Half-year Report - Part 1 of 3

abrdn PLC

06 August 2024

 

abrdn plc

Half Year Results 2024

Part 1 of 3

6 August 2024

Delivering better performance

-    Profitability supported by progress in transforming our cost base

-    Performance transformation in Investments ongoing

-    Strong earnings in Adviser with action being taken to address outflows

-    Increased investment in interactive investor supporting organic growth

Summary results

Performance indicators	H1 2024	H1 2023	Change
Net operating revenue	£667m	£721m	(7)%
Cost/income ratio	81%	82%	1ppt
Adjusted operating profit	£128m	£127m	1%
Adjusted capital generation	£144m	£142m	1%
Net capital generation	£104m	£50m
IFRS profit/(loss) before tax	£187m	£(169)m
IFRS profit/(loss) for the period	£171m	£(145)m
Adjusted diluted earnings per share	6.8p	6.2p	10%
Diluted earnings per share	9.1p	(7.7)p
AUMA1	£505.9bn	£494.9bn	2%
Net flows	£0.8bn	£(5.2)bn
Net flows excluding liquidity2	£(1.6)bn	£(4.4)bn	64%
Investment performance - 3 years1,3	54%	51%	3ppts
Interim dividend per share	7.3p	7.3p	-

1.  Comparative as at 31 December 2023.

2.  Excludes Institutional/Retail Wealth liquidity net inflows of £2.4bn (H1 2023: £0.8bn outflows).

3.  Percentage of AUM outperforming. Calculations for investment performance use a closing AUM weighting basis and are made gross of fees except where the stated comparator is net of fees. The scope of the investment performance calculation has been extended to cover all funds that aim to track or outperform a benchmark, with certain assets excluded where this measure of performance is not appropriate or expected. 2023 comparative has been restated. As at 30 June 2024, 77% (31 December 2023 restated: 75%) of AUM is covered by this metric.

Jason Windsor, Interim Chief Executive Officer of abrdn plc, said:

"In the first half of the year we have made an encouraging start as we become more efficient, and we enhance our propositions to lay the foundations for growth.

We have three core businesses, with strong, scale positions in attractive markets and each has headroom to grow. While market conditions remain challenging, we are firmly on track to realise at least £150m of annualised cost savings by the end of 2025.

These are solid foundations, positioning us for a step-change in performance and allowing us to invest further in growth.

I am excited about the potential in abrdn, and confident that by delivering against our priorities, we can deliver better outcomes for our clients, more attractive performance for our shareholders and nurture a culture that sustains long-term success."

Group profitability supported by progress in transforming our cost base

-    Net operating revenue 7% lower at £667m (H1 2023: £721m), reflecting the impact of outflows and the expected lower margins in Investments as well as the net impact of corporate actions. Reduction partly offset by increase in Adviser revenue.

-    Adjusted operating expenses reduced by 9% to £539m (H1 2023: £594m) reflecting good progress in achieving cost savings, including 11% lower staff costs (excluding variable compensation) and 9% lower non-staff costs.

-    Adjusted operating profit 1% higher at £128m (H1 2023: £127m).

-    IFRS profit before tax of £187m (H1 2023: loss £169m) includes the gain on sale of the European-headquartered Private Equity business of £88m and lower losses of £(15)m (H1 2023: £(181)m) from the reduction in the value of the listed stakes held on our balance sheet.

-    AUMA at £505.9bn (FY 2023: £494.9bn), 2% higher than FY 2023 due to positive market movements and flows.

-    Adjusted diluted EPS increased to 6.8p (H1 2023: 6.2p) due to the higher adjusted profit after tax and the benefit from share buybacks in 2023.

Progress on costs in Investments, flows and performance remain areas of focus

-    Net operating revenue 12% lower at £406m (H1 2023: £461m) due to net outflows and changes in the asset mix resulting in margin of 22.0bps (H1 2023: 24.6bps).

-    Adjusted operating expenses reduced by 13% to £372m (H1 2023: £427m) reflecting cost savings across both staff and non-staff expenses.

-    Adjusted operating profit was stable at £34m (H1 2023: £34m).

-    Gross inflows improved to £31.3bn (H1 2023: £27.0bn) reflecting strong inflows in liquidity, fixed income and quantitatives.

-    Net outflows improved to £1.0bn (H1 2023: £6.5bn) reflecting the higher gross inflows above partly offset by net outflows in Equities, Multi-asset and Insurance Partners. Excluding liquidity, net outflows were £3.4bn (H1 2023: £5.7bn).

-    Investment performance¹ improved to 54% (FY 2023: 51%) of AUM above benchmark over 3 years and 70% (FY 2023: 55%) over 1 year.

Strong earnings in Adviser with action being taken to address outflows

-    Net operating revenue 16% higher at £119m (H1 2023: £103m) reflecting a £13m benefit of a revised distribution arrangement for services provided by abrdn to Phoenix in respect of the Wrap SIPP.

-    Average cash margin in H1 2024 was 263bps (FY 2023: 228bps) and we expect FY 2024 to be broadly in line with H1 2024, subject to unexpected changes in interest rates.

-    Adjusted operating profit 33% higher at £65m (H1 2023: £49m) benefiting from higher revenue. Expenses have continued to benefit from a temporary third-party outsourcing discount of £7m (H1 2023: £7m). This discount will cease on delivery of the abrdn SIPP.

-    Net outflows of £2.0bn (H1 2023: £0.6bn) reflect elevated redemptions in the period, owing to the continued impact of the higher cost of living, further IFA consolidation and inflation beating cash saving options in the market.

-    We are taking actions to address these net flow challenges including making further improvements to our service proposition following the short-term impact of a technology upgrade in 2023. We launched a new cash savings solution and announced a strategic reprice to achieve a highly competitive position in the market.

