Earnings Call: H1 2017

Aug 8, 2017

Good morning, and welcome to Standard Life's interim results presentation as we come to the end of the latest chapter in Standard Life's long history and look forward to opening the next. I am joined on the stage by Luke Savage, our Chief Financial Officer, Barry O'Dwyer, the CEO of our pensions and savings business, and also in the front row are a number of senior executives from Standard Life, including Rod Paris, our CIO, and Colin Walklin, our COO. It is also a particular pleasure to welcome Martin Gilbert up in the back row from Aberdeen. After this introduction and presentations from Luke and myself, the team will be delighted to have and answer any questions you may have. I assume mobile phones are switched off, and you have all had time to read the Z clause. I have had the pleasure of playing some role in these presentations over the last 11 years, and it has certainly been an interesting 11 years to be involved in leading the business and dealing with some significant changes in the operating environment. Standard Life has moved from survival mode post demutualization to a full-scale reshaping of the business. During this time, our continual focus has been on building our simple capital light business model and its focus on growing assets to drive fee-based revenue and delivering returns to shareholders. We have not only reshaped Standard Life during this period, but also delivered a total return of 11.5% per annum since demutualization, compared with around about 6% for the FTSE 100. The benefits associated with strong strategic execution are most visible, really, over the course of the last five years. A success in our core fee-based business is underpinned by the sale of the bank, the healthcare businesses in Canada helped deliver a total return of 17.4%, compared with just over 9% for the FTSE. In my mind, this only serves to reinforce the importance of strategic delivery. Targeted investment in diversification and growth, financial discipline, and strengthening our relationship with clients and customers have been right at the heart of our approach to generating shareholder value. Not only over the long run, but also during the first six months of 2017, when I believe we continued to make good progress towards creating a world-class investment company. We increased our AUA, grew fee-based revenue by 5%, maintained our financial discipline with a stable cost income ratio, and delivered a 6% increase in operating profit, allowing us to grow cash flow and deliver a 7p interim dividend to shareholders, representing growth of 8.2%. Luke will take us through the detail in a moment, but my perspective was this was a strong performance, as evidenced by the continued growth in profits and dividends. Gross and net inflows benefited from a record six months for our retail platforms and continued steady inflows into workplace. Institutional and wholesale redemptions were impacted by the lagged impact of 2016's investment performance, which actually came back strongly in the first half of the year. The proposed merger with Aberdeen, largely as anticipated, also resulted in slower gross flows, particularly in the institutional channel. It's the diversification of these flows and the strong relationships we enjoy with customers and clients, combined with continued financial discipline that provides the foundations for continued strategic delivery. After we hear from Luke about the first half, I'll come back and give an update on the merger, which, by the way, I think is going quite well. Luke. Thank you, Keith, and good morning, ladies and gentlemen. As Keith said, we've delivered good growth in our fee-based revenues, up 5% on last year, and again, constituting around 95% of total income. In contrast, our operating expenses are up by less than 3%, and that 3% is after taking into account the impact of taking on the loss-making Elevate platform. The contribution from our India and China associates and joint ventures at GBP 53 million is up over 40% from last year and now represents nearly 15% of operating profit. While in combination, as Keith said, that has driven our total operating profit up by 6%, within that, our all-important fee-based operating profit is up by 13%. At the same time, non-operating items are down versus 2016. Key drivers of the GBP 40 million net figure were costs associated both with the merger with Aberdeen, together with the transfer of our Hong Kong business into our China JV. Those two items have been offset by favorable movements in short-term investment returns. Just on Hong Kong, we're very pleased with the progress we're making on the transfer of our operation to Hang Seng Standard Life, where the combination of Hang Seng and Standard Life is highly complementary. It enhances the ranges of services that Hang Seng can provide to its customers, and it increases the range of products that our Hong Kong operation can distribute to its customers. As usual, I'm going to be talking to the results following the format of our business model, starting first with increasing assets. As Keith said, our business has been resilient in the first half of 2017, with assets up 1% to GBP 362 billion. Across our growth channels, we saw GBP 19.3 billion of gross inflows, down just over GBP 1 billion on last year, while at the same time, redemptions picked up to GBP 19.9 billion. That's around GBP 3 billion up on last year, in large part driven by GARS. I'll come back to both of those figures on the next slide. Moving across, outflows on our mature fee books, which as you'll be aware are in natural runoff, were stable and in line with expectations at GBP 2.9 billion. Moving across again, we benefited from over GBP 8 billion of investment performance in other market movements. Here, we show on the left hand of the two tables how the reduction in gross flows breaks down by channel. You can see wholesale is down a little, institutional a little more markedly, while workplace and retail are both up, and retail up particularly strongly. To us, it demonstrates clearly how channel flows respond differently to given market conditions at a clear strength of the diversified investment company model. We can see that even more clearly when we exclude GARS, which has seen reduced, although still significant, gross inflows of GBP 2.9 billion. You can see we've broken that out at the bottom left-hand side below the subtotal. Excluding the GARS flows, you can see that other flows, excluding GARS, have actually increased by 13%. Turning to the right-hand table, where we're showing net flows by channel, the GARS impact is clearer. Again, at the bottom of the table, net flows ex GARS are up by a significant 32%, and that is even after the tempering effect of the merger on short flows that Keith touched on a moment ago. So strong testament to the benefit of our drive to diversify by product and by channel. Looking more closely at Standard Life Investments, the growth channels you can see on the right-hand table on the top that, as you would expect, the bulk of the net outflows were driven by