Aberdeen Group Plc (ABDN) Earnings Call Transcript

Good afternoon, and welcome to Aberdeen. For everyone who is in the room here with us. Thank you very much for traveling up to Manchester or even down to Manchester, those who came from Edinburgh. For everyone joining online, thank you very much for joining us and hopefully, you can hear us all very clearly. Today, we are doing a spotlight on Personal and very excited to be doing it from the offices of ii here in Manchester. When we did the adviser spotlight back in November, many of you said that you would like us to do a deep spotlight on Personal and today is the day. I'm Stephen Bird, and I'm going to talk to you about the strategy of Aberdeen first and where the Personal fits within the company. And then you're going to hear from Richard Wilson, who runs the Personal division; you're going to hear from John Tumilty, who is the COO of the business; and also from Deborah Byard our CFO for Personal. Now the company today, Aberdeen, is a very different company from the one we inherited just 3 years ago. We have 3 businesses that are all set up now in a much better position to be able to grow. And we have a group that has diversified its revenues, its customer reach and its ability to earn. The ii business transformed the Personal business and is indeed the heart and soul of the Personal direct investing business. It sits alongside the adviser business, which is the #1 adviser platform in the U.K. for IFAs by assets. And we have a global investing business that has 3 distinct areas of investing prowess, fixed income, specialist equities and alternatives. Our mission as a group is to enable better investment. And when you look at the shape of the group today, we have investment content to our global investing business, and we have platforms and wealth business, which allows us to have direct distribution for that content, but to do so on an open architecture basis, which means that we sit on the same side of the table as our clients. A little bit about ii. When we acquired ii last year, we talked about the things that were so distinctive about it. And today, you're going to get a deep dive into those features. It is a very distinctive value proposition being the leading subscriber business in the U.K. We know when we study behavior that, that is the customers favorite way of investing. What do we mean by the behavior and by the data, ii has higher balances than our competitors in this space because we operate a flat fee model. And when we look at the capabilities of which you will see today, the technology and the talent within the business who have been busy at work adding the advise model. You're going to see the journey of direct self-service and then assisted through advise, and you will see that we are building out a capability that will be capable of being the leading wealth provider in the U.K. I talked at the very beginning about the idea of our group of being a group that would be client-led and tech driven. And the combination of ii with Aberdeen allows that high-tech, high-touch capability to come to fruition. The U.K. market, in spite of the current challenges in the market remains a very attractive market to build a leading wealth provider. The U.K., the sixth largest economy in the world with a market size of about GBP 4.6 trillion, the direct to consumer market being almost GBP 300 billion of which ii at the end of last year had GBP 54 billion. And by the end of Q1, had grown already to GBP 56 billion. We have a large addressable market with a long runway of growth and a favorable regulatory environment that will expand that addressable market through time. The U.K. has got attractive demographics for a wealth business. It is an aging society. Some of the statistics around that between now and 2050, 25% of the U.K. population will be over 65. And in the next 25 years, that over 85 population will double. What that means is that we are going to witness the largest wealth transfer in the history of the U.K. That's a very attractive market to be building the leading wealth platform. The D2C market also has got many supportive characteristics that will drive its growth. The pension reforms, Pension Freedoms Act, the greater permission of guidance tools all of which are necessary in order to reduce the advise gap and make people aware that they are under provisioned for their future. Indeed, on average, U.K. citizens are going to have to find an additional GBP 10,000 each and every year until retirement in order to close that gap. Great businesses see a market need and then configure every single part of their business to fulfill that need, enabling better investment in the sixth largest economy in the world, with an underprovision pension pot is a compelling place to deploy financial services capital. We are very happy that we invested in ii. In fact, if you take the 2022 last 7 months that we reported, the $1.49 billion that we paid for ii was 16x trailing earnings. And as you hear today, we have a long runway of growth. So let's get into that story and hear from Richard. [Presentation]

