Aberdeen Group Plc (ABDN) Earnings Call Transcript & Summary

All right. Good morning, everybody. Thank you all very much for joining us here today. I'd like to welcome you all to our Results Presentation for the First Half of 2024. I'm joined on the stage by Ian Jenkins, who many of you know already, who's our Interim CFO. And with me here in London, I have a number of my colleagues in the front row. So, in terms of running order today, I'm going to start with some initial observations on our strategic priorities and then a short overview of our performance in the first half at a Group level and across our 3 businesses. I'll then hand over to Ian, who will give us more detail on the financial performance and make some comments on the outlook. Then, obviously, we'll open up the Q&A. So turning first to my initial observations and our key priorities for the Group. I joined abrdn as CFO in October last year, and I was appointed Interim CEO just over 2 months ago. As you might imagine, it's been a very busy few months in the run up to these results. I've been out and about meeting with clients, colleagues and spending a lot of time with the leadership team. I thought I would start out by setting out some of my initial observations. It's clear to me that we do have solid foundations upon which to build. Our 3 core businesses; Investments, Adviser and Interactive Investor have established scale positions in attractive markets. Markets that are expected to grow significantly, driven by long-term demographic and structural customer needs. Of course, in Investments, the structure of that market is evolving very fast. In terms of headline numbers, our focus is on improving profitability and that's showing some early signs of success, with Group adjusted operating profit of GBP 128 million in the first half, a small increase on both the first and second halves of 2023. However, this is not close to the level of profitability we aspire to. It's clear to me that all 3 of our businesses are yet to realize their full potential and there is significant headroom in each one. Turning to the top 3 priorities, which are all about execution and delivery. First, transform performance. We'll drive a significant uplift in profitability, in particular in investments, and meet the cost commitments we set out in the transformation program we announced earlier this year. That means investing in technology, automation and AI, as well as simplifying our processes to drive efficiency. Second, focus on client experience. My overriding objective will always be to support our clients to achieve their investing goals. That means improving investment performance and winning in U.K. wealth by differentiating ourselves through customer experience. And third, talent and culture. We are, after all, a people business. The heart of our success will be the engagement and motivation of our people. There's no quick fix and we need to take action on multiple fronts. Critical to this will be streamlining decision making. We must also create the right culture to attract and retain talent as a modern organization. Putting this all together in financial terms, our objective is sustainable profitable growth, along with higher net capital generation. It's not going to be easy, turning around performance never is. But I'm confident that by executing relentlessly against these priorities, and by harnessing the energy and enthusiasm of our colleagues, we will build the foundations for long term success across the Group. Turning now to the 3 businesses. As we head into the second half of '24, our focus is on realizing the significant potential in each of our 3 businesses. The CEOs and I have developed these strategic priorities together. In doing this, we've recognized that each business faces different challenges and benefits from different market opportunities and competitive positioning. The common theme is it will require a relentless focus on delivery. Starting with Investments. Performance has been challenging in parts with industry headwinds and a lack of appetite for active equities in emerging markets. Combined with our quality focused investment style, it has put pressure on our investment performance, in particular in equities. Against this, we've seen good net inflows and investment performance in fixed income, quants and liquidity. As you know, our focus here has been on transforming the cost base and we've made good progress on that while also improving our client proposition. In parallel, we will look to accelerate our growth where we have strong performance, and of course, continue to improve performance elsewhere, which together with the cost transformation will lead to materially higher profitability. Next, Adviser. Simply put, our focus is on returning the business to positive net flows to benefit from the structural growth that we see in this market. Redemptions did remain elevated owing to factors affecting the market as a whole. As a result, net flows remain disappointing in the first half despite gross flows increasing 7% to GBP 3.1 billion. So, to realize the benefit of the significant investment we've made in this business, we will enhance our proposition and pricing, complete the in-flight projects and significantly strengthen the Adviser's leadership team. And Interactive Investor. Through this business, we have a leading position in a significant and rapidly growing D2C savings and wealth market. ii benefits from a compelling subscription based pricing model, leading technology and excellent user experience. Our focus now is on innovating and broadening the proposition and investing in marketing to target attractive customer segments to drive strong organic growth. I'll turn now to the performance in the first half. Ian will provide more detail about the financial performance, but