Press
P s Rellease
e
Schro
S
oderrs plc
c
Annual
A
R
Results to
o 31 Dece
ember 20
012 (audited)
•
Profit befo
ore tax £360.0
0 million (2011
1: £407.3 million)
•
nce)
Earnings p
per share 104
4.7 pence (20
011: 115.9 pen
•
Full-year d
dividend 43.0 pence per sh
hare (2011: 39
9.0 pence)
•
Net inflow
ws £9.4 billion (2011: £3.2 billion)
b
•
Assets un
nder managem
ment £212.0 billion
b
(2011: £
£187.3 billion)
7 March 2013
22012
£m
201
11
£
£m
3348.5
389
9.4
11.8
23
3.8
3360.3
413
3.2
Profit
Asse
et Managemen
nt
Priva
ate Banking
Grou
up segment
(0.3)
Total profit be
efore tax
3360.0
407
7.3
Earnings per share (pence))
1 04.7
115
5.9
43.0
39
9.0
Total dividend
d (pence per share)
s
Contacts
C
:
Schroders
S
Emma
E
Holden
Head of
o Corporate Communicationss
+44 (0) 207 658 2329
emmaa.holden@schro
oders.com
+44 (0)) 207 379 5151
wclutteerbuck@maitla
and.co.uk
Maitland
M
William
W
Clutterb
buck
1
(5
5.9)
Managem
M
ment Statement
Financial
F
ma
arkets and in
nvestor sentiment fluctua
ated sharply
y in the first half
h of 2012, with early gains
g
in equity
markets
m
give
en back in the
t second quarter as concerns grew
g
over th
he Eurozonee and falteriing econom
mic
growth.
g
In the second ha
alf confidenc
ce recovered
d as centrall banks conttinued to proovide liquiditty, convincin
ng
actions
a
were
e taken in Europe to address the cchallenges fa
acing the sin
ngle currenccy and the likelihood of a
hard
h
landing for the Chinese econo
omy receded
d. Sentiment improved markedly
m
annd, with equ
uity valuation
ns
lo
ooking histo
orically attracctive agains
st bonds an
nd investors seeking to reduce theeir underweig
ght positions,
equity
e
marke
ets moved hiigher.
Against
A
this vvolatile backkground Sch
hroders had a solid yearr, with four quarters
q
of ppositive net new
n businesss
fllows in Institutional and Intermediary, £9.4 billio
on of net ne
ew business
s for the yeaar as a whole and asse
ets
under
u
manag
gement reacching their highest ever level of £212.0 billion (2
2011: £187.33 billion). Pro
ofit before ta
ax
was
w down 1
12 per cent.. at £360.0 million (201
ue
11: £407.3 million), witth a small rreduction in net revenu
attributable
a
to
o lower net revenue ma
argins, and a 4 per cen
nt. increase in
i costs as w
we continue
ed to invest in
th
he businesss.
Asset
A
Mana
agement
Asset
A
Manag
gement net revenue de
eclined 3 perr cent. to £1
1,014.8 millio
on (2011: ££1,041.5 million) includin
ng
performance
p
e fees of £28
8.4 million (2
2011: £36.6 million). Ne
et revenue margins,
m
exccluding perfo
ormance fee
es,
were
w
54 bassis points (20
011: 56 basis points) ref
eflecting the significant growth
g
of Insstitutional in recent yearrs.
Asset
A
Manag
gement profiit before tax was £348.5
5 million (201
11: £389.4 million).
m
Last
L
year we
e continued our program
mme of sele
ective investtment in sup
pport of futurre growth. Notable
N
area
as
were
w
Multi-a
asset and Fixed Income
e; control fu
unctions in the context of the signnificant expa
ansion in ou
ur
business
b
and
d the increa
ased regulattory agenda
a; and inform
mation techn
nology upgrrades in ord
der to give us
u
greater
g
scale
e benefits an
nd provide ou
ur fund man
nagers with a leading sup
pport capabiility.
In
nvestment performance
e for clientts has bee
en strong across
a
the board with 71 per ce
ent. of fund
ds
outperformin
o
g benchma
ark or peer group over the three years to the
t
end of 2012 and 78 per cen
nt.
outperformin
o
g over one year. Net new busine
ess in Institu
utional was £6.4 billionn (2011: £6.8 billion) witth
positive
p
flow
ws in most asset class
ses and a particularly strong perfformance inn Equities. Assets
A
unde
er
managemen
m
nt in Institutio
onal ended th
he year at £123.7 billion (2011: £108
8.4 billion).
Despite
D
wea
ak retail investor demand
d early in th
he year, we achieved four quarters of positive net
n inflows in
In
ntermediary in 2012 an
nd net inflow
ws for the yyear as a whole
w
were £3.3
£
billion (2011: net outflows
o
£3.8
billion),
b
predo
ominantly in
n Multi-asset. Assets un
nder manag
gement in In
ntermediary ended the year
y
at £72.0
billion
b
(2011: £62.9 billion
n).
During
D
the ye
ear we anno
ounced two acquisitions
a
which are complement
c
ary to our orrganic growtth strategy. In
In
ndia we acquired a 25 per
p cent. sha
areholding in
n Axis Asset Management, the assett manageme
ent subsidiary
of
o the third la
argest privatte sector ban
nk in the cou
untry. India’s
s demographics and ecoonomic grow
wth prospeccts
will
w lead ove
er time to a major assett manageme
ent opportunity and Axis shares ouur long-term
m approach to
t
building
b
businesses as well
w as bringiing a strong distribution capability.
Towards
T
the
e end of the
e year we announced
a
W, a US fixeed income business
b
witth
the acquisittion of STW
US$11.6
U
billion of assetss under man
nagement att 31 Decemb
ber 2012. ST
TW has an eexcellent investment tracck
re
ecord, addss 100 new in
nstitutional cllient relation
nships and meets
m
our strategic objecctives of building scale in
Fixed
F
Income
e and growing our prese
ence in the US. We exp
pect the transaction to coomplete in the first half of
o
2013.
2
2
Private
P
Banking
Our
O Private B
Banking bussiness faced
d a number of challenge
es in 2012. Net
N revenuee declined 17 per cent. to
t
£94.4
£
million
n (2011: £11
14.3 million)), with lower managem
ment fee and
d commissioon income as
a a result of
subdued
s
clie
ent activity and
a business
s outflows. N
Net revenue
e was also impacted
i
byy a further £7.9
£
million of
lo
oan losses on previou
usly impaire
ed loans, p
principally as
s a result of the conttinued weakness in th
he
commercial
c
p
property market.
Costs
C
were reduced by 9 per cent.. to £82.6 m
million (2011: £90.5 milliion) and proofit before ta
ax was £11.8
million
m
(2011: £23.8 millio
on).
We
W continue
ed to genera
ate inflows in
n the UK privvate client and
a charities
s business bbut we saw outflows from
our
o cash management service,
s
and in our Swisss business re
eflecting cha
anges in ourr client base. Net outflow
ws
were
w
£0.3 biillion (2011: net inflows: £0.2 billion
n) and asse
ets under ma
anagement ended the year
y
at £16.3
billion
b
(2011: £16.0 billion
n).
In
n the short tterm we mayy see further net outflow
ws, but longe
er term we remain
r
posittive about op
pportunities in
Private
P
Bankking. We are streamlining
g the manag
gement struc
cture, adding
g to our talennt pool and strengthenin
s
ng
our
o businesss developme
ent activities.
Group
G
The
T Group ssegment co
omprises returns on invvestment capital, which increased dduring 2012
2, and centrral
costs
c
includin
ng managem
ment, govern
nance and tthe Group’s insurance arrangement
a
ts. The loss before tax fo
or
th
he year wass £0.3 million
n (2011: loss
s £5.9 million
n).
Shareholders
S
s’ equity at the end of 20
012 was £2.1 billion (201
11: £1.9 billio
on).
Dividend
D
Recognising
R
al strength and
a confiden
nce in the Co
ompany’s long-term grow
owth prospec
cts, the Boarrd
our financia
has
h decided to increase the final dividend to 30.0 pence (20
011: 26.0 pence). This w
will bring the total dividen
nd
fo
or the year tto 43.0 pencce (2011: 39.0 pence), an increase of
o 10 per cen
nt. The final dividend will be paid on 9
May
M 2013 to shareholders on the reg
gister at 2 Ap
pril 2013.
Itt remains ou
ur policy in th
he long term to increase
e dividends progressively
p
y, in line withh the trend in
n profitabilityy.
The
T Board
In
n Septembe
er, we welccomed Nicho
ola Pease a
as a non-ex
xecutive Dirrector. Her experience of the asset
managemen
m
nt industry brrings addition
nal insights tto our discus
ssions.
