Aberdeen Group Plc (ABDN) Earnings Call Transcript & Summary

Good morning, and welcome to the Aberdeen Q1 AUMA and Flows Trading Update. I will now hand over to Chief Executive Officer, Jason Windsor. Please go ahead, sir.

Thank you, and good morning, everybody, and thank you very much for joining our Q1 trading call this morning. With me today is Ian Jenkins, our Interim CFO. I'm going to focus on Q1, of course, but I'll also make a few comments about April, not least to preempt some of your questions. First, starting with the highlights from the quarter. AUMA at the end of Q1 was GBP 500 billion. On the positives, we had strong inflows for interactive investor, but this was more than offset by market effects and outflows in investments and adviser. Growth in Interactive Investor was strong once again, with total customers up 9% year-on-year, and this includes 29% annual growth in SIPPs. Net outflows in Adviser of GBP 0.6 billion represent an improvement versus prior quarters, driven by restored service, enhanced platform functionality and repricing. In investments, the Q1 outflow of GBP 6.4 billion largely reflects the redemption from the low-margin mandate I mentioned at the full year results. And I'd add that following a large quant mandate funding in April, net flows within Institutional and Retail Wealth are, in fact, now positive year-to-date. As we set out at the year-end, our strategy is to become the U.K.'s leading wealth business and to reposition our Investments business to areas of strength and market growth. We're a long-term player with a long-term focus. And despite the heightened market uncertainty of recent weeks, we've made good progress toward our objectives this year. In fact, we haven't seen any significant client-led effects in investments or Adviser. And in ii, the only effect of note was higher trading volumes in the first half of April. Now turning to our businesses in a little more detail. Starting with interactive investor, which has maintained the strong momentum seen in recent quarters. Total customer numbers are up to 450,000, which now includes 88,000 high-value SIPP customers. ii achieved strong net flows of GBP 1.6 billion, with AUMA increasing slightly to just under GBP 78 billion. And as a reminder, ii was #1 in net flows in 2024. During the quarter, we saw record levels of engagement with an average of 24,000 trades per day on the platform, which is an increase of 19% versus Q1 last year. These trends have continued into April with ii maintaining strong inflows, enhanced daily trading volumes and sustained its customer growth. Earlier this month, we announced the acquisition of Jarvis Management's direct-to-consumer retail book. This small acquisition is expected to complete in Q3 for a consideration of around GBP 10 million and is expected to bring approximately GBP 1 billion of assets onto our platform. With impressive performance to date, ii is on track to meet its '26 growth targets, supported by an enhanced customer offering with the launches of the Managed SIPP, ii Advice and ii 360, all soon to come. Turning now to Adviser. AUMA was just under GBP 74 billion at the end of the quarter, down 2% compared to the year-end, primarily reflecting lower markets, but also net outflows of GBP 0.6 billion. Positively, this is a better quarter than achieved in any of the quarters in 2024, but we aren't where we need to be yet. Following our intense focus in recent months, service is now working well, and we had a really good performance through the latest tax year-end. But of course, we have ambition to do even better. Taken together with our enhanced platform functionality and the recent repricing, our target is to have at least GBP 1 billion of net inflows next year. And in investments, which in spite of market headwinds, is delivering on its strategic priorities. AUM was down 3% in the period to just under GBP 360 billion with movements in the quarter, reflecting lower markets and net outflows. Most of the GBP 6.4 billion net outflow was driven by the GBP 4.2 billion mandate redemption I flagged to you all at the year-end. This has gone through both our I&RW and Insurance Partners lines. On the positive side, quarterly gross inflows in I&RW, excluding liquidity, were at the highest level for over 2 years and 30% higher than in Q4 last year. Within this, we saw a strong performance in fixed income with net inflows of GBP 1.5 billion in the quarter, benefiting from a significant European pension client mandate. However, equities have continued to see elevated net outflows in a challenging market. I'd mention that the GBP 3.3 billion net outflow in the quarter included GBP 0.7 billion in relation to a previously announced fund merger as well as GBP 0.7 billion redemption that will have a negligible revenue impact. And following a GBP 6 billion quant mandate that funded earlier this week, net flows across I&RW are now positive year-to-date. And looking ahead, we continue to target a material uplift in profitability with the 2026 target of at least GBP 100 million of adjusted operating profit. At a group level, we've seen encouraging trends since the end of the quarter with the large quants mandates win and sustained momentum in ii. And before you ask, group AUMA is slightly up compared to the end of March. Looking ahead, we're on track to meet our transformation target of at least GBP 150 million of annualized cost saving by the end of this year. Richard Wilson, our Group COO, is focused on driving further long-term benefits of transformation across our business and for our clients and colleagues. As I said at the full year and at the start of this call, our ambition is to be the U.K.'s leading wealth and investments group. Not only, we're committed to delivering on our '26 targets, but also to transforming the group's culture and our clients' experience. And with that, Ian and I are very happy to take your questions.