I'd like to give you a high level overview of our progress over the last 6 months. Group adjusted operating profit was GBP 128 million in the first half. This represents a slight improvement relative to the same period last year and an increase of 5% over the second half of '23. The headline performance itself reflects differing trends across our 3 businesses. In investments, operating profit was stable compared to prior year at GBP 34 million. Actions taken to transform the cost base reduced operating expenses, offsetting the expected reduction in revenues. Adviser contributed significantly adjusted operating profit of GBP 65 million, up a-third since the first half of last year. The 16% increase in revenue compared to 2023 largely reflected the revised arrangement with Phoenix in respect of SIPPs, which I talked about with the full year results. In Interactive Investor, adjusted operating profit was GBP 55 million. After stripping out the sale of discretionary fund management, this was 7% lower than the first half of '23, reflecting our active decision to prioritize investment in marketing and product development to support growth with customer numbers up 4% in the half. Group adjusted capital generation of GBP 144 million was slightly up on the prior year, providing dividend cover just over 1.1 times. Net capital generation was GBP 104 million, which is more than double the first half of last year, in part reflecting lower restructuring costs. I'm pleased to see this on the right path, but improving this metric remains a key priority. And finally, abrdn benefits from a strong balance sheet which does support investment in our business to sustain the long-term capital generation. Turning now to the performance of each business, starting with investments. Critical to turning around abrdn is getting our investments business back to a healthy level of profitability. While we still have a long way to go, there are some signs of improvement. Overall, we saw outflows of GBP 1 billion in the first half. This represents a materially better outturn than the equivalent trends seen over the previous 12 months. Within this, we have seen a significant improvement in flows across our institutional and retail wealth business, with a return to modest net inflows of GBP 0.4 billion, which is encouragingly GBP 11.6 billion better than the second half of 2023. This was driven by strong inflows in fixed income, quants and liquidity. However, equities continued to experience outflows with GBP 4 billion in the half. Our Insurance Partners business saw net outflows of GBP 1.4 billion or approximately 1% of AUM. Underlying this trend, gross inflows from Phoenix's defined contribution pension business and bulk purchase annuities with more expected in H2, were offset by outflows from heritage business in runoff. Turning now to investment performance. Overall, our one-year performance, 70% of AUM outperforming benchmark has increased from 55% 6 months ago. We've continued to achieve strong performance on a 1-year and a 3-year basis in fixed income, quant and liquidity. Building on the change we've implemented with multi-asset strategies which are already yielding tangible results, we have also implemented significant enhancements to refine and modernize our equities processes. These include team restructuring and integration of data and behavioral analysis tools to refine portfolio construction. While equities performance is currently below our targets, particularly in Asia and emerging markets, we are seeing positive momentum in areas such as small cap and Asia country strategies, for example India. Also, our emerging market income strategies continue to deliver top quartile performance across multiple horizons. We remain committed to our bottom-up quality investment style. We expect a combination of the internal steps we have been trained with better external market dynamics, for example, peaking real yields to drive improved performance over the next 18 months. And year-to-date, we've seen an improvement in equities performance with 39% AUM outperforming compared to 23% on a 1-year basis. Turning now to the first half highlights and priorities for investments. Following the significant industry headwinds over the last few years, which did create a challenging risk off environment, market conditions have been more supportive in the first half, obviously with last week's intervention. As a result, our total AUM in our investment business increased GBP 3 billion to GBP 369 billion. There are some signs that momentum is returning to the investments business with our institutional retail wealth business gross flows, which is a good indicator of our success, were up 16% year-on-year to GBP 18.5 billion. The total value of won not funded mandate increased by 68% to GBP 9.4 billion compared to the year-end, and the number of RFPs has increased by 23% compared to the first half of last year. Looking ahead, we have 3 critical priorities for investments. First, focus. We'll target growth in products and services where we have genuine strength, continuing to focus on where we can win. We'll build on the progress made in sharpening our investment specialisms while also increasing our cross business collaboration and leveraging our strategic partnerships to drive further growth. Perform; our success is predicated on delivering reliable outcomes, service and experience for clients. To do this, we'll continue strengthening our investment processes while also developing client-centric products and solutions. And finally, Modernize; we will continue to invest in technology, automation and AI to improve efficiency and operational agility. As part of this, we'll upgrade our systems and tools while also streamlining and simplifying our operating model. We'll also invest in marketing and