After
A
nine ye
ears on the Board, Merrlyn Lowtherr will stand down
d
at the
e 2013 Annuual General Meeting. We
W
th
hank her forr her contribu
ution over many
m
years, m
most recentlly as Chairm
man of the Au
Audit and Ris
sk Committee.
Ashley
A
Alma
anza will succceed Merlyn
n as Chairm
man of the Audit and Ris
sk Committeee and Nicho
ola Pease will
w
jo
oin the Committee.
In
n Novemberr, we annou
unced that, after
a
ten yea
ars’ service, Kevin Parry
y had decideed to step down from th
he
Board
B
in Ma
ay 2013. We
W also than
nk Kevin forr his contrib
bution to Schroders, inittially as a non-executiv
n
ve
Director
D
and then as Ch
hief Financial Officer. W
We intend to
o appoint Richard
R
Keerrs to the Bo
oard as Chief
Financial
F
Offficer on 5 May 2013. Richard’s p
previous ex
xperience in
n PricewaterrhouseCoop
pers’ financial
services
s
practice since 1988, and as the Glob
bal Relationship Partner for Schrodders from 2006
2
to 2010,
positions
p
him
m well for his new role.
3
Outlook
O
With
W
economic activityy likely to be
b subdued
d for some time, and with austeerity programmes bein
ng
in
ncreasinglyy challenged
d, the outloo
ok for markkets is still uncertain.
u
However,
H
coorporate balance sheetts
are
a healthy and, while earnings may only gro
ow modestly
y in 2013, dividends
d
reemain well supported.
s
In
th
he first two months of the year eq
quity marke ts have exttended theirr strong shoowing as inv
vestors havve
continued
c
to
o switch fun
nds from lo
ow-yielding cash and bonds. Goo
od investmeent perform
mance and a
broad
b
produ
uct range ha
ave enabled
d us to bene
efit from this
s pick up in investor deemand for Equities.
E
We
W are conffident that th
he strategy that has se
erved the Company we
ell over the ppast decade, of buildin
ng
a diversified
d business across
a
diffe
erent client ttypes, asse
et classes and regions,, and of foc
cusing on th
he
lo
ong term rrather than on short-term trendss or marke
et cycles, will continuue to deliv
ver value fo
or
shareholder
s
rs.
Copies
C
of thiss announcement are av
vailable on th
he Schroders
s website: www.schrode
w
ers.com. Michael
Dobson,
D
Chie
ef Executive
e, and Kevin Parry, Chie
ef Financial Officer,
O
will host
h a presenntation and webcast
w
for
th
he investme
ent communiity, to discus
ss the Group
p’s results att 9 a.m. GMT
T on Thursdaay, 7 March 2013 at 31
Gresham
G
Strreet, London
n, EC2V 7QA
A. The webcast can be viewed live at www.schhroders.com//ir and
www.cantos.
w
.com. For in
ndividuals un
nable to attend the prese
entation or participate
p
in the live web
bcast, a
re
eplay will be
e available frrom midday on Thursdayy, 7 March 2013
2
at www
w.schroders. com/ir.
The
T Annual R
Report and Accounts
A
will be availab
ble on the Sc
chroders web
bsite: www.sschroders.co
om on 22
March
M
2013.
Forward-loo
F
oking statem
ments
This
T
announce
ement, the Annual
A
Reportt and Accoun
nts for 2012 from
f
which it is extracted and the Schroders websiite
may
m contain fo
orward-lookin
ng statements
s with respectt to the financ
cial condition,, results of opperations and
d businesses of
th
he Group. Su
uch statemen
nts and foreca
asts involve rissk and uncerttainty because they are baased on current expectation
ns
and
a assumptio
ons but relate
e to events and
a circumsta
ances in the future.
f
Withou
ut limitation, aany statemen
nts preceded or
fo
ollowed by orr that include the words ‘targets’, ‘plans’, ‘believes’, ‘e
expects’, ‘aims
s’ or ‘anticipat
ates’ or the ne
egative of thesse
te
erms or otherr similar termss are intended
d to identify su
uch forward-lo
ooking statem
ments. There are a number of factors th
hat
could
c
cause a
actual resultss or developm
ments to diffe
er materially from those expressed
e
orr implied by forward-lookin
f
ng
statements
s
an
nd forecasts. Forward-loo
oking stateme
ents and fore
ecasts are ba
ased on the Directors’ current view an
nd
in
nformation kn
nown to them at the date of
o this announ
ncement. The
e Directors do
o not make aany undertakin
ng to update or
re
evise any forw
rward-looking statements, whether as a result of new
w information
n, future evennts or otherwiise. Nothing in
th
his announce
ement or in th
he Annual Re
eport and Acccounts or on th
he Schroders
s website shoould be constrrued as a pro
ofit
fo
orecast.
4
Consoli
C
dated in
ncome statement
fo
or the year ended 31 December
D
2012
2
Revenue
R
Notes
2012
£m
2011
£m
m
2
1,425.4
1,501..9
Cost
C of sales
Net
N gains on fin
nancial instruments and other income
1
Net
N revenue
Operating
O
expe
enses
3
Operating
O
pro
ofit
Net
N finance inccome
Share
S
of profit o
of associates and
a joint venture
es
Profit
P
before ta
ax
Tax
T
4
Profit
P
after tax
x
(329.7)
(363..3)
39.2
14..0
1,134.9
1,152..6
(791.2)
(761..8)
343.7
390..8
11.8
14..5
4.5
2..0
360.0
407..3
(76.8)
(91..5)
283.2
315..8
Earnings
E
per s
share
Basic
B
5
104.7p
115.9
9p
Diluted
D
5
101.3p
111.9
9p
6
39.0p
39.0
0p
2
Dividends
D
perr share
1
Non-GAAP
N
meassure of performan
nce.
Interim and final d
dividends declare
ed during the yea
ar.
2
5
Consoli
C
dated stateme
s
ent of co
ompreh
hensive income
e
fo
or the year ended 31 December
D
2012
2
Profit
P
for the y
year
2012
£m
283.2
Net
N exchange d
differences on translation
t
of fo
oreign operation
ns after hedgin
ng
(21.8)
2.1
Actuarial
A
gains//(losses) on de
efined benefit pe
ension scheme
es
10.4
(0.5
5)
Net
N fair value m
movement arisin
ng from availab
ble-for-sale fina
ancial assets
(9.5)
(16.3
3)
Net
N fair value m
movement arisin
ng from availab
ble-for-sale fina
ancial assets he
eld by joint venttures
2011
£m
m
315.8
8
1.5
(3.5
5)
(4.1)
(1.7)
Other
O
compre
ehensive losse
es for the yearr net of tax
(23.5)
(19.9
9)
Total
T
compreh
hensive incom
me for the yearr net of tax
259.7
295.9
9
Tax
T on items ta
aken directly to other compreh
hensive income
e
6
Consoli
C
dated stateme
s
ent of fin
nancial position
n
31
3 Decembe
er 2012
Notes
2012
£m
2011
m
£m
2,542.8
2,338..7
Assets
A
Cash
C
and cash
h equivalents
Trade
T
and othe
er receivables
414.7
411..2
2,019.8
2,165..2
Associates
A
and
d joint ventures
79.4
58..4
Property,
P
plant and equipmen
nt
15.0
16..2
Goodwill
G
and in
ntangible assetss
142.1
144..1
47.8
50..1
67.2
55..7
5,328.8
5,239..6
820.5
673..6
8,525.8
7,971..6
9,346.3
8,645..2
14,675.1
13,884..8
Financial
F
assetts
Deferred
D
tax
Retirement
R
ben
nefit scheme su
urplus
10
Assets
A
backin
ng unit-linked liabilities
Cash
C
and cash
h equivalents
Financial
F
assetts
Total
T
assets
Liabilities
L
Trade
T
and othe
er payables
Financial
F
liabilitties
Current
C
tax
Provisions
P
11
Deferred
D
tax
Retirement
R
ben
nefit scheme de
eficits
Unit-linked
U
liab
bilities
10
559.3
580..9
2,585.1
2,642..1
40.8
51..8
64.0
52..7
1.9
2..6
7.8
7..9
3,258.9
3,338..0
9,346.3
8,645..2
12,605.2
11,983..2
Net
N assets
2,069.9
1,901..6
Equity
E
2,069.9
1,901..6
Total
T
liabilities
s
7
Consolidated statement of changes in equity
for the year ended 31 December 2012
Fair value
reserve
£m
34.9
Profit and
loss reserve
£m
1,519.3
Total
£m
1,901.6
4.5
-
278.7
283.2
-
-
10.4
(28.3)
6.5
10.4
16.3
-
17.8
-
(25.5)
At 1 January 2012
Share
capital
£m
282.5
Share
premium
£m
87.8
Profit for the year
-
-
-
Net exchange differences on translation of foreign operations
Net exchange differences on hedging of foreign operations
Actuarial gains on defined benefit pension schemes
Net fair value movements on available-for-sale financial assets taken to other
