Schroders again delivered record results, benefiting from our diversified business model.
2016 was a year of major change with the UK voting to leave the European Union and the Presidential election in the US. This led to some sharp adjustments in equity markets and currencies but, overall, financial markets were resilient and offered positive returns for investors in 2016.
Schroders again delivered record results, benefiting from our diversified business model and, in particular, the strength of our international franchise as sterling weakened. Profit before tax and exceptional items increased by 6% to £644.7 million and assets under management and administration ended the year up 27% at £397.1 billion (2015: £313.5 billion).
Our policy is to increase dividends progressively in line with the trend in profitability and to target a 45 – 50% pay out ratio. The Board will recommend to shareholders at the Annual General Meeting a final dividend of 64 pence per share (2015: 58 pence). The final dividend will be paid on 4 May 2017 to shareholders on the register at 31 March 2017. The full year dividend of 93 pence per share represents an increase of 7%.
Total dividend per share
Our role as asset managers
As one of the largest investment firms in Europe, Schroders plays an important role in helping a broad range of investors meet their financial goals as they provide for retirement, seek to offset future liabilities or build pools of capital to fund the investment needs of the future. We also play an important role in actively channelling capital to companies to support them in investing for growth. High standards of governance and corporate and social responsibility matter to us and we believe they are likely to lead to outperformance in the long term.
In line with the asset management industry as a whole, Schroders faces a number of challenges but we are well placed to continue to grow the business in the long term. Fees have been reducing for several years and will likely decline further as investors continue to focus on costs in a low return world. This is also driven in part by the shift into passive investment strategies. However, Schroders has the scale to weather declining fee margins and we remain committed to active investment management which we believe can generate significant incremental value for clients over the long term by compounding returns in excess of what can be achieved by matching a benchmark index.
The regulatory focus on asset management continues to intensify and the Financial Conduct Authority issued its interim report on its Asset Management Market Study in November. We support the regulator’s objective of greater transparency around costs and investment outcomes to assist investors in making the choices that best meet their needs. The regulatory focus may also lead to higher capital requirements for asset managers but we are well positioned with £1.1 billion of investment capital over and above operating requirements.
It is too early to predict the precise impact of Brexit on UK asset managers but, given the scope of our European based business with operations on the ground in eleven European centres including our £90 billion Luxembourg fund range, we are confident that we will be able to adapt to the new landscape.
We made a number of important changes to the composition and working of the Board in 2016. In April, Peter Harrison succeeded me as Chief Executive. This was the culmination of a succession plan designed to ensure stability and continuity as well as continued long term growth and expansion.
Andrew Beeson stepped down from the Board in April after 11 years, including four years as Chairman. On behalf of the Board I would like to thank Andrew for his contribution to Schroders over more than a decade.
Massimo Tosato, Executive Vice Chairman and Head of Distribution, retired as a Director and left the Company at the end of 2016. Massimo joined Schroders in 1995 and was the architect of our institutional and intermediary distribution capability, widely recognised as one of our key competitive advantages. I would like to thank Massimo for 15 years of partnership and for his important role in our success over recent years.
Ashley Almanza left the Board in May since his commitments as Chief Executive of G4S prevented him from continuing as a Director. I would like to thank him for his support and advice during five years on the Board and for his work as Chairman of the Audit and Risk Committee. Rhian Davies succeeded Ashley as Chairman of this committee and led the process for selecting Ernst & Young as our proposed new auditors for 2018.
I was appointed Chairman in succession to Andrew Beeson in April. At that time I said we would appoint two additional independent non-executive Directors to the Board by the end of 2016. After a thorough review of the attributes we were looking for in these two candidates and an extensive search, we were delighted to announce that Ian King, Chief Executive of BAE, and Rakhi Goss-Custard, formerly an executive at Amazon, were appointed to the Board effective 1 January 2017.
After more than 20 years with the Company as an executive, Philip Mallinckrodt, Group Head of Private Assets and Wealth Management, relinquished his executive responsibilities on 1 March 2017. As a member of the principal shareholder group, he continues on the Board as a non-executive Director. Philip has made a major contribution to Schroders’ success, particularly in the last eight years as an executive Director. I am delighted that he will serve as a non-executive Director and I look forward to continuing to work with him in this new capacity.
We continue to hold five scheduled Board meetings a year but we have extended the duration of the meetings to allow for a fuller discussion. In May we hold a two day strategy meeting and every eighteen months we travel to one or more of our overseas offices. The focus of the Board in 2016 was concentrated on strategic challenges and opportunities and we intend to maintain that focus in future.
In 2016 we signed the Women in Finance Charter and we have committed to meet the target of women filling at least 33% of senior management positions by 2019. At Board level we have also increased the level of female representation and our aim is to achieve the new target of 33% by 2020 as set out in the Hampton-Alexander report. We also support the recommendations contained in the Parker report on the ethnic diversity of Boards.
The success of our business derives from our values, our diversified business model, our financial strength and, above all, the extraordinary depth of talent we have at Schroders across the world. I would like to place on record the Board’s recognition of their contribution in 2016.