Interactive Investor Limited (ABDN) Earnings Call Transcript & Summary

Good morning, and welcome to the abrdn plc's analyst and investor conference call in relation to the proposed acquisition of interactive investor. Thank you for your patience. The call will begin shortly. Good morning, and welcome to the abrdn plc's Analyst and Investor Conference Call in relation to the proposed acquisition of interactive investor. My name is Robin, and I'll be coordinating your call today. Your host today is Stephen Bird, Chief Executive Officer of abrdn plc. He will give the presentation. [Operator Instructions] I will now hand over to your host, Stephen. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining the call at short notice. I'm here with Stephanie and after I walk you through the 11 slides or so and describe the deal, we'll be happy to take your questions. Back in March, I laid out our strategy for growth, bringing growth to the group and I explained our 3-vector growth model and our business plan. And at the half year, I was able to show that we had made substantial progress. Indeed, the best growth since the merger of 7% revenue growth, 52% earnings growth and we have made substantial strategic progress in simplifying the business. This morning, I'm delighted to be able to share with you the proposed acquisition of interactive investor for a total consideration of GBP 1.49 billion, this is strategically right on plan. This indeed was the business that I was thinking of when I described the need to scale the personal vector. As I go through these slides, you'll see that we are building a leading position in a high-growth market here in the U.K. In fact, the direct investing part is the highest growth part of the U.K. retail and savings market. Interactive investor is the U.K.'s leading subscription-based investing platform and is the consumer champion. This is one of the things that attracted us most to it. They are simple pricing model and the response from the U.K. market, which is showing up successfully in their numbers. It transforms our personal vector and significantly grows and diversifies the revenues and profitability of abrdn. Richard Wilson is joining our business. I'm delighted to say that Richard is joining as -- continuing as CEO of interactive investor and indeed he is investing a large portion of his sale proceeds directly into abrdn stock, because he believes in this next chapter of evolution and development of this business. This is the right way for us to deploy capital. I said that we would take positioned capital that we held in stakes and that we would transform that into the ability to grow our business, increase returns and have relevance and scale. Indeed, there are few markets as attractive as the U.K. savings market and the secular drivers that you see here on the right-hand side of the slide, we've talked about many times, democratization of wealth and technology, the higher expectations that consumers have for simple models, for models that actually do what they say [ and intend ]. The Netflix subscribing model that interactive investor has pioneered has proven to be successful and driven their growth in the U.K. The wealth transfers that are taking place over the next few decades are unprecedented and it's very important for a global investor like ours to be able to have a platform that allows us to benefit from that transition. The U.K. savings market of GBP 3.7 trillion, you can see that the direct investing market where interactive operates is GBP 269 billion. Growing at 17%, we expect this market to double in the next 5 years. We are acquiring a business that has a 20% share of that market today and is actually #2 in that space. You'll see later, as I walk through the slides that they're #2 in terms of position, but #1 in terms of average footings per client. So let's talk a little bit about interactive investor. A subscription model with high-value customers, 20% market share, GBP 55 billion of AUA, 400,000 unique customers and 45,000 organic new customers last year. Strong growth of net flows, strong growth in revenue and earnings and a business that has a 34% adjusted profit margin. This is a very attractive business to acquire and become part of the abrdn Group. Here in this slide I show the 64% higher per customer footings that interactive has compared to their closest peer, which is Hargreaves Lansdown. In fact, Hargreaves and Bell both around the 82,000 mark. This shows the power of the subscription model and what it demonstrates is that it's attracting clients that have got higher value and higher average sophistication. And as we talk about the development of a high-tech and high-touch wealth model you will be able to see that, that plays into the synergy that we have, the revenue synergy that we have with interactive. Turning to the next slide, you can see that this is -- when you spend time with Richard and his team, when you go and sit with the interactive group, you can see that this model that is about data insights, it's about those insights driving engagement and it's about a simple pricing model, such that customers can invest and as they invest more, they get progressively higher value from the interactive platform. The business today is growing on an organic basis. We were -- we think that Richard and his team did a phenomenal job of executing and rolling up to build scale to be the #2 platform and that energy now as you're seeing translated into new mobile app, new desktop rollout, new products and services, and -- this is the right time to buy that platform, a scale platform that has a strong pipeline of continuous development. In fact, just last week, they launched the friends and family bundle, which was about being able to broaden the addressable market that ii is currently addressing. But let's talk about the growth that this model is creating. You can see here in this slide that with net flows increasing growth, 4%, 9%, 14%, 17% in the last 12 months, new customer growth, similar trend, AUA, now GBP 55 billion at June 2021 and you can see the average higher trading activity as well. In fact, these numbers show that the activity and engagement remain significantly above the pre-pandemic levels. Now the attractiveness of this model and the efficiency of this model enhances the performance of the abrdn Group. You can see here in this slide that a large proportion of efficient straight-through processing, indeed, a digital platform business shows that this is built to scale and you can see that in the expanding margin of the business currently in full year 2020 of 34% operating margin. You can also see the profile of the revenues on the right-hand side. The revenue growth largely driven by subscription fees and customer activity, not driven by AUA and that's a really good thing. One of the strategic challenges that you have, running an asset manager is that the business is very market sensitive, that our business is an ad valorem percentage bps business. So by buying a business that has got a large proportion of fee income, we diversify and broaden and improve the profile of earnings of the abrdn Group and I'll say more about that shortly. On the next page, you can see just how transformational this deal truly is. For the personal vector we end up with a GBP 200 million pro forma revenue base, more than doubling our revenues, 5x increase in assets under management administration 15x increase in net flows and you can see a huge quantum step increase in the customer base, taking us to 430,000 customers. This ability to directly interface with these clients is fundamental to our operating model. On the next page, it was important and it's really where we started with Richard Wilson and his team, was understanding how the U.K. market will evolve and indeed how we will drive that evolution from high-touch, high-tech. Interactive is truly a high-tech platform. It's a platform business, it exhibits platform economics and it is built for scalability. We at abrdn already have world-class high-touch financial planning. When you look at the individual personas and the profiles of the clients within interactive, those clients have those financial planning needs and the way that we operate, the way that interactive operates and the way we believe is the future of this industry, is that customers be able to -- they can draw on those services as they need them and many of these services today, which are high-touch will also be progressively digitized. So when you get to moments of truth about decisions, about your pension, decisions about estate planning, decisions about writing a will, decisions about how you manage that transition that intergenerational wealth transfer that will take place over the coming decades, those require sophistication and ii wanted to be able to operate with any group that has those capabilities, so that they can digitize those services where appropriate, but also refer for high-touch engagement where also appropriate. We -- together, the combination is about providing trust, confidence and compelling value for clients. Now let's talk a little bit about the funding of the transaction. I think it's well known to all of you that we are in a very strong capital position. We remain in a very strong capital position after having acquired this business for cash. We are funding the business by cash. We're actually issuing in the interest of balance sheet efficiency, some additional Tier 1 debt to optimize our capital structure. But if you look at the post-transaction position of the group, GBP 0.5 billion of pro forma capital surplus post IFPR and GBP 2.5 billion of value in our listed stakes. So, total capital resources post the transaction of GBP 3 billion. Now very importantly what this transaction does, the transaction is accretive to abrdn. It improves our dividend cover and it accelerates the point at which we get to 1.5x cover, which I had outlined at the Strategy Day and at the half year. So, in summary this acquisition is about achieving scale in a high-growth market. It's about accessing new customer segments and capabilities. It's about being able to acquire the #2 leading subscription-based business that is the consumer champion. It's transformative for the personal vector for abrdn and our shared vision of high-tech, high-touch model means that we can together grow into this market that is so attractive here in the U.K. This is the right way to deploy our capital to achieve growth, returns, scale and deliver shareholder value. So with that, I'm happy to open up for questions.

