Good morning, and welcome to the abrdn plc's Analyst and Investor Conference call in relation to the proposed acquisition of interactive investor. My name is Robin, and I'll be coordinating your call today. Your host today is Stephen Bird, Chief Executive Officer of abrdn plc, who will give the presentation. There'll be an opportunity to ask questions at the end of the presentation. If you would like to ask a question, you may do so by pressing star one on your telephone keypad. I will now hand over to your host. Stephen, please go ahead.
Good morning, everyone. Thank you for joining the call at short notice. I'm here with Stephanie. After I walk you through these 11 slides or so, and describe the deal, we'll be happy to take your questions. Back in March, I laid out our strategy for growth, bringing growth to the group, and I explained our three vector growth model and our business plan. At the half year, I was able to show that we had made substantial progress. Indeed, the best growth since the merger of 7% revenue growth, 52% earnings growth, and we have made substantial strategic progress in simplifying the business. This morning, I'm delighted to be able to share with you the proposed acquisition of interactive investor for a total consideration of GBP 1.49 billion. This is strategically right on plan.
This indeed was the business that I was thinking of when I described the need to scale the personal vector. As I go through these slides, you'll see that we are building a leading position in a high-growth market here in the U.K. In fact, the direct investing part is the highest growth part of the U.K. retail and savings market. Interactive investor is U.K.'s leading subscription-based investing platform and is the consumer champion. This is one of the things that attracted us most to it, their simple pricing model and the response from the U.K. market, which is showing up successfully in their numbers. It transforms our personal vector and significantly grows and diversifies the revenues and profitability of abrdn. Richard Wilson is joining our business. I'm delighted to say that Richard is joining us continuing as CEO of interactive investor.
Indeed, he is investing a large portion of his sale proceeds directly into abrdn stock because he believes in this next chapter of evolution and development of this business. This is the right way for us to deploy capital. I said that we would take positioned capital that we held in stakes, and that we would transform that into the ability to grow our business, increase returns, and have relevance and scale. Indeed, there are few markets as attractive as the U.K. savings market. The secular drivers that you see here on the right-hand side of the slide, we've talked about many times, democratization of wealth and technology, the higher expectations that consumers have for simple models, for models that actually do what they say on the tin.
The Netflix subscribing model that interactive investor has pioneered has proven to be successful and driven their growth in the U.K. The wealth transfers that are taking place over the next few decades are unprecedented, and it's very important for a global investor like ours to be able to have a platform that allows us to benefit from that transition. The U.K. savings market of GBP 3.7 trillion, you can see that the direct investing market where interactive investor operates is GBP 269 billion. Growing at 17%, we expect this market to double in the next five years. We are acquiring a business that has a 20% share of that market today and is actually number two in that space.
You'll see later, as I walk through the slides that they're number two in terms of position, but number one in terms of average holdings per client. Let's talk a little bit about interactive investor. A subscription model with high-value customers. 20% market share, GBP 55 billion of AUA. 400,000 unique customers and 45,000 organic new customers last year. Strong growth of net flows, strong growth in revenue and earnings, and a business that has a 34% adjusted profit margin. This is a very attractive business to acquire and become part of the Aberdeen group. Here in this slide, I show the 64% higher per customer holdings that interactive investor has compared to their closest peer, which is Hargreaves Lansdown. In fact, Hargreaves Lansdown and AJ Bell both around the 82,000 mark.
This shows the power of the subscription model. What it demonstrates is that it's attracting clients that have got higher value and higher average sophistication. As we talk about the development of a high-tech and high touch wealth model, you will be able to see that that plays into the synergy that we have, the revenue synergy that we have with interactive. Turning to the next slide, you can see that this is when you spend time with Richard and his team, when you go and sit with the interactive group, you can see that this model that is about data insights, is about those insights driving engagement. It's about a simple pricing model such that customers can invest, and as they invest more, they get progressively higher value from the interactive platform.
The business today is growing on an organic basis. We think that Richard and his team did a phenomenal job of executing and rolling up to build scale to be the number two platform. That energy now is you're seeing translated into new mobile app, new desktop rollout, new products and services. This is the right time to buy that platform. A scale platform that has a strong pipeline of continuous development. In fact, just last week, they launched the friends and family bundle, which was about being able to broaden the addressable market that II is currently addressing. Let's talk about the growth that this model is creating. You can see here in this slide that with net flows increasing growth 4%, 9%, 14%, 17% in the last 12 months.
New customer growth, similar trend. AUA now GBP 55 billion at June 2021. You can see the average higher trading activity as well. In fact, these numbers show that the activity and engagement remain significantly above the pre-pandemic levels. Now, the attractiveness of this model and the efficiency of this model enhances the performance of the Aberdeen Group. You can see here in this slide that a large proportion of efficient straight-through processing, indeed a digital platform business, shows that this is built to scale. You can see that in the expanding margin of the business. Currently at, in full year 2020 is 34% operating margin. You can also see the profile of the revenues on the right-hand side. The revenue growth largely driven by subscription fees and customer activity, not driven by AUA. That's a really good thing.
