Aberdeen Group Plc (ABDN) Earnings Call Transcript & Summary

Right. Well, good morning, everyone. Thank you for coming. Lovely to see you all. Welcome to our presentation. Today, I'm joined by Ian Jenkins, our Interim CFO. And on the front row, are all the members of my senior leadership team. So look, before I start, just one change that you will no doubt have noticed this morning, that we're changing the name to aberdeen group plc, with the name written out in full. For me, this was a pragmatic and simple decision, allowing us simply to demonstrate our pride in the name and the brand aberdeen, and make the most of it in the marketplace. And we also have the name interactive investor. We've got 2 principal brands, and that's how we will be out marketing ourselves going forward this year. So enough on that. I'll now just turn to the presentation. So I'll start with the key points, and then I'll hand over to Ian, of course to take us through a little bit more detail on the '24 results. I'll then give you an update on our strategy and targets and the path forward for the group. And of course, then we're up to Q&A. So let me start just with the highlights and the overview of the strategy at the highest level. Well, how do I see aberdeen? It says a Wealth & Investments group, and that's how we're going to describe ourselves. The Wealth business, of course, is interactive investor and aberdeen Adviser, both to operate in the U.K. with excellent customer experience, built on efficient technology at the heart of their success. Aberdeen Investments operates internationally. And in a competitive and rapidly changing industry, we need to act with pace and with clarity to be successful. When I started at aberdeen, I knew we had to reverse the decline in performance. And as CEO, I have been able to get to grips with the business, and I'm happy to say that we have seen a shift in momentum, but there's much further to go. Last year, profits increased across all 3 of our businesses, with adjusted operating profit up by 2% to GBP 255 million, and net capital generation up by 34% to GBP 238 million. So we are seeing improvement overall, but I want to be clear on this, none of our businesses are close to their full potential. Which is why our number one priority is to transform performance. And this requires many things, including simplifying the business, removing drags on profitability and focusing on where we have competitive advantage. Our transformation program delivered well against the targets we set out a year ago with significant savings as well as benefits for our clients and our colleagues, and we're on track to deliver at least GBP 150 million of annualized savings by the end of this year. We're also announcing today, we've made progress on our pension plan, which will improve capital generation from mid-'25 and this, in turn, supports the dividend. And with the changes to my leadership team and other key appointments across the business, I'm confident we've now got the right people in the right roles at a senior level, which is very much in line with the strategic importance that I place on lengthening talents and culture. Of course, my other overriding priority is for us to improve client experience with a focus on our service and our products, which neatly takes me on to my next slide. So today, we're setting out a clear path forward for each business to deliver more for our clients, and we're establishing a set of clear and relevant performance targets. interactive investor had an excellent performance last year, achieving #1 position in the U.K. direct-to-consumer market measured by net flows and now serves nearly 440,000 customers. Our priority for interactive investor is to sustain that growth, and we're targeting 8% per year for customer numbers. We'll do that by meeting a broader set of customer needs, building on the interactive investor brand further and always remaining very efficient. Adviser is number two in an attractive growth market, but we recognize that the recent trends and flows have been disappointing. With the revamped management team now in place, we're redoubling those efforts on client service, enhancing our offering and sharpening our pricing, all with the aim of returning to net flows as soon as possible, targeting GBP 1 billion of net inflows in 2026. And for Investments, our key focus is on delivering a step change in profitability. This will be achieved by repositioning the business to concentrate where we have real competitive advantage and clear growth prospects, and we're targeting GBP 100 million adjusted operating profit in 2026. So with the relentless focus on execution, I'm confident these priorities will lead to a significant improvement in financial performance. And to that end, we're putting these business unit targets together, we're announcing new group targets. We're targeting adjusted operating profit of at least GBP 300 million in 2026, which is an 18% increase on '24. And together with much lower expected restructuring costs and the pension scheme arrangement that we've entered into, we're targeting net capital generation of around GBP 300 million in '26, which is a 26% increase on 2024. And of course, this will support the dividend. And I'll share a few more details on our strategy in a moment, but first, let me hand over to Ian to go over the results.

