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Aberdeen Asset Management 2016 Annual Report

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Aberdeen Asset Management 2016 Annual Report Broader diversification, the road to full service Aberdeen Asset Management PLC Annual Report and Accounts 2016 Highlights 2016 in context Our industry is experiencing a number of persistent themes, with investors globally broadening their requirements as they look to diversify risk. The shift from products to solutions requires a full investment suite and scale to deliver cost effective answers and while investing globally adds complexity, it is better supported by managers who can combine global investment with local engagement. To address these trends, over the last few years, we have developed our capabilities and built Aberdeen to be a diversified global asset manager. We close the year with £312.1 billion of AuM and are confident that, with the measures taken to develop strong product capabilities across all asset classes and to develop our distribution team, we remain well positioned to identify and grasp opportunities to deliver further profitable growth. Dividend per share 19.5p Operating margin 32.6% 20 50 19.5 19.5 18.0 40 45.4 43.9 15 16.0 40.6 42.7 30 32.6 10 11.5 20 5 10 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Underlying diluted EPS1 20.7p Assets under management ("AuM") £312.1 billion 35 350 30 32.5 31.1 300 324.4 312.1 25 30.0 250 283.7 20 200 22.6 20.7 200.4 15 150 187.2 10 100 5 50 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Net revenue Statutory profit before tax £1,007.1m -13.8% £221.9m -37.3% 2015: £1,169.0m 2015: £353.7m Underlying profit before tax1 Dividend per share £352.7m -28.3% 19.5p 2015: £491.6m 2015: 19.5p 1 Underlying figures are stated before amortisation, restructuring and acquisition-related items. Our focus, your advantage Overview Aberdeen Asset Management is a Overview Highlights 2 global asset manager with a broad Chairman’s statement 4 range of investment capabilities. As a pure asset manager, without the Strategic report distractions of wider financial services Strategic report Business model 10 activities, we are able to concentrate all The market context 14 of our resources on our core business. Strategic priorities 17 Our people 22 By managing our business to the AuM overview 26 Asset class review 28 same standards we demand of the Financial review 32 companies in which we invest, Risk management 40 we ensure the interests of our clients and our shareholders are aligned. governance Corporate Corporate governance Corporate governance overview 52 Board of directors 54 Group management board 56 Corporate governance report 58 Audit committee 61 Innovation committee 64 Nominations committee 65 Risk committee 66 Remuneration report 68 Directors' report 86 Directors' responsibilities 88 Financial statements Financial statements Accounting policies 92 Financial statements 99 Key facts Notes to financial statements 105 Independent auditor’s report 153 • Founded in 1983 Responsibility statement 160 Five year summary 161 • Listed on the London Stock Exchange since 1991 • 38 offices in 26 countries • Over 2,700 employees information Corporate Corporate information • Over 700 investment professionals Principal offices 162 Corporate information 164 • £312.1 billion in assets under management Financial calendar 164 (as at 30 September 2016) Appendix - Related undertakings 165 Chairman’s statement We have maintained tight control of costs throughout the year and are well advanced in our programme to achieve longer term efficiencies. We had implemented £50 million of annualised savings by the year end and remain on track to achieve the full £70 million target by March 2017. The balance sheet remains strong with healthy levels of cash generation which has enabled the Board to propose an unchanged dividend for the year. The management team has been strengthened with a number Simon Troughton of highly regarded external appointments, including Campbell Chairman Fleming who joined the Group as Global Head of Distribution just before the year-end. Hugh Young has taken on the role of Head I am pleased to present my first statement as Chairman, of Investment, with responsibility for the oversight of the entire following Roger Cornick’s retirement on 30 September. investment division across all asset classes. The early part of 2016 saw the continuation of the volatile and Financial highlights challenging market conditions experienced in 2015. In part, Net revenue for the year of £1,007.1 million was 14% lower than our exposure to developed market equities, fixed income and in 2015; recurring management fee income was also 14% lower, property assets cushioned us from some of this volatility. By mid- while performance fees increased slightly to £15.8 million (2015: year, sentiment rallied strongly. The benefits of improved markets, £13.5 million). The blended average management fee rate was especially for our emerging market and Asian focused asset 33.6 basis points. classes, and the