One of the strategic challenges that you have running an asset manager is that the business is very market sensitive. Our business is an ad valorem percentage bps business. By buying a business that has got a large proportion of fee income, we diversify and broaden and improve the profile of earnings of the Aberdeen Group. I'll say more about that shortly. On the next page, you can see just how transformational this deal truly is. For the personal investor, we end up with a GBP 200 million pro forma revenue base, more than doubling our revenues. 5x increase in assets under management administration. 15 x increase in net flows. You can see a huge quantum step increase in the customer base, taking us to 430,000 customers.
This ability to directly interface with these clients is fundamental to our operating model. On the next page, it was important, and it's really where we started with Richard Wilson and his team, was understanding how the U.K. market will evolve, and indeed how we will drive that evolution from high touch, high tech. Interactive is truly a high-tech platform. It's a platform business. It exhibits platform economics. It is built for scalability. We at Aberdeen already have world-class high touch financial planning. When you look at the individual personas and the profiles of the clients within Interactive, those clients have those financial planning needs. The way that we operate, the way that Interactive operates, and the way we believe is the future of this industry, is that customers can draw on those services as they need them.
Many of these services today, which are high touch, will also be progressively digitized. When you get to moments of truth about decisions about your pension, decisions about estate planning, decisions about writing a will, decisions about how you manage that transition, that intergenerational wealth transfer that will take place over the coming decades, those require sophistication. I wanted to be able to operate with any group that has those capabilities so that they can digitize those services where appropriate, but also refer for high touch engagement where also appropriate. Together, the combination is about providing trust, confidence and compelling value for clients. Now let's talk a little bit about the funding of the transaction. I think it's well known to all of you that we are in a very strong capital position.
We remain in a very strong capital position after having acquired this business for cash. We are funding the business by cash. We're actually issuing in the interest of balance sheet efficiency, some additional tier-one debt to optimize our capital structure. If you look at the post-transaction position of the group, GBP 500 million of pro forma capital surplus post IFPR and GBP 2.5 billion of value in our listed stakes. Total capital resources post the transaction of GBP 3 billion . Now, very importantly, what this transaction does, the transaction is accretive to Aberdeen. It improves our dividend cover, and it accelerates the point at which we get to 1.5 x cover, which I had outlined at the strategy day and at the half year.
In summary, this acquisition is about achieving scale in a high growth market. It's about accessing new customer segments and capabilities. It's about being able to acquire the number two leading subscription-based business that is the consumer champion. It's transformative for the personal vector for Aberdeen, and our shared vision of a high-tech, high-touch model means that we can together grow into this market that is so attractive here in the U.K. This is the right way to deploy our capital to achieve growth, returns, scale and deliver shareholder value. With that, I'm happy to open up for questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind and would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from Haley Tam from Credit Suisse. Haley, please go ahead. Your line is now open.
Thank you. Good morning, Steven, and congratulations on this deal. Could I ask you two questions, please? First of all, in terms of the double-digit earnings accretion, can I just check, is that based on the figures we saw on slide eight, so the GBP 41 million adjusted PBT, or does it actually include assumptions for any future growth in client numbers and the sustainability of recent retail trading activities? And obviously, if it's the latter, if you could get some color, that'd be great. And the second question really is just whether there is any details you can give of any contractual lock-ins for Richard and his wider team. That'd be great as well. Thank you.
Terrific. Yeah. Let me address the first part, because the team's very important to us and you know, Richard has done a brilliant job with interactive investor. Actually, Richard, quite interesting, Richard and I tend to think of these things the same way. Richard is actually investing a large proportion of his sale proceeds from interactive investor directly into abrdn stock. Over the next three years, he is taking his own money, sales proceeds, investing in abrdn stock, over a three-year term, at minimum a three-year term. In addition to that's a very big financial incentive for our business, the Aberdeen pro forma business, to be successful, of which he becomes a senior executive. Richard and the senior executives that are coming across to be part of our team, we created a buy-in fund.
What is, I think, the modern way of doing this. Rather than walk-ins, we created a buy-in. Particularly when you're buying from private equity, you don't want to have the original private equity owner, such as Flowers, managing with you the whole process of deferred performance, because it really means that you sort of shackle the thing you're buying. What we did is we created a buy-in fund. That's an executive compensation fund for Richard and the team coming across. That operates over three years. That has got a set of specific growth targets, so you can think about customer growth and revenue growth. That buy-in fund, in combination with the fact of the stock purchases that are being made by the deferral, achieves the lock-ins that we require.
