Edinburgh-based investment giant Abrdn plc announced its 2023 results on Tuesday, saying its work to achieve at least £150 million of annualised cost savings “is now underway” and that its assets under management and administration (AUMA) slipped 1% to £494.9 billion.
Abrdn said 2023 net outflows in its investments and adviser businesses were partly offset by positive market movements and continued net inflows at its Interactive Investor (ii) unit.
Net outflows for the year were £13.9 billion, up from £10.3 billion in 2022.
Abrdn shares initially rose as much as 5% on Tuesday morning after the results announcement, but the stock gave back its gains before lunchtime to be down about 2%.
In January, Abrdn confirmed it will axe 500 jobs as part of a “new transformation programme targeting an annualised cost reduction of at least £150m by the end of 2025.”
On Tuesday, the group said the work to achieve at least £150 million of annualised cost savings “is now underway” and that 80% of the cost savings is expected to benefit its investments business.
Abrdn reported an IFRS loss before tax of £6 million for 2023 — compared to a loss of £612 million for 2022.
Abrdn said the reduced 2023 loss “reflects adjusting items of £336m including losses of £178m relating to the fall in share prices of our listed stakes and £152m of restructuring and corporate transaction expenses.”
The group said net operating revenue was 4% lower at £1.398 billion “reflecting the impact of outflows and adverse markets partly mitigated by the diversification in sources of revenue, including the benefit from higher treasury income.”
It said adjusted operating profit was 5% lower at £249 million “largely due to the revenue impact of continued net outflows and adverse market movements which particularly impacted high yielding equities.”
Full year dividend is maintained at 14.6p.
Abrdn said its balance sheet strength includes its 10.7% stake in Phoenix Group, owner of Standard Life, and its staff pension scheme “which has a significant surplus.”
On its investment business, Abrdn said gross flows were £50.3 billion, £9 billion lower than 2022, “reflecting the client response to the uncertain market environment which impacted the wider industry.”
It said: “Insurance Partners continued to benefit from the Phoenix bulk purchase annuity and pensions growth.”
Abrdn added: “Investment performance weakened to 42% of AUM above benchmark over 3 years (2022: 65%).
“This reflects a challenging period for active managers and in particular Equities were impacted by our AUM bias towards Asia and Emerging Markets and the quality growth style.”
On its Interactive Investor business, Abrdn said net operating revenue was 43% higher at £287 million and adjusted operating profit was 58% higher at £114 million.
Abrdn said: “Treasury income of £134m (2022: £58m) benefited from higher interest rates …
“Net customer growth for 2023 was 4% (excluding run-off from historic acquisitions), taking total customers to 407k with 21% growth in SIPP customers, reflecting successful focus on this key growth segment.
“Average AUA per customer increased to £152k (2022: £134k).
“Net flows were £2.9bn, reflecting continued positive flows in Interactive Investor.”
On its adviser business, Abrdn said: “Net operating revenue in Adviser 21% higher to £224m (2022: £185m) supported by higher treasury income …
“Adjusted operating profit 37% higher at £118m (2022: £86m).”
In its outlook, Abrdn said: “Within Insurance Partners in particular, we expect the asset rotation from active equity and fixed income strategies to passive quantitative strategies to continue into 2024.
“This together with related pricing changes, may result in a further contraction of revenue margin.
“The work to achieve at least £150m of annualised cost savings is now underway. 80% of the cost savings is expected to benefit Investments.
“We anticipate cost growth in ii and Adviser to be approximately 3-5% per annum over 2024-2026 reflecting continued growth and reinvestment in these businesses.
“We expect total restructuring costs of less than £150m in 2024, to support the cost transformation programme, and further investment in the Adviser platform …”
Abrdn CEO Stephen Bird said: “Over the past three years we have reshaped the business to fit the modern investment landscape.
“We now have content and distribution aligned to the products and services clients need, and we are better positioned for future growth.
“The investment industry faced further structural and macroeconomic challenges during 2023 with a ‘higher for longer’ rate environment across developed economies adding sustained pressure on most asset classes.
“The diversity of our group supported financial results in 2023. ii and Adviser are delivering, and we are scaling up these market-leading platforms to benefit from the long-term structural growth in UK savings and wealth.
“We are taking action to rebuild and grow profit in our Investments business.
“We have sharpened our focus on improving investment performance, streamlined our fund range, reduced costs by £102m in 2023, exceeding our £75m target, and we announced a new cost saving programme of at least £150m on the 24th January.
“Our balance sheet remains strong which enables us to fund our cost transformation while continuing to strategically invest in growth areas and maintain our dividend.
“There is significant work ahead, but we are confident we will be successful in delivering future growth.”
REACTION:
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “A highly challenging period continues for asset manager Abrdn as it failed to stem money pouring out of its funds in the second half.
“However, investors are clearly encouraged by its turnaround efforts so far, with shares jumping in early trade.
“Costs reduced by £102 million in 2023, ahead of targets and deeper cuts are now on the way to try and shore up profits with 500 jobs set to go. A further £150 million is expected to be saved by the end of 2025.
“High inflation and worries about economic growth have been challenging for the asset management sector, and Abrdn has embarked on a deep cost-cutting plan to revive its performance.
“It sold off its US and European private equity arms but has been trying to keep revenue moving in the right direction through the acquisition of Interactive Investor.
“This should provide a relatively stable source of assets for the group, given its one of the UK’s biggest direct-to-consumer investment platforms, albeit in a highly competitive market.
“There is likely to be significant disgruntlement emanating from reports that the deteriorating performance hasn’t stopped the board awarding chief executive Stephen Bird an £800,000 bonus, particularly given the scale of the job cuts announced.’’