Sale of insurance business and enhanced long-term strategic partnership with Phoenix Group completes transformation to a fee based capital light investment company

Summary

• Sale of capital-intensive insurance business to Phoenix Group while retaining the core of the fast growing Retail channel
• Total consideration of £3.24bn, including £2.28bn in cash and a 19.99% shareholding in Phoenix Group
• Enhanced and expanded strategic partnership with Phoenix Group providing a long-term source of assets, access to retail customers as well as the opportunity for wider collaboration
• Standard Life Aberdeen also today announces its full year results for 2017

Key highlights

• Accelerates strategy of building a world-class investment company completing the transformation to a fee based capital light business
• Significantly simplifies the Group, supporting extraction of further efficiencies across the Standard Life Aberdeen business
• Enhanced long-term strategic partnership and valuable investment in Phoenix Group providing:
  • Investment management over £158bn of assets under management (AUM)
  • A commitment to review further investment management mandates not currently managed by Aberdeen Standard Investments, subject to normal commercial and governance constraints
  • Opportunity for wider collaboration as the asset manager of choice for Phoenix Group
  • Reinforced through 19.99% shareholding and representation on Phoenix Group board
• Standard Life Aberdeen will retain its market-leading and fast growing adviser platforms (Wrap, Elevate and Parmenion) and financial advice business (1825) with £58bn of assets under administration (AUA), a business with a five year compound annual growth rate (CAGR) in AUA of 35% and a five year revenue CAGR of 26%
• Realises attractive value for the insurance businesses being sold through cash proceeds and a strategic investment in UK’s pre-eminent closed life fund consolidator
• Strengthens our financial position enabling Standard Life Aberdeen to accelerate its growth strategy through targeted investments, while maintaining its commitment to efficient capital management and a progressive dividend policy 

Commenting on the Transaction, Sir Gerry Grimstone, Chairman of Standard Life Aberdeen, said:

“This transaction completes our transformation to a capital light investment business, a process started in 2010 with the sale of Standard Life Bank, continuing with the sale of our Canadian business and the merger last year between Standard Life and Aberdeen Asset Management. This transaction represents excellent value for our shareholders, including a comprehensive and mutually beneficial strategic relationship entered into with Phoenix Group, a longstanding partner of the firm. In addition, I am particularly pleased to note Phoenix Group’s commitment to maintain operational headquarters in Edinburgh.”

Commenting on the Transaction, Martin Gilbert and Keith Skeoch, Co-CEOs of Standard Life Aberdeen, said:

“Today’s announcement represents a logical next step in Standard Life Aberdeen’s journey to build a world-class investment company positioning us strongly for the future and enabling us to meet the evolving needs of our customers and clients. We have a diverse range of modern investment capabilities with global distribution and our leading UK retail platforms are growth engines generating significant net inflows for our asset management business.

“The enhancement of our strategic partnership with Phoenix Group is evidence of our market-leading insurance asset management capabilities. It is also a great opportunity for wider collaboration as the asset manager of choice for Phoenix Group who see further significant consolidation opportunities. With the foundations of a world-class investment company in place we look forward to capitalising on the opportunities that we see ahead of us whilst continuing to deliver for our shareholders.”

Overview

Standard Life Aberdeen plc ("Standard Life Aberdeen") today announces the sale of its capital-intensive insurance business to Phoenix Group Holdings ("Phoenix Group") (the "Sale") and an expansion and significant enhancement of their existing long-term strategic partnership (the “Strategic Partnership”, and together with the Sale, the “Transaction”).

The Sale involves the disposal of Standard Life Assurance Limited (“SLAL”), with Standard Life Aberdeen retaining its UK retail platforms and financial advice business (the “Retail Platforms”). The businesses transferring to Phoenix Group as part of the Sale include the UK Mature Retail and Spread/risk books and the Europe, UK Retail and Workplace businesses (the “Disposed Businesses”).