GARS. The net flows into other products were positive at GBP 1.2 billion. Relative to the second half of 2016, we have seen an increase in institutional outflows from GARS, with net outflows at status of GBP 3.2 billion, given the usual lag in response to the weak investment performance that we saw in 2016. In contrast, wholesale GARS net outflows, which are quicker to respond to investment performance, have slowed as investment performance has continued to improve. In fact, if you look at GARS to the year to 30th of June, its return was actually +4.4%. As I just said, other products saw net inflows of GBP 1.2 billion, which were materially in line with last year. The institutional channel, which can be lumpy, saw modest outflows, but wholesale, in contrast, saw net inflows into other products doubled from GBP 0.9 billion to GBP 1.8 billion, a reflection of both improving investor sentiment and stronger investor performance. Turning to our workplace and retail business, again we see the benefit of diversity coming through. Net inflows were strong, representing an annualized 8% of opening assets under administration, with assets up 36% year on year. That's driven in part by the acquisition of the Elevate business, in part by continued strong net inflows across both channels, and in part by positive market movements. In workplace, where flows are very steady and predictable, we've grown regular premiums by 7% to GBP 1.6 billion for the period, and these average around 75% of total inflows. In retail, our leading proposition across both the Elevate and the Wrap platform have driven flows up some 70% to GBP 3.4 billion from GBP 2 billion last year. In our own Wrap platform business, net inflows are up 48%, helped by pension freedoms and by people undertaking DB to DC pension switches in the current low interest rate environment. Flows into Elevate have been particularly pleasing. At the time of agreeing to purchase the Elevate business, there were around GBP 10 billion of assets on the platform. Since then we've seen growth of around 20%, such there's now GBP 12 billion on the platform. IFAs are clearly seeing the benefit of Elevate being part of Standard Life, and they're committing assets to the platform as a consequence. The total growth in platform assets has been impressive. On the point of breaking through GBP 50 billion, having nearly tripled in the three and a half years that we show on the chart here. This is a market where scale is critical to profitability, and a market where through our continued investment in the business, we've grown our platform assets, even excluding Elevate, at a CAGR of 29% over the past five years. It's growth that's been driven by consistently strong net inflows, which in the first six months of this year, were almost as high as the whole of 2016. Turning now to revenue. You can see that fees from our growth channels are up 7% in the period, while fee income from our mature books has again remained stable at GBP 220 million. On the chart to the right-hand side, revenue yields are marginally down, with a slight reduction being larger function of mix, not pricing pressure. Wholesale has seen margins stable, while institutional margins have fallen 2 basis points as a function of GARS representing little less of the total asset mix. In retail, the inclusion of Elevate has brought down the average by between 1 and 2 basis points as per our guidance at the year-end. It's also worth noting that as well as the impact of mix, in workplace, a one-off last year relating to the introduction of Solvency II boosted the comparative then by a couple of basis points. Turning to the 5% of our business that derives from traditional insurance risk, the big move here is the absence of the GBP 22 million one-off benefit from Solvency II in last year's figures. We've seen that partially offset by favorable mortality experience in the first half as a result of periodic annuitant verification work that we undertake, and we wouldn't expect that to repeat in the second half. In ALM, as well as GBP 10 million of yield enhancement activity versus our guidance of GBP 15 million for the year, we've also realized a gain of GBP 7 million through closer asset liability matching. For the full year, we would guide to a further GBP 5 million of yield enhancement activity. But as always, I would caveat that by saying it is very much a function of prevailing market conditions enabling us to execute effectively. In terms of lowering unit costs, you can see in the waterfall chart that our absolute costs, excluding 1825 and Elevate, are actually down GBP 14 million year on year. That is after allowing for the headwinds from the impact of the weaker pound on the non-sterling element of our cost base. On the right, we've held the overall headline cost-income ratio flat at 62%, but that masks a much stronger position with regards to the underlying ratio. If we strip out 1825 and Elevate from both years, our cost-income ratio this year will be around 60%, down 1 percentage point versus 2016 and demonstrating good progress against the commitment we made in respect of strong financial discipline. Putting all those components of our business model together, we can clearly see that the growth in fee revenue, in combination with strong financial discipline, has been the driver of our profit in the period. We have seen a lower contribution from capital management as a function of the way we account our pension scheme. But this has been more than offset by strong performance from our associates and JVs. So in combination, we have driven up profitability from our fee business some 13% period on period. Let us now take a close look at that by business unit. I will come back to Standard Life Investments, pensions and savings in India on subsequent slides. Here, just a brief comment on Europe. The period on period movement that arises from 2016 is because you remember 2016 also benefited from a one-off on the introduction of Solvency II that has not repeated in 2017. If we adjust for that, we would again continue to guide to around GBP 30 million as for the European business for 2017. Now let us dive into a bit more detail on the major business units. If we look at SLI, fee revenue is in line with last year, but strong discipline around the cost base has driven profits up by 8% to GBP 190 million. Now that in turn, has enabled us to bring down the cost to income ratio to 57%. Or to put that another way, we have continued to achieve the 45% EBITDA margin that we hit at the end of 2016. Now the other point I would draw your attention to on this slide is the improved investment performance in the yellow dots across the bottom. We have significantly improved the one-year performance figure up from 20% at the year-end to the 85% that you see here. As we have said before, this is an important driver of investor sentiment in the wholesale channel. Our three and five-year figures, which are themselves important drivers of sentiment in the institutional channel, have remained very strong at 74% and 85% respectively, almost unchanged from the