Final Results - Part 2 of 8
abrdn plc
Full Year Results 2022
Part 2 of 8
At abrdn, we are reshaping our business to serve a wider range of clients to plan, save and invest for the future.
By diversifying our business, we are positioning ourselves for growth in a changing investment landscape.
This annual report and accounts 2022 for abrdn plc, and the strategic report and financial highlights 2022 are published on our website at www.abrdn.com/annualreport
Access to the website is available outside the UK, where comparable information may be different.
|
APM |
Certain measures such as adjusted operating profit, adjusted profit before tax, adjusted capital generation and cost/income ratio, are not defined under International Financial Reporting Standards (IFRS) and are therefore termed alternative performance measures (APMs). |
APMs should be read together with the Group's consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows, which are presented in the Group financial statements section of this report. The revenue APM included within adjusted operating profit has been renamed from fee based revenue to net operating revenue. Further details on APMs are included in Supplementary information.
See Supplementary information for details on assets under management and administration (AUMA), net flows and the investment performance calculation. The calculation of investment performance has been revised to use a closing AUM weighting basis. 2021 comparatives have been restated. Net flows in the Highlights page excludes liquidity flows as they are volatile and lower margin. It also excludes Lloyds Banking Group (LBG) tranche withdrawals relating to the settlement of arbitration with LBG.
|
Adjusted operating APM |
|
IFRS (loss)/profit before |
|
Full year dividend per |
|
£263m |
|
(£615m) |
|
14.6p |
|
2021: £323m |
|
2021: £1,115m |
|
2021: 14.6p |
|
Investment performance (% of AUM above benchmark over three years) |
|
Net flows (Excl. liquidity and LBG ) |
|
MSCI ESG Rating |
|
65% |
|
£10.3bn outflow |
|
AAA
|
|
2021: 78% |
|
2021: £3.2bn outflow |
|
2021: AA |
At a glance
Resilience
from diversification
|
Our clients' worlds are changing, and so are we |
|||||||
|
Global investments |
|
|
UK savings and wealth platforms |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
Adviser |
|
|
Personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Insurance companies - Sovereign wealth funds - Independent wealth managers |
- Pension funds - Platforms - Banks - Family offices
|
|
|
- Financial advisers - Discretionary fund managers |
|
|
- Individuals
|
As industry trends and client behaviours have evolved, so have we.
We have focused on diversifying the earnings profile of our business - moving away from a reliance on the market-driven revenues of a traditional asset manager and, through the earnings potential of our Adviser and Personal vectors, positioning ourselves to leverage opportunities in areas that are being driven by attractive structural factors.
|
Investments
|
Adviser |
Personal |
|
Adjusted operating profit £114m |
Adjusted operating profit £86m |
Adjusted operating profit £72m |
Note: Adjusted operating profit in 2022 is £263m, including a loss of £9m from Corporate/strategic which is excluded from the diagram above.
Our strategy is
to deliver client-led growth
Our four strategic priorities are
|
Asia |
Sustainability |
Alternatives |
UK savings |
Our three businesses are
|
Investments Our capabilities in our Investments business are built on the strength of our insight - generated from wide-ranging research, worldwide investment expertise and local market knowledge. |
Adviser Our Adviser business provides financial planning solutions and technology for UK financial advisers, enabling them to create value for their businesses and their clients. |
Personal Powered by the UK's second largest direct-to-consumer investment platform, our Personal business enables individuals in the UK to plan, save and invest in the way that works for them. |
|||||||||
|
|
|
Our purpose is
to enable our clients to
be better investors
Chairman's statement
Progressing against our strategic priorities
This period has provided a stress test to economies, financial markets and indeed to our own business; the learnings are invaluable.
Sir Douglas Flint Chair
2022 turned out to be a year like no other in recent memory, with a series of unexpected events across the globe.
Most significantly, the Russian invasion of Ukraine brought scenes of chaos, destruction and human suffering on a scale not seen in Europe since the Second World War. Already fragile geopolitical tensions intensified, in particular between the United States and China. Energy costs rocketed, impacting all sectors of the economy and requiring fiscal intervention to prevent business collapse and unacceptable hardship for people experiencing exceptionally high bills. Food supplies also faced disruption contributing to the high levels of cost inflation.
As inflation re-emerged from its dormancy, Central Banks increased policy interest rates across most of the major Western economies to temper inflationary expectations. Critical economic cross-border dependencies became apparent, precipitating an exhaustive global examination of supply chain resilience. China's unwinding of its zero-COVID policy at the end of 2022, while long encouraged in the West, may in the near term add to global supply chain uncertainties as its economy, health systems and population adjust to living with the virus.
And here in the UK we saw unprecedented political instability, with three Prime Ministers and four Chancellors within a four-month period to the end of October. We have entered 2023 facing strikes across much of the public sector, threatening both economic growth and higher inflation.
We adjusted our business model to meet our clients' needs
It was against this backdrop that we adjusted our business model and investment priorities to meet client and customer needs and to make our own business more sustainable and resilient for the future.
As we stand back to reflect, we observe this period has provided a stress test to economies, financial markets and indeed to our own business; the learnings are invaluable.
Embedding resilience as our three-vector model takes additional shape
Perhaps the most important lessons for us are the need for resilience in our business model and, as an investor, the enduring importance of fundamental analysis to deliver long-term value through our investment processes.
The unexpected and dramatic events noted above had understandable adverse impacts both on market levels at various points in the year and on flows as an unprecedented level of withdrawals was made from equity funds across the industry. We were not immune from these impacts. What was encouraging was that the impacts were largely seen across public markets in the Investments vector with real assets and our other two vectors in Personal and Adviser proving much more resilient - reinforcing the decisions made to direct more of our capital towards these businesses.
We made further progress against our priorities in 2022. The development of the three-vector model introduced in 2021 took additional shape during the year, most markedly through completion of the acquisition of interactive investor (ii). On top of this, the refocusing of the Investments vector to improve productivity and play to competitive advantage moved from the planning phase to execution with much more to come in 2023. Some examples include fund rationalisation, where we are on track to consolidate or close some 80 funds this year, having consolidated or closed 58 in 2022. Additionally, we are focusing our real assets business on areas such as the living sector (including residential and student), where we are one of Europe's largest residential fund managers, and on industrial and logistics real estate where our subsidiary Tritax has grown assets under management by over 40% post our acquisition. Activity to support repositioning has also included moving to distribution partnership models in Taiwan and Australia. This report elaborates on the progress made in the Investments vector on pages 16-19.
Financial performance reflects expanded Personal and Adviser contributions
Adjusted operating profit at £263m was 19% lower than that achieved in the prior year (2021: £323m); the decline was concentrated in the Investments vector primarily for the reasons highlighted previously and reflects the further work required to refocus the Investments business. ii contributed £67m in its first seven months of our ownership, ahead of our business case modelling on acquisition, benefiting from the rise in interest rates on uninvested cash balances. Together our Personal and Adviser businesses contributed 60% of adjusted operating profit in the year, a contribution that is expected to grow taking into account the full year contribution from ii from now on. Our IFRS pre-tax loss amounted to £615m (2021: profit £1,115m) which included the impact of impairments of intangible assets mainly in the Investments business and lower share prices for our significant listed investments.
Stephen and Stephanie provide greater insights into performance across our vectors in their reports.
Continuing strong capital management discipline
Capital management discipline was strong during the year and remains a core philosophy of the company. We augmented capital resources outside of operating activity through further disposals of non-core stakes realising £0.8bn; we completed share buybacks amounting to £0.3bn and we invested c£1.5bn in the acquisition of ii. We declared an interim dividend of 7.3p per share which was paid on 27 September 2022 and the Board is recommending a final dividend also of 7.3p per share to be paid on 16 May 2023, subject to shareholder approval at the AGM in May. Our regulatory capital position remains strong. Stephanie covers all of this in more detail in her report.
Board matters
As foreshadowed in my statement last year Catherine Bradley, Mike O'Brien and Pam Kaur joined the Board during the course of 2022. They have made significant contributions to our discussions and we are delighted with how well they have integrated into the rhythm of our Board meetings which happily are now primarily in person again.
Cecilia Reyes advised us in September that she would not seek a second term when her first term concluded at the end of that month. Cecilia brought great insight and experience to the Board, Risk and Capital, and Remuneration Committees. We wish her well in her future endeavours.
Additionally, Brian McBride has advised that he will not seek re-election at our Annual General Meeting on 10 May 2023 and will stand down from that date as a Non-Executive Director and as a member of the Remuneration Committee. On behalf of the Board and all my colleagues, I would like to thank Brian for his significant contribution to abrdn. He served on the Board, several subsidiary boards and the Remuneration Committee. We will all miss Brian's insights and guidance. His direct experience of private market investments and consumer-facing businesses has brought significant value to our Board and Committee discussions. We wish him all the best as he pursues his many other interests.
Finally, I am sure shareholders will wish to join with the Board and our colleagues in congratulating our former CEO, Sir Keith Skeoch on his well-deserved knighthood in the recent New Year Honours.
Looking forward to a more sustainable world
Notwithstanding the severity and combined impact of the events noted in my opening paragraphs, they cannot compare to the existential threat that continues to grow relatively unabated from failure to make progress on constraining global warming to the agreed target of 1.5°C.
COP27 held last year in Sharm el-Sheikh largely failed to expand commitments made a year earlier, in our native Scotland, to phase out fossil fuels. The one major step forward was the agreement of a deal that has been sought for over 30 years to launch a fund for 'loss and damage' to support nations most exposed to the consequences of climate change, but details and financial funding remain to be agreed.
Already we can observe much greater incidence of extreme weather events which are having devastating effects on the impacted economies and are contributing to the risk of a steady but dramatically expanded flow of migrants towards more hospitable climates. Notwithstanding the imperative of reaching the agreed target, 2022 saw the resurgence of investment in hydrocarbon capacity to build resilience of supply-absent inflows from Russia. We also saw growing pushback by many US states dependent on oil and gas activity against financial firms restricting future investment to this sector. These actions make navigating our commitments to contribute to the net zero targets more challenging, but we remain resolute.
Against the many current challenges lie the opportunities - addressing climate change both in mitigation and solution requires trillions of dollars of investment annually for the next three decades at least; reconfiguring supply chains, building security of supply for energy and food, replacing inefficient infrastructure for transportation and energy supply and distribution, funding the science base and applied research needed to create the solutions not available today, rebuilding Ukraine - all of these add further billions of dollars of investment demand in the coming years. The investment industry is better equipped than ever to steward capital into productive assets that meet society's expectations of it.
Policymakers are at last seeking to remove obstacles that constrain investment flows from long-term savings pools into infrastructure and early-stage science-based investments, both of which require patient capital. Industry leaders are prioritising capital investment over share buybacks, particularly in Europe and employment prospects are strong, particularly for younger workers as many older workers who were close to retirement brought that forward during the COVID-19 pandemic. In addition, many of the mega trends that have caused concern are forecast to improve in 2023: markets are discounting moderation in inflation and interest rate outlooks by the end of the current year; gas prices in Europe have fallen back to levels pre the invasion of Ukraine; wage levels are rising in most countries although below inflation; China's removal of most COVID-19 restrictions and the re-opening of its economy should in due course be positive for global growth and the alleviation of inflation; and all these factors should boost business and consumer confidence unlocking investment funds.
Well-positioned for 2023
As in prior years we enter the new year supported by a strong capital position, a committed leadership team and colleagues throughout the organisation energised by the many opportunities to make our business more relevant and valuable to our clients and customers as we support their ambition to become better investors.
Sir Douglas Flint
Chair
Chief Executive Officer's review
A stronger abrdn is emerging
Stephen Bird outlines the progress made during 2022, and how our strategy is positioning our business for growth
|
Key highlights - Completed the acquisition of ii in May 2022. - Delivered £0.8bn of value through divestments. - Returned £0.6bn of capital to shareholders through buybacks and dividends. - Strong progress on fund rationalisation in Investments, where overall costs were down 2%. - Retained position as leading adviser platform.
|
The global economy changed dramatically during 2022
2022 was one of the hardest investing years in living memory. Almost all asset classes dropped in value as the cost of money soared to quell the rising tide of inflation. Although market conditions have had an impact on overall group performance, abrdn's more diversified model has proved resilient.
The world in which we and our clients are operating today is radically different from the environment of the past decade. The changing macro environment is resulting in the acceleration of key investment trends, notably the rise of Asia, a move to more sustainable offerings and, at an asset class level, the growth of alternatives and increasing client interest in fixed income.
We are also actively assessing the impact of these new market dynamics on pension funds and insurers, to ensure that we provide solutions to meet their complex needs. Each of these trends very much plays to our existing strengths, and we are well positioned to help our clients navigate this new investing world.
Building a stronger business model
Against this challenging backdrop, the company continued to progress as it completed the second year of its three-year strategy. We have transformed and built upon our asset management heritage and abrdn is now positioned for growth across its three businesses: Investments, Adviser and Personal.
The shape of the group is now settled following the 2022 acquisition of ii. This significantly expands our reach into the higher growth UK savings and wealth platform market, which is forecast to grow at a realistic rate of 11% by 2027. Leveraging the subscription-based model of ii, and the wider structural trends in the savings and wealth market, we benefit from income streams less exposed to market volatility. Looking ahead, we are set to exploit the synergies our new model offers.
2022 performance shows our growing resilience
The group's adjusted operating profit of £263m is 19% lower than in 2021. In line with the sector, the Investments vector faced headwinds in the market. Despite the progress made on its transformation journey, adjusted operating profit fell by £139m, principally due to a decline in revenue. Our focus on simplifying and streamlining the Investments business reduced its overall costs by 2%, although we know we have more to do to drive this down further.
The adjusted operating profit for Adviser and Personal combined increased by £76m including a £67m contribution from seven months of ii. With the Investments vector impacted by market conditions, these businesses contributed 76% of adjusted operating profit in H2 2022, clearly demonstrating the benefits of the new abrdn model.
Overall, we are reporting an IFRS loss before tax of £615m reflecting the reduction of £187m in the value of the listed stakes held on our balance sheet, and impairments of £369m largely due to a fall in market levels, 2022 performance and lower projected revenues. However, with the strong discipline applied to our capital management, I'm pleased to report that our dividend for 2022 remains unchanged at 14.6p per share. Stephanie talks more about our performance in the Chief Financial Officer's overview.
Scaling-up our UK savings and wealth businesses
The acquisition of ii in 2022 delivered a substantial scaling-up of our presence in the UK savings and wealth market. This direct-to-consumer capability now sits alongside our established Adviser business, which I'm pleased to report remains the number one adviser platform in the UK by AUA, with 50% of the UK's advice businesses using our platforms. Customer satisfaction as at end 2022 was 95%. The recent delivery of technology enhancements to our platforms will further support advisers to unlock capacity and grow their client bases.
In the seven months since joining abrdn, ii delivered £114m in net operating revenue and £67m in adjusted operating profit, at a cost/income ratio of 41%. Based on the seven months profits, the £1.49bn purchase price represents a multiple of 16 times annualised post-tax adjusted earnings.
Reductions in gross and net flows in Personal Wealth this year include the impact of market uncertainty which has resulted in lower and more muted activity by individual investors. Looking ahead, we see substantial opportunities to evolve the newly combined Personal vector to deliver an end-to-end customer proposition, that stretches from simple online transactions to more complex financial advice.
At a societal level, individuals are having to take more responsibility for building and managing their own savings, investments and retirements, while at the same time becoming increasingly accustomed to using direct-to-consumer platforms and digital tools for financial transactions. The democratisation of financial services, supported by technology, is driving structural change in the investment market and we are now well positioned to serve this growing opportunity.
Refocusing Investments
After previously competing across a very broad waterfront, the Investments business is becoming much more focused on the areas in which we have both strength and scale.
We have a long heritage in public markets, including through our capabilities in Asia and emerging markets and our strong fixed income franchise. Although 2022 has been a challenging year, particularly for equities, we are well placed to benefit from evolving conditions in China and in the bond markets. Our already strong position in alternatives is growing. Here we manage around £87bn in assets in areas such as real estate, infrastructure, logistics and private credit. A highlight has been the performance of Tritax which saw c25% growth in average AUM last year.
By focusing on these areas of strength, all underpinned by our sustainability credentials, we believe we are in a better position to deliver products that are more closely aligned with current and future client demand.
In the Insurance sector, the changing approach to asset strategies represents a headwind for the margin of this business activity. We expect continued changes from certain active equity and fixed income strategies to passive quantitative strategies which, together with related pricing changes, is expected to lead to further margin contraction for our Insurance business in future periods. Stephanie discusses this in more detail on page 51.
Disciplined management and deployment of capital
Our strong capital position provides resilience in uncertain times and enables targeted investment to accelerate the growth of the group. As at 31 December 2022, our surplus regulatory capital was £0.7bn.
In 2022, we generated £1.1bn of capital through organic cash generation and efficient stake sales, investing £1.4bn in the acquisition of ii, and returning £0.6bn to shareholders in buybacks and dividends. Over the near term, as we continue to build capital through a focus on profitability and ongoing monetisation of listed stakes, we continue to expect to invest in inorganic opportunities where we see capabilities we need that offer compelling value. We are committed to returning a significant proportion of proceeds from further stake sales through share buybacks, and reconfirm our stated dividend policy of 14.6p per annum until at least 1.5x covered by adjusted capital generation from when it can grow. We will continue to take a disciplined approach to capital allocation as we drive sustainable growth, relevance and scale for our business, in a way that also generates value for our shareholders.
Progress on climate
We have a critical role to play as stewards of our clients' capital, and the relationships we have with investee companies enable us to drive positive change through engagement.
We are targeting a 50% reduction in the carbon intensity of our portfolios by 2030 versus a 2019 baseline. We are on track with a 27% reduction across in-scope public market portfolios as at 31 December 2022 and a 31% reduction for in-scope real estate as at 31 December 2021. Assets in scope for our target represent 30% of our total AUM. This is driven by data availability, maturity of methodologies and control over decision making (more on page 38). We recognise that methodologies may continue to evolve over time and we will review our approach as appropriate. We have also been developing our net zero solutions, including an Active Climate Transition proposition in equities and fixed income. In compliance with level one of the EU's Sustainable Finance Disclosures Regulation (SFDR), we have also been converting our range of SICAV funds to comply with SFDR Article 8 and 9 - reflecting the importance of ESG considerations in the investment opportunities we seek. In 2022 we converted 27 of our funds to Article 8 and 9. In Asia, one of our key growth markets, we launched our MyFolio Sustainable Index range of funds during 2022, and our Sustainability Institute is helping us hone our expertise to deliver for our clients.
We know that leading by example starts with our own operations. We have a corporate target to be net zero in our operations by 2040, and an ambitious interim target to achieve a 50% reduction in operational emissions by 2025, against our 2018 baseline. Colleague engagement remains critical to delivering on this.
While a significant amount of work remains to be done, I am proud of the progress we have made to date. We will continue to drive towards our commitments with a focus on transparency - through reporting and data disclosure - and by engaging with our clients, investee companies and wider stakeholders, with the aim of achieving a cleaner, greener future together.
Building a culture that supports colleagues and delivers for clients
Our culture and how it feels to work here are fundamental to our success.
We want every one of our colleagues on board - believing in our purpose and focusing on our strategy and their role in delivering
for clients.
Throughout 2022 our leaders worked with colleagues across the globe to create a new set of commitments and values that resonate with their collective beliefs, identifying these as Client First, Ambitious, Empowered and Transparent. We're creating a culture that gives talent the chance to thrive, and that empowers colleagues to take ownership of client outcomes. A culture of constant improvement is critical for success.
We ran our most recent all-colleague survey in January 2023 where it was pleasing to see a positive response from colleagues around areas like our people leaders and our strategy. Amid highly challenging market conditions and ongoing change within the business, employee engagement held steady, and we will continue our focus on driving progress in this area. For more information see pages 41 and 42.
It's critical that diverse perspectives have an active voice in decision-making processes. I'm pleased that we've reduced our gender pay gap for the fifth year in a row, and that we have more women on our Board, in senior leadership and in investment decision-making roles. But there is still much more to do. Our industry and our wider talent pipeline need to be more representative of the diverse society we live in, and we're focused on facing up to this.
In a very challenging year for the sector, in which we have continued to go through significant change as a business, the commitment and professionalism shown by everyone across abrdn has been truly inspiring. Those qualities are what give me so much confidence about what lies ahead. On behalf of the senior leadership and my fellow Board members, I'd like to place on record our sincere thanks.
Focusing on the future
Although the external market environment remains challenging, we have the right strategy, and we have the team and the capital resources to execute it well. Diversification of revenue streams is putting the group on a sustainable growth trajectory.
In the Investments vector, there is further to go. This was always the longest-cycle transformation given the structural challenges and the nature of change in active asset management. We have taken the hard decisions and built the foundations for future growth. We're simplifying our product range and reducing cost and complexity so that we are focused on delivering higher margin products with the right performance. This work should deliver net cost savings of around £75m in the Investments vector in 2023.
Stephen Bird
Chief Executive Officer
Our business model
Building a stronger business model
We are building a stronger business model which is designed to support the successful delivery of our growth strategy by harnessing the combination of strengths in our business.
|
Our areas of strength |
|
||||||
Channelled
|
|
||||||
|
|
How we make money
We earn money mainly from asset management and |
|
How we |
|
||||||||||||||
|
Delivering |
|
Read more about how we have engaged with our stakeholders on pages 44 to 45.
