Interim Results
Schroders PLC
09 August 2007
9 August 2007
Schroders plc
Interim Results to 30 June 2007
Profit before tax up 40 per cent.
• Group profit before tax £185.6 million (H1 2006: £132.3 million)
• Asset Management profit before tax £123.2 million (H1 2006: £96.8 million)
• Private Banking profit before tax £15.9 million (H1 2006: £11.2 million)
• Private Equity profit before tax £36.2 million (H1 2006: £17.7 million)
• Funds under management £137.6 billion (31 December 2006: £128.5 billion)
• Interim dividend 9.0 pence per share (interim dividend 2006: 7.5 pence
per share)
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December
(unaudited) (unaudited) 2006
£mn £mn £mn
--------------------------------------------------------------------------------
Asset Management profit 123.2 96.8 219.0
Private Banking profit 15.9 11.2 26.9
Private Equity profit 36.2 17.7 34.6
Group 10.3 6.6 9.5
--------------------------------------------------------------------------------
Profit before tax 185.6 132.3 290.0
--------------------------------------------------------------------------------
Contacts:
Schroders
Michael Dobson Chief Executive +44 (0) 20 7658 6962
Stephen Brooks Chief Financial Officer +44 (0) 20 7658 6600
Henrietta Jowitt Head of Marketing and Communications +44 (0) 20 7658 6166
William Clutterbuck The Maitland Consultancy +44 (0) 20 7379 5151
Management Statement
Group profit before tax increased by 40 per cent. to £185.6 million (H1 2006:
£132.3 million) reflecting significantly higher profits from Asset Management,
Private Banking and Private Equity investments. Funds under management at the
end of June totalled £137.6 billion (31 December 2006: £128.5 billion). Net
inflows in the second quarter were £0.7 billion after net outflows of £1.0
billion in the first quarter to bring net outflows for the half year to £0.3
billion.
Asset Management
Net inflows into higher margin products in 2006, which continued during the
period, contributed to an 18 per cent. increase in Asset Management gross profit
to £353.3 million (H1 2006: £300.4 million) and a 27 per cent. increase in
profit before tax to £123.2 million (H1 2006: £96.8 million).
Net Retail sales were £3.6 billion in the first half (H1 2006: £2.3 billion) and
were broadly diversified. By region, we had a particularly strong result in
Asia, with £1.7 billion of net sales, and in the UK with £1.3 billion of net
sales. By product, we saw significant demand for a wide range of asset classes
including emerging market equity and debt, European equities, global equities,
property securities and multi-manager funds. Retail funds under management at
the end of June were £48.7 billion (31 December 2006: £42.5 billion).
Institutional generated strong gross sales, up 36 per cent. on the first half of
2006, with high levels of new business across quantitative equities, multi-asset
mandates for UK pension funds, fixed income and funds of hedge funds. Outflows
in the UK and, to a lesser extent, Japanese equities led to net outflows of £4.1
billion: despite this, Institutional revenues were up 15 per cent. on the first
half of 2006 and funds under management rose to £79.6 billion at the end of June
(31 December 2006: £77.4 billion).
Alternatives accounted for £14.9 billion of funds under management (31 December
2006: £12.5 billion). Within alternatives, NewFinance Capital, our funds of
hedge funds business, had strong net inflows in the first half and funds under
management increased to £2.3 billion. Aareal Asset Management, the European
property business acquired in February 2007, has been integrated with our
existing property business and we are preparing to launch further European
property funds.
More than two thirds of our revenues are generated outside the UK with well
established positions in developed markets and rapidly growing businesses in
emerging markets. In Latin America, funds under management reached £2.9 billion
with continuing growth in Argentina, Brazil and Chile and a developing business
in Mexico. In China, our joint venture asset management company had funds under
management of £1.9 billion at the end of June (not reported in total funds under
management) and is operating profitably.
Private Banking
Private Banking profit before tax increased by 42 per cent. to £15.9 million (H1
2006: £11.2 million). The establishment of the Private Banking service centre
in Zurich was completed in April and we expect to see further efficiency gains
as a result, as well as improved client service. Net new business flows in the
first half were £0.2 billion (H1 2006: £0.2 billion) and funds under management
at the end of June increased to £9.3 billion (31 December 2006: £8.6 billion).