year-end. In pensions and savings, again excluding 1825 and Elevate, we have seen fee revenues up by GBP 21 million at some 7%, whilst total costs are up by just GBP 4 million. And that is after a GBP 6 million increase in management fees payable to SLI off the back of higher assets that SLI is managing on behalf of the pensions and savings business. So costs within the pensions and savings business are actually down GBP 2 million, despite the very significant increase in assets under administration. Again, it is evidence of our financial discipline, together with the leverage we have built into our scalable platforms. Moving across, the operating loss from growing 1825 and Elevate was a very modest GBP 3 million. And that is a function of the growth in assets we have driven onto the platform that I touched on earlier, as well as starting to deliver synergies in line with our integration plans. As I said, we are very pleased with how that business is performing and how we are well on the way towards turning it to profit. But that said, for the second half, the phasing of our integration activities, some of which come through as operating expenses, means we may see a small uptick in that second half loss. Just on 1825, our advisory business, we expect that to reach break even by the end of this year, very much in line with our original plans. I have already touched on other significant items on the slide. Apart from pointing out that the cost-to-income ratio in the bottom right-hand corner, which has gone up overall, would actually have fallen from 60% to 59%, again, excluding Elevate and 1825. Again, maintaining a good underlying trend. Our Indian business also continued to do very well and we believe are a source of significant value. Firstly, on the left with regards to our life business, you can see that the business has continued to go from strength to strength. Half-year profits of GBP 27 million are well ahead of last year, off the back of strong sales, favorable market movements, as well as our increase in stake. Now, it's a very exciting market where HDFC has around a 16% market share, and we continue to see double-digit premium growth. We've recently announced that we'll be IPO-ing HDFC Life, with Standard Life offering for sale up to 5.43% out of our total shareholding of 35%, a move which we believe will provide transparency into the value of that remaining holding. Then on the right-hand side of the chart, you can see that our asset management business, which is reported within our SLI figures, has continued to grow strongly as well. Our share of half-year profits has increased to GBP 20 million off the back of assets growing at a compound annual growth rate of over 20% for the past five years. Now, this is a business where we see the value not just through the growth in the business itself, but as domestic Indian investors start to look outwards for global product, we're well-placed to provide that product to HDFC Asset Management, and even more so once the merger with Aberdeen completes. So here we're invested in two great businesses, both performing very well and both leveraging what is one of India's premier brands. So that was all I was going to say on the operating results. In terms of solvency, the investor view of capital, both the quantum of our surplus and the ratio remain stable. In fact, at the margin, they've improved to GBP 3.5 billion and to 220%. Our pure regulatory view, which we've shown here as well, is also stable. As we've said before, these figures remain stable over a wide range of stress scenarios, and we've included the usual detail on how that moves as a slide in the appendix. But as a fee-based business, regulatory capital is not a constraint on us. What we focus on is cash with a strong long-term correlation between income, profit, and cash generation. Cash generation in this period is up 1%, more muted than operating profit, as a function of certain CapEx expenditure together with our conservative approach to the inclusion of our associates and joint ventures. There we bring in just the dividends, which are up GBP 4 million in the period, rather than the profits, which are up by GBP 16 million. As well as our cash generation, we continue to hold over GBP 800 million of liquid resources at PLC level, materially unchanged from last year. That GBP 800 million gives us confidence in our ability to maintain our progressive dividend policy, including during periods of stress. It gives us confidence in our ability to fund our existing growth initiatives, including the integration of Elevate and the merger with Aberdeen. It gives us confidence in our ability to seize opportunities to accelerate our growth strategy should they arise. It is against that backdrop of a strong balance sheet and strong liquid resources that we have announced an interim dividend of 7 pence per share, up 8.2% from last year. Now in our 11th year of unbroken record of delivering on our progressive dividend policy, a policy that is something we intend to continue following the proposed merger with Aberdeen. On that note, I would like to thank you for listening and hand you back to Keith. Thanks, Luke. Although the latest chapter in Standard Life's long 192-year-old history comes to a close in the next few days on, I believe, a high note. We will, of course, open a new and exciting chapter with the completion of the merger with Aberdeen. From the outset, we have made it clear that the rationale for this merger is strategic, and it is the complementary nature of what we both do that creates the opportunity to create a world-class investment company that delivers for our clients, our people, and our shareholders. The opening of this new chapter will see an acceleration of strategy. Martin and I and our teams have been working hard to ensure that it gets off to a strong start. Our regulatory and competition approvals are in place. Full U.K. approvals were received a couple of weeks ago, and that has facilitated pre-approval by the final batch of 18 regulatory bodies around the world. Detailed planning work across 12 work streams has been completed to ensure that we are day one ready for August 14th. Our combined leadership teams throughout the business have been identified, announced, and are working well together so we can hit the ground running. The new visual identity for asset management and the PLC has been created and is ready to be rolled out. As well as day one readiness, a great deal of work and thought has gone into organizational design and structure for the combined business. This will help ensure that the GBP 200 million per annum of synergies are not just delivered, but that we continue to make progress from day one. That will also ensure we continue to focus on delivering our vision of a well-diversified, world-class investment company. What does that mean? For us, it means that the combined strengths of Standard Life and Aberdeen will generate a business with considerable scale. 