Final Results

RNS Number : 5852G

Schroders PLC

05 March 2015

 



Schroders plc

Annual Results to 31 December 2014*

5 March 2015

·      Profit before tax and exceptional items up 11 per cent. to £565.2 million** (2013: £507.8 million)

·      Profit before tax up 16 per cent. to £517.1 million (2013: £447.5 million)

·      Earnings per share up 17 per cent. to 152.7 pence (2013: 130.6 pence)

·      78 per cent. of assets under management outperforming over three years***

·      Net inflows £24.8 billion (2013: £7.9 billion)

·      Assets under management up 14 per cent. to £300.0 billion (2013: £262.9 billion)

·      Full-year dividend up 34 per cent. to 78.0 pence per share (2013: 58.0 pence)

	2014 £m	2013 £m
Profit before tax and exceptional items
Asset Management	499.3	468.6
Wealth Management	61.7	34.3
	561.0	502.9
Group segment	4.2	4.9
Total profit before tax and exceptional items	565.2	507.8
Total profit before tax	517.1	447.5
Earnings per share before exceptional items (pence)	166.8	149.9
Earnings per share (pence)	152.7	130.6
Total dividend (pence per share)	78.0	58.0

Michael Dobson, Chief Executive, commented: "2014 was a record year for Schroders. Profit before tax and exceptional items was up 11 per cent. to £565.2 million and assets under management were up 14 per cent. to £300.0 billion.  We generated net new business of £24.8 billion from clients around the world on the back of competitive investment performance across a broad product range and strong distribution.

The Board is recommending a final dividend of 54.0 pence per share bringing the total dividend for the year to 78.0 pence per share (2013: 58.0 pence), an increase of 34 per cent.

We believe our focus on building a diversified business across a broad range of investment strategies will continue to deliver value for clients and shareholders over the long term."

Contacts:

Investors
Emily Koya	Head of Investor Relations	[phone]	[e-mail]
Press
Beth Saint	Head of Communications	[phone]	[e-mail]
Anita Scott	Brunswick	[phone]	[e-mail]

* The Annual IFRS results for the year ended 31 December 2014 have been extracted from the audited 2014 Schroders plc consolidated group financial statements.

** See notes 1 and 2 for further details and a definition of exceptional items.

*** See below for a definition of investment performance.

Management Statement

2014 was a strong year for Schroders with high levels of net new business and increased profit, as we benefited from the diversity of our business across a broad range of asset classes, client channels and regions. Net revenue increased by 9 per cent. to £1,531.2 million (2013: £1,407.6 million) and profit before tax and exceptional items increased by 11 per cent. to £565.2 million (2013: £507.8 million). We won net new business of £24.8 billion (2013: £7.9 billion) and assets under management were up 14 per cent. to £300.0 billion (2013: £262.9 billion).

Asset Management

Asset Management net revenue increased 5 per cent. to £1,303.5 million (2013: £1,247.2 million) despite lower performance fees of £34.2 million compared to an unusually high level of performance fees in 2013 at £80.2 million. Net revenue margins, excluding performance fees, were marginally down at 52 basis points (2013: 53 basis points) which was caused by business mix changes during the year. Profit before tax and exceptional items was up 7 per cent. at £499.3 million (2013: £468.6 million). Exceptional items of £17.6 million (2013: £13.5 million) related principally to the amortisation of the value of client relationships acquired with Cazenove Capital and STW and integration costs arising from those two acquisitions.

Our depth of investment talent in the UK and internationally across portfolio management and research, disciplined investment processes and a programme of active engagement with the companies in which we invest, led to competitive investment performance with 78 per cent. of assets under management outperforming benchmark or peer group over three years to the end of 2014. We generated £24.3 billion (2013: £9.4 billion) of net new business during the year as a result of good investment performance, a broad product range across asset classes and a proven distribution capability.

In addition to £13.3 billion of net inflows in the UK we saw the strength of our international network with net inflows of £6.0 billion in continental Europe and £5.3 billion in Asia Pacific. By asset class, we had net inflows of £16.9 billion in Multi-asset, £4.7 billion in Fixed Income and £4.5 billion in Equities, with net outflows in Commodities stemming from the challenging environment in this asset class.

In Institutional, we won net new business of £17.6 billion (2013: £4.6 billion), including a £12.0 billion mandate in Multi-asset and Equities from Friends Life. Assets under management in Institutional ended the year at £171.1 billion (2013: £144.3 billion).

We also had a strong year in Intermediary with net inflows of £6.7 billion (2013: £4.8 billion) and high levels of demand in continental Europe and Asia Pacific. Income products continued to be an important theme behind investor demand. Assets under management in Intermediary ended the year at £97.8 billion (2013: £88.5 billion).

Wealth Management

Our Wealth Management business generated significantly higher revenues and profit in 2014, benefiting from a full year of contribution from Cazenove Capital. Net revenue increased 42 per cent. to £213.5 million (2013: £150.0 million), including performance fees of £2.9 million (2013: £0.4 million) and a release of £6.1 million of loan loss provisions. Profit before tax and exceptional items was up 80 per cent. to £61.7 million (2013: £34.3 million). Exceptional items of £20.4 million (2013: £30.9 million) related principally to integration costs and the amortisation of the value of client relationships acquired with Cazenove Capital.

Our focus in 2014 was on ensuring a successful integration of Cazenove Capital with minimal disruption to clients, but we nevertheless generated net inflows of £0.5 billion (2013: net outflows £1.5 billion) as the strength of our wealth management proposition was widely recognised. Assets under management ended the year at £31.1 billion (2013: £30.1 billion).

