Interim Results
Schroders PLC
1 September 2000
SCHRODERS PLC
Half Year Results to 30th June 2000
* Profit before tax on continuing operations up 41% to £129.5
million (H1 1999, £92.0 million)
* Asset management profit £82.5 million (H1 1999, £77.1 million)
* Private equity profit £49.9 million (H1 1999, £14.9 million)
* Funds under management £143.6 billion
* Interim dividend maintained at 5.5p per share on reduced
shareholders' funds
Six months Six months Six months
ended 30th ended 31st ended 30th
June 2000 December 1999 June 1999
(unaudited) (unaudited) (unaudited)
£mn £mn £mn
Profit before tax
Asset management 82.5 84.6 77.1
Private equity 49.9 25.6 14.9
Group interest
income/(costs) (2.9) - -
===== ===== =====
Continuing operations 129.5 110.2 92.0
Profit on sale of
Australian property
business - 24.9 -
Discontinued operations -
investment banking 38.4 41.9 55.0
===== ===== =====
167.9 177.0 147.0
Tax (21.8) (43.7) (36.5)
===== ===== =====
Profit after tax 146.1 133.3 110.5
Minority interests (0.2) 0.6 0.2
===== ===== =====
Profit attributable to
shareholders 145.9 133.9 110.7
===== ===== =====
An interim dividend of 5.5p per share (compared with 5.5p per share paid in
1999) will be paid on 26th October 2000 to shareholders on the register at
15th September 2000.
MANAGEMENT REVIEW
We are pleased to report on the half year results to 30th June 2000 and to
comment on the progress we have made in the period under review. We are also
taking the opportunity to restate the key elements of our strategy for the
future of Schroders as an independent asset management company; we outlined
these when we announced the sale of the investment bank in January and, in
more detail, in our most recent Annual Report.
The profit before tax from our core asset management business was £83 million
(first half 1999, £77 million) while our private equity interests made an
exceptionally strong contribution of £50 million (first half 1999, £15
million). After deducting Group interest income/(costs) of £3 million and
adding the investment banking profits of £38 million to the date of sale, the
profit before tax totalled £168 million, compared with £147 million in the
comparable period of 1999.
The profit attributable to shareholders was £146 million after a lower than
normal tax charge of 13%; earnings per share were 49.3p. In line with the
previously expressed intention, a maintained interim dividend of 5.5p per
share on the reduced shareholders' funds has been declared and will be paid
on 26th October 2000 to shareholders on the register at 15th September 2000.
ASSET MANAGEMENT
Higher markets than those in the first half of 1999 helped to raise revenues
by 24%. Costs increased due to higher staff and marketing costs and, in
particular, increased technology expenditure. Costs taken through the profit
and loss account on e-enablement, outsourcing projects and development of our
retail systems were £11 million in the first half (full year 1999, £6
million). We intend to focus an increasing proportion of our in-house
technology expenditure on front-office systems while seeking 'best of breed'
in procurement. In this connection, we were pleased to announce in August
the outsourcing of our UK custody and fund administration services to The
Chase Manhattan Bank.
Funds under management increased to £143.6 billion from £142.6 billion at
31st December 1999, reflecting a restructuring of funds in the UK partly
offset by gains overseas.
INSTITUTIONAL FUND MANAGEMENT
We are seeking to generate significant growth in our institutional fund
management business from the expanding markets of Continental Europe and Asia
Pacific. In the more mature markets of the UK and US we aim to broaden our
product range and improve the competitiveness of existing products.
Whilst competition remains intense in the UK, particularly from passive fund
management, the development of our global research capabilities and the
strengthening of our investment teams are both leading to a steady
improvement in the competitiveness of our core products. A number of new
products have also been launched and we are expanding our range of
alternative investments (property, private equity and structured products) to
meet increasing demand from institutional investors.
In the period under review Continental Europe was our strongest area of
growth. We opened new offices in Lisbon and Paris and increased our
marketing resources in Amsterdam and Madrid. Net new funds derived
predominantly from Italy and Scandinavia but our recent investment across the
Continent should serve to expand the geographic base of our business.
We have maintained our leading position in Japan amongst all non-Japanese
pension managers and are seeking licences to establish our own full service
fund management companies in Korea and Taiwan. In July we formalised a co-
operation agreement with the China Asset Management Company, a well-
established domestic fund manager in China.
The Hong Kong market is experiencing increasing competitive pressure but
Singapore continues to exhibit a healthy flow of new business opportunities
and Australia shows an improving trend.
