Abrdn Regulatory News (ABDN)

abrdn plc

Full Year Results 2023

Part 2 of 8

Three years ago, we set out to fundamentally reshape our business.

Against a challenging backdrop, our strategy has formed a company that is better positioned for growth, driven by the evolving needs of our clients and customers.

Our reporting suite

This report forms part of our reporting suite.

Sustainability and TCFD report

The focus of this report is to extend our climate-related disclosure beyond our Annual report and update on other material sustainability topics for abrdn.

Stewardship report

Sets out our application of the 12 principles of the UK Stewardship Code, as investors.

Modern slavery statement

Our disclosure in line with the UK Modern Slavery Act, detailing our work to mitigate related risks.

This annual report and accounts 2023 for abrdn plc, and the strategic report and financial highlights 2023 are published on our website at www.abrdn.com/annualreport

Access to the website is available outside the UK, where comparable information may be different.

APM 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 consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows, which are presented in the Group financial statements section of this report. Further details on APMs are included in Supplementary information.

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

Contents

Strategic report

Governance

Financial information

Other information

Download this report from: www.abrdn.com/annualreport

Highlights

1. Comparatives have been restated for the HASL implementation of IFRS 17. Refer Basis of preparation in the Group financial statements section.

abrdn is a modern investment company that helps clients and customers plan, save and invest for the future

Read more about our three businesses on pages 20 to 37. Overall performance summary is included on page 70.

1. Personal has been renamed ii and includes Personal Wealth unless otherwise stated.

Our purpose

To enable our clients to be better investors

What sets us apart

A diversified business supporting clients at all financial stages

Shaped by our cultural commitments

Read more about our culture on pages 48 and 49.

Our strategy in action

At the start of 2021, we set out our three-year strategy to build a diversified business that could be successful through market-cycles. We have refocused on areas of strength, selling non-core elements with lower growth and profitability, and making strategic and bolt-on acquisitions to add high value capabilities.

abrdn has fundamentally transformed. We now have a differentiated value proposition, providing full lifecycle service through our investment content and wealth platforms.

Chairman's statement

Adapting to succeed in an evolving sector

Context is important when reviewing progress made during 2023.

Last year, many of the headwinds facing active asset managers grew stronger, accelerating our drive to reshape abrdn to be more resilient within and across economic cycles. Notably, the year saw continuation, right across the market, of asset allocations trending away from investment in equities, from emerging markets and from commercial real estate, all reflecting both changes in risk appetite as well as the re-emergence of competing cash and liquidity products with attractive yields, as interest rates rose markedly to combat stubbornly high inflation.

This latter point was particularly relevant as, both in the UK and in the US, investors could capture risk-free returns in excess of 5% for the first time in 15 years at a time of heightened economic uncertainty. Continuing outflows from UK equity funds marked 43 consecutive months of outflow, in part due to the change in risk preference described above. Equally important was the continuing run-off of closed defined benefit UK pension schemes' investment in UK listed equities, as they completed their transition to liability driven strategies or transferred their obligations to the insurance market.

Investment through defined contribution retirement schemes compensated only partially, as contribution rates are significantly lower than those of defined benefit pension schemes and equity allocations there are primarily to global equity products in which UK listed companies are a very small component. Recently released ONS figures illustrate the impact of these structural shifts in asset allocation, evidencing that UK pension schemes and insurers combined held only 4% of UK listed equities, declining from around half in the early 1990s.

This structural shift in the relative importance of the UK institutional market underlines the significance of our recent diversification to get closer to the end investor through investment in our Adviser and ii businesses. As will be noted in our results for 2023, in a weak year for our Investments business, in part due to continued restructuring, our two platform businesses grew their contribution to adjusted operating profit to £232m, thereby contributing 93% of the Group total.

Macroeconomic and geopolitical backdrop

Investment activity in 2023 also faced challenges from the macroeconomic and geopolitical environments. The horrendous attack against Israel on October 7th precipitated a powerful military response which is still ongoing, with fears of a wider Middle East conflict impacting investor sentiment. This added to concerns over the continuing war in Ukraine. Economically, cost of living burdens in the UK from continuing inflation constrained the flow of funds into retail savings products and indeed we saw some withdrawal from savings pots as household budgets were stretched. With major elections in 2024, notably in the US and the UK, but extending into some 50 countries, the resulting politically charged policy narratives added to investment uncertainty. Helpfully, market levels improved in the final quarter of 2023 as feared recessions seemed less likely and inflationary threats were downgraded leading to markets discounting earlier and larger interest rate reductions than previously expected.

UK Capital Market restructuring initiatives and demographic saving challenges

The decline in UK institutional participation in UK listed equity markets referred to above, together with a decline in new listings in London and UK listed company departures to other listing venues deemed more attractive, precipitated considerable attention from within the financial industry, the media and government. This led to a number of initiatives supported by government, industry and the regulatory community to remove barriers deemed to contribute to a lack of competitiveness, as well as introducing reforms designed to modernise UK capital markets. Of particular note were the so-called Edinburgh Reforms, the Mansion House Reforms as well as the work of the Capital Markets Industry Taskforce and the FCA's proposed listing regime reforms.

As a leading investment business in the UK, we supported these initiatives and believe adoption of the measures contained within them are hugely important to the delivery of a stronger UK economy and a more competitive financial sector environment, through which UK listed businesses can attract both the funding and talent to be more successful. In 2023 we co-sponsored a report by the think-tank New Financial that provided an analysis of many of the key issues underlying this agenda and we look forward to playing our part in supporting adoption.

The Mansion House Reforms were also particularly important in highlighting the relatively lower returns in pooled retirement savings in the UK in defined contribution schemes, as a consequence of both the large number of small schemes and a lower risk appetite within such schemes than seen in other leading economies. The savings gap opening up from this low risk tolerance, together with the lower mandatory contribution rates in the UK, risk contributing to a demographic timebomb as current generations of scheme participants are likely to reach retirement with inadequate funds to meet their expectations of a comfortable retirement. Our industry along with our regulators and policymakers need to work together to ensure people are properly informed of the responsibility increasingly placed on the individual to build adequate funds to support retirement. This is a theme where abrdn plans to have a leading voice and we are positioning our Adviser and ii businesses to play a prominent role; Stephen highlights the steps we are taking in his review.

Progress on delivering on our strategic ambitions and performance in the year

With revenue growth in 2023 expected to be very challenging given the economic and geopolitical backdrop described above, we set one of our priorities for 2023 to eliminate some £75m of costs, excluding that derived from business disposals. In part, this was achieved through consolidating or closing sub-scale funds and sharpening the focus of the investment strategies offered to clients. All of this was achieved and is discussed more fully in the Chief Executive Officer's review.

However, the scale of revenue reduction in 2023 as a consequence of market levels, risk reduction by clients to less remunerated strategies and net outflows in the Investments business far exceeded the cost savings achieved, leading to the continuation of an unsatisfactory ratio of cost to revenues in the Investments business. Performance in our other two businesses was good and in line with our expectations but that good performance was overshadowed by the unsatisfactory profitability within Investments. As a consequence, the Board spent the majority of its meetings in 2023 analysing in detail the shape of the Investments business against market trends and determining what actions were necessary and within our control to rebuild the profitability of the business on a sustainable basis.

This culminated in the announcement made on 24 January that a more significant reorganisation and simplification of the business than previously contemplated was needed to address the ongoing pressure on revenues from changing patterns of asset allocation, in particular the greater institutional adoption of passive and low cost thematic strategies. As announced, the actions planned throughout 2024 and 2025 are designed to take at least £150m from the cost base within the Investments business and from functional costs. Stephen discusses the necessary actions in more detail in his review.

To build a sustainable business and to grow we need to invest at the same time and this requires reallocation of capital resources within abrdn.

During 2023 we completed the disposal of our non-core stakes in HDFC Life and HDFC Asset Management, which augmented our capital position by £576m. The sale of abrdn Capital which was announced alongside our 2022 results completed in September 2023 at the agreed price of £140m adding a further £124m to our capital position. We also completed the sale of our US private equity and venture capital business in October and in the same month announced the sale of our European-headquartered private equity business to Nasdaq-listed Patria Investments. This reshaping of our footprint and capabilities allowed us to focus on business areas where we have better growth prospects and comparative advantage and by reducing complexity, we are reducing costs.

As promised, we reinvested a portion of the capital released through the above disposals to fill out gaps in our Investments business and add technology capabilities and marketing resources in our Adviser and ii businesses. In October, we completed the acquisition of the healthcare fund management capabilities of Tekla Capital Management bringing into the Group $2.8bn of funds under management and more importantly, adding a distinctive capability in listed healthcare and biotech thematic closed-end funds. Together with other recent closed-end fund acquisitions this positions abrdn as the third largest manager of closed-end funds globally. Investment in our Adviser and ii business during 2023 to build organic growth opportunities are covered in Stephen's review.

When we reported our results for 2022 we indicated that our intention was to make a similar return of capital in 2023 as had been delivered in 2022, dependent on successful non-core stake realisation and retaining necessary funds for investment; this we have delivered through a further buyback of c£300m of shares and the maintenance of the interim dividend at 7.3p per share. The Board is recommending to shareholders a final dividend of 7.3p per share subject to their approval at the upcoming AGM to bring the total return to shareholders in respect of 2023 to £567m (2022: £595m).

We are updating one of our key performance indicators moving forward, from adjusted capital generation to net capital generation. This metric more closely aligns with the dividend paying capability of the Company over the long term.

Board

As previously announced, both Stephanie Bruce, our CFO and Brian McBride, a non-executive director did not seek re-election at the 2023 Annual General Meeting at which their significant contributions to the development of abrdn were recognised. We wish them both well in the next stages of their careers.

In October last year, we welcomed Jason Windsor as our new CFO. Jason joined from Persimmon plc having spent the vast majority of his career hitherto in financial services. His financial industry experience and expertise were gained notably through 12 years at Aviva, latterly as Group Chief Financial Officer. Prior to that, he spent 15 years at Morgan Stanley in both London and Singapore, rising to be a Managing Director within its Investment Banking Division. Jason has made an excellent start at abrdn, and we all are looking forward to working with him more closely in delivering our strategy.

Catherine Bradley has advised that she will not seek re-election at the Company's Annual General Meeting on 24 April 2024 and will stand down from that date as a Non-Executive Director and as Chair of the Audit Committee. On behalf of the Board and all my colleagues, I would like to thank Catherine for her significant contribution to abrdn and our Board and Committee discussions. Earlier this year Catherine took on the chair of ii, our direct-to-consumer investments business, and she has concluded she should dedicate her available time commitment to this responsibility. I'm delighted she will remain connected with abrdn through her ii appointment where we will continue to benefit from her breadth of consumer, financial and regulatory experience as we continue to grow ii and the critical role it plays within the Group.

Outlook

Given all current uncertainties, it is hard to form a clear outlook for 2024 and beyond. Our base case assumes no major escalation in global inflationary pressures across the major global economies or an escalation of geopolitical tensions and assumes policy interest rates in the US and the UK have peaked. We assume that, notwithstanding some harsh rhetoric inevitable in an election year, the US-China mutually beneficial trade relationship will remain intact. With the US appearing to be successful in engineering a soft landing after an aggressive succession of interest rate hikes, upside to the global economy rests upon the US maintaining its solid growth trajectory and China resuming its contribution as a key driver of global growth and as a major part of the supply chain in the transition to a lower carbon future. Given other geopolitical tensions, the US-China relationship remains a top issue in the investment world. Their shared global economic leadership has led to an understanding of mutual dependency and notwithstanding tension over high-end semiconductors and critical minerals, the resumption of trade dialogues and senior visits are encouraging for the global economy. Outlook for the UK and the rest of Europe is more muted, with it recently being confirmed that the UK had entered a modest recession; the investment picture is likely to remain cautious given electoral uncertainty and the lagging impact of wage increases and tax changes on consumer confidence.

We enter 2024 with a clear plan of what we need to do to build a sustainable business with good growth prospects and an efficient cost structure; our industry is evolving rapidly as technology enables the offer of ever more sophisticated tailored investment themes and solutions at low cost. Proximity to the end consumer and an understanding of their investment preferences and the route through which they choose to invest will be critical. abrdn is well positioned for this evolution in terms of the mix of our businesses and the talent and financial resources needed to succeed.

Sir Douglas Flint

Chair

Chief Executive Officer's review

Building a modern investment company

We have continued with our determination to build a modern investment company that is capable of thriving in a changing marketplace. In January of 2024, we took the next step in that process, announcing a £150m cost transformation programme to accelerate the delivery of a more sustainable cost base that can support appropriate long-term profitability. The need to continue applying downward pressure on costs was underlined by another challenging year. Throughout 2023, the 'higher for longer' rate environment across developed economies put sustained pressure on most asset classes, and while the market now expects a reversal over 2024, there is no doubt that we have felt the effects in our Investments business. The upside is the impact higher rates have had on income in Adviser and ii, underscoring the benefits of our diversified business model, which delivers through the economic cycle.

When we embarked on our transformation journey back in 2021, not many would have foreseen the level of global economic and geopolitical turmoil we have since experienced. That has inevitably hindered our progress, and directly impacted performance. Nonetheless, as pages 4 and 5 demonstrate, we have moved at pace to evolve the business and create a model that is better suited to the modern investment landscape, better aligned to the products and services clients will want in the coming years and better positioned for future growth.

A platform for growth

As we look ahead, we now have a platform to build on, connecting our investment content capabilities on the one hand, with our market leading wealth platforms on the other. We are able to identify where demand is going and react more quickly than ever, using data sharing between businesses to design better products and creating tailor-made solutions in Investments that meet the needs of clients and customers in Adviser, ii, and the wider market.

