- Net income before exceptional items down 5% to £1,032.6 million (H1 2018: £1,086.1 million)
- Profit before tax and exceptional items down 14% to £340.4 million (H1 2018: £397.1 million)
- Profit before tax down 14% to £319.3 million (H1 2018: £371.1 million)
- Assets under management up 9% to £444.4 billion (31 December 2018: £407.2 billion)
- Net outflows of £1.2 billion (H1 2018: net inflows of £1.2 billion)
- Around £45 billion of assets from the Lloyds Banking Group mandate due to fund in the second half of the year
- Interim dividend unchanged at 35 pence per share (H1 2018: 35 pence per share)
| Six months ended 30 June 2019 £m | Six months ended 30 June 2018 £m | Year ended 31 December 2018 £m | |
|---|---|---|---|
| Net income | 1,032.6 | 1,086.1 | 2,123.9 |
| Operating expenses | (692.2) | (689.0) | (1,362.7) |
| Profit before tax and exceptional items | 340.4 | 397.1 | 761.2 |
| Profit before tax | 319.3 | 371.1 | 649.9 |
| Basic earnings per share before exceptional items (pence) | 98.6 | 114.0 | 215.8 |
| Basic earnings per share (pence) | 92.4 | 106.0 | 183.1 |
| Dividend per share (pence) | 35.0 | 35.0 | 114.0 |
Peter Harrison, Group Chief Executive, commented: “We have continued to follow our strategy of selectively investing in key areas to drive the long-term growth of the business through a combination of inorganic investments and organic hiring. Assets under management finished the period at a new high of £444.4 billion. The overall pipeline of notified net new inflows is strong. The first part of the Lloyds mandate, around £45 billion of assets, will fund in the second half of the year.
We have made further progress in Wealth Management and expanded our proposition in Asia Pacific with the acquisition of Thirdrock Group’s wealth management business. We look forward to the launch of Schroders Personal Wealth to the wider market, later this year. We have further strengthened our private assets business, including agreeing to acquire a majority stake in BlueOrchard Finance, pioneers in microfinance and impact investing. We have also continued to develop our geographic capabilities, such as our investment in China.
In a challenging market, we continue to broaden and enhance our range of investment capabilities to help meet our clients’ needs. We remain on track with our plans, giving us confidence that our diversified business model and global presence position us well to generate positive outcomes for both our clients and shareholders over the long term.”
Management statement
Throughout the first half of 2019, we have continued to focus on our strategy of growing our core business, moving closer to our end client and expanding our capabilities in Private Assets and Alternatives. We have seen good progress with the on-boarding of the Lloyds mandate and we will transition around £45 billion of assets by the end of the year. Driven by strong markets towards the end of the period, assets under management at 30 June 2019 were at a new high of £444.4 billion (31 December 2018: £407.2 billion).
Consistent with our stated strategy, we continued to invest in the future growth of the business. During the period, we broadened our global footprint within Wealth Management, including with the acquisition of Thirdrock Group’s wealth management business based in Singapore with around £1.7 billion of assets under management. Thirdrock complements our existing capabilities, accelerates the growth of our wealth management business in Asia and strengthens the regional investment expertise we offer to private clients.
In July, we announced that we had reached agreement to acquire a majority stake in BlueOrchard Finance, pioneers in impact investing and microfinance in emerging and frontier markets. One of the world’s most successful impact investment firms, BlueOrchard expands our expertise in Private Assets and Alternatives and reaffirms our commitment to sustainability. It also helps us to serve clients better who are increasingly seeking investments that have a clear beneficial impact on society and the environment, as well as generating positive financial returns. We expect this to complete in the second half of the year.
Our capabilities in Private Assets and Alternatives were also reinforced in the first half by the acquisition of Blue Asset Management, a Germany-based real estate business. This acquisition provides additional resource and expertise in the German, Swiss and Austrian real estate markets and brings total Private Assets and Alternatives assets under management to £39.3 billion.
