Schroders plc Half-year results to 30 June 2021 (unaudited)
Schroders plc Half-year results to 30 June 2021 (unaudited)
- We delivered strong results with profit before tax and exceptional items of £407.5 million in the first six months of 2021.
- Client investment performance remained strong with 87% of assets outperforming their relevant comparator over one year, 75% over three years and 82% over five years, demonstrating the value of our active investment management approach.
- We generated net new business of £17.9 billion, as assets under management increased 6% to a new high of £700.4 billion. Excluding joint ventures and associates, we generated net new business of £10.5 billion and assets under management reached £602.4 billion.
- Given the strong performance of the business, the Board has recommended an interim dividend of
37 pence per share, which represents a 6% increase.
Peter Harrison, Group Chief Executive, commented:
“The business performed strongly during the first half of the year, delivering a 33% increase in profits. These results reflect the benefit of our organic growth initiatives, strong investment performance and our leadership position in sustainability.
Assets under management reached a new high of £700 billion underpinned by demand for our higher margin equity focused mutual funds, especially from clients in the US and Continental Europe. Our investment teams delivered excellent investment performance for our clients again with 82% of assets outperforming over five years. Providing our clients around the globe with investment solutions that meet their needs remains central to success.
Markets have benefitted from a combination of low interest rates, quantitative easing and a belief that inflationary pressures are transitory. If these pressures persist, or indeed the recovery in economic growth disappoints, we would expect increased market volatility. We are confident our business will continue to generate value for our clients, shareholders and wider stakeholders.”
Our continued strong investment performance and established client relationships have enabled us to deliver strong results in the first half of 2021. Profit before tax and exceptional items increased 33% to £407.5 million (H1 2020: £306.2 million). The breadth and depth of our product range allowed us to take advantage of greater investor risk appetite, particularly in Europe and the US, as demand for mutual funds and higher margin equity products increased.
We have continued to deliver excellent investment performance for our clients. Over one, three and five years 87%, 75% and 82% of assets respectively outperformed their relevant comparator. In the performance sensitive areas of equities and fixed income, 84% and 97% of assets outperformed over one year.
Our leadership position in sustainability and strong investment performance contributed to positive client inflows of £17.9 billion in the first half of 2021. This was led by continued client demand for Mutual Funds, with net new business of £6.4 billion, and private asset products with Schroders Capital generating £2.9 billion of net new business, as well as continued momentum across our joint ventures and associates, which contributed £7.4 billion of net inflows.
Carbon neutrality is a business imperative. That is why we have set ourselves a target to achieve a net zero outcome and ask the same of the companies in which we invest. Climate solutions is an area where we can demonstrate our continued leadership position in sustainability and impact and respond to what our clients are asking for. Most recently we have invested in Natural Capital Research, a data-led science-based organisation whose innovative mapping tool identifies natural capital assets, such as land and forestry, that can be used most effectively to offset carbon. Through this partnership we will strengthen our solutions approach for our clients and support them as they seek to progress on their sustainability journeys and pursue net zero portfolios. At the same time, we are working towards having the majority of the assets in our main Continental European fund range managed within either “Article 8” or “Article 9” funds under the EU’s Sustainable Finance Disclosure Regulation (SFDR) later this year.
Our strategy of delivering growth through building closer relationships with our end-clients in Wealth Management, expanding our capabilities in Private Assets and growing our Asset Management business through geographical expansion, strategic partnerships and leadership in sustainable investing remains unchanged. We remain committed to delivering against it. We have also continued to invest in organic growth initiatives in China and North America, as well as to build out our UK regional wealth capabilities.
The Group’s assets under management including joint ventures and associates rose by 6% and closed the period at a new high of £700.4 billion (FY 2020: £663.0 billion). Excluding joint ventures and associates, our assets under management increased by 5%, reaching £602.4 billion, despite an FX headwind (£9.0 billion) but supported by positive investment returns (£26.5 billion).
Net operating revenues before exceptional items were 18% higher than the previous period at £1,149.7 million (H1 2020: £971.6 million) driven by higher average assets under management of £585.3 billion (H1 2020: £501.2 billion) and the demand for higher margin products such as equity mutual funds and private assets.
Joint ventures and associates contributed £43.4 million in the first half of the year (H1 2020: £27.6 million). The Group also generated good returns from its balance sheet activities and co-investments with net gains on financial instruments and other income of £51.4 million (H1 2020: £4.7 million). As a result, net income increased by 24% to £1,244.5 million (H1 2020: £1,003.9 million).
Total operating costs before exceptional items were £837.0 million (HY 2020: £697.7 million), representing a total cost to net income ratio of 67% (H1 2020: 70%). Non-compensation costs were broadly flat at £264.8 million (H1 2020: £247.5 million).
Asset Management net income before exceptional items increased 23% to £1,024.1 million (H1 2020:
£835.6 million). The segment benefitted from the continued strong performance of our joint ventures and associates which contributed £37.9 million (H1 2020: £19.8 million). Profit before tax and exceptional items was £334.5 million (H1 2020: £260.3 million). Profit before tax but after exceptional items was £319.6 million (H1 2020: £253.2 million).