Increased underlying investment in interactive investor supporting organic growth

-    Net operating revenue 10% lower at £137m (H1 2023: £152m) due to the sale of abrdn Capital in 2023. Excluding this, revenue increased by 5% to £137m (H1 2023: £130m) reflecting higher trading and FX fees.

-    Average cash margin was 234bps (FY 2023: 236bps) and the indicative average cash margin for FY 2024 is expected to be maintained at these levels subject to unexpected changes in interest rates.

-    Adjusted operating profit 10% lower at £55m (H1 2023: £61m) principally reflecting increased investment to drive and create additional capacity for organic growth.

-    Net customer growth in H1 2024 was 4% to 422k² (FY 2023: 407k) reflecting growth in SIPP customers.

-    Net inflows increased to £3.1bn (H1 2023: £1.8bn), representing 4.7% of opening AUA, driven by customer growth.

Improving net capital generation remains a priority

-    Adjusted capital generation up 1% to £144m (H1 2023: £142m) driven by higher adjusted profit after tax. Covers interim dividend 1.11 times (H1 2023: 1.04 times).

-    Net capital generation of £104m (H1 2023: £50m) more than doubled reflecting lower restructuring costs.

-    Interim dividend maintained at 7.3p.

-    CET1 capital resources were £1,544m (FY 2023: £1,466m) with coverage of 146% (FY 2023: 139%).

1.  Percentage of AUM outperforming. Calculations for investment performance use a closing AUM weighting basis and are made gross of fees except where the stated comparator is net of fees. The scope of the investment performance calculation has been extended to cover all funds that aim to track or outperform a benchmark, with certain assets excluded where this measure of performance is not appropriate or expected. 2023 comparative has been restated. As at 30 June 2024, 77% (31 December 2023 restated: 75%) of AUM is covered by this metric.

2.  Excludes our financial planning business.

Outlook

Each of our three core businesses have made progress against their strategic objectives in the first half, and our focus on returning to profitable and sustainable growth is showing some early signs of success. However, while we have seen an improvement in market conditions in the first half, the outlook for global financial markets remains uncertain.

Against this backdrop, we are taking action to improve investment performance, modernise our platforms and restore profitability by transforming our cost base. We are investing in areas where we see clear opportunities for growth, including investment specialisms where we have strength and scale. In the structurally attractive UK savings and wealth market, Adviser is seeking to improve its competitive position through a strategic reprice while interactive investor continues to innovate to reach a growing number of customers. We remain on track to improve efficiency through our cost transformation programme, with the actions we are taking expected to help us drive operating costs below £1,075m for 2024. We are also on track to meet our target of delivering at least £150m of annualised cost savings by the end of 2025 compared to 2023.

Media and analyst calls

A conference call for media will take place today at 07:10am (BST). To access the conference call, you will need to pre-register at https://event.loopup.com/SelfRegistration/registration.aspx?booking=5X8zjVUJ6mjKcAzEorPUaTsY8azLIW6tiyWSX8ThIqw=&b=2389e96d-457b-46a8-bebb-fec356d5b031

A presentation for analysts and investors will follow at 08:30am (BST). To view the webcast of the presentation please
go to www.abrdn.com

FOR A PDF VERSION OF THE FULL HALF YEAR REPORT, PLEASE CLICK HERE: http://www.rns-pdf.londonstockexchange.com/rns/2630Z_1-2024-8-5.pdf

For further information please contact:

Institutional equity investors and analysts		Retail equity investors
Duncan Heath	0207 1562 495 0788 4109 285	Equiniti	* 0371 384 2464
Corbin Chaplin	0207 1562 381 0777 4332 428
Media		Debt investors and analysts
Duncan Young	0792 0868 865	Graeme McBirnie	0131 372 7760
Iain Dey (Teneo)	0797 6295 906

* Calls may be monitored and/or recorded. Call charges will vary.

abrdn plc's LEI Code is 0TMBS544NMO7GLCE7H90

The Half year results 2024 are published on the Group's website at www.abrdn.com/hyresults

The Management report (section 1) is on pages 1 to 14. Details of forward-looking statements can be found on page 66.

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 condensed consolidated income statement, condensed consolidated statement of financial position and condensed consolidated statement of cash flows, which are presented in the Financial information section of this report. Further details on APMs are included in Supplementary information.

See Supplementary information for details on AUMA, net flows and the investment performance calculation. Net flows excluding liquidity on page 1 excludes Institutional and Retail Wealth liquidity flows as they are volatile and lower margin.

All movements shown are compared to H1 2023 unless otherwise stated.

Chief Executive Officer's statement

Introduction

I am delighted to have been appointed as Interim CEO, and excited by the significant opportunities across the Group. Let me start my statement by thanking all of our clients, customers and colleagues for their continued support of our business. My overriding objective will always be supporting our clients to achieve their investing goals, and I have been very impressed by the commitment of everybody at abrdn to this objective.

The Board and I are convinced there is significant headroom in each of our three core businesses, which are at different points in their development. We will build on the strong strategic foundation of each business, with a relentless focus on execution.

From a financial perspective, our strategy targets profitable growth and higher net capital generation, giving us greater scope to invest to grow the businesses and to sustain the Group's very healthy dividend which is valued by our shareholders.

My top three priorities are to transform performance, further improve the client experience and create a culture aligned to attracting and retaining talent. By executing against these priorities, I believe we will build the foundation for long-term success across the Group.

Update on transformation programme

The transformation programme we announced in January 2024 is designed to deliver a step change in efficiency and profitability across the Group. I am pleased to report that we are on track to deliver the targets, namely cost savings of c.£60m in 2024, and at least £150m of annualised cost savings by the end of 2025. As detailed below, our results show that we are already beginning to see a positive impact on performance, particularly in Investments, which is the main focus of the programme.

The transformation programme is about more than cost reduction; it is also designed to deliver improved outcomes for our clients and colleagues. This includes smoother processes, simpler structures, and better use of technology. The first wave of transformation initiatives has now been embedded into the plans for each business.

