Higher margins result in record profit for Aberdeen

Published on Tuesday 4 May 2010 21:20

ABERDEEN Asset Management yesterday cheered the City yesterday with forecast-beating half-year results that brought in record turnover and profits.

• Martin Gilbert accepted some criticism over cash growth. Picture: Neil Hanna

Martin Gilbert, the firm's chief executive, credited the rise to market recovery and bringing in higher margin business.

He ruled out further acquisitions, in favour of keeping costs lean and relying on organic growth this year.

Aberdeen, the largest listed fund manager in the UK by assets, more than trebled pre-tax profits from 17.9 million to 59.5m in the six months to 31 March, or 92.6m on an underlying basis.

Assets under management rose 16.9 per cent to 170.9 billion – up 6 per cent in March alone. This included 13.5bn of assets acquired from Royal Bank of Scotland, while 12.5bn was attributed to a rebound in markets.

The firm said it enjoyed the benefits of investors buying higher margin products as they switched from low-risk fixed-income and money funds to equities. The switch added 26m to AAM's revenues.

"We are seeing strong flows into equities that is paying us two or three times as much as the business going out of the door," said Gilbert.

New business inflows amounted to 25.1bn, but just as much cash went out to bring net inflows of 100m.

The company also slashed its debt, thanks to a trio of factors: a 90m convertible bond issue completed in December, a share placing in January raising 116m, and a major improvement in cash flow, which rose from just 1.4m last year to 93.8m. The firm has slashed its bank borrowings from 70m in December to 20m – saving the firm from arduous re-negotiations with lenders this year on its 150m facility due in 2011.

Net debt was 96.2m, compared with 174.5m. KBC Peel Hunt expects the net debt to be below 50m by the year end.

Canaccord also noted that the firm promised an "exceptionals-free" second half, after the firm's results showed it continued to pay a further 19.5m in the past six months to integrate its 250m acquisition of Credit Suisse funds last year.

Aberdeen has made 17 acquisitions since 2001, the most recent being the RBS asset buy in January, for which it paid 84.7m.

Jeremy Grime, analyst with Arden Partners, said: "They are not achieving the synergies from all the deals they have done in the past few years. That is still the case – at the moment they are being helped out by the strong equity markets."

Gilbert admitted that "some of that criticism, that we have not produced the cash we should have and we have been too reliant on acquisitions, is justified. We have to prove to people now that we can grow organically, too".

He added: "We just don't feel comfortable doing anything more at this moment, as prices have recovered to the levels that it's not particularly attractive for us to make any more acquisitions."

Shares rose almost 4 per cent to 143.4p, against a falling FTSE 250, taking the stock to its highest level in seven months.