abrdn plc

Half year results 2023

Part 1 of 3

8 August 2023

"We continued to move at pace to execute our strategy over the first six months of 2023 in a challenging macro environment. Thanks to abrdn's revenue diversification and the resilience we have built into our business with the acquisition of interactive investor last year, we grew revenue by 4% and adjusted operating profit by 10% over the period. We are on track to deliver our £75m cost savings target in Investments as we continue our work to restore that business to a more acceptable level of profitability.

We have a strong balance sheet, bolstered by £535m of cash realised during the period from the sales of our non-core Indian investments in HDFC Life and HDFC Asset Management. This supported a share buyback of £150m, which is near completion, and we are announcing an extension to this programme to £300m. We have also deployed capital during this period to further strengthen our position in Investments through bolt-on acquisitions. We look forward to completing our acquisition of the specialist healthcare fund management business of the US-based Tekla Capital, during H2, which will add some $3.2bn¹ of AUM and $32m¹ of revenues."

Stephen Bird, Chief Executive Officer

Media

A conference call for the media will take place at 08:00am (BST) on 8 August 2023. To access the conference call, you will need to pre-register at: https://event.loopup.com/SelfRegistration/registration.aspx?booking=DRKZbXkIeQh4cubwZHMpNRO3cEyEX64RZI38at9Yn1A=&b=2389e96d-457b-46a8-bebb-fec356d5b031

Institutional investors and analysts

A presentation for analysts and investors will take place via webcast at 09:45am (BST) on 8 August 2023. To view the webcast live please go to www.abrdn.com

FOR A PDF VERSION OF THE FULL HALF YEAR REPORT, PLEASE CLICK HERE

http://www.rns-pdf.londonstockexchange.com/rns/5704I_1-2023-8-7.pdf

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abrdn plc's LEI Code is 0TMBS544NMO7GLCE7H90

The Half year results 2023 are published on the Group's website at www.abrdn.com/hyresults

The Management report (section 1) is on pages 1 to 13. Details of forward-looking statements can be found on page 68.

Certain measures such as adjusted operating profit, adjusted profit before tax, adjusted capital generation and cost/income ratio, are not defined under International Financial Reporting Standards (IFRS) and are therefore termed alternative performance measures (APMs).

APMs should be read together with the Group's condensed consolidated income statement, condensed consolidated statement of financial position and condensed consolidated statement of cash flows, which are presented in the Financial information section of this report. Further details on APMs are included in Supplementary information.

See Supplementary information for details on AUMA, net flows and the investment performance calculation. Net flows on page 1 excludes Institutional and Retail Wealth liquidity flows as they are volatile and lower margin. It also excludes Lloyds Banking Group (LBG) tranche withdrawals in H1 2022 relating to the settlement of arbitration with LBG.

All movements shown are compared to H1 2022 unless otherwise stated.

1. Based on 2022 figures.

Half year 2023 results summary

Benefiting from a stronger business model

-    Results in H1 2023 evidence the benefit of our diversification strategy with a full six months of ii (H1 2022: one month) making a positive contribution, offset by the impact of continued challenging market conditions and net outflows from the 'risk-off' environment.

-    Net operating revenue was 4% higher at £721m, with growth in Adviser and Personal offsetting lower revenue in Investments.

-    Adjusted operating profit was up 10% to £127m.

-    Cost/income ratio improved marginally to 82% (H1 2022: 83%) with adjusted operating expenses up by 2% to £594m due mainly to the inclusion of ii.

-    IFRS loss before tax of £169m (H1 2022: loss £326m¹), largely driven by the fall in market value of our listed stakes.

-    AUMA was £496bn (FY 2022: £500bn), down 1% reflecting the impact of net outflows.

-    Net outflows excluding liquidity of £4.4bn with positive flows of £1.9bn in ii offset by outflows in Investments and Adviser.

-    Interim dividend of 7.3p, covered 1.04 times by adjusted capital generation of £142m.

Market conditions impact Investments as costs continue to fall

-    Net operating revenue in Investments is 15% lower at £466m due to lower average AUM and net outflows, particularly in equities as client asset allocation moved to debt products and cash in the rising interest rate environment.

