Interim Results
Schroders PLC
11 August 2006
11 August 2006
Schroders plc
Interim Results to 30 June 2006
Schroders plc today announces its interim results to 30 June 2006.
Group profit before tax up 7 per cent., underlying+ profit up 28 per cent.
• Group profit before tax £132.3 million (H1 2005: £123.5 million,
£103.1 million underlying+)
• Asset Management profit before tax £96.8 million (H1 2005: £99.8 million,
£79.7 million underlying+)
• Private Banking profit before tax £11.2 million (H1 2005: £2.2 million,
£1.9 million underlying+)
• Private Equity profit before tax £17.7 million (H1 2005: £18.0 million)
• Funds under management £122.3 billion (31 December 2005: £122.5 billion)
• Interim dividend of 7.5 pence per share (interim dividend 2005:
7.0 pence per share)
Six months Six months Year ended
ended 30 June 2006 ended 30 June 2005 31 December 2005
(unaudited) (unaudited)
£mn £mn £mn
-------------------------------------------------------------------------------------------
Asset Management profit 96.8 99.8 193.9
Private Banking profit 11.2 2.2 6.3
Private Equity profit 17.7 18.0 40.3
Group Net Income/(Costs) 6.6 3.5 10.2
-------------------------------------------------------------------------------------------
Profit before tax 132.3 123.5 250.7
-------------------------------------------------------------------------------------------
+ The term 'underlying' denotes that the relevant 2005 comparative has been
adjusted to remove the impact of the one-off gain recorded in the first half of
2005 on the discontinuation of a project to outsource the UK custody and portfolio
accounting services. The effect of this adjustment is to reduce profit before
tax in the first half of 2005 by £20.4 million (split between £20.1 million in
the Asset Management segment and £0.3 million in Private Banking).
Contacts:
Schroders
Michael Dobson Chief Executive +44 (0) 20 7658 6962
Jonathan Asquith Chief Financial Officer +44 (0) 20 7658 6565
Henrietta Jowitt Head of Marketing and Communications +44 (0) 20 7658 6166
The Maitland Consultancy
William Clutterbuck +44 (0) 20 7379 5151
Management Statement
Group profit before tax increased to £132.3 million, compared with £123.5
million in the first half of 2005. Adjusting for the one-off gain in 2005 of
£20.4 million arising from a discontinued outsourcing contract, underlying+
profit increased by 28 per cent.
Asset Management
Asset Management revenue increased by 21 per cent. to £377.3 million (H1 2005:
£311.9 million), driven by higher margins and overall market levels. Gross
profit rose to £300.4 million (H1 2005: £250.3 million).
Asset Management expenses were £208.4 million (H1 2005: £174.0 million),
reflecting higher variable staff costs linked to stronger revenues and increased
investment in marketing and operating infrastructure. Asset Management profit
before tax was £96.8 million, an increase in underlying+ profit of 21 per cent.
Investment performance was competitive in the period across a broad range of
strategies in equities, fixed income and property. Recent consultant upgrades
included our core and global active value quantitative products and our new
pooled balanced product, the Diversified Growth Fund.
Net inflows in Retail were £2.3 billion (H1 2005: £1.6 billion), reflecting a
return to growth in comparison to the second half of 2005. A strong first
quarter was followed by a positive, but slower second quarter, as investor flows
were checked by market volatility. A combination of positive investment results
and active marketing restored net inflows in European equities. Emerging
markets, in particular the BRIC (Brazil, Russia, India, China) product, and the
absolute return Strategic Bond Fund contributed significantly to retail inflows.
Retail funds under management were £38.5 billion at the end of June (end 2005:
£36.0 billion).
Institutional saw net outflows of £4.6 billion (H1 2005: £2.0 billion),
principally as a result of performance issues in Japanese equities in earlier
years and continued outflows in UK balanced mandates. We have strengthened our
Japanese equities team and performance has improved. Institutional funds under
management were £75.7 billion at the end of June (end 2005: £78.7 billion).
The acquisition of NewFinance Capital announced in February was completed on 3
May 2006 and its results from that date have been consolidated in this report.
For the two months, revenue was £1.8 million with costs of £1.1 million,
contributing £0.7 million to Asset Management profit before tax. Assets under
management in funds of hedge funds at the end of June 2006 totalled £1.7
billion.
Private Banking
Private Banking revenue increased by 31 per cent. to £46.2 million (H1 2005:
£35.2 million) principally driven by increased activity in Switzerland and
higher transactional revenues in the UK and Channel Islands banking businesses.
