Final Results
Schroders PLC
1 March 2002
Schroders plc
Announcement of Results for the year ended 31st December 2001
• Underlying asset management profit £105.7 million, down 35%
• Asset management profit (before prior period error) £66.1 million
• Private equity loss £19.6 million
• Total dividend unchanged at 18.5p per share
• Funds under management £110.0 billion (2000: £129.4 billion, restated to
exclude private equity)
• Improving trend in investment performance
Year ended Year ended
31st December 31st December
2001 2000
£ mn £ mn
Underlying asset management profit 105.7 162.8
Less: Project expenditure (30.0) (25.0)
Redundancy costs (9.6) -
Asset management profit before exceptional item 66.1 137.8
Less: Exceptional item - prior period error (10.8) 10.8
Asset management profit before tax 55.3 148.6
Private equity (19.6) 69.0
Group net income - 10.6
Other/Exceptional items
Goodwill amortisation (10.4) (6.1)
Goodwill impairment (23.4) -
Sale of property business - 8.0
(33.8) 1.9
Profit before tax on continuing operations 1.9 230.1
Provisions for discontinued operations (10.0)
Loss before tax (8.1)
Commenting on the annual results, Peter Sedgwick, Chairman, said: '2001 was a
tough year for the Group. A combination of weak equity markets, some fund
outflows, a high expense base and the cost of one-off, long-term, infrastructure
projects led to a sharply lower result. However, our new management team has
already started making the changes necessary to align our business to the more
difficult environment facing the asset management industry today. With an
improved trend in investment performance, a powerful global brand and a strategy
that is now exclusively focused on asset management, we have the opportunity to
exploit our full potential in the global savings industry.'
Contacts:
Schroders
Peter Sedgwick Chairman +44 (0) 20 7658 6476
Michael Dobson Chief Executive +44 (0) 20 7658 6962
Jonathan Asquith Chief Financial Officer +44 (0) 20 7658 6565
Julian Samways Head of Corporate Communications +44 (0) 20 7658 6166
The Maitland Consultancy
William Clutterbuck +44 (0) 20 7379 5151
Management Statement
Weak equity markets and increased volatility meant that 2001 was a bad year for
Schroders, given our high gearing to equity market levels, a continued, albeit
declining, outflow of institutional funds and a cost base aligned to higher
levels of assets under management. In addition, costs were inflated by £30.0
million of long-term infrastructure projects and £9.6 million of redundancy
costs, two items which will recur in 2002 but fall away rapidly thereafter.
Profits from our Asset Management activities before tax and a prior period
accounting error were down 52 per cent. on 2000 at £66.1 million. Losses in
Private Equity, reflecting principally the fall in market value of our 12.8 per
cent. holding in Schroder Ventures International Investment Trust plc, reduced
Group profits by a further £19.6 million.
We have made provisions totalling £49.3 million against 2001 profits. These
cover the prior period accounting error announced in January this year (£10.8
million), a write-off of residual goodwill relating principally to Schroder
Pensions (£23.4 million), a provision against surplus leasehold space in New
York (£5.1 million) and a further provision against potential liabilities
arising from the sale of our investment banking business in 2000 (£10.0
million). Overall, the Group made a loss before tax of £8.1 million.
Notwithstanding this very disappointing result, the Board proposes to maintain
the total dividend at 18.5p per share, reflecting its belief that 2001 will
prove to be the low point in the Group's fortunes and that we will see a
sustained recovery in profitability going forward.
Management Changes
Michael Dobson was appointed as Chief Executive in November 2001. He had
previously joined the Board as a non-executive director in April 2001. We also
announced in November the appointment of Jonathan Asquith who takes over as
Chief Financial Officer from today. Following these appointments, the role of
Chairman becomes non-executive, also effective today.
Funds under management
Funds under management ended the year at £110.0 billion, down from £129.4
billion at end 2000. Lower equity markets accounted for almost 75 per cent. of
the decline in funds under management during the year, but we continued to
suffer from an outflow of funds in our institutional business, reflecting below
median investment performance in 1998 and 1999. Client losses net of client
gains were £6.0 billion, of which £5.6 billion was in the first half of the year
with only £0.4 billion in the second.