Overview of performance

Our focus on improving profitability is showing some early signs of success. Group adjusted operating profit was £128m, which is higher than both H1 2023 and H2 2023 (profit of £127m and £122m, respectively). However, this is not close to the level of profitability we aspire to, as there is much more potential in the Group.

Materially higher IFRS profit before tax of £187m (H1 2023: loss £169m) includes a £88m gain on sale of the European-headquartered Private Equity business, and lower losses compared to last year from the reduction in the value of the listed stakes held on our balance sheet.

AUMA increased slightly to £506bn, with total Group net inflows including liquidity of £0.8bn. This is a material improvement on both the first and second halves of last year.

Each of our three businesses has made progress. Net flows improved considerably in Investments (despite outflows in equities). We have delivered good customer growth in interactive investor, and Adviser has made pricing and proposition enhancements that will help the business to return to growth. It is clear to me, however, that each business is yet to unlock its potential, and there is significant headroom for improvement.

Investments

Positive flows in areas of strong performance, focus on improving profitability

Following the significant industry headwinds of the last few years, we are pleased to see an improvement in market conditions in the first half of 2024. As a result, AUM has increased to £369bn (FY 2023: £367bn), despite outflows of £1bn, and a £7bn reduction from corporate actions. Adjusted operating profit was stable at £34m (H1 2023: £34m) with actions taken to transform the cost base driving a 13% reduction in expenses, offsetting a reduction in revenues.

Although flows improved significantly over the previous 12 months, they did remain negative overall with net outflows of £1bn across the Investments business, compared to £6.5bn of net outflows in H1 2023 and £12.5bn in H2 2023. Outflows in equities remained a challenge in line with industry trends, but total flows benefited from momentum in fixed income, quantitative, and liquidity strategies. Improving the investment performance of our equity funds overall remains a priority, particularly in Asia and Emerging Markets where we have a significant concentration of AUM.

In the second half of 2024, we expect to reduce costs further, seek continued growth where we have strong performance and continue to improve performance elsewhere. We remain committed to delivering stabilised revenues and improved efficiency to drive a much higher level of profitability.

Adviser

Investment in technology, pricing, proposition, and leadership team to return to growth

Adviser increased its adjusted operating profit by a third to £65m (H1 2023: £49m). This was helped by a 16% increase in net operating revenue, which reflected a £13m benefit of a revised SIPP distribution arrangement with Phoenix signed in 2023.

Gross inflows increased by 7% to £3.1bn, however net outflows of £2.0bn (H1 2023: £0.6bn) remained disappointing, reflecting elevated redemptions.

To address the outflows and to attract new clients in the structurally growing market, we have implemented a series of initiatives. First, to capitalise on service and user experience benefits from the platform upgrade that was completed in 2023. Second, to continue to add new functionality to the platform including the recently launched integrated cash savings solution on Wrap. Third, to change our pricing, which we announced in May, to a level that is more competitive, helping us to attract new clients and flows. In addition, Adviser has strengthened its senior leadership team with the appointment of a new dedicated Chief Technology Officer and a new Chief Distribution Officer.

With this series of initiatives, and an improved distribution strategy, we are focused on returning Adviser to positive flows.

interactive investor

Strong net inflows underpinned by investment in organic growth

Organic growth remains the key focus, with total customers up 4% to 422k and SIPP customers up 17% since the start of the year. Adjusted operating profit of £55m includes profit of £59m in the ii D2C platform and a £4m loss from the financial planning business. The lower profit in the period reflects the sale of abrdn Capital, and the increased investment ii has been making in marketing and product development to support customer growth.

This growth in customers and the take up of SIPP has helped to drive a 74% increase in net inflows on ii's direct platform to £3.3bn. This represented an annualised 11% of opening assets, reflecting ii's compelling subscription-based pricing, leading technology and excellent user experience. All of which have helped to position ii as a leader in the significant and rapidly growing UK savings and wealth market.

interactive investor will continue to launch new products in the second half of the year, including a managed SIPP, as we continue our focus on meeting the needs of a growing number of customers.

Our priorities

As we head into the second half of 2024, our focus is on realising the significant potential in each of our businesses through relentless delivery. As I've outlined, this includes executing against the strategies of each business to transform performance and improve further the client experience.

We will also focus on talent and culture. We need our people engaged and motivated, with belief and confidence in abrdn, to realise the opportunity in front of us. We will be taking action on multiple fronts, including: embedding greater colleague empowerment and clearer responsibilities to support faster decision-making; attracting and retaining top talent and increasing support for career development of our people. We will also continue to focus on delivering more sustainable and inclusive outcomes for our colleagues, clients and wider stakeholders. Seeing the benefit will take time but is critical to support our future success.

I am excited about the potential in abrdn and confident that by delivering against our priorities we can create an organisation that our colleagues can be proud to work for, delivers better outcomes for our clients, and more attractive performance for our shareholders.

Jason Windsor

Interim Chief Executive Officer

Results summary

Analysis of profit	H1 2024 £m	H1 2023 £m
Net operating revenue	667	721
Adjusted operating expenses	(539)	(594)
Adjusted operating profit	128	127
Adjusted net financing costs and investment return	42	24
Adjusted profit before tax	170	151
Adjusting items including results of associates and joint ventures	17	(320)
IFRS profit/(loss) before tax	187	(169)
Tax (expense)/credit	(16)	24
IFRS profit/(loss) for the period	171	(145)

The IFRS profit before tax was £187m (H1 2023: loss £169m) including adjusted operating profit of £128m (H1 2023: £127m) and adjusted net financing costs and investment return of £42m (H1 2023: £24m). Adjusting items were £17m (H1 2023: loss £320m) including:

-    Restructuring and corporate transaction expenses of £51m (H1 2023: £113m), including costs relating to our transformation programme.

