Earnings Call: H2 2018

Mar 13, 2019

Good morning. Thank you all for joining us. I hope most of you know me, but for those who don't, I'm Douglas Flint. We're joined by Keith Skaeck, Martin Gilbert, Bill Rattray. Before I turn over to Keith and the team to discuss the performance last year. I want to touch quickly on the directorate changes that we announced this morning. Regarding those changes, we've been clear for some time that this arrangement would be temporary. The question was always what would trigger the change. And what's triggered it is the fact that we've made significant progress over the last couple of years so that we're now 75% complete on our integration. And in fact, it was Martin who initiated the discussion saying that the co CEO structure was increasingly becoming a distraction both internally an externally that led to deliberation. And so with effect from this morning, Keith has become the sole Chief Executive responsible for leading the business as we take the business forward and recognizing the critical importance. And I mean that the critical importance of Martin's client facing responsibility. Martin becomes the Vice Chairman of Standard Life Aberdeen, Chairman of Aberdeen Standard Investments and of course, remains an Executive Director on the Board. We've also announced that after an extraordinary and outstanding career of 34 years. Bill is going to retire from the Board at the end of May, and we're delighted that he's going to be succeeded by Stephanie Bruce, who will take on his position as Chief Financial Officer and we're very delighted that Stefan is going to be joining us. I'm sure there'll be questions on this. We'd be very happy to take them in due course. But now let me hand over to Keith to take you through last year. Keith? Thanks, Douglas. And let me add my welcome to Standard Life Aberdeen's 2018 finals presentation. In a moment, we'll hear from Martin on the market, client and customer background that helped shape the results. Bill is going to take us through, as usual, the detailed financial results. And I'll come back and update on our strategic progress. But what I thought I'd do to kick things off was give a brief overview of the results and how we performed on what we think was one of the most challenging years for the industry in over a decade. Our reaction to that challenging year as a management team was to continue to focus on what we can control to deliver our strategic transformation and achieve our long run ambition of creating a world class investment company. And I believe and the team believes that today's results do provide evidence of that progress. Our resilient performance that left adjusted profit for continuing operations broadly flat, we believe was built on strong foundations. First our focus on financial discipline, reduced operating expenses by 10%, helped by the fact that our integration program IS 75% complete and ahead of schedule. 2nd, we continue to build strong relationships with our clients and customers. Investment performance is starting to show signs of improvement and our gross flows in a difficult year actually increased by 4%. We remain ranked in 43 Institutional Strategies by Consultants. And we now have CES as a result of the Virgin Money JV, our new relationship with Phoenix to around 16,000,000 potential retail customers. 3rd, we continue to invest in our future through adopting shared values, through innovative fund launches and bolt on acquisitions to bolster our extensive investment capabilities. Finally, we remain very focused on creating value for our shareholders as we reshape our business to take advantage of the forces that continue to disrupt the industry. To that end, in a very challenging environment, we also completed the transformation in 2018 to a capital light business, returned over £1,300,000,000 of capital to shareholders, maintained our dividend and through the offer for sale in India, continue to reshape our strong balance sheet for the benefit of shareholders. At that point, I'll hand over to Martin. Thank you, Keith. Let me add my welcome to everyone here as well. I've just got a few slides just talking about the state of the industry, a bit of an overview on how we're doing. I think we're pretty well positioned, as you can see from this slide, to I thought the thing the podium was just about to fall down. That would have been a bad feng shui for the results presentation. As you can see, and I'll show you a slide in a minute, We are a global business with offices all around the world. We're very, very well diversified Through our investment capabilities, and again, that will come through in the presentation. We're close to our clients. And again, you'll see that when we show you our global coverage as an organization. Strong balance sheet. I often say we've got the strongest balance sheet of any asset manager of any investment company in the world. And I think the sale of the Indian stake or part of the sale of the Indian stake has shown What a great investment it's been by our forefathers and that we managed to get it away at such a tight discount, I think, has been has shown that there is real value on the balance sheet. And finally, we are very focused on shareholder value, focused on the efficiency of the balance sheet, maximizing value for shareholders, and we can see that by the buyback we've done. We're halfway through the €750,000,000 of the second phase of the buyback after the €1,000,000,000 being returned to shareholders. So very, very focused on shareholder value and hence the importance I think of the dividend announcement Today holding the dividend during this period of change in the industry. I promised to show you the strong platform that we have to grow globally. We've even got offices in Ayr and Reading and Basingstoke and places like that, where obviously our very, very important platform business in 18/25, our advice Business are run out of these offices. As you can see, 54 operating locations, clients in over 80 countries in the world, And we have 500 specialists working with those clients. And very importantly, some very strong strategic relationships, Mitsubishi, LBG, HDFC, TEDA, Sumitomo, Mitsui, Mitsui, Phoenix Group, John Hancock, Manulife, Vasera, Challenger and finally Virgin Money, just to name a few. And these strategic relationships are vital for us in the distribution game Of distributing our product. And just to put the our figures in context, These figures that we had, the growth flow figures, I think, were pretty outstanding in a year where you can see The industry took had a difficult year. With quarter 4 2018, you can see the size of the outflows that the industry suffered. Q1 so far has It's been better than Q4 2018, but it's also going to be a tough start to the year. But to a certain extent, this vindicated what Keith and I discussed way back in January 2017 as to Why we should merge the businesses. We were absolutely clear that this industry was going to become tougher and hence the reason for the merger that we did in 2017. As I said, We could see, we predicted these sort of things would happen in the industry. And I describe it as seismic shifts, seismic challenges to our industry. The first one is the shift to passives. Now I don't need to tell any of you In this room that that is