Final Results
Schroders PLC
04 March 2008
4 March 2008
Press Release
Schroders plc
Preliminary Results to 31 December 2007 (unaudited)
Profit before tax up 35 per cent.
• Continued growth in higher margin business across Retail and Institutional
• Profit before tax up 35 per cent. to £392.5 million (2006: £290.0 million)
• Asset Management profit before tax £266.5 million (2006: £219.0 million)
• Private Banking profit before tax £41.3 million (2006: £26.9 million)
• Private Equity and Group profit before tax £84.7 million (2006: £44.1
million)
• Basic earnings per share up 36 per cent. to 104.8 pence (2006: 76.9 pence)
• Final dividend increased to 21.0 pence per share (final dividend 2006: 17.5
pence per share) taking the full-year dividend to 30.0 pence per share
(2006: 25.0 pence per share)
• Funds under management £139.1 billion (31 December 2006: £128.5 billion)
Year ended Year ended
31 December 2007 31 December 2006
£mn £mn
_______________________________________________________________________________________________________________
Asset Management profit 266.5 219.0
Private Banking profit 41.3 26.9
Private Equity profit 58.5 34.6
Group profit 26.2 9.5
_______________________________________________________________________________________________________________
Profit before tax 392.5 290.0
_______________________________________________________________________________________________________________
Funds under management (£bn) 139.1 128.5
_______________________________________________________________________________________________________________
Basic earnings per share (pence) 104.8 76.9
_______________________________________________________________________________________________________________
Total dividend (pence) 30.0 25.0
_______________________________________________________________________________________________________________
Contacts:
Schroders
Emma Tovey Head of Corporate Communications +44 (0) 207 658 2329 emma.tovey@schroders.com
Maitland Consultancy
William Clutterbuck +44 (0) 207 379 5151 w.clutterbuck@maitland.co.uk
Management Statement
2007 was a year of continued progress for Schroders in spite of the recent
turbulence in financial markets. This reflected the diversity of our business
by region, by client channel and by product.
Income* increased 21 per cent. to £1,004.3 million (2006: £832.3 million) and
Group profit before tax increased 35 per cent. to £392.5 million (2006: £290.0
million). Funds under management at the year end were 8 per cent. higher at
£139.1 billion (2006: £128.5 million).
Asset Management
We continued to see the benefits of a strategy focused on higher value added,
higher margin products in both Institutional and Retail channels and the
development of our already extensive international business. Gross profit
margins increased to 60 basis points (2006: 55 basis points) and more than two
thirds of income was earned outside the UK. Asset Management income increased
20 per cent. to £785.4 million (2006: £655.6 million) and profit before tax
increased 22 per cent. to £266.5 million (2006: £219.0 million).
We had a record year in our Retail business with net sales of £8.8 billion.
Retail net inflows were exceptionally strong in Asia Pacific and the UK, and
heavily outweighed net outflows in Continental Europe which to a large extent
reflected the experience of the European fund industry as a whole. In Asia
Pacific a well established presence on the ground in eight countries across the
region coupled with a competitive product range led to a very significant
increase in net sales. In the UK net sales doubled compared to 2006, as did our
market share of flows from the independent intermediary sector. In the US, the
second year of our initiative in the intermediary channel, we saw a satisfactory
increase in flows and an expanding number of distribution relationships. 67 per
cent. of funds under management outperformed their peer group in the three years
to the end of 2007 and funds under management in Retail ended the year at £56.2
billion (2006: £42.5 billion). In China our joint venture asset management
company had net sales of £0.8 billion bringing funds under management to £3.8
billion at the year end (not reported in total funds under management).
Our Institutional business also made progress in 2007. We won more than 100 new
institutional mandates in the UK alone and our business continues to evolve
towards new, higher margin asset classes: fees on business won in 2007 were on
average more than 40 per cent. higher than the fees on business lost. Income in
Institutional increased despite net outflows of £10.6 billion, which included
continued outflows from UK balanced and UK equities and, to a lesser extent,
Japanese and Asian equities, the latter in part driven by client asset
allocation decisions. Overall investment performance improved with 69 per cent.
of institutional funds under management outperforming their benchmarks in the
three years to the end of 2007. Funds under management in Institutional ended
the year at £73.2 billion (2006: £77.4 billion).
