Earnings Call: H1 2020

Aug 7, 2020

And welcome to Standard Life Aberdeen's Interim Results Presentation for the First Half of twenty twenty. This is my final results presentation as CEO. In a few minutes, I will provide an overview of the business. First, however, let me brief you on the logistics for this call. Even though this is a webcast, we need to display the disclaimer. And here it is. After my presentation, I will be joined by Stephanie Bruce, our CFO, who will take us through the financial detail. I will then return to provide a summary of the first half. We will then be joined by Sir Douglas Flint, our Chairman Rod Paris, our CIO Campbell Fleming, our Global Head of Distribution and Noel Butwell, the CEO of Standard Life, all of whom will be available to answer your questions at the end of the presentations. I have to say that the first half of twenty twenty has been the strangest 6 months that I've experienced in the 40 years I've been involved in Financial Markets. That's a period, by the way, that straddles 4 recessions in the UK and 10 major financial crises around the world. Yet we've never before seen the savage swings in either economic activity on markets that characterize the COVID-nineteen pandemic. Our results clearly show that the main impact of the COVID crisis on Our business is through its impact on revenue, which is adversely affected by both the volatility in markets and the slowdown in gross flows that accompanied the shift to lockdown. Within those COVID affected headlines, which Stephanie will analyze in more detail, The first half also reinforced the underlying resilience in the business and the progress we continue to make on matters within our control. I'm incredibly proud of both our people and their Hard work during these unprecedented times as we've continued to focus on those things that we're able to control. We reduced costs by 11%. We remain on track to deliver the synergy targets associated with the transformation program. We continued to innovate as we launched new products and adapted to new ways of working. The improvement in investment performance continued at that vital 3 year time horizon. And its impact can clearly be seen in the lowest redemption for 3 years, excluding the funds transferred to Schroders from the Lloyds Bank Group. The hard work put in by our distribution teams as they shifted From working face to face to remotely, help keep the turnaround in net flows in place. At the same time, we continue to improve Our financial strength and the quality of our balance sheet, enabling us to pay an interim dividend of 7.3p and continue with our €400,000,000 buyback program. We enter the second half of the year in a position of operational and financial resilience. And by focusing on the things we can control, we continue to lay down strong foundations for future growth. Right at the heart of these actions is our purpose led response to the COVID crisis with clear communications, increased connectivity and a clear shift to a common culture supporting the overall resilience of this business. This has been clear to colleagues, clients and customers in our local communities through a set of demonstrable actions. Within 2 weeks Of the initial lockdown, 99% of our colleagues in the UK and 95% around the world transitioned to working from home. They seamlessly navigated 2 quarter ends, supported by each other and the rollout of technology and equipment to facilitate more agile working when they were away from the office. Our distribution and thought leadership teams quickly shifted to ensure our client and customer touch points were largely digital. We were also one of the very few firms to keep our customer and service centers open throughout lockdown. We made a concerted effort to ensure that our community support programs were quickly pointed towards the most vulnerable in the local communities we operate Tim, whether that's supplying ventilators in Malaysia or indeed food helping food banks in Edinburgh or Philadelphia. These changes to the way in which we work have been underpinned by the move to a common culture. For me, the Standout area where we continue to make great progress is the creation and embedding of a common culture across the group. We've conducted several mood surveys during the crisis and the latest taken in mid July showed very positive findings. 73% of our employees say they're proud to work for Standard Life Aberdeen, only 7% registered a negative response. 72% were positive about their work. 44% said they were benefiting from a better work life balance. 81% felt well supported by their manager and 79% felt their teams were adapting well to working remotely. These scores represent a dramatic improvement from the dark days of 2018 when only 53% were proud to work for Standard Life Aberdeen. And the fact that the improvement is spread throughout the business is a clear sign that 3 years on from the merger, there is evidence that a common culture has formed. One area where this is most visible to the market is the sustained performance. Performance has remained robust in the face of very volatile markets, providing evidence that the performance enhancement plans put in place by Rod Paris and his team over the last few years have made a critical difference. The all important 3 5 year numbers are robust. 68% of funds are ahead of benchmark at 3 years and 65% at 5 years. It's worth reminding ourselves, if we look in the left hand panel of the chart, that 2018 was one of the worst years for investment return on record, followed by one of the best in 2019, to be followed by one of the most volatile I've ever seen in 2020. I'll comment on the outlook for markets in my closing remarks, But the fact that we continue to improve our medium term record speaks volumes about the quality of our investment teams. The majority of our equity funds outperformed during the first half with notably strong performances in smaller companies and long term quality funds in developed markets. Credit and emerging market debt funds continue to outperform after a wobble in March and multi asset is well into absolute return territory for the year to date. The combination of robust Investment performance and the creation of a common culture has also generated a significant improvement in consultant rankings. And 51 of our strategies are now ranked by consultant compared with 43 at the time of the merger. This combination of improving investment performance and consultant rankings is most visible in our flows. Despite industry subdued industry flows in the first half, our flows remained resilient. This was helped by €9,000,000,000 of inflows into cash and liquidity funds, the highest we've seen in 3 years. Gross flows were 5% up on the first half of twenty nineteen. However, the biggest improvement was in redemptions, excluding the Lloyds Bank Group. While we saw outflows of €38,100,000,000 in the 1st 6 months, this compared with €51,300,000,000 in the second half of last year and peak outflows of €61,800,000,000 in the final half of twenty eighteen. The combined effect It was to continue the momentum seen in the second half of the year of last year and maintain the momentum back into net inflows. Our pipeline of client wins was robust with £7,000,000,000 of mandates won but not yet funded, Similar to the pipeline at the end of 2019, at a time when the pricing pressure on traditional mandates remains intense, The quality of our offer to clients and customers has never been more important. The pattern of flows continues to benefit from our track record on innovation. We've generated €14,000,000,000 of AUM from new funds launched since merger at an an annual management charge of 50 bps, significantly above the 39.5 bps yield on the historic book. In Institutional and Wholesale, we are