Aberdeen Asset Management has reported interim results for six months ended 31 March 2014.
Martin Gilbert, Chief Executive of Aberdeen Asset Management, commented: "Aberdeen has delivered a resilient set of numbers in this half year, given the difficult backdrop for emerging markets.
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Our disciplined investment approach, long-term investment track record and tradition of client service have enabled us to limit equity outflows whilst we have continued to win mandates in other asset classes, such as fixed income and property.
"There are signs of a pick-up in sentiment towards emerging economies, as investors are again identifying opportunities and recognising the fundamental strengths of these markets. Equally encouraging is the healthy improvement in the relative performance of our key equity products so far this year.
"At the end of March we were delighted to complete our acquisition of SWIP and the process of integrating the business is proceeding as planned. The deal adds scale and strengthens further our broad range of investment capabilities and confirms Aberdeen’s position as one of the world’s leading asset management groups."
Management will host a presentation for analysts and institutions today at 10:00 (UK) to be held at the offices of Aberdeen Asset Management, Bow Bells House, 1 Bread Street, London EC4M 9HH. Chairman’s statement The first half of this financial year was characterised by exacting conditions in emerging markets, with weaker investment sentiment impacting our equity new business flows. Nevertheless, we have enjoyed further encouraging demand for certain of our fixed income and property strategies and have continued to make progress in developing our diversified pipeline of new business which will be added to assets under management ("AuM") in the coming months.
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By GlobalDataWe completed the major element of the acquisition of Scottish Widows Investment Partnership ("SWIP") on 31 March 2014, and the purchase of the SWIP infrastructure business completed on 1 May 2014. Considerable corporate energy, in addition to the specific transition-related costs, was invested during the period in bringing this acquisition to a successful conclusion, while the benefits to profitability will not begin to accrue until the beginning of the second half of the financial year. This transaction adds new and complementary strategies to our product range, and enhances the Group’s position as a leading global asset manager. We aim to build on and deepen the strategic relationship with Lloyds Banking Group as well as marketing our additional capabilities to our worldwide client base.
Total AuM at 31 March 2014 were £324.5 billion; excluding the £134.1 billion added by SWIP, Aberdeen’s AuM fell 5% to £190.4 billion (30 September 2013: £200.4 billion). Financials Profit before taxation for the period was £168.7 million (2013: £188.2 million). Underlying profit, stated before amortisation of intangible assets and exceptional costs in respect of the SWIP acquisition, was £217.0 million, compared to £222.8 million in 2013. This represents underlying earnings per share, on a diluted basis, of 14.32p (2013:14.88p). The Board has decided to pay an interim dividend of 6.75p per share, an increase of 12.5% on the interim dividend announced last year which will be paid on 19 June 2014 to qualifying shareholders on the register at 16 May 2014. This increase is in line with the Board’s objective to pay a growing dividend each year.
Net revenue for the period decreased by 2% to £503.5 million (2013: £516.0 million). Recurring fee income was little changed at £491.1 million (2013: £492.5 million), while performance fees contributed £12.4 million (2013: £23.5 million). The blended average management fee rate remained steady at 50.0 basis points (year to September 2013: 50.0 basis points). Operating costs of £286.9 million fell by 1% compared to the equivalent period last year, and were 4% lower than for the second half of our last financial year, and we have been proactive in identifying and implementing further cost savings over and above the synergies expected from the SWIP transaction.
The Group’s operating margin for the period was 43.0% (2013: 43.8%). We generated £221.6 million of core operating cashflow (2013: £221.2 million), representing a conversion rate of underlying operating profit of 102% (2013: 98%), and ended the period with a cash position of £410.4 million. As we stated when we announced the transaction, the addition of SWIP will reinforce Aberdeen’s progressive dividend policy and, while we will incur some one-off integration costs over the next year, it will enhance our ability to return surplus capital to shareholders over time. Review of operations Assets under management increased to £324.5 billion, of which the SWIP transaction added £134.1 billion.
The principal changes in total AuM are shown in the following table, and a fuller analysis by asset class is included at the end of the interim results statement. Gross new business inflows for the period totalled £14.3 billion (2013: £24.6 billion) and outflows amounted to £23.1 billion (2013: £20.2 billion), resulting in a net outflow for the six month period of £8.8 billion (2013: net inflow £4.4 billion). Inflows were subdued for the first five months although we then saw some improvement during March as we began to convert the pipeline of new mandates awarded by a range of clients.
Against the backdrop of weak investor sentiment, we encountered net outflows from our main equity products, but we enjoyed healthy net inflows to our property, emerging market debt and high yield bond products. Investment performance across our fixed income strategies is generally ahead of the relevant benchmarks for both short and longer term time periods and our property performance remains robust. Performance of our key equity products has been running behind benchmark on a one year basis, but we have continued to focus on our bottom up, fundamental style of investing for the longer term in good quality companies at attractive valuations, and we have seen healthy outperformance in March and April. It is inevitable that our style will lead to periods of shorter term underperformance, but we believe our longer term performance track record remains compelling and we do not plan to make any significant changes to our equity process.
Our distribution is focused on multiple business and distribution channels with teams operating on-the-ground in 26 countries and covering a further 34 remotely. We continue to see strong growth in North America, continental Europe and selective markets in Asia. Our focus is on providing our existing clients with a high level of service and to market our wider range of products outwith our well known strengths in Asia Pacific, emerging markets and global equities. As reflected in the flow figures, EMD, high yield and European property are areas which are attracting interest. SWIP completion and integration The major part of the SWIP transaction was completed on 31 March 2014, for purchase consideration comprising 108.5 million new ordinary shares, a further 17.3 million shares to be issued once Lloyds have received certain regulatory consents and a deferred top-up payment of £39.4 million which is payable on 31 March 2015.
A further 5.9 million shares were issued to Lloyds on completion of the acquisition of the SWIP infrastructure business. We have an excellent track record of integrating businesses with a clear global operating model. The respective teams of Aberdeen and SWIP have worked together over the last few months to create and refine the detailed integration plans across all areas of the business, and the implementation process has begun, and I am pleased to welcome our new colleagues to the Group. Aberdeen’s traditional approach has been to build relationships with key clients at all levels.
Together with the existing SWIP teams we have already started to develop further relationships with Lloyds Banking Group and its Wealth, Insurance and Retail businesses. As we highlighted in our announcement of the transaction in November, SWIP brings some further diversification to the enlarged Group’s product range, and our Aberdeen solutions business will be enhanced by the integration of SWIP’s quantitative investments, investment solutions and alternatives capabilities. We have also decided to include money market assets as a component of the enlarged Group’s fixed income business. This re-alignment is consistent with our strategy of growing our non-equity businesses over time. Our enhanced solutions capability, encompassing new quantitative investment strategies, stronger fixed income team and broader alternatives offering, mean we have a comprehensive suite of products to meet the needs of investors around the world.
