REG - abrdn PLC - Half-year Report
08/08/2023 07:00
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RNS Number : 5704I abrdn PLC 08 August 2023
abrdn plc
Half year results 2023
Part 1 of 3
8 August 2023
"We continued to move at pace to execute our strategy over the first six
months of 2023 in a challenging macro environment. Thanks to abrdn's revenue
diversification and the resilience we have built into our business with the
acquisition of interactive investor last year, we grew revenue by 4% and
adjusted operating profit by 10% over the period. We are on track to deliver
our £75m cost savings target in Investments as we continue our work to
restore that business to a more acceptable level of profitability.
We have a strong balance sheet, bolstered by £535m of cash realised during
the period from the sales of our non-core Indian investments in HDFC Life and
HDFC Asset Management. This supported a share buyback of £150m, which is near
completion, and we are announcing an extension to this programme to £300m. We
have also deployed capital during this period to further strengthen our
position in Investments through bolt-on acquisitions. We look forward to
completing our acquisition of the specialist healthcare fund management
business of the US-based Tekla Capital, during H2, which will add some
$3.2bn(1) of AUM and $32m(1) of revenues."
Stephen Bird, Chief Executive Officer
Media
A conference call for the media will take place at 08:00am (BST) on 8 August
2023. To access the conference call, you will need to pre-register at:
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Institutional investors and analysts
A presentation for analysts and investors will take place via webcast at
09:45am (BST) on 8 August 2023. To view the webcast live please go to
www.abrdn.com (http://www.abrdn.com)
FOR A PDF VERSION OF THE FULL HALF YEAR REPORT, PLEASE CLICK HERE
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For further information please contact:
Institutional equity investors and analysts Retail equity investors
Catherine Nash 07798 518657 Equiniti* 0371 384 2464
Corbin Chaplin 07774 332428
Media Debt investors and analysts
Andrea Ward 07876 178696 Graeme McBirnie 0131 372 7760
Iain Dey (Teneo) 07976 295906
* Calls may be monitored and/or recorded. Call charges will vary.
abrdn plc's LEI Code is 0TMBS544NMO7GLCE7H90
The Half year results 2023 are published on the Group's website at
www.abrdn.com/hyresults (www.abrdn.com/hyresults)
The Management report (section 1) is on pages 1 to 13. Details of
forward-looking statements can be found on page 68.
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 condensed consolidated income
statement, condensed consolidated statement of financial position and
condensed consolidated statement of cash flows, which are presented in the
Financial information section of this report. Further details on APMs are
included in Supplementary information.
See Supplementary information for details on AUMA, net flows and the
investment performance calculation. Net flows on page 1 excludes Institutional
and Retail Wealth liquidity flows as they are volatile and lower margin. It
also excludes Lloyds Banking Group (LBG) tranche withdrawals in H1 2022
relating to the settlement of arbitration with LBG.
All movements shown are compared to H1 2022 unless otherwise stated.
1. Based on 2022 figures.
Half year 2023 results summary
Benefiting from a stronger business model
- Results in H1 2023 evidence the benefit of our diversification
strategy with a full six months of ii (H1 2022: one month) making a positive
contribution, offset by the impact of continued challenging market conditions
and net outflows from the 'risk-off' environment.
- Net operating revenue was 4% higher at £721m, with growth in Adviser
and Personal offsetting lower revenue in Investments.
- Adjusted operating profit was up 10% to £127m.
- Cost/income ratio improved marginally to 82% (H1 2022: 83%) with
adjusted operating expenses up by 2% to £594m due mainly to the inclusion of
ii.
- IFRS loss before tax of £169m (H1 2022: loss £326m(1)), largely
driven by the fall in market value of our listed stakes.
- AUMA was £496bn (FY 2022: £500bn), down 1% reflecting the impact of
net outflows.
- Net outflows excluding liquidity of £4.4bn with positive flows of
£1.9bn in ii offset by outflows in Investments and Adviser.
- Interim dividend of 7.3p, covered 1.04 times by adjusted capital
generation of £142m.
Market conditions impact Investments as costs continue to fall
- Net operating revenue in Investments is 15% lower at £466m due to
lower average AUM and net outflows, particularly in equities as client asset
allocation moved to debt products and cash in the rising interest rate
environment.
- Adjusted operating profit is down 66% to £26m (H1 2022: £76m)
reflecting challenging conditions impacting the sector and the decline in
revenue.
- Adjusted operating expenses down 6% and on track to deliver the £75m
net cost reduction target with £30m realised in H1.
Strong earnings in Adviser despite challenging market conditions
- Net operating revenue 12% higher to £103m (H1 2022: £92m) driven by
higher average cash margin of c215bps reflecting higher interest rates. The
indicative average cash margin for 2023 is now c225bps.
- Adjusted operating profit was up 29% at £49m (H1 2022: £38m) due to
higher revenue and flat costs.
- Net outflows of £0.6bn (H1 2022: £1.4bn inflows) reflect slow down
seen across the market, and customer response to increased cost of living.
Personal benefiting from ii's robust operating model delivering growth
- Personal includes benefit of full six months of ii revenue, with total
net operating revenue up 162% to £152m (H1 2022: £58m). Assuming ii had been
owned for an equivalent period in H1 2022, net operating revenue would be up
27%.
- Treasury income of £66m (H1 2022: £5m) benefited from rising
interest rates with an average cash margin of 229bps. The indicative average
cash margin for 2023 is now expected to be 180-200bps.
- Customer growth, excluding the run-off from acquired books, was
subdued as expected at 1%.
- SIPP customers grew to 57.2k (FY 2022: 51.5k) with penetration
increasing to 14% of customer base.
Redeployment and distribution of capital
- Strong capital position with surplus regulatory capital of £1,017m
and a further unrecognised £554m in the value of the Phoenix stake.
- Final holdings in Indian stakes sold raising £535m net cash proceeds.
- Initial £150m share buyback close to completion and we are announcing
the extension of this by a further £150m to a total of £300m.
- 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.
Outlook
- The benefits of diversification are already evident with Adviser and
Personal on a stronger trajectory of growth, with more efficient operating
margins and clear opportunities for the future.
- Outlook for global markets remains uncertain and we are taking actions
to put our Investments business on a better footing. This is 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.
Performance indicators H1 2023 H1 2022 Change
Net operating revenue £721m £696m 4%
Cost/income ratio 82% 83% (1ppt)
Adjusted operating profit £127m £115m 10%
Adjusted capital generation £142m £107m 33%
IFRS loss before tax (£169m) (£326m)(1) 48%
Adjusted diluted earnings per share 6.2p 3.7p 68%
Diluted earnings per share (7.7p) (14.2p)(1) 46%
AUMA £495.7bn £500.0bn(2) (1%)
Net outflows (excl liquidity/LBG) (£4.4bn) (£3.8bn) (16%)
Investment performance(3) 58% 65%(2) (7ppts)
Interim dividend per share 7.3p 7.3p -
1. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Note 4.1(a)(i).
