4th Mar 2008 07:01
Schroders PLC04 March 2008 4 March 2008 Press Release Schroders plc Preliminary Results to 31 December 2007 (unaudited) Profit before tax up 35 per cent. • Continued growth in higher margin business across Retail and Institutional • Profit before tax up 35 per cent. to £392.5 million (2006: £290.0 million) • Asset Management profit before tax £266.5 million (2006: £219.0 million) • Private Banking profit before tax £41.3 million (2006: £26.9 million) • Private Equity and Group profit before tax £84.7 million (2006: £44.1 million) • Basic earnings per share up 36 per cent. to 104.8 pence (2006: 76.9 pence) • Final dividend increased to 21.0 pence per share (final dividend 2006: 17.5 pence per share) taking the full-year dividend to 30.0 pence per share (2006: 25.0 pence per share) • Funds under management £139.1 billion (31 December 2006: £128.5 billion) Year ended Year ended 31 December 2007 31 December 2006 £mn £mn_______________________________________________________________________________________________________________ Asset Management profit 266.5 219.0Private Banking profit 41.3 26.9Private Equity profit 58.5 34.6Group profit 26.2 9.5_______________________________________________________________________________________________________________ Profit before tax 392.5 290.0_______________________________________________________________________________________________________________ Funds under management (£bn) 139.1 128.5_______________________________________________________________________________________________________________ Basic earnings per share (pence) 104.8 76.9_______________________________________________________________________________________________________________ Total dividend (pence) 30.0 25.0_______________________________________________________________________________________________________________ Contacts: SchrodersEmma Tovey Head of Corporate Communications +44 (0) 207 658 2329 [email protected] Maitland Consultancy William Clutterbuck +44 (0) 207 379 5151 [email protected] Management Statement 2007 was a year of continued progress for Schroders in spite of the recentturbulence in financial markets. This reflected the diversity of our businessby region, by client channel and by product. Income* increased 21 per cent. to £1,004.3 million (2006: £832.3 million) andGroup profit before tax increased 35 per cent. to £392.5 million (2006: £290.0million). Funds under management at the year end were 8 per cent. higher at£139.1 billion (2006: £128.5 million). Asset Management We continued to see the benefits of a strategy focused on higher value added,higher margin products in both Institutional and Retail channels and thedevelopment of our already extensive international business. Gross profitmargins increased to 60 basis points (2006: 55 basis points) and more than twothirds of income was earned outside the UK. Asset Management income increased20 per cent. to £785.4 million (2006: £655.6 million) and profit before taxincreased 22 per cent. to £266.5 million (2006: £219.0 million). We had a record year in our Retail business with net sales of £8.8 billion.Retail net inflows were exceptionally strong in Asia Pacific and the UK, andheavily outweighed net outflows in Continental Europe which to a large extentreflected the experience of the European fund industry as a whole. In AsiaPacific a well established presence on the ground in eight countries across theregion coupled with a competitive product range led to a very significantincrease in net sales. In the UK net sales doubled compared to 2006, as did ourmarket share of flows from the independent intermediary sector. In the US, thesecond year of our initiative in the intermediary channel, we saw a satisfactoryincrease in flows and an expanding number of distribution relationships. 67 percent. of funds under management outperformed their peer group in the three yearsto the end of 2007 and funds under management in Retail ended the year at £56.2billion (2006: £42.5 billion). In China our joint venture asset managementcompany had net sales of £0.8 billion bringing funds under management to £3.8billion at the year end (not reported in total funds under management). Our Institutional business also made progress in 2007. We won more than 100 newinstitutional mandates in the UK alone and our business continues to evolvetowards new, higher margin asset classes: fees on business won in 2007 were onaverage more than 40 per cent. higher than the fees on business lost. Income inInstitutional increased despite net outflows of £10.6 billion, which includedcontinued outflows from UK balanced and UK equities and, to a lesser