comprehensive income
Transfer to income statement on derecognition or impairment of available-forsale financial assets
Net exchange differences on available-for-sale financial assets
Tax on items taken directly to other comprehensive income
Other comprehensive (losses)/income
-
-
-
-
-
-
-
1.5
-
-
-
-
-
(25.5)
-
-
-
1.5
(0.1)
(9.3)
Shares issued
Shares cancelled
Share-based payments
Tax in respect of share schemes
Dividends attributable to owners of the parent
Own shares purchased
Transactions with owners
Transfers
At 31 December 2012
Notes
8
0.5
(0.5)
-
2.3
2.3
-
-
282.5
7
90.1
7
Own Net exchange
Shares
differences
£m
£m
(172.5)
123.8
Associates
and joint
ventures
reserve
£m
25.8
(28.3)
6.5
-
(0.2)
(22.0)
(41.7)
(41.7)
-
49.1
-
(165.1)
8
101.8
(6.3)
25.5
(4.1)
6.3
(0.3)
(4.1)
(23.5)
-
0.5
45.3
6.3
(104.1)
(52.0)
2.8
45.3
6.3
(104.1)
(41.7)
(91.4)
-
(42.8)
25.6
1,709.5
2,069.9
for the year ended 31 December 2011
Net exchange
differences
£m
122.1
Associates
and joint
ventures
reserve
£m
35.5
-
-
2.0
-
313.8
315.8
-
-
1.1
1.0
-
-
0.1
-
1.2
1.0
-
-
-
(0.1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
At 1 January 2011
Share
capital
£m
290.4
Share
premium
£m
84.7
Profit for the year
-
-
Net exchange differences on translation of foreign operations
Net exchange differences on hedging of foreign operations
Transfer to the income statement of cumulative foreign exchange on
derecognition of foreign operations
Actuarial losses on defined benefit pension schemes
Net fair value movements on available-for-sale financial assets taken to other
comprehensive income
Transfer to income statement on derecognition or impairment of available forsale financial assets
Net exchange differences on available-for-sale financial assets
Tax on items taken directly to other comprehensive income
Other comprehensive income/(losses)
-
Shares issued
Shares cancelled
Share-based payments
Tax in respect of share schemes
Dividends attributable to owners of the parent
Dividends attributable to non-controlling interests
Own shares purchased
Transactions with owners
0.5
(8.4)
(7.9)
Own shares
£m
(199.1)
(0.3)
1.7
3.1
3.1
(101.4)
(101.4)
-
87.8
7
128.0
(172.5)
8
123.8
(3.5)
(3.5)
-
Fair value Profit and loss
reserve
reserve
£m
£m
50.8
1,415.3
(0.5)
Total
£m
1,799.7
(0.1)
(0.5)
(10.6)
-
(14.1)
(5.4)
-
(5.4)
0.1
(15.9)
(1.8)
(2.2)
(0.3)
(1.7)
(19.9)
-
(16.0)
42.7
(6.1)
(104.8)
(3.3)
(0.3)
(87.8)
3.6
(24.4)
42.7
(6.1)
(104.8)
(3.3)
(101.7)
(194.0)
34.9
(119.8)
1,519.3
Transfers
At 31 December 2011
Notes
282.5
7
(8.2)
25.8
1,901.6
9
Consoli
C
dated cash
c
flow state
ement
fo
or the year ended 31 December
D
2012
2
Net
N cash from o
operating activities
Note
9
2012
£m
489.2
2011
£m
426.8
Cash
C
flows fro
om investing activities
a
Acquisition
A
of a
associates
(23.3)
Net
N acquisition of property, pla
ant and equipm
ment and intang
gible assets
(12.8)
(12.7))
Net
N disposal off financial assetts
54.1
114.6
Non-banking
N
in
nterest received
d
12.0
15.0
6.5
9.0
36.5
125.9
2.8
3.6
Distributions
D
re
eceived from asssociates and jo
oint ventures
Net
N cash from
m investing acttivities
-
Cash
C
flows fro
om financing activities
a
Proceeds
P
from issue of non-vvoting ordinary shares
s
Purchase
P
of no
on-voting ordina
ary shares for cancellation
c
Acquisition
A
of o
own shares
Repayments
R
off borrowings
Dividends
D
paid
Other
O
flows
(41.7)
(104.1)
(24.4))
(101.7))
(18.6))
(104.8))
(1.9)
(4.8))
Net
N cash used
d in financing activities
(144.9)
(250.7))
Net
N increase in
n cash and ca
ash equivalentts
380.8
302.0
3,012.3
2,711.7
380.8
302.0
Opening
O
cash a
and cash equivvalents
Net
N increase in
n cash and cash
h equivalents
Effect
E
of exchange rate chang
ges
Closing
C
cash a
and cash equivalents
(29.8)
(1.4))
3,363.3
3,012.3
820.5
673.6
1,718.7
1,396.9
Closing
C
cash a
and cash equivalents consiists of:
Cash
C
backing u
unit-linked liabillities
Other
O
cash and
d cash equivale
ents held by the
e Group:
Cash
C
Cash
C
equivalen
nts
824.1
941.8
2,542.8
2,338.7
3,363.3
3,012.3
The
T cash baccking unit-lin
nked liabilitie
es cannot be
e used by the
e Group as it is not legallly entitled to
o draw on the
e
assets
a
of the
e Life Compa
any for its ow
wn corporate
e purposes.
10
0
Basis
B
off preparation
The
T financial in
nformation inccluded in this statement do
oes not constitute the Grou
up's statutory accounts with
hin the
meaning
m
of Se
ection 434 of the
t Companie
es Act 2006. The statutory
y accounts for 2011 have bbeen delivere
ed to the
Registrar
R
of Co
ompanies and the auditors
s’ opinion on tthose accoun
nts was unqua
alified and didd not contain a statement
made
m
under S
Section 498(2)) or Section 498(3)
4
of the C
Companies Act
A 2006. An unqualified
u
auuditors’ opinio
on has also
been
b
issued o
on the statutorry accounts fo
or the year en
nded 31 Dece
ember 2012 which
w
will be ddelivered to the Registrar off
Companies
C
in due course.
The
T consolida
ated financial statements
s
arre prepared in
n accordance
e with International Financiaal Reporting Standards
S
(IIFRS), which comprise Sta
andards and Interpretationss approved by
y either the In
nternational A
Accounting Sta
andards Boarrd
or
o the IFRS Interpretations Committee or their predeccessors, as ad
dopted by the
e European U nion (EU), an
nd with those
parts
p
of the Co
ompanies Actt 2006 applica
able to compa
anies reportin
ng under IFRS
S.
1.
1 Segm
mental reporting
r
g
Operating
O
segments
The
T Group ha
as three business segments
s: Asset Management, Priv
vate Banking and Group. A
Asset Manag
gement
principally
p
com
mprises investtment management including advisory services,
s
equity products, ffixed income securities,
multi-asset,
m
prroperty and allternative asset classes succh as commo
odities, private
e equity and fu
funds of hedge funds.
Private
P
Bankin
ng principally comprises inv
vestment man
nagement an
nd banking services provideed to high nett worth
in
ndividuals and
d charities. Group principally comprises the Group’s investment ca
apital and treaasury manage
ement
activities,
a
insurance arrange
ements and the managem
ment of costs associated
a
witth governancce and corpora
ate
management.
m
Insurance acctivities comprise acting ass insurer to the
e Group, inclu
uding the resuults of the cap
ptive insurer
which
w
providess reinsurance
e for certain ac
ctivities of the
e Group. Prov
visions for actu
ual and potenntial claims tha
at are within
th
he insurance cover are con
nsequently re
ecorded in the
e Group segm
ment, net of an
ny recognisabble external insurance asse
et.
The
T expected insurance reccovery may be
b in excess o
of the amountt that is allowe
ed to be recorrded under ac
ccounting
ru
ules.
Segment
S
inforrmation is pre
esented on the
e same basis as that provid
ded for internal reporting ppurposes to the Group’s
One of the ke
chief
c
operating
g decision-ma
aker. The chief operating d
decision-maker is the Chief Executive. O
ey measures
used
u
in respecct of performa
ance measure
ement is net rrevenue.
The
T allocation of costs to in
ndividual busin
ness segmen
nts is undertak
ken in order to
o provide mannagement info
ormation on
th
he business p
performance and
a to provide
e managers w
with a tool to manage
m
and control
c
expennditure. Costs
s are allocated
d
on
o a basis tha
at aligns the ch
harge with the
e resources e
employed by the
t Group in a particular arrea of the bus
siness.
