrdn PLC 28 February 2023
abrdn plc
Full year results 2022
Part 1 of 8
28 February 2023
Building a stronger abrdn
- Creating a stronger business model with diversified earnings
from three-vector strategy
- Scaling up our leading UK savings and wealth businesses
- Refocusing and simplifying our Investments business to drive
efficiency, client experience and deliver growth
- Reinvesting and distributing capital to drive growth and deliver
shareholder returns
Stephen Bird, Chief Executive Officer of abrdn plc, said:
"We are building a stronger abrdn. As we exit year two of our three-year
strategic plan, the structure of our group is now broadly set. We are
increasingly well positioned for growth.
In one of the toughest investing years in living memory, the resilience we
have created in our business model helped us to deliver adjusted operating
profit of £263m.
Adviser and Personal, which benefited from the acquisition of ii, both
delivered increased revenue and profits. This provided an important offset to
the impact of market conditions on our Investments business.
In Investments, gross flows excluding liquidity held up well at £49bn in
spite of the considerably worse environment. Underlying net outflows were 3%
of opening AUMA, excluding the last LBG withdrawals and liquidity, and were
concentrated in equities.
We are making progress on our commitment to focus on areas of scale and
strength, and to simplify and reduce costs in the business. Overall, we are
increasingly well positioned for the cycle turning. Our three businesses work
well together and we are building the linkages that will create value across
the group.
Our capital position is strong and we are reinvesting into growth areas, while
providing returns to shareholders. We look to the year ahead with confidence
and a clear focus on delivering for clients and our wider stakeholders."
Summary results
2022 2021 Change
Financial metrics
Net operating revenue(1) £1,456m £1,515m (4%)
Adjusted operating profit £263m £323m (19%)
Cost/income ratio 82% 79% 3ppts
Adjusted capital generation £259m £366m (29%)
IFRS (loss)/profit before tax (£615m) £1,115m
Adjusted diluted earnings per share 10.5p 13.7p (23%)
Diluted earnings per share (26.8p) 46.0p
Full year dividend per share 14.6p 14.6p
Business metrics
Gross inflows £69.0bn £72.3bn (5%)
Net flows (£37.9bn) (£6.2bn)
Net flows excluding LBG and liquidity(2) (£10.3bn) (£3.2bn)
AUMA £500bn £542bn (8%)
Investment performance (AUM) - 3 years(3) 65% 78%
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.
2. Excluding Institutional and Wholesale liquidity net outflows of £3.2bn
(2021: £3.0bn) and LBG tranche withdrawals of £24.4bn (2021: £nil).
Liquidity flows are low margin and volatile in nature. LBG tranche withdrawals
relate to the settlement of arbitration with LBG.
3. 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.
Impact of difficult market conditions on performance
- Net operating revenue 4% lower at £1,456m, with increased
contributions from Adviser and Personal partially offsetting lower revenue in
Investments largely driven by market movements
- AUMA at £500bn, 8% lower with interactive investor (ii) broadly
offsetting the impact from markets
- Net outflows of £10.3bn (ex. LBG and liquidity), largely in equities
in line with sector trends
- Adjusted operating profit 19% lower at £263m driven by the decline in
Investments revenue
- Overall, adjusted operating expenses were flat. Cost savings of 7%
were offset by the impact of acquisitions, FX and staff cost inflation in
Investments in H2 2022
- Cost/income ratio of 82% (2021: 79%) as a result of lower revenue
- IFRS loss before tax of £615m (2021: profit £1,115m), reflects
non-cash adjustments of £187m relating to the fall in share prices of our
listed stakes and £369m in impairments. 2021 benefited from very substantial
one-off accounting gains
- Adjusted diluted EPS of 10.5p (2021: 13.7p) reflecting lower adjusted
profit after tax partially offset by lower share count
- Full year dividend of 14.6p in line with dividend policy
Successful acquisition of interactive investor, reshaping the Personal vector
- Successful acquisition of ii during 2022 delivered a substantial
scaling up of our presence in the attractive UK savings and wealth market
- ii delivered a strong performance over 12 months with net operating
revenue 38% higher to £176m and adjusted operating profit 109% higher to
