Half year results 2019

Building on our resilience

  • Assets under management and administration up 5% to £577.5bn with assets on our platforms up 11% to £66.0bn.
  • Net outflows have reduced and remain concentrated in a small number of strategies with gross inflows well diversified.
  • Improvement in investment performance with 65% (FY 2018: 50%) of AUM above benchmark over three years.
  • Delivery of cost efficiencies on track with actions taken to date to deliver £234m of the £350m per annum targeted.
  • IFRS profit after tax of £636m, benefiting from sale of 6.21% of HDFC Life, with adjusted profit before tax of £280m.
  • Adjusted diluted EPS up to 8.9p (H1 2018: 8.2p).
  • Unchanged interim dividend of 7.3p.

Positioning our business for long-term growth

  • Strengthened position in ‘new active’ with 16 new fund launches, four new consultant rated strategies, a new direct real estate presence in Asia, as well as a joint venture in infrastructure with Investcorp in the Gulf.
  • Further progress made in building UK savings ‘ecosystem’, securing £3.5bn of assets from Virgin Money and partnering with Skipton Building Society to provide their customers with access to our £15bn MyFolio range.
  • Continued to expand our UK advice business, 1825, by announcing the acquisitions of the wealth advisory businesses of BDO Northern Ireland and Grant Thornton UK – these will increase assets under advice by c40% to c£6bn.
  • Retained £35bn of Lloyds Banking Group assets.
  • Heng An Standard Life became the first foreign joint venture to be granted a pensions license in China while HDFC AMC and HDFC Life maintained their leading positions in asset management and life insurance in India.

*Comparative as at 31 December 2018.

Keith Skeoch, Chief Executive Officer, commented:

We have made good progress in reshaping our business so that it is set up to take advantage of the trends impacting our industry both globally and in the UK. We are encouraged by an improvement in our investment performance and a growing number of strategies with positive ratings from investment consultants. We are seeing inflows that are more diverse and are pleased to have retained £35bn of Lloyds Banking Group assets.

“This, combined with lower redemptions and better markets, has helped us to increase assets by 5% to £577bn. Our focus on efficiency has delivered more cost savings, which combined with the benefits of share buybacks, has helped to increase earnings per share to 8.9p.

“We are also building for the future, with our business in China securing a license to develop a pensions business and our financial advisory business 1825 announcing two acquisitions that will significantly increase its assets, number of advisers and national reach. With a strong balance sheet, our drive for efficiency and ability to invest in innovation, technology and our people, we are well placed to deliver value and sustainable returns for our shareholders.

Positioning our world-class investment company

We are an investment company bringing together a global asset management business with clients in around 80
countries and a unique savings and investments ‘ecosystem’ in the UK, as well as valuable strategic investments in
the UK, India and China. We are investing to build a modern and dynamic global business which has the talent, scale
and high-performing investment solutions to compete against the leading investment companies across the world. We
do it to invest for a better future – to make a difference to our clients, the lives of our customers, our people and our
shareholders.

AUMA

Total AUMA increased by 5% to £577.5bn (FY 2018: £551.5bn) benefiting from positive market and other
movements, partly offset by improving net outflows. Assets managed by Aberdeen Standard Investments were
£525.7bn (FY 2018: £505.1bn) while assets under administration (AUA) on our Wrap and Elevate platforms increased
to £59.8bn (FY 2018: £54.2bn).

Net outflows remained concentrated in a narrow range of strategies and reduced to £15.9bn (H1 2018: £16.9bn; H2
2018: £24.0bn). Encouragingly this was helped by an improvement in the investment performance of key strategies
with reduced net outflows from Absolute Return compared to H2 2018. However, despite this improvement in
investment performance, demand for equities remains low across the wider market and we continued to see elevated
equity net outflows. Our industry leading platforms continued to attract net inflows however these were lower given
weaker investor sentiment caused by ongoing political uncertainty in the UK and a reduction in defined benefit to
defined contribution pension transfer activity.

Gross inflows remain well diversified across our broad range of ‘new active’ capabilities and we have seen improved
traction in Institutional and Wholesale with gross inflows of £22.8bn, up 7% on H1 2018 and up 40% on H2 2018.
Momentum improved across a broad range of propositions and we continue to see strong interest in Credit, EM Fixed
Income, Chinese Equities, Private Equity, Real Estate, Alternatives and Multi-asset solutions including the MyFolio
range which is now over £15bn.

We continue to enhance our range of ‘new active’ investment capabilities and launched 16 new funds during the
period. The build-out of our capabilities in key areas of future market demand was accelerated with the acquisition of
a direct real estate business in Asia, Orion Partners, and a new infrastructure joint venture with Investcorp in the Gulf.
We also entered into a new joint venture with Gresham House applying a private equity like approach to small and
medium-sized listed companies. We have also forged a new strategic partnership with Skipton Building Society,
providing portfolio solutions to their customers with the launch of a new MyFolio Index range of funds.

Looking ahead, we have a good pipeline of new business across a broad range of capabilities. We continue to
broaden out our investment capabilities with new product launches as well as making further progress in building our
UK savings ‘ecosystem’. This includes the further expansion of our UK advice business, 1825, where we have
announced the acquisitions of the wealth advisory businesses of BDO Northern Ireland and Grant Thornton UK.
These deals will result in a c40% increase in assets under advice to around £6bn.

Profitability

Adjusted profit before tax of £280m (H1 2018: £311m) reflects lower revenue partially offset by a reduction in
operating expenses as well as the inclusion of our share of Phoenix adjusted profits in H1 2019.

Fee based revenue of £815m (H1 2018: £966m) reflects the impact of lower AUMA combined with a reduction in
overall revenue margin to 28.0bps (H1 2018: 31.5bps) reflecting the mix effect of outflows from higher margin
products including GARS and equities.

