Schroders Regulatory News (SDR)

Schroders plc

Peter Harrison, Group Chief Executive, commented: "2021 was an important year for Schroders. Our pre-tax profits were up 25%, earnings per share were 28% higher and we generated net new business of £35.3 billion. These results benefitted from the strategic decisions we took several years ago, improving both the resilience of our business and its long-term growth potential. 

Delivering excellent investment performance is always our primary focus; it was pleasing that 79% of assets outperformed on a three-year basis.

Importantly, the areas where we have invested for growth have delivered strongly. Performance across our partnerships, wealth, private assets and our sustainability franchise accelerated and enabled us to better serve a wider group of clients.

We continue to invest for the future. Most recently we have further expanded our capabilities. As a renewable energy manager, Greencoat Capital reinforces our leadership position in sustainability and will help enable our clients' net zero responsibilities. River and Mercantile's Solutions business enables us to expand our fiduciary management capabilities. These businesses will enhance our resilience and contribute to future growth."

1 Please refer to Additional Information for more information about client investment performance.

2 The organic growth rate is calculated as net new business divided by opening AUM.

Management statement

Our diversified business model has again demonstrated its advantages, as we have delivered our strongest results to date reflecting the benefit of the investments we have made in our business in recent years. Profit before tax and exceptional items increased to £836.2 million (2020: £702.3 million). Profit before tax but after exceptional items was £764.1 million (2020: £610.5 million). Profit after tax and exceptional items was £623.8 million (2020: £486.0 million).

Our strategy has delivered robust organic growth, with strong contributions from our Private Assets and Alternatives and Wealth Management businesses, our range of mutual funds and geographic expansion, as well as our Asian joint ventures and associates.

Our financial performance is driven by our ability to generate competitive investment outcomes for our clients. Over one, three and five years, 74%, 79% and 78% of assets outperformed their relevant comparator respectively. We can achieve these outperformance figures because of our strong culture of collaboration, which helps to create an environment that is more likely to generate outperformance. This environment is further supported by the investments we have made in our Data Insights Unit and a growing team of sustainability specialists.

The Group generated NNB of £35.3 billion (2020: £54.9 billion, £26.7 billion excluding the Scottish Widows mandate) during 2021, of which our joint ventures and associates contributed £20.2 billion (2020: £12.4 billion). This is a pleasing result and represents an annual organic growth rate of 5%. Our AUM increased by 10% to a new high of £731.6 billion (2020: £663.0 billion), consistent with our longer-term five-year compound annual growth rate (CAGR) of 10%. The AUM of our joint ventures and associates grew from £88.6 billion at the end of 2020 to £116.4 billion at the end of 2021, representing an annual growth rate of 31%.

Reaping the rewards of our organic investments

Our strategy is focused on three clearly defined priorities to drive future revenue growth. Firstly, we are getting closer to the consumer to avoid disintermediation and are actively growing our Wealth Management business. Secondly, we are tilting our Asset Management business towards the fast flowing waters of our industry and, thirdly, we are expanding our Private Assets and Alternatives capabilities.

Many of the investments we have made over recent years are now bearing fruit. We invested resources and seed capital into our new product ranges and now have a comprehensive range of Thematic products which closed the year with £10.3 billion of AUM, having generated £4.4 billion of NNB in 2021.

We have made continued progress in building a leadership position in sustainability and impact investing. Over the course of 2021, we successfully completed the transition of the majority of our Continental European fund range to include sustainable investment features. The funds now classified as either 'Article 8' or 'Article 9' under the EU's Sustainable Finance Disclosure Regulation (SFDR) have £60.5 billion of AUM and gathered NNB of £5.7 billion in 2021. We launched a further 14 such funds in Europe last year with more planned in 2022.

Last year, we became a founding member of the Net Zero Asset Manager Initiative. We believe asset managers have a fundamental role to play in supporting companies in their transition to net zero. We have now published our own path to net zero, not only for our business, but also for our clients' investment portfolios. We intend to use science-based targets to demonstrate a clearly defined pathway to net zero.