seeing strong flows into our ETFs, especially gold. We continue to win Emerging market debt mandates and our China A Shares Fund continues to move from strength to strength. Though not strictly in the First half, I should also mention the merger between Murray Income and Perpetual Income and Growth to create a combined trust of over £1,000,000,000 attesting to our growing reputation in equity income. While The COVID crisis has delayed the planned presentation on our Wealth businesses. We continue to make progress, particularly on the digital front. Digital retirement advice is now available for those customers receiving advice. Our Choices app is in beta testing and utilizes Open Banking to engage with younger savers and provide them with direct access to our savings products. We are encouraged by these new routes to markets. Throughout our offering, we also continue to develop our ESG franchise and now have €25,000,000,000 of AUM that are categorized as responsible investing. ESG has also been central to our engagement with clients during the first half of the year. We have also had ESG specific engagement with some 2 16 companies in the first half and voted at over 3,000 general meetings. We wrote to all of our actively held FTSE 100 companies detailing what we expect of them during the COVID crisis. And just as important, what they can expect from us. While the full force of the COVID crisis pointed our attention towards the well-being of colleagues, Clients, customers and our local communities, we also maintained our focus on executing for shareholders through managing the investments on our balance sheet. We continue to work to build a strong strategic relationship with Pfenex and our AUM has benefited from the bulk purchase annuities that they announced in their results yesterday. In difficult market conditions, we also raised over €700,000,000 from completing the MP the minimum public shareholding for HDFC Asset Management. And we sold down our stake in HDFC to just over 10%. This has been a terrific long term investment, which has delivered an IRR in excess of 30% on our initial investment of €290,000,000 and enabled us to raise €3,000,000,000 from monetizing these stakes. That's been instrumental in improving the quality of the balance sheet, as evidenced by the increase in gross liquid resources to £2,800,000,000 and helped ensure that we deliver on our strategy of deploying our financial strength for the benefit of shareholders. This is reflected in the Board's decision to pay an interim dividend of 7.3p, the same is in 2019. So in summary, in this strange six months, thanks to the magnificent efforts of our people, our business has been operationally resilient, has formed a common culture and has improved its financial strength, allowing us to continue to build momentum and lay down the foundations for future growth. I'll now hand over to Stephanie, who will walk us through the financial detail for the first half. Stephanie? Thank you, Keith. Good morning, everyone. Our performance in this period reflects both the resilience and diversification of our business activity. In these 6 months, we have the backdrop of an uncertain environment, Market volatility and the completion of further exit of the Lloyds Banking Group assets. Lower markets Have reduced the assets under management and administration of the existing business. Market sentiment has also slowed the extent and nature of new flows from the levels we had seen in the second half of twenty nineteen. With the market pressures, revenue in the 6 month period was 13% below the prior period. In these markets, therefore, more than ever, our focus is on what we can control. So it's pleasing that the continued improvement in the core fundamental of our investment performance is making a difference, particularly on redemptions. In addition, our focus on financial discipline is key, and we've continued to make good progress on controlling and targeting our costs, such that costs are 11% lower. I will cover both revenue and costs in more detail shortly. Moving down the slide, Capital management movements principally reflect, in accordance with accounting requirements, the mark to market values of our seed and co investment funds. And overall, these have been adverse in this period. We expect this to be temporary if markets improve. Moving to JVs and associates. The reductions in profit reflect principally the reduced holdings in our Indian stakes compared to prior period. The adjusted profit before tax for the 6 months to June 2020 is £195,000,000 a reduction of 30% on the prior period. The IFRS result before tax is a loss of £498,000,000 reflecting the impairment of £1,200,000,000 for goodwill and intangibles as a result of increased market uncertainty in the COVID environment. These non cash adjustments have been offset in part by the cash generated from the further successful Stake sales of HDFC Life and HDFC AMC Holdings, creating a gain of £651,000,000 After these sales, these holdings continue to retain a value of £2,400,000,000 The conditions of this COVID environment have been tough for all. As a business, our focus has been our clients and our colleagues. From a financial perspective, our strength has meant that in this period, we have not needed to rely on any UK government schemes. We made our final dividend payment in May. We have continued our approach to management of our Indian stakes And the buyback program that we commenced in quarter 1. While earnings per share is impacted by lower revenue levels in The buyback program has benefited adjusted earnings per share by 6%. Our business delivers our services to clients and customers through specific channels institutional, wholesale, strategic insurance partners and Each channel represents different opportunities for us to bring the best of our capabilities to those clients and customers. And this, therefore, determines our focus To ensure that we respond to changing needs and to do so profitably by adapting the cost to serve, particularly in the changing environment. In Institutional and Wholesale, revenue decreased by 13%, reflecting the impact of market levels and net flows in recent years, particularly impacting revenue earned from holdings in equities and multi asset, which are 19% 30% lower than the prior period. Offsetting this position, we have seen revenue grow in fixed income by 6% and private markets by 19%, together with a 17% increase in revenue from flows into liquidity holdings as clients have changed their risk profiles. In the Strategic Insurance Partners channel, the underlying business is represented by mature books, which naturally run off. The majority of the movement here relates to the Lloyds Banking Group Exits. But leaving this aside, in this 6 month period, Revenue in this channel has been largely stable as the runoff in this book is replaced by top offs of existing business and bulk purchase annuity activity in the insurance client base. In platforms, where we recorded another period of positive net inflows in RAP and Elevate, we have seen a decrease in revenue, reflecting the lower pricing on Elevate in 2019 and wrap in this period. In Wealth, revenue has been aided by continued positive net new flows and the benefit from the Grant Thornton and BDO purchases in the second half of the year. In revenue yield, we have seen an equivalent pressure as in the prior period of approximately 1%. The decrease in the average revenue yield reflects principally a lower average in institutional and wholesale and in platforms. For institutional and wholesale, this reflects offsetting factors in this 6 month period. Positive movements have been evidenced Equities and fixed income, reflecting the benefit of flows into China A Shares and emerging market fixed income. Adverse movements have been