REG - abrdn PLC - Half-year Report
06/08/2024 07:00
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RNS Number : 2630Z abrdn PLC 06 August 2024
abrdn plc
Half Year Results 2024
Part 1 of 3
6 August 2024
Delivering better performance
- Profitability supported by progress in transforming our cost base
- Performance transformation in Investments ongoing
- Strong earnings in Adviser with action being taken to address outflows
- Increased investment in interactive investor supporting organic growth
Summary results
Performance indicators H1 2024 H1 2023 Change
Net operating revenue £667m £721m (7)%
Cost/income ratio 81% 82% 1ppt
Adjusted operating profit £128m £127m 1%
Adjusted capital generation £144m £142m 1%
Net capital generation £104m £50m
IFRS profit/(loss) before tax £187m £(169)m
IFRS profit/(loss) for the period £171m £(145)m
Adjusted diluted earnings per share 6.8p 6.2p 10%
Diluted earnings per share 9.1p (7.7)p
AUMA(1) £505.9bn £494.9bn 2%
Net flows £0.8bn £(5.2)bn
Net flows excluding liquidity(2) £(1.6)bn £(4.4)bn 64%
Investment performance - 3 years(1,3) 54% 51% 3ppts
Interim dividend per share 7.3p 7.3p -
1. Comparative as at 31 December 2023.
2. Excludes Institutional/Retail Wealth liquidity net inflows of £2.4bn (H1
2023: £0.8bn outflows).
3. Percentage of AUM outperforming. 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. The scope of the investment performance
calculation has been extended to cover all funds that aim to track or
outperform a benchmark, with certain assets excluded where this measure of
performance is not appropriate or expected. 2023 comparative has been
restated. As at 30 June 2024, 77% (31 December 2023 restated: 75%) of AUM is
covered by this metric.
Jason Windsor, Interim Chief Executive Officer of abrdn plc, said:
"In the first half of the year we have made an encouraging start as we become
more efficient, and we enhance our propositions to lay the foundations for
growth.
We have three core businesses, with strong, scale positions in attractive
markets and each has headroom to grow. While market conditions remain
challenging, we are firmly on track to realise at least £150m of annualised
cost savings by the end of 2025.
These are solid foundations, positioning us for a step-change in performance
and allowing us to invest further in growth.
I am excited about the potential in abrdn, and confident that by delivering
against our priorities, we can deliver better outcomes for our clients, more
attractive performance for our shareholders and nurture a culture that
sustains long-term success."
Group profitability supported by progress in transforming our cost base
- Net operating revenue 7% lower at £667m (H1 2023: £721m), reflecting
the impact of outflows and the expected lower margins in Investments as well
as the net impact of corporate actions. Reduction partly offset by increase in
Adviser revenue.
- Adjusted operating expenses reduced by 9% to £539m (H1 2023: £594m)
reflecting good progress in achieving cost savings, including 11% lower staff
costs (excluding variable compensation) and 9% lower non-staff costs.
- Adjusted operating profit 1% higher at £128m (H1 2023: £127m).
- IFRS profit before tax of £187m (H1 2023: loss £169m) includes the
gain on sale of the European-headquartered Private Equity business of £88m
and lower losses of £(15)m (H1 2023: £(181)m) from the reduction in the
value of the listed stakes held on our balance sheet.
- AUMA at £505.9bn (FY 2023: £494.9bn), 2% higher than FY 2023 due to
positive market movements and flows.
- Adjusted diluted EPS increased to 6.8p (H1 2023: 6.2p) due to the
higher adjusted profit after tax and the benefit from share buybacks in 2023.
Progress on costs in Investments, flows and performance remain areas of focus
- Net operating revenue 12% lower at £406m (H1 2023: £461m) due to net
outflows and changes in the asset mix resulting in margin of 22.0bps (H1 2023:
24.6bps).
- Adjusted operating expenses reduced by 13% to £372m (H1 2023: £427m)
reflecting cost savings across both staff and non-staff expenses.
- Adjusted operating profit was stable at £34m (H1 2023: £34m).
- Gross inflows improved to £31.3bn (H1 2023: £27.0bn) reflecting
strong inflows in liquidity, fixed income and quantitatives.
- Net outflows improved to £1.0bn (H1 2023: £6.5bn) reflecting the
higher gross inflows above partly offset by net outflows in Equities,
Multi-asset and Insurance Partners. Excluding liquidity, net outflows were
£3.4bn (H1 2023: £5.7bn).
- Investment performance(1) improved to 54% (FY 2023: 51%) of AUM above
benchmark over 3 years and 70% (FY 2023: 55%) over 1 year.
Strong earnings in Adviser with action being taken to address outflows
- Net operating revenue 16% higher at £119m (H1 2023: £103m)
reflecting a £13m benefit of a revised distribution arrangement for services
provided by abrdn to Phoenix in respect of the Wrap SIPP.
- Average cash margin in H1 2024 was 263bps (FY 2023: 228bps) and we
expect FY 2024 to be broadly in line with H1 2024, subject to unexpected
changes in interest rates.
- Adjusted operating profit 33% higher at £65m (H1 2023: £49m)
benefiting from higher revenue. Expenses have continued to benefit from a
temporary third-party outsourcing discount of £7m (H1 2023: £7m). This
discount will cease on delivery of the abrdn SIPP.
- Net outflows of £2.0bn (H1 2023: £0.6bn) reflect elevated
redemptions in the period, owing to the continued impact of the higher cost of
living, further IFA consolidation and inflation beating cash saving options in
the market.
- We are taking actions to address these net flow challenges including
making further improvements to our service proposition following the
short-term impact of a technology upgrade in 2023. We launched a new cash
savings solution and announced a strategic reprice to achieve a highly
competitive position in the market.