2. Comparative as at 31 December 2022.
3. % of AUM above benchmark over three years. Further details on the
calculation of investment performance are provided in Supplementary
information.
Chief Executive Officer's statement
Adjusted operating profit IFRS loss before tax Adjusted capital generation
£127m (£169m) £142m
Building a stronger abrdn
As we move through 2023 we have remained focused on driving through our
strategy and delivering the operational improvements needed to underpin future
success. Despite a tough macro environment, the resilience that we have built
into the group means we can report good progress.
Results for H1 show net operating revenue up 4% to £721m and adjusted
operating profit up 10% to £127m on last year. An IFRS loss before tax of
£169m for the six months, reflects £320m of adjusting items. This was
largely due to a £181m reduction in the value of the listed stakes held on
our balance sheet as a result of their falling share prices in H1 2023.
The results underline the resilience created by our diversification. The net
operating revenue increase on last year was due to the benefit of six months
of ii (H1 2022: one month). Excluding ii, net operating revenue reduced by
11%. Adjusted operating expenses increased 2% year on year, again mainly due
to the full contribution from ii. With growing revenues overall, our
cost/income ratio improved slightly to 82% (H1 2022: 83%).
Progressing our strategy
Looking over the half, we have made further substantial progress in our
transformation. We continue to attract top talent to abrdn as we simplify and
embed our structure. Ian Jenkins has provided strong leadership as our interim
CFO and we recently announced that Jason Windsor will be joining us later this
year. A very talented and experienced finance leader, we are looking forward
to working with him.
In Investments, we announced in May important changes to accelerate growth
across the business with Réne Buehlmann becoming sole CEO of that business.
Peter Branner has joined as Chief Investment Officer, and Xavier Meyer was
promoted to Head of UK and EMEA as well as being Chief Client Officer.
We sold the remaining HDFC Life and HDFC Asset Management stakes during the
period, realising £576m of capital and further simplifying our structure. We
have continued to return capital in line with our commitment, with the initial
£150m share buyback substantially complete. We are announcing the extension
of this programme to £300m.We have carried on our track record of strategic
bolt-on acquisitions, building out our global top three position in closed-end
funds with the announced Tekla acquisition. We have identified several
mega-trends that will shape our industry with significant innovations in
biotech and healthcare, clean tech and digital assets. You can expect to see
us make more investments in these areas.
We have carried on our track record of strategic bolt-on acquisitions,
building out our global top three position in
closed-end funds with the recently announced Tekla acquisition. We have
identified several mega-trends that will shape our industry with significant
innovations in biotech and healthcare, clean tech and digital assets. You can
expect to see us make more investments in these areas.
We have announced the sales of our non-core US private equity and venture
capital business and our discretionary fund management business, which we
expect to complete in H2. Our operational progress has also continued at pace;
we have delivered £30m of our net savings target in Investments in the first
half and we are on track to deliver the targeted £75m by the end of 2023.
With the substantial reshaping of our asset management arm, we are positioning
abrdn for growth across its three businesses: Investments, Adviser and
Personal. We have built a diversified model that better serves our clients and
gives us many more ways to win business.
In another turbulent investing year, the contributions of Personal (largely
thanks to ii) and Adviser offset the challenging results in Investments.
Overall, Personal and Adviser represented more than 85% of abrdn's adjusted
operating profit. Diversification is also helping our margin mix, as the
platforms have a significantly lower cost to serve than our asset management
business.
Investments
If 2022 was one of the hardest investing years in living memory, 2023 is
shaping up to be equally challenging. Geopolitical risk is back. Inflation is
back. Credit risk is back. The changing dynamics and challenges within
traditional asset management are well known - the relentless rise of passive
and index investing, democratisation of technology and finance and the faster
growth of alternatives are all ongoing themes.
We have been reshaping the business to take account of these factors, although
in Investments we still have further to go. Net operating revenue reduced by
15% to £466m and adjusted operating profit by 66% to £26m. As part of our
work to address the level of profitability in the Investments business,
comprehensive efforts to improve the operating margin are ongoing.
This was always the longest-cycle transformation given the structural
challenges and the nature of change in active asset management. We are
simplifying our product range, getting out of undifferentiated and low-margin
areas and we are reducing cost and complexity so that we are focused on
delivering higher margin products with good performance.
Net outflows excluding liquidity and LBG were less than 2% of opening AUM at
£5.7bn (H1 2022: £5.2bn). As we look ahead, we are encouraged by a strong
pipeline of opportunities across our core strengths in Public markets and
Alternatives which should drive new business inflows as we create positive
value for our clients and the firm.
In Public markets, we see our biggest growth opportunity in fixed income. We
have considerable scale at £125bn AUM, including the assets we manage for
Phoenix, alongside strong performance, expertise and product range. Fixed
income remains a core competency from our heritage, and for an asset class
that has been out of favour for many years given the recent low yield
environment, it is now back in vogue and our pipeline is promising.
This potential is underpinned by performance with 77% of our fixed income
capabilities outperforming over three years; in credit, where we have
particular strength, 99% of our assets are outperforming over three years.
In specialist equities, we are focused on our established and recognised areas
of strength - Asia and emerging markets, small and midcap, equity income and
sustainability. The structural growth opportunity in Asia is well understood,
and we as a firm and our product line-up are well positioned; 78% of our
emerging markets equities AUM is outperforming over three years.
With £81bn of assets in our Alternatives franchise we are a scale player and
are benefiting from recent repositioning. In the logistics space, Tritax
remains a leading player with two of the biggest listed logistics funds in the
market and we are seeing a solid demand pipeline for our private credit
strategies. We also recently announced the creation of tokenised
representations of interests in our abrdn Sterling flagship liquidity fund on
the Archax platform, a key milestone in our digital assets strategy.
These examples illustrate the strength of foundations that are now in place
and we are working hard to build on these foundations to capitalise on the
growth opportunities in front of us.
Notwithstanding these areas of clear strength, we recognise that overall
investment performance, at 58% over the key three-year period (FY 2022: 65%),
is not what where we want it to be. We are very clear that there remains
meaningful work to do to address the parts of our business that face headwinds
on performance or where we are sub-scale, and we are acting accordingly.
We continued to reduce cost and headcount in H1 2023, consolidating the
progress made in 2022, and continued to adjust our geographic footprint,
entering into distribution arrangements where on the ground presence is too
costly.
We have announced the reshaping and focusing of our multi-asset capabilities
and our broader work to rationalise products and sub-scale funds is well
underway. We originally designated 120 funds for closure or merger,
subsequently increased that to 143, and by the end of the half year we had
completed 101.