distribution to drive our commercial performance. Our ambition for investments remains to improve efficiency and to return to growth, and through this, to restore the business to a much higher level of profitability. Turning now to the Adviser business. As highlighted earlier, our Adviser business delivered a strong financial performance in the first half of the year, with assets under administration also up by 2% to GBP 75 billion. While gross inflows of GBP 3.1 billion were 7% higher than the first half last year, net flows were disappointing at GBP 2 billion in the half. Customer numbers reduced by 3% compared to the end of '23. Redemptions remained elevated and Adviser continue to suffer from factors affecting the market as a whole, such as cost of living and IFA consolidation. Notwithstanding, we did maintain our market share of assets under administration and we also saw a modest uptick in primary partner, AUA. Going into the second half, we have 3 priorities for the business. We've already made a start in delivering against each of them. First, service and proposition enhancements. Our priority of returning to net inflows can only translate into sustainable growth if it is backed-up by service excellence and a market leading consumer proposition. We've recently launched on-platform cash solutions for our customers and have developed a sharper roadmap of further proposition enhancements, including the launch of an on platform SIPP in due course. Second, strategic reprice. It is unavoidable that price plays an important role in attracting and retaining customers. So in May, Noel announced changes to the pricing of our Wrap platform with simpler and reduced charging, improving our competitive positioning in the market, which will drive increased value over the medium term. Changes were made for new clients straight away, with plans to extend to all clients by the end of Q1 next year. And third, investment in people. We have enhanced the senior leadership team under Noel with the appointment of a new dedicated Chief Technology Officer to drive the timeliness of our project delivery, and I'm excited that we also hired a new Chief Distribution Officer as announced yesterday, and she has a strong track record in improving customer acquisition and she will start later this year. Benefits from these actions will take some time to realize, but we are focused on returning the business to a net inflow position as soon as possible. And now turn to Interactive Investor. In the first half, Interactive Investor delivered 4% organic customer growth to 422,000 customers and within this, 17% growth in SIPP customers. In a growing and competitive market, ii saw record inward transfers over the 6 months, generating net inflows of GBP 3.1 billion compared to GBP 2.8 billion for the whole of 2023. And in the first half of the year, trading activity returned to that last seen since COVID with increased levels of investor confidence. Daily average retail trading volumes are 23% higher than last year. Interactive Investor has 3 key priorities to drive consumer growth. First, proposition enhancements. These include the recent launch in conjunction with the investments business of a managed ISA. This is a great example of how the businesses across abrdn can work together to add value for our customers, with nearly half of the assets held in the managed ISA accounts invested in abrdn funds. Looking forward, the ii team have an exciting roadmap of product and proposition developments. These include the launch of a managed SIPP account later this year, to be followed in 2025 by ii360, an advanced trading platform and ii Advice, a digitally led financial planning offering. The second priority is consumer engagement. The trading capabilities and wrappers available through our platform continue to drive increased customer value and engagement. We continue to launch new research tools and features. Further roadmap delivery will bring ii community, a social trading app later this summer and a new premium service bundle will follow. Our third priority is around brand awareness. ii has many strengths. It ranks #2 in the market based on asset value and has an award winning SIPP which has been repeatedly recognized by which it is also valued by its customers with a high trust pilot rating of 4.7. However, the ii brand is still punching below its weight. We're addressing this by investing in marketing to drive general brand awareness. Early indicators suggest our campaigns have been successful with brand awareness up 10 percentage points compared to Q3 last year. Turning now to our third priority. Talent and culture is something that we just absolutely must get right. In fact, the value from getting this right cannot be overstated. We must focus on creating the best possible environment for our people to succeed. These are the principles that we will hold ourselves to. The corporate center will be leaner, with all customer facing activity delegated to the business CEOs. We'll apply a consistent framework for ways of working rolled-out group-wide, we'll streamline our processes, eliminating any cumbersome decision making. We'll invest in our people, their development and the bench strength of our leadership teams and finally and importantly, will foster a diverse and inclusive, forward-looking organization that has focused on deliverable sustainability commitments. From this work, I expect a range of benefits, including faster decision making, improved efficiency, better risk management, rigorous performance management and the greater ability to attract and retain people. And most importantly, we'll nurture a culture in which our people are motivated and engaged with the belief and confidence to unlock the opportunity in abrdn. I'll now hand over to Ian who will go over the financials.

