Interim Results

Schroders PLC 02 September 2003 2nd September 2003 Schroders plc Interim Results to 30th June 2003 • Underlying asset management profit £32.6 million (H1 2002: £46.8 million) • Profit before tax and goodwill amortisation £32.4 million (H1 2002: £25.9 million) • Profit before tax £27.2 million (H1 2002: £20.5 million) • Funds under management £90.4 billion (31st December 2002: £86.2 billion*, 30th June 2002: £100.2 billion*) • Net new business £0.2 billion (H1 2002: net outflow £2.3 billion) • Unchanged interim dividend of 5.5 pence per share * Adjusted to exclude £2.1 billion and £2.5 billion from funds under management at 31st December 2002 and 30th June 2002 respectively on the completion of the sales of Schroder Hermes and Schroder Pensions in January and February 2003. Six months ended Six months ended Year ended 30th June 2003 30th June 2002 31st December 2002 (unaudited) (unaudited) (audited) £mn £mn £mn Underlying asset management profit 32.6 46.8 77.0 Project expenditure (10.0) (15.0) (33.2) Redundancy costs (1.2) (7.0) (13.7) Asset management profit before exceptional items 21.4 24.8 30.1 Exceptional items - net gain/(loss) on sale of 2.4 - (5.4) subsidiary undertakings Asset management profit 23.8 24.8 24.7 Private equity 12.0 3.7 12.9 Group net income/(costs) (3.4) (2.6) (8.1) Profit before goodwill 32.4 25.9 29.5 Goodwill amortisation (5.2) (5.4) (10.6) Profit before tax 27.2 20.5 18.9 ---------------------------------------------- Contacts: Schroders Michael Dobson Chief Executive +44 (0) 20 7658 6962 Jonathan Asquith Chief Financial Officer +44 (0) 20 7658 6565 Julian Samways Head of Corporate Communications +44 (0) 20 7658 6166 The Maitland Consultancy William Clutterbuck +44 (0) 20 7379 5151 Management Statement Equity markets were sharply lower in the first half of 2003 against the comparable period in 2002 and this had a direct impact on net revenues which were £202.4 million, down 19 per cent. from £250.1 million in the first half of 2002. Against this, good progress has been made in reducing our cost base: total costs were down £40.6 million or 17 per cent. on the first half of 2002. The position on net new business flows was much improved reflecting a reduction in institutional outflows and another very strong performance in our retail business. Our listed and unlisted private equity investments made an important contribution to Group profit before tax, with a sharp rise in the share price of Schroder Ventures International Investment Trust plc over the period supplemented by carried interest payments and realisations from the old Schroder Ventures funds. Underlying asset management profit was £32.6 million compared to £46.8 million in the first half of 2002, a decrease of 30 per cent. Profit before goodwill amortisation amounted to £32.4 million (H1 2002: £25.9 million), up 25 per cent. Profit before tax was £27.2 million (H1 2002: £20.5 million), up 33 per cent. From an opening position of £86.2 billion at the end of December 2002, adjusted to exclude £2.1 billion on the completion of the sales of Schroder Hermes and Schroder Pensions in January and February 2003 respectively, funds under management rose 5 per cent. to £90.4 billion during the period. The increase predominantly reflects rising stock markets. Net new business inflows were £0.2 billion compared to a net outflow of £2.3 billion in the first half of 2002. Funds under management** 30th June 2003 31st December 2002 £bn £bn Institutional 66.4 66.0 Retail 19.1 15.3 Private Banking 4.9 4.9 90.4 86.2 ** See Note after the Outlook paragraph below. Institutional Fund Management Overall net outflows of institutional funds were £2.5 billion, down from £4.4 billion in the first half of 2002.** In the UK, our £1.2 billion multi-asset pooled fund has performed in line with or above benchmark in thirteen out of the last fourteen quarters and UK equity performance has been strong across the board this year. The bulk of the net outflow of £1.8 billion in the UK in the first half was the result of the continued restructuring from balanced to specialist mandates. Balanced mandates now represent less than 7 per cent. of Group funds under management. As expected, there was an outflow of £1.4 billion from our Americas business. Net business gains in continental Europe were £0.8 billion. In Australia we have closed to new segregated accounts while we absorb the growth in domestic equities under management