Our strategy
Diversified client-led strategy for growth
As we diversify our business, our focus on four strategic priorities enables
us to meet the changing needs of clients across a range of markets. They
are also fundamental to the continued transformation and resilience of
our business.
|
1. Asia Asia remains a key market for our Investments business and we are well positioned to drive growth. In 2022 we celebrated the 30th year of our Investments business in Asia Pacific and we use this expertise to support clients in navigating this complex but vibrant market. Asia also holds strong opportunities as we aim to be a leader of sustainable investment solutions. This is supported by our strong Asia-specific research and insight capabilities. |
|
2. Sustainability Many of our clients seek more from their investments than simply financial returns. We have created a specific suite of sustainability-focused solutions to meet client needs. We also believe that the consideration of ESG factors is essential to more constructive engagement and better-informed investment decisions to help our clients achieve their financial goals. Insight through tools such as climate scenario analysis helps our clients to better identify investment risks and opportunities. |
|
2022 progress |
|
|
|
- Refreshed the leadership of our Client Group in Asia Pacific, with new heads of Wholesale, Institutional, Marketing and Client Servicing. - Focused our regional footprint by exiting Taiwan and Australia and introducing distribution partnership models. - Improved the performance of our flagship funds - including our Asia-ex Japan Equity funds, which have outperformed their benchmarks over three years; and our China A Sustainable Equity fund, which is top quartile over one, three and five years for funds in its sector. |
|
- Launched our MyFolio Sustainable Index range in support of clients' ESG goals. - Converted 27 funds within our SICAV range to meet the requirements for Article 8 and 9 funds under the Sustainable Finance Disclosure Regulation (SFDR). - Emerging Markets Sustainable Development Corporate Bond fund passed through the $100m mark in its first year. - Initiated a two-year engagement programme with the highest-financed emitters in our equity holdings, identifying clear milestones. |
|
3. Alternatives The growing trends for urbanisation, digitalisation and decarbonisation create significant investment opportunities in real assets. Our Alternatives business includes our capabilities in real assets, which comprises real estate, infrastructure and commodities. Our Alternatives business also offers clients access to major areas of European private credit, as well as compelling opportunities in the hedge fund sector. |
|
4. UK savings and wealth As financial responsibility continues to move more towards individuals, we have successfully repositioned our business towards an increasingly attractive and growing UK savings and wealth market, as well as focusing on creating more capacity for advisers to serve more clients and reduce the savings and advice gap. We are now operating across the full client spectrum to help individuals in the UK plan, save and invest for the future. |
|
2022 progress |
|
|
|
- Within real assets, our logistics and industrials AUM has risen since the acquisition of Tritax to £16.9bn. - Launched Inflation-Linked Infrastructure Debt fund in November 2022. - Continued to grow our real estate footprint by partnering with the John Lewis Partnership to build 1,000 residential rental homes in the UK. - Became largest external investor in regulated digital securities exchange Archax and joined the governing council of distributed ledger technology firm Hedera.
|
|
- Acquisition of ii transformed our position in the UK savings and wealth market, delivered a significant acceleration of group revenue diversification and brought over 400,000 new customers to the abrdn group. - ii launched Investor Essentials, a part of its subscription service designed to appeal to investors with less to invest and those at the beginning of their investment lifecycles. - Remained the only platform business 'A' rated for financial strength by leading independent consultancy firm AKG - with financial strength a key consideration for advisers when selecting their primary platform. |
Performance overview
Performance impacted in a difficult macroeconomic environment
Our full year results largely reflect the challenging global economic environment and market turbulence that impacted across the industry. These impacts were largely seen in our Investments vector. The reduction in profitability in the Investments vector is disappointing, with detailed plans of work to improve the operating margin now underway. Performance in our Adviser and Personal vectors were more resilient to the market conditions.
|
Financial performance summary
|
||||||
|
|
|
||||
|
|
|
||||
|
|
|
||||
1. The revenue measure included within adjusted operating profit has been renamed from fee based revenue to net operating revenue.
Our capital resources provide strength to allow investment in the business, support the dividend policy and enable capital returns. Now that the shape of the Group is largely settled following the acquisition of ii, we expect inorganic actions on a more modest scale.
|
Capital performance summary |
||||||
|
|
|
||||
|
|
|
||||
|
|
|
|
||||
Read more about our financial and capital performance in the Chief Financial Officer's overview section of this report.
Our vectors - Investments
Refocusing our Investments business
Our investments solutions are built on the strength of our insight - generated from wide-ranging research, worldwide investment expertise and local market knowledge. Our teams collaborate across regions, asset classes and specialisms, connecting diverse perspectives, working with clients to identify investment opportunities that suit their needs.
|
"We have refocused our offering to areas where we provide a differentiated proposition to our clients." Chris Demetriou CEO, UK, EMEA and Americas, Investments
|
"We aspire to be the go-to place for global investors seeking exposure to sustainable solutions across Asia, particularly in China. We are also focused on supporting clients across Asia as they seek to access global investment opportunities." René Buehlmann CEO, Asia Pacific, Investments |
|
|
|
|
|
Highlights |
|
Investment performance |
|
£88bn Leading active Asia and emerging markets manager1 |
|
1 year 41% (2021: 66%)3
|
|
£145bn AUM from insurance clients |
|
3 years 65% (2021: 78%)3 |
|
£120bn AUM from our fixed income capabilities2 |
|
5 years 58% (2021: 77%)3 |
Read more about investment performance on page 55
1. Refers to total assets invested in Africa & Middle East, Asia Pacific and Latin America.
2. Includes Insurance assets.
3. The calculation of investment performance has been revised to use a closing AUM weighting basis. 2021 comparatives have been restated. See page 55 for more information.
|
Our investment capabilities
|
||
|
We have simplified and focused our investment capabilities on areas where we have both the skill and the scale to capitalise on the key themes shaping the market, through either public markets or alternative asset classes.
|
||
|
||
|
Our broad global reach and expertise2
|
|
Americas AUM £46bn Revenue £137m |
UK AUM £256bn Revenue £655m |
EMEA AUM £58bn Revenue £114m |
APAC AUM £16bn Revenue £164m |
1. Public markets and Alternatives AUM includes Insurance assets.
2. AUM is based on client domicile and revenue is allocated based on legal entity revenue recognition. Revenue is shown for the Investments business only, see Note 2(c) of the Group financial statements for a breakdown of total group revenue by geographical location.
Our capabilities
Public markets
Fixed income
We are one of the UK's leading global fixed income managers with £120bn of AUM across credit, government bond and money market funds in developed and emerging markets.
The outlook for fixed income is very positive following the 2022 reset of bond prices and years of operating in a low-yield environment. abrdn's deep and proven credit expertise positions the business well to support clients as flows into fixed income accelerate against a backdrop of economic recession and the resulting pressure on corporate earnings.
Equities
Our equities franchise is organised into two segments.
Our Asia and emerging markets capabilities, reinforced by robust investment performance in China A and Asia Pacific strategies, position abrdn well in this segment as China reopens.
Our Global Developed Markets team generates investment ideas aligned to three distinct outcomes: Sustainability, Income and Small Cap. Leveraging a globally-situated research capability, the team is becoming more focused on these specific areas of specialism, where we are able to offer both strength and scale.
Multi-asset
Our multi-asset team designs solutions to meet the needs of three client segments.
Through our historic expertise in insurance, we help to provide clients with solutions to their complex needs, most notably our strategic partner Phoenix Group.
Our breadth and depth of experience supporting pensions results in a broad range of solutions, including our UK Defined Benefit Master Trust, launched in 2022.
There are significant growth opportunities in the UK and Asian savings and wealth markets. In the UK we currently manage £16bn of AUM in packaged solutions, including MyFolio and Diversified Income and Growth, which, combined with the customer access afforded by our Adviser and Personal vectors, position us well in this space. We have also established our WealthTech Hub, a cross-team group focused on commercialising our market-leading UK investment technology solutions in Asia.
Alternatives
Real assets
We are a leader in UK and European real estate with notable specialisms in residential and logistics. This is evidenced by our recent partnership with John Lewis and our management of Tritax Big Box, the UK's largest listed investor in quality logistics warehouses and owner of the UK's largest logistics-focused land platform.
In 2022, we commenced fundraising for abrdn Core Infrastructure III, targeting a fund size of €1bn, and by
31 December 2022 the fund had raised over €400m. The fund aims to invest in opportunities across the utilities, energy, transportation and digital segments.
Private credit
We offer clients access to the major areas of European private credit, including commercial real estate debt, infrastructure debt, corporate private debt and fund financing among other areas.
Private equity
Our private equity and venture capital team operates as a bespoke business unit, providing capabilities in pooled and segregated vehicles to clients seeking diversified exposure to primary, secondary, venture and co-investment opportunities.
Hedge funds and ETFs
We use our global knowledge and access to hedge fund managers to identify and bring together the most compelling opportunities the sector can offer. We offer global hedge fund and diversification strategies across the liquidity spectrum. Using a disciplined and proven research-driven investment process, we create portfolios to target a range of investor outcomes and risk-reward requirements.
For the third straight year, abrdn's range of commodity ETFs generated positive inflows, finishing the year with £6bn of AUM.
Our progress in 2022
Achieving strategic clarity
In 2022, we made further progress on the refocusing of the Investments vector, away from a broad waterfront approach towards our goal of a simpler business that is concentrated on those areas where we have strength and scale. To achieve this, we have adopted a strategy designed to focus on our core competencies, across the two distinct public markets and alternatives groups.
Our Public markets business generated revenues of £746m in 2022. We have three clear strategic objectives with respect to the Public markets business:
- Narrow our focus to our core investments competencies.
- Improve investment performance to underpin a return to growth, reinforced by our recent appointment of Peter Branner as Chief Investment Officer, joining in Q2 2023.
- Increase operational efficiency through rationalising funds, improving systems and closing non-core capabilities and markets.
Demonstrating our continued commitment and confidence in the closed-end fund space, in December 2022 we announced that we were set to acquire and reorganise four funds from Macquarie Group subsidiary, Delaware Investments. This would see approximately $750m merge into three existing abrdn closed-end funds, with minimal additional operating cost and estimated revenues of approximately $10m.
Our Alternatives business generated revenues of £324m in 2022. Benefiting from market trends such as growth in urbanisation and infrastructure development, this business has strong track records across the significant majority of its AUM and has delivered resilient flows and revenue growth. Our strategic focus for this business is to accelerate asset raising.
Simplifying our business
In 2022 we undertook a review of our fund and product suite to ensure we continue to offer what our clients want. Having reviewed c550 funds, we concluded that only 20%, covering AUM of around £7bn, were sub-scale, inefficient or no longer aligned with our core strengths. We have taken steps to merge funds where viable to reduce duplication and simplify our offering. Globally we merged or closed 58 funds in 2022, primarily within equities, fixed income and multi-asset. In 2023, we intend to merge or close a further 80 funds. As funds are merged, we minimise decline in revenue associated with these funds while improving our cost/income ratio and continuing to deliver client outcomes.
As part of our commitment to exiting non-core businesses that no longer align to our overall strategy, we have taken steps to simplify our footprint in Asia Pacific. In July 2022, we announced the closure of our office in Taiwan, appointing Manulife Investment Management (Taiwan) as abrdn's Master Agent. We have also announced the closure of our Australia office and our intention to establish a strategic partnership with SG Hiscock. These partnerships help us to reconfigure global operations around our growth strategy and focus on our core markets.
Consolidating our middle office services onto a single arrangement is an important step towards increasing capacity and delivery of client service. We completed this consolidation in October 2022, which included migrating onto a single provider for performance and client reporting.
Further simplification steps are planned for 2023. A significant process execution event occurred during 2022 which resulted in a loss and has been thoroughly investigated. See Note 34 of the Group financial statements for further details.
Evolving our client proposition
During the year we accelerated fund development and launches in areas of growth, with net flows into products launched in 2022 exceeding £800m. We launched six new products in 2022, the same number as we did in 2021, including:
- Commercial Real Estate Debt fund II, with net flows of £205m.
- Eclipse HFRI 500 fund, with net flows of £115m.
- Global Risk Mitigation (GRM) fund, with net flows of £178m.
We are continuing to develop new funds to support clients' sustainability goals including the MyFolio Sustainable Index range launched in 2022. In compliance with level one of the EU's Sustainable Finance Disclosures Regulation (SFDR), we have also been converting our range of SICAV funds to comply with SFDR Article 8 and 9, which reflects the importance of ESG considerations in the investment opportunities we seek. In 2022 we converted 27 of our funds to Article 8 and 9.
The sustainable index strategies which we manage and developed in partnership with our client Phoenix are used for over 90% of the assets within Standard Life's new default workplace pension solution, raising over £10bn in assets in the year.
Read more about our strategic focus on sustainability on pages 28 to 39.
We are strengthening our position in the development of the digital assets ecosystem, establishing partnerships to help our clients benefit from the digital assets value chain. In becoming the largest external investor in Archax, the UK's first regulated exchange and trading platform designed to bring digital assets to capital markets, we are building important capabilities and knowledge. We are also the first asset manager to join the governing council of Hedera, which is at the forefront of enabling the migration of traditional investments onto distributed ledger technology.
|
Our strategic focus - Complete the repositioning of our Public markets business to focus on core strengths. - Improve investment performance, with clear structure and leadership. - Accelerate growth in Alternatives franchise through dedicated and accountable leadership and resources. - Continued focus on growth in Asia - on enabling our clients in Asia through our global offerings, and on growth of clients globally who invest into our capabilities managed in Asia. - Delivery of net cost savings of c£75m are targeted in 2023 - read more on page 51. |
Our vectors - Adviser
Growing from a market-leading position
Our Adviser business provides financial planning solutions and technology for UK financial advisers enabling them to create value for their businesses and their clients. We offer a combination of tools and services personalised to their needs, including access to the full suite of investment solutions that abrdn offers as well as a wide range of open architecture investment options.
"We want to enable advisers to grow their businesses in line with their ambitions, by helping them to unlock capacity to serve more clients. We are building solutions that we believe make us the obvious choice for adviser businesses to partner with because we aim to make it as easy as possible for them to focus on what's most important, their clients."
Noel Butwell
CEO, Adviser
|
50%
of UK advice
|
|
430,000 customers |
|
2,600 Adviser firms
|
|
AKG A rating for financial strength, the only platform business with this rating
|
|
No. 1 for 13% market share
|
|
97%
client retention rate
|
|
Platinum rated by AdviserAsset and Gold rated by Defaqto |
|
Best platform
Schroders UK |
|
A compelling market opportunity We are well-placed to drive growth in an attractive market for UK adviser platforms. |
|
Performance overview Performance and profit delivered in 2022 reflect our resilience in a challenging environment. |
|
'Optimistic' Adviser +16% |
|
AUA £69bn |
|
'Optimistic' Adviser +11% |
|
Adjusted operating profit £86m |
|
Adviser platform +16% |
|
|
|
abrdn £69bn |
|
|
1. Source: Fundscape Q3/Q4 2022 releases.
A compelling market opportunity
The need for individuals to take on more personal financial responsibility continues to drive the demand for quality financial advice. The current macroeconomic environment has created uncertainty and, for customers, the need for advice in such environments increases in order to navigate volatility. However, as the demand for advice continues to far outpace supply, the savings and advice gap in the UK could run well beyond 20 million people. Advisers also remain capacity- constrained, the key constraint for which is fragmented technology for servicing clients through the whole cycle of onboarding, reporting and review.
Our technology solves that pain point for advisers. We put abrdn's strength to work for advisers, enabling them to look after their clients' data securely, while providing insight to make better decisions in areas ranging from regulation to taxation. We deliver client-led outcomes by building technology and investment solutions around advisers' and their clients' needs, delivering a personalised service to suit every type of business and client.
Our adviser platform is ranked number 1 in the UK with a leading share of AUA on our platform at £69bn. We partner with over 2,600 UK adviser firms with around 430,000 customers in total. This market for financial advice is compelling and we can see strong growth patterns. Over the last 10 years, the assets in the adviser platform market have grown at a 19% CAGR and the realistic forecasts from Fundscape for the period through to 2027 indicate growth at an 11% CAGR in spite of the current market conditions.
Growing from a market-leading position
Our leading position by AUA in the market places us right at the centre of this opportunity. Our focus is on expanding our service to our existing clients by creating capacity for them to further grow their business and to attract new clients of their own.
We are building solutions that we believe make us the best partner for advisory businesses. Our service proposition makes it as easy as possible for them to focus on their clients, reducing the administrative work and enabling them to focus on delivering high quality advice. We offer fast, self-serve solutions, along with live support that enables advisers to simplify the way they operate, increase capacity and therefore allow more time to focus on meeting their clients' needs.
We have focused our proposition on the top five things that advisory businesses tell us they value when they are selecting their primary platform. They want:
- good online functionality
- financial strength and stability
- lower overall cost
- efficient administration
- a full range of wrappers.
Today we have a strong position in this space, with tools and technology underpinning our operating model. Our Adviser Experience Programme is driving us further forward, with huge strides being made in these key areas. Despite some challenges around timescales, the recent delivery of technology enhancements to our platforms will further support advisers to unlock capacity and grow their client bases:
- Our online functionality continually evolves, from the basics of the look and feel moving to modern processes, to the rewiring of journeys to remove unnecessary steps or make them more intuitive.
- As we grow the functionality we further improve the value for money.
- We have invested in our service technology, with clients able to benefit from new contact centre tools, rich management information and tracking, and we are pushing this further with fully online processes and transaction tracking.
- We have added the Junior ISA, with more to come including the Junior SIPP and access to third-party products.
- We are the only platform A-rated for financial strength by AKG, an independent organisation offering assessments, information and support to the financial services industry.
- We are targeting world-class customer satisfaction scores, building on our end of 2022 Net Promoter Score of 57 and Customer Satisfaction Score of 95%.
According to research from Investment Trends, advisers want to increase client numbers by an average of 16%. Their challenge is to unlock capacity constraints in their businesses. This is the opportunity for us as our technology is cutting edge and solves that pain point for advisers. The more advisers who use our technology, the more customers we can serve.
Our progress in 2022
1 Putting our strength to work for advisers and their clients
Our Adviser Experience Programme has informed our investment decisions and we have enhanced our offering in 2022, which has included the launch of our Junior ISA and continued work to simplify our processes. We have invested in delivering a new contact centre and customer portal, and we committed to delivering in early 2023 a new adviser interface with increased personalisation.
We have partnered with industry leaders such as Salesforce and Amazon to drive cutting edge technology into client engagement. This technology measures and improves service in real time. It is therefore critical to improving the experience for advisers and their clients and freeing up advisers' capacity to take on new business. We answer more than 1,000 phone calls a day, with an average speed to answer of nine seconds on our Wrap platform, so efficiency is critical to client service.
We launched the Junior ISA in response to increasing demand from advisers for more family wealth planning solutions that can be managed alongside their existing client investments. The Junior ISA is the first step we are taking to create a family office environment on the platform and we will be developing a Junior SIPP as part of our overall solution.
We continued to support advisers with understanding and meeting their regulatory requirements. The Financial Conduct Authority's new Consumer Duty rules, for example, represent a significant piece of regulation for raising standards of consumer care across the financial services industry. We created practical guidance and materials to help advisers ensure that they were ready to take the immediate steps required in 2022, as well as to understand the longer-term impacts.
2 Performance and efficiency in a challenging environment
We are building on our Adviser Experience Programme to drive growth in gross and net flows, through a focus on three key pillars:
- Expanding wrappers per customer amongst our existing base.
- Increasing the number of primary firms we partner with (46% of AUA at the end of 2022 was from our primary partners).
- Growing our adviser base through advocacy and experience.
Flows have been impacted industry-wide in 2022 by economic pressures including rising inflation and higher interest rates. Despite this, the core drivers of medium-term flows remain and our Adviser business saw another year of net inflows at £1.6bn (2021: £3.9bn). Despite challenging market conditions and lower assets under administration, the Adviser vector's strong and higher-margin business model has also delivered another year of revenue and profit growth. Net operating revenue increased by 4% benefiting from rising interest rates and a broadly stable platform charge. Coupled with continued cost management, this has delivered an adjusted operating profit of £86m, up 16% compared to 2021.
Our long-term strategic relationship with FNZ to handle custody and administration of our platform leverages the scale of FNZ to secure an advantageous low-cost model.
3 Measuring our progress
Industry recognition can make an important difference when advisers choose who to partner with. As well as our 'A' rating by AKG for financial strength, which is one of the stated top reasons for advisers selecting their primary platform, we are 'platinum' rated by AdviserAsset and 'gold' rated by Defaqto. We also won the Schroders award for the best large platform for the ninth year running, which importantly is voted on by advisers throughout the UK.
We have continued to see an increase in the number of adviser firms using us as their primary partner. In 2022 there was a 1 percentage-point increase in primary users of abrdn Wrap, up to 11% from 10% in 2021. When advisers use our solutions as their primary platform, we see new business increase. Our research tells us that more than 70% of new business from an adviser firm goes on the primary platform, as our processes and capabilities become more embedded in their own business. As a result, client retention also improves.
|
Our strategic focus for 2023 - Continuing to focus on delivering new platform functionality through phase 2 of our Adviser Experience Programme, to maintain our market-leading position and deliver increased capacity for our clients. - Launch of our new fully online abrdn SIPP and Junior SIPP products, creating new revenue streams with no additional cost to clients. - Establishing new growth opportunities associated with model portfolios for advisers across the UK, more firmly integrated into our platform solutions. - Increase in the number of products held by existing customers through the launch of a new SIPP, Junior SIPP and increased consolidation within existing wrappers. - Extending our primary partnership penetration by leveraging our total offering to all sizes of IFAs in the UK. - Preparing our clients for the successful and safe launch of the Consumer Duty later in 2023. |
Our vectors - Personal
A leading direct-to-consumer business
Powered by the UK's second largest direct-to-consumer investment platform, our Personal vector enables individuals in the UK to plan, save and invest in the way that works for them. The acquisition of interactive investor (ii) has transformed abrdn, positioning us for growth as one of the UK's leading personal wealth businesses in a market with strong long-term structural dynamics.
"The continuous evolution of our proposition will help us to deliver better customer outcomes. With ii joining the abrdn family, we are positioning the vector to serve customers at all life stages, harnessing abrdn's broader capabilities to develop and grow what is already one of the UK's leading direct-to-consumer wealth platforms."