-    Adjusted operating profit is down 66% to £26m (H1 2022: £76m) reflecting challenging conditions impacting the sector and the decline in revenue.

-    Adjusted operating expenses down 6% and on track to deliver the £75m net cost reduction target with £30m realised in H1.

Strong earnings in Adviser despite challenging market conditions

-    Net operating revenue 12% higher to £103m (H1 2022: £92m) driven by higher average cash margin of c215bps reflecting higher interest rates. The indicative average cash margin for 2023 is now c225bps.

-    Adjusted operating profit was up 29% at £49m (H1 2022: £38m) due to higher revenue and flat costs.

-    Net outflows of £0.6bn (H1 2022: £1.4bn inflows) reflect slow down seen across the market, and customer response to increased cost of living.

Personal benefiting from ii's robust operating model delivering growth

-    Personal includes benefit of full six months of ii revenue, with total net operating revenue up 162% to £152m (H1 2022: £58m). Assuming ii had been owned for an equivalent period in H1 2022, net operating revenue would be up 27%.

-    Treasury income of £66m (H1 2022: £5m) benefited from rising interest rates with an average cash margin of 229bps. The indicative average cash margin for 2023 is now expected to be 180-200bps.

-    Customer growth, excluding the run-off from acquired books, was subdued as expected at 1%.

-    SIPP customers grew to 57.2k (FY 2022: 51.5k) with penetration increasing to 14% of customer base.

Redeployment and distribution of capital

-    Strong capital position with surplus regulatory capital of £1,017m and a further unrecognised £554m in the value of the Phoenix stake.

-    Final holdings in Indian stakes sold raising £535m net cash proceeds.

-    Initial £150m share buyback close to completion and we are announcing the extension of this by a further £150m to a total of £300m.

-    We will continue to be disciplined in our allocation of capital, investing in the business in order to drive growth and to support continued returns to shareholders.

Outlook

-    The benefits of diversification are already evident with Adviser and Personal on a stronger trajectory of growth, with more efficient operating margins and clear opportunities for the future.

-    Outlook for global markets remains uncertain and we are taking actions to put our Investments business on a better footing. This is through both focusing on our key areas of strength to drive revenue growth and simplifying the operating model. In the short term, additional headwinds arise from changing client demand and preferences.

1. Comparatives have been restated for the HASL implementation of IFRS 17. Refer Note 4.1(a)(i).

2. Comparative as at 31 December 2022.

3. % of AUM above benchmark over three years. Further details on the calculation of investment performance are provided in Supplementary information.

Chief Executive Officer's statement

Building a stronger abrdn

As we move through 2023 we have remained focused on driving through our strategy and delivering the operational improvements needed to underpin future success. Despite a tough macro environment, the resilience that we have built into the group means we can report good progress.

Results for H1 show net operating revenue up 4% to £721m and adjusted operating profit up 10% to £127m on last year. An IFRS loss before tax of £169m for the six months, reflects £320m of adjusting items. This was largely due to a £181m reduction in the value of the listed stakes held on our balance sheet as a result of their falling share prices in H1 2023.

The results underline the resilience created by our diversification. The net operating revenue increase on last year was due to the benefit of six months of ii (H1 2022: one month). Excluding ii, net operating revenue reduced by 11%. Adjusted operating expenses increased 2% year on year, again mainly due to the full contribution from ii. With growing revenues overall, our cost/income ratio improved slightly to 82% (H1 2022: 83%).

Progressing our strategy

Looking over the half, we have made further substantial progress in our transformation. We continue to attract top talent to abrdn as we simplify and embed our structure. Ian Jenkins has provided strong leadership as our interim CFO and we recently announced that Jason Windsor will be joining us later this year. A very talented and experienced finance leader, we are looking forward to working with him.

In Investments, we announced in May important changes to accelerate growth across the business with Réne Buehlmann becoming sole CEO of that business. Peter Branner has joined as Chief Investment Officer, and Xavier Meyer was promoted to Head of UK and EMEA as well as being Chief Client Officer.