Group

The Group segment comprises returns on investment capital and seed capital deployed in building a track record in new investment strategies, and central costs. Profit before tax and exceptional items was £4.2 million (2013: £4.9 million). Exceptional items of £10.1 million (2013: £15.9 million) comprised costs relating to the acquisitions of Cazenove Capital and STW.

Shareholders' equity at the end of 2014 was £2.5 billion (2013: £2.3 billion).

Dividend

Our policy is to increase dividends progressively, in line with the trend in profitability, and to target a dividend payout ratio of 45 to 50 per cent. In light of the results achieved in 2014, the Board will recommend to shareholders at the Annual General Meeting an increase in the final dividend of 29 per cent., taking the final dividend to 54.0 pence (2013: 42.0 pence). This will bring the total dividend for the year to 78.0 pence (2013: 58.0 pence), an increase of 34 per cent. The final dividend will be paid on 6 May 2015 to shareholders on the register at 27 March 2015.

Outlook

In an extraordinarily low interest rate environment financial markets have been resilient despite numerous macro-economic uncertainties. This may continue for some time although we expect to see greater volatility in markets and therefore in investor demand in 2015.

Our focus remains on the long term where we see a wide range of growth opportunities in the UK and internationally.  We believe that our strategy of building a business which is highly diversified across different clients, asset classes and regions will continue to deliver value for clients and shareholders.

Additional information

Assets under management

Twelve months to 31 December 2014	Institutional £bn	Intermediary £bn	Asset Management £bn	Wealth Management £bn	Total AUM £bn
1 January 2014	144.3	88.5	232.8	30.1	262.9
Gross inflows	38.1	47.0	85.1	6.9	92.0
Gross outflows	(20.5)	(40.3)	(60.8)	(6.4)	(67.2)
Net flows	17.6	6.7	24.3	0.5	24.8
Investment returns	9.2	2.6	11.8	0.5	12.3
31 December 2014	171.1	97.8	268.9	31.1	300.0

Three months to 31 December 2014	Institutional £bn	Intermediary £bn	Asset Management £bn	Wealth Management £bn	Total AUM £bn
30 September 2014	151.1	94.6	245.7	30.5	276.2
Net flows	16.1	1.6	17.7	0.1	17.8
Investment returns	3.9	1.6	5.5	0.5	6.0
31 December 2014	171.1	97.8	268.9	31.1	300.0

Income and cost metrics for the Group

	2014	2013
Cost: net revenue ratio	64%	65%
Compensation cost: net revenue ratio	45%	46%
Bonus: pre-bonus profit before tax and exceptional items	37%	38%
Return on average capital before exceptional items (pre-tax)	24%	23%
Return on average capital before exceptional items (post-tax)	19%	19%

Copies of this announcement are available on the Schroders website: www.schroders.com.  Michael Dobson, Chief Executive, and Richard Keers, Chief Financial Officer, will host a presentation and webcast for the investment community, to discuss the Group's results at 8.45 a.m. GMT on Thursday, 5 March 2015 at 31 Gresham Street, London, EC2V 7QA.  The webcast can be viewed live at www.schroders.com/ir and www.cantos.com.  For individuals unable to attend the presentation or participate in the live webcast, a replay will be available from midday on Thursday, 5 March 2015 at www.schroders.com/ir. The Annual Report and Accounts will be available on the Schroders website: www.schroders.com on 20 March 2015.

Forward-looking statements

This announcement, the Annual Report and Accounts for 2014 from which it is extracted and the Schroders website may contain forward-looking statements with respect to the financial condition, performance and position, strategy, results of operations and businesses of the Group.  Such statements and forecasts involve risk and uncertainty because they are based on current expectations and assumptions but relate to events and depend upon circumstances in the future and you should not place reliance on them. Without limitation, any statements preceded or followed by or that include the words 'targets', 'plans', 'believes', 'expects', 'aims', 'will have', 'will be', 'estimates' or 'anticipates' or the negative of these terms or other similar terms are intended to identify such forward-looking statements. 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.  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 or in the Annual Report and Accounts or on the Schroders website should be construed as a forecast, estimate or projection of future financial performance.

Investment performance

Investment performance is calculated by Schroders, using published benchmarks for products, where available, for Asset Management only. It excludes private equity, LDI and externally managed GAIA funds, and funds which do not have the required track record. If no benchmark is published or agreed with the client but the fund is listed in competitor rankings, the relative position of the fund to its peer group is used. Funds with no benchmark but an absolute return target over the one or three-year period are measured against that absolute target. Funds with no benchmark and no target may be measured against a cash return, if applicable. As at 31 December 2014, such comparator data existed for 74 per cent. of Asset Management AUM over three years and 84 per cent. over one year.

Consolidated income statement

for the year ended 31 December 2014

		2014			2013
	Notes	Before exceptional items £m	Exceptional Items*** £m	Total £m	Before exceptional items £m	Exceptional Items*** £m	Total £m
Revenue	3	1,914.7	-	1,914.7	1,809.1	-	1,809.1
Cost of sales		(429.1)	-	(429.1)	(431.1)	-	(431.1)
Net gains on financial instruments and other income		42.8	2.8	45.6	29.6	-	29.6
Net revenue*		1,528.4	2.8	1,531.2	1,407.6	-	1,407.6
Operating expenses	4	(984.3)	(48.8)	(1,033.1)	(919.7)	(58.1)	(977.8)
Operating profit		544.1	(46.0)	498.1	487.9	(58.1)	429.8
Net finance income		10.5	-	10.5	11.7	-	11.7
Share of profit of associates and joint ventures		10.6	(2.1)	8.5	8.2	(2.2)	6.0
Profit before tax		565.2	(48.1)	517.1	507.8	(60.3)	447.5
Tax	5	(113.9)	10.0	(103.9)	(103.0)	8.2	(94.8)
Profit after tax		451.3	(38.1)	413.2	404.8	(52.1)	352.7
Earnings per share
Basic	6	166.8p	(14.1)p	152.7p	149.9p	(19.3)p	130.6p
Diluted	6	161.5p	(13.7)p	147.8p	144.6p	(18.6)p	126.0p
Dividends per share**	7			66.0p			46.0p

* Non-GAAP measure of performance.