Sensitivity to rates and markets has been mitigated by our more diverse business model. We are also well positioned to take advantage across the group when rates do start to come down, with a move to risk-on giving oxygen to Investments, an easing of the cost-of-living pressures that have impacted Adviser, and a return of investor confidence supporting an increase in subscriptions and trading volumes for ii.

Our new transformation programme will deliver an annualised cost reduction of at least £150m by the end of 2025. Approximately 80% of the cost reduction benefits will be in our core Investments business. The programme is targeting the removal of management layers, increasing spans of control, and reducing overheads. We will implement this programme with minimal impact to client service and at all times focusing on investment performance.

2023 performance

At £249m (2022: £263m), adjusted operating profit is down 5% on the previous year. While Adviser and ii both increased profitability, this was more than offset by falling revenue in Investments where market conditions had a substantial impact, as seen across the sector. Overall, we are reporting an IFRS profit for the year of £12m (2022 restated: loss £546m), this improvement reflects a reduction in impairment of intangible assets and restructuring costs.

Our determination to manage our cost base is evident in a 4% reduction in adjusted operating expenses, even including a full 12 months of ii (compared to 7 months in 2022). We exceeded our target to remove £75m in cost from the Investments business, delivering savings of £102m in the year, and we have since set out plans for a new transformation programme that will deliver a material improvement to our cost/income ratio.

As detailed below, we have maintained our disciplined approach to capital allocation in 2023. Jason outlines our performance in detail in the Chief Financial Officer's overview.

A leaner and more relevant Investments business

After another year of substantial change, we finished 2023 with a leaner, more relevant Investments business. With the sale of our US Private Equity franchise and agreement to sell our European Private Equity franchise, and having continued to deliver on our fund rationalisation programme with the closure of a further c60 funds in 2023, our more focused offering is based upon areas of real strength and scale across public markets and alternatives.

This simplification enabled us to go beyond our £75m cost reduction target.

Investment performance over the three and five-year time periods has weakened, with 42% (2022: 65%) and 52% (2022: 58%) of AUM covered by this metric ahead of benchmark respectively. The drop in the three-year performance reflects a challenging period for active managers, particularly those with a quality equity investment style with a bias towards Asia and Emerging Markets. Our new Chief Investment Officer, Peter Branner, who joined us in 2023, is leading a wide-ranging programme of work to review and strengthen our investment processes. You can read more about this work in the Investments section on page 22.

The creation of a more focused Investments business has been accompanied through the careful deployment of capital in select areas where we see good growth opportunities. Our acquisition of the fund management capabilities of Boston-based Tekla Capital Management has added specialist knowledge in the healthcare and biotech sector, an area we have identified as one of a small number of megatrends that are expected to offer exciting investing opportunities in the future. Alongside Tekla, the acquisition of other closed-end funds from Macquarie and the proposed acquisition of funds from First Trust, would collectively add £3.6bn in AUM and strengthen abrdn's position as one of the world's leading players in closed-end funds.

Leading positions in the structurally attractive UK savings and wealth market

With an ageing population and the ongoing shift toward individuals having to take a greater amount of responsibility for their own financial futures, the long-term structural growth factors underpinning the UK savings and wealth market are well known. In that context, owning two of the leading platform businesses in the sector puts abrdn in a strong position, and the work we have done this year to strengthen those businesses for the future only adds to that potential.

While the continuation of difficult market conditions through 2023 undoubtedly had some impact across both our Adviser and ii businesses, this was mitigated by increased treasury income that supported improved adjusted operating profit in both Adviser and ii. We note that the FCA has been considering the retention of interest earned on cash balances and we have been working with them to ensure they understand our approach. We are confident that both Adviser and ii offer clients and customers fair and transparent fee structures.

In Adviser, 2023 saw the largest and most advanced platform technology upgrade that we have undertaken. As expected, this caused some disruption to service, but by year-end service levels were returning to normal, and we can now offer, and build upon, a far superior user experience for our clients. As announced back in May 2023, this will also see us roll out adviserOS this year - a new way of delivering platform services to clients that will enhance our proposition, extend client capacity, and differentiate abrdn from the wider market.

The year saw our Managed Portfolio Services (MPS) team shift to Adviser from our ii business. We anticipate strong demand from advisers and believe there is a significant opportunity for further growth here. The same applies to the launch of our own on-platform SIPP and Junior SIPP in 2024.

ii also benefited from a significant technology update in 2023 that allowed the platform to remain ahead in what is a rapidly developing sector. While market conditions dampened customer acquisition and trading activity, we enjoyed the comparative resilience afforded by our subscription model and proved our strength by increasing our share of market trades over the year. ii also delivered the highest net AUA inflows across UK D2C platforms in 2023, according to Direct Matters.

Important work to optimise the business model within ii was also delivered. The sale of our discretionary fund management business to LGT in September underlined our disciplined approach to capital allocation. The simplification and integration of our Financial Planning and ii teams showed that we can cut cost while creating a model we can better leverage for our customers.

Another customer-led development was the launch of our Investor Essentials and Pension Essentials products, offering lower prices to customers with smaller investment pots and widening out the breadth of the market for whom ii becomes the best choice on price. We expect these innovations, and investment in our brand, will support higher customer acquisition over time, especially as conditions begin to support improved investor confidence.

Disciplined capital management

The indicative CET1 resources at 31 December 2023 were £1.5bn (2022: £1.3bn) with a coverage of 139% (2022: 123%). This was facilitated by another year of disciplined capital management, during which we carefully balanced non-core divestments with a combination of targeted investment in the business and continued returns to shareholders.

Organic cash generation and efficient stake sales generated £875m. Consistent with the previous year, we returned c£600m to shareholders in the form of dividends and share buybacks, and reinvested £152m largely to continue growing our closed-end fund business.

We plan to deploy surplus capital to fund the delivery of the £150m cost savings we have outlined and may use the proceeds from divestments to support bolt-on acquisitions within key thematic markets. The Board's current intention is to pay a total annual dividend of 14.6p 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.

Playing our part in creating a more sustainable world

The unfortunate sequence of global crises we have experienced in recent years may have drawn some attention away from the challenges we face on climate change but the urgency around the need to respond is only intensifying. Our Sustainable Investing team were present for the COP28 meeting in the UAE in November where we were encouraged by agreement for the first time on a transition away from fossil fuels, which we believe can be a catalyst for meaningful action. We continue to contribute from two angles; careful management of our own operations to limit our climate impact, where we are exceeding our objective of a 50% reduction in reported operational emissions by 2025 with currently a 69% reduction versus our 2018 base year; and a deeply embedded approach to sustainable investing that we have cultivated over many years with an ongoing reduction being reported for 2023 in the carbon intensity of in-scope public market and real estate assets, meaning we are also on track to meet our targets in this area (see page 45 for more detail). Another key aspect of our sustainability agenda is our commitment to offering an inclusive and supportive working environment.

We have specific approaches in place to address gender, ethnicity and social mobility imbalances and recorded another successive year of reducing our gender pay gap. You can read about our efforts in more detail on page 53.

At a headline level, we saw overall employee engagement remain at similar levels to last year, despite a backdrop of challenging market conditions and ongoing change within the business. The external environment, coupled with the scale of change as we transform our business, have undoubtedly been challenging for our colleagues. Across the company they have shown deep commitment to our clients and a huge will to rebuild the firm's success. On behalf of the Board and the management team, I'd like to thank everyone across the business for their hard work, skill and determination.

The next phase of our progress

Over the last three years we have moved at pace to reshape the company and create a business model that is fit for the future. We now have more ways to win, particularly through our enhanced exposure to the highly attractive UK savings and wealth market, but also with a more focused and more efficient Investments business. This means we are already far better equipped to address the well-known challenges facing active asset management. However, we have also recognised the need to go further still in transforming our Investments business. The transformation programme set out in January will deliver a leaner, more profitable Investments business to go alongside our two leading platform businesses. We are clear that there is more work to do but we are confident in the trajectory that we have created and the progress that we are making. Our goal is for all three businesses to make their appropriate contribution to Group earnings and in doing so, create a sustainably profitable abrdn.

Stephen Bird

Chief Executive Officer

Our business model

Building a modern investment company

Positioned for success through the economic cycle

Driven by our purpose to enable our clients to be better investors, we have strengthened our business model through effective capital management and investment to create strong foundations for growth.

Our strengths and resources

Specialist asset manager providing investment solutions to meet complex needs.

Sustainable investment considerations integral to our investment process.

Strong UK adviser platform offering, powered by leading technology.

UK's second largest direct-to-consumer investment platform.

Strong balance sheet to drive shareholder value.

Positioned to benefit from key investment market opportunities

1

Continued growth opportunities in Asia and emerging markets, driven by:

-  Demographics

-  Urbanisation

-  Economic opportunity

- Wealth effect

2

Energy transition seen across every industry including:

-  Homes

-  Transportation

- Construction

3

Democratisation of technology and investment

People empowered to shape their own investment decisions

An efficient, diversified model

Strengthened, simplified business

-  Strategic focus

-  Robust governance

- Effective capital management

Driving investment in long-term growth

-  People

-  Product

- Technology

Structured around three complementary businesses

-  Investments

-  Adviser

- ii

Delivered through strong operational processes

Controlled processes

Our control environment helps us manage risk effectively, provide business security and maintain operational resilience.

Efficient operations

We are building our operating model for agility, speed and efficiency, supported by technology which aims to deliver the best possible experience.

Long-term value created

Diversified business and a strong balance sheet support long-term value creation

Investment in long-term growth

Payment of dividends and the return of excess cash to shareholders

How we make money

We earn money mainly from asset management and platform fees based on AUMA. We also earn revenue from subscription and trading fees, and earn an interest margin on cash balances.

Read more in the Chief Financial Officer's overview on pages 62 to 75

Value shared with stakeholders

Clients

We focus on delivering outcomes that truly matter to our clients. We draw on our expertise and insight with the aim of delivering long-term investment performance.

42%

Three-year investment performance

People

We aim to attract and develop the best people for leadership roles, and to offer clear pathways for career advancement.

54%

Employee engagement score

Society

We have important responsibilities to society and the environment. We combine the power of responsible investment with the positive impact we can have through our operations.

No.1

Ranked asset manager by World Benchmarking Alliance

Shareholders

We aim to create sustainable shareholder value over the long term. We have a strong track record of returning value to shareholders.

14.6p

Full year dividend

Read more on Stakeholder engagement on pages 54 to 56

Our strategy

A strategy for client-led growth

A strong sustainable business means focusing on the areas where we have the scale and expertise to win. We have four clear strategic priorities where existing and emerging market opportunities, and the evolving needs of our clients, align to our areas of strength.

Asia

Asia is an economic powerhouse - and there's more to come. Long-term economic growth requires three things: an increasingly skilled workforce, investment in infrastructure, equipment and technology, and improving productivity. Asia's emerging markets demonstrate all three of these essential building blocks.

We remain deeply committed to growing our business in Asia. Our track record in specialist equities, means we are well placed to serve both clients in and outside of Asia looking to invest in the region.

Progress

- In 2021, we launched the abrdn Sustainability Institute in Singapore and hired René Buehlmann as CEO Asia Pacific, and then CEO of the Investments business in May 2023.

- In 2022, we celebrated 30 years of investing in Asia.

- We refocused our model in Asia Pacific exiting Taiwan and Australia and introducing distribution partnership models.

- In 2023, we launched Strength in Asia, a major brand campaign in markets across APAC and Europe.

- We led the region on driving Sustainable investing through the facilitation of Asia Sustainability Week.

Sustainable investing

While scrutiny of Environment, Social and Governance (ESG) approaches has intensified, clients still want to invest in a way that has the potential to make a difference as well as providing a financial return - whether that be through powering the energy transition, protecting biodiversity or driving positive social change.

We have created a suite of sustainability-focused solutions to meet client needs. We firmly believe that active engaged investment management is integral to providing the capital for positive change.

Progress

- In 2021, we launched our climate change fund range. We also created a new Chief Sustainability Officer position to ensure responsibility for this integral theme was represented at the most senior levels.

- In 2022, we launched our MyFolio Sustainable Index range in support of clients' ESG goals and our Emerging Markets Sustainable Development Corporate Bond passed through the $100m mark in its first year.

- Over the course of the last two years, we have been running an engagement programme with the highest-financed emitters in our equity holdings, identifying clear milestones on the path to decarbonisation.

Alternatives

We believe we are in the foothills of the next tech super-cycle which will see revolutions in biotech and healthcare, clean tech, and digital assets. The best way to access investment in these areas will be Alternatives.

Our Alternatives business includes our capabilities in real assets, which comprises extensive global real estate expertise, infrastructure and commodities. It also offers clients access to major areas of European Private Credit, as well as compelling and innovative opportunities in the Hedge Fund sector.

Progress

- We have built out our Alternatives franchise to significant scale with £76bn of assets, particularly in real estate and logistics. Tritax, which we acquired in 2021 remains a leading player with two of the biggest listed logistics funds in the market.

- In 2023, we were appointed by Border to Coast Pensions Partnership, one of the UK's largest asset owner pools, to support the launch and management of its UK Real Estate proposition.

- We have enhanced our talent and structure, appointing new Heads of Private Credit and Real Estate.

- We refocused the business through announcing the sale of non-core US and European Private Equity businesses.

UK savings and wealth

The decline of defined benefit pensions, the significant advice gap and an ageing society mean it is more important than ever that UK investors have the tools and appropriate guidance or advice.

With ii offering market-leading direct investing and our platform providing a best-in-class proposition to the adviser market, we have successfully repositioned our business towards an increasingly attractive and growing UK savings and wealth market.