evidenced in multi assets and quants. In multi assets, this reflects net outflows and absolute return strategies of £1,200,000,000 partly offset by net flows into Myfolio, which are lower margin at 25 basis points. In platforms, the decrease in yield reflects the impact of the price changes in Elevate and the price change in wrap that I mentioned earlier. For all areas, but equities in particular, we are now seeing the benefit from the focus on investment performance as creating value for our clients and customer in turn Creates continues to support the yield we earn in our services. Aside from normal competitive pressures, we are not seeing in these conditions Systemic pricing pressure on any particular asset area, rather continued recognition of the value of investment performance in a volatile and low yield market. Turning to the underlying activity on flows in our key channels. Overall, we have recorded positive net Flows into the business, leaving aside the Lloyd's withdrawals, with the improving trend being on redemptions. Now starting on the left hand side of this slide, The flows on Strategic Insurance Partners, again, leaving aside the Lloyd Banking Group Exits, depend on the profile and activity of the underlying insurance clients in replacing their business as it moves into drawdown. Now in this period, we saw a net outflow in this area of £1,300,000,000 which represents an improvement on the first half of twenty nineteen. However, this is lumpy business, and we are expecting higher outflows in the second half than the recent period. The Phoenix ReAssure deal has also now completed. ReAssure is an existing client and we continue to see good opportunity in this partnership. Now moving to the center of the slide. In institutional and wholesale channel, we recorded a small net outflow. But pleasingly, we have seen a further 6 month period of improvement. In particular, redemptions are at the lowest level in the last three years and are running at around 40% of the highest levels in 2018. This is further evidence of firstly, the impact of the actions we have taken to improve investment performance And secondly, our prioritization of client service and relationships, which has continued the momentum started in the second half of 'nineteen, even in these new working environments. We've been successful in adding new clients in these channels this period, attracted by the capabilities and services we provide. For example, a $1,000,000,000 of net flows into the ETFs in this half and our appointment And our appointment by a U. S. State pension plan to manage our $500,000,000 emerging market debt mandate on their behalf. Our gross flows in equities and fixed income sorry, in our gross flows in equities and fixed income, we have seen an increase of 26% and 53%, respectively, on the comparative period of 'nineteen and a retention of the improved flows that we saw in Second half of twenty nineteen. On net flows compared with the prior period, we have seen improved net flows across all the major asset classes. For example, we have generated improvements in equities and multi asset of 46% and 73% respectively. Now specifically on GARs, we have seen additions of new business, but the big difference here is on redemptions, which are £4,000,000,000 in the 6 month period compared to £11,000,000,000 for the full year last year and £6,000,000,000 for the comparative period. Now with improved market movements on cars, the assets under management in this space has been broadly stable with the year end position. That's the first time in 3 years. Moving to the right hand side. In the platforms and wealth channel, the factors here are different. Our Activity here is UK focused. The market is large and growing, and we continue to have a strong record on creating net inflows. We see opportunity for gaining share in a growing market. So our focus is on building our book of business through connecting all elements of our existing strengths in this area. Our platform customer numbers have grown over the prior period as have our adviser firms. So overall, a more pleasing picture on redemptions And growth flows doing well to perform up from the prior period. So moving to our continued financial discipline to aid We have continued to make good progress on targeting cost reductions in areas where we have low profitability or are currently loss making. We continue to look at all areas of the business for their profit contribution and to take action to improve or recognize those that are not core for our operations. As an example in this period, we commenced a review of our European real estate strategy, which has resulted in us exploring the sale of our Nordic Real Estate Property Management business. Overall, costs have decreased by 11%. Within this, staff costs have decreased by 9% on the comparative period, with the key movements being recorded in long term contractors and temporary staff. Non staff costs have also reduced by 12%. There have been some increases in this period, including costs for the Grant Thornton and BDO activity, which were brought into the business in the second half of twenty nineteen and small increases in outsourcing costs as other services are transferred. These increases are more than offset by decreases that were planned in changes Sorry, planned changes in marketing, travel and professional spend. We have also seen additional savings in this period in respect of travel and events in particular. We were already seeking to be more effective in how we manage our impact on the environment, but the change from mid March has been stark. We estimate £10,000,000 of such cost savings relate to the COVID restrictions, so we do expect an element of some of these costs to come back once markets change. The further areas of investment inflation to highlight to you reflect the increases on employee compensation and other inflation on third party services. And we do typically see further wage inflation in the second half as And we do typically see further wage inflation in the second half as our salary increases take effect for the full period. On synergies, we continue to realize benefit through the profit and loss. Given the stage we're now at in our transformation, this realization is more lumpy. And the main areas to be realized through the profit and loss in the next 12 months are in around in our operations and technology arena as these areas complete much of their planned activities. While operating costs have been reduced in the year by 11%, our costincome ratio has increased to 85% in the period due to the revenue reduction I highlighted earlier. This revenue reduction has been concentrated in institutional and wholesale, So the costincome ratio increases principally in this space. As highlighted at the year end, we have commenced addressing the cost income ratio in platforms and wealth arena with good improvements to date. However, an overall cost income ratio at 85% is not good enough. We had expected our cost profile to remain high in 2020 2021 as we complete our transformation. And this is now made more difficult in a period of uncertainty and volatile market conditions, which create additional revenue challenges. With prioritization of financial discipline, we are Staying focused on the actions to address profitability. And while we expect our cost income ratio to remain high in this transformation period, Thereafter, the benefits of our actions will enable the achievement of our goal for costincome ratios to be aligned to industry averages. With our ongoing transformation activities, we are aiming to do 2 things. We're investing in practices that are modern and fit for the future by harnessing the benefit of new tools and technology that we did not have in the business. And secondly, we're seeking to change the nature