Standard Life Aberdeen plc
Half year results 2019
Part 2 of 4
Contents
1. |
Management report |
1 |
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2. |
Statement of Directors' responsibilities |
8 |
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3. |
Independent review report from our External auditors |
9 |
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4. |
Financial information |
10 |
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IFRS condensed consolidated primary statements |
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Notes to the IFRS condensed consolidated financial information |
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5. |
Supplementary information |
44 |
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5.1 Alternative performance measures |
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5.2 Financial ratios |
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5.3-5.5 Assets under management and administration and flows |
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6. |
Glossary |
52 |
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7. |
Shareholder information |
54 |
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The Half year results 2019 are published on the Group's website at www.standardlifeaberdeen.com/hyresults
The Half year 2019 press release is also published on www.standardlifeaberdeen.com
2018 comparatives are in relation to continuing operations unless otherwise stated. Continuing operations excludes the UK and European insurance business.
Discontinued operations relate to the UK and European insurance business. The sale of this business to Phoenix completed on 31 August 2018.
Certain measures, such as adjusted profit, are not defined under IFRS and are therefore termed alternative performance measures (APMs). Further details on APMs are included in Supplementary information in Section 5.
1. Management report
Key performance indicators |
H1 2019 |
H1 2018 |
|
Other financial highlights |
H1 2019 |
H1 2018 |
Adjusted profit before tax |
£280m |
£311m |
|
IFRS profit before tax |
£629m |
£127m |
Adjusted diluted earnings per share1 |
8.9p |
8.2p |
|
IFRS profit after tax attributable |
£636m |
£111m |
Cost/income ratio |
72% |
69% |
|
|||
Assets under management and administration (AUMA) |
£577.5bn |
£551.5bn* |
|
Diluted earnings per share (including discontinued operations)1 |
27.0p |
6.2p |
Gross inflows |
£36.5bn |
£37.4bn |
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Net flows |
(£15.9bn) |
(£16.9bn) |
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Investment performance - 3 years2 |
65% |
50% |
|
* Comparative as at 31 December 2018. |
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Interim dividend per share |
7.30p |
7.30p |
|
We have made good progress in reshaping our business so that it is set up to take advantage of the trends impacting our industry both globally and in the UK. We are encouraged by an improvement in our investment performance as well as a growing number of strategies with positive ratings from investment consultants.
Assets have increased by 5% to £577bn and we have reduced net outflows, helped by slowing redemptions and more diverse inflows. We are also pleased to have retained Lloyds Banking Group as an important client. We continue to focus on cost control and remain on track to achieve our previously announced targeted annual efficiency savings.
We have returned substantial capital to shareholders over the last 12 months which continues to benefit earnings per share. This includes £550m through the share buyback programme with the final £200m phase of the previously announced £750m programme expected to commence this quarter.
· Strengthened position in 'new active' with 16 new fund launches and four new consultant rated strategies
· Continued to expand our UK advice business, 1825, by announcing the acquisitions of wealth advisory businesses of BDO Northern Ireland and Grant Thornton UK
· Further progress made in building UK savings 'ecosystem', securing £3.5bn of assets from Virgin Money
· Heng An Standard Life (HASL) became the first foreign joint venture to be granted a pensions license in China
On 24 July 2019, the Group announced that it had agreed a final settlement with LBG in relation to the arbitration proceedings concerning LBG's attempt to terminate investment management arrangements with the Group.
We are pleased with the settlement with LBG and believe that it represents a fair and positive outcome for both parties. We look forward to building on our relationship with LBG and continuing to deliver positive outcomes for their customers. The retention of assets in our passive strategies as well as active real estate portfolios positions us to benefit from scale and growth in these growing parts of the asset management industry. As part of the settlement we received an upfront payment of £140m which will be recognised in H2 2019. Further details are included on page 43 of this report.
· Total AUMA up 5% to £577.5bn reflecting positive market movements, offset by net outflows
· Assets on our Wrap and Elevate platforms increased by 10% to £59.8bn
· Net outflows continued, but slowed by 6% compared to H1 2018 to £15.9bn
· Adjusted profit before tax of £280m was 10% lower compared to H1 2018. Lower fee based revenue reflecting the impact of net outflows in 2018 and 2019 and market falls in H2 2018, was partly offset by a reduction in operating expenses from continued careful cost control and the inclusion of our share of Phoenix results in H1 2019.