We sold the remaining HDFC Life and HDFC Asset Management stakes during the period, realising £576m of capital and further simplifying our structure. We have continued to return capital in line with our commitment, with the initial £150m share buyback substantially complete. We are announcing the extension of this programme to £300m.We have carried on our track record of strategic bolt-on acquisitions, building out our global top three position in closed-end funds with the announced Tekla acquisition. We have identified several mega-trends that will shape our industry with significant innovations in biotech and healthcare, clean tech and digital assets. You can expect to see us make more investments in these areas.

We have carried on our track record of strategic bolt-on acquisitions, building out our global top three position in

closed-end funds with the recently announced Tekla acquisition. We have identified several mega-trends that will shape our industry with significant innovations in biotech and healthcare, clean tech and digital assets. You can expect to see us make more investments in these areas.

We have announced the sales of our non-core US private equity and venture capital business and our discretionary fund management business, which we expect to complete in H2. Our operational progress has also continued at pace; we have delivered £30m of our net savings target in Investments in the first half and we are on track to deliver the targeted £75m by the end of 2023.

With the substantial reshaping of our asset management arm, we are positioning abrdn for growth across its three businesses: Investments, Adviser and Personal. We have built a diversified model that better serves our clients and gives us many more ways to win business.

In another turbulent investing year, the contributions of Personal (largely thanks to ii) and Adviser offset the challenging results in Investments. Overall, Personal and Adviser represented more than 85% of abrdn's adjusted operating profit. Diversification is also helping our margin mix, as the platforms have a significantly lower cost to serve than our asset management business.

Investments

If 2022 was one of the hardest investing years in living memory, 2023 is shaping up to be equally challenging. Geopolitical risk is back. Inflation is back. Credit risk is back. The changing dynamics and challenges within traditional asset management are well known - the relentless rise of passive and index investing, democratisation of technology and finance and the faster growth of alternatives are all ongoing themes.

We have been reshaping the business to take account of these factors, although in Investments we still have further to go. Net operating revenue reduced by 15% to £466m and adjusted operating profit by 66% to £26m. As part of our work to address the level of profitability in the Investments business, comprehensive efforts to improve the operating margin are ongoing.

This was always the longest-cycle transformation given the structural challenges and the nature of change in active asset management. We are simplifying our product range, getting out of undifferentiated and low-margin areas and we are reducing cost and complexity so that we are focused on delivering higher margin products with good performance.

Net outflows excluding liquidity and LBG were less than 2% of opening AUM at £5.7bn (H1 2022: £5.2bn). As we look ahead, we are encouraged by a strong pipeline of opportunities across our core strengths in Public markets and Alternatives which should drive new business inflows as we create positive value for our clients and the firm.

In Public markets, we see our biggest growth opportunity in fixed income. We have considerable scale at £125bn AUM, including the assets we manage for Phoenix, alongside strong performance, expertise and product range. Fixed income remains a core competency from our heritage, and for an asset class that has been out of favour for many years given the recent low yield environment, it is now back in vogue and our pipeline is promising.

This potential is underpinned by performance with 77% of our fixed income capabilities outperforming over three years; in credit, where we have particular strength, 99% of our assets are outperforming over three years.

In specialist equities, we are focused on our established and recognised areas of strength - Asia and emerging markets, small and midcap, equity income and sustainability. The structural growth opportunity in Asia is well understood, and we as a firm and our product line-up are well positioned; 78% of our emerging markets equities AUM is outperforming over three years.

With £81bn of assets in our Alternatives franchise we are a scale player and are benefiting from recent repositioning. In the logistics space, Tritax remains a leading player with two of the biggest listed logistics funds in the market and we are seeing a solid demand pipeline for our private credit strategies. We also recently announced the creation of tokenised representations of interests in our abrdn Sterling flagship liquidity fund on the Archax platform, a key milestone in our digital assets strategy.

These examples illustrate the strength of foundations that are now in place and we are working hard to build on these foundations to capitalise on the growth opportunities in front of us.

Notwithstanding these areas of clear strength, we recognise that overall investment performance, at 58% over the key three-year period (FY 2022: 65%), is not what where we want it to be. We are very clear that there remains meaningful work to do to address the parts of our business that face headwinds on performance or where we are sub-scale, and we are acting accordingly.

