Final Results - Year Ended 31 December 1999

Schroders PLC 3 March 2000 SCHRODERS PLC ANNOUNCEMENT OF RESULTS FOR YEAR ENDED 31ST DECEMBER 1999 Profits before tax up £92 mn to £324 mn Basic earnings per share of 82.8p - up 45% Total dividend up 12% to 18.5p Year ended Year ended 31st December 31st December 1999 1998 £'mn £'mn Profit before tax and Asian debt 306 275 provisions Asian debt provisions (net) 18 (43) ===== ===== Profit before tax 324 232 Tax (80) (63) ===== ===== Profit after tax 244 169 Minority interest 1 (1) ===== ===== Profit attributable to shareholders 245 168 Commentary It is gratifying that we are able to report record results for Schroders for 1999, the last complete year in which the asset management and investment banking businesses will be combined. First half profits of £147 million before tax were followed by pre-tax profits of £177 million in the second half, giving a total before tax for the year of £324 million, compared with the 1998 figure of £232 million. The 1999 results include a net write-back of £18 million in respect of Asian debt exposures, as against a £43 million (net) charge in 1998. Underlying profits (excluding Asian write- backs/provisions) were £31 million or 11 per cent. higher than in 1998. The pre-tax return on average equity was 26 per cent. (1998: 21 per cent.). At the attributable level, profits were £245 million (1998: £168 million), giving a post-tax return on average equity of 19 per cent. (1998: 15 per cent.). Basic earnings per share were up by 45 per cent. to 82.8p (1998:57.2p). The Board is recommending a final dividend of 13p (1998: 11.5p), making a total of 18.5p for the year (1998: 16.5p). Divisional Results Asset Management Our asset management business continued to expand in 1999, with funds under management rising by 20 per cent. to stand at £143 billion at the year end, compared with £119 billion a year earlier. Average assets rose by some 15 per cent. and underlying fee income by 16 per cent. Total revenues rose by 10 per cent. from £447 million to £491 million, reflecting the effect of lower transaction income, royalties and performance fees. With costs rising by 9 per cent., underlying pre-tax profits also increased by 10 per cent. to a record level of £162 million, compared with £147 million in 1998. In addition, a profit of £25 million was realised on the sale of our Australian property management business, so that total pre-tax profits were £187 million. The international diversification of our client base continued and the proportion of funds under management owned by non-UK clients increased; in particular, a return to favour of Pacific and emerging markets helped us to generate a strong new business flow of specialist mandates, especially from American clients. The strong inflow of business in Japan continued, enabling us to maintain our leading position as a pension fund manager. Assets managed by our Japanese operation rose from £6.2 billion to £11.8 billion. Throughout the rest of Asia, mutual funds sales advanced substantially, including the successful launch of two new funds in Singapore investing in Japanese and global smaller companies. On the institutional side, in Hong Kong considerable resources have been devoted to preparing for the introduction of mandatory provident funds, a significant potential market for us. Our continental European client base also continued to expand, based primarily upon the ongoing success of our Luxembourg-based Schroder International Selection Fund family of open-end funds. Within our domestic UK market place, our retail unit trust operation had a better year. Net outflows from our funds changed to net inflows as the year progressed, reflecting the improved performance of our key UK, Far East and emerging markets funds. Our core UK balanced pension fund and charity institutional business, however, continued to face competition from index trackers. We have taken steps during the year to strengthen the investment team devoted to this business and performance has begun to improve in a number of areas. This has helped us sustain the development of our more specialist services for UK institutional clients. We continued to expand our product line. New retail funds last year included the Schroder Global Technology Fund and the Schroder UK Mid 250 Fund, while more recently we have launched the Schroder Institutional Multinational Equity Fund and the Schroder Monthly High Income Fund. We have also expanded the resources devoted to alternative investments. Notwithstanding the sale of our Australian property management business, property management remains one of our core activities, especially in the UK, where the Schroder Exempt Property Unit Trust is the largest fund of its kind. Schroder Ventures consolidated its position as a leading international private equity group, with committed capital of £2.5 billion in 25 funds. 