TIDMSLA
RNS Number : 4328V
Standard Life Aberdeen plc
07 August 2020
Standard Life Aberdeen plc
Half year results 2020
Part 1 of 3
7 August 2020
Contents
1. Management report 1
2. Statement of Directors' responsibilities 13
Independent review report from our External
3. auditors 14
4. Financial information 15
IFRS condensed consolidated primary statements
Notes to the IFRS condensed consolidated
financial information
5. Supplementary information 44
6. Glossary 53
7. Shareholder information 55
For a PDF version of the full half year results announcement,
please click here:
http://www.rns-pdf.londonstockexchange.com/rns/4328V_1-2020-8-6.pdf
Standard Life Aberdeen plc's LEI Code is
0TMBS544NMO7GLCE7H90
The Half year results 2020 are published on the Group's website
at www.standardlifeaberdeen.com/hyresults
Details of forward-looking statements can be found on the inside
back cover.
Certain measures, such as fee based revenue, cost/income ratio
and adjusted profit before tax are not defined under International
Financial Reporting Standards (IFRS) and are therefore termed
alternative performance measures (APMs). Further details on APMs
are included in Supplementary information in Section 5.
All figures are shown on a Continuing operations basis unless
otherwise stated.
This symbol indicates further information is available within
this report or on the Group corporate website.
For more information visit our corporate website:
www.standardlifeaberdeen.com
Resilience and financial strength in volatile markets
Keith Skeoch, Chief Executive, commented:
" Despite exceptional circumstances we have delivered a
resilient performance. In the first half of 2020 redemptions have
slowed and net inflows have improved, excluding expected LBG
withdrawals. Investment performance has been robust and we continue
to deliver on our synergy commitments.
"There is no question that the impact of COVID-19 has played a
role on our results today, and across our industry, particularly in
relation to lower revenue. Our foundations are firm, we have a
strong balance sheet which enables us to both invest in our
business and maintain our interim dividend of 7.3p.
"We have a strong commitment to responsible investment, and a
resolute belief in our purpose 'Together we invest for a better
future'. This is reflected in our response to the pandemic, where
we have focused on protecting the safety and wellbeing of our
people, ensuring we can continue to deliver for our clients and
customers, and supporting the communities in which we operate. Our
people recognise this and it's reflected in the significant
improvement we have seen in our culture over the last 12
months.
"This is my last set of results as Chief Executive of Standard
Life Aberdeen, following 21 years with the business - a period
where I have seen the business evolve from a mutual life and
pensions company to a capital-light global investment house. I am
pleased to hand over a business with strong foundations, an
enviable capital position, talented people, enduring relationships
and big ambitions."
Key points:
Financial
-- Fee based revenue of GBP706m (H1 2019: GBP815m), 13% lower
mainly reflecting 2019 outflows, client preferences changing asset
mix in this environment, and Lloyds Banking Group (LBG) tranche
withdrawals
-- Adjusted operating expenses of GBP601m (H1 2019: GBP673m),
reduced by 11% due to realisation of synergies and other
efficiencies
-- Adjusted profit before tax of GBP195m (H1 2019: GBP280m), 30%
lower largely reflecting lower revenue
-- IFRS loss before tax of GBP498m (H1 2019: GBP629m profit)
reflecting impairment charges relating to goodwill and intangible
assets partly offset by gains on sales of Indian investments (HDFC
Life and HDFC Asset Management)
-- Impact of COVID-19 on H1 2020 results was largely in relation
to lower fee based revenue, impairment charges and cGBP10m savings
on discretionary costs
-- Strong balance sheet including surplus regulatory capital of
GBP1.8bn, up compared with GBP1.7bn at FY 2019
-- Maintained interim dividend at 7.3p (H1 2019: 7.3p)
Business
-- Robust investment performance in volatile markets with 68% of
AUM above benchmark over three years
-- Net inflows of GBP0.1bn (excluding LBG tranche withdrawals of
GBP24.9bn) (H1 2019: GBP15.9bn net outflows)
-- Redemptions lower by 27% to GBP38.1bn (excluding LBG tranche
withdrawals) (H1 2019: GBP52.3bn)
-- Gross inflows up 5% at GBP38.2bn (H1 2019: GBP36.4bn)
-- AUMA of GBP511.8bn after LBG tranche withdrawals (FY 2019: GBP544.6bn)
Operational resilience - COVID-19
-- Over 95% of our colleagues working from home around the world
-- Adopted innovative digital channels for client and customer engagement
-- We did not access any UK government support schemes and none
of our colleagues were furloughed. We honoured our early careers
recruitment and no new redundancy programmes were initiated.
