Final Results - Year Ended 31 December 1999
Schroders PLC
3 March 2000
SCHRODERS PLC
ANNOUNCEMENT OF RESULTS
FOR YEAR ENDED 31ST DECEMBER 1999
Profits before tax up £92 mn to £324 mn
Basic earnings per share of 82.8p - up 45%
Total dividend up 12% to 18.5p
Year ended Year ended
31st December 31st December
1999 1998
£'mn £'mn
Profit before tax and Asian debt 306 275
provisions
Asian debt provisions (net) 18 (43)
===== =====
Profit before tax 324 232
Tax (80) (63)
===== =====
Profit after tax 244 169
Minority interest 1 (1)
===== =====
Profit attributable to shareholders 245 168
Commentary
It is gratifying that we are able to report record results for Schroders for
1999, the last complete year in which the asset management and investment
banking businesses will be combined. First half profits of £147 million
before tax were followed by pre-tax profits of £177 million in the second
half, giving a total before tax for the year of £324 million, compared with
the 1998 figure of £232 million. The 1999 results include a net write-back
of £18 million in respect of Asian debt exposures, as against a £43 million
(net) charge in 1998. Underlying profits (excluding Asian write-
backs/provisions) were £31 million or 11 per cent. higher than in 1998. The
pre-tax return on average equity was 26 per cent. (1998: 21 per cent.). At
the attributable level, profits were £245 million (1998: £168 million),
giving a post-tax return on average equity of 19 per cent. (1998: 15 per
cent.). Basic earnings per share were up by 45 per cent. to 82.8p
(1998:57.2p).
The Board is recommending a final dividend of 13p (1998: 11.5p), making a
total of 18.5p for the year (1998: 16.5p).
Divisional Results
Asset Management
Our asset management business continued to expand in 1999, with funds under
management rising by 20 per cent. to stand at £143 billion at the year end,
compared with £119 billion a year earlier. Average assets rose by some 15 per
cent. and underlying fee income by 16 per cent. Total revenues rose by 10
per cent. from £447 million to £491 million, reflecting the effect of lower
transaction income, royalties and performance fees. With costs rising by 9
per cent., underlying pre-tax profits also increased by 10 per cent. to a
record level of £162 million, compared with £147 million in 1998. In
addition, a profit of £25 million was realised on the sale of our Australian
property management business, so that total pre-tax profits were £187
million.
The international diversification of our client base continued and the
proportion of funds under management owned by non-UK clients increased; in
particular, a return to favour of Pacific and emerging markets helped us to
generate a strong new business flow of specialist mandates, especially from
American clients. The strong inflow of business in Japan continued, enabling
us to maintain our leading position as a pension fund manager. Assets
managed by our Japanese operation rose from £6.2 billion to £11.8 billion.
Throughout the rest of Asia, mutual funds sales advanced substantially,
including the successful launch of two new funds in Singapore investing in
Japanese and global smaller companies. On the institutional side, in Hong
Kong considerable resources have been devoted to preparing for the
introduction of mandatory provident funds, a significant potential market for
us. Our continental European client base also continued to expand, based
primarily upon the ongoing success of our Luxembourg-based Schroder
International Selection Fund family of open-end funds.
Within our domestic UK market place, our retail unit trust operation had a
better year. Net outflows from our funds changed to net inflows as the year
progressed, reflecting the improved performance of our key UK, Far East and
emerging markets funds. Our core UK balanced pension fund and charity
institutional business, however, continued to face competition from index
trackers. We have taken steps during the year to strengthen the investment
team devoted to this business and performance has begun to improve in a
number of areas. This has helped us sustain the development of our more
specialist services for UK institutional clients.
We continued to expand our product line. New retail funds last year included
the Schroder Global Technology Fund and the Schroder UK Mid 250 Fund, while
more recently we have launched the Schroder Institutional Multinational
Equity Fund and the Schroder Monthly High Income Fund.
We have also expanded the resources devoted to alternative investments.
Notwithstanding the sale of our Australian property management business,
property management remains one of our core activities, especially in the UK,
where the Schroder Exempt Property Unit Trust is the largest fund of its
kind. Schroder Ventures consolidated its position as a leading international
private equity group, with committed capital of £2.5 billion in 25 funds.
1999 saw the raising of the largest international life sciences fund, the
initial launch of Schroder Ventures Asia Pacific Fund and the establishment
of a New York private equity operation. To complement our existing
alternative investment expertise, a new structured products team was
established in the middle of the year.