Costs increased by 5 per cent. to £34.0 million (H1 2005: £32.4 million),
resulting in a pre-tax profit of £11.2 million (H1 2005: £2.2 million).
Net new business inflows were £0.3 billion (H1 2005: £0.4 billion) and funds
under management at the end of June were £8.1 billion (end 2005: £7.8 billion).
Investment in a project to centralise the Private Banking back-office operations
in Zurich is underway. Operating on a single technology and operations platform
should lead to significant improvements in client service and cost efficiencies
from the second half of 2007.
Private Equity
Realised gains and carried interest participations in Private Equity resulted in
a profit before tax of £17.7 million (H1 2005: £18.0 million). At the end of the
period the Group's remaining interests in private equity were valued at £155.0
million (end June 2005: £171.0 million).
Group Net Income/(Costs)
Profit for the period was £6.6 million (H1 2005: £3.5 million). Higher earnings
on seed and investment capital were partially offset by lower interest income.
Share Capital
During the first half of the year the Company repurchased for cancellation
5,508,960 non-voting ordinary shares. These repurchases neutralised the dilutive
effect of issuing new shares following the exercise of options granted under the
Company's share option plans. As set out in the notice of the meeting for the
2006 Annual General Meeting, it is the Company's policy to use such repurchases
to maintain the ratio of ordinary shares to non-voting ordinary shares over the
medium term. The effect of these repurchases has been to return the ratio to its
level in April 2000, when the Company was established in its present form
following the sale of the investment banking business. The Company has no
current intention to implement a general share repurchase programme.
Dividend
In the light of the growth in underlying+ profit and the Group's strong
financial position, the Board has declared an increased interim dividend of 7.5
pence per share (H1 2005: 7.0 pence per share). The dividend will be paid on
29 September 2006 to shareholders on the register at the close of business on
25 August 2006.
Summary
Against a background of volatile markets the Group has produced continued growth
in revenue and profit in the first half of 2006. Overall, as previously stated,
2006 is a year of consolidation for Schroders as equity market growth slows and
we invest in talent, business development and operating infrastructure. We have
a major product development programme underway to meet changing client needs in
areas such as liability-driven investing, quantitative strategies and absolute
return products. Combined with the strength of our existing business across
regions, products and sales channels, this period of investment should position
the Group well for 2007.
Michael Dobson
Chief Executive
11 August 2006
This interim announcement does not constitute the Interim Report for 2006. The
Interim Report is expected to be posted to shareholders on 18 August 2006.
Forward-looking statements
This interim announcement contains certain forward-looking statements 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 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.
Condensed consolidated income statement
Six months ended Six months ended Year ended
30 June 2006 30 June 2005 31 December2005
(unaudited) (unaudited)
£mn £mn £mn
------------------------------------------------------------------------------------------------------
Revenue 451.3 367.6 808.0
Cost of sales (77.9) (62.5) (131.0)
------------------------------------------------------
Gross profit 373.4 305.1 677.0
Gain on discontinued outsourcing contract - 20.4 20.4
Administrative expenses (255.1) (218.4) (473.4)
Depreciation and amortisation (4.2) (5.4) (10.9)
------------------------------------------------------
Operating profit 114.1 101.7 213.1
Share of profit of associates 9.1 9.0 13.7
Share of profit/(loss) of joint ventures 0.1 - (0.2)
----- ----- ----
9.2 9.0 13.5
Interest receivable and similar income 9.8 13.2 25.3
Interest payable and similar charges (0.8) (0.4) (1.2)
------------------------------------------------------
Profit before tax 132.3 123.5 250.7
UK tax (11.6) (14.4) (16.2)
Foreign tax (22.4) (18.4) (41.2)
------ ------ -----
Tax (34.0) (32.8) (57.4)
------------------------------------------------------
Profit after tax 98.3 90.7 193.3
------------------------------------------------------
Attributable to:
Minority interests 0.3 0.9 2.0
Equity holders of the parent 98.0 89.8 191.3
------------------------------------------------------
98.3 90.7 193.3
------------------------------------------------------
Memo - dividends paid in period (42.0) (39.2) (59.5)
Basic earnings per share 33.7p 30.8p 65.7p
Diluted earnings per share 33.2p 30.6p 65.1p
------------------------------------------------------------------------------------------------------
The interim dividend payable for 2006 is 7.5 pence per share, amounting to a distribution of
£21.5 million.