On completion Standard Life Aberdeen will receive total consideration of £3.24bn, comprising cash consideration of £2.28bn and a shareholding of 19.99% in Phoenix Group.

Standard Life Aberdeen and Phoenix Group have agreed to significantly enhance and expand their existing long-term strategic partnership whereby Standard Life Aberdeen continues as Phoenix Group’s long-term asset management partner for the business acquired by Phoenix Group and the existing arrangements between the parties under which Aberdeen Standard Investments manages £48 billion of assets for Phoenix Group have been extended. The Phoenix Group life companies have committed to review the investment management mandates not currently managed by Aberdeen Standard Investments, subject to normal commercial and governance constraints.

Background to and reasons for the Sale

Following the merger of Standard Life and Aberdeen Asset Management in 2017, this Transaction completes the transformation to a fee based capital-light business and is a major step towards the creation of a world-class investment company.

SLAL was founded in 1825 and is one of the UK’s oldest life and pensions businesses. Today it is a leading provider of long-term savings and investment propositions, primarily based in the UK, with operations in Ireland and Germany, and serving around 4.5 million customers and clients.

In recent years, SLAL has focused on investing in its range of modern savings propositions in the workplace and retail savings markets, where it has built leading positions. The successful execution of this strategy has led to growth in Workplace and Retail AUA of 123% over the last five years, while revenues increased by 53%.

While the long-term savings market in the UK is supported by attractive structural growth trends, the Board believes that Standard Life Aberdeen can best capture the benefits of these growth dynamics through Aberdeen Standard Investments and its Retail Platforms. In partnering with Phoenix Group, whose expertise is in administering and servicing long-term savings, Standard Life Aberdeen is able to realise attractive value for the Disposed Businesses, while continuing to benefit from access to related assets and flows.

Key benefits of the Sale

The Transaction is consistent with Standard Life Aberdeen’s strategy to build a world-class investment company:

• The Strategic Partnership is underpinned by long-term agreements supporting the £158bn of AUM currently managed by Aberdeen Standard Investments on behalf of both SLAL and Phoenix Group. In addition, subject to normal commercial and governance constraints, Phoenix Group has committed to review further investment management mandates not currently managed by Aberdeen Standard Investments, who will be its preferred asset management partner for insurance investment solutions, as well as future consolidation opportunities
• Standard Life Aberdeen retains its market-leading Retail Platforms, together with Parmenion, with AUA of £58bn. The retained platforms have generated organic net inflows of between 18% and 26% of opening AUA in each of the last five years, resulting in AUA CAGR of 35% over the same period. Its platform and financial advice businesses offer Standard Life Aberdeen greater proximity to retail customers at a time when individuals are becoming increasingly responsible for their own saving needs and the need for financial advice continues to grow
• Standard Life Aberdeen’s medium-term earnings growth profile is expected to be enhanced by the Transaction: 
  • Significantly simplifies the retained group, supporting extraction of further efficiencies across the Standard Life Aberdeen business. Following the Sale and the delivery of cost savings from the merger of Standard Life and Aberdeen Asset Management, Standard Life Aberdeen will target a cost/income ratio of less than 60% in the medium term
  • Retained Retail Platforms have attractive, sustainable growth prospects and benefit from substantial operating leverage
• The Sale realises attractive value for the business through cash proceeds and an investment in Phoenix Group with total consideration of £3.24bn
• Standard Life Aberdeen will receive cash proceeds of £2.28bn and its remaining businesses will have significantly lower capital requirements. Its strengthened financial position will enable Standard Life Aberdeen to accelerate its growth strategy through targeted investments, while maintaining its commitment to efficient capital management and its progressive dividend policy

Post completion over 50% of the enlarged Phoenix Group‘s people will be based in Edinburgh and Phoenix Group has indicated that its long-term intention is to maintain operational headquarters in Edinburgh to benefit from SLAL’s highly experienced management team and depth of talent which it sees as fundamental to the future success of its business

Standard Life Aberdeen following the Transaction

Standard Life Aberdeen will continue to offer its investment solutions to a wide range of institutional, wholesale and retail clients globally, either through its own distribution or through its strategic partners, including Phoenix Group. The business will be better positioned to capitalise on global trends that are shaping the savings and investments landscape. The Transaction enables Standard Life Aberdeen to continue to invest for the future, to meet the needs of customers and clients, and to generate growing and sustainable returns for shareholders.