We continue to invest organically to expand internationally. The AUM of our North American business reached nearly £90 billion following net inflows of £3.2 billion in 2021. Our Latin American expansion plans are also progressing well and we have now reached £11.1 billion of AUM with the region contributing £2.1 billion of NNB. Our Asian business has grown to £102 billion of AUM, supported by strong NNB contributions from Hong Kong (£2.3 billion) and Singapore (£0.8 billion), as well as China and Taiwan (£1.0 billion). These are high-growth markets, and we expect inflows to accelerate over the coming years.

We participate in a number of high-growth markets by partnering with a local champion. In North America, our partnership with Hartford had another strong year, generating £3.1 billion (2020: £0.6 billion) of NNB and closing the year with £11.2 billion (2020: £7.5 billion) of AUM. We have long-standing strategic partnerships with Bank of Communications (BOCOM) in China and with Axis Bank in India. Both operations are growing at a rapid rate and are contributing meaningfully to our AUM and profits. The total AUM across our joint ventures and associates, excluding Schroders Personal Wealth, reached £116.4 billion (2020: £88.6 billion), representing an increase of over 31% year-on-year. This was supported not only by investment returns but also by positive NNB of £20.2 billion (2020: £12.4 billion).

Growing our Wealth Management business has been a focus for several years. At our capital markets event last year, we presented our ambitions for the business to generate at least 5% NNB per annum and reach £115 billion of AUM by 2025.

Net operating revenue increased by 17% to £2,403.1 million (2020: £2,059.6 million). Our strong investment performance meant that we generated performance fees of £94.4 million (2020: £86.9 million). Given the growth of our private assets capabilities, we also generated higher carried interest than in the previous year of £31.9 million (2020: £8.8 million). Combined, performance fees and carried interest were £126.3 million (2020: £95.7 million). Net income was up 18%, reaching £2,568.8 million (2020: £2,179.2 million) which includes the strong performance from our joint ventures and associates, with our share of profit contributing £88.2 million (2020: £64.1 million).

Investing for the future

We believe that using positive cash flow to invest in further growth initiatives propels the business into a virtuous circle of strong performance. Taking a long-term view, we continue to expand our operations in China and are building our wholly owned Fund Management Company under our own brand. In January 2022, we also gained approval from the Chinese regulator for our Wealth Management Company venture with BOCOM to commence its business operations. We own 51% of the business and, given the domestic wealth management market is the largest sector in China's asset management industry, we foresee good growth opportunities for this business.  

We announced three strategic acquisitions in Q4 2021. These businesses give us new capabilities, all in high-growth markets with attractive revenue growth outlooks.

To further enhance our Solutions offering, we announced the acquisition of River and Mercantile's UK Solutions business, which will add approximately £43.1 billion of AUM to our existing Solutions business. The transaction will provide us with increased access to the UK's high-growth pension fund market which will in turn enable us to further grow our AUM and revenues. Please refer to the press release for further information.

We also announced the expansion of our real estate capabilities in one of the key European growth markets by acquiring Cairn Real Estate, a Dutch real estate specialist manager with €1.3 billion of AUM. This provides Schroders Capital, our private assets business, with a true pan-European real estate capability to offer to our clients. Please refer to the press release for further information, both transactions completed in January 2022.

Finally, we have reached an agreement to acquire a 75% interest in Greencoat Capital, a leading European renewable infrastructure manager with £6.8 billion of AUM as at the end of 2021. This transaction is expected to complete in Q2 2022. This is an exciting investment and will not only enhance our leadership position in sustainability, but will enable us to support the energy transition towards net zero. Given the structural demand for this asset class, Schroders' global distribution reach and Greencoat's historic revenue growth trajectory, we foresee significant growth opportunities in the US and Europe in particular. Please refer to the press release for further information.