Let me just address the double digit part of it. The double digit accretion is about double digit accretion of the earnings of the Aberdeen Group, not just Interactive. It's about if you look at double digit increases, double digit percentage increases of EPS of the Aberdeen Group, which is actually, I think, what you're all interested in.
Thank you. Just to clarify, that is based on the run rate of Interactive's current earnings or is there some assumptions for future growth built into that expected double-digit accretion for the Aberdeen Group?
It's based upon, I mean, the run rate is already growing. What it's done is based upon we have taken a series of assumptions about the current growth of interactive and projected those. Actually, they're not heroic at all. That if you like run rate, you're using the term run rate, that really is what generates that result, yes.
Thank you.
Thank you. Thanks, Amy.
Thank you. Our next question comes from Andrew Crean from Autonomous. Andrew, please go ahead. Your line is now open.
Good morning, all. Couple of questions as well. In terms of double-digit earnings accretion, I think if you spent the GBP 1.5 billion on buying your own stock back at these levels, your earnings would increase by about 40%. How does your double-digit earnings accretion on this deal compare with that? Secondly, can you talk a little bit about the profit performance in the first half? 'Cause, you know, I've got some concerns about cash margins coming down and also trading volumes beginning to track back after the lockdown period. Perhaps you could give us the exit multiple based on the not heroic growth rates which you have slated into your earnings accretion.
Let me go there first, Andrew. What we're paying for the group represents an exit multiple of about 23x the 2023 numbers. What we've done is we have taken the performance of Interactive. We've analyzed what were pandemic effects. We've looked at the performance after the pandemic started to come off and markets, you know, behavior started to resume. We've made a series of conservative assessments about that, and that's how we've developed this. The buybacks, I mean, what our investors asked us to do was to invest and create a long-term growth model. This is about a long-term growth model, not a short-term, you know, financial engineering model. This business is a 200-year-old business.
We're investing in the long-term development of the global investment market across global investments, the number one advisor position that we have here in the U.K., and this business that now sits alongside that, the number two direct investing model. I think that's what our investors want us to do, and that's the choice that we've exercised. We still, of course, have significant surplus capital post the transaction, but this transaction is about developing the strategy of the group to be a growth business.
Great. Thanks for that. Just on that, I mean, you clearly have a war chest still in place, particularly where should we look for you to target further acquisitions? Is it more on the asset management side now that you've filled out the personal vector?
We have recently appointed David Mouillé. David, who has been working on these deals for us, a really outstanding strategy and business development executive. David has been recently confirmed in the role as head of strategy and business development. The first acquisition that we made was Tritax, of course, which is in private markets. We signaled that we wanted to deploy capital in areas where there was high natural growth, high exogenous growth. Private markets was one. Tritax has actually worked out very well for us. You will see us continue to focus on strengthening the asset management business by doing deals similar to that. Areas of distinctive investing, if you like. Domain specialists, people who have got investment capabilities in the sort of 21st century trends.
You'll see us doing more of that type of thing. You won't see us. Of course we acquired Finimize. It was a small deal. Finimize was really about being able to bring the outside world in. You know, Finimize is an open architecture information, jargon-free way of creating financial communities, smarter investors. Actually, it's having a fantastic effect on our group. We've got our own employees using that same capability. Digital data, private markets, you'll see us doing more of that type of thing. You won't see us do, you know, big, heavy asset management integrations. I don't think that's the right way. When the world is moving quickly, you don't want to spend years doing that kind of thing.
Yeah, I came into a group we had to accelerate the completion of the integration of Standard Life and Aberdeen. We did that. We've now actually, if you come to our offices, either here today we're in Edinburgh, you know, half the time we're down in London, but you really get one team now. It's an Aberdeen team. You don't hear anything about people talking about the legacy firms. I think the progress we've made is quite marked in that regard.
Great. Thank you.
Thanks, Andrew.
Thank you. Our next question comes from Bruce Hamilton from Morgan Stanley. Bruce, your line is now open. Please go ahead.
Thanks. Afternoon, Stephen, and congratulations on the deal. Just to follow up on the question on sort of exit multiples. If I heard correctly, what you're saying is, I think if I run the math, you paid a bit over 40x P based on 2020, but that falls to, I think you said 23 x 2023 P, just to confirm that. And you've embedded in that, you know, assumptions around trading normalization, et cetera, just to make sure I've heard that correct. Second question I have, I guess, you know, obviously there's been quite a lot of movement from peers around sort of models, pricing, AJ Bell most recently.
As we think about the growth in the asset base for the industry overall, how do you think about the sort of fee compression and how that might apply to interactive investor? Or do you think their current pricing model is set at the right level, and so that isn't really gonna be a challenge for you going forward? Third, and finally, I mean, I guess on the synergies, just checking, I assume there'd be no cost synergy here. It's more around broadening out the offering in the personal sector. Or is there any opportunity to get some revenue synergies linked to the investment business as well? Thank you.