Work is underway to reduce cost, address remaining areas of performance
weakness and improve our revenue yield. Clear plans are in place to achieve
these goals. We are confident that through this work, a capable and relevant
abrdn Investments business will emerge.
Adviser
In Adviser we have delivered another year of adjusted operating profit growth.
Against the backdrop of the high inflationary environment this has been
achieved through disciplined cost management and the benefit of increased net
interest margin. This delivers one of the best platform cost/income ratios in
the market, and we remain the only AKG A rated platform for financial
strength.
High inflation and interest rates resulted in net flows being down
significantly for the adviser platform market as a whole. We saw net outflows
of £0.6bn in H1 2023. Adjusted operating profit increased by 29% to £49m,
mainly reflecting higher net interest margin.
In February we delivered the next stage of our Adviser Experience Programme,
our most significant technology upgrade since the launch of the platform. The
new functionality has fundamentally changed our proposition and has set the
foundations for future growth.
Having embedded our technology upgrade, we are focused on delivering the next
stage of our Adviser Experience Programme through adviserOS later in the year,
which will launch concurrently with our new on-platform pension. adviserOS
amplifies our position as a leader in content and experience, acting as our
key differentiator in the market. adviserOS will replace Wrap and Elevate,
delivering a single, flexible proposition to advisers.
Despite the current market caution, the medium-term market opportunity remains
compelling. Using the capacity created from our technology upgrade, along with
the planned launch of our new pension product later in the year, we are well
positioned to drive new business through our three growth pillars - our
c425,000 existing customers, new customers and new adviser clients - and
remain a market leader at the forefront of this growing market.
Personal
The acquisition of ii transformed our Personal business, and that is again
clear in the results for H1 2023, which include a full six months'
contribution from ii compared to one month for H1 2022.
ii's performance continues to exceed our initial expectations, with a net
operating revenue of £115m and an adjusted operating profit of £67m in H1
2023. Based on the first full 12 months of ownership, the £1.49bn purchase
price represents a multiple of 15 times post tax adjusted earnings. For
Personal as a whole, net operating revenue was £152m and adjusted operating
profit £61m.
We see a number of opportunities for growth, as explained at our Spotlight on
Personal last month, including; greater SIPP penetration, new services, an
increased focus on brand and marketing and greater synergies across the
Personal business. Combined, we believe we are looking at a very exciting
proposition.
High inflation and interest rates are affecting short-term investor confidence
with consequent impacts on customer acquisition and trading levels (revenue
26% down on H1 2022). New customer numbers have been lower than expected,
however, excluding the run-off from the two most recent ii client
acquisitions, our customer base has grown by 1% in the first half.
Treasury income and the quality of our subscription model, which is
insensitive to market levels, combined with a continuous focus on service,
simplification and digitisation has supported increased operating margin and
an improvement in our cost efficiency. This resulted in a 42% cost/income
ratio for ii and the overall cost/income ratio for the Personal business
improving to 60% (H1 2022: 88%).
While we expect this environment to persist in 2023 we plan to continue to
take market share, supported by recent re-pricing. We also expect to continue
to benefit from structural drivers and a supportive regulatory environment
making simplified advice and investing more accessible to a larger customer
base.
Strategic approach and outlook
We are disciplined allocators of capital. We have invested in high quality
businesses that will generate long-term growth. At the same time we have made
sure that we can deliver sustainable dividends, complemented by share buybacks
in order to drive shareholder returns.
We are delivering on our ambition to make returns to shareholders at similar
levels to 2022, with the announcement to extend the buyback by a further
£150m to a total of £300m, delivering a combined £0.6bn of shareholder
returns through dividends and buybacks.
When we feel we can deliver value from other bolt-on M&A opportunities,
you can expect us to be disciplined and effective in our execution.
The dividend guidance remains unchanged at 14.6p per share per annum until at
least 1.5 times covered by adjusted capital generation.
We have made significant progress since we set out on our strategy in early
2021. The business has been reshaped to deliver greater resilience, while
getting set to take advantage of fast moving sectoral and macroeconomic
factors. There is still work to do to complete our transformation, but as we
look ahead to the next phase of our plan, we now have the key management
resources on board and a far more secure and dynamic foundation on which we
can build for the future.
Stephen Bird
Chief Executive Officer
Results summary
Analysis of profit H1 2023 H1 2022(1)
£m
£m
Net operating revenue 721 696
Adjusted operating expenses (594) (581)
Adjusted operating profit 127 115
Adjusted net financing costs and investment return 24 (16)
Adjusted profit before tax 151 99
Adjusting items including results of associates and joint ventures (320) (425)
IFRS loss before tax (169) (326)
Tax credit 24 31
IFRS loss for the period (145) (295)
The IFRS loss before tax was £169m (H1 2022: loss £326m) including an
adjusted operating profit of £127m (H1 2022: £115m). Adjusting items were
£320m (H1 2022: £425m):
- Losses of £181m (H1 2022: losses £313m) 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 H1
2023.
- Restructuring and corporate transaction expenses were £113m (H1 2022:
£88m), mainly consisting of property related impairments, severance, platform
transformation and specific costs to effect savings in Investments.
Adjusted operating profit was 10% higher than H1 2022 due to the H1 2023
results including a contribution from ii for the full six months (H1 2022: one
month) which benefited net operating revenue by £115m (H1 2022: £13m) and
adjusted operating profit by £67m (H1 2022: £6m). Excluding ii, adjusted
operating profit was 45% lower than H1 2022 at £60m (H1 2022: £109m) largely
due to the revenue impact of adverse market movements which particularly
impacted high yielding equities.
Net operating revenue
Net operating revenue increased by 4% reflecting:
- Impact from net outflows(2) of 4% (H1 2022: <1%), and adverse yield
movements.
- Although the market declines seen in 2022 began to reverse in H1 2023,
the lower average AUMA compared with H1 2022 impacted revenue by c5%.
- Benefit of £102m from the full six months of ii in H1 2023.
The diversification that now drives our sources of revenue has helped to
mitigate the impact of market volatility, including the benefit from ii's
subscription model and the higher total net interest margin (H1 2023: £81m,
H1 2022: £8m). Total net operating revenue increased by 4%. Excluding ii, net
operating revenue reduced by 11%.
Adjusted operating expenses
H1 2023 H1 2022
£m
£m
Staff costs excluding variable compensation 262 264
Variable compensation 43 39
Staff and other related costs(3) 305 303
Non-staff costs 289 278
Adjusted operating expenses 594 581
Adjusted operating expenses increased 2% mainly due to the inclusion of £48m
(H1 2022: £7m) of ii expenses for the full six month period. Excluding ii,
expenses were 5% lower at £546m (H1 2022: £574m) reflecting:
- 7% lower staff costs (excluding variable compensation), with the
benefit of lower FTEs (11%), partly offset by wage inflation.