Institutional fund management
In the UK we continued to see client losses due to the lag between improved
performance and its impact on business flows. Our flagship UK institutional
pooled fund significantly outperformed the benchmark in 2001 and is also now
ahead of the three year benchmark. The shift to specialist mandates will
continue to have an impact on our balanced business, but traditional balanced UK
pension fund business accounts for only 12 per cent. of total assets under
management and we have a competitive range of specialist products which will
benefit. Equally, as some pension funds increase their fixed income weightings
we are well placed, with a highly competitive sterling bond product range where
we now manage more than £7.5 billion. In total we manage approximately £20
billion in fixed income and we are looking to increase this substantially.
In continental Europe we are seeing significant new business opportunities in
institutional and we have strengthened our marketing and sales teams on the
ground. In 2001 we took on £1.5 billion of net new business.
In Asia Pacific we remain one of the largest foreign managers of Japanese
pension funds and we will benefit from the trend to domestic equity mandates
where we have a particularly strong track record. In Singapore we saw good
institutional flows into our pooled funds in the region and in Australia we won
a number of domestic equity mandates, again capitalising on superior investment
performance.
In the US we remain the leading foreign manager of international equities and we
strengthened our investment teams in non-US and emerging market equities.
Domestically we are building a competitive record in US fixed income and our US
small cap performance remains top decile, including the top performing UK unit
trust over the past ten years.
Institutional assets under management amounted to £91.3 billion at the end of
2001.
Retail fund management
The retail business continued to expand with significant new business flows in
Asia and continental Europe and an increased market share in the UK. Despite
weak market conditions which reduced the demand for retail products, net inflows
were £2.1 billion in 2001.
Focusing our business on markets offering the greatest potential, we continued
to develop our distribution network in Europe adding marketing resources in
France, Germany, the Netherlands and Portugal. In Germany, Schroder products are
now distributed through all major broker platforms and in France agreements have
been signed with five of the ten largest insurance companies. In Spain, the
number of distribution outlets selling our funds doubled to over 4,000 whilst in
Italy the number increased to nearly 9,500.
To meet increased demand for capital protection in difficult market conditions,
we launched a series of capital guaranteed and capital protected products. Over
US$1.5 billion was raised from capital protected product launches in Hong Kong
and Singapore which contributed to a sharp increase in our market share of gross
sales to 13 per cent. and 18 per cent. respectively. Further launches have also
taken place in Japan and Korea.
In the UK we continued to gain market share through intermediaries, and retail
sales were supported by a strong recovery in investment performance. Over 60 per
cent. of our UK retail funds and Luxembourg funds were ahead of their benchmarks
over one and three years which should lead to continuing positive business flows
this year.
In Japan, legislation allowing the establishment of defined contribution funds
came into effect in 2001 and Schroder funds have been selected by key
distributors including banks, life assurance companies and securities houses.
In continuing to pursue our strategy of concentrating on our core fund
management activities, we announced that we are reviewing the ownership of our
defined contribution administration capability in the UK. We remain committed to
being a leading provider of life-wrapped investment management services and we
are well placed to benefit from the trend towards defined contribution pension
fund provision.
We ended the year with £11.6 billion of retail assets under management.
Private Banking
Schroder Private Banking attracted net new business of nearly £700 million with
£450 million from the UK and £250 million overseas, primarily in Switzerland
where we have highly successful private banking activities in Geneva and Zurich.
We continued the strategic development of the business with the broadening of
our core investment management offering, embracing a comprehensive wealth
structuring and banking capability and our new Family Office initiative. In line
with this strategy we opened a new office in Frankfurt and expanded our presence
in Italy.
The Group completed the purchase of Beaumont Capital Management in 2001 and,
since the year end, we have integrated the business with Schroder Private
Banking. This recognises the increasing importance of alternative investments
and an absolute return investment philosophy for high net worth individuals,
which will now form a central part of our product offered to existing and
prospective clients.