11
1.
1 Segm
mental reportin
r
g contin
nued
Year
Y
ended 31
1 December 20
012
Fee
F income
Banking
B
interesst receivable
Revenue
R
Fee
F expense
Banking
B
interesst payable
Cost
C
of sales
Net
N gains/(losses) on financia
al instruments and
a other incom
me*
Net
N revenue
Asset
Manag
gement
£m
Private
Banking
£m
Group
£m
Tota
al
£m
m
1,295.5
1
96.3
0.5
1,392..3
-
33.1
-
33..1
1,295.5
1
129.4
0.5
1,425..4
(303.1)
(7.2)
(0.1)
(310..4)
-
(19.3)
-
(19..3)
(303.1)
(26.5)
(0.1)
(329..7)
22.4
(8.5)
25.3
39..2
94.4
25.7
1,134..9
1,014.8
1
Operating
O
expe
enses
(671.4)
(82.6)
(37.2)
(791..2)
Operating
O
pro
ofit/(loss)
343.4
11.8
(11.5)
343..7
Net
N finance inccome
0.1
-
11.7
11..8
Share
S
of profit/((loss) of associiates and joint ventures
v
5.0
-
(0.5)
4..5
348.5
11.8
(0.3)
360..0
Profit/(loss)
P
be
efore tax
*For
*
Private Bankking, includes fairr value movemen
nts on loans held at fair value and other loan losses
s.
Year
Y
ended 31 December 2011
Fee
F income
Banking
B
interesst receivable
Revenue
R
Fee
F expense
Banking
B
interesst payable
Cost
C
of sales
Net
N gains/(losses) on financia
al instruments and
a other incom
me
Net
N revenue
Asset
Manag
gement
£m
Private
Banking
£m
Group
£m
Tota
al
£m
m
1,359.3
1
106.3
0.4
1,466..0
-
35.9
-
35..9
1,359.3
1
142.2
0.4
1,501..9
(6.4)
-
(341..8)
-
(21.5)
-
(21..5)
(335.4)
(27.9)
-
(363..3)
(335.4)
17.6
-
(3.6)
14..0
1,041.5
1
114.3
(3.2)
1,152..6
Operating
O
expe
enses
(658.5)
(90.5)
(12.8)
(761..8)
Operating
O
pro
ofit/(loss)
383.0
23.8
(16.0)
390..8
Net
N finance (ch
harge)/income
(0.3)
-
14.8
14..5
Share
S
of profit/((loss) of associiates and joint ventures
v
6.7
-
(4.7)
2..0
389.4
23.8
(5.9)
407..3
Profit/(loss)
P
be
efore tax
12
2.
2 Reve
enue
2012
£m
1,223.9
28.5
139.9
33.1
2011
£m
1,267.0
37.8
161.2
35.9
1,425.4
1,501.9
2012
£m
472.4
2011
£m
455.3
Social securityy costs
45.7
39.4
Pension costs
27.6
5.1
545.7
499.8
Management ffees
Performance fe
ees
Other fees
e receivable byy Private Bankin
ng subsidiariess
Interest income
3.
3 Operrating exxpense
es
Operating expe
enses include:
Salaries and otther remunerattion
nefits expense
e
Employee ben
13
4.
4 Tax e
expense
e
Analysis
A
of cha
arge in the ye
ear:
UK
U corporation
n tax on profits for
f the year
Adjustments
A
in respect of prio
or years
Foreign
F
tax – ccurrent
2012
£m
29.6
2011
m
£m
31.6
6
1.7
-
54.6
67.1
Foreign
F
tax – a
adjustments in respect
r
of prior years
(8.6)
0.8
8
Current
C
tax
77.3
99.5
5
Origination
O
and
d reversal of tem
mporary differences
(6.5)
(7.9
9)
Adjustments
A
in respect of prio
or years
4.6
(1.7
7)
Effect
E
of chang
ges in corporatio
on tax rates
1.4
1.6
6
Deferred
D
tax
(0.5)
(8.0
0)
Tax
T charge reported in the income
i
statem
ment
76.8
91.5
5
The
T UK standa
ard rate of co
orporation tax reduced from
m 26 per cent. to 24 per cen
nt. on 1 April 22012 resulting
g in a UK
effective
e
tax ra
ate for the yea
ar of 24.5 per cent. (2011: e
effective rate of 26.5 per ce
ent.). The taxx charge for th
he year is lowe
er
(2
2011: lower) tthan a charge
e based on the UK effective
e rate. The re
econciliation of
o the income statement tax
x charge to th
he
UK
U rate on pro
ofits before tax including the impact of ta
axes incurred in overseas operations
o
annd differences
s in accounting
versus
v
tax pro
ofit is set out below:
b
Profit
P
before taxx
Less
L
post-tax p
profits of associiates and joint ventures
v
Profit
P
before ta
ax of consolid
dated Group entities
Profit
P
before taxx of consolidate
ed Group entitie
es multiplied byy corporation ta
ax at the UK
rate
r of 24.5 perr cent. (2011: 26.5
2
per cent.)
2012
£m
360.0
(4.5)
2011
m
£m
407.3
3
(2.0
0)
355.5
405.3
3
87.1
107.4
4
Effects
E
of:
Different
D
statuto
ory tax rates off overseas jurisd
dictions
(1.2)
(1.9
9)
Permanent
P
diffe
erences includiing non-taxable
e income and n
non-deductible expenses
(9.0)
(10.5
5)
Net
N creation/(uttilisation) of taxx losses for whic
ch no deferred tax asset was recognised
1.1
(3.8
8)
-
(0.9
9)
Foreign
F
exchan
nge movementts on tax balanc
ces
Deferred
D
tax ad
djustments in re
espect of chang
ges in corporattion tax rates
1.1
1.6
6
Adjustments
A
to
o prior year estim
mates
(2.3)
(0.4
4)
Tax
T charge reported in the income
i
statem
ment
76.8
91.5
5
14
5.
5 Earniings per share
Reconciliation
R
of the figuress used in calc
culating basic and diluted earnings
e
per share:
s
2012
Number
Millions
270.3
2011
Number
Millions
272.3
Effect of dilutivve potential sha
ares – share op
ptions
8.4
9.2
Effect of dilutivve potential sha
ares – contingently issuable sh
hares
0.5
0.5
279.2
282.0
Weighted averrage number off shares used in calculation off basic earnings per share
Weighted ave
erage number of shares use
ed in calculatio
on of diluted earnings
e
per share
s
6.
6 Dividends
2013
2012
2011
£m
P
Pence per
share
£m
Pence per
share
£m
Pence per
share
80.1
30.0
69.4
26.0
70.1
26.0
34.7
13.0
34.7
13.0
104.1
39.0
104.8
39.0
Declared and paid in year:
Final dividend
Interim dividen
nd
Dividends
D
of £
£6.0 million (2011: £6.2 million) on share
es held by the
e employee tru
usts have beeen waived; div
vidends may
not
n be paid on
n treasury sha
ares. The 2012 final dividen
nd is payable on 9 May 2013 and will bee accounted for
f in 2013.
15
7.
7 Share
e capita
al and share
s
prremium
m
At 1 January 2
2012
Shares issued
d
Shares cancellled
Number of
shares
Millions
282.5
Ordina
ary
share
es
£m
£
226
6.0
Non-v
voting ordinary
ry
shares
es
£m
m
56.55
Total
s
shares
£m
m
282.5
5
Share
premium
£m
87.8
0.5
-
0.55
0.5
5
2.3
(0.5
5)
-
282.5
226
6.0
56.55
282.5
5
90.1
Number of
shares
Millions
290.4
Ordina
ary
sharres
£m
£
226
6.0
Non
n-voting ordinarry
sharees
£m
m
64.44
Total
shares
s
£m
m
290.4
4
Share
premium
£m
84.7
Shares issued
d
0.5
-
0.55
0.5
5
3.1
Shares cancellled
(8.4)
-
(8.4
.4)
(8.4
4)
-
282.5
5
87.8
2012
2
Millions
s
2011
Millions
226.0
0
226.0
At 31 Decemb
ber 2012
At 1 January 2
2011
At 31 Decemb
ber 2011
(0.5)
282.5
-
226
6.0
(0..5)
56.55
Is
ssued and fully paid:
Ordinary sharres of £1 each
Non-voting orrdinary shares of
o £1 each
56.5
5
56.5
282.5
5
282.5
The
T non-voting
g ordinary sha
ares carry the
e same rights as ordinary shares
s
exceptt that they do not confer the right to
attend
a
and votte at any gene
eral meeting of
o the Compa
any, and that on
o a capitalisation issue thhey carry the right
r
to receivve
non-voting
n
ord
dinary shares rather than ordinary
o
share
es.