Richard Wilson
CEO, Personal
|
AUMA £67bn
|
|
Adjusted operating profit £72m
|
|
Interactive |
|
Personal |
|
402,000 Total customers
|
|
27,000 Clients1
|
|
29,000 New customers added in 2022 |
|
£440m Financial planning gross flows to abrdn Wrap
|
|
£435 Revenue per customer
|
|
Top 10 UK financial planning platform for gross flows (Finscape, 2022) |
|
£134,000
Industry-leading |
|
|
|
17.3k
Daily average |
|
|
Focus on ii
We completed our acquisition of ii, the UK's second largest investment platform for private investors and the number one subscription-based provider, in May 2022. The acquisition has transformed our position in the UK savings and wealth market. ii's platform enables retail investors to access a broad range of investment and savings products and its simple subscription-based pricing model helps to set ii apart. ii brings additional growth opportunities and diversification to abrdn's revenue streams and its subscription-based model and efficient operating model provide a high degree of financial resilience.
As well as helping us to build a leading position in the UK direct investing market, ii complements and adds strength to our existing offering for individual investors where our financial planning capabilities support clients with larger, more complex financial needs.
Challenging market conditions in 2022 have impacted short-term investor confidence and customer acquisition has decreased from the highs seen in 2021 as a result. However, ii's leading proposition and platform have led to ii continuing to increase its market share of AUA compared to prior year (Source: Compeer Q3 2022 report) and deliver strong growth in both revenue and operating profit.
Financial performance
Results for ii are included within abrdn's full year 2022 results only for the seven-month period to 31 December 2022 following the completion of the acquisition.
For comparative purposes, ii's results for the 12 months to 31 December 2021 and 2022 are set out below:
|
|
FY 2022 |
FY 2021 |
Change |
|
Net operating revenue3 |
£176m |
£128m |
38% |
|
Adjusted operating expenses |
(£82m) |
(£83m) |
(1%) |
|
Adjusted operating profit |
£94m |
£45m |
109% |
|
Cost/income ratio |
47% |
65% |
(18ppts) |
Key operational metrics:
|
|
FY 2022 |
FY 2021 |
|
AUA |
£54bn |
£59bn |
|
Net flows4 |
£3.6bn |
£5.8bn |
|
Total customers at period end |
402k |
403k |
|
Total customers excluding EQi and Share Centre migrated customers |
300k |
292k |
|
New customers |
29.2k |
47.4k |
|
AUA per customer |
£134k |
£145k |
|
Daily average retail trading volumes |
17.3k |
21.9k |
ii performance highlights (full 12 months)
- ii has performed ahead of our original expectations and is on track to deliver the planned double-digit earnings accretion in 2023.
- Revenue was up 38%, with a reduction from lower trading transactions being more than offset by an increase in treasury income as interest rates recovered from the historic lows seen in 2021.
- ii's operational leverage achieving an efficiency ratio of 15bps/AUA means this translates into a 109% increase in adjusted operating profit with cost/income ratio improving to 47%.
- Total customer numbers were 402,000 at 31 December 2022, compared with 403,000 at December 2021. Over the year ii added 29.2k new customers. This was offset by the loss of mainly less active customers who had been brought onto the platform through historic customer book acquisitions. Excluding the tail run-off of the two most recently acquired books, Share Centre and EQi, net customer growth for the year was 3%.
- Net flows remain strongly positive at £3.6bn albeit down from the record levels seen in 2021.
- AUA per customer of £134,000 is industry-leading.
1. Includes double count of clients of both the discretionary and financial planning businesses.
2. Adjusted operating profit for FY 2021 has been presented to exclude losses relating to Share Limited ('Share') to provide a more meaningful comparison to the go-forward position. The FY 2021 adjusted operating profit of £45m excludes losses relating to Share of £9m while part of this business was wound down. Including losses from Share, the FY 2021 adjusted operating profit was £36m. The FY 2022 impact was £nil. See Section 9.1.4 of Supplementary information for further details.
3. Net operating revenue includes trading transactions, subscription fees and treasury income. See Section 9.1.4 of Supplementary information
4. Cash dividends which are retained on the ii platform are included in net flows for the ii business. See the Glossary for further details.
Transforming our position in the UK savings and wealth market
More and more people are now investing independently of the institutions they previously relied on. With improved direct-to-consumer technology and lower costs to investment many are now accustomed and confident to operate self-service for investments and other financial transactions. Better tools continue to be developed to help these consumers make informed investment decisions for themselves and to enable participation of many others in the market. This notwithstanding, we see an enduring need for the reassurance of financial guidance, support and advice, demand for which, we believe, will continue to grow.
Within our Personal vector, we empower clients to be better investors at all stages of their financial journey. To maximise growth synergies, we realigned our existing Personal Wealth business - discretionary, digital advice and financial planning - to sit under Richard Wilson's leadership when he was appointed CEO of our entire Personal vector in August 2022. Richard joined the abrdn group in May 2022 as CEO of ii.
We aim to leverage the deep knowledge within the Personal vector and its digital operating platform to transform ii from the UK's leading subscription-based self-directed platform into the UK's leading D2C wealth platform.
Together, the high-tech, high-touch models of ii and abrdn offer a range of propositions to enable clients to become better investors. Richard is evolving the newly combined Personal vector to deliver an end-to-end client proposition, from simple online transactions to more complex financial advice, ensuring its offerings and scale are appropriate to deliver growth in revenue and operating profits.
The Group has agreed the sale of avrdn Capital its discretionary fund management (DFM) business to LGT. The sale is expected to complete in the second half of 2023, following satisfaction of certain conditions, including receipt of customary regulatory approvals.
In order to succeed in the longer term in the DFM market abrdn's view is that this part of the business would need to build much greater scale. With abrdn's strategy for its Personal vector focused on integrating the high-tech, high-touch model of ii with financial planning, abrdn has concluded that another owner would be better placed to invest to deliver greater scale in the DFM business.
abrdn's Managed Portfolio Service (MPS) business which is currently part of the DFM business is better aligned to its group strategy and will be carved out and retained prior to completion of the transaction. abrdn views MPS as an important growth channel that aligns well to the way that the UK personal investment market is developing. The MPS team will be moved to sit within abrdn's Adviser vector in order to maximise opportunities available through that business distribution model.
A resilient operating model benefiting from strong operational leverage
The current economic environment in the UK remains challenging for all industry participants. Volatile market conditions and increasing economic uncertainties have impacted the rate of new customer acquisition and, since the first half of 2022, the levels of customers' trading activity.
ii has diverse sources of income which continue to record strong overall growth in continually changing market conditions. This is underpinned by its subscription-based model which means ii is less dependent than others on stock market levels. This model is favoured by customers because customers' costs do not increase with the value of their investments, which means more money working for them.
Revenue from subscriptions has continued to grow, increasing by 17% to £56m for the full 12 months, reflecting growth in average numbers and quality of customers. Despite flat year-on-year total customers, the number of customers holding a SIPP account increased by 17% to 51.5k.
Although ii's share of the UK cash market trades increased by 2 ppts to 25% (Source: Compeer Q3 2022 report), ii's daily average retail trades reduced to 17.3k as a result of the reduction in investor confidence, leading to a drop of 30% in revenue from trading transactions to £55m. Whilst down from the peak experienced in 2021, they remained above the levels seen pre-COVID.
Revenue benefited from interest rates rising significantly throughout 2022 following the exceptionally low levels in 2021. Treasury income contributed £71m compared with £9m for 2021. Over the year ii's average cash margin was 120bps and the indicative ii average cash margin for 2023 is 160-170bps. Customer cash balances at 31 December 2022 were £6.0bn, around 11% of AUA.
ii's operating model also benefits from strong operational leverage. This is combined with a focus on cost effectiveness which is embedded across the organisation. This means that ii has delivered a net operating revenue increase of 38%.
Our progress in 2022
In 2022 we made significant progress towards our objective of becoming the UK's leading direct-to-consumer wealth platform. This has been driven by ii, which is the largest part of our Personal business. Its growth is underpinned by three drivers: strength of the platform, compelling pricing and scale of the customer base.
1 Strengthening our platform
ii already has a highly scalable platform powered by future-fit digital and data infrastructure that will support substantial further growth. The ii platform was further strengthened over the past year:
- Expanded its pension offering, launching a low-cost, standalone Pension Builder SIPP.
- Upgrades delivered to its mobile trading application, with enhancements to information on transaction history, cash withdrawals and regular investments.
- Core website improvements implemented in January 2023.
The strength of the platform has also been recognised externally:
- Consistently rated 'Excellent' on Trustpilot, with more five-star ratings than the combined total of the rest of the D2C sector.
- Platform of the Year and Best Low-Cost SIPP at the Celebration of Investment Awards, as voted by readers of Investors Chronicle.
- ii's SIPP is recommended by Which? and gives people choice and flexibility to support a wide range of direct pension investors.
- ii's Stocks and Shares ISA was rated the best low-cost ISA over £50,000 by Boring Money.
2 Compelling pricing
ii continues to innovate its subscription-based pricing bundles. The Friends and Family pricing bundle is designed to attract younger customers and those with smaller investment portfolios. It enables up to five friends and family of existing customers to each join ii without paying a monthly subscription fee.
In February 2023 ii launched Investor Essentials, an entry-level addition to its subscription service. Through this service plan customers can now invest up to £30,000 for £4.99 a month. They benefit from free regular investing and competitive trading fees of £5.99 for funds, investment trusts and UK/ US shares, all with the same choice of investments.
3 Evolving the customer base
An important focus during 2022 has been on growth through ii's existing customer base:
- ii has substantially increased the scale of our Personal vector, adding over 400,000 customers.
- While the impact of market conditions and increasing economic uncertainties meant that customer numbers remained relatively flat during 2022, ii has seen a continuing trend for a reduction in customer lapse rates - the rate at which customers choose not to renew their accounts - across all segments. In 2022, ii added 29.2k new customers. This was offset by customer lapses. After several years of acquiring customers through customer book acquisitions, ii's customer lapsing rates remained inflated in 2022 from the natural lapsing and inactivity of some low value acquired customers. Acquired customers were migrated from Share Centre and EQi in 2021 and in 2022 books had lapse rates of 12%, compared to the wider customer base where lapsing was 5%.
- ii's focus on its SIPP continues. ii has 51.5k SIPP customers, which represents 13% of ii's customer base, and there is potential for that to increase significantly to peer levels which are around 25-30%. SIPP customer lapse rates are significantly lower than non-SIPP holding customers.
- The launch of Investor Essentials allows ii to attract a new customer demographic. This plan is designed to appeal to investors with less to invest and those at the beginning of their investment lifecycles. This product is well positioned to deliver strong customer growth and we also expect ii to be able to upsell these customers to its full offering during their investment journey.
As we move ahead, there is an increasing focus on diversifying the client base through the connectivity within the vector and our three-vector model:
- We are increasing the digital content and online capability for clients through online tools and resources in addition to the support they receive from an adviser.
- We are exploring how we connect ii and abrdn clients so that they can benefit from all of our offerings. This ranges from simple online transactions, advice and support with investing, to wealth management for private clients, including tax, trust and estate planning.
The need for financial advice is increasing. In November 2022 the FCA outlined plans to create a new regime aimed at giving 'mass market' consumers access to simplified advice. This presents an opportunity for ii to explore new customer segments, as the wider financial services industry looks to find simple solutions that can break down barriers to advice, increase customer confidence in accessing investment markets and thereby, crucially, reduce the advice gap.
|
Our strategic focus for 2023 - Integrate our Personal vector and ii, and leverage abrdn capabilities in investments and advice. - Focus on organic growth with targeted investment in brand, marketing and product. - Introduce auto-investing solution. |
Sustainability priorities - 2022 in review
Strategic focus on sustainability
Delivering for our clients, our people, and supporting a credible transition toward
a better world.
While a significant amount of work remains to be done, I am proud of the progress we have made to date.
Stephen Bird
Chief Executive Officer
The existential challenges the world is facing are evolving at an unprecedented rate and continue to increase in complexity. The pressures on businesses to take stronger stances and help solve these crises have also increased. Our role is to enable our clients to navigate the sustainability impact of their investments, lead by example in our own operations and by collaborating with partners and third sector programmes to drive societal change.
Climate change continued to dominate the sustainability landscape in 2022, with extreme weather devastating many parts of the globe. At the same time, it is estimated that over 90% of global GDP has been committed to net zero1. However, there is increasing scepticism around the credibility of decarbonisation actions towards net zero by 2050. COP27 was an important milestone focused on addressing climate justice and adaptation but did little to provide the credible policy incentives needed to limit warming to 1.5°C. However, we saw encouraging progress in moving action forward to preserve natural capital through the Global Biodiversity Framework.
2022 was also a year in which the spotlight has been put on transparency, with some progress being made towards disclosure standardisation. Expected changes to mandate clear, comparable disclosures from companies across jurisdictions and a focus on greenwashing mean the landscape has, and will continue to, evolve awareness, and increase expectations. We are supportive of consistent mandatory disclosures as we believe they will provide decision-useful information for investors and drive positive change from a corporate perspective. That said, it is acknowledged that international standards are yet to coalesce and there are uncertainties related to interoperability between jurisdictions. This will be a challenge to manage both as a corporate, and as investors as we assess the relative risks and opportunities of the companies we invest in on behalf of our clients.
Evolving our transparency
We continue to evolve our governance frameworks, most notably in 2022 through increased collaboration with our finance and audit functions. We are focused on this in readiness for the emerging global standards for sustainability disclosure.
In 2022, a new phrase entered the sustainability vocabulary - 'greenhushing', as the antithesis of 'greenwashing', is used to label companies lacking transparency as to their sustainability-related actions, and intentions. The introduction of greenhushing highlights the delicate balance between overstating our actions and being transparent about our activities. To help manage this, we have increased our efforts to drive education across our business and evolve our marketing and communication approval process.
Taking collective action
If 2022 was the year of transparency, 2023 must be a year of collaborative action. A significant acceleration of activity - individually, collectively, and globally is required to address material sustainability topics.
We are focused on addressing our material sustainability topics and our public targets address the issues commonly considered material for our business - as we look to reduce the impact we have on the climate and support a fairer and more inclusive society.
The evolving sustainability landscape means periodic assessments of material sustainability topics are more relevant than ever to ensure we understand the potential impacts to our business, communities, and the natural world. Our most recent assessment, completed in early 2023, reflects our latest understanding and will support our thinking as we increasingly integrate sustainability into our business and strategy. We detail the process, and outcome of our assessment in our Sustainability and TCFD report on pages 83 to 86. Our strategic focus on sustainability is a commitment to invest in our own capabilities, follow our view of best practice, and enable better investment for our clients.
1. Net Zero Tracker. Energy and Climate Intelligence Unit, Data-Driven EnviroLab, NewClimate Institute, Oxford Net Zero. 2022.
|
|
Environment Progress and ambition |
|
Our focus |
- Reducing the carbon intensity of our portfolios and absolute emissions from our direct operations. - Acting as a positive catalyst for the net zero transition and influencing real-world decarbonisation. |
|
Our targets |
-
Reduction of the carbon intensity of assets we invest in by 50% by 2030 from a 2019 benchmark. - We are targeting net zero1 by 2040 in our direct operations, with an interim target of a 50% emissions reduction by 2025 versus our 2018 base year. Read more on page 39. |
|
Our progress |
-
We set our target for the reduction of the carbon intensity of assets we invest in 2021 and report our first progress against this target. As at 31 December 2022, in-scope public market portfolios achieved a carbon intensity reduction of 27% versus a 2019 baseline. As at 31 December 2021, - We have reduced our operational emissions by 56% since 2018 (2021: 62%), with emissions from business travel increasing in 2022 following the easing of travel-related restrictions associated with the COVID-19 pandemic. |
|
Our Task Force on Climate-related Financial Disclosures (TCFD) summary report is on pages 30 to 39 and our full TCFD disclosure is included in the Sustainability and TCFD report, available at www.abrdn.com/annualreport |
|
|
|
Social Inclusivity and opportunity |
|
Our focus |
- Increasing diversity, equity, and inclusion at all levels, and in all areas, of our business. - Supporting a fairer and more inclusive society and creating opportunities for our communities. |
|
Our targets |
- Board and senior leadership targets of 40% women, 40% men and 20% any gender by 2025. - Equal gender representation in our global workforce by 2025 (+/-3% tolerance). - One additional board member who identifies as ethnic minority by 2025. |
|
Our progress |
- Board comprised 45% women, 55% men and Senior Leadership comprised 39% women, 61% men at 31 December 2022. - Gender representation of global workforce was 43% women, 57% men at 31 December 2022. - We have reduced our UK gender pay gap for the fifth year in a row and are listed as having the highest percentage of female fund managers of any large firm in Citywire's Alpha Female Report. - 52% of graduates joined abrdn from a diversity partnership in 2022 (up from 37% in 2021). - We continued to support tomorrow's generation through our charitable giving. More on this on page 43 and in our Sustainability and TCFD report at www.abrdn.com/annualreport |
|
You can find out more about our people strategy, including more detail on our targets, on pages 40 to 43. |
|
|
|
Governance Integrity and transparency |
|
Our focus |
- Operating with integrity and transparency at all levels of our business. - Continuing to integrate sustainability risks and opportunities into our strategy and decision-making. |
|
Our progress |
- In 2022 we integrated climate-related performance metrics into our executive remuneration scorecard. The scorecard continues to include people metrics. Read more on pages 103 to 130. - We received a AAA MSCI ESG Rating in April 2022 and continue as constituents of the Dow Jones Sustainability Indices (DJSI) in the 2022 assessment year. |
|
Read about our stakeholder engagement and Section 172 statement on pages 44 to 47. |
|
1. See the Glossary for definitions of key climate-related terms including net zero.
Sustainability - Environment
Our commitment to tackling climate change
Last year, we outlined our net zero-aligned ambitions and continue our progress, with a focus on enabling clients to achieve their climate goals through real world impact.
To achieve a credible and just net zero transition, we all need to do more. Globally, 2022 was another year of rising emissions and limited progress for climate policy that provides effective incentives to decarbonise at the pace and scale needed to achieve net zero by 2050.
Our ambition is to be a catalyst for net zero, in support of Paris Agreement objectives, and we can report progress against our target to reduce the carbon intensity of the assets we invest in on behalf of our clients. We are targeting a 50% reduction in the carbon intensity of our portfolios by 2030 versus a 2019 benchmark and we are on track with a 27% reduction across in-scope public market portfolios as at 31 December 2022 and 31% reduction for in-scope real estate as at 31 December 2021. Assets in-scope for our target represent 30% of our total AUM. This is driven by data availability, maturity of methodologies and control over decision-making (more on page 38).
It is important to reflect that this process will not be linear and that a credible transition requires real-world decarbonisation, not just in portfolios. Our climate strategy therefore centres on active investments in transition leaders and backing firms on paths from high to low carbon intensity. It is not enough to simply divest from carbon intensive companies, which is why a focus on transition credibility is key to our process. We assess this through proprietary analysis and through direct engagement with our highest-financed emitters where we believe we can actively influence decision-making1.
In our own operations, we are targeting net zero by 2040, with an interim target of a 50% emissions reduction by 2025 (versus our 2018 base year). We continue our progress towards this target and a 56% reduction as at 31 December 2022. Our own transition to net zero is underway and we will outline our pathway in line with the UK Transition Plan Taskforce Disclosure Framework in 2023.
The 27th United Conference of the Parties on Climate Change (COP27) took place in Egypt in 2022 and we joined others in advocating for binding policy commitments to address the implementation and credibility gaps we have observed. Alongside highlighting the role investors can play in achieving real-world decarbonisation, which we believe requires an enabling policy environment with the right incentives for capital allocation.
|
Statement of the extent of consistency with the TCFD framework We continue to support disclosure against the recommendations of the TCFD framework. This is critical for us as investors as we assess our exposure to climate-related risks and opportunities beyond our physical operations. We believe our own disclosure is consistent with the 11 recommendations of the TCFD framework. In line with our 2021 approach, we provide disclosure at two levels of granularity. The following 9 pages of this report provide a concise overview against the 4 recommended pillars, and the full required disclosure is provided as a discrete section of our Sustainability and TCFD report. We believe this approach is currently necessary to reflect the detailed and technical nature of the recommendations. The availability of climate-related data continues to be a challenge, with inconsistent disclosures by region. We recognise that methodologies and our internal data processes may continue to evolve over time and we will review our approach as appropriate. This may lead to changes in our metrics and our reporting of progress in future periods. However, we advanced our capabilities in 2022, with the introduction of expanded metrics related to our investments that align with the recommendations of the Partnership for Carbon Accounting Financials (PCAF), which we have joined. We will continue to evolve and enhance our TCFD reporting, in line with data and industry developments.
|
|
What is net zero? It is generally accepted that net zero is the target of completely negating the amount of greenhouse gases produced by human activity. The following pages outline our ambition to decarbonise in line with this view, and in support of the objectives of the Paris Agreement. We do not yet have all the data required to determine what 'completely negating' means for abrdn, but we do have sufficient data to monitor our progress against specific interim milestones, which are outlined in this report. Our next milestone will be to produce a Transition Plan, in 2023, which will build on our existing objectives and consolidate our long-term approach. |
1. Highest-financed emitters refers to the absolute tonnes of CO2 equivalent that are financed across both equity and credit holdings. The metric attributes ownership of emissions based on the percentage of enterprise value including cash (EVIC) owned by the investor.
Governance
Our approach
In line with the recommendations of the TCFD, we have an established climate governance framework with defined responsibilities for our Board and Committees, alongside management's role in assessing climate-related risks and opportunities.
We are also taking a forward-looking view and are advancing our governance beyond climate and towards sustainability as a whole. This approach is aligned to emerging global standards for sustainability disclosure and will strengthen our governance due to the interlinked nature of sustainability topics. Related risks and opportunities can manifest differently across our diverse business and this approach will leverage the strength of our vector model as we apply diverse perspectives, and expertise, to emergent sustainability topics. Our intention in 2023 is to establish a group-wide sustainability decision-making forum to ensure a cohesive abrdn view.
Our Sustainability and TCFD report illustrates our approach in more detail.
The Board's role in oversight
Climate change is a material issue for our business and this is reflected in strategy, risk management, and company culture. The Board and Directors oversee these matters and provide challenge and approval to management recommendations on both defined and emergent issues.
Our Chief Executive Officer takes responsibility for climate-related risks and opportunities and is incentivised, alongside our Chief Financial Officer, through climate-related remuneration targets in variable bonus scorecards, which is aligned to company objectives and set by our Remuneration Committee (more detail on pages 103 to 130).
