REG - abrdn PLC - Trading Statement

AberdeenAnnouncement

24/01/2024 07:15

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RNS Number : 6845A  abrdn PLC  24 January 2024

24 January 2024
 

abrdn plc

New transformation programme and trading statement

abrdn plc is today announcing a new transformation programme targeting an
annualised cost reduction of at least £150m by the end of 2025. This
programme is designed to restore our core Investments business to an
acceptable level of profitability and allow for incremental reinvestment into
growth areas. This marks another step on abrdn's journey to align its
resources and capabilities to meet client needs and reinforce areas of
strength across the Group.

abrdn plc is also today providing an update on its year-end 2023 assets under
management and administration (AUMA) including second half 2023 net flows, and
revenue margin guidance. Going forward, abrdn intends to provide the market
with a trading update, including AUMA and net flows, for the first and third
quarters of the year.

Commenting, Stephen Bird, CEO abrdn plc, 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."

New transformation programme

The transformation programme targets an annualised cost reduction of at least
£150m compared to 2023, with approximately 80% of the savings benefiting the
Investments business. This target excludes any cost reduction from previously
announced divestments, including the sale of our European-headquartered
private equity business. The programme includes 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. The bulk of the savings will be in non-staff costs. The programme is
expected to result in the reduction of approximately 500 roles.

The Investments front office will see a modest adjustment: our focus remains
on delivering excellent service and strongly competitive investment
performance to all our clients, supported by the Group's strong risk
management and control environment.

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 c. £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.

AUMA and flows (unaudited)

                              AUMA              Net flows
                              H2 2023  H1 2023  H2 2023  H1 2023
                              £bn      £bn      £bn      £bn
 Institutional/Retail Wealth   211.2    219.0   (11.2)   (6.7)
 Insurance Partners            155.5    148.6   (1.3)     0.2
 Investments                   366.7    367.6   (12.5)   (6.5)
 Adviser(1)                    73.5     71.8    (1.5)    (0.6)
 interactive investor          61.7     56.8    1.4       1.9
 Personal Wealth               4.3      10.6    (0.3)    (0.1)
 Personal                      66.0     67.4     1.1      1.8
 Eliminations                 (11.3)   (11.1)    0.5      0.1
 Total                         494.9    495.7   (12.4)   (5.2)

1.        Includes Platform AUA at 31 December 2023 of £70.9bn (30
June 2023: £69.3bn).

AUMA was £494.9bn as at 31 December2023. This was impacted by £(6.9)bn of
corporate actions which primarily related to:

-   disposal of our discretionary fund management £(6.1)bn and US private
equity £(4.1)bn businesses.

-   acquisition of the healthcare fund management business, Tekla + £2.3bn,
and four closed-end funds from Macquarie +£0.7bn.

H2 2023 net outflows of £12.4bn represented 3% of opening AUMA. Net outflows
(excluding liquidity) were £9.5bn with outflows in Investments and Adviser
partly offset by positive flows in Personal.

All comparisons below relate to movements in H2 unless otherwise stated.

Investments

-   As we anticipated, during H2, Investments has continued to face
structural headwinds. High inflation and geopolitical uncertainty continued
the trend to cash and de-risking of client portfolios. The industry saw
continued net outflows in H2 across global active mutual funds. The changing
dynamics and challenges within traditional asset management are well known and
we continue to reshape our business to take account of these factors.

-   Institutional and Retail Wealth net outflows in H2 2023 were £11.2bn.
Net outflows (excluding liquidity) of £8.3bn were driven by equities and
fixed income, reflecting the challenging market environment and our exposure
to Asia and emerging market solutions.

-   Insurance Partners net outflows in H2 2023 were £1.3bn, as strong bulk
purchase annuity and workplace pensions were offset by outflows from heritage
business, in line with its expected run-off.

-   Investments AUM as at 31 December 2023 was £366.7bn, down slightly from
30 June 2023, with positive market movements offset by net outflows and the
disposal of the US private equity business in H2.

Adviser

-   H2 2023 net outflows were £1.5bn. Q3 2023 in particular saw the lowest
advised platform market net flows on record(1), reflecting economic
uncertainty and the impact of the higher cost of living on disposable incomes.

-   AUMA ended the year 2% favourable at £73.5bn compared with 30 June
2023.

-   The Adviser Experience Programme technology upgrade is now embedded and
operating effectively. The business is expanding its offering for clients
through the launch of adviserOS and delivery of the abrdn SIPP.

1.  Source: Q3 2023 Fundscape Platform Report

Personal (ii)

-   Our Personal business, which is now predominately ii, is focused on
growing organically into the leading UK personal wealth investment platform.