Although we saw assets under management reach an all time high at the end of the period, markets were relatively weak earlier in the year meaning that average assets under management were more than 2% lower than the first half of 2018. As a result, and together with business mix changes reducing net operating revenue margins, net income declined 5% to £1,032.6 million (H1 2018: £1,086.1 million). As operating costs remained broadly unchanged relative to H1 2018, profit before tax and exceptional items was down 14% to £340.4 million (H1 2018: £397.1 million) and profit before tax also declined 14% to £319.3 million (H1 2018: £371.1 million).
The negative investor sentiment experienced at the end of last year continued and we saw total net outflows from clients of £1.2 billion (H1 2018: net inflows of £1.2 billion). The “risk off” environment was particularly evident in the Intermediary channel, where there were net outflows of £2.4 billion, principally from Equity products. The Institutional channel proved more resilient and clients awarded us net new business of £0.3 billion. Wealth Management continued to perform strongly, generating net new business of £0.9 billion across Cazenove Capital and Benchmark Capital.
Asset Management
Asset Management net income before exceptional items was down 6% to £864.6 million (H1 2018: £921.5 million) as it was impacted by lower average assets under management. We generated performance fees and net carried interest of £27.3 million (H1 2018: £35.4 million). Profit before tax and exceptional items declined 16% to £292.4 million (H1 2018: £347.4 million) and profit before tax was down 14% to £284.4 million (H1 2018: £332.2 million).
Assets under management at the end of the period were £393.7 billion (31 December 2018: £363.5 billion). Investor sentiment remained subdued and we saw net outflows from clients of £2.1 billion (H1 2018: no net new business). The net operating revenue margin before performance fees and net carried interest declined by one basis point to 44 basis points.
The Institutional channel generated net new business from clients of £0.3 billion, driven by demand for Fixed Income and Multi-asset strategies, primarily from UK clients. Assets under management in the Institutional channel at 30 June 2019 were £264.0 billion.
In the Intermediary channel, the negative investor sentiment experienced towards the end of 2018 continued through the first half of this year. In this “risk off” environment, we saw net outflows from clients of £2.4 billion, predominantly driven by a lack of demand for Equity products. These redemptions were partially offset by net inflows into Emerging Market and European Fixed Income products. Assets under management in the Intermediary channel at 30 June 2019 were £129.7 billion.
Wealth Management
The Wealth Management segment generated net income of £144.0 million (H1 2018: £143.8 million). Profit before tax and exceptional items decreased 11% to £43.2 million (H1 2018: £48.7 million) and profit before tax was down 21% to £30.1 million (H1 2018: £37.9 million). The net operating revenue margin, excluding performance fees, declined one basis point to 60 basis points.
We continued to generate good organic growth, with clients introducing £0.9 billion of net new business (H1 2018: £1.2 billion), across both Cazenove Capital and Benchmark Capital. Assets under management in Wealth Management at 30 June 2019 were £50.7 billion (31 December 2018: £43.7 billion).
Group
The Group segment principally comprises returns on investment capital and treasury management activities and central costs.
In the first half of the year, the Group segment generated profit before tax and exceptional items of £4.8 million (H1 2018: £1.0 million), driven by gains in our investment portfolio.
Total equity at 30 June 2019 was £3.6 billion (31 December 2018: £3.6 billion).
Dividend
The Board has declared an interim dividend of 35.0 pence per share, which is unchanged from the interim dividend in 2018. The dividend will be payable on 26 September 2019 to shareholders on the register at 23 August 2019.
Outlook
We continued to see headwinds across the industry throughout the first half of 2019. However, our diversified business model and global footprint mean we are well positioned for the long term.
In a challenging market, we continue to broaden and enhance our range of investment capabilities to help meet our clients’ needs. We remain on track with our plans, giving us confidence that our diversified business model and global presence position us well to generate positive outcomes for both our clients and shareholders over the long term.
Our key priority remains achieving positive investment outcomes for our clients and building their future prosperity.
For further information, please contact:
Investors
Alex James - Investor Relations: Tel: +44 (0)20 7658 4308 | alex.james@schroders.com
Press
Beth Saint - Head of Communications: Tel: +44 (0)20 7658 6168 | beth.saint@schroders.com
Anita Scott - Brunswick: Tel: +44 (0)20 7404 5959 | schroders@brunswickgroup.com
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