Progress

- Acquisition of interactive investor brought 400,000 new customers to the abrdn group.

- Since the acquisition, ii has launched new products and price points, including Investor Essentials and Pensions Essentials, subscriptions at a lower price point designed to appeal to investors with less to invest. This makes ii the cheapest on the market for anyone with £15,000 or more to invest.

- In 2023, we migrated 5,800 customers from Investments to ii to better service their needs.

- In Adviser we have retained our 'A' rating for financial strength from leading independent consultancy firm AKG - with financial strength a key consideration for advisers when selecting their primary platform.

- In 2023, we delivered a major technology upgrade to the platform to better service our adviser clients.

Our investments in action

As a specialist global investor with over £360bn of AUM, we help capital meet opportunity to support the world's ever-changing needs. Informing our approach are a number of megatrends that are set to influence the shaping of the global economy, including decarbonisation, urbanisation and infrastructure development and a shift in economic power to the East.

London based private biopharmaceutical company Quell Therapeutics are working to deliver transformational and valued therapies addressing a range of autoimmune and inflammatory diseases, as well as preventing rejection in organ transplantation. We are invested through two of the four closed-end funds acquired from Boston based Tekla in 2023 to build out our capabilities in the biotech and healthcare sphere where technology advances and demographic changes are set to drive growing opportunities in the future.

Ten Boomgaard in Bruges is the first investment in Belgium on behalf of investors in the abrdn Pan-European Residential Property Fund (APER) which now has assets in 30 cities across 10 countries. As demand continues to rise for good quality housing in key European cities, the fund successfully raised over ?100m in the last quarter of 2023.

The Mirasierra Gallery in Madrid has been recognised as the Best Retail Park in Spain by leading industry body Asociación Española de Centros y Parques Comerciales (AECC). Purchased for an institutional mandate, the Gallery brings together both retail and healthcare centres and was constructed with a core commitment to sustainable building management.

Power Grid Corporation of India is the country's largest electric power transmission utility, transmitting about 50% of the electricity used domestically. Invested in the company through abrdn's Asia Income fund, we see an opportunity to benefit from infrastructure spending and the massive push towards renewables and associated infrastructure in India.

Wessex Internet Limited and its majority shareholder, abrdn's third Infrastructure Fund, ASCI III, announced successfully securing an additional £35m funding in 2023 for the business's long term growth plans, bolstering the firm's mission to provide high-speed fibre to the home, and improved connectivity in rural areas of South-West England.

Performance overview

Results impacted by continued challenging market conditions

Market conditions remain challenging and this is reflected in our 2023 results.

We are taking actions to restore our core Investments business to a more acceptable level of profitability.

Financial performance summary

£1,398m

Net operating revenue

reduced by 4% to £1,398m (2022: £1,456m) with lower revenue in Investments mainly reflecting the impact of net outflows and adverse market conditions. This was partly offset by growth in Adviser and ii.

£249m

Adjusted operating profit

reduced by 5% to £249m (2022: £263m) reflecting the lower profitability in the Investments business, partly offset by the benefit of the full 12 months contribution from ii1 of £127m. Excluding ii1, adjusted operating profit was 38% lower than 2022 at £122m (2022: £196m).

82%

Cost/income ratio

was stable at 82% (2022: 82%) reflecting the benefit from the efficient Adviser and ii cost models, offset by lower revenue in Investments.

(£6m)

IFRS loss before tax

of £6m (2022: loss £612m2) was impacted by losses of £178m from the change in fair value of significant listed investments, restructuring and corporate transaction expenses of £152m and goodwill impairments of £62m.

(£13.9bn)

Net outflows (excl. liquidity and LBG tranche withdrawals)

of £13.9bn (2022: £10.3bn), representing (3%) of opening AUMA, largely reflected by lower gross inflows which included the impact of the uncertain market environment.

1. Relates to ii (excluding Personal Wealth).

2. Comparatives have been restated for the HASL implementation of IFRS 17. Refer to Basis of preparation in the Group financial statements section.

Capital performance summary

£1,466m

CET1 capital resources

increased to £1,466m (2022: £1,301m), benefiting by £576m from the remaining HDFC stake sales, partly offset by the impact of the £300m share buyback in 2023.

£1.8bn

Cash and liquid resources

remained robust at £1.8bn (2022: £1.7bn). These resources are high quality and mainly invested in cash, money market instruments and short-term debt securities.

£557m

Value of listed stakes

of £0.6bn (2022: £1.3bn) excluded from the CET1 capital position. Reduction includes impact of final HDFC stake sales which generated net proceeds of £0.5bn.

14.6p

Full year dividend per share

was maintained at 14.6p (2022: 14.6p). It remains the Board's current intention to pay a total annual dividend of 14.6p until it is covered at least 1.5 times by adjusted capital generation.

Our capital resources provide strength to allow investment to grow the business and be more efficient.

Read more about our financial and capital performance in the Chief Financial Officer's overview section of this report.

Our businesses - Investments

A refocused Investments business ready to capitalise on areas of strength

1. The investment performance calculation covers all funds that aim to outperform a benchmark, with certain assets excluded where this measure of performance is not appropriate or expected. Further details about the calculation of investment performance are included in the Supplementary information section.

We are a specialist asset manager with £366.7bn in AUM. We focus on areas where we have both the strength and scale to capitalise on the key themes shaping the market, through either public markets or alternative asset classes.

Positioning our business to capitalise on megatrends

Another challenging year for investors

We have continued to operate in a challenging, risk-off environment with outflows seen across the market. The notable drop in market values across emerging markets (EM), fixed income and real assets has presented a significant revenue challenge. Geopolitical and credit risk persist, while rising interest rates have continued to drive asset allocation into lower-risk, lower-margin debt products and cash. With the growing adoption of passive and index investing also disrupting traditional asset management models, our business continues to take active steps to not only mitigate these challenges but also to position itself for a pivot back to growth.

Investment performance over the three-year time period has weakened, with 42% of AUM covered by this metric ahead of benchmark (2022: 65%). The drop in the three-year performance reflects a challenging period for active managers particularly those with a quality equity investment style with a bias towards Asia and Emerging Markets. To address these challenges, we are committed to refining our processes by:

-  Expanding our thematic equity offering and research capabilities.

-  Implementing asset class-specific process enhancements, including refinement to valuation approaches, portfolio construction techniques, and risk analytics.

-  Evolving our CIO governance structure and introducing 'Team Scans' at asset class and desk levels to facilitate peer review and to drive continuous improvements.

-  Focusing on strategic technology and data initiatives to enhance analysis and process efficiency.

Despite current headwinds, clear megatrends have developed that will dictate market dynamics in years to come. In 2023, we continued to align ourselves to these trends:

Urbanisation and infrastructure development: With rapid urbanisation, and growing populations worldwide, the demand for homes and infrastructure continues to grow, driving capital expenditure and economic activity. We have significant scale in real assets with £42.8bn of AUM as at December 2023. In the logistics space, abrdn-owned Tritax remains a leading player with two of the largest listed logistics funds in the market. Throughout 2023, we demonstrated momentum across infrastructure, living and logistics, notably winning a significant mandate with Border to Coast in June to support the launch and management of its UK real estate proposition.

Climate change and the energy transition: Global carbon emissions rose by another 1.1% last year, which was the hottest year on record. However, the global energy transition is well underway, supported by the COP28 agreement to triple renewable capacity and double energy efficiency by 2030. We continue to evolve our product range to capture climate commitments aiming to respond to continued market interest in sustainable and climate investing. In June 2023, our Climate Transition Bond Fund secured Environmental Finance's 'ESG Fixed Income Fund of the Year' award, after being recognised for its particular focus on climate adaptation.

Health and biotech: In October 2023, abrdn completed the acquisition of the healthcare fund management capabilities of Tekla Capital Management, a specialist healthcare investment adviser. With the global healthcare sector grappling with an ageing population and increasing rates of chronic illnesses, such as diabetes and cancer, the healthcare technology industry has grown rapidly. In the United States alone, healthcare expenditure has grown at an annual rate of 6% since the 1980s, as the US population has surpassed 330 million and the obesity epidemic has worsened.

Growth in Asia and emerging markets: Despite the significant headwinds over the last two years we expect Asia and emerging markets to remain important drivers of global growth. Our estimates suggest that by 2035, emerging markets will drive c75% of global growth, with China and developing Asia alone accounting for 60% of this. With a significant specialism in EM and Asia, where we have operated for over 30 years, we are well positioned to benefit from these structural growth opportunities. Despite signs of recovery in Q4, Asia and EM performance was subdued in 2023. However, we expect both Asia and EM to deliver improved performances this year and next with opportunities emerging to further capitalise on our strong insurance heritage across the regions.

Our progress in 2023

Strengthening our team

In May 2023, we announced changes to the management team of our Investments business with René Buehlmann becoming sole CEO, Peter Branner joining as Chief Investment Officer and Xavier Meyer being promoted to Head of UK and EMEA and Chief Client Officer.

Strategic focus

In July and October we announced the sales of our US and European Private Equity businesses, respectively with the US sale completing in October and the European sale expected to complete in H1 2024. These disposals will raise over £105m for the business and reflect our strategy to focus on areas of strength and invest in sectors with attractive long-term dynamics.

Delivering significant cost savings

In 2022, we merged or closed c60 funds to simplify our offering and refocus on scale. In 2023, we continued this process closing a further c60 funds deemed to be sub-scale, inefficient or no longer aligned with our core strengths. While closing funds is never a simple exercise, we have significantly progressed our fund rationalisation programme, which was central in the cost savings delivered across 2023. This process has also increased scale for our existing funds, with 74% of our funds now with over £100m in AUM (61% in 2022) and 55% with over £200m in AUM (41% in 2022).

Our most significant headwinds this year have been in emerging markets, Asia and Global Absolute Return Strategies (GARS) where we have continued to see outflows. Our EM range is well positioned to pivot to growth once investor appetite for risk returns, and our GEM Income fund continues its stellar track record, in which it has performed in the top quartile of the market since inception. We have taken action following a strategic review to merge or close funds associated with our GARS range, which completed in December 2023.

In addition to our fund rationalisation strategy, we simplified our management structure, restructured our Australian operations, and refocused our equities and multi-asset franchises. These actions, taken in combination, resulted in the Investments business comfortably exceeding its £75m cost saving target with £102m in savings delivered in 2023.

1. A subset of the abrdn product range in-scope for rationalisation.

Focusing on areas of strength

Simplifying our product range, exiting undifferentiated or sub-scale areas, and reducing costs has allowed us to intensify our focus on our areas of expertise in higher-margin products and high-growth sectors with the highest potential to deliver performance:

Fixed income: Our fixed income offering has considerable scale with over £122bn AUM across credit, government bond and money market funds in developed and emerging markets. Fixed income opportunities have been subdued in recent years by the low-yield environment, but in 2023 we began to see this trend reverse and our pipeline is now promising. This potential is underpinned by performance with 81% of our fixed income capabilities outperforming over three years, and in credit, where we have particular strength, 99% of our assets outperforming over the same period.

Alternatives: Real estate, infrastructure and logistics all continue to show attractive annual growth rates and compelling opportunities for scale players. In 2023, we made a series of investments across European real estate and infrastructure, with our third infrastructure fund, ASCI III, investing in Spanish fibre networks, biomethane facilities in Italy and regional heating and electricity in Finland. At the end of 2023, our Alternatives business had £76.4bn in AUM including £42.8bn in real assets, £8.8bn in private credit and £17.1bn in funds of hedge funds and commodity ETFs.

Closed-end funds: In 2023, we announced three significant acquisitions in the closed-end fund (CEF) space, acquiring five CEFs from Macquarie Asset Management, the four listed CEFs of Tekla Capital and entering into an agreement to acquire four CEFs from First Trust, which we expect to complete in Q1 this year. Assuming the completion of the First Trust funds, these acquisitions, when taken in combination, would add £3.6bn in AUM, strengthening our already robust CEF offering. We remain the third largest CEF manager globally.

Significant insurance expertise: We have nearly 200 years of heritage in pensions and insurance, and currently run £45bn in pensions AUM globally and £179bn in insurance assets. This expertise was recognised in the 2023 Asia Asset Management Awards where we won 'Best Insurance Manager'. In 2023, our partnership with our largest client, Phoenix Group, delivered £6bn of gross inflows (£5.2bn net of reinsurance arrangements) from their Bulk Purchase Annuities business and £4bn of inflows from their Workplace Defined Contributions business. Phoenix and abrdn continue to explore ways to mutually benefit from and strengthen our partnership.

Our strategy in action in 2023

Throughout 2023 we took decisive action to simplify and refocus our Investments business. By selectively disposing of non-core businesses, and delivering significant cost savings, we have better positioned ourselves to deliver growth as global market conditions normalise.

Jim O'Connor,Head of the Americas

"CEF acquisitions follow our strategy of building scale, focusing on asset classes where we have strength, and bringing AUM to the group in a perpetual capital structure"

Spotlight on closed-end funds

In Q4 2023 we announced the proposed acquisition of four CEFs from First Trust Advisors which, subject to approval by the funds' shareholders, represents c£600m in additional AUM. The announcement of the deal followed shortly after our acquisition of Tekla's four listed CEFs which, in combination with the five CEFs acquired from Macquarie Asset Management earlier in the year, added c£3bn in AUM. We spoke to Jim O'Connor, Head of the Americas, who oversaw the Tekla deal about why abrdn remains acquisitive in the CEF space.

Q: What was the attraction of Tekla Capital?

"As a specialist manager, we seek to deliver value in the areas of the market where there are inefficiencies and where active management can provide superior risk adjusted returns.