Details
D
of sharres held in tre
easury are inc
cluded in note
e 8.
During
D
the yea
ar, 0.5 million non-voting orrdinary sharess were cance
elled, all of wh
hich had previoously been he
eld in treasuryy.
16
8.
8 Own sharess
Own
O shares in
nclude the Gro
oup’s shares (both ordinarry and non-vo
oting ordinary)) that are heldd by employee
e trusts or in
trreasury.
Movements
M
du
uring the yearr were as follo
ows:
At
A 1 January
Own
O shares pu
urchased
Cancellation
C
off own shares he
eld in treasury*
Awards
A
vested*
At
A 31 Decemb
ber
2012
£m
(172.5)
2011
m
£m
(199.1)
(41.7)
(101.4
4)
5.6
75.3
3
43.5
52.7
7
(165.1)
(172.5
5)
*O
Own shares bala
ances are transferrred to the profit and
a loss reserve insofar as they re
elate to treasury shares
s
that have been cancelled or
o share-based
payments that havve vested.
Ordinary share
es held within trrusts
Non-voting ord
dinary shares held
h within
trusts
Non-voting ord
dinary shares held
h as treasury
y
shares*
Number of
vested
d
shares
s
Millions
s
3.0
0
2012
Number off
unvested
d
shares
s
Millions
s
11.6
6
0.6
6
Total
Millions
s
14.6
6
Number off
vestedd
sharess
Millionss
2.44
2011
Number off
unvested
d
shares
s
Millions
s
12.3
3
Total
Millionss
14.7
7
0.2
2
0.8
8
0.66
0.1
1
0.7
7
-
0.1
1
0.1
1
-
0.6
6
0.6
6
3.6
6
11.9
9
15.5
5
3.00
13.0
0
16.0
0
*N
Non-voting ordina
ary shares held as
a treasury shares do not vest butt are included in unvested
u
shares for presentationaal purposes only.
During
D
the yea
ar 0.5 million non-voting
n
ordinary sharess held within treasury
t
were cancelled.
17
9.
9 Reco
onciliatio
on of ne
et cash from op
perating
g activitties
2012
£m
343.7
2011
£m
390.8
Depreciation
D
off property, plant and equipment and amortisa
ation of intangib
ble assets
12.0
14.1
Net
N (gains)/lossses and impairm
ments taken through the incom
me statement on
o
financial instru
uments
(22.0)
3.2
Share-based
S
p
payments
45.3
42.7
Charge
C
for provvisions net of re
eleases
17.2
11.3
4.0
(7.6))
56.5
63.7
Operating
O
pro
ofit
Adjustments
A
ffor income sta
atement non-c
cash movemen
nts:
Other
O
non-cash
h movements
Adjustments
A
ffor other incom
me statement cash moveme
ents:
Payments
P
mad
de to the define
ed benefit pension schemes
-
(3.1))
Adjustments
A
ffor statement of financial po
osition movem
ments:
Decrease
D
in tra
ade and other re
eceivables
82.5
61.9
(Decrease)/incr
(
rease in trade and
a other paya
ables and provissions
(58.5)
26.3
24.0
88.2
Net
N purchase o
of assets backin
ng unit-linked lia
abilities
(554.2)
(405.9))
Net
N increase in
n unit-linked liab
bilities
701.1
371.8
146.9
(34.1))
(81.6)
(78.5))
(0.3)
(0.2))
Adjustments
A
ffor Life Compa
any movemen
nts:
Tax
T paid
Interest
I
paid
Net
N cash from
m operating acttivities
489.2
426.8
18
10.
1 Retiirementt benefit obliga
ations
The
T disclosure
es are provide
ed mainly in re
espect of the principal defined benefit (D
DB) scheme iin the UK which is the DB
section
s
of the ffunded Schro
oders Retirem
ment Benefits Scheme (the Scheme). So
ome disclosurres are also provided
p
in
re
espect of the DC section of
o the Schrode
ers Retiremen
nt Benefits Sc
cheme (the DC
C section).
The
T income sttatement charrge for retirem
ment benefit ccosts is as follo
ows:
Pension costs – defined contrribution plans
Pension charge/(credit) – deffined benefit pla
ans
Other post-employment bene
efits
2012
£m
27.2
2011
£m
22.2
0.3
(17.3))
0.1
0.2
27.6
5.1
-
2.8
The income sstatement cha
arge/(credit) in
n respect of d
defined benefiit plans consis
sts of:
Current service
e cost
Expected returrn on scheme assets
a
Curtailment
(33.3)
-
(44.7))
(10.2))
Interest on sch
heme liabilities
32.1
33.4
Total income statement cre
edit in respect of the Schem
me
(1.2)
(18.7))
Income statem
ment charges in respect of othe
er defined bene
efit schemes
1.5
1.4
Total defined benefit schem
mes income sttatement charg
rge/(credit)
0.3
(17.3))
2012
£m
1.9
2011
£m
(42.6))
The
T amounts recognised in
n the statemen
nt of compreh
hensive incom
me are set outt below:
Other compre
ehensive (inco
ome)/loss consists of:
Actual return le
ess expected re
eturn on Schem
me assets
Experience ga
ains and lossess arising on Sch
heme liabilities
1.5
4.1
Changes in asssumptions und
derlying the pre
esent value of th
he Scheme liab
bilities
(13.7)
39.0
0
Total other co
omprehensive
e (income)/loss
s in respect off the Scheme
(10.3)
0.5
(0.1)
-
(10.4)
0.5
Other compreh
hensive income
e in respect of other
o
defined b
benefit schemes
s
Total other co
omprehensive
e (income)/loss
s in respect off defined bene
efit schemes
The
T Scheme is administere
ed by the Trus
stee. The Sch
heme was clo
osed to new entrants and fuuture accrual on 30 April
2011.
2
As a ressult, no contrib
butions were made to the S
Scheme in the year (2011:: contributionss of £3.1 millio
on). At 31
December
D
201
11 and 2012, there were no
n active mem
mbers in the DB
D section and
d 1,182 activee members in
n the DC
section
s
(2011:: 1,238). The last complete
ed triennial valuation of the Scheme was
s carried out aas at 31 Dece
ember 2011. It
disclosed
d
that the market va
alue of the as
ssets of the Sccheme repres
sented 101 pe
er cent. of thee liabilities at that
t date,
calculated
c
on tthe funding basis applicable to the Sche
eme, for the benefits
b
that had
h accrued too members at that date.
The
T income sttatement cred
dit for the Scheme has bee
en determined
d by independ
dent qualified actuaries, Ao
on Hewitt
Limited,
L
and iss based on an
n assessmentt of the Schem
me as at 31 December
D
201
12.
19
The
T amounts recognised in
n the statemen
nt of financial position in re
espect of the Scheme
S
are:
2012
£m
763.8
2011
£m
692.9
Expected returrn
33.3
44.7
Actuarial (losse
es)/gains
(1.9)
42.6
Fair value of p
plan assets
At 1 January
-
Contributions b
by employer
3.1
Benefits paid
(18.3)
(19.5))
At 31 Decemb
ber
776.9
763.8
(708.1)
(658.5))
Present value
e of funded ob
bligations
At 1 January
Current service
e cost
-
Interest cost
(2.8))
(32.1)
-
Curtailment
(33.4))
10.2
Actuarial gainss/(losses)
12.2
(43.1))
Benefits paid
18.3
19.5
(709.7)
(708.1))
67.2
55.7
At 31 Decemb
ber
Net asset in rrespect of the Scheme
The
T history of the Group’s defined
d
beneffit schemes, in
ncluding the Scheme,
S
is as
s follows:
Fair value of Scheme assets
Present value o
of defined bene
efit obligation of
o the
Scheme
Surplus/(deficitt) in the Schem
me
2012
£m
776.9
2011
£m
763.8
2010
£m
692.9
2009
£m
573.0
2008
£m
547.6
(709.7)
(708.1)
(658.5)
(614.1)
(525.2))
67.2
55.7
34.4
(41.1)
22.4
Deficit of other defined benefiit schemes
(7.8)
(7.9)
(7.2)
(5.4)
(7.4))
Total surplus/(d
deficit) of define
ed benefit sche
emes
59.4
47.8
27.2
(46.5)
15.0
Experience adjjustments on Scheme
S
liabilitie
es
(1.5)
(4.1)
(1.4)
16.6
2.0
Experience adjjustments on Scheme
S
assets
(1.9)
42.6
37.1
0.1
(40.0))
Net experience
e adjustments
(3.4)
38.5
35.7
16.7
(38.0))
20
The
T sensitivityy of the Schem
me pension lia
abilities to cha
anges in assu
umptions is as
s follows:
2012
2011
Estimated
d
reduction in
n
pension
n
liabilities
s
£m
m
Estim
mated
reductio
on in
pen
nsion
liabilities
%
E
Estimated
redduction in
pension
liabilities
£m
Estimated
reduction in
pension
liabilities
%
Assumption
n change
Assumption
Discount rate
Increase by 0.5%
0
per annum
66.3
3
9.4
68.1
9.6
Expected rate of pension
payment
increases in p
Reduce by 0.5%
0
per annum
45.8
8
6.5
45.4
6.4
Life expectanccy
Reduce by one
o year
19.7
7
2.8
18.9
2.7
11.