We have a growing and widely diversified alternatives business encompassing
property, funds of hedge funds, private equity funds of funds, emerging market
debt, commodities and agriculture funds. Alternative funds under management now
amount to £15.9 billion, more than 25 per cent. up on the year.
We have an extensive network of overseas offices across Asia, Continental Europe
and North and South America, with strong representation in developing markets.
During the year we added to our presence on the ground with new offices in
Mumbai and Dubai, and we expect continued high levels of growth in our
international business which is well placed to benefit from the demographic and
savings trends in developing markets.
Private Banking
Private Banking had another strong year with income up 11 per cent to £105.9
million (2006: £95.7 million) and profit before tax up 54 per cent. to £41.3
million (2006: £26.9 million). We completed the transfer of our back office
operations to Zurich during the year which enabled us both to improve our client
reporting and reduce costs. We recently completed the acquisition of a small
private client business in Singapore which will give us a platform from which to
serve high net worth individuals in the region. Net new business in 2007
amounted to £0.2 billion (2006: £0.4 billion) and funds under management ended
the year at £9.7 billion (2006: £8.6 billion).
Group and Private Equity
In 2007 we achieved realised gains of £101.6 million (2006: £75.7 million) on
our investment capital which totalled £979.6 million (2006: £789.0 million) at
the year end. A high level of realisations during the year resulted in profit
before tax from our private equity portfolio of £58.5 million (2006: £34.6
million). Profit before tax from Group was £26.2 million (2006: £9.5 million).
Given more challenging markets, we anticipate a reduced level of private equity
realisations in 2008 and lower returns on seed capital investments.
Dividend
The Board is recommending an increased final dividend of 21.0 pence per share,
payable on 30 April 2008 to shareholders on the register at 18 March 2008. This
brings the total dividend for the year to 30.0 pence per share (2006: 25.0 pence
per share), an increase of 20 per cent.
Outlook
Recent months have seen a setback in equity markets and high levels of
volatility as the impact of the sub-prime crisis in America has spread to world
financial markets and the real economy. This in turn has affected investors'
risk appetite and retail flows across the industry have fallen back sharply. We
expect these volatile market conditions to persist through much of 2008 and as a
result we envisage a less favourable environment for our business. Our cost
base has a significant variable component linked to revenues which offsets in
part the impact of declining markets. However, we do not intend to scale back
our strategic investment plans as we see this more challenging period as an
opportunity to position Schroders for further growth in the longer term, taking
advantage of our strong financial position and highly diversified business.
* Income comprises gross profit plus net finance income plus share of profit of
associates and joint ventures
Copies of today's announcement are available on the Schroders website:
www.schroders.com.
Michael Dobson, Chief Executive, and Stephen Brooks, Chief Financial Officer,
will host a presentation and webcast for the investment community, to discuss
the Group's preliminary results at 9am GMT on Tuesday, 4 March 2008 at 31
Gresham Street, London, EC2V 7QA. The webcast can be viewed live at
www.schroders.com/ir and www.StreetEvents.com. For individuals unable to attend
the presentation or participate in the live webcast, a replay will be available
from midday on Tuesday 4 March on www.schroders.com/ir.
Forward-looking statements
This preliminary announcement may contain certain forward-looking statements
with respect to the financial condition, results of operations and businesses of
Schroders plc. Such statements and forecasts involve risk and uncertainty
because they relate to events and depend upon circumstances that will occur in
the future. There are a number of factors that could cause actual results or
developments to differ materially from those expressed or implied by forward-
looking statements and forecasts. The forward-looking statements and forecasts
are based on the Directors' current view and information known to them at the
date of this announcement. The Directors do not make any undertaking to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Nothing in this announcement should be
construed as a profit forecast.
Consolidated Income Statement
for the year ended 31 December 2007
2007 2006
£mn £mn
_________________________________________________________________________________________________________________
Revenue 1,191.8 967.2
Cost of sales (232.4) (169.0)
_________________________________
Gross profit 959.4 798.2
Administrative expenses (611.8) (542.3)
_________________________________
Operating profit 347.6 255.9
---------------------------------
Interest receivable and similar income 23.1 20.1
Interest payable and similar charges (0.5) (1.4)
---------------------------------
Net finance income 22.6 18.7
Share of profit of associates and joint ventures 22.3 15.4
_________________________________
Profit before tax 392.5 290.0
---------------------------------
UK tax (34.7) (23.5)
Foreign tax (54.1) (44.6)
---------------------------------
Tax (88.8) (68.1)
_________________________________
Profit after tax 303.7 221.9
_________________________________
Attributable to:
Minority interests 4.0 0.6
Equity holders of the parent 299.7 221.3
303.7 221.9
Memo - dividends (74.9) (63.4)
Basic earnings per share 104.8p 76.9p
Diluted earnings per share 103.2p 75.7p
__________________________________________________________________________________________________________________
Consolidated Balance Sheet
31 December 2007
2007 2006
£mn £mn
_________________________________________________________________________________________________________________
Non-current assets
Goodwill 95.2 65.3
Intangible assets 25.1 15.0
Property, plant and equipment 25.6 12.7
Associates and joint ventures 32.2 25.3
Financial assets 220.8 215.6
Loans and advances to customers 356.1 372.1
Deferred tax 42.8 44.4
Retirement benefit scheme assets 42.5 16.8
Trade and other receivables 7.3 14.9
_________________________________
847.6 782.1
Current assets
Financial assets 1,968.6 1,681.7
Loans and advances to customers 266.9 316.2
Current tax 7.6 16.5
Trade and other receivables 305.2 283.1
Cash and cash equivalents 715.5 439.2
_________________________________
3,263.8 2,736.7
Non-current assets held for sale 37.5 60.1
Assets backing insurance unit-linked liabilities 2,727.8 1,532.0
_________________________________
Total assets 6,876.7 5,110.9
_________________________________
Equity
Called up share capital 294.5 293.9
Share premium account 58.1 36.4
Other reserves 68.1 26.8
Retained profits 1,275.0 1,086.3
_________________________________
Equity attributable to equity holders of the parent 1,695.7 1,443.4
Minority interests 0.5 0.2
_________________________________
Total equity 1,696.2 1,443.6
Non-current liabilities
Financial liabilities 20.3 30.7
Deposits by customers and banks 207.2 218.3
Deferred tax 2.7 2.4
Provisions 8.5 10.8
Trade and other payables 93.5 76.2
_________________________________
332.2 338.4
Current liabilities
Financial liabilities 59.5 17.9
Deposits by customers and banks 1,525.5 1,410.4
Provisions 4.4 13.9
Current tax 57.0 31.9
Trade and other payables 474.1 322.8
_________________________________
2,120.5 1,796.9
Insurance unit-linked liabilities 2,727.8 1,532.0
_________________________________
Total equity and liabilities 6,876.7 5,110.9
_________________________________________________________________________________________________________________
Consolidated Statement of Recognised Income and Expense
for the year ended 31 December 2007
2007 2006
£mn £mn
_________________________________________________________________________________________________________________
Exchange differences on translation of foreign operations 25.4 (65.9)
Net (losses)/gains on hedges recognised directly in equity (9.4) 32.2
Actuarial gains on defined benefit pension schemes 5.5 5.5
Net gains on available-for-sale financial assets 18.3 65.2
Amounts recycled through the income statement (40.2) (26.8)
Tax on items taken directly to equity 2.6 6.6
_________________________________
Net income and expense recognised directly in equity 2.2 16.8
Profit for the year 303.7 221.9
_________________________________
Total recognised income and expense for the year 305.9 238.7
_________________________________
Attributable to:
Minority interests 4.0 0.6
Equity holders of the parent 301.9 238.1
_________________________________
305.9 238.7
_________________________________________________________________________________________________________________
Consolidated Cash Flow Statement
for the year ended 31 December 2007
2007 2006
£mn £mn
_________________________________________________________________________________________________________________
Net cash from operating activities 620.8 209.2
Investing activities
Acquisition of subsidiaries (27.7) (19.8)
Cash acquired with acquisitions 6.2 6.8
Purchase of joint ventures (1.5) -
Purchase of intangible assets (11.9) (4.6)
Purchase of property, plant and equipment (18.0) (7.1)
Purchase of non-current financial assets (76.1) (62.9)
Purchase of non-current assets held for sale (36.1) (90.1)
Disposal of non-current assets held for sale 5.8 50.8
Proceeds from sale of non-current financial assets 85.8 64.1
Proceeds from sale of property, plant and equipment - 0.4
Net (outflow)/proceeds from current financial assets (255.9) 58.6
Interest received 25.1 9.0
Dividends/capital distributions received from associates and joint ventures 20.1 23.6
_________________________________
Net cash (used in)/from investing activities (284.2) 28.8
Financing activities
Proceeds from issue of share capital 28.7 27.8
Acquisition of own shares (21.5) (90.8)
Disposal of own shares 19.2 37.3
Redemption of ordinary share capital (34.1) (84.3)
Distributions made to minority interests (0.2) -
Dividends paid (74.9) (63.4)
_________________________________
Net cash used in financing (82.8) (173.4)
_________________________________
Net increase in cash and cash equivalents 253.8 64.6
_________________________________
Opening cash and cash equivalents 452.1 402.4
Net increase in cash and cash equivalents 253.8 64.6
Effect of exchange rate changes 11.0 (14.9)
_________________________________
Closing cash and cash equivalents 716.9 452.1
_________________________________
Closing cash and cash equivalents consists of:
Cash and cash equivalents backing insurance unit-linked liabilities 1.4 12.9
Other cash and cash equivalents held by the Group 715.5 439.2
_________________________________
716.9 452.1
_________________________________________________________________________________________________________________
Notes to the Accounts
Basis of Preparation
The preliminary results for the year ended 31 December 2007 are unaudited. The
financial information included in this statement does not constitute the Group's
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
Statutory accounts for the year ended 31 December 2007 will be delivered to the
Registrar of Companies in due course.
The annual report will be posted to shareholders on 18 March and further copies
will be available from the Company Secretary at the Company's registered office.
The Company's Annual General Meeting will be held on 24 April 2008 at 11.30 a.m.
at 31 Gresham Street, London, EC2V 7QA.
Presentation of the Preliminary Results
Financial information for the year ended 31 December 2007 is presented in
accordance with IAS 1 Presentation of Financial Statements. IAS 1 allows an
entity to present some of its assets and liabilities using a current/non-current
classification and others in order of liquidity when this provides information
that is reliable and more relevant. The Group has adopted this mixed basis of
presentation within its consolidated balance sheet as the current/non-current
allocation is the more relevant presentation for the Group generally, whilst the
assets and liabilities of the Group's life company business are more relevantly
presented based on liquidity.
Accounting Policies
In preparing the financial information included in this statement the Group has
applied policies which are in accordance with International Financial Reporting
Standards ('IFRS') as adopted by the European Union at 31 December 2007, and in
accordance with the IFRS accounting policies that were applied as at 31 December
2006.
Segmental Reporting
Primary Reporting Format - Business Segments
The Group has four continuing business segments: Asset Management, Private
Banking, Private Equity and Group. Asset Management principally comprises
investment management including advisory services, property, life company
business and alternative assets; Private Banking principally comprises
investment management and banking services provided to high net worth
individuals and certain smaller institutions; Private Equity principally
comprises the Group's investments in private equity, venture and buy-out funds
and related vehicles; Group consists of income on the Group's liquid and seed
capital less Group costs and provisions, and the results of the leasing
business, which was sold during the year.
The allocation of costs to individual business segments is undertaken in order
to provide management information on the cost of providing services and to
provide managers with a tool to manage and control expenditure. Costs are
allocated on a basis that aligns the charge with the resources employed by the
Group in a particular area of its business. Typical dynamic allocation bases are
square footage occupied and number of staff employed by particular business
segments.
Non-current assets held for sale are included within the Group segment.
Year ended 31 December 2007 Asset Private Private Inter-segment
Management Banking Equity Group elimination Total
£mn £mn £mn £mn £mn £mn
________________________________________________________________________________________________________________
External revenue 991.4 87.6 48.1 41.0 - 1,168.1
External net interest - 23.7 - - - 23.7
Inter-segment interest payable - (1.7) - - 1.7 -
----------------------------------------------------------------------
Total revenue 991.4 109.6 48.1 41.0 1.7 1,191.8
Cost of sales (228.6) (3.7) - (0.1) - (232.4)
______________________________________________________________________
Gross profit 762.8 105.9 48.1 40.9 1.7 959.4
Administrative expenses (518.9) (64.6) (4.7) (23.6) - (611.8)
______________________________________________________________________
Operating profit 243.9 41.3 43.4 17.3 1.7 347.6
----------------------------------------------------------------------
External interest receivable and 7.6 - - 15.5 - 23.1
similar income
Inter-segment interest receivable 8.0 - - (6.3) (1.7) -
----------------------------------------------------------------------
Interest receivable and similar 15.6 - - 9.2 (1.7) 23.1
income
Interest payable and similar charges (0.2) - - (0.3) - (0.5)
----------------------------------------------------------------------
Net finance income 15.4 - - 8.9 (1.7) 22.6
Share of profit of associates and 7.2 - 15.1 - - 22.3
joint ventures
______________________________________________________________________
Profit before tax 266.5 41.3 58.5 26.2 - 392.5
______________________________________________________________________
Inter-segment amounts represent interest payable and receivable on cash balances
held by Private Banking on behalf of Group companies.
Segmental Reporting (continued)
Year ended 31 December 2006 Asset Private Private Inter-segment
Management Banking Equity Group elimination Total
£mn £mn £mn £mn £mn £mn
_________________________________________________________________________________________________________________
External revenue 811.1 80.1 22.2 31.0 - 944.4
External net interest - 22.8 - - - 22.8
Inter-segment interest payable - (4.4) - - 4.4 -
---------------------------------------------------------------------
Total revenue 811.1 98.5 22.2 31.0 4.4 967.2
Cost of sales (166.2) (2.8) - - - (169.0)
_____________________________________________________________________
Gross profit 644.9 95.7 22.2 31.0 4.4 798.2
Administrative expenses (436.6) (68.8) (3.2) (33.7) - (542.3)
_____________________________________________________________________
Operating profit 208.3 26.9 19.0 (2.7) 4.4 255.9
---------------------------------------------------------------------
External interest receivable and 6.3 - - 13.8 - 20.1
similar income
Inter-segment interest receivable 5.2 - - (0.8) (4.4) -
---------------------------------------------------------------------
Interest receivable and similar income 11.5 - - 13.0 (4.4) 20.1
Interest payable and similar charges (0.6) - - (0.8) - (1.4)
---------------------------------------------------------------------
Net finance income 10.9 - - 12.2 (4.4) 18.7
Share of profit of associates and
joint ventures (0.2) - 15.6 - - 15.4
_____________________________________________________________________
Profit before tax 219.0 26.9 34.6 9.5 - 290.0
_____________________________________________________________________
Inter-segment amounts represent interest payable and receivable on cash balances
held by Private Banking on behalf of Group companies.