· Interim dividend per share unchanged at 7.30p
With our broad and diverse range of capabilities and relationships with customers, we are well placed to take advantage of the opportunities and to deal with the challenges that ongoing changes in our industry present. However, the current environment for asset management remains tough as macroeconomic and political uncertainties continue to affect investor sentiment.
As we look ahead we will maintain our focus on operational and strategic delivery. This includes delivering for our clients and customers by focusing on our investment performance and continuing to innovate in areas of market growth. We will also remain focused on driving operational efficiency and cost control as we move closer to completing the integration and the implementation of our simplified global operating model.
This, combined with our strong balance sheet, allows us to invest for growth to deliver on our strategy and generate sustainable dividends and returns for shareholders.
1 In accordance with IAS 33, earnings per share have not been restated following the share consolidation in 2018 as there was an overall corresponding change in resources. As a result of the share consolidation and share buyback earnings per share from continuing operations for the period ended 30 June 2019 is not directly comparable with the prior period. Refer Note 4.7 in the Financial information section of this report for information relating to the calculation of diluted earnings per share.
2 Percentage of AUM above benchmark. Calculated on a Pro forma basis and gross of fees. A full definition is included in the Glossary on page 53.
Assets under management and administration (AUMA) and net flows
AUMA increased 5% in H1 2019 boosted by favourable markets. Gross inflows remained robust at £36.5bn, whilst net outflows continued but slowed to £15.9bn.
|
Gross inflows |
Net flows |
AUMA |
||||||
|
H1 2019 |
H2 2018 |
H1 2018 |
H1 2019 |
H2 2018 |
H1 2018 |
H1 2019 |
FY 2018 |
|
Institutional/Wholesale |
22.8 |
16.3 |
21.4 |
(12.0) |
(25.9) |
(13.9) |
243.4 |
239.2 |
|
Strategic insurance partners |
9.7 |
17.6 |
11.0 |
(5.7) |
0.1 |
(5.6) |
269.8 |
255.0 |
|
Wealth |
1.5 |
1.3 |
1.4 |
0.4 |
0.1 |
0.3 |
12.5 |
10.9 |
|
Platforms - Wrap and Elevate |
3.4 |
3.8 |
4.7 |
1.1 |
1.7 |
2.5 |
59.8 |
54.2 |
|
Eliminations |
(0.9) |
(1.2) |
(1.1) |
0.3 |
- |
(0.2) |
(8.0) |
(7.8) |
|
Total |
36.5 |
37.8 |
37.4 |
(15.9) |
(24.0) |
(16.9) |
577.5 |
551.5 |
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Gross and net flows
Institutional/Wholesale: Gross inflows improved to £22.8bn (H1 2018: £21.4bn, H2 2018: £16.3bn) and included £3.5bn of assets from Virgin Money with whom we have established a joint venture. Redemptions also improved resulting in net outflows decreasing to £12.0bn (H1 2018: £13.9bn, H2 2018: £25.9bn). The net outflows continue to reflect investor sentiment towards emerging markets and equity markets more generally, as well as the impact of weaker 2018 investment performance in both equities and multi-asset. However net outflows were significantly reduced compared to H2 2018 due to lower multi-asset net outflows, strong cash/liquidity flows and the Virgin Money assets. Multi-asset net outflows were dominated by GARS despite more recent improved investment performance, with net outflows of £6.1bn (H1 2018: £5.3bn: H2 2018: £11.4bn) reducing GARS AUM in Institutional/Wholesale to £15.3bn (FY 2018: £19.9bn).
Strategic insurance partners (excluding Lloyds): Net outflows of £3.2bn were stable (H1 2018: £3.2bn, H2 2018: £3.1bn net inflows), reflecting redemptions from maturing insurance business in long-term run-off. H2 2018 gross flows benefited from additional assets secured from Phoenix and other strategic insurance partners. Lloyds: Net outflows of £2.5bn (H1 2018: £2.4bn, H2 2018: £3.0bn) remain broadly in line with H1 2018. There was no net outflow of Lloyds assets in H1 2019 relating to the arbitration which is now settled.