still unrelenting. We are still seeing a massive move to passive. Even though the final quarter of 2018 brought the benefits of active fund management through, we're still going to see that. Now if we think and I will come back to pricing in a minute, but if we think pricing is under pressure in the active space, I can assure you in the passive space, it is even more marked. And we are seeing downward pressure on fees, But in passive, it's going to 0. So it's also seeing huge headwinds. The other thing we're seeing globally is from our big clients, the Sovereign Wealth Funds, is this growth in new act of investing, moving from public markets to private markets. And we need to be on the we need to change our business, which is what we've been doing to gain more expertise in private markets so that when our clients do move from public To private, where we can get our share of that. And if you look at where the flows are going globally, you can see the big winners, the partners groups, the Blackstones, the people that are big in this new active investing space. All of that leads, as I've said many times, to the need for scale. And I still think that's going to be the other headwind that we have. Scale is going to be important and those in the middle ground are going Find it tougher and tougher. But as I've said many times, it's a great place for boutiques. If you're starting again, you would start a boutique and work in the West End, Able to go for lunch, do your shopping, much better than running, I can assure you, a global Long only asset manager. But and then finally, I think finally, I think The other thing we've got, the unsort of sung part of the business is the Standard Life brand and the importance of individual savings. And these platforms we have, which I'll come on to in a minute, are vitally important to us. So the access to retail customers and technology It's going to be very, very important for us going forward. Flows, I mean like other active fund managers. We are seeing outflows. They look astonishingly high figures, but when you look at them as Percentage of opening AUM, we're doing as well as we're doing better than some, not as well as we'd hoped. And I've tried to show here the big outflows have been in what we call our big 4 blockbuster products, as And the rest of the business is doing okay. And as I say, the growth flows have been very Encouraging. And we're very hopeful of the relationship with Pfenex. We do feel that over the long term, that is going to Bea, a great deal for us. And continued growth in wrap and elevate there with about €4,200,000,000 Of net flows, which are very, very encouraging. Just my final slide. I said that the unsung sort of bit of the business was Standard Life, that fantastic U. K. Savings brand. And you can see here how important that is to us as a business. Even in these tough years, and they also suffered in Q4 as well. Even with a tough quarter Like Q4, they grew their business. And as you can see, very Good profitability, growing nicely, and we expect to see the profitability getting better as the retail platforms To get bigger. That's all I wanted to say, just give you a rough overview of the industry, and I will hand over to my colleague, Mr. Bill Rattray. And as usual, I will turn the first page for you, Bill. Good morning, everyone. They always make it so easy for me. They've actually covered some of the points on this slide as well. So it's So let me just pick up a couple of points here. I mean, you've heard Martin and Keith talk about the Industry background and the flows picture. So I won't bore you with that. But really just picking up on the results for the year. I know the focus is very much on the continuing operations. So we've dealt with that in the top half of the table here. £17.8 of earnings per share based on the weighted average shares on issue during the year. And I'll come back to that point in a moment. We thought it's important also to comment on the adjusted profit from the whole business, because it's easy to forget we did have 8 months of operating activities of the business we subsequently sold to Phoenix. So totally separate from anything related to the sale. When we add in the earnings from that business, we see that we had a total adjusted EPS for the year of 22.5p Which covers the full year dividend by a small margin. You can tell I haven't been doing this for long enough. I go the wrong direction. So just looking at a little bit more detail at that. The breaking down the recurring numbers, the continuing numbers. Revenue, you won't be surprised to know, is down about 10% on We've obviously seen and understood the impact of markets and the impact of the net outflows. But against that, we've successfully reduced the operating cost by around 10% as well, which is pretty much In line with what we aim to do, we'll touch on it in a little bit more detail in a moment. So as you heard Keith say earlier, the adjusted profit from continuing activities broadly unchanged year on year. And then if we look at the bottom table in terms of the diluted earnings per share, We've shown the earnings per share there separately for the different component parts of the business. I've already touched on the fact that the overall EPS The year is 22.5p. But the interesting thing is, if you pick up the 17.8p from continuing operations, you Remember I said that's based on the normal accounting standard of weighted average shares in issue. But the action we've taken during the year to reduce the share count, If we now look at that rebase on a pro form a basis, with the recent share count of just below 2,500,000,000 That is equivalent to £0.26 of earnings on a new basis. So it's a very different number to build on going forward. Martin touched on the fact that fees are difficult across the industry. We've seen some reduction in blended fee rates I think we've flagged was likely before. It's a reduction, but it's not a drastic reduction. I think the institutional and wholesale margin of 48 basis points is still pretty credible and certainly within the 45 bps to 50 bps range that We talked about a year or so ago. Strategic Insurance Partners is holding pretty steady, clearly At a rate that will never be as high as other parts. And the retail business, the platform business is holding very steady and as you saw on Martin's slide, growing both in terms of revenues and also the number of customers on the platform. It's worth touching briefly on the below the line items, the adjusting items. I guess starting from the bottom, Clearly, the gain on sale of the business to Phoenix is a pretty significant number this year. And against that, We have some ongoing one off costs of restructuring and the beginning of the sale to the separation costs of the business To Phoenix. And one point I want to pick out in that €239,000,000 is that our previous expectations have been that the separation costs from Phoenix. We would book as we incurred them, but accounting convention requires us to make provision for some of those At the end of 2018. So we have a provision for effectively future expenditure in there of something like €85,000,000 within that number. The only other things I would pick up, I mean, clearly, 2 items there, which are very much accounting related rather than commercial related. You'll