-- We significantly increased our charitable support for local communities
Outlook
-- COVID-19 and associated shutdowns of economic activity have
precipitated significant negative growth shocks across the
world
-- Contraction phase of crisis comparatively short-lived and we
anticipate an element of recovery as restrictions are lifted
-- As an active asset manager we can play an important role in
society during the recovery, meeting the evolving needs of clients
as they plan their financial futures
-- While revenue outlook remains challenging for the industry,
we continue to focus on what we can control. We will continue to
diversify our revenue and reshape our cost base to ensure it is
future fit
-- Although the future is unpredictable, we believe our mix of
customers and channels, continued investment performance, enduring
relationships, geographic spread and financial strength will enable
us to continue to demonstrate resilience in periods of ongoing
uncertainty
H1 2020 H1 2019
================================================== =========== =============
Financial metrics
Fee based revenue GBP706m GBP815m
Cost/income ratio (excluding associates and joint
ventures) 85% 83%
Adjusted profit before tax GBP195m GBP280m
IFRS (loss)/profit before tax (GBP498m) GBP629m
Adjusted diluted earnings per share 7.0p 8.9p
Diluted earnings per share (22.7p) 26.0p
Interim dividend per share 7.3p 7.3p
Business metrics
Gross inflows GBP38.2bn GBP36.4bn
Net flows
Excluding LBG GBP0.1bn (GBP15.9bn)
Total (GBP24.8bn) (GBP15.9bn)
AUMA GBP511.8bn GBP544.6bn(1)
Investment performance (AUM) - 3 years(2) 68% 60%(1)
================================================== =========== =============
Media
A conference call for the media will take place at 8.00am (BST)
on 7 August. Participants should dial UK 0800 640 6441/Other
locations +44 (0) 203 936 2999 followed by passcode 362740.
Investors and analysts
A presentation for analysts and investors will take place via
webcast at 9.00am (BST) on Friday 7 August 2020. To join the
webcast go to www.standardlifeaberdeen.com. There is also the
facility to join the presentation and subsequent Q&A session
via a conference call. Participants should dial +44 (0) 203 936
2999 and use passcode 193750.
Enquiries:
Institutional equity investors and analysts Retail equity investors
Catherine Nash 07798 518 657 Link Market Services* 0345 113 0045
Media Debt investors and analysts
0207 463 6323 / 07768
James Thorneley 556 334 Nick Mardon 07515 298 212
Andrea Ward 0131 372 2266 / 07740 535 013
Iain Dey (Smithfield) 0203 047 2528 / 07976 295 906
* Calls may be monitored and/or recorded to protect both you and
us and help with our training. Call charges will vary.
Notes:
(1) Comparative as at 31 December 2019.
(2) Percentage of AUM above benchmark. A full definition is
included in the Glossary.
Chief Executive's statement
A purpose-led response to COVID-19
Many months on from when the world first heard of a coronavirus
outbreak, I remain extremely proud of how colleagues across the
world responded, adapted and continued to serve our clients,
customers and communities over this very difficult period. From the
start, we put the safety and wellbeing of our colleagues and their
families first and by the time the pandemic was reaching its height
across our regions, virtually all of our people had successfully
transitioned to home working.
What has become apparent is that connectivity, communications
and a common purpose and culture have been vital to the success of
this transition. The resilience of our IT infrastructure and
investment platforms has meant we have been able to deliver
consistently for our clients and customers from a home environment.
To keep our colleagues supported, connected and informed, we
committed to maintaining transparent and regular communications, as
well as providing an extensive suite of health and wellbeing
support tools.
We have maintained our focus on serving our clients and
customers globally, switching to digital channels to maintain
relationships, provide continuing customer service, generate sales
and win mandates. Realising the heightened impact the pandemic is
having on the more vulnerable, we allocated funds and support to
local communities most in need in our operational locations across
the world.
We are now thinking ahead to how we can best support a
sustainable and inclusive economic recovery. As active, long-term
investors, we are fully committed to providing support, where
appropriate, to the companies we invest in. Environmental, Social
and Governance (ESG) is embedded in our investment processes. In
response to the challenges presented by COVID-19 we issued a
statement explaining our approach to responsible investment and
stewardship in these unprecedented times. We have been supportive
of companies that have looked after their employees as a priority
and have been thoughtful where capital conservation or raising has
been needed.
Our objective has been clear from the outset: to build further
resilience into our operating model and to ensure greater agility
so we can continue to deliver for clients and customers and
continue to transform our business in a very different operating
environment.
The impact on the global economy has yet to be fully understood.
There will clearly be a global recession and some countries will be
harder hit than others and some will bounce back more quickly.
Our results clearly show that the main impact of the COVID-19
crisis on our business is through its impact on revenue; unlike
many industries, COVID-19 does not impact the fundamental basis of
our business. The need for individuals to save and invest for the
future, pension funds to provide retirement income, institutions to
invest and governments to borrow has not changed and in fact has
become more acute. The need to diversify investment risk both
geographically and in asset classes is more apparent than ever and
our range of asset management capabilities is well matched to this
need. The recent politicisation of global trade does not change the
investment imperatives. The increased levels of government debt
will make it more important than ever that individuals plan for
their own future in a more uncertain time. The recent increase in
UK personal savings reflects that this is widely understood.
Building a culture of saving, and converting savings to investment,
is challenging but vital and in the UK we are well positioned to
play a leading role. Our existing capabilities in platforms and
relationships with financial advisers and the potency and trust of
the Standard Life brand for savings uniquely position us to guide
customers through financial choices over their life. This difficult
and uncertain environment is likely to last for some time and it
will be a period when, more than ever, we need to reinforce our
purpose - Together we invest for a better future.
We believe COVID-19 will accelerate the key global trends
already underway in our industry and already factored into our
strategy. We have a strong financial position, geographic and
product diversity, and a common culture that positions us well to
lean into the challenges and opportunities that this environment
provides.