670 billion of AUA, of which nearly 90%, or 583 billion, will be managed directly by Aberdeen Standard Investments. A combined business with revenue of GBP 2.8 billion, profits in excess of GBP 1.1 billion before any synergies have been delivered. The sources of asset growth that drive revenues and profits will also be well diversified by geography, asset class, and by business area. That includes the assets under administration gathered by Standard Life's leading position in the domestic pensions and savings market, with strong flows, which we have seen in the first half of the year, and a track record of long-term sustainable growth. Standard Life Aberdeen will operate on a truly global scale, offices in 50 global locations, serving customers in 80 countries around the world. It will also have a unique portfolio of strategic relationships spread across North America, Japan, China, and India. Scale, however, is much more than size or bulk. It is about having a compelling offering that will help meet clients' and customers' evolving needs that will continue to change as the savings and investment landscape continues to be buffeted by the big four trends I have talked about in previous presentations. We together can deliver such a broad and compelling offering against this changing landscape because our investment skills are complementary and the broad philosophies we deploy to generate return are aligned. We are both long-term, we are both research-based, and we both believe that the fundamentals drive return. It is the bringing together of our complementary investment componentry that will provide scale across the product suite. This will help us deliver innovative investment solutions for clients, whether they are de-risking pension schemes who need liability-aware solutions, post-retirement solutions who are seeking income or yield, or more traditional clients who need strong but well-diversified returns. Perhaps even more importantly, we both recognize that the day job is about operating as a team to deliver performance and service to our clients. What excites me about this broad and compelling offering is that it is not only visible, but it is already recognized in the marketplace. We have a very broad range of strategies recommended by consultants or ranked by Morningstar, but only overlap in six. This creates a clear opportunity to leverage the strengths of our existing client relationships, particularly because across each company's top 50 clients, we only have 4 in common. The opportunity to utilize our client relationships as well as our deeper and broader distribution networks to sell funds and strategies that are already ranked is a big strength for Standard Life Aberdeen. As we turn the pages and look forward to opening the next chapter for Standard Life Aberdeen, our strategic focus is very firmly in place. Our teams have worked hard and well together, and we are ready to hit the ground running and commence the integration that will help to create a world-class investment company that delivers for our clients, our people, and our shareholders. The merger delivers this for clients because it brings together our complementary investment strengths and will give clients and customers even greater choice and service. It delivers for our people because together we have the scale to create greater opportunities as we continue to enhance our broad and compelling offering to meet changing client needs. That provides the foundation for generating continued global growth and the ability for deeper and stronger client and customer relations. It delivers for shareholders because the financial benefits that flow from the strategic logic are equally compelling. The complementary nature of our investment skills, our distribution networks, and our clients will deliver increased diversification of revenue and earnings. Our continued financial discipline, evidenced not just in Standard Life's interim results, but the rigor of the integration planning process, I believe, augurs very well for the delivery of the GBP 200 million of synergies within three years of completion. A strong balance sheet and cash generation will support continued investment in innovation and growth and our people, as well as Luke pointed out, the continuation of our progressive dividend policy. I am very proud of all that Standard Life has delivered since becoming a PLC 11 years ago, but very focused, very excited about what Standard Life Aberdeen will deliver for clients, our people, and our shareholders as we create a world-class investment company. Finally, on behalf of the team, as we approach the reclassification of Standard Life Aberdeen to the diversified financial sector, I would like to say what a real pleasure it has been working with everybody in the room over the last 11 years or so, whether it has been answering your questions, debating your views to ensure that shareholders have the clearest possible understanding of our business. This, of course, will continue with Standard Life Aberdeen, ticker SLA, and I hope that many of you will continue your coverage. But I wanted to take the opportunity before we move to questions to say thank you on behalf of the Standard Life team. I would also like to take the opportunity to thank Luke for all his hard work and support and say what a real pleasure it has been working with Luke and being on the road with Luke. With that, Barry, I, and other people in the room would be more than delighted to try and answer your questions. Thank you. Andy. Thanks. It is Andy Sinclair from BofA Merrill Lynch. Three questions if that is okay. Firstly is on India, for the joint venture IPO. I just wondered if you could give us an update on thoughts for use of any proceeds from that coming from the Indian IPO, and will all proceeds be remitted back to the holding company? Secondly was on MyFolio. MyFolio maybe didn't see quite the step-up in flows that retail has seen. I just wondered if you could give us any update on MyFolio there. And thirdly is just on workplace pensions. Just wonder, Barry, if you can give us a bit of an update there. We have seen flows kind of a little bit up but flattish year-on-year. Just wondered if you could give us an update on the environment. Thanks. If I do MyFolio, pass to Luke on India, and then to Barry O'Dwyer on workplace pensions. MyFolio continues to do very well. It continues to tick along and generate some good, strong flows. We are very excited by the fact that we have launched MyFolio in Germany, and we are starting to get good traction, and we are in conversation elsewhere in the world, Hong Kong and China, thinking about way in which we could use MyFolio to go on to other platforms. Luke Savage, the proceeds. On India joint venture, the IPO and the proceeds. Yes, we would endeavor to flow the proceeds up to PLC. As you know, we try to keep all surplus resources at the PLC level because it gives us the kind of flexibility that I touched on. In terms of use of the proceeds, at this point, we are not even allowed to speculate on how big those proceeds might be under the various securities laws that we are constrained to. I guess all I would say is I think we have got a proven track record of