Hello, Richard Wilson. Delighted for those of you who could join us here today and for those of you on the phones, welcome. What I'm hoping to able to do in the next hour and 3 quarters or an half, I think we'll have a hard stop at 3:45 is take you through the story so far. And part of that will be -- I'll do about 20 minutes of basic narrative. And then John will describe both our technology and our delivery capability, and we'll have a lens on the financial picture from them. I'm also delighted to be joining the room by some of the firm's leadership with whom we've built the firm to date over the last few years and with whom we're structuring the future of the business. In terms of the story so far, as Stephen point out -- said, we were acquired in May 22, and the journey to that point had been heavily skewed towards M&A-driven growth. And as John, I think, will describe a bit later on. During that period, we focus very heavily on creating the technology footprint, which we could build from as well as make sure we had safe passage to provide a reliable, trusted service to our customers. Since then, what's been happening is that on the one hand, we've started our rotation in terms of capability and intent from an organic perspective, and you'll see more of that in a little while. And secondly, we have been bringing the direct-to-consumer components of Aberdeen together. I think at the end of August, we unified the leadership of the Personal vector. And since then, we've been going through a fairly targeted process of restructuring of Personal to create a business which is both focused and simple to build from in the future. The main date points you will have seen, so you will have seen the announcement of the sale of the Discretionary business, which we expect to complete at the end of August. And we've been going through a very complex process of restructuring what was multiple regulated businesses, legal entities into 1 single frame, which we expect to complete by the end of this year. And again, we can talk about that a little bit later on. So this is all about creating a scalable business, which serves our customers well using contemporary technology to provide a personalized outcome, which fits whatever your version simple is. As you would expect in the space that we're in, it's attracting some interest from various incumbents and new players. We can see that we have competition from the usual suspects that are listed friends as well as the life companies and a more aggressive position being taken by some of the U.S. institutions, Vanguard being quite successful more recently and Chase, obviously, had its acquisition of Nutmeg. So this has become a busier space. And the tension is between what we see as the long-term market size, which is substantial, but in the short run, the available consumers on an annual basis is somewhere around 300,000. So that creates the significant tension in terms of acquisition retention because you're fighting over this pool. Where we've come from is from a mass affluent's position with a price point, which was quite specifically geared that way. And more recently, the players have been increasing their marketing spend. And as we rotate through our organic position, we will then be starting to step up our investment in marketing and brand, which we'll see more of end of Q3 in Q4. This is a game which we expect will have very few survivors in the end and back to Stephen's point in terms of when it takes most this marketplace is no different to any other. We're already seeing a few players fall away, and we expect to have a feet square in the fight as this story progresses. So in terms of who we are, I mean it's a very simple story where we've anchored our identity around subscription service. It provides clarity. It means the wealth belongs to the consumer, and we look for recognition that we're providing a service that's valued. We provide a service, which whereby developing and deploying what we think is the right culture and the right service focus that we can be recommended and valued by our consumers. We have today more 5-star Trustpilot scores than the rest of the industry put together that you don't get that on a Sunday, you get that through years and years and years of focus and moments of truth and delivery and learning. That doesn't buy you any credits for tomorrow, but in terms of the intent and recognizing that ultimately, you exist to support your customers, and they will support you if you keep doing that. So far, so good. The other thing that you have to have clearly in our space is relative scale. You need to be able to develop operating leverage so that you can invest in what will be an endless race for technology experience as we go through different thresholds of market change. And that's something which is very hard in the financial arena if you don't keep things brutally simple. Part of our development is, I think, over the last 5, 6 years, we made 6 acquisitions, including 2 banking groups something like 20-something disposals in this period end to end about 4 or 5 years in order to end up with a single proposition, single platform, single team, single structure so you can execute at scale and protect that operating leverage. We will continue to make sure we stay focused so that we can continue to invest in better services at better price points. What we do for a living is pretty simple. It's just we do quite a lot of it. I think you'll see later on that we're doing something like 25% of all U.K. share trades now and some of the metrics are quite compelling, albeit our market size is not huge compared to the U.S., but we do very simple things. We execute and custody standard investments for target market U.K. retail investors. We support the basic wrappers, GIA, SIPP and ISA. And then we provide various services around in terms of content and experience to make sure that is easier, faster and more reliable than the other folks. We have some things we do that others don't. So there are very few that support direct market access around the world, which means in practice, we offer something like 5x more instruments than the other main platforms. And of course, we support multiple currencies, you can hold dollars in your SIPP or in your cash account, and you earn interest on that. There's a very simple thing. You either do it or you don't. And if you don't do it, building it is extraordinarily hard. So we've had that under the covers for a very long time. Everything else is around staying up to market and up to speed in terms of experience, which is through our various devices, which John will talk about in a little while, and then having content, which supports decision-making and journeys which help consumers make those choices as simple as possible to get the right outcomes. The pricing structure, this is obviously the key differentiator between us and rest of market. All those folks that charge percentages roughly did so because they could not because it makes any sense. We charge for -- to deliver a service, and that provides us with the ability to optimize different service proposals for different types of demographic and then add incremental services to help upsell or premiumize those who want more. We've got a small number of customers who do it are very active, and we support that with some of our premium services. And we've got some customers who are very passive and through providing regular investing, which is free monthly, you can build long-term wealth with no incremental costs. So if you're spending your GBP 10 a month, that's all you spend forever. Similarly, at our very low-cost, simple SIPP for your GBP 12.99, you have a digital experience, which can be yours for the rest of your life, and that's all you spend. So in terms of certainty, clarity and making sure that more of the wealth belongs to you, that price point differentiation is substantial. And more and more, it's catching on in the marketplace. And the media is also becoming much more aware of it as a differentiator in service, particularly in a world now where with the cost of living crisis and inflationary pressures, people are becoming much more cost conscious and that's becoming a key part of the decision-making. So in terms of our levers for growth, given we're a subscription business, the core is around customer count and revenue per customer. It's not complicated. So our various levers are hard to get more customers. I mean under the cover, currently, we are now somewhere around 3% organic growth if you ignore the Share Center and EQi tail, which will run off at some point this year. Our job is to expand that to mid-single figures in the near term. We do that through a combination of price shift, brand and marketing investment and continuous UX investment. So those are in place as well as repositioning your talent base to be commercially driven. And I'm delighted that along with [ Alan Cobebes ], who joined us at the beginning of the year, we have what I think is developing into what will be the best commercial team in Europe. And that has ability to keep testing and learning and delivering at pace will be something that's very important. Secondly, and we've referred to this before, the ability to cross sell products and deepen penetration is obviously very important. One of the headlines for us on that has been our SIPP penetration. Today, we are -- if I'm allowed to use the data. We do it in Q1. We're 13% penetrated end of Q1, and that's tracking very positively. I think you'll see that we've something like 16% organic growth in SIPP, which in terms of penetration, it has 2 things. Number one, the revenue per customer goes up; and number two, the lifetime value impact is substantially because the retention rates are very high. So that rotation of the book continues, and our job is to move that as fast as we can. New services, I'm not going to front run John's presentation later on. But hopefully, what you'll see is the road map on delivery is in terms of our organic focus is yielding significant progress. And last but not least, I'm delighted with the progress we've made around the collaboration with other parts of Aberdeen. We have within the family significant engineering capabilities, which we'll see hitting the street fairly soon as well as a number of other parts of the business, which we have facets of direct-to-consumer assets, which we're looking very hard at, so we can simplify the overall model, and we might position some of those within the D2C vertical. So it's a very simple set of levers. We're acting on all of them simultaneously. And notwithstanding the fact that the marketplace is somewhat muted today, we are making progress well to the market across most fronts. So in terms of the why we win, I think we've referred to some of this already. You need to have all ones in place. Our pricing structure is a strategic advantage. It's no secret that we're under indexed in brand. So part of our job is going to address that as we'll increase our investment in brand and marketing over the coming years so that we can put that where it needs to be. Our platform, and I'll defer to John on that for later. But we are -- no firm in the world is tech debt free, but we have no cliff edge in our world, and you only get that through continuous wise management of technology and a culture which is continuously investing in the business. I wasn't referring to you, John, obviously. So the -- that's the -- the hard thing is keeping things simple and focused in consumer-dominated, and I'm very proud of the culture that we have collectively formed over the last few years. It's a purposeful business. People join this business because they believe what we're doing is positive for society, and they work hard to get there. Our job to stay focused on that mission and not be distracted by other things as part of what's got us to where we are, and we will stay focused on delivering that going forward. On the organic story, we know that we've had a significant part of our history has been M&A. That shouldn't undermine the fact that our organic engine functions okay. You'll see on the orange banner, the percentage of our overall book, which is organically acquired as opposed to through acquisition and the organic growth has been -- and it's currently running at around, I think, 15% debt, and our job is obviously to try and move that up. So part of as we rotate through the business structure and the rotation of the portfolio moves to be more organic dominated. That obviously changed the dynamic of the cross-sell and the penetration around other products. And clearly, they're also more digitally enabled. You'll see from our business today that this month, about 45% of organically acquired customers trade on mobile versus like 30% of those who were through acquired businesses, you have also rotation in terms of digital adoption, which progresses at a reasonable pace. A few metrics just in terms of the structure of the pricing model and how that affects behavior. What you see here is the evolution of our net new assets, which is probably the most interesting metric, which clearly has some level of volatility as we've gone through market peaks and troughs, but it's roughly today ranging between the 5% and 10% NNA percentage level on a continuing basis. And Q1 this year, I think the net new assets in Q1 were GBP 0.9 billion, which is in the range, and I can't give you any guidance on anything since then. So I'll bite my lip. Again, that's perfectly read. Most of you guys would have seen this stuff before, it's meat and potatoes. What's a bit more interesting in terms of Q1 and the track back and track forward is notwithstanding somewhat quieter market conditions. On the right-hand side of the chart, you see this is the Q1 progression in terms of competitive market metrics. And on the left-hand side, kind of the state of play in terms of our structure. So a couple of distinct attributes of ii, which is driven largely by the pricing structure is our average assets per customer is roughly 2.5x the industry average, and that's driven by the fact that the more assets you have, the frank, the greater value we are, and that obviously has a read through in terms of behaviors and vulnerability to things like cost of living were relatively or compared to be less exposed than some. We also, because of the subscription price, there's no free seats in ii. You pay your subscription, which means that on balance, they're more engaged and they do more. We don't have an endless tail of customers who don't pay anything. And usually, you have some self-regulation. So you'll see that as an audience, it's a higher-quality audience. And roughly speaking, 1 of the metrics is they all trade roughly twice as much as some of our leading peers. I mentioned earlier, the penetration level industry, the average penetration is somewhere between 25% and 30%. We're currently sitting at just around 13%, and it's tracking. I think you'll see we took 20% of all new SIPPs in the market in Q1, and that obviously then leads to a tick up in terms of the total market share. There is clear structural opportunity there. And given that in the U.K., we've got 10 million SIPPs or thereabouts. We have something like 60,000 and you've got a chunk in the D2C space, a large chunk in the insurance space. We expect to go after that assertively over the next few years. And in terms of technology adoption and UX, one of the stats, it's interesting and because it doesn't necessarily lead to any future prediction. But in terms of mobile trading, in Q1, 27% of all mobile trades in the U.K. were done through ii's on the ii mobile app, and that's a substantial shift compared to the previous period. And we are seeing in the last year in terms of balance between who trains on desktop versus mobile, in the last year, that shifted by 8 percentage points towards mobile. So in terms of the user experience and expectation and the consumer norm, the U.K. was well behind the U.S. and Asia in terms of the adoption, it's moving. And you're going to get to different tipping points, the expectations about who's going to win most or lose or will be more driven by centering experience around the app. Well, that's the boring bit over. I'm now going to hand you over to John Tumilty, who's going to show you something about our actual technology and what we're delivering. John, over to you.

