Aberdeen, a firm with the wind in its sails

ABERDEEN Asset Management – the largest fund manager based in Scotland – is reaping the rewards of its long-term investment in Asia and emerging markets with rising demand fuelling bumper annual profits.

The outperformance comes in spite of nervous investors pulling out £900 million from Aberdeen’s funds in September and assets under management at the year-end falling by more than 5 per cent amid volatile markets.

Results yesterday showed that pre-tax profits before exceptionals in the year to 30 September soared by 44 per cent to £302m compared to City forecasts of £288-295m, with revenues up by 23 per cent to £784m.

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Finance director Bill Rattray told The Scotsman the strong results were down to a combination of “good investment performance, gradually increasing revenue margins and keeping costs under control”.

Although assets under management (AUM) fell to £169.9 billion at the year end from £178.7bn, the figure still sees Aberdeen retain its position as the largest Scottish-based fund manager.

The firm also ended the year debt free and with net cash of £127.5m compared with net debt of £7.7m last year, although operating costs rose by 14 per cent due to a higher headcount and increased marketing activity, including becoming the main sponsor for the Cowes Week sailing regatta.

Although the year-end AUM figure was down, Rattray said the average during the year before the summer sell-off saw an increase of around 15 per cent.

The company also said outflows during the year were mainly from lower-margin mandates, while inflows were principally into its higher-margin funds with particularly high demand for its Asian fixed income and emerging market debt funds.

Chief executive Martin Gilbert said markets were likely to remain volatile until there is “meaningful progress” towards a resolution to the European debt crisis. He said that, despite the likelihood of a low-growth environment across Europe and the US over the next few years, the company was confident it could continue to grow revenues, assets under management and profits.

“The combination of the significant pools of wealth around the world, the evident increased need for retirement planning for increasing longevity and an extended period of extremely low interest rates will lead to increased investment in equities, fixed-income securities and property,” said Gilbert.

“Our strength in these asset classes and geographical reach, particularly in Asia and the US, mean we are well positioned to meet this demand.”

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Rae Maile at JP Morgan Cazenove, described it as a “good set of results by any measure” and said it maintained its “overweight” recommendation on the shares.

“At some point we expect the market to reward the organic drive of the business with a higher multiple,” he said.

Peter Lenardos, an analyst at RBC Capital Markets, said it confirmed Aberdeen’s reputation as a “company that consistently beats expectations”. Aberdeen said it will recommend a final dividend of 5.2p a share, resulting in a 29 per cent increase in its full-year dividend, to 9p from 7p a share. Shares in the firm closed up 7.8p or 3.8 per cent at 211.1p.