11th Aug 2006 07:01
Schroders PLC11 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 99.8 193.9Private Banking profit 11.2 2.2 6.3Private Equity profit 17.7 18.0 40.3Group 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 beenadjusted to remove the impact of the one-off gain recorded in the first half of2005 on the discontinuation of a project to outsource the UK custody and portfolioaccounting services. The effect of this adjustment is to reduce profit beforetax in the first half of 2005 by £20.4 million (split between £20.1 million inthe Asset Management segment and £0.3 million in Private Banking). Contacts: Schroders Michael Dobson Chief Executive +44 (0) 20 7658 6962Jonathan Asquith Chief Financial Officer +44 (0) 20 7658 6565Henrietta 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 £123.5million 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. Grossprofit 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 increasedinvestment in marketing and operating infrastructure. Asset Management profitbefore 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 ofstrategies in equities, fixed income and property. Recent consultant upgradesincluded our core and global active value quantitative products and our newpooled balanced product, the Diversified Growth Fund. Net inflows in Retail were £2.3 billion (H1 2005: £1.6 billion), reflecting areturn to growth in comparison to the second half of 2005. A strong firstquarter was followed by a positive, but slower second quarter, as investor flowswere checked by market volatility. A combination of positive investment resultsand active marketing restored net inflows in European equities. Emergingmarkets, in particular the BRIC (Brazil, Russia, India, China) product, and theabsolute 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 earlieryears and continued outflows in UK balanced mandates. We have strengthened ourJapanese equities team and performance has improved. Institutional funds undermanagement 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 3May 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 undermanagement in funds of hedge funds at the end of June 2006 totalled £1.7billion. 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 andhigher 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 fundsunder 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 operationsin Zurich is underway. Operating on a single technology and operations platformshould lead to significant improvements in client service and cost efficienciesfrom the second half of 2007. Private Equity Realised gains and carried interest participations in Private Equity resulted ina profit before tax of £17.7 million (H1 2005: £18.0 million). At the end of theperiod the Group's remaining interests in private equity were valued at £155.0million (end June 2005: £171.0 million). Group Net Income/(Costs) Profit for the period was £6.6 million (H1 2005: £3.5 million). Higher earningson seed and investment capital were partially offset by lower interest income. Share Capital During the first half of the year the Company repurchased for cancellation5,508,960 non-voting ordinary shares. These repurchases neutralised the dilutiveeffect of issuing new shares following the exercise of options granted under theCompany's share option plans. As set out in the notice of the meeting for the2006 Annual General Meeting, it is the Company's policy to use such repurchasesto maintain the ratio of ordinary shares to non-voting ordinary shares over themedium term. The effect of these repurchases has been to return the ratio to itslevel in April 2000, when the Company was established in its present formfollowing the sale of the investment banking business. The Company has nocurrent intention to implement a general share repurchase programme. Dividend In the light of the growth in underlying+ profit and the Group's strongfinancial position, the Board has declared an increased interim dividend of 7.5pence per share (H1 2005: 7.0 pence per share). The dividend will be paid on29 September 2006 to shareholders on the register at the close of business on25 August 2006. Summary Against a background of volatile markets the Group has produced continued growthin 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 andwe invest in talent, business development and operating infrastructure. We havea major product development programme underway to meet changing client needs inareas such as liability-driven investing, quantitative strategies and absolutereturn products. Combined with the strength of our existing business acrossregions, products and sales channels, this period of investment should positionthe Group well for 2007. Michael DobsonChief Executive 11 August 2006 This interim announcement does not constitute the Interim Report for 2006. TheInterim Report is expected to be posted to shareholders on 18 August 2006. Forward-looking statements This interim announcement contains certain forward-looking statements withrespect to the financial condition, results of operations and businesses ofSchroders plc. These 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 theseforward-looking statements and forecasts. Nothing in this announcement should beconstrued 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 451.3 367.6 808.0Cost of sales (77.9) (62.5) (131.0) ------------------------------------------------------Gross profit 373.4 305.1 677.0 Gain on discontinued outsourcing contract - 20.4 20.4Administrative 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 13.7Share of profit/(loss) of joint ventures 0.1 - (0.2) ----- ----- ---- 9.2 9.0 13.5Interest receivable and similar income 9.8 13.2 25.3Interest 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 2.0Equity 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 65.7pDiluted 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 assetsIntangible assets 81.4 32.1 30.2Property, plant and equipment 9.9 7.3 9.4Associates 30.2 33.7 31.6Joint ventures 4.0 - 4.1Other investments 144.7 113.9 123.9Deferred tax 56.0 54.1 54.9Trade and other receivables 352.2 205.5 303.0Life company investments 82.4 - - -------------------------------------------------------- 760.8 446.6 557.1Current assetsInvestments 1,568.4 1,676.3 1,795.9Current tax 13.8 13.6 17.7Trade and other receivables 795.3 648.6 544.9Cash 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 EquityCalled up share capital 296.6 297.0 298.5Share premium account 34.2 26.8 32.1Other reserves 15.1 - -Capital reserves 143.4 136.1 187.0Own 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 