In the 2023 Full Year Results Presentation, abrdn plc (ABDN.L) CEO Stephen Bird and CFO Jason Windsor discussed the company's performance and strategic initiatives amid a challenging market environment. Despite a 5% reduction in adjusted operating profit, which stood at £249 million, the company has taken significant steps in reshaping itself into a modern investment company.
Bird emphasized the progress made in diversifying revenues and improving profitability, particularly in the II and Adviser businesses. A new cost transformation program is set to remove at least £150 million of annualized costs, aiming to make all three business segments—Investments, Interactive Investor, and Adviser—contributory to a sustainable and profitable abrdn.
Key Takeaways
- CEO Stephen Bird outlined the transformation of abrdn into a modern investment company.
- Adjusted operating profit decreased by 5% to £249 million.
- A new cost transformation program aims to cut at least £150 million in annualized costs.
- The company has a strong balance sheet with £1.5 billion of tier one capital.
- Net outflows were reported in certain areas, but Interactive Investor experienced positive net flows.
- The Investments segment faced a revenue margin decline due to asset allocation changes and market movements.
- Operating expenses were reduced by £44 million.
- The company is focused on improving investment performance and efficiency.
Company Outlook
- abrdn is aiming for cost reductions of approximately 24% by 2023.
- Most actions for the cost transformation program are expected to be implemented in 2024, with completion by the end of 2025.
- The company maintains a strong balance sheet and is revising its capital allocation strategy to improve organic capital generation.
- A medium-term dividend coverage target of 1.5 times capital generation is maintained.
- The modern investing company model consists of two leading UK businesses and a specialist global investments business.
- Each business segment has unique strengths and opportunities that contribute to the overall growth strategy.
Bearish Highlights
- The Investments business has experienced challenges in the investment management industry.
- Revenue margin in the Investments business has declined.
- The company has seen net outflows in certain areas.
Bullish Highlights
- Positive net flows in Interactive Investor and customer growth in the II segment.
- The Adviser business has integrated model portfolio services and tech upgrades.
- The company is confident in maintaining profitability on cash balances and is committed to transparency and value for consumers.
Misses
- Adjusted operating profit was down by 5%.
- The company acknowledged the need to improve equity fund performance and is focusing on strong-performing strategies.
Q&A Highlights
- Executives addressed cash margin guidance, fund underperformance, and underperforming strategies.
- The company is rationalizing funds to improve performance.
- The strategic approach includes cost management and market share expansion.
In summary, abrdn is navigating a period of market volatility with a focus on cost reduction, business transformation, and maintaining a strong balance sheet. While the company faces challenges such as net outflows and a decrease in revenue margin, it is also seeing growth in its Interactive Investor segment and is confident in its diversified business model.
The company's executives remain optimistic about future growth and the ability to adapt to market changes.
Full transcript - abrdn Plc (ABDN) Q4 2023:
Stephen Bird: Good morning everyone and a very warm welcome to abrdn's 2023 Full Year Results Presentation. I'm delighted to have Jason Windsor with me for his first results presentation as CFO. So welcome, Jason. I'll be taking you through our strategy and our progress, and Jason will walk you through the financials, and then we will open up for your questions. Here with us, I'm pleased to welcome René Buehlmann, our CEO of Investments; Noel Butwell, CEO of Adviser; and Richard Wilson, CEO of II, and they will be here to help take the hard questions. Over the last three years, we have reshaped abrdn into a modern investment company that can thrive in the evolving investment landscape. As you can see today, II and Adviser, continue to diversify our revenues and deliver improved profitability. We are scaling up these market leading distribution platforms to capitalize on the long-term structural growth opportunities in the UK savings and wealth market. At the same time, we're refocusing the investments business. We've hired top talent to lead that business. We've taken out costs every single year for the last three years. We have slimmed down the number of funds in our offering and we have streamlined our geographic footprint. We have divested familiars where we were subscale and we've enhanced our investment capabilities in more attractive areas. We have found a group which has more ways to win with investment content and the distribution that is aligned to the products and services that our clients need. Leveraging our data and our technology across the three businesses, we're now better able to move away from products that clients wanted yesterday to products that clients want and need today. That's what we call client-led growth. Today's results reflect the action that we’ve already taken to restore profitability in the group. We're pleased that we've achieved 102 million of cost reduction last year in the investments business, exceeding the 75 million target that we committed to you. When we set that target we committed to continue the effort beyond this year and, last month, we announced the 150 million cost transformation that does exactly that. Our goal is for all three businesses to deliver the appropriate share of earnings for abrdn. Over the last three years, the reshaping of the company has been from top to bottom. We've improved capital discipline and our operating execution. We've completed 11 M&A transactions that have simplified the business, added scale and efficiency, and improved our growth prospects. Overall, we disposed our non-core businesses with around 3% growth and we've acquired businesses with nearly 20% growth. We've strengthened our position in the closed-end funds business. We've become third largest globally, adding thematics like health, biotech, and logistics through the acquisitions of Tekla and Tritax, both of which represents significant long-term growth potential. The acquisition of II has transformed our position in the UK investments market and it has established a competitor that will continue to grow by offering compelling value to UK customers. We've strengthened our relationship with Phoenix, our largest single client, firmly establishing abrdn as a strategic investor in Phoenix and as their partner of choice for new business growth. This relationship with Phoenix is the foundation relationship for the investments business. We've streamlined the investments business in terms of the funds that we focus on. We sold the listed stakes in India, 535 million in 2023, 2 billion since the fourth quarter of 2020 and now that noise that previously ran through our stock is much diminished. This investment has -- this money that we realized from HDFC has supported the reinvestment in this business. Also, over the last three years, we've returned significant value to shareholders totaling 1.5 billion through share buybacks and dividends. While maintaining a strong dividend payout and buying back our own stock, we have effectively halved the cost of the dividend to abrdn PLC. These actions together have delivered a substantially stronger abrdn with more diversified earnings. We're well on the way to being established, what we call, a modern investing company, a company that can sustainably and efficiently grow. As I said, our goal has been to position all three businesses for growth and to operate them in a way that creates strong client focus and that has management teams that are laser focused on their segment. They can move quickly and it's a very different company to three years ago. And another challenging year for the investment market, II and Adviser have offset the reduced revenue within the investments business. In its first full year that we're reporting here today, II has already surpassed the original investment case that we set out at the time of the deal for you in 2022 and II has much more growth potential ahead of it. Together, II and Adviser accounted for 93% of abrdn's adjusted profits of 249 million in 2023. That highlights the necessity and the opportunity to restore competitive margin and the investments business. Diversification into these sticky revenue, higher margin businesses, such as [Indiscernible] and wealth that we have here, has improved the operating mix and created a balance in the group that any monoline asset manager cannot enjoy. We're working to restore a more acceptable margin in the investments business to improve its investments performance and growth loads. Our goal is for all three businesses to make an appropriate contribution to group earnings, and in so doing, create a sustainable and profitable abrdn. With that, I'd like to hand over to Jason.