Increased underlying investment in interactive investor supporting organic growth
- Net operating revenue 10% lower at £137m (H1 2023: £152m) due to the
sale of abrdn Capital in 2023. Excluding this, revenue increased by 5% to
£137m (H1 2023: £130m) reflecting higher trading and FX fees.
- Average cash margin was 234bps (FY 2023: 236bps) and the indicative
average cash margin for FY 2024 is expected to be maintained at these levels
subject to unexpected changes in interest rates.
- Adjusted operating profit 10% lower at £55m (H1 2023: £61m)
principally reflecting increased investment to drive and create additional
capacity for organic growth.
- Net customer growth in H1 2024 was 4% to 422k(2) (FY 2023: 407k)
reflecting growth in SIPP customers.
- Net inflows increased to £3.1bn (H1 2023: £1.8bn), representing 4.7%
of opening AUA, driven by customer growth.
Improving net capital generation remains a priority
- Adjusted capital generation up 1% to £144m (H1 2023: £142m) driven
by higher adjusted profit after tax. Covers interim dividend 1.11 times (H1
2023: 1.04 times).
- Net capital generation of £104m (H1 2023: £50m) more than doubled
reflecting lower restructuring costs.
- Interim dividend maintained at 7.3p.
- CET1 capital resources were £1,544m (FY 2023: £1,466m) with coverage
of 146% (FY 2023: 139%).
1. Percentage of AUM outperforming. 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. The scope of the investment performance
calculation has been extended to cover all funds that aim to track or
outperform a benchmark, with certain assets excluded where this measure of
performance is not appropriate or expected. 2023 comparative has been
restated. As at 30 June 2024, 77% (31 December 2023 restated: 75%) of AUM is
covered by this metric.
2. Excludes our financial planning business.
Outlook
Each of our three core businesses have made progress against their strategic
objectives in the first half, and our focus on returning to profitable and
sustainable growth is showing some early signs of success. However, while we
have seen an improvement in market conditions in the first half, the outlook
for global financial markets remains uncertain.
Against this backdrop, we are taking action to improve investment performance,
modernise our platforms and restore profitability by transforming our cost
base. We are investing in areas where we see clear opportunities for growth,
including investment specialisms where we have strength and scale. In the
structurally attractive UK savings and wealth market, Adviser is seeking to
improve its competitive position through a strategic reprice while interactive
investor continues to innovate to reach a growing number of customers. We
remain on track to improve efficiency through our cost transformation
programme, with the actions we are taking expected to help us drive operating
costs below £1,075m for 2024. We are also on track to meet our target of
delivering at least £150m of annualised cost savings by the end of 2025
compared to 2023.
Media and analyst calls
A conference call for media will take place today at 07:10am (BST). To access
the conference call, you will need to pre-register at
https://event.loopup.com/SelfRegistration/registration.aspx?booking=5X8zjVUJ6mjKcAzEorPUaTsY8azLIW6tiyWSX8ThIqw=&b=2389e96d-457b-46a8-bebb-fec356d5b031
A presentation for analysts and investors will follow at 08:30am (BST). To
view the webcast of the presentation please
go to www.abrdn.com
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For further information please contact:
Institutional equity investors and analysts Retail equity investors
Duncan Heath 0207 1562 495 Equiniti * 0371 384 2464
0788 4109 285
Corbin Chaplin 0207 1562 381
0777 4332 428
Media Debt investors and analysts
Duncan Young 0792 0868 865 Graeme McBirnie 0131 372 7760
Iain Dey (Teneo) 0797 6295 906
* Calls may be monitored and/or recorded. Call charges will vary.
abrdn plc's LEI Code is 0TMBS544NMO7GLCE7H90
The Half year results 2024 are published on the Group's website at
www.abrdn.com/hyresults
The Management report (section 1) is on pages 1 to 14. Details of
forward-looking statements can be found on page 66.
APM
Certain measures such as adjusted operating profit, adjusted profit before
tax, adjusted capital generation and cost/income ratio, are not defined under
International Financial Reporting Standards (IFRS) and are therefore termed
alternative performance measures (APMs).
APMs should be read together with the Group's 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 excluding liquidity on page 1
excludes Institutional and Retail Wealth liquidity flows as they are volatile
and lower margin.
All movements shown are compared to H1 2023 unless otherwise stated.
Chief Executive Officer's statement
Introduction
I am delighted to have been appointed as Interim CEO, and excited by the
significant opportunities across the Group. Let me start my statement by
thanking all of our clients, customers and colleagues for their continued
support of our business. My overriding objective will always be supporting our
clients to achieve their investing goals, and I have been very impressed by
the commitment of everybody at abrdn to this objective.
The Board and I are convinced there is significant headroom in each of our
three core businesses, which are at different points in their development. We
will build on the strong strategic foundation of each business, with a
relentless focus on execution.
From a financial perspective, our strategy targets profitable growth and
higher net capital generation, giving us greater scope to invest to grow the
businesses and to sustain the Group's very healthy dividend which is valued by
our shareholders.
My top three priorities are to transform performance, further improve the
client experience and create a culture aligned to attracting and retaining
talent. By executing against these priorities, I believe we will build the
foundation for long-term success across the Group.
Update on transformation programme
The transformation programme we announced in January 2024 is designed to
deliver a step change in efficiency and profitability across the Group. I am
pleased to report that we are on track to deliver the targets, namely cost
savings of c.£60m in 2024, and at least £150m of annualised cost savings by
the end of 2025. As detailed below, our results show that we are already
beginning to see a positive impact on performance, particularly in
Investments, which is the main focus of the programme.
The transformation programme is about more than cost reduction; it is also
designed to deliver improved outcomes for our clients and colleagues. This
includes smoother processes, simpler structures, and better use of technology.
The first wave of transformation initiatives has now been embedded into the
plans for each business.
Overview of performance
Our focus on improving profitability is showing some early signs of success.