-    Loss of £15m (H1 2023: loss £181m) from the change in fair value of significant listed investments as a result of the reduction in the share price of Phoenix in H1 2024. H1 2023 included losses resulting from the reductions in the share prices of HDFC Asset Management, HDFC Life and Phoenix.

-    Profit on disposal of subsidiaries and interests in joint ventures of £99m (H1 2023: £nil).

Adjusted operating profit was £1m higher than H1 2023. Lower revenue in Investments was partly offset by growth in revenue in both ii (excluding the impact of the sale of abrdn Capital) and Adviser. Lower expenses were primarily due to the benefit of significant cost reduction activity in Investments. Our cost transformation programme remains on track to deliver the c.£60m benefit from lower adjusted operating expenses in 2024 and the annualised cost savings of at least £150m by the end of 2025. At 30 June 2024, actions have been taken which will deliver c.£50m of annualised savings, benefiting H1 2024 adjusted operating expenses by £20m. The implementation costs were £23m in H1 2024 and are included in restructuring costs.

Net operating revenue

Net operating revenue decreased by 7% reflecting:

-    Impact of net outflows and changes to asset mix resulting in lower Investments margin.

-    Other margin includes the benefit in Adviser from the revised distribution arrangement with Phoenix, higher trading and FX activity in ii, and higher total treasury income of £85m (H1 2023: £81m).

-    £11m benefit of favourable market movements.

-    £22m net impact from corporate actions mainly reflecting the sales of the US and European-headquartered Private Equity businesses and the discretionary fund management business, partly offset by the acquisition of the healthcare fund management capabilities of Tekla.

-    £4m lower performance fees in Asia Pacific and Emerging markets equities.

Adjusted operating expenses

	H1 2024 £m	H1 2023 £m
Staff costs excluding variable compensation	233	262
Variable compensation	43	43
Staff and other related costs1	276	305
Non-staff costs	263	289
Adjusted operating expenses	539	594

Adjusted operating expenses reduced by 9% reflecting good progress in achieving cost savings:

-    11% reduction in staff costs (excluding variable compensation), with the benefit of fewer FTEs (11)%, partly offset by salary increases and increased investment, especially in ii, to drive growth.

-    Variable compensation in line with H1 2023 reflecting business performance and fewer FTEs.

-    9% reduction in non-staff costs, with cost savings partly offset by the impact of inflation.

The Group cost/income ratio improved slightly to 81% (H1 2023: 82%) reflecting the benefit of the significant cost reduction activity which was partly offset by lower revenues.

1.  See Supplementary information for a reconciliation to IFRS staff and other employee related costs.

Investments

	Total		Institutional and Retail Wealth		Insurance Partners
	H1 2024	H1 2023	H1 2024	H1 2023	H1 2024	H1 2023
Net operating revenue1,2	£406m	£461m
Adjusted operating expenses1	£(372)m	£(427)m
Adjusted operating profit1	£34m	£34m
Cost/income ratio1	92%	93%
Net operating revenue yield	22.0bps	24.6bps	31.7bps	33.7bps	9.1bps	10.6bps
AUM	£369.3bn	£366.7bn3	£210.7bn	£211.2bn3	£158.6bn	£155.5bn3
Gross inflows	£31.3bn	£27.0bn	£18.5bn	£15.8bn	£12.8bn	£11.2bn
Redemptions	£(32.3)bn	£(33.5)bn	£(18.1)bn	£(22.5)bn	£(14.2)bn	£(11.0)bn
Net flows	£(1.0)bn	£(6.5)bn	£0.4bn	£(6.7)bn	£(1.4)bn	£0.2bn
Net flows excluding liquidity4	£(3.4)bn	£(5.7)bn	£(2.0)bn	£(5.9)bn	£(1.4)bn	£0.2bn

Adjusted operating profit                                               

-    Profit was stable at £34m, reflecting 12% reduction in revenue offset by 13% lower costs as we transform the cost base.

Net operating revenue                                                    

-    12% lower than H1 2023 largely due to net outflows and changes to the asset mix.

-    Performance fees of £3m (H1 2023: £7m) were earned mainly from real assets and active equities.

Adjusted operating expenses

-    Adjusted operating expenses reduced by £55m (13%) to £372m (H1 2023: £427m¹).

-    Staff costs have reduced reflecting 13% fewer front/middle office FTEs.

-    Adjusted operating expenses also benefited from lower outsourcing and professional fees, project and change spend and property costs, as well as a reduced allocation of central Group costs.

Institutional and Retail Wealth

Net operating revenue                                                    

-    13% lower at £335m (H1 2023: £383m1) primarily due to net outflows particularly from higher margin asset classes, consistent with the risk-off environment seen across the market.

-    6% reduction in average AUM to £211.0bn (H1 2023: £225.5bn). Multi-asset and equities average AUM down 10% and 9% respectively.

Revenue yield                                                                 

-    2.0bps lower at 31.7bps largely due to changes in asset mix including the decrease in private equity average AUM resulting from the disposal of our US Private Equity Venture Capital business in H2 2023 and our European-headquartered Private Equity business in April 2024 offset in part by the benefit arising from the acquisition of the fund management capabilities of Tekla Capital Management in H2 2023.

Gross inflows                                                                  

-    Excluding liquidity, £1.7bn (16%) higher at £12.6bn (H1 2023: £10.9bn) mainly in quantitative and fixed income primarily reflecting continued demand for these asset classes.

Net flows                                                                        

-    Net inflows of £0.4bn (H1 2023: outflows £6.7bn) included the benefit of liquidity inflows in the period. Excluding liquidity, net outflows were £3.9bn lower than H1 2023 at £2.0bn due to higher gross inflows and lower redemptions.

-    Excluding liquidity, net outflows represent 1% of opening AUM compared with 3% in H1 2023.

-    Redemptions (excluding liquidity) were £2.2bn lower than H1 2023 at £14.6bn (H1 2023: £16.8bn) due to lower fixed income redemptions.