Following the Transaction, Standard Life Aberdeen will have:

• An extensive range of investment capabilities, with expertise in “new active” meeting client demand for next generation investment and savings solutions
• Breadth and depth in distribution with the right capabilities and solutions, brand and scale to compete globally
• Leading retail platforms capturing the significant opportunity in wealth management, driving strong, sustainable flows and offering unique distribution for Aberdeen Standard Investments
• The Strategic Partnership with Phoenix Group in workplace and insurance solutions positions Standard Life Aberdeen for long-term structural growth trends
• Global reach, with strategic partnerships providing scale in international markets
• Efficient and scalable operations that are capable of driving improving profit margins from asset and revenue growth
• Financial strength and cash generation supporting continued investment for growth and the company’s progressive dividend

Principal terms of the Sale

The total consideration payable to Standard Life Aberdeen by Phoenix Group in respect of the Sale is £3.24bn. This comprises cash payable on completion of £2.0bn, a dividend to be paid by SLAL to Standard Life Aberdeen of £0.3bn in Q2 2018 and new shares issued at completion representing 19.99% of the then issued share capital of Phoenix Group following the completion of the rights issue undertaken to part finance the acquisition and worth £1.0bn based on Phoenix Group’s share price on 22 February 2018.

The consideration is subject to adjustment in certain circumstances, including if assets or mandates associated with the Phoenix Group and SLAL are withdrawn in certain circumstances prior to the tenth anniversary of the transaction.

The share purchase agreement and related documentation for the Sale contains representations and warranties, covenants, indemnities and undertakings. The conditions for the transaction include:

• Approval of the transaction by the shareholders of both Standard Life Aberdeen and Phoenix Group
• Merger clearance and regulatory consents
• Successful completion of a rights issue by Phoenix Group
• Certain share transfers being effected as part of a reorganisation of the Standard Life Aberdeen group

The share purchase agreement for the Sale provides for a reciprocal break fee payable in certain situations.

It is anticipated that the existing investment management agreements pursuant to which investment management services are provided to SLAL, Phoenix Life Limited and Phoenix Assurance Limited will remain broadly on the same terms as the existing arrangements and will each be for a rolling three year term.

Under the terms of a new relationship agreement, Standard Life Aberdeen will have rights to two board seats as long as its shareholding is above 15% and one board seat above 10%. The shareholding is subject to a lock-up of 12 months from completion.

Standard Life Aberdeen views its shareholding in Phoenix Group as a core component of its long-term partnership with Phoenix Group. The Strategic Partnership rests on the complementary strengths of each company: Phoenix Group as an administrator of long-term savings and Standard Life Aberdeen as a provider of investment solutions. It is underpinned by mutually beneficial commercial nature of the relationship, the long-term agreements entered into as part of the Transaction and Standard Life Aberdeen’s shareholding in Phoenix Group.

Additionally, through its shareholding, Standard Life Aberdeen will share in the benefits of the combination of SLAL and Phoenix Group’s businesses and in the future growth of Phoenix Group.

Should the transaction not complete before the record date of the Phoenix Group interim dividend for the financial year 2018, Standard Life Aberdeen will be entitled to receive a payment equal to the amount which would have been received as part of the Phoenix Group interim dividend had the transaction completed before this date.

The Sale constitutes a Class 1 transaction for the purpose of the Listing Rules and is conditional upon the approval of Standard Life Aberdeen’s shareholders at a General Meeting.