-   Personal AUA at 31 December 2023 was £66.0bn, with positive market
movements and net inflows offset by the disposal of our discretionary fund
management business £(6.1)bn in H2 2023.

-   H2 2023 net flows of £1.1bn reflected continued positive flow momentum
in interactive investor. Total 2023 net inflows for ii were £3.3bn; this
includes £0.6bn of outflows associated with the closure of the Pension
Trading Account business.

-   Total customers were 407k at 31 December 2023 (31 December 22: 402k)
including 5.8k customers migrated from Investments in December 2023. Total
customers, excluding acquired books in run-off, increased by 3.6% year on year
to 310k at 31 December 23 (31 December 22: 299k).

2023 full year financial performance

Investments AUM as at 31 December 2023 was £366.7bn, marginally below 30 June
2023 (£367.6bn). Average AUM in the second half was £362.7bn, and in the
first half the average AUM was £372.5bn. In the second half, Investments
revenue margin was lower, impacted by outflows in higher margin asset classes,
resulting in Investments revenue margin in H2 of 22.4bps compared to 24.6bps
in H1.

Group revenue has been supported by higher interest income including the
benefit of changes in the short-term yield curve compared to Bank Base rates.
For the group overall, Management expects 2023 adjusted operating profit to be
broadly in-line with consensus, and adjusted capital generation to be above
consensus, owing to higher interest income on the group's cash balances.

Changes to segment reporting

To provide a clearer depiction of business structure and performance the
following changes will be implemented from the full year 2023:

-   Finimize and our digital innovation group will move from Investments to
Corporate/strategic. Comparatives have been restated below.

-   The Personal business will be renamed interactive investor.

-   Corporate/strategic will be renamed Other business operations and
corporate costs.

 

 

                              FY 2022      FY 2022   H1 2023      H1 2023
 Investments                  As reported  Restated  As reported  Restated

                              £m           £m        £m           £m
 Net operating revenue        1,070        1,060     466          461
 Adjusted operating expenses  (956)        (930)     (440)        (427)
 Adjusted operating profit    114          130       26           34

 Corporate/strategic
 Net operating revenue        -            10        -            5
 Adjusted operating expenses  (9)          (35)      (9)          (22)
 Adjusted operating profit    (9)          (25)      (9)          (17)

 

Notes:

abrdn will release its full year results for 2023 on 27 February 2024. Further
details of abrdn's performance and the new transformation programme will be
provided with the results.

All numbers in this announcement are unaudited, and subject to revision.

Management will be hosting a call for analysts and investors at 8:30am (GMT)
on 24 January 2024. To access a webcast of the conference call, please go to
the following link:

https://brrmedia.news/abrdn_TUFY23 (https://brrmedia.news/abrdn_TUFY23)

This announcement contains inside information. The person responsible for
making this announcement on behalf of abrdn plc is Julian Baddeley, Group
Company Secretary.

Enquiries:

 Media

 Duncan Young                                 +44 (0) 7920 868865

 Iain Dey (Teneo)                             +44 (0) 7976 295906

 Institutional equity investors and analysts

 Jo Blackshaw                                 +44 (0) 7771 786275

 Corbin Chaplin                               +44 (0) 7774 332 428

LEI: OTMBS544NMO7GLCE7H90

Appendix 1

Analysis of AUMA

                                   Opening AUMA at  Gross       Redemptions  Net flows  Market and other movements  Corporate actions(4)  Closing AUMA at

                                   1 Jan 2023        inflows                                                                              31 Dec 2023
 12 months ended 31 December 2023  £bn              £bn         £bn          £bn        £bn                         £bn                   £bn
 Institutional/Retail Wealth       231.2            28.1        (46.0)       (17.9)     (1.0)                       (1.1)                 211.2
 Insurance partners                 144.9            22.2       (23.3)       (1.1)       11.7                        -                     155.5
 Investments                        376.1            50.3       (69.3)       (19.0)(1)   10.7                       (1.1)                  366.7
 Adviser(2)                         68.5             5.8        (7.9)        (2.1)       4.6                         2.5                   73.5
 interactive investor               54.0             9.5        (6.2)         3.3        3.9                         0.5                   61.7
 Personal Wealth                    13.1             0.7        (1.1)        (0.4)       0.2                        (8.6)                  4.3
 Personal                           67.1             10.2       (7.3)         2.9        4.1                        (8.1)                  66.0
 Eliminations(3)                   (11.7)           (2.2)        2.8          0.6        -                          (0.2)                 (11.3)
 Total AUMA                         500.0            64.1       (81.7)       (17.6)      19.4                       (6.9)                 494.9

1.  Investments net outflows (excluding Institutional/Retail Wealth liquidity
net flows) were £15.3bn.

2.  Includes Platform AUA as at 31 December 2023 of £70.9bn (2022:
£68.5bn).

3.  Eliminations remove the double count reflected in Investments, Adviser
and Personal. The Personal business includes assets that are reflected in both
the discretionary investment management and financial planning businesses.
This double count is also removed within Eliminations.