1.  Finimize and our digital innovation group have moved from Investments to Other. Comparatives have been restated.

2.  Includes performance fees of £3m (H1 2023: £7m).

3.  Comparative as at 31 December 2023.

4.  Institutional/Retail Wealth liquidity net flows excluded.

Insurance Partners

Net operating revenue                                                    

-    9% lower in H1 2024 at £71m (H1 2023: £78m), reflecting the impact of asset mix and associated pricing changes offset by a 6% increase in average AUM to £156.3bn.

Revenue yield                                                                 

-    Net operating revenue yield decreased to 9.1bps (H1 2023: 10.6bps) due to a shift in asset mix from active to passive strategies, which we expect to continue through 2024. This, together with related pricing changes, is expected to result in a further reduction in yields.

Gross inflows                                                                  

-    £1.6bn higher than H1 2023 at £12.8bn (H1 2023: £11.2bn) including the benefit from higher activity in Phoenix's defined contribution pension business.

Net flows                                                                        

-    Net outflows reflect outflows from heritage business in run-off, largely being offset by inflows from growing workplace pensions.

-    Net outflows of £1.4bn in H1 2024 (H1 2023: £0.2bn inflow), representing (0.9)% of opening AUM compared with 0.1% in H1 2023.

Investment performance

% of AUM performing1	1 year		3 years		5 years
	H1 2024	FY 2023 restated	H1 2024	FY 2023 restated	H1 2024	FY 2023 restated
Equities	23	27	14	17	23	48
Fixed income	89	81	79	75	84	84
Multi-asset	65	12	27	15	37	22
Real assets	40	30	42	56	45	45
Alternatives	97	98	100	98	100	98
Quantitative	92	100	90	100	93	95
Liquidity	100	100	96	95	100	97
Total	70	55	54	51	58	58

The investment performance measures now include our large and growing Index tracking Alternatives and Quantitative AUM, where we are delivering well on expected outcomes for clients.

Investment performance on a 1 and 3 year basis has improved since the start of the year. We continue to deliver strong investment performance across our Alternatives, Fixed Income, Liquidity and Quantitative strategies with the majority of AUM outperforming the relevant comparator benchmarks.

Across Multi-asset, the majority of our MyFolio range AUM is ahead of comparators and performing well compared to peers. The Diversified Assets funds are also ahead over 1, 3 and 5 years. We are also starting to see the benefits of our process enhancement programme as well as better short-term performance with 75% of AUM ahead YTD. This includes improved tactical asset allocation benefiting some large balanced mandates.

Within Real Assets, after a challenging couple of years for the Real Estate market, our strategies are showing positive signs of recovery with 40% of Real Estate AUM outperforming over 1 year to Q1 2024 and with our Listed Real Estate funds outperforming over 1, 3 and 5 years.

The market backdrop continues to present challenges for active management in Equities with only 33% of actively managed funds globally outperforming over the year to 30 June 2024².

Our Equities performance continues to be impacted by this backdrop and our AUM bias towards Asia and Emerging Markets and the underperformance of China and Quality as a style within China. Furthermore, the exceptionally concentrated performance of the 'Magnificent 7' stocks in the US also remains a headwind for our Developed Markets strategies and particularly those with a yield focus. However, there are areas of outperformance in Equities including our EM Income, UK Value and European Income strategies both vs benchmarks and peers.

We continue to focus on making improvements to the investment process in Equities with priority areas identified across the value chain. Shorter term performance has improved in Smaller Companies and regional Asian country funds including India.

1.  Calculations for investment performance use a closing AUM weighting basis and are made gross of fees except where the stated comparator is net of fees. Benchmarks and targets 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. The scope of the investment performance calculation has been extended to cover all funds that aim to track or outperform a benchmark, with certain assets excluded where this measure of performance is not appropriate or expected. 2023 comparative has been restated. As at 30 June 2024, 77% (31 December 2023 restated: 75%) of AUM is covered by this metric. Further details about the calculation of investment performance and the change in scope are included in the Supplementary information section.

2.  Source: LSEG, Performance Review - Relative Performance of Equity Funds as of June 30, 2024.

Adviser

	H1 2024	H1 2023
Net operating revenue	£119m	£103m
Adjusted operating expenses	£(54)m	£(54)m
Adjusted operating profit	£65m	£49m
Cost/income ratio	45%	52%
Net operating revenue yield	31.4bps	28.8bps
AUMA1	£75.0bn	£73.5bn2
Gross inflows	£3.1bn	£2.9bn
Redemptions	£(5.1)bn	£(3.5)bn
Net flows	£(2.0)bn	£(0.6)bn

Adjusted operating profit                                               

-    Strong earnings performance with profit up 33% to £65m.

-    Cost/income ratio improved by 7ppts to 45%, benefiting from higher revenue, as detailed below.

-    Expenses continued to benefit from a temporary third-party outsourcing discount of £7m (H1 2023: £7m). This discount will end on delivery of the abrdn SIPP.

Net operating revenue                                                    

-    Revenue increased by 16% to £119m mainly reflecting a £13m benefit of a revised distribution arrangement for services provided by abrdn to Phoenix in respect of the Wrap SIPP (which we now expect to take legal ownership of in 2025).

-    Platform charges reduced slightly to £84m including the impact of IFA clients benefiting from higher tiered discounts triggered by higher asset values.

-    Treasury income on client balances increased to £17m, benefiting from rising interest rates during 2023 offset by an increase in cash interest paid to clients.

-    The average margin earned on client cash balances during H1 2024 was 263bps (FY 2023: 228bps) and the indicative Adviser average cash margin for FY 2024 is expected to be broadly in line with H1 2024, subject to unexpected changes in interest rates.

-    Other revenue increased to £19m mainly reflecting the revised distribution arrangement with Phoenix. There was also a £2m increase from the transfer of Managed Portfolio Service (MPS) from ii in May 2023.