£94m (excluding Share) demonstrating the resilience of its business model
- Net customer growth for 2022 was 3% (excluding run-off from historic
acquisitions), taking total customers to 402k and supporting subscription fee
growth of 17% (12 months basis)
- Daily average retail trades of 17.3k (2021: 21.9k) reflected muted
customer activity given the volatile market conditions
- Treasury income of £71m (12 months basis) benefited from rising
interest rates with an average cash margin of 120bps. Indicative average cash
margin of 160-170bps for 2023
- Cost/income ratio for ii was 47% in 2022 and 41% for the 7 months
since joining abrdn
- ii performing ahead of our expectations, including a stronger
performance in treasury income. Based on the last 7 months of 2022, the
£1.49bn purchase price represents a multiple of 16x ii's annualised post tax
adjusted earnings
A growing contribution from Adviser
- Net operating revenue in Adviser 4% higher to £185m (2021: £178m)
- Adviser benefitted from rising interest rates with an average cash
margin of c85bps. Indicative average cash margin of 160-180bps for 2023
- Adjusted operating profit 16% higher at £86m (2021: £74m)
- Successful technology launch with improved capabilities, expanding
capacity to attract new clients
- No.1 adviser platform in the UK by AUA with 50% of the UK's advice
businesses using our platforms
- Customer satisfaction score of 95%
Further progress in reshaping Investments
- Sector-wide impacts affected flows, with net outflows of £13.4bn (ex.
LBG and liquidity) (2021: £7.6bn), representing (3%) of opening AUM
- AUM of £376bn (2021: £464bn), 19% lower reflecting lower markets and
the final LBG tranche withdrawals
- Investment performance is 65% of AUM above benchmark over 3 years
(2021: 78% restated)
- Net operating revenue 13% lower to £1,070m, and adjusted operating
profit 55% lower to £114m, largely due to lower markets impacting average
AUM, particularly in equities
- Overall costs 2% lower as a result of lower staff costs, FTE and
variable compensation levels
- Net cost savings of c£75m now expected to be delivered in 2023, prior
to any non-core disposals
- Impact of changes in asset strategies and related pricing changes in
insurance activities expected to result in further contraction of yields
- Merged or closed 58 funds in 2022
- Our investment capabilities are being focused 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
- Appointed Peter Branner as Chief Investment Officer
Disciplined approach to capital management and allocation
- Strong capital position with surplus regulatory capital
of £0.7bn (2021: £1.8bn) after funding the ii acquisition
- Final dividend of 7.3p, giving full year dividend of 14.6p, in line
with our policy
- Dividend cost reduced through buybacks to £295m, 0.9x covered by
adjusted capital generation
- Restructuring and corporate transaction expenses of £214m in 2022
comprising £169m restructuring costs, mostly in Investments, and £45m
corporate transaction costs, mostly ii
- Restructuring costs (excluding corporate transaction costs) expected
to be of a similar level in 2023, primarily related to the continued reshaping
of the Investments vector and expected to be covered by non-core asset
disposal proceeds
- Subject to economic conditions, we will continue to explore inorganic
investments that are bolt-on in nature and expect to allocate capital to
support such opportunities
- Committed to 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 realised £0.8bn from stake sales in 2022. We are committed to
returning a significant proportion of capital generated from further stake
sales by way of share buybacks
- Returned £0.6bn to shareholders in dividends and buybacks in 2022
- We are today announcing the sale of our Discretionary fund management
arm. Our Managed Portfolio Services business is being retained
Looking forward
- 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. 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,
investing 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
share buybacks in 2022, and intend to return a similar level in 2023
Annual report and accounts 2022
The Annual report and accounts 2022 (Annual report 2022) has been published
today and is available at www.abrdn.com/annualreport
(http://www.abrdn.com/annualreport)
This press release contains certain information that has been extracted from
the Annual report 2022.
