- Our diversified business model has enabled us to deliver a resilient performance in the first half of 2020, despite the exceptionally challenging market environment, with profit before tax and exceptional items of £306.2 million
- The investments we have made in technology and improvements to our operating platform over recent years have facilitated an efficient transition to remote working, helping to keep our people safe while maintaining a high level of productivity
- We generated total net inflows of £38.1 billion, with positive contributions from Solutions and Wealth Management. Assets under management increased 5% to reach a new high of £525.8 billion
| Six months ended 30 June 2020 | Six months ended 30 June 2019 | Year ended 31 December 2019 £m |
Net income | 1,003.9 | 1,032.6 | 2,124.8 |
Operating expenses | (697.7) | (692.2) | (1,423.6) |
Profit before tax and exceptional items | 306.2 | 340.4 | 701.2 |
Profit before tax | 280.1 | 319.3 | 624.6 |
Profit after tax | 222.7 | 255.0 | 495.7 |
Basic earnings per share before exceptional items (pence) | 85.8 | 98.6 | 201.6 |
Basic earnings per share (pence) | 78.7 | 92.4 | 178.9 |
Dividend per share (pence) | 35.0 | 35.0 | 114.0 |
Peter Harrison, Group Chief Executive, commented: “We have delivered a robust performance in the first half of 2020, despite the extraordinary period of market volatility and continuing social and economic uncertainty.
Throughout this challenging period, our primary focus has been on our clients and I am proud of how our people have responded. Through their efforts, and aided by the investments we have made in technology, our diversified business model has continued to perform well, enabling us to generate £38.1 billion of positive net new business. We saw client demand for Solutions strategies as well as momentum across Wealth Management. Assets under management grew by 5% to £525.8 billion.
ESG is of critical importance. We recognise that we have a responsibility not only to our clients and shareholders, but also to wider society and the communities in which we operate. As an active investor in many companies, we continue to be engaged in supporting them through this challenging period. Through directors’ contributions and employees’ donations, we have collectively raised around £4 million for charities dedicated to supporting those most affected by Covid-19. We have not furloughed any employees, enacted any related redundancy programmes or sought any government assistance globally.
We have declared an unchanged interim dividend and continue to maintain a strong capital position, allowing us to invest in the future growth of the business. We are mindful of short-term risks, but believe that we will continue to generate value over the long term for our clients and our shareholders.”
Management statement
In an extraordinary environment when our clients and employees around the world are facing many challenges, our diversified business model has again demonstrated its benefits. We have delivered resilient results with a focus on cost discipline and have generated strong client inflows despite the challenging market conditions.
Profit before tax and exceptional items decreased by 10% to £306.2 million (H1 2019: £340.4 million). Exceptional items of £26.1 million (H1 2019: £21.1 million) principally comprised the amortisation of acquired intangibles. Profit before tax but after exceptional items decreased by 12% to £280.1 million (H1 2019: £319.3 million). Profit after tax and exceptional items was down 13% at £222.7 million (H1 2019: £255.0 million).
Our core strategy of continuing to diversify the business by building closer relationships with our end clients in Wealth Management, expanding our capabilities in Private Assets and growing our asset management business through Solutions remains unchanged and we remained committed to delivering against it.
As an active investor in companies, we have a responsibility not only to our clients and shareholders, but also to wider society and the communities in which we operate. We are actively engaged in supporting and recapitalising businesses through these exceptional times, while protecting the interests of all stakeholders. We have enacted a number of initiatives directly related to the economic and financial recovery from Covid-19.
Through direct contributions and matching employees’ donations, we have also materially increased our support for charities. In the first half of the year, we have collectively raised around £4 million for charities that support those most affected by Covid-19.
The investments we have made over recent years in developing our operating platform have enabled the business to grow and to function without disruption.
Despite the challenging environment, we generated net inflows of £38.1 billion in the first half of 2020 (H1 2019: net outflows of £1.2 billion). This was led by continued client demand for Solutions strategies, with net new business of £42.7 billion, as well as continued momentum across Wealth Management, which saw £1.3 billion of net inflows.
Assets under management rose by 5% to close the period at a new high of £525.8 billion (31 December 2019: £500.2 billion), despite significant market weakness towards the end of the first quarter. Primarily as a result of the funding of a number of Solutions mandates at lower revenue margins, the net operating revenue margin excluding performance fees, carried interest and real estate transaction fees fell to 39 basis points (H1 2019: 46 basis points).
As a result of these dynamics, net operating revenue decreased by 2% to £971.6 million (H1 2019: £993.3 million), which includes performance fees and net carried interest of £18.9 million (H1 2019: £27.4 million). Net income declined 3% to £1,003.9 million (H1 2019: £1,032.6 million). This was partially offset by continued strong performance from our joint ventures and associates, which contributed £27.6 million in the first half of the year (H1 2019: £14.1 million).
We continued to maintain our strategy of investing for the growth of the business, while remaining disciplined on cost control. Compensation costs were £450.2 million (H1 2019: £453.4 million), which represents a total compensation ratio of 45%. Non-compensation costs for the first half of the year were £247.5 million (H1 2019: £238.8 million).