Our Board and Board Committees oversee a number of climate-related issues and reports. The Board provides oversight for our Sustainability and TCFD report and the Audit Committee provides challenge to management to support readiness for future disclosure requirements.
During 2022, Board agenda items included discussion on progress against our climate commitments, the challenges we face in achieving them, challenges in data quality and availability, and how we engage with our clients on climate change.
Management's role in assessment
Our Chief Executive Officer delegates authority from the Board to our Executive Leadership Team, and in turn to our climate working groups, to support the assessment of climate-related risks and opportunities and to provide related recommendations.
We continue to benefit from the capability of our two climate change working groups - covering both our operations and investments respectively. These groups are key to our climate-related governance structure and consist of subject matter experts from across the business. The groups meet quarterly to review and discuss material climate risks and opportunities and shape strategic approaches to climate change. These groups are key forums for identifying material matters to be escalated through the Executive Leadership Team and to the Board for consideration.
In 2021, a primary focus for the groups was the development of our targets and ambitions - in 2022 the natural focus for our investments working group has therefore been the implementation of our net zero directed investing strategy. With specific focus on net zero aligned investment solutions, climate research and tooling, as well as active ownership.
Our wider sustainability expertise
In early 2022 we announced the evolution of our sustainable investing approach with the appointment of a Chief Sustainability Officer for the Investments Vector alongside a newly established leadership team. The team takes a global view and leads on sustainable investing, active ownership, climate strategy, and sustainability research capabilities. This is further supported by our Sustainability Institutes in APAC and Americas, which provide relevant regional capabilities for our clients and wider reporting obligations. Our abrdn Research Institutes also deliver sustainability research including our climate scenario analysis.
Our operational activity is supported by a distinct sustainability team, which includes a dedicated Environment Manager with focus on climate and advancing our operational net zero ambitions.
These teams support our climate working groups through subject matter expertise - providing insight to enable effective assessment of risks and opportunities and as dedicated resources to support Board oversight.
Our Sustainability and TCFD report includes a visual to illustrate our sustainability governance framework.
Overview of climate-related risks and opportunities
Our sector is exposed to material climate-related risks and opportunities. We continue to assess the potential impacts and monitor this with a view to the resilience of our operations and investment strategies.
The two types of climate-related risks - transition and physical - are linked but will manifest differently. The transition to a low-carbon economy will reflect in markets, policy, and corporate reputation. The physical consequences of climate change will be far-reaching and impact individual operations and communities without discretion. Our day-to-day business is predominantly exposed to transition risk (and opportunity) in the short, and medium term as markets, policy, and reputations come to terms with alignment to a net zero world. This is something we monitor through our climate risk and opportunity radar to ensure we are positioned to realise opportunities and mitigate risks.
The focus of the radar is likelihood and impacts of material risks and opportunities to our business in the short, and medium term. Our climate scenario analysis enables a long-term view of potential implications for our investments and the resilience of our strategies (page 33).
One of the most material transition risks for us relates to enhanced reporting regulations and costs of analysing and gathering climate-related data. We expanded our capability in 2022 but this remains an area of focus as we build out more advanced tools and analysis. Our most material opportunity is the anticipated need for low-carbon financial products and services in line with global economic transitions. This also represents a significant risk should we not be positioned to respond to shifting client preferences. We have outlined sustainability as a strategic focus for abrdn, with further detail on page 12.
|
Climate-related risks |
Potential financial impact to abrdn |
||
|
Transition |
Policy and legal |
Enhanced reporting regulations |
Cost of analysis, data gathering and publication Cost of inadvertent non-compliance due to volume of regulation |
|
|
Market |
Significant shifts on consumer preferences |
Reduced revenue from decreased demand for products Research highlights a high appetite for sustainable investing but education on the topic is a barrier and can create missed opportunities |
|
|
|
Lack of public policy means emissions still increasing |
Uncertainty of pace and direction of public policy evolution creates uncertainty for investing |
|
|
|
Climate-related risks impact the market |
Lower AUMA, impacting clients and reducing revenue |
|
|
Reputational |
Increased stakeholder concern or negative feedback |
Reduced revenue from decreased demand for products Growing litigation risk - both direct and from divestment decisions |
|
Physical |
Acute |
Increased severity of extreme weather events |
Cost associated with damage to office facilities Costs associated with transport and power disruptions Costs associated with damage to IT networks and infrastructure |
|
Climate-related opportunities |
Potential financial impact to abrdn |
||
|
Transition |
Products and services |
Development of lower carbon products and services |
Revenue opportunity from demand for lower-carbon products and services and products with enhanced sustainability performance |
|
|
Resource efficiency |
Move to more efficient buildings |
Reduced operational costs, increased quality of working environment |
|
|
|
Use of more efficient modes of transport |
Reduced operating costs |
|
|
|
Use of more efficient technology |
Reduced operational costs of technology |
Additional detail in our Sustainability and TCFD report.
Building a more resilient strategy using climate scenario analysis
Taking a long-term view
It is vital that investors understand how climate change may affect the investment return of the companies and markets they invest in. The impacts of climate change will be felt across generations. Our climate scenario analysis takes this long-term view to better understand the impacts of physical and transition risks at sector, regional, and individual security levels.
We have been developing our scenario analysis platform for three years and consider this to be an integral part of our climate strategy. We use a combination of bespoke and industry standard scenarios across a range of temperature rises (between 1.3 and 3.2˚C by 2100) and transition pathways up to a time horizon of 2050. This includes a mean probability-weighted scenario that captures our view of the most plausible energy transition.
This year we have expanded our scenario analysis to incorporate company targets. It reflects that companies have the opportunity to proactively alter their strategies and take advantage of transition opportunities. Many companies have set ambitious targets, but some are more credible than others. In response, we have built a bespoke credibility assessment framework to assess target credibility, which will enable us to value securities more accurately and draw finer conclusions from our scenario analysis. We will publish more detail on the application of the credibility framework during 2023.
Climate scenario analysis is a strategic platform for abrdn and we are committed to updating our insights year-on-year. Our analysis is also expanding in 2023 to look in detail at the physical and transition risk for our real assets. It is however important to reflect the output cannot be applied mechanically to investment decisions due to a range of limitations and uncertainties. Key uncertainties are present in relation to policy, technology, and the modelling is reliant on high-quality emissions data at company level.
Our insights from climate scenario analysis are supporting key stages of our investment processes across research, engagement, strategic asset allocation, and investment product solutions.
Resilience of our strategy against climate scenarios
We use scenario analysis to understand how resilient our portfolios are to uncertain future transition pathways. Our core insight is that there is a large dispersion of risks and opportunities both within and between sectors but relatively little impact at the aggregate index level. In general, downward revisions to long-term fair valuations are more common than upward revisions, so greater discrimination in stock selection is required to capture opportunities.
At fund level, our tools enable fund managers to use scenario analysis results to test the valuation impact under different scenarios and against the benchmark. It is important to reflect that this is applicable to in-scope asset classes and the use of the platform is not mandatory for fund managers. Our climate scenario analysis has focused on asset classes in which valuations are largely derived from future corporate earnings streams: listed equities and corporate bonds - our analysis focuses on the financial impacts of climate-transition and physical risk, though in most sectors the financial impact is largely determined by transition drivers.
Our Sustainability and TCFD report includes more detail and initial conclusions from our year three analysis.
Our climate scenario analysis journey to date
|
2020 |
Feb 2021 |
Nov 2021 |
Feb 2022 |
May 2022 |
2023 |
|
Research |
Publication of our first white paper |
Research and year two analysis |
Focus on |
Focus on |
Year three |
Strategic decarbonisation
Our strategy of net zero directed investing is our commitment to enable clients to achieve their climate goals
Sustainability is a strategic focus for abrdn and climate change is near universally recognised as a material issue. We have therefore developed a clear investments strategy of net zero directed investing, which drives our mitigation of climate risk and our intended realisation of climate opportunity for our business.
Our commitment is to influence real world decarbonisation by developing the right products for our clients and using our influence to support credible transition pathways. Our strategy is therefore underpinned by four core beliefs:
- Understanding climate risks and opportunities will improve long-term return for our clients.
- We can support a net zero transition by directing capital to companies and assets with ambition and credibility.
- Our influence as active owners is powerful and we will challenge companies on their transition strategies.
- More ambitious climate policy is needed from governments and we are advocates for action.
Our business is diverse and we have developed approaches for different client needs and outcome expectations. Climate considerations are incorporated to varying levels across mandates and we have been developing specific net zero directed solutions. In 2021 we launched four climate investments strategies and the long-term insights from our scenario analysis platform support our assessment of climate-related risks and opportunities across in-scope asset classes. Our largest client, Phoenix Group, has set a net zero 2050 goal and we are developing strategies to match this ambition - for abrdn, realising the opportunity from the climate transition requires us to be proactive in developing solutions that meet client needs in the near term and we are proactive in our approach.
|
Our operational climate strategy Our exposure to climate risk and opportunity as a corporate entity is predominately transition based as our actions must mirror our high expectations of the companies we invest in, and reflect the ambition of our clients. We are also subject to increasingly significant reporting obligations with a significant focus on climate metrics. Our intention is to lead by example and we have set an ambitious operational target to reach net zero by 2040 (more detail on page 39) and have invested in our reporting capabilities to ensure we are able to meet the expectations of our stakeholders. We are not complacent to physical risks - most likely to manifest as extreme weather events - but we operate with a blended working model, which embeds the necessary agility needed to mitigate risks from disruption. This was tested during the COVID-19 pandemic and we remain confident that the short-term risk is mitigated. |
|
We aim to deliver on our commitment via three pillars of action: |
||||
|
1 |
|
2 |
|
3 |
|
Decarbonisation |
|
Providing net zero solutions |
|
Active ownership |
|
We are committed to tracking and reducing the average carbon intensity of our portfolios where data is available. That means continuing to incorporate carbon analysis into our investment process and supporting credible transition leaders and climate solutions. We have set decarbonisation targets for our investments and operations, which we report on in pages 38 to 39. |
|
We are committed to increasing the proportion of assets flowing into our climate solutions. Around 30% of our AUM is currently expected to be managed in line with net zero 2050. This has still to be reflected in mandates and we aim to increase this by continuing actively engage with our clients, developing capacity to identify climate solutions and supporting net zero goals with our fund range. |
|
We engage with our highest- financed emitters in our equity holdings and seek transparency against transition milestones, which are assessed against relevant standards and our own credibility assessment framework. We support credible transition and use our influence via regular engagement and voting, where we have voting rights. |
Climate-related risk management
Identifying and assessing climate-related risks and opportunities
Our approach to identifying climate-related risk is long standing and remains consistent with prior year reporting. We have two climate change working groups - covering both our operations and investments - that monitor climate-related risk to the business. Our assessment of climate-related risk is reflected through our climate risk and opportunity radar (page 32) that is developed using our risk and control self-assessment process. This process assesses the inherent risk against:
- Likelihood, or the percentage chance of an event occurrence in the next 12 months.
- Impacts, including: financial, customer, regulatory and legal, reputational, and process.
Inherent risks are then scored with due consideration to mitigation strategies and associated controls. Where we identify material risks to the business within the radar we escalate this through our governance structure (page 31). The management process determines whether we mitigate, transfer, accept or control risks.
Acknowledging the accelerating scrutiny
Our assessment of climate-related risk highlights a predominant exposure to transition risk. The material climate-related risks we face are tied closely to our climate-related opportunity. Our ability to meet deemed client demand for lower carbon products and services is linked to our reputation and credibility in the market. Our sector is subject to increased scrutiny and enhanced standards of disclosure.
Our goal is to lead by example - however, international standards are yet to coalesce and there are uncertainties related to interoperability between jurisdictions. This will provide challenge to us as a corporate entity, but also to our ability as investors to assess the relative risks and opportunities of the companies we invest in on behalf of our clients. We are supporters of efforts to establish a global framework and - as early, voluntary, adopters of the TCFD framework - we have demonstrated our support through our actions and disclosure. We continue to invest in our capabilities and have identified sustainability as a strategic priority for the business.
|
Our management in practice One operational example of managing climate- related risk during the reporting year relates to the integration of emissions data from ii into our environmental management systems to ensure relative completeness and accuracy of emissions reporting for the group. We opted to take the additional step to include the full year of ii emissions in-scope for our annual voluntary external assurance of this data to prioritise consistency of this data and mitigate the risk of material misstatement. |
Managing climate-related risks
Our governance framework (page 31) supports the management of climate-related risks and we address asset manager-specific TCFD guidance for products and engagement on pages 36 and 37.
Looking ahead toward a changing landscape
Our assessment of the regulatory landscape and developing stakeholder expectations is that, though climate change will remain material, other thematic sustainability will emerge as points of material focus. This is already true to an extent, but climate-related disclosure has led the first wave of regulatory sustainability standards. We are alert to the shifting landscape and completed our sustainability materiality assessment in early 2023 to better inform our future priorities and understand how our stakeholders view climate versus other emergent topics.
Our Sustainability and TCFD report details the results of our latest sustainability materiality assessment.
Integration into overall risk management
We operate 'three lines of defence' in the management of risk with clearly defined roles and responsibilities (page 64). Climate-related risk is included within our Enterprise Risk Management (ERM) framework, which is subject to Board oversight. Climate-related risk is therefore considered amongst the principal risks and uncertainties for our business (pages 65 to 67). We do not define climate as a singular principal risk due to its close association with other risk categories. In other words, we view climate risk to be material, but it is better perceived through financial or regulatory and legal risk categories when considered at enterprise level.
Investment integration
We manage climate-related risks through our research processes, data, and decision-making
Research is the foundation of our approach to understanding and managing climate-related risks and opportunities. Our research provides insights on regulatory and industry trends across regions. It also helps us understand the physical and transition risks and opportunities, enabling us to take informed decisions about how and where to invest.
Climate-related research is carried out by our Research Institute and Sustainability Insights Team. Our scenario analysis platform enables us to take a forward-looking view and we can use the results to test the valuation impact on individual funds. Our insights are shared with investment desks and often published publicly, in the form of research papers, articles, and webinars. Our catalogue of original research is extensive and this expertise supports our decision-making and effective management of climate-related risks.
Our Sustainability and TCFD report provides more detail, with reference to key publications from 2022.
Our climate change toolkit
We have developed a range of tools to help integrate climate-related risk into our decision-making for our active investment process and we continue to build our capabilities year-on-year. The underlying data is drawn from a range of vendors with different levels of data coverage.
Data coverage is limited by various factors including lack of uniform disclosure and methodological standardisations. This is a common challenge, as best practice remains emergent despite accelerated efforts toward global disclosure frameworks.
It is important to be clear that climate considerations are not integral to every investment decision and form part of a wider decision-making process. Our Sustainability and TCFD report, page 24, provides further detail as to the applicability of our climate toolkit across asset classes.
|
Our existing toolkit: Carbon metrics This enables portfolio managers to understand the carbon intensity and absolute emissions of their portfolios and holdings and it provides a baseline for benchmarking and decarbonisation. In 2021 we expanded carbon metric capabilities to sovereign bonds. In 2022 we introduced two EVIC-based carbon metrics: Financed Emissions and Economic Emissions Intensity, in line with Partnership for Carbon Accounting Financials (PCAF) methodologies. In 2022 we joined PCAF to support industry best practice. We report Financed Emissions metrics in our Sustainability and TCFD report, page 33. Climate policy indexWe have developed an index which builds on the Institutional Investors Group on Climate Change (IIGCC) recommended Climate Change Policy Index, incorporating it into our in-house climate policy expertise and adding a weighting to reflect the central role of policy action in the energy transition. Climate scenario analysis platformUsed to assess impact by geography, sector, and individual company level. This enables us to assess the financial impact of different climate scenarios and embed this into our thinking so we can deliver two main objectives: - Climate resilient portfolio construction: make current investment portfolios more resilient to different climate transition pathways by incorporating the risks and opportunities identified in the climate scenario analysis into our portfolio construction process. - Climate driven solution development: develop new climate driven products and benchmarks to enable clients with climate specific goals to achieve these in a research-founded, measurable manner. ESG House ScoreWe developed a scorecard for companies using over 100 key performance indicators (KPIs) arranged in categories aligned with industry frameworks. This supports our analysis of the possible adverse impact of our investment and the impact on client portfolios. The scorecard includes climate change and provides carbon data to assess a company's response to its climate risks. Credibility assessmentsWe use a number of tools and data sources to assess whether companies have credible transition strategies. In 2023 we intend to launch our full credibility assessment framework. |
Our role as active owners
Engagement with companies and assets helps to identify and manage climate risk and opportunities
We have a duty to our clients, which necessitates consideration of all material risks to our investments on their behalf. Active ownership is one way for us to manage climate-related risks and to improve the financial resilience and performance of investments.
Our net zero directed investments strategy is focused on investments in transition leaders, with credible pathways to long-term decarbonisation. Understanding this credibility is key and active ownership is a tool to enable this. We expect companies to be able to demonstrate effective management of their own climate-related risks and opportunities and we are able to explore this through independent and collaborative engagements.
Our climate-related engagement strategy is focused on the highest-financed emitters in equities, and their relative commitment to decarbonisation towards net zero. We have developed a framework, which we are using to drive our climate-related engagement strategy with the highest-financed emitters in equities. This framework is based on a set of factors, including the Climate Action 100+ Net Zero Company Benchmark, the scope and coverage of greenhouse gas reduction targets, and a focus on governance such as, climate-related KPIs reflected in the LTIP and social impact of the energy transition. Our expectation is that companies are alert to the long-term risks from climate change and we have outlined a clear process for escalation should we see insufficient progress. In specific terms, we would initially take voting action if sufficient progress is not made, but we will ultimately recommend divestment if the company has not shown sufficient progress over a period of engagements.
Detail in relation to highest finance emitters is included in the Sustainability and TCFD report at www.abrdn.com/annualreport
|
We are signatories to the UK Stewardship Code and report annually on the actions we take in regards to the 12 principles. Our full report provides specific detail on our engagement and escalation processes. See www.abrdn.com/annualreport |
Exercising voting and ownership rights
We believe that voting at company meetings is one of our most important activities when investing on behalf of our clients. We are committed to transparency and disclose all listed company voting decisions we make on our website, the day after a general meeting.
Voting is a powerful tool to influence individual companies toward a more credible transition to a low carbon world. We updated our voting policy to use CDP indicators to identify companies that may not be fulfilling their climate commitments in 2023. This, in conjunction with our own analysis, enables us to hold climate inaction to account through votes against company annual reports, or alternative resolutions.
We are also seeing increasing volumes of climate specific resolutions being tabled at general meetings. In 2022 we voted on a total of 141 climate resolutions (2021: 99). Our decisions are based on analysis of the specific proposals and include our assessment of proposal credibility and transition progress.
Climate change resolutions 2022
|
|
2022 |
2021 |
|
Resolutions voted |
141 |
99 |
|
Votes in favour |
56% |
55% |
|
Votes against management |
26% |
29% |
Collaboration and influence
We work with industry associations, regulators and policymakers globally to drive change, including through improving standards, encouraging best practice, influencing regulation and developing capital allocation strategies. This is a way for us to exercise our influence through our industry voice. Notable examples from 2022 are our attendance at COP27 and response to the International Sustainability Standards Board (ISSB) consultation, in support of stronger climate policy and global sustainability disclosure standards. Policy advocacy is an important part of our strategy given the critical importance of policy incentives to enable capital allocation in line with net zero goals. We are signatories to the Investor statement to Governments on strengthening climate policy.
Decarbonisation of investments
We are targeting the reduction of the carbon intensity of the assets we invest in to support the transition to net zero
In November 2021, we made a commitment to reduce the carbon intensity of the in-scope assets we invest in by 50% by 2030 versus a 2019 baseline.
Assets in-scope for our target represent 30% of our total AUM, with Phoenix accounting for 30% of the total public market assets in-scope as at 31 December 2022. The reported coverage is driven by data availability (Scope 1 & 2) for the underlying assets. We track our decarbonisation target with focus on revenue-based Weighted Average Carbon Intensity (WACI), which is in line with the original 2017 TCFD recommendations for our sector and applicable to public markets asset classes. For in-scope real assets, we currently use a carbon intensity metric that normalises emissions by gross asset value. Looking ahead, we plan to complement this metric with data that supports the calculation of emissions intensity by floor space (CO2/m2), which is less volatile due to floor space being a static denominator. Public markets and real asset decarbonisation progress is therefore calculated separately as the asset classes utilise different carbon metrics. There is also a time lag associated with the bottom-up collection, and calculation, of emissions data for real assets. Therefore, data for real assets is reported as at 31 December 2021. We recognise that methodologies may continue to evolve over time, and we will review our approach as appropriate. We also monitor and report additional portfolio-level metrics based on enterprise value including cash (EVIC) (as opposed to revenue). This is in line with evolving industry frameworks. However, it is important to reflect that each metric tells a different story - and indeed can move in opposite directions - so therefore must be interpreted with clear understanding of such implications. We outline the implications in detail in a separate paper and these metrics are out of scope for our existing decarbonisation target. More detail at www.abrdn.com/annualreport
Updating on our progress
Net Zero Directed Investing means moving towards the goal of net zero in the real world - not just in specific investment portfolios.
At abrdn we seek to achieve this goal through a holistic set of actions. This includes rigorous research into net zero trajectories, developing net zero-directed investment solutions and active ownership to influence corporates and policy makers. We monitor our progress in aggregate using our decarbonisation target.
We have a duty to our clients to consider climate risks and opportunities, which we believe is part of long-term performance, but we will not impose carbon targets on funds unless desired by our clients. Therefore, some asset classes and funds may contribute more towards our reported target than others. Investing in transition leaders may also include carbon-intensive sectors, with some industries vital to enabling a credible transition. It is important to note that we do not expect our 2030 target to be achieved through linear annual decarbonisation progress, but we have set an interim milestone of achieving at least 20-30% WACI reduction by 2025.