1999 saw the raising of the largest international life sciences fund, the initial launch of Schroder Ventures Asia Pacific Fund and the establishment of a New York private equity operation. To complement our existing alternative investment expertise, a new structured products team was established in the middle of the year. We continued the development of our private client business, in particular with the formation of Schroder Trust Bank in Miami to provide private banking and investment services to clients in the Americas. Investment Banking In investment banking, underlying pre-tax profits were £144 million(1998: £128 million), before a write-back of £18 million in respect of Asian debt provisions and a charge for London surplus property of £25 million, bringing overall profits before tax to £137 million. The major contribution came from European activities. UK corporate finance continued to win a good share of UK mandates and new clients, whilst progress in the continental European business, in both mergers and acquisitions and capital markets, was particularly encouraging. Assignments included advice to BTR on its merger with Siebe to form Invensys and to Credit Lyonnais on its privatisation, including acting as joint global lead manager of its IPO. Our European securities teams maintained their positions in research rankings and achieved record revenues and a substantial gain in market share over the previous year in many of the sectors in which they operate. In the United States, corporate finance activity was broadly in line with the previous year, whilst our US equities business showed satisfactory improvements in commission levels. In Asia, corporate finance generated record results, with revenues close to double the levels seen in 1998. Major assignments included advising Cable and Wireless on the first successful contested acquisition in Japan, the acquisition by Standard Chartered Bank of Nakornthon Bank in Thailand, advice to British American Tobacco on the merger with Rothmans in South East Asia, and advice to Hanvit Bank on a variety of debt restructurings in Korea. Our Japanese securities business had an excellent year. In financial markets, both trading and client related activities generated higher profits than in the previous year, with a particular improvement in our European financing and risk management services and our London-based interest rate trading. In addition, our New York-based high yield business generated good profits from secondary trading in Asian debt. Outlook In January this year, we announced the proposed merger of our investment banking business with Salomon Smith Barney. This merger is expected to be completed around the end of April and our investment bankers look forward to participating in the creation of one of the world's leading investment banks. The disposal of that business will enable our asset management business to implement fully its strategy to establish Schroders as one of the world's leading asset managers. In that connection we shall be undertaking initiatives designed to: - Expand the resources dedicated to our institutional business, both in our home market within the UK and in continental Europe, Japan and North America, with the objective of achieving strong and competitive performance for clients, as well as growing our client base. - Develop our mutual funds businesses in the UK, continental Europe and Asia as leaders in their fields. - Expand our private banking business through growth of both private client asset management and lending and advisory activities. In particular we will apply for authorisation to establish a private bank in London. - Accelerate the development of our range of alternative investment products, including private equity, property, hedge funds and structured investments. Finally, we shall shortly be launching an 'e-incubator' to develop