In total we manage £7.1 billion of private banking assets.
Private Equity and Alternative Investments
During the year we saw significant interest in alternative asset classes which
now comprise 4 per cent. of total funds under management. We broadened our
product range to meet client demand including launching a range of capital
protected funds and a private equity fund of funds. The latter attracted
€175 million at the end of the initial launch period and is on target to
reach €300 million by the second quarter of 2002.
Our single product hedge funds and fund of funds businesses had a particularly
strong year. We now have a strong track record in both areas and we attracted
over £100 million of new business during the year. With the addition of two
Beaumont hedge funds, we are well placed to deliver a competitive proposition to
clients in the absolute return arena.
We are the largest manager of property unit trusts in the UK and we expanded our
property activities significantly during 2001. We established three new funds
which, combined with the launch of a property fund of funds portfolio management
service, raised net new property assets of £1.4 billion during the period. In
total we now manage £3.8 billion of property assets.
Board Changes
Nick MacAndrew is stepping down as Chief Financial Officer and will be leaving
the Group in mid-April. He has spent 30 years with Schroders, the last eleven as
Chief Financial Officer, and the Board extends its thanks to him for the
contribution he has made to our success during that time.
Two non-executive directors will be retiring at the Annual General Meeting,
Baron Daniel Janssen and Sir Ralph Robins. Together they have served as
non-executive directors for some 35 years and the Board extends its gratitude to
them for their advice and support over this time. We are pleased to announce
that David Swensen will join the Board as a non-executive director with effect
from the Annual General Meeting. David Swensen is the Chief Investment Officer
of the Yale University Endowment Fund and the author of 'Pioneering Portfolio
Management: An Unconventional Approach to Institutional Investment.'
Proposed Final Dividend
An unchanged final dividend of 13 pence per share has been declared and will be
paid on 23rd April 2002 to shareholders on the register at 15th March 2002.
Outlook
2001 has clearly demonstrated the necessity of adjusting our business to the
more difficult environment facing the asset management industry and, whilst
underlying costs declined slightly by comparison with 2000, given the current
level of funds under management, our costs are too high. We will reduce costs by
exiting peripheral activities, eliminating overlap and concentrating our
international network on fewer locations. To create greater flexibility in our
cost base and to improve efficiency, we will continue to extend our strategy of
outsourcing administration to scale players who can provide the service we
require at a lower cost than we can ourselves. In the short term we are carrying
a significant burden of additional costs but our outsourcing strategy will bring
major benefits in 2003 and beyond.
Overall, we will continue to seek efficiency gains and we now have the
management structure in place to do so, but we will not make cuts to the
business which jeopardise our revenue generating ability. Growing revenues, not
cutting costs, will build shareholder value in the long term and we have a
wealth of growth opportunities available to us. We have a breadth of product
range and international representation, as evidenced by more than £8 billion of
new business won in 2001. A continued improvement in investment performance in
our core products bodes well for future new business flows and we will
aggressively pursue new, high margin areas such as alternative investments. We
have a platform and an infrastructure on to which we can add assets at low
marginal cost and we will do so directly, through alliances with asset gatherers
and, potentially, through acquisitions.
We have approximately £1.1 billion of capital and reserves including some £700
million of surplus capital. This is currently invested in a spread of assets
ranging from private equity to short term deposits. We will be looking to
redeploy this surplus capital in activities which have strategic relevance to
our core business. With valuations down this is potentially an attractive time
to do so.
Lower equity markets severely affected our results in 2001 but should not
obscure the opportunities looking forward. Schroders goes into 2002 with
improving fund management performance, a strong brand and a healthy capital
base. We are already more than half-way through a major investment programme
designed to deliver efficiency gains in our existing activities. With a strategy
based exclusively on asset management we are an attractive partner for asset
gathering groups seeking to extend or outsource their product range. We have a
broad spread of successful specialist and alternative investment products that
complement our traditional strengths in balanced fund management. Above all, we
have a depth of talent and dedication in our people which gives us confidence
for the future.