The acquisitions of Cairn Real Estate and Greencoat Capital will further strengthen our existing private assets platform. In June 2021, we launched Schroders Capital which united our private assets investment capabilities under one brand, in order to deliver an enhanced service for our clients. Schroders Capital encompasses the existing range of private equity, securitised products and asset-based finance, private debt, real estate, infrastructure, insurance-linked securities and BlueOrchard (impact specialist).

We decided last year to make another step change in technology investments to future-proof our business and ensure we have access to market-leading cloud technology. Once completed in the next few years, our cloud transition will make our business more secure and facilitate operational leverage in the future.

Despite these investments, we maintained cost discipline and as a result our cost income ratio fell by 1% to 67% (2020: 68%). Compensation costs were £1,168.1 million (2020: £974.7 million), which represents a total compensation ratio of 45%. Non-compensation costs were £564.5 million (2020: £502.2 million).

Asset Management

Asset Management net income before exceptional items was £2,138.0 million (2020: £1,786.9 million). The net operating revenue margin before performance fees and net carried interest was 37 basis points (2020: 36 basis points). The segment benefitted from increased performance fees of £94.2 million (2020: £85.8 million) and net carried interest of £31.9 million (2020: £8.8 million). In total, Asset Management performance fees and carried interest reached £126.1 million (2020: £94.6 million). Joint ventures and associates contributed £73.9 million (2020: £49.5 million). Profit before tax and exceptional items was £713.2 million (2020: £573.3 million). Profit before tax was £673.0 million (2020: £543.5 million).

Private Assets and Alternatives

The positive momentum in our Private Assets and Alternatives business area continued throughout last year. AUM increased by over 16% year on year and ended the period at £53.7 billion (2020: £46.1 billion). Schroders Capital generated £7.4 billion (2020: £1.7 billion) of NNB whilst our liquid alternatives business saw net outflows of £0.5 billion (2020: net outflows of £1.2 billion), bringing the total to £6.9 billion (2020: £0.5 billion) in 2021. This demonstrates the strength of our private assets capabilities which we have built over the past five years. We saw strong demand for our securitised credit, private equity, and real estate capabilities. Revenue margins excluding performance fees and carried interest remained flat over the year at 62 basis points (2020: 62 basis points), as higher margin inflows into Private Equity were offset by inflows into securitised credit. Given the strength of our Private Assets and Alternatives business area, we foresee continued strong client demand over the coming years.

Solutions

Our Solutions AUM grew by 3% and ended the year at £198.1 billion (2020: £192.3 billion). It now represents 27% of our group total AUM and generated £276.4 million (2020: £253.0 million) of net operating revenues. Its revenue contribution increased by 9% year on year. We experienced net outflows of £1.5 billion (2020: net inflows of £43.4 billion), which was mainly driven by the natural attrition of the Scottish Widows mandate, which experienced net outflows of £1.0 billion in 2021 and ended the year with AUM of £75.0 billion (2020: £71.2 billion). Solutions net operating revenue margins excluding performance fees and carried interest fell by 1 basis point to 14 basis points (2020: 15 basis points).

Mutual Funds

The year was characterised by strong client demand for our Mutual Fund ranges, which saw net inflows of £8.1 billion (2020: net outflows of £3.1 billion) driven by competitive investment performance from our thematic equity products. AUM in Mutual Funds were £116.0 billion (2020: £104.2 billion), representing an increase of over 10% compared to 2020. The demand for higher margin equity products offset industry fee pressures and led to net operating revenue margins excluding performance fees increasing to 72 basis points (2020: 71 basis points).

Institutional

The Institutional business saw net outflows of £2.5 billion (2020: £nil). AUM increased £6.4 billion to £166.2 billion (2020: £159.8 billion), reflecting our strong investment performance. Despite the net outflows, Institutional generated £601.0 million (2020: £514.5 million) of net operating revenues, a 17% increase compared to the previous year. Institutional net operating revenue margins excluding performance fees and carried interest remained flat at 31 basis points (2020: 31 basis points).