This acquisition represents a strategic extension of our thematics capabilities, enabling us to welcome a team of talented investment professionals specialising in the healthcare sector. We believe this to be an area of growth underpinned by megatrends in the investable universe with demographics and technological innovations driving an ever-increasing demand for life science services."

Q: In a year of fund rationalisation why has abrdn been acquiring closed-end funds?

"CEFs are an area of specialism and vehicles which support long-term investment outcomes for retail and institutional investors that can't be replicated by other investment vehicles.

While CEFs are often regarded as complex structures, we believe our experience and knowledge sets us apart from our competitors. Our scaled operating model enables us to look after existing CEF product ranges with the ability to grow via the launch of new funds, secondary market issuances, and corporate mergers and acquisitions of funds.

In December 2023, abrdn announced that we would invest an amount equal to up to six months' worth of management fees in the shares of our UK listed CEFs. The total amount invested as part of this initiative will exceed £30m. This exercise aims to demonstrate our strong advocacy for the integrity of the CEF business, and our desire to closely align ourselves with the shareholders of the funds we manage."

Q: abrdn has executed more listed CEF acquisitions than any other investment manager in the last 15 years, will this trend continue?

"Market headwinds have created a challenging environment for CEFs, which have been trading at their widest discount levels since the financial crisis. This has contributed to an environment with opportunities to acquire funds at attractive valuations. We continue to review the marketplace for opportunities to drive additional scale and efficiency in our key capabilities or to add new capabilities of strategic significance."

Our opportunities for growth

-  UK pensions and global insurance: We will continue to leverage our strong partnerships and heritage to drive growth in the pensions and insurance markets. The UK is the fourth largest pension fund market globally with £2.2tn in AUM.

-  Fixed income: We have strong performance across our capabilities in this c£20tn market, we will look to leverage this strength as market conditions become more conducive to fixed income and multi-asset products.

-  Alternatives: We will bring our core capabilities across real estate, infrastructure and private credit to bear for clients this year and beyond with our significant won not funded pipeline.

-  Acquisitions: We will continue to scan the market for bolt-on acquisitions within key thematic markets, such as biotech and healthcare.

-  Group collaboration: interactive investor clients were provided early access to the IPO of the Short Dated Enhanced Income Fund in July 2023. Building on this success, we aim to launch a range of thematic ETFs on ii in 2024.

Our businesses - Adviser

Empowering advisers to deliver for their customers

A growing and dynamic market

Performance overview

Despite challenging market conditions throughout the year, our Adviser business delivered a robust performance, culminating in another year of revenue and operating profit growth.

AUMA4

Adjusted operating profit5

Market overview

The UK adviser market is expected to grow at an annual growth rate of 11% over the next five years2. With c£590bn of advised customer assets currently on platforms, this suggests c£995bn of assets will be on adviser platforms in 2028. By leveraging our evolving product and technology stack, our Adviser business is well positioned to maintain its place as a market leader.

1. The Investment Association, Investment Management in the UK 2022-2023.

Figures as at 31 December 2022 and inclusive of retail and institutional markets.

2. Fundscape Q4 Press Release, February 2024, AUMA as at 31 December 2023.

3. abrdn Adviser AUMA as at 31 December 2023. Platform AUA is £70.9bn.

4. The MPS businesses moved from Personal Wealth to Adviser in May 2023. Comparatives for 2021 and 2022 have not been restated.

5. The threesixty and MPS businesses moved from Personal Wealth to Adviser from January 2023 and May 2023 respectively.

Comparatives for 2021 and 2022 have not been restated.

Creating capacity through technology

Robust market dynamics

The rapid transition from a low inflation, low interest rate environment to one of sustained high rates and stubbornly high inflation has continued to impact the UK savings and wealth market. A cost-of-living crisis has persisted throughout the year, leading to many individuals reducing their saving commitments, or drawing on their existing savings to mitigate higher living costs, with off-platform cash solutions also increasing in attractiveness.

Against this challenging backdrop it is possible to underappreciate the significant opportunity that continues to exist within the domestic savings and wealth market. While savers' propensity and ability to save has been temporarily dampened, in times of market volatility, high-quality advice from experienced advisers is invaluable. Additionally, the core drivers of medium-term flows into the market remain, including the need to invest to counter the impact of inflation, a steady demand for retirement planning, and the need to maximise tax allowances in a challenging landscape. We will continue to champion the role of independent advisers in delivering advice and support, allowing more individuals and families to plan, save and invest for their futures.

The democratisation of finance

There has been a continued shift in responsibility onto the individual for their own financial affairs. Providing advisers the flexibility to consolidate and control portfolios and wrappers, and to access a suite of tools to manage their customer's finances on one platform meets this demand. While savers now have more access to various asset classes than ever, the complexity of their needs and a lack of understanding of investment strategies underpins the requirement for specialist advice.

The growing advice gap

In the UK savings and wealth market, demand for advice continues to significantly outweigh supply, with this savings and advice gap already running beyond 20 million people. While just over 28,000 qualified financial advisers currently practice in the UK, an ageing and growing population means these advisers have faced significant capacity constraints for many years. At abrdn, we understand that the most efficient means of addressing this capacity limitation is through strategic technology enhancements. We want to empower our clients to grow their businesses in line with their ambition. By providing an enhanced technology solution that allows advisers to onboard and regularly serve more customers, we not only increase their personal capacity, but in turn address the wider advice gap for their existing and potential customers. Research from Investment Trends' 2023 Adviser Technology and Business Report noted that the average UK adviser is currently targeting a c17% increase in their client base; our solutions are designed to help facilitate this.

The evolution of platforms

Fragmented, archaic, and limited integration with the advice process have made the lives of both customers and advisers difficult. Our market-leading platform is designed to remove technological pain-points and allow advisers to not only onboard more customers, but also provide them with more flexible, efficient, and personalised services. We have built future-fit technology, delivering a number of enhancements focused on areas of the platform where we've had adviser feedback. In May, we announced adviserOS, which we plan to launch to market this year. adviserOS represents an extension of services beyond platform functionality, offering additional services to improve integration and reduce friction in the advice process.

A vote of confidence from primary partners

We have built our significant market position by sourcing, developing, and maintaining long-lasting relationships with financial advice businesses of all sizes. Core to our growth strategy is becoming the primary partner for an increasing number of our existing and new clients. In 2023, 46% of our AUMA was held by primary partnership firms, which highlights the confidence of our clients to place their money with us for the long term and the benefit of the technology updates the business has made across the year.

Our progress in 2023

A year of transformation

This year, our Adviser business delivered the largest and most advanced technology release we've ever completed on the Wrap platform. This provided advisers with a range of upgrades in technology, including improved customer reporting with 30 customisable features, a flexi-ISA product, and an improved user interface. As with all technology upgrades of this scale, we experienced a period of disruption as clients learned to use the new platform. The platform is now operating as expected, allowing advisers to fully benefit from the improved functionality delivered.

Integration of MPS

Our Managed Portfolio Service (MPS) was previously part of abrdn's discretionary fund management business, which was sold in September 2023. Our MPS range leverages the global investment research capabilities and expertise from the wider abrdn business, ensuring the optimal asset allocation with componentry from the whole market. There are three investment styles applied across four portfolio ranges, with five risk assessed models in each range, providing advisers with a range of solutions to meet customer's different investment preferences and attitude to risk.

Over the course of the year, the MPS has now been fully integrated into the Adviser business and with strong demand from clients, we expect our solutions to provide a significant growth opportunity starting this year. In December 2023, we re-priced our abrdn MPS and Sustainable MPS to drive this growth as we looked to leverage our existing relationships with half of UK advice businesses.

Preparing to launch adviserOS

In May 2023, we announced our strategic intentions for Wrap and Elevate, upgrading our solutions to become adviserOS. adviserOS is a new approach to platforms that will enable advisers to achieve more for their customers. It amplifies our position as the leader in terms of content and experience, acting as our key differentiator in the market. It is not a rebrand of Wrap or Elevate, but rather a new technology-enabled solution sitting above a single platform technology that will provide advisory firms with access to a range of different services.

adviserOS will enable advisers to meet the challenges they face by creating efficiency in the advice process through better integration and workflow with the tools they already use throughout their business. It will support adviser businesses with tailored support and data-driven insights, reduced keying of data and unlocking time in front of their customers.

We have developed a prototype and are actively testing and iterating the launch features of adviserOS with a sample of client firms. The aim of this approach is to ensure we've done enough research to genuinely understand what works best and what matters most to our clients before launching this year.

Delivering the abrdn SIPP

In line with adviser feedback, our next phase of platform upgrades is to launch our new abrdn SIPP and Junior SIPP this year. The launch of these products forms a core element of our strategy to increase the number of wrappers per customer amongst our existing base and attract new clients and customers to our platform.

The new abrdn SIPP will build on the foundations laid in the delivery of our technology upgrade and will bring the same experience and efficiency enhancements, whilst also enabling the bulk transfer of the existing Wrap SIPP from Phoenix. Our SIPP will provide a significant improvement in technology through digitisation of key processes and straight through processing, removing inefficiencies in client and customer journeys and the need for paper forms.

The abrdn SIPP launch will strengthen our product offering with a Junior SIPP, delivering an additional way for our customers to help save for their children and grandchildrens' futures, whilst also laying the foundations for relationships with the advised customers of tomorrow. As with our Junior ISA, our Junior SIPP will be offered at nil charge to encourage positive savings habits across generations.

Consumer duty

As a business, we completed a thorough value for money assessment on both abrdn Wrap and Elevate. The assessment, which can be found on our website, confirms that both platforms provide fair value to customers.

Financial performance

Difficult market conditions seen in 2022 persisted throughout 2023 and, as such, flows have been impacted market wide as inflation remained stubbornly high and as interest rates steadily rose until August. Against these conditions, our Adviser business saw outflows of £2.1bn (2022: £1.6bn inflows). However, the business delivered another year of revenue and operating profit growth, supported by the impact of the increasing base rate environment on cash margin throughout 2023.

Industry recognition

Our business continues to receive recognition from across the industry. In 2023, we retained an 'A' rating for financial strength from AKG, as well as a 'Platinum' rating from AdviserAsset, and a '5 star' rating from Defaqto for both the Wrap and Elevate platform propositions. These continued awards are not only a testament to the quality of our team and solutions, but also form an important reference point for the advisers who choose to partner with us.

Our strategy in action in 2023

After delivering comprehensive technology upgrades in 2023, we have readied the Adviser business to capitalise on our position as a market leader and to launch innovative products, including our SIPP, which will support future growth.

Ashley Brooks,Managing Director of DB Wood

"abrdn have a great balance of flexible products, a well-priced distribution platform and market leading reporting functionality"

Why abrdn? We spoke to Ashley Brooks, the Managing Director of DB Wood on what sets us apart from our peers. A 44-year-old business located in Nottinghamshire, DB Wood manages c£1bn on the behalf of around 1,500 households with over 65% of their AUA entrusted to abrdn.

Q: What are the critical factors in being a successful financial adviser?

"Providing financial advice is essentially a people business. In order to succeed you need to deliver high-quality, proactive advice, set clear rules of engagement, and maintain a commitment to doing the right thing for your clients. Ultimately, you need to develop trust while providing a highly personable service."

Q: Why did you first choose abrdn to support your business?

"We've been working with abrdn since 2006. We first began working with abrdn due to your great balance of flexible products, the well-priced distribution platform, and your market leading reporting functionality, which allows us to deliver on our client promises."

Q: Why is abrdn now your primary platform provider?

"abrdn understands our requirements and the challenges that IFAs face in the UK. Because of this understanding, we are able to work with you strategically to grow our business and, more importantly, deliver the benefits of scale that we can pass through to our client base via reduced costs."

Q: Is technology now the key growth driver within the UK financial adviser market?

"Technology is an important component in delivering an effective client service proposition. As ever, the most important driver of growth in the market is the relationship between client and adviser. Technology upgrades can improve these relationships and also create capacity to build new relationships."

Q: How do you expect adviserOS will improve client experience?

"We expect the adviserOS upgrade to assist our business with its enhanced integration, personalisation, administration efficiencies and enhanced client proposition."

Our opportunities for growth

-  Launch of adviserOS: adviserOS will introduce a new approach to platforms, providing clients with a broader

set of tools and capabilities, in addition to the core platform technology, to drive efficiency in the advice process.

-  Launch of our SIPP: Our SIPP launch is central to our strategy of increasing our wrappers per customer, with our junior SIPP delivering an additional way for customers to help save for the futures of their families.

-  Bulk transfer strategy: We will transfer existing Wrap SIPP customers from Phoenix to the abrdn platform pension, enabling customers to benefit from the enhancements delivered.

-  Grow our Managed Portfolio Service: We will leverage our reach in the UK Independent financial adviser market, in which we hold a relationship with 50% of IFA firms in the UK, to drive growth in our MPS business.

-  Group collaboration: We will leverage Finimize capability and content for our adviser partners as part of the adviserOS upgrade.

Our businesses - ii

The UK's leading subscription-based D2C investment platform

Building a leading position in the UK savings and wealth market

ii is set to benefit from structural drivers in the UK retail investor market.

Performance overview

In its first full year as part of abrdn, ii continued to exceed our initial expectations and displayed significant potential for market capture and growth in 2024 and beyond.

AUMA

Adjusted operating profit

1. Investment Association, Investment Management in the UK 2022-2023.

Figures as at 31 December 2022 and inclusive of retail and institutional market.

2. Platforum D2C Market Update, September 2023, AUMA as at September 2023.

3. ii (excluding Personal Wealth) AUMA as at 31 December 2023.

