Earnings Call: H2 2017

Feb 23, 2018

Okay, good morning. If it's at all possible to switch off your mobile phones, BlackBerrys, and other such devices. Welcome to Bow Bells House, the London home of Standard Life Aberdeen. I would guess you've all seen today's announcements. Our presentations this morning will provide a major strategic update, as well as covering our results for 2017. Once we've been through the presentations, Martin, Bill, Barry, and I will be delighted, as always, to answer your questions. One of the things I want to be very clear from the outset is that we regard the transaction we've announced today as a means of completing the transformation of Standard Life from a capital-heavy life insurance company to a fee-based, capital-light, world-class investment company. It's a process, and I think a number of you have been with us on the journey that started with demutualization in 2006, picked up pace with the sale of Canada in 2004, accelerated in 2017 with the merger between Standard Life and Aberdeen Asset Management. It's also, I think, equally important to take on board, however, that as we simplify our business and we simplify our balance sheet through the disposal of our capital-heavy insurance books, we will also retain exposure to retail customers and their rapidly growing pool of assets. We do this through the Standard Life businesses we retain, the strategic partnership we create with Phoenix, as well as our existing strategic partnerships with HDFC Life in India and Heng An Standard Life in China, where we're also pursuing a pensions license. The result of doing all this is a well-diversified, world-class investment company. I'll come back in about 10 minutes or so to talk about the opportunities we have to grow this business for the benefit of shareholders, clients, and our people. But let me now hand over to Martin, who's going to take us through the financial and strategic benefits of the transaction and provide an update on our integration. Martin. Thanks, Keith. Good morning, everyone. As Keith said, this is a momentous day for Standard Life Aberdeen. I'm just going to give you a bit of background on the transaction, hopefully. Here we go. Transaction overview. This completes the transformation, as Keith said, to a fee-based capital-light business. We're delighted to have merged Standard Life into the Phoenix Group for a consideration of GBP 3.24 billion, including cash of GBP 2.28 billion and a 20% stake in the Phoenix Group. We genuinely believe Phoenix and Standard Life are a more natural combination because of the capital-heavy nature of the two businesses and the synergies, the capital synergies that can be achieved by combining the two businesses. And we're very pleased to have a stake in what will be Europe's largest back book consolidator, and obviously keeps our close relationship with them in a fund management sense. It creates, I think, also a very good opportunity for our people to grow this exciting business going forward. As part of the transaction, Phoenix have committed to keeping the operational headquarters of Standard Life in Edinburgh, and almost 60% of the combined group's people will be based in Edinburgh. One of the things we wanted to do as part of the transaction was to retain the fast-growing, attractive retail platforms and financial advice business. From this slide, you can see why we wanted to do that. These businesses are now about almost 200, have had sales of about GBP 8 billion last year, and have had five-year compound annual growth rate in AUM of 35% and revenue of 20%. It gives us opportunity with the merger of Standard Life to Phoenix to access 10 million-plus individual customers. Going back to why we've done it's a mutually beneficial partnership with opportunities to drive further value and growth for shareholders. That's not all. It gives us security over AUM that we manage for Phoenix. It enhances further growth opportunities. We will become Phoenix's asset manager of choice. Very importantly, they have ambitious plans to grow the business by acquiring further back books of business going forward. As I've said already, this access to 10 million-plus customers they have. In order to do that, we decided not to take the entire consideration in cash, but we were very keen to continue a strategic partnership in Phoenix. So we've taken part of the consideration, almost GBP 1 billion of it, to take a 20% stake in Phoenix. We think that we will have to contribute further capital to them to help them grow the business, and we would like to keep our stake at that 19.99%. This sort of slide, really, I panic at. So I'm going to hand over to my colleague, Barry O'Dwyer, to cover this slide and the next slide, which are insurance type slides. Okay. Thanks, Martin. This is why we've done the deal, by the way. He's not joking. Standard Life Pensions and Savings operates, as you probably know, under two brands in the U.K. Standard Life Savings, which houses our platforms, and Standard Life Insurance, which has the large insurance mature books. On the left, you've got mostly Standard Life Savings in the retained business. We're going to keep Wrap, Elevate and Parmenion, and the financial advice business that we got in 1825. Those numbers, the GBP 58 billion and the GBP 182 million, track back to the numbers that Martin spoke about a couple of slides ago. If you look on the right-hand side, then we've got GBP 159 billion of assets and GBP 961 in revenue, but much lower rates of compound annual growth. Just so we're all really clear about what's in the perimeter, if you like, what's in the sale. It's a combination of retail life and pensions, which is mature and new. Spread risk, which is dominated obviously by the annuity portfolio. Ireland, Germany and Austria, those branches, and the workplace business. All of that forms part of Standard Life Assurance, and that's what's being sold to Phoenix. If I move on to the next slide. Martin mentioned the fact that we see Phoenix as being a more natural owner for Standard Life Assurance, and this slide sets out some of the reasons why. The insurance company does include some large mature books that will inevitably run off over time. It contains with-profits products, with valuable customer guarantees that are complex to manage and have considerable governance overlay. Scale in this part of the business is increasingly important, and we believe that Phoenix have the efficient management systems in place to deliver on that scale, and deliver, ultimately, value for customers. Martin mentioned that SLAL will