Condensed consolidated balance sheet
30 June 2006 30 June 2005 31 December 2005
(unaudited) (unaudited)
£mn £mn £mn
---------------------------------------------------------------------------------------------------------
Non-current assets
Intangible assets 81.4 32.1 30.2
Property, plant and equipment 9.9 7.3 9.4
Associates 30.2 33.7 31.6
Joint ventures 4.0 - 4.1
Other investments 144.7 113.9 123.9
Deferred tax 56.0 54.1 54.9
Trade and other receivables 352.2 205.5 303.0
Life company investments 82.4 - -
--------------------------------------------------------
760.8 446.6 557.1
Current assets
Investments 1,568.4 1,676.3 1,795.9
Current tax 13.8 13.6 17.7
Trade and other receivables 795.3 648.6 544.9
Cash and cash equivalents 504.8 367.1 402.4
--------------------------------------------------------
2,882.3 2,705.6 2,760.9
Non-current assets held for sale 31.8 15.8 23.4
--------------------------------------------------------
Total assets 3,674.9 3,168.0 3,341.4
Equity
Called up share capital 296.6 297.0 298.5
Share premium account 34.2 26.8 32.1
Other reserves 15.1 - -
Capital reserves 143.4 136.1 187.0
Own shares (90.6) (34.6) (45.7)
Retained profits 944.4 801.7 870.9
--------------------------------------------------------
Equity attributable to equity holders of the parent 1,343.1 1,227.0 1,342.8
Minority interests 0.1 3.7 0.3
--------------------------------------------------------
Total equity 1,343.2 1,230.7 1,343.1
Non-current liabilities
Debt securities in issue 15.2 - 12.0
Deferred tax 2.8 2.0 2.8
Provisions 9.4 7.5 10.1
Trade and other payables 378.7 203.4 185.3
Life company technical provisions 82.4 - -
--------------------------------------------------------
488.5 212.9 210.2
Current liabilities
Debt securities in issue 0.4 4.2 4.2
Provisions 12.4 12.1 14.7
Current tax 43.7 37.4 32.9
Trade and other payables 1,786.7 1,670.7 1,736.3
--------------------------------------------------------
1,843.2 1,724.4 1,788.1
--------------------------------------------------------
Total equity and liabilities 3,674.9 3,168.0 3,341.4
---------------------------------------------------------------------------------------------------------
Condensed consolidated statement of recognised
income and expense
Six months ended Six months ended Year ended
30 June 2006 30 June 2005 31 December 2005
(unaudited) (unaudited)
£mn £mn £mn
---------------------------------------------------------------------------------------------------------------------
Exchange differences on translation of foreign operations (30.1) 16.9 38.6
Net gains/(losses)on hedges recognised directly in equity 18.0 (13.0) (26.9)
Actuarial (losses)/gains on defined benefit pension schemes (1.2) (14.5) 5.1
Net gains on available-for-sale investments 17.7 5.2 44.3
Tax on items taken directly to equity 6.4 4.5 6.8
-------------------------------------------------------
Net income and expense recognised directly in equity 10.8 (0.9) 67.9
Profit for the period 98.3 90.7 193.3
-------------------------------------------------------
Total recognised income and expense for the period 109.1 89.8 261.2
-------------------------------------------------------
Attributable to:
Minority interests 0.3 0.9 2.0
Equity holders of the parent 108.8 88.9 259.2
-------------------------------------------------------
109.1 89.8 261.2
---------------------------------------------------------------------------------------------------------------------
Condensed consolidated cash flow statement
Six months ended Six months ended Year ended
30 June 2006 30 June 2005 31 December 2005
(unaudited) (unaudited)
£mn £mn £mn
-------------------------------------------------------------------------------------------------------
Net cash from/(used in) operating activities 169.3 (38.0) 92.2
Investing activities
Proceeds from disposal of business - - 0.2
Acquisition of subsidiaries (19.3) - (0.8)
Cash acquired with acquisition 6.8 - 0.8
Purchase of joint ventures - - (4.2)
Purchase of intangible assets (0.9) - (1.8)
Purchase of property, plant and equipment (2.6) (1.7) (5.7)
Purchase of non-current asset investments (13.8) (29.1) (62.4)
Purchase of non-current assets held for sale (38.8) - (23.4)
Disposal of non-current assets held for sale 26.6 - -
Proceeds from sale of intangible assets - - 0.1
Proceeds from sale of non-current asset investments 18.3 25.8 73.9
Proceeds from sale of property, plant and equipment 0.3 0.2 0.5
Proceeds from repayment of loans by associates - 30.3 30.3
Net disposal/(purchase) of current asset investments 72.0 (4.6) (68.9)
Interest received 6.6 7.8 15.7
Dividends/capital distributions received from associates
and joint ventures 8.4 0.1 9.0
-------------------------------------------------
Net cash from/(used in) investing activities 63.6 28.8 (36.7)
Financing activities
Proceeds from issue of share capital 24.7 0.1 21.8
Acquisition of own shares (86.8) (7.5) (23.7)