We report our first progress against our decarbonisation target this year. As at 31 December 2022, in-scope public market portfolios achieved a carbon intensity reduction of 27% versus a 2019 baseline. As at 31 December 2021, in-scope real estate achieved a 31% reduction in carbon intensity versus a 2019 baseline. Our Sustainability and TCFD report provides further commentary as to our progress.
Using metrics to support daily decision ‑ making
Decarbonisation targets look backwards to annual performance. We also take a forward-looking view and have developed the tools to support our actively managed products and company engagement. This toolkit is available on-desk to our fund managers and we continue to invest in our key capabilities, such as our bespoke scenario analysis platform. We use climate metrics from a range of industry vendors and are building a unified data platform to support investment integration.
WACI (tCO2e/$m Revenue) Scope 1 & 2:
|
Carbon Intensity (KgCO2e/£GAV) Scope 1 & 2:
|
1. The proportion of assets in-scope is expected to increase over time through improved data coverage. The reported metrics may be revised as we continue to collect a more complete dataset from our assets across Europe for 2021 and subsequent reporting periods. Such data could positively or negatively impact the portfolio emissions intensity.
Our operational targets and emissions
We are targeting net zero by 2040 and have set out clear milestones to measure our progress
We aim to lead by example and believe that our actions must mirror our high expectations of the companies we invest in and reflect the ambition of our clients. In 2021 we set out our goal to reach operational net zero by 2040 and our interim target is to achieve a 50% reduction in emissions by 2025 versus our 2018 base year. Our operational impacts reflect the nature of our business. We keep offices as collaboration spaces for colleagues and to enable us to better deliver for our global clients. Our material reported impacts are therefore the energy use in our offices (Scope 1 & 2), business travel, and estimated homeworking emissions (Scope 3). This means we have focused our efforts on finding efficiencies in our estate and remaining alert to our impacts from travel. We have consolidated our office locations and developed more agile ways of working in recent years, which has enabled significant progress towards our targets. Achieving our targets requires a focus on absolute emissions reductions - but we also recognise and support other measures such as: renewable energy, credible offsetting, and new technologies. We will further outline the long-term role we see for these measures in our Transition Plan, which we expect to publish in line with the UK Transition Plan Taskforce Disclosure Framework in 2023.
Emissions intensity per full-time employee equivalent (FTE)1: Scope 1 & 2
|
'18 1.57 |
'21 0.70 |
'22 0.56 |
We have a supplementary target to procure 100% renewable electricity in our global offices, which we are close to achieving with 99.6% of energy procured on green tariffs during 2022. (2021: 99.5%). Our partnership with the eco app Pawprint also continues and we are working closely with them to engage our colleagues to learn more about their personal carbon footprint. We also see the potential in using the app as a tool to develop our understanding of our homeworking emissions. Critical to our long-term progress is the support of our colleagues and the accountability of our leaders. In 2022 we included climate-related incentives in our executive remuneration scorecards (read more on pages 103 to 130).
Year-on-year commentary
In 2021 we reported a 62% reduction in our operational emissions versus our 2018 base year, noting material reductions, influenced by the pandemic, to business travel and energy use in our offices. Our expectation was that these emissions would increase as colleagues spent more time in offices and travel restrictions eased. We found this to be the case for business travel in 2022 and now report an 56% reduction versus our base year. Our view is that we continue to be on track to meet our 2025 target and reflect that blended working models supports a more travel-conscious working culture in the long term.
Our methodology and future intent
Our reporting methodology aligns with the Greenhouse Gas Protocol and we use an operational control boundary. We report material Scope 3 emissions where data is available, however notable exclusions include estimated supply chain impact and investments recorded on our balance sheet. We also reported our estimated impacts from homeworking in 2020 and 2021 but the independent methodology lacks standardisation and requires further refinement for long-term utility. We provide an estimate again for 2022 but note our intention to reflect on our approach. Further detail is provided in our Sustainability and TCFD report at www.abrdn.com/annualreport
|
Total CO2 emissions (tonnes)2 14,246 |
Total energy consumption (kWh '000s)2 13,027 |
1. Based on FTE at 31 December 2022 of 5,130 (2021: 4,964).
2. Scope 1, 2, and some Scope 3 categories have been independently assured by Bureau Veritas. Bureau Veritas assurance is included in the Sustainability and TCFD report at www.abrdn.com/annualreport
Sustainability - Social
Diverse leaders
We have set 2025 targets to improve diversity across abrdn
Our diversity targets have been in place since 2020 and our gender representation targets extend beyond our Board to both our senior leadership and global workforce. The diversity of our Board is consistent with the expectations outlined by the FCA reporting requirements and we were also on target in the prior year.
Building an inclusive and equitable workplace is plainly the right thing to and we also believe it supports our long-term success, as diversity of thought promotes new perspective that help lead to better decision-making. We serve global clients and our diversity is a strength as we aim to deliver better experiences and outcomes for our clients.
Our commitment is part of our purpose - learn more about our actions and progress on the following page and in our Sustainability and TCFD report.
|
Statement of the extent of consistency with the FCA Listing Rules requirements for reporting Board diversity We are committed to creating a diverse, equitable and inclusive abrdn and support the principle of increased transparency on progress. Our policy applies to our Board Committees and is available publicly. Our disclosure is consistent with the FCA Listing Rules requirements and the following statements reflect our compliance. The data below is our reference taken at 31 December 2022 and there have been no changes to the composition of our Board in the interim period to publication. The disclosed data is volunteered and subject to a limited level of external assurance, alongside other diversity KPIs. Over 40% of our Board are women, including our Chief Financial Officer, and one member identifies as minority ethnic. We do not anticipate any risks meeting Board diversity targets in 2023. |
Board and executive management gender representation1
|
|
Number of Board members |
Percentage of the Board |
Number of senior positions on the Board2 |
Number in executive management3 |
Percentage of executive management |
|
Men |
6 |
55% |
3 |
12 |
86% |
|
Women |
5 |
45% |
1 |
2 |
14% |
Board and executive management ethnic representation4
|
|
Number of Board members |
Percentage of the Board |
Number of senior positions on the Board |
Number in executive management |
Percentage of executive management |
|
White British, or other White (including minority ‑ white groups) |
10 |
91% |
4 |
10 |
72% |
|
Asian/Asian British |
1 |
9% |
- |
1 |
7% |
|
Not specified/prefer not to say5 |
- |
- |
- |
3 |
21% |
Global representation against targets
|
Target |
31 December 2022 |
31 December 2021 |
Target by 2025 |
|
Women at plc Board |
45% (5 of 11) |
45% (5 of 11) |
40% women; 40% men; |
|
Women in senior leadership6 |
39% (52 of 132) |
36% (62 of 171) |
40% women; 40% men; |
|
Women in subsidiary Director roles7 |
48% (12 of 25) |
35% (7 of 20) |
N/A |
|
Women in global workforce8 |
43% (2,226 of 5,147) |
46% (2,297 of 5,033) |
50% (+/- 3% tolerance) |
|
Ethnic minority representation at plc Board - No. of Directors who identify as ethnic minority |
9% (1 of 11) |
9% (1 of 11) |
2 Directors |
Our diversity data is voluntarily collected either through the onboarding process or through our management information system, Workday, for employees. For Non-Executive Board members, we collect data voluntarily through an offline system. Data measuring progress against gender targets for 31 December 2022 has been independently assured by Bureau Veritas. Bureau Veritas assurance can be found at www.abrdn.com/annualreport
1. Gender data for Board is self-reported, and for executive management is obtained from existing employee data set and includes Executive Leadership Team and Company Secretary, excluding administration roles.
2. Senior positions on Board are Chief Executive Officer, Chief Financial Officer, Senior Independent Director and Chair.
3. Relates to the Executive Leadership Team including Company Secretary and excluding administration roles.
4. Ethnicity data for Board and executive management including Company Secretary and excluding administration is self-reported (using local census data categories and collected where legally possible).
5. Includes one individual based in a country where we do not collect diversity data.
6. Relates to leaders one and two levels below CEO, excluding administration roles.
7. Relates to Directors of the Company's direct subsidiaries as listed in Note 45 (a) of the Group financial statements and not classified above as Board Directors or senior leadership.
8. 60 colleagues without gender data on our people system are excluded from the headcount data.
Our people
We create opportunities for our people to thrive, giving them the environment, tools and support to feed their curiosity, achieve their ambitions and make a difference in what they do
Our progress against targets
Creating opportunities for our people starts with identifying where we need to take action to tackle underrepresentation at different levels across our business. Our public targets address gender and ethnic representation at Board level and enhanced gender representation for our senior leaders and global workforce (page 40). Our approach aligns with best practice and our performance is incentivised through our executive director scorecard (pages 103 to 130).
Our targets are important indicators, but our focus is on making abrdn an equitable and inclusive environment for all our colleagues. Our latest UK gender pay gap report available at www.abrdn.com/annualreport outlined our progress for the fifth consecutive year; a driver of our pay and bonus gaps is that we have more men in senior roles and more women in more junior roles. That is why many of our actions - from recruitment, development, and succession planning - look to address this imbalance.
Identifying, attracting and retaining talent
Segmenting the approach we take for talent at early, mid and senior levels helps us focus on specific diversity, equity, and inclusion priorities for each career stage.
At early career stages, we have had great success improving the diversity of candidates attracted to us globally and continue to use partnerships to help us reach diverse talent. An example of this in action is that 61% of our graduate intake identify as women (2021: 45%) and 47% of our UK interns went to a non-Russell Group university (2021: 38%).
At mid-career stage, we aim to identify a strong talent pipeline and demonstrate the value of growing our internal talent. Our development programme, Accelerate, is available to all mid-career colleagues globally, and includes courses that are run specifically for women. Equally, we can demonstrate success in our returners programme as we have retained 75% of our 2021 women returners cohort in permanent roles and welcomed five new returners in 2022.
We also ensure that our Executive Leadership Team succession pipeline has the breadth of experience and diversity to bring the thought leadership required in an effective team. Identifying and working with individuals with the medium to long-term potential to be part of our Executive Leadership Team has shaped our inclusive Advance programme. Advance is an 18-month selective programme, which includes learning components tailored to areas of strategic importance to our business - leadership, clients and futurist mindsets.
Our Academies framework is well established, providing dedicated support to develop skills for the future, including digital, data and change. We will continue to extend our senior talent programme focusing on the future leaders of our business. In 2023, we will launch our Leadership Academy, supporting leadership behaviours at all levels of abrdn.
Our way of working
Our priority is to make sure that our people feel connected and involved, that opportunities and progression are equitable for all, and that managers lead in a way that builds inclusive ways of working in hybrid teams. Blended working is now our standard way of working across abrdn. We are focused on what we do, and what our clients need from us and our teams, rather than where we do it.
Networks: inclusive safe spaces
Our networks are run by colleagues, for colleagues, delivering DEI events and activities across a wide range of topics. They also have direct engagement with our Board and our most senior leaders.
Members from the networks can influence our business processes and help shape design through bi-monthly insights sessions. In 2021-22 teams including workplace, talent acquisition and brand have all sought the diverse perspectives our networks provide.
In the US, our networks have been supporting the regional theme of 'Self-Education and Brave Conversations' in 2022 with a wide range of activities and colleague engagement. Alongside our colleague-led networks, in 2022 we set up more informal peer-to-peer 'sharing communities' where colleagues can connect, share and learn from others in a safe space. So far, we have communities covering topics relating to menopause, neurodiversity and Christianity.
You can read more about our networks in our 2022 Diversity, equity and inclusion report.
|
Listening to feedback and responding with action Listening to our colleagues is at the heart of our people strategy. We have a comprehensive plan in place which allows us to hear from our people, whether that be through leadership engagement activity or our more formal survey tool, which we run throughout the year to ensure we keep in tune with what is on the minds of our colleagues and can take appropriate action. This is complemented by our board engagement activity which is run throughout the year by our designated Non-Executive Director and our Board Employee Engagement Plan. |
|
76%
of colleagues believe abrdn is
|
Over 1,600 colleagues are members of our networks globally
|
Our latest engagement survey
Our annual engagement survey provides all colleagues the opportunity to share their feedback and tell us what it is like to work at abrdn.
Over 80% of colleagues took part in the survey with nearly 14,000 verbatim comments giving us a rich picture of where we are seeing improvements and the areas we need to continue to focus. 2022 saw us develop our cultural commitments and focus on the overall colleague experience through what has been an incredibly challenging year for markets, the business and for our colleagues.
Through 2022 we saw improvements in our areas of focus - career and talent, inclusion and both transparency and communications. Our people leaders and team relationships continue to be an area of strength, which we will build on in 2023. We reported that engagement levels at the beginning of the year were at 51% and our most recent survey in January 2023 shows we have held that score at 50% through this year of transformational change. Whilst we are not where we need to be, we are moving in the right direction, have clear plans in place and are committed to continued listening through the year with more regular check-ins on progress.
Building our culture
As a people business we want our colleagues to feel empowered to drive the changes we need to make, to feel involved and trusted, to strive for exceptional performance and to always be led by our clients' needs.
In 2022 we started a piece of work to define our culture and alongside our Executive team, we worked with hundreds of colleagues across the global business to build a set of cultural commitments. These are aspirational statements which will help us create a business that all our people want to work for, to shape what it feels like to be a colleague at abrdn and create an environment where everyone can fulfil their full potential. We also trained a group of internal facilitators to help support conversations and the embedding of our commitments across the organisation.
|
Our commitments - We put the client first. From every seat in our business, we understand our unique role in enabling our clients to be better investors, regardless of where we fit in the organisation. - We are empowered. We speak up, challenge and act. We take ownership for our work, we accept accountability for our successes and, when they happen, our failures too. - We are ambitious. We strive for exceptional performance. We also know when to balance pace with perfection to get things done. We are passionate about the positive impact we can have on our business. - We are transparent. We have the honest and important conversations that fuel our performance and build trusted relationships. |
Our company behaviours underpin our commitments and guide our day-to-day actions
- Think and act like an owner: We think commercially about where we focus our time, effort and money to get the return on investment for our stakeholders.
- Focus on client and customer needs: We are continuously learning what our clients and customers need, so they are at the heart of our decisions.
- Get it done together : By executing at pace and working across teams to deliver better outcomes, faster.
- Build the future now: We are being bold in building today what stakeholders need tomorrow by challenging the status quo and adapting quickly.
Our role in our communities
We can make a positive impact through our values, conduct, and charitable contribution
Our role in society extends beyond how we deliver for our clients as we work with others, amplify our values, and support our communities through powerful partnerships. We outline the standards of behaviour we expect in our business and third-party relationships in our global code of conduct (page 46). Our minimum expectation is that we act with integrity and prioritise socially inclusive outcomes for both our internal and external relationships.
Supporting tomorrow's generation
One of the most tangible ways we support our communities and provide our people with the opportunity to make a wider difference, is through our charitable giving strategy and related partnerships. Our giving strategy is embedded in our corporate sustainability function and is focused on creating more impact for tomorrow's generation. We aim to create fair and impactful charity partnerships and prioritise projects that provide access to opportunity for people and address negative impacts on the planet. Our role is to partner with organisations with whom significant funding will enable new capabilities and meaningful positive impacts. Our giving strategy is governed through the abrdn Charitable Foundation, who meet quarterly to consider new partnerships and ensure we measure progress.
In 2021, we announced our partnership with Hello World, whose mission is to bridge the digital divide by improving connectivity for disconnected communities. Hello World partners with communities to build 'Hello Hubs' - solar powered internet kiosks, fitted with eight screens loaded with leading educational software, so that children can learn, access digital educational resources and improve their future by connecting globally.
Our initial funding of £1 million is supporting the build of 64 abrdn 'Hello Hubs', which could provide up to 80,000 people with access to internet and digital education content. Our investment as at 31 December 2022 has enabled Hello World to operate at new scales and work with 26 local communities who now have access to internet through an abrdn Hello Hub. Our partnership with Hello World demonstrates support for tomorrow's generation and we extended our commitment with a further £1 million donation in 2022 - and we look forward to sharing more on the evolution of our partnership in 2023.
More detail on our charitable partnerships, including with UNESCO and MyBnk in our Sustainability and TCFD report.
Focus on volunteering
Enabling our colleagues to support causes close to them is a key part of our giving strategy. All colleagues1 have the opportunity to take up to three volunteering days annually and we enhance their support through company matching initiatives, including payroll matched giving for UK colleagues. We want to encourage our people to be part of our local communities, so our volunteering leave policy extends to time spent outside of usual working hours. We have set a goal to increase the proportion of colleagues engaging with charitable causes and prioritise partnerships with clear opportunities to develop meaningful connections.
1. This does not include ii, who did not have a volunteering policy as at 31 December 2022.
|
The abrdn Yearbook Our partnership with Sarabande supports artists with great talent, as we lend our financial support and expertise to help creative talent build financial security. We brought our colleagues together in celebration through the launch of the abrdn Yearbook and exhibition. Over 70 colleagues from our global offices shared stories to answer the question 'What inspires you?', which in turn formed the inspiration for painted portraits by a Sarabande artist. The project is a powerful statement that we are all part of something bigger, connected to others, and shaped by our experiences. We unlocked some incredible stories, which confirm that our strength as abrdn comes from the diversity of our perspective and the personal experiences that shape each of us. Our business is built on nearly 200 years of history and the abrdn Yearbook is a timely reminder of who we are today, and what inspires us to create more tomorrow. |
Sustainability - Governance
Stakeholder engagement
Our responsibility to engage with all our stakeholders plays a crucial role in the long-term decisions we make
Our stakeholders are central to our strategy and critical to the long-term success of our business, our Board oversees our approach to engagement as we seek feedback and make decisions toward the long-term benefit of key stakeholders.
Identifying our stakeholders
In our pursuit of delivering against our client-led growth strategy, we recognise that our pool of stakeholders is growing and evolving with us. Their needs and wants are also changing all the time. Recent additions to our key stakeholder group include colleagues and customers of ii and Finimize since their acquisition. We continue to group our key stakeholders into our clients, our communities, our people and our shareholders - and are committed to positioning them as a central factor in our decision-making.
|
Our clients |
See page 45 |
|
Our communities |
See page 43 |
|
Our people |
See page 41-42 |
|
Our shareholders |
See page 45 |
|
Section 172 statement The Board recognises that the long-term success of our business is dependent on the way it works with a large number of important stakeholders. Our Board has responsibility to consider matters that include the: - Likely consequences of any decisions in the long term. - Interests of the company's employees. - Need to foster the company's business relationships with suppliers, customers and others. - Impact of the company's operations on the community and environment. - Desirability of the company maintaining a reputation for high standards of business conduct. - Need to act fairly between members of the company. The Board has discussed these obligations throughout the year, including how stakeholder engagement is incorporated into our long-term decision-making. You can read further details on pages 74 to 78. The Board's decision-making considers both risk and reward as our business aims to deliver long- term value for all of our stakeholders, and protect their interests. Awareness and understanding of the current and potential risks, including both financial and non-financial risks, are fundamental to how we manage the business. Further information on how risks are appropriately assessed, monitored, controlled and governed is provided in the Risk management section. |
You can read more about how the Board engaged with and considers the interest of stakeholders on pages 74 to 78.
Clients
Our strategy is rooted in understanding how we can deliver the outcomes that clients expect, driven by their needs, wants and aspirations. We organise our business to reflect the diverse needs of our clients in different markets and the different ways in which our clients interact with us. The launch of our single global brand also helps to remove confusion from previously having five client-facing brands.
How we engage
In our Investments business, local investment teams, aided by global ESG expertise, help clients anticipate, and plan and invest for future scenarios. In our Adviser business, we provide support, expertise and technology for UK wealth managers and financial advisers to create value for their businesses and their clients. In our Personal business, we integrate financial planning and discretionary investment management with digitally enabled direct investing to enhance our offering.
We collaborate across our Investments, Adviser and Personal businesses to connect our clients with wide ranging expertise and diverse perspectives.
As individuals take greater responsibility for their own savings needs, ii and Finimize continue to help us respond to this trend. Both Finimize and ii are helping us to build a bigger picture of data and insights of our customer base.
In 2022 we have continued to build on our awareness programme around our brand and celebrated 365 days of abrdn in July. We are continuing with the next phase of our advertising campaign.
Showcasing our ESG insightsA notable aspect of our awareness campaign is a partnership with Bloomberg. Through a series of micro-documentaries featuring internal and external ESG experts, we address the most pressing issues around ESG and how the finance sector can support credible solutions. The series is hosted on both Bloomberg and abrdn channels, with the first episode going live in November 2022 to coincide with COP27. The campaign showcases our capabilities, expertise and insight across ESG factors, while helping our clients to understand how we can help them navigate this complex yet globally important topic. |
Shareholders
The support of our shareholders is crucial to growing our business, and we engage with shareholders to ensure that we have the support to pursue our strategic objectives. As we deliver on our growth strategy, we also know that generating value for our shareholders remains hugely important.
How we engage
Our Annual General Meetings offer shareholders the opportunities to interact directly with our Chair and Board, and importantly share their views. We also use regular mailings to keep shareholders informed about dividend payments, financial results and shareholder meetings with institutional investors and analysts.
In 2022, we also held a General Meeting to invite shareholders to vote on the acquisition of ii. This was accompanied by shareholder mailings.
At this year's AGM, we will be using a new voting mechanism which will allow shareholders to vote on resolutions remotely, live during the webcast.
Non-financial information
Our vision for a better future starts with asking more of ourselves, and we set high standards to hold ourselves to.
Our global code of conduct describes the standards of behaviour we expect in our business. We review it annually, and all our colleagues are expected to read, agree and adhere to its principles. The code focuses on doing the right thing and putting our clients at the heart of our business. This includes what colleagues should do if they have concerns about issues such as bribery and corruption, environmental or human rights.
The code details a number of our policies that we expect them to read and adhere to, including our modern slavery statement. We also have a legal and regulatory duty to prevent, detect and deter financial crime, including bribery and corruption, to protect our business and our clients' information and assets.
We strive to build effective and supportive relationships with our third parties, and we expect them to follow the same standards and principles that our teams and colleagues do. Our global third-party code of conduct sets out these expectations, and we expect them to demand the same from their own supply chains. It also details the whistleblowing procedures that we make available to them as well as to our colleagues. On a regular and risk proportionate basis, we carry out due diligence of our third parties, covering key social issues.