Wealth: This includes our Parmenion platform, as well as our wealth business Aberdeen Standard Capital. Gross inflows remained strong at £1.5bn (H1 2018: £1.4bn, H2 2018: £1.3bn), with net flows in line with H1 2018.
Wrap and Elevate platforms: Net inflows continued but reduced to £1.1bn (H1 2018: £2.5bn, H2 2018: £1.7bn). This is a result of lower gross inflows, reflecting weak market sentiment caused by the ongoing political uncertainty in the UK as well as a further reduction in defined benefit to defined contribution transfers.
AUMA
AUMA increased to £577.5bn (FY 2018: £551.5bn) due to positive market movements and investment performance of £41.2bn (FY 2018: negative £20.5bn) across all channels partly offset by the continued net outflows.
Our strategic insurance partners, which includes Phoenix (£140.8bn) and Lloyds (£103.5bn), increased by 6% to £269.8bn (FY 2018: £255.0bn) benefiting from the favourable markets.
|
H1 2019 |
H1 2018 |
FY 2018 |
Opening AUMA |
551.5 |
608.1 |
608.1 |
Net flows |
(15.9) |
(16.9) |
(40.9) |
Market and other movements |
41.2 |
(3.9) |
(20.5) |
Corporate actions |
0.7 |
4.8 |
4.8 |
Closing AUMA |
577.5 |
592.1 |
551.5 |
|
Assets under advice
Assets under advice in 1825 increased to £4.1bn (FY 2018: £4.0bn). On 1 July 2019 we completed the acquisition of BDO Northern Ireland's wealth management business and announced our intention to acquire the wealth advisory business of Grant Thornton UK later in 2019. Combined, these deals will result in a c£1.8bn increase in assets under advice to a total of c£6bn.
Only the proportion of assets under advice that are held on our platforms are included in AUMA above.
Further information on AUMA and net flows are included in the Supplementary information section of this report.
Asset class split of Institutional/Wholesale |
Gross inflows |
Net flows |
AUMA |
||||||
H1 2019 |
H2 2018 |
H1 2018 |
H1 2019 |
H2 2018 |
H1 2018 |
H1 2019 |
FY 2018 |
||
Equities |
4.3 |
4.7 |
7.1 |
(9.3) |
(10.0) |
(7.6) |
72.7 |
72.9 |
|
Fixed income |
4.0 |
2.8 |
3.2 |
(1.7) |
(0.7) |
(2.1) |
48.2 |
46.7 |
|
Multi-asset |
2.5 |
3.0 |
3.6 |
(6.4) |
(11.4) |
(4.7) |
40.4 |
43.0 |
|
Private markets |
0.9 |
0.5 |
0.6 |
(1.2) |
(0.6) |
(0.7) |
15.2 |
16.0 |
|
Alternatives |
1.5 |
0.4 |
0.4 |
1.0 |
(0.2) |
(0.2) |
13.2 |
12.3 |
|
Real estate |
1.4 |
2.2 |
1.6 |
(0.5) |
- |
(0.2) |
29.9 |
29.7 |
|
Quantitative |
3.6 |
0.1 |
0.1 |
3.3 |
(0.1) |
- |
6.0 |
2.1 |
|
Cash/Liquidity |
4.6 |
2.6 |
4.8 |
2.8 |
(2.9) |
1.6 |
17.8 |
16.5 |
|
Institutional/Wholesale |
22.8 |
16.3 |
21.4 |
(12.0) |
(25.9) |
(13.9) |
243.4 |
239.2 |
|
Profitability
Adjusted profit before tax from continuing operations of £280m was 10% lower than H1 2018. IFRS profit before tax from continuing operations increased by £502m to £629m.