of costs and create flexibility in services which are not core. Given the nature of the change and the complex interaction with the separation from Pfenex, it will take time to see the benefit. In terms of transforming our cost base, It is helpful to understand the progress on synergies, but also more widely on how we are transforming the nature of the base. Now this slide shows the progression of the specific transactions, transaction synergies that we have identified. And as a reminder, this was originally £200,000,000 in 17, and we reported at March 2020 that we expected to realize GBP400,000,000 of synergies by 2021. During this 6 month period, we have continued to progress our program of transformation despite working remotely. In respect of synergies, We have now achieved £323,000,000 of the targets. This is over 80% of the increased target and we are well placed to obtain the next milestone of £350,000,000 By the end of 2020, with a further £50,000,000 taking the total to £400,000,000 in 2021. Now there are 4 key activities being undertaken currently to help change the nature of our cost base, contributing to both the synergy target and other efficiencies across our On our investment platform, we are in the final stages of streamlining our Trade order management system, middle office providers and data layers, which enables greater leverage of the cost base. On the platform experience, we are upgrading our back office activities so we can streamline the multiple sets of infrastructure, including manual processes that support our services at present. In doing so, we can then ensure the adviser and customer experience remains both relevant and enhanced with new technology. The 3rd key aspect is our technical and operational independence from Pfenex in 2021. And this has been undertaken in a way that the new processes operated by SLA will be simpler and represent modern practices to replace the order transferred processes. One such example is then the 4th area highlighted here in the finance arena, where we are addressing the multiple older legacy processes and systems In order that we deploy a modern streamlined system and process that's fit for our business. We are ultimately focused on capital generation across the business to support returns to shareholders through both positive benefits from new investments into the business and through direct returns. One element of that strength is the extent of the surplus capital as a proportion of the total equity, which has improved Now this chart highlights the key sources and uses of capital within our surplus regulatory capital in this period. We have again strengthened our capital position in the first half of twenty twenty despite the tough backdrop through management actions to realize value from our stakes and our focus on enhancing the generation of capital from our operating activities. Our uses of capital in 2020 to date have continued to support transformation restructuring, albeit at a lower level of spend now compared to prior periods. In addition, we have used capital to undertake the buyback. As at the half year, we had completed £175,000,000 and as of last night, we had completed around £222,000,000 which was a 55 percent of the program. Our net liquid resources have increased to £1,900,000,000 with gross liquid Resources increasing to £2,800,000,000 That's a 12% increase. The financial strength we have created provides enhanced which is even more important in challenging markets. The operating result is generating a lower level than we are targeting longer So looking at growing the capital generation from our operating activities, we will be continuing our focus on streamlining the cost base so it is fit for the future. In addition, a key priority will be generation of greater growth in wholesale, particularly in solutions for the changing needs of the public and private markets and in platforms and wealth activities given the scale of the need for and therefore the opportunity for investment savings and advice. Our operating performance, together with the strength and quality of our balance sheet, have enabled the Board to maintain our interim dividend of 7.3p at a cost of £159,000,000 We are also continuing our buyback program that we commenced in quarter 1. Even after taking account of this further return, the surplus capital will have increased to £1,800,000,000 As the deterioration in economic conditions resulting from the COVID environment continue sorry, Resulting from the COVID environment and the uncertainty in markets and resulting pressures are expected to continue for some time. We are through our normal planning cycle Reviewing and assessing the challenges and opportunity for our business in these changed markets. So in summary, this has been a difficult environment for everyone, but this business has been resilient in its operations. And despite the conditions, we have stayed focused on our and generating new business that is diversified across our strengths. Our financial discipline remains central So that we grow profitably and think return in all our investments and in how we deliver for shareholders. Our financial strength Is strong and has continued to improve and that is even more valuable in such uncertain times. I will now pass back to Keith. Thanks, Stephanie. As I said earlier, this is my final presentation before I step down as CEO. It's the 12th time I've led a results presentation, but my 30th time on the results podium since we floated standard life back in July 2006. Two common themes over the intervening 14 years are the continuing and accelerating pace of change in the industry and that volatile markets have actually become a fact of life. FTSE last night closed at 6,027, which is only 2.3% higher than on the day of the IPO 14 years ago. But of course, it's been as low as 3,512 and as high as 7,877 in the meantime. I've always believed in taking a long term perspective and would argue given the strange circumstances we find ourselves in that it's never been more important. So what about the outlook? From my perspective, the economic and market environment looks tough and uncertain amidst increasing hopes of a V shape recovery. That V is very dependent on the development and deployment of another V, a vaccine that would deliver victory over COVID-nineteen. We know from history that recessions induced by pandemics and bear markets without a financial crisis tend to be short lived. If that were the case, the pattern we saw in markets in 2018 2019 could well be repeated. And the FTSE would test new all time highs in 2021. However, I've got to say these are very special circumstances, given that the average efficacy of the flu jab hovers around 40% for some strains. Never have the economy, markets and health been so interlinked. We have yet to see the full economic effects of lockdowns around the world or the after effects of the current pickup in infection rates. High debt levels in part of the corporate sector, to the inevitable phasing out of government support all point to a further significant increase If this is right, then the equity markets outside the U. S. Tech sector are reasonably priced and may only deliver single digit returns, which would imply it may take several years to make it back to peak levels for the FTSE. In addition, the COVID crisis changes many things. The way we work, The importance of household financial resilience, the clear need for parts of the corporate sector to delever and reequitize as well as an increasing acceptance of government intervention. All factors that will inevitably reshape the nature of client and customer demand and also suggest that the tough operating environment is likely to persist for some time. In my view, Standard Life Aberdeen is well placed to deal with these challenges. The