Thanks, Jason. Thank you. So good morning, everybody. Let me begin with a summary then of our key financial highlights. The group delivered growth in 2024 with continued strong momentum within the interactive investor and a marked improvement in flows within Investments, partly offset by the outflows in the Adviser business. We improved the group efficiency through the good progress on our transformation program, resulting in a 7% reduction in adjusted operating expenses, and this delivered an increase in the group adjusted operating profit of 2%, with profit growth in all 3 of our Wealth & Investments businesses. This resulted -- this result is reflected in both the adjusted and the net capital generation, and dividend cover improved to 1.2x on an adjusted basis and 0.9x on a net basis. These improved cover metrics do not yet reflect the action taken to unlock the value from our DB pension surplus, which is expected to improve capital generation by around GBP 35 million per year from July 2025. So let's now move on to the 2024 group results. The group delivered an adjusted operating profit of GBP 255 million, a 2% increase on 2023, benefiting from the significant progress we have been making in achieving our efficiency savings. Adjusted net operating revenues were GBP 1,321 million, 6% lower than 2023, reflecting the impact of net outflows from higher-margin products as well as the revenue related to disposals, including our private equity businesses, and aberdeen capital. Adjusted operating expenses were GBP 1,066 million, 7% lower than 2023 and slightly below our previous cost guidance. IFRS profit before tax significantly improved from a loss of GBP 6 million in 2023 to a profit of GBP 251 million in 2024. This improvement reflects lower restructuring costs, a lower loss from the change in fair value of significant listed investments, obviously, including Phoenix, and lower amortization and impairment charges. Adjusted capital generation was up 3% to GBP 307 million, whilst net capital generation increased by 1/3 to GBP 238 million as a result of lower restructuring corporate transaction expenses, net of tax, which fell to GBP 69 million compared to GBP 121 million in '23. These results, together with our strong capital position enabled us to maintain our total dividend at 14.6p, with improved coverage ratios on both an adjusted and net capital generation basis. So turning now to our businesses results. Each of our 3 businesses delivered growth in adjusted operating profit in 2024. Within ii, adjusted operating profit, excluding aberdeen capital, was up 5% to GBP 116 million, with higher revenues, partly offset by increased investment as we create that capacity for future growth. Within Adviser, adjusted operating profit grew 7% to GBP 126 million. This reflects the 12-month revenue benefit from the previously reported revised distribution agreement, offset by a modest increase in expenses. And across investments, we've improved adjusted operating profit by 22% to GBP 61 million, with lower revenue more than offset by 11% reduction in operating expenses through the progress we've made on our transformation program. So now perhaps looking at each business in more detail. Within interactive investor then, continues to deliver strong customer growth, reinvesting in the business to sustain this growth and create additional capacity. Total customers were up 8% in 2024 with SIPP customers, obviously, a key focus area of the business, up 29%. We've seen strong momentum in flows with net inflows of GBP 5.7 billion, almost doubling compared to 2023, and ranking interactive investor as #1 for net inflows in the U.K. D2C market. And excluding aberdeen capital, revenue grew by 7% to GBP 278 million, with the business improving the cost/income ratio then to 58%. Particularly strong growth was seen in trading transactions with revenues 46% or GBP 22 million higher, and benefiting from a 28% increase in trading volumes. Treasury income increased by 3% to GBP 138 million, reflecting growth in customer cash balances. And the average cash margin was 229 basis points compared to 236 in 2023. And subscription revenue was up 3% to GBP 60 million gross of marketing incentives. So excluding aberdeen capital, operating expenses increased by 9%, reflecting investment in marketing, proposition development, creating capacity for future growth with the benefits of this investment already evidently in the improved brand awareness. In summary, interactive investor continues to make great progress in delivering sustainable growth, while maintaining the operational rigor that underpins its efficient business model. Turning now to the adviser Business. Net outflows were GBP 3.9 billion for the year. AUMA of GBP 75.2 billion was broadly flat as higher market movements offset net outflows. Revenues increased by 6%, primarily reflecting the full 12-month benefit of the revised distribution agreement for the outset. And overall, net revenue yield on AUMA was slightly higher at 31.2 basis points. Treasury margin on cash balances was 263 basis points, up 35 and consistent with the figure reported at the half year. Adjusted operating profits grew 7% to GBP 126 million. Expenses were 5% higher, reflecting investments made to enhance our client proposition and included the one-off again gain of GBP 17 million benefit from a temporary party outsourcing discount. While we've seen some early encouraging signs in addressing past service-related issues, we recognize there remains work to be done and returning the business to positive flows. Moving to our Investments business. Institutional and retail wealth saw a significant improvement in flows. Growth flows, excluding liquidity, were up 31% to GBP 25.5 billion, and net inflows of GBP 0.3 billion were over GBP 18 billion higher than the GBP 17.9 billion of net outflows in 2023. Recognizing net flows in equities continues to present a challenge, there's been good momentum in our quant strategies, liquidities and alternatives, with net inflows in both real assets and alternative investment solutions, both key areas of future growth. Insurance partners' net outflows increased to GBP 4.3 billion, compared to GBP 1.1 billion in 2023 and primarily related to the ongoing runoff in the Heritage business. Total AUM across Investments was up 1% to GBP 370 billion as positive market movements more than offset the net outflows and corporate actions. Excluding the sale of our European private equity business, and the acquisition of closed-end funds from First Trust, AUM increased overall by 3%. Adjusted operating profit grew by 22% to GBP 61 million driven by cost savings, which more than offset the lower revenue. We remain focused on driving efficiency in Investments and expect further improvements to profitability as this transformation worked continues. Adjusted net revenue yield was 21.3 basis points compared to 23.5% for 2023 as the asset mix continue to fill the effects of those industry headwinds. So now moving to the transformation program and the benefits it's developing for the group. So as Jason outlined in January last year, we're targeting annualized savings of at least GBP 150 million by the end of 2025 compared to the expense base we reported in 2023. The program remains on track to deliver this target, and we have realized GBP 70 million of in-year savings in 2024. As a result of these efficiency improvements, 2024 adjusted operating expenses were GBP 1,066 million, and that's down 7% year-on-year. In total, GBP 106 million of the annualized run rate savings have now been achieved from the actions completed in 2024. This strong progress and visibility of future savings underpins our confidence in achieving the GBP 150 million target. And these actions create capacity for some reinvestment across the group, whilst also improving our net capital generation and supporting shareholder returns. As well as the cost-related benefits, the programs delivered improved outcomes for both clients and colleagues, and this work is very much continuing. So now turning to the capital generation. In 2024, adjusted capital generation increased by 3% to GBP 307 million due to higher profits. Net capital generation was 34% higher at GBP 238 million as restructuring and corporate transaction expenses, net of tax, reduced to GBP 69 million. Looking ahead, we expect net capital generation to converge with adjusted capital generation, and we continue to expect much lower restructuring costs in 2026. On an adjusted capital generation basis, dividend cover was also stronger at 1.2x, up from 1.1x in 2023. We remain committed to improving capital generation to support shareholder returns. And now turning to the group's capital position. We continue to benefit from a strong capital position with CET1 of GBP 1.5 billion, covering 139% of our regulatory requirement. This is further enhanced by GBP 0.8 billion of gross AT1 and Tier 2 debt, GBP 0.5 billion of which contributes to that regulatory capital. In addition, we have GBP 1.3 billion of net assets not included in capital. This comprises GBP 0.5 billion stake in Phoenix and a GBP 0.8 billion IAS19 pension plan surplus. Our Phoenix stake underpins a very important relationship, and we received a GBP 56 million dividend in 2024 as a result of holding this. This source of capital generation continues to support our dividend. So in summary, our capital base remains strong, enabling us to maintain our dividend and invest in our business. So finally, now turning to the outlook for our business and financial guidance for 2025. Within interactive investor, we expect continued strong growth in customers, net flows, revenues and adjusted operating profits. Cash margins are expected to be in the region of 200 to 220 basis points and benefit from the higher customer cash balances. For Adviser, the repricing announced last year has now been rolled out to the existing customers earlier this quarter, and we expect this to lower Adviser's revenue margin by around 3 basis points in 2025. Adviser's cash margin is expected to reduce to around 225 basis points and profitability is expected to reflect the end of the third-party outsourcing discount, which again benefited expenses by GBP 17 million in 2024. Across Investments, we do expect some further contraction in revenue margin. In total, for 2025, we expect this to be below 21 basis points, around 30 basis points to institutional and retail wealth and around 8 basis points for insurance partners. Based on what we know today, we are expecting net flows in our core institutional and retail wealth business to be roughly flat in the first quarter. However, we are anticipating a redemption of around GBP 5 billion from a very low margin insurance mandate, average revenue value of about GBP 1 million. Operating expenses are expected to continue to benefit from our transformation program, and the majority of remaining cost savings will be reflected within the Investments business. At a group level, we remain confident in achieving our transformation program target of delivering at least GBP 150 million of annualized cost savings by the end of 2025. Thank you very much indeed. And I'll now pass you back to Jason.