The impact of the COVID-19 pandemic on our half year 2020
results has largely been to reduce fee based revenue, driven by the
change in client preferences to less risk-based assets as a result
of market volatility, and the fall in equity markets compared to
the end of 2019, and on the value of goodwill and intangible assets
resulting in impairment charges. There have also been savings of
cGBP10m from lower discretionary costs in this period of COVID-19
restrictions. Our transformation programme remains on track.
We continue to make strong progress in the creation of a common
culture. During this period, we rolled out our strategic blueprint
to instil a common sense of purpose throughout the business despite
the COVID-19 crisis. This roll out has been undertaken digitally
and is backed up by the launch of a single intranet iSLA. The
latest mood survey(1) , taken in mid-July, was very positive with
73% of the survey 'proud to work for Standard Life Aberdeen' and
only 7% registering a negative response. These scores represent a
dramatic improvement on the sentiment in the 2018 viewpoint survey
when only 53% were proud to work for Standard Life Aberdeen.
Resilience in volatile markets
We were encouraged that our investment performance remained
robust in the first half of the year, with 68% of assets under
management ahead of benchmark over three years. Despite the
challenges of remote working we continued to innovate,
launching
18 new funds in the first half across a range of capabilities
and winning new mandates. We were pleased to see that the number of
strategies receiving positive ratings from investment consultants
has increased to 51 in the first half from 43 three years ago. We
continued to strengthen our ESG franchise, launching funds, winning
mandates, and launching a responsible investment campaign in
Europe.
(1) Survey conducted July 2020 as part of return to workplace
considerations.
While the financial markets remain volatile and there is still
much uncertainty on the shape and timing of any eventual recovery,
the response from our clients in the first half of the year has
been measured. This is evidenced by the movement in flows over the
period. Redemptions in the first half of GBP38.1bn, excluding
expected Lloyds Banking Group (LBG) tranche withdrawals of
GBP24.9bn, were the lowest seen since the merger. We saw total
gross inflows of GBP38.2bn resulting in net inflows of GBP0.1bn,
excluding the LBG tranche withdrawals. AUMA at 30 June 2020 was
GBP511.8bn, lower than GBP544.6bn at year end 2019 largely
reflecting the LBG tranche withdrawals. Across asset classes we saw
a reaction to the uncertain environment and extreme volatility in
markets with the shift in risk appetite leading to some
reallocation to lower risk assets.
We determined at the start of the year that further enhancing
our consumer savings and investment capability in the UK would be a
priority for our Platforms and Wealth channel. This involves
bringing together the current customer solutions into an integrated
proposition and increasing the efficiency of our back office
processes. We made progress in the first half launching more
attractive pricing features for advisers and customers on our Wrap
platform. Responding to the trend for digitalisation in financial
products, we are in beta testing for our new 'Choices' app, an open
banking engagement tool aimed at younger savers providing direct
access to our savings products.
Focus on financial discipline
During these turbulent times, we continue to focus on what we
can control. Fee based revenue was down 13% in the first half
reflecting the impact of 2019 outflows, changes in asset class mix
in the period, LBG tranche withdrawals and falls in markets since
the end of 2019. However, we have achieved an improvement in
adjusted operating expenses, with costs down 11% year on year. This
was driven by synergies realised in the period, as well as other
cost efficiencies and other savings due to the impact of COVID-19.
We remain on track with our transformation programme and with the
delivery of our stated target of GBP400m annual synergies, GBP350m
by end of 2020 and an additional GBP50m during 2021.
The lower revenue resulted in adjusted profit of GBP195m being
30% lower than H1 2019. IFRS loss before tax was GBP498m due to
goodwill and intangible asset impairment charges of GBP1,049m,
primarily reflecting the impact of COVID-19 on financial markets
and resulting revenue projections. This was partially offset by the
gains on sales of our Indian investments of GBP651m.
Financial strength in volatile markets
We entered this period of uncertainty in a position of financial
strength and during these unprecedented times we have continued to
strengthen our position. In the first half we raised GBP709m in net
cash proceeds through the further partial sales of our investments
in HDFC Life and HDFC Asset Management. Total shareholder equity at
30 June 2020 is GBP5.8bn, including surplus regulatory capital of
GBP1.8bn, up from GBP1.7bn in 2019. In addition, our listed
investments had a market value of GBP3.4bn at 5 August 2020,
GBP3.0bn of which is not recognised in our regulatory capital. This
strong financial position is a result of careful stewardship of the
balance sheet which has supported investment in the business to
diversify revenue and increase efficiency, as well as delivering
returns for shareholders. In the current volatile markets our
financial strength brings us benefits and provides us with
options.
The Board is committed to delivering a dividend that is
sustainable over the medium term. At this point in time, our
operating performance together with the strength and quality of our
balance sheet have enabled the Board to maintain our interim
dividend at 7.3p. We also plan to complete the existing GBP400m
share buyback programme (which is 55% complete) during the second
half of the year.
As the deterioration and uncertainty in economic conditions that
have resulted from the global COVID-19 pandemic are now expected to
continue for some time, as part of its normal planning cycle, the
Board will be reviewing both the challenges and opportunities for
our business in this environment with a view to evaluating our
sustainable earnings profile over the medium term.