Group adjusted operating profit was £128m, which is higher than both H1 2023
and H2 2023 (profit of £127m and £122m, respectively). However, this is not
close to the level of profitability we aspire to, as there is much more
potential in the Group.
Materially higher IFRS profit before tax of £187m (H1 2023: loss £169m)
includes a £88m gain on sale of the European-headquartered Private Equity
business, and lower losses compared to last year from the reduction in the
value of the listed stakes held on our balance sheet.
AUMA increased slightly to £506bn, with total Group net inflows including
liquidity of £0.8bn. This is a material improvement on both the first and
second halves of last year.
Each of our three businesses has made progress. Net flows improved
considerably in Investments (despite outflows in equities). We have delivered
good customer growth in interactive investor, and Adviser has made pricing and
proposition enhancements that will help the business to return to growth. It
is clear to me, however, that each business is yet to unlock its potential,
and there is significant headroom for improvement.
Investments
Positive flows in areas of strong performance, focus on improving
profitability
Following the significant industry headwinds of the last few years, we are
pleased to see an improvement in market conditions in the first half of 2024.
As a result, AUM has increased to £369bn (FY 2023: £367bn), despite outflows
of £1bn, and a £7bn reduction from corporate actions. Adjusted operating
profit was stable at £34m (H1 2023: £34m) with actions taken to transform
the cost base driving a 13% reduction in expenses, offsetting a reduction in
revenues.
Although flows improved significantly over the previous 12 months, they did
remain negative overall with net outflows of £1bn across the Investments
business, compared to £6.5bn of net outflows in H1 2023 and £12.5bn in H2
2023. Outflows in equities remained a challenge in line with industry trends,
but total flows benefited from momentum in fixed income, quantitative, and
liquidity strategies. Improving the investment performance of our equity funds
overall remains a priority, particularly in Asia and Emerging Markets where we
have a significant concentration of AUM.
In the second half of 2024, we expect to reduce costs further, seek continued
growth where we have strong performance and continue to improve performance
elsewhere. We remain committed to delivering stabilised revenues and improved
efficiency to drive a much higher level of profitability.
Adviser
Investment in technology, pricing, proposition, and leadership team to return
to growth
Adviser increased its adjusted operating profit by a third to £65m (H1 2023:
£49m). This was helped by a 16% increase in net operating revenue, which
reflected a £13m benefit of a revised SIPP distribution arrangement with
Phoenix signed in 2023.
Gross inflows increased by 7% to £3.1bn, however net outflows of £2.0bn (H1
2023: £0.6bn) remained disappointing, reflecting elevated redemptions.
To address the outflows and to attract new clients in the structurally growing
market, we have implemented a series of initiatives. First, to capitalise on
service and user experience benefits from the platform upgrade that was
completed in 2023. Second, to continue to add new functionality to the
platform including the recently launched integrated cash savings solution on
Wrap. Third, to change our pricing, which we announced in May, to a level that
is more competitive, helping us to attract new clients and flows. In addition,
Adviser has strengthened its senior leadership team with the appointment of a
new dedicated Chief Technology Officer and a new Chief Distribution Officer.
With this series of initiatives, and an improved distribution strategy, we are
focused on returning Adviser to positive flows.
interactive investor
Strong net inflows underpinned by investment in organic growth
Organic growth remains the key focus, with total customers up 4% to 422k and
SIPP customers up 17% since the start of the year. Adjusted operating profit
of £55m includes profit of £59m in the ii D2C platform and a £4m loss from
the financial planning business. The lower profit in the period reflects the
sale of abrdn Capital, and the increased investment ii has been making in
marketing and product development to support customer growth.
This growth in customers and the take up of SIPP has helped to drive a 74%
increase in net inflows on ii's direct platform to £3.3bn. This represented
an annualised 11% of opening assets, reflecting ii's compelling
subscription-based pricing, leading technology and excellent user experience.
All of which have helped to position ii as a leader in the significant and
rapidly growing UK savings and wealth market.
interactive investor will continue to launch new products in the second half
of the year, including a managed SIPP, as we continue our focus on meeting the
needs of a growing number of customers.
Our priorities
As we head into the second half of 2024, our focus is on realising the
significant potential in each of our businesses through relentless delivery.
As I've outlined, this includes executing against the strategies of each
business to transform performance and improve further the client experience.
We will also focus on talent and culture. We need our people engaged and
motivated, with belief and confidence in abrdn, to realise the opportunity in
front of us. We will be taking action on multiple fronts, including: embedding
greater colleague empowerment and clearer responsibilities to support faster
decision-making; attracting and retaining top talent and increasing support
for career development of our people. We will also continue to focus on
delivering more sustainable and inclusive outcomes for our colleagues, clients
and wider stakeholders. Seeing the benefit will take time but is critical to
support our future success.
I am excited about the potential in abrdn and confident that by delivering
against our priorities we can create an organisation that our colleagues can
be proud to work for, delivers better outcomes for our clients, and more
attractive performance for our shareholders.
Jason Windsor
Interim Chief Executive Officer
Results summary
Analysis of profit H1 2024 H1 2023
£m
£m
Net operating revenue 667 721
Adjusted operating expenses (539) (594)
Adjusted operating profit 128 127
Adjusted net financing costs and investment return 42 24
Adjusted profit before tax 170 151
Adjusting items including results of associates and joint ventures 17 (320)
IFRS profit/(loss) before tax 187 (169)
Tax (expense)/credit (16) 24
IFRS profit/(loss) for the period 171 (145)
The IFRS profit before tax was £187m (H1 2023: loss £169m) including
adjusted operating profit of £128m (H1 2023: £127m) and adjusted net
financing costs and investment return of £42m (H1 2023: £24m). Adjusting
items were £17m (H1 2023: loss £320m) including:
- Restructuring and corporate transaction expenses of £51m (H1 2023:
£113m), including costs relating to our transformation programme.