4. Includes loss of £13m in Personal Wealth (2022: profit £5m).

5. Includes ii for 7 months.

The UK's leading subscription-based provider

Empowering retail investors

The acquisition of ii in May 2022 fundamentally changed abrdn as a business. ii is the UK's second largest investment platform for private investors and remains the leading subscription-based provider. The business's evolving platform enables over 400,000 retail investors to access a broad range of investment and savings products via desktop, mobile app and over the phone.

ii's subscription-based model provides a higher degree of financial resilience than peers with percentage fee models, however the business has not been immune from the current subdued levels of investor confidence. ii derives its revenue from subscription fees, trading commissions, foreign exchange (FX) transactions and treasury income, with trading commissions and FX most impacted by the headwinds in the market.

A growing customer base

High inflation and interest rates affected investor confidence throughout the year and consequently ii's rate of customer acquisition, however total customer numbers grew from 402,000 to 407,000 in 2023.

Excluding the recently migrated customers from the Investments business, Share Centre, EQi and customers exiting due to the closure of our pension trading accounts, customer numbers grew from 299,000 at the end of 2022 to 310,000 at the end of 2023, an increase of 4%.

As the market begins to show signs of recovery, ii intends to attract net organic customer growth of over 5% in 2024, driven by further platform developments, increasing SIPP penetration, the development of our integrated Financial Planning division and through continued investment in brand and advertising.

Pleasingly, the business has continued to see inflows of AUMA, with £2.9bn added in 2023, comprising £3.3bn of inflows into ii and £0.4bn of net outflows from Personal Wealth, which was largely due to restructuring activity during the year. If outflows due to the exit of the pension trading account product are excluded, ii's net inflows increased to £3.9bn, over 7% of opening AUA. According to Direct Matters, ii delivered the highest net inflows across UK D2C platforms in 2023.

Resilience in a challenging market

The cost-of-living crisis in the UK has not only lowered customers' propensity to save and invest but has also contributed to a more risk-averse environment.

Investors are now more likely to move into fixed-income securities and savings accounts, made more attractive by a steady rise in interest rates, with the Bank of England's base rate peaking at 5.25% in August 2023, where it has remained since.

Although the market as a whole saw decreased volumes, ii's market share of trades increased due to its active customer base, pipeline of new services, and proposition enhancements. While this market capture is encouraging, transactional revenues fell 17% in 2023, reflecting lower trade pricing from September 2023, which reduced the charge for standard UK and US trades to just £3.99.

Growth potential

Despite relatively flat total customer numbers and reduced trading revenue, increased treasury income and our focus on simplification and digitalisation has supported an increased operating margin and an improvement in our cost efficiency. This highlights the significant growth potential of the business. As and when the market normalises, new customers can be onboarded at a very low and decreasing marginal cost, so if customer numbers grow as anticipated in the medium-term, this lean operating model amplifies that potential for sustained growth in profitability.

ii's potential is further supported by the medium-to-long term growth drivers underpinning the UK direct-to-consumer market. The UK is the sixth largest economy in the world and has a well-developed D2C investment sector. The UK's D2C industry is already worth over £300bn and with a growing and ageing population, we are going to see a significant intergenerational transfer of wealth which will drive further momentum in the market.

A compelling sector

Despite some new entrants, the UK D2C platform market retains high barriers to entry and better-known platforms with scale and high numbers of active users, such as ii, benefit from both economies of scale and better developed technology stacks. UK savings and wealth therefore remains a compelling industry to be in, particularly as financial education and retail participation increases.

Our progress in 2023

Introducing Financial Planning

ii's offering has been repositioned during 2023, with the transfer of Managed Portfolio Service to Adviser in May 2023, and the sale of the discretionary fund management business to LGT in September 2023.

As ii has continued to grow, we have received numerous requests for financial planning advice. One of the key synergies outlined when abrdn acquired ii was to integrate abrdn's financial planning capabilities into the business. Over the course of 2023, we have further integrated these capabilities, and restructured our financial planning offering, reducing headcount by 21% and closing four offices.

Strengthening our platform

One of ii's key growth drivers is the strength of our platform. In a competitive market with both incumbents and new entrants investing heavily in their technology, it is essential that both our website and mobile app remain ahead of the curve. In January 2023, we launched new website infrastructure, modernising the design, improving user experience, and making our news feed easier to navigate.

An ever-increasing volume of trades are being made 'in app', with new entrants to the market, in particular, focusing on creating simple and engaging user interfaces. While ii still sees the majority of investing activity taking place via desktop rather than app, close to a fifth of all mobile trades in the UK were done through our app, highlighting not only the quality of our own user experience, but the importance of continuing to invest in it. In 2023, we continued to enhance our app capabilities, including facilitating in-app currency conversion and AGM/EGM voting capabilities.

-  50,000 new app downloads in 2023

-  26% increase year-on year of clients using our app

-  36% increase year-on-year of in app trades

In Q2 2023, we piloted ii community, a social trading platform allowing users to discuss shares, compare portfolios and get inspiration from high-performing retail investors. The app, which will be fully rolled out in 2024 is a social network encouraging investors to interact and to learn from each other's trading strategies.

Essential value

In February, ii launched Investor Essentials, an entry-level ISA and/or trading account, designed for investors with portfolios of under £50,000. Through the Essentials plan customers below the £50,000 threshold pay a monthly fee of £4.99 and benefit from free regular investing. At launch, trading fees were £5.99, which we later reduced in September 2023 to £3.99, to deliver further value.

Pension Essentials, which was launched in October 2023, is an entry-level subscription plan for portfolios under £50,000 and is now the best value pension in the UK for saving pots over £15,000.

SIPP penetration

Increasing product penetration is a key pillar in our growth strategy and central to this strategy is further market capture of SIPPs. Currently, c15% of our customers hold a SIPP account with us, an increase of 2.5% over the last year. In 2023, for the second year running, ii was a Which Recommended Provider of SIPPs with our growth in the market underpinned by attractive low fees, including our Pension Essentials plan, and our continuous development of the customer tools and content.

Introducing the ii's

Despite being the UK's second largest investment platform for private investors, we have historically tracked behind our peers in terms of brand recognition. In 2023 we increased investment in marketing, culminating in Q4 with the launch of ii's first television advert and a significant multi-media campaign.

Award-winning value

In 2023, ii continued to receive positive recognition from its customers, partners, and stakeholders. At year end, ii had over 23,000 reviews on Trustpilot, 81% of which were five-star.

In yet another busy year for awards, ii also won Investors Chronicle's Best ISA, the AIC's Shareholder Engagement Award for the third year running and we were crowned 'Investor Rights Champion' for a second year running.

Consumer duty

In readiness for the FCA's implementation deadline of 31 July 2023, ii ran a project to review all requirements in alignment with the Duty's 'Customer Outcomes'. Areas of focus included: customer journeys and testing of customer communications; completion of 'fair value' assessments across the product range; and a review of the 'target market'. Changes to policy and process, initiated by the project are now embedded within the day-to-day operations of all functions, with ii well placed to demonstrate compliance with Consumer Duty.

Our strategy in action in 2023

In Q3 2023 over 25% of UK cash market trades in the D2C market were made through our platform. By upgrading our technology, focusing on delivering value and by increasing brand awareness with our first national advertising campaign, in 2023 we laid the foundations for sustained organic growth.

Alain Courbebaisse,Chief Commercial Officer

"Investment is not something that is generally taught in schools, but it's a life skill that has the potential to provide financial freedom much earlier in life."

We asked Alain Courbebaisse, CCO of interactive investor, about the driving factors behind launching Investor Essentials and why he believes that investing should be accessible to everyone. Alain joined ii in March 2023 and is responsible for leading the commercial team, as well as leading ii's business development and integration activity.

Q: Why does ii use a subscription-pricing model?

"Long-term, a flat fee is just a simpler, fairer way of providing an investment service. The beauty of flat-fee pricing is that the more people save and grow their investments, the more they keep. The wider market is dominated by percentage fee-models, which see customers paying more and more as their portfolios grow.

Direct feedback from customers and our own market research confirms that flat-fee is savers' preferred way to invest, and from a business perspective, it also provides financial resilience with our subscription revenue not being linked to market levels."

Q: Why did you launch Investor Essentials?

"Investment platforms can be a powerful force for positive change when they put customer interests at the heart of their pricing. Our flat fee has always been incredible value for larger pots and we wanted our model to work for a broader section of the investing public."

Q: How have you found initial client feedback?

"Feedback from clients has been extremely positive and became even more so in September when we increased the maximum portfolio value to benefit from Essentials up to £50,000 (from £30,000 at launch). We also made the journey even simpler by onboarding all our customers onto Essentials plans and then upgrading them when the value of their portfolio exceeds £50,000."

Q: What does the democratisation of investment mean to you?

"Leaving savings sitting in a low-interest current account or cash, particularly during periods of high inflation, means that individuals and families across the UK are at best missing out on the long-term potential of the stock market and at worse seeing the value of their savings steadily decline in real terms.

Investment is not something that is generally taught in schools and can be quite daunting as a novice, but it's a life skill that has the potential to provide you financial freedom much earlier in life. At ii we don't just want to enable investment; we want to actively encourage it and you'll certainly be seeing us continue to focus on education this year."

Our opportunities for growth

-  Market penetration: ii continues to focus on organic growth through increased marketing and aims to continue capturing market share, particularly from percentage-fee platforms.

-  SIPP customers: Our strategy to increase SIPP market penetration continues and we are targeting 20% net growth in SIPP customers, year-on-year.

-  Implementing new solutions: New solutions including the ii Managed ISA and Managed SIPP, a digitally led financial planning proposition, ii Community and ii360, a new platform for experienced traders, are being developed to attract new customers to our platform.

-  Group collaboration: ii will continue to collaborate with the wider abrdn business to share talent, skills, products, and operational capability to improve the quality and breadth of investment products and services on offer to customers right across the group.

Sustainability - Overview

Sustainability overview

Supporting our clients, our people, and a credible transition toward a better world.

Our focus:

Investments

41%

In-scope public market portfolio carbon intensity reduction versus 2019 baseline(2022: 27%)

25%

In-scope real estate portfolio carbon intensity reduction versus 2019 baseline (2021: 7% increase)

Operations

69%

Operational emissions reduction versus 2018 baseline(2022: 70%)

Our people

54%

Employee engagement level (2022: 50%)

43%

Female representation across global workforce (2022: 43%)

Our communities

£2.1m

Contribution to charitable causes(2022: £2.4m)

Our conduct

99%

Mandatory training completed (2022: 99%)

External rating

AA

MSCI ESG Rating(2022: AAA)

Climate - Introduction

Delivering our climate strategy

We are committed to enabling our clients and customers to achieve their climate goals and to contribute to real world decarbonisation.

Learn more about our approach in our 2023 Sustainability and TCFD report.

Climate - Governance

Climate oversight and management

Information flow and climate-related actions during the year

Our governance framework

abrdn plc operates using a governance framework aligned to the principles of the UK Corporate Governance Code (2018) (page 86). Our Board of Directors oversee the implementation of the company business model and activities of our businesses: Investments, Adviser, and ii.

The role of our Board and Committees

The Board and Committees provide specific oversight in relation to material business activities and challenge management on matters, which includes climate-related risks and opportunities. Examples of this oversight are outlined on this page, with a focus during 2023 on non-financial disclosure requirements and approach.

Our Executive Directors

Our Chief Executive Officer serves as the climate sponsor for the business and bears delegated responsibility from the Board for oversight of climate-related risks and opportunities. Our Chief Financial Officer is incentivised through our Executive Director Remuneration policy, alongside our Chief Executive Officer, to achieve sustained performance against our public targets.

Climate change working groups

Our Chief Executive Officer delegates authority from the Board to our Executive Leadership Team, and in turn to our climate working groups, to support the assessment of climate-related risks and opportunities and to provide related recommendations.

Our Head of Sustainability Insights & Climate Strategy and Head of Corporate Environment Strategy chair two climate-related working groups, which are key to our climate governance structure and consist of subject matter experts from across the business. The groups meet to review and discuss material climate risks and opportunities and shape strategic approaches to climate change. These groups are key forums for identifying matters to be escalated through the Executive Leadership Team and to the Board for consideration. In 2023, we also established a Climate Transition Plan Steering Group and supporting taskforces to prepare for the publication of our first Transition Plan. These forums supported engagement across the business beyond our existing working group activities.

Our wider sustainability governance

We continue to take a forward-looking view and have taken steps to advance our governance beyond climate and to sustainability as a whole. Additional information is available in our Sustainability and TCFD report, available at www.abrdn.com/annualreport

Climate - Strategy

Climate-related risks and opportunities

Our climate risk and opportunity radar

Climate scenario analysis

Our approach to understanding transition pathways, within managed investments.

Our beliefs driving our analysis

We believe climate scenario analysis is a critical tool to enable a thorough understanding of climate-related risks and opportunities. It is vital that we understand how physical climate change, and the energy transition, may potentially affect the investment returns of the companies and markets in which we invest on behalf of clients. We believe that doing so will support increased resilience, enable us to encourage positive change at the companies in which we invest, and support client objectives. However, there is still uncertainty regarding exactly how policies, technologies and physical impacts will unfold in the future.

Our bespoke approach

Climate scenario analysis provides the means to conduct a forward-looking, quantitative assessment of potential financial impacts arising from climate change. We use a combination of 18 bespoke and industry standard scenarios across a range of temperature rises (between 1.3 and 3.2?C by 2100) and transition pathways up to a time horizon of 2050. Our industry standard scenarios are based upon those created by the Network for Greening the Financial System (NGFS), with our bespoke approach allowing us to incorporate plausible policy assumptions across regions and sectors. This results in a mean scenario that captures our view of the most plausible energy transition. Our third-party modelling partner supports our analysis and refinement of our insights on an annual basis. Our approach goes further to consider the credibility of company transition plans, using a six-factor scoring framework developed in-house. This addresses one of the primary challenges of scenario analysis in that companies negatively exposed to the energy transition can also alter their strategies and take advantage of transition opportunities. Our credibility assessment covers approximately 1,200 of the largest firms by sector, which means that 79% of the 1,000 largest equities in our climate scenario tool are covered by this assessment.