[Operator Instructions] First, we have a question from Enrico Bolzoni from JPMorgan.

Starting with Adviser, you mentioned you made significant progresses. Can you just confirm that now all the clients have been migrated to the new pricing structure? And can you give us some color on how do you see that relative to the Street? Do you think you're very competitive now or more expensive than others or cheaper than others. So just some color there would be helpful. I also wanted to ask you with respect to the cash balances in ii that increased quite nicely. You are growing penetration in SIPP. Is that a contributor of that? Can you remind us if clients that also have a pension, typically have higher cash balances relative to clients that don't have a pension just have ISA and unwrapped accounts?

Sure. Well, on the second question first, I mean, yes, SIPP growth does contribute to part of that. People tend to have or what we see on our platform tend to have slightly higher cash balances in SIPPs. We have seen a little bit, as you point out, a little bit of a step-up around that level. If you take out the planning business, which we report in ii, you're around sort of 9-ish percent of cash in the area, and that's just ticked up a little bit as we've grown slightly more in SIPPs. So we expect that to be -- continues to tick up just slightly in line with the growth in the platform as we will look forward. On Adviser, yes, the repricing on wrap went through, which is the major platform earlier this year. We did the new business repricing about a year ago. And now the whole thing has been washed through. So that's -- that was in sort of January time. So that is now in effect. Where does it position us relative to others? I think we are now very competitive. The repricing that has gone through it's not one price for every customer, there's tiering and there's obviously some degree of commercial deals that we would enter into. So across the piece, I think with an enhanced level of service, improved functionality and an attractive price point, it's a very competitive proposition.

And we now take our next question, which comes from Oliver Carruthers from Goldman Sachs.

Oliver Carruthers from Goldman Sachs. Just one question for me on the trading revenues in ii. Richard has flagged in the past that FX activity increases the trading volumes and pushes up the average revenue per trade here. There's also been quite a bit of industry narrative of non-U.S. investors repatriating some of their U.S. exposure in the last few weeks. So is it fair to assume that your trading revenues line in ii is actually running a bit higher than the plus 19% year-over-year we're seeing in daily average retail trades?

I think -- okay. Thanks, Olly. I mean trading in Q1, so the number that we report there is the number of transactions. Yes, FX is a corollary of trading. People would make more -- some overseas as a percentage of what we see. We did see a step-up, a further step-up in trading volumes in early April around some of that heightened volatility. I think we had 4 of our highest trading days ever in the first half of April. That will settle down pretty quickly, but that's -- and that wasn't just tilted to sell. There's quite a lot of buying -- opportunistic buying going on as retail saw some pretty interesting deals. U.K. banks, for example, or some of the high-quality names in the U.K. equity market did see a pickup in interest. So that settled down a little bit, as you might imagine, as markets have returned to whatever normal might look like, who knows. But the FX would have been equally a bit higher during that period. That's right.

Hubert Lam from Bank of America has our next question.

I got 3 quick questions. Firstly, can you give us an update on fund performance? I'm just wondering how much of this could be driving the equity outflows you saw in the quarter? Second question is on the fee margin. Any update on that, just given the mix appears to be more negative with the larger equity outflows and also the quant win that you had coming in April. Just wondering what your guidance is around that? And lastly, on ii, yes, you mentioned that you did a small deal for Jarvis. Just wondering if you think you'll probably do more within the ii space going forward?