Measuring our progress
Global code of conduct
Each year, colleagues complete an online training module to confirm they understand and will comply with our global code of conduct. This module also included training on modern slavery issues. The completion rate in 2022 was 99% and our 2023 module launched in February this year. This percentage is reported in aggregate and includes individuals out of the business on extended leave, for example, who are exempt from training until returning to work. Where employees fail to complete mandatory training, we have taken steps to ensure that managers and HR are made aware.
Respect for human rights
We are committed to identifying and upholding the human rights of our people, clients, communities and everyone impacted by our suppliers, partners and the companies we invest in. In our investments, we use our internally developed human-rights index to help identify high risk geographies, and we have published position statements on integrating human rights into our investment approach. We also publish the outcomes of our engagements with investee companies, including engagements on human rights matters in our annual Stewardship Report. Our Modern Slavery Statement sets out our approach to tackling all forms of modern slavery. This ranges from human trafficking and forced labour, to bonded labour and child slavery. We are particularly alert to the human-rights risks from interconnected supply chains and our annual statement reports additional information on the actions we are taking, as we take steps to enhance our due diligence, track specific metrics, and support third party suppliers with fair and inclusive practices. More detail at www.abrdn.com/annualreport
Financial crime prevention
We have an effective approach to managing financial crime risks, both within our business and among suppliers and partners. Following an independent assessment of our anti-money laundering framework, we launched a multi-year transformation programme in 2021 focused on implementing ongoing enhancements to the framework, and carried out extensive work to define and implement consistent anti-money laundering standards across the company.
Mandatory compliance training
abrdn provides mandatory training to colleagues to ensure clear understanding of critical regulatory and legal obligations on the organisation and individuals. Training is tailored to individuals depending on their role and location, with topics including Anti-financial crime, Conflicts of interest, and Privacy and Data Protection. The content is refreshed annually and delivered via e-learning modules, and we maintain an associated compliance training policy to outline requirements, and disciplinary actions linked to failure to complete the learning. 99% of mandatory training had been completed by abrdn colleagues globally as at 31 December 2022.
Non-financial and sustainability information statement
We aim to comply with the Non-Financial Reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006. This information is intended to help stakeholders better understand how we address key non-financial matters. Details of our principal risks and how we manage those risks are included in the Risk management section.
|
Reporting requirement |
Relevant policies and publications |
Where to find more information |
|
Environment |
Our sustainability overview and TCFD report overview |
Sustainability overview (pages 28 and 29) |
|
|
|
Sustainability - Environment (pages 30 to 39) |
|
Employees |
Global code of conduct1 |
Sustainability - Governance (page 46) |
|
|
Employee policies |
Sustainability - Social (pages 40 to 43) |
|
Human rights |
Global code of conduct1 |
Sustainability - Governance (page 46) |
|
|
Modern slavery statement2 |
Sustainability - Governance (page 46) |
|
Social matters |
Our people and communities |
Sustainability - Social (pages 40 to 43) |
|
|
Global third-party code of conduct1 |
Sustainability - Governance (page 46) |
|
Other matters |
Anti-bribery and corruption |
Sustainability - Governance (page 46) |
|
|
Business model |
Our business model (pages 10 and 11) |
|
|
Non-financial KPIs |
Sustainability - Environment (pages 38 and 39) |
|
|
|
Sustainability - Social (pages 40 and 42) |
1. Group policy published on our website at www.abrdn.com/annualreport
2. Group statement published on our website at www.abrdn.com/annualreport
Key performance indicators
Our key performance indicators
|
Net operating revenue1 KPI APM £1,456m This measure is a component of adjusted operating profit and includes revenue we generate from asset management charges, platform charges and other transactional/advice charges and treasury income. |
Cost/income ratio KPI APM 82% This ratio measures our efficiency. We are focused on improving our cost/income ratio by increasing revenue and continued cost discipline. |
|
Adjusted operating profit KPI APM £263m Adjusted operating profit is our key alternative performance measure and is how our results are measured and reported internally. |
Adjusted diluted earnings per share KPI APM 10.5p This measure shows on a per share basis our profitability and capital efficiency, calculated using adjusted profit after tax. |
|
IFRS (loss)/profit before tax KPI (£615m) IFRS profit/loss before tax is the measure of profitability set out in our financial statements. As well as adjusted profit, it includes items such as restructuring costs, profit on disposal of interests in associates and goodwill impairment. |
Full year dividend per share KPI 14.6p The total annual dividend (interim and final) is an important part of the returns that we deliver to shareholders and is assessed each year in line with our stated policy to hold at 14.6p until it is covered at least 1.5 times by adjusted capital generation. |
|
Adjusted capital generation KPI APM £259m This measure aims to show how adjusted profit contributes to regulatory capital. |
|
|
Investment performance2 KPI (Percentage of AUM above benchmark over three years)65% This measures our performance in generating investment return against benchmark. Calculations for investment performance are made gross of fees except where the stated comparator is net of fees. |
Employee engagement survey KPI 50% This measure is important in gauging the engagement and motivation of our people in their roles. It also enables our managers at all levels to take local action in response to what their teams are telling them. |
Other indicators |
|
|
AUMA £500bn |
Gross inflows £69.0bn |
|
Net flows - Total (£37.9bn)
|
Net flows - excl. liquidity and LBG
|
|
IFRS dilusted earnings per share (26.8p) |
APM Alternative performance measures We assess our performance using a variety of performance measures including APMs such as cost/income ratio, adjusted operating profit, adjusted profit before tax and adjusted capital generation. APMs should be read together with the Group's IFRS financial statements. Further details of all our APMs are included in Supplementary information in the ARA 2022. |
1. The revenue measure included within adjusted operating profit has been renamed from fee based revenue to net operating revenue. See page XX for more information.
2. The calculation of investment performance has been revised to use a closing AUM weighting basis. 2021 comparatives have been restated. See page XX for more information.
Chief Financial Officer's overview
Performance impacted in a difficult macroeconomic environment
The impact and confluence of the challenging events of 2022 could not have been predicted. The IFRS result is a loss before tax of £615m (2021: profit £1,115m) including the impact of lower market levels on revenue, impairment of intangible assets in the Investments vector, and lower values for our significant listed investments.
Our diversification of the business in order to harness the changing market trends and improve the resilience of the financial performance has proved beneficial in these markets and has delivered results in 2022. While adjusted operating profit of £263m (2021: £323m) is 19% lower, this comprises a reduction of £139m in Investments, principally due to the decline in revenue, which is significantly offset by the increase of £76m in profits from Adviser and Personal, including seven months of ii and both businesses growing revenue and profits.
The contribution from Adviser and Personal, both operating in the UK savings and wealth arena, represented 60% of the group's adjusted operating profit in 2022. The shape of the group has been transformed following the acquisition of ii which completed in May 2022 and marked an important step forward in delivering the strategy. Following the ii acquisition in May, Adviser and Personal vectors contributed 76% of adjusted operating profit in H2 2022.
Our discipline on both targeting cost savings and reinvesting in areas of growth has continued. Following gross cost savings of £267m in 2020 and 2021, further savings of £84m or 7% benefited the results in 2022. All vectors reduced costs over 2022 (assuming 12 months of ii) although in Investments, responding to inflationary pressures on staff costs contributed to the lower reduction of 1% in the second half of 2022. The weak operating margin in Investments reinforces why the simplification of the operating model is underway and is now expected to deliver net c£75m savings in 2023.
Acquisitions of ii, Tritax and Finimize which are all generating revenue, increased costs for the group by £65m (5%) in 2022. Foreign exchange impacts of c£20m were notably higher in the second half of 2022 but were more than offset by the benefits in revenue.
Our disciplined approach to capital management continues, resulting in £1.1bn of capital resources generated in 2022, including £0.8bn of capital from listed stake sales. We redeployed £1.4bn for the purchase of ii which has been immediately earnings accretive. We returned £0.6bn to shareholders by way of £0.3bn in dividends and £0.3bn in share buybacks. At 31 December 2022, our capital position remains strong, with cash and liquid resources of £1.7bn and surplus regulatory capital of £0.7bn.
Drivers of revenue performance in 2022
Assets under management and administration (AUMA) have been impacted by three key factors in 2022: market levels, the final withdrawals of LBG assets and the acquisition of ii. At 31 December 2022, AUMA was £500bn, 8% lower than prior year and average AUMA in 2022 was £478bn (excluding ii), 10% lower than 2021. This decrease is concentrated in Investments. While there had been some signs of markets improving in July, the second half of the year saw continued volatility with the main global market indices ending the year lower, with the exception of the FTSE 100. abrdn's investment bias in Asia and emerging markets increased the impact suffered in revenue during 2022 as those indices experienced double digit losses.
Given the reliance on market levels, the impact on net operating revenue of lower AUMA is most marked in Investments, contributing c£95m of the £161m reduction in Investments' revenue. Average AUM in Investments declined by 11%, largely driven by LBG tranche withdrawals and adverse market movements, particularly in equities. In combination, this reversed the progress seen in 2021, resulting in 13% lower Investments revenue in 2022. Within the asset classes, revenue in Public markets (equities, fixed income, multi-asset, quantitatives and liquidity) declined by 18% to £746m, while in Alternatives asset classes (real assets, alternatives, private equity and private credit) revenue of £324m, was 2% higher, benefiting from a full year contribution from Tritax.
While AUMA as a driver has been negative for Investments in 2022, our focus on diversification of the group's revenues has benefited performance. ii's subscription model does not rely on market levels and account fees, together with higher net interest margin on customer cash balances (treasury income) in 2022, more than offset lower trading activity by customers. For the period since acquisition, ii contributed £114m to revenue in 2022. While Adviser is impacted by market levels, continued net positive inflows in 2022, combined with the benefit from higher treasury income, increased revenue by 4% to £185m. Treasury income totalled £69m across the Personal and Adviser vectors due to increased interest rate levels throughout 2022.
Overall, the diversification that now drives our sources of revenue has helped to mitigate the impact of the market volatility in 2022, with an overall reduction in net operating revenue of £59m (4%), to £1,456m.
Changing nature of our flows during 2022
Excluding LBG tranche withdrawals and liquidity, total net outflows were £10.3bn, representing 2% of opening AUMA, compared with c0.5% last year. Total net outflows were £37.9bn (2021: £6.2bn) reflecting the final LBG tranche withdrawal of £24.4bn.
Client and customer activity and resulting flows varied by vector in these volatile markets.
In Investments, net outflows of £13.4bn (2021: outflows £7.6bn) (excluding LBG tranche withdrawals and liquidity) represent 3% of opening AUM, reflecting the uncertain market environment which impacted the wider industry.
Insurance flows are now largely represented by Phoenix after the final LBG exits were completed this year. Insurance activity benefited from £2.9bn of gross inflows from bulk purchase annuities and £5.4bn of gross inflows into low margin quantitatives which were offset in the last quarter by the withdrawal of £6.3bn of actively managed equity funds reflecting Phoenix's change in investment approach. Reflecting the annualised revenue reduction of this withdrawal of £9m, a one-off contractual payment was received in the last quarter, equivalent to a year's revenue.
Within the insurance sector more broadly, the changing approach to asset strategies represents a headwind for the margin of this business activity. We expect continued changes in this area from certain active equity and fixed income strategies to passive quantitative strategies which, together with related pricing changes, will result in further contraction of yields. The impact in 2023 will be dependent on the timing of these changes during the year.
Overall, gross inflows in Investments (excluding liquidity) were 14% lower in 2022, reflecting lower client demand for equities and fixed income funds. Redemptions (excluding LBG tranche withdrawals and liquidity), were 3% lower.
Our UK wealth and savings businesses continue to deliver net positive inflows, although lower than 2021 due to overall muted levels of retail customer activity in the second half of the year. Within Adviser, net inflows of £1.6bn are 59% lower than 2021 reflecting lower client activity across the industry due to ongoing market uncertainty. Activity in Personal is dominated by ii where net flows remain robust, while lower than the record levels seen in 2021.
Continued reshaping of operating expenses
We have focused on what we can control. We have made further improvements in the shape of our cost base by investing in areas of growth through the acquisition of ii and Tritax, together with introducing further variability into the cost base by outsourcing specific activities across the group and reducing FTE (excluding ii) by 14% over 2022. Operating margins in both Adviser and Personal are efficient, while in Investments, the operating margin continues to be inefficient for the AUM and revenue generated in this vector, reinforcing the activity required to simplify the operating model.
Overall adjusted operating expenses were flat compared with last year. Cost savings were 7% in 2022, largely driven by disposals and staff and technology reductions, while other cost actions were lower than anticipated due to increased staff cost inflation in Investments in the second half of the year. This was offset by 5% higher costs due to investments into revenue generating acquisitions, and adverse foreign exchange movements which increased reported costs by 2%.
Our ambition of a 70% cost/income ratio for the group remains, however this requires us to significantly improve the cost/income ratio in the Investments vector. In 2022, Investments costs were 2% lower as a result of lower staff and variable compensation levels. With the investment platform integration completed in 2022, the simplification of Investments' operating model commenced achieving small early successes. This informed the expected savings profile. With the detailed work on simplification now well underway, delivery of net cost savings of c£75m in the Investments vector are now targeted in 2023. This excludes any cost reductions that may arise from non-core disposals in the vector. While non-core disposals are an important component of the plan, given the unpredictable nature of the timing of any non-core disposals, these are excluded from our expectations on costs movements until such time as these transactions occur.
In Adviser, costs reduced by 5%, reflecting reduced headcount as some of our colleagues transferred to our major supplier under an improved outsourcing arrangement.
Within Personal, ii's costs of £47m reflected the period since acquisition. Costs in both Adviser and Personal are expected to grow in 2023 reflecting growth in revenue, benefiting the group from their efficient cost models.
The overall group cost/income ratio (CIR) increased to 82% from 79% in 2021. At a vector level, Adviser and Personal, CIRs were 54% (2021: 58%) and 64% (2021: 91%) respectively, while Investments CIR at 89% (2021: 79%) reflects lower revenue levels
Disciplined approach to capital allocation delivers shareholder value
Adjusted capital generation of £259m is 29% lower than 2021. During 2022, we completed a further buyback of £300m at an average cost of £1.68 per share and reducing the number of shares by 179m, benefiting earnings per share by 3%. Reflecting the lower profit in 2022, adjusted diluted earnings per share reduced to 10.5p (2021: 13.7p) and the IFRS diluted earnings per share was a loss of 26.8p (2021: profit 46.0p).
We also redeemed £92m of debt in December 2022 which had a rate of 5.5% and due to reset at a higher rate. We now have in issue £210m of AT1 debt paying fixed interest of 5.25% which was issued in December 2021 and Tier 2 debt of £569m swapped into sterling and fixed at 3.2%. The debt stack is now optimised for our funding needs, with interest rates locked in prior to the rate increases experienced in 2022.
Following actions taken in recent years to reduce risk in abrdn's principal defined benefit pension plan, we are working with the trustee on next steps. In connection with this de-risking work, the trustee expects to submit a petition to the Court of Session during H1 2023 that will seek direction on the destination of any residual surplus assets that remain after all plan-related obligations are settled or otherwise provided for. Any such residual surplus would be determined on a different basis to the IAS 19 or funding measures of the plan surplus. The IAS 19 defined benefit plan asset is not included in abrdn's regulatory capital surplus.
Restructuring expenses of £169m (2021: £224m) comprised severance, platform transformation and specific costs to effect savings in Investments, which reflected additional costs to complete platform transformation and the acceleration of staff exits compared to previous expectations. Corporate transaction costs of £45m (2021: £35m) are higher than 2021 largely in relation to ii.
During 2022, we returned £0.6bn to shareholders, £0.3bn through buybacks and £0.3bn in dividends. The dividend cost has reduced to £295m, and cover at 0.9x on an adjusted capital generation basis equates to a net impact on capital of c£35m. Our dividend policy for 2022 remains unchanged at a total annual dividend of 14.6p per share until such time as the dividend is covered 1.5x by adjusted capital generation.
The IFRS loss before tax of £615m reflects principally the reduction of £187m in the value of the listed stakes in HDFC Life, HDFC Asset Management and Phoenix and impairments of £369m, comprising £328m in Investments and £41m for Finimize which was purchased in 2021. These impairments reflect lower projected revenues as a result of the lower markets, macroeconomic conditions and 2022 results being below previous expectations. For Investments, the key impairment drivers also include the expected reduction in Phoenix revenue from asset strategy and related pricing changes, and the further work required to reduce the cost/income ratio and to improve net flows.
Our strong capital position provides us with resilience during periods of economic uncertainty and volatility. We have a disciplined approach to generation and allocation of our capital:
- Our major capital investment in ii was completed at a time when the impact of the current economic conditions could not have been envisaged. ii is performing ahead of our expectations, including a stronger performance in treasury income. It is evident that ii will be double digit earnings enhancing for the group in the first full year of ownership. Based on the last seven months of 2022, the £1.49bn purchase price represents a multiple of 16 times annualised post tax adjusted earnings.
- We will redeploy the proceeds from non-core disposals into the business to support growth, including covering future restructuring costs to improve the efficiency of the business. Restructuring costs (excluding corporate transaction costs) are expected to be c£0.2bn in 2023, primarily related to the continued reshaping of the Investments vector.
- Subject to economic conditions, we will continue to explore inorganic investments that are bolt-on in nature and we expect to allocate capital to support such opportunities.
- Our capital strength also benefits from the value of our listed stakes in HDFC Asset Management, HDFC Life and Phoenix, which at 31 December 2022 had a total value of £1.3bn and is additional to the regulatory capital surplus.
- As part of our approach to allocating capital, the buffer of £0.5bn provides a level of management flexibility and capital strength and resilience during periods of volatility.
- We are committed to return a significant proportion of capital generated from further stake sales by way of further share buybacks which will continue to reduce the share count, benefiting earnings per share and lowering the absolute cost of the dividend.
Looking forward
The outlook for global markets remains uncertain and while this presents risks, we are taking actions to put our Investments business on a better footing through both focusing on our key areas of strength to drive revenue growth and simplifying the operating model to enable an efficient cost base. In the short term, additional headwinds arise from changing client demand and preferences. The benefits of diversification are already evident with our Adviser and Personal vectors on a stronger trajectory of growth with more efficient operating margins.
We will continue to be disciplined in our allocation of capital, to invest in the business in order to drive growth and to support continued returns to shareholders. We understand the importance of dividend income to a large portion of our shareholder base and are committed to our stated dividend policy, together with returning a significant proportion of proceeds from further stake sales through share buybacks. We returned £0.6bn of capital to shareholders by way of dividends and buybacks in 2022, and intend to return a similar level in 2023.
Results summary
|
Analysis of profit |
2022 |
2021 |
|
Net operating revenue1 |
1,456 |
1,515 |
|
Adjusted operating expenses |
(1,193) |
(1,192) |
|
Adjusted operating profit |
263 |
323 |
|
Adjusted net financing costs and investment return |
(10) |
- |
|
Adjusted profit before tax |
253 |
323 |
|
Adjusting items including results of associates and joint ventures |
(868) |
792 |
|
IFRS (loss)/profit before tax |
(615) |
1,115 |
|
Tax credit/(expense) |
66 |
(120) |
|
IFRS (loss)/profit for the year |
(549) |
995 |
The IFRS loss before tax was £615m (2021: profit £1,115m) largely due to adjusting items of £868m:
- Impairments of goodwill and customer intangibles were £369m (2021: £nil). See page 59 for more details.
- Losses of £187m (2021: losses £298m) from the change in fair value of significant listed investments (HDFC Asset Management, HDFC Life and Phoenix) as a result of the fall in the share price of these companies in 2022.
- Restructuring expenses were £169m (2021: £224m). Corporate transaction expenses were £45m (2021: £35m) reflecting principally the acquisition of ii.
- Adjusting items in 2021 benefited from a profit on disposal of interests in associates of £1,236m.
Adjusted operating profit was 19% lower than 2021, largely due to 4% lower revenue as a result of lower market levels which particularly impacted high yielding equities. The 2022 results include a contribution from ii for the seven months to 31 December 2022 which benefited net operating revenue by £114m and adjusted operating profit by £67m.
Net operating revenue1
Net operating revenue reduced by 4% reflecting:
-
Impact from net outflows2 excluding LBG of 2%
(2021: 4%), and adverse yield movements.
- Significant c£109m impact of adverse markets on AUMA.
- Net benefit from corporate actions of c£100m mainly due to £114m from ii. This was partly offset by the net impact of other corporate actions during 2021 and 2022 relating to the disposals of Parmenion, Nordics and Bonaccord, and acquisitions of Tritax and Finimize.
- Other includes a benefit from FX movements of c£24m and the £9m one-off Phoenix payment, partly offset by the impact of lower LBG revenue following the final tranche withdrawals. Performance fees were £30m (2021: £46m) from Asia, real assets and insurance.
Adjusted operating expenses
|
|
2022 |
2021 |
|
Staff costs excluding variable compensation |
527 |
517 |
|
Variable compensation |
85 |
126 |
|
Staff and other related costs3 |
612 |
643 |
|
Non-staff costs |
581 |
549 |
|
Adjusted operating expenses |
1,193 |
1,192 |
Adjusted operating expenses were broadly flat after the inclusion of £47m of ii expenses for the post acquisition period, reflecting:
- 3% lower staff costs (excluding variable compensation and ii), with the benefit of lower FTEs (14%), partly offset by wage inflation.
- Lower variable compensation in line with Investments vector performance.
- 6% increase in non-staff costs, principally due to ii. Excluding ii, non-staff costs increased by 1% with cost savings offset by the impact of inflation, IT costs associated with regulatory change and c£20m from adverse FX movements.
The cost/income ratio increased to 82% (2021: 79%) as a result of the lower revenue in Investments.
1. The revenue metric included within adjusted operating profit has been renamed from fee based revenue to net operating revenue. For 2022 this measure is aligned to net operating revenue as presented in the IFRS consolidated income statement. For 2021 this measure of segmental revenue excludes £28m of net operating revenue as presented in the IFRS consolidated income statement which was classified as adjusting items. See page 177 for more information.