** Interim and final dividends declared during the year.

*** See notes 1 and 2 for a definition and further details of exceptional items.

Consolidated statement of comprehensive income

for the year ended 31 December 2014

	2014 £m	2013 £m
Profit for the year	413.2	352.7
Items that may be reclassified to the income statement on fulfilment of specific conditions:
Net exchange differences on translation of foreign operations after hedging	(1.8)	(18.6)
Net fair value movement arising from available-for-sale financial assets	10.4	6.0
Net fair value movement arising from available-for-sale financial assets held by associates	3.9	(0.9)
Tax on items taken directly to other comprehensive income	0.6	-
	13.1	(13.5)
Items reclassified to the income statement:
Net realised gains on disposal of available-for-sale financial assets	(8.3)	(7.3)
	(8.3)	(7.3)
Items that will not be reclassified to the income statement:
Actuarial gains/(losses) on defined benefit pension schemes	36.9	(9.8)
Tax on items taken directly to other comprehensive income	(7.4)	(0.2)
	29.5	(10.0)
Other comprehensive gains/(losses) for the year net of tax	34.3	(30.8)
Total comprehensive income for the year net of tax	447.5	321.9

Consolidated statement of financial position

31 December 2014

	Notes	2014 £m	Restated 2013 £m	Restated 2012 £m
Assets
Cash and cash equivalents		3,535.3	2,533.5	2,547.8
Trade and other receivables		541.0	583.9	412.7
Financial assets		1,763.4	1,678.8	2,030.0
Associates and joint ventures		92.6	83.1	79.4
Property, plant and equipment		29.9	22.5	15.0
Goodwill and intangible assets		474.5	489.0	142.1
Deferred tax		47.8	48.5	47.8
Retirement benefit scheme surpluses		103.7	63.7	67.2
		6,588.2	5,503.0	5,342.0
Assets backing unit-linked liabilities
Cash and cash equivalents		696.3	786.9	824.3
Financial assets		12,962.1	10,899.5	8,993.3
		13,658.4	11,686.4	9,817.6
Total assets		20,246.6	17,189.4	15,159.6
Liabilities
Trade and other payables		752.1	764.1	559.5
Financial liabilities		3,193.5	2,364.9	2,598.1
Current tax		44.1	46.6	40.8
Provisions	12	54.0	51.2	64.0
Deferred tax		0.4	1.7	1.9
Retirement benefit scheme deficits		6.3	5.9	7.8
		4,050.4	3,234.4	3,272.1
Unit-linked liabilities		13,658.4	11,686.4	9,817.6
Total liabilities		17,708.8	14,920.8	13,089.7
Net assets		2,537.8	2,268.6	2,069.9
Equity		2,537.8	2,268.6	2,069.9

Comparative information has been restated to reflect the adoption of IFRS 10 Consolidated Financial Statements (see 'Basis of preparation' below).

Consolidated statement of changes in equity

for the year ended 31 December 2014

	Notes	Share capital £m	Share premium £m	Own shares £m	Net exchange differences £m	Associates and joint ventures reserve £m	Fair value reserve £m	Profit and loss reserve £m	Total £m
At 1 January 2014		282.7	119.4	(229.9)	83.2	23.5	24.3	1,965.4	2,268.6
Profit for the year		-	-	-	-	8.5	-	404.7	413.2
Other comprehensive (losses)/income*		-	-	-	(1.8)	3.9	2.7	29.5	34.3
Total comprehensive (losses)/income for the year		-	-	-	(1.8)	12.4	2.7	434.2	447.5
Shares cancelled	9	(0.2)	-	-	-	-	-	0.2	-
Own shares purchased	10	-	-	(64.9)	-	-	-	-	(64.9)
Share-based payments		-	-	-	-	-	-	60.6	60.6
Tax in respect of share schemes		-	-	-	-	-	-	4.2	4.2
Other movements in associates and joint ventures reserve		-	-	-	-	(0.4)	-	-	(0.4)
Dividends attributable to shareholders		-	-	-	-	-	-	(177.7)	(177.7)
Dividends attributable to non-controlling interests		-	-	-	-	-	-	(0.1)	(0.1)
Transactions with shareholders		(0.2)	-	(64.9)	-	(0.4)	-	(112.8)	(178.3)
Transfers		-	-	94.7	-	(5.9)	-	(88.8)	-
At 31 December 2014		282.5	119.4	(200.1)	81.4	29.6	27.0	2,198.0	2,537.8

* Other comprehensive losses reported in the net exchange differences reserve represent foreign exchange gains and losses on the translation of foreign operations net of hedging. Other comprehensive gains reported in the associates and joint ventures reserve and the fair value reserve represent fair value movements on available-for-sale assets held. Other comprehensive gains reported in the profit and loss reserve represent post-tax actuarial gains and losses.