Thank you, Richard. Yes, this is the interesting bit. So you have to pay attention now. So my name is John Tumilty, I'm the COO of Interactive Investor. I've been at the company nearly 7 years. Most of that time, I was the CTO. I'm still responsible to the technology side, but most of the time was the CTO. I've been working in IT for over 35 years, almost at the dawn of completing. It was 10 years at Goldman Sachs, working in their equity technology area, and 7 years at UBS as the CTO of the Investment Bank. So the last period of time, 6, 7 years that we've been working, we've had lots and lots of merger and acquisitions to do, lots of book moves. We have a very good kind of machine to do that. And so a lot of our focus was on moving all the customers to the same platform, shutting down all the extra systems and then getting the kind of scale in the business. So that was our main focus. But in the background, we've also been doing building our kind of operating platform to being able to achieve 2 things. First of all, to have a kind of ability to power up to be able to have a robust and scalable platform. So we have one platform that have more than one platform. Everything is on the same platform. And then the second goal is to have a flexible system. So we can add new services. We can link into new data feeds and provide those to customers. So that was the goal that we were kind of trying to execute in the background. So we think we've kind of there, we're quite there, but we think we've achieved most of those things. So how do we do that? So we did that by choosing the best technical partners or very, very accomplished technical partners to provide most of the services for us. So in the infrastructure space, we don't own any of our machines anymore. So we used to have 2 data centers. That's not sure anymore. We use AWS and CSI to provide our infrastructure. And they can do things like if we want more power on the i series, we can find -- we can just rent more CPUs. So we have scalability that way. In our middle office, we use Salesforce as our CRM, we use Snowflake as our data engineering and storage capacity, and we use Morningstar for almost all of our market data needs. And then for our processing platform, we use Figaro, which is now an FNZ product used to be owned by a company called JHC. It provides a trading and custody back end for us. We have a long-standing relationship with FNZ. And we feel that, that platform gives us the scale that we need. So we feel if you look at per security, automation, scalability minimal hardware footprint. We think this dotted box has given us that. So we've been in good shape. So for customer growth and transaction growth, we think we're in a good place to support the business for the next 5 to 10 years. So all well and good. The other stuff is differentiating where it counts. So having the ability to provide a good experience to the customers through different channels. So we've moved on to using the latest technologies on the front end for the mobile and the website. and focused on building kind of a micro service API, which allows us to link easily into new data feeds and new services and provide those to the different channels to customers. So all of that, there's also a bit going on in the background for the last 6 to 7 years, not particularly easy to do mainly because of the focus that the company needs to allow you to achieve that. So most company -- most tech areas. We'll try and do this, but the company loses focus as opposed to the tech. So we think we're getting close to having a kind of state-of-the-art digital operating platform. So we've got the robustness and we've got the scalability. So in terms of new services, we've just started to deliver those now this year. So we're just coming to that point. So in 2023, first part of the year, we delivered a new website. So that's got a kind of modern 2020-plus look and feel UX that's much more accessible at such, all those things that are necessary for a modern website now. That was delivered in January. That's proven out our front-end technology and undominable-tier technology. Next thing that was delivered was Investor Essentials, which is investment essentials and Pension Builder actually at the same time. These are new pricing bundles. So first pricing bundles, new ones that we've induced for several years. Kind of just proving out our price intake and ability to process across different service offerings. It's going to allow us to bundle services together and kind of get value-added services added to the packages as we go. So that's to attract customers with lower AUA, so a lower end offering to kind of introduce almost like a starter pack for people as they build up their investments. And then the third thing, ii community. So we've got a little video, so I don't have to talk too much for the videos, but introduction to ii community, and I'll tell you where that stands. [Presentation]