Thank you, Ian. So our strategy is actually quite simple, and that's to seize opportunity in each 1 of our 3 core businesses. I and my leadership team are really excited by this opportunity, and we're committed to driving this group to new heights and to set up Aberdeen for sustainable long-term growth. So with this in mind, I'd like first to talk about our ambition for the group. Our purpose is to enable our clients to be better investors. And this is what unifies us as a group. And our ambition is to become the U.K.'s leading wealth and investments group. We'll build on the strong positions that each of our businesses hold in their respective markets and our deep and long-standing relationships with customers. We will target fast-growing U.K. wealth market through our ii and Adviser businesses, while focusing asset management capabilities where we have existing strength. This will be underpinned by a commitment to excellence in client service, investment in technology and in our talent. We have an enviable base from which to build, but we do know there is much more to do. It's an exciting time for the group, and we think we can deliver much more for stakeholders. Just let me take a moment to touch on the market growth opportunity. On this slide, we set out the structural factors that we, as a group, are well positioned to benefit from. In the U.K., over GBP 5.5 trillion of wealth is expected to transfer between generations over the next 25 years. The number of people retiring annually over the next 3 years is expected to be around 750,000. This is a huge opportunity for both our wealth businesses, given their deep expertise and breadth of products and the opportunity to do more in retirement solutions. As we know, individuals are increasingly having to take more control of their long-term savings and retirement planning, driving the need for easily accessible solutions to access their savings and investments, whether directly or through advice. With the advice gap continuing to grow, with at least 20 million people in the U.K. estimated to be in a gap. In this context, the government and consumers are looking for affordable, tailored guidance and execution. Both of our businesses in wealth are well placed to address this need, and our Investments business is also able to offer relevant products through its managed solution range. In asset management, we see investing requirements becoming more complex, supporting the need for active asset management, especially in higher margin alternatives, where we already have the scale and a strong product offering. One area where we are seeing growth is in transition to low carbon energy. And given the strength and scale of our real assets business and our capabilities in sustainability, Investments is well placed to capture this opportunity. I'll now talk to each of our businesses in turn, and start with interactive investor. ii continues to go from strength to strength. Richard Wilson and his team have done an exceptional job in creating the fastest-growing D2C platform in the U.K. measured by net flows. I'm genuinely excited about the future growth prospects for ii. As this slide sets out, the D2C market currently comprises less than 10% of U.K. savings and wealth and ii have a 20% share of that D2C platform market. The market is forecast to grow assets by over 13% per annum. This is a market where the 4 biggest players last year accounted for around 90% of net sales. ii has a disruptive and market-leading subscription pricing model, underpinned by a platform which has excellent customer experience, which, of course, you can test for yourselves. A proven service and exceptional customer value offering alongside our program of product innovation has resulted in ii winning a number of accolades. Last year, ii had more 5-star Trustpilot reviews than all of our direct competitors combined. We'll continue to invest in the interactive investor brand. And last year, we achieved a 12 percentage point increase in brands awareness to 25%. Turning now to the outlook for ii's performance. As you can see from the chart on the left, ii achieved strong organic growth in its platform business in '24 with total revenues, excluding cost of sales and marketing, 12% higher than in 2023, and up by 45% compared to '22. Importantly, ii benefits from having 3 diversified and resilient revenue streams, all of which increased last year. Trading revenues improved substantially year-on-year as customers made increasing use of the platform's trading and FX capabilities. Subscription revenues were also higher year-on-year. Treasury income remains an important component with the potential to grow as cash balances increase. As Ian just noted, treasury margins for ii are expected to be between 200 and 220 basis points in '25. And beyond this, we see margins as being less sensitive to future base rate changes than is currently assumed by the market. Taken together, with an expected continuation of strong customer growth, particularly in SIPPs, where cash balances are slightly higher, I'm confident about the outlook for treasury income. And I do not foresee and we are not witnessing regulatory concerns on the ii pricing model. In fact, we're convinced we offer exceptional value to customers, which is indeed at the heart of the customer -- of the business' success. Turning now to how ii is innovating to meet broader customer needs. Our strategy is to focus on sustaining efficient growth by building on a differentiated proposition and investing in the interactive investor brand. Let me talk through each of the 3 pillars briefly in turn. First, new offerings for '25. We're launching 3 innovative and exciting propositions to serve more of our current customers' needs and appeal to new customer segments, segments that are currently underserved in the U.K. D2C market. Following our managed ISA launched last year, we'll be releasing a managed SIPP product this year, again designed by Aberdeen Investments. This will provide more support and guidance to less-confident investors. We'll be launching ii360, an advanced trading platform to support more sophisticated and active investors. And we will launch ii advice, a digital advice service which brings our disruptive and tech-led ethos to the world of financial guidance where there is a clear need for something different and better. Our second pillar is continuing to drive customer engagement through value-added products and continued investment in the interactive investor brand, and of course, that leads to positive customer recommendations. The third pillar is to ensure ii sustains efficient growth. In fact, it's already very efficient with a cost-to-asset ratio of 22 basis points in 2024. But we're going to go further with a combination of strong growth, operational discipline and the scalability of the business we're aiming to reduce this ratio to less than 20 basis points by 2026. So in summary, by leveraging our excellent technology base and disruptive pricing model to deepen and widen customer engagement, we are well placed to enjoy the compound effects of gaining a growing share of a growing market. Turning now to Adviser. Before I talk about the action being taken by Noel and his team, I want to discuss the opportunity and ambitions for this business. We are absolutely focused on realizing the value from the significant investment we've made in Adviser. We're #2 in the U.K. market, serving over 50% of IFAs with just over 400,000 end customers. We have an 11% share of the Adviser segment, a segment which is set to also grow at 13% a year. So as demand for advice continues to grow and IFAs look for ways to serve their clients better and more efficiently, the opportunity for us is clear. Following the significant investment in the upgrade, the Wrap platform is now working well, with the tools and infrastructure to support our IFAs to serve their customers. We have brought in more competitive pricing to support our commercial objectives, and we strengthen the leadership team with 3 new appointments. Overall, we're well placed to respond to clients' evolving needs, and our primary objective now remains to return to growth. So I'll now turn to the actions being taken by the team for our clients. Over the past year, the business has improved service delivery with reduced times across a number of core processes. Examples include the average speed to answer calls, which has been reduced by about 80%, and the time to process SIPP cash transfers out reduced by a working week. We're building on this with additional resources to support onboarding processes and assist with peaks in demand, as well as taking further steps to automate and improve other key processes. And we will further enhance our product offering. Last year, we launched our Money Market MPS option in February and saving solution in July. We're now building on this with the forthcoming launch of our Aberdeen SIPP. We're also focusing on creating capacity for IFA clients to grow their business with us. Adviser holds an enviable position in an attractive market. Over time, we're focused on reestablishing a leadership position in this market, but our first priority is to return to growth as soon as possible. We're targeting a Net Promoter Score of greater than plus 40% and inflow of plus GBP 1 billion in 2026. Turning now to Investments. We have a scale Investments business with GBP 370 billion of AUM, with strong recognition internationally and many talented investment professionals. However, for various reasons, some structural, some that were avoidable, we are not yet growing with sufficient profitability. It's highlighted by a significantly improved net flow position and our improved 1-year investment performance to 77%, beating benchmark, 2024 was much better than '23 or '22. We therefore look forward with optimism and conviction about the Aberdeen Investments business of the future. We believe there are significant opportunities for specialist active asset managers position in a transitioning industry. To do so, we will build on our heritage and across key growth asset