Disposal of own shares 34.5 - -
Redemption of ordinary share capital (56.3) (0.2) (15.3)
Distributions made to minority interests - (8.3) (11.9)
Dividends paid (42.0) (39.2) (59.5)
-------------------------------------------------
Net cash used in financing (125.9) (55.1) (88.6)
-------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 107.0 (64.3) (33.1)
-------------------------------------------------
Opening cash and cash equivalents 402.4 432.1 432.1
Net increase/(decrease) in cash and cash equivalents 107.0 (64.3) (33.1)
Effect of exchange rate changes (4.6) (0.7) 3.4
-------------------------------------------------
Closing cash and cash equivalents 504.8 367.1 402.4
-------------------------------------------------------------------------------------------------------
Basis of preparation
The interim report, expected to be forwarded to shareholders on 18 August, is
unaudited and does not constitute statutory accounts within the meaning of s240
of the Companies Act 1985. The statutory accounts for 2005, 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 polices applied in these interim financial statements are
consistent with those applied in the Group's most recent annual financial
statements. As a result of the incorporation of a life assurance company within
the Group during the period, an additional policy in respect of life
assurance companies is presented below:
Life assurance company investments and technical provisions are recognised and
measured under IAS 39 'Financial instruments: Recognition and Measurement' which
applies to investment contracts that do not meet the insurance contract
definition under IFRS 4 'Insurance contracts'. IAS 39 requires the investments
in life funds to be carried at fair value as a non-current asset, with gains and
losses recorded in the income statement in the period in which they arise. The
technical provision to offset this asset is classified as non-current to reflect
the long-term nature of the business. The liability is also recorded at fair
value.
Segmental reporting
Primary reporting format - business segments
The Group has four continuing classes of business: Asset Management, Private
Banking, Private Equity and Group Net Income/(Costs). Asset Management
principally comprises investment management including advisory services,
property 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 Net Income/(Costs) consists of income on the Group's
liquid and seed capital less Group costs and provisions, and the results of the
leasing business and the residual assets.
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.
Group Net Inter-
Asset Private Private Income/ segment
Management Banking Equity (Costs) elimination Total
Six months ended 30 June 2006 £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 -
----- ----- ---- ---- ---- ----
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 (205.6) (32.6) (1.6) (15.3) - (255.1)
Depreciation and amortisation (2.8) (1.4) - - - (4.2)
------------------------------------------------------------------
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 similar income 2.8 - - 7.0 - 9.8
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 cash balances held by Private Banking on behalf
of Group companies.
Segmental reporting (continued)
Group Net Inter-
Asset Private Private Income/ segment
Management Banking Equity (Costs) elimination Total
Six months ended 30 June 2005 £mn £mn £mn £mn £mn £mn
-------------------------------------------------------------------------------------------------------------------
External revenue 311.9 27.9 9.8 7.9 - 357.5
External net interest - 10.1 - - - 10.1
Inter-segment interest payable - (2.8) - - 2.8 -
----- ----- ---- ---- ---- -----
Revenue 311.9 35.2 9.8 7.9 2.8 367.6
Cost of sales (61.6) (0.9) - - - (62.5)
-----------------------------------------------------------------
Gross profit 250.3 34.3 9.8 7.9 2.8 305.1
Gain on discontinued outsourcing contract 20.1 0.3 - - - 20.4
Administrative expenses (170.6) (30.4) (1.4) (16.0) - (218.4)
Depreciation and amortisation (3.4) (2.0) - - - (5.4)
-----------------------------------------------------------------
Operating profit 96.4 2.2 8.4 (8.1) 2.8 101.7
Share of profit of associates 0.1 - 8.9 - - 9.0
External interest receivable and similar income 1.8 - 0.7 10.7 - 13.2
Inter-segment interest receivable 1.7 - - 1.1 (2.8) -
----- ---- ---- ---- ------ ----
Interest receivable and similar income 3.5 - 0.7 11.8 (2.8) 13.2
Interest payable and similar charges (0.2) - - (0.2) - (0.4)
-----------------------------------------------------------------
Profit before tax 99.8 2.2 18.0 3.5 - 123.5
-------------------------------------------------------------------------------------------------------------------
Inter-segment amounts represent interest payable and receivable on cash balances held by Private Banking
on behalf of Group companies.