Peter Sedgwick Michael Dobson
Chairman Chief Executive
1st March 2002
Consolidated Profit and Loss Account
For the year ended 31st December 2001
2001 2000
Note Before Exceptional Total
exceptional items
items £mn Continuing Discontinued Total
£mn operations operations
£mn £mn
£mn £mn
Revenues 519.8 (10.8) 509.0 638.8 254.9 893.7
(Losses)/gains on current asset (13.6) - (13.6) 20.4 - 20.4
investments
Administrative expenses (446.5) - (446.5) (426.9) (217.0) (643.9)
Depreciation (39.7) - (39.7) (39.0) (3.6) (42.6)
Amortisation and impairment of (10.4) (23.4) (33.8) (6.1) - (6.1)
goodwill
Group operating profit/(loss) 9.6 (34.2) (24.6) 187.2 34.3 221.5
Share of operating profit of 1.5 - 1.5 9.8 - 9.8
associated undertakings
Total operating profit/(loss) 11.1 (34.2) (23.1) 197.0 34.3 231.3
(Loss)/profit on sale of the
investment banking business -
discontinued operations - (10.0) (10.0) - 10.9 10.9
Profit on sale of property business - - - 8.0 - 8.0
Interest receivable and similar 32.5 - 32.5 28.4 - 28.4
income
Amounts written off fixed asset (5.3) - (5.3) (2.1) - (2.1)
investments
Interest payable and similar (2.2) - (2.2) (1.2) - (1.2)
charges
Profit/(loss) on ordinary 36.1 (44.2) (8.1) 230.1 45.2 275.3
activities before tax
Tax on profit on ordinary 2 (12.6) (56.1) 2.3 (53.8)
activities
(Loss)/profit on ordinary (20.7) 174.0 47.5 221.5
activities after tax
Minority interests 0.1 (0.2) - (0.2)
(Loss)/profit attributable to (20.6) 173.8 47.5 221.3
shareholders
Dividends (53.9) (54.1) - (54.1)
(Loss)/profit retained by the Group (74.5) 119.7 47.5 167.2
for the financial year
Basic earnings per share (7.0p) 58.6p 74.6p
Diluted earnings per share (7.0p) 58.3p 74.2p
Statement of Total Consolidated Recognised Gains and Losses
For the year ended 31st December 2001
2001 2000
£mn £mn
(Loss)/profit for the financial year (20.6) 221.3
Exchange translation adjustments to foreign currency (3.1) 30.1
net investments
Total recognised gains and losses (23.7) 251.4
Reconciliation of Movements in Consolidated Shareholders' Funds
For the year ended 31st December 2001
2001 2000
£mn £mn
(Loss)/profit for the financial year (20.6) 221.3
Dividends (53.9) (54.1)
(74.5) 167.2
New share capital subscribed 16.0 8.1
Shares to be issued 12.9 -
Exchange translation adjustments (3.1) 30.1
Reduction in capital via Scheme of Arrangement - (470.8)
Goodwill written back to profit and loss account - 55.5
Other movements - 0.7
Net decrease in shareholders' funds (48.7) (209.2)
Equity shareholders' funds brought forward 1,161.2 1,370.4
Equity shareholders' funds carried forward 1,112.5 1,161.2
Consolidated Balance Sheet
31st December 2001
2001 2000
£mn £mn £mn £mn
Fixed assets
Intangible assets- goodwill 45.5 41.8
Tangible assets 103.3 94.1
Investments 99.6 303.2
248.4 439.1
Insurance assets attributable to unit linked policyholders 2,912.1 3,119.2
3,160.5 3,558.3
Current assets
Debtors due within one year 510.8 583.7
Debtors due after more than one year 272.5 279.2
Investments 806.1 241.8
Cash and balances with banks 809.0 1,096.0
2,398.4 2,200.7
Creditors - amounts falling due within one year (1,242.2) (1,394.9)
Net current assets 1,156.2 805.8
Total assets less current liabilities 4,316.7 4,364.1
Creditors - amounts due after more than one year (228.7) (33.0)
Insurance liabilities attributable to unit linked (2,912.1) (3,119.2)
policyholders
Provisions for liabilities and charges (62.9) (50.3)