Outlook
The COVID-19 pandemic and associated shutdowns of economic
activity have precipitated significant negative growth shocks
across the world. However, the contraction phase of the crisis has
also been comparatively short-lived and we anticipate an element of
recovery as restrictions are lifted. Nevertheless, the long-term
consequences of the crisis will be profound, including a
longer-term loss of output, labour market scarring, lower real
interest rates, and an altered balance between monetary and fiscal
policy. In addition, the Brexit process remains in a transition
period up to 31 December 2020 and remains a further source of
uncertainty.
There are both challenges and opportunities arising in the
current environment. As an active asset manager we can play an
important role in society during the recovery, meeting the evolving
needs of clients as they plan their financial futures. Through our
Platforms and Wealth channel, we can help people plan for their
financial futures through our savings and investment products. As
active asset managers we can continue to meet the evolving needs of
our clients across a broad range of asset classes, strategies and
solutions. While the revenue outlook remains challenging for the
industry, we will continue to focus on what we can control. We will
continue to diversify our revenue and reshape our cost base to
ensure it is future fit. Although the future is unpredictable, we
believe that our mix of customers and channels, continued
investment performance, enduring relationships, geographic spread
and financial strength will enable us to continue to demonstrate
resilience in periods of ongoing uncertainty.
Chief Executive succession
It was announced on 30 June that Stephen Bird would join the
Board and take up the role of Chief Executive Designate on 1 July.
Following a handover period, and subject to regulatory approvals,
Stephen will succeed me as Group Chief Executive. It has been a
real privilege to serve this great company and to have the
opportunity to work with such talented people. Over the last 14
years, we have transformed the business from a UK life and pensions
house into a global, capital-light investment and savings business.
In recent times, we have laid strong foundations for the next stage
of growth, built a strong capital position, improved investment
performance, invested in our people and our talent, strengthened
our leadership team, and made great strides in building a
purpose-led culture. The Board has appointed a great successor who
will be an excellent leader during the next stages of Standard Life
Aberdeen's journey.
Keith Skeoch
Chief Executive
7 August 2020
Analysis of profit
H1 2020 H1 2019
GBPm GBPm
============================================================== ======= =======
Fee based revenue 706 815
Adjusted operating expenses (601) (673)
============================================================== ======= =======
Adjusted operating profit 105 142
Capital management (13) 22
Asset management associates and joint ventures 22 26
============================================================== ======= =======
Asset management, Platforms and Wealth 114 190
Insurance associates and joint ventures 81 90
============================================================== ======= =======
Adjusted profit before tax 195 280
Adjusting items (673) 348
Share of associates' and joint ventures' tax (expense)/credit (20) 1
============================================================== ======= =======
IFRS (loss)/profit before tax (498) 629
============================================================== ======= =======
Tax (expense)/credit (6) 10
============================================================== ======= =======
IFRS (loss)/profit for the period (504) 639
============================================================== ======= =======
Revenue
Fee revenue
Fee based revenue yield
=================== ================
H1 2020 H1 2019 H1 2020 H1 2019
GBPm GBPm bps bps
============================= ========= ======== ======= =======
Institutional and Wholesale 445 513 39.5 43.4
Strategic insurance partners 115 166 11.0 12.7
Platforms and Wealth
Wrap and Elevate 69 73 23.1 25.6
Wealth 58 51 45.1 50.6
Fee revenue (1) 687 803 26.8 28.6
============================= ========= ======== ======= =======
SL Asia(2) 7 6
Performance fees 12 6
============================= ========= ======== ======= =======
Fee based revenue 706 815
============================= ========= ======== ======= =======
(1) H1 2019 Fee revenue yield restated to include revenue and
assets under advice relating to our 1825 advice business.
(2) The sale of SL Asia to Heng An Standard Life (HASL)
completed on 30 June 2020. See Note 4.2 in the Financial
information section.
Fee based revenue reduced by 13% to GBP706m (H1 2019: GBP815m)
mainly reflecting 2019 outflows, changes in client preferences to
assets with lower fees, in particular the market shift to cash and
liquidity in H1 2020 due to the impact of COVID-19 on global
financial markets, and the impact of LBG tranche withdrawals.
Despite the recent volatility in financial markets, the average
daily MSCI World Index was 3% higher in H1 2020 compared to H1
2019, however the average daily FTSE All Share Index was 10%
lower.
The revenue yield in Institutional and Wholesale decreased to
39.5bps (H1 2019: 43.4bps) as a result of the lower proportion of
higher margin Equity and Multi-asset AUM and the higher proportion
of Cash/Liquidity AUM. The lower margin also reflects the GBP5.5bn
win of a lower margin US advisory mandate in Q4 2019.
Fee based revenue from strategic insurance partners reduced due
to net outflows, in particular the cGBP50m impact from LBG
reflecting the tranche withdrawals of GBP41.0bn in H2 2019 and
GBP24.9bn in H1 2020.
The lower fee based revenue in Wrap and Elevate includes the
impact of the Elevate reprice in 2019 and the impact of COVID-19 on
average UK market levels, partly offset by continued net
inflows.