Jason Windsor: Thank you, Stephen. Good morning, everyone. As I said at the Q4 trading update, I'm very pleased to join abrdn and to be here today to present these results to you. Let me begin with a summary of 2023 and a little context for our trading. 2023 saw a continuation of the challenging macro-environment for the investment industry. Many of the headwinds facing traditional active asset managers were fairly strong. The year saw the continuation across the market, as some asset allocation activity by clients that didn't play to our strengths away from equities, particularly in Asia Pacific and emerging markets and also cash was retained in money market funds, cash which would normally be allocated to fixed income funds. So as we said in January, this led to lower revenues and investments and I'll come on to that in more detail. Putting this backdrop together for the group performance overall, we had a 5% reduction in adjusted operating profit to 249 million pounds. Higher interest rates in the UK were also significant for revenue in Interactive Investor and the Adviser businesses and also group Treasury income. The group didn't take the fall in revenue line down. Costs were 4% lower in the year. And as we announced on January 24, we have initiated a new transformation program and, together with improving the group's net flows and investment performance, we are committed to taking the necessary cost actions to rebuild the group's profitability. The work over 2024 and 2025 will simplify our business model and remove at least 150 million of costs. And onto the balance sheet, which is strong. We have 1.5 billion pounds of tier one capital, which continues to support the strategy. In 2023, 600 million pounds of cash was returned to shareholders from the dividend and the share buyback program. Adjusted capital generation was up 15% to 299 million pounds, which covered the 2023 dividend of 14.6 pence per share by 1.1 times. Let me start my review the business with a look at assets under management and flows. Assets ended the year at 495 billion, this is just 1% lower, although in fact assets were slightly up prior to corporate actions of 6.9 billion. We saw net outflows of 13.9 billion excluding liquidity, albeit with positive net flows in Interactive Investor. Within investments, that outflows are primarily in higher margin areas of institutional and retail wealth, reflecting the current asset allocation decisions that I just mentioned. The partnership with our largest client Phoenix delivered well, including 5 billion from their bulk purchase annuities business and inflows from their workplace pension business. Nets outflows of 2.1 billion in Adviser reflect muted client activity across the industry, as customers adjust to inflation and higher interest rate environment with increased drawdown to fund the cost of living. Interactive Investor had strong net inflows of 2.9 billion or 4% of AUA, showing the value of the Interactive Investor customer proposition. Looking forward, we expect the sale of our European headquartered private equity business, which has 7.2 billion of assets and the acquisition of four closed end funds from First Trust with 0.6 billion of assets, both to complete in the first half. I will now walk through the revenue development. Group revenue was 4% lower. This includes 230 million pounds from the full 12 months of Interactive Investor versus seven months last year. And there were some other smaller corporate actions that we haven't called out separately. The combined impact of asset allocation changes, net outflows and adverse market movements for the majority of the year resulted in a revenue margin declined in investments from 25.4 to 23.5 basis points. Performance fees were also lower. In the second half, that margin was 22.4 basis points, and we support the slight further contraction in multi-asset and Phoenix in the first half of 2024, as client driven moves from active to passive continue. Group revenue is supported by higher interest income from Interactive Investor and Adviser contributing 165 million pounds in total in 2023. So you can see the value of the strategy in action, a business with diversified revenue, which can deliver in different market conditions. So let me now change gears and go over operating expenses; adjusted operating expenses in 2023 reduced by 44 million pounds. This included 102 million of cost reduction in investments, partly offset by a full 12 months of II. Excluding Interactive Investor, expenses when 9% lower. Non staff costs were also 9% lower and staff costs were 7% down with 13% lower FTEs. Variable compensation was lower by 13 million pounds. The group cost-to-income ratio was stable at 82%, reflecting the efficiency of Adviser and II, but we recognize there is much more needed on costs, which takes me on to the new transformation program. A new cost transformation program to remove at least 150 million pounds of annualized costs has required us to look more deeply at the group's operating model, particularly in support services. As previously mentioned, we would expect that around 80% of these cost saving benefits will accrue to investments and that's primarily in the middle and the back office. As we said before, we expect the program overall to lead to a reduction of around 500 rolls across the group. The bulk of the savings will be in non-staff costs. So we're looking at further efficiencies from our outsourcing and technology. We are de-layering management structures and increasing spans of control. So not only is this lower headcount, but everybody in the company will be closer to the customer. We will improve productivity and pursue more opportunities to automate our processes, for example, in client reporting, and client billing. They'll only be modest cuts to the front office and investments. In fact, the program has been designed to avoid disruption to client service, and to ensure we retain absolute focus on delivering investment performance for all of our clients, which after all, is the most important thing. Key to success is to take these actions soon, and to ensure they're sustainable. And just to step back first on the context of the savings and investments. The cost reductions achieved in 2023 plus the new transformation will reduce investments expenses by around 24%, compared to a baseline in 2022. The whole program is designed to do this as safely and as quickly as possible. We do expect the bulk of implementation actions to be taken in 2024 and the work to be completed by the end of 2025. We expect around 60 million pounds of the benefit to be in the group P&L this year and that we will achieve the annualized run rate of 150 million pounds by the end of 2025. In the other direction, we expect approximately 3% to 5% cost growth per annum within Adviser and Interactive, which in 2024 is pretty much offset by corporate actions. Total implementation costs will be around 150 million pounds, which we can fund from our strong balance sheet. Moving now on to the three segments and starting with Investments. Net operating revenue is 17% lower than last year largely due to low market levels and net outflows, which impacted average AUM and also changed the asset mix. Operating expenses were 102 million lower exceeding the 75 million cost target. Adjusted operating profit was 80 million lower at 50 million pounds. Though proactive measures have been taken to reduce costs and to focus on improvement in efficiencies and profitability, we remain focused on reducing the cost-to-income ratio toward industry benchmarks. This will take time but everyone is fully committed to rebuilding profitability and growing the business. Now on to Interactive Investor, which has had an excellent first full year in the group. Adjusted operating profit was 114 million and of course this reflects the full 12 months consolidation. Net flows were 2.9 billion, with personal wealth being an outflow 0.4 billion, while the D2C business had strong inflows of 3.3 billion. This is the highest flows for D2C platforms in the UK. Total AUA of 66 billion is after the sale of the discretionary fund management business. II treasury income contributed 134 million in 2023 and the margin was 236 basis points. We expect 2024 to be at a broadly similar level. Trading revenue was 48 million pounds, which was slightly subdued, and subscription revenue was 54 million pounds. Personal wealth revenue reduced by 30 million pounds, reflecting the restructure of this business including the disposal of discretionary fund management and the transfer of our 360 and managed portfolio service to Adviser. Let me now turn to Adviser, which is going through a transition to new market-leading platform technology. This was a strong performance with adjusted operating profit up 37% to 118 million pounds. Revenue was up 21% at 224 million comprising 167 million of platform charges, 31 million a treasury income, and 26 million pounds of other, which is mainly 50 million pounds benefit from revised and new distribution agreement with Phoenix relating to the SIPP product that we will be taking direct ownership of in 2024 and will continue from there. The margin earned on cash balances were 228 basis points and this again is expected to be similar in 2024. Average cash balances were around 1.3 billion pounds, which is about 2% of assets and that's slightly down year-on-year. Operating expenses were 7% higher. This mainly reflects higher average assets on the platform. In terms of flows, we've seen a slight drop off in new customer volumes in the last three quarters. In fact, the overall market has been softer after several years of strong growth. The market we think was around 9 billion of net flows in 2023, compared to 30 billion average over the last -- over three years before that. Outflows have increased across the market as customers take more income to help manage their retirement and other cost of living needs. As rates peak, we are optimistic that the Adviser market will return to good levels of growth. So let me now touch on some of the other elements of IFRS profit and on capital generation. Adjusted profit before tax of 330 million was 30% higher than last year. The largest moving part here was net financing costs and investment returns, which generated an income of 81 million in 2023 compared to a loss of 10 million last year. Helped by the reduction in the share count from the buyback, adjusted diluted EPS was 33% higher. 