The Sale is expected to complete in the third quarter of 2018 and is also conditional upon relevant regulatory approvals, including from the Prudential Regulatory Authority (“PRA”) and the Financial Conduct Authority (“FCA”).

Information on the Disposed Businesses

SLAL is a leading provider of long-term savings and investment propositions, based in the UK, with operations in Ireland and Germany, serving around 4.5 million customers and clients. The businesses transferring to Phoenix Group as part of the Sale comprise:

• Spread/risk
• UK Mature Retail
• UK Retail (excluding the adviser platforms Wrap, Elevate and Parmenion and financial advice business 1825)
• UK Workplace
• Europe

Summary financial information with respect to the Disposed Businesses is set out below:

2017 (£m)

Fee based revenue  796
Spread/risk margin  165
Total adjusted operating income  961
Total adjusted operating expenses  (457)
Investment management fees to ASI  (125)
Adjusted operating profit  379
Capital management  2 
Adjusted profit before tax  381

Analysed between:
Fee  224
Spread/risk  157
Adjusted profit before tax  381

Total assets under administration (£bn)   159

Aberdeen Standard Investments will continue to manage £110.5bn of AUM on behalf of the Disposed Businesses, while Phoenix Group will continue to provide and administer insurance products to Standard Life Aberdeen’s Retail Platforms representing £24.5bn AUA comprising largely SIPPs and offshore bonds.

Information on the retained Retail Platforms

The following elements of the UK Pensions and Savings business will be retained by Standard Life Aberdeen:

• UK Retail Platforms, including Wrap and Elevate
• 1825, its financial advice business

Standard Life Aberdeen’s retained Retail Platforms, together with Parmenion, are the largest provider of adviser platforms in the UK with £58bn of assets serving over 3,000 adviser firms and providing access to the full range of Aberdeen Standard Investments’ investment capabilities. The UK Retail Platforms have grown AUA by 353% over the last five years, generating net flows of £24.6bn at an annualised rate of 35%.

Standard Life Aberdeen continues to grow its 1825 financial advice business, which offers a full financial planning and personal tax advice service. Offering a wide range of investment options, supported by investment experts and technology, clients are able to access support how and when they need it. Standard Life Aberdeen has acquired four adviser firms to date, broadening its reach across the country and bringing total assets under advice in 1825 up to £3.6bn.

Notes
1. Inclusive of a £312m dividend payable from Disposed Businesses to Standard Life Aberdeen pre-completion.
2. Excludes SLAL AUM of £18.3bn included in growth channels.

CONTACTS

Standard Life Aberdeen

Media Enquiries
James Thorneley, Head of Communications, +44 (0) 20 7463 6323
Aberdeen Standard Investments +44 (0) 7768 556 334

Katy Hetherington, PR Manager, +44 (0) 131 245 2283
Standard Life Aberdeen +44 (0) 7841 344 374

Investor Enquiries
Jakub Rosochowski, Investor Relations Director, +44 (0) 131 245 8028
Standard Life Aberdeen +44 (0) 7515 298 608

Neil Longair, Investor Relations Manager, +44 (0) 131 245 6466
Standard Life Aberdeen +44 (0) 7711 357 595

J.P. Morgan Cazenove (Joint Financial Adviser and Joint Corporate Broker)
Conor Hillery
Edward Squire
James Robinson
+44 (0) 20 7742 4000

Fenchurch Advisory Partners (Joint Financial Adviser)
Malik Karim
Chris Deville
Rob Williams
+44 (0) 20 7382 2222

Goldman Sachs (Joint Corporate Broker)
Charlie Lytle
John Brennan
+44 (0) 20 7774 1000

Cenkos Securities (Joint Corporate Broker)
Nicholas Wells
+44 (0) 20 7397 8900

Tulchan Communications (Communications Adviser to Standard Life Aberdeen)
Michelle Clarke
Andrew Grant
+44 (0) 20 7353 4200