Tax Expense
2007 2006
£mn £mn
_________________________________________________________________________________________________________________
Profit before tax 392.5 290.0
_________________________________
Profit before tax multiplied by corporation tax at the UK standard rate of 117.8 87.0
30% (2006: 30%)
Effects of:
Impact of profits/losses arising in jurisdictions with higher tax rates 1.4 7.0
Impact of profits/losses arising in jurisdictions with lower tax rates (36.2) (24.6)
Non-taxable income net of disallowable expenses (1.6) (4.7)
Movement in unrecognised deferred tax - current year (2.4) 2.9
UK tax on profits of overseas entities after double tax relief 6.0 4.0
Overseas tax on profits of UK entities after double tax relief 0.7 -
Deferred tax adjustments in respect of changes in corporation tax rates 2.8 -
Prior year adjustments:
UK prior year - current 0.4 (6.3)
Foreign tax prior year - current 0.4 (0.8)
Deferred tax prior year (0.5) 3.6
_________________________________
Total tax charge for the year 88.8 68.1
_________________________________________________________________________________________________________________
Reconciliation of Net Cash from Operating Activities
2007 2006
£mn £mn
_________________________________________________________________________________________________________________
Operating profit 347.6 255.9
Adjustments for:
Depreciation and amortisation of software 8.7 7.5
Amortisation of fund management contracts 1.7 1.0
Impairment of available-for-sale financial assets recycled through the income - 1.4
statement
Other amounts recycled through the income statement in respect of financial (40.2) (24.7)
assets
Decrease/(increase) in trade and other receivables 72.6 (241.2)
Increase in trade and other payables and provisions 231.5 195.1
Increase in insurance unit-linked liabilities 1,195.8 1,532.0
Net decrease in financial liabilities - (15.9)
Net (release of)/charge for provisions (5.4) 5.8
Net gains on financial assets and liabilities held at fair value through (46.2) (30.3)
profit or loss*
Share-based payments expensed 32.9 27.5
Other non-cash movements 1.6 52.0
Payments made to defined benefit schemes (19.9) (9.3)
UK corporation tax (paid)/recovered (9.3) 5.1
Overseas tax paid (58.2) (36.2)
Interest received 0.5 10.6
Interest paid (0.5) (1.4)
Net purchase of assets backing insurance unit-linked liabilities (1,207.3) (1,519.1)
Net proceeds/(outflow) from current financial assets 114.9 (6.6)
_________________________________
Net cash from operating activities 620.8 209.2
_________________________________________________________________________________________________________________
* Excludes gains and losses on all derivative assets and liabilities.
Five-year Financial Summary
Prepared under IFRS Prepared under UK
GAAP*
2007 2006 2005 2004 2004 2003
£mn £mn £mn £mn £mn £mn
_________________________________________________________________________________________ ______________________
Profit before tax 392.5 290.0 250.7 211.6 191.0 65.0
Tax (88.8) (68.1) (57.4) (40.3) (41.4) (16.4)
_______________________________________ ______________________
Profit after tax before minority interests 303.7 221.9 193.3 171.3 149.6 48.6
Minority interests (4.0) (0.6) (2.0) (15.6) (15.6) -
_______________________________________ ______________________
Profit for the year 299.7 221.3 191.3 155.7 134.0 48.6
_______________________________________ ______________________
Earnings per share:
Basic earnings per share (pence) 104.8 76.9 65.7 53.5 46.0 16.5
Diluted earnings per share (pence) 103.2 75.7 65.1 53.1 45.7 16.4
Dividends:
Cost (£mn) 74.9 63.4 59.5 56.4 57.8 53.7
Pence per share 26.5 22.0 20.5 19.5 20.0 18.5
Total equity (£mn) 1,696.2 1,443.6 1,343.1 1,130.6 1,114.1 1,029.2
Net assets per share (pence) 576 491 450 381 375 350
_________________________________________________________________________________________________________________
* The main adjustments necessary that would make this information comply with
IFRS are those concerned with the measurement of share-based payments,
dividends, leases, employee benefits, intangible assets (including goodwill),
revenue, and non-current assets classified as being held for sale.
Funds under Management - 2007 Flows
Private
Total Institutional Retail Banking
£bn £bn £bn £bn
________________________________________________________________________________________________________________
31 December 2006 128.5 77.4 42.5 8.6
Adjustment on purchase of Aareal 1.3 1.3 - -
Net flows (1.6) (10.6) 8.8 0.2
Market movement 10.9 5.1 4.9 0.9
_______________________________________________________________
31 December 2007 139.1 73.2 56.2 9.7
________________________________________________________________________________________________________________
Income and Cost Metrics for the Group
2007 2006
_________________________________________________________________________________________________________________
Group cost: income ratio 61% 65%
Group cost: gross profits 64% 68%
Compensation costs: operating revenues 46% 47%
Return on average capital (pre-tax) 25% 21%
Return on average capital (post-tax) 19% 16%
Asset Management cost: gross profits 68% 68%
Asset Management gross margin on average funds under management 60bps 55bps
Asset Management costs on average funds under management 41bps 37bps
Asset Management costs on closing funds under management 40bps 36bps
This information is provided by RNS
The company news service from the London Stock Exchange
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