Wealth fee based revenue increased largely due to the
acquisition of Grant Thornton's wealth advisory business and BDO
Northern Ireland's wealth management business in H2 2019. This was
partly offset by the impact of lower UK markets in H1 2020.
Expenses
Adjusted operating expenses decreased by 11% to GBP601m (H1
2019: GBP673m) including the benefit of synergies of GBP34m which
included lower staff and premises costs arising through the ongoing
integration process. In addition we realised other efficiencies of
GBP57m from transforming our business, through implementing new
processes and infrastructure which also allow us to build
efficiency in how we work, including cGBP10m of lower discretionary
costs in this period of COVID-19 restrictions.
The cost/income ratio, which includes our share of associates'
and joint ventures' profit, was 74% (H1 2019: 72%) reflecting
principally the fall in revenue. Excluding our share of associates'
and joint ventures' profit, the cost/income ratio was 85% (H1 2019:
83%).
At 30 June 2020, actions have been taken which will deliver
GBP323m of annualised synergies, benefiting H1 2020 operating
expenses by GBP137m (H1 2019: GBP103m) with further benefits
expected in H2 2020 and 2021. Cost synergies have been realised
from a reduction in staff costs, rationalisation of premises, and
efficiencies in supplier spend, including procurement actions to
avoid cost increases.
The related implementation costs, which are included in
restructuring expenses, incurred to date are GBP482m, of which
GBP46m were incurred in H1 2020 (H1 2019: GBP123m). We expect total
implementation costs to remain in line with the previous estimate
of GBP555m to deliver the GBP400m of annual synergies (GBP350m by
end of 2020 and an additional GBP50m during 2021).
Capital management
Capital management generated a loss of GBP13m (H1 2019: profit
GBP22m) due to investment losses of GBP17m (H1 2019: gains GBP18m)
primarily reflecting negative market movements on seed capital and
co-investment fund holdings from the impact of COVID-19 on global
financial markets during H1 2020, compared to significant market
gains in H1 2019. Net finance costs reduced to GBP6m (H1 2019:
GBP10m) mainly due to the repurchase of GBP408m of subordinated
debt in 2019. The net interest credit relating to the staff pension
schemes reduced to GBP10m (H1 2019: GBP14m) reflecting a lower
discount rate.
Asset management associates and joint ventures
Our share of adjusted profit reduced by 15% to GBP22m (H1 2019:
GBP26m) due to our reduced shareholding in HDFC Asset Management
following the sale of 3.02% of the shares in December 2019, and
also the impact of adverse market conditions. Our percentage
ownership of HDFC Asset Management at 30 June 2020 was 21.25% (H1
2019: 29.94%) following a further sale of 5.64% in June 2020 which
generated net cash proceeds of GBP265m. Following this sale, HDFC
Asset Management has now achieved the minimum public shareholding
requirement in India.
Insurance associates and joint ventures
Ownership
at
30 Jun 2020 H1 2020 H1 2019
% GBPm GBPm
=========================== ============ ======= =======
Phoenix 19.97 57 53
HDFC Life 10.27 9 24
HASL 50.00 15 13
=========================== ============ ======= =======
Adjusted profit before tax 81 90
=========================== ============ ======= =======
The share of adjusted profit from insurance associates and joint
ventures reduced by 10% to GBP81m (H1 2019: GBP90m) mainly due to
the reduction in our shareholding in HDFC Life to 10.27% (H1 2019:
23.02%) following the sales of 8.28% in H2 2019 and 4.46% in H1
2020, and the impact on HDFC Life of adverse market conditions. The
combined sales of 4.46% in H1 2020 generated net cash proceeds of
GBP444m.
Based on the closing share price at 5 August 2020, the
approximate value of our shareholding in Phoenix was GBP1.0bn
(based on our holding of 14.43% following the completion of its
acquisition of ReAssure Group plc) and in HDFC Life GBP1.3bn.
Combined with the value of our shareholding in HDFC Asset
Management of GBP1.1bn, this gives a total value of our
shareholdings in listed associates of approximately GBP3.4bn.
IFRS (loss)/profit before tax
The IFRS loss before tax of GBP498m (H1 2019: profit GBP629m)
mainly reflected the impairments of goodwill and intangibles of
GBP1,049m partially offset by profits on disposal of interests in
associates of GBP651m.
Adjusting items
H1 2020 H1 2019
GBPm GBPm
=============================================================== ======= =======
Profit on disposal of interests in associates 651 443
Restructuring and corporate transaction expenses (147) (198)
Amortisation and impairment of intangible assets acquired
in business combinations and through the purchase of customer
contracts (1,175) (144)
(Loss on)/reversal of impairment of associates and joint
ventures (130) 243
Investment return variances and economic assumption changes 124 (18)
Other 4 22
=============================================================== ======= =======
Total adjusting items (673) 348
=============================================================== ======= =======
The profit on disposal of interests in associates of GBP651m
relates to GBP388m from the sale of 4.46% of the shares in HDFC
Life and GBP263m from the sale of 5.64% of the shares in HDFC Asset
Management.