We continued to reduce cost and headcount in H1 2023, consolidating the progress made in 2022, and continued to adjust our geographic footprint, entering into distribution arrangements where on the ground presence is too costly.

We have announced the reshaping and focusing of our multi-asset capabilities and our broader work to rationalise products and sub-scale funds is well underway. We originally designated 120 funds for closure or merger, subsequently increased that to 143, and by the end of the half year we had completed 101.

Work is underway to reduce cost, address remaining areas of performance weakness and improve our revenue yield. Clear plans are in place to achieve these goals. We are confident that through this work, a capable and relevant abrdn Investments business will emerge.

Adviser

In Adviser we have delivered another year of adjusted operating profit growth. Against the backdrop of the high inflationary environment this has been achieved through disciplined cost management and the benefit of increased net interest margin. This delivers one of the best platform cost/income ratios in the market, and we remain the only AKG A rated platform for financial strength.

High inflation and interest rates resulted in net flows being down significantly for the adviser platform market as a whole. We saw net outflows of £0.6bn in H1 2023. Adjusted operating profit increased by 29% to £49m, mainly reflecting higher net interest margin.

In February we delivered the next stage of our Adviser Experience Programme, our most significant technology upgrade since the launch of the platform. The new functionality has fundamentally changed our proposition and has set the foundations for future growth.

Having embedded our technology upgrade, we are focused on delivering the next stage of our Adviser Experience Programme through adviserOS later in the year, which will launch concurrently with our new on-platform pension. adviserOS amplifies our position as a leader in content and experience, acting as our key differentiator in the market. adviserOS will replace Wrap and Elevate, delivering a single, flexible proposition to advisers.

Despite the current market caution, the medium-term market opportunity remains compelling. Using the capacity created from our technology upgrade, along with the planned launch of our new pension product later in the year, we are well positioned to drive new business through our three growth pillars - our c425,000 existing customers, new customers and new adviser clients - and remain a market leader at the forefront of this growing market.

Personal

The acquisition of ii transformed our Personal business, and that is again clear in the results for H1 2023, which include a full six months' contribution from ii compared to one month for H1 2022.

ii's performance continues to exceed our initial expectations, with a net operating revenue of £115m and an adjusted operating profit of £67m in H1 2023. Based on the first full 12 months of ownership, the £1.49bn purchase price represents a multiple of 15 times post tax adjusted earnings. For Personal as a whole, net operating revenue was £152m and adjusted operating profit £61m.

We see a number of opportunities for growth, as explained at our Spotlight on Personal last month, including; greater SIPP penetration, new services, an increased focus on brand and marketing and greater synergies across the Personal business. Combined, we believe we are looking at a very exciting proposition.

High inflation and interest rates are affecting short-term investor confidence with consequent impacts on customer acquisition and trading levels (revenue 26% down on H1 2022). New customer numbers have been lower than expected, however, excluding the run-off from the two most recent ii client acquisitions, our customer base has grown by 1% in the first half.

Treasury income and the quality of our subscription model, which is insensitive to market levels, combined with a continuous focus on service, simplification and digitisation has supported increased operating margin and an improvement in our cost efficiency. This resulted in a 42% cost/income ratio for ii and the overall cost/income ratio for the Personal business improving to 60% (H1 2022: 88%).

While we expect this environment to persist in 2023 we plan to continue to take market share, supported by recent re-pricing. We also expect to continue to benefit from structural drivers and a supportive regulatory environment making simplified advice and investing more accessible to a larger customer base.

Strategic approach and outlook

We are disciplined allocators of capital. We have invested in high quality businesses that will generate long-term growth. At the same time we have made sure that we can deliver sustainable dividends, complemented by share buybacks in order to drive shareholder returns.

We are delivering on our ambition to make returns to shareholders at similar levels to 2022, with the announcement to extend the buyback by a further £150m to a total of £300m, delivering a combined £0.6bn of shareholder returns through dividends and buybacks.

When we feel we can deliver value from other bolt-on M&A opportunities, you can expect us to be disciplined and effective in our execution.

The dividend guidance remains unchanged at 14.6p per share per annum until at least 1.5 times covered by adjusted capital generation.