RETAIL FUND MANAGEMENT
Our retail strategy is to develop a 'premium branded manufacturer' mutual
fund business predominantly through organic growth. We also aim to grow our
defined contribution (DC) pension business in the UK, Hong Kong and Japan. A
major brand audit has been completed and new marketing campaigns will be
rolled out across the Group by the end of the year.
In May we announced the £60 million acquisition of Liberty International
Pensions, now re-named Schroder Pensions, which will accelerate our DC
ambitions in the UK. This will provide us with an insurance company vehicle,
a passive fund management capability through a partnership with Hermes,
together with state-of-the-art administration and enable us to offer a
complete service to clients including actively managed and passive funds. At
this stage in its development, Schroder Pensions is not yet profitable.
As within the institutional arena, we are developing our retail business in
Europe. In addition to a strong inflow of new business in Continental Europe
we have seen a turnaround in the UK after a disappointing 1999, with a modest
net inflow of assets and an increase in market share in the first half of
2000. We now have sales operations in 11 European countries through which to
grow our business supported by a broad range of products. New product
launches in 2000 include European Technology, FTSE 250, Medical Discovery,
Emerging Europe, World Markets and Japan Defensive funds.
A marketing campaign has been initiated in Japan through television and print
media to mark the start of sales of our new retail products. Sales in Taiwan
and Singapore have continued to make progress, while Hong Kong has
experienced mixed results and Korea has shown modest growth.
PRIVATE BANKING
Although Schroders has long managed private client investment portfolios, our
aim is to expand both the size and scope of our private banking business. We
have applied for a banking licence in the UK to complement our existing
private banking operations in Switzerland and Guernsey. Our new UK bank,
once launched, will incorporate our existing UK private client investment
management business, together with the private client loan and deposit
activities previously conducted in J. Henry Schroder & Co. We also recently
announced plans to create a joint venture in Austria in co-operation with
Vienna Capital Partners which, subject to regulatory approvals, will provide
asset management and related advisory services to high net worth individuals
in Austria and Eastern Europe. Schroder Trust Bank based in Miami, provides
the platform for the development of our Latin American business and we are
reviewing the feasibility of expanding our facilities elsewhere, particularly
in Asia.
In the first half of 2000 all our private banking businesses delivered
satisfactory results with a particularly strong performance by J. Henry
Schroder Bank in Switzerland.
PRIVATE EQUITY AND ALTERNATIVE INVESTMENTS
The exceptionally strong contribution of £50 million from our private equity
interests comprised carried interests and portfolio investment realisations
of £33 million (of which £10 million arose through an associate company) and
£17 million from the increased market valuation of the Group's holding in
Schroder Ventures International Investment Trust plc. During the period, we
established Internet Finance Partners to invest in internet-based wholesale
financial services businesses.
Quoted securities markets have reached valuation levels not matched in recent
years and have exhibited increased correlation. As a result, both private
and institutional investors have shown a greater interest in diversifying
into less correlated assets such as property, private equity and structured
investments. Schroders has a well established private equity associate in
Schroder Ventures and a leading property management business in Schroder
Properties. During the second half we will be launching a range of
alternative investment products to meet institutional and private client
demand for diversified exposure. We intend that these activities should grow
to represent a material proportion of the Group's operations over time.
CORPORATE ACTIVITY
The divestment of the investment banking business to Salomon Smith Barney was
completed on 1st May. Under the Scheme of Arrangement shareholders received
an initial £891 million (£3.00 per share) and assuming finalisation of the
completion accounts, a small additional consideration, currently expected to
be 4.5p per share will be sent in due course to those shareholders on the
register at 17th April 2000. The United Kingdom tax authorities have
recently confirmed that section 703 of the Income and Corporation Taxes Act
1988 is not applicable to the distributions.
Other corporate activity included the sale of Schroder Leasing, our small
ticket leasing business, the purchase of the outstanding 35% minority
interest in Schroder Asseily in July and, more recently, the transfer out of
the Group of the management of Schroder European Property Fund for which we
are due to receive NLG 29 million (£8.1 million). The Group also repaid
US$250 million of debt capital raised in 1999.
Meanwhile the credit ratings of Schroders plc have been reaffirmed or raised:
Short Term Long Term
Fitch IBCA F1 A
Standard & Poor's A1 A+ (previously A)
The Group's capital reserves now stand at approximately £1.1 billion. As
previously stated, the Board will consider how much of this amount, if any,
is in excess of expected capital requirements.