classes where we hold competitive strengths. These are specialist equities, public and private credit and real assets. I would like to highlight 2 areas we will focus on. First, private markets and alternatives; and second, wholesale, where predicted growth rates are 10% and 7% per year, respectively. Alongside their growth potential, I would note that both these markets have margins that are typically 1.5 to 2x higher than for traditional institutional business. With a careful repositioning of the business, we can therefore not only drive increased flows but also capture improved revenue. With our new leadership in Xavier Meyer and our new operating model, we're able to apply greater focus and pace to building a specialist asset manager that can optimize in existing areas of value. So how will we win? In the near term, our focus is to deliver a step change in profitability, targeting over GBP 100 million of profit in '26, by delivering further on efficiency and repositioning the business to those areas of strength and growth opportunity. In private and alternatives, we had GBP 70 billion in AUM across real estate and infrastructure, private and hedge fund solutions. Notably, in real assets, we will look to build on our excellent capability and scale of GBP 42 billion. In wholesale, we have good scale with GBP 64 billion of AUM. We're a top 10 player in the U.K., with 50 funds globally rated 4 and 5 Star by Morningstar. By expanding access to our institutional grade, credit and specialist equities products, we're looking to achieve growth globally in wholesale. We're also positioning our offering for areas of potential future demand. This includes private market solutions and active ETFs. While last week, we converted 2 funds in the U.S. with approximately GBP 130 million of AUM into active ETFs. We're also seeing opportunity in scaling our existing strengths, focusing on insurance solutions and on closed-end funds, where we're the fifth largest manager in the U.S. and the U.K. Of course, we recognize the importance to sustain investment performance in attracting and retaining clients. So we'll continue to build on the progress already made by our CIO, Peter Branner and his team. This will include further investment in people, processes and technology. Our target is for a 3-year investment performance to be better than 70% by 2026. We'll also continue to enhance the business' operating model to improve agility enable us to add scale efficiently, which I'll come back to in a moment. I'll now turn to the senior leadership team. Since I was appointed CEO, I've taken action to evolve our approach to delivery across the group, put in place a new streamlined group operating committee in November alongside me, this committee combines the 3 CEOs of our businesses, our CFO, our Chief People Officer, Tracy Hahn; and our Group General Counsel, Rushad Abadan, all of whom are here today. Ian has done a phenomenal job as Interim CFO on his second stint. And as announced on Friday, Siobhan Boylan will be joining us this summer as our permanent CFO. The smaller group has been instrumental in bringing greater discipline to how we operate, we meet weekly with a clear remit to transform the group's performance, increase the pace of decision-making, drive accountability and accelerate progress against our priorities. We'll ensure that capital is deployed where the rationale is strongest and provides most value to shareholders. We're also focused on strength and talent and culture. First, let me just take a moment to thank all of our colleagues. They've been instrumental in the shift in momentum we've seen across our businesses. Strengthening our talent and culture is 1 of my 3 priorities, and there are 4 aspects I'll just briefly touch on. First, the importance I place on leadership. We're redefining what leadership means at aberdeen by resetting our expectation around the world leaders play in creating clarity, fostering teamwork and driving performance. In addition to the leadership changes I just outlined, we've appointed Alain Courbebaisse, previously CCO at interactive investor, as Chief Operating Officer of our Investment business. Second, operating model. Alongside the group operating committee, we've revamped the executive leadership team to have a more commercial and client focus, adding our investment CIO and all of the most senior client and product colleagues from across the 3 businesses. The ELT ensures effective cascade of our growth and efficiency objectives, and removes any obstacles to better decision-making. Third, we're reaffirming our commitment to invest in our people. We have incredible talent at aberdeen, we're committed to doing more to support career development and providing opportunities for learning and growth. I want this to be a business our people are proud of. And finally, we're evolving the culture. We want to make aberdeen a place, not only where talent is our competitive advantage, but to create a culture that drives innovation, understands the power of automation and is constantly looking to be more efficient for our clients. And where we're seeking better is the constant refrain. Which nearly moves me on to our new COO and transformation. In November, Richard Wilson was appointed as Group COO in addition to continuing in his role as interactive investor CEO. Building on more than 3 decades of experience delivering change, in this new role, Richard has overall responsibility for our technology capability, implementing automation and driving efficiency. And Richard will take on leadership of our transformation program. To call out 3 examples of where we will focus. First, enhancing our operating model and investment, including reviewing our key processes. Second, driving efficiency across technology and operations, with a particular focus on rationalizing third-party supplier relationship. And third, reviewing our functional support model, including improvements to our control environment. So overall, Richard is tasked with driving the organization harder and improving operational efficiency, leveraging what has already been achieved in an interactive investor. By doing all of this, we'll be more focused on growth, deliver better outcomes for clients, create a more agile cost base and invest more in developing our colleagues. I'm confident Richard will help me unleash the potential of this group. So now change gear, just a word on capital management. We set clear principles by which we allocate capital across the group. As you'd expect, the overarching aim, of course, is to direct resources to where they can generate the best return for shareholders. But first and foremost, we will sustainably grow earnings across our businesses. This is the source of capital for future investment and for dividends. Second, we'll preserve our strong balance sheet by increasing net capital generation and retaining additional sources of capital. Not least, our GBP 500 million stake in Phoenix, which underpins our strategic relationship with them. We do expect to reduce our gross debt over time, although we have no immediate plans to do so. Our commitment to shareholders is that the group will have a resilient dividend. Over the medium term, I'm not expecting to grow the dividend per share, but I am expecting the coverage to improve markedly, to improve that resilience. The actions we're taking to unlock value from our defined benefit pension plan will support the same, I'll come back to that in a moment. While there are no immediate plans for significant inorganic activity, I would note that any such activity will be subject to a demanding return hurdle. So on to that pension agreement. The group's DB pension plan has been successfully managed over many years, and that's resulted in a significant surplus. We're pleased to announce today that we've reached agreement with the trustee to use the surplus to fund the cost of providing defined contribution benefits to our U.K.-based employees. We expect this arrangement to deliver a significant boost to net capital generation of about GBP 35 million per year starting from July 2025. Whilst this is a structural solution with a significant annual benefit to capital generation, it does not preclude optionality in the future, for example, an insurance buyout. I'd like to thank all of my team involved and the trustee for reaching this agreement. So to close, we have significant headroom in each of our 3 core businesses, and we've identified the key focus areas to enable them to realize their growth and profitability potential. interactive investor will enhance its offering further, investing in its differentiated platform and brand to sustain efficient growth. We're targeting 8% per year customer growth and a cost to asset ratio of less than 20 basis points by 2026. Adviser will focus on delivering leading client service and improving our product offering to support a return to net inflows. We expect a Net Promoter Score of greater than 40% and net inflows of at least GBP 1 billion in '26. Investments will seek a step change in profitability by further repositioning to areas of strength and opportunity. We're targeting adjusted operating profit to increase to more than GBP 100 million in '26 through further improvements in efficiency. In addition, we're aiming for the 3-year investment performance versus benchmark to rise above 70%. And today, we're setting group targets for '26, namely to increase adjusted operating profits to more than GBP 300 million and net capital generation to around GBP 300 million. Achieving these targets will support the sustainability of the current dividend. This ambitious set of targets reflects our confidence in the group and its future prospects. I see this as a position from which we can build. It's by no means the limit of what we think the group can achieve in the longer term. We can create a much stronger business that our colleagues can be proud to work for, that delivers better outcomes for our clients and offers much more attractive returns to shareholders. And with that, we'll open up to your questions. Thank you.