- Variable compensation (excluding ii) broadly in line with business
performance.
- 4% lower non-staff costs, with cost savings partly offset by the
impact of inflation.
- Overall expenses were impacted by c£6m from adverse FX movements.
The cost/income ratio improved slightly to 82% (H1 2022: 83%) reflecting the
benefit from the efficient Adviser and Personal cost models, offset by lower
revenue in Investments.
1. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Note 4.1(a)(i).
2. Reflects the estimated impact on net operating revenue as a result of net
outflows in both the current and prior period, as a percentage of prior period
revenue.
3. See Supplementary information for a reconciliation to IFRS staff and other
employee related costs.
Investments
Adjusted operating profit Net operating revenue Net operating revenue yield Net flows (excl liquidity & LBG)
£26m £466m 24.6bps (£5.7bn)
Total Institutional and Retail Wealth(1) Insurance Partners(1)
H1 2023 H1 2022 H1 2023 H1 2022 H1 2023 H1 2022
Net operating revenue(2) £466m £546m
Adjusted operating expenses (£440m) (£470m)
Adjusted operating profit £26m £76m
Cost/income ratio 94% 86%
Net operating revenue yield 24.6bps 25.3bps 33.7bps 37.1bps 10.6bps 9.9bps
AUM £367.6bn £376.1bn(3) £219.0bn £231.2bn(3) £148.6bn £144.9bn(3)
Gross flows £27.0bn £25.4bn £15.8bn £16.6bn £11.2bn £8.8bn
Redemptions (£33.5bn) (£62.7bn) (£22.5bn) (£27.6bn) (£11.0bn) (£35.1bn)
Net flows (£6.5bn) (£37.3bn) (£6.7bn) (£11.0bn) £0.2bn (£26.3bn)
Net flows excluding liquidity(4) (£5.7bn) (£29.6bn) (£5.9bn) (£3.3bn) £0.2bn (£26.3bn)
Net flows excluding liquidity and LBG(4,5) (£5.7bn) (£5.2bn) (£5.9bn) (£3.3bn) £0.2bn (£1.9bn)
Adjusted operating profit Net operating revenue
- Results in our Investments business have been impacted by the
- 15% lower than H1 2022 largely due to net outflows and lower market
challenging economic environment and market turbulence that has impacted performance impacting average AUM, and changes to the asset mix.
across the industry. Whilst there is a reduction in profitability in the
period, we are on track to deliver the £75m net cost reduction target, with - Performance fees of £7m (H1 2022: £10m) were earned mainly from Asia
£30m realised by 30 June 2023. and Insurance Partners.
- Profit reduced by £50m (66%) to £26m, reflecting 15% lower revenue,
partly offset by 6% lower costs.
- Cost reduction driven by lower staff costs reflecting 9% lower
front/middle office FTEs and reduced market data and outsourcing costs, was
partly offset by the impact of staff cost inflation and adverse FX movements.
- Results in our Investments business have been impacted by the
challenging economic environment and market turbulence that has impacted
across the industry. Whilst there is a reduction in profitability in the
period, we are on track to deliver the £75m net cost reduction target, with
£30m realised by 30 June 2023.
- Profit reduced by £50m (66%) to £26m, reflecting 15% lower revenue,
partly offset by 6% lower costs.
- Cost reduction driven by lower staff costs reflecting 9% lower
front/middle office FTEs and reduced market data and outsourcing costs, was
partly offset by the impact of staff cost inflation and adverse FX movements.
Net operating revenue
- 15% lower than H1 2022 largely due to net outflows and lower market
performance impacting average AUM, and changes to the asset mix.
- Performance fees of £7m (H1 2022: £10m) were earned mainly from Asia
and Insurance Partners.
Institutional and Retail Wealth
Net operating revenue Revenue yield
- 15% lower at £388m (H1 2022: £455m) due to a 6% reduction in average
- 3.4bps lower at 33.7bps largely due to the decrease in the higher
AUM to £225.5bn (H1 2022: £239.4bn). This primarily relates to lower market margin equities average AUM impacting the asset mix. Equities are 23% (H1
values driven by adverse FX movements and net outflows in equities and 2022: 25%) of average AUM at a yield of 61.8bps.
multi-asset AUM with average AUM down 16% and 17% respectively.
- The reduction in the multi-asset yield reflects the growing proportion
of lower yielding MyFolio in this asset class.
Gross flows Net flows
- Excluding liquidity, £2.6bn (19%) lower at £10.9bn (H1 2022:
- Net outflows were £2.6bn higher than H1 2022 at £5.9bn (excluding
£13.5bn) mainly in fixed income and equities. This reflected the client liquidity) due to lower gross flows.
response to the uncertain market environment which impacted the wider
industry, as many clients delayed investment decisions. - Excluding liquidity, net outflows represent 3% of opening AUM compared
with 1% in H1 2022.
- Redemptions were lower than H1 2022 at £22.5bn due to lower liquidity
outflows.
- 15% lower at £388m (H1 2022: £455m) due to a 6% reduction in average
AUM to £225.5bn (H1 2022: £239.4bn). This primarily relates to lower market
values driven by adverse FX movements and net outflows in equities and
multi-asset AUM with average AUM down 16% and 17% respectively.
Revenue yield
- 3.4bps lower at 33.7bps largely due to the decrease in the higher
margin equities average AUM impacting the asset mix. Equities are 23% (H1
2022: 25%) of average AUM at a yield of 61.8bps.
- The reduction in the multi-asset yield reflects the growing proportion
of lower yielding MyFolio in this asset class.
Gross flows
- Excluding liquidity, £2.6bn (19%) lower at £10.9bn (H1 2022:
£13.5bn) 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 £2.6bn higher than H1 2022 at £5.9bn (excluding
liquidity) due to lower gross flows.
- Excluding liquidity, net outflows represent 3% of opening AUM compared
with 1% in H1 2022.
- Redemptions were lower than H1 2022 at £22.5bn due to lower liquidity
outflows.
1. Wholesale has been renamed Retail Wealth, Insurance has been renamed
Insurance Partners.
2. Includes performance fees of £7m (H1 2022: £10m).
3. As at 31 December 2022.
4. Institutional/Retail Wealth liquidity net flows excluded.
5. Flows excluding LBG do not include the final tranche withdrawals in H1 2022
of £24.4bn relating to the settlement of arbitration with LBG.
Insurance Partners
Net operating revenue Revenue yield
- 14% lower in H1 2023 at £78m (H1 2022: £91m), reflecting the impact
- Net operating revenue yield improved slightly to 10.6bps. We expect
of 20% reduction in average AUM to £147.0bn primarily due to market declines asset rotation from active equity and fixed income strategies to passive
in H2 2022 and the impact of LBG tranche withdrawals of £24.4bn in H1 2022. quantitative strategies which, together with related pricing changes, will
result in contractions of yields. The impact of the above will be dependent on
the timing of these changes during H2 and beyond.