Thank you, Jason, very much indeed. Good morning, everybody. Nice to see you all again. Let me begin with a summary of the '24 half year group results. The group delivered adjusted operating profit of GBP 128 million, slightly higher than both H1 and H2 last year and largely benefiting from the progress we are making in efficiency savings. Net operating revenue of GBP 667 million was 7% lower than H1 '23 and slightly lower than H2 '23, and this primarily reflects the cumulative impact of the prior year net outflows and revenue given up through business disposals. Recognizing these revenue headwinds, we have taken actions to reduce operating costs, which fell to GBP 539 million in the first half of '24. This was 9% lower for the first half and 3% lower for the second half of '23. IFRS profit before tax of GBP 187 million this half year compares to a loss of GBP 169 million in H1 of '23. This improvement was mainly driven by lower mark-to-market adjustments to the value of our significant listed investments and an GBP 88 million gain on the sale of the European headquartered private equity business. Adjusted capital generation was up slightly on H1 '23 at GBP 144 million, while net capital generation of GBP 104 million, which takes into account below the line items, more than doubled, benefiting from lower restructuring and corporate transaction costs which were GBP 40 million compared to GBP 92 million in H1 '23 net of tax. This improvement, together with our strong capital position supported maintaining our interim dividend at 7.3p, in line with guidance. Moving to the businesses. AUM at the end of June rose to GBP 506 billion compared to GBP 495 billion at the end of last year. And adjusting for the GBP 7 billion sale of the European headquarters private equity business, this was an increase of GBP 18 billion, primarily from positive market movements across all 3 businesses of GBP 17.2 billion and net inflows including liquidity of GBP 0.8 billion. Across the Investments business, fixed income reversed the net outflows of '23 to a net inflow of GBP 1.2 billion and we delivered strong liquidity net inflows of GBP 2.4 billion. So, excluding fixed income and liquidity, the investments business saw a net outflow of GBP 4.6 billion, largely in equities. And as Jason has already covered, the market backdrop continues to present challenges for active management in equities, particularly in Asia and emerging markets. Within Adviser, net outflows were GBP 2 billion, reflecting the higher redemptions in the period and as you've again heard, we are taking action to address this. Interactive Investors strong momentum continued with net inflows of GBP 3.1 billion, demonstrating good organic growth with particular strength in the SIPP products. Turning to revenue and margins. Group revenue of GBP 667 million was 7% lower than H1 '23. GBP 38 million of this was driven by the impact of net outflows, primarily from the prior year in revenue margin decline across the investments business of GBP 21 million, reflecting asset allocation changes. Adviser Interactive Investment margins increased revenue by GBP 17 million, which includes GBP 13 million from a revised distribution agreement with Phoenix in respect of the Wrap SIPP, along with higher trading and FX commissions at Interactive Investor. Positive markets and foreign exchange also benefited our revenue by GBP 11 million. And the disposals of the discretionary fund management business and the U.S. and European private equity businesses, partly offset by the acquisition of Tekla in October last year had a net impact on revenues of GBP 22 million. Looking now at revenue margin and trends. Within Adviser, margin increased to 31.4 basis points compared to the first half of last year, reflecting additional revenue from the revised arrangements with Phoenix in H2 '23. Across investments, as expected, the impact of asset allocation changes resulted in a margin decline to 22 basis points. Together, this resulted in the group revenue of 24 basis points compared to 25.7 basis points in H1 '23. So let's turn now to adjusted operating expenses, to illustrate how we are proactively dealing with these revenue headwinds by taking action to improve efficiency. Compared to H1 last year, operating expenses were lower by 9% at GBP 539 million, benefiting from GBP 53 million of cost saving initiatives, principally within our investments business. This reflected both the work done in '23 and of course, the cost transformation program we announced in January '24, which I will talk to shortly. As we indicated at our full year results, we're reinvesting some of our cost savings across the group and you can see this within Interactive Investor where we have added to marketing, proposition development, and operational resources providing the capacity to support organic growth. The lower adjusted operating expenses also benefited from corporate actions which contributed net GBP 17 million, primarily the sale of the discretionary fund management business last year. So now turning to business performance. Within investments, cost improvements offset revenue reduction to leave adjusted operating profits stable at GBP 34 million. The reductions in revenue were primarily due to the net outflows and changes in the asset mix and we continued to take steps to stabilize and then grow revenues through sharpening our focus on areas where we have the right to win. Moving to Adviser. Adjusted operating profit increased to GBP 65 million, this includes a GBP 30 million benefit from the revised SIPP distribution agreement with Phoenix and a GBP 2 million increase in treasury income to GBP 17 million. Costs remained flat at GBP 54 million and continued to benefit from the temporary third-party outsourcing discount of GBP 7 million, again in line with H1 '23. However, we do expect this discount will cease with the delivery of the abrdn SIPP functionality. Across Interactive Investor, we exclude the discretionary fund management business sold last year. We delivered revenue growth of 5% with an increased trading and foreign exchange commissions accounting for most of that movement. The growth in costs arises from the investment to provide capacity to support future organic growth and we have indeed targeted