We continued the development of our private client business, in particular
with the formation of Schroder Trust Bank in Miami to provide private banking
and investment services to clients in the Americas.
Investment Banking
In investment banking, underlying pre-tax profits were £144 million(1998:
£128 million), before a write-back of £18 million in respect of Asian debt
provisions and a charge for London surplus property of £25 million, bringing
overall profits before tax to £137 million.
The major contribution came from European activities. UK corporate finance
continued to win a good share of UK mandates and new clients, whilst progress
in the continental European business, in both mergers and acquisitions and
capital markets, was particularly encouraging. Assignments included advice
to BTR on its merger with Siebe to form Invensys and to Credit Lyonnais on
its privatisation, including acting as joint global lead manager of its IPO.
Our European securities teams maintained their positions in research rankings
and achieved record revenues and a substantial gain in market share over the
previous year in many of the sectors in which they operate.
In the United States, corporate finance activity was broadly in line with the
previous year, whilst our US equities business showed satisfactory
improvements in commission levels.
In Asia, corporate finance generated record results, with revenues close to
double the levels seen in 1998. Major assignments included advising Cable
and Wireless on the first successful contested acquisition in Japan, the
acquisition by Standard Chartered Bank of Nakornthon Bank in Thailand, advice
to British American Tobacco on the merger with Rothmans in South East Asia,
and advice to Hanvit Bank on a variety of debt restructurings in Korea. Our
Japanese securities business had an excellent year.
In financial markets, both trading and client related activities generated
higher profits than in the previous year, with a particular improvement in
our European financing and risk management services and our London-based
interest rate trading. In addition, our New York-based high yield business
generated good profits from secondary trading in Asian debt.
Outlook
In January this year, we announced the proposed merger of our investment
banking business with Salomon Smith Barney. This merger is expected to be
completed around the end of April and our investment bankers look forward to
participating in the creation of one of the world's leading investment banks.
The disposal of that business will enable our asset management business to
implement fully its strategy to establish Schroders as one of the world's
leading asset managers. In that connection we shall be undertaking
initiatives designed to:
- Expand the resources dedicated to our institutional business, both in
our home market within the UK and in continental Europe, Japan and North
America, with the objective of achieving strong and competitive
performance for clients, as well as growing our client base.
- Develop our mutual funds businesses in the UK, continental Europe and
Asia as leaders in their fields.
- Expand our private banking business through growth of both private
client asset management and lending and advisory activities. In
particular we will apply for authorisation to establish a private bank in
London.
- Accelerate the development of our range of alternative investment
products, including private equity, property, hedge funds and structured
investments.
Finally, we shall shortly be launching an 'e-incubator' to develop business-
to-business financial services activities.
We have relaunched our website and details of our services will be made
continuously available at www.schroders.com.
Sir Winfried F.W. Bischoff I.P. Sedgwick
Chairman Deputy Chairman
3rd March 2000
120 Cheapside
London EC2V 6DS Tel: (44) 020 7658 6000
Proposed Final Dividend
The Directors recommend a final dividend of 13.0p per share, which, with the
interim dividend of 5.5p paid on 28th October 1999, will make a total of
18.5p per share for 1999. Subject to approval at the Annual General Meeting
to be held on 28th March 2000, the final dividend will be paid on 6th April
2000 to shareholders on the register at close of business on 17th March 2000.