Okay. Thanks, Hubert. On the deals, I mean, we've got some appetite to add clean books of business. We don't want complex integrations in ii, and that was an attractive deal. Jarvis needed a solution, and we have got the muscle to do that in a very attractive way to us, and it provide a solution to the Jarvis customers. So that was a pretty straightforward one. I think if there's more of the same, we certainly would be keen to allocate more capital to growing ii. So wherever there's a value opportunity, we would look at that very hard. On fee margins, look, the redemption that we had and the win that we had in quant broadly offset each other. So there's not a huge impact of the 2 there. As the book continues to move away from more active equities just on balance and more toward fixed income and quant liquidity, you are seeing margin fall. We're still creating value, but it's a lower headline figure. So I think at the full year, we said below 21 overall for investments. I think I can reiterate that. We'll probably be -- by the end of the year, we'll probably be closer to 20. We'll continue to see a little bit of margin pressure in the book overall. The fund performance, I think overall, our total performance in the quarter was 69% of our funds outperforming. I think, obviously, I'm not going to go through each one of them, but there is some better than others. We had a better April actually than we had Q1, which I think plays well to our style. So we continue to be vigilant on that. And Peter Branner and the whole of the investments team are continuing to look for opportunities to improve performance, but there is such -- so many different funds, I can't generalize. But overall, there's still further work that we can do to improve performance, and we're continuing to focus on that because we think that this is the right thing to be doing.

Any improvement on the equity funds performance in just the quarter?

I think overall, Q1 had some challenges for some of the bigger emerging market Asia funds. I think had some very strong performance of some of the smaller company and dividend income funds. I can't generalize, but in April, they actually reversed quite materially and performed much better. So I haven't got the latest stats in front of me, but the -- overall, we continue to be confident in our style, confident in what we're doing. And we do, as you say, not just look at one quarter.

And next, we have Greg Simpson from BNP.

Two quick ones. Firstly, just on the Adviser business, it's good to see some improvement in the outflows, but I'm aware it's tax year-end period and a number of peers had strong inflows in the quarter. So what are you looking for to kind of get flows positive by '26? And how do you see the path from here? Is it linear improvement? Is it quite skewed towards next year? And then secondly, just on the investments, GBP 100 million operating profit target, how kind of comfortable are you feeling with that given markets have maybe been a bit weaker relative to your business plan? Do you think there's a lot more you could do on the cost save if markets remain quite soft?

Okay. Well, thanks, Greg. Yes, on Adviser, I don't want to be celebrating an outflow, but it is better than we saw throughout the last, frankly, six quarters or so. So there is a shift in momentum. We are seeing much better pipeline and much better inflows. And I think it's about rebuilding confidence in IFAs to come back to the platform. And we now -- as I said a moment ago, we've got the proposition now. We're where we want to be in terms of service and platform functionality, but we want to do better. So I'm pushing our guys to improve timeliness, improve Adviser experience because that's the source of competitive advantage, and we are going to continue to push ourselves to do better. In terms of the flow outlook, would it be linear? I think we've seen improvement throughout Q1. We've seen -- actually pretty decent April, which you would expect because of some of the seasonal effects. So April is probably our best month in 2 years. I don't know what it was like before then. So again, I'm not celebrating this, but signs are better, and we are improving. So -- but the pressure is on us to continue to get that to positive flows, which we are targeting for next year. On the -- I'm sorry, on the investments profit forecast, look, some headwinds from markets, not huge. I think AUMA, as I just said, is actually up now in April compared to where we were at the end of March. March was, of course, down. We saw a bit of FX and market movements, in the second part of March, everybody knows. That's the '26 target for a reason. It wasn't this year. We're still going through a transition, and we're taking out some costs this year. We do see '26 as being a bit of a clearer air as we look to trade through that. We probably lost a little bit of the headroom that we had. And certainly -- but we're continuing to work very much towards that target, and that's the one that we've got.

And from Citi, we have Nicholas Herman with our next question.