Private Equity and Group
Returns on our investment capital reflected in the income statement in the first
half were £56.8 million, representing an annualised return of 15 per cent. This
included realised gains and carried interest participations on Private Equity
investments of £38.4 million (H1 2006: £19.3 million). Unrealised profit on
investment capital included within shareholders' equity totalled £103.2 million
at 30 June 2007 (31 December 2006: £103.7 million).
Dividend
In the light of these results the Board has declared an increased interim
dividend of 9.0 pence per share (H1 2006: 7.5 pence per share). The dividend
will be paid on 21 September 2007 to shareholders on the register at the close
of business on 17 August 2007.
Summary
The first half of 2007 has been another strong period for the Group with a
significant increase in profit before tax and substantial inflows of higher
margin business. Our diversified product set and broad geographical
representation position us well for more challenging conditions in equity and
fixed income markets. We continue to see a wide range of future growth
opportunities for the Group.
Michael Dobson
Chief Executive
9 August 2007
Forward-looking statements
This interim results announcement contains certain forward-looking statements
and forecasts with respect to the financial condition, results of operations and
businesses of Schroders plc. These statements and forecasts involve risk and
uncertainty because they relate to events and depend upon circumstances that may
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. The forward-looking statements
and forecasts are based on the Directors' current view and information known to
them at the date of this announcement. The Directors do not make any
undertaking to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. Nothing in this
announcement should be construed as a profit forecast.
Condensed Consolidated Income Statement
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December
(unaudited) (unaudited) 2006
£mn £mn £mn
----------------------------------------------------------------------------------------------
Revenue 558.6 451.3 967.2
Cost of sales (109.1) (77.9) (169.0)
---------------------------------------------------
Gross profit 449.5 373.4 798.2
Administrative expenses (285.9) (259.3) (542.3)
---------------------------------------------------
Operating profit 163.6 114.1 255.9
Share of profit of associates 9.0 9.1 15.6
Share of profit/(loss) of joint ventures 3.0 0.1 (0.2)
12.0 9.2 15.4
Interest receivable and similar income 10.4 9.8 20.1
Interest payable and similar charges (0.4) (0.8) (1.4)
---------------------------------------------------
Profit before tax 185.6 132.3 290.0
UK tax (18.4) (11.6) (23.5)
Foreign tax (27.2) (22.4) (44.6)
Tax (45.6) (34.0) (68.1)
---------------------------------------------------
Profit after tax 140.0 98.3 221.9
---------------------------------------------------
Attributable to:
Minority interests 0.3 0.3 0.6
Equity holders of the parent 139.7 98.0 221.3
---------------------------------------------------
140.0 98.3 221.9
---------------------------------------------------
Memo - dividends (49.5) (42.0) (63.4)
Basic earnings per share 49.0p 33.7p 76.9p
Diluted earnings per share 48.2p 33.2p 75.7p
---------------------------------------------------
The interim dividend payable for 2007 is 9.0 pence per share, amounting to a
distribution of £25.8 million
Condensed Consolidated Balance Sheet
30 June 2007 30 June 2006 31 December 2006
(unaudited) (unaudited)
£mn £mn £mn
------------------------------------------------------------------------------------------------
Non-current assets
Goodwill 75.3 67.2 65.3
Intangible assets 21.0 14.2 15.0
Property, plant and equipment 19.3 9.9 12.7
Associates 16.1 30.2 21.7
Joint ventures 10.5 4.0 3.6
Financial assets 248.0 144.7 198.6
Deferred tax 35.1 56.0 44.4
Retirement benefit scheme asset 68.3 8.7 16.8
Trade and other receivables 397.8 343.5 404.0
------------------------------------------------
891.4 678.4 782.1
Current assets
Financial assets 1,681.8 1,568.4 1,664.0
Current tax 7.0 13.8 16.5
Trade and other receivables 641.0 795.3 617.0
Cash and cash equivalents 415.8 504.8 439.2
------------------------------------------------
2,745.6 2,882.3 2,736.7
Non-current assets held for sale 65.3 31.8 60.1
Assets backing insurance unit-linked liabilities
Investments in authorised unit trusts 1,624.7 40.9 1,307.4
Other financial assets 592.5 - 211.7
Cash and cash equivalents 13.6 41.5 12.9
------------------------------------------------
2,230.8 82.4 1,532.0
------------------------------------------------
Total assets 5,933.1 3,674.9 5,110.9
------------------------------------------------
Equity
Called up share capital 294.0 296.6 293.9
Share premium account 48.0 34.2 36.4
Other reserves 10.1 15.1 15.1
Capital reserves 160.5 150.2 156.3
Own shares held (75.9) (90.6) (90.9)
Net exchange differences (65.3) (17.9) (53.7)
Retained profits 1,204.2 955.5 1,086.3
------------------------------------------------
