CEO Stephen Bird plots £150m of annual cost savings
Abrdn has confirmed rumours of looming job losses after £12.4billion flowed out of its funds in the second half of last year.
The FTSE 250 investment management group told investors on Wednesday that plans to save £150million annually by the end of 2025 would see the loss of 500 jobs, roughly 10 per cent of its workforce.
In a sign of imminent job cuts it said that £60million was set to be saved this year.
Fresh cost-cutting measures have been introduced by chief executive Stephen Bird in efforts to arrest a decline that has seen assets under management and administration (AUMA) shrink by roughly £47billion since 2021.
Net outflows exceeded expectations in the second half of 2023 and were up from £5.2billion in the first half, driven by £11.2billion pulled from its institutional and retail wealth segment to take AUMA to £494.9billion as of 31 December.
Assets under management stood at £542billion at the end of 2021.
Abrdn shares were up 3.8 per cent at 178.8 by midday on Wednesday, having fallen around 3 per cent on Tuesday in response to press reports about the rumoured cost-cutting measures.
The group said around 80 per cent of the cost cutting will be to the benefit of its core investments business, with Abrdn plotting the ‘removal of management layers, increasing spans of control, further efficiency in outsourcing and technology areas, as well as reducing overheads in group functions and support services’.
It added this will enable the group to ‘deploy its resources more efficiently and improve management accountability’, while improved profitability ‘will enable incremental investment in the capabilities to deliver excellent customer outcomes’.
Abrdn shares have tumbled nearly 30 per cent since the end of September 2020, when Bird took over as chief executive.
Bird’s initial ‘three-year plan’, which aimed to three-year plan to bolster falling revenue, slow outflows and future-proof the group, expired at the end of last year.
Bird said on Wednesday the group had exceeded its £75million cost reduction target for 2023 within the investments business but ‘more needs to be done’, with a ‘a root and branch review’ leading to Abrdn ‘re-engineering and simplifying our business model’.
He added: ‘Market conditions have remained challenging for our mix of business, and this is reflected in our year-end AUMA, flow numbers, and margins.
‘The board and I are committed to taking these significant cost actions now to restore our core Investments business to a more acceptable level of profitability.
‘Although our business model benefits from the diversification that comes from operating three businesses, we will not rest until all of them are contributing strongly to group profitability.
‘The new transformation programme announced today, when completed, will deliver a step change in our cost to income ratio.’
In 2023, Abrdn raised more than £10billion selling its discretionary fund management and US private equity businesses. It spent around £3billion buying healthcare investment specialist Tekla and four funds from rival Macquarie.
Investment business outflows were compounded by £1.5billion of customer funds being pulled out of its adviser business.
Morningstar data shows Abrdn was among the biggest victim of outflows last year
All eyes turn to FCA cash crackdown
Interactive Investor, which it acquired in 2022, continues to be the bright spot for Abrdn, with investors’ cash flowing in and stock market momentum driving assets to £66billion.
However, analysts are concerned that regulatory change by watchdog, the FCA, could derail Interactive Investor’s momentum.
In November, UBS maintained its Abrdn ‘sell’ rating, with the investment bank particularly concerned about its ability to maintain its dividend and the potential regulatory pressure on its Interactive Investor division.
The Financial Conduct Authority at the end of last year revealed a crackdown on investment platforms profiting unfairly on customer cash balances and warned firms against ‘double dipping’.
UBS data shows Interactive Investor, like other investment platform peers, has seen the share of its revenues derived from income on customer cash balances soar since the Bank of England began its interest rate hiking cycle in December 2021.
Interactive Investor’s client portfolios had an average cash balance of 8.9 per cent last year.
UBS said at the time: ‘Following the FCA focus on this income stream as an emerging risk of harm to consumers, we expect lower interest income to be a key driver of consensus earnings downgrades.’
The investment bank added on Wednesday: ‘While we think cost cuts should mitigate the impact of declining revenues from the investment management business we don’t think the restructuring plan will serve as a positive catalyst for the shares.’
Income earned on customer cash has grown strongly
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