Limitations of modelling

Our framework has limitations inherent to forward-looking analysis and assumptions. Our analysis is primarily focused on equity and fixed income assets, and it is important to acknowledge a reliance on external data, which though improving, remains lacking across some regions and sectors. Our climate scenario analysis cannot capture the impacts from companies coming into and out of business during the energy transition. Our baseline scenario also assumes that the market has accurately priced transition risks and does not account for market inefficiencies or level of understanding of market participants. The overriding limitation is that our exercise is a simplification of the real world and must be reviewed alongside other analysis to support effective decision-making.

Our insight and conclusions

Our latest insight suggests the world is not on track to achieve Paris Agreement goals, with our analysis suggesting that the most likely outcome is a 2.3°C world by 2100. Our framework allows us to generate forecasts on the effects of our climate scenarios on over 24,000 equity assets and 52,000 corporate bonds. This can be aggregated to sector, regional, and fund levels. However, our core insight is that the impact from climate change is mostly a micro phenomenon. This is because at an aggregate level the negative impacts on individual securities are largely offset by positive effects on others; therefore, suggesting actionable insight comes from looking at the dispersion across and within sectors. Figure 1 illustrates this and plots the dispersion of uplifts and impairments across sectors using our mean scenario as our most plausible view of the energy transition.

Resilience of abrdn as a firm

Our climate scenario analysis takes an external view to inform our investment processes. The resilience of the Group is explored in the Viability statement on page 74.

Figure 1: Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document

Estimated asset impairments and uplifts from our latest research

Probability weighted mean scenario, February 2023.

Climate - Risk management

Our climate change toolkit

Identifying and managing climate-related risks

Climate-related risk is integrated within our Enterprise Risk Management Framework, which is subject to Board oversight. We operate 'three lines of defence' with defined roles and responsibilities across the business. Climate change is considered amongst our principal risks and uncertainties but is not defined as a principal risk due to its close association with other risk categories.

In other words, we view climate risk to be material, but it is better perceived through financial or regulatory and legal risk categories at the enterprise level. More information on our principal risks from pages 76-79.

Identifying and assessing climate-related risks

Our identification of climate-related risks and opportunities is led by our first line sustainability teams, with our Group risk assessment being based on our Enterprise Risk Management risk impact matrix. Our Investments business has a dedicated Sustainability Group, led by our Chief Sustainability Officer, and we have a Corporate Sustainability team which works closely with our businesses to identify and manage sustainability risks and opportunities, including those related to climate change.

Our climate risk and opportunity radar (page 41) reflects our assessment. Climate change considerations are part of our day-to-day risk management processes, but we periodically revalidate our Group assessment. In January 2024, our Chief Risk Officer chaired a workshop with representatives from across abrdn to refresh our radar. The focus of the radar is the likelihood and impacts of risks and opportunities, and we have mitigation, or realisation strategies aligned to each risk or opportunity. We consider inherent risk and quality of controls to determine a residual risk score.

Our business is predominantly exposed to transition risk (and opportunity) as markets, policy, and regulations come to terms with alignment to a lower carbon world. This is of particular significance for our Investments business as we invest on behalf of our clients and incorporate material climate-related risks and opportunities into our investment processes. We believe our Adviser and ii businesses face less direct exposure to climate-risks, as platform versus investment management businesses.

Managing risk with our climate change toolkit

In addition to the expertise of our sustainability and ESG professionals, we have developed a range of tools to integrate and inform both our internal decision-making processes and those of our platform clients. These tools support decision-making with data, research, and insight, and in the case of our Investments business, are integrated with our risk management processes.1 It is important to be clear that climate considerations are not material to every investment decision, and integration depends on the objective of the fund or strategy, nor are tools without limitations. Supporting data is drawn from a range of vendors with different levels of data coverage. We aim to improve our capabilities each year.

1. Further information on toolkit applicability in our 2023 Sustainability and TCFD report, available at www.abrdn.com/annualreport

Climate - Risk management

Active ownership and solutions

Enabling decarbonisation through ownership and solutions

Focus on real-world decarbonisation

Our climate engagement strategy is focused on understanding climate-related financial risks within our holdings and driving real-world decarbonisation. One way we can do this is through engaging with our largest financed emitters to seek transparency on decarbonisation milestones and to advocate for increased disclosure. In 2022, for our public market investments, we launched a two-year engagement programme with our top 20 largest financed emitters. Our expectation is that over two years we will observe meaningful progress against climate-related milestones. If we do not see sufficient progress against these milestones, we will take voting action and/or consider reducing our financial exposure, if we believe a lack of progress represents a clear financial risk to our clients. Our assessment of companies is informed by relevant standards, such as the Climate Action 100+ net zero benchmark, and our own credibility assessment framework. We provide additional information on our progress to date in our Stewardship report and Sustainability and TCFD report. Available at www.abrdn.com/annualreport

Exercising voting and ownership rights

In addition to encouraging improvement through targeted engagement, we may take voting action at companies that we identify as climate laggards and on climate-related shareholder resolutions. Our public voting policy outlines our expectations, and we disclose our voting decisions on our website the day after a general meeting. We use data from groups, such as CDP, to inform our decisions and understanding.

'Say on climate' resolutions

We are supportive of ambitious corporate sustainability strategies and targets but note an increasing trend toward those strategies being tabled for shareholder approval. While we welcome the intention of the transparency, we believe they have the potential to dilute board accountability and limit potential future investor challenge. We have therefore taken the decision to abstain from those resolutions, as we believe other mechanisms offer more effective approaches.

Climate - Metrics and targets

Portfolio decarbonisation

We are targeting a 50% reduction in the carbon intensity of in-scope assets versus a 2019 baseline by 2030, within our Investments business.

In 2023 we report a 41% reduction in the carbon intensity of in-scope public market assets (2022: 27%), and a 25% reduction to the carbon intensity of in-scope direct real estate assets (2021: 7% increase), versus our 2019 baselines.

Public markets: Progress to date

This is our second year of reporting against our target, with a 41% reduction in the carbon intensity of in-scope public market assets versus our 2019 baseline (2022: 27%). In-scope assets include equities, fixed income, and active quantitative strategies, with decarbonisation across each asset class. Our progress to date is in-line with our initial expectations, based on emission intensity trajectories from climate scenario analysis, and we note a gradual increase to client mandated decarbonisation in segregated accounts, which is an important enabler to achieving our target. We also note client inflows to low-carbon quantitative strategies over the last three years, with these products being a significant contributor to reducing public market carbon intensity, due to targeting low-carbon exposures as part of the product strategy mandate.

Real-world decarbonisation

There remain significant challenges to overcome to achieve real-world decarbonisation, including favourable policy environments, data availability, and client demand. Reductions in portfolio carbon intensity may not be attributable to real-world impact. Our strategy to drive this change is supported by climate scenario analysis, work to understand corporate credibility (page 42), active ownership, and solutions development (page 44). Our carbon target is an aggregate indicator and does not reflect specific objectives of all clients and funds.

Additional portfolio emissions metrics

Our teams can monitor a range of carbon metrics, with tools enabling disaggregation to specific holdings. These metrics are not part of our target but can inform our processes, and support climate-related risk management.

Real estate: Reporting a less volatile metric

In our 2022 disclosure we noted our intention to introduce the calculation of real estate emissions intensity by floor area (m2). This is a static denominator; whereas our previous metric used valuation (£GAV), which can be volatile and may less meaningfully represent the carbon intensity of real estate assets. We are restating our data using the floor area metric, as we believe this to be a more credible basis to monitor our long-term target.

Drivers of change in carbon intensity

Between 2019 and 2022, we note a reduction in carbon intensity by floor area of 25%. This can be attributed to changes to property type composition of in-scope portfolios, decarbonisation of UK and EU energy grids, and more efficient management of assets. We note a reduction by floor area of 35% to office assets, which typically have a higher carbon intensity than other asset types. This is often due to the proportion of landlord procured energy (Scope 1 and 2) being higher for offices than for retail and industrial parks, where tenants often procure a higher proportion of energy. Changes to our portfolio, such as this, mean that our reported reduction cannot be directly attributed to real-world changes. However, on a like-for-like basis (e.g. assets that were held through 2019 and 2022), we note an 18% reduction in carbon intensity, illustrating a carbon intensity reduction irrespective of portfolio change.

Taking the long-term view

Our portfolio of assets is diverse, and we have a framework to understand the actions required to support our target. This is expected to outline transition pathways for all our direct real estate funds by 2025, with supporting actions to achieve real-world decarbonisation.

Further information available in our 2023 Sustainability and TCFD report, available at www.abrdn.com/annualreport

Operational targets and emissions

We are targeting operational net zero by 2040, with clear progress versus our interim objective.

In 2023 we remained on track to meet our objective of a 50% reduction in reported operational emissions by 2025. We report a 69% reduction versus our 2018 base year. This is driven largely by a significant reduction to business travel since 2018, which we attribute to the adoption of hybrid working within abrdn, and amongst those we work with. We also note significant declines in emissions associated with energy use in our office since 2018, which we have consolidated as part of wider organisational change programmes. Year-on-year, we note an increase in reported operational emissions by 4%.

Despite a fall in travel related emissions since our baseline year, we note an uptick in business travel since 2022, which is offset by reductions in energy use in our offices, and a reduced estimate for employees working from home (see page 47). This increased business travel demonstrates a partial return to pre-COVID-19 working patterns, with our challenge now to support behaviour change to address these residual emissions. Our ways of working have fundamentally changed, with this now fully reflected in our corporate emissions profile. Further information, including limitations, and reporting method provided on page 47.

1. Operational net zero and interim reduction targets are based on reported Scope 1, 2, and 3 absolute emissions (tCO2e) reductions.

2. 2022 total restated to 9,550 tCO2e (previously 14,246 tCO2e) following the application of a revised method to estimate employees working from home.

3. Scope 1 emissions include natural gas, fluorinated gas, company-owned vehicles, and stationary fuel.

4. Scope 2 emissions include purchased electricity and district heating.

5. Scope 3 reported emissions do not include some emissions categories deemed to be material but where data is currently unavailable. Refer to page 47.

6. Rail and flight journeys for business travel are calculated using the GHG Protocol's distance-based method. Exclusions apply to countries in APAC, where only Singapore and Australia are included.

7. 2022 estimate associated with employees working from home restated to 2,372 tCO2e (previously 7,068 tCO2e) due to methodology changes. Refer to page 47.

8. Emissions intensity reporting based on FTE as of 31 December 2023 of 4,719 (2022: 5,130 and 2018: 6,192). We deem this the most applicable intensity metric for our operational emissions footprint due to our impacts largely relating to how and where we work, e.g., offices, travel, and homeworking.

r 2023 data subject to Independent Limited Assurance in accordance with ISAE(UK)3000 and ISAE3410 by KPMG. Assurance statement and detailed reporting criteria included in the Sustainability and TCFD report at www.abrdn.com/annualreport

Emissions reporting

Method and supporting commentary

Operational reporting methodology

Our emissions inventory on page 46 is reported in line with Greenhouse Gas (GHG) Protocol. We use an operational control boundary and exclude any joint ventures and associates. Emissions associated with our direct operations are therefore representative of abrdn plc and its wholly-owned and operated subsidiaries.

Scope 1 and 2 emissions categories

Scope 1 and Scope 2 emissions are captured and converted from recorded metrics, such as kilowatt-hours (kWh) to tonnes of carbon dioxide equivalent (tCO2e) using regional guidance on conversion factors. If data is unavailable for in-scope sites on 31 December, emissions are estimated using comparative time periods or other applicable methods.

Reported Scope 3 emissions categories

We report fuel and energy related activities (Category 3), waste from operations (Category 5), business travel (category 6), and an estimate for employees working from home. For each category we follow GHG Protocol guidance and prioritise the conversion of real data, such as passenger kilometres travelled, to tCO2e using applicable conversion factors. We are reliant on third parties for the collection of some of this data, including waste contractors and travel booking platforms. There are also immaterial limitations linked to completeness in that data may not always be available for our entire estate or is subject to estimates or apportioning due to shared offices. We prioritise reporting based on proportion FTE and aim for continuous improvement year on year.

Other Scope 3 emissions categories

We do not currently report against all 15 categories of Scope 3 defined by the GHG Protocol. Our assessment is that some categories are not material due to the nature of our operations. However, we acknowledge gaps related to purchased goods and services (Category 1), capital goods (Category 2), employee commuting (Category 7) and investments (Category 15). During 2023 our procurement function has worked to develop a Category 1 and 2 baseline, which we expect to report in future. We also carried out an employee survey which will enable us to establish a Category 7 baseline. Our focus for Category 15 has been to enable our clients to understand emissions related to their portfolios and we disclose portfolio carbon intensity metrics on page 45, with scope limited by data coverage and availability. This does not currently include financed emissions associated with the assets on the abrdn balance sheet (pages 162-163). Our intention is to disclose all material emissions categories over time. However, our priority is to ensure the data capability to enable client objectives. We will continue to allocate resources with that view but expect to add to our disclosure over time. This may result in adjustments to our reported baseline and targets in future periods.