- Loss of £15m (H1 2023: loss £181m) from the change in fair value of
significant listed investments as a result of the reduction in the share price
of Phoenix in H1 2024. H1 2023 included losses resulting from the reductions
in the share prices of HDFC Asset Management, HDFC Life and Phoenix.
- Profit on disposal of subsidiaries and interests in joint ventures of
£99m (H1 2023: £nil).
Adjusted operating profit was £1m higher than H1 2023. Lower revenue in
Investments was partly offset by growth in revenue in both ii (excluding the
impact of the sale of abrdn Capital) and Adviser. Lower expenses were
primarily due to the benefit of significant cost reduction activity in
Investments. Our cost transformation programme remains on track to deliver the
c.£60m benefit from lower adjusted operating expenses in 2024 and the
annualised cost savings of at least £150m by the end of 2025. At 30 June
2024, actions have been taken which will deliver c.£50m of annualised
savings, benefiting H1 2024 adjusted operating expenses by £20m. The
implementation costs were £23m in H1 2024 and are included in restructuring
costs.
Net operating revenue
Net operating revenue decreased by 7% reflecting:
- Impact of net outflows and changes to asset mix resulting in lower
Investments margin.
- Other margin includes the benefit in Adviser from the revised
distribution arrangement with Phoenix, higher trading and FX activity in ii,
and higher total treasury income of £85m (H1 2023: £81m).
- £11m benefit of favourable market movements.
- £22m net impact from corporate actions mainly reflecting the sales of
the US and European-headquartered Private Equity businesses and the
discretionary fund management business, partly offset by the acquisition of
the healthcare fund management capabilities of Tekla.
- £4m lower performance fees in Asia Pacific and Emerging markets
equities.
Adjusted operating expenses
H1 2024 H1 2023
£m
£m
Staff costs excluding variable compensation 233 262
Variable compensation 43 43
Staff and other related costs(1) 276 305
Non-staff costs 263 289
Adjusted operating expenses 539 594
Adjusted operating expenses reduced by 9% reflecting good progress in
achieving cost savings:
- 11% reduction in staff costs (excluding variable compensation), with
the benefit of fewer FTEs (11)%, partly offset by salary increases and
increased investment, especially in ii, to drive growth.
- Variable compensation in line with H1 2023 reflecting business
performance and fewer FTEs.
- 9% reduction in non-staff costs, with cost savings partly offset by
the impact of inflation.
The Group cost/income ratio improved slightly to 81% (H1 2023: 82%) reflecting
the benefit of the significant cost reduction activity which was partly offset
by lower revenues.
1. See Supplementary information for a reconciliation to IFRS staff and
other employee related costs.
Investments
Total Institutional and Retail Wealth Insurance Partners
H1 2024 H1 2023 H1 2024 H1 2023 H1 2024 H1 2023
Net operating revenue1,2 £406m £461m
Adjusted operating expenses(1) £(372)m £(427)m
Adjusted operating profit(1) £34m £34m
Cost/income ratio(1) 92% 93%
Net operating revenue yield 22.0bps 24.6bps 31.7bps 33.7bps 9.1bps 10.6bps
AUM £369.3bn £366.7bn(3) £210.7bn £211.2bn(3) £158.6bn £155.5bn(3)
Gross inflows £31.3bn £27.0bn £18.5bn £15.8bn £12.8bn £11.2bn
Redemptions £(32.3)bn £(33.5)bn £(18.1)bn £(22.5)bn £(14.2)bn £(11.0)bn
Net flows £(1.0)bn £(6.5)bn £0.4bn £(6.7)bn £(1.4)bn £0.2bn
Net flows excluding liquidity4 £(3.4)bn £(5.7)bn £(2.0)bn £(5.9)bn £(1.4)bn £0.2bn
Adjusted operating
profit
- Profit was stable at £34m, reflecting 12% reduction in revenue offset
by 13% lower costs as we transform the cost base.
Net operating
revenue
- 12% lower than H1 2023 largely due to net outflows and changes to the
asset mix.
- Performance fees of £3m (H1 2023: £7m) were earned mainly from real
assets and active equities.
Adjusted operating expenses
- Adjusted operating expenses reduced by £55m (13%) to £372m (H1 2023:
£427m(1)).
- Staff costs have reduced reflecting 13% fewer front/middle office
FTEs.
- Adjusted operating expenses also benefited from lower outsourcing and
professional fees, project and change spend and property costs, as well as a
reduced allocation of central Group costs.
Institutional and Retail Wealth
Net operating
revenue
- 13% lower at £335m (H1 2023: £383m1) primarily due to net outflows
particularly from higher margin asset classes, consistent with the risk-off
environment seen across the market.
- 6% reduction in average AUM to £211.0bn (H1 2023: £225.5bn).
Multi-asset and equities average AUM down 10% and 9% respectively.
Revenue
yield
- 2.0bps lower at 31.7bps largely due to changes in asset mix including
the decrease in private equity average AUM resulting from the disposal of our
US Private Equity Venture Capital business in H2 2023 and our
European-headquartered Private Equity business in April 2024 offset in part by
the benefit arising from the acquisition of the fund management capabilities
of Tekla Capital Management in H2 2023.
Gross
inflows
- Excluding liquidity, £1.7bn (16%) higher at £12.6bn (H1 2023:
£10.9bn) mainly in quantitative and fixed income primarily reflecting
continued demand for these asset classes.
Net
flows
- Net inflows of £0.4bn (H1 2023: outflows £6.7bn) included the
benefit of liquidity inflows in the period. Excluding liquidity, net outflows
were £3.9bn lower than H1 2023 at £2.0bn due to higher gross inflows and
lower redemptions.
- Excluding liquidity, net outflows represent 1% of opening AUM compared
with 3% in H1 2023.
- Redemptions (excluding liquidity) were £2.2bn lower than H1 2023 at
£14.6bn (H1 2023: £16.8bn) due to lower fixed income redemptions.
