Aberdeen profits hit by weakness in emerging markets

Weak emerging markets have seen billions of pounds more withdrawn from Aberdeen Asset Management's funds, sparking a near-halving of profits and a warning today that more pain looms.

Aberdeen Asset Management chief executive Martin Gilbert. Picture: Neil Hanna
Aberdeen Asset Management chief executive Martin Gilbert. Picture: Neil Hanna

Shares in the fund manager closed down 7.4 per cent, or 22p, at 276.7p as Aberdeen chairman Roger Cornick said no “dramatic improvement” in new business inflows was expected in the short-term.

“We remain vulnerable to further outflows over the next few quarters as clients continue to react to the difficult conditions for performance over the past few years,” Cornick said.

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AAM’s pre-tax profits slumped to £98.8 million in the six months to end-March, down from £185.4m in the same period last year on revenues down 20 per cent to £483.6m

“Clean” underlying pre-tax profits were off 40 per cent at £163m. Martin Gilbert, group chief executive, said: “These results reflect the challenging conditions Aberdeen has faced during the past three years, in particular the weakness in emerging markets.”

Clients withdrew £38.2 billion in funds over the first trading half – £16.7bn on a net basis after taking into account gross new business inflows of £21.5bn.

The company said the pace of the outflows had “moderated slightly” compared with the previous six months, with Cornick saying they had been “cushioned” by the recent rally in financial markets after a poor start to 2016.

It meant that AAM’s total assets under management lifted 3 per cent to £292.8bn at end-March 2016 against September 2015, but down from £330.6bn a year ago.

Rival Schroders last week revealed it had boosted assets under management by £11.4bn to £324.9bn during the first quarter after net inflows of £2.7bn.

Broker and investment manager Tilney Bestinvest said in a note: “In recent years the perennial underperformance of emerging market shares versus developed markets ones has turned this flagship franchise into something of an Achilles heel for Aberdeen.”

In other key financials, AAM’s recurring fee income fell to £482m from £601.8m, while performance-related fee income reduced to £1.5m from £3.4m. The dividend is unchanged at 7.5p.

The group has made a number of key senior appointments recently, completed a few bolt-on acquisitions including hedge fund manager Arden and said yesterday it remained on track to reduce annual costs by £70m by 2018.

The Scottish fund manager was demoted from the blue-chip FTSE 100 index in March as investors fled fund managers with strong exposure to emerging markets amid the backdrop of the Chinese slowdown.

However, Gilbert said: “If the reshuffle had been a day later, we would have survived but it’s fine. Hopefully, we’ll be Leicester City and come straight back [from a horrible period]”.