People - Our commitments

Our commitments

We are:

People - Engagement

Embedding our commitments

Actions we are taking in support of colleague engagement

In early 2022 we set out to redefine our culture at abrdn, which supports the delivery of our purpose and strategy. This involved looking across the business to understand what our colleagues feel proud of and reflecting on what our clients need from us to deliver our strategy. Our commitments are the output of this reimagining. Our objective was to create an environment where colleagues feel empowered to speak up, where we are ambitious in what we do, but also transparent in how we go about it, ensuring we enable our clients to be better investors.

During 2023 we have focused on integrating our commitments into every stage of colleague experience, supported by powerful storytelling and robust feedback mechanisms. We have also been focused on taking actions to improve transparency, communication, and recognition across the organisation, with a series of engagement programmes.

Our 2023 engagement results

Each year our annual engagement survey provides colleagues with the opportunity to have their voices heard. Our November 2023 survey saw 79% of our people take part, with over 5,200 comments providing a rich picture of how we are doing across areas of focus. Amidst a challenging market, ongoing transformation, and organisational change, overall colleague engagement increased slightly to 54% (2022: 50%). We see positive scores attributed to the roles people play, their sense of inclusion, the nature of their work, and motivation levels. Where we have focused, we see improvements across 2023, with increased scores around leadership, systems, and processes. As we transform abrdn, we continue to focus on our culture and the actions we need to take to shape our overall colleague experience. Whilst we know there is work to do, we are ambitious and committed to making demonstrable progress for our people.

Leadership communication programme

Colleagues told us they needed to hear more from our senior leaders. In response we launched six new communication channels to facilitate authentic conversations between colleagues and leaders. This includes monthly CEO broadcasts, frequent townhalls, and informal coffee sessions with targeted groups. We collect feedback from these sessions and have seen upticks to how colleagues feel about transparency and in their understanding of our strategy.

"This is exactly what we need as staff - honesty, transparency and the opportunity to ask questions."  

Anonymous survey feedback

Between January 2023 and November 2023, we observed a 12% increase in colleague confidence in our leaders.

People - Diversity, equity & inclusion

Diversity, equity & inclusion (DEI)

We believe in the benefits of a diverse and inclusive workforce, with different perspectives helping to improve decision making

Our strategy intends to make a positive impact across our business and is led by our Executive Leadership Team, with oversight from our Board. We are focused on delivering our gender, ethnicity, and social mobility action plan, with four guiding priorities. We also believe setting targets is an effective way to make progress. Our targets to 2025 are outlined on page 51, and we have introduced a senior leadership ethnicity target, which we will begin reporting on from 2024, with the aim to be delivered in 2027. This follows the recommendation of the UK Government supported Parker Review. Our approach is recognised externally, and we were delighted to be named in the 2023 Financial Times Diversity Leader List and be given recognition from Citywire, 100 Women in Finance, and the Equality Group. Find out more at www.abrdn.com/annualreport

Diversity targets

We have set 2025 targets to improve diversity across abrdn

Our diversity targets have been in place since 2020 and those relating to our Board members are consistent with the FCA reporting requirements introduced in 2022. We go further and report additionally on gender representation across our global business, and senior leadership teams. We note that, as part of organisational redesign, reductions in total headcount correlate with a reduction in gender representation for our senior leadership population. We know there is much more to do and remain committed to our targets and actions.

abrdn plc Board

Target: 40% women, 40% men, 20% any gender by 2025

Senior leadership8

Target: 40% women, 40% men, 20% any gender by 2025 (CEO-1 and 2)

Global workforce9

Target: 50% gender balance(+/-3% tolerance) by 2025

abrdn plc Board

Ambition: 2 Directors identifying as minority ethnic by 2025

r 2023 data subject to Independent Limited Assurance in accordance with ISAE(UK)3000 and ISAE3410 by KPMG. Assurance statement and detailed reporting criteria included in the Sustainability and TCFD report at www.abrdn.com/annualreport

1. Gender for Board members is self-reported.

2. Gender for executive management is obtained from self-reported employee records.

3. Senior positions on the abrdn plc Board are Chief Executive Officer, Chief Financial Officer, Senior Independent Director, and Chair.

4. Executive management team includes Executive Leadership Team and excludes administration roles.

5. Ethnicity data for Board and executive management is self-reported (using local census data categories and collected where legally possible).

6. Includes one individual based in a country where we do not collect diversity data.

7. Relates to Directors of the Company's direct subsidiaries as listed in Note 44(a) of the Group financial statements and not otherwise classified above.

8. Senior leadership includes Company Secretary but excludes administration roles, and individuals on garden leave.

9. 63 colleagues without gender data on our people system are excluded from the headcount data (2022: 60).

People - Talent

Identifying, attracting and retaining talent

We segment the approach we take to talent, which helps us focus on specific DEI and development priorities for each career stage

Identifying, attracting and retaining the best talent for our business is fundamental to our strategy. Through a period of transformation, we have continued to prioritise the importance of inclusive recruitment with our Hiring for Success interviewer training programme. This equips our hiring communities to identify and mitigate potential biases. Colleagues can also volunteer to be part of our Diverse Interviewer Pool, which we expanded during 2023. Our role profiles are monitored for non-inclusive language using technology, and we use personalised automated onboarding to keep successful candidates engaged in advance of their start dates.

Early careers

Our focus is to build and maintain diverse early careers talent globally. We work with partners to reach talent who may not be attracted to opportunities in our industry. In 2023 we became a corporate sponsor of GAIN and provided internships to members. We also committed to offering internships via the Able Intern Programme, which seeks to address the underrepresentation of disabled talent in the UK. In 2023 our graduate intake was 44% identifying as female (2022: 61%) and 19% identifying as from a minority ethnic background (2022: 26%). Also, 78% of our UK trainees attended a state school (2022: 72%).

Mid-career

We aim to identify a strong talent pipeline and demonstrate the value of growing our internal talent, with around 31% of our roles being filled internally. We have development programmes targeted toward mid-career colleagues, also with courses run specifically for women. We also continued to run our Returners Programme, for the third-consecutive year.

Senior career

All our search partners for senior talent are obliged to present diverse candidates as part of the recruitment process. We also look to ensure our Executive Leadership Team succession pipeline has the breadth and diversity of experience needed to deliver our strategy. This has shaped our 'Future Leaders' programme, which is entering into its second cohort and is designed to include learning tailored to strategic objectives.

Developing talent with our learning strategy

There is no one-size-fits-all approach to learning. We aim to give all our colleagues the tools and resources they need to take control of their development, and to support the delivery of our strategy. Our aim is to:

- Develop skills and capabilities to support our strategy.

- Support colleagues to build successful careers.

- Create engagement in our organisation.

Technology is at the heart of our learning strategy, allowing us to create an inclusive approach to development while also managing costs and the environmental impact of travel. Virtual classroom sessions and digital resources are established mechanisms for delivering courses and content.

In addition to our Academies, we continue to provide graduate, school leaver and internship programmes, each of which have dedicated development support, including apprenticeships and professional qualifications. We also have a process for employees to apply for funding for external courses and qualifications. We work across the business to identify organisational needs on an ongoing basis and colleague feedback is central to our approach. Achieving the right blend of human and digital learning opportunities continues to be a key focus as we support colleagues to get the most from AI and technologies that are being introduced through business transformation.

People - Equity and inclusivity

Our role in enabling a fairer, more inclusive, society through examples of our actions supporting our people, clients, and communities

Our UK gender pay and bonus gaps

We have reduced our UK gender pay gaps in 2023 for the sixth consecutive year and believe we have the appropriate actions in place to address this long term. Our mean bonus gap increased by 9.1 percentage points during 2023. Average bonuses for both men and women decreased but some types of bonus payments, such as those associated with sales roles, were less impacted. These roles currently have a higher proportion of men, therefore driving an increase in the mean bonus gap.

We are committed to continued reductions in our gender pay gap, with a key contributing factor being that more men occupy senior roles than women. We have four actions in place to address this imbalance:

We benchmark our progress every year through the Bloomberg Global Gender Equality Index and have been recognised on the index for the last five years.

Supporting financial education with MyBnk

In 2022 we launched a three-year partnership with MyBnk, whose mission is to empower young people to take charge of their future by bringing money to life. We expanded this partnership in 2023, with our total commitment now over £1,300,000 via the abrdn Charitable Foundation. Our support will enable MyBnk to deliver financial education programmes and money management workshops. Learn more about community impact in our Sustainability and TCFD report at www.abrdn.com/annualreport

"We are excited to be supporting MyBnk, by working together we can make a difference to the financial confidence of young people across the UK."

Kirsty BrownlieSustainability Manager, Social impact

Stakeholder engagement and section 172 statement

Delivering our purpose in collaboration with our stakeholders

We are driven to enable our clients to be better investors, and work with all our stakeholders to achieve our purpose

Section 172 (1) statement

The Board recognises the requirements of reporting against matters set out in section 172 (1) (a) to (f) of the Companies Act. The illustration on this page and information on pages 55 to 56 identifies key stakeholders and summarises actions and engagement activities undertaken during 2023, in support of the success of the company and for the benefit of members as a whole. Further information is also provided on pages 86 to 89 of the Directors report.

Engaging with our stakeholders

We recognise our responsibility to engage with our stakeholders and this plays an important role in the long-term decisions we make

Examples of stakeholder engagement during 2023

Board Employee Engagement (BEE) programme

Hannah Grove continued as our designated Non-Executive Director for employee engagement.

BEE purpose

- Ensure that employee perspectives and sentiments are heard and understood by the Board to help inform decision-making.

- Develop an environment where colleagues understand the role of the plc Board and have direct access to our Non-Executive Directors (NEDs).

Programme pillars

1. Listening sessions

2. Meet the NEDs events

3. Employee network engagement

4. Reporting and measurement

"Without doubt the biggest highlight for me is interacting with abrdn's people. The company has an extraordinary depth of talent and it's been a privilege to get to know our colleagues better."

Hannah Grove

BEE programme - 2023 in summary

Find out more about our BEE engagement on page 87.

Non-financial and sustainability information

Summary of climate disclosure

We continue to support disclosure against the recommendations of the TCFD framework. This is critical for us as we assess climate-related risks and opportunities as investors. The information on this page summarises where we have made required disclosures under FCA LR 9.8.6R (8) and Companies Act 414CA and 414CB in this report. We also provide additional information in our separate Sustainability and TCFD report (pages 11-48), which we believe adds value for our stakeholders and reflects common market practice.

Statement of the extent of consistency with FCA LR 9.8.6R (8) for TCFD aligned disclosure

We believe our disclosure within this report, and the additional information in our Sustainability and TCFD report, to be consistent with the 11 recommendations of the TCFD framework, except for complete disclosure of Scope 3 financed emissions. Data availability continues to be a challenge and has bearing on the completeness of information we can report. We acknowledge that our reporting may evolve in future periods. Our view is that sufficient climate-related data is available to better enable our investment processes and to manage our objectives as a responsible business. This also allows us to track our progress against targets, outlined on pages 45 and 46.

1. This table exists to support users to navigate to climate-related disclosures in this report, which we believe addresses both requirements of FCA LR 9.8.6R (8) and Companies Act 414CA and 414CB. abrdn is required to report against the original 11 TCFD recommendations under the former, with the language in the latter mirroring those recommendations but rationalising the original 11 to 8 disclosure requirements. We refer to the language of the internationally recognised original 11 recommendations here to avoid duplicative signposting and believe our disclosure between pages 39 and 47 to be consistent against both reporting standards.

Non-financial and sustainability information statement

Summary of other matters

The information on this page addresses the requirements of Companies Act 414CA and 414CB with summary information on other important non-financial matters. Our sustainability aspiration is to create long-term sustainable value and we focus on those areas where we have significant impact or influence. This includes the areas outlined below, with additional information also available in our Sustainability and TCFD report available at www.abrdn.com/annualreport

Key performance indicators

Our key performance indicators

1. 2022 results have been restated for the HASL implementation of IFRS 17. 2021 results have not been restated. Refer Basis of preparation in the Group financial statements section.

1. 2022 results have been restated for the HASL implementation of IFRS 17. 2021 results have not been restated. Refer Basis of preparation in the Group financial statements section.

Chief Financial Officer's overview

Taking action to rebuildprofitability and growth

Our diversified business and strong balance sheet are clear strengths but we need to deliver a step change in our cost base in order to lay the foundation for future growth.

I am proud to join a company with a strong conviction to enable clients at all financial stages to be better investors.

Jason Windsor

Chief Financial Officer

Overview

2023 was a challenging macro environment for the investment industry. This is evident in lower adjusted operating profit, largely reflecting lower revenues in Investments, which is closely related to the market context.

Despite this, the advantage of our three business model is clear in these results. We have built resilience into the Group and the benefits of diversification are already evident with Adviser and ii on a stronger trajectory of growth, with more efficient operating margins and clear opportunities for the future. We exceeded expectations on our net £75m cost reduction target, with savings of £102m achieved.

ln addition to this £102m reduction, we are now targeting further annualised cost savings of at least £150m across the Group by the end of 2025, with the majority of actions to be taken this year.

We have undertaken a comprehensive review of our operating model. The programme is targeting the removal of management layers, increasing spans of control, and reducing overheads particularly from Group functions and support services. Approximately 80% of the cost reduction benefits will be seen in the Investments business. The total implementation costs are estimated to be around £150m.

This transformation programme will drive improved profitability and allow for reinvestment into growth areas, which is fundamental to improving performance. Initial work to deliver these efficiencies is already well underway and we will provide further updates over the course of the programme.

In 2023, we delivered on our commitment to return a significant proportion of capital generated from our Indian stake sales to shareholders: £300m by way of share buybacks and the remainder via dividends. We also generated capital following the sales of our discretionary fund management and US private equity businesses which supported the strategic moves to acquire closed-end funds from Macquarie, Tekla, and First Trust to further strengthen our capabilities in this area.