|
||
|
H1 2019 |
H1 2018 |
Fee based revenue |
815 |
966 |
Adjusted operating expenses |
(673) |
(712) |
Adjusted operating profit |
142 |
254 |
Capital management |
22 |
(3) |
Share of HDFC Asset Management profit before tax |
26 |
26 |
Asset management and platforms |
190 |
277 |
Insurance associates and joint ventures |
90 |
34 |
Adjusted profit before tax |
280 |
311 |
Fee based revenue
Fee based revenue reduced by 16% to £815m (H1 2018: £966m, H2 2018: £902m) reflecting the impact of continued net outflows in 2018 and 2019 and adverse market movements in H2 2018. The reduction in Institutional/Wholesale1 revenue was concentrated in equities and multi-asset and the average fee revenue yield decreased to 43.5bps (H1 2018: 48.7bps, FY 2018: 48.1bps), reflecting the shift in asset mix. The multi-asset yield fell to 43.9bps as outflows were concentrated in higher margin funds such as GARS.
Revenue from Wrap and Elevate increased by 4% to £73m (H1 2018: £70m) reflecting the continuing growth in our platform offering.
Revenue analysis |
Average AUMA |
Fee based revenue |
Fee revenue yield |
|||
|
H1 2019 |
H1 2018 |
H1 2019 |
H1 2018 |
H1 2019 |
H1 2018 |
Equities |
73.2 |
92.6 |
243 |
311 |
66.9 |
67.1 |
Fixed income |
47.0 |
46.8 |
64 |
65 |
27.6 |
27.9 |
Multi-asset1 |
53.2 |
69.3 |
116 |
188 |
43.9 |
54.2 |
Private markets |
15.1 |
16.3 |
32 |
32 |
43.4 |
38.6 |
Alternatives |
12.5 |
8.9 |
10 |
9 |
16.2 |
20.8 |
Real estate |
29.5 |
28.3 |
71 |
76 |
48.3 |
53.7 |
Quantitative |
4.4 |
2.2 |
2 |
1 |
7.7 |
10.1 |
Cash/Liquidity |
17.3 |
18.1 |
6 |
7 |
7.3 |
8.3 |
Institutional/Wholesale and Wealth |
252.2 |
282.5 |
544 |
689 |
43.5 |
48.7 |
Strategic insurance partners |
262.7 |
266.2 |
166 |
179 |
12.7 |
13.5 |
Platforms - Wrap and Elevate |
57.3 |
54.9 |
73 |
70 |
25.6 |
25.7 |
Eliminations |
(7.9) |
(8.1) |
N/A |
N/A |
N/A |
N/A |
Fee revenue yield |
564.3 |
595.5 |
783 |
938 |
28.0 |
31.5 |
SL Asia |
|
|
6 |
6 |
|
|
Advice and other2 |
|
|
20 |
19 |
|
|
Performance fees |
|
|
6 |
3 |
|
|
Fee based revenue |
|
|
815 |
966 |
|
|
1 Includes Wealth. 2 Includes 1825, Focus and Threesixty. |
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|
|
|
|
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Adjusted operating expenses
Adjusted operating expenses decreased by 5% to £673m (H1 2018: £712m, H2 2018: £683m) mainly due to lower staff costs arising through the ongoing integration process. Expenses also benefited from careful cost control as we continue to respond to the lower levels of fee based revenue.
The cost/income ratio, which includes our share of associates' and joint ventures' profit, was 72% (H1 2018: 69%) reflecting the fall in revenue noted above partly offset by lower costs and the inclusion of our share of Phoenix profit in 2019. We remain focused on financial discipline and actions are underway to align our cost base to the current revenue outlook.
The integration and implementation of our simplified operating model continues to progress well and we remain on track to achieve our previously announced targeted annual efficiency savings of over £350m by the end of 2020. As at 30 June 2019, actions have been taken which will deliver total annualised cost savings of £234m (31 Dec 2018: £175m), benefiting H1 2019 adjusted operating expenses by c£103m (H1: 2018: c£40m) with further benefits to come in H2 2019.
Total implementation costs incurred since the completion of the merger are £345m and we expect these to remain in line with the previous estimates of approximately £430m in aggregate to deliver the £350m annualised cost savings.
Capital management
Capital management resulted in a profit of £22m (H1 2018: loss £3m) mainly due to the positive impact of markets on pooled investment fund holdings.