and delivered record high SIPP transfer in volumes. So, looking now at the progress on cost transformation that we announced in January this year. So this is an area where I've particularly become very involved since last October, working closely with the rest of the leadership team. And as we said in January, we are targeting annualized saves to operating expenses of at least GBP 150 million by the end of '25 compared to the full year '23, with approximately 80% of the savings benefiting the investment business. Around GBP 60 million of these saves are on-track to benefit the group full year '24 numbers, with actions taken in the first half already, set to deliver over 2-thirds of this GBP 60 million. Our program is designed to deliver a step change in sustainable efficiency and restore our core investments business to an acceptable level of profitability, allowing for some needed reinvestment of the savings, but aimed at improving our net capital generation and supporting shareholder returns. There are indeed more than 60 individual initiatives within the program, primarily within our investments business and support functions. And given the need for clear accountability and focus, we have an experienced central program office to support, govern and oversee delivery. In the first phase, we targeted delayering management roles through a spans and layers exercise across our organization. And now as the program matures, our focus is on process simplification, leveraging data and technology, negotiating sustainable reductions in third-party spend. Let me provide a couple of examples of the work ongoing. So we've looked end-to-end across performance management, investor services, clients reporting processes and generally increased the efficiency of those services to our institutional clients. We're also looking at rate cards, service agreements and contracts to lower the overall costs and improve productivity. And as a last example, our people function are working towards implementing a self-service model, combining the in-house expertise that we have with market leading technology. So overall, the transformation program is up, running and delivering at pace. Turning now to our capital position which obviously supports this transformation. The group continues to have a strong capital position of over GBP 1.5 billion of CET1 resource which covers 146% of our total capital requirements. Net capital generation of GBP 104 million is more than double H1 '23, but there is still more work to be done to ensure our dividend is fully covered on both an adjusted capital generation and on a net basis. Adding to our net capital generation is the impact of corporate transactions. In this half, we completed the sale of our European headquarters private equity business and our Virgin Money joint venture, generating GBP 99 million of CET1 resource, which takes me on to the balance sheet. In addition to our CET1 resources, we have GBP 690 million of qualifying debt before Tier 2 restriction, all issued in a lower interest rate environment. Of this, around GBP 470 million contributes to our regulatory capital. And as previously stated, we will look to optimize our capital stock over-time. The Group's cash and liquid resources are GBP 1.8 billion and of this just over GBP 400 million is in the PLC of group treasury, and in addition we have GBP 400 million in seed capital and co-investments and this capital is used to support product development within the investments business. As before, it's worth remembering that our regulatory capital position does not consider 2 other significant assets. Firstly, our stake in Phoenix which had a market value greater than GBP 500 million at the end of June. This is a significant asset which underpins a very important relationship. And secondly, we have a well-funded DB pension scheme which has an IAS surplus of GBP 800 million. And as we said at the full year results, we continue to explore options that could realize some of this value. To conclude, our balance sheet remains strong, allowing us to invest in our core business as we seek to grow and improve efficiency. So finally, financial outlook and guidance. Our focus on improving profitability and realizing the significant potential of each of our businesses has good momentum as we head into the second half. We expect a relatively stable interest rate environment supporting stability in the cash margins earned in our platform businesses in '24. Over the longer term, structural growth in U.K. savings and wealth is supportive of our businesses. And while market conditions and changing client demands create a challenging environment for active asset managers, we see opportunities in areas where we have distinctive capabilities. And as we said at the full year, given the trend away from active equities, we do expect some further contraction in revenue margin within investments to below 22 basis points for the full year '24, subject to market conditions impacting the asset mix, of course. We also expect further cost improvement, with approximately 80% of the cost savings program benefiting the investments business. We're taking steps to reverse the net outflows in Adviser and we've already announced a competitive repricing with existing clients expected to benefit from Q1 '25, and we expect this to have a low single-digit revenue margin impact. We also expect the temporary third-party outsourcing discount which we've benefited expenses to end. The cash margin in Adviser for the first half was 263 basis points and we expect this to be broadly stable for the full year. Within Interactive Investor, the cash margin in the first half was 234 basis points and again, we do expect this to be broadly stable for the remainder of '24. The investment to provide the capacity to support future organic growth will continue such that Interactive Investor costs in the second half are expected to be broadly similar to the first. And for the Group, as I've said, we remain on track to deliver the targeted GBP 60 million of cost savings this year, with adjusted operating expenses to be below GBP 1,075 million for the full year and to deliver at least GBP 150 million of annualized cost savings by the end of '25. Thank you. And now Jason, I'll hand back to you.