2. This reflects the estimated impact on net operating revenue of net outflows in both current and prior years, as a percentage of prior year revenue.
3. See Supplementary information for a reconciliation to IFRS staff and other employee related costs.
Investments
|
Adjusted £114m |
Net operating revenue £1,070m |
Net operating 25.4bps |
Net flows (£13.4bn) |
|
|
Total |
Institutional and Wholesale |
Insurance |
|||
|
|
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|
Net operating revenue1 |
£1,070m |
£1,231m |
|
|
|
|
|
Adjusted operating expenses |
(£956m) |
(£978m) |
|
|
|
|
|
Adjusted operating profit |
£114m |
£253m |
|
|
|
|
|
Cost/income ratio |
89% |
79% |
|
|
|
|
|
Net operating revenue yield |
25.4bps |
25.9bps |
36.1bps |
38.8bps |
10.5bps |
10.0bps |
|
AUM |
£376bn |
£464bn |
£231bn2 |
£253bn |
£145bn2 |
£211bn |
|
Gross flows |
£59.3bn |
£63.4bn |
£36.5bn |
£41.9bn |
£22.8bn |
£21.5bn |
|
Redemptions |
(£100.3bn) |
(£74.0bn) |
(£48.1bn) |
(£47.0bn) |
(£52.2bn) |
(£27.0bn) |
|
Net flows |
(£41.0bn) |
(£10.6bn) |
(£11.6bn) |
(£5.1bn) |
(£29.4bn) |
(£5.5bn) |
|
Net flows excluding liquidity3 |
(£37.8bn) |
(£7.6bn) |
(£8.4bn) |
(£2.1bn) |
(£29.4bn) |
(£5.5bn) |
|
Net flows excluding liquidity and LBG3,4 |
(£13.4bn) |
(£7.6bn) |
(£8.4bn) |
(£2.1bn) |
(£5.0bn) |
(£5.5bn) |
Investments vector faced market headwinds
- £139m (55%) reduction compared to 2021, reflecting 13% lower revenue and 2% lower costs. - Cost reduction driven by lower staff costs, reflecting lower FTEs and lower variable compensation. This is partly offset by the impact of staff cost inflation in H2 2022 and higher IT costs associated with regulatory change and the adverse impact of FX. |
|
- 13% lower than 2021 largely due to lower market performance impacting average AUM, particularly in equities. - Performance fees of £30m (2021: £46m) including strong performance fees from real assets, albeit the overall total is lower than the level seen in 2021. - Revenue in 2022 includes £9m one-off benefit as compensation for the £6.3bn Phoenix asset withdrawal. |
Institutional and Wholesale
- 13% lower at £878m (2021: £1,012m) due to £14bn reduction in average AUM to £236bn (2021: £250bn). This reflects lower market values in equities, fixed income and multi-asset AUM, partly offset by a full year of revenue in Tritax, compared with nine months in 2021, and c25% growth in Tritax average AUM. |
|
- 2.7bps lower to 36.1bps largely due to the decrease in the higher margin equities average AUM impacting the asset mix. Equities are 24% (2021: 28%) of average AUM at a yield of 62.5bps while real assets accounted for 18% (2021: 14%) at 44.4bps. - Multi-asset revenue yield has declined as in 2022 MyFolio accounts for the majority of AUM in this asset class. |
||
- Excluding liquidity, £9.0bn (25%) lower at £26.3bn (2021: £35.3bn) mainly in fixed income and equities. This reflected the client response to the uncertain market environment which impacted the wider industry, as many clients delayed investment decisions. |
|
- Net outflows were £6.3bn higher than 2021 at £8.4bn (excluding liquidity), largely due to the lower level of gross inflows partly offset by a £2.7bn improvement in redemptions. - Excluding liquidity, net outflows represent 4% of opening AUM compared with 1% in 2021. |
1. Includes performance fees of £30m (2021: £46m).
2. Following completion of the LBG tranche withdrawals, the remaining LBG AUM of c£7.5bn which has been retained was reallocated to quantitatives in Institutional/Wholesale.
3. Institutional and Wholesale liquidity net flows excluded.
4. Flows excluding LBG do not include the tranche withdrawals of £24.4bn (2021: £nil) relating to the settlement of arbitration with LBG.
Insurance
- 12% lower in 2022 at £192m (2021: £219m), including the impact of LBG tranche withdrawals and lower average AUM, offset by the £9m one-off Phoenix compensation in 2022.
- Net operating revenue yield improved slightly to 10.5bps. Excluding the one-off Phoenix compensation of £9m, the yield was flat at 10.0bps.
- LBG AUM within Insurance is £nil (2021: £33.6bn). This reflects the final tranche withdrawal of £24.4bn in H1 2022 with c£7.5bn of assets retained under a new quantitatives mandate included within Institutional to better reflect how the relationship is now being managed. - Phoenix AUM decreased £32bn or 18% largely due to £28bn of adverse market movements. |
|
- £1.3bn higher than 2021, with £5.4bn of gross inflows into low margin quantitatives partly offset by lower bulk purchase annuity inflows of £2.9bn (2021: £5.2bn).
- Net outflows of £5.0bn (2021: outflows £5.5bn) excluding LBG tranche withdrawals of £24.4bn. - Net outflows include withdrawal by Phoenix of £6.3bn of UK equities in Q4 2022 due to a change in Phoenix's approach to asset allocation strategies. This is partly offset by the higher gross inflows into low margin quantitatives highlighted above. |
Investment performance
|
% of AUM ahead of benchmark1 |
1 year |
3 years |
5 years |
|||
|
|
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|
Equities |
30 |
37 |
63 |
74 |
65 |
65 |
|
Fixed income |
65 |
58 |
72 |
79 |
79 |
81 |
|
Multi-asset |
13 |
72 |
50 |
73 |
22 |
70 |
|
Real assets |
57 |
86 |
63 |
58 |
52 |
62 |
|
Alternatives |
88 |
87 |
100 |
98 |
100 |
98 |
|
Quantitative |
17 |
99 |
27 |
15 |
29 |
42 |
|
Liquidity |
84 |
89 |
97 |
92 |
97 |
92 |
|
Total |
41 |
66 |
65 |
78 |
58 |
77 |
Investment performance over the key three-year time period has weakened, with 65% of AUM covered by this metric ahead of benchmark (2021: 78%). The sharp rotation in equities from growth to value in late 2021 and H1 2022 impacted many of our equity strategies which focus on quality and growth outcomes. One-year performance was particularly impacted, however longer term equities performance remains robust.
Over the key three-year time period, we have consistently delivered strong performance in alternatives as well as fixed income in the unprecedented interest rate environment. Multi-asset performance over one, three and five years was weaker with absolute return strategies relying on traditional portfolio diversification, primarily equities and fixed income, suffering negative returns.
Real assets valuation yields have weakened given the higher interest rate backdrop which has impacted one-year performance, however, long-term sector conviction remains strong.
1. The calculation of investment performance has been revised to use a closing AUM weighting basis. 2021 comparative has been restated. We believe that this approach provides a more representative view of current investment performance. Calculations for investment performance are made gross of fees except where the stated comparator is net of fees. Benchmarks differ by fund and are defined in the investment management agreement or prospectus, as appropriate. These benchmarks are primarily based on indices or peer groups. Further details about the calculation of investment performance including the revised methodology are disclosed in the Supplementary information section.
Adviser
|
Adjusted £86m |
Net operating revenue £185m |
Net operating 26.1bps |
Net flows £1.6bn |
|
|
2022 |
2021 |
|
Net operating revenue |
£185m |
£178m |
|
Adjusted operating expenses |
(£99m) |
(£104m) |
|
Adjusted operating profit |
£86m |
£74m |
|
Cost/income ratio |
54% |
58% |
|
Net operating revenue yield |
26.1bps |
24.9bps |
|
AUA |
£69bn |
£76bn |
|
Gross flows |
£6.6bn |
£9.1bn |
|
Redemptions |
(£5.0bn) |
(£5.2bn) |
|
Net flows |
£1.6bn |
£3.9bn |
Resilient performance from leading Adviser platforms
- Profit increased to £86m, against a backdrop of challenging market conditions. - Cost/income ratio improved to 54% with lower operating expenses benefiting from outsourcing activity in 2022.
-
4% higher than 2021 with net interest margin on client cash balances increasing to £11m - The average margin earned on client cash balances during 2022 was c85bps. The indicative Adviser average cash margin for 2023 is 160-180bps.
- Increased to 26.1bps. due to the higher revenue explained above. - Average AUA of £71bn is 1% lower than 2021. |
|
- 10% decrease in 2022 due to adverse markets, partly offset by net inflows. - Retained our number one position in UK adviser platform market by AUA1.
- Sales activity reduced by 27% in 2022, reflecting muted client activity across the industry due to ongoing market uncertainty and focus on short term spending goals amongst the UK consumer base.
- Reduction in net inflows to £1.6bn reflects lower gross flows and included a £0.2bn impact from a client exit in H1 2022 due to the acquisition by a consolidator. |
1. Source: UK Adviser platform, Fundscape Q3 2022.
Personal
|
Adjusted £72m |
Net operating revenue £201m |
Net operating 59.2bps |
Net flows £1.9bn |
|
|
Total |
interactive investor3 |
Personal Wealth |
|||
|
|
2022 |
2021 |
7 months to |
N/A |
2022 |
2021 |
|
Net operating revenue |
£201m |
£92m |
£114m |
|
£87m |
£92m |
|
Adjusted operating expenses |
(£129m) |
(£84m) |
(£47m) |
|
(£82m) |
(£84m) |
|
Adjusted operating profit |
£72m |
£8m |
£67m |
|
£5m |
£8m |
|
Cost/income ratio |
64% |
91% |
41% |
|
94% |
91% |
|
Net operating revenue yield1 |
|
|
|
|
59.2bps |
61.0bps |
|
AUMA |
£67.1bn |
£14.4bn |
£54.0bn |
|
£13.1bn |
£14.4bn |
|
Gross flows |
£5.6bn |
£1.7bn |
£4.1bn |
|
£1.5bn |
£1.7bn |
|
Redemptions |
(£3.7bn) |
(£1.1bn) |
(£2.5bn) |
|
(£1.2bn) |
(£1.1bn) |
|
Net flows2 |
£1.9bn |
£0.6bn |
£1.6bn |
|
£0.3bn |
£0.6bn |
Accelerating revenue diversification with acquisition of ii
- Higher profit reflects the inclusion of £67m for the seven months results for ii. - ii has continued to perform well against an uncertain market environment, with profit performance remaining ahead of our expectations. - Personal Wealth's adjusted operating profit in 2021 included a one-off benefit of c£3m which when excluded highlights stable underlying performance in 2022 at £5m. - Cost/income ratio improved to 64% as a result of ii's efficient operating leverage.
- The increase in revenue reflects inclusion of £114m from ii. - ii revenue continues to benefit from diverse revenue streams. Treasury income for the seven months contributed £58m, benefiting from interest rates rising significantly throughout H2 2022. Revenue from subscriptions continued to grow, including the benefit from increased average customer numbers compared with 2021. Trading revenue was impacted by muted levels of customer activity given the uncertain market conditions. - Personal Wealth revenue reduced by £5m due to adverse market movements impacting AUMA and lower margins from pricing and product mix. |
|
- Personal Wealth revenue yield decreased to 59.2bps resulting from pricing pressure and changes in product mix. Average AUMA was £13.5bn, 4% lower than 2021.
- ii's AUM of £55bn at acquisition was reported as a corporate action in the year. As at 31 December 2022, ii's AUA of £54bn reflects the benefit from net inflows offset by adverse market movements and includes customer cash balances of £6.0bn. - Personal Wealth AUMA decreased to £13.1bn reflecting lower markets through 2022. - Total discretionary clients increased by 4% to c16,600 (2021: c16,000). - ii customer numbers were broadly stable at c402,000 (2021: c403,000). Excluding the tail run-off of the two most recently acquired books (Share Centre and EQi), net customer growth for the year was 3%. - Number of ii customers holding a SIPP account increased by 17% to c51,500 (2021: c43,900).
- Total net flows of £1.9bn included £1.6bn for the seven months of ii flows. - Reductions in gross and net flows for Personal Wealth include the impact of market uncertainty which has resulted in lower and more muted activity by individuals across the industry. This included a more modest tax year-end period. |
1. Net operating revenue yield is shown for Personal Wealth only. Revenue for interactive investor is not aligned with AUA and therefore revenue yield is not presented.
2. Cash dividends which are retained on the ii platform are included in net flows for the ii business. See the Glossary for further details.
3. Results for interactive investor included following the completion of the acquisition on 27 May 2022.
Overall performance
|
Adjusted £263m |
IFRS loss (£615m) |
Adjusted £259m |
|
|
|
Adjusted operating profit |
AUMA |
Net flows |
|||
|
Segmental summary |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|
Investments1 |
114 |
253 |
376 |
464 |
(13.4) |
(7.6) |
|
Adviser |
86 |
74 |
69 |
76 |
1.6 |
3.9 |
|
Personal |
72 |
8 |
67 |
14 |
1.9 |
0.6 |
|
Corporate/strategic2 |
(9) |
(12) |
- |
- |
- |
0.3 |
|
Eliminations |
- |
- |
(12) |
(12) |
(0.4) |
(0.4) |
|
Total |
263 |
323 |
500 |
542 |
(10.3) |
(3.2) |
|
Liquidity net flows |
|
|
|
|
(3.2) |
(3.0) |
|
LBG tranche withdrawals |
|
|
|
|
(24.4) |
- |
|
Total net flows (including liquidity and LBG) |
|
|
|
|
(37.9) |
(6.2) |
|
Analysis of profit |
2022 |
2021 |
|
Net operating revenue |
1,456 |
1,515 |
|
Adjusted operating expenses |
(1,193) |
(1,192) |
|
Adjusted operating profit |
263 |
323 |
|
Adjusted net financing costs and investment return |
(10) |
- |
|
Adjusted profit before tax |
253 |
323 |
|
Adjusting items including results of associates and joint ventures |
(868) |
792 |
|
IFRS (loss)/profit before tax |
(615) |
1,115 |
|
Tax credit/(expense) |
66 |
(120) |
|
IFRS (loss)/profit for the year |
(549) |
995 |
Adjusted net financing costs and investment return
Adjusted net financing costs and investment return resulted in a loss of £10m (2021: £nil):
- Investment losses, including from seed capital and co-investment fund holdings, were £34m (2021: gain £4m) due to adverse market conditions in the year.
- Reduced net finance costs of £5m (2021: £21m) reflecting a higher rate of interest on cash and liquid assets.
- Higher net interest credit relating to the staff pension schemes of £29m (2021: £17m) reflecting an increase in the opening discount rate due to a rise in corporate bond yields.
Adjusting items
|
|
2022 |
2021 |
|
Profit on disposal of interests in associates |
6 |
1,236 |
|
Profit on disposal of subsidiaries and other operations |
- |
127 |
|
Restructuring and corporate transaction expenses |
(214) |
(259) |
|
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts |
(494) |
(99) |
|
Change in fair value of significant listed investments |
(187) |
(298) |
|
Dividends from significant listed investments |
68 |
71 |
|
Share of profit or loss from associates and joint ventures |
2 |
(22) |
|
Loss on impairment of interests in associates |
(9) |
- |
|
Other |
(40) |
36 |
|
Total adjusting items including results of associates and joint ventures |
(868) |
792 |
Profit on disposal of interests in associates of £6m relates to the sale of our stake in Origo Services Limited in May 2022. The 2021 profit of £1,236m primarily related to one-off accounting gains of £965m following the reclassification of our HDFC Asset Management and Phoenix shareholdings from associates to investments measured at fair value. 2021 also included a £271m gain from the sale of a 5% stake in HDFC Asset Management.
Profit on disposal of subsidiaries and other operations in 2021 primarily related to the sales of Parmenion and Bonaccord.
Restructuring and corporate transaction expenses were £214m, comprising restructuring costs of £169m in severance, platform transformation and specific costs to effect savings in Investments, and £45m of corporate transaction costs largely in relation to the ii acquisition. Further details are included in the Supplementary information section.
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts increased to £494m, mainly due to the impairment of goodwill and customer intangibles of £369m (2021: £nil). The impairments comprise £328m in Investments and £41m for Finimize which was purchased in 2021. These impairments reflect lower projected revenues as a result of lower markets, macroeconomic conditions and 2022 results being below previous expectations; and for Investments the expected reduction in Phoenix revenue from asset strategy and related pricing changes, and further work being required to reduce costs and grow to a net inflow position. Further details are provided in Note 13 of the Group financial statements.
Change in fair value of significant listed investments of negative £187m from market movements is analysed in the table below:
|
|
2022 |
2021 |
|
Phoenix |
(44) |
(82) |
|
HDFC Asset Management |
(105) |
(164) |
|
HDFC Life |
(38) |
(52) |
|
Change in fair value of significant listed investments |
(187) |
(298) |
Dividends from significant listed investments relates to our shareholdings in Phoenix (£52m), HDFC Asset Management (£15m) and HDFC Life (£1m). In 2021, dividends received from Phoenix were £69m (prior to the reduction in our shareholding from 14.4% to 10.4% in January 2022) and £2m from HDFC Life.
Share of profit or loss from associates and joint ventures increased to a profit of £2m. Phoenix and HDFC Asset Management were classified from associates in 2021. The reduction in HASL reflects mainly lower investment returns in 2022. Other relates principally to the share of loss from our shareholding in Tenet Group Ltd.
|
|
2022 |
2021 |
|
HASL |
7 |
19 |
|
Virgin Money UTM |
- |
(6) |
|
Phoenix |
- |
(56) |
|
HDFC Asset Management |
- |
21 |
|
Other |
(5) |
- |
|
Share of profit or loss from associates and joint ventures |
2 |
(22) |
Loss on impairment of interests in associates of £9m relates to an impairment of Tenet Group Ltd.
Other adjusting items in 2022 primarily relates to a single process execution event provision of £41m. See Notes 11 and 34 for further details. Other adjusting items in 2021 included a one-off £25m net release of deferred income following the transfer of workplace pensions marketing staff to Phoenix.
See pages 172 and 186 for further details on adjusted operating profit and reconciliation of adjusted operating profit to IFRS profit. Further details on adjusting items are included in the Supplementary information section.
1. Investments net flows exclude Institutional/Wholesale liquidity and LBG tranche withdrawals.
2. Adjusted operating loss consists of net operating revenue £nil (2021: £14m) and adjusted operating expenses £9m (2021: £26m). 2022 comprises of only certain corporate costs. 2021 also included the Parmenion business which was held for sale. The sale of Parmenion completed in June 2021.
Tax policy
We have important responsibilities in paying and collecting taxes in the countries in which we operate. Our tax strategy is therefore guided by a commitment to high ethical, legal and professional standards and being open and transparent about what we are doing to meet those standards.
Tax expense
The total IFRS tax credit attributable to the loss for the year was £66m (2021: expense £120m), including a tax credit attributable to adjusting items of £88m (2021: expense £94m), resulting in an effective tax rate of 11% on the total IFRS loss (2021: 11%). The difference to the UK Corporation Tax rate of 19% is mainly driven by:
- Goodwill impairments that are not deductible for tax purposes.
- Movements in the fair value of our investment in HDFC Asset Management being tax effected at the Indian long-term capital gains tax rate, which is lower than the UK Corporation Tax rate.
- Fair value movements relating to our investments in Phoenix and HDFC Life not being subject to tax.
- Offset by dividends from significant listed investments not being subject to tax in the UK.
The tax expense attributable to adjusted profit is £22m (2021: £26m), an effective tax rate of 9% (2021: 8%). This is lower than the 19% UK rate primarily due to the benefit of certain deferred tax assets being expected to arise after the UK Corporation Tax rate increases to 25% in 2023.
Total tax contribution
Total tax contribution is a measure of all the taxes abrdn pays to and collects on behalf of governments in the territories in which we operate. Our total tax contribution was £443m (2021: £447m). Of the total, £186m (2021: £190m) was borne by abrdn whilst £257m (2021: £257m) represents tax collected by abrdn on behalf of the tax authorities. Taxes borne mainly consist of corporation tax, employer's national insurance contributions and irrecoverable VAT. The taxes collected figure is mainly comprised of pay-as-you-earn deductions from employee payroll payments, employees' national insurance contributions, VAT collected and income tax collected on behalf of HMRC on platform pensions business.
You can read our tax report on our website www.abrdn.com/annualreport
Earnings per share
- Adjusted diluted earnings per share decreased to 10.5p (2021: 13.7p) due to the lower adjusted profit after tax and the interest payment on the AT1 debt. This was partially offset by a benefit from the share buyback.
- Diluted earnings per share was a loss of 26.8p (2021: profit 46.0p) reflecting the factors above, impairments and fair value losses of significant listed investments.
Dividends
The Board has recommended a final dividend for 2022 of 7.3p (2021: 7.3p) per share. This is subject to shareholder approval and will be paid on 16 May 2023 to shareholders on the register at close of business on 31 March 2023. The dividend payment is expected to be £142m.
External dividends are funded from the cumulative dividend income that abrdn plc receives from its subsidiaries and associates (see below for details of cash and distributable reserves). The need to hold appropriate regulatory capital is the primary restriction on the Group's ability to pay dividends. Further information on the principal risks and uncertainties that may affect the business and therefore dividends is provided in the Risk management section.
As a result of the decline in revenue in the year, dividend cover on an adjusted capital generation basis was 0.9 times.
The adjusted capital generation trend and related dividend coverage is shown below:
It remains the Board's current intention to maintain the total annual dividend at 14.6p (with the interim and final both at 7.3p per share), until it is covered at least 1.5 times by adjusted capital generation, at which point the Board will seek to grow the dividend in line with its assessment of the underlying medium-term growth in profitability.
Return of capital
On 6 July 2022, we commenced a £300m return of capital to shareholders which completed on 12 December 2022. A total of 179m shares were repurchased at an average price of £1.68 per share.