Right. Nicholas, I think you've got the mic.

A lot to digest, but I really appreciate the detail. I guess I'll just start at the top in terms of, I guess, group overall targets, please. So 3 questions from me. Just firstly, can you please talk about the embedded assumptions and market assumptions in your plan? . Secondly, can you give us a sense of whether and how much of your new targets are ahead of the implied targets that you announced to the market in January '24? And I'm just trying to -- obviously, notably ahead of consensus. So I'm just trying to understand how much is your upsizing your targets versus maybe consensus, market expectations just getting too cautious? And then finally, if I think about the bridge market expectations to your 2026 targets and look at the divisional targets, it looks like the biggest delta to expectations maybe in treasury income in interactive investor. Is that fair? And as part of that, thank you for providing us with that Slide 21 with expected cash margins over time. Can I just ask, on cash balances, Cash balance are now 8% of AUA, that's the highest it's been since June '23. Presumably that continues to tick up given the growth in SIPP and maybe also falling interest rates, so where do you see cash balances as a percentage of AUA trending to settling out over time from the 8% today?

Okay. There's quite a lot there. If I don't answer all of that, then forgive me. In terms of assumptions, basically to hit these numbers, we're not assuming the market is going on a rip. We've got -- the way we plan is to have very conservative fixed income and equity growth assumptions, that's on which this is built. If there were a material crash or reduction in fixed income values, that would be a problem to hit this target. But it's not predicated on major growth. But obviously, people are taking more risk and investing more, markets tend to go up and it tends to be a compound effect there. In terms of the plans versus consensus, I think we set out -- I was quite new when we set out the transformation target last year. It was something that we thought hard about, Ian helped design and we implemented it. It's around sort of reengineering of the business. So we're comfortable that was the right plan for them. We've made really good progress. In '24, we'll continue to seek further efficiency. But Richard will pick up the mantle of this, and we'll take it on. We'll finish the program. That's a '25 objective. And then we'll continue to be looking for efficiency within that business because the revenue shift in investments will continue. We are expecting margins to fall further, so we do -- we will need to continue to be more efficient in it to be successful and to hit our targets. On the expectations market, I think we've largely got -- easy one for me is markets has largely got Advisers about right, which is a step down because of pricing and the way that the cost are going through. I think on Investments, there's more to do for us to convert people over, but broadly, it's not million miles off. And I think revenues will continue to be under pressure. It's not to say flows are under pressure, but we are seeing growth in lower margin areas. We have to face into that. But we can do more on cost. And then interactive investor, I think you're right, there's a series of elements where I think we're doing better than people are expecting, both in terms of growth, but also in terms of treasury income, and we've given some clear guidance on that. Richard, on the cash balances, they're probably ticking up slightly. Anything you'd add?