become the biggest part of the preeminent life fund consolidator in the U.K., which Phoenix will be. Importantly for our people will have operational headquarters based in Edinburgh. I think one thing to add, Barry, is they were also keen to acquire the Irish and German businesses because they feel that will be an important part of their growth strategy in the future. So the merger was very beneficial to both. Maybe I can just give you a couple of slides on the merger update. We have increased the target merger annual cost synergies from GBP 200 million to at least GBP 250 million. So as not to create panic within the fund management teams in Edinburgh who might be listening to this is purely achieving more of the initial synergy plans that we had. As you know, we took a bit of a haircut on our synergies, and this is just really achieving them. So the merger integration is on track. The distribution and investment management integration is largely complete, and about 2,600 of our people are already co-located into merged offices globally. Sorry about this. This mouse has a mind of its own. So just going back to really the reasons for the merger. Nothing has changed. We did this merger to build a strong platform to compete globally. We have had broad support from our clients. Wherever we go in the world, everyone agrees with the strategy. You either have to be big or small in asset management. We have got 43 rated strategies across a range of asset classes and secured two further buy ratings in 2017. For our people, there has been a very positive reaction. We are ranked in the top 10 asset managers globally that people want to work for, and we have largely retained our talent going forward. As I say, the integration is on track to build a strong platform to compete globally. I am going to hand back to Keith. I am going to move the slide forward for you, Keith, actually. There you go. Oh, sorry. I told you, this has a mind of its own. Oh, my. I am not going to touch it again. You can see who attended their I.T. classes. Thanks, Martin. We are making good strategic progress. The transaction shifts the shape of our business and our balance sheet. Integration is going well. So we are well on our way to delivering our vision of a world-class investment company, whose purpose is to Invest for a better future. Good progress, but Martin and I, and the executive team, are well aware there is a fair bit to do if we are going to take advantage of all the opportunities that are out there and available to us. One important foundation for taking advantage of those opportunities is we are convinced that our strategy is fit for purpose, and we are going to continue to focus on the five key strategic objectives you see at the bottom of this slide to make sure that we deliver. The transaction, of course, simplifies our business and leaves us well-placed to take advantage of the global trends shaping the savings and investment landscape. I am not going to dwell on these trends at all. I suspect you have seen this slide a few times. What I do want to say is that these trends accelerated, if anything, in 2017. While Standard Life Aberdeen were by no means immune, investment performance, for instance, slipped in difficult markets. In some areas, our strategy was a key and clear source of resilience. Demand for passives may have surged, but new active, when you look forward, is a rich source of client demand. Fee compression for traditional asset managers has been quite intense. As Bill will show, our innovative and well-diversified product suite has allowed our revenue yield to hold up actually pretty well. Finally, whilst the institutional market for sure was difficult, as defined benefit schemes continued to struggle, retail flows accelerated. We benefited from the tailwinds behind the platforms, which of course we retain as part of the transaction. I think more importantly, these sources of resilience in 2017 are also sources of future opportunity for our simplified business. There is a real sense of opportunity across the business from the strong relationships we are developing with clients and customers throughout the pensions and savings landscape. As a result of the transaction, we will continue to keep our leading IFA franchise and our market-leading adviser platforms. We will continue to globalize in the pensions market and looking to build on our expertise in providing investment solutions for DC platforms. We also have a number of liability-aware products that will allow us to leverage that sense of partnership with some of the largest DB schemes around the world. Insurance clients have long been a key strategic objective for the firm. Transaction today means that we are creating a strategic partnership. We are becoming the asset manager of choice and the provider of specialist solutions with Phoenix, something we can take to the rest of the world. I think it is important to note that we already manage assets for a highly diverse range of about 100 insurance clients around the world. Finally, as we build and forge these new strategic partnerships, we will look to be stronger players in wholesale and in wealth platforms as we build on the partnerships with the likes of Hancock, Mitsubishi, Sumitomo, and Becerra in China. We will not, of course, build those effective relationships unless we have the investment capability to serve those customers and clients in the right kind of way. One of the huge strengths that came from the merger was the complementarity of our investment capabilities. I was very struck by, I was at a conference just before Christmas in New York. A lot of the world's asset management CEOs were there, and somebody had the sense to ask them the question: what was their main strategic product priority over the next few years? You can see this long list of answers. What struck me back in December, and still strikes me today, is when you look at our capabilities, there's a pretty good and effective mapping between what we have as strong strategic positions and the sense of opportunity that others are seeing around the world. That isn't actually just a theoretical proposition. If you look at the product pipeline that we continue to launch to take advantage of new active, including in last year, we are launching a whole series of innovative solutions. Actually, these solutions are gathering assets. It will take time for those assets to build, but actually, I think that leaves us in a really good place. Of course, as performance improves, which we believe it will, we'll see that start to accelerate. I think