see that the amortization impairment of intangibles has significantly increased on last year. And this is really the effect of rebasing or re estimating for accounting purposes the future revenue streams and cash streams from the Aberdeen Asset Management business. You recall that although the transaction was a merger of equals, accounting standards require us to book it as an acquisition. And this is really then just an unintended consequence of that, if you like. So the important thing from investors' point of view is there's no impact on distributable reserves. It's dealt with Through the merger reserve, which I guess is perhaps the only logical piece of how we've accounted for a merger. And the second piece also very much a technical issue buried in the accounting standards. The investment we have in Phoenix, which we acquired as part of the consideration for the sale, we have essentially marked that shareholding to market price at the end of December, which was something like 20% below the share price at date of the transaction. Now the fact that the share price has virtually recovered all of that Doesn't count for accounting purposes. It's also to be clear to you all that It doesn't include the wider strategic value that we expect to have or we do have with the relationship. And just a final comment on that. The impairment of the Phoenix investment, we are permitted to reverse that impairment as and when the share price recovers. So assuming the share price stays broadly where it is today, you'll see a fair chunk of that added back in the first half of 'nineteen. In terms of the cost schedule, Keith mentioned we're about 75% of the way through in operational terms of the integration. In terms of the actual cost efficiencies, the synergies to date, the £175,000,000 we've taken action on. It's about 87% of the original target we announced at the time of the acquisition, 70% of the updated target of €250,000,000 And we're also well on the way with we have some additional cost savings that we've Achieved in the year as well. It's not our intention to rebase the number to offer any increased number. You know that we're very focused on managing costs, and the intention is that we just continue to bear down on unnecessary costs and Make more efficiencies as we can. So as a result of that, despite the weakness in the income line, costincome ratio on the continuing business has reduced from 70.6% to 67.9% this year. The point at the bottom about the €230,000,000 of benefits yet to be realized, We're trying to link that into the 2nd bullet. I mean we've taken action on to achieve £175,000,000 of annual savings. The benefit in the P and L during the course of 2018 was £120,000,000 and that breaks down £40,000,000 It was a benefit in the first half, £80,000,000 in the second half. So a little bit of complicated juggling of numbers. The £80,000,000 in second half is £160,000,000 annualized rate. But as we go through 2019, we'll begin to get the benefit of the additional savings. So the €230,000,000 that we are mentioning at the bottom is the amount of savings we will eventually achieve, which is Not reflected in the 2018 numbers. And again, a very simple piece of math. So we assume sort of not to tax the UK corporation tax rate using the current number of shares. I mean that in isolation is worth about 7.4p of earnings before we reinvest in the business. The balance sheet we've spent a bit of time reorganizing. I mean, as a result of the Phoenix sale, we took action to retire £800,000,000 of Tier 1 bonds that qualified under Solvency II as capital, But don't qualify under CRD IV. We also take the opportunity to get bondholder agreements to convert the terms of a $750,000,000 Tier 2 debt, so it does qualify for CRD4 purposes. And separately this morning, we have announced a tender offer for the remaining £500,000,000 of Tier 2 Solvency 2 debt to try to mop up some of that expensive debt. In terms of the regulatory capital position on the right hand side, we currently have capital resources of €1,700,000,000 And capital requirements, as we flagged you before, of around €1,100,000,000 So current regulatory capital surplus of €600,000,000 And that's after having made provision for the dividend of €340,000,000 odd So as Martin mentioned earlier, we do have a strong balance sheet, strong capital position. We have around £1,200,000,000 of net cash in the group balance sheet. And that's roughly £2,200,000,000 of gross cash less the debt we still have in place. We have value in the Phoenix investment and value in the Indian investments. And Sorry, just skipping on to the dividend slide. Really, that balance sheet It's a key support for the dividend. I mean, the as you've heard already, we intend to hold the dividend flat at the 2018 level. As we continue the transformation, our expectation is that we will review continue to review that and we would expect that to be sustainable as we get to the end of this transformation period. Distributable reserves as a final point of pickup. I mean, we have something of the order of £1,800,000,000 of distributable reserves at parent company level. So we don't have any concerns on the balance sheet. And with that, I'll hand back to Keith. It's a delicate dance back page backstage. Thanks, Bill. 2018 may well have been a tough year. And as Martin points out, that market background probably remains in place for some time. But I think as Bill demonstrated, we're financially resilient as a result of our scale, the strength of our balance sheet, but also, and that's what I want to focus on, the management actions that we're taking to transform the business in the face of all of those headwinds. And as I did at the interims, I'm really going to focus on 3 areas that we would regard as strategically important in my remarks. And that's investment performance, investment innovation that will take us closer to clients, and then I'll touch on capital strength. Getting these areas right is incredibly important because it helps us weather the tempestuous environment, but also at the same time improve our competitive position in what's really a rapidly changing Savings and Investment Landscape. Investment performance, of course, lies right at the heart of what we do. And it's pretty clear from 2018 that our disciplined long term approach was tested by the market environment, because I think 20 eighteen's performance can best be described as mixed. That challenged a good long term track record. That good long term track record, by the way, is exemplified by an article in on celebrating the 20th anniversary of the ISA in Feet Money on Saturday. The 2 best performing ISA funds from the launch of the ISA wrapper in April 1999 were both from RF Stable and interestingly both invested in Asia as well. So there's a big difference sometimes between really valuable long term performance and what goes on in the short run. And I think some of our issues in 2018 were undoubtedly due to the rather unusual return environment we've been operating in and I'll come back to that in a moment. However, it is I think vitally important that we learn the lesson and we challenge ourselves to learn lessons from periods of underperformance. That's the only way we can improve our rigorous disciplined investment processes, which as I say, have a