Equity attributable to equity holders of the parent 1,575.6 1,343.1 1,443.4
Minority interests 0.4 0.1 0.2
------------------------------------------------
Total equity 1,576.0 1,343.2 1,443.6
Non-current liabilities
Financial liabilities - 15.2 -
Deferred tax 2.4 2.8 2.4
Provisions 10.7 9.4 10.8
Trade and other payables 316.5 378.7 325.2
------------------------------------------------
329.6 406.1 338.4
Current liabilities
Financial liabilities 0.3 0.4 0.3
Provisions 9.3 12.4 13.9
Current tax 45.7 43.7 31.9
Trade and other payables 1,741.4 1,786.7 1,750.8
------------------------------------------------
1,796.7 1,843.2 1,796.9
Insurance unit-linked liabilities
Liability linked to life company investments 2,230.8 82.4 1,532.0
------------------------------------------------
Total equity and liabilities 5,933.1 3,674.9 5,110.9
------------------------------------------------
Condensed Consolidated Statement of Recognised Income and Expense
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December
(unaudited) (unaudited) 2006
£mn £mn £mn
------------------------------------------------------------------------------------------------
Exchange differences on translation of foreign
operations (11.6) (30.1) (65.9)
Net gains on hedges recognised directly in equity 8.2 18.0 32.2
Actuarial gains/(losses) on defined benefit pension 40.5 (1.2) 5.5
schemes
Net gains on available-for-sale financial assets 26.3 17.7 65.2
Amounts recycled through the income statement (21.0) (12.9) (26.8)
Tax on items taken directly to equity (9.8) 6.4 6.6
------------------------------------------------
Net income and expense recognised directly in equity 32.6 (2.1) 16.8
Profit for the period 140.0 98.3 221.9
------------------------------------------------
Total recognised income and expense for the period 172.6 96.2 238.7
------------------------------------------------
Attributable to:
Minority interests 0.3 0.3 0.6
Equity holders of the parent 172.3 95.9 238.1
------------------------------------------------
172.6 96.2 238.7
------------------------------------------------
Condensed Consolidated Cash Flow Statement
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December
(unaudited) (unaudited) 2006
£mn £mn £mn
------------------------------------------------------------------------------------------------
Net cash from operating activities 196.0 210.8 209.2
Investing activities
Acquisition of subsidiaries (27.7) (19.3) (19.8)
Cash acquired with acquisitions 6.2 6.8 6.8
Purchase of joint ventures (1.4) - -
Purchase of intangible assets (6.1) (0.9) (4.6)
Purchase of property, plant and equipment (8.6) (2.6) (7.1)
Purchase of non-current financial assets (70.1) (13.8) (62.9)
Purchase of non-current assets held for sale (28.1) (38.8) (90.1)
Disposal of non-current assets held for sale 9.6 26.6 50.8
Proceeds from sale of non-current financial assets 22.2 18.3 64.1
Proceeds from sale of property, plant and equipment - 0.3 0.4
Net proceeds from (purchase)/sale of current financial
assets (81.5) 72.0 58.6
Interest received 9.6 6.6 9.0
Dividends/capital distributions received from
associates and joint ventures 14.7 8.4 23.6
-----------------------------------------------
Net cash (used in)/from investing activities (161.2) 63.6 28.8
Financing activities
Proceeds from issue of share capital 16.7 24.7 27.8
Acquisition of own shares (17.7) (86.8) (90.8)
Disposal of own shares 19.0 34.5 37.3
Redemption of ordinary share capital (21.8) (56.3) (84.3)
Dividends paid (49.5) (42.0) (63.4)
-----------------------------------------------
Net cash used in financing (53.3) (125.9) (173.4)
-----------------------------------------------
Net (decrease)/increase in cash and cash equivalents (18.5) 148.5 64.6
-----------------------------------------------
Opening cash and cash equivalents 452.1 402.4 402.4
Net (decrease)/increase in cash and cash equivalents (18.5) 148.5 64.6
Effect of exchange rate changes (4.2) (4.6) (14.9)
-----------------------------------------------
Closing cash and cash equivalents 429.4 546.3 452.1
-----------------------------------------------
Closing cash and cash equivalents consists of:
Cash and cash equivalents backing insurance-unit
linked liabilities 13.6 41.5 12.9
Other cash and cash equivalents held by the Group 415.8 504.8 439.2
-----------------------------------------------
429.4 546.3 452.1
-----------------------------------------------
Notes to the Accounts
Basis of Preparation
The interim report, expected to be forwarded to shareholders on 17 August, is
unaudited and does not constitute statutory accounts within the meaning of s240
of the Companies Act 1985. The statutory accounts for 2006, which were prepared
in accordance with International Financial Reporting Standards, as endorsed by
the European Union ('IFRS'), and with those parts of the Companies Act 1985
applicable to companies reporting under IFRS, have been delivered to the
Registrar of Companies. The auditors' opinion on these accounts was unqualified
and did not contain a statement made under s237 (2) or s237 (3) of the Companies
Act 1985.