1 Provvisions
The
T Group ho
olds provisionss in respect off dilapidationss and onerous
s leases, regu
ulatory and pootential legal claims
c
which, at
31
3 December 2012, total £6
64.0 million (2
2011: £52.7 m
million).
During
D
the yea
ar the Group made
m
net prov
visions of £28
8.9 million in re
espect of actu
ual or potentiaal claims again
nst the Group.
The
T provisionss mainly repre
esent losses arising
a
from th
he application of legal terms
s in respect off client manda
ates and other
potential
p
obliga
ations. These
e are subject to
o ongoing disscussions. The
e Group has also
a recordedd an external in
nsurance assset
of
o £19.6 million
n which is an estimate of th
he recognisab
ble recovery and
a is recorded in trade andd other receiva
ables. The
in
nsurance reco
overy is consid
dered to be virtually certain
n.
21
Key
K riskks and mitigatio
m
ons
This
T section su
ummarises ho
ow we contro
ol risk. It sets o
out how we manage
m
the ris
sks in our bussiness and ho
ow we have
developed
d
riskk managemen
nt. It summarises the role o
of the Group Risk
R Committtee (GRC) annd outlines key
y risks, how
we
w mitigate the
em and our assessment
a
of their potential impact on our
o business in the context
xt of the curren
nt economic
and
a political en
nvironment. Finally,
F
it provides an overvview of the impact of emerg
ging risks.
Managing
M
riisk
Itt is the respon
nsibility of all employees
e
to
o uphold the ccontrol culture of Schroders
s and we embbed risk mana
agement withiin
th
he business.
The
T Board alsso has accoun
ntability for risk manageme
ent. It regularly
y considers th
he most signifficant risks fac
cing the Grou
up
and
a uses quan
ntitative expossure measure
es, such as sttress tests, where appropriiate. Non-exeecutive oversig
ght of the riskk
management
m
process is exxercised throu
ugh the Audit a
and Risk Com
mmittee.
The
T Chief Exe
ecutive and Group
G
Manage
ement Comm
mittee (GMC) regularly
r
revie
ew the key rissks facing the Group.
In
ndividual riskss are manage
ed in accordan
nce with the rrisks and theirr potential imp
pacts, so as too mitigate adv
verse
consequences
c
s. We group the
t risks we fa
ace into markket risks, inves
stment performance and liqquidity risks, credit
c
risks,
operational
o
rissks, and emerrging risks.
We
W continuallyy upgrade ourr risk control processes
p
an
nd technologic
cal support too
ols to increasse their effectiv
veness. The
Chief
C
Executivve has delega
ated the execu
utive oversigh
ht of risk to the
e Chief Financial Officer. T
The Chief Fina
ancial Officer
has
h responsib
bility for the rissk and control framework o
of the Group and
a the indepe
endent monito
toring and rep
porting of riskss
and
a controls.
The
T Chief Fina
ancial Officer is supported by the Group
p Head of Risk
k and chairs the
t GRC. Thee Committee meets ten
times a year. M
Meetings are attended by the executive
e Directors, th
he heads of th
he control funcctions, the Ch
hief Operating
g
Officer
O
and byy GMC memb
bers consisten
nt with the qu
uarterly cycle of
o reviewing their areas of responsibility
y. As the
principal
p
execu
utive committtee for the mo
onitoring and rreporting of risks and contrrols, the GRC
C reviews and monitors the
e
adequacy
a
and
d effectiveness of the Group’s risk mana
agement fram
mework, includ
ding relevant ppolicies and limits. It also
re
eviews trendss and exceptio
ons in the mo
ost significant risk exposure
es.
Three
T
lines of defence
The
T first line o
of defence aga
ainst unexpec
cted outcomess lies with line
e managers, whether
w
they are in Investm
ment,
Distribution,
D
Private Banking or Infrastruc
cture. Membe
ers of the GMC have risk management
m
rresponsibility for their
re
espective bussiness areas. The senior management
m
tteam takes th
he lead role with respect to implementing
g controls
across
a
the bussiness to main
ntain the quallity standardss expected by clients and re
egulators.
Line
L managem
ment is supple
emented by oversight
o
funcctions (i.e. Gro
oup Risk, Fina
ancial Controll, Compliance
e and Legal)
th
hat provide a second line of
o defence.
Group
G
Internal Audit provides retrospective independe
ent assurance
e over the operation of conntrols and is th
he third line of
o
defence
d
again
nst unexpecte
ed outcomes. The internal a
audit program
mme includes reviews of thee risk management processs
and
a advice an
nd recommend
dations to imp
prove the con
ntrol environm
ment. Schrode
ers also carriees a comprehe
ensive
in
nsurance prog
gramme, provviding further assurance.
2012
2
develo
opments
The
T membersship of the GR
RC was expan
nded during th
he year to inc
clude all GMC members. A
Agendas are ta
ailored to
In
nvestment, Distribution and
d Infrastructurre on a seque
ential quarterly
y cycle and GMC
G
memberrs attend the meetings
m
re
elevant to the
eir responsibiliities. In order to simplify ag
gendas, sub-c
committees co
omprising Grooup policy rev
views, credit
re
eviews, financcial crime and
d Private Banking have bee
en establishe
ed. They report to the GRC
C.
During
D
2012, w
we continued to devote res
sources to the
e managemen
nt of risks ass
sociated with potential Euro
ozone
in
nstability and the weak eco
onomic enviro
onment. A crissis management exercise was
w held duriing the year to
o consider ou
ur
re
esponse to Eurozone riskss, which led to
o the delivery of a Eurozone crisis mana
agement plan to the GMC.
22
We
W revised ou
ur assessmen
nt of operation
nal risk contro
ols during the year, piloting the approachh successfully
y in seven
business
b
area
as and across a variety of supporting
s
sysstems. A num
mber of new operational ‘keey risk indicato
ors’ were
in
ntroduced to m
monitor poten
ntial risks such
h as unauthorrised trading.
In
n addition, we
e reviewed the
e operation off the Investme
ent Risk team
m, changing th
he reporting linne to make it fully
in
ndependent o
of Investment..
The
T GRC’s wo
ork in 2012 allso included emerging
e
risk identification;; hard to value
e and illiquid iinstruments; mandate
m
breaches;
b
taxa
ation; Private Banking spec
cific risks; pre
eparations for regulatory de
evelopments iincluding Clie
ent Asset
on Plans; Antti-Money Laundering and m
Sourcebook
S
(C
CASS) revisio
on; Recovery and Resolutio
market abuse
e
developments
d
s; and policy re
eviews such as
a Group priccing, personal account dea
aling and Grouup order man
nagement and
d
execution.
e
Key
K risks
The
T following ttables summa
arise key bus
siness risks. T
These are not exhaustive but aim to provvide information on the riskks
th
hat are curren
ntly considere
ed to be most relevant to ou
ur business.
Market,
M
inve
estment perrformance and
a liquidity
y risks
We
W face risks
s from movem
ments in the
e financial ma
arkets in whiich we opera
ate, arising frrom holding investments
s
both
b
as princ
cipal and age
ent. We have principal ex
xposure in th
he Life Comp
pany in Assett Manageme
ent which
holds
h
investm
ments in fund
ds; in our Prrivate Bankin
ng business, where we ho
old bank pap
per and gove
ernment
securities;
s
an
nd through th
he Group’s in
nvestment c
capital, where
e we hold ba
ank paper, go
overnment and corporate
e
bonds,
b
equitiies, funds of hedge funds
s, property a
and private equity. There is agency exxposure in Asset
A
Management
M
t and Private Banking in respect
r
of th
he assets we manage on behalf of ou
ur clients.
Description
D
o
of key risk
Market risk
Market risk a
arises from market
movements,, which can ca
ause a
fall in the value of principa
al
investments and a decline
e in the
ets under
value of asse
managemen
nt.