Key Ratios and Statistics 1999 1998
Basic earnings per share (p) 82.8 57.2
Diluted earnings per share (p) 82.5 56.9
Dividends per share (p) 18.5 16.5
Dividend cover (times) 4.5 3.5
Profit margin pre-tax (%)* 22.3 23.7
Cost/income ratio (%)* 77.7 76.3
Average number of employees 6,353 6,156
Shareholders' funds (£'mn) 1,370.4 1,170.5
Average equity (£'mn) 1,270.5 1,108.4
Risk asset ratio (%) 22.7 19.1
Return on average equity
pre-tax (%) 25.5 20.9
post-tax (%) 19.3 15.1
* Pre-Asian debt provisions
Consolidated profit and loss account
for the year ended 31st December 1999
Notes 1999 1998
£'mn £'mn
Net interest income 130.7 142.4
Dividend income 0.3 0.5
Fees and commissions (net) 1,103.4 943.6
Net dealing income 88.8 8.6
Other operating income 57.3 16.2
------- -------
Operating income 1,380.5 1,111.3
Administrative expenses 1,2 (1,014.1) (862.0)
Depreciation and amortisation of
goodwill (48.4) (21.1)
------- -------
(1,062.5) (883.1)
Provisions
Specific provisions for
bad and doubtful debts (5.8) (18.3)
General provision for contingencies - 20.0
Provision for surplus property (25.8) -
Other provisions (2.6) -
------- ------
(34.2) 1.7
Income from associated
undertakings 15.3 1.8
Profit on sale of Australian property
business 24.9 -
------- ------
Profit on ordinary activities
before tax* 324.0 231.7
Tax on profit on
ordinary activities 2 (80.2) (62.5)
------- -----
Profit on ordinary
activities after tax 243.8 169.2
Minority interests 0.8 (1.4)
------- -----
Profit for the financial year 244.6 167.8
Dividends (53.9) (48.3)
------- -----
Profit retained by the Group
for the financial year 190.7 119.5
===== =====
Basic earnings per share 82.8p 57.2p
===== =====
Diluted earnings per share 82.5p 56.9p
===== =====
* After crediting £18.2 mn (charge of £43.2 mn net) for Asian debt
exposures.
The results above are all in respect of continuing operations of the Group.
Statement of total consolidated recognised gains and losses for the year
ended 31st December 1999
1999 1998
£'mn £'mn
Profit for the financial year 244.6 167.8
Exchange translation
adjustment to foreign
currency net investments 6.3 0.8
----- -----
Total recognised gains and losses 250.9 168.6
===== =====
Reconciliation of movements in consolidated shareholders' funds
1999 1998
£'mn £'mn
Profit for the financial year 244.6 167.8
Dividends (53.9) (48.3)
------ -----
190.7 119.5
Exchange translation
adjustments 6.3 0.8
New share capital subscribed 3.8 2.6
Other movements (0.9) 1.3
----- -----
199.9 124.2
Equity shareholders'
funds brought forward 1,170.5 1,046.3
------- -------
Equity shareholders'
funds carried forward 1,370.4 1,170.5
======= =======
Consolidated balance sheet 1999 1998
at 31st December 1999 £'mn £'mn
Assets
Cash and balances at central banks 7.5 9.5
Treasury bills and other eligible bills 54.4 204.7
Secured loans arising from purchase
and resale agreements 2,924.1 4,263.5
Loans and advances to banks 1,419.3 2,124.5
Loans and advances to
customers (less provisions) 817.6 652.4
Leasing receivables (less provisions) 447.5 459.0
Settlement accounts 3,578.7 2,399.8
Debt securities and other fixed income
securities 2,811.3 2,151.3
Equity shares 311.1 134.2
Interest in associated undertakings 22.0 7.2
Intangible fixed assets 16.8 -
Tangible fixed assets 123.3 67.4
Derivative contracts 420.3 688.0
Other assets 236.2 228.0
Prepayments and accrued income 212.2 199.1
-------- --------
Total assets 13,402.3 13,588.6
======== ========
Liabilities
Deposits by banks 939.2 1,342.1
Customer accounts 1,363.7 1,431.7
Secured loans arising
from sale and repurchase agreements 3,473.2 4,460.1
Settlement accounts 3,295.1 2,310.7
Debt securities in issue 583.2 466.0
Derivative contracts 531.4 845.9
Short securities positions 977.4 817.2
Other liabilities 176.9 180.4
Accruals and deferred income 628.9 520.6
Provisions for liabilities and charges 60.6 29.5
-------- --------
Total liabilities 12,029.6 12,404.2
Equity shareholders' funds
Called up share capital 295.4 294.7
Share premium account 3.2 0.1
Reserves 105.6 86.0
Profit and loss account 966.2 789.7