So that's kind of engagement that we are -- that just come out of pilot, and we're going to make available to all ii customers for free. So few of us have been on the pilot, very, very engaged until people spend a significant amount of time to spend almost about 15 minutes a day on the app we think it's a key engagement tool. And we're really pleased that we partnered with a firm called Stock Republic to enable us to do that. So that's coming out of pilot soon. Next thing is financial planning needs. So part of working with Aberdeen Group, we've just started to make the connection, I think. So as a big D2C kind of do-it-yourself platform, we do get a number of inquiries every year about do you do financial planning. So the answer was always, no, we don't do a financial plan, so go somewhere else. But we've just started a little process initiative to pass those financial planning leads into our financial planning business in the Personal vector. So it's just the first kind of link up and integration with the other parts of their Personal vector. Mobile features. So we introduced a new mobile last year. So we own all of the technology now. And as Richard said, it's become very popular. New mobile features are dropping all the time. The most significant recent one was FX trading. So the ability to trade FX and hold FX and see it within your mobile app, that dropped. And we've seen the pickup and usage of that to be quite significant. So it seems to be there's more people interested in FX trading if it's on the mobile, which is probably something we expect, but it's been proven. So lots more features planned for the mobile. And then -- so those are all of the things so far that we've delivered in '23. So there's a couple more things that are coming. So sort of research hub is, again, another engagement tool, and there's another video to explain. [Presentation]

So again, that's another engagement for customers, so providing them good service and a place for them to come and investigate, not just look at how much money they've lost or gained. But not often gained at the moment. But how much -- well then just look at their portfolio to place them to look at things about the market. And so that's due probably in about end of this month, early August. And the next thing, I think is a portfolio of partner, which is probably the most exciting one that we've got on because it's a cooperation between ourselves and Personal vector and the Investment vector to provide a kind of new added value service for our customers. So I promise you this is the last video. So if we just play that, that would be great. [Presentation]

Okay. So that's portfolio partners. So that's probably going to be trialed a couple of months, but probably not live for customers until later in the year or in next year. So lots of other interesting secret stuff that you're not allowed to know about is also going to happen in the rest of the year. So we got to watch this space so you can get ii accounts, and you can see it first and early. And I think we just go back to our point, we wanted to have a robust and scalable platform, which we think we've achieved to support growth. And we think now we can add services easily and flexibly to improve the customer experience. So we think we're pretty well positioned. That's the fun bit of the presentation over. So I'll have to hand you over to finance. I apologize about that. But you can ask any interesting questions at the end if you'd like to me. I'm going to hand over to Deborah. Thank you, Debbie.