Net operating revenue	H1 2024 £m	H1 2023 £m
Platform charges	84	85
Treasury income	17	15
Other revenue	19	4
Less: Cost of sales	(1)	(1)
Net operating revenue	119	103

1.        Includes Platform AUA of £72.3bn (31 December 2023: £70.9bn).

2.        Comparative as at 31 December 2023.

Revenue yield                                                                 

-    Increased to 31.4bps due to the higher revenue explained under net operating revenue.

-    We expect to see a reduction in revenue yield in 2025 reflecting the previously announced repricing which will be applied to existing back book before the end of Q1 2025 and the impact of any unexpected changes in UK interest rates.

-    Average AUMA of £74.1bn was 5% higher than H1 2023.

AUMA                                                                             

-    AUMA increased slightly to £75.0bn driven by favourable market movements offset by net outflows.

-    Average customer cash balances as a percentage of average AUMA (excluding SIPP and bonds) were 2.6% (FY 2023: 2.2%).

Gross and net flows                                                        

-    Net outflows of £2.0bn reflected higher redemptions in the period.

-    Gross inflows increased on H1 2023 with the full six months benefit of the MPS business in H1 2024.

-    Elevated outflows included the impact of higher cost of living, further IFA consolidation and the availability of inflation beating cash saving options in the market.

-    We are taking actions to address these challenges including making further improvements to our service proposition following the short-term impact of a technology upgrade in 2023, undertaking a strategic reprice resulting in a highly competitive position in the market, investing in our senior leadership team and distribution capabilities, and making available a new cash saving solution which launched in July 2024.

interactive investor¹

					H1 2024	H1 2023
Net operating revenue					£137m	£152m
Adjusted operating expenses					£(82)m	£(91)m
Adjusted operating profit					£55m	£61m
Cost/income ratio					60%	60%
AUMA2					£72.9bn	£66.0bn3
Gross inflows					£7.1bn	£5.6bn
Redemptions					£(4.0)bn	£(3.8)bn
Net flows					£3.1bn	£1.8bn

Adjusted operating profit                                               

-    Profit reduced by £6m to £55m due to reinvestment to drive organic growth and £2m due to the sale of abrdn Capital to LGT in September 2023.

Net operating revenue                                                    

-    Revenue of £137m, was £15m lower than in H1 2023, reflecting the sale of abrdn Capital which (including MPS revenue which transferred to Adviser) contributed £22m to revenue in H1 2023.

-    Excluding abrdn Capital, revenue increased by £7m or 5% and continued to benefit from diversified revenue streams from subscriptions, transaction based revenues and treasury income.

-    Treasury income increased to £68m, benefiting from sustained high interest rates since H1 2023.

-    The average cash margin in H1 2024 was 234bps (FY 2023: 236bps) and the indicative ii average cash margin for FY 2024 is expected to be maintained at these levels subject to unexpected changes in interest rates.

-    Trading revenues of £33m reflected higher trading and FX activity.

-    Fee income reduced to £13m mainly reflecting the sale of abrdn Capital and the transfer of MPS to Adviser in May 2023.

Net operating revenue	H1 2024 £m	H1 2023 £m
Trading transactions	33	25
Subscription/account fees	26	27
Treasury income	68	66
Fee income	13	37
Less: Cost of sales	(3)	(3)
Net operating revenue	137	152

Adjusted operating expenses                                          

-    Lower adjusted operating expenses of £82m mainly reflect the sale of abrdn Capital.

-    Excluding abrdn Capital, expenses increased by £11m or 15%, reflecting higher advertising and product/proposition development to support ii's organic growth. In addition, record high SIPP transfer-in volumes were supported by an uplift in operational resource which also provides future capacity.

AUMA                                                                             

-    AUMA increased to £72.9bn (FY 2023: £66.0bn), benefiting from stronger markets and growing in net flows.

-    Average customer cash balances as a percentage of average AUA were 8.8%4 (FY 2023: 9.8%).

-    Total customers increased by 4% to 422k4 (FY 2023: 407k) due to organic growth. Our strategy to increase SIPP market penetration continues, with the number of customers holding a SIPP account up by 17% to 73.0k (FY 2023: 62.4k).

Gross and net flows

-    Net inflows increased to £3.1bn (H1 2023: £1.8bn) due to customer growth and existing customers choosing more of our products, including our SIPP.

-    Within this, the ii direct platform generated net inflows of £3.3bn offset by £0.2bn net outflows in the financial planning business.

1.             See Supplementary information for additional operational metrics.

2.             Includes financial planning business AUA at 30 June 2024 of £4.1bn (31 December 2023: £4.3bn).

3.             Comparative as at 31 December 2023.

4.             Excludes our financial planning business.

Overall performance

	Adjusted operating profit		AUMA		Net flows
Segmental summary	H1 2024 £m	H1 2023 £m	H1 2024 £bn	FY 2023 £bn	H1 2024 £bn	H1 2023 £bn
Investments1,2	34	34	369.3	366.7	(3.4)	(5.7)
Adviser	65	49	75.0	73.5	(2.0)	(0.6)
ii	55	61	72.9	66.0	3.1	1.8
Other1,3	(26)	(17)	-	-	-	-
Eliminations	-	-	(11.3)	(11.3)	0.7	0.1
Total	128	127	505.9	494.9	(1.6)	(4.4)
Liquidity net flows					2.4	(0.8)
Total net flows (including liquidity)					0.8	(5.2)

The adjusted operating loss in Other increased to £26m (H1 2023: £17m) primarily reflecting higher retained corporate costs. Other also includes losses of Finimize and our digital innovation group.

Assets under management and administration

AUMA increased by 2% to £505.9bn (FY 2023: £494.9bn):

-    Total net inflows of £0.8bn includes liquidity net inflows of £2.4bn. Excluding liquidity, net outflows were £1.6bn, with outflows in Investments and Adviser partly offset by positive flows in ii.

-    Market and other movements of £17.2bn reflecting stronger markets primarily within alternative investment solutions and equities.