15% higher adjusted capital generation reflects the rise in adjusted profit before tax, and as you know, this included 54 million pounds of dividend income from Phoenix and 10 million of other that won't repeat in 2024. The tax rate on our adjusted profit was 15%, compared with 9% last year. Restructuring and corporate transaction expenses were 121 million after tax, which mainly consisted of property-related impairments, severance, platform transformation, and costs to affect the savings in investments. In 2024, we expect restructuring costs to be a little lower than in 2023, mainly reflecting the implementation of the new transformation program. My objective is to remove the vast majority of the, so-called, below the line costs by 2026. It will take a little time to transition to that, but in 2025, I do expect they will be materially below 2024. Of course, low restructuring will improve net capital generation, which takes me on to the next slide. As Steven just mentioned, the group has gone through some very significant changes in terms of capital allocation over recent years. 2023 in fact continued with the sale of the remaining stakes in HDFC Life and HDFC Asset Management, the divestment discretionary fund management in US private equity, which both increases the strategic focus and simplifies the group. In total, these disposals generated 713 million pounds of capital, and as I said, 600 million of that was returned to shareholders through a share buyback and dividends. We've also continued to invest in the business through strategic bolt-ons, acquisition, for example, like Tekla. We have fewer non-core assets, but we'll continue to act to streamline and simplify the group, for example, with a recent exit from the Virgin Money (LON:VM) joint venture. Most important element, however, is to improve organic capital generation and by that I mean the addition to equity capital each year, simply higher profits and lower restructuring costs. And the Board's dividend policy remains unchanged, the medium-term dividend coverage target of 1.5 times capital generation, which takes me on to our balance sheet and the capital position. This slide is a simple way to set out our balance sheet. For me, the fundamental strength comes from the 1.5 billion pounds of common equity tier one capital. This alone is 139% of our total capital requirements. And of course, we have qualifying debt too, which makes the overall solvency ratio 184%. It's my objective that over time, that should also be lower and closer to the regulatory capacity, which is around 450 million pounds, but we have no redemptions or calls for several years. The balance sheet at 31st of December includes total group cash and liquid resources of 1.8 billion, and of this amount just over 400 million pounds was in the PLC or group treasury. On top of the group's cash, we have around 400 million pounds in seed capital, and in co-investments, for example, in property and infrastructure funds. This is capital used to support product development in the Investment segment. Of course, we also have our stake in Phoenix, which had a market value of 557 million at the end of December. This is a significant asset that isn't included in our capital, and is part of a multifaceted, very important relationship. I'm really pleased to see the growth that Andy Briggs and Andy Karen [Phonetic] and their team have achieved at Phoenix as they establish a leading bulk annuity in workplace pension business, which both have significant structural growth opportunities in the UK market. And importantly for me, abrdn is very well placed to support them as they develop their strategy with excellent investment solutions for annuities and for pensions, and also as a supportive shareholder. And finally, a note on the defined benefit staff pension scheme, which has a significant ISA surplus of 0.7 billion. I'm going to explore options that could realize some of this value and you will have seen the DWP consultation that came out only on Friday, which may offer some new opportunities. So just to conclude on outlook. As you can see in our 2023 results, the group's been reshaped. The resulting diversification in sources of revenue and the cost efficiency within Adviser and Interactive Investor, partly offset the impact of net flows and markets that has made profitability in investments very challenging. In 2024, we expect high interest rates to continue and maybe start to fall slowly later in the year. Interest income is expected to be broadly similar for the group. But the outlook for global markets remains uncertain. Headwinds we faced in 2023, and changing client demand and preferences will continue into 2024. Within investments, we expect the global theme of asset rotation from active to passive strategies to continue. This is expected to lead to some further pressure on revenue margin. With this backdrop, we will take proactive steps to improve profitability, and to transform the way we operate through simplification and leveraging technology across the group. As we've said, the work to achieve at least 150 million pounds of annualized cost savings is well underway. And in 2024, we expect group operating expenses, all in, to be around 60 million pounds lower. The strength of our balance sheet underpins our strategic action. Our focus remains to be disciplined in our allocation of capital to drive sustainable growth and to support continued returns to our shareholders. And I hand back to Stephen.
Stephen Bird: Please turn to the next slide, please. So this is the shape of the modern investing company that we're building. We have two leading businesses in the UK, which is an attractive growth area, UK savings and wealth, many of you have written about it. Media and the public really recognize that this is an area that needs further growth in order to help people take ownership of their investing future. Both of the businesses that we have have recently updated their technology to help support their growth and to stay ahead of the competitors. They sit alongside a specialist global investments business that's moved away from a broad water front to a much more focused set of particular skills, so think specialist equities, fixed income and alternatives. I'm pleased to say that within our investments business, so we conduct regular client feedback, and it shows consistent positive client satisfaction within our investments business. I'm very proud of our team there, and particularly in the area of client service. Now, each of these three businesses has good strengths and opportunities, but across the three businesses, we have the investment content that can feed into these distribution channels, and service the segments that these businesses are focused on. I want to set out for you how we see the opportunities and the competitive advantages of these businesses and how we are measuring them as the journey towards growth. Within investments, we've adapted to the evolving landscape. We've focused on the areas with the greatest growth potential, and where we can drive margin. We're focusing on improving investment performance, where it's necessary and also operating the business more efficiently. II operates in the growing 326 billion D2C market. It benefits from our unique subscription model. This provides greater financial resilience, with additional income from trading. FX, and cash margin. We're delivering customer growth, and importantly, growth in SIPPs which brings higher cash balances, and the highest retention rates. Our Adviser business has a long established presence. It has significant market share and it has very strong relationships. Last year, our technology upgrade within that business was designed to differentiate it and to increase Adviser capacity; they want to have more capacity to grow their business. We're focused on three things, increasing the number of tax wrappers per customer, winning more primary relationships, and increasing our overall market share. Let's talk about investments. We all know that it's been an incredibly challenging year for the investment management industry. Cross border flows last year were down 23%, on the three year average, and the active management industry saw almost 600 billion of net outflows. In this context, our AUM was relatively resilient, it was down 2.4%. That was in line with industry trends. This was largely thanks to the resilience of our large alternatives franchise, as you can see here on the slide, and the strength of our Phoenix partnership. Our biggest challenge related to our asset mix; 22% of our overall assets are in Asia and emerging markets versus an industry average of about 11%. This is particularly the case in equities, we have 57% that is exposed to these markets, APAC and emerging markets and in that space we've experienced claim de-risking, particularly at the end of the year, and outflows from equities. Yet we continue to win business in these strategies during the same period of time, so we remain optimistic that when the cycle turns, which it will, our book is well positioned to take the flows into it. Looking at 2024, we expect sales growth to marginally turn positive, as our growth sales are already tracking the industry and we expect marginally net positive gross sales in the industry. Our won not funded pipeline is very healthy. We're currently sitting on 5 billion as won not funded, including 3.5 billion in the Border to Coast mandate that