depreciation of sterling supported assets under management (“AuM”) and profit for the year. We have implemented the first £50 million of our cost efficiency programme during the year and, on a constant currency basis, the Recognising that markets and investor sentiment may continue phasing of these savings has reduced 2016 costs by £28 million, to fluctuate, we have remained resolute on the objectives thus negating the additional costs introduced by the FLAG, Arden, that we outlined last year: diversification of our business, cost Advance and Parmenion acquisitions. However, the effect of management and cash management, and these will remain in sterling weakness has increased our overseas costs, such that, focus in 2017. overall, costs have increased by 1%. We ended the year with AuM of £312.1 billion, an increase of Conversion of underlying operating profit to cash has remained 10% over September 2015. The acquisitions of FLAG Capital robust with core operating cash flow of £362.9 million (2015: Management ("FLAG"), Arden Asset Management ("Arden"), £531.7 million), representing a conversion rate of 111% (2015: Advance Emerging Capital Ltd ("Advance") and Parmenion Capital 107%). The balance sheet remains strong with a year-end net cash Partners LLP ("Parmenion") have brought wider capabilities and position of £548.8 million (2015: £567.7 million) and, despite resource to our alternatives business, as well as the opportunity an increase in the requirement during the year, we retain healthy to develop our digital distribution capacity to meet the future headroom above our regulatory capital requirement. needs of our clients. Alongside alternatives, we have continued to promote our multi asset capability with the launch of several The blended fee rate has reduced from 36.1bps to 33.6bps. This is new funds. principally due to product mix, given outflows from higher margin equities, emerging market debt and high yield products and Our investment teams have remained dedicated to following inflows into money market funds. Fee margins within individual our fundamental investment processes in pursuit of consistent investment capabilities remain constant year-on-year. long term performance and we have seen a recovery in equity performance. However, the US election is another in a series of As a consequence of lower revenues, underlying earnings per share political events which continue to impact markets. were 20.7p, compared to 30.0p in 2015. Net outflows were £32.8 billion, which included £8 billion of Dividend multi asset and quantitative investment outflows from lower The Board is recommending a final dividend of 12.0p per share, margin insurance books, some of which are in long-term run-off. making a total payment for the year of 19.5p per share, which is The level of equities outflows declined steadily throughout the unchanged from 2015. The final dividend will be paid on year, although we do still expect some fluctuation from quarter 9 February 2017 to qualifying shareholders on the register at to quarter. We will have outflows in the first quarter of 2017 from 9 December 2016. two lower margin, but large blocks of AuM. It has been pleasing to Acquisitions see more positive investor sentiment towards emerging markets During the year we completed the acquisitions of Arden, Advance as the year progressed and, while industry flows have initially and Parmenion adding £9.5 billion of assets under management. favoured passive and Exchange Traded Funds ("ETF") strategies, Arden and Advance, together with FLAG which was completed we saw healthy net inflows to our emerging markets equities in in August 2015, have been integrated with Aberdeen’s wider the final quarter. alternatives business. 4 Aberdeen Asset Management PLC Annual Report and Accounts 2016 Parmenion will continue to operate as a distinct business over some shorter time periods, longer term track records remain Overview under our ownership, as part of our strategy to capitalise on healthy. Assets under management increased to £89.1 billion advancements in financial technology systems and to become (2015: £80.1 billion). a leader in using technology to provide investors with portfolios Fixed income performance continues to be solid, albeit the appropriate to their needs. continuing low yield environment is a difficult one in which to Investment review excel with more traditional products. The fixed income teams Whilst this has been another tough year for flows overall, the mix now manage AuM of £70.0 billion and we provide clients with effect of these outflows has varied within strategies and asset dedicated fixed income portfolios and a range of pooled funds, classes from 2015 when we saw significant outflows from as well as incorporating these investments into bespoke/tailored equities mainly due to macroeconomic factors towards Asia and multi asset solutions. Our strongest areas of performance are emerging markets. credit and emerging market debt, but the latter suffered outflows as a result of sentiment.
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