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 Skeoch, 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? 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 in our integration. In fact, it was Martin who initiated the discussion, saying that the co-CEO structure was increasingly becoming a distraction, both internally and externally. That led to a deliberation.
With effect from this morning, Keith has become the sole Chief Executive responsible for leading the business as we take the business forward. Recognizing the critical importance, 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. 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 Stephanie's going to be joining us. I'm sure there'll be questions on this. We'll be very happy to take them in due course.
Now let me hand over to Keith, to take you through last year. Keith.
Thanks, Douglas. 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's going to take us through, as usual, the detailed financial results. I'll come back and update on our strategic progress. 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. 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. Second, 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 access, as a result of the Virgin Money JV, our new relationship with Phoenix, to around 16 million potential retail customers. Third, 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 GBP 1.3 billion 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. I thought the thing, the podium was just about to fall down. That would've been a bad feng shui for the results presentation. As you can see, 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. 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. 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. That we managed to get it away at such a tight discount, I think has shown that there is real value on the balance sheet. 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 GBP 750 million of the second phase of the buyback after the GBP 1 billion being returned to shareholders.
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 important platform business in 1825, 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, Phoenix Group, John Hancock, Manulife, Bosera, 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.
Just to put our figures in context. These figures that we had, the gross flow figures, I think were pretty outstanding in a year where you can see the industry had a difficult year. With Q4 2018, you can see the size of the outflows that the industry suffered. Q1 so far has 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. I describe it as seismic shifts, seismic challenges to our industry.
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 Q4 2018 brought the benefits of active fund management through, we're still going to see that. 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 zero. 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 active investing. Moving from public markets to private markets.
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, 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 Group, the Blackstone, 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. 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 to find it tougher and tougher. 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. Finally, I think the other thing we've got, the unsung part of the business is the Standard Life brand and the importance of individual savings. These platforms we have, which I'll come onto in a minute, are vitally important to us. The access to retail customers and technology is going to be very important for us going forward. Flows. Like other active fund managers, we're seeing outflows. They look astonishingly high figures, but when you look at them as a percentage of opening AUM, we're doing better than some, not as well as we'd hoped.
I've tried to show here the big outflows have been in what we call our big four blockbuster products, as you can see here. The rest of the business is doing okay. As I say, the gross flows have been very encouraging. We're very hopeful of the relationship with Phoenix. We do feel that over the long term, that is going to be a great deal for us. Continued growth in Wrap and Elevate there with about GBP 4.2 billion of net flows, which are 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. You can see here how important that is to us as a business, even in these tough years. They also suffered in Q4 as well.
Even with a tough quarter like Q4, they grew their business. As you can see, very good profitability growing nicely, we expect to see the profitability getting better as the retail platforms get bigger. That's all I wanted to say. Just give you a rough overview of the industry, I will hand over to my colleague, Mr. Bill Rattray. 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.
Your slides are normally gray, as we know, Bill.
Let me just pick up a couple of points here. You've heard Martin and Keith talk about the industry background and the flows picture, I won't bore you with that. Really just picking up on the results for the year. I know the focus is very much on the continuing operations, we've dealt with that in the top half of the table here. GBP 0.178 of earnings per share based on the weighted average shares and issue during the year. 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 eight months of operating activities of the business we subsequently sold to Phoenix. 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 GBP 0.225, 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. Just looking at a little bit more detail at that. Breaking down the recurring numbers, the continuing numbers. Revenue, you won't be surprised to know, is down about 10% on last year. We've obviously seen and understood the impact of markets and the impact of the net outflows. Against that, we've successfully reduced the operating costs 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.
As you heard Keith say earlier, the adjusted profit from continuing activities broadly unchanged year-on-year. 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 for the year is GBP 0.225. The interesting thing is, if you pick up the GBP 0.178 from continuing operations, you remember I said that's based on the normal accounting standard of weighted average shares and issue. The action we've taken during the year to reduce the share count, if we now look at that rebase on a pro forma basis with the recent share count of just below 2.5 billion, that is equivalent to GBP 0.206 of earnings on a new basis.