we won last year, the heavily contested mandate that we won last year. Our teams are focused on leveraging our scaled relationship with Phoenix and their thought leadership in pensions to grow in the 1.5 trillion DB market. Fixed income remains a key strength of this group. We have 81% outperformance versus benchmark in that business we have a great fixed income team. When interest rates begin to fall, it benefits that business but we also expect equity income and multi-asset income products to perform well as well. Our emerging market income fund is six [Phonetic] out of 330 funds since we launched it and its top quartile across all three time periods. Our newly repositioned multi-asset offering has good competitive, active and passive offerings, and we aim to leverage those in the Adviser business, Wealth business and in II. Whilst recognizing the cyclical and stylistic challenges of managing a large equity book in emerging markets, we are working very, very hard to improve our investment performance. Under the leadership of Peter Branner, who's been here almost a year, we're leveraging targeted performance improvements where we need to in our fund management business. I can give you an insight into that, over the last three months of 2023, we have close to 50% of the equity franchise outperforming again, so hopefully Peter is doing what we hired him to do. We believe that our large alternatives franchise provides strong growth potential as well and helps clients to achieve diversification. I want to highlight a few things that I'm particularly excited about. Our real estate franchise has been very resilient during the downturn and, although valuations have not yet fully recovered, we expect in March, when these year-end performance numbers are published that that franchise is going to be above 60% outperformance. And we've got some great products in this space. For example, the Pan European Residential Fund, which is the second largest fund in this space, which has nearly 2 billion Euros, and it has a five star GRESB rating, we think that that is one of the best funds in the market. We're also expanding MYS Student Living franchise. You know, we talked a lot about that last year and you'll see us do more in 2024. Private credit is a key area of strength for us, abrdn, and is in high demand. Many of you have written about that and we expect to raise further assets and private credit this year with upcoming new infrastructure offerings. In short, we've taken decisive actions over the last three years to reengineer the investments business and position that business as a global specialist investor. It's not a broad waterfront, it's not all things to all people, it's a specialist investing business. Our disciplined approach has allowed us to refocus what we offer clients, reduce the cost base, and we promised 75, we delivered 102 million cost take out in that business, and it needed it. In 2023, we exited Australia, we sold the US PE business and we announced the sale of the European PE raising over 105 million. We completed our fund rationalization process that we had been talking about for the last two years and we closed or merged subscale funds in order to do that. This involves some tough decisions. It's very hard to do, including the closure of the match reported GARS in December, but the overall program that we executed has resulted in significant cost savings and means now that 74% of our funds are over 100 million assets each. Moving forward, we will continue to capitalize on growth opportunities with specific focus and bolt-on acquisitions. You've heard me talk about the Tekla acquisition. Incidentally, we acquired Tekla last year, spent a lot of time in Boston chasing that down. We acquired Tekla last year, those fund managers who came with it, all doctors investing in health and life sciences. Biotech is having its most sustained increase in value in the last five years and so we're particularly proud that we chose that well. Just lost my teleprompter. Gents, we've gone to a green screen. Letting you -- just pausing to let you absorb the Tekla acquisition. Now let's switch, that was investments. Now let's talk about II. We always wanted a big building for II with a green screen [Indiscernible] Richard that must have been you who did that. So II has transformed the shape of abrdn in the UK positioning us one of the UK is leading personal wealth businesses with strong long-term structural growth. Despite the cost of living crisis that has affected all of us in the UK, II’s subscription-based model offers financial resilience. In 2023, II increased its market share of trades and delivered the highest net AUA among the UK direct platforms. Customer growth was 4% in 2023 and we aim to achieve over 5% in 2024. We've got a series of further improvements in products, increased SIPP penetration, and further strengthening of the II brand. You'll notice II is now advertising on TV. Average assets per customer rose from 134,000 to 152,000. That's average balances, that's two to three times the market average. SIPP customer growth was 21% in 2023 and we believe this rate of growth will continue. You'll recall, I was very excited about II, as a self-invested personal pension platform; the vision of the future where everybody has their pension on their phone. The integration of financial planning and the transferring of insights from II to the investments business will further enhance the grip. Let's talk about Adviser. The Adviser business faced market headwinds in 2023 but the long-term opportunity is clear, and everything we're doing here is about the long-term. With the UK Adviser market expected to grow at 11% through 2028, our focus is on attracting new clients, as I said, and new assets from existing clients. As you know, in 2023, we made a significant tech upgrade that was the biggest tech update in 17 years to that platform, and it was designed to make the platform better for IFAs and their clients. This has laid the foundation for growth of the Adviser business of abrdn, including the next stage of Adviser Experience Program, with the launch of abrdn set and junior set which happens this year. The launch of these products forms a core element of our strategy to increase the number of tax wrappers per customer and grow the existing customer base, as well as attracting new Advisers into our platform. AdviserOS will be launched to clients later this year. You've seen us headline that and it provides a broader range of services to Advisers that improves their business efficiency, and we believe that AdviserOS will be a market differentiator. The other important change we have made is the integration of abrdn's model portfolio service into the Adviser business. In December, we re-priced abrdn MPS and sustainable MPS ranges to make them even more competitive, though, through leveraging existing relationships with 50% of the advice firms, which is what we have, we expect that will dive significant growth for us in the current year. And this example, the NPS example, is an example where having abrdn content within the group benefits the adviser business and benefits the II business. As I said at the beginning, the macroenvironment is very challenging. We have been transforming this business against headwinds, but we've taken decisive action, we've controlled the things that we can control, and we're very determined to do it. We delivered a strong profit performance in the Adviser business and in II this year and that continues to help us, as we transform the investment business. Our cost transformation program that Jason talked about will support improved profitability and investments. We have an extensive list of actions that are already underway in this building to address investment performance. And we have a strong presence in the areas which are relevant to our clients and we think that that will drive future growth as the market turns. We've been clear that there is much more work to do and we are confident in the trajectory that we're building. We've created a business that is much more modern, and has the ability to grow. As a team here at abrdn it is all about the breadth of our team. We're building a stronger company. It's a diversified business model that positions us for success through the cycle. And now Jason and I are happy to take your questions
Operator:
Q - Enrico Bolzoni: Enrico Bolzoni from JP Morgan (NYSE:JPM). Thank you for taking my questions. One starting question on the cash margin guidance you gave. Clearly there's a lot of discussion about the role of the regulator. The FCA is particularly concerned about the proportion of cash margin which is retained. There's the expectation of rates falling a bit this year. What gives you confidence that you'll be able to maintain that same level of profitability on cash balances? And can you just expand a bit on how do you think the regulator looks at this? Is it generally about the entire proposition as a whole? You have a very compelling pricing because you have a flat fee structure. But do you think that they -- in light of that, they just consider it holistically or they could be concerned just for the cash more specifically. My second question may be relates to the fund underperformance. Can you just tell us a bit more in terms for the equity strategies? We know that the performance has not been great versus benchmark, but how do they rank on average versus peers? And can you give us some color in terms of what do you typically see in terms of correlation between the performance and the subsequent flows? And the final question, also related to that, you now reduced the number of strategies to, I think, 580 is the number. Can you give us an idea of how many of these strategies are actually underperforming? So getting a sense of underperformance not just based on AUM, but also based on the number of strategies that actually are doing better or worse than benchmark? Thank you.