Gross flows Net flows
- £2.4bn higher than H1 2022 at £11.2bn (H1 2022: £8.8bn).
- Net flows improved by £2.1bn in H1 2023 at £0.2bn (H1 2022: £1.9bn
outflow excluding LBG tranche withdrawals), representing 0.1% of opening AUM
- Bulk purchase annuity inflows were £3.2bn (H1 2022: £1.3bn). compared with (0.9%) in H1 2022.
AUM
- Insurance AUM increased by £3.7bn to £148.6bn with net inflows and
positive market movements.
- 14% lower in H1 2023 at £78m (H1 2022: £91m), reflecting the impact
of 20% reduction in average AUM to £147.0bn primarily due to market declines
in H2 2022 and the impact of LBG tranche withdrawals of £24.4bn in H1 2022.
Revenue yield
- Net operating revenue yield improved slightly to 10.6bps. We expect
asset rotation from active equity and fixed income strategies to passive
quantitative strategies which, together with related pricing changes, will
result in contractions of yields. The impact of the above will be dependent on
the timing of these changes during H2 and beyond.
Gross flows
- £2.4bn higher than H1 2022 at £11.2bn (H1 2022: £8.8bn).
- Bulk purchase annuity inflows were £3.2bn (H1 2022: £1.3bn).
AUM
- Insurance AUM increased by £3.7bn to £148.6bn with net inflows and
positive market movements.
Net flows
- Net flows improved by £2.1bn in H1 2023 at £0.2bn (H1 2022: £1.9bn
outflow excluding LBG tranche withdrawals), representing 0.1% of opening AUM
compared with (0.9%) in H1 2022.
Investment performance
% of AUM ahead of benchmark(1) 1 year 3 years 5 years
H1 2023 FY 2022 H1 2023 FY 2022 H1 2023 FY 2022
Equities 40 30 36 63 62 65
Fixed income 65 65 77 72 84 79
Multi-asset 10 13 44 50 17 22
Real assets 25 57 52 63 45 52
Alternatives 94 88 100 100 100 100
Quantitative 87 17 22 27 25 29
Liquidity 86 84 94 97 96 97
Total 41 41 58 65 56 58
Investment performance over the key three-year time period has weakened, with
58% of AUM covered by this metric ahead of benchmark (FY 2022: 65%). The drop
in the three-year performance for equities is in part driven by the volatile
returns experienced through the COVID pandemic months of 2020.
Over one year there has been an improvement in equities outperformance where
the market backdrop has been more favourable to our quality and growth
outcomes. Performance for our Global Emerging Markets range and Global Quality
strategy has been strong along with a recovery in Europe, US and Global Small
Cap funds. The underperformance and stalling of a recovery in China however
has been a headwind for our Asia and China strategies this year.
Performance for alternatives, fixed income and liquidity remains consistently
strong across the periods and illustrates the resilience of our performance
delivery in these asset classes.
2023 so far has been a more challenging backdrop for our multi-asset
strategies where defensively positioned balanced pension and absolute return
strategies have underperformed. Real asset valuations also experienced some of
the sharpest corrections in history in 2022 given the higher interest rate
backdrop which has impacted returns over all periods but particularly over the
last 12 months. Q1 2023 however saw some stabilisation in direct real estate
capital values and outperformance of abrdn UK pooled funds.
Over the longer term, five-year performance remains robust and we continue to
take actions to improve investment performance which is key for client
outcomes across asset classes. These include the appointment of Peter Branner
as CIO to further support and enhance our investment processes and
capabilities.
1. Calculations for investment performance use a closing AUM weighting basis
and 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 are included in the Supplementary information section.
Adviser
Adjusted operating profit Net operating revenue Net operating revenue yield Net flows
£49m £103m 28.8bps (£0.6bn)
H1 2023(1) H1 2022
Net operating revenue £103m £92m
Adjusted operating expenses (£54m) (£54m)
Adjusted operating profit £49m £38m
Cost/income ratio 52% 59%
Net operating revenue yield 28.8bps 25.5bps
AUMA(2) £71.8bn £68.5bn(3)
Gross flows £2.9bn £4.0bn
Redemptions (£3.5bn) (£2.6bn)
Net flows (£0.6bn) £1.4bn
Adjusted operating profit AUMA
- Strong earnings performance with profit up 29% to £49m, against a
- 5% increase in H1 2023 due to positive markets and inclusion of AUM of
backdrop of challenging market conditions. c£2.5bn relating to our Managed Portfolio Service (MPS) business.
- Cost/income ratio improved to 52%, benefiting from higher net interest - Our MPS business, which was part of the discretionary fund management
margin. business, has been retained and moved to the Adviser vector from the Personal
Net operating revenue vector in May 2023 in order to maximise opportunities available through the
Adviser distribution model.
- 12% higher than H1 2022 at £103m, comprising £84m Platform charges
Gross flows
(H1 2022: £89m), £15m net interest margin (H1 2022: £3m) and £4m other
(H1 2022: £nil).
- Sales activity reduced by 28% in H1 2023, reflecting muted client activity
across the industry due to ongoing market uncertainty and the cost of living
- Increase in net interest margin on client cash balances to £15m impact on customers' ability to save. This has a heightened impact on our
reflects the rise in interest rates. This was partly offset by the impact of Adviser business where gross flows are primarily driven by existing customers.
lower average AUMA.
Net flows
- H1 2023 revenue included c£4m from threesixty/MPS following the
- Net outflows of £0.6bn reflect the market conditions, customer behaviours
transfer from the Personal business. in response to the increased cost of living and the short-term impact in H1
2023 resulting from the technology upgrade.
- The average margin earned on client cash balances during H1 2023 was
c215bps and the indicative Adviser average cash margin for FY 2023 is c225bps.
Revenue yield
- Increased to 28.8bps due to the higher revenue explained above.
- Average AUMA of £70.3bn is 3% lower than H1 2022.
- Strong earnings performance with profit up 29% to £49m, against a
backdrop of challenging market conditions.
- Cost/income ratio improved to 52%, benefiting from higher net interest
margin.
Net operating revenue
- 12% higher than H1 2022 at £103m, comprising £84m Platform charges
(H1 2022: £89m), £15m net interest margin (H1 2022: £3m) and £4m other
(H1 2022: £nil).
- Increase in net interest margin on client cash balances to £15m
reflects the rise in interest rates. This was partly offset by the impact of
lower average AUMA.
- H1 2023 revenue included c£4m from threesixty/MPS following the
transfer from the Personal business.