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 as 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 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. 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. Against that we have some ongoing one-off costs of restructuring and the beginning of the sale to the separation costs of the business sold to Phoenix. One point I want to pick out in that GBP 239 is that our previous expectations had 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. We have a provision for effectively future expenditure in there of something like GBP 85 million within that number. The only other things I would pick up, clearly two items there which are very much accounting related rather than commercial related.
You'll see that the amortization impairment of intangibles is significantly increased on last year. 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 required us to book it as an acquisition. This is really then just an unintended consequence of that, if you like. The important thing from investors' point of view is it has 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. 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. The fact that the share price has virtually recovered all of that ground 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. 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. 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 2019.
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 or synergies to date, the GBP 175 million we've taken action on is about 87% of the original target we announced at the time of the acquisition, 70% of the updated target of GBP 250 million. 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 build down on unnecessary costs and make more efficiencies as we can.
As a result of that, despite the weakness in the income line, cost income ratio on the continuing business has reduced from 70.6% to 67.9% this year. The point at the bottom about the GBP 230 million of benefits yet to be realized, we're trying to link that into the second bullet. We've taken action to achieve GBP 175 million of annual savings. The benefit in the P&L during the course of 2018 was GBP 120 million. That breaks down. GBP 40 million was our benefit in the first half, GBP 80 million in the second half. A bit of complicated juggling of numbers. The GBP 80 million second half is GBP 160 million annualized rate. As we go through 2019, we'll begin to get the benefit of the additional savings.
The GBP 230 million that I mentioned at the bottom is the amount of savings we will eventually achieve, which is not reflected in the 2018 numbers. Again, a very simple piece of math. If we assume tax at the U.K. corporation tax rate using the current number of shares, that in isolation is worth about GBP 0.074 of earnings before we reinvest in the business. The balance sheet we've spent a bit of time reorganizing. As a result of the Phoenix sale, we took action to retire GBP 800 million of Tier 1 bonds that qualified under Solvency II as capital, but don't qualify under CRD IV. We also took the opportunity to get bondholder agreements to convert the terms of a $750 million Tier 2 debt so that it does qualify for CRD IV purposes.
Separately this morning, we have announced a tender offer for the remaining GBP 500 million of Tier 2, Solvency II 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 about GBP 1.7 billion, and capital requirements, as we flagged to you before, of around GBP 1.1 billion. Current regulatory capital surplus of GBP 0.6 billion. That's after having made provision for the dividend of GBP 340 odd million. As Martin mentioned earlier, we do have a strong balance sheet, strong capital position. We have around GBP 1.2 billion of net cash in the group balance sheet. That's roughly GBP 2.2 billion of gross cash, less the debt we still have in place. We have value in the Phoenix investment and value in the Indian investments.
Sorry, just skipping on to the dividend slide. Really, that balance sheet is a key support for the dividend. As you've heard already, we intend to hold the dividend flat at the 2018 level as we continue transformation. Our expectation is that we will continue to review that, and we would expect that to be sustainable as we get to the end of this transformation period. Distributable reserves is the final point I'll pick up. We have something of the order of GBP 1.8 billion of distributable reserves at parent company level. We don't have any concerns on the balance sheet. With that, I'll hand back to Keith.
It's a delicate dance 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. 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. As I did at the interims, I'm really going to focus on three areas that we would regard as strategically important in my remarks. 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.
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. It's pretty clear from 2018 that our disciplined long-term approach was tested by the market environment, because I think 2018's performance can best be described as mixed, and that challenged a good long-term track record. That good long-term track record, by the way, is exemplified by an article on celebrating the 20th anniversary of the ISA in FT Money on Saturday. The two best performing ISA funds from the launch of the ISA wrapper in April 1999 were both from our stable. Interestingly, both invested in Asia as well. There's a big difference sometimes between really valuable long-term performance and what goes on in the short run.