The interim report has been prepared in accordance with IAS 34 'Interim
Financial Reporting' and the Listing Rules of the Financial Services Authority
('FSA').
The accounting policies applied in these interim financial statements are
consistent with those applied in the Group's statutory accounts for 2006.
Segmental Reporting
Primary reporting format - business segments
The Group has four continuing classes of business: Asset Management, Private
Banking, Private Equity and Group. Asset Management principally comprises
investment management including advisory services, property, life company
business and alternative assets; Private Banking principally comprises
investment management and banking services provided to high net worth
individuals and certain smaller institutions; Private Equity principally
comprises the Group's investments in private equity, venture and buyout funds
and related vehicles; Group consists of income on the Group's liquid and seed
capital less Group costs and provisions, and the results of the leasing
business.
The allocation of costs to individual business segments is undertaken in order
to provide management information on the cost of providing services and to
provide managers with a tool to manage and control expenditure. Costs are
allocated on a basis that aligns the charge with the resources employed by the
Group in a particular area of its business. Typical dynamic allocation bases are
square footage occupied and number of staff employed by particular business
segments.
Six months ended 30 June 2007 Asset Private Private Group Inter-segment Total
Management Banking Equity £mn elimination £mn
£mn £mn £mn £mn
-------------------------------------------------------------------------------------------------------------
External revenue 460.9 38.6 29.4 18.4 - 547.3
External net interest - 11.3 - - - 11.3
Inter-segment interest payable - (0.9) - - 0.9 -
Total revenue 460.9 49.0 29.4 18.4 0.9 558.6
Cost of sales (107.6) (1.5) - - - (109.1)
------------------------------------------------------------------------
Gross profit 353.3 47.5 29.4 18.4 0.9 449.5
Administrative expenses (240.5) (31.6) (2.2) (11.6) - (285.9)
------------------------------------------------------------------------
Operating profit 112.8 15.9 27.2 6.8 0.9 163.6
Share of profit of associates - - 9.0 - - 9.0
Share of profit of joint ventures 3.0 - - - - 3.0
3.0 - 9.0 - - 12.0
External interest receivable and 3.5 - - 6.9 - 10.4
similar income
Inter-segment interest receivable 4.1 - - (3.2) (0.9) -
Interest receivable and similar
income 7.6 - - 3.7 (0.9) 10.4
Interest payable and similar
charges (0.2) - - (0.2) - (0.4)
------------------------------------------------------------------------
Profit before tax 123.2 15.9 36.2 10.3 - 185.6
------------------------------------------------------------------------
Inter-segment amounts represent interest payable and receivable on
inter-segmental loans and cash balances held by Private Banking on behalf of
Group companies.
Segmental Reporting (continued)
Six months ended 30 June 2006 Asset Private Private Inter-segment
Management Banking Equity Group elimination Total
£mn £mn £mn £mn £mn £mn
---------------------------------------------------------------------------------------------------------
External revenue 377.3 37.7 10.2 14.3 - 439.5
External net interest - 11.8 - - - 11.8
Inter-segment interest payable - (3.3) - - 3.3 -
Total revenue 377.3 46.2 10.2 14.3 3.3 451.3
Cost of sales (76.9) (1.0) - - - (77.9)
------------------------------------------------------------------------
Gross profit 300.4 45.2 10.2 14.3 3.3 373.4
Administrative expenses (208.4) (34.0) (1.6) (15.3) - (259.3)
------------------------------------------------------------------------
Operating profit 92.0 11.2 8.6 (1.0) 3.3 114.1
Share of profit of associates - - 9.1 - - 9.1
Share of profit of joint ventures 0.1 - - - - 0.1
0.1 - 9.1 - - 9.2
External interest receivable and 2.8 - - 7.0 - 9.8
similar income
Inter-segment interest receivable 2.4 - - 0.9 (3.3) -
Interest receivable and similar
income 5.2 - - 7.9 (3.3) 9.8
Interest payable and similar
charges (0.5) - - (0.3) - (0.8)
------------------------------------------------------------------------
Profit before tax 96.8 11.2 17.7 6.6 - 132.3
---------------------------------------------------------------------------------------------------------
Inter-segment amounts represent interest payable and receivable on
inter-segmental loans and cash balances held by Private Banking on behalf of
Group companies.