either putting those cash resources to work, or if we do not have use for them, to return them by way of special dividend or the B share scheme that we did post-Canada. So too early to comment on where and how they might be used. Andy, on workplace flows, I suppose the way that we think about it is that the regular heartbeat underneath the workplace flows are the regular contributions. And you will have seen that they are up 7% year on year from GBP 1.5 billion to GBP 1.6 billion. If we look forward, that will be enhanced by the auto-enrolment increases in 2018 and 2019. So we should be getting to a run rate next year of full year GBP 3.5 billion or thereabouts, year after about GBP 4 billion. So you will see that sort of heartbeat underlying the workplace flows. And then on top of that, there is the new business versus scheme losses, et cetera, which is a little bit more difficult to predict, and it is a little bit more lumpy. But we are very happy with the core flows and the growth in the core flows in workplace. That is great. Thanks. Lance? Lance Burbidge from Autonomous. Just a follow-up on the workplace. The margin was obviously down, I think primarily because of the one-off dropping out. Where do you see workplace margins moving to in future? Second one is on wholesale, retail, and workplace, which were obviously the strength in your flows in the first half from Standard Life. I wonder if there is any specific benefits that Aberdeen brings to those lines of business in future. Then there is a rather cryptic comment in the results about some elements of revenue do not rise in line with market-related AUA growth. I wonder what you might mean by that. Luke, do you want to take that one first? Okay. That is an easy one, which is there are places where we charge fees, for example, in 1825, where it might be an hourly rate for fees rather than a function of AUA. So, that fee will not move as the assets move. Sorry? It is tiny, I assume. But other examples might be auto-enrolment, where we charge GBP 100 a month fee to the corporate, times 12 months, times thousands of schemes, is another example. Yeah. And the SIPP outer ring. So if you invest in property, et cetera, in SIPPs, we get fees in sterling rather than in bips. On the workplace margins, Luke explained the Solvency II wrinkle that was in last year's numbers. Really, the workplace revenue margin is a consequence of how fast each individual scheme is growing. And for the largest, highest quality schemes, obviously, they command the lowest price, and those schemes have performed better in the first half, relatively better than the rest of the book. So you'll see basically that workplace margin vary with, I suppose, the underlying scheme growth. In terms of your question on the utilization of Aberdeen's specialism, if you like, our expertise in the retail and workplace market, we're particularly excited to come to terms and to understand more about Aberdeen's quant capability, particularly in workplace. So we do think that what Aberdeen are bringing will be additive to, certainly to my part of the business. Yeah, and just to add to that, two other things. The Parmenion platform is a really interesting aspect that would be additive to Wrap and Elevate, and it's a very interesting digital offering. One of the things that Aberdeen brings in terms of wholesale is also diversification in terms of what is, I think, a pretty broad range of investment trusts, something that Standard Life Investments has been less significant in. So you take those two things with this ability to manufacture smart beta in particular, and it's a really interesting combination. Go to Greg. Three questions. One is, I wonder if you could just update where we are in terms of Lloyds and your discussion there are any possible distribution opportunities. Second point is, I wonder if you could just illuminate those who don't watch it too carefully what the current status is for Aberdeen in terms of its relative performance versus peers. Maybe a second quarter update would be interesting there. And the third point, in terms of the merger and the employee benefit consultant panels, I wonder if you can just give us an update where have you been put on negative watch or any progress you've made to try and bring those sort of ratings back to normal. Thanks. On the first two, I'm afraid I need to remind you, I'm still bound by the fact that we're in an offer period, and therefore bound by the Takeover Code. There's very little I can say about Lloyds apart from to repeat what we said in the prospectus, that it'd be absolutely fantastic to have a much deeper and stronger relationship with a very significant client of the combined group. And also have access to a very large book and high-quality book of retail business. We'll be working very hard, both Martin and I, to deepen and strengthen those relationships. There's not much I can say about where Aberdeen are in terms of their relative performance, because we're still in the offer period. I'm not sure there's been a recent update to the market. On consultants, actually, it's pretty much business as usual. We are competing and winning some mandates. We're launching some new strategies, which have got consultant support. There are a few consultant pitches where we've got to the final, and they've either been put on hold or we've been moved away. So it's pretty much business as usual. Nothing dramatic. It's tended to be consultants putting us on watch and wait and see, and my guess is that will continue for a little while yet. Ravi. Andy. Andy Hughes from Macquarie. Sorry, a couple questions if I could. The first one is on the non-GARS net flows in the quarter. So if I got it right, you had like a billion of non-GARS net flows in Q1, and it dropped to 0.2 in Q2, and probably due to the merger. But the surprise for me was when I looked at the asset flows by type, and the one I would've thought that would've had the bigger net outflows would've been the equities business, and that was only down at minus 0.1. And the fixed income, of course, came out a bit more negative than it has been over previous periods. Any idea you can give us an idea as to what's going on with the kind of non-GARS SLI flows? They are pretty positive. The momentum is in place. Second quarter, slightly distorted by one institutional mandate of reasonable size. Underpinning that, there is continued, I think, decent momentum. Good. Any idea how big that one was? I think it was about GBP 400 million. 