Okay. Thank you, Bruce. The first thing that I would highlight about the interactive, about fees and margin, and that's what I mentioned about the right time to buy this platform. Because if you looked at, I think I showed it in slide seven, which I looked at the margin. You know, they did a 23% margin in 2018, then 26%, then 34%. This is classic sort of platform and network effect. We want businesses that have that demonstrate those platform effects because it's a digital business with very high degree of straight-through processing.
When you're using the data well, and you're understanding the client personas well, and this is what the interactive investor team really do brilliantly, is they understand the sort of mass personalization that you have to do to run these businesses well. You can expand margin because the incremental cost of an additional customer is very, very low. That's what they've built. There are absolutely revenue synergies. When we look at this at an individual customer basis, we already do financial planning. We've got award-winning financial planning. We do fantastic pension advice. We do estate planning advice. We direct into discretionary fund management. As you know, Aberdeen Discretionary is a very high-performing discretionary area.
All of that was exactly where Richard and his team were looking for the future development of their platform. They said, "Look, we've got the platform built. We're getting the scale effects. We've got very low incremental costs for additional clients, but we really now need to be more than just the direct self-service model because the clients do, within their financial life, draw on these other services, which in the moment they go elsewhere for." We've sat with the team, and we sort of figured out how we develop these multigenerational product developments, some of which will be in digital. It's quite interesting. You know, I take the view that a lot of the high-touch services today actually can be done incredibly well within digital. But you will still have clients that want high touch as well.
Yeah, there's a lot of revenue synergies. I see a little bit of cost. We haven't built in cost synergies here because it's a revenue deal. You've got a platform that's in a market that's growing at 17%. It's gonna double over the next five years. Our primary focus has been to get the client experience right, get the platform right, get the value propositions right, get the bundling and the price modeling and everything to work. That's been the focus. Remember, this senior team is joining our team. They've been very good at managing technology. They've been very good at streamlining their business to have excellent efficiency.
A very big part of what I'm doing here is to get this business to be efficient. This deal gets us to it. It improves their efficiency. It improves the point at where it improves dividend cover, and it will accelerate the point at which we get to the 1.5 x dividend cover as well. So, you know, I see upside that I haven't had to build into the pro forma, but I am fully expecting to extract from the deal.
Bruce, it's Stephanie here. If I just come back to your first question in terms of just to confirm. As Stephen said, you know, there's obviously we've taken the current models which have all been projected forward, both from management's perspective and all our different scenarios on it as well. If we look out to that, for example, using the 2023 as Stephen articulated it is of that sort of order in terms of the 23x multiple when you do the math back. It takes into account all of the things that Stephen's just said in terms of where we see the run rate moving forward too, given that the growth momentum that the management team have been very successful created.
The other part I would say is, and you can see it again from the slides on page seven that Stephen referred to. Because of the scalability of this platform, it's a very efficient model. Therefore, with the focus that we have as a shared team in terms of growing the customer numbers, that operational leverage is also a contributing factor to that analysis.
Very helpful. Thank you.
Thank you. Our next question comes from Arnaud Giblat from Exane BNP Paribas. Arnaud, please go ahead. Your line is now open.
Yeah, good afternoon. Thank you. I've got three quick questions. First, to follow up on the opportunity set, the where ii was in Aberdeen. I mean, you clearly articulated quite well the opportunity to upsell new products. I'm just wondering if you could expand a bit more, give us an example of one of these digital products that you could be launching. What sort of referral rates, what the cost to develop this product could be, what the pricing could look like? That could be helpful to better understand the revenue synergy over the long run. My second question is regarding interest rates. I mean, these B2C platforms are awfully sensitive to U.K. base rates.
What sort of assumption have you baked in to get to that 23 x exit multiple? And then more generally, what is the interest rate sensitivity for II? And my third question is with regards to your longer term 35% operating margin targets that you expressed earlier this year. Does that still apply? I mean, obviously, this acquisition gets you a step closer to getting there. Does that target move alongside? Thank you.
Thank you, Arnaud. The first thing I'll take the last part about cost-income ratio target. You could trust me to deliver a cost-income ratio exiting 2023 of 70%. My first half year results, I had delivered a full 6% improvement in cost-income ratio. I think I inherited 85%. We reported 79% at the half year mark. I'm not changing the 70% target. I do like to under promise and over deliver. But that's. We're not changing that target. That's the target for the group. Now turning to the other parts of your question, Arnaud. I'll give you some examples. First of all, self-invested personal pensions.
Massive trend in the U.K. for people to take control of their own pensions. It can be done brilliantly digitally. The Interactive guys were already onto that as an area of potential growth. It's actually very small within Interactive today. We scrubbed that, and it was literally because they've only just got to it to really develop it. You can expect from us to develop the SIPPs in the same simple, very high value sort of customer advocate way that the Interactive model works.