Tax Expense
Six months Six months Year ended
ended ended 31 December
30 June 2007 30 June 2006 2006
£mn £mn £mn
------------------------------------------------------------------------------------------------------
Current tax
UK corporation tax on profits of the period 55.2 28.3 38.7
Double taxation relief (36.1) (15.1) (20.8)
------------------------------------
19.1 13.2 17.9
Adjustments in respect of prior periods 0.2 0.1 (6.2)
------------------------------------
19.3 13.3 11.7
Foreign tax - current 27.2 22.0 47.1
Foreign tax - adjustments in respect of prior periods - (0.8) (0.8)
------------------------------------
Total current tax 46.5 34.5 58.0
Deferred tax - origination and reversal of temporary differences (0.5) (4.2) 6.5
Adjustments in respect of prior periods (0.4) 3.7 3.6
------------------------------------
Total tax charge for the period 45.6 34.0 68.1
------------------------------------
Reconciliation of Net Cash from Operating Activities
Six months Six months Year ended
ended ended 31 December
30 June 2007 30 June 2006 2006
£mn £mn £mn
-------------------------------------------------------------------------------------------------------
Operating profit 163.6 114.1 255.9
Adjustments for:
Depreciation and amortisation of software 3.7 4.2 7.5
Amortisation of fund management contracts 0.8 - 1.0
Impairment of available-for-sale financial assets recycled through
the income statement - 6.4 1.4
Other amounts recycled through the income statement in respect of (21.0) (16.5) (24.7)
financial assets
Increase in trade and other receivables (38.0) (277.5) (238.5)
(Decrease)/increase in trade and other payables and provisions (17.8) 214.7 195.1
Increase in insurance unit-linked liabilities 698.8 82.4 1,532.0
Net decrease in financial liabilities - (0.5) (15.9)
Profit on disposal of business - (2.7) (2.7)
(Credit)/charge for provisions (0.8) 1.0 5.8
Impairment of non-current assets held for sale 0.2 2.2 -
Net gains on financial assets held at fair value through profit or
loss (28.1) (19.5) (30.3)
Share-based payments expensed 13.0 15.2 27.5
Other non-cash movements 21.4 13.5 42.7
United Kingdom corporation tax (paid)/recovered (1.4) 4.2 5.1
Overseas tax paid (34.2) (18.2) (36.2)
Interest received 0.4 4.0 10.6
Interest paid (0.4) (0.8) (1.4)
Net purchase of assets backing insurance unit-linked liabilities (698.1) (40.9) (1,519.1)
Net disposal/(purchase) of current financial assets 133.9 125.5 (6.6)
------------------------------------
Net cash from operating activities 196.0 210.8 209.2
-------------------------------------------------------------------------------------------------------
Funds under Management - 2007 Flows
Institutional Retail Private Banking Total
£bn £bn £bn £bn
31 December 2006 77.4 42.5 8.6 128.5
Inflows 5.7 8.1 1.6 15.4
Outflows (9.8) (4.5) (1.4) (15.7)
Net asset (losses)/gains (4.1) 3.6 0.2 (0.3)
Investment returns 5.0 2.6 0.5 8.1
Adjustment on purchase of Aareal Asset
Management 1.3 - - 1.3
-------------------------------------------------
30 June 2007 79.6 48.7 9.3 137.6
---------------------------------------------------------------------------------------------
Income and Cost Metrics for the Group
Six months ended Six months ended
30 June 2007 30 June 2006
---------------------------------------------------------------------------------------------------
Group cost: income ratio 61% 66%
Group cost: gross profit 64% 69%
Return on average capital (pre-tax) 25% 20%
Return on average capital (post-tax) 19% 15%
Asset Management cost: gross profit 68% 69%
Asset Management gross profit on average funds under management 57bps 51bps
Asset Management costs on average funds under management 39bps 36bps
Asset Management costs on closing funds under management 38bps 37bps
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