I think some of our issues in 2018 were undoubtedly due to the rather unusual return environment we've been operating in. 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 and 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. 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 Investments Research Institute is not only up and running, but it's produced its first piece of pathbreaking 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 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 two standout return themes in the year. The first was the lack of any theme. It was just a bowl of spaghetti there. I couldn't pick out any particular returning 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. GARS, for instance, is up 2.5% year to date. It's always very dangerous to extrapolate a short-run improvement in investment performance.
To be clear, it's going to take some time for this to filter through to slowing redemptions, let alone improving net flows. 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's composed of alternatives, active specialties, and solutions. According to the Boston Consulting Group, if you look out to 2022, new active assets will grow by around 45% or GBP 17 trillion. 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 GBP 84 billion with an average revenue yield of just below 48 basis points. Not that different, actually, from the institutional and wholesale revenue yield that Bill showed that we're earning in 2018. That compares a lot better than the zero to one that you're likely to get from passive. We believe we have the scale and strategic strength in our capabilities across all those components that make up new active. Aberdeen Standard Investments private markets and real estate businesses now total over GBP 70 billion, 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, et cetera, 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 scale player. That gives us a sense of competitive advantage. We also have scale and depth in the solutions space. GBP 71 billion of multi-asset assets under management shows scale way beyond the GBP 20 billion that we now manage in GARS. MyFolio, for instance, has seen its assets under management rise to GBP 14 billion. We are one of the leading managers of insurance assets in the U.K., something which is reinforced by that strategic partnership with Phoenix.
We also have GBP 120 billion of AUM in funds that we would regard as highly active specialist equities or fixed income. These funds are actually quite a rich source of supply for our gross flows, which as you've seen, increased to GBP 75 billion last year. For example, we saw strong net inflows into smaller company products and specialist equities, as well as the China A Share equity fund. In the solutions area, there continued inflows into MyFolio and Parmenion within multi-assets, and we saw GBP 3.6 billion of assets transfer across from Phoenix. Within alternatives, we saw good net flows across a range of European real estate funds. We're also building a powerful set of capabilities in quants and systematic investing. We have a great track record in what we would call our BETTER Beta product.
That actually deepens the underlying componentry of the solutions we offer to clients. Connecting our investment capabilities with changing client needs plays a very critical role in helping develop our innovation agenda. I think one example of the great progress we're making is in 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 GBP 14 billion 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. That 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.
To some extent, our gross flows are 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, 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 GBP 63 billion of our AUM now sits in funds launched over the last eight 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 GBP 400 million to probably about GBP 600 million over the next couple of years. In the short run, it's clearly essential we tap into the shifting shape of client demands, 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, 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, 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 U.K.'s number one non-bank investment brand. We have scale, with close to GBP 60 billion of AUA on our platforms that serve the retail market across a broad range of segments. Wrap, Elevate, and Parmenion mainly operate in the intermediated advisor market.
As I've said, we continue to believe the majority of assets will continue to be owned by customers that require advice. We continue to work on investing and expanding our advice capabilities by building Robo, or Barry will correct me, Bionic Advice actually. This will make advisors 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 million customers, around 30% of U.K. savers.
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 1825 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. 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. 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.
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 GBP 350 million 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 tender today that Bill talked about, and this week's offer for sale in India is an important step in that direction.
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 GBP 750 million of capital to shareholders through our buyback program, and remain committed to achieving that target. 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. 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.
Thank you, Sir Douglas, Martin, Bill, and I, together with Barry, Campbell, and Rod in the front row, will now be delighted to answer any questions you may have. Haley.
