Directors’ report

The information contained in the sections of this Annual Report and Accounts identified below forms part of this Directors’ report:

Share capital

Schroders has developed under stable ownership for more than 200 years and has been a public company whose ordinary shares have been listed on the London Stock Exchange since 1959. The Company’s share capital is comprised of ordinary shares of £1 each and non-voting ordinary shares of £1 each. The ordinary shares have a premium listing on the London Stock Exchange and the non-voting ordinary shares have a standard listing on the London Stock Exchange.

226,022,400 ordinary shares (80% of the total issued share capital) were in issue throughout the year. The Company has no authority to issue or buy back any ordinary shares. Each ordinary share carries the right to attend and vote at general meetings of the Company. 56,505,600 non-voting ordinary shares (20% of the total issued share capital) were in issue at the beginning of 2016. No shares were held in treasury.

The non-voting ordinary shares were created in 1986 to facilitate the operation of an employee share plan without diluting the voting rights of ordinary shareholders. The non-voting ordinary shares carry the same rights as ordinary shares except that they do not provide the right to attend and vote at general meetings of the Company and that, on a capitalisation issue, they carry the right to receive non-voting ordinary shares rather than ordinary shares.

When the non-voting ordinary shares were created the ratio of ordinary shares to non-voting ordinary shares was 4:1. The Company has at times issued non-voting ordinary shares, principally in connection with the Group’s employee share plans. The Company has not intended and does not intend to increase the issued non-voting ordinary share capital over the medium term and therefore has, at times, bought back non-voting ordinary shares.

At the 2016 AGM shareholders renewed the Directors’ authority to issue 5,000,000 non-voting ordinary shares in order to provide the Directors with the flexibility to issue non-voting ordinary shares or to grant rights to subscribe for, or convert securities into, non-voting ordinary shares. Shareholders also gave approval for the Company to buy back up to 14,100,000 non-voting ordinary shares which will expire at the 2017 AGM. Renewal of these authorities will be sought at the 2017 AGM which will be held at 11.30 a.m. on 27 April 2017.

On 21 December 2016, the Company issued 233,623 non-voting ordinary shares in part consideration for the acquisition of the Company’s interest in Benchmark Capital. The total number of non-voting ordinary shares in issue at the year end was 56,739,223.

On 30 December 2016, the Company entered into a share buy-back programme operated by a third party within set parameters to repurchase a maximum of 233,623 of its non-voting ordinary shares. Once completed this will restore the 4:1 ratio of ordinary shares to non-voting ordinary shares. Since 1 January 2017, the Company purchased 171 non-voting ordinary shares at an average price of £21.40, representing 0.0003% of the issued non-voting ordinary share capital. Of the shares repurchased, all were cancelled immediately.

Under the terms of the Schroders Employee Benefit Trust* and the Schroder US Holdings Inc. Grantor Trust ordinary and non-voting ordinary shares are held on trust on behalf of employee share plan participants. The trustees may exercise the voting rights in any way they think fit. In doing so, they may consider the financial and non-financial interests of the beneficiaries and their dependents. As at 28 February 2017, being the latest practicable date before the publication of this Annual Report and Accounts, the Schroders Employee Benefit Trust and the Schroder US Holdings Inc. Grantor Trust together held 9,453,080 ordinary shares and 347,701 non-voting ordinary shares.

Under the terms of the Share Incentive Plan, as at 28 February 2017, 567,887 ordinary shares were held in trust on behalf of plan participants. At the participants’ direction, the trustees can exercise the voting rights over ordinary shares in respect of participant share entitlements.

There are no restrictions on the transfer of the Company’s shares save for:

  • Restrictions imposed by laws and regulations
  • Restrictions on the transfer of shares imposed under the Company’s Articles of Association or under Part 22 of the UK Companies Act 2006, in either case after a failure to supply information required to be disclosed following service of a request under section 793 of the UK Companies Act 2006
  • Restrictions on the transfer of shares held under certain employee share plans while they remain subject to the plan.

The Company is not aware of any agreement between shareholders that may restrict the transfer of securities or voting rights.

Substantial shareholdings

As at 31 December 2016, the Company had received notifications, in accordance with rule 5.1.2R of the Disclosure and Transparency Rules, of interests in 3% or more of the voting rights attaching to the Company’s issued share capital, as set out in the table below. There had been no changes to these notifications as at the date of this report.

Member

Class of shares

No. of voting rights held

% of voting rights held

1

Vincitas Limited and Veritas Limited are trustee companies which act as trustees of certain settlements made by members of the Schroder family. Vincitas Limited and Veritas Limited are party to the Relationship Agreement.

2

The interests of Flavida Limited include interests in voting rights in respect of all the shares in which Vincitas Limited is interested as trustee. Flavida Limited is party to the Relationship Agreement. The interests of Fervida Limited include interests in voting rights in respect of all the shares in which Veritas Limited is interested as trustee. Fervida Limited is party to the Relationship Agreement.

3

Harris Associates L.P. and Lindsell Train Limited are not party to the Relationship Agreement.

Vincitas Limited1

Ordinary

60,724,609

26.87

Veritas Limited1

Ordinary

36,795,041

16.28

Flavida Limited2

Ordinary

60,951,886

26.97

Fervida Limited2

Ordinary

39,225,379

17.37

Harris Associates L.P.3

Ordinary

11,443,978

5.06

Lindsell Train Limited3

Ordinary

11,312,070

5.01

Relationship Agreement

The Schroder family interests are in shares owned directly or indirectly by trustee companies which act as trustees of various trusts settled by family individuals, in shares owned by family individuals, and in shares owned by a family charitable trust. The trustee holdings include the interests (43.15%) held by Vincitas Limited and Veritas Limited, as disclosed in the table above, and further interests (1.6%) held by two other trustee companies which are not required to be disclosed under the Disclosure and Transparency Rules.

