Aberdeen breaks the £100bn barrier

ABERDEEN Asset Management has broken through the £100 billion barrier for funds under management, just five years after the firm almost went under in a highly-publicised investment scandal.

Announcing full-year results for the 12 months to 30 September, AAM said funds at that point had soared by 30 per cent to £95.3bn. The £100bn mark was breached after buying a range of mutual funds from US firm Nationwide Financial Services, a deal that was completed in October.

Bill Rattray, AAM's finance director, said the increase was a combination of "very good" business inflows during the year totalling some £8.7bn net and a series of small acquisitions.

But Rattray also had a word of warning for private investors, amid the current market turmoil.

"We have tried to caution investors not to assume that every year will inevitably show stronger net inflows than the previous year," he said.

The company also recorded record new business wins of £8.7bn in the period plus a further £3.1bn awarded by not funded by the year end.

Half of group net sales were from continental Europe, 22 per cent from US and Canada, 17 per cent from the UK and 11 per cent from the Middle East.

Revenue at the Aberdeen-based investment house, run by chief executive Martin Gilbert, rose to £347.8 million from £302.1m. Pre-tax profits before exceptional items jumped to £94.3m from £79.9m, although the bottom line figure dropped to £23.7m from £53.8m.

Rattray said one of the reasons for the fall in the latter figure was because of a one-off payment made in the wake of the split-capital investment trust fiasco.

A settlement was made to Real Estate Opportunities (REO) investment trust in relation to REO's launch and AAM's management of REO's income portfolio during the split-cap turmoil.

The split-cap sector ran into problems between 2001 and 2003 largely because of stock market falls, high levels of borrowing and large cross-holdings in other split cap trusts. It is estimated more than 25,000 investors were adversely affected.

"The payment was made in the first half of the year, which will not be repeated," said Rattray. "There was nothing in the second half."

Another part of the exceptional charges was an overrun of costs of transferring the systems of Deutsche Asset Management, which AAM bought in 2005, onto a single platform. Analysts said the results for 2007 were broadly in line with expectations and showed impressive growth over 2006.

"Profit performance in the current year will benefit from the inclusion for a full year of last year's acquisitions, and the annualised benefit of the new business written onto the books in 2007," said Cazenove, the London-based broker.

"Because of this, the company is expected to show another good year of profit growth, albeit that our estimates are tempered by the recent weakness of markets."

Katrina Preston of Landsbanki said: "Aberdeen's prelims have marginally exceeded our expectations at the adjusted EPS level, with news of stronger-than-anticipated inflows since the year-end lending good support to our top of the range 2008 numbers."

Dresdner Kleinwort retained its "buy" recommendation and 225p target price, adding: "While these results may not be the catalyst to remove an undeserved discount, we believe they reinforce the strong Aberdeen investment case."

Shares in AAM dipped 1.25p to close last night at 166.25p.

TURNAROUND

ABERDEEN Asset Management was formed in 1983 by the management buyout of a £50 million investment trust in Aberdeen. That team included AAM's current chief executive Martin Gilbert.

Originally listed on the London Stock Exchange as Aberdeen Trust in 1991, the company changed is name to its current title in 1997.

AAM was heavily involved in split capital investment trusts - a move that very nearly brought about the company's downfall five years ago, having lost the trust of its investors.

But since then, Gilbert has turned the company around, moving away from the retail side of the business - he sold the company's UK retail unit trusts to New Star for £87.5m in 2003 - and concentrating on corporate investors.

The dramatic change of direction is starting to pay dividends.

At the nadir of the debacle, Gilbert was among those castigated by the House of Commons Treasury committee for the way in which the investments were marketed.

He remarked dryly at the time that being called "a sophisticated snake-oil salesman was a low point in my personal career".

The remarkable turnaround has been achieved both through organic growth and through a series of acquisitions, including Edinburgh Fund Managers in 2003 and, more recently, Glasgow Investment Managers earlier this year.

The investment house also bought Deutsche Asset Management assets during 2007 as part of expansion plans in Australia.