Abrdn to axe some 500 jobs in bid to save £150 million per year: reaction

CEO warns that market conditions remained challenging in the second half of the year.

Scottish investment giant Abrdn is cutting some 500 jobs or about 10 per cent of its workforce as part of a “transformation programme” to slash £150 million of costs per annum.

However, some City analysts said a more radical strategy was required to clamp down on costs and make the business more profitable, including a potential break-up of the group.

The Edinburgh-headquartered firm, which last year announced that it was quitting its vast offices on the capital’s St Andrew Square, said that most of its savings would be from “non-staff costs”, but that it would also remove management layers.

Abrdn chief executive Stephen Bird: '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.' Picture: Jessica Shurte

The cost-cutting will include making outsourcing and technology more efficient, and much of the savings will come from support services. It expects the move “to result in the reduction of approximately 500 roles”. Abrdn said about 80 per cent of the annualised savings would benefit its core investments business.

In a trading update, the asset manager, formerly known as Standard Life Aberdeen, told investors: “A streamlined operations and management structure will enable the group to deploy its resources more efficiently and improve management accountability. The increased profitability will enable incremental investment in the capabilities to deliver excellent customer outcomes.

“Implementation of the programme is expected to take place primarily in 2024, with circa £60m benefit expected to accrue this year and will be completed by the end of 2025. To achieve the desired simplification and cost savings, total implementation costs are estimated to be around £150m.”

Chief executive Stephen Bird said: “Market conditions have remained challenging for our mix of business, and this is reflected in our year-end AUMA [assets under management and administration], 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.

The investment sector has been hit by turmoil in equity and bond markets amid rising geopolitical tensions.

“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.”

The update showed that AUMA totalled £494.9 billion as of the end of December, down marginally on the first half. The investments business continued to face “structural headwinds”. High inflation and geopolitical uncertainty continued the trend to cash and de-risking of client portfolios, Abrdn noted. The second half saw outflows amount to £12.4bn, well ahead of the £4.4bn of net outflows reported in the first six months of 2023.

David McCann, an analyst at brokerage Numis Securities, noted: “We continue to think that a more radical strategy is needed to turn the group around and maximise value, such as the break-up of the group with capital being returned to shareholders, or sale of the group.”

Analysts at Panmure Gordon said: “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 [the second half of 2023] were awful and the profit outcome for 2023 has been rescued by interest income for which management should not seek to take credit.

“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.”

August’s first-half results, for the six months to the end of June, showed that assets under management had slipped to about £496bn, compared with £500bn at the end of December 2022, reflecting the impact of net outflows. Adjusted operating profit rose 10 per cent to £127 million, still a little shy of City estimates.

Bird said at the time that the firm was benefiting from a stronger business model as it continues to restructure under a three-year strategic plan. He told investors: “We continued to move at pace to execute our strategy over the first six months of 2023 in a challenging macro environment.”

Abrdn has been buffeted by the turmoil in equity and bond markets. Rising geopolitical tensions and the conflict in Ukraine have also impacted the investment sector. The group is due to release its full-year results for 2023 on February 27. It said further details surrounding the new transformation programme would be provided with the figures.

Last March, the firm said it would be quitting its offices on Edinburgh’s St Andrew Square as a result of post-pandemic changes to working practices. The landmark building at 6 St Andrew Square was commissioned by the then Standard Life Investments in late 2016 and can house some 1,200 people, although actual usage is far lower day-to-day, the firm noted. A spokesperson said the way that Abrdn used its office space had “changed fundamentally since the pandemic”.

The changes saw people moving out of St Andrew Square, with the majority of teams moving to the firm’s 1 George Street building, and some workers moving to a newly designed space from within its existing portfolio at Broadway Park, The Gyle.

Abrdn to save millions by quitting landmark Edinburgh office that can house 1,200 workers