We have teams of skilled investment professionals across a range of investment strategies including equities, fixed income, property and solutions to serve our institutional and retail clients.
On closer inspection equity risk aversion masks significant takeup in so-called passive strategies that aim to capture market performance (or beta), be these regular index tracker funds or the new breed of synthetic exchange traded funds (ETFs) and, prospectively, confusingly-named ‘active’ ETFs. Another important qualification; this battle between active and passive managers is taking place in developed markets.
Risks and solutions We reported last year on the convergence of traditional long only products with alternatives, especially in the use of derivatives, to generate more predictable returns. Multi asset funds are one outcome; retail-friendly hedge funds another.
For example, income or inflation protection has become a starting point for many pension schemes now that in some markets cash returns are negative in real terms. The target for others is lower volatility. For those investors with very long run liability profiles, less liquid assets like infrastructure may have an appeal especially in instances when western banks can no longer participate and a premium return can be captured.
Summary Having spent the past few years consolidating acquisitions, our business today is efficient. This matters because, although our distribution servicing network has been built for higher flows, a prolonged downturn in volumes and markets cannot be ruled out. To extract better economies of scale we need to offer products that people want – this includes more fixed income and solutions. Property is our natural stabiliser.
– Optimise revenue margins by focusing growth on higher margin products.
We have built a global network of offices to serve our clients. To win new business in the current environment demands excellent client service and a strong brand, as well as top investment performance.
We have dedicated teams for client management with performance metrics geared around service levels and client satisfaction.
Global emerging markets 36% Asia Pacific 30% Global/EAFE 27% UK 4% North America 2% Europe 1%
Long-term focus Our mainstream strategies are simple; we buy and hold, add on price dips and take profits on price rises. This reduces transaction costs and keeps portfolios focused. We rarely pursue short-term returns from mainstream equity strategies, albeit for specialist portfolios, activity may be more dynamic.
• Belief that multiple sources of added value improve the risk return profile
Local presence Active property investment requires a local presence. We have expanded in Europe’s heartland, through our Singapore office into Asia and more recently into North America. We now number over 300 professionals based in 13 countries. This unrivalled local reach is essential to our understanding of local markets and our commitment to local decision making.
Structured investment process Our robust investment process links the three essential disciplines of allocation, selection and asset management. We apply it rigorously to all property sectors and geographies. Our principle is to combine advanced top-down research with a pragmatic, but structured, bottom-up approach from our local professionals. The former focuses on managing beta, or portfolio risk, the latter on creating alpha.
• No investment in any asset is made without first interviewing management
Mentoring Our mentoring scheme is now established in the UK and we are in the process of expanding the scheme in Europe and the US and also plan to establish an Asian programme. Mentoring enhances personal and career development and, as a consequence, creates a sustainable talent pipeline. The role of the mentor is to independently offer advice and guidance to allow the individual the opportunity to develop their skills, knowledge and ability.
We fully support performance management and continuous development. Our annual appraisal process for all employees is at the core of our development process, providing an opportunity to discuss performance, set objectives and identify areas for future development.
AuM Our closing AuM is £187.2 billion, 10% higher than September 2011. This change is analysed in the table opposite.
One landmark is the continued strong performance by the European desk, which has now built up a very respectable five year track record. We believe that we are well placed to market these strategies, though of course there still remains a reluctance amongst the international investing community to commit capital to Europe given the ongoing macroeconomic concerns.
UK 30% Europe ex UK 33% Middle East and Africa 8% Americas 17% Asia Pacific 12%
Last, we put a full-time sales presence in Korea, and accordingly expect to see more activity there, starting with global property.
Our compensation ratio, being total staff costs divided by net revenue, of 34.7% (2011: 34.9%) remains competitive within our peer group.
Third party administration costs cover the outsourcing of back office and certain mid office functions. The change in AuM mix, favouring pooled funds, has helped reduce these costs as a percentage of revenue.
Release from reserves to match charge for share-based payments in Income Statement 53.8
The growth in revenues has been focused on key equities in recent years products. Future revenues may be sensitive to stock market fluctuations and changes in investor risk appetite to equities.
Risk of breach of an investment mandate terms leading to action for compensation.
Background and experience Jim was formerly chief executive of CMC Markets Plc. Prior to joining CMC, he was chief operating officer and finance director at Ashmore Group plc, chief financial officer of ICAP Plc from 1999-2006 and group treasurer at Sedgewick Group plc. Jim is a member of the Council of the Institute of Chartered Accountants of Scotland and is an LLB.
Date of appointment Hugh was appointed to the Board on 22 March 2011.
Kerry Christie Global Head of Human Resources Kerry is Global Head of Human Resources and was appointed to the GMB in 2010. She joined Aberdeen in March 2000 and was appointed Head of Human Resources in October 2003. Kerry graduated from Robert Gordon University with a BA in Public Administration and a postgraduate diploma in Personnel Management and is a chartered member of CIPD.
As part of its review of the Group's financial statements, the committee received detailed presentations from the Finance Director on impairment testing, accounting for bonus awards and investments in new fund launches.
Other topics covered on finance included cash management, counterparty risk, transfer pricing and developments in narrative reporting in annual reports as well as updating the committee on developments in accounting standards. The committee encouraged management in its attempts to 'cut clutter' in the 2011 annual report and reduce the number of pages by removing repetition and immaterial disclosures.