The thing that we spent so much time on is, if you look at developing the pension product, if you look at how you deliver financial advice, if you look at an individual that says, "Okay, this person is 50 years old," describes the family situation digitally. People like me are investing in Click. You should be able to see a pie chart that says, "Based on your persona, this is what people like you are investing in." Then you should be able to click again and see a gap between your portfolio and that model portfolio.
There are so many areas where financial services need to do a much, much simpler job of being able to navigate through these complex areas that have thus far, particularly here in the U.K., been delivered in a complicated, fee heavy, you know, manner. That's why, you know, that's why Richard. When Rich and I sat down and we sort of dissected the market offerings, future offerings, what's within Aberdeen in terms of research, discretionary fund management, et cetera, Richard said to me, "Look, this is the best possible place for us to be able to grow confidently and draw on services." I emphasize that a lot because you don't push. When you acquire something as good as this, you don't push services into it.
You've got to allow it to draw on the services of the group, and that's the dynamic that I have with Richard and his team. Interest rates, let me just talk about that. You're absolutely right, Arnaud. This business has benefits from increasing interest rates, as banks do. This business does too, as people, you know, put money in the platform, that they are on the way into an investment, the way out of an investment. They don't have very high balances in it, but they do leave balances in it. When you have a very large customer base, they accumulate through time. We have incorporated quite modest interest rate assumptions in the pro forma business model. So you could say it's a call option in rising rates.
That's a good thing to have in your group. I chose not to build anything in other than just modest, future increases in interest rates. Stephanie?
Agreed. Yeah. The only thing, other thing I'd add is we've just very much gone with kind of the lower end of the historic levels of cash balances that have been in the business, rather than assuming that it'll be a top end of that balance as well. Again, we're not trying to be heroic here on that, in terms of our base assumption.
Yeah. Both on the average balance, total balance and on the interest rate. Each of those three assumptions that drove that calculation were relatively modest. Yeah. Thank you, Arnaud.
The sensitivity, perhaps, if I wanted to be more heroic?
What Arnaud's asking, which we're not gonna tell him, is well, you know, for every 10 basis points increase in interest rates, how much goes into Stephanie Bruce's pocket?
Oh.
Thank you for being precise in your question, Arnaud. I'm sorry I can't give you the answer at the moment. We do know the number.
Thank you.
Thank you.
Thank you. Our next question comes from Hubert Lam from Bank of America. Hubert, please go ahead. Your line is now open.
Hi, good afternoon. I've got three questions. Firstly, on the operating margin expansion, it's grown, you said, scaled up quite significantly to 34% now. Just wondering how high do you think this can go? What are you targeting for this? And any additional cost growth you need, like for additional capex investments, et cetera, which may soften the growth of operating margin going forward? That's the first question. Second question is on your listed stakes. You point out you have GBP 2.5 million of value of the listed stakes currently. Just wondering what are your. Again, can you revisit what the plans are for the individual stakes around Phoenix as management?
I guess Phoenix Life is still a financial, more of a financial investment, but any additional thoughts on the AMC stake and Phoenix stakes would be helpful. Lastly, on the capital requirements, will there be any changes in your capital requirements or additional capital that you would need after the acquisition of this business? I'm just wondering, you know, on questions on capital, buffer, et cetera, anything that we should be aware of. Thank you.
The first part, you can see the progression on slide seven, Hubert. What I would say to you is that that margin is a product of the jaws. You know, revenue is growing faster than expenses. It's a product of the platform effects that I described earlier. You can project the revenue growth of the business. Yeah, it's in a marketplace that's growing, you know. It's a high growth platform in a high growth market, so you can choose your revenue growth, and you can take the historical expense growth and project those jaws and you can see where it will get to.
I would describe it very much as an actuarial calculation. It will fundamentally be driven on your view of the market. Our view is that we can continue to operate the business with positive operating leverage, and we continue to grow the business, and we will continue to grow the margin. We don't have in terms of significant cost investments. This is a scalable platform that's gone through a lot of significant development through time. We don't have any significant you know costs to you know to swallow in the near term in order to grow this thing. Their acquisitions have been completed, so that on that.
On our stakes, the capital stakes, I would just point you to the actions that I've taken. Yeah, I've just been here just over a year. We have been divesting of the stakes and really taking capital that was not earning and translating it into capital that is earning. That's my job. So we'll continue to do that. But it has to be done at the right pace because we have. We've got to have opportunities to deploy that capital in a disciplined and a judicious manner, like with Tritax, like with this transaction, which is accretive as well. So I'm not signaling. I said to you that, you know, the Life business, we're gonna continue to divest. We likewise will, through time, divest of asset management.
We've signaled that, and I've described in great detail the type of businesses that we would acquire in a disciplined fashion. I think you can expect more of the same. The only other thing I would add is that after rebasing the dividend, we said that we would revisit it when we got to 1.5x . This allows us to get there a little bit faster. I think as shareholders, you can take a lot of confidence in the way that we are, you know, applying our minds to the productive use of capital.
