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Standard Life Aberdeen blames tough market conditions for lower profits and AUMA

Standard Life Aberdeen said economic and political uncertainties continue to affect investor sentiment
finance
Lloyds is poised to pull about £109bn of assets from the group

Standard Life Aberdeen PLC (LON:SLA) on Tuesday reported lower first-half profits and assets under management and administration (AUMA), blaming challenging market conditions.

The investment company, which was formed out of the merger of Standard Life and Aberdeen Asset Management last August, said adjusted pre-tax profit fell to £478mln in the six months to June 30 from £521mln a year ago. The previous year’s results were prepared as if Standard Life and Aberdeen had always been merged.

AUMA fell to £610.1bn from £627.0bn last year as net outflows rose to £16.6bn from £12.4n.

Adjusted operating income declined to £966mln from £1.04bn, reflecting lower AUMA and a dip in the revenue margin to 32.5 basis points (bps) from 33.7bps.

Investors pulled out of higher margin Global Absolute Return Strategies (GARS) and equities products. 

Earlier this year, Lloyds Banking Group PLC (LON:LLOY) said it would terminate its deal with the company following the merger and is set to withdraw £109bn of assets under management. Aberdeen had been managing assets for Lloyds' Scottish Widows since 2014 when it bought Scottish Life Investment Partnership from the bank.

Lloyds said it had the right to end its agreement if Aberdeen merged with a competitor.  

Addressing net outflows

SLA said net outflows remain a challenge in a tough market but were concentrated in a narrow range of strategies and the company is taking action to improve its performance in GARS, emerging markets and global equities.

“We are actively taking steps to improve our investment performance in key areas and are encouraged by the impact of these initiatives,” chief executives Martin Gilbert and Keith Skeoch said in a statement.  

"We are also pleased by progress on the integration programme and achievement of cost synergies.”

Merger synergies and cost cuts

The firm is targeting more than £350mln of savings, including merger-related cost synergies of £250mln as efficiency savings from its restructuring of more than £100mln.

As part of its restructuring to simplify operations and focus on its investment division, the company agreed to sell its insurance arm to Phoenix Group in a £3.2bn deal in February. The disposal is expected to be completed in the third quarter after shareholders approved the deal in June.

“The sale of our UK and European insurance operations will complete our transformation to a capital light business and enhances our strategic partnership with Phoenix,” the CEOs said.

READ: Standard Life Aberdeen seals £3.24bn life assurance sale to Phoenix a week after Lloyds funds withdrawal blow

The decision to sell the business came shortly after Lloyds said it would axe its contract with the group. 

SLA returns up to £1.75bn to shareholders, lifts interim dividend 

The company is returning up to £1.75bn of capital to shareholders and will begin the first tranche of £175mln in the next few days.

SLA also raised its interim dividend to 7.3p from 7.0p last year.

Looking ahead, the group said market conditions remain challenging as economic and political uncertainties continue to affect investor sentiment. Investors are looking for "new active" investments amid the uncertainties, SLA added. In response, it launched 20 new funds in the first half.

The company said it was “well placed to take advantage of the opportunities and to deal with the challenges that these trends present”.

Shares rose 3.5% to 317p in late morning trading. 

"The shift towards a capital-light fund management company with greater scale makes sense, but hinges on building assets under management, and that isn’t going too well at the moment," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

"Together Standard Life and Aberdeen have a wider product range and distribution network than either company on its own, but need to break on through to the other side of this rough patch for flows."

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