Wealth Management

Our Wealth Management segment saw continued good momentum throughout the year across its four franchises: Cazenove Capital, Schroders Personal Wealth, Schroders Wealth Management and Benchmark Capital.

Wealth Management closed the period at £81.2 billion (2020: £72.0 billion) of AUM and generated NNB of £4.1 billion (2020: £1.7 billion), which represents an annual organic growth rate of 6% based on its AUM at the beginning of the year.

Net income increased by 13% to £433.7 million (2020: £382.7 million). Profit before tax and exceptional items increased by over 16% year-on-year to £128.6 million (2020: £110.5 million), and profit before tax increased to £96.8 million (2020: £64.8 million). The net operating revenue margin before performance fees declined by 1 basis point to 55 basis points (2020: 56 basis points), largely due to the interest rate environment during the year. 

Cazenove Capital had another strong year and generated NNB of £3.1 billion (2020: £1.3 billion). Contributing to this growth were new hires in London and the UK regions as well as the strength of our sustainability offering. We foresee growth opportunities through our new regional offices in Birmingham, Manchester and Bristol where we successfully attracted 16 top advisers who are already contributing to our NNB. We completed the integration of Sandaire and are now well placed to capture opportunities through our leading family office franchise. 

Schroders Personal Wealth, our joint venture with Lloyds Banking Group, ended the year with £13.4 billion (2020: £12.2 billion) of AUM. NNB turned positive during the year at £0.3 billion (2020: net outflows of £0.3 billion) reflecting the benefit of an increasing number of referrals from the Lloyds banking branches. We are optimistic on the outlook for the business as it enters the next stage of growth.

Benchmark Capital completed another successful year, as AUM increased to £10.5 billion (2020: £9.4 billion) with NNB contributing £0.7 billion (2020: £0.7 billion).

Group

The Group segment generated a loss before exceptional items of £5.0 million in 2021 (2020: profit of £18.5 million), due to a reduction in interest income and an increase in compensation costs.

Dividend

Reflecting the Group's strong financial performance, the Board will recommend a final dividend of 85 pence (2020: 79.0 pence). This will bring the total dividend for the year to 122.0 pence (2020: 114.0 pence), which represents a 7% increase compared to 2020. The final dividend will be paid on 5 May 2022 to shareholders on the register on 25 March 2022.

Outlook

We continue to broaden our business towards resilient and high growth areas, such as wealth management and private assets. We believe that leadership in sustainability will be a critical success factor going forward. Our recently announced acquisitions will help further accelerate the development of the Group.

After a period of benign markets there is a risk that the current turbulence will be with us for some while. In such uncertain times our diverse business model enables us to focus on the long-term interests of our clients and other stakeholders.

For further information, please contact:

Copies of this announcement are available on the Schroders website: www.schroders.com. Peter Harrison, Group Chief Executive, and Richard Keers, Chief Financial Officer, will host a presentation for the investment community to discuss the Group's full-year results at 9.00 a.m. GMT on Thursday, 3 March 2022. Once registered on https://www.schroders.com/en/investor-relations/results-and-reports/results-reports-and-presentations/ a link to the Zoom call will be shared via email. A replay will be available from midday on Thursday, 3 March 2022 at https://www.schroders.com/en/investor-relations/.

Please visit https://www.schroders.com/en/investor-relations/ to learn how we handle personal data.

Forward-looking statements

This announcement and the Schroders website may contain forward-looking statements with respect to the financial condition, performance and position, strategy, results of operations and businesses of the Schroders Group. Such statements and forecasts involve risk and uncertainty because they are based on current expectations and assumptions but relate to events and depend upon circumstances in the future and you should not place reliance on them. Without limitation, any statements preceded or followed by or that include the words 'targets', 'plans', 'sees', 'believes', 'expects', 'aims', 'confident', 'will have', 'will be', 'will ensure', 'likely', 'foresee', 'estimates' or 'anticipates' or the negative of these terms or other similar terms are intended to identify such forward-looking statements. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by forward-looking statements and forecasts. Forward-looking statements and forecasts are based on the Directors' current view and information known to them at the date of this statement. The Directors do not make any undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Nothing in this announcement or in the Annual Report and Accounts or on the Schroders website should be construed as a forecast, estimate or projection of future financial performance.