Equity, net fe
ee income an
nd
expenses off the Group’s
overseas subsidiaries are
e
denominated
d in local currrencies
and are there
refore subject to
exchange ra
ate risk.
Ho
ow we manag
ge risk
Our geographica
ally-diversified
d, broad product range enaables us to prrovide clients
with
h solutions ta
ailored to a variety of marke
et conditions aand serves to
o diversify
individual marke
et dependencies.
e Group Capiital Committee regularly reviews all holddings within Group
G
capital.
The
All principal inve
estments are managed
m
with
hin approved limits. The Group’s seed
cap
pital investme
ents may be hedged
h
in resp
pect of markeet risk and currrency risk.
The
ese decisionss are taken by
y the Group Capital
C
Comm
mittee, chaired by the Chief
Fin
nancial Officerr.
Inc
come and exp
penses are, where
w
possible
e, matched in the currency of individual
sub
bsidiaries. We
e also use forw
ward foreign exchange
e
conntracts to mitiigate
tran
nsactional and
d investment exposure to currency
c
movvements. In Private
P
Banking, markett risk is monito
ored and man
naged at a loccal level and by
b the Private
e
Banking Risk Co
ommittee.
23
Description
D
o
of key risk
In
nvestment p
performance risk
The
T managem
ment of investment
riisk is a core sskill of the Gro
oup.
This
T is the riskk that portfolio
os will
not
n meet their investment
objectives.
o
This can adverssely
affect
a
levels off net new bussiness.
Ho
ow we manag
ge risk
e Schroder In
nvestment Ris
sk Framework
k provides revview and challenge of
The
investment riskss across each of the asset classes
c
manaaged by the Group.
G
The
Inv
vestment Riskk team is independent of the Investmentt function.
early-defined investment processes
We
e adhere to cle
p
whhich seek to meet
m
investment targe
ets within statted risk param
meters. Individdual portfolio performance,
p
valuations and rrisk profiles arre monitored by
b fund manaagers and ma
anagement on
n
a re
egular basis, as well as Priicing and Valu
uation Comm
mittees, allowin
ng issues to
be identified and
d mitigated.
Recognising tha
at products will not outperfo
orm all of the ttime, we offerr a diversified
pro
oduct set whicch reduces the
e concentratio
on of risk on tthe performan
nce of any
one
e fund or asse
et class. Inves
stment perforrmance is moonitored as part of our
investment risk m
managementt process.
Liquidity
L
risk
k
Liquidity
L
risk in
n relation to cllient
portfolios
p
is the
e risk that fun
nds
cannot
c
be gen
nerated to me
eet
re
edemptions o
or other obliga
ations
as
a they arise. Liquidity issue
es can
arise
a
as a resu
ult of market
conditions
c
or tthrough inhere
ently
illiquid investm
ments. Liquiditty risk
also
a applies to
o the Group’s own
capital
c
position
n.
To mitigate this rrisk within clie
ent portfolios, we seek to m
match, where possible, the
liqu
uidity of a porttfolio’s underly
ying investme
ents with the aanticipated liq
quidity
req
quirements. W
We actively mo
onitor markets
s for indicatorrs of declines in liquidity.
We
e also review products and
d portfolios to identify capaccity constraintts.
Eac
ch of our regu
ulated subsidiaries, and the
e Group as a whole, meet regulatory
cap
pital requirem
ments. In addittion, we mainttain sufficient liquidity for ou
ur anticipated
d
nee
eds, taking acccount of the risks we face.
We
e have develo
oped a new In
ndividual Liquidity Analysis Assessment (ILAA) and
imp
plemented im
mproved liquidity analysis an
nd reporting inn Private Ban
nking in
Lon
ndon.
24
Credit
C
risk
We
W face risks
s from the de
efault of coun
nterparties to
o our princip
pal financial transactions
t
s. Our clients
s also face
counterparty
c
risk in relation to the financial transa
actions in the
eir portfolios
s and funds. Private Banking
additionally
a
fa
faces princip
pal credit risk
k on its lendin
ng activities.
Description
D
o
of key risk
Credit
C
risk
We
W face creditt risk as a ressult of
counterparty
c
e
exposure.
Ho
ow we manag
ge risk
In order
o
to mana
age this risk we
w actively mo
onitor counterrparty creditw
worthiness with
h
limits expressed
d in terms of value
v
and term
m to maturity. The Group se
ets overall
limits in respect of both principal and agency counterpaarty risk.
Wh
here possible,, we seek to diversify
d
our exposure
e
acrooss different counterparties
c
s.
All counterpartie
es are reviewe
ed on a regula
ar basis and l imits are ame
ended
follo
owing change
es to their fina
ancials. We actively monitoor market data
a and rating
age
ency outputs in assessing counterpartie
es. Collateral iis taken in mo
ost cases.
We
W face creditt risk through Private
Banking
B
lendin
ng activities.
ng, we mitiga
In Private
P
Bankin
ate credit risk where
w
possibble through co
ollateralisation
n
in the form of ca
ash, portfolio in
nvestments or
o property. Crredit risk is monitored and
ma
anaged againsst the perform
mance of the collateral.
c
25
Operational
O
risk
Operational
O
rrisk arises in our investm
ment manage
ement activities, distributtion activitiess, product de
evelopment
and
a the opera
ation of our IT
I and opera
ations infrasttructure. Loc
cal managem
ment is respo
onsible for op
perational
risk controls..
Description
D
o
of key risk
Operational
O
rrisk
Operational
O
rissk could arise
e from
th
he failure of ssignificant bussiness
processes
p
und
dertaken by
Schroders,
S
inccluding manda
ate
compliance
c
an
nd suitability.
We
W have a number of outso
ourced
supplier
s
relatio
onships that are
a an
im
mportant part of our busine
ess
model,
m
particu
ularly in respecct of
fu
und administrration servicess.
Ho
ow we manag
ge risk
All business proccesses are su
ubject to revie
ew in order too identify suitable
ope
erational conttrols to mitigatte potential ris
sks.
Beffore entering outsourcing arrangements
a
s, we undertakke due diligen
nce on thirdparrty suppliers. W
We then main
ntain a progra
amme of reguular assessme
ent against
agrreed service le
evels.
Distribution
D
rrisk
The
Distribution
D
rissk arises from
m
e broad range
e of distributio
on channels mitigates
m
agai nst a key dep
pendency on
re
elationship management and
a
any
y sales chann
nel.
concentration
c
across differe
ent
accounts for more
distribution
d
cha
annels and prroducts. No single client a
m
than two
o per cent. off total revenue
e.
We
W have three
e broad clientt
groups:
g
instituttional clients, often
nsultants; reta
advised
a
by con
ail
clients,
c
interme
ediated through
banks,
b
brokerss and indepen
ndent
advisers;
a
and private clientss.
Product
P
risk
Product
P
risk arrises from pro
oduct
complexity
c
and
d the risk thesse
products
p
do no
ot meet their
performance
p
o
objectives or are
a
unsuitable
u
for certain clientss.
Product
P
risk ca
an also arise from
capacity
c
consttraints where the
size
s of assets under manag
gement
in
n a particular asset class makes
m
it
more
m
difficult to
o trade efficie
ently in
th
he market.
We
e have a dediccated Produc
ct Development team and a product app
proval and
rev
view procedurre. We consid
der carefully th
he suitability oof products for clients and
where possible, monitor the way
w products are sold.
We
e actively mon
nitor potential capacity constraints and m
may mitigate them
t
by
clos
sing productss to new inves
stment in certain circumstaances.
26
Description
D
o
of key risk
Ho
ow we manag
ge risk
Technology
T
rrisk
We
W rely on tecchnology and
qualified
q
profe
essionals to maintain
m
our
o infrastructu
ure, and we in
nvest in
in
nformation tecchnology projjects
with
w long lead times.
e regularly revview the progrress of major information teechnology pro
ojects and
We
new
w projects are
e subject to rig
gorous testing
g before appro
roval. Our tech
hnology is
parrtly outsource
ed and our pla
atform uses well-establishe
w
ed, tested tech
hnology from
outtsource partne
ers which we assess to be
e financially sta
table and able
e to provide
the
e required leve
el of service.
Outsource partn
ners are an im
mportant part of
o our businesss model and
d we work with
h
the
em to maintain
n the quality and
a continuity
y of service. D
Due diligence is undertaken
n
beffore entering iinto new arrangements and performancce is reviewed
d on an
ong
going basis. C
Continuity and
d business res
sumption plannning is in pla
ace across the
e
bus
siness globallly.
People
P
risk
We
Our
O business depends on people.
p
e recruit and d
develop speciialist skills as the range of oour product offerings
o
We
W ensure we
e employ people with dee
epens and ou
ur investment and distribution strategies develop into new areas.
skill
s sets appro
opriate to our
changing
c
business needs.