Thank you, Ian. Before we start the Q&A, just a quick summary. With significant headroom in each of our core businesses, we've identified the key focus areas to enable them to realize their growth and profitability potential. The transformation program is on-track. It's key to delivering sustainable profitability for the Group as well as improved outcomes for our clients and colleagues. The Group's balance sheet is strong, in turn supporting our ability to invest in the business to improve sustainable net capital generation. And reminder of my 3 priorities for the group; transform performance, improve client experience and strengthen our talent and culture. As I said at the start of the presentation, I'm genuinely excited about the potential in abrdn. I'm confident that by delivering against 3 priorities, we can create an organization that our colleagues can be proud to work for, delivers better outcomes for our clients and more attractive returns for our shareholders. I look forward to keeping you updated with progress as we go along. And I'd like to open-up to questions. Thank you.

I'll do the questions from here. Charlie has got the mic. Nicholas?

Three questions from my side, please. Firstly, on strategy. I guess this unsurprisingly, it seems very much like it's a continuation and evolution of the existing strategy, but I guess under your leadership, and I appreciate your current Interim CEO, Jason, but are there any gaps or things you want to emphasize or de-emphasize compared to the past or previously? Secondly, a question on Adviser. So either to you, Jason or to Noel, you noted the pricing cuts and the leadership changes. Can you provide some more details on those leadership changes? And maybe I was too simplistic about this, but I always thought that service was the most important thing in that business. So what gives you confidence that lower pricing will drive that business forward from a growth perspective? And then finally on capital. Ian, you mentioned that you continue to explore options to crystallize the value in the pension scheme. I know it's only been 3 months since we last spoke, but just curious if there's any update on your thinking and probability around crystallizing that scheme surplus.

All right, I think I'll probably have a go at all 3 of those to kick us off. On strategy, I guess, key message we're content with the Group as it's currently configured. We're committing to doing better within that and we've outlined plans to get after it. So I've been in this role 2 months, plus or minus. So we have plans, we've got sharper plans and we've got an absolute focus on delivery and across the whole of the organization. And I guess the single thing I've been focused on doing is making sure everyone's clear on that and they've got the resources and the commitment of senior management to support the whole organization to get after the plan. That's what I'm doing. Adviser, the price is important. Service is crucial, but in terms of winning new and retaining people and making sure that in the context of the market, it is important that we are competitive on price. So we've gone through a process to look where we were. Obviously, this business was first into the market nearly 20 years ago. Competition has intensified, materially intensified during that period and we've seen -- we've reacted to that through an investment in the platform to provide better functionality, better client service. We also need to be realistic on price. So the changes that Noel's announced will make us more competitive when it comes to winning new business. And in terms of the team, I said there are 2 or 3 key hires, some of which we haven't quite announced, but 1 we did announce yesterday, which is a new Chief Distribution Officer, Verona Kenny, who joined or will join -- sorry, sort of early, maybe October time. So when she comes that's significantly more bandwidth into the team, which is great. We've also got a new dedicated Chief Technology Officer, currently an interim role, but that's to improve the timeliness of delivery. We've had a whole book of work. An enormous amount has been achieved. We need to finish some of the in-flight projects, so adding a little bit more bandwidth, getting after that, getting it completed is what we're trying to do. Pension scheme, a bit of a fascination of mine, as you might imagine. It is more complex than I perhaps first thought. It's a sort of archaic Scottish trust, which isn't straightforward. Prior to my joining the company had done a lot of work to clarify the beneficial ownership of the assets of the trust have gone as far as to the court in Edinburgh to make that clear. That work was done about 12 months ago. But there are other complexities, so I won't bore you with those. So the project is up and running. We're reviewing, obviously, basically run on options, which could include, depending on where the DWP comes out, and clearly a change of government has slowed that down, or a buyout, full or partial. Ian mentioned the IAS surplus. That's clearly an accounting surplus, but there's quite significant value in that pension scheme. Let's go. Hubert?

It's Hubert Lam from Bank of America. I've got 3 questions. Firstly, on strategy again. Jason, I hear you on, you think it's about execution, about delivery. Do you think the 3 segments work together? Like, do you think that there are enough synergies or just putting it together or would you consider any more radical changes if you don't see the synergies together, we consider breakup. I guess that's the question. That's the first one. The second one is on capital. Can you discuss how much surplus capital you think you have, assuming a buffer as well? And if there is surplus capital, what would you consider? Would you consider buybacks, M&A, or do we have to wait for further capital generation or to release the pension to kind of get there? And lastly, on fee margin. I know Ian's guiding towards lower than 22 bps for this year. Can you tell us what the exit rate is and where you think the fee margin could be heading, just given the mix, as well as where the flows are going?