HDFC Asset Management profits increased in H1 2019 due to strong revenue growth. However, our share of profits were stable at £26m (H1 2018: £26m) reflecting the reduction in our shareholding from c38% to c30% as part of the IPO in August 2018. Our percentage ownership at 30 June 2019 was 29.94% (FY 2018: 29.96%).
Insurance associates and joint ventures
|
Ownership at 30 June 2019 |
H1 2019 |
H1 2018 |
Phoenix |
19.98 |
53 |
- |
HDFC Life |
23.02 |
24 |
24 |
HASL |
50.00 |
13 |
10 |
Adjusted profit before tax |
|
90 |
34 |
Adjusted profit before tax in our Insurance associates and joint ventures increased by 165% to £90m (H1 2018: £34m, H2 2018: £106m) mainly due to the inclusion of our share of Phoenix adjusted profit of £53m arising from our 19.98% stake following the sale of our UK and European insurance business to Phoenix on 31 August 2018.
HDFC Life profits increased in H1 2019 due to strong premium growth. However, our share of profits were stable at £24m (H1 2018: £24m) due to the reduction in our shareholding from 29.23% to 23.02%. Our sale of 6.21% of HDFC Life generated net sale proceeds of £510m and means that HDFC Life has now satisfied the minimum public shareholding (free float) requirement of 25%.
Based on the closing share price at 6 August 2019, the approximate value of our shareholding in Phoenix was £0.9bn and in HDFC Life £2.8bn. Combined with the value of our shareholding in HDFC Asset Management of £1.5bn, gives a total value of our shareholdings in listed associates of approximately £5.2bn.
IFRS profit before tax from continuing operations increased to £629m (H1 2018: £127m) mainly due to the gain on sale of shares in HDFC Life in H1 2019 and a reversal of the impairment of our investment in Phoenix that was recognised in H2 2018.
|
H1 2019 |
H1 2018 |
Adjusted profit before tax |
280 |
311 |
Adjusting items |
348 |
(166) |
Share of associates' and joint ventures' tax expense |
1 |
(18) |
Profit before tax from continuing operations |
629 |
127 |
Tax credit/(expense) |
10 |
(13) |
Profit for the period from continuing operations |
639 |
114 |
Profit attributable to non-controlling interests |
(3) |
(3) |
Profit for the period from continuing operations attributable to equity shareholders of Standard Life Aberdeen plc |
636 |
111 |
IFRS profit from discontinued operations |
25 |
74 |
Profit for the period attributable to equity shareholders of Standard Life Aberdeen plc |
661 |
185 |
Adjusting items are shown in the table below.
The profit on disposal of interests in associates of £443m includes £442m relating to the sale of 6.21% of the shares in HDFC Life.
Restructuring and corporate transaction expenses were £198m (H1 2018: £59m) primarily reflecting ongoing transformation costs as we complete integration and implement our simplified operating model. H1 2019 also included £49m relating to the repurchase of subordinated debt.
The amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts increased to £144m (H1 2018: £108m) due to the inclusion of the amortisation of Phoenix related intangibles.
The reversal of impairment of associates of £243m relates to our investment in Phoenix. The Phoenix share price has recovered in H1 2019 and the impairment recognised in H2 2018 has therefore been reversed.
Investment return variances and economic assumption changes loss of £18m relates to our share of Phoenix adjusting items. Refer Note 4.8 in the Financial information section.
Analysis of adjusting items |
H1 2019 |
H1 2018 |
Profit on disposal of interests in associates |
443 |
6 |
Restructuring and corporate transaction expenses |
(198) |
(59) |
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts |
(144) |
(108) |
Reversal of impairment of associates |
243 |
- |
Investment return variances and economic assumption changes |
(18) |
- |
Other |
22 |
(5) |
Total adjusting items from continuing operations |
348 |
(166) |
The total IFRS tax credit attributable to the profit for the period from continuing operations was £10m (H1 2018: expense £13m) including a credit of £41m (H1 2018: credit £35m) relating to adjusting items. The effective tax rate on total IFRS profit of (2%) (H1 2018: 10%) is lower than the UK corporation tax rate primarily due to the profit on disposal of HDFC Life shares and the reversal of the impairment in Phoenix both being not taxable.