-    Impact of corporate actions of £(7.0)bn following the disposal of our European-headquartered Private Equity business in April 2024.

Results Summary

Analysis of profit	H1 2024 £m	H1 2023 £m
Net operating revenue	667	721
Adjusted operating expenses	(539)	(594)
Adjusted operating profit	128	127
Adjusted net financing costs and investment return	42	24
Adjusted profit before tax	170	151
Adjusting items including results of associates and joint ventures	17	(320)
IFRS profit/(loss) before tax	187	(169)
Tax (expense)/credit	(16)	24
IFRS profit/(loss) for the period	171	(145)

Adjusted net financing costs and investment return

Adjusted net financing costs and investment return resulted in a gain of £42m (H1 2023: gain £24m):

-    Investment gains, including from seed capital and co-investment fund holdings of £5m (H1 2023: losses £9m).

-    Net finance income of £30m (H1 2023: £17m) reflecting a higher rate of interest on cash and liquid assets.

-    Lower net interest credit relating to the staff pension schemes of £7m (H1 2023: £16m) reflecting a lower opening pension surplus and costs relating to de-risking the pension scheme.

1.  Finimize and our digital innovation group have moved from Investments to Other. Comparatives have been restated. Refer Note 4.3 in the Financial information section.

2.  Investment net flows exclude Institutional/Retail Wealth liquidity.

3.  Adjusted operating loss consists of net operating revenue £5m (H1 2023: £5m) and adjusted operating expenses £31m (H1 2023: £22m). Adjusted operating expenses in H1 2024 includes the impact of increased retained central Group costs.

Adjusting items

	H1 2024 £m	H1 2023 £m
Restructuring and corporate transaction expenses	(51)	(113)
Amortisation and impairment of intangible assets acquired in business combinations
and through the purchase of customer contracts	(64)	(102)
Profit on disposal of subsidiaries and other operations	88	-
Profit on disposal of interests in joint ventures	11	-
Change in fair value of significant listed investments	(15)	(181)
Dividends from significant listed investments	28	37
Share of profit or loss from associates and joint ventures	21	4
Other	(1)	35
Total adjusting items including results of associates and joint ventures	17	(320)

Restructuring and corporate transaction expenses were £51m (H1 2023: £113m). Restructuring costs of £45m (H1 2023: £90m) mainly consisting of costs to effect our cost transformation programme including related severance expenses, and platform transformation expenses. Corporate transaction costs of £6m (H1 2023: £23m) primarily related to prior period transactions.

Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts reduced to £64m (H1 2023: £102m), mainly due to the lower goodwill impairments of £5m (H1 2023: £37m). Impairment of goodwill in H1 2024 includes the impact of higher anticipated losses. Further details are provided in Note 4.11.

Profit on disposal of interests in subsidiaries and other operations relates to the sales of our European-headquartered Private Equity business. See Note 4.2 for further details.

Profit on disposal of interest in joint ventures relates to the sale of our shareholding in Virgin Money UTM that completed on 2 April 2024. See Note 4.2 for further details.

Change in fair value of significant listed investments of £(15)m from market movements is analysed in the table below:

	H1 2024 £m	H1 2023 £m
Phoenix	(15)	(80)
HDFC Asset Management	-	(96)
HDFC Life	-	(5)
Change in fair value of significant listed investments	(15)	(181)

The final HDFC Life and HDFC Asset Management stakes were sold on 31 May 2023 and 20 June 2023 respectively.

Dividends from significant listed investments of £28m relates to our shareholdings in Phoenix (H1 2023: Phoenix £27m and HDFC Asset Management £10m).

Share of profit or loss from associates and joint ventures increased to a profit of £21m (H1 2023: £4m). HASL profit increased to £21m (H1 2023: £5m) including investment-related gains due to favourable market conditions.

Other includes a £15m expense relating to the release of a prepayment for the Group's purchase of Phoenix's trustee investment plan and £12m gain for net fair value movements in contingent consideration. See Note 4.9 for further details of other adjusting items.

Tax

The total IFRS tax expense attributable to the profit for the period is £16m (H1 2023: credit £24m), including a tax credit attributable to adjusting items of £25m (H1 2023: credit £48m), which results in an effective tax rate of 9% (H1 2023: 14%). The difference to the UK Corporation Tax rate of 25% is mainly driven by:

Realised gains on disposal of our European-headquartered Private Equity business and our shareholding in Virgin Money UTM not being subject to tax.

Profits arising in joint ventures included on a net of tax basis.

Dividend income and fair value movements from our investments in Phoenix not being subject to tax.

Prepayment release relating to the Group's purchase of Phoenix's trustee investment plan business being not deductible for tax purposes.

The tax expense attributable to adjusted profit is £41m (H1 2023: £24m), an effective tax rate of 24% (H1 2023: 16%). This is lower than the 25% UK rate primarily due to overseas profits taxed at a lower rate and pension scheme surplus movements included on a net of tax basis.

Earnings per share

Adjusted diluted earnings per share increased to 6.8p (H1 2023: 6.2p) due to the higher adjusted profit after tax and the benefit from share buybacks in 2023.

Diluted earnings per share was a profit of 9.1p (H1 2023: loss 7.7p) reflecting the factors above, and also the benefit of profit on disposal of subsidiaries and interests in joint ventures.

Dividends

The Board has declared an interim dividend for 2024 of 7.3p (H1 2023: 7.3p) per share. The dividend payment is expected to be £130m.

As a result of the higher adjusted profit in the period, dividend cover on adjusted capital generation basis was 1.11 times.

The adjusted capital generation trend and related dividend coverage is shown below:  Diagram removed for RNS purposes.  See full PDF.

Capital and liquidity

IFPR CET1 capital resources

The indicative CET1 capital resources at 30 June 2024 were £1,544m (FY 2023: £1,466m).

Key movements in CET1 capital resources and respective coverage are shown in the table below.