I mean, I've been asked this question once or twice before on the group and its current configuration. We are very comfortable with the Group structure as it is, and we are very focused on operating the 3 businesses under the 1 umbrella and doing better together. And where there are opportunities to collaborate, we will be pursuing them. So between the investments business and Richard's business and Noel's business, where they can collaborate, we are all in investing. We have all got ultimately, the same customer need that we're trying to support. We've got the same regulator, we've got the same capital base. There are probably cost synergies, a little bit lost in the fray of what's going on right now around how we operate. So there is a strategic alignment. We talk about the same things, we've got similar needs, we've got similar opportunities, and there are specific projects that we're after. But I'm not setting up a department to look at cross synergies. We're doing it where it's natural, where it works, where we've got competitive strengths. The margins question, I think for the second half, we're looking at. I'll stab a guess at [21.5%].

Yes, that's a good guess.

There's a bit of a few standard deviations in that. So if markets jump all over the place, which they have a little bit in the last, whatever, 4 or 5 days. So that's probably the best I can say today. It could be up or down a bit, depending on equities and fixed income. I hope I don't regret that. But there you go. The capital surplus. We feel the company is well capitalized, but we are not looking to return any capital above the dividend. The dividend is the primary source of return to shareholders, and we're focused on creating capital generation that more than covers that. Beyond that, the priority is investing in the business. So that's the transformation program. It's upgrading of the platform, and then it's pursuing other organic growth initiatives across the whole company. So in my hierarchy of capital, then that's what it is. It's actually growth, then the dividend, and then if there is some surplus, M&A is not a high priority. Obviously, when we think about strategic positioning, we look at opportunities, but that's not something that we are prioritizing at the moment and we're certainly not looking at one-off returns of capital.

Mandeep Jagpal, RBC Capital Markets. Three questions from me as well, please. The first one is just on your Phoenix agreement. How does the new future growth capital partnership between Phoenix and shareholders affect the level of new business flows from Phoenix, in particular, into private assets. Second, on restructuring costs. You're now guiding to slightly improved cost savings for FY '24 versus your initial guidance. So just wondering if that also resulted in any changes in your GBP 150 million guidance for restructuring costs this year and also any restructuring cost expectation changes for the next 2 years that you can share with us. And then finally on the Adviser margin. This is up year-on-year and down half-on-half. What should we expect the net impact of the new Phoenix SIPP distribution agreement and the Wrap price reductions to be for the margin for the remainder of FY24.

Okay. So I'll just take them in turn. You can do restructuring, if you fancy, Ian. On the Phoenix agreement, we benefit from a very significant relationship with Phoenix. I'm just looking up here. Our total inflows from Phoenix in the first half were GBP 13 billion. That pales in significance other strategies there might be for Phoenix. So we remain the primary provider. We are supporting them across their business and we'll continue to do that. You know, it's an incredibly important partnership for us. We're investing in it and we will continue to do better, whether that's across private assets or liquid assets or annuity assets, whatever it is. Our role here is to support them as our largest client and to do the best for them. We're not exclusive, but nor is that. So we've got a continued range of different opportunities to grow that. About restructuring?

Yes, I mean, restructuring for the first half was GBP 51 million. I think we guided GBP 150 million for the full year. I suspect that GBP 150 million, it'll be a little bit down on GBP 150 million. I mean, some of the work that you do at the beginning is, requires less cost being invested in it to make those changes happen. The second half we will probably spend a little bit more. We may not spend as much as make it up to GBP 150 million. If it was GBP 125 million, I wouldn't be surprised.

And then on Adviser margins. So basically the way that -- this is complicated. The prior way that the Phoenix thing was agreed was largely due to the sale. And we moved from a sort of purchase price type in a structure to actually recognize in revenue. It's changed. It changed for good. It changed for the good for us in terms of profitability. So that was effective from the beginning of the first -- sorry, the end of the first half last year. So we've now had 12 months of it and that will continue from here.