Net assets
1,113.0 1,161.6
Capital and reserves
Called up share capital 299.0 296.9
Share premium account 15.2 1.3
Shares to be issued 12.9 -
Capital reserves 130.0 169.4
Profit and loss account 655.4 693.6
Equity shareholders' funds 1,112.5 1,161.2
Minority interests 0.5 0.4
Total shareholders' funds including minority interests 1,113.0 1,161.6
Consolidated Cash Flow Statement
For the year ended 31st December 2001
2001 2000
£mn £mn
Net cash inflow/(outflow) from operating activities 174.7 (624.4)
Dividends received from associates 0.8 0.1
Returns on investments and servicing of finance
Interest received 34.4 28.4
Interest paid (2.2) (1.2)
Interest paid on corporate debt - (2.7)
Net cash inflow from returns on investments and servicing of finance 32.2 (24.7)
Taxation
Total tax recovered /(paid) 0.2 (62.4)
Capital expenditure and financial investments
Tangible fixed assets -purchases (143.2) (103.4)
-disposals 93.9 116.5
Fixed asset investments -purchases (937.6) (300.3)
-disposals 853.9 1,132.3
Net cash (outflow)/inflow from capital expenditure and financial (133.0) 845.1
investments
Acquisitions and disposals
Associated undertakings - -acquisitions (13.0) (10.5)
-disposals 0.2 -
Sale of property business - 8.0
Subsidiaries -acquisitions (3.3) (66.6)
-cash acquired 2.1 -
-disposals - 422.1
Net cash (outflow)/inflow from acquisitions and disposals (14.0) 353.0
Dividends paid (53.9) (54.3)
Net cash inflow before management of liquid resources and financing 7.0 481.8
Net cash outflow from management of liquid resources (302.4) (35.8)
Financing
Share capital issued - 8.1
Decrease in debt - (158.8)
Net cash (outflow) from financing - (150.7)
(Decrease) / increase in cash (295.4) 295.3
Notes to the Accounts
1. Financial information for the year ended 31st December 2001 is presented in
Format 1 of Schedule 4 to the Companies Act 1985, but adapted to include an
additional line item, '(Losses)/gains on current asset investments'.
Accordingly, the 2000 comparative figures have been reclassified. In the
accounts for the previous year, an adaptation of this format had been used
which, in the opinion of the Directors, most appropriately represented the
trading activity of the Group which was primarily a banking group for the first
four months of that year.
2. The tax charge for the year is largely attributable to a significant amount
of non-tax deductible provisions and losses.
Segmental reporting - by class of business
2001
£mn
Asset Exceptional Total Private Goodwill Exceptional Total Group Discontinued Total
items equity items net operations **
management* asset goodwill income
management
Revenues 481.4 (10.8) 470.6 4.3 - - - 34.1 - 509.0
(Losses)/gains on - - - (15.0) - - - 1.4 - (13.6)
current asset
investments
Group operating 55.5 (10.8) 44.7 (17.2) (10.4) (23.4) (33.8) (18.3) - (24.6)
profit/(loss)
Shares of operating - - - 1.5 - - - - - 1.5
profit of associated
undertakings
Total operating 55.5 (10.8) 44.7 (15.7) (10.4) (23.4) (33.8) (18.3) - (23.1)
profit/(loss)
Discontinued - - - - - - - - (10.0) (10.0)
operations
Interest receivable 12.2 - 12.2 1.5 - - - 18.8 - 32.5
and similar income
Amounts written off - - - (5.3) - - - - - (5.3)
fixed asset
investments
Interest payable and (1.6) - (1.6) (0.1) - - - (0.5) - (2.2)
similar charges
Profit /(loss) on 66.1 (10.8) 55.3 (19.6) (10.4) (23.4) (33.8) - (10.0) (8.1)
ordinary activities