We have made significant progress since we set out on our strategy in early 2021. The business has been reshaped to deliver greater resilience, while getting set to take advantage of fast moving sectoral and macroeconomic factors. There is still work to do to complete our transformation, but as we look ahead to the next phase of our plan, we now have the key management resources on board and a far more secure and dynamic foundation on which we can build for the future.

Stephen Bird

Chief Executive Officer

Results summary

The IFRS loss before tax was £169m (H1 2022: loss £326m) including an adjusted operating profit of £127m (H1 2022: £115m). Adjusting items were £320m (H1 2022: £425m):

-    Losses of £181m (H1 2022: losses £313m) from the change in fair value of significant listed investments (HDFC Asset Management, HDFC Life and Phoenix) as a result of the fall in the share price of these companies in H1 2023.

-    Restructuring and corporate transaction expenses were £113m (H1 2022: £88m), mainly consisting of property related impairments, severance, platform transformation and specific costs to effect savings in Investments.

Adjusted operating profit was 10% higher than H1 2022 due to the H1 2023 results including a contribution from ii for the full six months (H1 2022: one month) which benefited net operating revenue by £115m (H1 2022: £13m) and adjusted operating profit by £67m (H1 2022: £6m). Excluding ii, adjusted operating profit was 45% lower than H1 2022 at £60m (H1 2022: £109m) largely due to the revenue impact of adverse market movements which particularly impacted high yielding equities.

Net operating revenue

Net operating revenue increased by 4% reflecting:

-   Impact from net outflows² of 4% (H1 2022: <1%), and adverse yield movements.

-   Although the market declines seen in 2022 began to reverse in H1 2023, the lower average AUMA compared with H1 2022 impacted revenue by c5%.

-   Benefit of £102m from the full six months of ii in H1 2023.

The diversification that now drives our sources of revenue has helped to mitigate the impact of market volatility, including the benefit from ii's subscription model and the higher total net interest margin (H1 2023: £81m, H1 2022: £8m). Total net operating revenue increased by 4%. Excluding ii, net operating revenue reduced by 11%.

Adjusted operating expenses

Adjusted operating expenses increased 2% mainly due to the inclusion of £48m (H1 2022: £7m) of ii expenses for the full six month period. Excluding ii, expenses were 5% lower at £546m (H1 2022: £574m) reflecting:

-    7% lower staff costs (excluding variable compensation), with the benefit of lower FTEs (11%), partly offset by wage inflation.

-    Variable compensation (excluding ii) broadly in line with business performance.

-    4% lower non-staff costs, with cost savings partly offset by the impact of inflation.

-    Overall expenses were impacted by c£6m from adverse FX movements.

The cost/income ratio improved slightly to 82% (H1 2022: 83%) reflecting the benefit from the efficient Adviser and Personal cost models, offset by lower revenue in Investments.

1. Comparatives have been restated for the HASL implementation of IFRS 17. Refer Note 4.1(a)(i).

2. Reflects the estimated impact on net operating revenue as a result of net outflows in both the current and prior period, as a percentage of prior period revenue.

3. See Supplementary information for a reconciliation to IFRS staff and other employee related costs.

Investments

Institutional and Retail Wealth

1. Wholesale has been renamed Retail Wealth, Insurance has been renamed Insurance Partners.

2. Includes performance fees of £7m (H1 2022: £10m).

3. As at 31 December 2022.

4. Institutional/Retail Wealth liquidity net flows excluded.

5. Flows excluding LBG do not include the final tranche withdrawals in H1 2022 of £24.4bn relating to the settlement of arbitration with LBG.

Insurance Partners

Investment performance

Investment performance over the key three-year time period has weakened, with 58% of AUM covered by this metric ahead of benchmark (FY 2022: 65%). The drop in the three-year performance for equities is in part driven by the volatile returns experienced through the COVID pandemic months of 2020.

Over one year there has been an improvement in equities outperformance where the market backdrop has been more favourable to our quality and growth outcomes. Performance for our Global Emerging Markets range and Global Quality strategy has been strong along with a recovery in Europe, US and Global Small Cap funds. The underperformance and stalling of a recovery in China however has been a headwind for our Asia and China strategies this year.