Thank you. Okay. Good afternoon, everybody. I'm Deborah Byard, I've been CFO of Interactive Investor since February of this year. But I've been with ii and before that, TD Direct Investing for just over 15 years. So today, I'm here to tell you about our financial model. And it's a relatively simple one with just a handful of key variables and drivers. I will explain these a little more over the next few slides. Within the Aberdeen report and accounts, you will find our revenues categorized into 3 categories. We have subscription fees which is, as you would expect, customers just times average fees. Then we have trading transaction revenue, and that's split down into 2 components. We have commissions, which are trade volumes multiplied by average commissions and FX revenue, which is FX transactions by average margin. We also have treasury income, and that's simply cash value multiplied by net yield. So as you can see, a relatively simple revenue model. On the cost half of the income statement, recent years of both M&A activity and organic growth have given ii the scale to develop an efficient operating platform and cost base. This has supported ii's adjusted operating margin in 2022 of 53%. You've heard Richard talk about our subscription fee pricing model. This gives us a material degree of predictability and means our revenues are diversified. Subscription fees make up 1/3 of our revenue, and that's the way takes us away from the variability of market conditions and the economic environment. Let me put this in context. In 2022, subscription fees alone covered 68% of our operating costs. This chart shows you the diversification of our revenues in recent years. And you can see the growth of our core base of subscription fees, plus then the more cyclical nature of our trading and treasury income. This chart shows you the resilience of our revenue model on a revenue per customer basis. The red dotted line shows us the steady growth in our average revenue per customer over the last few years, underpinned by a consistent subscription fee. You can also see that when average trading revenues go up and down with the ebb and flow of the market, treasury income tends to move the other way. And this supports, obviously, the resiliency of our model. Here, the dark dotted line, you can see shows us the average daily trades per customer. It shows the ups and downs of the market. However, the overall trade trend line shown in yellow, shows us that after smoothing out all these peaks and troughs, over time, volumes remain relatively constant. Now let's look at each revenue line in turn and what will drive them in the near future. Subscription fees as you're seeing simply a factor of customers times our average fees. Acquisitions and strong organic growth have increased our customer base to just over 400,000 at the end of '22, and our focus now is on organic growth. Organic customer growth continues to be strong, and that's expected to continue. That is those customers that we've directly acquired rather than through M&A transactions. Our new Essentials price point will attract new-to-market customers, those starting out with lower value portfolios. And our attrition levels for migrated client books tend to run higher for a couple of years post migration. And the last client migration we had was in 2021 when we migrated clients from the Share Center and EQi. So across 2023, we expect overall the customer lapse rates of these client segments to reduce, and we expect them to reduce back to sort of -- more sort of normal levels expected in the wider market of about 5% to 7%. All that said, the subdued market in 2023 will impact our new customer levels. Overall, we expect mid-single-digit CAGR in total customer numbers over the next 5 years. Average fees have remained relatively flat over recent years, but with continued growth in our SIPP accounts, as Richard mentioned earlier, we expect to see an increase, this increase our average fees over time. Trading transaction revenue is mainly a factor of transaction volumes and the average commissions or margins. We saw trading volumes peak at record highs in 2021 during the COVID period. And since then, we have seen a fallback from those highs. But there are many reasons for us to be confident about future transactional volumes. Our organically acquired customers, as previously mentioned, continued to grow as a proportion of our customer base. And organic customers tend to trade 50% more than those acquired -- those we have acquired through M&A. In 2022, our FX transactions made up about 20% to 25% of our daily trading levels. And with new functionality recently introduced through our mobile app, we expect this to grow and therefore, increase our overall average transactional revenue per trade. Despite the subdued market conditions, our trading market share continues to grow, and we ended '22 with a 24% market share. After a quite few years, our treasury income line has come back to life after recent treasury base rate increases now at 5%, and we expect more rate rises to continue. Client cash levels ended 2022 at GBP 6 billion, which was 11% of total AUA and 11% total AUA of GBP 54 billion. 6 year-ends and as interest rates have risen, we have seen a small drop off in our cash holdings. And we would prudently expect our cash levels to be around 9% to 10% of AUA in the near future for modeling purposes. We now expect our net interest earnings margin to be in the region of 180 to 200 basis points for 2023 as a whole. Our client cash is placed out on deposit across various terms and various counterparties in accordance with our cash rules. There is, therefore, a lag between the base rate changes and are seeing the full impact come through our net treasury income line. On costs, a combination of M&A and organic growth has brought scale and strong operating leverage. New business can be onboarded at a very low marginal cost. As a percentage of AUA, our costs have reduced from 24 basis points in 2019 to 15 basis points in 2022, which is lower than our closest peers who have reported 18 and 25 basis points. Our competitors are now making up for a lag in IT investment over recent years, whereas we have consistently invested with regular incremental updates. On a per customer basis, the right hand chart here shows the widening jaws of our revenue and cost trend lines. And therefore, the growth in our adjusted operating profit. On the next slide, we can see how our cost base has grown with the scale of our business over recent years. We have been successful in delivering several M&A transactions and integrations as we mentioned earlier. And we've done that in a very cost-efficient way. Staff costs make up around 47% of our cost base. And as mentioned, we have a constant rolling program of IT and proposition development. This keeps us up-to-date or ahead of our peers on tech, with no large buildup over time of tech debt. In 2023, we will increase investment in our brand and advertising, as Richard referred to earlier. And like all businesses, we face inflationary pressures this year, which will bring some incremental costs this year. So the finances of our business show that is resilient, carefully managed and has significant growth potential as a result of wider trends in the market, increased product penetration and continued launch of new service lines. Earlier, Richard spoke about the transformation of the Personal vector and the work ongoing to restructure the financial planning business. The combination of ii's robust financial model and the restructured financial planning business presents a strengthened opportunity for the Personal vector to deliver organic growth in an efficient way. Going forward, we expect a combined cost income ratio for the vector of sub-60%. Thank you for listening, and I'll hand you back over to Richard.