history of delivering good long term returns for clients. To that end where our clients have recently suffered underperformance, our investment teams have continued to work on their performance enhancement plans with their focus on idea generation, idea capture and implementation. And we're actually starting to see some positive results. Our integrated research platform is up and running, strengthened by the appointment of heads of research across all asset classes. The Aberdeen Standard Research Institute is not only up and running, but it's produced its first piece of path baking research on social capitalism. We continue to attract new talent and continue to hire actually from some of the leading names in the industry. We've also implemented a new set of risk analytics to both enhance delivery within our investment processes, but most importantly, make sure we remain true to our long term approach. The competitive nature of our performance is underlined by the fact that we remain ranked by institutional investment consultants in 43 Strategies and our mutual funds continue to be highly rated by Morningstar. We are seeing, as I said earlier, some positive impact in 2019. And that's being helped by, I think what could be turn out to be a more normal return environment. Last year saw the heady optimism about growth dissipate during the year and actually culminate with capitulation in the final quarter, which did quite a lot of damage to net flows. For me in 2018, there were 2 standout return themes in the year. The first was the lack of any theme. It's just a bowl of spaghetti there. I couldn't pick out any particularly return and theme. The second, as I'm sure you're aware, is if you look at the 70 asset classes that make up the return universe. 93% delivered a negative return in U. S. Dollars. 2018 was actually the worst year in history. No wonder asset managers derated given their dependency on ad valorem fees. Before we all get too gloomy, I think it's also important to point out that 2017 was the best year in terms of return environment on record where only 1% of asset classes actually turned in a negative return. I think the interesting thing is if you look at what's going on in 2019, we are definitely beginning to see the return to a more normal return environment. And what's important is the breadth of that return environment. So the combination of the actions we're taking and the improving grain of the market actually are helping improve our investment performance. That became visible in the areas of difficult equity performance by the end of 2018, particularly in emerging markets. We've also seen improvements across our multi asset class suite. GaAs for instance is up 2.5% year to date. It's always very dangerous to extrapolate a short run improvement in investment performance. And to be clear, it's going to take some time for this to filter through to slowing redemptions, let alone improving net flows. But from what we know today, the process of restoring our positive and good long term investment track record is underway. Now while it's going to take a while for investment performance to impact redemptions, the headwinds buffeting the industry are already out there shaping client demands. Passive, as Martin said, may have dominated the last 10 years, but our sense is the real opportunity is out there in what we call new active. New active is composed of alternatives, Active Specialties and Solutions. And according to the Boston Consulting Group, if you look out to 2022, new active assets will grow by around 45% or 17,000,000,000,000,000. That's probably slower than passive, but actually from our perspective, what's attractive is the size of the potential revenue pool. That revenue pool is expected to grow by about €84,000,000,000 with an average revenue yield of just below 48 basis points. So not that different actually from the institutional and wholesale revenue yield that Bill showed that we're earning in 2018. And that compares a lot better than the 0 to 1 that you're likely to get from passive. We believe we have the scale and strategic strength and our capabilities across all those components that make up New Active. Aberdeen Standard Investments Private Markets and Real Estate Businesses now total over €70,000,000,000 meaning we're a top 10 manager globally. We're seeing significant client demand for our key capabilities and growing demand across the spectrum for private market solutions that combine not just the individual asset classes, private equity, infrastructure, real estate, etcetera, but we're also seeing quite an increased focus on private markets research and risk modeling that you can only do if you're a skilled player. So that gives us a sense of competitive advantage. We also have scale and depth in the solutions space. £71,000,000,000 of multi asset assets under management shows scale way beyond the €20,000,000,000 that we now manage in GARs. Myfolio, for instance, has seen its assets under management rise to €14,000,000,000 We are one of the leading managers of insurance assets in the UK, something which is reinforced by that strategic partnership with Phoenix. We also have £120,000,000,000 of AUM in funds that we would regard as highly active specialist Fadees or Fixed Income. And these funds are actually quite a rich supply source of supply for our gross flows, which, as you've seen, increased to €75,000,000,000 last year. For example, we saw strong net inflows into smaller company products and specialist equities, as well as the China Asia Equity Fund. In the solutions area, there continued inflows into Myfolio and Parmanian within multi assets. And we saw £3,600,000,000 of assets transfer across from Phoenix. Within alternatives, we saw good net flows across a range of European real estate funds. And we're also building a powerful set of capabilities in quants and systematic investing. And we have a great track record in what we would call our better beta product. And that actually deepens the underlying componentry of the solutions we offer to clients. So connecting our investment capabilities with changing client needs plays a very critical role in helping develop our innovation agenda. And I think we want an example of the great progress we're making is in the ESG. We've long been recognized as a thought leader in terms of stewardship and ESG. We've committed the resources around the world to embed ESG into our investment processes. We now manage €14,000,000,000 of ethical impact and climate related funds, actually bigger than some specialist managers in the sector and also have a very good performance track record. Matt served us very well in winning new business around the world across the asset classes as institutional and retail investors recognize the importance of ESG in delivering sustainable returns. So to some extent, our growth flows already benefiting from the changing shape of client needs and demands. However, we have also long recognized that you can't rest on your laurels and really you do need to innovate, which is one of the reasons why we increased the pace of innovation. In 2018, we launched 32 new funds throughout the new active universe, about £63,000,000,000 of our AUM now sits in funds launched over the last 8 years. That's over 10% of total AUM or about 25% of our