business- to-business financial services activities. We have relaunched our website and details of our services will be made continuously available at www.schroders.com. Sir Winfried F.W. Bischoff I.P. Sedgwick Chairman Deputy Chairman 3rd March 2000 120 Cheapside London EC2V 6DS Tel: (44) 020 7658 6000 Proposed Final Dividend The Directors recommend a final dividend of 13.0p per share, which, with the interim dividend of 5.5p paid on 28th October 1999, will make a total of 18.5p per share for 1999. Subject to approval at the Annual General Meeting to be held on 28th March 2000, the final dividend will be paid on 6th April 2000 to shareholders on the register at close of business on 17th March 2000. Key Ratios and Statistics 1999 1998 Basic earnings per share (p) 82.8 57.2 Diluted earnings per share (p) 82.5 56.9 Dividends per share (p) 18.5 16.5 Dividend cover (times) 4.5 3.5 Profit margin pre-tax (%)* 22.3 23.7 Cost/income ratio (%)* 77.7 76.3 Average number of employees 6,353 6,156 Shareholders' funds (£'mn) 1,370.4 1,170.5 Average equity (£'mn) 1,270.5 1,108.4 Risk asset ratio (%) 22.7 19.1 Return on average equity pre-tax (%) 25.5 20.9 post-tax (%) 19.3 15.1 * Pre-Asian debt provisions Consolidated profit and loss account for the year ended 31st December 1999 Notes 1999 1998 £'mn £'mn Net interest income 130.7 142.4 Dividend income 0.3 0.5 Fees and commissions (net) 1,103.4 943.6 Net dealing income 88.8 8.6 Other operating income 57.3 16.2 ------- ------- Operating income 1,380.5 1,111.3 Administrative expenses 1,2 (1,014.1) (862.0) Depreciation and amortisation of goodwill (48.4) (21.1) ------- ------- (1,062.5) (883.1) Provisions Specific provisions for bad and doubtful debts (5.8) (18.3) General provision for contingencies - 20.0 Provision for surplus property (25.8) - Other provisions (2.6) - ------- ------ (34.2) 1.7 Income from associated undertakings 15.3 1.8 Profit on sale of Australian property business 24.9 - ------- ------ Profit on ordinary activities before tax* 324.0 231.7 Tax on profit on ordinary activities 2 (80.2) (62.5) ------- ----- Profit on ordinary activities after tax 243.8 169.2 Minority interests 0.8 (1.4) ------- ----- Profit for the financial year 244.6 167.8 Dividends (53.9) (48.3) ------- ----- Profit retained by the Group for the financial year 190.7 119.5 ===== ===== Basic earnings per share 82.8p 57.2p ===== ===== Diluted earnings per share 82.5p 56.9p ===== ===== * After crediting £18.2 mn (charge of £43.2 mn net) for Asian debt exposures. The results above are all in respect of continuing operations of the Group. Statement of total consolidated recognised gains and losses for the year ended 31st December 1999 1999 1998 £'mn £'mn Profit for the financial year 244.6 167.8 Exchange translation adjustment to foreign currency net investments 6.3 0.8 ----- ----- Total recognised gains and losses 250.9 168.6 ===== ===== Reconciliation of movements in consolidated shareholders' funds 1999 1998 £'mn £'mn Profit for the financial year 244.6 167.8 Dividends (53.9) (48.3) ------ ----- 190.7 119.5 Exchange translation adjustments 6.3 0.8 New share capital subscribed 3.8 2.6 Other movements (0.9) 1.3 ----- ----- 199.9 124.2 Equity shareholders' funds brought forward 1,170.5 1,046.3 ------- ------- Equity shareholders' funds carried forward 1,370.4 1,170.5 ======= ======= Consolidated balance sheet 1999 1998 at 31st December 1999 £'mn £'mn Assets Cash and balances at central banks 7.5 9.5 Treasury bills and other eligible bills 54.4 204.7 Secured loans arising from purchase and resale agreements 2,924.1 4,263.5 Loans and advances to banks 1,419.3 2,124.5 Loans and advances to customers (less provisions) 817.6 652.4 Leasing receivables (less provisions) 447.5 459.0 Settlement accounts 3,578.7 2,399.8 Debt securities and other fixed income securities 2,811.3 2,151.3 Equity shares 311.1 134.2 Interest in associated undertakings 22.0 7.2 Intangible fixed assets 16.8 - Tangible fixed assets 123.3 67.4 Derivative contracts 420.3 688.0 Other assets 236.2 228.0 Prepayments and accrued income 212.2 199.1 -------- -------- Total assets 13,402.3 13,588.6 ======== ======== Liabilities Deposits by banks 939.2 1,342.1 Customer accounts 1,363.7 1,431.7 Secured loans arising from sale and repurchase agreements 3,473.2 4,460.1 Settlement accounts 3,295.1 2,310.7 Debt securities in issue 583.2 466.0 Derivative contracts 531.4 