Our balance sheet remains strong, and this enables us to fund the implementation costs of our transformation programme from our balance sheet. We will continue to be disciplined in our allocation of capital to invest in the business in order to drive growth and to support continued returns to shareholders.

I believe the actions that we have taken to build resilience into our business and move towards improved profitability, despite industry headwinds, combined with the significant additional cost savings we are now targeting, will put us in a stronger position to deliver on our commitment to enable our clients to be better investors.

Profit

Adjusted operating profit for 2023 was down 5% to £249m (2022: £263m). This includes a reduction of £80m in Investments principally due to a significant decline in revenue in this business. This was partly offset by an increase in adjusted operating profit in both our Adviser and ii businesses, to £118m (2022: £86m) and £114m (2022: £72m) respectively. ii includes the benefit of a full 12 months contribution compared to 7 months in 2022.

The IFRS loss before tax was £6m (2022: loss £612m1) including adjusting items of £336m (2022: £865m1), with a decrease in the impairment of intangible assets and restructuring costs compared to 2022. The goodwill impairments in 2023 of £62m (2022: £340m) 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.

The cost/income ratio was stable at 82% (2022: 82%) reflecting the benefit from the efficient Adviser and ii cost models, offset by lower revenue in Investments.

Net operating revenue

Net operating revenue of £1,398m (2022: £1,456m) was down 4%, including the impact of the challenging market conditions in Investments. This was partially offset by increases in revenue in both Adviser and ii, reflecting higher treasury income for both businesses, and the benefit of a full 12 months of ii.

In Investments, net operating revenue was 17% lower than in 2022 largely due to net outflows and lower market performance impacting average AUM, and changes to the asset mix. While redemptions were lower, gross flows were also lower reflecting the client response to the uncertain market environment, particularly in equities and multi-asset. Net outflows and market performance in multi-asset and equities resulted in a reduction in average AUM of 16% and 14% respectively. Our Phoenix partnership continues to produce results with £6.0bn (2022: £2.9bn) of gross inflows from their bulk purchase annuity business, reflecting our insurance asset management capabilities and proprietary techniques.

In our Adviser business, net operating revenue was 21% higher than 2022 at £224m (2022: £185m) comprising £167m Platform charges (2022: £174m), £31m treasury income (2022: £11m) and £26m other (2022: £nil). The higher revenue included the c£15m benefit of a revised distribution agreement with Phoenix and c£11m from threesixty/MPS following the transfer from the Personal Wealth business.

In our ii business (excluding Personal Wealth), net operating revenue increased to £230m (2022: £114m), largely reflecting the benefit of a full 12 months of revenue. Revenue continues to benefit from diverse streams. Treasury income on client cash balances contributed £134m, benefiting from the continued rise in interest rates. Trading revenue of £48m was impacted by muted levels of customer activity given the uncertain market conditions. Revenue from subscriptions was £54m.

In Personal Wealth, net operating revenue of £57m (2022: £87m) reduced by £30m due to a c£19m impact from the transfer of the MPS business to Adviser and the sale of abrdn capital to LGT, c£6m from the transfer of threesixty to Adviser, and the impact of adverse market movements.

1. Comparatives have been restated for the HASL implementation of IFRS 17. Refer Basis of preparation in the Group financial statements section.

Adjusted operating expenses

Adjusted operating expenses decreased by 4% to £1,149m (2022: £1,193m), reflecting management actions to reduce costs, mostly offset by the inclusion of £103m (2022: £47m) of ii1 expenses for the full 12 month period. Excluding ii1, expenses were 9% lower at £1,046m (2022: £1,146m).

In the Investments business, we exceeded the targeted £75m reduction that we outlined previously. The £102m cost reduction in Investments was driven by lower staff costs reflecting 8% lower front/middle office FTEs and reduced market data and outsourcing costs, partly offset by the impact of staff cost inflation.

In Adviser, the cost/income ratio improved to 47%, benefiting from higher treasury income and the revised distribution agreement with Phoenix.

For ii overall, expenses increased reflecting the full 12 months of ii (excluding Personal Wealth). The cost/income ratio improved from 64% to 60%, despite the impact on profitability in Personal Wealth due to the revenue impacts on this business outlined above.

As I have touched on already, further significant cost savings across the business are targeted to improve efficiency and profitability.

Capital

Our capital position provides us with resilience during periods of economic uncertainty and volatility.

In 2023, we have been disciplined in our allocation of capital with a combination of investment in the business to drive growth and continued returns to shareholders.

We generated a total of £713m capital from the sales of our listed Indian stakes (£576m), and the disposals of our discretionary fund management and US private equity businesses (£137m). We have now completed the sale of our remaining stakes in HDFC Life and HDFC Asset Management, which further simplifies our group structure.

We have continued to invest in the business through strategic bolt-on acquisitions, building out our global top three position in closed-end funds. In 2023, we completed the acquisition of four closed-end funds from Macquarie and acquired the healthcare fund management capabilities of Tekla for a total of £152m. We also used the proceeds from our non-core disposals to support restructuring costs of £121m, including the reshaping of the Investments business.

We returned £300m by way of share buybacks in line with our commitment to return a significant proportion of the proceeds of our stake sales. As we outlined in our FY 2022 results, we returned £0.6bn of capital in total to shareholders in 2023 by way of dividends and share buybacks.

Going forward, we will continue to have a disciplined approach to generation and allocation of our capital:

-  We are committed to taking significant cost actions to restore our core Investments business to a more acceptable level of profitability. To achieve the desired simplification and cost savings, total implementation costs are estimated to be around £150m. We will deploy CET1 surplus capital to fund this restructuring over 2024 and 2025.

-  We will continue to scan the market for bolt-on acquisitions within key thematic markets, such as the most recent acquisition of the healthcare fund management capabilities of Tekla.

-  As part of our approach to allocating capital, we hold a buffer over regulatory capital to provide a level of management flexibility and capital strength and resilience during periods of volatility.

-  It remains the Board's current intention to pay a total annual dividend of 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. Over the short term, the dividend will largely be supported by adjusted capital generation and our surplus capital.

Outlook

As demonstrated in our 2023 results, we have reshaped the business. The resulting diversification in sources of revenue and inherent cost efficiency within Adviser and ii partly offset the revenue impact from net outflows and adverse market movements within Investments. Looking forward, we expect inflation to moderate slowly, and we have assumed a stable interest rate environment. This will continue to benefit ii and Adviser where we expect the average cash margin for 2024 to be broadly in line with 2023. The outlook for global markets remains uncertain. Where market conditions, structural and cyclical, remain challenging for active asset managers we continue to expect headwinds arising from changing client demand and preferences. Within Insurance in particular, we expect the asset rotation from active equity and fixed income strategies to passive quantitative strategies experienced in 2023 to continue into 2024. This together with related pricing changes, may result in a further contraction of revenue margin. 

Notwithstanding this backdrop we are taking action to restore profitability and to transform the way we operate, through simplification and leveraging technology across the Group, particularly in Investments. As we have said, the work to achieve at least £150m of cost savings is now underway. While 80% of the cost savings is expected to benefit Investments, we anticipate cost growth in ii and Adviser to be approximately 3-5% per annum over 2024-2026 reflecting continued growth and reinvestment in these businesses. Implementation of the transformation programme is expected to take place primarily in 2024, with c£60m benefit from lower adjusted operating expenses expected in 2024, and will be completed by the end of 2025. We expect total restructuring costs of less than £150m in 2024, to support the group cost transformation programme, and further investment in the Adviser platform. 

The strength of our balance sheet allows us to fund these restructuring expenses, and to maintain the dividend. Our balance sheet is further strengthened by our Phoenix stake and the staff pension scheme which has a significant surplus. Our focus remains to be disciplined in our allocation of capital to drive growth, and to maintain the dividend payment until capital generation improves.

1. Relates to ii (excluding Personal Wealth).

Results summary

The IFRS loss before tax was £6m (2022: loss £612m) including an adjusted operating profit of £249m (2022: £263m). Adjusting items were £336m (2022: £865m) including:

-  Losses of £178m (2022: losses £187m) 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 2023.

-  Restructuring and corporate transaction expenses were £152m (2022: £214m), mainly consisting of property related impairments, severance, platform transformation and specific costs to effect savings in Investments.

-  Adjusted operating profit was £14m lower than 2022 largely due to the revenue impact of continued net outflows and adverse market movements, which particularly impacted high yielding equities. The 2023 results included a contribution from ii2 for the full 12 months (2022: seven months) which benefited net operating revenue by £230m (2022: £114m) and adjusted operating profit by £127m (2022: £67m). Removing ii2, adjusted operating profit was 38% lower than 2022 at £122m (2022: £196m).

Net operating revenue

Net operating revenue decreased by 4% reflecting:

-  Impact from net outflows3 of c4%, and adverse Investments margin movements.

-  Although the market declines seen in 2022 began to reverse in 2023, the lower average AUMA compared with 2022 impacted revenue by c4%.

-  Benefit of £116m from the full 12 months of ii2 in 2023.

-  Performance fees reduced by £16m mainly within real assets, where 2022 saw a number of funds coming to the end of their natural lifecycle, triggering performance fees at maturity.

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 treasury income of £165m (2022: £69m). Net operating revenue reduced by 13% excluding ii2.

Adjusted operating expenses

Adjusted operating expenses decreased by 4% reflecting management actions to reduce costs, mostly offset by the inclusion of £103m (2022: £47m) of ii2 expenses for the full 12 month period. Excluding ii2, expenses were 9% lower at £1,046m (2022: £1,146m) reflecting:

-  7% lower staff costs (excluding variable compensation), with the benefit of lower FTEs (13%), partly offset by wage inflation.

-  Lower variable compensation reflecting business performance.

-  9% lower non-staff costs, with cost savings partly offset by the impact of inflation.

The Group cost/income ratio was stable at 82%(2022: 82%) reflecting the benefit from the efficient Adviser and ii cost models, offset by lower revenue in Investments.

1. Comparatives have been restated for the HASL implementation of IFRS 17. Refer Basis of preparation in the Group financial statements section.

2. Relates to ii (excluding Personal Wealth).

3. 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 priorperiod revenue.

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

Investments

Adjusted operating profit

- Profit reduced by £80m (62%) to £50m, reflecting 17% lower revenue, partly offset by 11% lower costs.

- Results in our Investments business reflect the challenging economic environment and market turbulence that has impacted across the industry.

Net operating revenue

- 17% lower than 2022 largely due to net outflows and lower market performance impacting average AUM, and changes to the asset mix.

- Performance fees of £14m (2022: £30m) were earned mainly from Asian equities and Insurance Partners.

Adjusted operating expenses

- Whilst there is a reduction in profitability in the year, we exceeded the £75m net cost reduction target.

- Adjusted operating expenses reduced by £102m (11%) to £828m (2022: £930m2) driven by lower staff costs reflecting 8% lower front/middle office FTEs and reduced market data and outsourcing costs, which was partly offset by the impact of staff cost inflation.

- Adjusted operating expenses also benefited from reduced brand marketing activity and lower project change costs compared to 2022.

Institutional and Retail Wealth

Net operating revenue

- 17% lower at £724m (2022: £868m2) due to a 7% reduction in average AUM to £220.0bn (2022: £236.2bn). Multi-asset and equities average AUM down 16% and 14% respectively.

- Reduction in average AUM primarily relates to net outflows and market performance.

Gross flows

- Excluding liquidity, £6.8bn (26%) lower at £19.5bn (2022: £26.3bn) mainly in equities, multi-asset and alternative investment solutions. This reflected the client response to the uncertain market environment which impacted the wider industry, as many clients delayed investment decisions.

Revenue yield

- 3.5bps lower at 32.6bps largely due to the decrease in the higher margin equities average AUM impacting the asset mix. Equities are 22% (2022: 24%) of average AUM at a yield of 60.7bps (2022: 62.5bps).

- The reduction in the multi-asset yield reflects the growing proportion of lower yielding MyFolio in this asset class.

Net flows

- Net outflows were £5.8bn higher than 2022 at £14.2bn (excluding liquidity) due to lower gross flows.

- Excluding liquidity, net outflows represent 7% of opening AUM compared with 4% in 2022.

- Redemptions (excluding liquidity) were £1bn lower than 2022 at £33.7bn due to lower real asset outflows.

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

2. Finimize and our digital innovation group have moved from Investments to Other. Comparatives have been restated.

3. Includes performance fees of £14m (2022: £30m).

4. Institutional/Retail Wealth liquidity net flows excluded.

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

Insurance Partners

Net operating revenue

- 20% lower in 2023 at £154m (2022: £192m), reflecting the impact of 13% reduction in average AUM to £147.7bn primarily due to net outflows, market declines in 2022 and the impact of the final LBG tranche withdrawal of £24.4bn in 2022.

Gross flows

- £0.6bn lower than 2022 at £22.2bn (2022: £22.8bn).

- Our Phoenix partnership continues to produce results with £6.0bn (2022: £2.9bn) of gross inflows from their bulk purchase annuity business, reflecting our insurance asset management capabilities and proprietary techniques.

AUM

- Insurance AUM increased by £10.6bn to £155.5bn with net outflows offset by positive market movements.

Revenue yield

- Net operating revenue yield decreased to 10.0bps (2022: 10.5bps). We expect the asset rotation from active equity and fixed income strategies to passive quantitative strategies experienced in 2023 to continue into 2024, this together with related pricing changes, is expected to result in a further contraction of yields.

Net flows

- Net outflows improved by £3.9bn in 2023 at £1.1bn (2022: £5.0bn outflow excluding LBG tranche withdrawals), representing (0.8%) of opening AUM compared with (2.4%) in 2022.