non insurance assets. Nor are we standing still. We currently have funds ready to launch and a further 20 in the later stages of development. In order to continue to invest in innovation that will take us even closer to clients, we will lift our current pot of seed and co investment capital from £400,000,000 to probably about £600,000,000 over the next couple of years. So in the short run, it's clearly essential we tap into the shifting shape of client demands. And I believe we're well placed to do so. Over the next 10 years, as Martin points out, there's an even more important trend that brings us an even bigger opportunity. And that's the democratization of Financial Risk. That's going to reorientate the industry away from the focus on institutions to individuals. Even as we speak, retail asset growth is increasing at almost twice the rate of institutional assets. And over the next 10 years, that gap will get wider still with the shift from DB to DC and the long term impact of pension freedoms. In our view, this brings great opportunities that can build for those that build greater connectivity between their investment componentry and the end consumer who is and actually always was the ultimate owner of the assets we manage. We are in a very strong, some might argue unique position to take advantage of these opportunities. We're the UK's number one non bank investment brand. We have scale with close to €60,000,000,000 of AUA on our platforms that serve the retail market across a broad range segments, RAP, Elevate and Parmenion mainly operate in the intermediated adviser market. And as I've said we continue to believe the majority of assets will continue to be owned by customers that require advice. So we continue to work on investing and expanding our advice capabilities by building robo well, Barry will correct me, Bionic actually advice. This will make advisers a lot more productive. We'll open up digital advice and bring in new customers that basically haven't engaged with the industry. For customers who don't need advice, we're building a very simple intuitive my investments offering using the Parmenion platform through our strategic partnerships with Phoenix and Virgin Money. As I've already said, we have access to 16,000,000 customers around 30% of UK savers. And these customers will now have access to a broad range of offerings throughout the ecosystem from non advised digital advice to traditional face to face advice, either through 18/25 or through the 5,000 IFA firms powered by our platform, all of which is aimed at bringing us closer to the end customer and helping them invest For A Better Future. So as we concentrate on delivering all of that, I hope that the message you take away from today is twofold. First, we're going to be relentless in our focus on operational and strategic delivery. And secondly, as Martin says, we have positioned Standard Life Aberdeen to take advantage of the opportunities that the rapidly shifting Savings and Investment Landscape Creates. Our strong positioning is clearly underpinned by the depth of that new active Investment Solutions, which are there to meet changing client needs, but also the financial strength that allows us to pursue innovation and investment in our people and technology, so we can deepen our capabilities even further. The focus on financial discipline that we've demonstrated this year will continue. We've said several times, we're already ahead of schedule in delivering the €350,000,000 of target efficiencies that are part of our transformation program. We've maintained our dividend And we intend to keep it at the 2018 level while we complete transformation and continue to invest in the business. As we reshape the business, we'll also continue to simplify the balance sheet to make sure it's not only right sized, but appropriate for our business model and shareholders. The offer today that tenders today that Bill talked about and this week's offer for sale in India is an important DEP in that direction. And in India, it's particularly important that we reach the minimum public shareholding in HDFC Life. It's also probably worth just simply reminding you that as of last night, we are roughly halfway to returning €750,000,000 of capital to shareholders through our buyback program and remain committed to achieving that target. So for sure, there's still a lot of work to be done to reshape the business as we aim to achieve our long term ambitions. But we believe that building on the progress we made in 2018, we have the management focus, the capabilities, the financial strengths to both capitalize on the disruption in our industry and make sure that's for the benefit of our clients, our customers, our people and of course our shareholders. So thank you, Sir Douglas, Martin, Bill and I, together with Barry Campbell and Rod in the front row. We'll now be delighted to answer any questions you may have. Hayley. Thank you. It's Hayley Tam from Citi. Can I ask one question on HDFC Life and a couple on flows, if I can? So firstly, with HDFC Life, can you confirm that once that Sale has gone through. Your surplus could go to as close almost close to £1,000,000,000 And I just wondered if that's a sustainable level for you, what your thought process is there. And I guess also I note that I think the maximum sale will take you to just less than 25% free float. So interested to think about the sizing and how you thought about that. In terms of the flows, two questions. Firstly, the gross inflows did increase year on year, which is great. It does look as though that was mostly due to Strategic Insurance Partners. So I thought could you give us an update on perhaps how much of that came incrementally from Pfenex and how much of that £7,000,000,000 you've identified in the past is still out there Together for Aberdeen State Investments. And then the final question just on wrap and elevate. I think the flows there did slow half on half presumably due to market conditions. In terms of that going back up again, should we think about that again just being due to the market? Or should I think about the investment platform market study and also the fee cut in Elevators being relevant here. Thank you. So on HDFC Life, if you're right, we'll be slightly shy of the NPS. We need to get to that NPS. That's quite important in terms of if you do anything else before the MPS, it's you have to achieve the MPS. So you don't want to leave an overhang in the marketplace. So our focus is on getting close to the NPS. Bill, in terms of capital? Yes. I mean, you're right. The sale of HDFC Life will add 300 odd 1000000 to the regulatory capital surplus. Jonathan, do you want to Sorry, we're not going to comment in terms of a particular target. I mean, clearly, we've said we will retain a robust surplus above the requirement. Yes. I mean, let me cover the flows point and take your last question 1st and Barry's here, so feel free to speak to him afterwards in more detail. And certainly, I would I think I'll let Campbell Sort of answer the question on the flows afterwards from strategic partners, but it did increase. And then On the Standard Life platform, certainly, the Q1 is continuing to be tough because of market conditions. I think it's fair to say, Barry. And the repricing of Elevate, I think, will Give us