845.9 Short securities positions 977.4 817.2 Other liabilities 176.9 180.4 Accruals and deferred income 628.9 520.6 Provisions for liabilities and charges 60.6 29.5 -------- -------- Total liabilities 12,029.6 12,404.2 Equity shareholders' funds Called up share capital 295.4 294.7 Share premium account 3.2 0.1 Reserves 105.6 86.0 Profit and loss account 966.2 789.7 -------- ------- 1,370.4 1,170.5 Equity minority interest 2.3 13.9 ------- ------- Total liabilities and shareholders' funds 13,402.3 13,588.6 ======== ======== Memorandum items 1999 1998 £'mn £'mn Commitments Underwriting (fully sub-underwritten) - 294.3 Other 456.4 378.0 ------- ------- 456.4 672.3 ======= ======= Contingent liabilities Acceptances and endorsements 534.7 416.2 Guarantees 84.6 104.1 ------- ------- 619.3 520.3 ======= ======= Notes to the Profit and Loss Account 1. Administrative expenses 1999 1998 £'mn £'mn Staff costs Salaries and other remuneration 653.6 525.4 Social security costs 38.0 32.2 Other pension costs 22.6 21.3 ----- ----- 714.2 578.9 Other administrative expenses 299.9 283.1 ------- ----- 1,014.1 862.0 ======= ===== 1999 1998 Number Number Average staff numbers - Investment banking 3,987 3,926 - Asset management 2,366 2,230 ----- ----- 6,353 6,156 ===== ===== 2. Taxation 1999 1998 £'mn £'mn United Kingdom 50.4 26.1 Overseas 29.8 36.4 ----- ----- 80.2 62.5 ===== ===== 3. Segmental reporting - by class of business Investment banking Asset management Total 1999 1998 1999 1998 1999 1998 £'mn £'mn £'mn £'mn £'mn £'mn Net interest income 119.2 124.9 11.5 17.5 130.7 142.4 Dividend income Fees and 0.3 0.4 - 0.1 0.3 0.5 commissions (net) Net dealing 630.1 525.4 473.3 418.2 1,103.4 943.6 income Other operating 85.7 4.2 3.1 4.4 88.8 8.6 income Operating 53.9 9.3 3.4 6.9 57.3 16.2 income -------- -------- -------- ------- -------- -------- 889.2 664.2 491.3 447.1 1,380.5 1,111.3 Administrative Expenses (696.5) (567.3) (317.6) (294.7) (1,041.1) (862.0) Depreciation and amortisation of goodwill (37.0) (13.5) (11.4) (7.6) (48.4) (21.1) Provisions (net) (33.6) 1.7 (0.6) - (34.2) 1.7 Income from Associates 15.2 - 0.1 1.8 15.3 1.8 Profit on sale of Australian property business - - 24.9 - 24.9 - -------- -------- -------- ------- -------- -------- Profit on ordinary activities: - before tax 137.3* 85.1* 186.7 146.6 324.0* 231.7* ======== ======== ======= ======= ======= ======== - after tax 103.8 66.2 140.0 103.0 243.8 169.2 Shareholders' funds 1,169.1 1,008.2 201.3 162.3 1,370.4 1,170.5 Gross assets 12,848.8 13,076.0 553.5 512.6 13,402.3 13,588.6 * After crediting £18.2 mn (charge of £43.2 mn net) against Asian debt exposures. Note: The shareholders' funds are based on the capital employed in statutory entities and do not represent a fair apportionment of the capital which would be required if the two classes of business were wholly independent. Five year financial summary 1995 1996 1997 1998 1999 £'mn £'mn £'mn £'mn £'mn Operating income 796.7 958.4 1,058.6 1,111.3 1,380.5 ======== ======== ======== ======== ======== Profit before tax 197.3 238.7 244.9 231.7 324.0 Tax (54.5) (54.7) (68.4) (62.5) (80.2) -------- -------- -------- -------- -------- Profit after tax 142.8 184.0 176.5 169.2 243.8 Minority interest (3.8) (4.8) (5.6) (1.4) 0.8 -------- -------- -------- -------- -------- Profit for the year 139.0 179.2 170.9 167.8 244.6 ======== ======== ======== ======== ======== Basic earnings per share (pence) 47.7 61.3 58.3 57.2 82.8 Diluted earnings per share (pence) 47.2 60.9 57.9 56.9 82.5 Dividends: Cost(£'mn) 31.2 39.1 45.0 48.3 53.9 Pence per share 10.7 13.3 15.3 16.5 18.5 Total assets(£'mn) 11,686.3 10,370.7 10,655.5 13,588.6 13,402.3 Shareholders' funds (£'mn) 849.3 941.1 1,046.3 1,170.5 1,370.4 Net assets per share (pence) 291 321 356 397 464 * * * * * * * * * * * The financial information for 1999 included in this statement does not constitute the full group accounts for the Company for the year ended 31st December 1999. The full 1999 group accounts, upon which the auditors reported on 2nd March 2000, will be delivered to the Registrar of Companies after adoption at the Annual General Meeting to be held at 120 Cheapside, London EC2V 6DS on Tuesday, 28th March 2000. Copies of this statement are available from the Company Secretary at 120 Cheapside, London EC2V 6DS (telephone (44) 20 7658 6208).

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