Annual Report and Accounts 2019

Creating a better future by investing responsibly for our clients

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2019 Highlights


Profit before tax and exceptional items

£701.2m

(2018: £761.2)

Profit before tax

£624.6m

(2018: £649.9m)

Total dividend per share

114p

(2018: 114p)

Basic earnings per share before exceptional items

201.6p

(2018: 215.8p)

Basic earnings per share

178.9p

(2018: 183.1p)

Total equity

£3.8bn

(2018: £3.6bn)

Assets under management

£500.2bn

(2018: £407.2bn)

Net new business

£43.4bn

(2018: (£9.5)bn)

Client investment performance

68%

(2018: 74%)

Leadership Statements

Photo of Michael Dobson

Chairman

Michael Dobson

"Our results in 2019 were close to what we had budgeted at the beginning of the year. Net income at £2,122.6 million (2018: £2,110.1 million) was almost exactly in line with the previous year as we felt the effect of market weakness during the second half of 2018 and continued to see some reduction in revenue margins. Profit before tax and exceptional items at £701.2 million (2018: £761.2 million) reflected our programme of ongoing investment in the business, specifically in technology, in upgrading several of our major offices around the world, and in talent. Net inflows were £43.4 billion (2018: net outflows £9.5 billion) taking assets under management at the end of the year to a new high of £500.2 billion (2018: £421.4 billion)."

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Photo of Peter Harrison

Group Chief Executive

Peter Harrison

"2019 was another year of progress for Schroders towards our key strategic objectives. We have continued to invest for growth across our business and have delivered good results against a market backdrop which, despite picking up in the fourth quarter, remains uncertain."

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Photo of Richard Keers

Chief Financial Officer

Richard Keers

"We delivered profit before tax and exceptional items of £701.2 million (2018: £761.2 million) and profit after tax of £495.7 million (2018: £504.7 million) as we grew our AUM to a new high of £500.2 billion (2018: £407.2 billion). This was a resilient performance given the relative market weakness that existed at the start of 2019. We made good progress towards our strategic goals as we continued to position the Group for the future in the face of the ongoing industry headwinds."

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Our purpose

Creating a better future by investing responsibly for our clients

As a global investment manager we recognise we have an important part to play in shaping the future of all our stakeholders.

Our focus on doing the right thing for our clients, our people and wider society lies at the centre of our culture. We are committed to delivering positive outcomes for all.

Our performance

We delivered profit before tax and exceptional items of £701.2 million (2018: £761.2 million) and after tax of £495.7 million (2018: £504.7 million) as we grew our AUM to a new high of £500.2 billion (2018: £407.2 billion).

This was a positive performance given the relative market weakness that existed at the start of 2019. We made good progress against our strategy as we position the Group for the future in the face of the ongoing industry headwinds.

Chairman's statement

Group Chief Executive's review

Market review

Key performance indicators

Business model

Governance

  • Board and executive management
  • Board committee reports
  • Nominations committee report
  • Audit and Risk committee report
  • Remuneration report
  • Directors' report
  • Statement of Directors' responsibilities

Business and financial review

Our people and society

Risk management

Financial statements

Shareholder information

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Clients

Actively and responsibly investing to create better futures for our clients

Combining our commitment to active management and focus on sustainability, our strategic capabilities are designed to deliver positive outcomes for our clients

Strategic capabilities

  • Alpha Equity

  • Credit

  • Emerging Markets

  • Alternatives

  • Multi-asset

  • Private Assets

  • Solutions

  • Sustainability

Person mountain biking

68%

Three-year client investment performance

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Shareholders

A business strategy aligned with our shareholders’ interests

Delivering growth over the longer term allows us to generate sustainable shareholder returns

Lasting client relationships and a focus on positive outcomes
An in-depth understanding of our clients’ financial needs, coupled with data-driven market intelligence, helps us build a clear picture of future trends and changing client demands.

A strong financial position
Our ownership structure and strong capital base allow us to take a long- term perspective. This supports us in staying focused on our strategy and investing in the opportunities available to deliver value for our stakeholders.

114p

Total dividend per share

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People

Our people are central to our unique culture and working environment

Enabling everyone to work at their best contributes to our overall success as a business and we continue to focus on developing careers, ensuring inclusivity and mental wellbeing

Our values

We strive for excellence
Being good at what we do is a powerful way to create value for all our stakeholders and secure a long-term future for our business.

We promote innovation & teamwork
We challenge how things are done, anticipate future opportunities and understand that to deliver this value it will take collaboration and a healthy respect for individual skills.

We have passion & integrity
We are realistic about what we can achieve, but are ambitious too, approaching everything we do with energy and drive. This sits alongside an openness and responsibility to deliver on our promises.

Person walking using mobile device

91%

of employees are proud to be associated with Schroders

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Society

Our decisions and actions can make a real difference to wider society

We are committed to improving futures for those around us and support programmes and initiatives that have lasting impact

Ensuring diversity of thought through diversity of action

Key achievements in 2019 include:

  • Carried out more than 1,750 ESG engagements
  • Volunteered 1,707 work hours
  • Committed to net zero carbon emissions from 2020
People carrying a pride flag

100%

ESG integration across our managed assets by end 2020

Strategy

Strategic focus for sustainable long-term growth

We remain focused on our long-term strategy to invest for growth across the business. We have prioritised three key areas as strategic opportunities: growing Asset Management, expanding our capabilities in Private Assets and building closer relationships with our end clients. Achievement in these areas will be delivered by our five business priorities set out below.

Why it's important

By building close partnerships with our clients, we gain a deeper understanding of their needs, helping us develop products to meet their needs over time, leading to greater client longevity and new business opportunities.

The service we provide as well as the insights we develop means we are well placed to build enduring relationships based on trust, as we focus on delivering positive outcomes.

One of our strategic priorities is to focus on developing closer relationships with our end clients, particularly in Wealth Management. This allows us to reduce the impact of intermediation between us as manufacturers and our clients.

Progress through 2019

  • Generated record net inflows of £43.4 billion
  • On-boarded £44.6 billion of assets through the relationship with Lloyds Banking Group
  • Launched Schroders Personal Wealth to the wider market with £13.7 billion of AUM at 31 December 2019
  • Acquisition of wealth management business ThirdRock in Singapore

Growth opportunities

  • Attract and retain business with clients, particularly in strategically important growth areas
  • Increase client longevity through focus on products and client relationships
  • Transfer remainder of Scottish Widows mandate
  • Collaborate with Schroders Personal Wealth

Why it's important

Providing innovative products and solutions to meet the complex needs of our clients is crucial to our future growth.

Our clients are increasingly looking for solutions that can provide a specific outcome tailored to their personal needs, rather than just offering exposure to a market or asset class. Our range of strategic capabilities is designed to help our clients create better futures.

We continually look to expand our product offering and move into new areas of investment expertise. In recent years, we have also focused particularly on developing our capabilities in Private Assets.

Progress through 2019

  • Continued focus on sustainability, including moving into impact investing through the acquisition of BlueOrchard
  • Expansion of Private Assets capabilities with the acquisitions of Blue Asset Management and BlueOrchard
  • Increased seed and co-investment to support new products
  • Launched 41 new products, focusing on strategically important growth areas, including sustainability and Private Assets

Growth opportunities

  • Continue to develop our strategic capabilities in line with changing client demand
  • Maintain our focus on sustainability and commitment to developing new products
  • Expanding Private Assets capabilities, diversifying our business away from public markets

Why it's important

As an active investment manager, we are committed to delivering consistent outcomes for our clients over the long term.

While many of our strategies seek to outperform a stated benchmark or peer group, client demand is increasing for outcome-oriented solutions, which provide a specific result such as income or risk management.

Delivering outperformance or achieving a predefined outcome increases value for our clients and builds trust in our business.

Progress through 2019

  • 68% of our assets outperformed their stated comparator over three years.
  • Developed our ability to deliver complex, risk-managed solutions to meet client needs

Growth opportunities

  • Continue to deliver high levels of investment performance for clients
  • Provide value for money and build trusted relationships with our clients

Why it's important

Our business inherently involves processing and analysing data to achieve a desired outcome. It is critical to our ongoing success that we have leading technology to support this.

Technology can be better used to innovate, improving productivity and efficiency. In doing so, we can continue to evolve and develop our business, adding value for our clients and other stakeholders.

Our philosophy of investing in the future growth of our business includes an emphasis on embracing technology and comes with a focus on cost discipline through the cycle.

Progress through 2019

  • Having implemented new front office technology platform, we have worked to optimise processes globally
  • Continued investment in technology solutions across the business

Growth opportunities

  • Continue to invest in technology across the Group
  • Ongoing investment in robotics and automation
  • Maintain cost discipline through focus on ratio of total costs to net income through the cycle

Why it's important

Developing and retaining a diverse and talented workforce is key to the delivery of our business model.

We invest heavily in our people, offering opportunities to grow their knowledge, skills and capabilities. We also focus on providing them with a positive working environment that supports productivity, innovation and collaboration.

In supporting our people to operate at their very best, we are able to deliver positive outcomes for our stakeholders.

Progress through 2019

  • 94% retention rate of highly-rated employees
  • 91% of employees proud to be associated with Schroders
  • Female representation in senior management roles ended the year at 32%
  • 40% of employees have been with us for more than six years or more

Growth opportunities

  • Maintain strong retention rate for highly-rated employees
  • Increased target of 35% for female representation in senior management roles by 2022
  • New target of 28% female representation in roles immediately below GMC
Key performance indicators

Tracking our strategic progress

To ensure that we are delivering against our strategy, we track progress against a number of key performance indicators.

We target at least 60% of our AUM to outperform its stated comparator over rolling three-year periods.

Client investment performance graph

Investment performance over a three-year period remained strong in 2019, with 68% of assets outperforming their stated comparator. We have been above our target for each of the past five years.

Five-year investment outperformance was 71% and the one-year figure was 68%.

We seek to generate positive net new business across the Group.


New new business graph

We generated record net new business in 2019 of £43.4 billion. The first tranches of the Scottish Widows mandate were transferred towards the end of the year, which contributed to net inflows into Solutions strategies of £34.5 billion. Private Assets & Alternatives generated £2.8 billion of net inflows.

Mutual Funds and Institutional saw net outflows as the traditional asset management industry continued to face challenges.

Wealth Management continued to perform strongly, with net inflows of £14.7 billion.

We aim to grow AUM over time in excess of market growth through positive investment outperformance and net new business. As a sterling denominated reporter, currency movements may also impact asset levels.


Assets under management graph

AUM increased by 23% in 2019 to £500.2 billion.

Rising markets increased AUM by £56.3 billion while currency movements, notably a strengthening of sterling, reduced assets by £12.9 billion.

We generated net new business of £43.4 billion and acquisitions added £6.2 billion of AUM.

Developing and retaining talented people is key to our ongoing success. We actively monitor our retention of those employees who have been rated as either outstanding or exceed expectations in their annual performance review.


Retention of key talent graph

Our retention of highly-rated employees has consistently been more than 90%. This represents a committed and engaged workforce, which is aligned with Schroders’ values.

Net income comprises net operating revenue, which is primarily revenues generated from AUM less cost of sales, net gains on financial instruments, share of profit of associates and joint ventures, and other income. We aim to grow net income over time.

Net income graph

Net income increased £0.9 million from 2018 to £2,124.8 million.

Changes in business mix offset higher average AUM, resulting in a decrease in net operating revenue. This was offset by increased other income, driven by share of profits of associates and joint ventures and net gains on financial instruments.

We target a 65% ratio of total costs to net income through the market cycle, recognising that in weaker markets the ratio may be higher than our long-term target.

Ratio of costs to net income graph

In 2019, our ratio of total costs to net income was 67%, having previously been better than our target for each of the prior five years. This ratio increased as we continued to strategically invest in the future growth of the business.

We aim to grow earnings per share consistently, recognising the potential impact of market volatility on results in the short term.

Basi earning per share graph

In 2019, basic earnings per share before exceptional items was 201.6 pence.

Our policy is to provide shareholders with a progressive and sustainable dividend, maintaining a payout ratio of around 50%.


Dividend per share information

The Board is recommending a final dividend of 79 pence per share, bringing the total dividend for the year to 114 pence per share. This represents a payout ratio of 57%.


* Before exceptional items

Our business model

We invest actively and responsibly to create better futures for our clients. In doing so, we are able to deliver positive outcomes for our other stakeholders, including our shareholders, our people and wider society.

We differentiate ourselves from our competitors through:

  • Maintaining a strong financial position
  • Building close, lasting relationships
  • Diversifying our business

Our clients are at the centre of the business and our ongoing success is built on an understanding of their evolving needs. We partner with them and construct products and solutions that help them meet their changing financial goals. We are proud of our track record of delivering positive outcomes for clients.

Our client-led approach allows us to deliver for our other stakeholders, including our shareholders, our people, regulators, suppliers and society.

The right proposition to deliver for shareholders
Dividend per share 114p

The right culture to deliver for our people
Retention of key talent94%

The right principles to deliver for wider society
Company engagements on environmental, social and governance (ESG) issues1,750

Contact Schroders

Schroders is a world-class asset manager operating from 35 locations across Europe, the Americas, Asia, the Middle East and Africa.