more. We'll keep our market share and hopefully increase our market share. But again, feel free to go into much More detail afterwards with Campbell and Barry. I think on the platforms point, I mean, you've got to remember 2017 is probably a bit of an inflated year because the DB pension transfers, which was torn down in 2018. Yes. On the Phoenix point, we were looking for 7%. We got 2.5% in 2018. And Campbell, I think we're now up to 3.6. So that continues to flow through. Next. Let's do the right hand side of the room. Yes. Stephen McCann from Numis. Just firstly on the dividend guidance kind of going forward that you hold it flat during the transition. I mean, so what would need change for you for that guidance and no longer be valid. I'm thinking to the downside here, what would need to kind of get materially worse for that to kind of no longer hold? Secondly, on the retail business, excluding the platforms, can you confirm that it's still unprofitable and kind of what the outlook kind of for that is. And then just following up on the HDFC a point that was made there around GBP 300,000,000 going on to surplus capital. So how much of the regulatory capital that's stated Kind of already includes HDFC Life and the Phoenix business as of 30 versus December. Because I remember when you stated this last time, effectively most of it was excluded. Just an update there would be handed to know. Thank you. Should I deal with that last point first? Yes. I mean It's not quite fully excluded from the regulatory capital, but it's a very small percentage of each of Phoenix Sandd, HDFC joint ventures that we are able to regard as capital for regulatory purposes. So net negligible, I guess. Bill, do you want to do the divvy as well? Yes. Divvy, I mean, I think in answering that question, I mean, clearly, It's difficult to speculate on future market conditions. I mean, I guess, what we said is that We're prepared to maintain the dividend at the 2018 level through the transformation period in the next couple of years. By that stage, we hope and Market conditions and the growth of the business will demonstrate it's sustainable. But I think to answer the question in a slightly different way, you've got to think about the distributable reserves. I mentioned of things about £1,800,000,000 And reflected, I mean, even of the For every penny of lack of cover in the dividend, it's only £25,000,000 So there's a lot of support there over and above the ongoing earnings. Barry, the retail point. The retail is made up of €8,000,000,000 Thank you. Morning. It's Anil Sharma from Morgan Stanley. Just a couple of questions, please. On slide 15, you've very helpfully given us the surplus capital and the RED capital. Just to kind of further clarify, Once you do the remaining buyback, once you do the stake sale and once you do the debt reduction, isn't your surplus going to drop to 0.1 rather than go up? So just want to check that. Secondly, once you've done all the cost saves, won't the is the Redcat requirement, I'm assuming, is going to come down? If you could just tell us what that would be pro form a for the new cost base. And then just on flows, just wanted to sort of question why if you look at the gross sales and redemptions, the emerging market Aberdeen Fund as one where performance has historically been better than say Global or Asia Pac, But it looks like the redemptions have ticked up pretty significantly there. So just wondering if something's changed, especially given how strong the kind of emerging market backdrop has been. Can I deal with the REDCap point first? I mean the I forget exactly which components you spoke about. I mean certainly HDFC Life, the sale there will benefit the right cap. The tender for the debt There's no impact because we don't include that as as you recall, it's a Solvency II instrument, which doesn't count as regulatory capital here. The ongoing buyback, yes, we'll eat into that. But equally, I mean, we still have the capacity to consider at some stage a further CRD IV instrument. I mean, if you think about the fact that we're maybe 75% of the way through optimizing the balance sheet from Solvency II to CRD IV. Yes. Just on the flows, Actually, the interesting thing is the Asia Pac performance was the strongest Of our equity asset classes last year, the quality funds We have so had very, very strong performance. So hence, we saw the outflows. I think there were only about £700,000,000,000 in the 4th quarter, whereas speaking from memory, the emerging markets were about £2,500,000,000 But again, partly hit because and that wasn't so much performance because Performance did improve for the year. It was more that trend of public to private that We're seeing and if we see one of our sovereign wealth fund clients take money out, it'll tend Because we tend only to manage either global for them or Asia or on the equity front, it would tend to come out of those mandates. Sorry, I just realized I didn't answer the other part of your question on reg cap about the capital requirement. I agree with your analysis that logically, as we go through the transformation, as The capital requirement should come down, but we found in the past it's always difficult to predict these sort of things. Regulator, Quite rightly, it takes every opportunity to make sure the industry is well capitalized. That sounds like a great answer, doesn't it, that regulator will like that. Good try. Excellent question. Good morning. It's Hubert Lam from Bank of America. Three questions. Firstly, on GARS, I've seen assets under management go down to about $20,000,000,000 now. Have The outflows last year, performance on a 3 to 5 year basis is still relatively mediocre. And it seems like outflows have continued year to date. Just wondering where you see GAR is going to, when will when do you expect outflows to stabilize? Are you seeing any more you continue to Redemptions notices coming in from institutional investors on GARS. That's the first question. The second question is on fee margin. Your fee margin fell 2 bps year on year. I saw that from multi asset also fell 4 bps year on year. Just wondering if we continue to expect the same kind of trajectory going forward in terms of fee margin compression. And the last question is on HDFC Life. So post the sale, you should About 25% of HDFC Life still. Obviously, as you just mentioned, there are still free full considerations. But Excluding that, do you still consider that the remaining stake to be non strategic? Again, how should we think about that going forward? We'll deal with the last one first. We're in the middle of a transaction, so we can't technically comment. On gas, we've actually seen quite a good improvement in performance. It's early days, but 1st year to date, it's up about 2.5%. And there has been more stability, I think, in the gas flows year to date and certainly in the Q4. And I think you need to the thing one was the cumulative effect of underperformance. And of course, one of the things we did do was Guy announced he was retiring, Aymeric came on board and inevitably I think that will have accelerated. So GARs is still in terms of our absolute return suite, a very important part of what we do. What I would reemphasize is it's €20,000,000,000 of the €71,000,000,000 that we manage in multi asset. So its multi