Consolidated statement of changes in equity

for the year ended 31 December 2013

	Notes	Share capital £m	Share premium £m	Own shares £m	Net exchange differences £m	Associates and joint ventures reserve £m	Fair value reserve £m	Profit and loss reserve £m	Total £m
At 1 January 2013		282.5	90.1	(165.1)	101.8	25.5	25.6	1,709.5	2,069.9
Profit for the year		-	-	-	-	6.0	-	346.7	352.7
Other comprehensive losses*		-	-	-	(18.6)	(0.9)	(1.3)	(10.0)	(30.8)
Total comprehensive (losses)/income for the year		-	-	-	(18.6)	5.1	(1.3)	336.7	321.9
Shares issued	9	1.8	29.3	-	-	-	-	-	31.1
Shares cancelled	9	(1.6)	-	-	-	-	-	1.6	-
Own shares purchased	10	-	-	(142.3)	-	-	-	(0.4)	(142.7)
Share-based payments		-	-	-	-	-	-	56.6	56.6
Share-based payment obligations acquired in business combinations		-	-	-	-	-	-	39.0	39.0
Tax in respect of share schemes		-	-	-	-	-	-	17.6	17.6
Other movements in associates and joint ventures reserve		-	-	-	-	(0.9)	-	-	(0.9)
Dividends attributable to shareholders		-	-	-	-	-	-	(123.5)	(123.5)
Dividends attributable to non-controlling interests		-	-	-	-	-	-	(0.4)	(0.4)
Transactions with shareholders		0.2	29.3	(142.3)	-	(0.9)	-	(9.5)	(123.2)
Transfers		-	-	77.5	-	(6.2)	-	(71.3)	-
At 31 December 2013		282.7	119.4	(229.9)	83.2	23.5	24.3	1,965.4	2,268.6

* Other comprehensive losses reported in the net exchange differences reserve represent foreign exchange gains and losses on the translation of foreign operations net of hedging. Other comprehensive losses reported in the associates and joint ventures reserve and the fair value reserve represent fair value movements on available-for-sale assets held. Other comprehensive losses in the profit and loss reserve represent post-tax actuarial gains and losses.

Consolidated cash flow statement

for the year ended 31 December 2014

	Note	2014 £m	Restated 2013 £m
Net cash from operating activities	11	1,321.9	210.0
Cash flows from investing activities
Net cash consideration for the acquisition of subsidiaries, including loan redemptions		-	(273.2)
Net acquisition of associates and joint ventures		(1.3)	(7.8)
Net acquisition of property, plant and equipment and intangible assets		(29.5)	(25.8)
Net (acquisition)/disposal of financial assets		(100.5)	271.2
Non-banking interest received		11.1	15.7
Distributions received from associates and joint ventures		5.9	6.5
Net cash used in investing activities		(114.3)	(13.4)
Cash flows from financing activities
Proceeds from issue of non-voting ordinary shares		-	0.6
Acquisition of own shares		(64.9)	(112.2)
Dividends paid		(177.7)	(123.5)
Other flows		(0.1)	(1.2)
Net cash used in financing activities		(242.7)	(236.3)
Net increase/(decrease) in cash and cash equivalents		964.9	(39.7)
Opening cash and cash equivalents		3,320.4	3,372.1
Net increase/(decrease) in cash and cash equivalents		964.9	(39.7)
Effect of exchange rate changes		(53.7)	(12.0)
Closing cash and cash equivalents		4,231.6	3,320.4
Closing cash and cash equivalents consists of:
Cash backing unit-linked liabilities		696.3	786.9
Cash held in consolidated funds		8.3	11.0
Cash that the Group cannot use for its own corporate purposes		704.6	797.9
Cash		2,552.5	1,771.5
Cash equivalents		974.5	751.0
Cash and cash equivalents available for use by the Group		3,527.0	2,522.5
		4,231.6	3,320.4

Comparative information has been restated to reflect the adoption of IFRS 10 Consolidated Financial Statements (see 'Basis of preparation' below).

Basis of preparation

The financial information included in this statement does not constitute the Group's statutory accounts within the meaning of Section 434 of the Companies Act 2006.  The statutory accounts for 2013 have been delivered to the Registrar of Companies and the auditors' opinion on those accounts was unqualified and did not contain a statement made under Section 498(2) or Section 498(3) of the Companies Act 2006.  An unqualified auditors' opinion has also been issued on the statutory accounts for the year ended 31 December 2014 which will be delivered to the Registrar of Companies in due course.

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), which comprise Standards and Interpretations approved by either the International Accounting Standards Board or the IFRS Interpretations Committee or their predecessors, as adopted by the European Union (EU), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

On 1 January 2014, the Group adopted IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities.

The adoption of IFRS 10 has led to additional investment vehicles being consolidated where the Group is now deemed to hold a controlling interest, as defined by this accounting standard. This results in all of the assets and liabilities of those investment vehicles being presented within the Group's Statement of financial position, and the third-party interest in the investment vehicles being recorded within liabilities. There is no impact on net assets, operating profit or profit before tax. The effect of the Standard on the Group's previously reported cash flows and Statement of financial position was previously reported in the Press Release published by the Group on 31 July 2014.

Prior to the adoption of IFRS 10, the Group consolidated investments when its shareholding resulted in control, as defined by IFRS. This policy has not changed subsequent to the adoption of IFRS 10. However, the change to the definition of control under IFRS 10 means that certain of the Group's investment vehicles, principally held by the Life Company, now meet the definition of a subsidiary as they are deemed to be controlled by the Group as a result of the combination of holding a significant proprietary investment and additionally being the named asset manager, with third-party investors unable to remove the Group easily from that role without cause.