extent,Japanese and Asian equities, the latter in part driven by client assetallocation decisions. Overall investment performance improved with 69 per cent.of institutional funds under management outperforming their benchmarks in thethree years to the end of 2007. Funds under management in Institutional endedthe year at £73.2 billion (2006: £77.4 billion). We have a growing and widely diversified alternatives business encompassingproperty, funds of hedge funds, private equity funds of funds, emerging marketdebt, commodities and agriculture funds. Alternative funds under management nowamount to £15.9 billion, more than 25 per cent. up on the year. We have an extensive network of overseas offices across Asia, Continental Europeand North and South America, with strong representation in developing markets.During the year we added to our presence on the ground with new offices inMumbai and Dubai, and we expect continued high levels of growth in ourinternational business which is well placed to benefit from the demographic andsavings trends in developing markets. Private Banking Private Banking had another strong year with income up 11 per cent to £105.9million (2006: £95.7 million) and profit before tax up 54 per cent. to £41.3million (2006: £26.9 million). We completed the transfer of our back officeoperations to Zurich during the year which enabled us both to improve our clientreporting and reduce costs. We recently completed the acquisition of a smallprivate client business in Singapore which will give us a platform from which toserve high net worth individuals in the region. Net new business in 2007amounted to £0.2 billion (2006: £0.4 billion) and funds under management endedthe year at £9.7 billion (2006: £8.6 billion). Group and Private Equity In 2007 we achieved realised gains of £101.6 million (2006: £75.7 million) onour investment capital which totalled £979.6 million (2006: £789.0 million) atthe year end. A high level of realisations during the year resulted in profitbefore tax from our private equity portfolio of £58.5 million (2006: £34.6million). Profit before tax from Group was £26.2 million (2006: £9.5 million).Given more challenging markets, we anticipate a reduced level of private equityrealisations in 2008 and lower returns on seed capital investments. Dividend The Board is recommending an increased final dividend of 21.0 pence per share,payable on 30 April 2008 to shareholders on the register at 18 March 2008. Thisbrings the total dividend for the year to 30.0 pence per share (2006: 25.0 penceper share), an increase of 20 per cent. Outlook Recent months have seen a setback in equity markets and high levels ofvolatility as the impact of the sub-prime crisis in America has spread to worldfinancial markets and the real economy. This in turn has affected investors'risk appetite and retail flows across the industry have fallen back sharply. Weexpect these volatile market conditions to persist through much of 2008 and as aresult we envisage a less favourable environment for our business. Our costbase has a significant variable component linked to revenues which offsets inpart the impact of declining markets. However, we do not intend to scale backour strategic investment plans as we see this more challenging period as anopportunity to position Schroders for further growth in the longer term, takingadvantage of our strong financial position and highly diversified business. * Income comprises gross profit plus net finance income plus share of profit ofassociates and joint ventures Copies of today's announcement are available on the Schroders website:www.schroders.com. Michael Dobson, Chief Executive, and Stephen Brooks, Chief Financial Officer,will host a presentation and webcast for the investment community, to discussthe Group's preliminary results at 9am GMT on Tuesday, 4 March 2008 at 31Gresham Street, London, EC2V 7QA. The webcast can be viewed live atwww.schroders.com/ir and www.StreetEvents.com. For individuals unable to attendthe presentation or participate in the live webcast, a replay will be availablefrom midday on Tuesday 4 March on www.schroders.com/ir. Forward-looking statements This preliminary announcement may contain certain forward-looking statementswith respect to the financial condition, results of operations and businesses ofSchroders plc. Such statements and forecasts involve risk and uncertaintybecause they relate to events and depend upon circumstances that will occur inthe future. There are a number of factors that could cause actual results ordevelopments to differ materially from those expressed or implied by forward-looking statements and forecasts. The forward-looking