Management statement
Management Report
Profit before tax in Asset Management and Private Banking increased 14 per cent. to £159.0 million (H1 2007: £139.1 million) despite an increasingly challenging background to our business with lower equity markets and much reduced retail investor demand. Group profit before tax was £135.7 million (H1 2007: £185.6 million) reflecting lower realisations from Private Equity and unrealised fair value write downs on investments in the first quarter, as previously announced. Funds under management at the end of June totalled £130.2 billion (31 December 2007: £139.1 billion).
Asset Management
Gross profit margins increased to 65 basis points (H1 2007: 57 basis points) as we continue to focus on high value added products in Institutional and Retail. Asset Management income increased 12 per cent. to £406.0 million (H1 2007: £363.7 million) and profit before tax increased 11 per cent. to £136.7 million (H1 2007: £123.2 million).
New business won in Institutional was up 28 per cent. on the first half of 2007 and net outflows were significantly lower at £1.1 billion (H1 2007: £4.1 billion). These flows do not include a €4.0 billion advisory mandate we won from the Fondul Proprietatea in Romania. We have seen high levels of new business in areas such as multi-asset mandates, quantitative equities, liability driven investments and alternatives. In May we completed the acquisition of Swiss Re Asset Management Funds (Switzerland) AG with £0.9 billion under management, a business which broadens our product offering to Swiss pension clients. Funds under management in Institutional were £67.6 billion at the end of June (31 December 2007: £73.2 billion).
As expected, falling equity markets and high levels of volatility have had a significant impact on retail investor demand and industry flows out of equity mutual funds continued in the second quarter. After a record year for net sales in 2007 we saw redemptions in some of our products with net outflows of £0.2 billion in the first half (H1 2007: net inflows £3.6 billion). Significant outflows in continental Europe, in line with the overall industry trend, were largely offset by continuing inflows in Asia Pacific, the UK and the Americas. Retail funds under management at the end of June were £51.2 billion (31 December 2007: £56.2 billion).
Private Banking
Private Banking income increased 18 per cent. to £55.9 million (H1 2007: £47.5 million) and profit before tax increased 40 per cent to £22.3 million (H1 2007: £15.9 million) as we continue to benefit from a more efficient operating platform. In February we completed the acquisition of a small private client business in Singapore with £0.3 billion under management which will enable us to serve high net worth individuals in the region. Net new business amounted to £0.2 billion (H1 2007: £0.2 billion) and funds under management at the end of June were £11.4 billion (31 December 2007: £9.7 billion)1.
Private Equity and Group
Unfavourable market conditions resulted in a low level of realisations in Private Equity with profit before tax of £7.4 million (H1 2007: £36.2 million). The loss in Group in the first half was £30.7 million (H1 2007: profit £10.3 million) reflecting mark to market write downs in the first quarter on seed capital investments and fixed income securities held as part of our investment capital portfolio, offset by positive returns of £6.0 million in the second quarter.
In the first half we purchased for cancellation 8,538,230 non-voting shares at a total cost of £71.8 million. Group capital at the end of June amounted to £1,617 million (31 December 2007: £1,696 million).
Dividend
The Board has declared an increased interim dividend of 10.0 pence per share (H1 2007: 9.0 pence per share) payable on 19 September 2008 to shareholders on the register at 22 August 2008.
Outlook
We expect retail investor demand for mutual funds to be increasingly affected by the volatility of financial markets. This will have a negative impact on revenues in our Retail business. Longer term, this business is well positioned as a result of its broad diversification by region and by product. In Institutional, we are seeing good progress as a result of repositioning the business towards a range of new products which are attracting increasing demand in the UK and internationally. Overall, the diversification of our business continues to offer good growth prospects and our financial strength means we are well placed to take advantage of opportunities as they arise in a more challenging industry environment.
Copies of today's announcement are available on the Schroders website: www.schroders.com.
Michael Dobson, Chief Executive, and Stephen Brooks, Chief Financial Officer, will host a webcast and conference call for the investment community, to discuss the Group’s interim results at 9am BST on Friday, 8 August 2008. The conference call telephone number is 0800 694 1515 (International: +44 (0) 1452 584 053), conference ID 58687062. The webcast can be viewed live at www.schroders.com/ir and www.StreetEvents.com. For individuals unable to participate in the live webcast, a replay will be available from midday on Friday 8 August on www.schroders.com/ir. Alternatively, a telephone replay will be available until Thursday 14 August. Please telephone 0800 953 1533 (International: +44 (0) 1452 550 000), conference ID 58687062#.
Forward-looking statements
This interim results announcement may contain forward-looking statements with respect to the financial condition, results, operations and businesses of Schroders plc. Such statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. 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 announcement. 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 should be construed as a profit forecast.
1 The prior year comparative excludes custody related assets of £0.8bn (see Additional information).