1. Finimize and our digital innovation group have moved from Investments to
Other. Comparatives have been restated.
2. Includes performance fees of £3m (H1 2023: £7m).
3. Comparative as at 31 December 2023.
4. Institutional/Retail Wealth liquidity net flows excluded.
Insurance Partners
Net operating
revenue
- 9% lower in H1 2024 at £71m (H1 2023: £78m), reflecting the impact
of asset mix and associated pricing changes offset by a 6% increase in average
AUM to £156.3bn.
Revenue
yield
- Net operating revenue yield decreased to 9.1bps (H1 2023: 10.6bps) due
to a shift in asset mix from active to passive strategies, which we expect to
continue through 2024. This, together with related pricing changes, is
expected to result in a further reduction in yields.
Gross
inflows
- £1.6bn higher than H1 2023 at £12.8bn (H1 2023: £11.2bn) including
the benefit from higher activity in Phoenix's defined contribution pension
business.
Net
flows
- Net outflows reflect outflows from heritage business in run-off,
largely being offset by inflows from growing workplace pensions.
- Net outflows of £1.4bn in H1 2024 (H1 2023: £0.2bn inflow),
representing (0.9)% of opening AUM compared with 0.1% in H1 2023.
Investment performance
% of AUM performing1 1 year 3 years 5 years
H1 2024 FY 2023 H1 2024 FY 2023 H1 2024 FY 2023
restated restated restated
Equities 23 27 14 17 23 48
Fixed income 89 81 79 75 84 84
Multi-asset 65 12 27 15 37 22
Real assets 40 30 42 56 45 45
Alternatives 97 98 100 98 100 98
Quantitative 92 100 90 100 93 95
Liquidity 100 100 96 95 100 97
Total 70 55 54 51 58 58
The investment performance measures now include our large and growing Index
tracking Alternatives and Quantitative AUM, where we are delivering well on
expected outcomes for clients.
Investment performance on a 1 and 3 year basis has improved since the start of
the year. We continue to deliver strong investment performance across our
Alternatives, Fixed Income, Liquidity and Quantitative strategies with the
majority of AUM outperforming the relevant comparator benchmarks.
Across Multi-asset, the majority of our MyFolio range AUM is ahead of
comparators and performing well compared to peers. The Diversified Assets
funds are also ahead over 1, 3 and 5 years. We are also starting to see the
benefits of our process enhancement programme as well as better short-term
performance with 75% of AUM ahead YTD. This includes improved tactical asset
allocation benefiting some large balanced mandates.
Within Real Assets, after a challenging couple of years for the Real Estate
market, our strategies are showing positive signs of recovery with 40% of Real
Estate AUM outperforming over 1 year to Q1 2024 and with our Listed Real
Estate funds outperforming over 1, 3 and 5 years.
The market backdrop continues to present challenges for active management in
Equities with only 33% of actively managed funds globally outperforming over
the year to 30 June 2024(2).
Our Equities performance continues to be impacted by this backdrop and our AUM
bias towards Asia and Emerging Markets and the underperformance of China and
Quality as a style within China. Furthermore, the exceptionally concentrated
performance of the 'Magnificent 7' stocks in the US also remains a headwind
for our Developed Markets strategies and particularly those with a yield
focus. However, there are areas of outperformance in Equities including our EM
Income, UK Value and European Income strategies both vs benchmarks and peers.
We continue to focus on making improvements to the investment process in
Equities with priority areas identified across the value chain. Shorter term
performance has improved in Smaller Companies and regional Asian country funds
including India.
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 and targets 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. The scope of the investment
performance calculation has been extended to cover all funds that aim to track
or outperform a benchmark, with certain assets excluded where this measure of
performance is not appropriate or expected. 2023 comparative has been
restated. As at 30 June 2024, 77% (31 December 2023 restated: 75%) of AUM is
covered by this metric. Further details about the calculation of investment
performance and the change in scope are included in the Supplementary
information section.
2. Source: LSEG, Performance Review - Relative Performance of Equity Funds
as of June 30, 2024.
Adviser
H1 2024 H1 2023
Net operating revenue £119m £103m
Adjusted operating expenses £(54)m £(54)m
Adjusted operating profit £65m £49m
Cost/income ratio 45% 52%
Net operating revenue yield 31.4bps 28.8bps
AUMA1 £75.0bn £73.5bn(2)
Gross inflows £3.1bn £2.9bn
Redemptions £(5.1)bn £(3.5)bn
Net flows £(2.0)bn £(0.6)bn
Adjusted operating
profit
- Strong earnings performance with profit up 33% to £65m.
- Cost/income ratio improved by 7ppts to 45%, benefiting from higher
revenue, as detailed below.
- Expenses continued to benefit from a temporary third-party outsourcing
discount of £7m (H1 2023: £7m). This discount will end on delivery of the
abrdn SIPP.
Net operating
revenue
- Revenue increased by 16% to £119m mainly reflecting a £13m benefit
of a revised distribution arrangement for services provided by abrdn to
Phoenix in respect of the Wrap SIPP (which we now expect to take legal
ownership of in 2025).
- Platform charges reduced slightly to £84m including the impact of IFA
clients benefiting from higher tiered discounts triggered by higher asset
values.
- Treasury income on client balances increased to £17m, benefiting from
rising interest rates during 2023 offset by an increase in cash interest paid
to clients.
- The average margin earned on client cash balances during H1 2024 was
263bps (FY 2023: 228bps) and the indicative Adviser average cash margin for FY
2024 is expected to be broadly in line with H1 2024, subject to unexpected
changes in interest rates.
- Other revenue increased to £19m mainly reflecting the revised
distribution arrangement with Phoenix. There was also a £2m increase from the
transfer of Managed Portfolio Service (MPS) from ii in May 2023.