Thank you. It is Haley Tam from Citi. Can I ask one question on HDFC Life and a couple on flows if I can? Firstly with HDFC Life, can you confirm that once that sale has gone through, your surplus could go to almost close to GBP 1 billion? I just wondered if that is a sustainable level for you, what your thought process is there. I guess also, I note that I think the maximum sale would take you to just less than 25% free float. Interested to think about the sizing and how you thought about that. In terms of the flows, two questions. The gross inflows did increase year-on-year, which was great. It does look as though that was mostly due to strategic insurance partners.
I thought, could you give us an update on perhaps how much of that came incrementally from Phoenix, and how much of that GBP 7 billion you have identified in the past is still out there to gather for Aberdeen Standard Investments? 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 market, or should I think about the investment platform market study and also the fee cut in Elevate as being relevant here? Thank you.
On HDFC Life, you are right, we will be slightly shy of the MPS. We need to get to that MPS. That is quite important in terms of if you do anything else before the MPS, you have to achieve the MPS. You do not want to leave an overhang in the marketplace. Our focus is on getting close to the MPS. Bill, in terms of capital?
Yeah, you are right. The sale of HDFC Life will add GBP 300 million odd to the regulatory capital surplus.
There's nothing you want to add?
We're not going to comment in terms of a particular target. We've said we will retain a robust surplus above the requirement.
Yeah. Let me cover the flows point and take your last question first. Barry's here, so feel free to speak to him afterwards in more detail. Certainly, I think I'll let Campbell sort of answer the question on the flows afterwards from strategic partners. It did increase. Then on the Standard Life platform, certainly the first quarter is continuing to be tough because of market conditions. I think it's fair to say, Barry?
Yeah.
The repricing of Elevate, I think will keep our market share and hopefully increase our market share. Again, feel free to go into much more detail afterwards with Campbell and Barry.
I think on the platforms point, you got to remember 2017 was probably a bit of an inflated year because of DB pension transfers, which has toned down in 2018.
Yeah. On the Phoenix point, we were looking for 7. We got 2.5 in 2018. Campbell, I think we are now up to 3.6. That continues to flow through.
Next. Let's do the right-hand side of the room.
Yeah. Morning. David McCann from Numis. Just firstly on the dividend guidance kind of going forward that you hold it flat during the transition. What would need to change for you for that guidance to 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 is still unprofitable and kind of what the outlook kind of for that is? Then just following up on the HDFC point that was made there around GBP 300 million going onto surplus capital. How much of the regulatory capital that's stated kind of already includes HDFC Life and the Phoenix business as of the 31st December? I remember when you stated this last time, effectively most of it was excluded.
Just an update there would be handy to know. Thank you.
All but excluded.
Should I deal with that last point first?
Yeah.
Yeah. It's not quite fully excluded from the regulatory capital, but it's a very small percentage of each of Phoenix and HDFC joint ventures that we are able to regard as capital for regulatory purposes. Negligible, I guess.
Bill, do you want to do the divvy as well?
Yeah. Divvy. I think in answering that question, clearly it's difficult to speculate on future market conditions. I guess what we've 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 expect that market conditions and the growth of the business will demonstrate it's sustainable. I think to answer the question a slightly different way, you've got to think about the distributable reserves I mentioned of I think it's about GBP 1.8 billion. Reflect that even for every penny of lack of cover in the dividend, it's only GBP 25 million. There's a lot of support there over and above the ongoing earnings.
Barry, the retail point.
The retail is made up of 1825 Focus and 360, and it's roughly break even. It's a very small number of millions, dozens of pounds.
Okay.
Thank you. Morning, it is Anil Sharma from Morgan Stanley. Just a couple questions please. On slide 15, you have very helpfully given us the surplus capital and the reg cap. Just to 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 GBP 0.1 rather than go up? Just want to check that. Secondly, once you have done all the cost saves, is the reg cap requirement, I am assuming, is going to come down? If you could just tell us what that would be pro forma for the new cost base.
Just on flows, just wanted to sort of question why, if you look at the gross sales and redemptions, the emerging market Aberdeen Fund has 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. Just wondering if something's changed, especially given how strong the kind of emerging market backdrop has been.