the other thing, of course, the merger brought strategically was that sense of scale. Scale is more important than bulk. As you can see, and we've heard Martin say many times, you got to be big or you got to be small in this business. You don't want to be in the middle. So you can see from the yellow dotted line that there is, in effect, an asset management smile associated with generating scale. One of the things that certainly the merger brought to us was scale. Actually, future scale, again, will be helped by the fact that we secured the management of the Standard Life assets, and we look forward to seeing more assets coming on the platform via Phoenix. Scale is one thing, and it's certainly our ambition to grow the top line, but both of us have a proud history, I believe, of retaining our financial discipline. On that front, I think the cost income ratio is a really, really important part of that. As well as the benefits we're seeing from the discipline being applied to the execution of integration and the fact that we're saying we now think we'll do 250, that medium-term ambition of driving the cost income ratio down to 60% very much remains in place for the executive team. Of course, that will help generate growth in top line. As I said, scale is important, but actually if you're going to sustain that growth, you really need diversification. Both the merger and the transaction point us in the direction of ensuring that we have diversification. Global diversification is absolutely clear, but if we look at the impact of the transaction, I just want to reiterate that this is another source of diversification, because we retain access and exposure to retail assets. Strongly growing retail assets that are in insurance wrappers around the world, but are done and retained through a very efficient capital structure. It's not just in the U.K. Mustn't lose sight of the fact that we have a lot of exposure to retail assets elsewhere in the world through, for sure, India and China. There's an awful lot of customers that are in place. On India, a tiny reminder that it isn't just about the asset growth that's important. Actually, we have been very focused on delivering value, and we have had a very successful IPO of HDFC Life, and there is a proposed IPO of the asset management company on the shelf, which is all about delivering value through to shareholders. The other really important component of delivering a success and strategic success over the future, anybody who knows anything about investment companies knows that success is all about culture. Actually, one of the things that I think has been a really pleasant surprise for both Martin and I is our people. Our people have really come together in a very, very good way. We've put about 2,500 people together in offices. Much, much more important. I can see the investment teams getting on. I can see them sharing insights. I can see the way forward in terms about how we define our future investment philosophy. We can see our operation and technology teams working very well together. Actually creating that world-class culture is well underway, and it's something I think we'll come back and talk about an update at the interims. Absolutely critical to where we're going, and I'm pleased that we're making, I think, pretty good progress on that front. It's an area we will need to continue to invest in. Of course, what I've really talked about is the need to invest in those strategic objectives going forward if we're to take advantage of all of those opportunities that are in front of us. But we are very well aware that we need to balance that investment for future growth, with maintaining our financial strength and also our duties to shareholders. What I can say is if you look at where our liquid resources stand pre and post the transaction, we are going to be in a good place to both invest in the business, maintain our financial strength, and make sure that we do the right thing for shareholders. Our strategy is being executed. I think we are well on our way to building a world-class investment company. Clearly, the merger, which is going well, has accelerated a little bit of our strategy. The proposed transaction that we've talked about today completes the transformation to a capital light company. The foundations, we believe, are firmly in place for generating not just top-line growth. We'll remain focused on financial discipline, driving down those unit costs. We believe we will have the financial strength and cash generation to drive that growth and continue to support our progressive dividend policy. With that, I'm going to hand over to Bill, who's going to talk to us about the full-year results for 2017. Thank you. Thanks, Keith, and good morning, everyone. Let me start with a quick overview of the year. Summarizing, we have increased the assets under management and administration by 1% to around GBP 655 billion. Fee-based revenues increased by 3% year-on-year. We have increased the cost-to-income ratio slightly in the short term, partly as a result of one-off non-cash charges. As Keith referred to a moment ago, still very much on track, particularly with the additional level of synergies we have identified. Still very much on track to drive that cost-to-income ratio down in the medium term. Overall, adjusted profit for the year, pretty healthy at just over GBP 1 billion. Excuse me. Diluted EPS of 28.9 pence. Cash generation has again been very strong, and that has allowed us to grow the dividend by a further 7.5% to 21.3 pence per share. Just going briefly through the face of the income statement. You can see still a very healthy revenue base, 95% fee base. An increase in spread and risk margin year-on-year, which we will come back to briefly in a few moments. You can see towards the bottom of the page, a very healthy increase in the share of profits from associates and joint ventures, principally the Indian joint ventures. In terms of the assets under management and administration, pretty stable year-on-year. You can see we still had some outflows, but an improving position there, which I will come back to. The impact of the outflows offset by healthy markets and performance. The key, of course, is the growth channels. The position here in terms of net flows, as I mentioned a moment ago, is improving within Aberdeen Standard Investments. Still a net outflow, but offset to an extent by continued good increases in net inflows within Pensions and Savings. The sum total of those two at the bottom, you can see that the impact of net outflows for 2017 was 3.7% of opening assets as opposed to 6% in the previous year. In terms of looking into Aberdeen Standard Investments, I think what I would like to talk briefly about here is the chart on the right-hand side. You can see the message we gave in the previous slide of improvement in the net flows year-on-year. You can see with effectively one exception, that is happening across each of the asset classes. It is worth saying just in passing, the reduction, the slight worsening in multi-asset is effectively due to the GARS position, which you have all looked at before. The point there is, of course, that the outflows in GARS only started in the fourth quarter of 2016. So there is effectively a timing mismatch. Within Pensions and Savings, pretty healthy picture in terms of net inflows. 