CONCLUSION
We expect the second half year to produce much lower private equity profits
but a positive contribution from net Group interest income. The profits of
the core asset management business will depend on stock market levels and on
our investment performance.
We have, as a Group, been through profound change since the turn of the year
and we would like to thank our employees, who currently number some 2,950,
for their commitment and dedication over the past few months.
We are committed to increasing the number of Schroder shares owned by our
employees so as to align more closely the interests of employees and
shareholders. In this connection, the Group is introducing a deferred
compensation scheme under which allocations to approximately 130 employees
are being made. The total number of shares allocated under this scheme is
3.1 million and the charge against profits in the half year under review was
approximately £5 million; similar charges will occur in the succeeding five
half years. We will be writing to shareholders on this and other planned
compensation plans.
Asset management is now the principal business of Schroders. Our strategy is
to establish Schroders as one of the world's leading asset managers by
maintaining and developing our position as a domestic or specialist
international manager in the principal savings markets of the world, serving
institutional, retail and private banking clients. We intend to expand our
business in Continental Europe and Asia Pacific to match more closely in size
that in the Americas whilst maintaining our leading position in the UK.
Our goal is to be a top ten player in each of our market segments and to
focus on profitability and potential for growth in earnings rather than size
for size's sake. Our clients, moreover, will always come first and strong
investment performance is our top priority.
Peter Sedgwick David Salisbury
Chairman Chief Executive
1st September 2000
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months ended 30th June 2000
Continuing Discontinued
operations operations Total
(unaudited) (unaudited) (unaudited)
£mn £mn £mn
Net interest income 10.7 50.2 60.9
Net fees and commissions 280.2 163.8 433.0
Net dealing income 4.4 41.3 45.7
Other operating income 54.9 (0.4) 54.5
----- ----- -----
Operating income 350.2 254.9 594.1
Operating expenses (215.7) (217.0) (421.7)
Depreciation and amortisation (15.2) (3.6) (18.8)
----- ----- -----
Operating profit 119.3 34.3 153.6
Profit on sale of the
investment banking business
(see note 1) - 4.1 4.1
Profit on sale of the
Australian property business - - -
Income from shares in
associated undertakings 10.2 - 10.2
----- ----- -----
Profit on ordinary activities
before tax 129.5 38.4 167.9
Tax (see note 2) (32.6) 10.8 (21.8)
----- ----- -----
Profit on ordinary activities
after tax 96.9 49.2 146.1
Minority interests (0.2) - (0.2)
----- ----- -----
Profit attributable to
shareholders 96.7 49.2 145.9
Dividend (16.3) - (16.3)
----- ----- -----
Retained profit 80.4 49.2 129.6
===== ===== =====
Basic earnings per share 32.7p 49.3p
Diluted earnings per share 32.6p 49.2p
Dividend per share 5.5p
The comparative figures shown in the segmental analysis on page 1 are those
reported in the prior year (with the exception of private equity which is now
shown separately) and differ from those shown above principally because of
the treatment of certain Group related items, in particular Group interest
and costs.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months ended 31st December 1999
Continuing Discontinued
operations operations Total
(unaudited) (unaudited) (unaudited)
£mn £mn £mn
Net interest income 10.1 54.8 64.9
Net fees and commissions 250.4 326.5 576.9
Net dealing income 2.2 49.2 51.4
Other operating income 33.7 0.7 34.4
----- ----- -----
Operating income 296.4 431.2 727.6
Operating expenses (189.9) (364.3) (554.2)
Depreciation and amortisation (25.7) (4.7) (30.4)
----- ----- -----
Operating profit 80.8 62.2 143.0
Profit on sale of the
investment banking business
(see note 1) - - -
Profit on sale of the
Australian property business 24.9 - 24.9
Income from shares in
associated undertakings 9.1 - 9.1
----- ----- -----
Profit on ordinary activities
before tax 114.8 62.2 177.0
Tax (see note 2) (20.5) (23.2) (43.7)
----- ----- -----
Profit on ordinary activities
after tax 94.3 39.0 133.3
Minority interests (0.3) 0.9 0.6
----- ----- -----
Profit attributable to
shareholders 94.0 39.9 133.9
Dividend (38.0) - (38.0)
----- ----- -----
Retained profit 56.0 39.9 95.9
===== ===== =====
Basic earnings per share 31.8p 45.3p
Diluted earnings per share 31.6p 45.1p
Dividend per share 13.0p