Restructuring and corporate transaction expenses were GBP147m
(H1 2019: GBP198m) primarily reflecting ongoing transformation
costs for integration, separation from Phoenix and implementing our
simplified operating model. H1 2019 included GBP49m relating to the
repurchase of subordinated debt. Total Phoenix separation costs
accounted for to date amount to GBP204m and include GBP34m in H1
2020. Our estimate of the total of these one-off separation costs
we expect to incur remains GBP310m.
The amortisation and impairment of intangible assets acquired in
business combinations and through the purchase of customer
contracts increased to GBP1,175m (H1 2019: GBP144m) due to 2020
impairment charges of GBP1,049m. The impairment of goodwill of
GBP915m relates to an impairment of asset management goodwill and
resulted from the impact on reported revenue and future revenue
projections of global equity market falls and a shift in asset mix
towards lower margin assets. Both the fall in equity markets and
the shift in asset mix were global market impacts primarily
resulting from COVID-19. The asset management goodwill is now fully
impaired. The impairment of customer relationship and investment
management contract intangibles of GBP134m resulted from the impact
of markets,
net outflows and a fall in revenue yield on future earnings
expectations. Further details are provided in Note 4.11 in the
Financial information section.
The impairment of associates and joint ventures of GBP130m
includes GBP85m reflecting the lower market value of our investment
in Phoenix at 30 June 2020 following a reduction in the share
price. There was also a GBP45m impairment relating to our joint
venture with Virgin Money. Further details are provided in Note
4.12.
Investment return variances and economic assumption changes gain
of GBP124m relates to our share of Phoenix adjusting items. Further
details are provided in Note 4.9.
Tax expense
The total IFRS tax expense attributable to the profit for the
period was GBP6m (H1 2019: credit GBP10m), including a tax credit
attributable to adjusting items of GBP7m (H1 2019: credit GBP41m),
resulting in an effective tax rate of negative 1% on the total IFRS
losses
(H1 2019: negative 2%). The difference to the UK corporation tax
rate of 19% is mainly driven by the impairment of goodwill which is
not deductible for tax purposes. This is partly offset by a lower
effective tax rate on the Indian stake sales. The profit on
disposal of HDFC Life shares is not subject to tax under India's
tax rules and international treaties and the profit on the disposal
of HDFC Asset Management shares was subject to tax in India at a
lower rate than the UK rate of corporation tax.
The tax expense attributable to adjusted profit before tax
totalled GBP32m (H1 2019: GBP58m), which includes GBP19m (H1 2019:
GBP27m) representing equity holders' share of tax which is
attributable to our share of the profits of associates and joint
ventures. The effective tax rate on total adjusted profit is 16.4%
(2019: 20.7%). This is lower than the 19% UK rate primarily due to
the reversal of planned reductions in the rate of UK corporation
tax. This has a beneficial effect in increasing the value of our
deferred tax assets.
Earnings per share
Adjusted diluted earnings per share reduced by 21% to 7.0p (H1
2019: 8.9p). This reflects the 27% reduction in adjusted profit
after tax partly offset by the benefit of 6% from the ongoing share
buybacks.
Investment performance
% of AUM ahead of benchmark (1)
1 year 3 years 5 years
================ ================ ================
H1 2020 FY 2019 H1 2020 FY 2019 H1 2020 FY 2019
=============== ======= ======= ======= ======= ======= =======
Equities 49 59 46 31 56 31
Fixed income 58 83 75 86 77 72
Multi-asset 61 68 57 46 51 61
Alternatives 76 89 80 98 100 100
Real estate 46 39 55 48 48 36
Quantitative 28 44 30 52 58 58
Cash/Liquidity 91 91 90 88 89 88
=============== ======= ======= ======= ======= ======= =======
Total 62 74 68 60 65 67
=============== ======= ======= ======= ======= ======= =======
(1) The investment performance calculation covers all funds
(including strategic insurance partners) that aim to outperform a
benchmark, with certain assets excluded where this measure of
performance is not appropriate or expected. Calculations for
investment performance are made gross of fees except where the
stated comparator is net of fees. Further details about the
calculation of investment performance are included in the
Glossary.
Three-year investment performance improved during the first half
of 2020, with 68% (FY 2019: 60%) of assets under management ahead
of benchmark. This reflects continued improvement in three-year
performance within Equities and Multi-asset and ongoing strong
performance in Alternatives, Fixed income and Cash/Liquidity.
Shorter-term equity performance over one year weakened primarily
due to Emerging Markets equities. Most other Equity classes had
improved performance, supporting the overall asset class
performance over three years.
We are encouraged by the increase in strategies receiving
positive ratings from investment consultants, bringing the total to
51 strategies (FY 2019: 46 strategies). The new ratings were in
Equities, Fixed income, Private markets and Liability Driven
Investment.
Assets under management and administration (AUMA) and flows
AUMA
H1 2020 H1 2019(2) FY 2019
GBPbn GBPbn GBPbn
=========================== ======= ========== =======
Opening AUMA 544.6 551.5 551.5
Net flows 0.1 (15.9) (17.4)
LBG tranche withdrawals (24.9) - (41.0)
Market and other movements (8.0) 43.1 49.0
Corporate actions - 0.7 2.5
=========================== ======= ========== =======
Closing AUMA 511.8 579.4 544.6
=========================== ======= ========== =======
(2) H1 2019 has been restated to include opening assets under
advice within market and other movements.