4.  Corporate actions in 2023 relate to the acquisition of Macquarie
closed-end funds in March and July 2023 (£0.5bn and £0.2bn) and Tekla
healthcare fund management capabilities (£2.3bn) in October 2023, and the
disposals of our discretionary fund management business (£6.1bn) in September
2023 and US private equity business (£4.1bn) in October 2023. Corporate
actions also include the transfer of the MPS business from Personal Wealth to
Adviser in May 2023 of £2.5bn, and investment share plan and ISA customers
who moved on to the ii platform in December 2023 (£0.5bn), and resulting
impact on eliminations.

Quarterly AUMA

                                   31 Dec 23  30 Sep 23  30 Jun 23  31 Mar 23  31 Dec 22
 15 months ended 31 December 2023  £bn        £bn        £bn        £bn        £bn
 Institutional/Retail Wealth        211.2      214.2     219.0      225.3      231.2
 Insurance Partners                 155.5      145.9     148.6      146.5      144.9
 Investments                        366.7      360.1     367.6      371.8      376.1
 Adviser                            73.5       70.9      71.8       69.7       68.5
 interactive investor               61.7       57.7      56.8       56.1       54.0
 Personal Wealth                    4.3        4.4       10.6       13.2       13.1
 Personal                           66.0       62.1      67.4       69.3       67.1
 Eliminations                      (11.3)     (10.8)     (11.1)     (11.8)     (11.7)
 Total AUMA                        494.9       482.3     495.7      499.0      500.0

Quarterly net flows

                                   3 months to  3 months to  3 months to  3 months to  3 months to

31 Dec 23
30 Sep 23
30 Jun 23
31 Mar 23
31 Dec 22
 15 months ended 31 December 2023  £bn          £bn          £bn          £bn          £bn
 Institutional/Retail Wealth       (5.8)        (5.4)        (1.5)        (5.2)        0.2
 Insurance Partners                0.3          (1.6)        1.7          (1.5)        (6.3)
 Investments                       (5.5)        (7.0)        0.2          (6.7)        (6.1)
 Adviser                           (1.0)        (0.5)        (0.5)        (0.1)        -
 interactive investor              0.6          0.8          1.0          0.9          0.6
 Personal Wealth                   (0.1)        (0.2)        0.1          (0.2)        0.2
 Personal                          0.5          0.6          1.1          0.7          0.8
 Eliminations                      0.3          0.2          0.2          (0.1)        (0.1)
 Total net flows                   (5.7)        (6.7)        1.0          (6.2)        (5.4)

 

Forward-looking statements

This announcement contains statements that are or may be "forward-looking
statements". All statements other than statements of historical facts included
in this announcement may be forward-looking statements, including statements
that relate to the Group's future prospects, developments and strategies.
Often, but not always, forward-looking statements can be identified by the use
of forward-looking words such as "plans", "expects", "is expected",
"believes", "targets", "aims", "anticipates", "projects", "would", "could",
"should", "may", "might", "envisages", "estimates", "intends", or the negative
of those, or by the use of references to assumptions, budgets, strategies,
prospects and schedules.

Although abrdn believes that the expectations reflected in such
forward-looking statements are reasonable as at the date of this announcement,
it can give no assurance that such expectations will prove to be correct.

By their nature, forward-looking statements involve risk and uncertainty
because they are based on information available at the time they are made,
including current expectations and assumptions, and relate to future events
and/or depend on circumstances which may be or are beyond the abrdn Group's
control. Neither abrdn, nor any of its associates or directors, officers or
advisers, provides any representation, assurance or guarantee that the
occurrence of the events expressed or implied in any forward-looking
statements in this announcement will actually occur. You are cautioned not to
place any reliance on these forward-looking statements. Except as required by
law or regulation, abrdn does not intend to update or revise these
forward-looking statements, whether as a result of new information, future
events or otherwise. Please see abrdn plc's most recent Annual Report and
Accounts for further detail of the risks, uncertainties and other factors
relevant to its business and securities.

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