asset is a much broader suite for us these days. Margin, Martin? It's still going to be tough, I think. Bill, what do you think? Yes. I think it's still a little bit downward pressure. I mean, it's principally from the mix effect. I The encouraging news we can give you is that the new business the gross new business we're winning is coming in at a pretty similar mix to what we've had in the past. So we're not really seeing any reduction from that. Your point in multi asset, of course, you're right, that's where we report the gas flows the gas assets. And that We accept a higher margin than some of the other multi assets. That's really the But generally, the industry is tough on fees. So I mean, not just us. I mean, I would say across The Board, we're seeing we're definitely seeing it much more competitive on fee levels Than it's been in the past. So when we're doing RFPs or pitching, definitely lower than it was. Okay. Let's go along the road. And then we'll go to the back. Thank you. It's Chris Turner from Berenberg. The €56,000,000 of additional auto efficiencies that you've found. Can we have some color on those, please? Are they related to volume and therefore if your AUM should fall a bit further, we should get further cost savings? And then more kind of strategically on costs, you've got about €350,000,000 of costs or efficiency savings you've announced. But as a percent of AUM, your cost base isn't really falling that much. How do you think about that? Does that mean you think you need to go back to the cost base again? Or does that mean that you think more about adding scale in other ways? And then finally, if we can just come back to the comment about the improvement. I think, Keith, you said the improvement in fund performance will take time to flow through to slower redemptions. How do you think about the other side of the equation in terms of gross sales? Would that be quicker or slower than the redemptions? Is gross sales more sensitive to performance? Thank you. I think gross sales is improving for two reasons: Investment Performance Innovation. And actually, it's going to be improving from a third reason. It's going to get more of Martin's attention, which I know this is an article in today's press by Marty Flanagan of Invesco predicting a So our divestment managers are going to lose their jobs. So I don't know whether that's true or not, but you can see how tough When one of the leading CEOs in the industry says that times are really tough, exactly the same thing, Feed pressure and costs not going down fast enough really. Bill can answer the detailed question on cost. Yes, scale is part of this. We are building something here that makes sure that we're improving our competitive edge. All of that innovation. Our diversified positioning is about making sure that we can be a winner in the new developing environment on Glasgow. Yes. Your question on the £56,000,000 I mean there will be a small piece of that is related to The value of assets under management, typically the 3rd party admin costs. But quite a lot of the million is really just attention to detail in terms of cutting fixed Scott, which we'll obviously continue to focus on. In terms of the €350,000,000 as a percentage of AUM, I think we've got to be careful. We strike the right balance. I mean, we don't want to be too focused on a particular ratio and end up cutting into the fabric of the business and make it difficult to grow. Gordon. Thanks, Gordon. Aitken from RBC. First question first, Douglas, please. You've been in the chair for a short time now. In that short time, what's impressed you? And where do you see the opportunity? Second question on the Widows mandate. So it's €109,000,000,000 Just if you can talk about what you've done on the cost side To allow for that mandate leaving. And finally, Keith said you said you were one of the leading managers of insurance assets in the U. K. Insurance companies are increasingly getting into liquid assets. So social housing, ground rents, equity lease mortgages, infrastructure, just what's your capability in those areas? Thanks. On that, the last point, very significant in terms of a number of things that we're doing in private credit. We've got what's effectively a factoring mandate, which is out adding valuable basis points to insurance mandates. So we're in a lot of discussions about that Panoply of I was just confirming what I said about the sovereign wealth funds and insurance companies. They are moving from public to private. We're seeing a lot of demand for private credit. You're quite right, student housing, all of these sort of private market our capabilities. So we're looking for and if we were doing any bolt ons. They would tend to be in that private market area because that's where the growth is. On the Widows mandates, any cost saves were baked in, I think, effectively to the €350,000,000 transformation program. We can't comment on the arbitration at all. We're in the middle of an arbitration process. Douglas? Yes. Thank you for the opportunity. This is with interest. Yes. Please sit back and enjoy. Yes. The first thing to say, it's been 3 months since I took the chair. It Phil's a lot longer because of the openness of the organization in terms of welcoming a newcomer who's keen to lend. So what's impressed me, the people, the ambition. The fact that we've got the product and geographic range that I think is very pertinent to the future, particularly our Asian focus, particularly our platforms business and all of that flowing through to the brand, which I think is extraordinarily strong. And I guess the final thing to say is that there are things to do, a lot of things to do, but the vast majority of the things we can't fix. It's not as if there are things within the organization that are unfixable. And everyone's focused on that. So I think it's been a I say I've enjoyed it very, very much. And it's the people and the ambition I think that I look to most of all along with the brand. I think it's fantastic. Andrew? Good morning. It's Andrew Kreenage, Autonomous. Three questions, if I can. Firstly, what are the Lloyd's revenues and the Lloyd's assets under management last year? Secondly, what are your overall assets under management at the end of February? And thirdly, I noticed you're not raising the €350,000,000 cost target. But within that, there was about €70,000,000 which was kind of efficiency gains, which was basically building the profitability of the platforms and the advice. That doesn't seem to have moved the needle much. I'm just wondering within your GBP 350,000,000 whether you're actually switching a bit of that to further cost cutting? I think just on the final question first. No, I mean, we're still very focused on achieving that 350,000,000 plus anything more we do in the way through. As I mentioned earlier, the 56 we've achieved during 2018, we're not specifying that as part of the 350. I think it's perhaps slightly dangerous to put a new target out there because it then shifts the focus In ways that are maybe unhelpful internally. Lloyd's AUM and revenues? Lloyd's AUM, It's probably not giving you any secrets away. It's pretty much unchanged from what's reported in the December numbers. I mean, they don't Tend to move dramatically month to month. And so the revenues are still