liabilitiesDebt securities in issue 15.2 - 12.0Deferred tax 2.8 2.0 2.8Provisions 9.4 7.5 10.1Trade and other payables 378.7 203.4 185.3Life company technical provisions 82.4 - - -------------------------------------------------------- 488.5 212.9 210.2Current liabilitiesDebt securities in issue 0.4 4.2 4.2Provisions 12.4 12.1 14.7Current tax 43.7 37.4 32.9Trade 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 recognisedincome 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 38.6Net 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) 5.1Net gains on available-for-sale investments 17.7 5.2 44.3Tax 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 2.0Equity 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 activitiesProceeds from disposal of business - - 0.2Acquisition of subsidiaries (19.3) - (0.8)Cash acquired with acquisition 6.8 - 0.8Purchase 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 - - 0.1Proceeds from sale of non-current asset investments 18.3 25.8 73.9Proceeds from sale of property, plant and equipment 0.3 0.2 0.5Proceeds from repayment of loans by associates - 30.3 30.3Net disposal/(purchase) of current asset investments 72.0 (4.6) (68.9)Interest received 6.6 7.8 15.7Dividends/capital distributions received from associatesand joint ventures 8.4 0.1 9.0 -------------------------------------------------Net cash from/(used in) investing activities 63.6 28.8 (36.7) Financing activitiesProceeds from issue of share capital 24.7 0.1 21.8Acquisition 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 402.4 432.1 432.1Net 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, isunaudited and does not constitute statutory accounts within the meaning of s240of the Companies Act 1985. The statutory accounts for 2005, which were preparedin accordance with International Financial Reporting Standards, as endorsed bythe European Union ('IFRS'), and with those parts of the Companies Act 1985applicable to companies reporting under IFRS, have been delivered to theRegistrar of Companies. The auditors' opinion on these accounts was unqualifiedand did not contain a statement made under s237 (2) or s237 (3) of the CompaniesAct 1985. The interim report has been prepared in accordance with IAS 34 'InterimFinancial Reporting' and the Listing Rules of the Financial Services Authority('FSA'). The accounting polices applied in these interim financial statements areconsistent with those applied in the Group's most recent annual financialstatements. As a result of the incorporation of a life assurance company withinthe Group during the period, an additional policy in respect of lifeassurance companies is presented below: Life assurance company investments and technical provisions are recognised andmeasured under IAS 39 'Financial instruments: Recognition and Measurement' whichapplies to investment contracts that do not meet the insurance contractdefinition under IFRS 4 'Insurance contracts'. IAS 39 requires the investmentsin life funds to be carried at fair value as a non-current asset, with gains andlosses recorded in the income statement in the period in which they arise. Thetechnical provision to offset this asset is classified as non-current to reflectthe long-term nature of the business. The liability is also recorded at fairvalue. Segmental reporting Primary reporting format - business segments The Group has four continuing classes of business: Asset Management, PrivateBanking, Private Equity and Group Net Income/(Costs). Asset Managementprincipally comprises investment management including advisory services,property 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 buyout fundsand related vehicles; Group Net Income/(Costs) consists of income on the Group'sliquid and seed capital less Group costs and provisions, and the results of theleasing business and the residual assets. 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. Group Net Inter- Asset Private Private Income/ segment Management Banking Equity (Costs) elimination TotalSix months ended 30 June 2006 £mn £mn £mn £mn £mn £mn--------------------------------------------------------------------------------------------------------------------External revenue 377.3 37.7 10.2 14.3 - 439.5External net interest - 11.8 - - - 11.8Inter-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 - - 9.1Share 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 - 9.8Inter-segment interest receivable 2.4 - - 0.9 (3.3) - ----- ---- ---- ---- ----- ----Interest receivable and similar income 5.2 - - 7.9 (3.3) 9.8Interest 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 behalfof Group companies. Segmental reporting (continued) Group Net Inter- Asset Private Private Income/ segment Management Banking Equity (Costs) elimination TotalSix months ended 30 June 2005 £mn £mn £mn £mn £mn £mn-------------------------------------------------------------------------------------------------------------------External revenue 311.9 27.9 9.8 7.9 - 357.5External net interest - 10.1 - - - 10.1Inter-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 - - - 20.4Administrative 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 - 13.2Inter-segment interest receivable 1.7 - - 1.1 (2.8) - ----- ---- ---- ---- ------ ----Interest receivable and similar income 3.5 - 0.7 11.8 (2.8) 13.2Interest 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 Bankingon 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 taxUK corporation tax on profits of the period 28.3 21.2 29.6Double 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 39.4Foreign 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 3.9Adjustments 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 10.9Impairment of available-for-sale assets recycled through the income statement 6.4 - 1.3Other 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 214.7 384.8 402.1Increase 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 9.4Impairment 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 23.3Other 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 11.8Interest 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 7.8 122.5Gross sales 4.2 14.0 1.4 19.6Gross 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 - 0.6Adjustment 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 49bpsAsset Management costs on average funds under management 36bps 34bpsAsset Management costs on closing funds under management 37bps 33bps-------------------------------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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