- The average margin earned on client cash balances during H1 2023 was
c215bps and the indicative Adviser average cash margin for FY 2023 is c225bps.
Revenue yield
- Increased to 28.8bps due to the higher revenue explained above.
- Average AUMA of £70.3bn is 3% lower than H1 2022.
AUMA
- 5% increase in H1 2023 due to positive markets and inclusion of AUM of
c£2.5bn relating to our Managed Portfolio Service (MPS) business.
- Our MPS business, which was part of the discretionary fund management
business, has been retained and moved to the Adviser vector from the Personal
vector in May 2023 in order to maximise opportunities available through the
Adviser distribution model.
Gross flows
- Sales activity reduced by 28% in H1 2023, reflecting muted client activity
across the industry due to ongoing market uncertainty and the cost of living
impact on customers' ability to save. This has a heightened impact on our
Adviser business where gross flows are primarily driven by existing customers.
Net flows
- Net outflows of £0.6bn reflect the market conditions, customer behaviours
in response to the increased cost of living and the short-term impact in H1
2023 resulting from the technology upgrade.
1. The threesixty and MPS businesses moved from Personal Wealth to Adviser
from January 2023 and May 2023 respectively. Comparatives have not been
restated.
2. Includes Platform AUA at 30 June 2023 of £69.3bn (31 December 2022:
£68.5bn).
3. As at 31 December 2022.
Personal
Adjusted operating profit Net operating revenue Net operating revenue yield Net flows
£61m £152m 60.0bps £1.8bn
Total(2) interactive investor Personal Wealth(2)
H1 2023 H1 2022 6 months 1 month H1 2023 H1 2022
H1 2023
H1 2022(4)
Net operating revenue £152m £58m £115m £13m £37m £45m
Adjusted operating expenses (£91m) (£51m) (£48m) (£7m) (£43m) (£44m)
Adjusted operating profit/(loss) £61m £7m £67m £6m (£6m) £1m
Cost/income ratio 60% 88% 42% 54% 116% 98%
Net operating revenue yield(1) 60.0bps 60.0bps
AUMA £67.4bn £67.1bn(3) £56.8bn £54.0bn(3) £10.6bn £13.1bn(3)
Gross flows £5.6bn £1.4bn £4.9bn £0.6bn £0.7bn £0.8bn
Redemptions (£3.8bn) (£1.1bn) (£3.0bn) (£0.4bn) (£0.8bn) (£0.7bn)
Net flows £1.8bn £0.3bn £1.9bn £0.2bn (£0.1bn) £0.1bn
Adjusted operating profit AUMA
- Higher profit reflects the inclusion of £67m for the full six month
- ii AUA increased to £56.8bn (FY 2022: £54.0bn), with the
result for ii, compared to only one month in H1 2022. industry-leading AUA per customer up 6% to £142,000.
- ii has continued to perform well against an uncertain market - Personal Wealth AUMA decreased to £10.6bn
environment.
(FY 2022: £13.1bn) mainly due to MPS AUM of c£2.5bn moving to the Adviser
vector.
- Loss in Personal Wealth in H1 2023 was mainly due to the lower revenue
detailed below and the impact of inflation on expenses. - The sale of abrdn Capital (AUM of c£6bn), our discretionary fund
Net operating revenue management business, to LGT, is expected to complete in H2 2023.
Gross and net flows
- ii revenue continues to benefit from diverse revenue streams. ii
treasury income contributed £66m in H1 2023, benefiting from the continued
- ii net inflows of £1.9bn reflect lower new customer volumes in ii due
rise in interest rates. Trading revenue of £25m was impacted by muted levels to a subdued retail market in H1 2023.
of customer activity given the uncertain market conditions. Revenue from
subscriptions was £27m. - Personal Wealth net outflows of £0.1bn includes impact of client
uncertainty following the announcement of the sale of our discretionary fund
- ii's average cash margin was 229bps in H1 2023 and the indicative ii management business.
average cash margin for FY 2023 is 180-200bps.
- Personal Wealth revenue reduced by £8m reflecting the transfer to
ii additional operational metrics H1 2023 H1 2022
Adviser of c£4m of threesixty/MPS revenue, and the impact of adverse market
movements.
Revenue yield
6 months 6 months
- Personal Wealth revenue yield was flat at 60.0bps with average AUMA of Total customers at period end 399k 402k(3)
£12.5bn, 9% lower than H1 2022. Total customers excluding EQi and Share Centre migrated customers 303k 300k(3)
Customers holding a SIPP account 57.2k 51.5k(3)
Customer cash balances £5.7bn £6.0bn(3)
AUA per customer £142k £134k(3)
New customers 15.1k 18.6k
Daily average retail trading volumes 16.7k 20.2k
- Higher profit reflects the inclusion of £67m for the full six month
result for ii, compared to only one month in H1 2022.
- ii has continued to perform well against an uncertain market
environment.
- Loss in Personal Wealth in H1 2023 was mainly due to the lower revenue
detailed below and the impact of inflation on expenses.
Net operating revenue
- ii revenue continues to benefit from diverse revenue streams. ii
treasury income contributed £66m in H1 2023, benefiting from the continued
rise in interest rates. Trading revenue of £25m was impacted by muted levels
of customer activity given the uncertain market conditions. Revenue from
subscriptions was £27m.
- ii's average cash margin was 229bps in H1 2023 and the indicative ii
average cash margin for FY 2023 is 180-200bps.
- Personal Wealth revenue reduced by £8m reflecting the transfer to
Adviser of c£4m of threesixty/MPS revenue, and the impact of adverse market
movements.
Revenue yield
- Personal Wealth revenue yield was flat at 60.0bps with average AUMA of
£12.5bn, 9% lower than H1 2022.
AUMA
- ii AUA increased to £56.8bn (FY 2022: £54.0bn), with the
industry-leading AUA per customer up 6% to £142,000.
- Personal Wealth AUMA decreased to £10.6bn
(FY 2022: £13.1bn) mainly due to MPS AUM of c£2.5bn moving to the Adviser
vector.
- The sale of abrdn Capital (AUM of c£6bn), our discretionary fund
management business, to LGT, is expected to complete in H2 2023.
Gross and net flows
- ii net inflows of £1.9bn reflect lower new customer volumes in ii due
to a subdued retail market in H1 2023.
- Personal Wealth net outflows of £0.1bn includes impact of client
uncertainty following the announcement of the sale of our discretionary fund
management business.
ii additional operational metrics H1 2023 H1 2022
6 months 6 months
Total customers at period end 399k 402k(3)
Total customers excluding EQi and Share Centre migrated customers 303k 300k(3)
Customers holding a SIPP account 57.2k 51.5k(3)
Customer cash balances £5.7bn £6.0bn(3)
AUA per customer £142k £134k(3)
New customers 15.1k 18.6k
Daily average retail trading volumes 16.7k 20.2k
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. The threesixty and MPS businesses moved from Personal Wealth to Adviser
from January 2023 and May 2023 respectively. Comparatives have not been
restated.