AUMA is lower than FY 2019 as a result of a further GBP24.9bn of
LBG tranche withdrawals and the impact of COVID-19 on global
financial markets. Institutional and Wholesale AUM increased to
GBP233.6bn (FY 2019: GBP233.0bn) despite the challenging market
conditions.
Gross and net flows
Gross inflows Net flows
============================ ============================
H1 2020 H2 2019 H1 2019(1) H1 2020 H2 2019 H1 2019(1)
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
========================================= ======= ======= ========== ======= ======= ==========
Institutional 14.0 13.2 13.9 1.4 (7.3) (6.9)
Wholesale 11.5 14.8 5.4 (2.0) 1.3 (8.6)
Strategic insurance partners (excluding
LBG tranche withdrawals(2) ) 9.2 17.2 9.7 (1.3) 2.3 (5.7)
Platforms and Wealth
Wrap and Elevate 3.2 3.6 3.4 1.1 1.2 1.1
Wealth 1.4 2.0 5.1 0.7 0.8 3.9
Eliminations(3) (1.1) (1.0) (1.1) 0.2 0.2 0.3
========================================= ======= ======= ========== ======= ======= ==========
Total (excluding LBG tranche withdrawals
(2) ) 38.2 49.8 36.4 0.1 (1.5) (15.9)
========================================= ======= ======= ========== ======= ======= ==========
LBG tranche withdrawals(3) - - - (24.9) (41.0) -
========================================= ======= ======= ========== ======= ======= ==========
Total 38.2 49.8 36.4 (24.8) (42.5) (15.9)
========================================= ======= ======= ========== ======= ======= ==========
(1) H1 2019 has been restated to include flows relating to 1825
assets under advice. Wealth includes GBP3.5bn of inflows from
Virgin Money.
(2) Net outflows excluding LBG do not include the tranche
withdrawals relating to the settlement of arbitration with LBG.
(3) Eliminations remove the double count of flows reflected in
the asset management and platforms and wealth businesses.
Total net flows benefited from robust investment performance and
ongoing innovation, improving to a net inflow of GBP0.1bn excluding
LBG tranche withdrawals (H1 2019: net outflow of GBP15.9bn). Gross
inflows increased by 5% mainly reflecting higher inflows into
Cash/Liquidity. Redemptions (excluding LBG tranche withdrawals)
reduced significantly to GBP38.1bn (H1 2019: GBP52.3bn).
Net outflows for Institutional and Wholesale reduced to GBP0.6bn
(H1 2019: GBP15.5bn) reflecting the stronger gross inflows and a
lower level of Equities and Multi-asset redemptions. Redemptions
represented an annualised 22% (H1 2019: 29%) of opening assets.
Net outflows in Strategic insurance partners reflect redemptions
from maturing insurance business in long-term run-off, partly
offset by gross inflows. The remaining cGBP4bn of LBG tranche
withdrawals are expected to be made by the end of Q1 2021.
The stable net inflows on Wrap and Elevate are encouraging given
the impact of COVID-19 on market sentiment and financial markets.
Wealth net inflows were lower than H1 2019 which benefited from
GBP3.5bn of inflows from Virgin Money.
Capital and liquidity
Our strong capital position and balance sheet supports ongoing
investment in the business and delivering shareholder returns.
Capital
IFRS net assets decreased to GBP5.8bn (FY 2019: GBP6.6bn) mainly
due to the impairment of the asset management goodwill and
intangible assets of GBP1,049m, and distributions to shareholders.
These impacts were partly offset by profits generated from the gain
on sale of shares in HDFC Life and HDFC Asset Management.
Intangible assets of GBP0.6bn (FY 2019: GBP1.7bn) primarily
relate to customer relationships, technology and brands from
acquired businesses. 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 GBP1.4bn (FY 2019: GBP1.1bn). Further details are provided in
Note 4.15.
We hold GBP237m (FY 2019: GBP275m) in newly established
investment vehicles which the Group has seeded and co-investments
of GBP78m (FY 2019: GBP84m). The Group sets limits for investing in
seed capital and co-investment activity and regularly monitors
exposures arising from these investments.
Within IFRS net assets of GBP5.8bn there are regulatory capital
resources of GBP2.9bn. Capital requirements are GBP1.1bn giving
surplus regulatory capital of GBP1.8bn. Further detail on the
indicative surplus regulatory capital position is provided in
Section 5 and an analysis of movements is set out below.
Analysis of movements in surplus regulatory capital H1 2020 H1 2019 FY 2019
GBPbn GBPbn GBPbn
======================================================== ======= ======= =======
Opening surplus regulatory capital 1.7 0.6 0.6
Sources of capital
Adjusted capital generation 0.1 0.2 0.3
HDFC Life and HDFC Asset Management sale proceeds 0.7 0.5 1.7
Uses of capital
Restructuring and corporate transaction expenses (net
of tax) (0.1) (0.2) (0.3)
Dividends (0.2) (0.2) (0.5)
Share buyback programme (0.4) (0.2) (0.4)
Other - 0.2 0.3
Closing surplus regulatory capital 1.8 0.9 1.7
======================================================== ======= ======= =======
The GBP1.8bn indicative capital surplus above includes a
deduction to allow for the interim dividend which will be paid in
September 2020, and a deduction of GBP400m for the share buyback
announced in February 2020.