400 million. The second question was on the corporate business. Obviously, you have great solvency surplus within the local business. I was just wondering, the PRA has highlighted that some people in the corporate space are adding life cover to contracts, to get around the contract boundaries and boost their Solvency II, so surplus. I am guessing you do not do that, but if you were to do that, what would the, any idea roughly how positive it would be for Standard Life? If other people have to stop doing it, would that impact the pricing, and therefore, would you see the corporate market pricing going up? Thank you. Okay. We don't do it. Off the top of my head, I have no idea what the impact would be, but afterwards, we have our actuary, the Standard Life actuary in the room. You can perhaps raise it with JP afterwards. As for what other people do and the impact it would have on them, I don't know. You know that we are predominantly a fee-based business. From a regulatory perspective, we generate capital rather than consume capital, which is why we don't focus on it. It's why we focus on cash. Ravi. Thanks. It's Ravi Tanna from Goldman Sachs. Three questions, please. The first one was on your retail flow performance, which was obviously very strong. You've referenced there the benefit that you've enjoyed from the DB transfer business. I was wondering if you could give us a sense of what scale of benefit that has been, what your gross flow contribution from DB transfer was, and also, the advice process you have in place around that business, please. The second question's on the platform market. There's been discussion around a ban to trail commissions. I suspect Standard Life may be a beneficiary here, but I was wondering if you could just comment on, again, what proportion of the marketplace is perhaps likely to be displaced by that change. The third one was on the asset management side. Clearly, again, in light of regulatory comments from the FCA around the performance of multi-asset funds, and also given the outflows that you've experienced, are there any changes in your thoughts around pricing strategy for either GARS or other product offerings that you have? I know you've taken a fairly consistent view on that in the past, but has anything changed in your thinking given regulatory or market headwinds? No. Premium price for a premium product. Barry. Yeah. On the retail flow, as you point out, this has been a record H1 for both gross flows and for net flows into retail. Of the GBP 6.7 billion in gross flows in retail, 0.9 is DB to DC transfers. It's a useful contributor, but it's just that at it, essentially. You asked about the advice process. It's important to remember the vast majority of this business is third-party advised, so it's advised by IFAs, and we're essentially just providing the platform. There is a small amount of DB to DC transfer business in 1825, and as you might imagine, that's a very tightly controlled advice process. On platform, the displacement as a result of the ban or potential ban on trail commission, it's quite difficult to call that actually, because if you look at what happened post RDR, there perhaps wasn't as much displacement as a result of RDR, partially because there's such a large tail, if you like, of small fund sizes on which trail commission is being paid. Therefore, the abolition of trail, if it happened, in aggregate might be a large sum of money, but it isn't enough for an IFA to go and revisit thousands of clients on an individual basis. I think I'd be a little bit circumspect about the disruption to the market caused by the banned trail. Colm. Colm Kelly from UBS. One question on the cash flows. Historically, there's been very strong growth in the cash generation of the business, and that's fueled the dividend growth. Clearly, at half year, there was 1% year-on-year growth, which seems to track the asset growth more closely than it does the operating profit or the IFRS results. When we think about full year and a bit beyond that, given the outflows that you're seeing, somewhat dragging on the asset growth, should we have an expectation for slightly slower cash growth over the next period versus what we've seen in the past? Yeah. There are two real things that have created the muted cash generation compared to profits. One is, as I said, our joint ventures. We are prudent in the way we treat those joint ventures. We don't recognize the profits that they generate. We recognize the dividends that we receive out of them. So we've had a really strong first half from those JVs, up to GBP 53 million, up GBP 16 million on the period. Whereas the dividend increase year on year has only been GBP 4 million. Now, if you actually look at the amount of cash we've generated, it's about GBP 250 million. So 1% of that is GBP 2.5 million. So the difference between 1% and 6% is kind of GBP 12 million in cash. So effectively, the JVs on their own arguably make up that in time muting of the number. At the same time, it's fair to say that in this particular period, the difference between the depreciation, which we take out of our P&L, and the CapEx, which we adjust back in, they're two relatively big numbers because as you know, we continue year in, year out to invest in future growth. Part of that is technology, part of that is premises. If you're taking two relatively large numbers, then you can end up in a given period just because of the, not random, but uneven nature in which CapEx comes through. The small net difference can actually be significant in and of itself. So the JV impact, if we continue to see strong growing profits with more modest dividends growth, then that will continue to dampen the cash generation. At the same time, the IPO of HDFC Life should help to counter that. The CapEx, I think is just an anomaly of this particular period. Gordon? Thanks. Gordon Aitken from RBC. Three questions, please. First on India, that's the big driver of the beat against expectations. Just to what extent is that being driven by demonetization? In the period since demonetization, you seem to be taking share from LIC. Just wondering why. Second on the pensions and savings business, you mentioned the drop in revenue bips from 57 to 54, and there's the obviously two wrinkle you mentioned, Barry. What's the average bips for the new gross flows, please? Just to close on workplace, you say very steady net inflow there. When does the unbundled to bundled DC opportunity really kick in, and how much is that now? Thank you. Barry, do you want to deal with those first, then we'll come to you? Yeah. We don't have a number on the bips yield on the new gross flows. We just calculate that and disclose that on an aggregate basis. But as I said in the answer to Lance, I think earlier, it's a function of our success, if you like, with the highest quality schemes that we've taken on board over the last decade. That they're growing faster than some of the older schemes or potentially even some of the new auto-enrolment schemes that are at the price cap of 75 bips. So you just see that mix impact coming through. On the unbundled to bundled, this is a continuing opportunity. It's a continuing slow opportunity because there's large amounts of conflicts of interest as well as everything else to overcome in terms of moving that market from unbundled to bundled. But we think the long-term drivers are still there. The bundled market, as it gets more and more efficient, it means that the case for moving from unbundled to bundled gets better year on year. So it will move. And the opportunity, as you know, is vast. But it is, I suppose, taking several years, and I think part of that is as a result of