Balance between elements of remuneration The bar chart below shows the weighting of the main remuneration components for executive directors. As the chart indicates, performance-related remuneration represents between 64% and 89% of the total, and three-quarters of the performance-related remuneration is delivered in Aberdeen shares.
The table below shows the bonuses awarded to each of the executive directors for 2012 performance, and the split between cash and deferred shares.
Details of the awards which have been made to directors of the Company under the LTIP are shown on page 62.
Directors The names and biographical details of the present directors of the Company are given on pages 36 to 39. Richard Mully was appointed on 23 April 2012 and Rod MacRae was appointed after the year end on 1 October 2012. Both will stand for election at the 2013 Annual General Meeting. Sir Malcolm Rifkind retired as a director on 19 January 2012 and Gerhard Fusenig stepped down from the Board on 7 March 2012. Giles Weaver has decided to retire at the conclusion of the 2013 Annual General Meeting and will not seek re-election. All other directors, who served throughout the year, will retire and, being eligible, offer themselves for re-election. Directors’ interests in the share capital and equity of the Company at the year end were as follows: Ordinary shares of 10p Options 7.9% Perpetual subordinated capital securities
Substantial interests At 23 November 2012, the Company has been notified of the following interests, other than the directors’, of 3% or more in the ordinary shares: Number % of class
Electronic copies of the annual report and financial statements and other publications Copies of the 2012 Annual Report and financial statements, the notice of Annual General Meeting, other corporate publications, press releases and announcements are available on the Company’s website at www.aberdeen-asset.com. Shareholders are encouraged to take advantage of the provisions allowing the Company to deliver notices of meetings and associated documentation electronically via the Company’s investor relations webpages at www.aberdeen-asset.com/ investorrelations, or by email.
Company law requires the directors to prepare Group and Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Company financial statements on the same basis.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of their profit or loss for that period. In preparing each of the Group and Company financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
Independent auditor's report to the members of Aberdeen Asset Management PLC
We have audited the financial statements of Aberdeen Asset Management PLC for the year ended 30 September 2012 set out on pages 67 to 124. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
New standards and interpretations not applied The International Accounting Standards Board has issued the following standards, which are relevant to the Group's reporting but which have not yet been applied and have an effective date after the date of these financial statements: Endorsed by the EU and available for early adoption: Effective date
Rental payments made under operating leases are charged to the income statement on a straight line basis over the term of the lease. Lease incentives received by the Group are recognised as a reduction in the rental expense, recognised on a straight line basis over the term of the lease.
The fair value determined at the grant date of the equitysettled share-based payments is expensed on a straight-line basis over the service period to vesting, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
The fair value of financial instruments that are actively traded on organised financial markets is determined by reference to market bid prices at the close of business on the balance sheet date. For investments where there is no active market, the fair value is determined using valuation techniques. These techniques include recent arm’s length market transactions, reference to the current market value of another financial instrument which is substantially the same, discounted cash flow analysis and option pricing models.
Trade and other receivables 16 3.6 4.4 – – Total non-current assets 1,098.7 1,159.2 1,786.2 1,671.5 Current assets Stocks of shares in managed funds 17 0.2 0.4 – – Assets backing investment contract liabilities 18 2,311.9 1,128.1 – –
Statements of changes in equity For the year to 30 September 2012
The assumed annual increases in operating costs include provision for inflation of salaries and other operating costs, as well as provision for the additional costs associated with the assumed increased levels of business. There are no changes to assumed management fee margins.
Available for sale financial assets (0.8) – 0.8 – – 0.3 0.3
Cash and cash equivalents are subject to floating rates of interest. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term money market funds generate income based on underlying investments, principally in cash deposits and money market instruments with a weighted average maturity of less than 60 days.
During the year the holders of bonds with a value of £3 million exercised their right to convert to ordinary shares. A total of 1,621,621 ordinary shares of 10p each were issued on conversion. On 31 October 2012, the Company notified remaining bondholders that all outstanding bonds in issue on 3 January 2013 will be redeemed in full (note 33). The liability for the convertible bonds has been reclassified as a current liability at 30 September 2012.
Interest bearing loans and borrowings: The major methods and assumptions used in estimating the fair values of financial instruments reflected in the above table are: Securities The fair value of listed investments is based on market bid prices at the balance sheet date without any deduction for transaction costs.
Financial instruments relating to unit linked contracts The Group's life assurance subsidiary provides unit linked wrappers which allow clients to benefit from investing in pooled funds.
Total gains or losses: – In income statement (1.9) – (1.9)
The Group's facilities include £100 million of revolving credit facilities, which are undrawn. The Group has cash balances of £347.9 million at 30 September 2012. Therefore, the current headroom between available facilities and amounts drawn is substantial and the Group’s intention will be to maintain the headroom at a healthy level in the future.
The expected cash flows related to the Group's financial liabilities are as follows: As at 30 September 2012
These asset management vehicles and the investment management fees are summarised below: Gross Revenues £m
Expected age at death for a current female pensioner aged 60 89.8 89.3 3) Major assumptions used by the DEGI scheme actuaries