I don't have a great deal to add to what Jason has said. You're right that cash balances as a percentage of AUA in '23 we're at a historic low. And as the rates environment evolves, we're expecting that to uptick marginally. And as Jason pointed out earlier, the relative or comparative percentage on cash on AUA in SIPP is moderately higher than it is in the other wrapers. So with our ongoing growth in the SIPP penetration, we'd expect that to expand moderately.

Thank you. We'll go to Hubert next, to the second row.

Hubert Lam from Bank of America. I've got 3 questions. Firstly, on Slide 13, you do show that cost base continues to go down this year as well as next year. Where are the cost savings coming from after already doing a lot of cost saves already? . Second, again, sorry, I want to dig a little bit deeper in terms of the Investments profit guide of GBP 100 million plus in '26. Maybe how much of that is driven by revenue and how much driven by costs in terms of the profit improvement? And again, in terms of assumptions, do you still expect revenue fee margin to come down further because obviously, that's a headwind in terms of improving your revenues? And lastly, in terms of year-to-date flows, thank you for the guidance around flat this year -- so far this quarter, sorry. Are you seeing any improvement in terms of demand for equities, just given that there's been a shift from U.S. more to possibly China, EM, et cetera. Is that -- are you benefiting from any of that change?

Okay. Ian, do you want to cover the source of the cost saves?

Yes. So transformation, I mean, we've obviously got GBP 106 million of to date. That's predominantly come from contract negotiation, third parties, techs, some AI innovation, rightsizing a little bit of the teams we did right up front, a lot of work on process simplification. And we'd expect much of that to continue on the -- as Richard sort of pushes forward. So we've got a good book of work to complete our GBP 150 million, and that's how it's really set up.

So on the second question, Xavier, you can get ready to talk about demand for equities. The -- on the second question on the outlook for revenue and costs. It's mainly cost that will come through, and we've set that out. As I just said in previous question, we do see basis points ticking up, probably not as fast as we've seen as the book shifts between some of the more traditional products and some of the areas where we're growing. So I don't anticipate revenue growth in Investments. That's not to say we're not anticipating growth in the outlook for the business to be more positive and to make up the difference, we are going to become more efficient. On the year-to-date flows, we did want to highlight the one redemption that we've had. There's a revenue value of around GBP 1 million of contract value. So not -- it will look bad in Q1 numbers from a flow perspective. It's not a big revenue issue. I just want to be clear on that. And then, Xavier, do you want to talk about the outlook for the specialist equity business?

Actually, so from an industry view, appetite for equity has actually slightly recovered over 2024, and the trend is continuing. It's not necessarily a massive trend, and it's also a trend in 2024 that has been very directed towards the U.S. and Mag7, in particular. What we are now seeing, actually, which is a very recent trend, as opportunities and pockets of opportunities in a more specialized area out of Mag7, if you think about small cap, for example. So it's quite early in the year to know and have a precise view whether we have very supportive year for equity or not. But we are operating in an environment that is better than what we have been facing over the last 2 years. This being said, emerging markets and, in particular, Asian equity is still a bit of a challenging picture. Our eyes in terms of opportunities are focusing on China and the stimulus that -- and the reason of stimulus that are expected to come from China.

Enrico, I think. Pass the mic back to Rose, please.

It's Enrico Bolzoni, JPMorgan. First question on ii, I think pretty impressive start also market share. You have a number of new features that are coming out this year. Can you remind us on whether some of these will be available by the end of the ISA season? So might see a benefit, a tangible benefit already? And then on the managed SIPP in particular, can you remind me if this will include also the accumulation, so you'd be able to actually provide managed solution when it comes to the decumulation phase? That will be helpful. And again, I guess related to that, we are expecting on the FCA, the outcome of the advice guidance boundary review. What implication do you expect for the business? Do the targets include any tailwind from that at all? So these are my questions.

I think that's a perfect chance to get Richard back on his feet.

So in terms of the first question, which is the feature set, the answer is no. There won't be major new releases prior to the tax year-end. We are entering into the beta release of ii360 in the coming days. But we're going to spend whatever time we need to harden that environment over the coming months before we go into GA or general release. The managed SIPP is -- live date is in Q2 and the initial version of the Managed SIPP is accumulation. And I can't remember the third question. Accumulation, yes.

Yes.

Oh, yes. The [ Ethereial ] guidance boundary. Clearly, as we all know, that's going through an extended level of review with the regulator. So we don't have a hard fix on the boundary position between targeted support and personal recommendation. Our engineering is insensitive to that. Having said that, we don't have any great expectation in terms of a hockey stick on the financials from the digital advice offering. That's a multiyear commitment. So we'll adapt our journeys when that guidance position becomes clear. And that, for us, would just be part of our flex. We've got no interest in taking conduct risk. So we'll be very prudent in terms of how we deploy.

Thank you, Richard. Michael.

Mike Werner here from UBS. Just 2 questions. First, on the capital generation coming from the pension plan, can you just give us a little bit more color? Is this something that we should think as like an annuity? Is it going to be stable over time? How is that going to potentially change in terms of the, I guess, the transfer to -- from the surplus into your capital base? And then second, there was a news report, I believe, a week or 2 ago about a potential tie-up with a Chinese bank. I was just wondering if you could provide any commentary there. And then ultimately, just thinking about any incremental opportunities you have and how that might have an impact on your '26 targets?

Okay. So easiest one is the cap gen target. It is an annual benefit. It's about GBP 35 million or so, the surplus -- depends on how you measure it, of course. But IAS19 is about GBP 800 million, economic surplus a bit lower. But the surplus will, on average, refresh itself, as we expect the performance on the assets to be higher than the payments out of that surplus. So it's not going to deplete the surplus materially. And certainly, I mean, it's only whatever it is under 5% of the accounting surplus per year. And the cap on it is effectively how much contribution we're making to DC. So that's rather than anything to do with the surplus, it's just the actual cash cost of providing pensions to our employees. So as I say, it's a structural solution, and we see that as an annual benefit. I mean nothing on those news reports. There were news reports, they weren't coming from us, so I can't really say anything further on that. The incremental opportunities, of course, we are always eager, red blooded and all that to find things for us to do, that is more exciting, but M&A is not a massive part of the way I think about it. We might take opportunities if they arose. But there's -- we're not sitting on a sort of pipeline of ideas and things. It's very much a self-help fix the -- get the cost base right, get the marketing right, get the products and service areas right, really focus on the core businesses. And that's hopefully, that came through in the presentation, but let me just repeat that. That's what we're doing. Who's next? Charles, then Andrew.