Capital and liquidity
Adjusted capital generation
Adjusted capital generation, which shows how adjusted profit contributes to regulatory capital, decreased by 29% to £259m.
|
|
2022 |
2021 |
|
Adjusted profit after tax |
231 |
297 |
|
Less net interest credit relating to the staff pension schemes |
(29) |
(17) |
|
Less AT1 debt interest |
(11) |
- |
|
Add dividends received from associates, joint ventures and significant listed investments |
68 |
86 |
|
Adjusted capital generation |
259 |
366 |
Net movement in IFPR surplus regulatory capital
The indicative surplus regulatory capital at 31 December 2022 was £0.7bn (2021: £1.8bn) following the acquisition of ii. Disposal of part of our Phoenix, HDFC Asset Management and HDFC Life stakes in January 2022, August 2022 and September 2022 respectively generated sale proceeds of £0.8bn.
Key movements in surplus regulatory capital are shown in the table below.
|
Analysis of movements in surplus regulatory capital (IFPR basis) |
2022 |
2021 |
|
Opening surplus regulatory capital1 |
1.8 |
1.2 |
|
Sources of capital |
|
|
|
Adjusted capital generation |
0.3 |
0.4 |
|
HDFC Life, HDFC Asset Management and Phoenix sale proceeds |
0.8 |
0.9 |
|
Parmenion and Bonaccord sale proceeds |
- |
0.1 |
|
Issuance of AT1 debt |
- |
0.2 |
|
Uses of capital |
|
|
|
Restructuring and corporate transaction expenses (net of tax) |
(0.2) |
(0.2) |
|
Dividends |
(0.3) |
(0.3) |
|
Acquisition of interactive investor2 |
(1.4) |
- |
|
Acquisitions of Tritax and Finimize |
- |
(0.3) |
|
Share buyback |
(0.3) |
- |
|
Other |
- |
(0.2) |
|
Closing surplus regulatory capital |
0.7 |
1.8 |
1. The Group reported capital under CRD IV until 31 December 2021. 2021 figures are therefore indicative.
2. Acquisition price of £1.5bn less capital resources acquired.
The full value of the Group's significant listed investments is excluded from the capital position under IFPR and represents additional value for shareholders.
Note 43 of the Group financial statements includes a reconciliation between IFRS equity and surplus regulatory capital and details of our capital management policies.
Cash and liquid resources and distributable reserves
Cash and liquid resources remained robust at £1.7bn at 31 December 2022 (2021: £3.1bn) following the £1.5bn ii acquisition. These resources are high quality and mainly invested in cash, money market instruments and short-term debt securities. Further information on cash and liquid resources, and a reconciliation to IFRS cash and cash equivalents, is provided in Supplementary information.
At 31 December 2022, distributable reserves were £3.2bn (2021: £2.8bn), benefiting in July 2022 from a £1.1bn transfer from the capital redemption reserve.
IFRS net cash flows
- Net cash inflows from operating activities were £110m (2021: inflows £14m) which includes outflows from restructuring costs net of tax of £111m (2021: £179m) and corporate transaction costs, net of tax, of £38m (2021: £11m). 2021 inflows were reduced by working capital movements.
- Net cash outflows from investing activities were £86m (2021: inflows £755m), primarily reflecting a £1.4bn outflow for acquisition of ii (net of cash acquired) offset by £1.3bn net proceeds from the sale of financial investments (mainly £0.8bn from the Phoenix and HDFC stake sales and £0.4bn from the net sale of money market instruments primarily related to ii transaction funding ).
- Net cash outflows from financing activities were £761m (2021: £243m). The higher outflows reflected the 2022 £0.3bn share buyback and the £0.1bn repayment of subordinated liabilities. 2021 included the £0.2bn proceeds from the Additional Tier 1 debt issue.
The cash inflows and outflows described above resulted in closing cash and cash equivalents of £1,166m as at
31 December 2022 (2021: £1,875m).
IFRS net assets
IFRS net assets attributable to equity holders decreased to £5.7bn (2021: £7.6bn) mainly due to the IFRS loss before tax, the reduced pension scheme surplus discussed below and dividends paid in the year:
- Intangible assets increased to £1.6bn (2021: £0.7bn) as a result of the ii acquisition (see Note 1), partly offset by impairments of intangibles (see Note 13).
- The principal defined benefit pension scheme, which is closed to future accrual, continues to have a significant surplus of £0.8bn (2021: £1.6bn). The reduction in surplus in 2022 is primarily due to higher yields and other market movements, and reflects that the investment strategy aims to protect the surplus on a different basis to the IAS 19 accounting basis.
Financial investments decreased to £2.9bn (2021: £4.3bn) primarily due to the £0.8bn stakes sales, £0.2bn reduced values in our significant listed investments and £0.4bn net sale of money market instruments. At 31 December 2022, financial investments included £1.3bn (2021: £2.3bn) in relation to significant listed investments (Phoenix £634m, HDFC Asset Management £477m and HDFC Life £203m).
Viability statement
Longer-term prospects
The Directors have determined that three years is an appropriate period over which to assess the Group's prospects. In addition to aligning with our business planning horizon, this reflects the timescale over which changes to major regulations and the external landscape affecting our business typically take place.
The Group's prospects are primarily assessed through the strategic and business planning process. These prospects have been enhanced as a result of actions taken during the year, in particular the acquisition of interactive investor.
The assessment reflects the Group's focus on its strategic priorities as set out on pages 12 to 13 and how this is expected to drive client-led growth in abrdn's three vectors.
In forming their assessment of the Group's longer-term prospects, the Directors have also taken into account:
- The Group's capital position as set out on page 61.
- The Group's substantial holdings of cash and liquid resources as well as holdings in listed equity investments as set out on page 61.
- The Group's principal and emerging risks as set out on pages 64 to 67.
|
Assessment of prospects The Directors consider the Group's focus on its strategic priorities will deliver growth while allowing the Group to maintain its strong regulatory capital position and the dividend policy described on page 60. |
Viability
The Directors consider that three years is an appropriate period for assessing viability as this is in line with the horizon used for our business planning and stress testing and scenario analysis processes.
In considering the viability statement, the Board performed a thorough assessment of the Group's principal risks in order to understand potential vulnerabilities for the business. In addition to this, the Directors assessed the Group's viability taking into account:
- Output from the Group's business planning process.
- Results from the Group's stress testing and scenario analysis programme.
- Results from the Group's reverse stress testing exercise.
- Work performed in connection with the UK's FCA and PRA rules on operational resilience.
The business planning process includes the projection of profitability, regulatory capital and liquidity over a three year period, based on a number of assumptions. This includes assumptions regarding the economic outlook which reflect various factors including the changing market conditions following the significant geopolitical and economic developments of 2022.
The Group has no debt maturing over the next three years and, based on business planning projections, there is no expectation that the Group will need to draw down on its £400m revolving credit facility described on page 234.
The Group's stress testing and scenario analysis programme applies severe stresses to the business plan to understand the Group's financial resilience. This includes (i) exploring the impacts of market-wide stresses, (ii) stresses that are specific to abrdn, and (iii) stresses that combine both these elements. Whilst all of the Group's principal risks could potentially impact on the Group's financial resilience, our combined stress testing scenarios focused on those risks expected to have the most significant impact:
- Financial risk was considered under a range of stresses to market levels, flows, and margins. The scenarios that were explored included revenue reductions due to (i) equity markets falling approximately 22% in Q1 2023 and net outflows occurring over the planning horizon reducing the year end AUMA by up to 11% and (ii) the UK Base rate falling to 0.1% by Q1 2024.
- Operational risks were considered in the context of the Group incurring £40m of operational losses which were assumed to represent the cumulative impact of a number of severe losses across a range of principal risk categories, such as: process execution and trade errors, technology risk, security and resilience risk, or fraud and financial crime risks.
All the scenarios explored resulted in the Group experiencing reduced profitability and, in some cases, losses over the planning horizon. Projections of capital and liquid resources fell as a result of these losses.
The Group had sufficient capital and liquid resources to withstand all of the stresses and did not need to take any management actions other than those assumed within the business plan. This reflects the strength and quality of the Group's financial position.
In the event that the Group was to experience more severe stresses than those explored under the Group's stress testing and scenario analysis programme, the Group has a diverse range of management actions it would be able to take, including a number of sizeable management actions wholly within the Group's control. This includes drawing down on the revolving credit facility, reducing discretionary expenditure, and dividend management actions.
During the year, additional stress testing and scenario analysis was performed to support the Group's capital management activity. The results of this were also taken into consideration in the Directors' assessment of viability.
The Group is considered to be resilient to adverse climate change over the three year horizon; the stresses to market levels and flows explored under the stress testing and scenario analysis programme are deemed to capture the possible consequences of climate change over this period.
Reverse stress testing involves exploring the quantitative and/or qualitative impacts of extreme scenarios which could threaten the viability of our business model. For this year's exercise, we investigated possible economic conditions that could lead to non-viability. This involved exploring more extreme versions of the scenarios developed under the stress testing and scenario analysis programme, focusing on increasing the size of the equity market shock in Q1 2023.The reverse stress testing exercise highlighted how the Group's risk appetite monitoring processes, including defined escalation processes, support the early identification of possible issues and provide time for actions to be taken before these issues crystallise.
The exercise found that equity market falls required to threaten viability were viewed as being very remote. This, and the Group's range of mitigants in place to respond to the scenario, supports the assessment of viability and no qualification is considered necessary.
Over recent years the Group has also explored reverse stress tests including the failure of a critical third party administrator in the Investments vector, the loss of critical staff and a significant cyber attack. The work performed concluded that these events had a low likelihood of occurrence and were not considered likely to threaten the Group's viability. These conclusions are considered to remain valid.
Operational resilience reflects the ability of firms and the financial sector as a whole to prevent, adapt and respond to, and recover and learn from operational disruptions. In addition to causing potential harm to customers and threatening market integrity, such operational disruptions and the unavailability of important business services have the potential to threaten viability.
The UK's FCA and PRA introduced new regulations on 31 March 2022 requiring that by March 2025 abrdn is able to operate the important business services it provides to its clients and customers within set impact tolerances in order to avoid causing 'intolerable harm'.
The Group has identified the important business services that it provides to clients and customers and, during 2022, performed operational stress testing against a severe but plausible operational scenario to determine whether the Group could remain within the set impact tolerances. This work highlighted that the Group's important business services could operate within the set impact tolerances and there was no threat to the Group's viability.
|
Assessment of viability The Directors confirm that they have a reasonable expectation that abrdn plc will be able to continue in operation and meet its liabilities as they fall due over the next three years. |
Risk management
Managing risk for better outcomes
Our approach to risk management
A clear and effective Enterprise Risk Management (ERM) framework underpins our commitment to put clients and customers first and safeguard the interests of our shareholders. Our Board has ultimate responsibility for risk management and oversees the effectiveness of our ERM framework.
ERM framework
We operate 'three lines of defence' with defined roles and responsibilities. There is ongoing evolution in our ERM framework to ensure that we meet the changing needs of the company and to make sure it keeps pace with industry best practice. In 2022, improvements to the framework included:
- Refinements to risk appetites.
- Extending our risk taxonomy.
- Enhancing our Conflicts of Interest framework.
- Reviewing our policy register.
We commenced a review of our Risk and Control Self Assessments during 2022, and this will continue during 2023.
Business risk environment
The commercial environment was challenging during 2022 as the Russian/Ukraine conflict led to a surge in energy prices, higher inflation and a rapid tightening of monetary policy by central banks thereby putting pressure on asset prices. These conditions impacted market levels and client flows over the year.
T he acquisition of interactive investor in the first half of 2022 helped to diversify our earning s driver s away from ad valorem fee revenues . The incorporation of ii into our risk governance framework was handled smoothly.
Though we started 2022 dealing with the effects of Omicron, the impact of COVID-19 on our operating environment was much less pronounced as 'blended working' became the default arrangement for our people.
Client and customer interests are at the heart of our business. We keep close focus on the outcomes which we deliver across our businesses. During 2022, we progressed the company-wide programme to implement the FCA's new Consumer Duty within the relevant regulatory timelines.
A significant process execution event occurred during 2022. This has been thoroughly investigated and appropriate remedial actions are being taken.
We continue to manage a lot of change across the business which creates operational stretch on top of our core client servicing activities. We have also put a strong emphasis on simplification of our operating environment and greater automation.
An additional challenge in this area is an uptick in staff turnover across various skillsets in the financial services industry post-COVID. That said, this also creates opportunities in the management and development of talent.
We maintain heightened vigilance over risks to our operations from financial crime and cyber intrusion. Given the complexity of our business, we have rolled out a comprehensive and consistent suite of financial crime standards that are in-line with jurisdictional requirements and we continue to strengthen our operating models to understand the risk profiles of our clients and customers effectively and efficiently.
Evolving and emerging risks
We are vigilant to risks that could crystallise over different horizons and impact our strategy and operations. The se risks vary in nature as they cover geopolitical, economic, societal, technological, legal, regulatory and environmental themes . We distil internal and external research to consider how risks could emerge and evolve
Some notable risks (and opportunities) for our business include tightness in labour markets, rising input cost s , evolving cyber threats, disruptive financial technologies, unprecedented market shifts and climate change.
Sustainability risks1
We have a responsibility to shareholders, clients, customers and all stakeholders to assess, report on, manage and mitigate our sustainability risks. As a FTSE100 investment firm, we need to consider both the impact of our corporate activities and the impact of the investments that we are making on behalf of our clients. We continue to deepen our understanding of these risks for the benefit of all stakeholders and use these insights to advocate for positive policy change.
Against a backdrop of a complex and challenging regulatory environment, during 2022 we made good progress against a number of key milestones, including EU SFDR deliverables ; enhancing our climate and carbon analytical tools; completing the integration of ESG data into our investment data platform for 2023 regulatory reporting; and the use of the ESG screening and exclusion tool.
1. See Note 35 for disclosure relating to the financial impact of climate-related risk on the 2022 financial statements.
Principal risks and uncertainties
We categorise our risks across 12 principal risk categories which have both internal and external drivers. Within our ERM framework, we have developed a more detailed taxonomy of risks under these principal risk categories. This allows us to systematically monitor the risk profile o f our business . Principal and emerging risks are subject to active oversight and robust assessment by the Board. These risks are described in the following table.
|
Risk to our business |
|
How we manage this risk |
||
|
1 |
Strategic risk |
|
|
|
|
- These are risks that could prevent us from achieving our strategic aims and successfully delivering our business plans. - These could include failing to meet client expectations, poor strategic decision-making or failure to adapt. |
|
We continued to develop our single global brand during 2022. As well as materially diversifying our revenue base, the acquisition of interactive investor further strengthened our position in the marketplace. Each of our vectors has a clear organic growth strategy. Inorganic growth, such as through acquisitions, is rigorously assessed, drawing on market intelligence, for its contribution to our core strategy and the opportunities it presents to help us better understand different client needs. |
||
|
2 |
Financial risk |
|
|
|
|
- This is the risk of having insufficient financial resources, suffering losses from adverse markets or the failure or default of counterparties. It is impacted by our flows experience, global market conditions and the fees we charge on investment mandates, platforms and wealth management services. - Our strong capital and liquidity position enabled the acquisition of interactive investor and the launch of a share buyback programme during the year while still maintaining a strong capital position.
|
|
Business planning and stress testing is used to project our financial resources under a range of scenarios and confirm the financial resilience of our business. During 2022 we had the first year of operation of the UK Investment Firms Prudential Regime which determines regulatory capital and liquidity requirements for the group and a number of its key entities. We monitor the adequacy of our financial resources in line with regulatory requirements and also taking into account risk events which either occur or are classed as near misses. Our Treasury Policy includes minimum standards for managing liquidity, market and counterparty risks, including the credit quality of our counterparties. |
||
|
3 |
Conduct risk |
|
|
|
|
- Our business relies on our ability to deliver good service and fair client and customer outcomes, and there is a risk that we fail to achieve this through our operational activities and the implementation of our change programmes. - This could lead to customer and client harm, reputational damage and loss of income. |
|
Being client and customer-led is an essential aspect of our culture. This means having a continuous focus on client and customer outcomes in all that we do. Our ERM framework supports the management of conduct risk with clear expectations around conduct goals and responsibilities. In 2022 we refreshed our framework for managing conflicts of interest and launched a programme to implement the FCA's new Consumer Duty. |
||
|
4 |
Regulatory and legal risk |
|
|
|
|
- High volumes of regulatory change can create interpretation and implementation risks. - Compliance failures can lead to poor customer and client outcomes, sanctions, reputation damage and income loss. - During 2022 the company managed a heavy programme of regulatory implementation, including in relation to ESG investment, anti-money laundering, operational resilience, fund liquidity risk management and the new Consumer Duty. |
|
We monitor the regulatory landscape globally using an automated scanning tool. This allows us to identify potential areas of change early and communicate internally as required. We also invest in compliance and monitoring activity across the business. The evolution of regulatory divergence between the UK and EU rulebooks is a particular focus for the group in view of our business footprint. Our relationships with key regulators are based on trust and transparency while our compliance and l egal team s support senior managers across our business. |
||
|
Operational risks (5-12) |
|
|
|
|
Risk to our business |
|
How we manage this risk |
|
|
5 |
Process execution and trade errors |
|
|
|
- This is the risk that processes, systems or external events could produce operational errors. Some of these errors can arise from operational complexity and manual activity. - During 2022 there was continued management focus on process execution and trade errors . |
|
We have well-established disciplines for managing incidents, risk events and issues. We monitor underlying causes of error to identify areas for action, promoting a culture of accountability and continuously improving how we address issues. Any systems outages were dealt with using established incident management processes. Many of our business improvement initiatives are aimed at reducing complexity and where possible eliminating manual activity. Incidents that adversely impact our clients are investigated and appropriate remedial actions taken. |
|
|
6 |
People |
|
|
|
- In line with the wider economy, employee turnover has increased in all regions as a consequence of tight labour markets conditions , increases in the cost of living and continued labour market adjustment following the pandemic. - The risk associated with increased turnover includes knowledge loss, operational inefficiencies and the potential for fraud. - Engaging with our people, and supporting their wellbeing, is critical to our strategy and the success of our business. |
|
We have responded to increased competition for talent in our industry, using targeted approaches to support retention and recruitment for our key business functions. Since the onset of the pandemic we have successfully adapted, providing online tools to support collaboration and moving our learning and development offering online. |
|
|
7 |
Technology |
|
|
|
- There is a risk that our technology may fail to keep pace with business needs . There is also the significant risk of unauthorised acces s of our systems and cyber-attack. - Th ese risk s are relevant to a wide range of potential threats to the business including internal failure, external intrusion , supplier failure and weather events . - Our current IT estate is complex and there are dependenc ies on third party suppliers that need to be managed in a dedicated way. |
|
We have an ongoing programme to invest in and enhance our IT infrastructure controls. We benchmark our IT systems environment to identify areas for improvement and further investment. We maintain heightened vigilance for cyber intrusion, with dedicated teams monitoring and managing cyber security risks. We carry out regular testing on penetration and crisis management. |
|
|
8 |
Security and resilience |
|
|
|
- Incidents that can impact business resilience and continuity include environmental issues, terrorism, economic instabilities, cyber-attacks and operational incidents. - The risk of disruption from inside the organisation is broadly stable. However, tools for exploiting IT vulnerabilities are becoming more widely available globally and are frequently used by criminal groups to enable ransomware attacks. |
|
We continue to enhance our operational resilience framework and strengthen our response to disruption. Crisis management and contingency planning processes are regularly reviewed and tested, enabling us to minimise disruption as the balance of hybrid working has shifted over the year. We completed our programme to implement FCA/PRA Operational Resilience regulations, which came into force during 2022. |
|
|
Risk to our business |
|
How we manage this risk |
|
|
9 |
Fraud and financial crime |
|
|
|
- As a business that handles clients' money, we are exposed to the risk of fraudulent and dishonest activity. - As we engage with a wide number of external parties, we have to be vigilant to the risk that these parties are connected with criminal behaviour, or subject to sanctions by national or global authorities.
|
|
Processes are in place to identify client activity linked with financial crime, globally. These include controls for anti-money laundering, anti-bribery, fraud and other areas of financial crime. A company-wide programme to invest in systems, controls and processes to improve our management of these risks is in progress. During 2022 significant work was carried out globally to revise and implement consistent anti-money laundering and sanctions policies and standards. This included a targeted remediation, to these standards, of the due diligence information held for high risk customers. We continue to work with the financial authorities and our industry peers to assist those targeted by scams. |
|
|
10 |
Change management |
|
|
|
- As a diverse, global investment firm, we are continually implementing change to improve our business or meet regulatory expectations. As well as being costly, failure to deliver change effectively can lead to poor client and customer outcomes and/or regulatory non-compliance. |
|
For major change projects, we have established governance processes with ring-fenced project resources and clearly defined roles across the three lines of defence. |
|
|
11 |
Third party management |
|
|
|
- We outsource various activities to third party suppliers who specialise in the delivery of certain services. While managing resource, specialisation and cost risks in this way, we are exposed to a variety of delivery, regulatory and reputational risks as a result .
|
|
Our Third Party Risk Management framework is well embedded and continues to evolve in line with external developments, industry practice and regulatory developments. We monitor the quality of third party oversight and take actions where weaknesses are identified. We actively monitor delivery from third parties and take action where we have concerns. |
|
|
12 |
Financial management process |
|
|
|
- We have extensive financial reporting obligations to clients, customers, shareholders, regulators and other stakeholders. Failures in these processes could impact decision-making and lead to regulatory and litigation risk. |
|
Our financial reporting activities align to external reporting standards and industry best practice. These activities are subject to extensive Internal control and appropriate governance. |
|
The cover to page 67 constitute the Strategic report which was approved by the Board and signed on its behalf by:
|
Stephen Bird
Chief Executive Officer |
|
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
Latest directors dealings
- 2 days ago The Renewables Infrastructure Group Limited
- 2 days ago The Renewables Infrastructure Group Limited
- 2 days ago Smurfit Westrock (DI)
- 2 days ago Menhaden Resource Efficiency
- 2 days ago BP