3. Comparative as at 31 December 2022.
4. Results for interactive investor included following the completion of the
acquisition on 27 May 2022.
Overall performance
Adjusted operating profit IFRS loss before tax Adjusted capital generation
£127m (£169m) £142m
Adjusted operating profit AUMA Net flows
Segmental summary H1 2023 H1 2022 H1 2023 FY 2022 H1 2023 H1 2022
£m
£m
£bn
£bn
£bn
£bn
Investments(1) 26 76 367.6 376.1 (5.7) (5.2)
Adviser 49 38 71.8 68.5 (0.6) 1.4
Personal 61 7 67.4 67.1 1.8 0.3
Corporate/strategic(2) (9) (6) - - - -
Eliminations - - (11.1) (11.7) 0.1 (0.3)
Total 127 115 495.7 500.0 (4.4) (3.8)
Liquidity net flows (0.8) (7.7)
LBG tranche withdrawals - (24.4)
Total net flows (including liquidity and LBG) (5.2) (35.9)
Analysis of profit H1 2023 H1 2022(3)
£m
£m
Net operating revenue 721 696
Adjusted operating expenses (594) (581)
Adjusted operating profit 127 115
Adjusted net financing costs and investment return 24 (16)
Adjusted profit before tax 151 99
Adjusting items including results of associates and joint ventures (320) (425)
IFRS loss before tax (169) (326)
Tax credit 24 31
IFRS loss for the period (145) (295)
Adjusted net financing costs and investment return
Adjusted net financing costs and investment return resulted in a gain of £24m
(H1 2022: loss £16m):
- Investment losses, including from seed capital and co-investment fund
holdings reduced to £9m (H1 2022: loss £25m).
- Net finance income of £17m (H1 2022: costs £6m) reflecting a higher
rate of interest on cash and liquid assets and the benefit from the redemption
of the 5.5% Sterling fixed rate subordinated notes in December 2022.
- Higher net interest credit relating to the staff pension schemes of
£16m (H1 2022: £15m) reflecting an increase in the opening discount rate due
to a rise in corporate bond yields.
1. Investments net flows exclude Institutional/Retail Wealth liquidity and LBG
tranche withdrawals.
2. Adjusted operating profit relates to adjusted operating expenses £9m (H1
2022: £6m).
3. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Note 4.1(a)(i).
Adjusting items
H1 2023 H1 2022(1)
£m
£m
Restructuring and corporate transaction expenses (113) (88)
Amortisation and impairment of intangible assets acquired in business (102) (52)
combinations
and through the purchase of customer contracts
Profit on disposal of interests in associates - 6
Change in fair value of significant listed investments (181) (313)
Dividends from significant listed investments 37 42
Share of profit or loss from associates and joint ventures 4 -
Loss on impairment of interests in associates - (9)
Other 35 (11)
Total adjusting items including results of associates and joint ventures (320) (425)
Restructuring and corporate transaction expenses were £113m, comprising
restructuring costs of £90m (H1 2022: £70m) in property related impairments,
severance, platform transformation, and specific costs to effect savings in
Investments, and £23m (H1 2022: £18m) of corporate transaction costs
including expenses in 2023 relating to the sales of our discretionary fund
management business and our US private equity and venture capital business.
Amortisation and impairment of intangible assets acquired in business
combinations and through the purchase of customer contracts increased to
£102m, mainly due to the impairment of goodwill of £37m (H1 2022: £nil).
The impairments comprise £23m for our financial planning business and £14m
for Finimize. The impairments include the impact of lower projected revenues
as a result of adverse markets and macroeconomic conditions, and for Finimize
the impact of lower short-term projected growth following a strategic shift
that prioritises profitability over revenue growth. Further details are
provided in Note 4.12 of the Financial information section.
Profit on disposal of interests in associates was £nil. The H1 2022 profit of
£6m related to the sale of our stake in Origo Services Limited.
Change in fair value of significant listed investments of (£181m) from market
movements is analysed in the table below:
H1 2023 H1 2022
£m
£m
Phoenix (80) (63)
HDFC Asset Management (96) (194)
HDFC Life (5) (56)
Change in fair value of significant listed investments (181) (313)
The negative market movement in HDFC Life and HDFC Asset Management in H1 2023
includes the impact of the final stake sales in these businesses on 31 May
2023 and 20 June 2023 respectively.
Dividends from significant listed investments relates to our shareholdings in
Phoenix (£27m) and HDFC Asset Management (£10m).
Share of profit or loss from associates and joint ventures increased to a
profit of £4m (H1 2022: £nil). The results for HASL have been impacted by
the adoption of IFRS 17 on 1 January 2023. As required by IFRS 17, the
standard has been applied retrospectively with a resulting restatement of the
carrying value of the joint venture and opening retained earnings as at 1
January 2022. This change resulted in our H1 2022 share of HASL profit
reducing from the £8m previously reported to £2m.
H1 2023 H1 2022(1)
£m
£m
HASL 5 2
Virgin Money UTM - (1)
Other (1) (1)
Share of profit or loss from associates and joint ventures 4 -
Loss on impairment of interests in associates was £nil. The £9m in H1 2022
related to an impairment of Tenet Group Ltd.
Other adjusting items in H1 2023 includes the £36m liability insurance
recovery of the £41m single process execution event provision reflected at FY
2022, net of a £5m excess. See Note 4.9 for further details of other
adjusting items.
Tax
The total IFRS tax credit attributable to the loss for the period was £24m
(H1 2022: credit £31m), including a tax credit attributable to adjusting
items of £48m (H1 2022: credit £44m), resulting in an effective tax rate of
14% on the total IFRS loss (H1 2022: 10%). The difference to the UK
Corporation Tax rate of 23.5% is mainly driven by:
- Fair value movements on our investments in Phoenix and HDFC Life not
being subject to tax.
- 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.
- Goodwill impairments not deductible for tax purposes.
- Prior year adjustments to deferred tax liabilities on intangibles.
The tax expense attributable to adjusted profit is £24m (H1 2022: £13m), an
effective tax rate of 16% (H1 2022: 13%). This is lower than the 23.5% UK rate
primarily due to movements in the pension scheme surplus included on a net of
tax basis and the effect of changes in the applicable deferred tax rates on
temporary differences.
1. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Note 4.1(a)(i).
Earnings per share
- Adjusted diluted earnings per share increased to 6.2p (H1 2022: 3.7p)
due to the higher adjusted profit after tax and the benefit from the share
buyback in H2 2022.
- Diluted earnings per share was a loss of 7.7p (H1 2022: loss 14.2p)
reflecting the factors above, impairments and fair value losses of significant
listed investments.
