abrdn plc

Half year results 2022

 

The Half year results 2022 are published on the Group's website at www.abrdn.com/hyresults

Details of forward-looking statements can be found on page 64.

Certain measures such as fee based revenue, cost/income ratio, adjusted operating profit, adjusted profit before tax and adjusted capital generation 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.

All movements shown are compared to H1 2021 unless otherwise stated.

 

“The half year Group results largely reflect the challenging global economic environment and market turbulence.

When I became CEO in late 2020 I said that we would pursue a strategy of diversification by refocusing our Investments business in to areas of strength, where we have scale and that lean into global growth trends and also significantly expand our reach into the higher growth UK wealth market. We are doing exactly that and the addition of interactive investor transforms our UK retail presence and future revenue streams. The strength of our balance sheet means that we can continue to invest and reward shareholders.”

Stephen Bird

Chief Executive Officer

 

Markets impacting profitability

• Fee based revenue 8% lower at £696m and adjusted operating profit 28% lower at £115m, driven by market movements.
• Continued cost control delivered 2% reduction in adjusted operating expenses.
• Cost/income ratio higher at 83% (H1 2021: 79%) as a result of lower revenue.
• IFRS loss before tax of £320m (H1 2021: profit £113m), largely due to losses of £313m from the change in fair value of our significant listed investments in the period.
• Net outflows were £3.8bn excluding LBG and liquidity¹(H1 2021: £1.9bn), representing (1%) of opening AUMA.
• Total net outflows were £35.9bn (H1 2021: £5.6bn) largely reflecting final LBG tranche withdrawal of £24.4bn.
• AUMA was £508bn (FY 2021: £542bn) reflecting lower markets and final LBG tranche withdrawal, partly offset by inclusion of AUA from interactive investor (ii).

 

Diversification creating resilience and Investments being reshaped

• Investments vector fee based revenue down 11% and adjusted operating profit down 40% mainly reflecting adverse market conditions.
• Material rationalisation of funds to enable focus on our strongest and most relevant strategies.
• Areas of strategic focus in Institutional and Wholesale such as real assets and alternatives delivering growth and supporting gross flows of £13.5bn (excluding liquidity).
• Successfully retained c£7.5bn of LBG assets in Institutional quantitative funds.
• Investment performance broadly stable with 63% of AUM above benchmark over three years (FY 2021: 67%).
• Adviser continues to deliver in tough markets with fee based revenue up 6% and adjusted operating profit up 3%.
• Net flows in Adviser of £1.4bn (H1 2021: £2.0bn) reflects customer activity in the current environment.
• Personal includes one month result for ii, increasing fee based revenue by £13m and adjusted operating profit by £6m.

 

Focused on delivering returns for shareholders

• Strong capital position, with regulatory surplus of £0.6bn (FY 2021: £1.8bn) after funding ii acquisition.
• Value of significant listed investments at 30 June of £1.7bn (FY 2021: £2.3bn).
• Initial phase of £300m shareholder return programme commenced with £150m share buyback launched.
• Interim dividend of 7.3p in line with our dividend policy.

 

Outlook

• Current market uncertainty means our ambitions for revenue growth and improved cost/income ratio are likely to take longer than originally expected.
• In current markets we aim to deliver a similar percentage level of adjusted operating cost reduction in FY 2022 to that achieved in H1.
• Targeting net cost savings in Investments vector of c£75m over the period to 2024, comprising gross cost savings of c£150m and c£75m investment in future growth and inflation.
• Restructuring costs expected to be c£150m in FY 2022 (excluding corporate transaction costs). Additional restructuring costs associated with Investments vector cost actions expected to be broadly funded by proceeds from disposals of non-core assets.
• ii performing ahead of our profit expectations in H1 2022 and on track to deliver double-digit earnings accretion based on adjusted diluted earnings per share.
• With our disciplined approach to allocating capital to deliver shareholder returns, we will continue to return capital in excess of business needs as further stake sales are realised.
• Our previously stated dividend policy remains unchanged.