pretty much, as you see, reported of the order of Just a little ahead of 100,000,000. We're not disclosing. Indran? No, we're not. We can't disclose February. Hi. Good. Gertrude Campbell, JPMorgan. Just two questions. Firstly, You talked a lot about private markets, and obviously, it's a great industry at the moment, lots of inflows partners, BlackRock, etcetera. Your flows have perhaps been a little bit weaker. What's your positioning within private markets? Are you trying to be a big scale player? Are you focusing on being more of a boutique player? And obviously, the duration in assets is great if you get them right. Just what are your sort of closed end structures that you have? So it's the first question. Yes. Mean, it's a mixture of all of those. We'd like to be a scale player and a boutique player, if that makes sense, because they are the capabilities that are being looked for are things like private markets, student housing. So We're seeing a lot of it in the especially the property business and the demand is, as As you say for those sort of capabilities, student housing logistics fund, that sort of thing, the office to residential. So a lot of thematic sort of stuff as well. But The big demand probably from our strategic partners would be definitely a private debt Probably, they're looking there a lot. Are there any funds that you're closing? Because you've opened obviously a lot of funds last year Neil, planning for more this year. Any funds you're closing? Yes. So we looked we had a program of funds consolidation, which is built into the transformation program. And we completed that consolidation program about 6 months ahead of schedule. I think there were 17 big funds. But one of the things we did together at the end of last year is we brought a lot of money market offerings together. And actually, that was a big cost savings. So the planned consolidations that we knew we had to take place It's Johnny Vo from Goldman Sachs. Just I can see there's an increasing focus on individual savings. I guess From a capabilities perspective, given some of your competitors, they've sort of built out, are there things that you potentially need to backfill to fill out that capability on the individual savings a component of your business. The second question is just regards to Elevate. There's been elevated costs within that business. You had previously said that this platform would be profitable by 2019. Is that still the case? And just the final question, just regards to the Solvency II debt. Why have you decided to go for a tender offer rather than Just wait for the call date, which is in 3 years' time. And what is the premium of the bonds over par? Thanks. Bill, why don't you do that? And then Barry will come to you on mean, we've done the analysis in terms of the OTC. The first call date is I forget which month, but it's 2022. So it's quite a long time to go. And the net present value of taking out some of that debt now at a small premium, I think, is still very helpful. So It's really about removing some expensive debt. The terms that we've offered this morning our to buy it out at gilts plus €150,000,000 So I can't recall what it's probably if we were to achieve the whole amount being tenured, it's probably at a premium of £60,000,000 to the £500,000,000 outstanding. Barry? Just got to say on Elevate, yes, Elevate, we gave across the 20 18. So we delivered on that commitment that we made when we In terms of the first question, in the majority of assets will continue to be to require advice. And so we're working hard, obviously, powering the IFA firms out there, And that's partly because although this democratization of financial risk and the retail consumer is becoming very popular, this is stuff we've been investing in for a very long time. So there's a lot of investment that's already gone into the business. We've probably got time for a couple of more. Good morning. It's Arnaud Jeuveau from Exane. I've got a couple of quick questions, please. Firstly, In the interims, I think you're talking about a medium term ambition of achieving a cost to income ratio of 60%. This seems to have dropped. So I'm wondering if that's still the case or how we should think about that. I mean, clearly, costs are under control, maybe revenues a bit less so in the flow environment. And secondly, the €350,000,000 cost savings, Should we be thinking that, that will be fully achieved in 2019 and we will be therefore, we will be looking at 2020 at a full run rate cost base? And a quick question on the platforms. I was wondering in the medium term if you saw an opportunity to integrate All the platforms onto 1 central technology, one platform. Thanks. I mean, obviously, the costincome ratio is the product of 2 things, costs and income. It was almost a perfect storm last year, and we're continuing to invest to achieve scale and looking just to look at how we can grow the business over the medium term, £350,000,000 Bill. Yes. No, I think you're maybe saying it's too much of Challenge to achieve the full €350,000,000 in 2019. So I mean, we're not changing our prediction that we'll be fully in place by the end of 2020. Good morning. It's Stephen Hayward from HSBC. Just two questions on your just to clarify, you're tendering the Any plans to issue a new instrument? Just a clarification on that. And then on your redemptions, you have about €116,000,000,000 of redemptions In 2018, can you say what you recapture in your gross inflows? What percentage of that you recaptured? And so we get a net net outflows of the business. Thank you. Yes. On the Tier 2 debt, I mean, we continue to review options. I mean, as I mentioned earlier, we do have the capacity to to issue a bit more Tier 2 if we think the terms are right, but with no specific intention at the moment. We'll continuous review. Yes. Just on the second point, I think not as much as we would like or as we should. And Mainly that's because unlike some of the bigger players in the world, we tended only to have one capability with what we would call our big strategic clients. So It wasn't a natural move if they were rebalancing the portfolio and redeeming, say, an active equity portfolio for them to Come to us in the past and say, look, can you manage this property portfolio or this private credit portfolio and that's part of how we're reshaping the business and really trying to get out there that we can manage those capabilities for our big clients. Obviously, with the Shall we say, taking Phoenix as an example, yeah, we would tend to recapture a lot there, but not enough in some of our other big strategic clients. And hence, you'll see the flows. When I alluded to earlier, they're going to the partners groups, the Black Stones, those sort of businesses. So it's but we're the same as most of the other big active fund managers in that respect. So we're no worse than others. We're just not as good as we'd like to be. Good. I I think that's do you want to sum up? Yes. Can I just say thank you again and pay tribute to my CFO here, 34 years? When he started, the turnover was £100,000 and we made £109 profit. So and you have regularly voted him number 1 buy side sell side, sorry, I got the wrong. And he also wins buy side. I used to only win sell side. The buy side never trusted me as much as Bill. So Bill. Thank you.