actions taken to improve our investment performance, reinforce our operational resilience, enhance our financial strength and create a common culture, put in place strong foundations for future growth. These will help the business adapt under Stephen Byrd's Leadership to Changing Circumstances, as the business has actually done throughout its 195 year history. So As I prepare to step down and return to my research roots, I would also like to thank everyone on the call for their support, their engagement an occasional forthright challenge during those 30 results presentations. I wish you all well, but would also leave you with a challenge to make sure you all take the long view. Thank you. Stephanie, Rod, Campbell, Noel, Sir Douglas are now available to answer any questions you may have. Operator, over to you. Thank Our first question comes from Andrew Crean from Autonomous Research. Andrew, your line is open. Please go ahead. Good morning, all and Keith. I think I've been there with you all 30 times. So it We'll be very sad to see you go, but thank you for all your efforts. But I just wanted to ask a couple of questions. Firstly, on the dividend, when I mean, I can see that the cash EPS of 4.5p doesn't cover Half the current dividend. I was wondering when you're going to review that. Is it going to be at the end of this year or the end of 2021 when you finish your restructuring process and what your thoughts are between covering the dividend From underlying cash generation as opposed to covering the dividend from surplus disposal The second question I wanted to ask was on the costs and cost income ratio. And I think you talked, Stephanie, about reaching industry peer levels of cost income ratio. I wonder whether you could actually put a figure on that. And could you talk a little bit about the other cost savings, the €59,000,000 or €49,000,000 ex the COVID Savings. I mean, those are now becoming more substantial than the actual synergy costs. I'm just wondering Whether they will continue at the same level or whether you've squeezed 11 pretty hard already. Thank you, Andrew, and thank you for your kind words. On the divvy, I think That gets reviewed under the normal business planning cycle. But actually what I'll do is I'll hand over to Stephanie who will provide, I'm sure more detailed answers to those questions. Yes. So in terms of the dividend, we very much will be looking at it as part Of our normal process. In terms of the interim dividend, it very much reflects our operational performance and the quality and Strength of our balance sheet and in terms of the overall adjusted profit after tax position in terms of the interim dividend It's cover, but you're absolutely right in terms of the adjusted capital generation for the dividend. We will clearly continue to be monitoring that and We're looking at that going forward. But it's very much in terms of our go back to in terms of our financial strength. I mean, the Board has confirmed that it's very much Focused on that financial strength and in maintaining our dividend and continuing the buyback, I think that's evidence of that. We will clearly be alive and are alive to, obviously, the circumstances that both Keith and I have talked about as part of our presentation. And they're just are with us Through the economic conditions that arise from the COVID environment, and we will be very much looking at that as part of our normal business Planning cycle as we go through and come back for the finals. In terms of your question on costincome ratio, It's an interesting point. In terms of the industry average, I think in the current process, the industry average will be moving quite a bit in terms because we can already see that going up in a number of places. So to be honest, I'm not going to second guess and give you a precise figure at this point in time. But safe to say, 85% Size figure at this point in time, but safe to say, 85% is not anywhere where we want to be. And we will Continue to work through on the sorts of cost reductions that we have been undertaking. But obviously, the cost income ratio also predicates that we will Be working on the top line as well in terms of the revenue growth. In terms of just the cost efficiencies, As I said in my presentation, it really reflects a number of aspects. The timing of the synergies as they come through That we've identified is, as I said, quite lumpy. It depends on certain activities being undertaken through a very complex transformation program. So we will continue to see more of those coming through and being realized. In terms of the broader efficiencies, it relates to Very much our focus on the financial discipline and particularly in and around areas on professional spend, very much managing our contractor and our temporary spend, Temporary employees because we had a large volume for lots of good reasons historically, but we've been looking to manage our Our staff costs differently in that regard, but also our non staff costs in and around our professional spend, our marketing, our travel, all of those areas that you would expect. In terms of looking forward, I think we will definitely see some of that coming back for sure because, as I highlighted, The an element comes through from our travel and events costs, which have been significantly down in the period. But a lot of it is underpinned by a very good continued focus on our financial disciplines. Thank you. Our next question comes from Hallie Tan from Credit Suisse. Hallie, your line is open. Please go ahead. Good morning. Thank you. Two questions for me, please. First of all, just a follow-up on the cost question. Could you clarify how much of the remaining £87,000,000 of synergies to reach your €400,000,000 target Are dependent on the separation from the Phoenix service agreements, given some of the commentary around dispute there, I think, both in your Half on results today and there's yes. And then secondly, if I can just ask a question about Hayley, I can't quite hear you. Can you say that again? Sorry, did you hear the first question? I got the first question, yes. Great. So second question was about fund flows. Can you talk about how we should think about the improvement for gross inflows rather than just lower gross redemptions? I think you said wholesale was a key focus in the future. And I just wondered, given the big impairment write down of your asset management goodwill, Whether you would encourage us now to think about the outlook maybe being from non acquired businesses. Thank you. Yes. I think Stephanie deals with the cost issue, and then we'll go to Campbell online to talk about the flows issue and perhaps come back to Nee, on the impairment issue? So in terms of the cost, in terms of our synergies at £323,000,000 As identified and reported today and looking through to the €400,000,000 the interaction with Fenix is just part of how we come through We realize our overall transformation. But in terms of the it would be more dependent on which particular month They realize as opposed to in any way the items being at risk at all, Hayley. That's not what the issue is. It's Just really the timing. In terms of that the point that you talk about in terms of our Fenix dispute, that really is Slightly old news, I'm afraid. And it really just comes out of a set of risk disclosures that both companies have made just because there's an ongoing some very complex Arrangements that sit behind our very technical separation in and around just some of the infrastructure, and we're just debating some very Specific small items, but it's contained in that way. Both organizations have just made those disclosures before. It doesn't have an influence Therefore, on our ongoing basis at all. And actually, I think the strategic relationship with Pfenex is going from strength