Stephen Bird: Terrific. Thank you a comprehensive set of questions there. So let's start and I'm going to hand to Richard. Let’s talk about consumer duty. We have -- the reason we acquired II was because II was the consumer champion in that space. Not just we but [Indiscernible] magazine and everybody else has talked about the fact that it's a compelling value that you can save 30,000 in fees over your investing life by investing with II. We are supporters of consumer duty. Consumer duty is about value and it's about transparency. We did both of those things. And we think that when you are the most compelling value provider, that helps you win the market focuses on value and transparency. But to talk a little bit about consumer duty, and to talk about the way that the regulators think about that perhaps, Richard?
Richard Wilson: Thank you. So firstly, to take the question head on around interest margin, first of all, II pays competitive rates on cash. Number two, we see the higher for longer environment supporting a reasonably stable rates environment through a large part of 2024, so we don't see a significant fall off in margin in 2024. Number three, in terms of the consumer duty, we've welcomed the consumer duty regime from the FCA and we've always advocated transparency, choice and a level playing field. We've clearly -- the challenge of supporting the consumer is never over and, in fact, the FCA when they approached us, I mean, they've highlighted things we can do better on disclosures, so we've updated those and we'll continue to work through that world as the environment changes. Having said that, just to be clear treasury income belongs to the firm, so this notion of agency where it's a retention versus a pass through is not how we operate, so we make a gross margin on Treasury and we pay competitive rates to our customers and we expect that to remain. Obviously it's a competitive landscape, so we monitor rates in the marketplace on an ongoing basis and we're comfortable with our position.
Stephen Bird: Thank you. Thank you very much, Richard. One more, I'm going to turn to Jason just to talk about guidance. But we received the CEO letters from a regulator. We take these things incredibly seriously. We have responded to them. And we think that's entirely appropriate. Jason?
Jason Windsor: I think, as I said in my script, the margins we don't see changing materially, probably not going up and in terms of the cash balances, again, not dissimilar, II is just under 10%, 9-ish percent; Adviser is around 2%, so the baseline of the figures is going to just get roughly in line with the development of the assets under management.
Stephen Bird: Thank you. So let's talk a little bit about the other two questions and I'll turn to René. Performance versus peers, who are also, if you like, a quality equity with EM exposure, and then also with reference to our overall number of strategies; René, can you talk to that.
René Buehlmann: Good morning, everyone. On performance, maybe a bit context, as you know, we are running a quality bias equity franchise. So if you look at what happened in particularly across Asia emerging market, you have seen that value has outperformed over the last two years significantly, so that was certainly a drag on our clients. I think you asked also whether we see impact of clients moving because of that, as a matter of fact, clients know our investment style, so they typically stick to us through these periods. However, to your point, peer performance is super critical in this context. I would say we have been challenged the last two years on the equity side, certainly, particularly last year, our China stock calls were off. So it was not the allocation to China, but actually the stock picking in China and that stuff that we're looking at as we improve performance. I would say, though, across your second question around fund rationalization, are refocusing particularly on funds? With poor performance, absolutely, so we are obviously merging or closing funds where we think we have not a credible value proposition to our clients, and really focus the volumes where we think we have a very credible performance. I would like to just wrap this up for you. When you look at our overall performance, you have seen fixed income very strong, real estate very competitive. We have revamped our multi asset offering and you have seen 67% of our my folio range versus peers now outperforming. Equity is the area where we need to do more work, but as Stephen highlighted, we do a lot of work. We speed that around performance improvement plans and the capabilities, zooming in where we think client demand will be going forward.
Stephen Bird: Thank you. Thank you, René. Bruce, did we answer your question -- oh, sorry. Enrico.
Nicholas Herman: Yes. Hi, it's Nicholas Herman from Citi. So just also three questions, please. We've touched on the first one on cash. We've discussed the margin in percentage of volume. So I know we talked in the past how you expect cash balances to rise over time as you grow in SIPP and obviously 2023, you grew SIPP by 23%, which is very respectable. Nonetheless, cash balances fell. So is it also fair to say that the opportunity to grow cash balances may be somewhat more limited given growing adoption of alternatives, like gilts and money market? And so just interested to see how you see the cash balances evolving over both the short term, but also over the, let's say, medium to longer term, in light of this kind of mix shift, and potentially structural change in demand? Second question, also on cash for Richard, please, and senior management. I mean, you outsource your cash savings operations, I guess, what is the strategic rationale for outsourcing this? I guess, could it make strategic sense to acquire a provider, your provider of that business? And then finally some cost, so you've got it to 3.5% per annum in Adviser and Interactive Investor, II. I guess conceptually that makes sense to me for Advisers. I mean, you are the market leader, you've done a large IT migration. But I guess for II, you are not the market leader. The market leader has some challenges and I guess that kind of also results in some introspection on their part. But surely now is not the time to limit cost growth and more try to take market share. So yeah, thank you.
Stephen Bird: Did Richard ask you to ask that? He passed that to you. Okay, Richard, please.