[Operator Instructions] Our first question comes from Haley Tam from Credit Suisse.

Congratulations on this deal. Could I ask you 2 questions, please. First of all in terms of the double-digit earnings accretion. Can I just check is that based on the figures we saw on Slide 8? So, the GBP 41 million adjusted PBT? Or does that actually include assumptions for any future growth in client numbers and the sustainability of recent retail trading activities? And obviously, if it's the latter, if you could give some color that would be great. And the second question really is just whether there is any details you can give or any contractual lock-ins for Richard and his wider team that would be great as well.

Terrific. Yes let me address the first part because the team is very important to us and Richard has done a brilliant job with interactive investor. Actually, Richard is quite interesting, Richard and I tend to think about these things in the same way. Richard is actually investing a large proportion of his sales proceeds from interactive directly into abrdn stock. So over the next 3 years, he is -- he's taken his own money, sales proceeds, investing in abrdn stock over a 3-year term -- at a minimum a 3-year term. And also in addition to that -- so that's a very big financial incentive for our business, the abrdn pro forma business to be successful of which he becomes a senior executive, but also Richard and the senior executives that are coming across to be part of our team. We created a buy-in fund, so what is -- I think there's a modern way of doing this rather than lock-ins, we created a buy-in, particularly when you're buying from private equity, you don't want to have the original private equity owners such as flowers, managing with you a whole process of deferred performance because it really means that you sort of shackle the thing you're buying. So what we did is we created a buy-in fund as an executive compensation fund for Richard and the team coming across that operates over 3 years, that has got a set of specific growth targets, so you can think about customer growth and revenue growth, and that buy-in fund in combination with the fact of the stock purchases that are being made by the deferral, achieves the lock-ins that we require. Let me add just address the double-digit part of it. So the double-digit accretion is about double-digit accretion of the earnings of the abrdn Group, not just interactive. So it's about -- if you look at double-digit increases, double-digit percentage increases of EPS of the abrdn Group, which is actually I think what you're all interested in.