A couple of Richard, if I can, on ii360. I was just wondering if you could flesh out what the offering will look like. Are we expecting CFDs, futures, options, margin lending, et cetera? Or is it going to be a bit more streamlined than that? And are you going to be competing with IBKR or Robin Hood? Is that the idea? I'm just wondering whether this will entail a sort of 2-tiered pricing structure where commissions and FX are cheaper on the active trader platform. And then finally, just be interesting to know how you've managed to build out a new offering without materially upgrading the cost guidance?

Yes, Richard, go for it, please. Thank you.

Thank you for that complicated question. First of all, like most of the developments that we undertake, they are very carefully thought through and we do nothing, which will conflict with our underlying discipline and focus to make sure that our operating capability and our ambition stay connected. We've been working on a number of initiatives, which hopefully, for those of you who make the journey to Manchester in June, we can show you the underpinnings of -- we've been working on those for a number of years. An example of that is ii community, our social investment platform that went live initially in October of '24. We've been working on that for 4 years. ii360, we've been working on that for a number of years also. The proposition is -- I mean, ii as a brand is a long-only investment platform. It targets long-term investment and is not geared or priced to attract active traders. That clearly is a very close adjacent market. And given we have a number of sophisticated customers who would prefer to have those services, which today we can't offer, the platform will provide access to all the wealth markets. It will be long short. You will have stock loan, you will have CFDs and derivatives. I don't have an ambition to offer the kind of leverage and churn and burn model at some of our colleagues elsewhere in the market offer. And we'll stage that deployment over the next quarters as we harden the environment. The pricing, we will disclose when we're ready. But you can assume that it will be on the disruptive side as opposed to on the monetizing side. I hope that answers the question.

The cost, Richard.

The costs, we come from -- myself and my wonderful colleagues come from a market infrastructure background. So we're very careful and thoughtful about how we layer adjacent services, so they interoperate. So the vast majority of the costs that we have incurred are already in the book. So there's no material balance sheet carry on that investment. And we work very closely with very close partners to make sure that we can deliver in a nondilutive ways. So I expect any cost surprises on that.

Thank you. Mr. Crean?

It's Andrew Crean at Autonomous. Three questions. Of the remaining GBP 80 million of cost savings, how many will fall in '25 versus '26. Secondly, looking at your capital generation -- net capital generation target of GBP 300 million, if I took the '24 of GBP 238 million, took out the restructuring costs and then add in the benefit of the pension scheme, you'd be at sort of GBP 340-ish million. So the target of GBP 300 million looks as though it's a bit lower than that. Why is that? And then can you tell us what is the flows, I mean, you said it for the Adviser business, but what is the flows ambition within the Investments target in 2026? And if we can get a sense of that. I mean, it's all very well doing loads in liquidity flows, but they're relevant to the revenues. So if you could give us a sense as to the high-value flows within that target?

Okay. So on the cost saves, I think we'd expect, we did GBP 70 million in the P&L this year out of GBP 106 million. So a minimum of GBP 36 million will come through. Probably somewhere between -- we've got separate here, the cost saves will hit the bottom line and then offset by growth in ii primarily. So it's somewhere in the sort of GBP 50 million to GBP 70-ish million on a net basis, I would say. Yes, in that range. I don't know yet. It depends on what we do in terms of reinvestment, and what we do in terms of the overall. But we should be able to get really good progress on that through the year.

But the new saves over and above the GBP 106 million, about 2/3 of that will be recognized within the P&L. We may well use some of that to reinvest, but the other 1/3 will bleed into 2026.

So that is going well, that program. On the capital generation side, I mean, we've given you a sort of profit aim point for '25. We've got the pension and we've got Phoenix dividend. So that -- and then we've got restructuring costs. We're not saying they're going to get to 0. There'll be some, but they'll be materially lower as you think to -- I think that gets you to about GBP 300 million. The one line item that will probably come out a little bit is the return on group cash. It's a contributor to PBT and capital generation. Rates, normal rates, we think, will be lower and we also think we'll have slightly less cash. So I see that figure coming down just a little bit. That's another contribution. And I'm not going to be foolish enough to give you flow targets for '26. We're going through this. We've got plans. We're trying to set up an opportunity to grow in certain areas. And of course, we've got plans in the business, and Xavier has cascaded very clear plans to his team. The market things change and things change, but we are very committed to returning to positive flows, obviously, in that business.

If you're giving us a profit target, you must have a flow target.

Well, I just said we've got a flow plans, but I'm not giving out targets on it externally. Question over here.

Dave McCann from Deutsche Numis. 3 for me as well, please. A question on the Adviser business, because we haven't had one on that yet. So you obviously given us the GBP 1 billion flow target in 2026. I mean in the context of its GBP 75 billion or so of assets is positioned in the industry, GBP 1 billion doesn't really reestablish that business as a market leader. Your words, as to what you want to do with it. It probably should be like GBP 3 billion or GBP 4 billion. So maybe you can talk about what's your ambition beyond '26 in terms of flow for that business. I appreciate GBP 1 billion is better than it is now, but it's still not really a market-leading business as I would view it. Secondly, on the pension surplus, what prevented you from doing a more complete pension buyout here rather than the plan you have adopted in terms of using it for DC pension contribution, noting that you said you haven't ruled it out forever, but what has stopped you doing it right now? And then final question really, Jason, just wanted to confirm that you do remain, as you said before, committed to the 3 core divisions, using your language for the long term of this business, not just the short term. Just seeking that confirmation would be great.