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months ended 30th June 1999
Continuing Discontinued
operations operations Total
(unaudited) (unaudited) (unaudited)
£mn £mn £mn
Net interest income 12.6 53.2 65.8
Net fees and commissions 223.2 303.3 526.5
Net dealing income 1.1 36.3 37.4
Other operating income 18.6 4.6 23.2
----- ----- -----
Operating income 255.5 397.4 652.9
Operating expenses (155.8) (338.3) (494.1)
Depreciation and amortisation (14.0) (4.0) (18.0)
----- ----- -----
Operating profit 85.7 55.1 140.8
Profit on sale of the
investment banking business - - -
(see note 1)
Profit on sale of the
Australian property business - - -
Income from shares in
associated undertakings 6.2 - 6.2
----- ----- -----
Profit on ordinary activities
before tax 91.9 55.1 147.0
Tax (see note 2) (21.0) (15.5) (36.5)
----- ----- -----
Profit on ordinary activities
after tax 70.9 39.6 110.5
Minority interests 0.4 (0.2) 0.2
----- ----- -----
Profit attributable to
shareholders 71.3 39.4 110.7
Dividend (15.9) - (15.9)
----- ----- -----
Retained profit 55.4 39.4 94.8
===== ===== =====
Basic earnings per share 24.2p 37.5p
Diluted earnings per share 24.1p 37.4p
Dividend per share 5.5p
CONSOLIDATED BALANCE SHEET
30th June 31st December
2000 1999
(unaudited) (audited)
£mn £mn
Fixed assets
Intangible assets - goodwill 15.0 16.8
Tangible assets 109.5 123.3
Investments in associates 24.5 22.0
======== ========
149.0 162.1
Current assets
Cash and balances with banks 791.7 1,426.8
Debtors 604.6 4,924.6
Investments 605.2 6,112.4
Prepayments and accrued income 110.5 212.2
Other assets 122.7 564.2
======== ========
2,234.7 13,240.2
Current liabilities - amounts falling
due within one year
Deposits by banks 215.9 939.2
Creditors 927.6 9,335.2
======== ========
1,143.5 10,274.4
Net current assets 1,091.2 2,965.8
======== ========
Total assets less current liabilities 1,240.2 3,127.9
Creditors - amounts due after more than
one year 75.9 1,694.6
Provisions for liabilities and charges 41.5 60.6
======== ========
Net assets 1,122.8 1,372.7
======== ========
Capital and reserves
Called up share capital 296.9 295.4
Reserves 823.8 1,075.0
-------- --------
Equity shareholders' funds 1,120.7 1,370.4
Minority interests 2.1 2.3
======== ========
1,122.8 1,372.7
======== ========
CONSOLIDATED CASH FLOW STATEMENT
The format and definitions of the cash flow statement required by Financial
Reporting Standard FRS1 are not wholly appropriate to the operations of the
Group. In particular, the disposal of the investment banking business has
resulted in significant movements in operating assets and liabilities.
30th 31st
June December
2000 1999
(unaudited) (unaudited)
£mn £mn
Net cash outflow from
ordinary activities
before tax (992.5) (376.8)
Dividends received
from associates - 0.1
Return on investments
and servicing of
finance (2.9) (6.3)
Taxation (20.4) (58.0)
Sales/(purchases) of
fixed assets 0.7 (63.0)
Proceeds on disposal
of investment banking
business 540.7 -
Net cash inflow from
other acquisitions
and disposals - 4.5
Equity dividends paid
to shareholders (38.0) (49.6)
Financing (122.7) 156.7
======= =======
Decrease in net cash (635.1) (392.4)
======= =======
RECONCILIATION OF
MOVEMENT IN NET CASH At 1st Exchange
January Movement At 30th
2000 Cash flow (un- June 2000
(unaudited) (unaudited) audited) (unaudited)
£mn £mn £mn £mn
Cash and balances with
banks 1,426.8 (635.1) 791.7
Debt
6.97% Guaranteed
senior notes repaid
(US$ 250mn) (154.1) 158.8 (4.7) -
======= ======= === =====
1,272.7 (476.3) (4.7) 791.7
======= ======= === =====
CASH FLOW FROM ORDINARY ACTIVITIES BEFORE TAX
30th 31st
June December
2000 1999
Notes (unaudited) (unaudited)
£mn £mn
Profit on ordinary 167.9 324.0
activities before
tax
Depreciation of
tangible assets and 18.8 48.4
amortisation of
goodwill
(Profit)/loss on sale (1.1) 0.2
of fixed assets and
investments
Decrease in other
operating assets 3(a) 9,534.1 4.0
Decrease in other 3(b) (10,575.1) (719.4)
operating
liabilities
Net provision against
securities held for
investment - 1.4
Interest on corporate
debt 2.7 7.6
Profit on disposal of
associated
undertaking - (2.8)
Profit on disposal of
the investment
banking business
before transaction
costs(see note 1) (129.6) -
Profit on sale of the
Australian property
business - (24.9)
Profit from associated
undertakings (10.2) (15.3)
======== =======
Net cash flow from
operating activities (992.5) (376.8)
======== =======
NOTES TO THE ACCOUNTS
The figures and financial information for the year 1999 have been restated
into a Schedule 4 to the Companies Act 1985 format from their previous
Schedule 9 format following the disposal of the investment banking business.