So very good people like to call U.K. banks high quality these days. Just on -- 2 questions, please. One on firstly, just in terms of -- sorry, institutional retail wealth flows or institutional. I guess your April guidance suggests that institutional clients didn't really react to the recent market volatility. I guess my question is, why is it that it's -- what are institutional clients telling you? What made them just kind of sit on their hands and kind of see how this played out? And is this just a delayed reaction? Or is this kind of just people have [ridden] this out and then the pipeline looks pretty good from here. Secondly -- actually sort of 3 then. The second one is on equity flows. Did those outflows come before or after the full year update? I suspect they came towards the end of the first quarter. And then just a follow-up on the investment targets. I don't want to get into these, on sort of getting overly carried by a quarter, and I appreciate there's still way to go to the end of 2026. But the -- while it's great to see flows being positive, equally the mix shift towards low-margin assets is pretty significant. So I guess what level of mix shift or market drawdown would you need to see in order to be kind of incrementally more cautious in your targets? Or as I guess, as the prior question kind of intimated, what level of additional costs do you have to kind of offset that?

Okay. Nicolas, I think institutionally, we set ourselves up people would invest typically with us for 3 years, and that would be the minimum time horizon. It would be very reactive in the construct of what happened in early April for major institutions to start to redeem. We've seen a few little things around the edges. People aren't inert to events, and we saw a few of the wealth players redeem a little bit. It's not like there's no activity at all, but we certainly didn't see any major redemptions from institutional clients. I think it's part and parcel of their process and their investment objectives and what the market that we seek to serve. I don't see a queue of redemptions. But I do see uncertainty on the horizon as well. So it's hard to be hugely forward thinking about that. But there's certainly no -- there's no distress signals that we're flagging at this point. On the equity, I actually can't remember when they were. I mean, the fund merger, we knew because it happened in September, and it just took time for it to process. So that was a known. I think there were some before and some after the results, I can't remember precisely. And on the -- I'll answer the third question. I think we do have cost levers, and we've pressed a number of those, and we've continued to seek efficiency and opportunities for us to be more automated to provide better service and to cut through some of the structural costs that we have, whether it's in platforms or whether it's with third-party providers or frankly, in some of the functional areas. We made good progress on that. We were over GBP 100 million of run rate saves last year. That's obviously ticking up. We'll give a more formal update that at the half year, but we are very much on track for our GBP 150 million of run rate of cost out in the group, of which GBP 120 million at least will be in investment. So that's the -- but this is further we can go. And I sort of touched on that briefly with Richard's appointment as COO we are continuing to seek that reengineering of the organization to just be more automated and to find more efficiency. At the same time, we want to grow the place. And hence, we've got the strategy and we've got the product mix. And under Xavier's leadership, we do believe that we can grow the organization. It will take time as we tilt towards our go-forward go-to-market product suite, but that's also part and parcel of the way that we see the business and hence, the financials progressing.

Got it. So I guess to paraphrase, you kind of need to see a lot of significant -- a much greater significant deterioration in order to kind of, therefore, become more cautious because you have further levers is basically the answer.

Yes, I think that's sort of fair. I mean your word is not mine, but I'll leave it there.

And up next now, we move on to a question from Mandeep Jagpal from RBC Capital Markets.

A couple for me, please. The first one, just on the insurance mandate loss, only GBP 4.2 billion redeemed compared to the guidance of GBP 5 billion. Is there any details on when the balance will be redeemed and which asset classes it will come from? And then the second question is on the pension scheme. I see significant market volatility in April. And I wondered what kind of hedging and other protections you have in place to underpin that [GBP 35 million] per annum cash flow that comes out of the scheme? And is there a realistic economic scenario where the scheme is unable to support that payment?

Yes. So on the first one, I think there's a little bit of catch-up. The GBP 5 billion was an estimate anyway. There might be a little bit of catch-up through Q2, but nothing major. I think anything residual, I think, will go through insurance. It might be a few hundred million. It's not a huge. In the context of what Phoenix do, it wouldn't -- probably wouldn't spot it. On the Pension scheme, it is pretty well protected from a -- it's quite conservatively invested. I think we will probably increase the investment risk a little bit. We haven't done anything of late to do that, and it's still likely to be more credit and more volatile sources. But the benefit I talked about at the full year results is a relatively small percentage of the economic surplus, and I think is very well protected from market events. And it's a combination of the total level of surplus and also the quality of the assets and some of the interest rate hedging that's in place on the scheme.