from £0.7 billion to £2.0 billion over the eighteen months to June 2003. We have continued to pursue operational efficiencies which enhance the services we provide to our clients. A single dealing platform will be rolled out across the Group by the end of the year which allows the simultaneous implementation of dealing decisions globally, reducing transaction costs. It also enables portfolio modelling and automatic pre-trade mandate checking to be conducted across portfolios in all major locations. Portfolio accounting, administration and client reporting for North America and Hong Kong have been consolidated into London and Singapore respectively. Retail Fund Management Gross sales were £5.5 billion during the period. Net sales were £2.9 billion, up 36 per cent. on the same period in 2002.** Net new business flows were derived equally from Europe, including the UK, and Asia Pacific. Over 80 per cent. of inflows have been into fixed income products. We announced the launch of three new equity Alpha funds with aggressive performance targets following the success of the UK Alpha Plus fund which now has £150 million in assets under management, just over one year after its launch. We continued to consolidate our distribution networks with key local and global partners and concluded several strategic partnership agreements with leading financial institutions. In the UK we are well placed to benefit from depolarisation. The outsourcing of UK unit trust administration was successfully completed and will result in significant cost savings. We closed or merged ten small funds and we concluded the integration of the Hong Kong fund range into the Luxembourg range, enabling us to deliver a more comprehensive reporting service to our clients. Private Banking In Private Banking we strengthened our client relationship and marketing teams, enhanced our services and products for high net worth individuals, and streamlined our operations. We saw increased demand for our cash management and asset allocation services and added approximately £250 million to the balance sheet in short term client deposits. We also launched two new alternative investment products: a second private equity fund of funds vehicle to be listed on the Dublin Stock Exchange, and a specialist fund of hedge funds. A new portfolio accounting system was introduced in London and Zurich, specifically tailored to the needs of private clients, automating and upgrading client reporting and performance measurement. We outsourced custody and transferred out a small book of business which did not fit with our strategy of focusing on clients with complex financing and investment needs. Interim Dividend An unchanged interim dividend of 5.5 pence per share has been declared and will be paid on 15th October 2003 to shareholders on the register at 19th September 2003. Outlook We have seen net new business gains in the first half of the year, although we remain cautious about fund flows for the year as a whole. As we look forward to Schroders' 200th anniversary in 2004, the major actions to reduce our cost base have been implemented and the emphasis is now on growing revenues. -------------------------------------------------------------------------------- Note During the period £3.6 billion of sub-advisory assets were transferred from Institutional to Retail to reflect more closely the underlying source of this business. In Asia, £0.3 billion was transferred from Private Banking to Institutional. Of the £2.1 billion adjustment to reflect the sales of Schroder Hermes and Schroder Pensions, £1.5 billion was classified as institutional assets and £0.6 billion as retail assets. These changes have been reflected as appropriate throughout this announcement. Consolidated Profit and Loss Account Six months ended Six months ended Six months ended Year ended 30th June 2003 30th June 2002 31st December 31st December 2002 2002 (unaudited) (unaudited) (audited) (unaudited) £mn £mn £mn £mn Net revenues - continuing operations 202.3 249.6 221.6 471.2 - discontinued operations 0.1 0.5 0.9 1.4 202.4 250.1 222.5 472.6 Gains/(losses) on current asset investments 11.0 0.2 (5.3) (5.1) Administrative expenses (189.8) (219.2) (208.2) (427.4) Depreciation (5.0) (16.0) (16.1) (32.1) Amortisation of goodwill (5.2) (5.4) (5.2) (10.6) Group operating profit/(loss) - continuing operations 13.8 13.3 (9.5) 3.8 - discontinued operations (0.4) (3.6) (2.8) (6.4) 13.4 9.7 (12.3) (2.6) Share