Hubert, if I just come to your third point, just connected with what Stephen just said there about in terms of how do we think about the buffer. It is obviously connected with those listed stakes that Stephen has just outlined. Our capital remains strong after this transaction. Immediately post-transaction, we will have a surplus of regulatory capital of GBP 500 million. Worth highlighting that that represents 50%, just about 50% of our current capital requirements. In itself is considerable. When you put that into context in terms of that considerable further value of the listed stakes that Stephen's just highlighted, I think you will agree that we still remain in a very strong capital position.
Great. Thank you.
Thank you. Our next question comes from Gurjit Kambo from JP Morgan. Gurjit, please go ahead. Your line is now open.
Hi, good afternoon. Thank you for the presentation. A couple of questions. Firstly, I accept in terms of your AUA over customers, that's a little higher than the peer group, hardly major. I guess the way an interactive investor makes money is not necessarily on the AUA. Firstly, is there a part that is on AUA? If not, will it basically be the growth in new customers and, you know, obviously maybe upselling the different pricing models, or really cross-selling new products? I just want to understand, you know, how we think about the kind of growth drivers for revenues. Secondly, on slide seven, you give the PBT numbers there. Could you provide the PBT numbers on an organic basis? I think, interactive investor have done a few acquisitions recently.
If there's any sort of organic numbers that you could provide, that'd be helpful. Those two questions. Thanks.
Yes. Thank you. The first thing I would point out is that when Interactive actually reported their results, we can just refer to the first half 2021 results. They actually had net revenue growth of 19%, but they actually had 11% that was organic basis. They had, you know, net new client growth up 33%. They have net new business growth up 56%. And net revenue organically up 11%. I think you can see the sort of health of the platform. The way you pointed out about AUAs, you're right. It's not a bps model. It's not an ad valorem pricing model. But the larger the balance is reflect the propensity to trade.
I showed that they have a diverse, you know, a balance but quite diverse sources of revenues within Interactive. You know, half the revenue really comes from trading transactions. That's the commissions that you earn. You've got a subscription to the platform, and you get, you know, one free trade, but then many people trade more than that. That generates trading activity and commissions. Also, you know, this is a multicurrency platform because many people actually want to invest in, you know, the most valuable market in the world, the U.S. market, for example, U.S. dollars. There's also an FX component to, you know, the margin that you make. Then, of course, you've got the account fees, which are based on subscriptions.
Of course, you've got, you know, the treasury function, which is based on the cash balances that are also sitting within the platform. That's what you're really looking for. You're looking for a diverse source, a balanced source of revenues within, you know, what the platform generates. But the larger the relationship with the client also signals the sophistication of the client. It is also a good proxy for the type of other services that that client is using elsewhere, i.e., a very high overlap with discretionary fund management, a very high overlap and the need for financial planning, a very high overlap for having a well-funded, self-invested personal pension.
If you think of this as a gateway into all of those other avenues, that if you digitize them correctly, you get the pool model to operate correctly, you build a very strong personal vector. That's the business that we're in, and that's why we've done this. Thanks, Gurjit.
Just one follow-up. I think on slide 6, you give the kind of organic new customers that you've grown. Just to be clear, is that gross or like a net number? Just trying to understand, like, what sort of retention do you see within the business. I couldn't see any sort of retention rates within the business.
That is the net-
That's the net.
That's the net number. Net new clients, which is, you know, the net of those that left and those that joined. Net new clients not only actually year- over- year, net new clients was up 33%. I'm looking at the first half results for 2021. Net new clients was about almost 32,000 in their half year. This is a half year number, and that was up 33% on the prior year.
Great. Just I think I asked the question just on the organic. Is there anything on organic growth in PBT or AUAs?
Gurjit, we're not setting that out in terms of their looking back into their historic split of that. I think it's more important to look at what you've just been focusing in on there. What's the organic build of new customers and the splits of revenue. No, we are not. We don't have and are not providing that split looking back at their historic split of profit.
Just these customers, are these like the active customers that you have or, you know, I guess they'll be. Is that something that's disclosed or active versus, I guess, customers who are not active?
The customers number that we referred to are customers who are actively paying subscriptions. The kind of customers that you want. Yeah.
Okay. Thank you very much. Appreciate it.
Yeah. Thank you.
Thank you, Gurjit. The next question is from James Hamilton from Numis. James, please go ahead. Your line is now open.
Thank you. Clearly, the II business has been built more or less exclusively from inorganic M&A. They've bought a very large number of businesses, pretty much all of them unprofitable at the point of acquisition. Is it the strategy for II to continue with this model? If so, how much capital would you be prepared to give them to do so?