7% of opening growth assets under administration. Also some small expected outflows from the mature book. The benefit of markets and performances has added to the position just to lead to very healthy growth in assets. I am finding it difficult to go back a slide now as well. There we go. Looking at Aberdeen Standard Investments, the blended fee margin. Keith referred a few minutes ago to the We are all aware of pressures in the industry. Our own margins have held up pretty well in the year. We do recognize that there may be some short-term reduction in the overall blend of 51 basis points in the growth channels. Really that is just as we transition, some of the outflows are still within slightly higher margin products, such as GARS, such as equities. We are seeing good traction in the wider business, and the outlook for the medium and longer term, we believe is pretty healthy. The revenue margins on the mature book are pretty stable at just short of 14 basis points. Within Pensions and Savings, similar story. We have seen a little bit of a reduction in the blended fee rate within the growth channels for the year, largely as a result of the mix shift as the platform business, particularly adding Elevate for a full year, have impacted the overall flows and the greater proportion of AUA and flows coming from large employers within Workplace. Again, the picture on the mature books is pretty stable. Spread and risk margin, as you saw in the earlier slide, is up year-on-year. At what we might call a recurring level, it has been pretty stable year-on-year at GBP 74 million compared with GBP 70 million. The big boost in 2017 has come really from some improving mortality figures, which have been earned during the year, which I am sure you will recognize is not going to be a recurring trend year-on-year. Cost income ratio, as mentioned earlier, up slightly on the year, largely as a result of a couple of non-cash one-off items as we have aligned the accounting of the Standard Life and Aberdeen groups. Just to re-emphasize, with the benefit of the increased cost synergies that we expect to come through over the next few years, we do see that trending back far more towards 60% or thereabout. Cash generation has been very healthy again. You can see the impact on the right-hand side, in addition to the operating cash flow, boosted by the proceeds from the sale of a small stake in HDFC Life in India. Finally, just to remind you on the dividend, an increase of 7.5% for the full year dividend, maintaining the record of very steady year-on-year growth over the last 10 or 11 years. With that, I will hand back to Keith. Great. Thank you, Bill. Quickly, just to summarize, we are well on our way and making great strategic progress to building the well-diversified, world-class investment company. The merger, as we know, to create Standard Life Aberdeen accelerated our journey. Today's transaction and the new strategic partnership that comes along with it completes that transformation. We have simplified our business, and we have simplified our balance sheet. The foundations to take advantage of the opportunities that lie in front of us are well in place. We have big core strengths in asset management. We have access to fast-growing retail assets through the retained market leading platforms, our Indian and Chinese businesses, and the growing mature retail books that will come through the strategic partnership with Phoenix. Our ongoing focus will be on financial discipline and making sure we drive down those unit costs over the medium term. We believe that together that will create the financial strength and cash generation to both drive growth and support our progressive dividend policy. With that, I would like to thank you. We would be delighted to take your questions. Gordon had his hand up before Yes well before everybody else. Gordon. Thanks, Keith. Gordon Aitken from RBC. Three questions, please. First, on the Wrap platforms, you mentioned the revenue was GBP 182 million. Could you just tell us what the profit associated with that is, please? Secondly, the embedded value was, last time you reported it was GBP 4.6 billion, and that was the end of 2014. Now you are selling for GBP 3.2 billion today. If you just square those two numbers for us. I certainly did not ever tell anyone that an open business was worth just 100% of its embedded value. Finally, Standard Life Assurance, SLAL, given its size and expertise could certainly have been a consolidator in its own right. 11 years ago in 2007, Standard Life bid for what is now Phoenix. Why did you not think about going down that route where you are the buyer rather than the seller? I know you still obviously have 20% exposure to that, but why not 100%? I can deal with that last question first. I think we will go to Barry O'Dwyer on the platforms, and then on Bill Rattray on the financial questions. We have always had a view, and it has been a long-term view, that the U.K. and Europe needed a consolidator of choice. That consolidator of choice for closed books has to be incredibly efficient in the way in which it administers the assets. It also has to have an appetite to deploy a Solvency II balance sheet in the acquisition of those assets and their long-term growth. For some time, it has been quite clear that Standard Life wanted to build a capital-light, fee-based business, and that essentially has been right at the heart, clearly, of Aberdeen's strategy. Helping to create the consolidator of choice, which brings flow to us in the future, and actually, as Martin Gilbert said, provides a natural home for the assets and for the people that are associated with admitting it, was always something that was part of our strategic agenda. Barry O'Dwyer. Okay, thanks, Gordon. We do not break out the profits on Wrap