Performance for alternatives, fixed income and liquidity remains consistently strong across the periods and illustrates the resilience of our performance delivery in these asset classes.

2023 so far has been a more challenging backdrop for our multi-asset strategies where defensively positioned balanced pension and absolute return strategies have underperformed. Real asset valuations also experienced some of the sharpest corrections in history in 2022 given the higher interest rate backdrop which has impacted returns over all periods but particularly over the last 12 months. Q1 2023 however saw some stabilisation in direct real estate capital values and outperformance of abrdn UK pooled funds.

Over the longer term, five-year performance remains robust and we continue to take actions to improve investment performance which is key for client outcomes across asset classes. These include the appointment of Peter Branner as CIO to further support and enhance our investment processes and capabilities.

1. Calculations for investment performance use a closing AUM weighting basis and are made gross of fees except where the stated comparator is net of fees. Benchmarks differ by fund and are defined in the investment management agreement or prospectus, as appropriate. These benchmarks are primarily based on indices or peer groups. Further details about the calculation of investment performance are included in the Supplementary information section.

Adviser

1. The threesixty and MPS businesses moved from Personal Wealth to Adviser from January 2023 and May 2023 respectively. Comparatives have not been restated.

2. Includes Platform AUA at 30 June 2023 of £69.3bn (31 December 2022: £68.5bn).

3. As at 31 December 2022.

Personal

1. Net operating revenue yield is shown for Personal Wealth only. Revenue for interactive investor is not aligned with AUA and therefore revenue yield is not presented.

2. The threesixty and MPS businesses moved from Personal Wealth to Adviser from January 2023 and May 2023 respectively. Comparatives have not been restated.

3. Comparative as at 31 December 2022.

4. Results for interactive investor included following the completion of the acquisition on 27 May 2022.

Overall performance

Adjusted net financing costs and investment return

Adjusted net financing costs and investment return resulted in a gain of £24m (H1 2022: loss £16m):

-    Investment losses, including from seed capital and co-investment fund holdings reduced to £9m (H1 2022: loss £25m).

-    Net finance income of £17m (H1 2022: costs £6m) reflecting a higher rate of interest on cash and liquid assets and the benefit from the redemption of the 5.5% Sterling fixed rate subordinated notes in December 2022.

-    Higher net interest credit relating to the staff pension schemes of £16m (H1 2022: £15m) reflecting an increase in the opening discount rate due to a rise in corporate bond yields.

1. Investments net flows exclude Institutional/Retail Wealth liquidity and LBG tranche withdrawals.

2. Adjusted operating profit relates to adjusted operating expenses £9m (H1 2022: £6m).

3. Comparatives have been restated for the HASL implementation of IFRS 17. Refer Note 4.1(a)(i).

Adjusting items

Restructuring and corporate transaction expenses were £113m, comprising restructuring costs of £90m (H1 2022: £70m) in property related impairments, severance, platform transformation, and specific costs to effect savings in Investments, and £23m (H1 2022: £18m) of corporate transaction costs including expenses in 2023 relating to the sales of our discretionary fund management business and our US private equity and venture capital business.

Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts increased to £102m, mainly due to the impairment of goodwill of £37m (H1 2022: £nil). The impairments comprise £23m for our financial planning business and £14m for Finimize. The impairments include the impact of lower projected revenues as a result of adverse markets and macroeconomic conditions, and for Finimize the impact of lower short-term projected growth following a strategic shift that prioritises profitability over revenue growth. Further details are provided in Note 4.12 of the Financial information section.

Profit on disposal of interests in associates was £nil. The H1 2022 profit of £6m related to the sale of our stake in Origo Services Limited.

Change in fair value of significant listed investments of (£181m) from market movements is analysed in the table below:

The negative market movement in HDFC Life and HDFC Asset Management in H1 2023 includes the impact of the final stake sales in these businesses on 31 May 2023 and 20 June 2023 respectively.

Dividends from significant listed investments relates to our shareholdings in Phoenix (£27m) and HDFC Asset Management (£10m).