IFRS 12 requires certain disclosures to be made in respect of the Group's interests in the investment vehicles it manages but does not control, as defined by IFRS 10. These disclosures are set out in the Group's statutory accounts.

1.   Segmental reporting

Operating segments

The Group has three business segments: Asset Management, Wealth Management and the Group segment. Asset Management principally comprises investment management including advisory services, equity products, fixed income securities, multi-asset investments, real estate and alternative asset classes such as commodities and private equity. Wealth Management principally comprises investment management, wealth planning and banking services provided to high net worth individuals and charities. The Group segment principally comprises the Group's investment capital and treasury management activities, insurance arrangements and the management costs associated with governance and corporate management. Insurance activities comprise acting as an insurer to the Group, including the results of the captive insurer which provides reinsurance for certain activities of the Group. Provisions for actual and potential claims that are within the insurance cover are consequently recorded in the Group segment, net of any recognisable external insurance asset. If it is concluded that there is no insurance cover available or the insurance cover will not cover the charge in full, the actual or estimated cost in excess of the insurance recovery is transferred to the relevant operating segment. The expected insurance recovery may be in excess of the amount that is allowed to be recorded under accounting rules.

Segment information is presented on the same basis as that provided for internal reporting purposes to the Group's chief operating decision-maker, the Chief Executive. 

Operating expenses include an allocation of costs between the individual business segments on a basis that aligns the charge with the resources employed by the Group in particular business areas. This allocation provides management information on the business performance to manage and control expenditure.

Year ended 31 December 2014	Asset Management £m	Wealth Management £m	Group £m	Total  £m
Fee income	1,688.6	200.1	0.4	1,889.1
Banking interest receivable	-	25.6	-	25.6
Revenue	1,688.6	225.7	0.4	1,914.7
Fee expense	(410.1)	(7.9)	(0.1)	(418.1)
Banking interest payable	-	(11.0)	-	(11.0)
Cost of sales	(410.1)	(18.9)	(0.1)	(429.1)
Net gains on financial instruments and other income	25.0	6.7	11.1	42.8
Net revenue	1,303.5	213.5	11.4	1,528.4
Operating expenses	(809.0)	(151.8)	(23.5)	(984.3)
Operating profit/(loss)	494.5	61.7	(12.1)	544.1
Net finance (charge)/income	(1.1)	-	11.6	10.5
Share of profit of associates and joint ventures	5.9	-	4.7	10.6
Profit before tax and exceptional items	499.3	61.7	4.2	565.2
Exceptional items within net revenue:
Reversal of contingent consideration payable	-	-	2.8	2.8
Exceptional items within operating expenses:
Restructuring and integration costs	(3.7)	(8.3)	-	(12.0)
Amortisation of acquired intangible assets	(11.8)	(9.2)	-	(21.0)
Deferred compensation arising directly from acquisitions	-	-	(12.9)	(12.9)
Provisions and related costs	-	(2.9)	-	(2.9)
	(15.5)	(20.4)	(12.9)	(48.8)
Exceptional items within share of profit of associates and joint ventures:
Amortisation of acquired intangible assets	(2.1)	-	-	(2.1)
Profit/(loss) before tax and after exceptional items	481.7	41.3	(5.9)	517.1

Year ended 31 December 2013	Asset Management £m	Wealth Management £m	Group £m	Total  £m
Fee income	1,639.7	140.9	0.2	1,780.8
Banking interest receivable	-	28.3	-	28.3
Revenue	1,639.7	169.2	0.2	1,809.1
Fee expense	(411.4)	(4.9)	(0.1)	(416.4)
Banking interest payable	-	(14.7)	-	(14.7)
Cost of sales	(411.4)	(19.6)	(0.1)	(431.1)
Net gains on financial instruments and other income	18.9	0.4	10.3	29.6
Net revenue	1,247.2	150.0	10.4	1,407.6
Operating expenses	(784.9)	(115.7)	(19.1)	(919.7)
Operating profit/(loss)	462.3	34.3	(8.7)	487.9
Net finance (charge)/income	(0.4)	-	12.1	11.7
Share of profit of associates and joint ventures	6.7	-	1.5	8.2
Profit before tax and exceptional items	468.6	34.3	4.9	507.8

Exceptional items within operating expenses:
Acquisition costs	-	-	(4.2)	(4.2)
Integration costs	(4.0)	(7.2)	-	(11.2)
Amortisation of acquired intangible assets	(7.3)	(6.0)	-	(13.3)
Deferred compensation arising from acquisitions	-	-	(11.7)	(11.7)
Provisions and related costs	-	(17.7)	-	(17.7)
	(11.3)	(30.9)	(15.9)	(58.1)
Exceptional items within share of profit of associates and joint ventures:
Amortisation of acquired intangible assets	(2.2)	-	-	(2.2)
Profit/(loss) before tax and after exceptional items	455.1	3.4	(11.0)	447.5

2.   Exceptional items

Exceptional items are significant items of income and expenditure that have been presented separately by virtue of their nature to enable a better understanding of the Group's financial performance. Exceptional items relate principally to acquisitions made by the Group in 2013, including costs of acquisition and integration, amortisation of acquired intangible assets and deferred compensation. In 2013 exceptional items also included a provision in the Swiss bank in connection with the US Department of Justice programme (see note 12).