Analysis of movements in CET1 capital resources and respective coverage	H1 2024		FY 2023
	£m	%	£m	%
Opening CET1 capital resources	1,466	139	1,301	123
Sources of capital
Adjusted capital generation	144	14	299	28
HDFC Life and HDFC Asset Management1 sales	-	-	576	55
Disposals2	99	9	137	13
Uses of capital
Restructuring and corporate transaction expenses (net of tax)	(40)	(4)	(121)	(12)
Dividends	(130)	(12)	(267)	(25)
Share buyback	-	-	(302)	(29)
Acquisitions3	-	-	(152)	(14)
Other	5	-	(5)	-
Closing CET1 capital resources	1,544	146	1,466	139

The full value of the Group's significant listed investments is excluded from the capital position under IFPR.

A summary of our CET1 capital coverage is shown in the table below.

CET1 capital coverage	H1 2024 £m	FY 2023 £m
CET1 capital resources	1,544	1,466
Total regulatory capital requirement	1,054	1,054
CET1 capital coverage	146%	139%

Capital generation

Adjusted capital generation which shows how adjusted profit contributes to regulatory capital increased by 1% to £144m. Net capital generation more than doubled to £104m and included the benefit of lower restructuring costs.

	H1 2024 £m	H1 2023 £m
Adjusted profit after tax	129	127
Less net interest credit relating to the staff pension schemes	(7)	(16)
Less interest paid on other equity	(6)	(6)
Add dividends received from associates, joint ventures and significant listed investments	28	37
Adjusted capital generation	144	142
Restructuring and corporate transaction expenses (net of tax)	(40)	(92)
Net capital generation	104	50

Cash and liquid resources and distributable reserves

Cash and liquid resources remained robust at £1.8bn at 30 June 2024 (FY 2023: £1.8bn). These resources are high quality and mainly invested in cash, money market instruments and short-term debt securities. Cash and liquid resources held in abrdn plc were £0.4bn
(FY 2023: £0.4bn).

Further information on cash and liquid resources, and a reconciliation to IFRS cash and cash equivalents, are provided in Supplementary information.

At 30 June 2024 abrdn plc had £2.9bn (FY 2023: £3.1bn) of distributable reserves.

IFRS net cash flows

-    Net cash inflows from operating activities were £170m (H1 2023: £77m) which includes outflows from restructuring and corporate transaction expenses, net of tax, of £31m (H1 2023: £49m).

-    Net cash inflows from investing activities were £202m (H1 2023: £504m) and primarily reflected the maturity of cash invested in money market instruments which were not classified as cash equivalents, and the net proceeds from the Groups disposal of its European-headquartered Private Equity business.

-    Net cash outflows from financing activities were £162m (H1 2023: £304m) with the decrease mainly due to outflows for the share buyback in 2023.

-    The cash inflows and outflows described above resulted in closing cash and cash equivalents of £1,415m as at 30 June 2024 (FY 2023: £1,210m).

1.  Capital benefit of HDFC Asset Management sales reflects the pre-tax proceeds.

2.  European-headquartered Private Equity business (£88m) and Virgin Money UTM (£11m). Discretionary fund management and US Private Equity businesses in 2023. Capital benefit of discretionary fund management disposal includes derecognition of related intangibles (£58m).

3.  Tekla and Macquarie funds in 2023.

IFRS net assets

IFRS net assets attributable to equity holders was stable at £4.9bn (FY 2023: £4.9bn) reflecting the IFRS profit before tax offset by dividends paid in the period:

-    Intangible assets decreased to £1.5bn (FY 2023: £1.6bn) primarily due to amortisation. Further details are provided in Note 4.11.

-    The principal defined benefit staff pension scheme, which is closed to future accrual, continues to have a significant surplus of £0.8bn (FY 2023: £0.7bn). We are continuing to work with the trustee on the long-term strategy for the plan, including steps relating to any residual surplus assets that remain after all plan related obligations are settled or otherwise provided for. The timing for implementing any strategy, including the release of any surplus, remains a matter for the trustee. See Note 31 in the Annual report and accounts 2023 for more information.

-    Financial investments reduced slightly to £1.9bn (FY 2023: £2.0bn). At 30 June 2024, financial investments included £542m (FY 2023: £557m) in relation to our stake in Phoenix.

Principal risks and uncertainties

The principal risks that we believe the Group will be exposed to in the second half of 2024 are the same as those set out in the Annual Report and Accounts 2023 across the following 12 categories: Strategic, Financial, Conduct, Regulatory and legal, Process execution and trade errors, People, Technology, Security and resilience, Fraud and financial crime; Change management; Third party management and Financial management process.

Key developments in relation to our principal risks

Looking to the second half of 2024 we would highlight the following trends and developments as important in relation to our principal risks:

-    As inflationary pressures have abated, central banks are tentatively shifting towards reducing interest rates but the pace of easing is still uncertain and could be impacted by upticks in price and labour inflation. Lower interest rates are likely to be supportive of ad valorem fee income and transaction fee income, but may erode cash margin income.

-    With a number of regional conflicts and democratic elections in some G7 countries, the geo-political environment has the potential to deliver outcomes that could disrupt markets which in turn could impact the delivery of the abrdn business plan.

-    We continue to manage extensive change across our business areas and have structures and controls in place to ensure that this is delivered effectively.

-    Disruption to our IT services has the potential to impact our clients and customers. We have processes in place to assess and respond to disruptions caused by our IT service providers and an ongoing programme to test our resilience under various adverse scenarios. We maintain heightened vigilance to the threats of cyber-attack and we have an ongoing programme to adapt to the changing threat landscape, drawing on the expertise of external specialists.

-    Our regulators continue to focus on protecting clients, customers and the markets. We have various project workstreams in place to support our delivery against these areas of focus, including in relation to consumer duty, operational resilience, Environment, Social and Governance (ESG), prudential requirements and anti-financial crime.

 

END