Right. It's 2 minutes to 3:00. So we're just about on schedule. So by way of wrap-up, to put things very simply, we have the opportunity, the ambition, the culture and capability to be as excited today as we were 5, 6, 7 years ago in terms of where we're going. What you've seen, I think, is some data points which demonstrate delivery across a number of metrics, but excitingly, moving to our next wave of organic development, which not just brings together the power of talent and technology, but also capabilities across Aberdeen as we move to the next stage of development of the firm. So I hope that's given you some sense of what we're doing and where we are and how we work. For those of you who spent some time in Manchester, I hope that gives you some sense of the reality of our workplace and how we spend our time together. At this juncture, we're going to switch straight into Q&A if that's all right, because chariots or whatever private jets or you guys do at 3:45. And I think the protocol is going to be that in the room, we're going to weave our way in sort of snakes or ladders, whichever the vernacular is with a single mic. So if you haven't thought of a question earlier, you're kind of in trouble because the mics see like pass the parcel. And then I'll either respond or ask one of my colleagues to step in front of the fast coming train. So if we can begin. If any questions, then that would be amazing.

So it's Andrew Crean, Autonomous. Two questions I wanted to explore. Firstly, obviously, the cash margin is going up. But at some point in time, base rates will peak and could possibly settle down around 3%. Can you give us a sense of the journey? If we go up to, say, 6%, 6.5%, what will you keep? And where is the cracking point as you go down? Because I don't think your margin expanded enormously north of 3.5% base rates. So if you could give us some sense as to how resilient that is. And then the second thing is, I just wanted to explore a little bit about this below 60% cost-to-income ratio. I mean the cost-to-income ratio is a lot lower than that now. You're talking about increased spend on advertising, marketing and inflation. Where is it -- where will -- well, how much of those is going to be? Where will expenses land?

So on the first point, which is the incalculable world of interest rates having gone through the most aggressive period of quantitive easing in the history of the world was rates at a level not seen since before we started Babilonia accounting to a period of the most aggressive rate rises in history. Picking a normal point today is a curious affair. We're remaining...

I give you a couple.

You gave me a couple. So we've -- I mean, as Deb said, we've taken what we think is a reasonably prudent view of guidance for this year, noting that we're in a unpredictable phase of tightening. Obviously, the market expects it to tighten further. And as well as that, clearly, a competitive landscape, which is what it is. I mean we have increased the rates that we pay 6x in the last year, the most recent announced last week, where we pay up to 3.5% interest rates. So you would expect at some point in the future, the net margin to stabilize at a lower level. That future has got a long -- a lot further away than it was. People expected even a few weeks ago, and the notion of embedded inflation is very hard to unpick today. So the best we've got today is the guidance that we provided. It's not in our business to try and undershoot the numbers. But at some point in the future, that will stabilize. But for us, that will be as much a question of the competitive position as anything else. And I think as Deb pointed out, there is a relation between net interest margin and trading behavior. So it's also quite hard to look at 1 component in isolation without looking at the rest of the model. So that was a very unhelpful answer, but it's true. The second question was around cost income. I think when you're looking at cost income and you said it's a lot lower, you're looking at ii. So you've got here ii on its own has got a cost income position which is running sub-50%. And you've got the rest of the Personal vector, which we're going through significant structural change, the net -- the outturn of which will be a costing ratio in the 50s. That's the next staging post for us as we go through the end of this year. And of course, as we go through into 2024 and beyond, we'll be engineering that to bits.

So just following up. I mean how much do you plan to be spending on marketing in -- as you ramp up the marketing? What's the impact of inflation on you?

So that's 2 very different questions. So on the question of marketing, I mean, looking at our overall cost income, we expect to stay in the guide rails in the 50s. So you can take a signal on marketing appetite at that level. What's important to note is in the first quarter this year, I think our spend on -- according to the market metrics that we monitor, our spend on marketing was between 1/3 and 1/4 of the direct competition. We'll expect to close that gap, I think, is the best that I can say. Clearly, what we'll be doing is monitoring that closer to the time and makes decisions discretely when we get there both in terms of brand investment and spend by channel but we can expect that to be a material but not absurd number. Again, within the guide rails, which expect us to stay in the 50s in terms of composite cost income.

Can I go back to you mentioned you thought incremental customers per year in the market was about 300,000. I'd love to know sort of how that comes back, how you build that up? And I suppose the add-on to that is clearly customer numbers is going to be central to your revenue growth. And so those customers you've offboarded via all your various acquisitions then moved on. Are there customers you will go back to that you think now you've reset your platform, you can go and target them again? Or are they sort of almost dead to you, and you have to look to the -- a new cohort every year?

So that's a great question. There was a few factors here. Number one is, I mean, we've gone through a period in '21 -- or 2021 and early '22, where we had a very inflated level of market activity lots of new entrants to investing following what you call it a bubble or not, but basically the overhang of consumer tech and other types of investments where lots of folks enter the market. Going through the correction in end of Q1 '22, those new entrants have either exited or retrenched. So the total level of market -- new to market and switches has come down. So that will oscillate over the cycle. Part of our response to that is we're progressively moving our price point to increase the available audience size, which we can't talk about what we're going to do there. But if you've got an ii account later in this year, you might see something on that, which makes the point at which the consumers price rationale much broader. So we'll have a larger target audience to go after. And thirdly, part of the ambition is to drill holes in the adjacent market spaces with kind of proposition and product as we go after more aggressively, again, the life companies and adjacent services. And we've got another few parts of our road map, which we again for later this year and next year, you can't really talk about, which are reasonably newsworthy. So part of it is a larger target audience, which has got a price position and part of it is new propositions to attack adjacent markets. That is your target feel quite conservative what you're talking to as your net new customer growth. Obviously, we would aspire to push to that level. But in terms of making promises, I think with the guidance we've given today is sensible. And there's a lot of test in line. The U.K. market is catching up with other markets in the world. Some products that are vanilla things in the U.S., Scandinavia aren't provided in the U.K. because consumers not ready for it, some behaviors, which are kind of the everyday behaviors in other markets, the consumer doesn't want to hear yet. The U.K. is catching up in terms of behavior. And will part of that for us is then test and learn where you expect things to happen, but until actually you can prove it, best not to make promises about it. But suffice to say, we're reasonably ambitious and optimistic. This is exhausting. Next?