It's Greg Simpson from BNP Paribas Exane. 3 from my side. Maybe 1 for Richard is can you update on the competitive dynamics in DTC? And in particular, having come from a private equity backed business, how much do you worry about the largest player in the U.K. maybe changing their strategy somewhat? Second question is on cash margins. Can you walk through how you expect that to evolve as interest rate cuts come through, potentially come through in the U.K.? And then thirdly on the one but not funded pipeline in investments, GBP 9.4 billion, can you talk through what type of asset classes, products that is kind of coming through in and should we expect investments to kind of move into net inflows based on that kind of pipeline? It sounds pretty good.

Richard, why don't you take the first 2 if that's all right.

So the first question was about the competitive dynamics in the DTC space. It would be no surprise to learn that the marketplace continues to see greater competition from a number of sources, whether it be from the incumbents or from neo brokers or from the U.S. players. What we ourselves are seeing, you'll see from our flow figures that in Q2, we had record net flows, which were around GBP 2 billion, and we have over the last few quarters, consistently eked-out marginal gains in market share across most metrics. So in Q1 this year, we had 20.5% of all new SIPPs in the market. In Q1, on the trading side, we increased our share of international trading to about 33% and our overall share of AUA, as you saw on the board, increased marginally to about 19.5%. We don't see that position being under threat. We continue to have a structural price advantage. We are built on operating excellence where our core mission is delivering great consumer outcomes and great value. We have a lot in the tank in terms of product development, which is continued to come through over the following months. And in terms of our price versus cost position, we're pretty comfortable with our fully invested tech-stack. There will be further competition on price inevitably, and that leads us to speculation around Hargreaves, which, as you all know, the takeover panel agreed to delay a conclusion on that until August 9, which thankfully is after today. We look forward to active competition with the incumbent DTC players. The decisions around Hargreaves are for them. We are very happy that we are investing as hard as we can in delivering better and better service and proposition to a broader audience, while sticking to our guns in terms of a sub-60% cost income ratio as we continue to invest, not just in product and tech, but in terms of brand and marketing. So there's more to come. There's more in the tank, but that's in the context of expected greater competition.

The one on funded pipeline, I haven't got the full details of it in front of me, but it's a range of different strategies across quant, real estate, equities and fixed income, won't all come through imminently. It takes probably, what do you think, is every 6 to 12 months for that to actually come through across the piece. So we just thought it was a helpful metric to give you a sense of the momentum in the sales and the client uptake of our products within the investment business. Well, I think cash margins, we've indicated for the full year, we expect to be consistent, clearly, in an interest rate environment, is likely to evolve over the coming months. But we are comfortable with the sort of margins. Obviously, if rates fell in it sharply, that is when we'd have to reassess what things, where we would be, but we will remain competitive and we will remain customer oriented when we make these decisions. Andrew?

Yes. I wonder whether you firstly could talk about cash margins with a 3% base rate. What would be your planning at that point? Because I think that was the next question, really. And then secondly, on the capital, you always used to talk about a 0.5 billion buffer was what you were happy with. Is that still the case? And why don't you take down the debt, which doesn't qualify for capital and just seems to be not doing anything. Then finally coming back on the strategy. You've been very clear that you want to keep the 3 businesses together. Let's ask the question the other way around, because the market is asking the other way around. Why don't you think about selling the investments business? Is it because you can't sell it?

On the last one, we obviously do think about things. I'm sort of primed to think about all sorts of options. What I'm communicating is where we are today, and we have no plans to change that. And we think that the highest value is to remain with the current configuration and to get after the profit and the growth objectives that we've set out. It's no more complex than that. Clearly, if something changed dramatically, we'd reassess. We're not blind to the external world, but our sole focus is about improving the core businesses that we've got. On the base rate question, if rates fell to 3%, clearly, we would be looking at a lower margin. I think in the past we've given guidance of 1 and 3 quarters to 2. That would come under pressure, but we're probably looking at broadly we pay 60, retain 40, around that sort of shape. It depends how things play out across the different market, but that would be what we would expect. The capital, I didn't really take the GBP 500 million surplus figure directly, as I think about the capital of this business because that was on a regulatory capital basis, including a lot of debt. So we tried to represent the way we think about capital using core equity Tier 1. As I've said just a moment ago, I don't think we have significant excess capital, but we're well capitalized. The debt is not due; 1 of them is '28, 1 of them is '26. So we could do something on that. We make a reasonable spread at the moment on it. It's not an urgent issue at all. We have cash. We've got potential other liquid assets. So there are things that we could do and obviously keep that as we develop, keep that under review. Who's next? Any more? Well, excellent. Well, thank you all very much for coming over. I really do appreciate you taking the time. And to those of you who've dialed-in, and look forward to keeping you updated with our progress as we go along. Thanks again.

Thank you.