-------- -------
1,370.4 1,170.5
Equity minority interest 2.3 13.9
------- -------
Total liabilities and
shareholders' funds 13,402.3 13,588.6
======== ========
Memorandum items 1999 1998
£'mn £'mn
Commitments
Underwriting (fully sub-underwritten) - 294.3
Other 456.4 378.0
------- -------
456.4 672.3
======= =======
Contingent liabilities
Acceptances and endorsements 534.7 416.2
Guarantees 84.6 104.1
------- -------
619.3 520.3
======= =======
Notes to the Profit and Loss Account
1. Administrative expenses
1999 1998
£'mn £'mn
Staff costs
Salaries and other remuneration 653.6 525.4
Social security costs 38.0 32.2
Other pension costs 22.6 21.3
----- -----
714.2 578.9
Other administrative expenses 299.9 283.1
------- -----
1,014.1 862.0
======= =====
1999 1998
Number Number
Average staff numbers
- Investment banking 3,987 3,926
- Asset management 2,366 2,230
----- -----
6,353 6,156
===== =====
2. Taxation
1999 1998
£'mn £'mn
United Kingdom 50.4 26.1
Overseas 29.8 36.4
----- -----
80.2 62.5
===== =====
3. Segmental reporting - by class of business
Investment banking Asset management Total
1999 1998 1999 1998 1999 1998
£'mn £'mn £'mn £'mn £'mn £'mn
Net interest
income 119.2 124.9 11.5 17.5 130.7 142.4
Dividend income
Fees and 0.3 0.4 - 0.1 0.3 0.5
commissions
(net)
Net dealing 630.1 525.4 473.3 418.2 1,103.4 943.6
income
Other operating 85.7 4.2 3.1 4.4 88.8 8.6
income
Operating 53.9 9.3 3.4 6.9 57.3 16.2
income -------- -------- -------- ------- -------- --------
889.2 664.2 491.3 447.1 1,380.5 1,111.3
Administrative
Expenses (696.5) (567.3) (317.6) (294.7) (1,041.1) (862.0)
Depreciation
and
amortisation
of goodwill (37.0) (13.5) (11.4) (7.6) (48.4) (21.1)
Provisions
(net) (33.6) 1.7 (0.6) - (34.2) 1.7
Income from
Associates 15.2 - 0.1 1.8 15.3 1.8
Profit on sale
of Australian
property
business - - 24.9 - 24.9 -
-------- -------- -------- ------- -------- --------
Profit on
ordinary
activities:
- before tax 137.3* 85.1* 186.7 146.6 324.0* 231.7*
======== ======== ======= ======= ======= ========
- after tax 103.8 66.2 140.0 103.0 243.8 169.2
Shareholders'
funds 1,169.1 1,008.2 201.3 162.3 1,370.4 1,170.5
Gross assets 12,848.8 13,076.0 553.5 512.6 13,402.3 13,588.6
* After crediting £18.2 mn (charge of £43.2 mn net) against
Asian debt exposures.
Note: The shareholders' funds are based on the capital employed in
statutory entities and do not represent a fair apportionment of the
capital which would be required if the two classes of business were
wholly independent.
Five year financial summary
1995 1996 1997 1998 1999
£'mn £'mn £'mn £'mn £'mn
Operating income 796.7 958.4 1,058.6 1,111.3 1,380.5
======== ======== ======== ======== ========
Profit before tax 197.3 238.7 244.9 231.7 324.0
Tax (54.5) (54.7) (68.4) (62.5) (80.2)
-------- -------- -------- -------- --------
Profit after tax 142.8 184.0 176.5 169.2 243.8
Minority interest (3.8) (4.8) (5.6) (1.4) 0.8
-------- -------- -------- -------- --------
Profit for the year 139.0 179.2 170.9 167.8 244.6
======== ======== ======== ======== ========
Basic earnings
per share (pence) 47.7 61.3 58.3 57.2 82.8
Diluted earnings
per share (pence) 47.2 60.9 57.9 56.9 82.5
Dividends:
Cost(£'mn) 31.2 39.1 45.0 48.3 53.9
Pence per share 10.7 13.3 15.3 16.5 18.5
Total assets(£'mn) 11,686.3 10,370.7 10,655.5 13,588.6 13,402.3
Shareholders' funds (£'mn) 849.3 941.1 1,046.3 1,170.5 1,370.4
Net assets per share
(pence) 291 321 356 397 464
* * * * * * * * * * *
The financial information for 1999 included in this statement does not
constitute the full group accounts for the Company for the year ended 31st
December 1999. The full 1999 group accounts, upon which the auditors
reported on 2nd March 2000, will be delivered to the Registrar of Companies
after adoption at the Annual General Meeting to be held at 120 Cheapside,
London EC2V 6DS on Tuesday, 28th March 2000.
Copies of this statement are available from the Company Secretary at 120
Cheapside, London EC2V 6DS (telephone (44) 20 7658 6208).
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