The tax expense attributable to adjusted profit before tax totalled £58m (H1 2018: £66m), of which £27m (H1 2018: £18m) represents equity holders' share of tax which is borne directly by our associates and joint ventures. The effective tax rate on adjusted profit is 21% (H1 2018: 21%) primarily reflecting the tax on associates being at a higher rate than the UK corporation tax rate.
The IFRS profit from discontinued operations of £25m in H1 2019 reflects a change in the value of indemnities relating to the sale of the UK and European insurance business to Phoenix.
The FCA announced in July 2019 that they had fined SLAL (now part of Phoenix) £31m for failures relating to non-advised sales of annuities. As part of the sale of SLAL we provided an indemnity to Phoenix covering this fine, and provided for an estimate of the financial impact of this indemnity as part of the gain on sale of the UK and European insurance business in our 2018 results. As a result of this indemnity provision there is no adverse impact of the fine on our 2019 results.
We announced in May 2018 that we expected to incur one-off costs relating to the separation of the UK and European insurance business sold to Phoenix of approximately £250m, and there has been no change to this estimate. Total separation costs accounted for to date amount to £140m and include £7m in H1 2019 (£128m in H2 2018 and £5m in H1 2018).
Investment performance
% of AUM ahead of benchmark1 |
1 year |
3 years |
5 years |
|||
H1 2019 |
FY 2018 |
H1 2019 |
FY 2018 |
H1 2019 |
FY 2018 |
|
Equities |
46 |
40 |
27 |
31 |
35 |
29 |
Fixed income |
76 |
50 |
88 |
76 |
65 |
64 |
Multi-asset |
21 |
20 |
70 |
35 |
55 |
62 |
Alternatives |
90 |
77 |
96 |
82 |
97 |
79 |
Real estate |
69 |
71 |
58 |
56 |
51 |
61 |
Quantitative |
34 |
69 |
61 |
59 |
56 |
67 |
Cash/Liquidity |
86 |
81 |
84 |
81 |
85 |
82 |
Total |
53 |
47 |
65 |
50 |
60 |
62 |
1 Investment performance excludes non-discretionary portfolios and funds where no applicable index is available. Includes strategic insurance partners.
Generating good investment outcomes for our clients and ensuring that our investment performance remains competitive continues to be a key priority for our business. Our process enhancement plans put in place in 2018 are beginning to deliver benefits, with a growing proportion of AUM exceeding benchmarks over both one-year and three-year time horizons. We are also encouraged by an additional four of our strategies receiving positive ratings from investment consultants, bringing the total to 46 strategies. The new ratings were in Liability driven investments, Alternatives/Private markets and Fixed income.
Investment performance over three-years improved in H1 2019, with 65% (FY 2018: 50%) of total assets under management ahead of benchmark on a gross of fees basis. Over the five-year period, 60% (FY 2018: 62%) of total assets under management were ahead of benchmark.
The three-year period reflects improved investment performance within multi-asset, in particular absolute return strategies such as GARS. There was continued weaker three year performance in most equity classes, although there was strong performance in Asia Pacific, and improved short-term performance particularly in Emerging markets equities over one year. Performance for Fixed income, Cash/Liquidity and Alternatives remains strong over three and five years.
The investment performance calculation covers 81% of total AUM. Further details about the calculation of investment performance are included in the Glossary.
Financial strength and liquidity
The Group's regulatory resources comprise shareholders' equity reduced by a number of deductions (including deductions for intangible assets, defined benefit pension plan surpluses and significant investments in associates). At 30 June 2019, the Group's indicative regulatory capital position was as follows:
|
H1 2019 |
FY 2018 |
Common Equity Tier 1 capital resources |
1.4 |
1.1 |
Tier 2 capital resources |
0.6 |
0.6 |
Total capital resources |
2.0 |
1.7 |
Total capital requirements |
(1.1) |
(1.1) |
Surplus regulatory capital |
0.9 |
0.6 |
The above position includes H1 2019 profit, and in particular the gain on HDFC Life sales, and a deduction to allow for the interim 2019 dividend which will be paid in September 2019. The position is shown before a deduction for the final £200m phase of the share buyback programme that is expected to commence this quarter.