in the statements, but SLS, which houses Wrap and Elevate, is, I suppose, a reasonable proxy. SLS gets about two-thirds of the revenue on Wrap, so two-thirds falls to SLS, one-third falls to SLAL. SLAL provides the SIPP to the Wrap platform, as you probably know. The profit on SLS is low 20 millions. So you can probably work back to what the likely profit is on Wrap. Bill Rattray, on the financials and the embedded value. Sorry, I did not pick up the detail of the question, Gordon. You know that one. GBP 4.2 billion. Yeah. So the EV was published last time, GBP 4.6 billion end of 2014. And you are selling today for GBP 3.2 billion. So just to square those two. Yeah, I suppose, as you know, Gordon, we have not published EV now for a number of years. We would have to go back and reconcile, which is, as you might imagine, an enormous task. So we are not publishing an embedded value number today, and we have not done so for a number of years. You can think about it as a percentage of own funds, and as a percentage of own funds, I think this is quite an attractive deal for us. I think this is the most Phoenix have ever paid by a considerable margin for a percentage of own funds. Yeah. Just to, they say this Sorry? They say this is cheaper than the Abbey Life and the AXA. Well, I do not know how they have got. I think it depends whether you include the reserves or not. I can understand that they want to show that, but that is surprising. Because they claim it is the most they have ever paid for a closed book of business as a percentage of own funds. But they are using a different purchase number than we are, as you can probably see. So it depends which purchase number you believe. I know what we are getting in cash. So I am quite happy to go with our number. Sorry. John. Thank you, sir. Morning. Jon Hocking from Morgan Stanley. I have got three questions, please. You were a little bit vague in terms of the use of cash. You have obviously got a lot of cash coming to the Group. Given that the share price in recent weeks, I would have thought that sort of returning some of that to shareholders would be a big priority. Can you talk a little bit about what the priorities are for that cash pile? Secondly, just in terms of the ongoing dividend security. The Group has got a fantastic dividend track record post demutualization. Looking back in recent years, a good underpin for that has been a lot of the back book actions that have come out of that mature savings book. Can you talk a little bit about how you see the dividend security going forward, given that you have now got a pure investment management business with obviously more market risk, arguably, and more sort of performance risk? Then just finally on SWIP. Given that one element of the sort of ultimate resolution that was the competitor aspect of the two organizations. The transaction with Phoenix, does that make it more or less likely that you might end up retaining some of those assets in some form, albeit maybe at a lower margin? Thank you. Antony, do you want to deal with the SWIP issue? Yeah. I think that is a question for Scottish Widows rather than us. We were obviously disappointed that they felt we were competing with the Lloyds Banking Group. We have got a good relationship with them, and we have got good performance. This obviously does not make the situation any worse. Let us be clear, the reason we did this was not because of the Scottish Widows situation. Look, we are in the retender process. We are deeply embedded in each other. We have got, as I say, very good performance numbers. Yeah, no, we are in dialogue with them going forward. We have got a year to see whether they select us or select someone else to manage those assets going forward. I think on the use of cash, obviously this transaction has yet to complete, so the cash has yet to come in. I think there will continue to be a balance of investing in those strategic priorities and making sure that we drive growth and generate the top line growth, which is equally important to getting that cost income ratio down. We want to make sure that we are financially strong, and in time, when we have made an assessment of that and the transaction completes, we will come back and talk about the balance between investing the cash financial strength and what we deliver to shareholders. I think we have got a very strong track record of delivering to shareholders. On the dividend growth, clearly, you can see that we are moving from a position where we had a regulatory surplus, which was largely VIF and intangible, to having a very significant surplus under CRD IV, which is cash. There is a lot of support there for our progressive dividend policy. As we grow the business, we have always said that we will map that progressive dividend policy with the way in which we generate medium term cash flows. We will come back. Oliver. Thank you. Oliver Steel, Deutsche Bank. I suppose it is almost following up on the question about proceeds. Net of the Scottish Widows assets under management, you are right on the cusp of that GBP 750 billion asset management sort of threshold that you talked about. If you are looking to sort of increase your funds comprehensively above that sort of level, how far are you prepared to go in terms of acquisitions? I think that is the only question I have got. I think the issue is we've got quite a lot on our plate at the moment. We've still got the integration to complete on the merger of the asset management companies. We've now got this big strategic move to do. I really think it would be very unlikely that we would do anything major over the short to medium term. If we could see some attractive infill acquisitions, clearly we would do that. But we're speaking about GBP 100 million or so at those sort of transactions. I think unlikely to do anything very major. Andy. Thanks. It's Andy Sinclair from BofA Merrill Lynch. Three questions from me. Firstly, workplace pensions. You've got the leading platform in the U.K., strong net inflows. I think Lloyds this week said that they think that market can grow at 11% compound over the coming years. I just wonder why it makes sense to sell that part of the business, as well as the more mature legacy parts. Secondly, on the Indian JV stakes, it seems there's possibly even less synergies really between those now and the rest of the business. Is it fair to say that's not really a key part of the strategy to retain those going forward? And thirdly, just on the SWIP mandate again, I just wondered if you could tell us really what advice was taken