Well, I'll start on 3, absolutely. The configuration of the group, I'm very comfortable with Wealth & Investments. We're very committed to improving all 3 and maintaining the growth in all 3 of our core businesses, but also making sure that we stay laser-focused on developing those not getting distracted. On the -- I'll go in reverse order. On the pension surplus, we think what we've done, it does create significant value and sustainable value. As you say, we haven't got full legal and tax clarity to do a buyout. And I mentioned that 6 months ago. So right now, that wasn't available option us. It might become one in the future, but that has proven much more tricky than I certainly anticipated. So be it, that's where we are. But it could take a number of years for us to get that clarity, it's a complex archaic structure, that we're unable to get the confirmations that we would need to go ahead with it. We would then have the choice in what we would do. But we're very comfortable with what we've reached today. A good point on Adviser. We have got -- we're coming off minus 3.9 in 2024. So to get to plus 1 is a GBP 5 billion swing, give or take. So I talk about shift in momentum, that it would be great if we could do more than that. I just think it will take time. And I want to give us and make sure that we've got sensible plans to get back into that leadership position, but it's not an overnight fix. You need to win the confidence over. People don't chop and change platforms. It's not a sort of thing we will change often. So it takes time to build relationships. It takes time to build confidence. It takes time to get people back into the right place to commit to this platform. But we come at this from -- we're still #2 position in the market. So we've got great relationships. Noel has built those over many years. Just getting people back into the vein of working with us and growing with us, I think, it will take a little bit of time. I see '25 is very much a year of transition, and we'll expect to grow in '26. Any more questions?

In which case, should we go to the phones, please?

Are we going to -- oh, we're opening up? Any questions on the line?

[Operator Instructions] And we do have a question from Bruce Hamilton from Morgan Stanley.

Hopefully, you can hear me loud and clear. In terms of the kind of the benefits of the 3 divisions sitting side-by-side, can you maybe talk a little bit more around any further kind of revenue synergy opportunities, perhaps around retirement solutions, any products, or just how to think about that. Obviously, the tech backbone and the ability to drive efficiencies across cost, I can see, but just in terms of the revenue opportunity. Secondly, on the equity sort of performance and strategy, obviously, there's been a decent pickup in the 1-year performance across the Investments division. But within high-margin equities, can we get a number there, because I think that's been a bit -- it's been lagging? And on your active ETF strategy, is the way to think about that it's really going to be U.S. product and converting mutual funds into ETF? Or do you have broader ambitions to kind of launch new active ETF products? And then finally, on costs. I think in the annual report, you say cost below GBP 1.25 billion in 2025, but that wasn't on the slide. So I just wanted to check that, that's the way to think about the '25 cost base sort of trajectory.

Yes. On the costs, I gave Andrew -- I can hear you loud and clear, Bruce. So thanks for the question. On the cost, that's right, below that figure. I don't want to get too fixated on a precise P&L figure. So the number I gave to Andrew was sort of the growth number, but we've got some investment opportunity on the cost side as well. On the group configuration, I'm very comfortable with the way that we are. We collaborate around all in the Investment business. We're focused on regulator. We have simplified processes. So that works. In terms of products, I think there is more that we can do. And you pull inside to decum products, we'd still be huge. We talked for many years about what other than annuities could we offer to people in decumulation and absolutely, we've got the componentry to do better in that market, and there is clearly an opportunity there. Right now, we've got managed products that Noel's team offer. And we've got the Managed ISA and the Managed SIPP products through Richard. Plus other things that we can do. Obviously, ii has an independent position in the market. And we're not going to undermine that. That's an important part of the way that we face in. But we've been very helpful, for example, in investment trusts. ii customers own 14% of the whole Investment trust market, aberdeen has got a big investment trust business. So we can bring the 2 together in terms of content, meet the manager, voting preferences and start to create a community of interest in Investment products, certainly within the U.K. wealth sphere. So there's definitely more that we can do without majorly changing what we do. Equity performance. Actually, Xavier, do you want to take equity performance and our plans in active ETFs, if that's all right?

Yes. Sure. So overall performance has increased materially from 55% over 1 year to 77% on the 1-year performance. If you look at the equity component of that, we have also seen a material improvement, from 15% outperforming benchmark a year ago to 32% outperforming benchmark right now. It's not yet at the level we want it to be, but 2024 has been a difficult year for any equity asset manager on the active side to outperform the benchmark. So that probably put us in line with peers in terms of overall equity performance for 2024. In terms of margin of that business, the margin that we see on our growth flow on the equity business is at par, if not, slightly higher than the average margin of our book of business on equity. And regarding plans for active ETFs, it's an instrument that we have keen interest on. We are making active conversion in the U.S. on some of our funds into active ETF as referenced by Jason earlier on. And we also have an active ETF in Europe, and we are complementing that vehicle with 2 other listings to come soon in April.

Thank you. Next question on the phone.

Our next question comes from Gregory Simpson from BNP Paribas.

A few from my end. Firstly, your release mentioned the strategic Finimize. I think this was a loss-making business. Can you confirm the operating loss from this business last year? And then secondly, I don't think you talked about your financial planning business, which I think was also loss making, can you confirm if you're doing a review here and if -- what kind of loss that had last year? Then finally, just on ii, subscriptions grew by 3%, excluding marketing incentives, but declined by 4% including them. Can I just check what these marketing incentives are? Are they mostly targeted at new ii joiners, where you maybe pay up year 1, but then they have high customer lifetime value?

Okay. So Finimize, we do need to review what we're doing with it. It made a small single-digit loss last year. And as I've said before, I want to be focused on the 3 core businesses, that's what we're doing. So I like what Finimize does. It's got a great sort of business model. We haven't yet been able to commercialize it into something that makes profit. So we need to take action to do that. So that's what the strategic review means. Financial planning, I think, similarly made a very small contribution of -- it depends, it's no big comp management how much overhead you layer them up, but they make a positive contribution for overhead, probably a small negative with a little bit of overhead. So it's -- Richard has done a great job of sort of streamlining that business under his leadership. We'll continue to make progress with it. And on ii, I mean, they are marketing incentives, vouchers, discounts, offers that you actually make to entice people. I hope most of you have signed up to ii because they will be offering you all sorts of SIPP incentives to join. And there are other types of propositions in the marketplace to get you to join. So it's just simply the quantification of those marketing incentives to bring people in. Then you expect -- obviously, there's sort of new business strain in insurance speak, you'd expect then the actual percentage growth in customers to throw through into subscription revenues over time. And clearly 8% growth in customers in the year doesn't mean 8% growth in subscriptions because you don't win them more 1st of Jan. Any more on the phone?

We currently have no further questions over the telephone.

Any more in the room? Well, thank you all very much for attending. We really do appreciate your interest and taking all the questions. I look forward to following up with you in the coming days and weeks. Thank you.