to strengthen that was reflected in the us managing some of the assets behind those bulk purchase annuities. Campbell, the kind of outlook for gross flows and then we'll come back to Stephanie to connect that with the impairment. Thank you, Keith And hello, Hayley. The outlook for gross flows, of course, I'd just point to the underlying momentum of the business We're generating ex Lloyd. There is a revenue mix that's consistent with client expectations that Keith referenced His presentation, the strong pipeline and also the £7,000,000,000 of 1 not funded That we have in the book. In terms of that pipeline, we are seeing the greatest interest in our fixed Income capabilities then pleasingly our multi asset capabilities and once again I'd refer to comments about the significant performance improvement Followed by our Private Markets, F30 and lastly Equities. So if you recall, we've spoken about shifting To new active and we've also been talking about shifting to private markets and the solutions piece. And I think all those intentions are starting to come through both in the momentum and also the pipeline, which Looking robust. That said, I don't have a crystal ball. As Keith mentioned, we're in a significant period of uncertainty, But we have momentum. We're keeping close to our clients with our resources and our people. And I hope that we'll be able to regardless of conditions be able to meet their needs with our very large range of high performing Strategies, products and services. Great. Thanks, Campbell. And on the impairment, I think that's largely kind of backward looking and partly relates It is, absolutely. And normally, we would do an annual assessment, but really the COVID environment really represents an impairment trigger for the This is of financial reporting. And the adjustment we're making really just reflects the impact of those changed market conditions and the environment and really, in The fact is bringing the accounting into line with what's already been discounted through the market capitalization and various other market indicators. In terms of applying rules, there's a lot of things that we can't take into account. We can't take into account forward cost saves or any of those aspects as well. And it really is an accounting entry, which is a non cash notional movement that sits on our balance that impacts the balance sheet. But it has no impact on our financial strength, which we very much measure by our liquid resources and the extent and the level of our surplus regulatory Capital which has improved in this period. Great. It's very clear. Thank you very much. Our next question comes from Arnaud Kuplak from Exane BNP. Arnaud, your line is open. Please go ahead. Yes. Good morning. I'm sorry to come back to that. I think the run rate levels of Your current revenues and at your current level of AUM and assume the full benefit of the cost synergies, I get to a cost income well north of Which is where I have the industry standard for cost income. So I'm wondering what are the moving parts we need to consider. Of course, there'll be more investment I would think. But what sort of revenue growth are you assuming to achieve this? And secondly, on the Costa, Again, a year ago a year or so ago, you just talked about targeting a cost of income under 60%. So that was dropped, but I'm wondering what sort of levels again you're looking to achieve? Secondly, on ESG. You highlighted that you had €25,000,000,000 of ESG rated AUM. Looking at what's happening at the industry, ESG is In the lion's share outflows, what do you do you have the capabilities in place to support a shift To ESG, what other investments do you need to be making to further Capitalize on this market trend. And thirdly, coming back to the write off on Virgin Money, Can you give us maybe a quick update in terms of what the distribution outlook looks there? Thank you. Okay. If I deal with ESG to give Pearl Steffany a little bit of breathing space and then we'll pass back to her to for costs and and also the Virgin money. So yes, ESG, we this is an area of brand strength for us. And I think that €25,000,000,000 compares with €17,000,000,000 that we talked about a year ago. Some of that is re categorizing responsible investing. We've been involved in ESG and at the forefront for nearly 30 years. So one of our massive strengths is ESG is embedded, well embedded within our core investment processes. And we are able to report and issue an annual report on what we've been doing in terms of our stewardship. Inevitably, as ESG does take front stage, there will be some investments to be made. And I think that will all be about the way in which you report the impact of your ESG data on performance to the end clients. So you're meeting their needs. I have to say at the moment, I think that is an area of relative strength. And I think it will be they provide even more positive momentum for us behind the brand going forward. So Stephanie, Virgin Money and then back to the cost and cost income? Yes. So in terms of in question of in terms of the distribution of Virgin Money, yes, we have taken an impairment through on Virgin money in this period. And that, again, really does reflect the reductions in the projected revenues and more about the timings Coming through from the business planning process from the JV itself. And that really reflects the fall in equity markets and an increase in the timing they feel that they need to undertake their plans. However, we still very much believe in that long term market opportunity that is represented by the investment. The partnership does offer fantastic opportunity to develop a business that Combines the best of the talents of Virgin Money and also Standard Life Aberdeen. And I think more importantly, it also the joint venture also offers Customers across the enlarged Virgin Money Plc Group be access to investment solutions, which will Help them achieve their long term growth. So yes, we're very much still focused on that as a route to distribution. In terms of your other question around Cost income ratio and the different levels of that. I mean, clearly, I'm not going to try and second guess or tell you where we will be potentially be in terms of revenue In these sorts of markets for all the obvious reasons. But I think what I can say is in terms of how we look at this It is the fact that we clearly need to be doing 2 things. We need to be increasing our sources of revenue growth in these markets, It's very much building on our capabilities. And as I say, that's why we're very clearly going through and identifying where those will be and Particularly taking account of these change into changed circumstances, but particularly on our existing cost base, we will continue and we will Be very focused on taking those financial disciplines through. Once we get through our transformation, as I tried to highlight in my Presentation to you. There's a number of areas, particularly around our investment platform, but also in our platform experience that exists across The business that Knoll is running, which will make will be allow will enable both of those areas to operate much more efficiently. And that is a key part as well. And again, we've talked before about the need to improve against the industry averages, our Cost income ratio, particularly in the Platforms and Wealth Arena, and that will continue. Thank you. Our next question comes from Nicholas Hermann from Citigroup. Nicholas, your line is open. Please go ahead. Thank you for taking my questions. Just a couple of clarifications, please. Just in terms of so I think in In the May update, you guided to about 1,000,000,000 of net inflows. Clearly, you're now flat versus in June. So where has been the biggest delta, Please versus end April. And if you can provide an update