prior to the merger about that mandate and the competition clause and what the expectations were there. Thanks. If Barry, you can do workplace, I'll do the Indian JVs, and then we'll come back to Martin for SWIP. Yeah. Okay. It made sense to sell workplace as part of SLAL, largely because there are operational efficiencies in running SLAL as a single insurance company. However, what maybe didn't come out fully in the presentation is that we are going to continue to be active in the workplace pensions market. We're going to still market Standard Life to clients and at pitches. It's just that the administrator of our workplace pension schemes is obviously going to be Phoenix going forward. So now Phoenix will administer our workplace pensions with our staff and systems that will move across to them post-completion. But it's important to note that we're not pulling out of the workplace market. We're not closing to new business. We are still going to be just as active in the workplace market, and we're still very positive about the prospects for the workplace market going forward. On the Indian JV stakes, I think actually what they bring us is access and exposure to the benefits of two businesses, which are there collecting retail assets, one in a mutual fund wrapper, the other in a life insurance wrapper in what is, I think, one of the fastest growing, fastest developing consumer economies in the world. So for me, it makes perfect strategic sense to maintain those exposures. Martin, SWIP. Yeah. It's a difficult question to answer because there's a certain amount I can say and a certain amount, obviously, I can't say in a public forum such as this. But let's be clear, we were fully aware of the implications of the competition clause when we did the merger. And in fact, there was a value reduction on the possibility of the contract leaving. So we were very well aware of the issue. And let's be clear, and this was our decision, we took the decision that this merger of Standard Life with Phoenix and the strategic stake going forward was a better deal for shareholders, better deal for our people, and a better deal for clients. So this was entirely our decision to go down this route, knowing the repercussions that there were on the Scottish Widows contract. So I just want to be very clear on that. This was entirely our choice to go down this route with the prospect, as we know, of perhaps losing the Scottish Widows mandate. Gentleman there. Yeah. Good morning. Daniel Gale, Barclays here. Three quick ones from me. Firstly, the GBP 250 million, the increment in the synergies from GBP 200 million. Can you provide any more color around the areas that you've identified that additional GBP 50 million, and the timetable for realizations? I think previously you spoke to three quarters inside two years. Does that stand at the larger total, or is it more delayed? Second question. You mentioned a timing mismatch, I think it was Bill, for GARS on the multi-asset side. Obviously, GARS performance improved in 2017 versus 2016. So thoughts there around how long that timing mismatch might last. Then lastly, Martin, you mentioned future capital support for Phoenix in your comments. Is that over and above the 19.9% stake that you I think there was a reference to expectation of Phoenix continuing to consolidate books. Can you provide any more color what you meant by that? Thank you. Yeah. I'll start on that one last. Yeah, no, it's not over and above the 19.99 stake or else we might have to bid for them. Going back to Gordon's point, we could end up where you suggested 10 years ago or whenever it was. But we're expecting them to have cash calls or capital calls to further grow the business, which we're very keen to support. So I think, what I was trying to say was we will maintain our 19.99 stake. Shall I do the first bit? The 250 was what was already there. As I said earlier, it was our internal target and in fact, our internal target is slightly above that, but that's what we know we can achieve. We're on track, as I say, we're slightly ahead of track, but it's purely the same areas that we were looking at before, property, systems, all of these items that we had on our original list. I can't remember what your second question was. Everyone seems to have three questions actually. It was on GARS. Just on that 200, 250. To be clear, the GBP 200 million was what was identified from the reporting accountant who looks at your gross target and haircuts it, risk adjusts it. We have made such good progress so far on what we have delivered that we think that we can get closer to, as Martin says, the gross target than the risk adjusted target from the reporting accountant. There was a middle question on the mismatch of timing on GARS. GARS had a much better second half of last year. It is seeing its performance improve. I think there are two things to really take into account. It will take time, I think, for the GARS inflows to improve. Actually, I think the whole multi-asset market is a bit tougher than it was. I think what we will see as we roll through 2018 is some of the outflows that were associated with the underperformance in 2016 starting to ameliorate, which will leave us in a better place. Lady on the end. Hi, it is Hayley Tan from Citi. If I break with tradition, I will ask two questions then, please. First of all, I think with the Phoenix transaction today, you say you expect the existing investment management agreements with SLAM and Phoenix to continue in broadly the same terms, with a rolling three-year term as well. Could you give us perhaps some more color on what those terms actually are? Then secondly, just in terms of the asset manager of choice for Phoenix, with the GBP 110.5 billion you will manage now for the disposed businesses, plus I think the nearly GBP 50 billion for Phoenix already. Can you give us some idea of the scale of that ambition for you, and the timing we should think about it? Thank you. On the Standard Life funds, we basically get paid close to 9 basis points on the long-term with-profits fund and around about 14 basis points on the unit link funds which were part of the DC platforms. So actually, we would imagine, but this is all of course subject to contractual negotiation, that broad thrust of those conditions remains in place. In terms of the longer term ambition, we would look to use our ability to have the right of first refusal, be the asset manager of choice to see more of the assets that Phoenix brings on in the futures come to Aberdeen Standard Investments. Indeed, look at where we have very