statements and forecastsare based on the Directors' current view and information known to them at thedate of this announcement. The Directors do not make any undertaking to updateor revise any forward-looking statements, whether as a result of newinformation, future events or otherwise. Nothing in this announcement should beconstrued as a profit forecast. Consolidated Income Statementfor the year ended 31 December 2007 2007 2006 £mn £mn_________________________________________________________________________________________________________________ Revenue 1,191.8 967.2Cost of sales (232.4) (169.0) _________________________________ Gross profit 959.4 798.2 Administrative expenses (611.8) (542.3) _________________________________ Operating profit 347.6 255.9 ---------------------------------Interest receivable and similar income 23.1 20.1Interest payable and similar charges (0.5) (1.4) --------------------------------- Net finance income 22.6 18.7 Share of profit of associates and joint ventures 22.3 15.4 _________________________________ Profit before tax 392.5 290.0 ---------------------------------UK tax (34.7) (23.5)Foreign tax (54.1) (44.6) --------------------------------- Tax (88.8) (68.1) _________________________________ Profit after tax 303.7 221.9 _________________________________ Attributable to:Minority interests 4.0 0.6Equity holders of the parent 299.7 221.3 303.7 221.9 Memo - dividends (74.9) (63.4) Basic earnings per share 104.8p 76.9pDiluted earnings per share 103.2p 75.7p__________________________________________________________________________________________________________________ Consolidated Balance Sheet31 December 2007 2007 2006 £mn £mn_________________________________________________________________________________________________________________ Non-current assetsGoodwill 95.2 65.3Intangible assets 25.1 15.0Property, plant and equipment 25.6 12.7Associates and joint ventures 32.2 25.3Financial assets 220.8 215.6Loans and advances to customers 356.1 372.1Deferred tax 42.8 44.4Retirement benefit scheme assets 42.5 16.8Trade and other receivables 7.3 14.9 _________________________________ 847.6 782.1Current assetsFinancial assets 1,968.6 1,681.7Loans and advances to customers 266.9 316.2Current tax 7.6 16.5Trade and other receivables 305.2 283.1Cash and cash equivalents 715.5 439.2 _________________________________ 3,263.8 2,736.7 Non-current assets held for sale 37.5 60.1 Assets backing insurance unit-linked liabilities 2,727.8 1,532.0 _________________________________ Total assets 6,876.7 5,110.9 _________________________________ EquityCalled up share capital 294.5 293.9Share premium account 58.1 36.4Other reserves 68.1 26.8Retained profits 1,275.0 1,086.3 _________________________________ Equity attributable to equity holders of the parent 1,695.7 1,443.4 Minority interests 0.5 0.2 _________________________________ Total equity 1,696.2 1,443.6 Non-current liabilitiesFinancial liabilities 20.3 30.7Deposits by customers and banks 207.2 218.3Deferred tax 2.7 2.4Provisions 8.5 10.8Trade and other payables 93.5 76.2 _________________________________ 332.2 338.4Current liabilitiesFinancial liabilities 59.5 17.9Deposits by customers and banks 1,525.5 1,410.4Provisions 4.4 13.9Current tax 57.0 31.9Trade and other payables 474.1 322.8 _________________________________ 2,120.5 1,796.9 Insurance unit-linked liabilities 2,727.8 1,532.0 _________________________________ Total equity and liabilities 6,876.7 5,110.9_________________________________________________________________________________________________________________ Consolidated Statement of Recognised Income and Expensefor the year ended 31 December 2007 2007 2006 £mn £mn_________________________________________________________________________________________________________________ Exchange differences on translation of foreign operations 25.4 (65.9)Net (losses)/gains on hedges recognised directly in equity (9.4) 32.2Actuarial gains on defined benefit pension schemes 5.5 5.5Net gains on available-for-sale financial assets 18.3 65.2Amounts recycled through the income statement (40.2) (26.8)Tax on items taken directly to equity 2.6 6.6 _________________________________ Net income and expense recognised directly in equity 2.2 16.8 Profit for the year 303.7 221.9 _________________________________ Total recognised income and expense for the year 305.9 238.7 _________________________________ Attributable to: Minority interests 4.0 0.6 Equity holders of the parent 301.9 238.1 _________________________________ 305.9 238.7_________________________________________________________________________________________________________________ Consolidated Cash Flow Statementfor the year ended 31 December 2007 2007 2006 £mn £mn_________________________________________________________________________________________________________________ Net cash from operating activities 620.8 209.2 Investing activitiesAcquisition of subsidiaries (27.7) (19.8)Cash acquired with acquisitions 6.2 6.8Purchase of joint ventures (1.5) -Purchase of intangible assets (11.9) (4.6)Purchase of property, plant and equipment (18.0) (7.1)Purchase of non-current financial assets (76.1) (62.9)Purchase of non-current assets held for sale (36.1) (90.1)Disposal of non-current assets held for sale 5.8 50.8Proceeds from sale of non-current financial assets 85.8 64.1Proceeds from sale of property, plant and equipment - 0.4Net (outflow)/proceeds from current financial assets (255.9) 58.6Interest received 25.1 9.0Dividends/capital distributions received from associates and joint ventures 20.1 23.6 _________________________________ Net cash (used in)/from investing activities (284.2) 28.8 Financing activitiesProceeds from issue of share capital 28.7 27.8Acquisition of own shares (21.5) (90.8)Disposal of own shares 19.2 37.3Redemption of ordinary share capital (34.1) (84.3)Distributions made to minority interests (0.2) -Dividends paid (74.9) (63.4) _________________________________ Net cash used in financing (82.8) (173.4) _________________________________ Net increase in cash and cash equivalents 253.8 64.6 _________________________________ Opening cash and cash equivalents 452.1 402.4Net increase in cash and cash equivalents 253.8 64.6Effect of exchange rate changes 11.0 (14.9) _________________________________ Closing cash and cash equivalents 716.9 452.1 _________________________________ Closing cash and cash equivalents consists of:Cash and cash equivalents backing insurance unit-linked liabilities 1.4 12.9Other cash and cash equivalents held by the Group 715.5 439.2 _________________________________ 716.9 452.1_________________________________________________________________________________________________________________ Notes to the Accounts Basis of Preparation The preliminary results for the year ended 31 December 2007 are unaudited. Thefinancial information included in this statement does not constitute the Group'sstatutory accounts within the meaning of Section 240 of the Companies Act 1985.Statutory accounts for the year ended 31 December 2007 will be delivered to theRegistrar of Companies in due course. The annual report will be posted to shareholders on 18 March and further copieswill be available from the Company Secretary at the Company's registered office.The Company's Annual General Meeting will be held on 24 April 2008 at 11.30 a.m.at 31 Gresham Street, London, EC2V 7QA. Presentation of the Preliminary Results Financial information for the year ended 31 December 2007 is presented inaccordance with IAS 1 Presentation of Financial Statements. IAS 1 allows anentity to present some of its assets and liabilities using a current/non-currentclassification and others in order of liquidity when this provides informationthat is reliable and more relevant. The Group has adopted this mixed basis ofpresentation within its consolidated balance sheet as the current/non-currentallocation is the more relevant presentation for the Group generally, whilst theassets and liabilities of the Group's life company business are more relevantlypresented based on liquidity. Accounting Policies In preparing the financial information included in this statement the Group hasapplied policies which are in accordance with International Financial ReportingStandards ('IFRS') as adopted by the European Union at 31 December 2007, and inaccordance with the IFRS accounting policies that were applied as at 31 December2006. Segmental Reporting Primary Reporting Format - Business Segments The Group has four continuing business segments: Asset Management, PrivateBanking, Private Equity and Group. Asset Management principally comprisesinvestment management including advisory services, property, life companybusiness and alternative assets; Private Banking principally comprisesinvestment management and banking services provided to high net worthindividuals and certain smaller institutions; Private Equity principallycomprises the Group's investments in private equity, venture and buy-out fundsand related vehicles; Group consists of income on the Group's liquid and seedcapital less Group costs and provisions, and the results of the leasingbusiness, which was sold during the year. The allocation of costs to individual business segments is undertaken in orderto provide management information on the cost of providing