before tax
Tax on profit on (19.7) 3.2 (16.5) - - 1.9 2.0 (12.6)
ordinary activities
Profit/(loss) on 46.4 (7.6) 38.8 (19.6) (10.4) (23.4) (33.8) 1.9 (8.0) (20.7)
ordinary activities
after tax
Shareholders' funds 457.9 121.6 45.5 487.5 1,112.5
2000
£mn
Asset Private Goodwill Group net Continuing Discontinued Total
management equity income operations operations**
Revenues 561.0 51.3 - 26.5 638.8 254.9 893.7
Gains on current asset - 20.4 - - 20.4 - 20.4
investments
Group operating profit/(loss) 141.2 60.2 (6.1) (8.1) 187.2 34.3 221.5
Share of operating profit of - 9.8 - - 9.8 - 9.8
associated undertakings
Total operating profit/(loss) 141.2 70.0 (6.1) (8.1) 197.0 34.3 231.3
Sale of investment banking - - - - - 10.9 10.9
business
Sale of property business 8.0 - - - 8.0 - 8.0
Interest receivable and similar 8.3 1.1 - 19.0 28.4 28.4
income
Amounts written off fixed asset - (2.1) - - (2.1) - (2.1)
investments
Interest payable and similar (0.9) - - (0.3) (1.2) - (1.2)
charges
Profit on ordinary activities 156.6 69.0 (6.1) 10.6 230.1 45.2 275.3
before tax
Tax on profit on ordinary (51.6) (2.0) - (2.5) (56.1) 2.3 (53.8)
activities
Profit on ordinary activities 105.0 67.0 (6.1) 8.1 174.0 47.5 221.5
after tax
Shareholders' funds 447.9 124.4 41.8 547.1 1,161.2 1,161.2
* The asset management figures include the results since acquisition date of
Beaumont Capital Management Limited and Beaumont Capital Management LLP.
** Discontinued operations relate wholly to the sale of the investment banking
business in 2000.
Leasing was previously included within asset management and has been
reclassified within Group net income. Comparative figures have been restated.
Five year financial summary
2001 2000 1999 1998 1997
£mn £mn £mn £mn £mn
(Loss)/ profit before tax (8.1) 275.3 324.0 231.7 244.9
Tax (12.6) (53.8) (80.2) (62.5) (68.4)
(Loss)/ profit after tax before minority (20.7) 221.5 243.8 169.2 176.5
interests
Minority interests 0.1 (0.2) 0.8 (1.4) (5.6)
(Loss)/ profit for the year (20.6) 221.3 244.6 167.8 170.9
Earnings per share
Basic earnings per share (pence)* (7.0) 74.6 82.8 57.2 58.3
Diluted earnings per share (pence)* (7.0) 74.2 82.5 56.9 57.9
Dividends
Cost (£mn) 53.9 54.1 53.9 48.3 45.0
Per share (pence)* 18.5 18.5 18.5 16.5 15.3
Shareholders' funds (£mn) 1,112.5 1,161.2 1,370.4 1,170.5 1,046.3
Net assets per share* (pence) 372 391 464 397 356
* Adjusted for capitalisation issue in 1998
The financial information for 2001 included in this statement does not
constitute the full Group Accounts for the Company for the year ended 31st
December 2001. The preliminary results for the year ended 31st December 2001 are
unaudited.
The financial information from 2000 is derived from the Group accounts for the
year ended 31st December 2000 which have been delivered to the Registrar of
Companies and which include the auditors' report thereon which was unqualified.
The full 2001 Group Accounts are expected to be despatched to shareholders on
20th March 2002, and will be delivered to the Registrar of Companies after
adoption at the Annual General Meeting to be held at 31 Gresham Street, London,
EC2V 7QA on 18th April 2002.
Further copies of this statement are available from the Company Secretary at 31
Gresham Street, London, EC2V 7QA, (telephone 020 7658 3646) and on the Company's
website at www.schroders.com.
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