Richard Wilson: Thank you. So firstly, on the question of cash balances, today, II’s cash balance is around 5.5 billion pounds. What we saw in the latter part of 2022 and 2023 were two things. Number one, there was an adjustment to cash levels given there was risk -- significant risk of failure in 2022 and then subsequently, there was a rotation into fixing for money market, as you pointed out. An example of that, I think in 2023, we had an increase in gilt holdings of around a billion in 2023. Most of that rotation had completed by the end of the third quarter in 2023 and we're now seeing a more steady level. In fact, compared to other platforms that you may have heard of, the changing cash balances is much more muted compared to theirs. To be exact in terms of our cash levels, to give away far too much on the general trading account, the cash levels 7% on ISIS [Phonetic] is 8% and on SIPP it is 12%. We have year-on-year -- in terms of assets -- SIPP asset growth of around 30%, based upon 20 plus percent compound growth and in the [Indiscernible] about 8% growth. So, that will fill a few spreadsheets. Net-net, we expect the overall growth to continue in cash balances, albeit you're entirely right that as choices improve and there's greater efficiency in the marketplace, there will be more discerning choice. The gilts trade clearly was driven by the capital gains free treatment of the discount, is heavily dependent upon the very low coupon gilts out there and of course only really works in a trading account. There's no real tax benefit in the wrappers. So that trade, we're not seeing a great deal of movement increasing into gilts since the 2022, 2023 rotation. In fact, compared to December, we had 1.5 billion of gilts value added at 1.55 and that was largely for people folding the -- rolling the January 2024 gilts into January 2025. So we monitor all things very, very closely. We're now seeing generally a move back to a more orderly, stable marketplace through what was a very dramatic period of interest rates. To the excellent question around investment, thank you for that. What we said back in June last year was that we were going to be more assertive in terms of product, tech, marketing and brand. We've always known that we've had a deficit in brand awareness, which clearly, as you move to a broader audience, is very inefficient in terms of acquisition. So as some of you may have been badgered by we've launched to a series of programs, including advertising. The good news from that is that in January, we've seen an unmistakable increase in brand awareness. I think [Indiscernible] but it's a fairly dramatic increase in awareness. And we're now seeing SEO cannibalizing PPC for all those geeks out there, that's a good thing. And we've invested very hard in rotation to organic capabilities, so we built what I think now as the best commercial team in Europe, who specialize in all of these fields. We moved on price in the third quarter and we've got a very full product pipeline in 2024, which is delivering throughout the year. We're still super cost conscious. It's very easy to spend money and part of the culture in our organization is always to regard this as your own business. So we watch that like a hawk. The long term stat that I worry about is our overall cost on AUA. We're running currently about 18 points. That's a high watermark for us and we expect to drag that down over the cycle to move towards 15 points, which is I think the efficient frontier for our business. But we're investing as hard as we can and in fact, we can't really achieve a great deal more in terms of our marketing spend currently, because the channel fills before we get to an incremental increase in customer, i.e., the channels are constrained so you can only achieve so much. So in fact, we've outperformed in January, February to the extent we've had to dial back on our marketing in terms of customer acquisition that's running at roughly 2x what it was paid for period last year, SIPP acquisition is running at two point something x and in January, our net SIPP inbound transfers were 40% higher than our all time record in the frothy first quarter of 2021. So we're seeing on the one hand an inescapable view that the rotation to organic has been delivered, but we're not interested in spending large CapEx to deliver incremental growth. This is about leverage and technology capability and [Indiscernible]. To your point around the deposit service, we partner with Flagstone to provide a cash deposit service, a number of platforms partner on that solution, one in particular spent a good 10 years building their own in-house. Our overall strategy in terms of capability is to focus on what we're very good at and if we can find high quality partners to work with, irrespective of the field, we'll look at that very carefully so that we don't try to pretend that will master all parts of our sphere. That's an ongoing process but we're comfortable with our current position.
Stephen Bird: Thank you, Richard. Great. Thank you. Bruce?
Hubert Lam: It's Hubert Lam from Bank of America (NYSE:BAC). I’ve got a few questions. Firstly, on capital, I think you mentioned you have 1.5 billion of CET1 capital. Can you talk about how much surplus you have, including management buffer? First question. The second one is also on capital. I think there's been discussion or hopes that you could reduce your capital requirements with the regulator. Has that been -- is that process been over? Is that process over? Just wondering, is there potential to go down further from where we're today; just wondering, any progress around that? And final question around capital with the answer you're going to give me about your surplus, what's -- I guess it was mentioned that you're looking at doing bolt-on M&A, is that something that you're actively pursuing and is that going to be pursued over buybacks? And one last question on the investment yield. I know that's come down to exit rates of 22 basis points, correct me if I'm wrong if that's the number. You're saying you expect that to come down further this year, given the past shift, wondering where you think it would stabilize for the for this year? Thank you.
Jason Windsor: Okay, I'll take that if that's all right. I think the balance sheet is well set up, I don't see huge amount of excess capital. I mean, the regular surplus is just over 100 million pounds but we are not going to be pursuing one-off capital returns, we are going to invest in the business, as I said, in transformation costs in particular, it is 150 million going in there and the key objective is to improve organic capital generation and get value out of that investment. So don't be expecting in a significant one-off capital returns that's not the sort of foreseeable plan. Of course, if we did take the judgment, we had access in the future, we would do that, but the primary objective right now, invest in the core business and maintain the dividend. I don't foresee regulatory or any other form of change. I think let's put that one to bed in the capital base. In terms of M&A appetite, I mean, we might have some, we'd be selective. We've done a few divestments. We bought a few small things. Stephen talked about Tekla, which was last year -- I mean last significant thing that we acquired, that we might look at something that is smallish, but the appetite is modest, there's nothing that we need to sort of forewarn or foreshadow here on that topic. That's the cool part is doing exactly the sort of thing. Richard just talked about investing in the core business, what the guys in the front row were absolutely focused on the organic growth of the core business. On the revenue margin, on the investments business, you are right, it is 22.4 in the first half. I think you surmised it was 22 as an exit rate that is probably not far off the guidance for the first half. I don't want to get too drawn into it, because I could get caught out by markets whipsawing around. As long as fixed income outperforms high yielding equities that change more than I think we thought actually last year, so you can see that, but I think for the sort of foreseeable future, something around that just under 22 maybe level is a pretty reasonable sort of line in the sand.
Unidentified Participant: Thank you. [Indiscernible] here. Two questions, please. First, you mentioned, there was quite a lot of risk aversion in the fixed income space this year with money going to many markets. Some of your competitors have indicated that flows, and fixed income flows in particular, excuse me, year-to-date have picked up quite substantially. I was wondering if you've seen that or when you might expect to see a reversal of what we saw in 2023. And the second question on the Adviser business, this is the first time I think we've seen the SIPP redistribution or agreement with -- the distribution agreement with Phoenix in the P&L in the second half of this year, and I think it was about 15 million. Can you let me know how we should think about that going forward? Is that a full half run rate? Was there a period in there where you didn't benefit from that? Just trying to think about that line item going forward? Thanks.
Stephen Bird: [Indiscernible]. Thank you. So we'll go to Rene, then we'll go to --
Jason Windsor: I will deal with it.
Stephen Bird: You want to deal with it.
Jason Windsor: It is kind of a financial question.
Stephen Bird: Sure. René, you want to talk about the fixed income business.
René Buehlmann: Sure. Just give you a quick color, if you look industry cross flows, cross border flows, January was actually still net negative out, however there are green shoots, fixed income investment grade for the first time was positive and what's maybe worthwhile to highlight, the outflows overall were at the 11 months low, so it's starting to trend. If you look at our pipelines, RFPs within the organization up significantly, so absolutely, there is interest coming back and our pipeline around fixed income is very solid. So yes, the trend will turn hopefully, I think the volatility in the market is up as well, what will predict [Phonetic] these decisions, but I think as we highlighted earlier, I think our fixed income business is very well positioned in that space, so we definitely anticipate to participate when this will turn.
Jason Windsor: On the way that the we presented the SIPP, it's not completely new, it’s been part of a extraction from Phoenix Standard Life (LON:ABDN), which has taken far too long. So -- but it's now in anticipation of the SIPP product becoming our own product and our own platform, which will be a 2024 event. The way that that agreement has been set up has moved effectively from a netting of restructuring costs 50 million pounds revenue into the Adviser segments in 2023 and that will continue. It's not a one-off thing, it will continue into 2024 and beyond, and I am, obviously, quite optimistic about the growth of SIPP both within Interactive and within Adviser.
Stephen Bird: Andrew?