As you know, II is a very profitable business. They built scale through acquisition. Actually, I think the team did a fantastic job of doing it. We don't envisage, we haven't assumed, further M&A requirements to grow the platform. The focus of the team, in fact, was to get into this position of number two through, you know, building a platform of scale, but then to compete on an organic basis. That's the assumption that we've made.
Thank you. Our next question comes from Rhea Shah from Deutsche Bank. Rhea, please go ahead. Your line is now open.
Hi. Thank you. My first question is, are you planning on adding the Finimize interface onto interactive investor, or are they going to be one or two standalone businesses? Just going back to some of the previous questions around trading volumes and the treasury income, what are you expecting this will settle at in the future in terms of the mix between overall the treasury income, the account fees and the trading volumes? Because if trading volumes start to normalize from next year, could that become a smaller part of the ii business?
Hi, Rhea. Let me talk about Finimize, first of all. There is a research synergy, and you know, we haven't you know, we're just announcing the deal, so we haven't got into the very fine pieces yet. You do know that we operate a research institute, so we actively research thousands of stocks. We have a full Aberdeen research institute. We also have a interactive investor itself does have a content and engagement platform, which they've done a great job of engaging their clients. We also have acquired Finimize. If you think about research, content, customer engagement, we have got a rich area within which we should be able to continue to really differentiate from our competitors.
Right now there are no immediate plans to provision Finimize to interactive investor, but it certainly could be an opportunity further down the line, and it's one that we'll consider. In terms of revenue profiles, Stephanie?
In terms of the revenue profile, Rhea, the way we are looking at it is obviously again building up the models that we talked about previously. That mix coming through in terms of customer activities, therefore obviously very much driving the account fees, being, you know, the same sort of growth projections we've had seen in the past. Clearly in terms of the levels of activity that we have seen, we've actually already seen an element of slight normalization since the COVID period, but actually settling at a much more interested and engaged population of activity that's clearly coming through in terms of the trading volume. I think our view of it would be that it will broadly be the sort of picture that you see here.
Now, clearly, depending on what happens with interest income and yields, as we talked about earlier on, will sort of drive that mix differently. The underlying activity of customers and being engaged in the sorts of activities they undertake, together with the volume of customers that will drive the account fees, will clearly be the key aspects. I think we would see the mix being floating very much between the 31% and the 51% as you see it there on the bar chart. Very similar trajectories as we've seen in the past.
Great. Thank you.
Thank you. Our next question comes from Charlie Beeching from KBW. Charlie, please go ahead. Your line is now open.
Hi. Good afternoon. Thank you for taking my questions. How much do you expect you'll need to spend on integration, and are you expecting the platform will need material investment, for example, on the SIPP product you described? Secondly, could you talk through the rationale for raising the AT1 debt? Is this just so you have a sufficient buffer post-transaction ahead of realizing any more of the locked value within listed investments? Thirdly, within what timeframe would you hope to achieve the 1.5 x dividend cover, in view of this trend? Thank you.
Thanks, Charlie. I'll let Stephanie talk about the AT1 and the rationale for that. Integration is a very simple matter because we already had preformatted our group as a three-vector model, and Interactive is a fully functioning platform business. We're buying a digital business and the management team joins our team. This is one of the simplest integrations that you would ever see. There's one, it's low complexity and incredibly low cost. I think you can take that for what it is. This is not a complicated transaction. In terms of the SIPP, the cost of developing the SIPP is already in Interactive's own P&L because it was a preexisting development that they were offering. Likewise there. Stephanie, AT1.
We've talked before about the fact that it was always one of the options as we look to manage our capital in a very optimal way. Obviously as we near the start point of the IFPR regime, as we're able to hold 18.75% of our capital requirement can be held in AT1, and we currently don't hold any, as you know. It's such an efficient use of capital that this seems a good opportunity actually also for us to optimize the capital stack as we move into the IFPR regime. Therefore, that's why we're undertaking it at this point in time.
Obviously, post-transaction, as I said earlier on, this obviously will contribute GBP 200 million of the GBP 500 million immediately post-transaction. Then as you say, Stephen's already highlighted, we will, you know, obviously we will continue to realize the stakes in the way that Stephen outlined earlier on.
Thank you.
Sorry. In terms of dividend cover. Apologies. Yeah. Again, as Stephen said, because this transaction is a growth transaction, it creates sustainable profits. It immediately helps on dividend cover. It obviously therefore helps progress our dividend cover target that is part of our dividend policy as well, which as a reminder, is 1.5 x adjusted capital generation.
When would you hope to achieve that?
Well, and again, in terms of obviously the consensus and the models that you have, you know, yourselves have looked at, you know, you looked at in terms of out to the outer years in terms of 2023, 2024. I'll let you do the math in terms of the modeling. It's clearly a favorable and accretive position to that as a result of the transaction.
Thank you. We currently have time for two more questions. Our next question comes from Steven Haywood from HSBC. Steven, please go ahead. Your line is now open.