Adjusted capital generation
This measure aims to show how adjusted profit contributes to
regulatory capital, and therefore provides insight into our ability
to generate capital that is deployed to support value for
shareholders. Further information is provided in Section 5.
H1 2020 H1 2019
GBPm GBPm
============================================================= ======= =======
Adjusted profit after tax 163 222
Remove staff pension scheme returns (10) (14)
Remove associates' and joint ventures' adjusted profit after
tax (84) (89)
Add associates' and joint ventures' dividends received 34 51
Adjusted capital generation 103 170
============================================================= ======= =======
Adjusted capital generation reduced as a result of the lower
revenue in H1 2020.
Dividends
The Board has declared an interim dividend for 2020 of 7.3p (H1
2019: 7.3p) per share which will be paid on 29 September 2020 to
shareholders on the register at close of business on 21 August
2020. The dividend payment is expected to be GBP159m.
At 30 June 2020 Standard Life Aberdeen plc held GBP1.4bn of cash
and liquid resources and GBP1.9bn of distributable reserves, which
will be used to support the dividend.
Return of capital
On 7 February 2020 we announced a further share buyback of up to
GBP400m and expect that it will complete in the second half of
2020. As at 6 August 2020, we have returned GBP220m, with 89m
shares repurchased at an average price of GBP2.48 per share.
Cash and liquid resources
Cash and liquid resources remained robust at GBP2.8bn at 30 June
2020 (FY 2019: GBP2.7bn) with proceeds from the HDFC Life and
HDFC Asset Management share sales more than offsetting the 2020
final dividend and share buyback. Cash and liquid resources
includes cash and cash equivalents(1) of GBP1.4bn (FY 2019:
GBP1.3bn), short-term debt securities (Certificates of Deposit) of
GBP0.9bn
(FY 2019: GBP0.9bn), bonds of GBP0.3bn (FY 2019: GBP0.3bn) and
holdings in pooled investment funds of GBP0.2bn (FY 2019:
GBP0.2bn). GBP1.4bn (FY 2019: GBP1.4bn) of these cash and liquid
resources were held in Standard Life Aberdeen plc.
(1) Excludes cash held as collateral and in relation to unit
linked business.
Net cash inflows
Net cash inflows from operating activities were GBP52m which
includes outflows from restructuring costs, net of tax, of
GBP89m.
Cash inflows from investing activities of GBP776m includes net
proceeds of GBP444m from the sale of shares in HDFC Life and
GBP265m from the sale of shares in HDFC Asset Management.
Cash outflows from financing activities of GBP572m primarily
relate to the purchase of shares as part of the buyback programme
of GBP172m and GBP320m for dividends paid in the period.
Principal risks and uncertainties
The principal risks that we believe the Group will be exposed to
in the second half of 2020 are the same as those outlined in the
Annual report and accounts 2019 comprising: Strategic risk;
Financial risk; Conduct risk; Regulatory and legal risk; Process
execution and trade errors; People; Technology; Business resilience
and continuity; Fraud and financial crime; Change management;
Supplier risk and Financial management process. As we are a people
business, COVID-19 has accentuated that aspect of these principal
risks.
Key developments in relation to our principal risks
As highlighted in the Chief Executive's statement, we have been
managing the impacts of the global COVID-19 pandemic on our
business. We undertook analysis into COVID-19 related risks to
identify areas where mitigation was required. We have had to manage
impacts across all of our Principal Risk categories with particular
focus on underlying risks to our customers and clients, our people
and our business operations. Over 95% of our colleagues have moved
into a home working environment across all our global office
locations. While we successfully established new ways of working in
March, we have had to manage newly identified COVID-19 specific
risks and take extra steps to mitigate them. We have closely
monitored our activities and risks during every stage of the crisis
and largely maintained client and customer service levels. The most
acute challenge was managing the balance between customer service
and colleague welfare in the Wrap platform front office which
remained open albeit with slower service levels.
We are utilising a regular dashboard to monitor the main areas
which COVID-19 has impacted on our operations, with links to the
principal risks, as shown below:
Diagram removed for the purposes of this announcement. However
it can be viewed in full in the pdf document
Short-term operational challenges continue within the business
as we progress our transformation programme. Although progress is
on track, risks are heightened due to the impacts of COVID-19.
Actions are in place to support colleagues and we continue to
ensure adequate accountability and ownership for the delivery of
our integration and transformation programmes alongside our
business as usual activities.
The Brexit process remains in a transition period up to 31
December 2020 and remains a source of uncertainty and risk. We are
prepared to manage impacts of a no-deal scenario on our business
but remain vigilant to wider impacts on the financial services
industry and the UK economy as a whole. We are closely monitoring
developments in relation to the negotiations for the UK's future
relationship with the EU and actively engage with industry groups
such as the Investment Association.
We continue to strengthen our suite of Board Risk Appetite
metrics which we track against our Principal Risk categories. These
metrics provide our Executives and the Board with clear sight of
risks as they emerge and allow our business to identify management
actions to mitigate them.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR PFMMTMTJMTMM
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August 07, 2020 02:00 ET (06:00 GMT)
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