Andrew Crean: Hi, it is Andrew Crean from Autonomous. Three questions. Firstly, the staff pension scheme, if you've got clearance from the Quarter Sessions, the trustees want to do it, you want to do it? How much is the surplus on a buyout basis versus the 0.7 billion after 35% tax? And when will the trustees press the button on that, is that in the next 12 months? Second question, in terms of your cash margin, the bit you didn't answer, if base rates go down to 3%, where does your -- what happens to your margin? And then thirdly, the company has always laid out a capital buffer 0.5 billion, you're now telling us that's 0.9 billion or above. Why have you moved the buffer up and therefore canceled the opportunity for buybacks?
Jason Windsor: So the pension scheme is obviously in significant excess, high as 19, as I said on the slide, I think some 0.75 billion, which is after tax. It's not an economic figure. I'm not going to give you a buyout figure, it's not something that we have -- typically they are lower, as you know. I've got a bit of track record in this game with Andrew. But the opportunities there are not lost on me, let's put it like that. The consultation that came out the other day could be close, depends on the way that gets moved, the way that trustees adopt and the various protections that are provided to trustees. It is likely an external de-risking, could produce an extra value and that's something that we've got, as you say, the authority from the court to attribute the surplus. We've got an arrangement to do so. Need to think through other things and jointly partner, obviously, with the trustees to take that step, but we've not made that decision. But as I said, that's something that is on the cards for 2024. I think that's a reasonable, yeah, I think we need to have a good look at it during the course of this year, and it’s subject to markets. I mean, cash margin, you asked us this in January, I think down to 3-ish percent. We can continue roughly with our current level of return. I think once you get below there, we'll see -- when we make in 2.3, it starts to bite a little bit, but all the way back down to that sort of level we would feel the current guidance that we've given you -- we certainly wouldn't expect that this year, maybe not even next, and who knows we will continue to be reasonably comfortable with the sort of level that we're at today. In terms of management buffers and things like that, I didn't say comfortable with 800 million but that's just the figures that we have. We are not going to run it obviously down to that level. We've got quite a lot of debt in covering that, which is why I tried to turn from talking about regulatory surplus and talking about tier one. I'll probably find more words next time I stand up to articulate where we are and where we think about risk appetite across the balance sheet. We feel comfortable with the balance sheet as it sits today. We're going to make investments from it. We're going to maintain a pretty healthy dividend. So we got good -- pretty clear on uses of capital, sources of capital pretty good and the stock is in a good place, but we're not in the place where we want to say we have excess capital we're going to return.
Charles Bendit: Thanks. Charles Bendit from Redburn Atlantic. So first question on the cost savings. You mentioned, you're expecting a 60 million pounds net reduction or absolute reduction in the group cost base in 2024. What's the same figure for the 150 million gross cost savings program as a whole? So put another way, how much do you expect the cost base to be lower by in absolute terms over the implementation period? So that's the first question. Second question is on Phoenix, wondering if you could just go over the agreement there again. So it sounds like there's been a rotation out of active strategies into passive and this is revenue margin dilutive, and you're expecting that to continue. Is there a full blow which Phoenix can't go in terms of active allocation or could they go to 100% passive? And if they do, what's the end point revenue margin for that slug of business? And then third question. This is on personnel. So as part of the cost reduction efforts, I noticed the variable comp ratio is lower this year than last year and I'm wondering whether there has been or whether you anticipate any impact on employee retention and how you're thinking about this risk? Thanks.
Stephen Bird: So let me take the last part first. We've actually had an improvement in retention in 2023 versus 2022, quite marked, from about 11% attrition to about 8.1% attrition in 2023. We have supported our colleagues very strongly over the last three years in various different mechanisms, whether it be incentive comp, or whether it be in restricted stock units. In fact, this year, we've actually announced the restricted stock plan, which also obviously supports the long-term retention, significant restricted stock plan. So we are very aware of the need to support our top talent. We've attracted a lot of top talent. As you know, we attracted René, Xavi, Peter Branner as CIO. And when we acquired key businesses with talent in it, such as Tekla, we retained that talent and mixed it into our equities team. For example, the Tekla team sitting in Boston, very happy to be here, and they are now collaborating with the rest of our fund managers, because although we didn't have this health and life specialty, we actually already owned quite a lot of health firms. So they were sharpening our understanding of what we own. So we're very aware of it and, obviously, improving profitability means that we can pay more. But this is a reality across the whole space. We're not alone in this. I'm not going to call out the competitors but you've seen the headlines that our reductions are right across the street.
Jason Windsor: So on the on the costs, I think, being pretty clear about 2024, so a 60 million benefit from the program and coincidentally 60 million for group costs, which is a little bit of growth in II and Adviser offset by some of the divestments that we talked about in discretionary and private equity. So approximate guidance for the year, group OpEx is 60 million lower and of which, that's coming from the reduction from the program. We expect to hit the run rate of that program 150 by the end of 2025, so going into 2026, 150 lower. The call out of cost growth is what we just talked about with Richard is around 3% to 5% growth in Interactive and Adviser. If we do better, we'll do a bit more as well, we'll save a bit more. We'll see how it how it plays out. But I'm not going to get into any more. I think I've given you enough, hopefully helpful guidance as to way that I see that developing. There will be a lot of events between now and then, which are likely to knock us off, but that's sort of the way we're thinking about taking that out. And again, 80% of that 150 is aimed at the Investments business, but mainly in the support services. But in terms of the segmental P&L, it's 80% of that, so 120 or so coming through the investment side.
Stephen Bird: So let me talk a little bit about Phoenix. So let me characterize it first and then hand it to René. So when I got here, one of my very first priority was our largest client, so I spent time with Andy. Because at that point, we were actually in legal dispute with Phoenix, we wanted to have a strong relationship, a growing relationship where we were supporting them as investors. You'll recall that the output of that was that we renewed Phoenix, the investment management until 2031. My concern was this business had lost [Indiscernible], I wanted to make sure that the largest client was locked in for the long haul. We've done that. We've actually surveyed Phoenix at multiple levels and they've told us that the relationship has never been better. So that's really important because that's a reflection of fact that myself René, Xavi, Tom Frost, Bob Cast, at every level we are focused on can we help them grow, how are we helping them grow. Workplace pensions, Phoenix were struggling initially with workplace pensions and we had already sold -- my predecessor sold Standard Life Insurance to them, but kept using the name Standard Life. We repatriated Standard Life to make it a competitive workplace proposition. And now you just saw this year the growth of workplace pensions, Phoenix are doing a great job growing workplace, combination of the whole value proposition. So, tax efficient, passive funds engineered by us, plus the strong brand, they win, we win. So that's our focus is making sure we do that. BPA, we are the recipient of the bulk of the BPA that they win. So we're clearly doing the right things, engineering both parts of this partnership to really be focused on growth. You're right, Phoenix, along with everybody else, has rotated out of large cap equities into more efficient investing. We took most of that pain last year. And so that's the frame of relationship with me and Andy. René, you want to talk a little bit about it?