3.   Revenue

	2014 £m	2013 £m
Management fees	1,663.8	1,533.9
Performance fees	37.1	80.6
Other fees	188.2	166.3
Interest income earned by Wealth Management	25.6	28.3
	1,914.7	1,809.1

4.   Operating expenses

Operating expenses include:	2014 £m	2013 £m
Salaries, wages and other remuneration	613.6	573.6
Social security costs	59.4	63.8
Pension costs	31.6	28.2
Employee benefits expense	704.6	665.6

£16.8 million (2013: £13.1 million) of the total compensation costs of £704.6 million (2013: £665.6 million) are included within exceptional items, being £12.9 million deferred compensation arising directly from acquisitions (2013: £11.7 million) and £3.9 million integration costs (2013: £1.4 million).

5.   Tax expense

Analysis of tax charge reported in the income statement:

	2014 £m	2013  £m
UK Corporation Tax on profits for the year	51.1	47.5
Adjustments in respect of prior year estimates	(0.5)	(0.1)
Foreign tax - current	63.4	58.1
Foreign tax - adjustments in respect of prior year estimates	2.9	(1.3)
Current tax	116.9	104.2
Origination and reversal of temporary differences	(11.2)	(8.1)
Adjustments in respect of prior year estimates	(1.9)	0.5
Effect of changes in Corporation Tax rates	0.1	(1.8)
Deferred tax	(13.0)	(9.4)
Tax charge reported in the income statement	103.9	94.8

The UK standard rate of Corporation Tax reduced from 23 per cent. to 21 per cent. on 1 April 2014 resulting in a UK effective tax rate for the year of 21.5 per cent. (2013: effective rate of 23.25 per cent.). The tax charge for the year is lower (2013: lower) than a charge based on the UK effective rate.

	2014 £m	2013  £m
Profit before tax	517.1	447.5
Less post-tax profits of associates and joint ventures	(8.5)	(6.0)
Profit before tax of Group entities	508.6	441.5
Profit before tax of consolidated Group entities multiplied by Corporation Tax at the UK effective rate of 21.5 per cent. (2013: 23.25 per cent.)	109.3	102.6
Effects of:
Different statutory tax rates of overseas jurisdictions	4.5	5.5
Permanent differences including non-taxable income and non-deductible expenses	(6.9)	(11.4)
Net movement in timing differences for which no deferred tax is recognised	(3.6)	0.8
Deferred tax adjustments in respect of changes in Corporation Tax rates	0.1	(1.8)
Prior year adjustments	0.5	(0.9)
Tax charge reported in the income statement	103.9	94.8

6.   Earnings per share

Reconciliation of the figures used in calculating basic and diluted earnings per share:

	2014 Number Millions	2013 Number Millions
Weighted average number of shares used in calculation of basic earnings per share	270.4	270.0
Effect of dilutive potential shares - share options	8.3	8.9
Effect of dilutive potential shares - contingently issuable shares	0.7	0.9
Weighted average number of shares used in calculation of diluted earnings per share	279.4	279.8

7.   Dividends

	2015		2014		2013
	£m	Pence per share	£m	Pence per share	£m	Pence per share
Prior years final dividend paid			113.0	42.0	80.4	30.0
Interim dividend paid			64.7	24.0	43.1	16.0
			177.7	66.0	123.5	46.0
Current year final dividend recommended	146.0	54.0

Dividends of £8.8 million (2013: £6.7 million) on shares held by employee employee trusts have been waived; dividends may not be paid on treasury shares. The recommended 2014 final dividend of 54p per share (net) will be payable on 6 May 2015 and will be accounted for in 2015. The Company offers a dividend reinvestment plan (DRIP). The last date for shareholders to elect to participate in the DRIP for the purposes of the 2014 final dividend is 14 April 2015. Further details are available on our website.

8.   Fair value measurement disclosures

The Group holds financial instruments that are measured at fair value. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

The fair value of financial instruments may require some judgement or may be derived from readily available sources. The degree of judgement involved is reflected in the fair value measurements section below, although this does not necessarily indicate that the fair value is more or less likely to be realised.

For investments that are actively traded in financial markets, fair value is determined by reference to official quoted market bid prices. For investments that are not actively traded, fair value is determined by using quoted prices from third parties such as brokers, market makers and pricing agencies.

Financial assets that have no quoted price principally consist of investments in private equity, derivatives and certain loans in Wealth Management. The determination of fair value requires significant judgement, particularly in determining whether changes in fair value have occurred since the last formal valuation. In making this judgement the Group evaluates amongst other factors the effect of cash distributions and changes in the business outlook.

Each instrument has been categorised using a fair value hierarchy that reflects the extent of judgements used in the valuation. These levels are based on the degree to which the fair value is observable and are defined as follows:

·       Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities and principally comprise investments in quoted equities, daily-priced funds, gilts and exchange-traded derivatives;

·       Level 2 fair value measurements are those derived from prices that are not traded in an active market but are determined using valuation techniques, which make maximum use of observable market data. The Group's level 2 financial instruments principally comprise loans held at fair value, foreign exchange contracts and investments in real estate funds. Valuation techniques may include using a broker quote in an inactive market or an evaluated price based on a compilation of primarily observable market information utilising information readily available via external sources. For funds not priced on a daily basis (for example, real estate funds), the net asset value which is issued monthly or quarterly is used; and

·       Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data and principally comprise investments in private equity funds. These funds are managed by third parties and are measured at the values provided by the relevant fund managers. The most recent available valuation data is used and adjusted for known events such as calls or distributions. The valuation review is a continual process throughout the year. 