Under regulatory rules, the vast majority of the value of our shareholdings in listed associates is not recognised in capital resources.
IFRS equity attributable to equity holders of Standard Life Aberdeen plc increased to £7.5bn (FY 2018: £7.4bn) with the profit in the period being offset by the payment of the 2018 final dividend and share buybacks.
Intangible assets of £3.3bn (FY 2018: £3.4bn) primarily relate to goodwill, customer relationships, technology and brands from acquired businesses.
The principal defined benefit staff pension scheme, which is closed to future accrual, continues to have a significant surplus of £1.2bn (FY 2018: £1.1bn). Further details are provided in Note 4.15.
Liquidity management and cash generation
The Group held cash and liquid resources of £1.9bn at 30 June 2019 of which £0.7bn were held in the Standard Life Aberdeen plc group holding company. The holding company liquid resources comprise £230m (H1 2018: £551m) of cash and short-term debt securities, £285m (H1 2018: £290m) of bonds and £206m (H1 2018: £199m) of holdings in pooled investment funds.
Dividends received from subsidiaries/associates consisted of £70m (H1 2018: £140m) from Aberdeen Standard Investments entities which were lower than in 2018 reflecting this period of higher restructuring costs, £34m (H1 2018: £nil) from Phoenix and £9m relating to dividends from HDFC Life (H1 2018: £9m).
Debt redemptions of £455m reflect the successful tender for 82% of our remaining subordinated debt which did not count as regulatory capital under CRD IV.
Holding company cash and liquid resources |
H1 2019 |
H1 2018 |
Opening 1 January |
1,271 |
1,195 |
Dividends received (excluding SLAL) |
113 |
149 |
Dividends received from SLAL |
- |
312 |
Sale of HDFC Life shares |
510 |
- |
Cash dividends paid to shareholders |
(345) |
(420) |
Share buyback |
(306) |
- |
Capital investments in subsidiaries, associates and joint ventures |
(74) |
(135) |
Debt redemptions |
(455) |
- |
Expenses |
(42) |
(57) |
Acquisition of shares by Employee Trust |
- |
(29) |
Other |
49 |
25 |
Closing 30 June1 |
721 |
1,040 |
1 Excludes collateral held on cross-currency swap. |
At 30 June 2019 Standard Life Aberdeen plc held distributable reserves of £0.9bn.
From H1 2019, the Group no longer reports adjusted cash generation as an alternative performance measure. Following the sale of the UK and European insurance business, the IFRS condensed consolidated statement of cash flows now presents a shareholder view of cash generation.
Net cash inflows from operating activities of £72m in H1 2019 includes outflows of £109m of restructuring and corporate transaction expenses paid.
Dividends
Interim dividend
The Board has declared an interim dividend for 2019 of 7.30p (H1 2018: 7.30p) per share which will be paid on 24 September 2019 to shareholders on the register at close of business on 16 August 2019. The dividend payment is expected to be £173m.
As disclosed in the Annual report and accounts 2018, it is the Board's current intention that the total annual dividend per share will be held at the 2018 level of 21.6p while the business is restructured, cost synergies are delivered and future financial performance confirms the sustainability of this level of distribution and provides line of sight to its future growth.
How the dividend is funded
External dividends are funded from the cumulative income that Standard Life Aberdeen plc receives from its subsidiaries and associates. To provide some protection against fluctuations in these cash flows, Standard Life Aberdeen plc holds a buffer of distributable cash and liquid resources.
The general meeting on 25 June 2018 approved a return of capital of £1bn via a 'B' share scheme, and a return of up to £750m by a share buyback programme. The 'B' share scheme return of £1bn was completed in November 2018. As at 6 August 2019, we have returned £550m through the share buyback programme with 202m shares repurchased at an average price of £2.72 per share. The final £200m phase of the £750m programme is expected to commence this quarter.