 

Performance indicators	H1 2022	H1 2021	Change
Fee based revenue	£696m	£755m	(8%)
Cost/income ratio	83%	79%	4ppts
Adjusted operating profit	£115m	£160m	(28%)
Adjusted capital generation	£107m	£176m	(39%)
IFRS (loss)/profit before tax	(£320m)	£113m
Adjusted diluted earnings per share	3.7p	7.0p	(47%)
Diluted earnings per share	(13.9p)	4.7p
Investment performance2	63%	67%3	(4ppts)
Interim dividend per share	7.3p	7.3p	–

1. Excluding Institutional and Wholesale liquidity net outflows of £7.7bn (H1 2021: £3.7bn) and LBG tranche withdrawals of £24.4bn (H1 2021: £nil). Liquidity flows are low margin and volatile in nature. LBG tranche withdrawals relate to the settlement of arbitration with LBG.
2. % of AUM above benchmark over three years. Further details on the calculation of investment performance are provided in Supplementary information.
3. Comparative as at 31 December 2021.

 

Chief Executive Officer's statement

Our business model has been resilient in the first half of 2022 and we've seen the clear benefits of our diversified three vector model, with profits growing in Personal and Adviser. This is against the backdrop of a rapid downturn in the global economy and markets that has affected the sector and had an impact on the Investments vector and overall group performance.

Fee based revenue is 8% lower, adjusted operating profit is 28% lower and the fall in the value of our listed stakes has resulted in an IFRS loss before tax of £320m. The cost/income ratio is higher at 83% and AUMA was £508bn, 6% lower than the start of the year.

When I became CEO in late 2020 I said that we would pursue a strategy of refocusing our Investments business in to areas of strength and relative scale and that we would expand our reach in the higher growth and higher margin UK savings and wealth market by investing in and growing our Adviser and Personal vectors. Despite the challenging market context we are doing exactly that.

 

Investments

In the Investments vector our results have been impacted by industry-wide negative returns which has resulted in 11% lower fee based revenue and 40% lower adjusted operating profit.

The sharp rotation from growth to value has impacted our investment performance in equities and multi-asset, while performance in real assets, alternatives and fixed income is highly competitive over the medium and longer term. Our long-term quality focus should fare better in the natural next phase of rotation as recessionary concerns mount. Likewise, our Asia and China expertise represent a potential counter cyclical investment opportunity as the US slows.

In the context of heavy market turbulence, we saw net outflows of 1% of opening AUMA (excluding LBG and liquidity), demonstrating stability despite the conditions and impacts on investment performance. We have retained c£7.5bn of LBG assets in our Solutions business, Tritax AUM has increased from £5.9bn a year ago to £7.7bn, and we have over £1.7bn in the real estate acquisition pipeline including the student residence market.

Client interest in real assets continues to be high. Investment performance over the three-year period for real assets has now improved from 52% to 75% and our shift from traditional retail assets into next generation long term real assets is paying off with Tritax overseeing one of our top revenue generating funds in this half year.

New business activity in the first half is fully aligned to our chosen areas of focus. For example, recent fund development and launches include the MyFolio Sustainability Index, China Next Gen, Asian Sustainable Credit, Commercial Real Estate Debt, Core Infrastructure and Global Risk Mitigation.

Overall costs within the vector remain too high and a range of initiatives are underway to address this. We are continuing with fund rationalisation and non-core disposals. We have simplified management processes, progressed single middle office migration and transformed our equity and multi-asset solutions operations. We are committed to delivering gross cost savings of c£150m by the end of 2024.

We outlined our group and Investment vector strategy in March last year, and whilst the environment has changed substantially, we remain absolutely committed to delivery. We are substantially changing the shape of our Investments business and repositioning ourselves in higher margin asset classes that both play to existing abrdn strengths and lean into global growth trends. This will also position us optimally when broader global economic recovery starts by exposing us to the markets most critical to that recovery. Our core manufacturing pillars of fixed income, specialty equities and alternatives are being organised to deliver outcomes and solutions for clients aligned to global mega-trends that will dominate the investment landscape for the foreseeable future. We are pulling away from a broad waterfront offering as we focus the business on areas where we have strength and scale.