Just to clarify, that is based on the run rate of interactive current earnings? Or is there some assumptions for future growth built into that expected double-digit accretion for the abrdn Group?

The -- it's based upon -- I mean, the run rate is already growing, so what it's done is based upon we have taken a series of assumptions about the current growth of interactive and projected those. Actually, they're not heroic at all and that -- so that if you like run rate, you're using the term run rate, that really is what generates that result, yes.

Our next question comes from Andrew Crean from Autonomous.

A couple of questions as well. In terms of double-digit earnings accretion, I think if you spent the GBP 1.5 billion on buying your own stock back at these levels, your earnings would increase by about 40% how does your double-digit earnings accretion on this deal compared with that? And secondly, can you talk a little bit about the profit performance in the first half because I've got some concerns about cash margins coming down and also trading volumes beginning to track back after the lockdown period. So perhaps, you could give us the exit multiple based on the not heroic growth rate, which you have slated into your earnings accretion.

So let me go there first, Andrew. So the -- what we're paying for the group represents an exit multiple of about 23x the 2023 numbers. What we've done is we have taken the performance of interactive. We've analyzed what were pandemic effects. We've looked at the performance after the pandemic started to come off and market behavior started to resume. We've made a series of conservative assessments about that and that's how we've developed this. The buybacks, I mean, what our investors asked us to do was to invest and create a long-term growth model. This is about a long-term growth model, not a short-term financial engineering model, this business is a 200-year old business. We're investing in the long-term development of the global investment market across global investments, the #1 adviser position that we have here in the U.K., and this business that now sits alongside that, the #2 direct investing model. So the -- I think that's what our investors want us to do and that's the choice that we've exercised. We still of course, have significant surplus capital post the transaction, but this transaction is about developing the strategy of the group to be a growth business.

And just -- on that, I mean you clearly have [indiscernible] still in place particularly -- And where would you -- where should we look for you to target further acquisitions? Is it more on the asset management side now that you filled out the personal vector?

So we have recently appointed David Mouille. So David, who has been working on these deals for us, really outstanding strategy and business development executive. David has been recently confirmed in the role as Head of Strategy and Business Development. We -- the first acquisition that we made was Tritax, of course, which was in private markets. So we signaled that we wanted to deploy capital in areas where there was high natural growth, high exogenous growth. Private markets was one. Tritax has actually worked out very well for us. You will see us continue to focus on strengthening the asset management business by doing deals similar to that, so areas if you like of distinctive investing. So, domain specialists, people who have got investment capabilities in the sort of 21st century trends, so you'll see us do more of that type of thing. You won't see us -- and of course, we acquired finimize it was a small deal, but finimize was really about being able to bring the outside world in. Finimize is an open architecture information, jargon-free way of creating financial communities, smarter investors, actually it's having a fantastic effect in our group. We've got our own employees using that same capability. So digital data, private markets you'll see us doing more of that type of thing. You won't see us do big, heavy asset management integrations. I don't think that, that's the right way to -- when the world is moving quickly, you don't want to spend years doing that kind of thing. Yes, I came into a group that had to. We had to accelerate the completion of the integration of Standard Life and abrdn, we did that. We've now actually -- if you come to our offices either here today, we're in Edinburg, half the time we're down in London, but you've really got one team now. It's an abrdn team, you don't hear anything about people talking about legacy firms. So I think those -- the progress we've made is quite marked in that regard.

Our next question comes from Bruce Hamilton from Morgan Stanley.

Just to follow up on the question on sort of exit multiple. So if I heard correctly what you're saying is, I think if I run the math, you paid a bit over 40x PE based on 2020, but that falls to, I think you said 23x 2023 PE, just to confirm that and you've embedded in that assumptions around trading normalization, et cetera, just to make sure I heard that correct. Second question I have I guess, obviously, there's been quite a lot of movement from peers around sort of models, pricing, A.J. Bell, most recently and so as we think about the growth in the asset base for the industry overall, how do you think about the sort of decompression and how that might apply to interactive investors? Or do you think that current pricing model is set at the right level and so that isn't really going to be a challenge for you going forward? And third and finally, I mean, I guess on the synergies, just checking, I don't think -- I assume there'd be no cost synergy here. It's more around broadening out the offering in the personal vector? Or is there any opportunity to get some revenue synergies linked to the investment business as well?

