Schroders says it had a good year in 2016, despite the headwinds facing the asset management industry, with net income, profit and assets under management and administration all reaching record levels.
Net operating revenue increased 7 per cent to GBP1,712.8 million (2015: GBP1,600.7 million) and net income increased by 8 per cent to GBP1,789.7 million (2015: GBP1,656.3 million).
Profit before tax and exceptional items rose by 6 per cent to GBP644.7 million (2015: GBP609.7 million) and profit before tax grew 5 per cent to GBP618.1 million (2015: GBP589.0 million).
The company generated GBP1.1 billion of net new business during the year, with continued demand from institutional clients offsetting outflows from intermediary and wealth management clients. Schroders also continued to invest in the future growth of the business and entered into a number of strategic relationships and completed three acquisitions.
Acquisitions increased assets under management by GBP6.7 billion, and resulted in a new category of client assets with GBP11.1 billion of assets under administration introduced through the acquisition of Benchmark Capital, a technology-led, adviser support business based in the UK.
The weakness of sterling increased assets under management and administration by approximately GBP42 billion. Assets under management and administration at the end of the year reached GBP397.1 billion (31 December 2015: GBP313.5 billion).
Asset management net operating revenue was up 7 per cent to GBP1,489.5 million (2015: GBP1,393.4 million), including performance fees of GBP38.8 million (2015: GBP35.7 million). Profit before tax and exceptional items rose 6 per cent to GBP572.4 million (2015: GBP540.5 million) and profit before tax increased 5 per cent to GBP553.9 million (2015: GBP528.4 million).
Investment performance remained strong with 74 per cent (2015: 72 per cent) of assets outperforming their benchmark or peer group over three years. Over a 5 year period, the outperformance figure was 85 per cent (2015: 76 per cent).
The net operating revenue margin, excluding performance fees, was 46 basis points (2015: 49 basis points). The reduction in margin was due to both changes in business mix and some fee pressure. The net operating revenue margin in the institutional channel was 32 basis points (2015: 34 basis points) and in the Intermediary sales channel was 73 basis points (2015: 74 basis points).
The company generated net new business of GBP1.4 billion in 2016. Net inflows of GBP4.3 billion were generated in the Institutional sales channel, predominantly in multi-asset and fixed income products and from clients in North America and the UK. Assets under management in the institutional sales channel at the end of December were GBP226.3 billion (31 December 2015: GBP181.0 billion).
Macro uncertainty and volatile markets impacted demand in the Intermediary sales channel and the company saw net redemptions of GBP2.9 billion, predominantly from equity products. Assets under management in the intermediary sales channel at the end of December were GBP120.1 billion (31 December 2015: GBP100.9 billion).
Schroders has entered into a number of strategic relationships this year aligned with its strategic priorities and designed to deepen its investment expertise or expand the scope of its distribution. In North America, a key area of strategic growth, the company entered into a relationship with Hartford Funds to manage and distribute a Hartford Schroders branded fund range to intermediary clients in the US.
Wealth management net operating revenue increased 8 per cent to GBP223.3 million (2015: GBP207.3 million), including performance fees of GBP2.4 million (2015: GBP0.6 million). Profit before tax and exceptional items was up 8 per cent to GBP66.4 million (2015: GBP61.3 million) and profit before tax was GBP56.3 million (2015: GBP60.5 million).
Net flows in early 2016 were impacted by clients’ preference for private assets after limited market returns in previous years and also for property in the UK. There were total net outflows of GBP0.3 billion.
Benchmark Capital is now included as a separate division within wealth management and increased assets under management and assets under administration by GBP3.4 billion and GBP11.1 billion respectively. Wealth management assets under management and administration at the end of the year were GBP50.7 billion (31 December 2015: GBP31.6 billion).
In October, Schroders reached an agreement to acquire the discretionary assets under management of C Hoare & Co. This deal completed on 17 February 2017 and around 1,800 clients representing approximately GBP2.3 billion of assets migrated to the Schroders platform.
The group segment comprises returns on investment capital, including seed capital deployed in building a track record in new investment strategies, and central costs. Profit before tax and exceptional items for the year was GBP5.9 million (2015: GBP7.9 million) and profit before tax was GBP7.9 million (2015: GBP0.1 million). Shareholders’ equity at 31 December 2016 was GBP3.2 billion (31 December 2015: GBP2.8 billion).
Consistent with the company’s policy, the board will recommend to shareholders at the annual general meeting an increase in the final dividend of 10 per cent, taking the final dividend to 64.0 pence (2015: 58.0 pence). This will bring the total dividend for the year to 93.0 pence (2015: 87.0 pence), an increase of 7 per cent. The final dividend will be paid on 4 May 2017 to shareholders on the register at 31 March 2017.
Peter Harrison (pictured), group chief executive, says: “We delivered good results in 2016, with profit before tax and exceptional items increasing 6 per cent to GBP644.7 million. Strong investment performance, positive net inflows and strategic acquisitions led to assets under management and administration increasing 27 per cent to GBP397.1 billion.
“We have made good progress against our strategic objectives and see a number of future growth opportunities. Our diversified business model, a strong financial position and willingness to invest behind the business means we are well placed to take advantage of these opportunities, despite the challenges faced by the industry.
“Consistent with these good results, the board is recommending a final dividend of 64 pence per share, bringing the total dividend for the year to 93 pence per share, an increase of 7 per cent.”