René Buehlmann: Yeah, just highlight; I think performance in their respective area is critical where they go active and passive. As long as we deliver performance, obviously, they will stay active. You have seen also what we report our AUM is actually 11 billion higher at the end of the year than last year, so we start the year at least with a higher AUM basis. I think on the margin basis, you have seen 10.5 last year, this year 10, and we have set roughly that part may be slightly lower. So we don't see a significant change of margins there. And key is what Stephen highlighted, the collaboration is really very constructive, where we have issues on performance, we have a discussion around it, so this is a strong collaboration.
Stephen Bird: Thank you. So I'm a little bit remiss, sorry, we're supposed to go to the phone. Could we -- we have a large virtual audience joining who have any questions.
Operator: [Operator Instructions] And the first question it comes from the line of David McCann from Numis, please go ahead.
David McCann: Okay. Good morning. A few questions for me. To come back on this treasury income interest spread point. I hear Richard point -- well made point there about how you're viewing it. Just wanted to clarify, is this a view that is treasury income is your treasury income, is that a view that the FCA has concurred with? And you can confirm that they're happy with that approach? Or is it still something you'd expect to have to defend over time with them? So that's the first question. Secondly, just on this Phoenix SIPP distribution fee, which is about a question as well as a little bit clarification. Can you give us give us, I guess, some color or guidance on what you see as the run rates, revenue margin for the Adviser business as a whole and indeed what you would see it after the SIPPs business comes on completely? So that would be the second question. Then finally, can you give us some guidance on what the effective tax rate -- adjusted effective tax rate of the business should be; actually standing up again, it's coming from the well below the UK statutory rate? Thank you.
Stephen Bird: Terrific. I mean, first of all, regarding the FCA, obviously the FCA’s process was to send out CEO letters, receive them back with entire industry that is an ongoing and active thing. We have played our part in it. We've got a very constructive and open, as you would expect, nothing less of us, with the regulator, but I really can't comment further than that. Is that fair, Richard. And then the other parts of your question SIPP distribution adviser and then tax rate.
Richard Wilson: I wouldn't say much more on the SIPP distribution, I think we've called that out, we got 15 million this year. That is not a one-off. That is a reset of a baseline, to drift up slightly during the course of 2024 and into 2025, depending on how successful we are, frankly. The tax rates this year was up, but it's still below corporate tax rates, I think it was 15% effective level. There was a whole heap of deferred tax assets and the line going on. I think I would just guide this is likely to trend back toward more normalized levels across the whole group, depending on where we make profits, so could be just below 25 is probably a decent place to draw a line in the sand for guidance, albeit there is a bit of volatility and depending on the way that tax rates move across the across the piece.
Stephen Bird: Thank you. Anything else in the lines?
Operator: There are no further questions on the phone lines.
Stephen Bird: Terrific. Anything further in the room, please? Sitting in the bank row.
Greg Simpson: Greg Simpson from BNP Paribas (OTC:BNPQY). Two quick or three questions maybe. Firstly on --
Stephen Bird: [Indiscernible].
Greg Simpson: On the Adviser platform.
Stephen Bird: Okay, good.
Greg Simpson: Yeah. Here you say about the market being tougher, but some of your listed peers are still having net inflows or flat flows at a slower pace. So what's it going to take to turn flows around there? What's the timeline on this kind of AdviserOS upgrade and getting Advisers on board with that? And then the second question II client growth, you mentioned 5% for 2024. Does that include the transfers from investments that I think you mentioned you have some coming through? Is that kind of inclusive of that or on top? And thirdly, just a quick check on the investments flow messaging, was it you're expecting gross inflows to be up year-on-year but you are still budgeting for kind of net outflows in any kind of areas you're concerned about in terms of client redemptions in the pipeline? Thank you.
Stephen Bird: Terrific. Thank you. Let's take the last one first and then we'll go to Noel on Adviser business, and then we'll go to Richard, on II net customer growth. So I just talked a little bit about the investments market. I go to lots of events with my peers in this space and the whole industry is expecting tepid growth about 2% 2024. But it's an election year, there's very high geopolitical risk, we still have two wars underway, we've got great uncertainty about inflation, so nobody knows. What we know is that our probability weighted, balanced between one not funded and last not yet redeemed is in favor of the positive pipeline, that's who we know, but we don't know. We know that we've improved our position relative to the market every year since the merger. Is this the year it turns, there will be a year it turns. René, you want to talk about?
René Buehlmann: Just doing KPI right now life here. No, I think what you -- to be very honest, we see when you look at our pipelines, fixed income [Indiscernible] highest pipeline. We have a very solid pipeline on alternatives. Equity is a bit to your point the question clients, do they come back risk or not? I think our wedge between high conviction pipeline and assets at risk is positive, our wedge in terms of asset at risk versus one opponent is positive, so I use the word cautiously optimistic.
Stephen Bird: Okay, thank you, René. So now we're good to Noel, and he'll tell us how he's going to grow.
Noel Butwell: So thanks very much for the question. You will know the market was probably the -- well, it was the toughest market, I think, in platform history. We had the lowest level of II sales in 14 years. Q3 was the worst year on record for net flows before Q4 trumped that and then came to a stress. So it's the worst year on record and you'll see that play out. I think we saw a 65% reduction in net flows directly linked to, obviously, the increasing rate environment, increasing inflationary environments, etc. But I think, obviously, around your question, what we also saw them was an increase in outflows. The market went from, I think, about 7.4%, up to 10% of AUA, so that was an industry increase right across; we went from about 7% to 11%, so slightly higher. Part of that is driven by the fact that we're one of the biggest providers in the market, we've been here longer than anybody else, and our average age is a bit higher than some of our competitors. And so that it's more pronounced in terms of times such as these. Now, a big part of our future strategy, you mentioned out AdviserOS, is obviously, how do we actually sort of attract more new clients, as Stephen referred to as part of our strategy, but also new customers. So the next phase of our upgrade is in terms of our OS is the launch of the platform pension, that will come with a junior SIPP, and like the junior IFA [Phonetic], that will be zero charge, there's no charge at all for junior SIPP, Junior IFA. We've got other plans in place in terms of how you actually manage family wealth and family link, etc around some of the pricing stuff that we're looking to do, all of which is linked to that. But in terms of the outlook, I think as far as the market is concerned, I think H2 will probably be very much like -- H1 will be very much like H2 for the short term. That said, I think the 11% realistic outlook, I think, is appropriate, in my opinion.
Stephen Bird: Thank you, Noel. Richard, customer growth?
Richard Wilson: Thank you. So the growth numbers are purely organic. And so we have an adjusted net figure. So we've we acquire a book of business as we've done in our M&A history, we don't include those numbers in our organic numbers, nor do we include the -- as we assimilate the book, there's usually excessive churn as you have customers who saw who wouldn't be necessarily rational customers, or you agitate the book, so you have elevated churn so that we exclude that and we also exclude exits or divestment. So we're trying to adjust for what's a pure organic number, so it's always comparable beard for beard. And to this specific question, so the book migrated in December, it's around 5000 names, so it's not a substantial book and that's excluded from our growth numbers.
Stephen Bird: Thank you, Richard. So that brings the presentation to an end. I want to thank you very much for coming in. Thank you very much for your questions about the company. It's adapting and growing and building. It is tough, especially against the headwind, but I think as you can see there're a lot of new faces here, it's a different company from three years ago, and this team are very capable of executing against it. Thank you.
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