Yes, I'll keep it to two. Richard, can you talk about your technology spend, how you think about spending on technology. You've seen examples where other peers have cost overruns. What are you doing to make sure that fallen to that trap in terms of what you need to do and what is luxury or what could be delayed?

Yes. So I'm going to drag John into this conversation. He and I have spent the most time together in this business, building it over the last few years. The -- I mean, part of the simple answer to that is prudence is saying no to things and it's about execution. Everything that we've done has been around the ability to deliver what you promised. And we're -- I mean, it's not by accident that some of the most senior folks in the organization are ex global CTOs of large organizations who've -- whose ability to survive in those environments is the ability to execute. So there's no risk free world that we operate in. And for that, we can't zero that out. What we can do is be robust and stay focused on the business. Part of -- John, if I can ask you to comment, part of the process has been -- being, I don't use a brutal but clinically focused on what matters and making the hard choices that, that implies. John?

I mean there's 2 parts. There's 1 in the business. So the person who says, no, the most in this organization is me. So whenever anyone comes up with a new idea, I'd just say no, we're not doing that because it's got a technology implication, and we don't want to kind of veer off that. So we stick rigidly, very rigidly to a known proposition that we know that we can build out effectively. And we don't start verge into adjacent propositions or products until we really know we can make money on it, and it's not going to bend everything else we do. So we do that really well. Secondly, when you reengineer as we've done a fair amount of and other firms are doing as well, the way you don't go in a little bit off track is okay, right, because that's expected. What you don't want to do is turn around and say, "okay, I've just spent GBP 15 million, and I've got restarted." That's a real problem. And the way that we avoid that is we do it incrementally. So we understand what the migration path is and then we build and build and build. We have hiccups. Some things aren't as quick as we want. Some things haven't quite worked, but we don't veer off madly on the wrong path and then turn around and say, "Okay, now we've got a reengineer everything." So I mean that's all well-known kind of technology management techniques, we just apply them sensibly. Firms have problems with their technology because of the management of the firm, normally, not because of the technology. So I'll say, the thing that I always say is, you get the technology you deserve. So if you've got a good platform, and it works very well, that's because you deserve it. It doesn't work, and that's because you deserve that. So if you stick to the plan and you're careful, then you can add engineer things smoothly and you get a good result. And we execute largely on that. I won't say we don't make mistakes, I won't say we haven't stick to projects, but we get probably 80%, 90% of things, right, which is a bit simple.

I think culturally well, our history has been to treat your investments as if it was your own money and that in terms of focus and choices changes your whole perspective on what makes sense. And that obviously drives you to managing your risk or sensibly and making incremental change, but also where you need to having the discipline to do the hard stuff and not compromise on that whilst you're trying to deliver commercial ambitions. Some of the stuff that we did on even kind of the unique customer identity is really painful. It requires annoying lots of customers over an extended period as you change all of your IDs, and it's thankless. But once you've done that, your ability to be able to provide accelerated services, family networks, enhanced security, that gives you kind of the platform to win in the future and efficiency. But the choice to make that happen is hard and requires a lot of discipline because there's lots of pressure on you to do other stuff. So that I think back to the culture of the firm and the ability to be sensible and occasionally stop saying, stop letting John is saying no to everything, which is tough, but occasionally helps.

So it's Hubert Lam from Bank of America. One question, one last question. On the SIPPs, it seems like this is a big part of your strategy going forward. You're targeting to almost double your market share in SIPPs. Just wondering what do you think about the timing around that and how you can do it and who are you going to take the share from?

So we have -- I mean our SIPP growth has been running at 15%, 20% consistently over the last 2, 3, 4 years. I mean, our challenge is how to accelerate that because you're faced with significant inertia on the consumer side, a large bed of customers who have their pension or their SIPPs with life companies, very little price transparency and a very difficult marketing challenge about how you can spend wisely to acquire. Our appetite to spend on marketing is much higher than the channel is deep. So part of the reason for expanding our commercial capability is to be able to attack that harder. Given that we're under indexed, I mean our penetration increases by about 2% a year, almost like clockwork. We have a very good SIPP proposition, a very good digitized service, and we'll be making further moves in terms of proposition and price later this year to make that even more compelling. That's not the challenge. The challenge is to crack open the inertia side, which is how do you open the taps wider on the consumers to move them from where they are. So we're very confident about that being a significant runway. The question is how fast you can fly the jet to abuse that metaphor slightly.

It's Haley Tam from Credit Suisse. I'll take 2 questions as well, please. The first one, just to follow up on that SIPP point. We talked about the countercyclicality of the treasury and the trading revenue, and we talked about how the SIPP margin will be positive for the subscription fee per customer. So is there any reason why I shouldn't interpret your mid-single-digit customer growth guidance as a higher revenue growth target?

Gosh. That's good math. So we think we've given the guidance we think is sensible. The -- I mean, SIPP is -- I'm going to sidestep this question, I think. SIPP is less cyclical than other parts of the business. Cash levels are higher in SIPPs than they are in other parts -- in other wrappers. The asset level in the SIPP is much higher than in other products. It is usually most people as the largest single financial asset. The level of engagement for someone who has a SIPP is roughly twice that of those who don't. For those of you who have a SIP of 500,000 versus 100,000, they trade twice as much as each other. The lifetime value of a SIPP is somewhere over 10,000, which is roughly 5x the other wrappers. There -- and the retention rate on SIPPs is something like 98% to 99%. So all those things would lead you to some levels of conclusions. The question is the clock speed over what time that, that actually takes place because whilst we're taking, for example, 20% of all new SIPPs of the market in Q1 in absolute numbers, it doesn't move to dial. So that's -- it's a slow burn. Part of our challenge is to move the dial faster.