on performance since July, that would be helpful too. Secondly, you referenced Strategic Insurance Partners redemptions in the second half versus the first half. What are the how are the margins on those outflows compared to the current run rate margin And thirdly, on cost, I mean, where does on the chart on Page 15 on the cost, where does variable comp Into this. And I'm just curious if you can kind of help us understand what contribution lower variable comp had in terms of The first half costs? And then finally, on Platforms and Wealth, just curious in terms of where you across that business, Where are you most optimistic on growth? And I guess how much of the gap in terms of operating margins Versus peers, can you close that gap through the cost steps that you're taking through 21. Okay. Some quite detailed questions. So if I kick off on The flows actually, one of the issues as you go through the a quarter or a half year end is money market flows are often quite volatile. They go off and they come back on. And obviously, We'll update later in the year on where we are at. But I think the underlying momentum on flows from what I can see is intact. Rod, do you want to give a very brief update on where we are on performance? Yes. Thank you, I think just really a couple of things, really. You asked for an update to the end of June, then the We as a house have remained risk facing. So we continue to, I think, capture some Heavily pointed towards what I would describe as quality and resilient business model And investments, and I think the strategy has served us well. So as I said, we do remain risk facing and we are still A lot of the momentum in markets as I speak. Thanks, Rod. And in terms of the revenue yield attached To the stuff that we that's going off, I think you should use a working assumption that it's the average yield of the Strategic Investment sorry, Strategic Insurance Partners business, and you won't be far wrong. I'll go to Stephanie on costs, and then perhaps we'll I'll ask Noel to comment on the outlook for Platforms and Wealth. Yes. So I think in terms of your specific questions about how much should you think about in Well, VC clearly sits within this overall cost base, but it's not playing a major part any of these particular movements that I would draw to your attention. And Noel, Platforms and Wealth? Yes. Thanks. Thanks for Good question, Nicholas. In terms of my optimism for growth, well, I think if I look into the advisory market in particular, we're incredibly well placed with The platforms that we've got and ultimately as we've come through that COVID, we continue to go through the COVID period, It's actually remained quite resilient, and people obviously will continue to outsource. And actually, our position in that market is very strong. I think the advice gap still persists, and the focus that we're putting on experience to create In that market and meet the advice gap, allowing more adviser firms to give advice to more clients gives us real opportunities Growth going forward. I think the second area that Keith referenced earlier in the presentation around Increased digitization. Obviously, more people will be needing to take more responsibility for our financial affairs. And our digital response to that, both in terms of our digital retirement advice, but also our choices at our open banking proposition linked to savings, which is in beta testing, Again, gives us real opportunities to grow in that space as well. Our next question comes from Chris Turner from Berenberg. Chris, your line is open. Please go ahead. Good morning, everyone. It's Chris Turner from Berenberg. I think there's a danger that we run into other calls in the space. So I will just ask one brief question, if I may. Big picture, you've 17% annualized sales at Mifolia, so on and so on. What is the kind of the common headwind you face across the board here? Is it The wrong products or the product positioning, is it access to the right distribution channels? Or is it just purely poor performance, therefore, it's somewhat Can you perhaps share your thoughts on really why you would struggle to accelerate your gross sales? Yes. I'll just give a couple of high level comments and then perhaps pass across to Campbell. So I think everybody's gross flows are slow at the moment as a result of the COVID pandemic. And associated with that, I think, is an underlying change in client strategic asset mix, where there has been a kind of move to safety. At a high level, I would point out that I I don't think we do have a structural problem. When you look at the new funds that we've launched since the merger, we've seen about €14,000,000,000 of inflow within 3 years. Normally, I talk about that product cycle being longer than people think and anything up to 6 or 7 years. So actually, I think that's good progress. Historically, it was a performance Tissue and performance is turning as you can see in the consultant rankings. But Campbell, anything I've missed out? No, Keith. The only thing that I'd add is that March was the Worst recorded month in modern history in terms of industry flows with enormous outflows and the like. And I think both on a relative and absolute basis, we as Keith said, we like to think a little bit more long term about what we're doing. And we're trying to create Good sustainable growing businesses here by keeping close to our clients, working with them to see what they need and make sure we deliver great products, good performance and Good service to them. So I think on both a relative and absolute basis given the circumstances in the last 4 months or so, It's a pretty respectable upturn, but of course I would say that. The only other thing I would add is that if you look at it on a geographic and wholesale and channel basis, We're doing pretty well in the U. S. We're doing pretty well in Europe. We're doing on an Okay. But we can do a lot better in the U. K. And we're starting to build a stronger pipeline out of the Asian businesses And also the Middle East. So we're very diversified by channel. We're very diversified by markets. And we're very diversified by geography. And that It's all entirely dependent about investor sentiment and activity in those channels, markets and those geographies. So All in all, the momentum is there, the foundations are there, and we hope with continued performance in keeping close The clients we can do better than we have done and that's what we're focusing on. Our next question comes from Hubert Lam from Bank of America. Hubert, your line is open. Please go ahead. Good morning. First, I'd like to thank Keith and wish him all the best in the future. Three questions. Firstly, on costs. How should we think about costs in the second half of the year? I think Stephanie mentioned that we should expect some normalization of the COVID costs, the 10,000,000 Maybe coming back in the second half, also investment costs were relatively low in the first half and you also mentioned some salary inflation. So I was just wondering how we Think about second half cost base versus the first half. Second question is on revenue yield, that continues to fall. Tell me if it's driven by markets, obviously, but how should we think about the yield outlook to come assuming markets are relatively stable? Should we expect more pressure coming from mix than competition? And lastly, on flows and risk appetite, First half, you saw good inflows into cash products at the expense of risk assets. Do you expect Some of the sentiment to change in the near term, as we know, like obviously the macro situation remains Certain markets are pretty high from where there is today. Do you expect clients to kind of catch up to past performance? Or do you expect clients to Still seeing the sidelines. Thank you. Okay. Let's do that in