Two asset management firms whose businesses structures fundamentally changed in 2017 due to either a merger or demerger have reported their latest results.
Standard Life Aberdeen reported a 13% reduction in revenue in 2019 after seeing net outflows, but Keith Skeoch, CEO, said flows and investment performance had improved in the second half of the year and that the financial position of the company was strong.
Standard Life Aberdeen and M&G Investments separately reported their financial results on Tuesday. M&G demerged from Prudential plc in 2017 and listed shares in London in 2019, while Standard Life Aberdeen continues to manage the 2017 merger of Standard Life and Aberdeen Asset Management, which is widely considered to be a difficult operation.
After the 13% reduction, fee-based revenue at Standard Life Aberdeen was £1.63 billion (€1.87 billion) due to net outflows in 2018 and 2019, but “synergies” including lower staff and infrastructure costs led to a 4% fall in operating expenses to £1.33 billion.
Adjusted profit before tax was down 10% to £584 million, mainly due to the revenue fall. However, assets under management and administration (AUMA) were up 6% to £544.6 billion.
Skeoch said the business was on track to deliver targeted synergies and had identified more, which should see £400 million of annualised cost savings.
He also said the financial position of the company was strong, in reference partly to a surplus capital position of £1.7 billion that supported investment in the business and shareholder returns. Over £1 billion was returned to shareholders in dividends and buybacks last year.
Pearse Carson, an analyst at investment platform eToro, said the results were better than expected for what has been “a torrid year for the asset management business”.
Saying the 2017 merger had “failed to really deliver, with the share price almost halving since the merger”, he added that outflows had been less than half of what was previously estimated and the dividend of 14.30p should provide more confidence to investors.
“Profits for 2019 were in line with expectations, with a further fall to £438 million pencilled in for 2020. The sale of some non-core assets such as its Indian business and FTSE-listed Phoenix will make the company’s valuation more appealing, but how long will this work before the core business has to face facts? Longer term, the firm will have to keep profit levels up, despite declining AUM, to stave off a dividend cut,” said Carson.
John Foley, chief executive of M&G, said his firm had made a “good start to life as an independent business”.
The firm made £1.033 billion in asset management fees before tax and operating costs for the asset management business were £652 million.
Assets under management and administration increased to £352 billion, mainly due to “strong” investment returns.
Operating profit before tax was £1.15 billion and the firm is on track to deliver annual cost savings of £145 million by 2022 through a five-year transformation plan.
Foley emphasised the firm’s stability in light of the current market turmoil, saying M&G’s Solvency II coverage was estimated at 166%.
In December last year M&G temporarily suspended trading of the M&G Property Portfolio Fund.
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