of operating profit of associated 0.1 1.5 6.2 7.7 undertakings Total operating profit/(loss) 13.5 11.2 (6.1) 5.1 Provision for loss on sale of subsidiary undertakings - discontinued operations - - (6.3) (6.3) Profit on disposal of subsidiary undertakings - continuing operations - - 0.9 0.9 - discontinued operations 2.4 - - - Interest receivable and similar income 12.1 10.9 11.9 22.8 Amounts written off fixed asset investments (0.5) (1.3) (2.0) (3.3) Interest payable and similar charges (0.3) (0.3) - (0.3) Profit/(loss) on ordinary activities before tax 27.2 20.5 (1.6) 18.9 Tax on profit/(loss) on ordinary activities (4.7) (6.8) 14.5 7.7 Profit on ordinary activities after tax 22.5 13.7 12.9 26.6 Minority interests - (0.4) (0.1) (0.5) Profit attributable to shareholders 22.5 13.3 12.8 26.1 Dividends (16.1) (16.0) (37.3) (53.3) Retained profit/(loss) for the period 6.4 (2.7) (24.5) (27.2) Basic earnings per share 7.6p 4.4p 4.4p 8.8p Diluted earnings per share 7.6p 4.4p 4.4p 8.8p Statement of Total Consolidated Recognised Gains and Losses Six months ended 30th June Six months ended 30th Year ended 2003 June 2002 31st December 2002 (unaudited) (unaudited) (audited) £mn £mn £mn Profit attributable to shareholders for the period 22.5 13.3 26.1 Exchange translation adjustments to foreign currency 0.5 (0.3) (14.0) net investments Total recognised gains and losses 23.0 13.0 12.1 Reconciliation of Movements in Consolidated Shareholders' Funds Six months ended 30th Six months ended Year ended June 2003 30th June 2002 31st December 2002 (unaudited) (unaudited) (audited) £mn £mn £mn Profit attributable to shareholders for the period 22.5 13.3 26.1 Dividends (16.1) (16.0) (53.3) 6.4 (2.7) (27.2) New share capital subscribed - - 3.0 Shares to be issued - - (3.0) Cancellation of non-voting ordinary shares - (8.1) (19.4) Exchange translation adjustments 0.5 (0.3) (14.0) Net movement in shareholders' funds 6.9 (11.1) (60.6) Opening shareholders' funds 1,051.9 1,112.5 1,112.5 Closing shareholders' funds 1,058.8 1,101.4 1,051.9 Consolidated Balance Sheet 30th June 2003 30th June 2002 31st December 2002 (unaudited) (unaudited) (audited) £mn £mn £mn Fixed assets Intangible assets - goodwill 29.7 40.5 35.0 Tangible assets 12.8 106.6 17.8 Investments 106.2 101.0 100.5 148.7 248.1 153.3 Insurance assets attributable to unit linked - 2,482.2 2,134.6 policyholders+ 148.7 2,730.3 2,287.9 Current assets Debtors due within one year 584.8 646.2 409.0 Debtors due after more than one year 241.2 260.9 262.1 Investments 1,189.7 778.9 897.1 Cash and balances with banks 651.2 686.3 736.4 2,666.9 2,372.3 2,304.6 Creditors - amounts falling due within one year (1,490.0) (1,202.3) (1,098.5) Net current assets 1,176.9 1,170.0 1,206.1 Total assets less current liabilities 1,325.6 3,900.3 3,494.0 Creditors - amounts falling due after more than one (223.0) (242.2) (256.6) year Insurance liabilities attributable to unit linked - (2,482.2) (2,134.6) policyholders+ Provisions for liabilities and charges (43.8) (74.2) (50.9) Net assets 1,058.8 1,101.7 1,051.9 Capital and reserves Called up share capital 295.7 297.6 295.7 Share premium account 17.8 15.2 17.8 Shares to be issued 9.9 12.9 9.9 Capital reserves 138.9 131.4 129.4 Profit and loss account 596.5 644.3 599.1 Equity shareholders' funds 1,058.8 1,101.4 1,051.9 Minority interests - 0.3 - Total shareholders' funds including minority 1,058.8 1,101.7 1,051.9 interests +Since the sale of Schroder Hermes and Schroder Pensions during the first quarter of 2003, the Group no longer has insurance assets/liabilities attributable to unit linked policyholders. Consolidated Cash Flow Statement Six months ended Six months ended Year ended 30th June 2003 30th June 2002 31st December 2002 (unaudited) (unaudited) (audited) £mn £mn £mn Net cash inflow/(outflow) from operating 231.0 (82.7) 78.7 activities Distributions received from associates 0.3 - 0.5 Returns on investments and servicing of 12.5 10.4 20.8 finance Taxation (5.3) 3.1 (4.6) Capital expenditure and financial investments (6.0) (26.3) 13.8 Acquisitions and disposals 4.4 (0.3) (0.6) Dividends paid (37.5) (37.6) (53.5) Management of liquid resources (368.5) (105.5) (97.7) Financing - (8.1) (19.4) (Decrease) in cash (169.1) (247.0) (62.0) Reconciliation of operating profit to net cash inflow/(outflow) from operating activities Six months ended 30th Six months ended Year ended 31st June 2003 (unaudited) 30th June 2002 December 2002 (unaudited) (audited) £mn £mn £mn Operating profit 13.5 11.2 5.1 Depreciation of tangible fixed assets 5.0 16.0 32.1 Amortisation and impairment of goodwill 5.2 5.4 10.6 Other non-cash movements (6.5) 2.6 (4.6) Changes in working capital 213.8 (117.9) 35.5 Net cash inflow/(outflow) from operating 231.0 (82.7) 78.7 activities Reconciliation of movement in cash At 30th June 2003 Cash flow At 31st December 2002 (unaudited) (audited) (unaudited) £mn £mn £mn Cash and balances with banks - repayable on 117.3 (166.9) 284.2 demand Cash and balances with banks - other 533.9 452.2 Cash and balances with banks 651.2 736.4 Exchange adjustments (2.2) (Decrease) in cash (169.1) Financial information for the year ended 31st December 2002 is presented in Format 1 of Schedule 4 to the Companies Act 1985, adapted to include an additional item, 'Gains/(losses) on current asset investments'. The interim financial information has been prepared on the basis of the accounting policies set out in the Group's 2002 Annual Report & Accounts. This announcement was approved by the Board of Directors on 1st September 2003. The financial information for the six month periods ended 30th June 2002 and 30th June 2003 and the year ended 31st December 2002 set out above does not constitute full accounts within the meaning of section 240 of the Companies Act 1985. The full statutory accounts for 2002 received an unqualified audit report and have been delivered to the Registrar of Companies. The Interim Report for the six months to 30th June 2003 will be published in the Financial Times on 3rd September 2003. The Interim Report, which is extracted from this announcement and which includes the independent review report by the auditors, has been prepared in accordance with the Listing Rules of the Financial Services Authority. Set out below, in the version of this announcement released to the London Stock Exchange, is the full text of the Interim Report. Further copies of this announcement and the Interim Report are available from the Company Secretary at 31 Gresham Street, London, EC2V 7QA (email: company.secretary@schroders.com telephone 020 7658 6742) and will be available on the Group's website at www.schroders.com together with further information about the results. Schroders plc Interim Report 2003 To be published in the Financial Times on 3rd September 2003 'Equity markets were sharply lower in the first half of 2003 against the comparable period in 2002 and this had a direct impact on net revenues which were £202.4 million, down 19 per cent. from £250.1 million in the first half of 2002. Against this, good progress has been made in reducing our cost base: total costs were down £40.6 million or 17 per cent. on the first half of 2002. The position on net new business flows was much improved reflecting a reduction in institutional outflows and another very strong performance in our retail business. Our listed and unlisted private equity investments made an important contribution to Group profit before tax, with a sharp rise in the share price of Schroder Ventures International Investment Trust plc over the period supplemented by carried interest payments and realisations from the old Schroder Ventures funds. We have seen net new business gains in the first half of the year, although we remain cautious about fund flows for the year as a whole. As we look forward to Schroders' 200th anniversary in 2004, the major actions to reduce our cost base have been implemented and the emphasis is now on growing revenues. Financial highlights: • Profit before tax £27.2 million (H1 2002: £20.5 million) • Funds under management £90.4 billion (31st December 2002: £86.2 billion*, 30th June 2002: £100.2 billion*) • Net new business £0.2 billion (H1 2002: net outflow £2.3 billion) • Unchanged interim dividend of 5.5 pence per share * Adjusted to exclude £2.1 billion and £2.5 billion from funds under management at 31st December 2002 and 30thJune 2002 respectively on the completion of the sales of Schroder Hermes and Schroder Pensions in January and February 2003. Independent Review Report to the Board of Directors of Schroders plc Introduction We have been instructed by Schroders plc to review the summary consolidated profit and loss account, the summary consolidated balance sheet and the summary consolidated cash flow statement. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The Interim Report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. The maintenance and integrity of the Schroders website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Interim Report since it was initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from the legislation in other jurisdictions. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30th June 2003. PricewaterhouseCoopers LLP Chartered Accountants, London 2nd September 2003 Summary Consolidated Profit and Loss Account Six months ended Six months ended 30th Year ended 30th June 2003 June 2002 (unaudited) 31st December 2002 (unaudited) (audited) £mn £mn £mn Net revenues - continuing operations 202.3 249.6 471.2 - discontinued operations 0.1 0.5 1.4 202.4 250.1 472.6 Operating profit /(loss) - continuing 13.9 14.8 11.5 operations - discontinued operations (0.4) (3.6) (6.4) 13.5 11.2 5.1 Provision for loss on sale of subsidiary undertakings - discontinued operations - - (6.3) Profit on disposal of subsidiary undertakings - continuing operations - - 0.9 - discontinued operations 2.4 - - Amounts written off fixed asset investments (0.5) (1.3) (3.3) Net interest income 11.8 10.6 22.5 Profit on ordinary activities before tax 27.2 20.5 18.9 Tax on profit on ordinary activities (4.7) (6.8) 7.7 Profit on ordinary activities after tax 22.5 13.7 26.6 Minority interests - (0.4) (0.5) Profit attributable to shareholders 22.5 13.3 26.1 Dividends (interim 2003 and 2002 5.5p/total 2002 (16.1) (16.0) (53.3) 18.5p) Retained profit/(loss) for the period 6.4 (2.7) (27.2) Basic earnings per share 7.6p 4.4p 8.8p Diluted earnings per share 7.6p 4.4p 8.8p Summary Consolidated Balance Sheet 30th June 2003 30th June 2002 31st December 2002 (unaudited) (unaudited) (audited) £mn £mn £mn Fixed assets 148.7 248.1 153.3 Insurance assets attributable to unit linked - 2,482.2 2,134.6 policyholders+ Debtors 826.0 907.1 671.1 Investments 1,189.7 778.9 897.1 Cash and balances with banks 651.2 686.3 736.4 2,666.9 2,372.3 2,304.6 Creditors - amounts falling due within one (1,490.0) (1,202.3) (1,098.5) year Net current assets 1,176.9 1,170.0 1,206.1 Total assets less current liabilities 1,325.6 3,900.3 3,494.0 Creditors - amounts falling due after more (223.0) (242.2) (256.6) than one year Insurance liabilities attributable to unit - (2,482.2) (2,134.6) linked policyholders+ Provisions for liabilities and charges (43.8) (74.2) (50.9) Net assets 1,058.8 1,101.7 1,051.9 Equity shareholders' funds 1,058.8 1,101.4 1,051.9 Minority interests - 0.3 - Total shareholders' funds including minority 1,058.8 1,101.7 1,051.9 interests +Since the sale of Schroder Hermes and Schroder Pensions during the first quarter of 2003, the Group no longer has insurance assets/liabilities attributable to unit linked policyholders. Summary Consolidated Cash Flow Statement Six months ended Six months ended Year ended 30th June 2003 30th June 2002 (unaudited) (unaudited) 31st December 2002 (audited) £mn £mn £mn Net cash inflow/(outflow) from operating 231.0 (82.7) 78.7 activities Distributions received from associates 0.3 - 0.5 Returns on investments and servicing of 12.5 10.4 20.8 finance Taxation (5.3) 3.1 (4.6) Capital expenditure and financial investments (6.0) (26.3) 13.8 Acquisitions and disposals 4.4 (0.3) (0.6) Dividends paid (37.5) (37.6) (53.5) Management of liquid resources (368.5) (105.5) (97.7) Financing - (8.1) (19.4) (Decrease) in cash (169.1) (247.0) (62.0) The Interim Results announcement 2003 as released to the London Stock Exchange on 2nd September 2003, which contains additional details, is available on the Schroders website www.schroders.com together with further information about the results. Copies of the Interim Results announcement 2003 and this Interim Report can also be obtained by emailing company.secretary@schroders.com or by telephoning 020 7658 6742. This Interim Report was approved by the Board of Directors on 1st September 2003. Schroders plc Registered No. 3909886 Registered office 31 Gresham Street, London, EC2V 7QA.' Forward-looking statements This announcement contains certain forward-looking statements and forecasts with respect to the financial condition, results of operations and businesses of Schroders plc and its subsidiaries. These 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 these forward-looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast. This information is provided by RNS The company news service from the London Stock Exchange

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