As our progress in the first half of 2022 demonstrates, we are rebasing this business and positioning it for sustainable higher margin growth with a significantly reduced cost base.

Adviser

The Adviser vector remains the number one adviser platform in the UK by AUA (Source: Fundscape), with over 50% of advisory businesses using our solutions and giving a 96% customer satisfaction score. In the first half of 2022 the business has performed robustly with growth in fee based revenue of 6% and adjusted operating profit up by 3%. We are continuing to invest in technological capabilities and platform integration that will further improve client experience and further enhance our leadership in this growing market.

Personal

The acquisition of interactive investor, completed in May, has transformed our position in the vibrant UK Wealth market and delivers a significant acceleration of group revenue diversification. ii's financial performance in the first half (of which a month is contributory to abrdn) was ahead of our expectations, driven by three fundamentals – customer acquisition, subscription revenue growth and improved operating leverage. ii has seen a 17% increase in revenue and 47% increase in adjusted operating profit on a full year 2021 run rate basis (excluding Share), while the cost/income ratio improved by 9 percentage points to 56%, highlighting ii's efficiency.

To maximise growth synergies, we are moving the existing Personal Wealth business – discretionary, digital advice and financial planning – under Richard Wilson, who has been appointed CEO of the entire Personal vector. This will enable us to deliver an 'end to end' customer proposition from simple online transactions to more complex financial advice and exploit further shared opportunities to fully serve this expanded customer group.

Taken together, growth in the Adviser and Personal vectors, which significantly increase exposure to the UK wealth market, will help transform the shape and source of group revenue in line with our stated strategic ambitions.

Strategic approach and outlook

We are continuing to deliver on our priorities and whilst the external market environment has worsened and it will likely take us longer to deliver our targets, it is the right strategy and we have the team and the capital resources to execute it well.

Looking forward into the second half, we will see revenue tailwinds from a full six months' contribution from ii and from performance fees. We are expecting continued positive flows in Adviser and Personal Wealth. Markets have shown some signs of improvement in July and if this trend continues it will provide a further revenue tailwind.

Even with the additional costs from ii and Tritax, for FY 2022 we have a clear pathway in current markets to lower overall group operating costs and we aim to deliver a similar year on year percentage level of adjusted operating cost reduction for FY 2022 to be similar to that seen in H1 2022 against the comparative half year period. This will be driven by cost actions within the Investments vector, a further reduction of headcount and continued cost control across the group.

We are targeting the delivery of net cost savings in the Investments vector of c£75m over the period to 2024. This comprises actions to deliver gross savings of c£150m over the period from 2022 to 2024, with the majority impacting 2023 and fully realised in 2024, and c£75m of costs invested for future growth which will also largely fall in 2023. Our actions to deliver cost savings are designed to enable investment in areas of growth and performance related compensation for our teams. Additional restructuring costs associated with these actions are expected to be broadly funded by proceeds from the disposal of non-core assets.

Our capital resources are strong, which will continue to enable investment in the business and support the dividend policy and the current £300m shareholder return programme. Now that the ii acquisition is complete and with our disciplined approach to allocating capital to deliver shareholder returns, we will continue to return capital in excess of business needs as further stake sales are realised.

We are continuing to execute on our client-led growth strategy first by improving the performance of each vector and then by extracting the value across all three. This approach will diversify earnings, improve efficiency, deliver our revenue and cost ambitions and ensure optimal use of capital. Now that the shape of the group is largely settled, we expect inorganic actions on a more modest scale. This may include both further divestments and selective reinvestment where we see capabilities we need and that offer compelling value.

Whilst the global economic outlook remains very uncertain, we are focusing on what we can control through the ongoing delivery of our strategy. This will provide diversification of revenue streams and put the group on a sustainable growth trajectory.

Stephen Bird

Chief Executive Officer