Share of profit or loss from associates and joint ventures increased to a profit of £4m (H1 2022: £nil). The results for HASL have been impacted by the adoption of IFRS 17 on 1 January 2023. As required by IFRS 17, the standard has been applied retrospectively with a resulting restatement of the carrying value of the joint venture and opening retained earnings as at 1 January 2022. This change resulted in our H1 2022 share of HASL profit reducing from the £8m previously reported to £2m.

Loss on impairment of interests in associates was £nil. The £9m in H1 2022 related to an impairment of Tenet Group Ltd.

Other adjusting items in H1 2023 includes the £36m liability insurance recovery of the £41m single process execution event provision reflected at FY 2022, net of a £5m excess. See Note 4.9 for further details of other adjusting items.

Tax

The total IFRS tax credit attributable to the loss for the period was £24m (H1 2022: credit £31m), including a tax credit attributable to adjusting items of £48m (H1 2022: credit £44m), resulting in an effective tax rate of 14% on the total IFRS loss (H1 2022: 10%). The difference to the UK Corporation Tax rate of 23.5% is mainly driven by:

-   Fair value movements on our investments in Phoenix and HDFC Life not being subject to tax.

-    Movements in the fair value of our investment in HDFC Asset Management being tax effected at the Indian long-term capital gains tax rate, which is lower than the UK Corporation Tax rate.

-    Goodwill impairments not deductible for tax purposes.

-    Prior year adjustments to deferred tax liabilities on intangibles.

The tax expense attributable to adjusted profit is £24m (H1 2022: £13m), an effective tax rate of 16% (H1 2022: 13%). This is lower than the 23.5% UK rate primarily due to movements in the pension scheme surplus included on a net of tax basis and the effect of changes in the applicable deferred tax rates on temporary differences.

1. Comparatives have been restated for the HASL implementation of IFRS 17. Refer Note 4.1(a)(i).

Earnings per share

-    Adjusted diluted earnings per share increased to 6.2p (H1 2022: 3.7p) due to the higher adjusted profit after tax and the benefit from the share buyback in H2 2022.

-    Diluted earnings per share was a loss of 7.7p (H1 2022: loss 14.2p) reflecting the factors above, impairments and fair value losses of significant listed investments.

Dividends

The Board has declared an interim dividend for 2023 of 7.3p (H1 2022: 7.3p) per share which will be paid on 26 September 2023. The dividend payment is expected to be £137m.

As a result of the higher adjusted profit in the period, dividend cover on an adjusted capital generation basis was 1.04 times.

The adjusted capital generation trend and related dividend coverage is shown below:

Diagram removed for the purposes of this announcement.  However it can be viewed in full in the pdf document

It remains the Board's current intention to maintain the total annual dividend at 14.6p (with the interim and final both at 7.3p per share), until it is covered at least 1.5 times by adjusted capital generation, at which point the Board will seek to grow the dividend in line with its assessment of the underlying medium-term growth in profitability.

Return of capital

On 5 June 2023 we commenced a share buyback of up to £150m and we are announcing the extension of this programme by a further £150m to a total of £300m. As at 4 August 2023, we have returned £146m, with 67m shares repurchased at an average price of £2.17 per share.

Capital and liquidity

Adjusted capital generation

Adjusted capital generation which shows how adjusted profit contributes to regulatory capital increased by 33% to £142m.

Net movement in IFPR surplus regulatory capital

The indicative surplus regulatory capital at 30 June 2023 was £1,017m (FY 2022: £718m). Disposal of our remaining HDFC Life and HDFC AMC stakes, in May and June 2023 respectively, benefited regulatory capital by £576m, with the £150m share buyback announced in June 2023 fully reflected in the Group's capital position.

Key movements in surplus regulatory capital are shown in the table below.

1. Capital benefit of HDFC Asset Management sales reflects the pre-tax proceeds.

The full value of the Group's significant listed investments is excluded from the capital position under IFPR.

Cash and liquid resources and distributable reserves

Cash and liquid resources remained robust at £1.9bn at 30 June 2023 (FY 2022: £1.7bn). These resources are high quality and mainly invested in cash, money market instruments and short-term debt securities. Further information on cash and liquid resources, and a reconciliation to IFRS cash and cash equivalents, are provided in Supplementary information.

At 30 June 2023 abrdn plc had £2.9bn (FY 2022: £3.2bn) of distributable reserves.