Thank you. Good afternoon. Can you clarify, did you say 18% of capital can be in AT1? Should we assume now that the GBP 500 million regulatory surplus is the minimum level of surplus that Aberdeen will want to hold over the cycle? Secondly, I missed another clarification. Did you say that you wanted to monetize the stake in HDFC Asset Management? I missed that earlier. Sorry. Then thirdly from me, in your strategy in the full year 2020 results, you highlighted that M&A was not modeled into your strategic targets. In terms of your high single-digit revenue growth target, can you sort of quantify or qualify what sort of high single digit increase this deal will bring to you?
Is it just going to be a supporter to get to this high single digit CAGR growth? Thank you.
Steven Haywood, if I may go first on the cap-
Yeah.
On the capital point. Yes, just to be clear, 18.75% of the CET1 is what we're allowed to optimize using a debt instrument that has these capital characteristics. Sorry, just to clarify that for you. In terms of the minimum buffer, as I said earlier, it's the way we look at this is that we will have GBP 500 million of surplus capital after this transaction. That is 50% of our capital requirement. We look at that very much with a view in totality alongside the fact that we also have GBP 2.5 billion of other listed statutory capital. We obviously look at it in the round for our available capital in terms of our resources.
We will continue to apply exactly that same discipline as we move forward. As we realize those additional stakes that we've talked about already, obviously that those levels will move. The way I think about the buffer is that you need to look at it in terms of the context and the environment that you're in at a point in time and the available resources and also some of the regulatory changes and demand. I think as I've said this too before, you know, you look at that whole range and what would be sensible is anywhere between sort of GBP 500 million and GBP 1 billion, depending on the circumstances at the time.
Just to your question, Steven, about I would refer back to my prior answer. We built a strategy to bring this group to growth, and we've started to demonstrate growth and improving efficiency. I'm not changing the high single-digit growth description that I gave, nor the exit 70%. This is supportive of delivering that, and it does accelerate the point at which you get to it, and it does accelerate the point at which you get to your dividend, you know, cover multiples as well. Yeah, it's good news, but given the fact that we've just signed the transaction, we've got a lot of work to do to be able to get to closing, and that's gonna be, you know, partway through next year. I think it would be imprudent to start adjusting those numbers.
Okay. On the HDFC Asset Management monetization.
Progressively through time, our goal is to divest of non-productive stakes and turn it into productive capital. We will progressively divest of AMC. Yeah.
Thank you.
Yeah.
Thank you. Our final question comes from David McCann from Numis. David, please go ahead. Your line is now open.
Great. Thanks for taking my question, questions. The first one, given the pricing model of this business, it seems, you know to me that, you know, customer numbers, and to some extent the volumes are gonna be far more important metrics in the AUA of this business. So just wondered if, you know, will you commit to continue publishing the customer numbers and the new customer numbers, which was one of the stats you did have on one of your slides, kind of in the go forward numbers in particular. And also just in terms, I guess similar to that question, I guess question number two.
Yeah, I think it's well known, you know, across you know these retail platforms at the moment, there has been a supernormal growth in the number of customers experienced in the last you know year or two. You know, when you look forward, what kind of organic growth rates of customer numbers would be reasonable. You know, do you think is a reasonable rate that a business like this should generate, particularly given you mentioned that it will be a pure organic growth going forward rather than the you know supplemented by acquisition as it was in the past. Third question, just in terms of you talked about revenue synergies and you gave some examples of that.
How were you thinking about managing the risks of revenue dis-synergy here if you do indeed implement some revenue synergies? I.e., the risk by making some changes to the offering, you're gonna potentially turn currently satisfied customers into unsatisfied customers. The fourth very quick question is, what does the balance sheet of this business look like? Thank you.
The answer to the last part of your question, David. Nothing's changing in terms of the subscription model. It's a platform business. The pricing model we've committed to. We're not changing it, so there's gonna be no negative impact through. It's got the same management team operating the same platform, operating the same successful subscription model. There are certainly no revenue negatives associated with this. If anything, we'll be able to accelerate the development of their new offerings, which would be upside. We will continue to publish the numbers because you're spot on. Customer volumes, i.e., the size of the customer base, the net growth in the customer base and trading volume is actually directly linked to the revenue growth. We'll continue to publish those.
My expectations are that if you're the number two in the marketplace and you're the customer advocate, you have to be able to grow at the rate, at or better, the rate of the marketplace. You know, that is, you know, choose your number. It's gonna be 10%-15% growth. We'll continue to grow at that rate.
In terms of the balance sheet, David, it's a very straightforward balance sheet. Obviously through the sales process, certain aspects of it will be even more streamlined. But there's nothing in any complicated assets at all that are held in the balance sheet.
That was the last question, folks. I thank you, David, and thank you everyone for joining us. It's an important day, and we've got a lot of work to do to get to close, but we're super excited about it. Thank you for joining the call.