Can I deal with the reg cap point first? I forget exactly which components you spoke about. Certainly HDFC Life, the sale there will benefit the reg cap. The tender for the debt has no impact because we do not include that. As you will recall, it is a Solvency II instrument, which does not count as regulatory capital here. The ongoing buyback, yes, we will eat into that. Equally, we still have the capacity to consider at some stage a further CRD IV instrument. If you think about the fact that we may be 75% of the way through optimizing the balance sheet from Solvency II to CRD IV.
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 that we have. Had very strong performance. Hence we saw the outflows, I think there were only about GBP 700 million in the fourth quarter, whereas speaking from memory, the emerging markets were about GBP 2.5 billion. Again, partly hit. That was not so much performance, because performance did improve for the year. It was more that trend of public to private that we are seeing. If we see one of our sovereign wealth fund clients take money out, because we tend only to manage either global for them or Asia 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 we complete it, the capital requirement should come down. We found in the past it's always difficult to predict these sort of things.
Regulator, quite rightly, takes every opportunity to make sure the industry is well capitalized. That sounds like a great answer, doesn't it? The regulator will like that.
When you talk about dividend flat, are you talking DPS? Are you talking about compounding?
DPS.
Steady on.
DPS.
Good try there. Excellent question.
Good morning. It is Hubert Lam from Bank of America. Three questions. Firstly, on GARS, I have seen assets under management go down to about GBP 20 billion now. Have your outflows last year, performance on a three to five year basis is still relatively mediocre, and it seems like outflows have continued year to date. Just wondering where you see GARS going to. When do you expect outflows to stabilize? Are you continuing to see redemption notices coming in from institutional investors on GARS? That is the first question. The second question is on fee margin. Your fee margin fell two basis points year-on-year. I saw that from multi-asset also fell four basis points year-on-year. Just wondering if we continue to expect the same kind of trajectory going forward in terms of fee margin compression. The last question is on HDFC Life.
Post the sale, you should have about 25% of HDFC Life still. Obviously, as you mentioned, there are still free float considerations, but excluding that, do you still consider the remaining stake to be non-strategic? How should we think about that going forward?
Let me deal with the last one first. We are in the middle of a transaction, we cannot technically comment. On GARS, we have actually seen quite a
Good improvement in performance. It's early days, but first year to date, it's up about 2.5%. There has been more stability, I think, in the GARS flows year to date, and certainly in the fourth quarter. I think one was the cumulative acts of underperformance. 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. GARS is still, in terms of our absolute return suite, a very important part of what we do. What I would re-emphasize is it's GBP 20 billion of the GBP 71 billion that we manage in multi-asset. 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?
Yeah, I think it's still a little bit downward pressure. It's principally from the mix effect. The encouraging news we can give you is that the gross new business we're winning is coming in at a pretty similar mix to what we've had in the past. We're not really seeing any reduction from that. Your point on multi-asset, of course, you're right, that's where we report the GARS flows, the GARS assets, and we accept a higher margin than some of the other multi-assets. That's really the-
Generally, the industry is tough on fees. Not just us. I would say across the board, we're definitely seeing it much more competitive on fee levels than it's been in the past. When we're doing RFPs or pitching, definitely lower than it was.
Okay. Let's go along the row, then we'll go to the back.
Cheers. Thank you. It's Chris Turner from Berenberg. The GBP 56 million of additional other 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? More strategically on costs, you've got about GBP 350 million of costs or efficiency savings you've announced. As a % 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? 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 would you think about the other side of the equation in terms of gross sales? Will 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. Actually it's going to be improving from a third reason. It's going to get more of Martin's attention, which will be quite important going forward.
I noticed there's an article in today's press by Marty Flanagan of Invesco predicting a third of asset managers are going to lose their jobs. I don't know whether that's true or not, you can see how tough, when one of the leading CEOs in the industry says that times are really tough. Exactly the same thing, fee 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. Last, Bill.