Private Assets & Alternatives
The positive momentum of our Private Assets & Alternatives business area continued into the first half of 2021. Despite the headwind from strengthening sterling, positive flow momentum and investment performance supported good growth in assets under management, which closed the period at £48.2 billion (FY 2020: £46.1 billion). Schroders Capital, the new brand of our private markets business, generated net new business of £2.9 billion with a further £2.7 billion of capital commitments not yet recognised in assets under management. Alternatives ended the period with net outflows of £0.4 billion. The net operating revenue margin excluding performance fees and carried interest was 61 basis points (FY 2020: 63 basis points). Including performance fees and carried interest, the net operating revenue margin was 67 basis points (FY 2020: 65 basis points).
Assets under management ended the period at £193.6 billion (FY 2020: £192.3 billion), representing a small increase from the year end. The net operating revenue margin excluding performance fees decreased to 14 basis points (FY 2020: 15 basis points) due to the full year effect of the latest tranches of the Lloyds mandate, which funded in the first half of 2020. The Solutions business experienced net outflows in the first half of the year of £0.4 billion (H1 2020: £42.7 billion inflows), driven by the expected run-off from the Scottish Widows mandates.
The first half of the year was characterised by particularly strong demand for our Mutual Fund product suite, with net inflows of £6.4 billion (H1 2020: net outflows of £4.8 billion). Demand was particularly high for our thematic equity products from Continental European clients and for the Hartford Schroders fund range from US-based clients. Assets under management in Mutual Funds at 30 June 2021 were £114.8 billion (FY 2020: £104.2 billion), representing an increase of 10% over the period. The demand for higher margin equity products mitigated industry fee pressures and led to net operating revenue margin excluding performance fees increasing to 74 basis points (FY 2020: 71 basis points).
The Institutional business benefitted from improving investor appetite and saw net inflows of £1.0 billion
(H1 2020: net outflows of £0.7 billion), as outflows from APAC-based clients were offset by inflows from US-based clients into Fixed Income products. Institutional assets under management increased by 6%, reaching £169.5 billion (FY 2020: £159.8 billion). The net operating revenue margin excluding performance fees remained flat at 31 basis points (FY 2020: 31 basis points).
Asset management joint ventures and associates
Our asset management joint ventures and associates contributed £37.9 million (H1 2020: £19.8 million) to the Group’s net income during the first half of the year.
Our existing BOCOM Schroders associate in China continued to perform strongly. Our 30% share of profits nearly doubled, reaching £32.6 million (H1 2020: £16.9 million). The move towards higher margin equity products contributed to our share of net operating revenue increasing to £46.6 million in the first half of 2021 (H1 2020: £29.9 million).
Revenues from our partnership with Axis in India, of which we own 25%, increased by 37% versus the first half of last year. As a result, our share of profit after tax increased to £4.1 million (H1 2020: £2.6 million).
We continued to see good momentum across the Wealth Management business, with good revenue growth and continued client demand in the first half of 2021.
Net income increased 15% to £214.9 million (H1 2020: £187.6 million), principally driven by higher management fees. Profit before tax and exceptional items was up 10% at £66.5 million (H1 2020: £60.3 million).
Client demand for our Wealth offering remained good as we generated net new business of £1.0 billion in the first half of the year (H1 2020: £1.3 billion). Of this, £0.6 billion of net inflows were from Schroders Wealth clients and £0.3 billion were through Benchmark Capital. Schroders Personal Wealth gained momentum in the first half of the year and saw net inflows of £0.1 billion, as the level of client referrals continued to increase.
Total assets under management in Wealth Management ended the period at £76.3 billion (FY 2020:
£72.0 billion). The net operating revenue margin before performance fees remained flat at 56 basis points
(FY 2020: 56 basis points).
The Group segment generated profit before tax and exceptional items of £7.7 million, £21.3 million higher than the prior year (H1 2020: loss of £13.6 million), driven by higher returns on investment capital.
Reflecting the Group’s strong capital position and financial performance, the Board has declared an interim dividend of 37.0 pence per share (H1 2020: 35.0 pence per share). The dividend will be paid on 23 September 2021 to shareholders on the register at 20 August 2021.
The strong performance we have delivered in the first half of the year benefitted from the organic investments we have made and the net new business momentum we have generated in higher margin areas. We are mindful that markets have benefitted from a combination of low interest rates, quantitative easing and a belief that inflation is transitory. If inflationary pressures persist, or indeed the recovery in economic growth disappoints, we would expect increased market volatility, with an inevitable impact on our business.
Given our leadership position in sustainability combined with our strong investment performance and brand, we are well positioned to service clients around the world with the investment solutions they need. We continue to see long-term growth opportunities. We are confident our business will continue to generate value for our clients, shareholders and wider stakeholders.
The full half-year results to 30 June 2021 can be viewed here.
 Please refer to page 6 in the full press release for more information about client investment performance, which can be viewed on Schroders website: https://www.schroders.com/en/investor-relations/
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.