The first thing that I would highlight about the fees and margin and that's what I mentioned about the right time to buy this platform because if you look at -- I think I showed it on Slide 7, which I looked at the margin they had a 23% margin in 2018, then 26%, then 34%. And this is a classic sort of platform and network effect. And we want businesses that have demonstrate those platform effects, because it's a digital business with very high degree of straight-through processing and when you're using the data well and you're understanding the client persona as well and this is what the interactive team really do brilliantly, they understand the mass personalization that you have to do to run these businesses well. You can expand margin because the next -- the incremental cost of an additional customer is very, very low and that's what they've built. Now -- so there are absolutely revenue synergies, so when you -- we look at this at an individual customer basis. We already do financial planning. We've got award-winning financial planning. We do fantastic pension advice. We do a estate planning advice. We direct into discretionary fund management as you know, abrdn's discretionary is a very high-performing discretionary area. So all of that was exactly where Richard and his team were looking for the future development of their platform. They said, look, we've got the platform built. We're getting the scale effect. We are -- we've got very low incremental cost for additional clients, but we really now need to be more than just the direct self-service model because the clients do within the financial life, draw on these other services, which at the moment they go elsewhere for. So we've sat with the team and we've sort of figured out how we develop this multigenerational product development, some of which will be in digital, it's quite interesting. I take the view that a lot of the high-touch services today actually can be done incredibly well within digital, but you will still have clients that want high touch as well. So yes, there's a lot of revenue synergies. I see a little bit of a cost. We haven't built in cost synergies here because it's a revenue deal. You've got -- you're buying a platform that's in a market that's growing at 17%. It's going to double over the next 5 years. I mean, our primary focus has been get the client experience right, get the platform right, get the value propositions right, get the bundling and the price modeling and everything to work. So that's been the focus. But remember, this senior team is joining our team. They've been very, very good at managing technology. They've been very, very good, getting streamlining their business to have excellent efficiency and a very big part of what I'm doing here is to get this business to be efficient. This deal gets us to -- it improves our efficiency. It improves the point -- improves dividend cover and it will accelerate the point at which we get to the 1.5x dividend cover as well. So I see upside that I haven't had to build into the pro forma, but I am fully expecting to extract from the deal.

And Bruce, it's Stephanie here and if I just come back to your first question in terms of just to confirm as Stephen said, there's -- obviously, we've taken the current models, which have all been projected forward both from management's perspective and all our different scenarios on it as well. So if we look out to that for example using the 2023 as Stephen articulated, it is of that sort of order in terms of the 23x multiple when you do the math back, but it takes into account all of the things that Stephen just said in terms of where we see the run rate moving forward to given that the growth momentum that the management team have been very successfully created. And the other part, I would say is -- and you can see it again from the slide of -- on Page 7 that Stephen referred to. Because of the scalability of this platform, it's a very efficient model and therefore with the focus that we have as a shared team in terms of growing the customer numbers at that operational leverage is also a contributing factor to that analysis.

Our next question comes from Arnaud Giblat from Exane BNP Paribas.

I've got 3 quick questions. First to follow up on the opportunity set. The -- where [indiscernible] obviously, abrdn [indiscernible] quite well the opportunity to upsell new products. I'm just wondering if you could expand a bit more, give us an example of one of these digital products that you could be launching. What sort of referral rates are, what the cost to develop this product could be, what the pricing could look like and that could be helpful to better understand the revenue synergy over the long run. My second question is regarding interest rates. I mean, the DTC platforms are all supersensitive to U.K. base rates. What sort of assumption have you baked in to get to that 23x exit multiple? And more generally what is the sensitivity change of rate for ii? And my third question is, with regards to your longer-term 35% operating margin target that you expressed earlier this year. Does that still apply? I mean obviously, this acquisition gets you a step closer to getting there. So does that target move alongside?

Thank you, Arnaud. So the first thing, I'll take the last part about cost income ratio targets. I had said that we would -- you could trust me to deliver a cost income ratio, exiting 2023 of 70%. My first half year results, I had delivered a full 6% improvement in cost-to-income ratio. I think I inherited 85%, we reported 79% at the half year mark. I'm not changing the 70% target. I do like to under promise and overdeliver, but that's -- we're not changing that target. That's the target for the group. And -- Now turning to the other parts of your question, Arnaud, I'll give you some examples. So first of all, self-invested personal pensions, massive trend in the U.K., for people to take control of their own pensions, control their own pensions. It can be done brilliantly, digitally. The interactive guys are already on to that as an area of potential growth. It's actually very small within interactive today and we scrubbed that and it was literally because they've only just got to it, to really develop it. But you can expect from us to develop the SIPPs in the same simple very high-value sort of customer-advocate way that the interactive model works. The thing that we spent so much time on is, if you look at developing the pension product, if you look at how you deliver financial advice, if you look at an individual that says okay, this person is 50 years old, describes the family situation digitally, people like me are investing in click. You should be able to see a pie chart that says based on your persona, this is what people like you are investing in. And then you should be able to click again and see a gap between your portfolio and that model portfolio. There are so many areas where financial services need to do a much, much simpler job of being able to navigate through these complex areas that have thus far, particularly here in the U.K. being delivered in a complicated [ fee-heavy manner ]. And that's why Richard, when Rich and I sat down and we sort of dissected the market offerings, future offerings, what's within abrdn in terms of research, discretionary fund management, et cetera. Richard said to me look this is the best possible place for us to be able to grow confidently and draw on these services and I emphasize that a lot, because you don't push. When you acquire something as good as this, you don't push services into it. You've got to allow it to draw on the services of the group and that's the dynamic that I have with Richard and his team. Interest rates, let me just talk about that. We have -- you're absolutely right, Arnaud. This business has benefits from increasing interest rates -- as banks do, this business does too, as people put money in the platform that they are on the way into an investment, the way out of an investment. They got very high balance, but they do leave the balances in it. When you have a very large customer base, they accumulate through time. We have incorporated quite modest interest rate assumptions in the pro forma business model. So you could say it's a call option in rising rates that's a good thing to have in your group, but I chose not to build anything in other than just modest future increases in interest rates.

I agree, yes. And the only thing that I'd add is we've just very much gone with kind of the lower end of the historic levels of cash balances that have been in the business rather than assuming that there will be a top end of that balance as well. So again, we're not trying to be heroic here on that in terms of our base assumption.

Yes, both on the average balance, total balance and on the interest rate each of those 3 assumptions that drove that calculation were relatively modest.

The sensitivity, perhaps if I wanted to be more [ arid ] ?

Yes. So what Arnaud is asking, which we're not going to tell him, for every 10 basis points increase in interest rates, how much goes into Stephanie Bruce's pocket. So, thank you for being precise to your question, but I'm sorry, I can't give you answer at the moment, but we do know the number.

Our next question comes from Hubert Lam from Bank of America.

I've got 3 questions. Firstly, on the operating margin expansion, it's grown, you said scaled up quite significantly to 34%. Now, just wondering how high do you think this can go? What are you targeting for this? And any additional cost growth you need for additional tech investments, et cetera, which may soften the growth of operating margin going forward? That's the first question. Second question is on your listed stakes you pointed out you have GBP 2.5 billion of value of the listed stakes currently. Just wondering what are your, again, can you revisit what the plans are for the individual stakes around Phoenix Asset Management? I guess life is still a financial -- more of a financial investment, but any additional thoughts on the AMC stake and Phoenix stakes would be helpful. And lastly on the capital requirements can you -- will there be any changes in your capital requirements or additional capital that you would need after the acquisition of this business. I'm just wondering on questions about capital buffer, et cetera, anything that we should be aware of?

So the first part, you can see the progression on Slide 7, Hubert. We -- what I would say to you is that you can -- that margin is a product of the jaws. Revenue is growing faster than expenses. It's a product of the platform effect that I described earlier. So you can project the revenue growth of the business, it's in a marketplace that's growing. It's a high-growth platform and a high-growth market. So you can choose your revenue growth and you can take the historical expense growth and project those jaws, and you can see where it will get to. I would describe it very much as an actuarial calculation, but it will fundamentally be driven on your view of the market. Our view is that we can continue to operate the business with positive operating leverage and we continue to grow the business and we will continue to grow the margin. Now we would -- we don't have in terms of significant cost investments, this is a scalable platform that's gone through a lot of significant development through the time. So we don't have any significant costs to swallow in the near term in order to grow this thing. Their acquisitions have been completed, so that -- on that. On our stakes or capital stakes, I would just point you to the actions that I've taken. I've just been here, just over a year. We have been divesting of the stakes and really taking capital that was not earning and translating it into capital that is earning and I think that's my job. So we'll continue to do that, but it has to be done at the right pace because we have -- we've got to have opportunities to deploy that capital in a disciplined and a judicious manner like with Tritax, like with this transaction, which is accretive as well. So I'm not signaling -- I said to you that the life business, we're going to continue to divest. We -- likewise will, through time, divest of asset management. We've signaled that and I've described in great detail the type of businesses that we would acquire in a disciplined fashion. So I think you can expect more of the same. The only other thing I would add is that we said to you that we -- after rebasing the dividend, we said that we would revisit it when we got to 1.5x and this allows us to get there a little bit faster. So I think as shareholders you can take a lot of confidence in the way that we are applying our minds to the productive use of capital.

And Hubert, if I just come to your third point, just connected with what Stephen just said there, about in terms of how do we think about the buffer it is obviously connected with those listed stakes that Stephen has just outlined, so our capital remains strong after this transaction. Immediately post-transaction, we will have a surplus of regulatory capital of GBP 500 million. Worth highlighting that, that represents 50%, just about 50% of our current capital requirements. So in itself is considerable, but when you put that into context in terms of the -- that considerable further value of the list of stakes that as Stephen just highlighted, I think you will agree that we still remain in a very strong capital position.

Our next question comes from Gurjit Kambo from JPMorgan.

So a couple of questions. So firstly I accepted in terms of your AUA over customers, that's really higher than the peer group, partly -- but I guess, the way interactive investor makes money is not necessarily on the AUA or firstly, is there a part that is on AUA? If not, will it basically be the growth in new customers, obviously, maybe upselling the different pricing models, already cross-selling new products. I just want to understand how we think about the kind of growth drivers for revenues. And then secondly on Slide 7, you give the PBT numbers there. Could you provide the PBT numbers on an organic basis? I think interactive investor have done a few acquisitions recently. So if there's any sort of organic numbers that you could provide that would be helpful. Those are 2 questions.

Yes. Thank you. The first thing I would point out is that when interactive like to report their results, so we can just refer to the first half 2021 results, they actually -- the net revenue growth of 19%, but they actually hit 11% that was organic basis. So they had net new client growth up 33%, did net new business growth up 56% and net revenue, organically up 11%. So I think you can see the health of the platform. The way the -- you pointed out about AUA, you're right. It's not a bps model. It's not an ad valorem pricing model, but the larger the balances reflect the propensity to trade and I showed that they have a diverse -- a balanced but quite diverse sources of revenues within interactive, half of revenue really comes from trading transactions. So that's the commissions that you are -- you've got a subscription to the platform and you get one free trade. But then, many people trade more than that, so that generates trading activity and commissions. Also this is a multicurrency platform because many people actually want to invest in the most valuable market in the world. The U.S. market, for example, U.S. dollars. So there's also an FX component to the margin that you make. Then of course, you've got the account fees, which are based on subscriptions and then of course, you've got the treasury function, which is based on the cash balances that are also sitting within the platform. And that's what you're really looking for. You're looking for a diverse source -- a balanced source of revenues within what the platform generates. But the larger the relationship with the client also signals the sophistication of the client and it is also a good proxy for the type of other services that client is using elsewhere, i.e., a very high overlap with discretionary fund management. A very high overlap in the need for financial planning. A very high overlap for having a well-funded self-invested personal pension. So if you think of this as a gateway into all of those other avenues that if you digitize them correctly, you get the pull model to operate correctly, you build a very strong personal vector and that's the business that we're in, and that's why we've done this.

And just one -- just a follow-up. I think on Slide 6, you give the kind of organic new customers that you've grown. Just to be clear is that gross or like a net number? I just want to understand what sort of retention do you see within the business. I couldn't see any sort of attention to rates with the business.

That is the net...

That's the net.

That's a net number, yes. So net new clients was -- which is the net of those that left and those that join. Net new clients not only actually, year-over-year net new clients was up 33%. I'm looking at the first half results for 2021. Net new clients for -- was about almost 32,000 in the half year. This is a half year number, and that was up 33% on the prior year.

And then, just -- I think I asked the question just on the organic. Is there anything on organic growth in PBT or AUA?

So Gurjit, we haven't -- we're not setting that out in terms of the -- looking back into their historic split of that. I think it's more important to look at what you've just been focusing in on there. What's the organic build of new customers and the splits of revenue. So we don't -- are not -- we don't have and are not providing that split, looking back at their historic split of profit.

And just these customers, are these like the active customers that you have or is that something that's disclosed or active versus, I guess, customers who are not active?

The customers number that we referred to are customers who are actively paying subscriptions. So the kind of customers that you want.

The next question is from James Hamilton from Numis.

Clearly, the ii business has been built more or less exclusively from inorganic M&A. They brought a very large number of businesses, pretty much all of them unprofitable at the point of acquisition. Is it the strategy for ii to continue with this model? And if so, how much capital would you be prepared to give them to do so?

So as you know, ii is a very profitable business. They built scale through our acquisition. Actually, I think the team did a fantastic job of doing it. We don't envisage -- We haven't assumed further M&A requirements to grow the platform. The focus of the team in fact, was to get into this position and #2 through building a platform of scale, but then to compete on an organic basis and we -- that's the assumption that we've made.

Thank you. Our next question comes from Rhea Shah from Deutsche Bank.

So my first question is are you planning on adding the Finimize and interface on to interactive investor? Or are they going to be one as 2 stand-alone businesses? And then, just going back to some of the previous questions around trading volumes and the treasury income, what are you expecting this will settle that in the future in terms of the mix between -- over the treasury income, the account fees and the trading volumes, because the trading volumes start to normalize from next year, could that become a smaller part of the ii business?

So let me talk about Finimize, first of all. So there is a research synergy and we haven't -- we were just announcing the deal. So we haven't got into the very time we do yet. But you do know that we operate a research institute, so we actively research thousands of stocks. We have a fill abrdn Research Institute. We also have an -- interactive investor itself does have a content and engagement platform, which they've done a great job of engaging their clients and we also have acquired Finimize. So if you think about research, content, customer engagement, we have got a rich area, within which, we are -- should be able to continue to really differentiate from our competitors. So right now, there are no immediate plans to probation Finimize to interactive investor, but it certainly could be an opportunity further down the line and it's one that we'll consider. In terms of revenue profile, Stephanie?

In terms of the revenue profile, Rhea, the way we are looking at it is obviously again building up the models that we talked about previously that mix coming through in terms of customer activities, therefore, obviously very much driving the account fees being the same sort of growth projections we've had and seen in the past. Clearly in terms of the levels of activity that we have seen, we've actually already seen an element of slight normalization since the COVID period, but actually settling at a much more interested and engaged population of activity that's clearly coming through in terms of the trading volume. So I think our view of it would be that it will broadly be the sort of picture that you see here. Now clearly, depending on what happens with interest income and yields as we talked about earlier on, will sort of drive that mix differently. But the underlying activity of customers and being engaged in the sorts of activities they undertake together with the volume of customers that will drive the account fees will clearly be the key aspects. But I think we would see the mix being floating very much between the 31% and the 51% as you see it there on the bar chart. Very, very similar trajectories as we've seen in the past.

Our next question comes from Charlie Beeching from KBW.

And how much do you expect you will need to spend on integration? And are you expecting the platform will need material investment, for example, on the SIPP product that you described? Secondly, could you talk through the rationale for raising the AT1 debt? Is this just so you have a sufficient buffer post-transaction ahead of realizing any more of the locked value within listed investments? And then thirdly, within what time frame would you hope to achieve the 1.5x dividend cover in view of this transfer?

Thanks, Charlie. I'll let Stephane talk about the AT1 and the rationale for that. Integration is a very simple matter, because we already had preformatted our group as a 3-vector model and interactive is a fully functioning platform business. We're buying a digital business and the management team joins our team. So this is one of the simplest integrations that you would ever see. So there's -- one is low complexity and incredibly low cost. We've planned -- so I think you can take that for what it is. This is not a complicated transaction. In terms of the SIPP, the cost of developing the SIPP is already in interactive, own P&L because it was a preexisting development that they were offering. So likewise there. Stephanie, if you want?

Yes. So we've talked before about the fact that it was always one of the options as we look to manage our capital in a very optimal way. And obviously, as we near very clearly -- sorry, we actually now near the start point of the IFPR regime, as we're able to hold 18.75% of our capital requirement can be held in AT1. And we currently don't hold any as you know. It’s such an efficient use of capital, but this seems a good opportunity actually, also for us to optimize the capital stack as we move into the IFPR regime. And therefore, that's why we're undertaking it at this point in time. Obviously, post transaction as I said earlier on this obviously will contribute GBP 200 million of the GBP 500 million immediately post transaction. And then as you see, and as Stephen has already highlighted, we will -- obviously, we will continue to realize the stakes in the way that Stephen outlined earlier on. Oh, sorry, in terms of dividend cover, apologies. Yes, so -- and again as Stephen said, because this transaction is a growth transaction, it creates sustainable profits, it will accelerate. And sorry, it immediately helps on dividend cover. It obviously therefore helps progress our dividend cover target that is part of our dividend policy as well, which as a reminder is 1.5x adjusted capital generation.

When would you hope to achieve that?

Well, again, in terms of the consensus and the models that you have, yourself have looked at, you look in terms of the outer years in terms of '23, '24 and I'll let you do the math in terms of the modeling. But it's clearly a favorable and accretive position to that as a result of the transaction.

Thank you. We currently have time for 2 more questions. Our next question comes from Steven Haywood from HSBC.

Can you clarify, did you say 18% of capital can be in AT1 and then should we assume now that the GBP 0.5 billion regulatory surplus is the minimum level of surplus that abrdn will want to hold over the cycle? Secondly and this is another clarification. Did you say that you wanted to monetize the stake in HDFC Asset Management? I missed that earlier, sorry. And then thirdly, from me, it's in your strategy in the full year 2020 results. You highlighted that M&A was not modeled into your strategic targets. And so in terms of your high single-digit revenue growth target, can you say -- can you sort of quantify that you qualify what sort of high single-digit increase this deal will bring to you? Or is it just going to be a supporter to get to this high single-digit CAGR for growth?

Stephen, if I maybe go first on the capital -- on the capital point.

Yes.

So yes, just to be clear, 18.75% of the CAT 1 is what we're able to optimize using a debt instrument that has these capital characteristics. So that's -- sorry, just to clarify that for you. In terms of the minimum buffer as I said earlier the way we look at this is that we will have GBP 500 million of surplus capital after this transaction that is 50% of our capital requirement. And we look at that very much with a view in -- totally alongside the fact that we also have GBP 2.5 billion of other listed state capital. So we obviously look at it in the round for our available capital in terms of our resources and we will continue to apply exactly that same discipline as we move forward. And as we realize those additional [indiscernible] that we've talked about already, obviously, that -- those levels will move. But the way I think about the buffer, is that you need to look at it in terms of the context and the environment that you're in at a point in time and the available resources and also some of the regulatory changing in demand. So I think, as I've said before you look at that whole range and what would be sensible is anywhere between sort of GBP 500 million and GBP 1 billion, depending on the circumstances at the time.

Just to your question, Steven, about -- I would refer back to my prior answer. We were -- we built a strategy to bring this group to growth and we've started to demonstrate growth and improving efficiency, not changing the high single-digit growth description that I gave, nor the exit 70%. This is supportive of delivering that and it does accelerate the point at which you get to it and it does accelerate the point at which you get to your dividend cover multiples as well. So yes, it's good news. But given the fact that we've just signed the transaction. We've got a lot of work to do to be able to get to closing and that's going to be -- partway through next year, I think it would be imprudent to start adjusting those numbers.

And on the HDFC asset management monetization?

Progressively, through time, we -- our goal is to divest of nonproductive stakes and turn it into productive capital. So we will progressively divest of AMC, yes.

Our final question comes from David McCann from Numis.

The first one given the pricing model of this business it seems to me that in customer numbers and to some extent the volumes are going to be far more important metrics in the AUA of this business. So just wondered if, will you commit to continue publishing the customer numbers and the new customer numbers, which is one of the stats you did have on one of your slides kind of in the go-forward numbers in particular. And also, just in terms -- I guess, similar to that question, I guess question number two, I think it's well known across these retail platforms at the moment, there has been a supernormal growth in the number of customers experienced in the last year or 2. When you look forward, what kind of organic growth rates of customer numbers would be -- do you think it's a reasonable rate that a business like this should generate and particularly given you mentioned that it will be a pure organic growth going forward rather than the supplemented by acquisition as it was in the past. Third question, just in terms of -- you talked about revenue synergies, and you gave some examples of that. How are you thinking about managing the risks of revenue dis-synergy here if you do indeed implement some revenue synergies i.e., the risk -- by making some changes to the offering, you're going to turn the [indiscernible] currently satisfied customers into unsatisfied customers. And then the fourth, very quick question is, what does the balance sheet of this business look like?

So the first part -- the answer to the first -- last part of your question, David. Nothing is changing in terms of the subscription model. It's a platform business, the pricing model we've committed to. We're not changing it. So there's going to be no negative impact through -- it's got the same management team operating the same platform, operating at the same successful subscription model. So there are certainly no revenue negatives associated with this. If anything, we'll be able to accelerate the development of their new offerings, which would be upside. We will continue to publish the numbers, because you're spot on, customer volumes i.e., the size of the customer base, the net growth in the customer base and trading volume is actually directly linked to the revenue growth. So we'll continue to publish those. And my expectations are that if you're the #2 in the marketplace and you're the customer advocate, you have to be able to grow at the rate at -- or better the rate of the marketplace and that is -- change your number, it's going to be 10% to 15% growth and we'll continue to grow at that rate.

And in terms of the balance sheet, David, it's a very straightforward balance sheet. And obviously, through the sale process, certain aspects of it will be even more streamlined, but there's nothing in any complicated assets at all that are held in the balance sheet.

So that was the last question, folks. I thank you, David, and thank you, everyone, for joining us. It's an important day and we've got a lot of work to do to get to close, but we're super excited about it. Thank you for joining the call.