Schroders Plc (LON:SDR), today announced full year results.
Highlights
– Net income before exceptional items up 3% to £2,123.9 million (2017: £2,068.9 million)
– Profit before tax and exceptional items down 5% to £761.2 million (2017: £800.3 million)
– Profit before tax down 15% to £649.9 million (2017: £760.2 million)
– Assets under management and administration down 6% to £421.4 billion (31 December 2017: £447.0 billion)
– Net outflows of £9.5 billion (2017: net inflows of £9.6 billion)
– Notified net new inflows at 31 December 2018 of over £85 billion
– Total dividend up 1 pence to 114.0 pence per share (2017: 113.0 pence)
|
2018 |
2017 |
|
|
Net income |
2,123.9 |
2,068.9 |
|
Operating expenses |
(1,362.7) |
(1,268.6) |
|
Profit before tax and exceptional items |
761.2 |
800.3 |
|
Profit before tax |
649.9 |
760.2 |
|
Basic earnings per share before exceptional items (pence) |
215.8 |
226.9 |
|
Basic earnings per share (pence) |
183.1 |
215.3 |
|
Total dividend per share (pence) |
114.0 |
113.0 |
Peter Harrison, Group Chief Executive, commented: “We have been pleased with the underlying strength of the business and the resilience of our diversified business model in 2018. We were delighted to achieve over £85 billion of notified net new inflows at the year end, despite seeing net outflows of £9.5 billion.
We continued to invest for growth and saw good progress in a number of strategically important areas. There was strong demand from Wealth Management clients and we announced that we would be entering into a partnership with Lloyds Banking Group to expand our proposition in the UK savings market, under the brand of Schroders Personal Wealth.
Through organic growth and selective acquisitions, we further increased our footprint and capabilities in North America and Private Assets and Alternatives, two key areas of strategic growth.
We remain confident that our global presence and diversified business model mean we are well positioned to generate growth for both our clients and shareholders over the long term.”
Management statement
2018 was an important year with significant progress in a number of key areas of strategic growth. Our Private Assets and Alternatives business contributed positively and we further expanded our capabilities with the acquisition of Algonquin Management Partners S.A., a specialist hotel investment and management business. We also saw good progress in North America, with positive flows across both our Institutional and Intermediary sales channels.
In October, we were delighted to announce that Lloyds Banking Group (LBG) had chosen to entrust us with managing around £80 billion of their clients’ assets, one of the largest mandates ever awarded. At the same time, we announced that we would be entering into a strategic partnership, which will combine Schroders’ investment and wealth management expertise and technology capabilities with LBG’s significant client base, multi-channel distribution and digital capabilities. Wealth management continues to be a key area of strategic focus for us and this partnership will allow us to create a market-leading wealth management proposition under the brand of Schroders Personal Wealth.
Net income increased 3% to £2,123.9 million (2017: £2,068.9 million), with growth in Private Assets and Alternatives the largest contributor. Profit before tax and exceptional items was down 5% to £761.2 million (2017: £800.3 million) as the accounting benefit in 2017 of the treatment of deferred compensation partially reversed through 2018 and performance fees were lower than the unusually high levels generated in the prior year. Our ratio of total costs to net income remained below our long-term target at 64%.
We remain committed to investing for future growth, notwithstanding the current market conditions, and recognise the importance of realising efficiencies. We have therefore taken the opportunity to undertake structural changes to the Group, realigning our resources to focus on areas of strategic growth. These one-off initiatives have led to exceptional costs of £56.0 million that, together with other exceptional items, mean profit before tax of £649.9 million (2017: £760.2 million).
As investor sentiment worsened towards the end of the year, we saw net redemptions from clients of £9.5 billion (2017: net inflows of £9.6 billion). Outflows were generally from lower margin business while there was continued demand for higher margin strategies, including within our Private Assets and Alternatives capabilities. As a result, our net operating revenue margin remained unchanged at 47 basis points. Net flows over the last two years have generated annualised revenues of £30 million. This excludes notified net new inflows of over £85 billion.
Total assets under management and administration fell 6% to £421.4 billion (31 December 2017: £447.0 billion), with declining markets net of FX movements reducing assets under management by £19.6 billion (2017: increased assets under management by £31.6 billion).
Asset Management
Asset Management net income before exceptional items was up 2% to £1,801.2 million (2017: £1,757.9 million), including performance fees and net carried interest of £54.6 million (2017: £77.5 million). Profit before tax and exceptional items declined 5% to £670.8 million (2017: £705.9 million) and profit before tax fell 15% to £588.2 million (2017: £688.7 million).
Assets under management at the end of December were £363.5 billion (31 December 2017: £389.8 billion). As macro and political issues impacted investor sentiment, we saw net outflows from clients of £11.2 billion (2017: inflows of £7.6 billion). The net operating revenue margin before performance fees and carried interest for Asset Management was 45 basis points (2017: 45 basis points).
The Institutional sales channel saw net outflows of £6.6 billion, driven by continued redemptions from Australian pension funds and one significant client redemption in Japan. These were partially offset by demand for equity mandates from North American clients and for Multi-asset solutions from UK-based clients. There was also demand for Private Assets and Alternatives strategies. Institutional assets under management at 31 December 2018 were £242.3 billion.
In the Intermediary sales channel, investor sentiment turned sharply negative towards the end of the year resulting in net outflows of £4.6 billion. The ‘risk off’ environment saw clients redeeming assets in products focused on US, European and UK equities, partly offset by net inflows into Asian and Emerging Markets equities. Assets under management in the Intermediary sales channel at 31 December 2018 were £121.2 billion.
Wealth Management
Wealth Management net income rose 6% to £289.8 million (2017: £273.3 million), including performance fees of £0.4 million (2017: £0.9 million). Profit before tax and exceptional items was up 3% to £93.4 million (2017: £90.3 million), while profit before tax increased 1% to £68.0 million (2017: £67.4 million). Assets under management in Wealth Management at 31 December 2018 were £43.7 billion (2017: £45.9 billion) and assets under administration were £14.2 billion (2017: £11.3 billion).
Wealth Management clients introduced net new business of £1.7 billion in 2018 (2017: £2.0 billion), driven by strong flows within Benchmark Capital.
The net operating revenue margin before performance fees was 61 basis points (2017: 61 basis points).
Group
The Group segment principally comprises returns on investment capital and treasury management activities and central costs. In 2018 there was a loss in the Group segment of £3.0 million (2017: profit of £4.1 million) before exceptional items, as sharply declining markets at the end of the year resulted in losses in the investment capital portfolio.
Total equity at 31 December 2018 was £3.6 billion (31 December 2017: £3.5 billion).
Dividend
The Board will recommend to shareholders at the Annual General Meeting a final dividend of 79.0 pence (2017: 79.0 pence), which is unchanged from 2017. This will bring the total dividend for the year to 114.0 pence (2017: 113.0 pence), an increase of 1 pence. The final dividend will be paid on 9 May 2019 to shareholders on the register at 29 March 2019.
Outlook
As we have demonstrated, our diversified business model and global footprint means Schroders is well positioned to grow the business over the long term. There are headwinds facing the industry, but we remain confident in our ability to identify new opportunities across the regions and asset classes in which we operate. We will continue to invest behind these and maintain the long-term strength of our business. We will retain our intense focus on achieving positive investment outcomes for our clients and helping them build their future prosperity.