The audited Schedule 9 format financial statements for 31st December 1999
have been delivered to the Registrar of Companies and included the auditors'
report which was unqualified.
The half year figures are non-statutory and have not been audited. In the
opinion of the Directors, disclosure of turnover is most appropriately
represented by net interest income, net fees and commissions, net dealing
income and other operating income. This represents an adaptation of the
profit and loss account format laid down in Schedule 4.
The disposal of the investment banking business has materially impacted the
presentation of the accounts for the half year ended 30th June 2000 and
distorted comparison with prior periods, particularly the consolidated
balance sheet and cash flow statement.
1. DIVESTMENT OF THE INVESTMENT BANKING BUSINESS
Reconciliation of profit on disposal to premium paid by Salomon Smith Barney
Holdings Inc.
£mn
Premium US$ 900mn 569.7
Amount of premium paid directly
to shareholders (433.6)
=====
Amount of premium received by
Schroders 136.1
Profit on sale of Schroder
Leasing 49.0
=====
185.1
Write back of goodwill (55.5)
=====
129.6
Transaction costs (pre-tax) (125.5)
Profit on disposal of the =====
investment banking business 4.1
=====
Six months Six months
2. TAX ended ended
30th June 31st December 30th June
2000 1999 1999
(unaudited) (unaudited) (unaudited)
£mn £mn £mn
UK tax 10.3 26.3 24.1
Overseas tax 11.5 17.4 12.4
==== ==== ====
21.8 43.7 36.5
==== ==== ====
The low tax charge for the first half of 2000 is largely attributable to the
inclusion of non-taxable profits on the sale of the investment banking
business and on private equity returns.
3. CONSOLIDATED CASH FLOW STATEMENT
30th June 31st December
2000 1999
(unaudited) (unaudited)
£mn £mn
3(a) Decrease in other operating assets
Decrease/(increase) in debtors 4,320.0 (864.8)
Decrease in investments 5,507.2 624.5
Decrease in other assets 431.7 255.7
Decrease/(increase) in prepayments and
accrued income 101.7 (11.4)
Less: net asset value of the
investment banking business sold (355.7) -
Reduction in capital via Scheme of
arrangement (470.8) -
======== ========
Decrease in other operating assets 9,534.1 4.0
======== ========
3 (b) Decrease in other operating
liabilities
(Decrease)/increase in creditors
falling due within one year (8,366.8) 201.2
Decrease in deposits by banks (723.3) (448.3)
(Decrease)/increase in provisions for
liabilities and charges (19.1) 2.4
Decrease in creditors due after more
than one year (1,465.9) (474.7)
-------- --------
Decrease in other operating liabilities (10,575.1) (719.4)
======== ========
STATEMENT OF TOTAL CONSOLIDATED RECOGNISED GAINS AND LOSSES
£mn
Profit for the period 145.9
Exchange translation adjustments to
foreign currency net investment 25.5
-----
Total recognised gains and losses 171.4
=====
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS
£mn
Profit for the period 145.9
Dividend (16.3)
=======
129.6
Exchange translation adjustments 25.5
Reduction in capital via Scheme of
Arrangement (470.8)
New share capital subscribed 10.5
Goodwill written back to profit and
loss account 55.5
-------
Net decrease in shareholders' funds (249.7)
At 1st January 2000 1,370.4
-------
At 30th June 2000 1,120.7
=======
The Interim Report will be posted to shareholders within the next week.
Further copies are available from the Company Secretary at 31 Gresham Street,
London EC2V 7QA.
Press Enquiries to:
D.M. Salisbury N.R. MacAndrew
Chief Executive Chief Financial Officer
31 Gresham Street, London EC2V 7QA
Tel: +44 (0) 20 7658 6000
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