Additional information

Assets under management (AUM)

Year ended 31 December 2021

1 Includes currency movements which decreased AUM by around £3.6 billion.

Client investment performance

Client investment performance is a measure of how investments are performing relative to a benchmark or other comparator. It is calculated internally by Schroders to give shareholders and financial analysts general guidance on how our invested assets are performing. The data is aggregated and is intended to provide information for comparison to prior reporting periods only. It is not intended for clients or potential clients investing in our products. All calculations for investment performance are made gross of fees with the exception of those for which the stated comparator is a net of fees competitor ranking. When a product's investment performance is disclosed in product or client documentation it is specific to the strategy or product. Performance will either be shown net of fees at the relevant fund share-class level, or it will be shown gross of fees with a fee schedule for the strategy supplied.

The calculation includes virtually all applicable AUM that have a complete track record over the one year, three years and five years reporting periods.

Applicable AUM excludes £53.1 billion of assets, principally comprising those managed by third parties, assets managed by Schroders Capital Real Estate Hotels, non-discretionary assets and Wealth Management assets held on a custody-only, advisory or execution-only basis.

Performance is calculated relative to the relevant comparator for each investment strategy as summarised below. These fall into one of four categories, the percentages for each of which refer to the three-year calculation:

Consolidated income statement

for the year ended 31 December 2021

1 Non-controlling interest is presented in the Consolidated statement of changes in equity.

2 Please refer to notes 2 and 3 for a definition and further details of exceptional items.

Consolidated statement of comprehensive income

for the year ended 31 December 2021

1 Non-controlling interest is presented in the Consolidated statement of changes in equity.

Consolidated statement of financial position

at 31 December 2021

1 Non-controlling interest is presented in the Consolidated statement of changes in equity.

Consolidated statement of changes in equity

for the year ended 31 December 2021

1 Other comprehensive income reported in the net exchange differences reserve comprises the net foreign exchange loss on the translation of foreign operations net of hedging. Other comprehensive income reported in the associates and joint ventures reserve represents post-tax fair value movements on financial assets at fair value through other comprehensive income. Other comprehensive income reported in the profit and loss reserve comprises the post-tax actuarial gain on the Group's retirement benefit scheme surplus and post-tax fair value movements on financial assets at fair value through other comprehensive income.

for the year ended 31 December 2020

1 Other comprehensive income reported in the net exchange differences reserve comprises the net foreign exchange gain on the translation of foreign operations net of hedging. Other comprehensive income reported in the profit and loss reserve comprises the post-tax actuarial gain on the Group's retirement benefit scheme surplus and post-tax fair value movements on financial assets at fair value through other comprehensive income.

Consolidated cash flow statement

for the year ended 31 December 2021

Explanatory notes to the financial statements

1. Presentation of the financial statements

(a) Basis of preparation

The financial information included in this statement does not constitute the Group's statutory accounts within the meaning of Section 434 of the Companies Act 2006 (Act). The statutory accounts for 2020 have been delivered to the Registrar of Companies and the auditor's opinion on those accounts was unqualified and did not contain a statement made under Section 498(2) or Section 498(3) of the Act. An unqualified auditor's opinion has also been issued on the statutory accounts for the year ended 31 December 2021, which will be delivered to the Registrar of Companies in due course.

The consolidated financial statements are prepared in accordance with UK-adopted international accounting standards and in conformity with the requirements of the Companies Act 2006.

The presentation of the income statement includes separate disclosure of exceptional items. The policy for exceptional items is set out in note 2.