Asset Management
Asset Management net income before exceptional items was down 3% to £835.6 million (H1 2019: £864.6 million), including performance fees and net carried interest of £18.4 million (H1 2019: £27.3 million). The net operating revenue margin before performance fees, carried interest and real estate transaction fees was 37 basis points (H1 2019: 44 basis points). Profit before tax and exceptional items declined 11% to £260.3 million (H1 2019: £292.4 million), as did profit before tax to £253.2 million (H1 2019: £284.4 million).
Private Assets & Alternatives
Assets under management in the Private Assets & Alternatives business area closed the period at £45.3 billion (31 December 2019: £44.2 billion). There was ongoing client demand for Private Assets strategies, such as Real Estate, Private Equity and Infrastructure, offset by outflows from more liquid alternatives, such as Emerging Market Debt Absolute Return and our GAIA range of UCITS-compatible hedge funds. Overall, there were small net outflows of £0.4 billion in the first half of 2020 (H1 2019: £0.4 billion outflows). The net operating revenue margin excluding performance fees, carried interest and real estate transaction fees was 63 basis points (H1 2019: 63 basis points).
In July, we announced that we had reached an agreement to acquire a majority stake in Pamfleet, a real estate investment manager with a strong track record of investing in Asia. This acquisition allows us to expand our geographical capabilities within Real Estate into Asia, which contains some of the highest value, fastest growing and most dynamic real estate markets in the world. Pamfleet manages £0.9 billion of assets and we expect the deal to complete shortly.
Solutions
Solutions strategies continue to attract high levels of client demand with total net new business over the last six months of £42.7 billion (H1 2019: £2.1 billion). We successfully onboarded the remainder of the Scottish Widows mandate of £29.5 billion as well as seeing the funding of a number of other mandates.
Total Solutions assets under management at the end of the period were £175.2 billion (31 December 2019: £142.8 billion). The net operating revenue margin excluding performance fees decreased during the period to 15 basis points (H1 2019: 22 basis points) as the above mandates funded.
Mutual Funds
The first half of the year was characterised by a ‘risk off’ environment which, along with significant market volatility, resulted in limited demand from retail investors. Mutual Funds saw £4.8 billion of net outflows (H1 2019: outflows of £1.8 billion), driven by redemptions from equity products.
Assets under management in Mutual Funds at 30 June 2020 were £94.1 billion (31 December 2019: £102.4 billion). Changing business mix resulted in a decrease in the net operating revenue margin excluding performance fees to 71 basis points (H1 2019: 74 basis points).
Institutional
The Institutional business area saw net outflows of £0.7 billion (H1 2019: outflows of £2.0 billion), as net inflows from UK-based clients were offset by redemptions primarily in equity strategies from clients based in Asia Pacific. The net operating revenue margin excluding performance fees was 31 basis points (H1 2019: 33 basis points). Institutional assets under management ended the period at £145.5 billion (31 December 2019: £144.1 billion).
Wealth Management
We continued to see good momentum across the Wealth Management business area, with strong revenue growth and continued client demand in the first half of 2020.
Net income rose 30% to £187.6 million (H1 2019: £144.0 million), including performance fees of £0.5 million (H1 2019: £0.1 million). Profit before tax and exceptional items rose 40% to £60.3 million (H1 2019: £43.2 million), and profit before tax increased 37% to £41.3 million (H1 2019: £30.1 million).
Client demand also remained strong as we generated net new business in the first half of the year of £1.3 billion (H1 2019: £0.9 billion). Of this, £0.8 billion of net inflows were from Cazenove Capital clients and £0.4 billion were through Benchmark Capital. Schroders Personal Wealth saw net inflows of £0.1 billion, as the level of client referrals was impacted by Covid-related branch closures. The process of replatforming clients remains on schedule and we remain confident of the long-term growth opportunities of the business.
Total assets under management in Wealth Management ended the period at £65.7 billion (31 December 2019: £66.7 billion). The net operating revenue margin before performance fees was 57 basis points (H1 2019: 60 basis points).
Group
The Group segment saw a loss of £13.6 million in the first half of the year (H1 2019: profit of £4.8 million), driven by lower returns on investment capital and increases in charitable contributions.
Dividend
The group continues to maintain a strong capital position. Accordingly, and reflecting resilient performance, the Board has declared an unchanged interim dividend of 35.0 pence per share (H1 2019: 35.0 pence per share). The dividend will be paid on 24 September 2020 to shareholders on the register at 21 August 2020.
Outlook
The first half of 2020 was dominated by the social and economic impacts of Covid-19 around the globe. The current environment is more balanced and markets are less volatile than we saw towards the end of the first quarter. However, the ongoing impact on economies and markets will likely continue for some time and will be dependent on the extent and effectiveness of measures taken by governments globally.
We continue to see areas of growth across our business and there are opportunities for those companies that are looking to expand their global footprint.
We believe that our strategy and diversified business model will continue to demonstrate its resilience through these challenging periods, leaving us positioned to continue to deliver long-term value for our clients and shareholders.
For further information, please contact:
Investors |
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Alex James | Investor Relations | Tel: +44 (0)20 7658 4308 | alex.james@schroders.com |
Press |
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Catherine Armstrong | Head of External Affairs | Tel: +44 (0)20 7658 2017 | |
Anita Scott | Brunswick | Tel: +44 (0)20 7404 5959 | schroders@brunswickgroup.com |
The views and opinions contained herein are those of Schroders' investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.'s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.