strong capabilities. We can look at offering those for the benefit of clients and customers for Phoenix. I think we're pretty silent on what the number is at the moment. Greg. Good morning. Greg Powerson, KBW. Just in terms of GARS and your emerging market mandates, my understanding is they're still not meeting their benchmarks. As you pointed out, we expect, well at least I expect, you sort of reiterated that there'll be further outflows. But I was thinking in terms of the retail margin. I see that of the funds that you retain, 31 basis points. I was wondering if that's got some downside risk as the headache from underperformance of GARS and emerging market funds continue. Then two other just sort of technical questions. One is if you could just tell us if there are any deferred tax assets going with the disposed operation, and how are you going to deal with the pension fund surplus, because I assume there's employees in both camps. I was wondering where the liability and the risk falls for that going forward. Bill, do you want to do the deferred tax assets? I don't believe there's any material deferred tax implication on what's going. The pension fund stays with us. It's in considerable surplus. We will look at dealing with that pension fund further down the road. As far as GARS is concerned, I need to remind people that GARS actually has two forms of benchmark. The way in which it sells to clients is for sure it has its LIBOR plus target. Actually, one of the things it also looks to deliver is equity-like returns with a third of the volatility of the equity market. That's quite an important component when you're looking on people's balance sheets. I think emerging markets had a better second half of the year, but a pretty tough summer. I think flows are actually improving. Flows are definitely improving. Obviously, the absolute performance has helped considerably in emerging markets last year. Sorry, Andrew. Just margin. The margin, assuming things improve and there is still some kind of tail, is that 31 basis points for the assets you retain, has that got some sort of refactoring in, some kind of reduction to 28 in there or Do not see that. Do not see, I do not see that at all. They are good asset management contracts, Andrew. Yeah, a couple of questions. Firstly, on Phoenix, are you going to consolidate 19.99% of their profits or just the dividend? Secondly, within the GBP 381 million of profits that you are selling, you said that there were a few sort of one-offs within the spread business. Were there any sort of one-offs experience variances or operational assumption changes within the other businesses which you are selling, which may not be on the same multiple? Bill, and then Barry, I think. No similar one-offs on the other parts of the business that we are selling. Barry. On the consolidation. Oh, sorry. Yeah. Sorry, that is Bill. Yeah. On the consolidation, yes, we would expect our claim as an associate, so we will record the share of profits as opposed to just the dividend. Hi, it is Arnar Sigurbjorn from Exane. A couple of quick questions, please. Firstly, on the piece you are selling or retaining, SNI made up, I think, 1.9. You say you are retaining 2.1 pro forma. Can you just maybe show us the P&L and explain a bit better which pieces of how much of the U.K. retail platform you are retaining? Because I am struggling with the sums. My second question is on regulatory capital requirements. Will you be transitioning at some point to an FCA regulatory capital requirement? As a result of this transaction, we will and will become CRD IV rather than Solvency II. We will take VIF, an intangible surplus, and create a tangible cash surplus. Let's come back to you on the first question, I think. Yes, Ravi. Thank you. Ravi Tanner from Goldman Sachs. Just two questions, please. The first one is on the ambitions around debt leverage for the group. I know you've got some at the holding company and also some within SLAL, and I was just wondering, given the cash that's now sitting on balance sheet, what the intentions are around leverage and in particular, the amount that's in the subsidiary that you're disposing of. The second one was just on the profit profile of the platform businesses that you're retaining. Obviously, there's been a lot of investment into those in the last few years, in particular into Elevate and other such areas. To what extent do you see that investment phase as being completed? How should we think about the profit profile going forward, given it's been growing so quickly to date? Thank you. I think on the platforms, there's an awful lot of operational leverage, and it's really important to note that those platforms have shifted into profitability. We've invested quite a lot of money over the last five or six years. As we continue to take strong flows on those platforms, the operational leverage, I would expect that profitability to improve. The returns are potentially quite significant. Bill, on leverage? On leverage, clearly moving from a Solvency II regime to potentially a CRD IV regime will change the dynamics. That is something just over the course of the next few weeks and months we will take a firmer view on, and really links back to the question in terms of use of cash, use of proceeds. Thanks. Marcus Barnard, Numis. Can you tell us what the provisions for Phoenix breaking the asset management contract are? I think it is a 10-year contract, and obviously you own 20% of them, but what is the sort of penalty that Phoenix would pay if they broke the asset management contract? That we have looked at? Yeah. It will be in the circular. There will be a purchase price adjuster. To be clear, you have to differentiate between these days, which is governed by regulation, losing the assets for gross underperformance after a cure period, when you get a chance to put things right. There is quite a detailed purchase price adjuster on the other assets. It will be in the circular, and it is in the detail. Gordon Neilly, who is in the front row, will be delighted to go through it with you in some detail. In the front here. Hello. Charles Bendit from Berenberg. I just wanted to follow up on an earlier question about the mature Standard Life business that is going to Phoenix, and that you hope to get back to ASI. Has the revenue yield on the with-profits funds and unit link policies not been locked up as part of the transaction terms? Secondly, I was just wondering, with the Scottish Widows mandate, could you tell us the cost AUM associated with that mandate so we get an idea of the earnings