Net operating revenue H1 2024 H1 2023
£m £m
Platform charges 84 85
Treasury income 17 15
Other revenue 19 4
Less: Cost of sales (1) (1)
Net operating revenue 119 103
1. Includes Platform AUA of £72.3bn (31 December 2023:
£70.9bn).
2. Comparative as at 31 December 2023.
Revenue
yield
- Increased to 31.4bps due to the higher revenue explained under net
operating revenue.
- We expect to see a reduction in revenue yield in 2025 reflecting the
previously announced repricing which will be applied to existing back book
before the end of Q1 2025 and the impact of any unexpected changes in UK
interest rates.
- Average AUMA of £74.1bn was 5% higher than H1 2023.
AUMA
- AUMA increased slightly to £75.0bn driven by favourable market
movements offset by net outflows.
- Average customer cash balances as a percentage of average AUMA
(excluding SIPP and bonds) were 2.6% (FY 2023: 2.2%).
Gross and net
flows
- Net outflows of £2.0bn reflected higher redemptions in the period.
- Gross inflows increased on H1 2023 with the full six months benefit of
the MPS business in H1 2024.
- Elevated outflows included the impact of higher cost of living,
further IFA consolidation and the availability of inflation beating cash
saving options in the market.
- We are taking actions to address these challenges including making
further improvements to our service proposition following the short-term
impact of a technology upgrade in 2023, undertaking a strategic reprice
resulting in a highly competitive position in the market, investing in our
senior leadership team and distribution capabilities, and making available a
new cash saving solution which launched in July 2024.
interactive investor(1)
H1 2024 H1 2023
Net operating revenue £137m £152m
Adjusted operating expenses £(82)m £(91)m
Adjusted operating profit £55m £61m
Cost/income ratio 60% 60%
AUMA(2) £72.9bn £66.0bn(3)
Gross inflows £7.1bn £5.6bn
Redemptions £(4.0)bn £(3.8)bn
Net flows £3.1bn £1.8bn
Adjusted operating
profit
- Profit reduced by £6m to £55m due to reinvestment to drive organic
growth and £2m due to the sale of abrdn Capital to LGT in September 2023.
Net operating
revenue
- Revenue of £137m, was £15m lower than in H1 2023, reflecting the
sale of abrdn Capital which (including MPS revenue which transferred to
Adviser) contributed £22m to revenue in H1 2023.
- Excluding abrdn Capital, revenue increased by £7m or 5% and continued
to benefit from diversified revenue streams from subscriptions, transaction
based revenues and treasury income.
- Treasury income increased to £68m, benefiting from sustained high
interest rates since H1 2023.
- The average cash margin in H1 2024 was 234bps (FY 2023: 236bps) and
the indicative ii average cash margin for FY 2024 is expected to be
maintained at these levels subject to unexpected changes in interest rates.
- Trading revenues of £33m reflected higher trading and FX activity.
- Fee income reduced to £13m mainly reflecting the sale of abrdn
Capital and the transfer of MPS to Adviser in May 2023.
Net operating revenue H1 2024 H1 2023
£m £m
Trading transactions 33 25
Subscription/account fees 26 27
Treasury income 68 66
Fee income 13 37
Less: Cost of sales (3) (3)
Net operating revenue 137 152
Adjusted operating
expenses
- Lower adjusted operating expenses of £82m mainly reflect the sale of
abrdn Capital.
- Excluding abrdn Capital, expenses increased by £11m or 15%,
reflecting higher advertising and product/proposition development to support
ii's organic growth. In addition, record high SIPP transfer-in volumes were
supported by an uplift in operational resource which also provides future
capacity.
AUMA
- AUMA increased to £72.9bn (FY 2023: £66.0bn), benefiting from
stronger markets and growing in net flows.
- Average customer cash balances as a percentage of average AUA were
8.8%4 (FY 2023: 9.8%).
- Total customers increased by 4% to 422k4 (FY 2023: 407k) due to
organic growth. Our strategy to increase SIPP market penetration continues,
with the number of customers holding a SIPP account up by 17% to 73.0k (FY
2023: 62.4k).
Gross and net flows
- Net inflows increased to £3.1bn (H1 2023: £1.8bn) due to customer
growth and existing customers choosing more of our products, including our
SIPP.
- Within this, the ii direct platform generated net inflows of £3.3bn
offset by £0.2bn net outflows in the financial planning business.
1. See Supplementary information for additional
operational metrics.
2. Includes financial planning business AUA at 30 June
2024 of £4.1bn (31 December 2023: £4.3bn).
3. Comparative as at 31 December 2023.
4. Excludes our financial planning business.
Overall performance
Adjusted operating profit AUMA Net flows
Segmental summary H1 2024 H1 2023 H1 2024 FY 2023 H1 2024 H1 2023
£m
£m
£bn
£bn
£bn
£bn
Investments(1,2) 34 34 369.3 366.7 (3.4) (5.7)
Adviser 65 49 75.0 73.5 (2.0) (0.6)
ii 55 61 72.9 66.0 3.1 1.8
Other(1,3) (26) (17) - - - -
Eliminations - - (11.3) (11.3) 0.7 0.1
Total 128 127 505.9 494.9 (1.6) (4.4)
Liquidity net flows 2.4 (0.8)
Total net flows (including liquidity) 0.8 (5.2)
The adjusted operating loss in Other increased to £26m (H1 2023: £17m)
primarily reflecting higher retained corporate costs. Other also includes
losses of Finimize and our digital innovation group.
Assets under management and administration
AUMA increased by 2% to £505.9bn (FY 2023: £494.9bn):
- Total net inflows of £0.8bn includes liquidity net inflows of
£2.4bn. Excluding liquidity, net outflows were £1.6bn, with outflows in
Investments and Adviser partly offset by positive flows in ii.
- Market and other movements of £17.2bn reflecting stronger markets
primarily within alternative investment solutions and equities.