Media
A conference call for the media will take place at 07:45am (GMT) on 28
February 2023. To access the conference call, you will need to pre-register
at https://www.abrdn.com/corporate/media-centre/media-call
(https://www.abrdn.com/corporate/media-centre/media-call)
Investors and analysts
A presentation for analysts and investors will take place 09:30am (GMT) on 28
February 2023. To view the webcast live please go to www.abrdn.com/corporate
(http://www.abrdn.com/corporate)
For a PDF version of the full Annual Report and Accounts 2022, please click
here:
http://www.rns-pdf.londonstockexchange.com/rns/2983R_1-2023-2-28.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/2983R_1-2023-2-28.pdf)
For further information please contact:
Institutional and equity investor and analysts Retail equity investors
Catherine Nash 07798 518657 Equiniti * 0371 384 2464
Media Debt investors and analysts
Duncan Young 07920868865 Graeme McBirnie 01313 727760
Iain Dey (Teneo) 07976 295906
* Calls may be monitored and/or recorded. Call charges will vary.
abrdn plc's LEI Code is 0TMBS544NMO7GLCE7H90
CEO statement
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.
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. 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.
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.
CFO commentary
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 1,456 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).
- 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
Movement in net operating revenue £m
2021 net operating revenue 1,515
Net flows excluding LBG (23)
Yield (31)
Markets (109)
Corporate actions 100
Performance fees, FX and other 4
2022 Net operating revenue 1,456
Net operating revenue reduced by 4% reflecting:
- Impact from net outflows 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 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.
Investments
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)
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.
Investments vector faced market headwinds
Adjusted operating profit
- £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
- 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.
Insurance
Net operating revenue
- 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
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.
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.
Adviser
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
- 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
(Source: UK Adviser platform, Fundscape Q3 2022).
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.
Personal
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
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.
3. Results for interactive investor included following the completion of the
acquisition on 27 May 2022.
Accelerating revenue diversification with acquisition of ii
Adjusted operating profit
- 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.
Overall performance
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)
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.
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.
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.
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.
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.
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.
As a result of the decline in revenue in the year, dividend cover on an
adjusted capital generation basis was 0.9 times.
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.
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.
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.
Appendix
Assets under management and administration
Opening Gross inflows Redemptions Net flows Market Corporate Closing
AUMA at
and other movements
actions(2)
AUMA at
1 Jan 2022
31 Dec 2022
12 months ended 31 December 2022 £bn £bn £bn £bn £bn £bn £bn
Institutional 174.0 20.1 (27.3) (7.2) (12.4) 7.5 161.9
Wholesale 79.1 16.4 (20.8) (4.4) (5.4) - 69.3
Insurance 210.5 22.8 (52.2) (29.4) (28.7) (7.5) 144.9
Investments 463.6 59.3 (100.3) (41.0) (46.5) - 376.1
Adviser 76.2 6.6 (5.0) 1.6 (9.3) - 68.5
interactive investor - 4.1 (2.5) 1.6 (3.0) 55.4 54.0
Personal Wealth 14.4 1.5 (1.2) 0.3 (1.6) - 13.1
Personal(1) 14.4 5.6 (3.7) 1.9 (4.6) 55.4 67.1
Eliminations(1) (12.1) (2.5) 2.1 (0.4) 1.7 (0.9) (11.7)
Total AUMA 542.1 69.0 (106.9) (37.9) (58.7) 54.5 500.0
Opening Gross inflows Redemptions Net flows Market Corporate Closing
AUMA at
and other movements
actions(3)
AUMA at
1 Jan 2021
31 Dec 2021
12 months ended 31 December 2021 £bn £bn £bn £bn £bn £bn £bn
Institutional 171.7 22.5 (25.4) (2.9) 5.4 (0.2) 174.0
Wholesale 80.0 19.4 (21.6) (2.2) 1.3 - 79.1
Insurance 205.2 21.5 (27.0) (5.5) 10.8 - 210.5
Investments 456.9 63.4 (74.0) (10.6) 17.5 (0.2) 463.6
Adviser 67.0 9.1 (5.2) 3.9 5.3 - 76.2
interactive investor - - - - - - -
Personal Wealth 13.3 1.7 (1.1) 0.6 0.5 - 14.4
Personal(1) 13.3 1.7 (1.1) 0.6 0.5 - 14.4
Parmenion 8.1 0.7 (0.4) 0.3 0.3 (8.7) -
Eliminations(1) (10.7) (2.6) 2.2 (0.4) (1.0) - (12.1)
Total AUMA 534.6 72.3 (78.5) (6.2) 22.6 (8.9) 542.1
1. Eliminations remove the double count reflected in Investments, Adviser
and Personal. The Personal vector includes assets that are reflected in both
the discretionary investment management and financial planning businesses.