And then probably another question to sidestep. But if I think about the mid-single-digit growth in customer numbers, do you have any preference or targets over how much of that comes from, say, the Essentials product? How much comes from new financial planning clients? How should we think about the mix of those new clients?

So we would expect the core of that to come into our core proposition. We're sort of agnostic because the current -- we have the mix, which is that central core is by far the largest part of the audience. Our premium package has something like 10,000 consumers in it. Our SIPP Essentials is somewhere around 10,000. And we've got something like 300,000 or a bit more in that core. So that will be the expectation. And we've only just to John's point earlier, we really just got into the phase of the optimizing and putting pressure on the bundling structure to be able to premiumize and to start to optimize which packages make most sense. That engineering is a recent completion. We saw -- that went live with the Pension Builder in SIPP Essentials at the beginning of this year. So we expect that to pay dividends metaphorically over the next few years as we take full advantage of the engineering that gives us because I can give you a service proposal, optimize it for you as opposed to for any other use case.

It's Greg Simpson from BNP Paribas Exane. Two questions, maybe. The first is, can you talk about what behavioral changes you're seeing or might expect to see if base rates settle at like a structurally higher level than they were in the past? And what gives you confidence that cash stays at 9% to 10% in your target and people don't use more money market funds or shift money into gilts or do annuities come back? Just a bit of color there would be interesting.

I mean, part of that, obviously, is imponderable. Clearly, we're seeing significant rotation now into fixed income money market and more recently, gilts, anyone who's here, who's on board of gilt, you should go and do one, although the prices might keep moving. So what we have is to back to our wrappers, we have 3 wrappers, SIPP, ISA and GIA. We're clearly in very unusual times. But historically, the cash levels in these ISA, I think, as Deb mentioned, it oscillates between 9%, 11% in aggregate over the cycle. But it's quite different within the different wrappers. So the SIPP is a much higher cash balance. And then you've got the ISA and then you've got the GIA, which is lower. As -- and of course, a lot of people will hold cash in the SIPP for very sensible reasons, whether it be for liquidity or otherwise. So we'd expect some level of swapping into fixed income and money market. Of course, we promote that. It's all about consumer outcomes. But at the same time, with our consistent SIPP growth when our average SIPP inbound account is 200,000, I think it is as the average inbound value with cash balances of around 15% of the SIPP. If you're tracking in terms of growth, those balances build over time. And part of our advantage is that because we're under index that SIPP journey has got quite a wide runway. Within cycle that you'd expect to have cash balances coming down towards a lower level. And as you go through the cycles, they average out. I mean beyond that, everything else becomes speculation.

And then in terms of the subscription model more generally, I mean, other subscription models like a Netflix do put up pricing from time to time. It seems like you're adding quite a lot of functionality in terms of the community features, the research could the GBP 9.99 million become GBP 10.99, is that like a lever could you've been visiting and putting in the medium term?

That's a really good question. It would be wrong for me to comment specifically. But obviously, periodically, you would expect the price position to be reviewed. We haven't moved the core subscription price since 2019. We went to GBP 9.99, it was '19, April 2019. Yes, we had a lot. So periodically, you'd expect to have a look at that balance. And clearly, given where we are in our journey, you'd expect the balance to continually optimize towards subscription and a way progressively from commission. And as you go through the evolution of both optimizing for discrete consumer groups, you would then look to optimize subscription. So the answer is the obvious one.

It's Oliver Carruthers from Goldman Sachs. Maybe just to push on that question a little bit on the monthly subscription pricing. How elastic do you think your customers are to this? And maybe what have you learned since launching the Investor Essentials GBP 4.99 package in January this year about that elasticity? And then a second question on the bundling pricing model. Are you seeing -- given your investor -- your clients are trading less, are you seeing any switching from the more expensive low trading package or high trading package to the cheaper headline but more expensive trade package?

So I guess, there's several parts to that answer. One, obviously, there's a longitudinal part of that, which is we're only a few months into that experience. We -- to the basic question in terms of elasticity, the answer is there isn't much. The -- but the question is, in terms of retention versus acquisition, which is a different question. So in terms of tolerance for price shift, our experience historically, this experience of other platforms is the consumer is less insensitive, but relatively insensitive. Occasionally, someone will scree it up. I think Netflix has its own version of that story about 10 years ago where they took a bath. So there are clearly limits to that model, but relatively inelastic is the question. We haven't touched the boundaries on that. So the answer would change if we did. So that's answer one. And answer 2, is we're going through the process of now optimizing, introducing different bundle points, which we'll see coming out at the end of this year. And it's at that point that we'll expect to have completed what our price structure is because it's -- we've got a couple of components that are missing currently, which we'll talk about when we announce later on. But those will hopefully inform some of those choices. The key difference today is between lower asset levels and higher asset levels. So we've got a GBP 4.99 level for GIA and ISA that attracts and tended to attract a certain type of audience. You can -- for them, that's got a -- they've got access to all the free regular investing solutions and so forth, but it's an AUA cap. So it's not a choice. And if you exceed the cap, you'll get bumped up. For those who are on higher levels, so then they can only trade down if they fall through the cap. The only real choice you've got is between the premium package and the lower package. And that today, it oscillates up for them with a very small range. So we've -- I think our opportunity is to upsell more rather than the other way around. So we haven't been as good as we should have been.

It's Enrico Bolzoni, JPMorgan. First question, again, going back to a conversation about NII and margins. Can you remind us your 60% -- below 60% cost income target is based upon what assumption in terms of rates level, margins on cash and over what period of time? Maybe I'll stop here for the first one.