reverse order. So great question, and thank you for your comments, Hubert. As far as flows and risk appetite is concerned. I don't think it's just a question of going straight back to risk on. I think we've got a number of people and large institutions we're talking to around the world about their balance sheet and strategic asset allocation and their thinking about how they generate the mix. So I think Solutions in that space and the combination of private markets capabilities and one of our real strengths is in credit where there's yield and emerging market debt. So I do think you will see a slow return to an appetite. And I think that appetite will be much more increased towards active asset management because actually one of the things that I think people have found it quite difficult is to bear the beta. And we've opened up a number of conversations. On the revenue yield, I think you need to distinguish between asset mix, which obviously has an influence And the revenue yield on those non insurance books, 39.5 bps, I think, as we've said previously, because we're not involved in the highly traditional asset classes. So just pure equity and pure GOVI fixed income, which is where the heat is coming down, we are, I think, suffering from Revenue yield erosion, not as badly as colleagues. So we think that's a slow drift down rather than being some kind of cliff edge. And that actually flows back to I'll go back to the point about that pipeline of 14,000,000,000 of AUM. Actually, the asset management charge on that is about 50 bps, and that compares with a 39.5 percent revenue yield. So actually, the real means of, as Campbell was suggesting, of protecting that revenue yield strategically is to launch new products where you have performance and you can innovate because my sense is clients will still pay for that. Stephanie, back to costs. Yes. So in terms of costs for the second half, I've referenced a couple of areas just I think to Draw attention. Obviously, clearly, we're expecting the particular costs around travel and events. As I said, we expect some of that to come back in some form. And of course, there I am assuming that we start to get back more to kind of what pre normal conditions if we get there at all, obviously. So that's one area, obviously, just to flag. In terms of the staff inflation costs, that's really just to do with Playing out additional pay rises and compensation increases from last year, and that will just kind of come through In the full year position. And the other area that I would just highlight In terms of potential inflation, it's obviously in terms of the overall sort of supplier inflation costs, it's a bit of an unknown yet at this point in time as to How that will then flow through, but we're just really much assuming more of the same in that regard. And at the same time, we will continue To work through and be very focused on the financial discipline that I referenced earlier. So I think we will You should continue to expect us to be decreasing our cost base, absolutely. But I think there are some moving parts that will potentially increase some of those costs in the second half as I've outlined. Thank you, Stephanie. Operator, I'm very mindful of time. So There's potentially scope for one last question. And then I know Sir Douglas Flint wants to say a few words. Of course. Our next question comes from Gordon Aitken from Royal Bank of Canada. Gordon, your line is open. Please go ahead. Yes. Thanks. Hi, Keith. So I've got a couple of questions. First on HDFC The FCE Life and Asset Management JVs, just can you maybe let us know why you have sold down? I know there was always an intention to list a But the continued selling, is it part of an arrangement you've always had with HDFC? And second one on this revenue Yield point. Where do you think the yield is going to settle? I've been on the slide for a while for everyone in the industry, but Huge structural shifts going on in asset management that we seem to have been talking around for 20 years plus. And I mean, does ESG is that something that Can offset the slide. And if I can just add my congratulations on a great career for Personally, I really enjoyed working with you. You mentioned the IPO back in 2006, and I joined just before That and back then you headed the asset management business and the first set of results I put together in asset management was just 10% of the earnings of the group. So it just shows how Much you've grown that business. And Golar's was created under you and is a hugely profitable product for Standard Life. And also the Indian JVs, I know personally, you saw the volume very early on in those businesses. We're all very sorry you're leaving, but All the best for the future. Thank you, Gordon. That's very kind. Let me do the revenue yield first and be absolutely honest Then say, I've got no idea where that's going to settle. But I really don't think there is a cliff edge. And I do believe If we continue to build on these strong foundations, and yes, I think ESG is an important part of that, Actually, it's the old comment about Wayne Gretzky, who said, I don't follow the puck. I go to where the puck is going to be. And I think that's what you need to do with clients and that's where you need to invest in the business and that's what we're continuing to do. On HDFC Life, I think it wasn't part of the deal. But obviously, as you know, Gordon, we've been on this long term journey to shift from being a capital intensive life and pensions business to being a Capital Asset Manager. And actually, once it was clear that we had achieved that and moved into CRD IV. The assets we held on our balance sheet need to reflect our core business model. So the sell down in Life is just a reflection that actually it's no longer part of our core business. I think it's a great business and I think it's got a brilliant long term future because it's the quality end of Indian Life. And the management team there are fantastic and so is the HDFC FCE brand, but actually is just no longer aligned, I think, to our future. So I'm sure that sell will continue slightly different on the asset management side. We always said that we would IPO And there was always an agreement and it was formalized recently that when we IPO'd, we would play our part in facilitating the minimum public shareholding, which we actually did with The recent sale, that leaves us with a 20% holding, 2 directors on the board and promoter status In India, in what I think of is for the long term, one of the most exciting asset management markets in the world. And in that sense, as we've said, that is a strategic long term holding. So thank you all for your comments, and we'll now hand over to Sir Douglas Flynn. As Keith said at the opening of his remarks, this will be and actually now has been his final appearance on the platform Presenting the results of Standard Life Aberdeen and before that Standard Life. I know Keith will have been very touched with the warmth of some of the personal Comments that have been made in the call, but I simply wanted to take this last public opportunity on behalf of his colleagues, the Board And fellow shareholders to express our sincere gratitude for his commitment and service over 14 years as a Director. The last 5 is CEO or co CEO. And in particular, his leadership during the last 6 months Encompassing the period of the pandemic has been decisive and empathetic and he leaves the firm in great shape for his Having built solid foundations in terms of financial strength, corporate culture, a real sense of purpose And a highly talented team of colleagues who are ambitious for success. So on behalf of us all, Keith, thank you. Thank you very much. Douglas, thank you, and thank you to everybody on the call. I'm not going to say goodbye, but I will say,