And from HSBC, we now have Steven Haywood with our next question.

I think you may have already answered one of these questions, but do you foresee any large mandates coming up for redemption in the next quarter or rest of the year? I think you may have already flagged that you didn't see anything in the pipeline here. And then secondly, on ii, can you give us the number of gross new customers added in the quarter? I think you have previously given that figure. And then it would be helpful in terms of mark-to-marketing ii, if you could give us some sort of asset mix split as well between sort of U.S. equities, other equities, fixed income, et cetera.

Okay. I think I did answer the first question, and the answer is no, there's nothing looming on the horizon in that regard. I mean we expect about 15% of the book to redeem each year. So we're a bit above trend in Q1 because of the insurance mandate, which I mentioned. But I think we -- that's broadly the guidance that I would give you. Do I have to hand the gross customer growth in ii -- we think it's 16,000 just backing it out. So I think it was 11,000 growth, net 16,000 gross. On the asset split within ii, that might be have to be one that we get back to you with. I don't think we have got that to hand. That's something we can provide in due course, if that's okay.

Our next question now comes from Bruce Hamilton from Morgan Stanley.

In terms of the -- just to clarify, the April being slightly up on March, I assume that's including the quant win, just to check. And then secondly, on the sort of equities, I wondered, is there any indication of client sentiment perhaps actually improving as people get a bit less keen on the U.S. I suspect you're not seeing that, but I just wanted to check whether you're seeing anything on that side. And then on the service improvements in Adviser, can you be a bit more precise? What's the key change that you've made that's really sort of driving that improvement just to help us understand? And then final one, just on the, I guess, sort of market and FX moves were a bit more negative in Q1 than I expected. Is that mainly FX, I'm assuming? Or is there a big FX component, I'm guessing?

Okay. So yes, the number I gave you for AUMA for April did include the quant win. So we saw there's a little bit of negativity from markets, not huge. Some of that's FX. The dollar and the Asian currencies are weaker relative to sterling. Euro is a tiny bit stronger. So a bit of a mixed bag there, but that's -- we're up, just slightly up across the month. On sentiment to equities, look, we've got the same -- sort of I guess we got the same question as to what should be the move. And we have seen more interest in global emerging markets in the last month. We do see -- it's been out of favor for some period of time. And I think there's the logical answer that you see the valuation opportunity there, you see the quality of the companies and you see the absolute opportunity in the market. We've not seen that. We do anticipate with significant change to the way markets have been configured, a more balanced approach to invest across different geographies and different sectors. So I'm not calling that we're seeing a pipeline building, but I'm certainly saying that we're seeing increased interest in those areas. On the third question, service improvement, I think the key thing is the amount of time it takes to be able to get the money. So there's answering calls, hygiene factor, that's sorted. It's working really well. Frankly, we spend significant amount of time on phones, but the call answering time is actually is excellent. The amount of time it takes people to get the money, it's not all within our control. But the -- because often it involves In-Specie transfers from third parties, but we've sorted out that process everything that was within our control and within the control of FNZ. There are no gaps in that process. So it's as automated as it can be. There were some glitches, frankly, requiring manual interventions. We've tried to get those -- to engineer those out. There's still a little bit to do. It's not completely -- I'm not saying it's perfect in all regards, but we're continuing to seek just a better service experience for all those. And we continue -- whilst we'll always present the averages, it's important that the problems are in the tail. So to try and maintain that everybody gets a good experience. The averages are probably where we want them to be. I want everybody to be at the average if that makes any sense. So that's continuing to push harder to be better across the board there. On the Q1, yes, there was some FX jumping around, both in terms of the Asia currencies and I think FX, there's a market movement of 6.1%. I think FX was about 20% of that market with the rest of that. So that might have been a slight -- where we're slightly below. But there's nothing else that we can signal to you with the slight weakness in some of the Asian currencies perhaps we didn't pick up.

And as there are currently no further questions in the queue, I'd like to hand the call back over to Mr. Windsor for any additional or closing remarks.

Great. Well, look, [Saskia], thank you so much. Thank you all very much for your questions. Really appreciate it. Ian and myself are here if you've got any follow-up questions during the course of the day. But thank you for dialing in.