impact please? I think, as far as the Standard Life mandate is concerned, we will be pretty much in exactly the same place. Bill on the- Well, sorry. I was going to say, look, it is not something we are prepared to reveal, I think, today. There are costs associated with managing the contract. Right over in the back, then I will come across to this side. Hi. It's Abash PT from HSBC. I've got two questions, please. First, the U.K. pension and savings business always been run together in terms of SLAL and SLS. Do you expect any additional cost to actually operationally separate those businesses, the platform business from the life insurance business, before selling it to Phoenix? That's the first one. The second one, that 60% cost income ratio ambition you've basically put forward for the rest of the group in the medium term, what is the growth assumption you have put in there, if you don't mind sharing that? Or the other one is, does that only include the GBP 250 million of cost savings from the Standard Life Aberdeen merger at this point? If you can give any clarity on that. Thanks. Right. We certainly are not making any forecast about our medium term growth. I would stress that 60% is an ambition. It will include, clearly, the synergy targets and our very careful husbandry, financial discipline, and control of costs going forward. Sorry, and the first question was? Separation cost. Oh, separation cost. There will be, clearly, a separation cost associated with the consolidation, and we'll come back on that in due course. Gordon. Thanks. Gordon Aitken from RBC. Just a follow-up question based on something you said. You talked about today's deal being very much your choice. You knew, it seems, that if you did not do the deal with Lloyds on the insurance side, there was a good chance you would lose the SWIP mandate. You basically got two routes. You could have gone down the first route, sell the insurance business to Lloyds, keep the SWIP mandate. Or the second route would be tie up with Phoenix, high chance of losing the SWIP mandate, lose, let us say, 7% of your profit. You are selling SLAL for, check my numbers, 84% of own funds. Why is that second route preferable? Why is SLAL not worth 100% of own funds? Is that a case that maybe you think it is worth 100% of own funds, but Or- It was 90% of own funds was the price. Yeah. What always fascinates me, inside insurance companies, you do not think about discounts to embed the value of your own funds. You think that that money can all come back, so it can be 100% or more. Is it a case that you just felt that share price was never going to factor in? Maybe you thought it was only going to be ever 50% of own funds. As Martin said, this was our choice. This is a better deal for shareholders, because it is bang in line with our long-term strategy of creating a capital light, well-diversified, world-class investment company. It shifts us out of having a Solvency II balance sheet. It turns intangible capital into cash that we can use to invest in the future. Obviously, we have maintained our financial strength. It allows us to support shareholders. It is a better deal, we believe, over the long term for our customers, given the expertise of Phoenix and their improving track record in delivering for policyholders with relatively high service levels. As Martin has said, we believe this is also a better deal for our people, because in sense, Phoenix that is looking to expand the closed book of business will provide growth opportunities. Our ability to do all of that retain the fast-growing retail platforms, maintain our IFA adviser franchise, which is a long-term strength of Standard Life Investments, a big source of value opportunity in the future. That is the reason we did this deal. It is our choice. It is in line with our strategy. I totally agree. I think, as Keith said, this was our choice. We had the decision to make. We could have, as you said, done another transaction, but we chose this. This is a better deal for shareholders. Marcus Barnard from Numis again. Regarding the annuity book, presumably the GBP 175 million provision for sales has gone with that annuity book. Are there any further warranties or contingencies that you are passing to Phoenix as part of that? Normal warranties and indemnities on a deal, but I think, Barry, we feel that is fully provisioned. Yeah, there is an increase in the provision in this year's report and accounts for the annuity sales. Okay, we can probably take one more question. I missed it. I have got three numbers that I Well, can we take those offline, Greg Powerson? We will take them after. It might be interesting to everybody. Okay. One is, you did not answer the question, how much debt goes with the disposal in that subsidiary? Second question, just in terms of looking at the price you got, that GBP 50 million one-off, non-cash expenses, how much was associated with the business that goes? The third thing is that just can you enlighten us, you mentioned that this year there was a GBP 50 million one-off boost to the expenses line. GBP 30 million was associated with the life company and 20, and it was to do with non-cash items. I was wondering how much is associated with disposed business. The third thing is the transaction costs that you have incurred for this deal. I wonder if you could tell us what those are. The transaction costs will be revealed in the circular. Modest. As far as the debt is concerned, we have some stuff to work to because obviously we have some debt, which is RT1 and Solvency II compliant, which does not work in a Solvency II world. We will have to think about the restructuring of that debt so that we have appropriate debt for a CRD IV environment. There is a little bit of work to be done on that restructuring. It is fair to get quite a mistake, of course, as Phoenix now was to get zero. Zero. Zero. The 31 million on the life side all is in respect of the transferring business. 31 million of that one. Yeah. You can boost the earnings but when you- Yes. When you're reversing it out, yeah. Yeah. Okay. Thank you very much. Thank you for coming along. As I say, and Martin said, this is a momentous day for Standard Life. We are very much shifting from being a capital-heavy life insurance company to a capital light fee-based world-class investment company. The transaction is bang in line with our strategy, and our focus as a team of executives is on driving the business forward, taking advantage of the opportunities for the benefits of shareholders, customers, and clients, and our people. Thank you very much