auto-enrolment, actually. Going through the program of auto-enrolment has been a top priority over the past couple of years. And now there's some evidence that large corporates are thinking about moving from unbundled to bundled, but we've seen only a trickle so far. On India, I think we are benefiting from demonetization. If you look pre-demonetization, the market share of, in particular, the bank insurance channel that HDFC Life was strong on was under pressure because it had much stronger KYC requirements. Actually, that's beginning to turn the other way, and because of improved KYC, and in fact their digital capabilities, I think you are beginning to see an improvement in market share. Oliver, and then I'll move over to the section on my right-hand side. Oliver Steel, Deutsche Bank. So first question on Elevate. I think you did actually give us a figure for Elevate in 1825, but just so that it's clear in my mind at least, what are the revenues and the expenses for Elevate, just so that I can back them out from both sides? And I suppose linked to that on Elevate, you talked about sort of expenses, I guess, or something, anyway, the loss increasing in the second half. So just what's going on there, and what's your timetable still on getting up to a normal level of profit at Elevate? And then secondly, just coming back to this question on the U.K. Life margin, and I'm sort of putting it in aggregate now. I think you show your margins on a 12-month rolling basis. So you've come out with 58 to 54. But actually if I do first half to first half, it's more like 59 to 52. I can't quite reconcile that as being just the effect of Elevate and larger workplace schemes growing faster than smaller workplace schemes. So can you sort of think a bit harder as to whether there's anything else going on there? Thanks. Look, so I didn't actually give a figure for revenue and expenses for 1825 and Elevate, and off the top of my head, I don't want to quote a number off the top of my head. But what I did say was that the net loss for them was in the order of GBP 3 million for the first six months. But due to the timing of integration expenses for Elevate in particular, that we would expect a small uptick in the second half. So in terms of what that might look like, it might be closer to 10 for the full year rather than taking the three and doubling it. I think in terms of the margin, I'll let Barry talk to some of that, but you got to remember the Solvency II in there was a couple of basis points, which was in the first half of last year and not the first half of this year, as one of the drivers in that. Yeah, just a couple of things on that. First of all, just to reiterate, the Elevate plan is on course, so in line with the previous guidance we gave. On the margin, if you look at some of the disclosures we've made, 54 to 51 in workplace, which as Luke said, includes the Solvency II wrinkle and this mix effect that I talked about earlier. 46 to 44 on retail. Some of that is Elevate. You'll remember that we've increased the price for new Elevate clients since acquisition, but the existing Elevate clients are on the deal they had prior to acquisition, and so that dilutes the margin on our platforms. And also there's a quality mix impact in there as well, particularly some of the DB to DC. We've got very high average case sizes, and they obviously trigger the highest level of large one discounts. So there's a little bit of a discount effect in there as well. And finally, we've got the mature book, which is still very substantial. The margin on that going from 77 to 75. A few things happening on that, including a reduction in price on legacy workplace schemes as a result of the IPB report and the IGC implementation of that. So, some legacy schemes went from 1.02% to 1% or capped at 1%. So there's a little bit of an impact from price capping in there, and between the three, that explains the reduction in the revenue margin. Ashik. Hi, good morning. Ashik Musaddi from JP Morgan. Just a few questions on the cost base. If I think about U.K. cost base, you mentioned that X Elevate, your cost base was down GBP 4 million on an absolute basis. That included a GBP 6 million drag from the transfer pricing of SL UK to SLI. That is a GBP 10 million improvement, which is quite chunky because it is 5% of your U.K. cost base. How should we think about this number going forward? Because we are talking about absolute decline in cost base rather than bips decline. That is one question. How should we think about it going forward? Is it like a continuing focus for next 2, 3, 4 years as well? Or is it just like a one-off improvement? Secondly, on SLI, again, your cost base went down by GBP 13 million, GBP 14 million. Is it a function of revenue or AUM, or is it just a function of business as usual, i.e. you are focusing on reducing cost base in SLI irrespective of what is going on in the revenue and the AUM side? The third one would be on your capital. You have GBP 800 million holding company cost. As flagged earlier, you would receive something from cash from Indian IPO as well. That is basically quite a lot of holding company cash because you have sufficient capital, I guess, in the subs as well. What are your plans for that holding company cash? Are you thinking about any bolt-ons in workplace, in platform or anywhere else? Any thoughts on that would be great. Thank you. Well, perhaps if I start by picking up on the costs in the U.K. It was actually a GBP 4 million increase in costs, including the GBP 6 million. When you back out the GBP 6 million, you end up with a net GBP 2 million reduction rather than GBP 10 million, which is quite a different sort of scale of net reduction. Maybe Barry, if you want to talk about the opportunities in terms of Evolve and customer ops and so as to what that can do. Yeah. Okay. We continue, as you would expect to invest in cost reduction exercises. We are a very efficient business, as you probably know, in terms of looking across the industry. We are a cost leader, but we still identify opportunities. I think actually at the year-end poll, my predecessor talked a little bit about what we are doing in workplace to make our employer platform much more efficient. That has been very well received by the clients that use it, and that will drive some efficiency improvements. Obviously, we have got the Elevate integration, which will drive further improvements. As Luke was saying, we are investing in improvements to the customer experience, particularly prioritizing a digital-first strategy. As that implements, we expect to see further cost savings in the back office. But it is a series of incremental improvements, really. Yeah. On SLI, it's absolutely financial discipline, and a recognition that we need over the medium term to continue to reinvest in the business. The best means of finding the means of reinvesting in the business is your own resources. So, as revenue slowed, then the appropriate adjustments were made to costs. So making sure that the cost income ratio came down, maintained that EBITDA margin at 45%. Of course, there were