DBRS Upgrades Aberdeen Asset Management to A (low)

DBRS Ratings Limited (DBRS) has today upgraded the Issuer and Senior Debt ratings of Aberdeen Asset Management plc (“Aberdeen” or the Group) to A (low) with a Stable trend, from BBB (high) with a Positive trend. This rating action reflects the strengthened franchise of Aberdeen as a result of the acquisition of Scottish Widows Investment Partnership (SWIP), completed in 2014, as well as the Group’s solid performance and solid financial fundamentals despite a period of volatility in some of its markets.

The acquisition of SWIP, which was completed in March 2014 (with an additional part of the overall acquisition completed in May 2014), has had a transformational impact on Aberdeen’s franchise. Assets under Management (AuM) increased from GBP 194 billion at end-December 2013 to GBP 324 billion at end-September 2014, resulting in the Group now having a more balanced mix of assets. DBRS changed the Trend on Aberdeen’s rating to Positive from Stable in November 2013, when the acquisition was announced, and indicated that the ratings could come under further upward pressure if the acquisition progressed in line with plans. DBRS considers that Aberdeen has made good progress with the integration of SWIP, having largely integrated the front office and is on plan with the migration of the back office for late-2015. Operating margins of the underlying enlarged business have largely remained stable in 2014 at 43.9%, and Aberdeen expects the Group to benefit from further cost synergies in 2015.

Aberdeen’s ratings are also supported by solid regulatory capital position and by the fact that the Group has no public debt. Aberdeen had a regulatory capital surplus of GBP 115 million at end-September 2014, a result of Aberdeen rebuilding its capital position following the higher goodwill deductions from the SWIP acquisition.

At the same time, DBRS recognises that Aberdeen has been challenged in the last 12 – 18 months due to net asset outflows, largely as a result of a change in investor sentiment towards emerging markets. Net outflows in the enlarged group were GBP 20.4 billion in the 12 months to the Groups fiscal year-end of September 2014. Nevertheless, these outflows have slowed in recent periods and in the quarter to end-September 2014 they totalled GBP 2.8 billion. DBRS also notes that Aberdeen has shown flexibility in dealing with the impact of this on management fees by also reducing costs, and that as a result of its more diversified asset mix following the SWIP acquisition, DBRS expects the Group to be more insulated from the impact of future net outflows.

Further upward rating pressure is unlikely in the near term, but if the Group continues to increase its scale and diversification, whilst maintaining a low debt profile, that could be positive for the ratings in the medium term. Conversely, if weak relative or absolute performance over a sustained period leads to substantial net asset outflows, this would be likely to lead to negative rating pressure.

Separately, DBRS has withdrawn the rating on subordinated debt, as this debt has been repaid. DBRS has also withdrawn the rating on Tier 1 Hybrid Securities, which have also been repaid, and assigned a BBB, stable trend, rating to the Group’s Perpetual Cumulative Capital Notes.

Notes:
All figures are in GBP unless otherwise noted.

The principal applicable methodology is Rating Asset Management Companies and DBRS Criteria Preferred Share and Hybrid Criteria for Corporate Issuers. These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company report. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Elisabeth Rudman
Rating Committee Chair: Roger Lister
Initial Rating Date: 1 May 2007
Most Recent Rating Update: 20 November 2013

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London
EC3R 7AA
United Kingdom
Registered in England and Wales: No. 7139960

For additional information on this rating, please refer to the linking document located at: http://www.dbrs.com/research/236983/banks-and-banking-organisations-linking-document.pdf

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.