The Group holds certain assets and liabilities at fair value.  Their categorisation within the fair value hierarchy is shown below:

	31 December 2014
	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Financial assets:
Equities	434.3	12.6	40.0	486.9
Debt securities*	450.7	7.6	-	458.3
Derivative contracts	0.6	25.8	-	26.4
Other instruments	-	31.2	-	31.2
	885.6	77.2	40.0	1,002.8
Trade and other receivables*	29.2	-	-	29.2
Assets backing unit-linked liabilities*	10,830.7	1,950.4	49.6	12,830.7
	11,745.5	2,027.6	89.6	13,862.7
Financial liabilities:
Derivative contracts	1.8	13.6	-	15.4
Other financial liabilities held at fair value through profit or loss	43.2	7.6	0.8	51.6
	45.0	21.2	0.8	67.0
Trade and other payables*	102.0	-	-	102.0
Unit-linked liabilities*	13,488.2	5.5	-	13,493.7
	13,635.2	26.7	0.8	13,662.7

* For each of these categories, the Group holds instruments at fair value as well as at amortised cost. Instruments held at amortised cost are not included in the analysis above.

	Restated 31 December 2013
	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Financial assets:
Equities	201.7	65.6	35.8	303.1
Debt securities*	279.7	197.4	-	477.1
Derivative contracts	3.4	14.5	3.0	20.9
Other instruments	-	37.7	-	37.7
	484.8	315.2	38.8	838.8
Trade and other receivables*	36.4	-	-	36.4
Assets backing unit-linked liabilities*	9,971.2	718.3	158.2	10,847.7
	10,492.4	1,033.5	197.0	11,722.9
Financial liabilities:
Derivative contracts	2.5	13.3	-	15.8
Other financial liabilities held at fair value through profit or loss	30.0	14.8	3.3	48.1
	32.5	28.1	3.3	63.9
Trade and other payables*	112.6	-	-	112.6
Unit-linked liabilities*	11,644.6	8.6	-	11,653.2
	11,789.7	36.7	3.3	11,829.7

* For each of these categories, the Group holds instruments at fair value as well as at amortised cost. Instruments held at amortised cost are not included in the analysis above.

Comparative figures have been restated as a result of the adoption of IFRS 10 Consolidated Financial Statements (see 'Basis of preparation' above).

The fair value of assets and liabilities held at amortised cost approximates to their carrying value (31 December 2013: same).

Movements in assets and liabilities categorised as level 3 during the period were:

	31 December 2014			31 December 2013
	Financial assets £m	Assets backing unit-linked liabilities £m	Financial liabilities £m	Financial assets £m	Assets backing unit-linked liabilities £m	Financial liabilities £m
At 1 January	38.8	158.2	(3.3)	59.4	170.7	-
Exchange translation adjustments	(1.8)	(6.5)	(0.3)	0.6	-	0.3
Total gains/(losses) recognised in the income statement	-	13.2	2.8	1.2	(0.7)	-
Total gains recognised in other comprehensive income	7.7	-	-	5.1	-	-
Additions	8.0	1.8	-	1.7	0.6	(3.6)
Disposals	(11.7)	(117.1)	-	(29.2)	(12.4)	-
Transfers out of level 3	(1.0)	-	-	-	-	-
At 31 December	40.0	49.6	(0.8)	38.8	158.2	(3.3)

Financial assets with a fair value of £36.1 million were transferred from level 2 to level 1 during the period, and none from level 1 to level 2. The transfers from level 2 to level 1 relate primarily to equities that have returned to daily-priced positions.

9.   Share capital and share premium

	Number of shares Millions	Ordinary shares £m	Non-voting ordinary shares £m	Total shares £m	Share premium £m
At 1 January 2014	282.7	226.0	56.7	282.7	119.4
Shares cancelled	(0.2)	-	(0.2)	(0.2)	-
At 31 December 2014	282.5	226.0	56.5	282.5	119.4

	Number  of shares Millions	Ordinary shares £m	Non-voting ordinary shares £m	Total shares £m	Share premium £m
At 1 January 2013	282.5	226.0	56.5	282.5	90.1
Shares issued	1.8	-	1.8	1.8	29.3
Shares cancelled	(1.6)	-	(1.6)	(1.6)	-
At 31 December 2013	282.7	226.0	56.7	282.7	119.4
			2014 Number of shares Millions	2013 Number of shares Millions
Issued and fully paid:
Ordinary shares of £1 each			226.0	226.0
Non-voting ordinary shares of £1 each			56.5	56.7
			282.5	282.7

During the year, 0.2 million non-voting ordinary shares were bought back by the Group and cancelled.

The non-voting ordinary shares carry the same rights as ordinary shares except they do not confer the right to attend and vote at any general meeting of the Company, and that on a capitalisation issue they carry the right to receive non-voting ordinary shares rather than ordinary shares.

10. Own shares

Own shares include the Group's shares (both ordinary and non-voting ordinary) that are held by employee benefit trusts.

Movements in own shares during the year were as follows:

	2014 £m	2013 £m
At 1 January	(229.9)	(165.1)
Own shares acquired	(64.9)	(142.3)
Cancellation of own shares held in treasury	3.8	30.8
Awards vested	90.9	46.7
At 31 December	(200.1)	(229.9)

	2014			2013
	Number of vested shares Millions	Number of unvested shares Millions	Total Millions	Number of vested shares Millions	Number of unvested shares Millions	Total Millions
Ordinary shares	2.8	9.9	12.7	2.8	12.2	15.0
Non-voting ordinary shares	0.2	1.1	1.3	0.4	1.7	2.1
	3.0	11.0	14.0	3.2	13.9	17.1

During the year 2.0 million own shares were purchased. 1.8 million were held for hedging share-based awards and 0.2 million were placed in treasury and subsequently cancelled. 4.7 million shares awarded to employees vested in the period and were transferred out of own shares.