not a lot of costs associated with the substantial winning of new books of business. So it's the kind of dynamic optimization of the cost structure that I think you'd expect for a fund manager. Luke, on capital? Then around the 800 surplus. We've said that the Aberdeen integration is going to cost in the order of GBP 320 million. That's cash that needs to come from somewhere. So that's one use that some of that 800 will be going to. We need to continue to fund the work on the integration of Elevate. In the short term, we will be paying an interim dividend, assuming the merger completes on Monday, on the expanded share basis of around 3 billion shares. So there's an incremental cost. Over and above the profits that have been driven from our own business, because we'll be paying on the Aberdeen shareholders as well as our own. Then, as Keith has touched on, we've continued to invest. So the Ignis acquisition, the Elevate acquisition, the build-out of 1825, the increase in our India stake, has all been financed out of our own resources without coming back to shareholders or debt holders. As we've said before, if we can't put that money to use in a reasonable order, then we would always look at a return to shareholders. But it's not the right time to be talking about that at this point. Thank you. Hi, it's Ben Bathurst from SocGen. I've got a question on the U.K. Looking at drawdown, I wonder if you could give some color on the market, the movements in the 6 months, split between market movements and also net flows. I was also hoping you'd perhaps give an update on the progress of the direct drawdown proposition, whether or not that's been growing as well as you might have hoped a year or so ago. Yeah. I suppose it's as you were, if you like. It's steady as she goes on drawdown. You'll have seen from the FCA study on what's happening in the non-advised drawdown market, that actually our experience is pretty consistent with right across the industry. We have seen a move to taking cash at the smaller end, and technically all of those customers go into drawdown before taking cash, particularly obviously if they're staggering it over a couple of tax year ends, if you like. The flows into drawdown are continuing to be positive. We're now up at GBP 2.4 billion in Active Money Personal Pension, which is our main non-advised drawdown vehicle, up from GBP 2 billion at year-end. So that's a combination of inflows of half a billion and some outflow flows and market movements for the rest. But, yeah, it's still an important product for us. Small in the grand scheme of things compared to our advised platform, but it's an important product for allowing people access to the pension freedoms. Hi, it's Abilash from HSBC. I've got two questions, please. First one is just another one on the cost. Excluding 1825 and Elevate, you're already at 60% cost income ratio in the medium term. Previously, you'd highlighted to drive it down below that. Is that still the expectations or should we just be thinking about more stabilization there? On the platform side, the FCA has launched a platform review. Given that you've got three platforms now, do you have any expectations around that? Thanks. On costs and future expectations, I think it's important to note a couple of things. One of the things that will come with the merger is the creation of that 200 million of cost synergies, which will help drive down the medium-term cost income ratio. Of course, the extent to which we start to give guidance, and we have metrics for financial discipline going forward, will be a subject matter for the new Standard Life Aberdeen board, which meets in September. We will come back at some point and update on those issues. Barry, platforms. On the platform review, we really welcome this. Actually, one of the hallmarks of the Standard Life Wrap when we launched it nearly 11 years ago was around transparency. We never had retrocessions between fund managers and the platform, and all the benefits of pricing were always passed on to the end client. So from our perspective, and you might remember when we went through RDR and we introduced super clean pricing for asset managers, we got a bit of flak in the press for that. But it was largely because we wanted to create an opportunity for fund managers to compete on price on our platform. And I think that's exactly what the FCA are trying to achieve with this, trying to make sure that end clients get maximum value for money. Alan. Thank you. Alan Devlin from Barclays. A couple of questions. First of all, I wonder if you could update us on your thoughts on the annuity portfolio, as one of your competitors rumored to be selling a similar-sized portfolio. Then just on the workplace, in the 3.5 billion to 4 billion of flows you referenced, what are you assuming for opt-outs when the contribution levels actually increase? Then a final quick question on the DB to DC, the 0.9 billion of flows. What do you think the opportunity is in that market? Obviously, the DB market is huge in itself. How much do you think of that could flow to the DC market? Thanks. Barry, why don't you? Okay. I'll start on the opt-outs and maybe hand to one of you guys on the annuity portfolio. It's very difficult to predict opt-outs. We're currently at, I think, around 6% of opt-outs. Market is about 9%. We're all conscious of the fact that we're at the early stages of auto-enrolment. We haven't seen the step-up. So we factored in a prudent allowance. I think I'll just leave it at that in terms of for opt-outs in 2018 and 2019. There is an allowance for increased opt-outs in there. On the GBP 0.9 billion of flows, again, this is quite difficult to predict because obviously it's a function of long-term interest rates. Assuming long-term interest rates stay low, then this opportunity could last for a couple of years. It's like any market, and in particular, I suppose DB, the large transfer values in DB are skewed towards a very small number of people. Because DB schemes tended to benefit people who served for quite a long time and rose quickly through the ranks. So there are a small number of people, and that's manifested in the very high average transfer value that we see on our book. We've been encouraging the IFAs, advisors more generally, to focus on the low-risk opportunity in DB, which tends to be very wealthy people with independent income that aren't reliant on the DB income in retirement. There is a substantial pool remaining. We think there's maybe a couple of years at this sort of level of flow. But it should tail off at that stage. Again, assuming that the interest rate environment stays as it is currently. On the annuity portfolio, the position remains the same. There's nothing of any significance to say at the moment. Any more questions? No. In which case, thank you very much. Again, a real pleasure. The next time we meet, I'll be sat up here with Martin, delivering the first set of preliminary results for Standard Life Aberdeen. Thank you very much. Thank you for coming along. Thank you for your questions, and I hope you all have a good day.