- Impact of corporate actions of £(7.0)bn following the disposal of our
European-headquartered Private Equity business in April 2024.
Results Summary
Analysis of profit H1 2024 H1 2023
£m
£m
Net operating revenue 667 721
Adjusted operating expenses (539) (594)
Adjusted operating profit 128 127
Adjusted net financing costs and investment return 42 24
Adjusted profit before tax 170 151
Adjusting items including results of associates and joint ventures 17 (320)
IFRS profit/(loss) before tax 187 (169)
Tax (expense)/credit (16) 24
IFRS profit/(loss) for the period 171 (145)
Adjusted net financing costs and investment return
Adjusted net financing costs and investment return resulted in a gain of £42m
(H1 2023: gain £24m):
- Investment gains, including from seed capital and co-investment fund
holdings of £5m (H1 2023: losses £9m).
- Net finance income of £30m (H1 2023: £17m) reflecting a higher rate
of interest on cash and liquid assets.
- Lower net interest credit relating to the staff pension schemes of
£7m (H1 2023: £16m) reflecting a lower opening pension surplus and costs
relating to de-risking the pension scheme.
1. Finimize and our digital innovation group have moved from Investments to
Other. Comparatives have been restated. Refer Note 4.3 in the Financial
information section.
2. Investment net flows exclude Institutional/Retail Wealth liquidity.
3. Adjusted operating loss consists of net operating revenue £5m (H1 2023:
£5m) and adjusted operating expenses £31m (H1 2023: £22m). Adjusted
operating expenses in H1 2024 includes the impact of increased retained
central Group costs.
Adjusting items
H1 2024 H1 2023
£m
£m
Restructuring and corporate transaction expenses (51) (113)
Amortisation and impairment of intangible assets acquired in business
combinations
and through the purchase of customer contracts (64) (102)
Profit on disposal of subsidiaries and other operations 88 -
Profit on disposal of interests in joint ventures 11 -
Change in fair value of significant listed investments (15) (181)
Dividends from significant listed investments 28 37
Share of profit or loss from associates and joint ventures 21 4
Other (1) 35
Total adjusting items including results of associates and joint ventures 17 (320)
Restructuring and corporate transaction expenses were £51m (H1 2023: £113m).
Restructuring costs of £45m (H1 2023: £90m) mainly consisting of costs to
effect our cost transformation programme including related severance expenses,
and platform transformation expenses. Corporate transaction costs of £6m (H1
2023: £23m) primarily related to prior period transactions.
Amortisation and impairment of intangible assets acquired in business
combinations and through the purchase of customer contracts reduced to £64m
(H1 2023: £102m), mainly due to the lower goodwill impairments of £5m (H1
2023: £37m). Impairment of goodwill in H1 2024 includes the impact of higher
anticipated losses. Further details are provided in Note 4.11.
Profit on disposal of interests in subsidiaries and other operations relates
to the sales of our European-headquartered Private Equity business. See Note
4.2 for further details.
Profit on disposal of interest in joint ventures relates to the sale of our
shareholding in Virgin Money UTM that completed on 2 April 2024. See Note 4.2
for further details.
Change in fair value of significant listed investments of £(15)m from market
movements is analysed in the table below:
H1 2024 H1 2023
£m
£m
Phoenix (15) (80)
HDFC Asset Management - (96)
HDFC Life - (5)
Change in fair value of significant listed investments (15) (181)
The final HDFC Life and HDFC Asset Management stakes were sold on 31 May 2023
and 20 June 2023 respectively.
Dividends from significant listed investments of £28m relates to
our shareholdings in Phoenix (H1 2023: Phoenix £27m and HDFC Asset
Management £10m).
Share of profit or loss from associates and joint ventures increased to a
profit of £21m (H1 2023: £4m). HASL profit increased to £21m (H1 2023:
£5m) including investment-related gains due to favourable market conditions.
Other includes a £15m expense relating to the release of a prepayment for the
Group's purchase of Phoenix's trustee investment plan and £12m gain for net
fair value movements in contingent consideration. See Note 4.9 for further
details of other adjusting items.
Tax
The total IFRS tax expense attributable to the profit for the period is £16m
(H1 2023: credit £24m), including a tax credit attributable to adjusting
items of £25m (H1 2023: credit £48m), which results in an effective tax rate
of 9% (H1 2023: 14%). The difference to the UK Corporation Tax rate of 25% is
mainly driven by:
Realised gains on disposal of our European-headquartered Private Equity
business and our shareholding in Virgin Money UTM not being subject to tax.
Profits arising in joint ventures included on a net of tax basis.
Dividend income and fair value movements from our investments in Phoenix not
being subject to tax.
Prepayment release relating to the Group's purchase of Phoenix's trustee
investment plan business being not deductible for tax purposes.
The tax expense attributable to adjusted profit is £41m (H1 2023: £24m), an
effective tax rate of 24% (H1 2023: 16%). This is lower than the 25% UK rate
primarily due to overseas profits taxed at a lower rate and pension scheme
surplus movements included on a net of tax basis.
Earnings per share
Adjusted diluted earnings per share increased to 6.8p (H1 2023: 6.2p) due to
the higher adjusted profit after tax and the benefit from share buybacks in
2023.
Diluted earnings per share was a profit of 9.1p (H1 2023: loss 7.7p)
reflecting the factors above, and also the benefit of profit on disposal of
subsidiaries and interests in joint ventures.
Dividends
The Board has declared an interim dividend for 2024 of 7.3p (H1 2023: 7.3p)
per share. The dividend payment is expected to be £130m.
As a result of the higher adjusted profit in the period, dividend cover on
adjusted capital generation basis was 1.11 times.
The adjusted capital generation trend and related dividend coverage is shown
below: Diagram removed for RNS purposes. See full PDF.
Capital and liquidity
IFPR CET1 capital resources
The indicative CET1 capital resources at 30 June 2024 were £1,544m (FY 2023:
£1,466m).