services and toprovide managers with a tool to manage and control expenditure. Costs areallocated on a basis that aligns the charge with the resources employed by theGroup in a particular area of its business. Typical dynamic allocation bases aresquare footage occupied and number of staff employed by particular businesssegments. Non-current assets held for sale are included within the Group segment. Year ended 31 December 2007 Asset Private Private Inter-segment Management Banking Equity Group elimination Total £mn £mn £mn £mn £mn £mn________________________________________________________________________________________________________________ External revenue 991.4 87.6 48.1 41.0 - 1,168.1 External net interest - 23.7 - - - 23.7 Inter-segment interest payable - (1.7) - - 1.7 - ---------------------------------------------------------------------- Total revenue 991.4 109.6 48.1 41.0 1.7 1,191.8 Cost of sales (228.6) (3.7) - (0.1) - (232.4) ______________________________________________________________________ Gross profit 762.8 105.9 48.1 40.9 1.7 959.4 Administrative expenses (518.9) (64.6) (4.7) (23.6) - (611.8) ______________________________________________________________________ Operating profit 243.9 41.3 43.4 17.3 1.7 347.6 ---------------------------------------------------------------------- External interest receivable and 7.6 - - 15.5 - 23.1 similar income Inter-segment interest receivable 8.0 - - (6.3) (1.7) - ---------------------------------------------------------------------- Interest receivable and similar 15.6 - - 9.2 (1.7) 23.1 income Interest payable and similar charges (0.2) - - (0.3) - (0.5) ---------------------------------------------------------------------- Net finance income 15.4 - - 8.9 (1.7) 22.6 Share of profit of associates and 7.2 - 15.1 - - 22.3 joint ventures ______________________________________________________________________ Profit before tax 266.5 41.3 58.5 26.2 - 392.5 ______________________________________________________________________ Inter-segment amounts represent interest payable and receivable on cash balancesheld by Private Banking on behalf of Group companies. Segmental Reporting (continued) Year ended 31 December 2006 Asset Private Private Inter-segment Management Banking Equity Group elimination Total £mn £mn £mn £mn £mn £mn_________________________________________________________________________________________________________________ External revenue 811.1 80.1 22.2 31.0 - 944.4External net interest - 22.8 - - - 22.8Inter-segment interest payable - (4.4) - - 4.4 - --------------------------------------------------------------------- Total revenue 811.1 98.5 22.2 31.0 4.4 967.2 Cost of sales (166.2) (2.8) - - - (169.0) _____________________________________________________________________ Gross profit 644.9 95.7 22.2 31.0 4.4 798.2 Administrative expenses (436.6) (68.8) (3.2) (33.7) - (542.3) _____________________________________________________________________ Operating profit 208.3 26.9 19.0 (2.7) 4.4 255.9 --------------------------------------------------------------------- External interest receivable and 6.3 - - 13.8 - 20.1similar incomeInter-segment interest receivable 5.2 - - (0.8) (4.4) - --------------------------------------------------------------------- Interest receivable and similar income 11.5 - - 13.0 (4.4) 20.1Interest payable and similar charges (0.6) - - (0.8) - (1.4) --------------------------------------------------------------------- Net finance income 10.9 - - 12.2 (4.4) 18.7 Share of profit of associates and joint ventures (0.2) - 15.6 - - 15.4 _____________________________________________________________________ Profit before tax 219.0 26.9 34.6 9.5 - 290.0 _____________________________________________________________________ Inter-segment amounts represent interest payable and receivable on cash balancesheld by Private Banking on behalf of Group companies. Tax Expense 2007 2006 £mn £mn_________________________________________________________________________________________________________________ Profit before tax 392.5 290.0 _________________________________ Profit before tax multiplied by corporation tax at the UK standard rate of 117.8 87.030% (2006: 30%) Effects of:Impact of profits/losses arising in jurisdictions with higher tax rates 1.4 7.0Impact of profits/losses arising in jurisdictions with lower tax rates (36.2) (24.6)Non-taxable income net of disallowable expenses (1.6) (4.7)Movement in unrecognised deferred tax - current year (2.4) 2.9UK tax on profits of overseas entities after double tax relief 6.0 4.0Overseas tax on profits of UK entities after double tax relief 0.7 -Deferred tax adjustments in respect of