Dividends
The Board has declared an interim dividend for 2023 of 7.3p (H1 2022: 7.3p)
per share which will be paid on 26 September 2023. The dividend payment is
expected to be £137m.
As a result of the higher adjusted profit in the period, dividend cover on an
adjusted capital generation basis was 1.04 times.
The adjusted capital generation trend and related dividend coverage is shown
below:
Diagram removed for the purposes of this announcement. However it can be
viewed in full in the pdf document
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 5 June 2023 we commenced a share buyback of up to £150m and we are
announcing the extension of this programme by a further £150m to a total of
£300m. As at 4 August 2023, we have returned £146m, with 67m shares
repurchased at an average price of £2.17 per share.
Capital and liquidity
Adjusted capital generation
Adjusted capital generation which shows how adjusted profit contributes to
regulatory capital increased by 33% to £142m.
H1 2023 H1 2022
£m
£m
Adjusted profit after tax 127 86
Less net interest credit relating to the staff pension schemes (16) (15)
Less AT1 debt interest (6) (6)
Add dividends received from associates, joint ventures and significant listed 37 42
investments
Adjusted capital generation 142 107
Net movement in IFPR surplus regulatory capital
The indicative surplus regulatory capital at 30 June 2023 was £1,017m (FY
2022: £718m). Disposal of our remaining HDFC Life and HDFC AMC stakes, in May
and June 2023 respectively, benefited regulatory capital by £576m, with the
£150m share buyback announced in June 2023 fully reflected in the Group's
capital position.
Key movements in surplus regulatory capital are shown in the table below.
Analysis of movements in surplus regulatory capital (IFPR basis) H1 2023 FY 2022
£m
£m
Opening surplus regulatory capital 718 1,806
Sources of capital
Adjusted capital generation 142 259
HDFC Life, HDFC Asset Management(1) and Phoenix sales 576 783
Uses of capital
Restructuring and corporate transaction expenses (net of tax) (92) (178)
Dividends (137) (295)
Acquisition of interactive investor - (1,364)
Share buyback (150) (302)
Other (40) 9
Closing surplus regulatory capital 1,017 718
1. Capital benefit of HDFC Asset Management sales reflects the pre-tax
proceeds.
The full value of the Group's significant listed investments is excluded from
the capital position under IFPR.
Cash and liquid resources and distributable reserves
Cash and liquid resources remained robust at £1.9bn at 30 June 2023 (FY 2022:
£1.7bn). 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,
are provided in Supplementary information.
At 30 June 2023 abrdn plc had £2.9bn (FY 2022: £3.2bn) of distributable
reserves.
IFRS net cash flows
- Net cash inflows from operating activities were £77m (H1 2022: £56m)
which includes outflows from restructuring and corporate transaction expenses,
net of tax, of £49m (H1 2022: £71m).
- Net cash inflows from investing activities were £504m (H1 2022:
outflows £325m) and primarily reflected £535m net proceeds from the final
HDFC Asset Management and HDFC Life stake sales.
- Net cash outflows from financing activities were £304m (H1 2022:
£234m) with the increase mainly due to the share buyback in H1 2023.
The cash inflows and outflows described above resulted in closing cash and
cash equivalents of £1,427m as at 30 June 2023 (FY 2022: £1,166m).
IFRS net assets
IFRS net assets attributable to equity holders decreased to £5.2bn (FY 2022:
£5.6bn(1)) mainly due to the IFRS loss before tax and dividends paid in the
period:
- Intangible assets reduced to £1.5bn (FY 2022: £1.6bn) due to
amortisation and impairments. Further details are provided in Note 4.12.
- The principal defined benefit staff pension scheme, which is closed to
future accrual, continues to have a significant surplus of £0.8bn (FY 2022:
£0.8bn). Further details are provided in Note 4.16. As part of ongoing
actions taken in recent years to reduce risk in abrdn's principal defined
benefit pension plan, the trustee submitted a petition to the Court of Session
in March 2023 seeking a direction on the destination of any residual surplus
assets that remain after all plan-related obligations are settled or otherwise
provided for. On 1 August 2023, the Court of Session, among other things,
confirmed that if a buy-out were to be completed and sufficient provision made
for: (i) any remaining liabilities; and (ii) expenses of completing the
winding-up of the pension scheme, there would be a resulting trust in respect
of any residual surplus assets in favour of the employer. We are continuing to
work with the trustee on next steps. Any residual surplus will be determined
on a different basis to IAS 19 or funding measures of the plan surplus. The
timing of release of any surplus remains a matter for the trustee. The IAS 19
defined benefit plan asset is not included in abrdn's regulatory capital.
- Financial investments decreased to £2.1bn (FY 2022: £2.9bn)
primarily due to the lower value of our significant listed investments. At 30
June 2023 financial investments included £0.6bn (FY 2022: £1.3bn) in
relation to significant listed investments (Phoenix £554m). The final stake
sales in HDFC Asset Management and HDFC Life completed in H1 2023.
Principal risks and uncertainties
The principal risks that we believe the Group will be exposed to in the second
half of 2023 are the same as those set out in the Annual report and accounts
2022 comprising: Strategic risk, Financial risk, Conduct risk, Regulatory and
legal risk, Process execution and trade errors, People, Technology, Security
and resilience, Fraud and financial crime, Change management, Third party
management and Financial management process.
Key developments in relation to our principal risks
Looking to the second half of 2023 we would highlight the following trends and
developments as important in relation to our principal risks:
- The macroeconomic environment continues to be challenging, with higher
inflation impacting the operational cost base of the Group. Interest rates
have increased further over the last six months and are expected to be nearing
their peak. Investors remain cautious as the effect of higher interest rates
works through the global economy, impacting the US banking sector and
commercial lending markets and our exposure to these.
- Geopolitical risk remains elevated with the ongoing conflict between
Russia and Ukraine and ongoing tensions between China and the US. The
volatility of commodities remains susceptible to geopolitical tensions and
higher prices are still contributing to inflationary pressure as the cost
reductions are yet to be passed onto the consumer.
- As a result of diversification activities undertaken in 2022, through
the acquisition of ii, the Group is benefiting from increased treasury income
resulting from higher interest rates. Simplification of the operational model
continues, with the ongoing automation of manual processes in order to deliver
efficiencies.
- There is an ever-increasing regulatory focus on ESG considerations and
delivery against client and regulatory expectations is progressing through
company-wide programmes. The divergence between UK and European regulatory
requirements is growing and we have activities in place to manage related
regulatory changes.
- We maintain heightened vigilance for cyber intrusion and financial
crime across our operations, with dedicated teams actively monitoring and
managing cyber security risks as they evolve, with the support of external
specialists.
1. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Note 4.1(a)(i).
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