This double count is also removed within Eliminations.
2. Corporate actions in 2022 relate to the acquisition of interactive
investor on 27 May 2022 and also reflect the transfer of retained LBG AUM of
c£7.5bn from Insurance into Institutional (quantitatives), to better reflect
how the relationship is being managed. The eliminations are to remove the
double count for the assets that are reflected in both interactive investor
and Investments.
3. Corporate actions in 2021 relate to the acquisition of a majority
interest in Tritax on 1 April 2021 (£5.8bn) and the disposals of our domestic
real estate business in the Nordics region on 31 May 2021 (£3.3bn) and
Bonaccord/Hark on 30 September 2021 (£1.5bn). Corporate actions also include
the impact of the decision to exit the Total Return Bond strategy of £1.2bn.
The sale of Parmenion completed on 30 June 2021.
Opening Gross flows Redemptions Net flows Market Corporate actions Closing
AUM at
and other movements
AUM at
1 Jan 2022
31 Dec 2022
12 months ended 31 December 2022 £bn £bn £bn £bn £bn £bn £bn
Equities 69.0 7.7 (12.7) (5.0) (11.7) - 52.3
Fixed income 45.8 6.7 (8.9) (2.2) (6.0) - 37.6
Multi-asset 36.0 3.9 (5.2) (1.3) (6.4) - 28.3
Private equity 12.3 0.5 (1.1) (0.6) 0.6 - 12.3
Real assets 39.4 2.1 (3.5) (1.4) 4.7 - 42.7
Alternatives 20.8 2.2 (1.6) 0.6 0.8 - 22.2
Quantitative(1) 5.5 3.2 (1.7) 1.5 0.5 7.5 15.0
Liquidity 24.3 10.2 (13.4) (3.2) (0.3) - 20.8
Institutional and Wholesale(1) 253.1 36.5 (48.1) (11.6) (17.8) 7.5 231.2
1. Corporate actions include the transfer of retained LBG AUM of c£7.5bn
from Insurance into Institutional (quantitatives), to better reflect how the
relationship is being managed.
Opening Gross flows Redemptions Net flows Market Corporate actions Closing
AUM at
and other movements
AUM at
1 Jan 2021
31 Dec 2021
12 months ended 31 December 2021 £bn £bn £bn £bn £bn £bn £bn
Equities 69.2 11.6 (14.6) (3.0) 2.8 - 69.0
Fixed income 48.2 11.5 (10.3) 1.2 (1.5) (2.1) 45.8
Multi-asset 37.7 4.2 (6.1) (1.9) 0.2 - 36.0
Private equity 10.9 1.5 (1.2) 0.3 1.7 (0.6) 12.3
Real assets 30.0 3.3 (2.1) 1.2 5.7 2.5 39.4
Alternatives 19.5 2.0 (1.9) 0.1 1.2 - 20.8
Quantitative 6.4 1.2 (1.2) - (0.9) - 5.5
Liquidity 29.8 6.6 (9.6) (3.0) (2.5) - 24.3
Institutional and Wholesale 251.7 41.9 (47.0) (5.1) 6.7 (0.2) 253.1
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