Adjusted operating expenses reduced by 5% to £673m (H1 2018: £712m). This included continued delivery against
previously announced targeted annual cost savings of at least £350m (by the end of 2020). The targeted cost savings
reflect merger synergies and the benefits from simplifying our operating model following the sale of the UK and
Europe insurance business. To date, we have undertaken actions to deliver £234m of the targeted annual cost
savings. These actions have benefited H1 2019 adjusted operating expenses by £103m (H1 2018: £40m) with further
benefits still to come. Our cost/income ratio of 72% (H1 2018: 69%) reflects the reduction in revenue offset by lower
expenses and the inclusion of our share of Phoenix profit in H1 2019.

Capital management resulted in a profit of £22m (H1 2018: loss £3m) due to the positive impact of markets on seed
capital and shareholder funds in pooled investment funds, reversing market losses experienced in H2 2018.

IFRS profit after tax attributable to equity shareholders increased to £636m (H1 2018: £111m). This was mainly due to
a profit of £442m arising on disposal of 6.21% of HDFC Life, as well as the reversal of an impairment relating to our
associate business, Phoenix. The market value of Phoenix has recovered strongly in H1 2019 and as a result the
impairment recognised in H2 2018 has been reversed.

Delivering returns to shareholders

The Board has declared an unchanged interim dividend of 7.3p per share (H1 2018: 7.3p). This will be paid on 24
September 2019 to shareholders on the register at close of business on 16 August 2019.

As outlined in the Annual Report and Accounts 2018, it is the Board’s current intention that the total annual dividend
per share will be held at the 2018 level of 21.6p while the business is restructured, cost synergies are delivered and
future financial performance confirms the sustainability of this level of distribution and provides line of sight to its
future growth.

The General Meeting on 25 June 2018 approved the return of up to £1.75bn in aggregate to shareholders. This
included a return of capital of £1.0bn via a B Share Scheme with an ordinary share consolidation, which took place in
October 2018, and a return of up to £750m through a share buyback programme. As at 6 August 2019, we have
bought back £550m of shares through the share buyback programme with the final £200m phase of the £750m
programme expected to commence this quarter.

Strong capital position

We remain strongly capitalised with surplus regulatory capital of £0.9bn (FY 2018: £0.6bn). The regulatory capital
position is stated after a deduction of £173m for the 2019 interim dividend which will be paid in September 2019. The
vast majority of the value of our shareholdings in listed associates of £5.2bn4 is not recognised in our total capital
resources.

Events after the reporting date

On 24 July 2019, the Group announced that it had agreed a final settlement with Lloyds Banking Group / Scottish Widows (LBG) in relation to an arbitration which found that LBG was not entitled to terminate investment management arrangements under which assets are managed by members of the Group for LBG entities.

Under the terms of the settlement:

  • The SLA Group will continue to manage approximately one third of the total AUM (c£35bn as at 30 June 2019) on behalf of LBG entities until at least April 2022 (the end of the initial term under the original investment management agreements) subject to applicable investment management arrangements. This AUM comprises c£30bn in passive portfolios as well as c£5bn in real estate funds.
  • Approximately two thirds of the total AUM (the “Transferring AUM”) will be transferred to third-party managers appointed by LBG through a series of planned tranches over the next nine months. During this period, the SLA Group will continue to be remunerated for its services in relation to the Transferring AUM.
  • In addition, the SLA Group will receive an upfront payment of £140m from LBG as final settlement to compensate for loss of profit in relation to the Transferring AUM. The receipt will be recognised in profit for the second half of the year.

Outlook

With our broad and diverse range of capabilities and relationships with customers, we are well placed to take
advantage of the opportunities and to deal with the challenges that ongoing changes in our industry present.
However, the current environment for asset management remains tough as macroeconomic and political uncertainties continue to affect investor sentiment.

As we look ahead we will maintain our focus on operational and strategic delivery. This includes delivering for our
clients and customers by focusing on our investment performance and continuing to innovate in areas of market
growth. We will also remain focused on driving operational efficiency and cost control as we move closer to
completing the integration and the implementation of our simplified global operating model.

This, combined with our strong balance sheet, allows us to invest for growth to deliver on our strategy and generate
sustainable dividends and returns for shareholders.

For further information please contact:

Institutional equity investors

  • Jakub Rosochowski* 0131 245 8028 / 07515 298 608
  • Neil Longair* 0131 245 6466 / 07711 357 595

Retail equity investors

Link Market Services* 0345 113 0045

Media

  • James Thorneley* 0207 463 6323 / 07768 556 334
  • Iain Dey, John Kiely (Smithfield) 0203 047 2528 / sla@smithfieldgroup.com

Debt investors

Nick Mardon* 0131 245 6371

*Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary.

A presentation for analysts and investors took place via live audiocast at 9.00am on Wednesday 7 August 2019.

Notes to editors

1. In accordance with IAS 33, earnings per share have not been restated following the share consolidation in 2018 as
there was an overall corresponding change in resources. As a result of the share consolidation and share buyback,
earnings per share from continuing operations for the period ended 30 June 2019 is not directly comparable with the
prior period. Refer to Note 4.7 of the Half Year Results 2019 for information relating to the calculation of diluted earnings
per share.

2. H1 2019 corporate actions relates to the acquisition of Orion Partners, a direct real estate business in Asia.

3. Share of associates’ and joint ventures’ profit before tax comprises the Group’s share of results of HDFC Life, HDFC AMC, Phoenix and Heng An Standard Life Insurance Company Limited.

4. As at 6 August 2019.

See the half year results page for further documentation relating to the results.

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