If aggregated, the total interests covered by the Relationship Agreement including shares held by the trustee companies, individuals and the family charitable trust amount to 108,323,711 of the Company’s ordinary shares (47.93%).

Following changes made to the UK Listing Rules in May 2014, companies with a shareholder or shareholders who could, when acting in concert, exercise 30% or more of the voting rights of a company at a general meeting, are required to enter into a binding agreement with that shareholder or shareholders. This is intended to ensure that the parties to the agreement comply with certain independence provisions as set out in the Listing Rules. Accordingly, on 14 November 2014, the Company entered into such an agreement (the ‘Relationship Agreement’) with a number of shareholders who own or control the ordinary shares (and associated voting rights) referred to above.

In accordance with Listing Rule 9.8.4(14), the Board confirms that for the year ended 31 December 2016:

    1. the Company has complied with the independence provisions included in the Relationship Agreement; and
    2. so far as the Company is aware, the independence provisions included in the Relationship Agreement have been complied with by the other parties to the Relationship Agreement and their associates.

Dividends

The Directors are recommending a final dividend of 64 pence per share which, if approved by shareholders at the AGM, will be paid on 4 May 2017 to shareholders on the register of members at close of business on 31 March 2017. Details on the Company’s dividend policy are set in chapter Results. Dividends payable in respect of the year, subject to this approval, along with prior year payments, are set out below.

Ordinary shares and non-voting ordinary shares

2016

2015

pence

£m

pence

£m

*

Subject to approval by shareholders at the 2017 AGM.

Interim

29.0

78.9

29.0

79.0

Final

64.0*

174.7

58.0

158.0

Total

93.0

253.6

87.0

237.0

The Schroders Employee Benefit Trust and the Schroder US Holdings Inc. Grantor Trust have waived their rights to dividends paid on both the ordinary and non-voting ordinary shares in respect of 2016 and future periods. See (PDF:) notes 8 and 22 to the accounts.

Corporate Responsibility

Details of the Company’s employment practices, including diversity and employee involvement can be found in the Strategic report.

We are committed to minimising the environmental impact of our operations and to delivering continuous improvement in our environmental performance. See chapter Corporate Responsibility for more details on our total CO2e emissions data.

Indemnities and Insurance

At the 2007 AGM, shareholders authorised the Company to provide indemnities to, and to fund defence costs for, Directors in certain circumstances. All Directors at the time shareholder approval was received were granted specific deeds of indemnity and any Director appointed subsequently has been granted such an indemnity. This means that, on their appointment, new Directors are granted an indemnity as defined in the Companies Act 2006 in respect of any third party liabilities that they may incur as a result of their service on the Board. All Directors’ indemnities were in place during the year and remain in force.

Directors’ and Officers’ Liability Insurance is maintained by the Company for all Directors.

As part of the integration of Cazenove Capital, the Cazenove Capital Management Limited Pension Scheme was merged with the Schroders Retirement Benefits Scheme with effect from 31 December 2014. Pursuant to that merger, a qualifying pension scheme indemnity (as defined in section 235 of the Companies Act 2006) provided by Schroders plc for the benefit of the Directors of Cazenove Capital Management Pension Trustee Limited, a subsidiary of the Company, was put in place at that time and remains in force.

This indemnity provision covers, to the extent permitted by law, certain losses or liabilities incurred by the Directors of Cazenove Capital Management Pension Trustee Limited in connection with that company’s activities as trustee of the Cazenove Capital Management Limited Pension Scheme.

Change of control

Directors’ and employees’ employment contracts do not normally provide for compensation for loss of office or employment as a result of a change of control. However, the provisions of the Company’s employee share schemes may cause awards granted to employees under such schemes to vest on a change of control.

The Company is not party to any significant agreements that would take effect, alter or terminate on a change of control of the Company.

Political donations

No political donations or contributions were made or expenditure incurred by the Company or its subsidiaries during the year (2015: nil) and there is no intention to make or incur any in the current year.

UK Listing Authority Listing Rules (LR) – compliance with LR 9.8.4C

The majority of the disclosures required under LR 9.8.4 are not applicable to Schroders. The table below sets out the location of the disclosures for those requirements that are applicable:

Applicable sub-paragraph within LR 9.8.4

Disclosure provided

(12) Details of any arrangements under which a shareholder has waived or agreed to waive any dividends.

See Directors’ report

(13) Where a shareholder has agreed to waive future dividends, details of such waiver together with those relating to dividends which are payable during the period under review.

See Directors’ report and (PDF:) notes 8 and 22

(14) A statement made by the Board that the Company has entered into an agreement under LR 9.2.2A, that the Company has, and, as far as it is aware, the other parties to the agreement have, complied with the provisions in the agreement.

See Directors’ report

Post year end events

On 17 February 2017, the Group acquired the wealth management business of C. Hoare & Co. Further information can be found in (PDF:) note 30 to the accounts.

Going concern

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report. In addition, the financial statements include information on the Group’s approach to managing its capital and financial risk; details of its financial instruments and hedging activities; and its exposures to credit and liquidity risk.

The Group has considerable financial resources, a broad range of products and a geographically diversified business. As a consequence, the Directors believe that the Group is well placed to manage its business risks in the context of the current economic outlook.

Accordingly, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. They therefore continue to adopt the going concern basis in preparing the Annual Report and Accounts.

In addition, the Directors have assessed the Company’s viability over a period of five years. The results of this assessment are set out in chapter Key risks and mitigations.

By Order of the Board.

Graham Staples
Company Secretary
1 March 2017