11. Reconciliation of net cash from operating activities

	2014 £m	Restated 2013 £m
Operating profit	498.1	429.8
Adjustments for income statement non-cash movements:
Depreciation of property, plant and equipment and amortisation of intangible assets	37.0	25.8
Net gains and impairments taken through the income statement on financial instruments	(18.5)	(16.7)
Share-based payments	60.6	56.6
Net charge for provisions	7.7	16.3
Other non-cash movements	8.3	3.9
	95.1	85.9
Adjustments for statement of financial position movements:
Decrease in trade and other receivables	44.3	44.7
Increase/(decrease) in trade and other payables, financial liabilities and provisions	881.2	(218.9)
	925.5	(174.2)
Adjustments for Life Company movements:
Net increase in financial assets backing unit-linked liabilities	(2,062.6)	(1,906.2)
Net increase in unit-linked liabilities	1,972.0	1,868.8
	(90.6)	(37.4)
Tax paid	(106.2)	(93.9)
Interest paid	-	(0.2)
Net cash from operating activities	1,321.9	210.0

Comparative information has been restated to reflect the effect of adoption of IFRS 10 (see the 'Basis of preparation' above).

Net cash from operating activities includes cash outflows of £13.4 million (2013: £14.6 million) in respect of exceptional items.

12. Provisions

The Group holds provisions in respect of dilapidations and onerous leases, regulatory and legal matters which, at 31 December 2014, total £54.0 million (2013: £51.2 million).

As at 31 December 2013 and 2014, the Group has recorded a £15.0 million provision for a possible penalty payable in connection with the US Department of Justice (DOJ) programme announced on 29 August 2013 that applies industry wide to Swiss banks in order to identify accounts related to persons who may not have been US-tax compliant. The Group's Swiss bank is participating voluntarily in the programme. Where a Swiss bank is unable to provide fully sufficient evidence of compliance, a penalty may be payable. This programme may complete in 2015 and there is uncertainty as to the extent of any payment required by Schroders. Details of the programme can be found at the DOJ website.

Key risks and mitigations

Our Key risks and mitigations can be read by accessing the link below:

Click on, or paste the following link into your web browser, to view the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/5852G_-2015-3-4.pdf 

Directors' responsibility statement

To the best of their knowledge and belief, each of the Directors listed below confirms that:

·      The consolidated financial statements of Schroders plc, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of Schroders plc and the undertakings included in the consolidation taken as a whole;

·      The announcement includes a fair summary of the development and performance of the business and the position of Schroders plc and the undertakings included in the consolidation taken as a whole and a description of the principal risks and uncertainties that they face;

·      So far as each Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and

·      They have each taken all the steps that ought to have been taken by them as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Directors:

Andrew Beeson	Chairman
Michael Dobson	Chief Executive
Richard Keers	Chief Financial Officer
Peter Harrison	Head of Investment
Philip Mallinckrodt	Group Head of Wealth Management
Massimo Tosato	Executive Vice Chairman and Global Head of Distribution
Luc Bertrand	Senior Independent Director
Ashley Almanza	Independent non-executive Director
Robin Buchanan	Independent non-executive Director
Lord Howard of Penrith	Independent non-executive Director
Nichola Pease	Independent non-executive Director
Bruno Schroder	Non-executive Director

4 March 2015

Five-year consolidated financial summary

Before exceptional items	2014 £m	2013 £m	2012 £m	2011 £m	2010 £m
Profit before tax	565.2	507.8	360.0	407.3	406.9
Tax	(113.9)	(103.0)	(76.8)	(91.5)	(95.7)
Profit after tax	451.3	404.8	283.2	315.8	311.2
After exceptional items	2014 £m	2013 £m	2012 £m	2011 £m	2010 £m
Profit before tax	517.1	447.5	360.0	407.3	406.9
Tax	(103.9)	(94.8)	(76.8)	(91.5)	(95.7)
Profit after tax	413.2	352.7	283.2	315.8	311.2

Pre-exceptionals earnings per share:	2014 Pence	2013 Pence	2012 Pence	2011 Pence	2010 Pence
Basic earnings per share	166.8	149.9	104.7	115.9	111.8
Diluted earnings per share	161.5	144.6	101.3	111.9	108.3
Post exceptional earnings per share:	2014 Pence	2013 Pence	2012 Pence	2011 Pence	2010 Pence
Basic earnings per share	152.7	130.6	104.7	115.9	111.8
Diluted earnings per share	147.8	126.0	101.3	111.9	108.3
Dividends	2014	2013	2012	2011	2010
Cost (£m)	177.7	123.5	104.1	104.8	87.6
Pence per share*	66.0	46.0	39.0	39.0	32.0
Total equity (£m)	2,537.8	2,268.6	2,069.9	1,901.6	1,799.7
Net assets per share (pence)**	898	802	733	673	620

* Dividends per share are those amounts approved by the shareholders to be paid within the year on a per share basis to the shareholders on the register at the specified dates.

** Net assets per share are calculated by using the actual number of shares at the year-end date.

Exchange rates - closing

31 December	2014	2013	2012	2011	2010
Sterling:
Euro	1.29	1.20	1.23	1.20	1.17
US dollar	1.56	1.66	1.63	1.55	1.57
Swiss franc	1.55	1.47	1.49	1.45	1.46
Australian dollar	1.91	1.85	1.57	1.52	1.53
Hong Kong dollar	12.09	12.84	12.60	12.07	12.17
Japanese yen	186.95	174.08	140.55	119.57	126.98
Singaporean dollar	2.07	2.09	1.99	2.02	2.01

 

END

 

 

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