Risk management
The principal risks currently facing the Group and those that we believe the Group will be exposed to in the second half of 2019 remain the same as those outlined in the Annual report and accounts 2018 comprising: Process Execution and Trade Errors; People; Technology; Business Resilience and Continuity; Fraud and Financial Crime; Change Management; Supplier Risk; Financial Management Process; Conduct Risk; Regulatory and Legal Risk; Strategic Risk and Financial Risk.
Overall investment performance is improving steadily following a period of mixed performance. Net flows continue to be negative but the rate of outflows has decelerated.
Recent events in relation to the suspension of the Woodford fund have prompted significant public discussion on the governance and management of open-ended funds. We have extensive processes in place to manage and monitor the liquidity of open-ended funds, make clear and comprehensible disclosures and ensure correct pricing, in line with regulatory expectations. These processes are governed by a range of boards and committees and subject to ongoing second line oversight.
The appointment of a new Prime Minister is leading to changes in direction by the UK government, including in its approach to Brexit. As a global investment manager we have extensive experience of adapting to regulatory change and working across borders. As with other UK corporates, a no-deal Brexit could affect certain activities due to external dependencies beyond our control. Our Brexit preparations cover all areas of business, including ensuring that our staff can continue to perform roles, maintaining continuity of personal data flows and addressing areas of concern with key suppliers. Taking into account arrangements in place between the FCA and EU securities regulators, our authorised subsidiaries and branches in the EU-27 can provide services to our clients and draw on activities delegated back to our offices in the UK. Our platforms businesses are also preparing for the consequences of market disruption and have anticipated a potential scenario where there is increased liquidity risk and also higher trade volumes as our customers and clients react to the evolving market conditions.
The sale of the UK and European insurance business to Phoenix in 2018 significantly simplified the outlook for our risk profile. In the short-term, operational stretch continues to exist within the business as work is progressing to integrate and transform the Company in line with its new focus. Ongoing actions are in train to retain talent and support staff engagement. In addition, we have undertaken careful resource planning with executive ownership and accountability for delivery of our integration and transformation programmes alongside delivery of our business as usual activities for the benefit of our customers, clients and ultimately our shareholders.
We continue to invest in strengthening our conduct risk framework and oversight of client and customer outcomes. Climate change is an area where we are seeing increasing focus by investors. We are committed to managing our direct impact and are mindful of the influence we have as a global active fund manager, to encourage positive change by companies in which we choose to invest.
Basis of preparation
Overview
Our Management report for the period to 30 June 2019 has been prepared in accordance with the Disclosure Guidance and Transparency Rules (DTR) issued by the FCA. The DTR incorporates the requirement of the European Union (EU) Transparency Directive for all UK listed companies to report their half year results in accordance with IAS 34 Interim Financial Reporting. Under DTR 4.2.7R, the Group is required to provide at least an indication of important events that have occurred during the first six months of the financial year, and their impact on the financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year. Principal risks and uncertainties are included in the Risk management section of the Management report and Note 39 of the Group's Annual report and accounts 2018. Under DTR 4.2.8R the Group is also required to make certain related party disclosures. These are contained in Note 4.19 of the IFRS condensed consolidated financial information. To provide clear and helpful information, we have also considered the voluntary best practice principles of the Guidance on the Strategic report issued by the Financial Reporting Council in July 2018. We have also considered the European Securities and Markets Authority (ESMA) guidelines on alternative performance measures issued in October 2015.
The Group's International Financial Reporting Standards (IFRS) condensed consolidated half year financial information has been prepared in accordance with IAS 34 Interim Financial Reporting, as endorsed by the European Union (EU). However, our Board believes that alternative performance measures (APMs), which have been used in the Management report, are also useful for both management and investors.
All APMs should be read together with the Group's IFRS condensed consolidated income statement, IFRS condensed consolidated statement of financial position and IFRS condensed consolidated statement of cash flows, which are presented in the Financial information section of this report.
After making enquiries, the Directors are satisfied that the Group has and will maintain sufficient resources to enable it to continue operating for at least 12 months from the date of approval of the Half year results and therefore considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.
Details of forward-looking statements can be found on the inside back cover.