Your question on the GBP 56 million, there will be a small piece of that is related to the value of assets under management, typically the third-party admin cost. Quite a lot of the GBP 56 is really just attention to detail in terms of cutting fixed costs, which we'll obviously continue to focus on. In terms of the GBP 350 million as a % of AUM, I think we've got to be careful we strike the right balance. 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.
Okay. 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. It's GBP 109 billion. Just if you can talk about what you've done on the cost side to allow for that mandate leaving. Finally, Keith, 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 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 there adding valuable basis points to insurance mandates. We're in a lot of discussions about that panoply of-
It's 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 capabilities. If we were doing any bolt-ons, they would tend to be in that private market area, because that's where the growth is.
Yeah. On the Widows mandates, any cost saves were baked in, I think, effectively to the GBP 350 million-
And we can't-
transformation program.
We can't comment on the arbitration at all. We're in the middle of an arbitration process. Douglas?
Yeah. Thank you for the opportunity.
I've listened with interest.
Please, sit back and enjoy. The first thing to say, it's been three months since I took the chair. It feels a lot longer because of the openness of the organization in terms of welcoming a newcomer who's keen to learn. 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. 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 it are things we can fix. It's not as if there are things within the organization that are unfixable. Everyone's focused on that.
I think it's been Actually, I've enjoyed it very much. It's the people and the ambition, I think, that I look to most of all, along with the brand, I think is fantastic.
Andrew?
Good morning. It's Andrew Crean, with Autonomous. Three questions if I can. Firstly, what are the Lloyds revenues and the Lloyds assets under management last year? Secondly, what are your overall assets under management at the end of February? Thirdly, I notice you're not raising the GBP 350 million cost target, but within that, there was about GBP 70 million, 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, whether you're actually switching a bit of that to further cost cutting.
I think just on the final question first. No, we're still very focused on achieving that 350, plus anything more we do on 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.
Yeah. Lloyds AUM and revenues.
Lloyds AUM, it's probably not giving any secrets away. It's pretty much unchanged from what's reported in the December numbers. They don't tend to move dramatically month to month. The revenues are still pretty much as you see reported, of the order of just a little ahead of GBP 100 million.
Yeah.
We're not disclosing February.
We're not disclosing.
No, we can't disclose.
Can't disclose.
February.
Yeah.
Hi. Good. Gurjit Kambo, J.P. Morgan. Just two questions. Firstly, you talk a lot about private markets, obviously it's a great industry at the moment. Lots of inflows, Partners Group, BlackRock, et cetera. 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? obviously, the duration in assets is great if you get them right.
Yeah.
Just what are your sort of closed-end structures that you have? That's the first question.
Yeah, 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. We're seeing a lot of it in especially the property business. The demand is, as you say, for those sort of capabilities, student housing, logistics fund, that sort of thing, the office to residential. A lot of thematic sort of stuff as well. The big demand probably from our strategic partners would be definitely 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, and you're planning for more this year. Any funds you're closing?
Yeah, we looked. We had a program of funds consolidation, which is built into the transformation program. We completed that consolidation program about six months ahead of schedule. I think there were 17 big funds. 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 saving. The planned consolidations that we knew we had to take place pretty much are complete.
Johnny Vo from Goldman Sachs. 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 other things that you potentially need to backfill to fill out that capability on the individual savings 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? 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 three years' time? What is the premium of the bonds over par? Thanks.
Bill, why don't you do that and then Barry, we'll come to you on the
I mean, we've done the analysis in terms of the first call date is, I forget which month, but it's 2022. It's quite a long time to go. The net present value of taking out some of that debt now at a small premium, I think is still very helpful. It's really about removing some expensive debt. The terms that we've offered this morning are to buy it out at gilts plus 150. I can't recall what-- It's probably if we were to achieve the whole amount being tendered, it's probably at a premium of GBP 60 million to the GBP 500 million outstanding.