(b) Future accounting developments

The Group did not implement the requirements of any other Standards or Interpretations that were in issue but were not required to be adopted by the Group at the year end date. No other Standards or Interpretations have been issued that are expected to have a material impact on the Group's consolidated financial statements.

2. Exceptional items

Exceptional items are significant items of income and expenditure that have been separately presented by virtue of their nature to enable a better understanding of the Group's financial performance. Exceptional items relate principally to items arising from acquisitions (including associates and joint ventures) undertaken by the Group, including amortisation of acquired intangible assets and certain one-off costs in 2020 relating to the Group's property estate.

3. Segmental reporting

(a) Operating segments

The Group has three business segments: Asset Management, Wealth Management and the Group segment. The Asset Management segment principally comprises investment management including advisory services in respect of equity, fixed income, multi-asset solutions and private assets and alternatives products. The Wealth Management segment principally comprises investment management, wealth planning and financial advice, platform services and banking services, primarily for private clients. The Group segment principally comprises the Group's investment capital and treasury management activities, corporate development and strategy activities and the management costs associated with governance and corporate management.

Segmental information is presented on the same basis as that provided for internal reporting purposes to the Group's chief operating decision maker, the Group Chief Executive. The Wealth Management segment includes the Group's proportional share of the income and expenses of its 49.9% interest in Schroders Personal Wealth (SPW) on an individual account line basis. This reflects the basis on which the Group monitors the performance of the business. The adjustment column re-presents the results of SPW on a post-tax basis within share of profit of associates and joint ventures in accordance with the accounting standards.

Operating expenses includes an allocation of costs between the individual business segments on a basis that aligns the charge with the resources employed by the Group in respect of particular business functions. This allocation provides management with the relevant information as to the business performance to effectively manage and control expenditure.

(b) Net operating revenue by segment is presented below:

(c) Net operating revenue by region is presented below based on the location of clients:

4. Net gain on financial instruments and other income

1 Includes a charge of £13.3 million (2020: £0.4 million credit) of exceptional items.

5. Operating expenses

Operating expenses include:

The employee benefits expense net of hedging of £1,174.7 million (2020: £982.5 million) includes £6.6 million (2020: £7.8 million) that is presented within exceptional items.

6. Tax expense

Analysis of tax charge reported in the income statement:

Analysis of tax charge reported in other comprehensive income:

Analysis of tax credit reported in equity:

The UK standard rate of corporation tax for 2021 is 19% (2020: standard rate of 19%). The tax charge for the year is higher (2020: higher) than a charge based on the UK standard rate. The differences are explained below:

7. Earnings per share

Reconciliation of the figures used in calculating basic and diluted earnings per share:

The pre-exceptional earnings per share calculations are based on profit after tax excluding non-controlling interest of £14.7 million (2020: £14.2 million). After exceptional items, the profit after tax attributable to non-controlling interest was £11.9 million (2020: £9.7 million).

8. Dividends

Dividends of £9.1 million (2020: £10.4 million) on shares held by employee benefit trusts have been waived and dividends may not be paid on treasury shares. The Board has recommended a 2021 final dividend of 85.0 pence per share (2020 final dividend: 79.0 pence), amounting to £232.9 million (2020 final dividend: £216.3 million). The dividend will be paid on 5 May 2022 to shareholders on the register at 25 March 2022 and will be accounted for in 2022.

In addition, the Group paid £9.8 million of dividends to holders of non-controlling interests in subsidiaries of the Group during 2021 (2020: £0.1 million), resulting in total dividends paid of £328.4 million (2020: £311.8 million).

The Company offers a dividend reinvestment plan (DRIP). The last date for shareholders to elect to participate in the DRIP for the purposes of the 2021 final dividend is 11 April 2022. Further details are contained on the Group's website.

9. Fair value measurement disclosures

The Group holds certain assets and liabilities at fair value. Their categorisation within the fair value hierarchy is shown below: