Abrdn axes 500 jobs in bid to save £150 million
Asset manager, Abrdn, has confirmed that about 500 jobs will be lost as part of a £150 million round of cuts by the end of next year.
The Edinburgh-based institution, which has undergone a controversial restructuring under chief executive Stephen Bird, has seen an outflow of funds and its long-term credit rating downgraded by Moody’s.
The job losses amount to about 10% of its 5,000 workforce in London and Edinburgh and the company this morning confirmed yesterday’s speculation in a scheduled trading update.
It said the cost-cutting programme is designed “to restore our core Investments business to an acceptable level of profitability and allow for incremental reinvestment into growth areas.”
The firm has also confirmed that its office in Queen’s Terrace, Aberdeen, where Aberdeen Asset Management was established in 1983, will close as part of on-going property rationalisation., The Aberdeen-based staff will work from home.
The company is due to announce full-year results on 27 February when investors will look to see if it has turned around a first half loss before tax of £169m.
A pressing issue has been its inability to stem an outflow of funds. It said today that institutional and retail wealth net outflows in H2 2023 were £11.2bn. Insurance Partners net outflows were £1.3bn.
It has not been alone in suffering outflows. Most active investment houses in the UK have seen a move to cheaper passive index-tracking investment and investor caution towards equities generally.
In a statement, Mr Bird said: “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, as Adviser and interactive investor have done in 2023.
“The new transformation programme announced today, when completed, will deliver a step change in our cost to income ratio. We exceeded our £75m cost reduction target for 2023 for Investments, but we recognise more needs to be done.
“After a root and branch review, we are now re-engineering and simplifying our business model to remove at least £150m of costs – mostly from group functions and support services. The programme will largely be implemented in 2024, completing in 2025. These changes will allow us to continue our focus on building a growth business.”
The company, originally Standard Life Aberdeen, was created out of the 2017 merger of Standard Life and Aberdeen Asset Management, and its rebranding as Abrdn under new management prompted widespread derision. The Standard Life brand and business was sold to Phoenix.
Moody’s said it was cutting Abrdn’s long-term issuer rating by one notch to Baa1 from A3 because of what it called “idiosyncratic weaknesses in its credit profile, exacerbated by industry-wide headwinds”.
It was reported last month that Abrdn had introduced a 52-week cap on redundancy payments from this month in a fresh effort to curb costs. Paid parental leave is also being reduced for staff from October.
Standard Life Aberdeen had adopted a controversial co-CEO model, but after both Martin Gilbert and Keith Skeoch departed, the board hired former Citigroup banker Mr Bird in 2020.
He was tasked with turning the business around and as part of the re-modelling of the group he paid £1.5 billion for Interactive Investor, the investment platform, which helped build a position in the DIY retail market.
Under its newly-hired finance director Jason Windsor, the company now plans to reintroduce quarterly reporting which was dropped in 2017 in a move to encourage long-termism.
Its shares have performed poorly, trading 17% down over the year and by a third over five years. They fell 3% in morning trading but later recovered to end 1.6%, or 2.7p, higher at 175p, valuing the company at £3.2bn, compared with £11bn at the time of the 2017 merger.
In recent years it has yo-yoed in and out of the FTSE 100 and there has been pressure from some investors to break up the business.
Last year the company vacated its purpose-built head office in St Andrew Square that it only moved into six years earlier and relocated to its historic base in nearby George Street where it employs fewer staff.
In a note this morning, Panmure Gordon says: “We have argued strongly that the company has needed to address the cost base in its Investments division, as well as more broadly.
“It is now (belatedly) doing so, but the need for that cost cutting becomes ever more apparent: flows in H2/23 were awful and the profit outcome for 2023 has been rescued by interest income for which management should not seek to take credit.
“The aim is to reduce costs by £150m compared with 2023’s outcome but on marked-to-market estimates revenues will fall by ~£80m over that period too.
“The cost cutting is undoubtedly welcome but not yet the end of the story. There remains value in the shares on any reasonable assumptions about the value of the quite disparate businesses, at least now there appears to be an attempt to preserve some of that value.”