As Phoenix updates on transition...

Assets rise but shares fall as Standard Life Aberdeen notes ‘tough’ climate

Aberdeen Standard Investments golf

Inflated assets: the company has seen a welcome uplift (pic: Terry Murden)

Investors failed to be impressed by a 5% uplift in Standard Life Aberdeen’s assets under administration, marking the shares down by 5.7% in mid-morning trade.

It said the current environment for asset management remains tough as macroeconomic and political uncertainties continue to affect investor sentiment.

Adjusted profit before tax fell 10% to £280m (H1 2018: £311m) reflecting lower revenue partially offset by a reduction in operating expenses as well as the inclusion of the company’s share of Phoenix adjusted profits. The interim dividend is unchanged at 7.3p.

After recent withdrawals of funds, the Edinburgh-based company was encouraged that total assets under administration increased by 5% to £577.5 billion (FY 2018: £551.5bn), partly offset by improving net outflows.

Assets managed by Aberdeen Standard Investments were £525.7bn (FY 2018: £505.1bn) while assets under administration (AUA) on the Wrap and Elevate platforms increased to £59.8bn (FY 2018: £54.2bn).

Net outflows remained concentrated in a narrow range of strategies and reduced to £15.9bn (H1 2018: £16.9bn; H2 2018: £24.0bn).

“Encouragingly this was helped by an improvement in the investment performance of key strategies with reduced net outflows from Absolute Return compared to H2 2018,” it said.

“However, despite this improvement in investment performance, demand for equities remains low across the wider market and we continued to see elevated equity net outflows. Our industry leading platforms continued to attract net inflows, however these were lower given weaker investor sentiment caused by ongoing political uncertainty in the UK and a reduction in defined benefit to defined contribution pension transfer activity.”

After the period, the company reached an agreement with Lloyds Banking Group in relation to an arbitration which found that LBG was not entitled to terminate investment management arrangements for a £109bn Scottish Widows fund. As a result, Standard Life Aberdeen will continue to manage £35bn of the assets.

Keith Skeoch, chief executive, said: “We have made good progress in reshaping our business so that it is set up to take advantage of the trends impacting our industry both globally and in the UK. We are encouraged by an improvement in our investment performance and a growing number of strategies with positive ratings from investment consultants. We are seeing inflows that are more diverse and are pleased to have retained £35bn of Lloyds Banking Group assets. 

“This, combined with lower redemptions and better markets, has helped us to increase assets by 5% to £577bn. Our focus on efficiency has delivered more cost savings, which combined with the benefits of share buybacks, has helped to increase earnings per share to 8.9p.

“We are also building for the future, with our business in China securing a license to develop a pensions business and our financial advisory business 1825 announcing two acquisitions that will significantly increase its assets, number of advisers and national reach. With a strong balance sheet, our drive for efficiency and ability to invest in innovation, technology and our people, we are well placed to deliver value and sustainable returns for our shareholders.”

Gilbert’s future

On a media conference call, Mr Skeoch declined to offer an unequivocal commitment to vice chairman Martin Gilbert’s future, saying only that “if there is anything to say the company will say it.”

There has been talk of Mr Gilbert leaving to join challenger bank Revolut, and Standard Life Aberdeen was forced to issue a statement denying he was leaving.

Standard Life house

Standard Life House: now home to Phoenix

Phoenix rising

Phoenix, Europe’s largest life and pensions consolidator, said it remains on track to deliver the £1.2 billion total synergy target for the Standard Life Assurance businesses transition.

The company acquired the business from Standard Life Aberdeen last year and said £21 million of annual cost savings have bneen delivered to date against a target of £75m, as well as £17m one-off cost synergies delivered to date against a target of £30m.

Brexit preparations are complete with £250m of capital injected into an Irish subsidiary.

Group operating profit came in at £325m (H1 2018: £216m) and the company has declared a 3.5% rise in the interim dividend to 23.4p per share

Commenting on the results, group CEO, Clive Bannister said: “Having delivered £287 million of cash generation year to date, Phoenix expects to be towards the upper end of the £600 – £700 million 2019 target range. We also continue to make good progress across all phases of our transition programme and remain on track to meet the £1.2 billion total synergy target announced in March.

“Whilst net inflows into our Open businesses are down overall year on year reflecting market uncertainty from Brexit and a tail off in DB to DC transfers, contributions to our auto-enrolment workplace schemes have increased, and new annuity business in our Heritage segment has been strong. The £250 million of incremental long-term cash generation from this new business in H1 2019 brings sustainability to Phoenix and its dividend.

“The life insurance sector continues to consolidate and the M&A pipeline remains strong. We are ready to do deals that meet our acquisition criteria and I am confident that Phoenix will continue to be the market leader in this consolidation process.”

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