Key movements in CET1 capital resources and respective coverage are shown in
the table below.
Analysis of movements in CET1 capital resources and respective coverage H1 2024 FY 2023
£m % £m %
Opening CET1 capital resources 1,466 139 1,301 123
Sources of capital
Adjusted capital generation 144 14 299 28
HDFC Life and HDFC Asset Management(1) sales - - 576 55
Disposals(2) 99 9 137 13
Uses of capital
Restructuring and corporate transaction expenses (net of tax) (40) (4) (121) (12)
Dividends (130) (12) (267) (25)
Share buyback - - (302) (29)
Acquisitions(3) - - (152) (14)
Other 5 - (5) -
Closing CET1 capital resources 1,544 146 1,466 139
The full value of the Group's significant listed investments is excluded from
the capital position under IFPR.
A summary of our CET1 capital coverage is shown in the table below.
CET1 capital coverage H1 2024 FY 2023
£m
£m
CET1 capital resources 1,544 1,466
Total regulatory capital requirement 1,054 1,054
CET1 capital coverage 146% 139%
Capital generation
Adjusted capital generation which shows how adjusted profit contributes to
regulatory capital increased by 1% to £144m. Net capital generation more
than doubled to £104m and included the benefit of lower restructuring costs.
H1 2024 H1 2023
£m
£m
Adjusted profit after tax 129 127
Less net interest credit relating to the staff pension schemes (7) (16)
Less interest paid on other equity (6) (6)
Add dividends received from associates, joint ventures and significant listed 28 37
investments
Adjusted capital generation 144 142
Restructuring and corporate transaction expenses (net of tax) (40) (92)
Net capital generation 104 50
Cash and liquid resources and distributable reserves
Cash and liquid resources remained robust at £1.8bn at 30 June 2024 (FY 2023:
£1.8bn). These resources are high quality and mainly invested in cash, money
market instruments and short-term debt securities. Cash and liquid resources
held in abrdn plc were £0.4bn
(FY 2023: £0.4bn).
Further information on cash and liquid resources, and a reconciliation to IFRS
cash and cash equivalents, are provided in Supplementary information.
At 30 June 2024 abrdn plc had £2.9bn (FY 2023: £3.1bn) of distributable
reserves.
IFRS net cash flows
- Net cash inflows from operating activities were £170m (H1 2023:
£77m) which includes outflows from restructuring and corporate transaction
expenses, net of tax, of £31m (H1 2023: £49m).
- Net cash inflows from investing activities were £202m (H1 2023:
£504m) and primarily reflected the maturity of cash invested in money market
instruments which were not classified as cash equivalents, and the net
proceeds from the Groups disposal of its European-headquartered Private Equity
business.
- Net cash outflows from financing activities were £162m (H1 2023:
£304m) with the decrease mainly due to outflows for the share buyback in
2023.
- The cash inflows and outflows described above resulted in closing cash
and cash equivalents of £1,415m as at 30 June 2024 (FY 2023: £1,210m).
1. Capital benefit of HDFC Asset Management sales reflects the pre-tax
proceeds.
2. European-headquartered Private Equity business (£88m) and Virgin Money
UTM (£11m). Discretionary fund management and US Private Equity businesses in
2023. Capital benefit of discretionary fund management disposal includes
derecognition of related intangibles (£58m).
3. Tekla and Macquarie funds in 2023.
IFRS net assets
IFRS net assets attributable to equity holders was stable at £4.9bn (FY 2023:
£4.9bn) reflecting the IFRS profit before tax offset by dividends paid in the
period:
- Intangible assets decreased to £1.5bn (FY 2023: £1.6bn) primarily
due to amortisation. Further details are provided in Note 4.11.
- The principal defined benefit staff pension scheme, which is closed to
future accrual, continues to have a significant surplus of £0.8bn (FY 2023:
£0.7bn). We are continuing to work with the trustee on the long-term strategy
for the plan, including steps relating to any residual surplus assets that
remain after all plan related obligations are settled or otherwise provided
for. The timing for implementing any strategy, including the release of any
surplus, remains a matter for the trustee. See Note 31 in the Annual report
and accounts 2023 for more information.
- Financial investments reduced slightly to £1.9bn (FY 2023: £2.0bn).
At 30 June 2024, financial investments included £542m (FY 2023: £557m) in
relation to our stake in Phoenix.
Principal risks and uncertainties
The principal risks that we believe the Group will be exposed to in the second
half of 2024 are the same as those set out in the Annual Report and Accounts
2023 across the following 12 categories: Strategic, Financial, Conduct,
Regulatory and legal, 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 2024 we would highlight the following trends and
developments as important in relation to our principal risks:
- As inflationary pressures have abated, central banks are tentatively
shifting towards reducing interest rates but the pace of easing is still
uncertain and could be impacted by upticks in price and labour inflation.
Lower interest rates are likely to be supportive of ad valorem fee income and
transaction fee income, but may erode cash margin income.
- With a number of regional conflicts and democratic elections in some
G7 countries, the geo-political environment has the potential to deliver
outcomes that could disrupt markets which in turn could impact the delivery of
the abrdn business plan.
- We continue to manage extensive change across our business areas and
have structures and controls in place to ensure that this is delivered
effectively.
- Disruption to our IT services has the potential to impact our clients
and customers. We have processes in place to assess and respond to disruptions
caused by our IT service providers and an ongoing programme to test our
resilience under various adverse scenarios. We maintain heightened vigilance
to the threats of cyber-attack and we have an ongoing programme to adapt to
the changing threat landscape, drawing on the expertise of external
specialists.
- Our regulators continue to focus on protecting clients, customers and
the markets. We have various project workstreams in place to support our
delivery against these areas of focus, including in relation to consumer duty,
operational resilience, Environment, Social and Governance (ESG), prudential
requirements and anti-financial crime.
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