Tax expense
Six months ended Six months ended Year ended
30 June 2006 30 June 2005 31 December 2005
£mn £mn £mn
-------------------------------------------------------------------------------------------------------
Current tax
UK corporation tax on profits of the period 28.3 21.2 29.6
Double taxation relief (15.1) (9.7) (17.4)
-----------------------------------------------
13.2 11.5 12.2
Adjustments in respect of prior periods 0.1 0.2 (0.1)
-----------------------------------------------
13.3 11.7 12.1
Foreign tax - current 22.0 18.2 39.4
Foreign tax - adjustments in respect of prior periods (0.8) 0.2 0.7
-----------------------------------------------
Total current tax 34.5 30.1 52.2
Deferred tax - origination and reversal of temporary
differences (4.2) 1.2 3.9
Adjustments in respect of prior periods 3.7 1.5 1.3
-----------------------------------------------
Total tax charge for the period 34.0 32.8 57.4
-------------------------------------------------------------------------------------------------------
Reconciliation of net cash from operating activities
Six months ended Six months ended Year ended
30 June 2006 30 June 2005 31 December 2005
£mn £mn £mn
-------------------------------------------------------------------------------------------------------
Operating profit 114.1 101.7 213.1
Adjustments for:
Depreciation and amortisation 4.2 5.4 10.9
Impairment of available-for-sale assets recycled through
the income statement 6.4 - 1.3
Other amounts recycled through the income statement in
respect of investments (16.5) - (32.3)
Increase in trade and other receivables (277.5) (168.1) (154.2)
Increase in trade and other payables and provisions 214.7 384.8 402.1
Increase in life assurance company technical provision 82.4 - -
Net decrease in debt securities in issue (0.5) (30.1) (18.0)
Profit on disposal of business (2.7) (0.2) (0.2)
Charge for provisions 1.0 1.0 9.4
Impairment of non-current assets held for sale 2.2 - -
Gains on investments at fair value through profit or loss (19.5) (6.9) (24.2)
Share-based payments expensed 15.2 10.0 23.3
Other non-cash movements 13.5 (6.2) (26.1)
Special payment made to UK pension scheme - (30.3) (30.3)
United Kingdom corporation tax recovered/(paid) 4.2 (6.9) (16.1)
Overseas tax paid (18.2) (21.4) (34.7)
Interest received 4.0 6.5 11.8
Interest paid (0.8) (0.4) (1.2)
Net purchase of life assurance company investments (82.4) - -
Net disposal/(purchase) of current asset investments 125.5 (276.9) (242.4)
----------------------------------------------
Net cash from/(used in) operating activities 169.3 (38.0) 92.2
-------------------------------------------------------------------------------------------------------
Funds under management - 2006 flows
Institutional Retail Private Banking Total
£bn £bn £bn £bn
-------------------------------------------------------------------------------------------------------
31 December 2005 78.7 36.0 7.8 122.5
Gross sales 4.2 14.0 1.4 19.6
Gross redemptions (8.8) (11.7) (1.1) (21.6)
----- ------ ----- -----
Net asset (losses)/gains (4.6) 2.3 0.3 (2.0)
Market movement 0.4 0.2 - 0.6
Adjustment on purchase of NewFinance Capital 1.2 - - 1.2
------------------------------------------------------
30 June 2006 75.7 38.5 8.1 122.3
-------------------------------------------------------------------------------------------------------
Income and cost metrics for the Group
Six months ended Six months ended
30 June 2006 30 June 2005
--------------------------------------------------------------------------------------------------------
Group cost: income ratio 66% 64%
Group cost: gross profits 69% 73%
Return on average capital (pre-tax) 20% 21%
Return on average capital (post-tax) 15% 15%
Asset Management cost: gross profits 69% 69%
Asset Management gross profit on average funds under management 51bps 49bps
Asset Management costs on average funds under management 36bps 34bps
Asset Management costs on closing funds under management 37bps 33bps
--------------------------------------------------------------------------------------------------------
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