changes in corporation tax rates 2.8 - Prior year adjustments:UK prior year - current 0.4 (6.3)Foreign tax prior year - current 0.4 (0.8)Deferred tax prior year (0.5) 3.6 _________________________________ Total tax charge for the year 88.8 68.1_________________________________________________________________________________________________________________ Reconciliation of Net Cash from Operating Activities 2007 2006 £mn £mn_________________________________________________________________________________________________________________ Operating profit 347.6 255.9 Adjustments for:Depreciation and amortisation of software 8.7 7.5Amortisation of fund management contracts 1.7 1.0Impairment of available-for-sale financial assets recycled through the income - 1.4statementOther amounts recycled through the income statement in respect of financial (40.2) (24.7)assetsDecrease/(increase) in trade and other receivables 72.6 (241.2)Increase in trade and other payables and provisions 231.5 195.1Increase in insurance unit-linked liabilities 1,195.8 1,532.0Net decrease in financial liabilities - (15.9)Net (release of)/charge for provisions (5.4) 5.8Net gains on financial assets and liabilities held at fair value through (46.2) (30.3)profit or loss*Share-based payments expensed 32.9 27.5Other non-cash movements 1.6 52.0Payments made to defined benefit schemes (19.9) (9.3)UK corporation tax (paid)/recovered (9.3) 5.1Overseas tax paid (58.2) (36.2)Interest received 0.5 10.6Interest paid (0.5) (1.4)Net purchase of assets backing insurance unit-linked liabilities (1,207.3) (1,519.1)Net proceeds/(outflow) from current financial assets 114.9 (6.6) _________________________________ Net cash from operating activities 620.8 209.2_________________________________________________________________________________________________________________ * Excludes gains and losses on all derivative assets and liabilities. Five-year Financial Summary Prepared under IFRS Prepared under UK GAAP* 2007 2006 2005 2004 2004 2003 £mn £mn £mn £mn £mn £mn_________________________________________________________________________________________ ______________________ Profit before tax 392.5 290.0 250.7 211.6 191.0 65.0Tax (88.8) (68.1) (57.4) (40.3) (41.4) (16.4) _______________________________________ ______________________ Profit after tax before minority interests 303.7 221.9 193.3 171.3 149.6 48.6Minority interests (4.0) (0.6) (2.0) (15.6) (15.6) - _______________________________________ ______________________ Profit for the year 299.7 221.3 191.3 155.7 134.0 48.6 _______________________________________ ______________________ Earnings per share:Basic earnings per share (pence) 104.8 76.9 65.7 53.5 46.0 16.5Diluted earnings per share (pence) 103.2 75.7 65.1 53.1 45.7 16.4 Dividends:Cost (£mn) 74.9 63.4 59.5 56.4 57.8 53.7Pence per share 26.5 22.0 20.5 19.5 20.0 18.5 Total equity (£mn) 1,696.2 1,443.6 1,343.1 1,130.6 1,114.1 1,029.2 Net assets per share (pence) 576 491 450 381 375 350_________________________________________________________________________________________________________________ * The main adjustments necessary that would make this information comply withIFRS are those concerned with the measurement of share-based payments,dividends, leases, employee benefits, intangible assets (including goodwill),revenue, and non-current assets classified as being held for sale. Funds under Management - 2007 Flows Private Total Institutional Retail Banking £bn £bn £bn £bn________________________________________________________________________________________________________________ 31 December 2006 128.5 77.4 42.5 8.6Adjustment on purchase of Aareal 1.3 1.3 - -Net flows (1.6) (10.6) 8.8 0.2Market movement 10.9 5.1 4.9 0.9 _______________________________________________________________ 31 December 2007 139.1 73.2 56.2 9.7________________________________________________________________________________________________________________ Income and Cost Metrics for the Group 2007 2006_________________________________________________________________________________________________________________ Group cost: income ratio 61% 65% Group cost: gross profits 64% 68% Compensation costs: operating revenues 46% 47% Return on average capital (pre-tax) 25% 21% Return on average capital (post-tax) 19% 16% Asset Management cost: gross profits 68% 68% Asset Management gross margin on average funds under management 60bps 55bps Asset Management costs on average funds under management 41bps 37bps Asset Management costs on closing funds under management 40bps 36bps This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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