Barry.
Just a couple things. On Elevate, yeah, Elevate, we gave guidance 2018, we delivered on that commitment that we made when we bought the business back in 2016. Some of the higher costs in Elevate are as a result of the integration costs, and we'll expect those to fall on an ongoing basis. In terms of the first question, in gaps, we don't see that we have actually many gaps because the three platforms that we've got within Wrap, Elevate, and Parmenion, cover a huge proportion of the market, and there is very good overlap between the users of the three platforms. They're in excellent fit. As you probably know, the Standard Life platforms, Wrap and Elevate, they're number 1 for advisor assets, number 1 for gross flow, number 1 for net flow.
We think based on the results we've seen earlier this week, that that will continue to be the case for the full year in 2018 as well. I suppose Keith Skeoch mentioned the fact that we have access to 30% of the retail saver base through the strategic relationship we have with Phoenix Group and also the new relationship we now have with Virgin Money. Actually from an access to customers perspective, we're in a very good place. Keith Skeoch also mentioned some of the work that we're doing on Bionic Advice, because what we want to do is, essentially extend our reach into advice customers. We think that the majority of assets will continue to require advice, we're working hard, obviously powering the IFA firms out there, powering the 1825, but also building a bionic or a robo-advice capability for the future.
I think we feel that we've got a lot of the base covered.
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. There's a lot of investment that's already gone into the business. Probably got time for a couple more.
Good morning. It's Arnaud Giblat from Exane. I've got a couple of quick questions, please. Firstly, in the interims, I think you were talking about a medium term ambition of achieving a cost to income ratio of 60%. This seems to have dropped. I'm wondering if that's still the case or how we should think about that. I mean, clearly, costs are under control, maybe revenue's a bit less so in the flow environment. Secondly, the GBP 350 million cost savings, should we be thinking that that will be fully achieved in 2019 and we will be looking at 2020 at a full run rate cost base? A quick question on the platforms. I was wondering, in the medium term, if you saw an opportunity to integrate all the platforms onto one central technology. Well, one platform. Thanks.
I mean, obviously the cost income ratio is the product of two things, costs and income. It was almost a perfect storm last year. We're continuing to invest to achieve scale and looking to look at how we can grow the business over the medium term. GBP 350 million, Bill? Yeah.
No, I think you're maybe setting us too much of a challenge to achieve the full GBP 350 in 2019. I mean, we're not changing our prediction that it will be fully in place by the end of 2020.
Okay.
Good morning. It's Steven Haywood from HSBC. Just two questions. Just to clarify, you're tendering the Tier 2 instrument. Any plans to issue a new instrument? Just a clarification on that. On your redemptions, you have about GBP 116 billion of redemptions in 2018. Can you say what you recapture in your gross inflows? What % of that are recaptured? We get a net outflows of the business. Thank you.
Yeah, on the Tier 2 debt, I mean, we continue to review options. I mean, as I mentioned earlier, we do have the capacity to issue a bit more Tier 2 if we think the terms are right. With no specific intention at the moment. We continue to review.
Yeah, just on the second point. I think not as much as we would like or as we should. Mainly that's because unlike some of the
Some of the bigger players in the world, we tended only to have one capability with what we would call our big strategic clients. 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?" 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, not enough in some of our other big strategic clients. Hence you'll see the flows. When I alluded to earlier, they're going to the Partners Groups, the Blackstones, those sort of businesses.
We're the same as most of the other big active fund managers in that respect. We're no worse than others. We're just not as good as we'd like to be.
Good. I think that's Do you want to sum up?
Yeah. Can I just say thank you again, and pay tribute to my CFO here. 34 years. When he started, the turnover was GBP 100,000, and we made GBP 109 profit. You have regularly voted him number one buy side. Sell side, sorry, I got that wrong. He also wins buy side. I used to only win sell side. The buy side never trusted me as much as Bill. Bill, thank you.
Yeah. My pleasure.