IFRS net cash flows

-    Net cash inflows from operating activities were £77m (H1 2022: £56m) which includes outflows from restructuring and corporate transaction expenses, net of tax, of £49m (H1 2022: £71m).

-    Net cash inflows from investing activities were £504m (H1 2022: outflows £325m) and primarily reflected £535m net proceeds from the final HDFC Asset Management and HDFC Life stake sales.

-    Net cash outflows from financing activities were £304m (H1 2022: £234m) with the increase mainly due to the share buyback in H1 2023.

The cash inflows and outflows described above resulted in closing cash and cash equivalents of £1,427m as at 30 June 2023 (FY 2022: £1,166m).

IFRS net assets

IFRS net assets attributable to equity holders decreased to £5.2bn (FY 2022: £5.6bn¹) mainly due to the IFRS loss before tax and dividends paid in the period:

-    Intangible assets reduced to £1.5bn (FY 2022: £1.6bn) due to amortisation and impairments. Further details are provided in Note 4.12.

-    The principal defined benefit staff pension scheme, which is closed to future accrual, continues to have a significant surplus of £0.8bn (FY 2022: £0.8bn). Further details are provided in Note 4.16. As part of ongoing actions taken in recent years to reduce risk in abrdn's principal defined benefit pension plan, the trustee submitted a petition to the Court of Session in March 2023 seeking a direction on the destination of any residual surplus assets that remain after all plan-related obligations are settled or otherwise provided for. On 1 August 2023, the Court of Session, among other things, confirmed that if a buy-out were to be completed and sufficient provision made for: (i) any remaining liabilities; and (ii) expenses of completing the winding-up of the pension scheme, there would be a resulting trust in respect of any residual surplus assets in favour of the employer. We are continuing to work with the trustee on next steps. Any residual surplus will be determined on a different basis to IAS 19 or funding measures of the plan surplus. The timing of release of any surplus remains a matter for the trustee. The IAS 19 defined benefit plan asset is not included in abrdn's regulatory capital.

-    Financial investments decreased to £2.1bn (FY 2022: £2.9bn) primarily due to the lower value of our significant listed investments. At 30 June 2023 financial investments included £0.6bn (FY 2022: £1.3bn) in relation to significant listed investments (Phoenix £554m). The final stake sales in HDFC Asset Management and HDFC Life completed in H1 2023.

Principal risks and uncertainties

The principal risks that we believe the Group will be exposed to in the second half of 2023 are the same as those set out in the Annual report and accounts 2022 comprising: Strategic risk, Financial risk, Conduct risk, Regulatory and legal risk, Process execution and trade errors, People, Technology, Security and resilience, Fraud and financial crime, Change management, Third party management and Financial management process.

Key developments in relation to our principal risks

Looking to the second half of 2023 we would highlight the following trends and developments as important in relation to our principal risks:

-    The macroeconomic environment continues to be challenging, with higher inflation impacting the operational cost base of the Group. Interest rates have increased further over the last six months and are expected to be nearing their peak. Investors remain cautious as the effect of higher interest rates works through the global economy, impacting the US banking sector and commercial lending markets and our exposure to these.

-    Geopolitical risk remains elevated with the ongoing conflict between Russia and Ukraine and ongoing tensions between China and the US. The volatility of commodities remains susceptible to geopolitical tensions and higher prices are still contributing to inflationary pressure as the cost reductions are yet to be passed onto the consumer.

-    As a result of diversification activities undertaken in 2022, through the acquisition of ii, the Group is benefiting from increased treasury income resulting from higher interest rates. Simplification of the operational model continues, with the ongoing automation of manual processes in order to deliver efficiencies.

-    There is an ever-increasing regulatory focus on ESG considerations and delivery against client and regulatory expectations is progressing through company-wide programmes. The divergence between UK and European regulatory requirements is growing and we have activities in place to manage related regulatory changes.

-    We maintain heightened vigilance for cyber intrusion and financial crime across our operations, with dedicated teams actively monitoring and managing cyber security risks as they evolve, with the support of external specialists.

1. Comparatives have been restated for the HASL implementation of IFRS 17. Refer Note 4.1(a)(i).