To mitigate peop
ple risks, we have
h
competitive remuneraation plans, with
w
app
propriate defe
erred benefits, targeted at key
k employeees, and we se
eek to build
stre
ength in depth
h and put in place
p
sustaina
able successioon plans. We also operate
from
m many intern
national centrres, which red
duces reliancee on single po
ools of talent
and
d individual co
ountry stability
y.
We
W expect our employees to
t
behave
b
with in
ntegrity, which
h is one
of
o our core vallues.
Cle
ear objectivess are set for em
mployees and
d we measuree individual su
uccess in the
ann
nual review prrocess. This allows
a
us to id
dentify motivaational employ
yee
dev
velopment inittiatives, which
h helps to reta
ain talented ppeople.
We
e demand high ethical stan
ndards and tra
ain our employ
oyees accordin
ngly.
Geographica
G
al diversity ris
sk
Our
O business is broadly divversified
by
b region whicch, whilst mitig
gating
aggregate
a
riskk, introduces risks
r
as
a result of com
mplexity, local laws,
re
egulations, bu
usiness custo
oms and
trraditions.
e employ loca
al people with local expertis
se and also seecond employ
yees
We
inte
ernationally w
within the Grou
up.
The
e Group Riskk Committee receives
r
reporrts from line m
management regarding
ma
atters giving ca
ause for conc
cern and recommendationss for appropriate remedial
acttion.
We
e keep our em
mployees up-tto-date on rele
evant internattional regulation.
An independentt team, reportiing to the Gro
oup Head of R
Risk, is respon
nsible for
ass
sessing the im
mpact of mate
erial issues an
nd implementiing appropriate and timely
risk
k mitigation.
All our overseass operations are
a regularly re
eviewed by Innternal Audit.
27
Description
D
o
of key risk
Legal
L
risk
The
T risk that S
Schroders or its
counterparties
c
s fail to meet their
t
le
egal obligation
ns and the rissk of
le
egal proceedings.
Regulatory
R
an
nd complian
nce risk
The
T risk of loss arising from
m failure
to
o meet regula
atory requirem
ments in
th
hose jurisdictiions in which the
Group
G
operate
es.
Ho
ow we manag
ge risk
e rely on our e
employees, with
w support fro
om our Legal function, to consider
c
We
carrefully the obliigations we assume and our compliancee with them.
Confirmations arre obtained frrom representtatives aroundd the Group that
t any actua
al
or potential
p
dispu
ute or claim has
h been brou
ught promptlyy to the attention of the
Ge
eneral Counse
el.
e maintain com
mpliance proc
cedures acros
ss our global offices, and our
o Global
We
Compliance funcction supports
s business management inn meeting its obligations.
Compliance with
h relevant reg
gulatory requirrements is moonitored continuously.
Key
K continu
uing risks
The
T key continuing risks outlined abo
ove have bee
en assessed in the light of
o the curren
nt economic and
geopolitical
g
e
environment as summariised in the diiagram below
w.
The
T horizonta
al axis show
ws whether ris
sk is stable o
or heightene
ed in current market cond
ditions. The vertical
v
axis
shows
s
wheth
her the poten
ntial cost of the key risk is
s stable or has
h increased
d due to currrent market conditions.
c
The
T Group un
ndertakes ad
dditional worrk to address
s those risks
s that it considers to be p
potentially he
eightened
and/or
a
more c
costly.
1.
2.
2
3.
3
4.
4
5.
5
6.
6
7.
7
8.
8
9.
9
10.
11.
12.
13.
People riskk: Employment practices and
workplace safety
Geographiccal diversity:
Disasters a
and public safetty
Regulatoryy and compliancce risk
Operationa
al risk: Distributiion risk
Operationa
al risk: Clients, products
p
and
business p
practices
Legal risk
Operationa
al risk: Technolo
ogy and
infrastructu
ure failures
Operationa
al risk: Executio
on, delivery and
d
process ma
anagement
Counterparrty credit risk
Credit lending risk
Liquidity rissk
Investmentt performance risk
r
Market riskk
28
Emerging
E
risks
Emerging
E
risks are those
e with uncerta
ain impact, p
probability an
nd timeframe
e that could cause risk to
o the
Group.
G
These
e are the hard
rdest to defin
ne and may c
change in na
ature. We ana
alyse each rissk and, if needed,
develop
d
and a
apply mitiga
ation and management pllans. The extternal emerg
ging risks thaat are curren
ntly our
fo
ocus of atten
ntion are set out below. The
T diagram indicates ou
ur assessme
ent of the likeelihood, time
eframe and
im
mpact on ou
ur business. The
T estimate
ed impact an
nd likelihood may change
e as circumsstances chan
nge and
mitigation
m
pla
ans are deve
eloped. Regu
ulatory risks a
are reported
d on the follow
wing page.
1.
2.
2
3.
3
4.
4
5.
5
6.
6
7.
7
8.
8
9.
9
10.
11.
12.
Eurozone ccrisis
Major bankk failure
Market liqu
uidity crisis
Margin pre
essure
Investmentt performance
Negative re
eal interest rate
es
LIBOR
Oil price sh
hock
Argentina
Financial trransaction tax
Corporate bond fund liquidity
Terrorism
29
Key
K regulato
ory change
e risks
The
T extent off regulatory change faciing the asse
et manageme
ent and private banking industries has
h increase
ed
in recent ye
significantly
s
ears. As parrt of our risk reporting, we have in
ntroduced th
he following diagram that
combines
c
bo
oth known an
nd emerging
g regulatory change risk
ks, to identify
y both the likkely timing and
a estimate
ed
im
mpact of reg
gulatory chan
nge on our business.
b
1.
2.
2
3.
3
4.
4
5.
5
6.
6
7.
7
8.
8
9.
9
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
2
21.
2
22.
2
23.
2
24.
2
Financial S
Services Compe
ensation
Scheme levvy
Vickers rep
port impact
AIFMD imp
pact
Basel III/Ca
apital Requirem
ments
Directive (C
CRD) IV
MiFID II
UCITS V
Anti-Moneyy Laundering (A
AML)
Client Asse
et Sourcebook (CASS) revisio
on
Solvency III client reporting
g
Market Abu
use Directive (M
MAD) II
Remunerattion policies
Dodd-Fran
nk OTC
European B
Banking Authority’s common
regulatory rreporting frame
ework (COREP
P)
RDR for pla
atforms
EU Securitties Law
Private Ban
nking Recoveryy and
Resolution Plans
Group Reccovery and Ressolution Plans
European m
market Infrastru
ucture
Regulation (EMIR – OTC market reform)
Asia OTC
Dodd-Fran
nk commoditiess
Data protecction
UCITS VI
Solvency III
FSA chang
ge to FCA/PRA
A
30
Director
D
rs’ responsibilitty state
ement
To
T the best o
of their know
wledge and belief,
b
each o
of the Directo
ors listed be
elow confirmss that:
–
The conso
olidated financcial statemen
nts of Schrode
ers plc, prepared in accorda
ance with IFR
RS as adopted
d by the EU,
give a true
e and fair view
w of the assetts, liabilities, financial position and profit of Schroders plc and the undertakings
u
included in
n the consolid
dation taken as
a a whole;
–
The annou
uncement inccludes a fair summary of th
he developme
ent and perforrmance of thee business and
d the position
n
of Schrode
ers plc and th
he undertaking
gs included in
n the consolid
dation taken as a whole andd a descriptio
on of the
principal riisks and unce
ertainties that they face;
–
So far as e
each Directorr is aware, the
ere is no relevvant audit info
ormation of wh
hich the Comppany’s audito
ors are
unaware; and
–
They have
e each taken all the steps that
t ought to h
have been taken by them as
a Directors inn order to ma
ake themselve
es
aware of a
any relevant audit
a
information and to esttablish that th
he Company’s
s auditors aree aware of that information.
Directors:
D
Andrew
A
Beeso
on
Chairman
Michael
M
Dobso
on
Chief Executive
Philip
P
Mallinckrrodt
Group He
ead of Private Banking
Kevin
K
Parry
Chief Fina
ancial Officer
Massimo
M
Tosa
ato
Executive Vice Chairm
man and Globa
al Head of Dis
stribution
Luc Bertrand
Senior Ind
dependent Dirrector
Ashley
A
Almanzza
Independe
ent non-execu
utive Directorr
Robin
R
Buchana
an
Independe
ent non-execu
utive Directorr
Lo
ord Howard o
of Penrith
Independe
ent non-execu
utive Directorr
Merlyn
M
Lowthe
er
Independe
ent non-execu
utive Directorr
Nichola
N
Pease
e
Independe
ent non-execu
utive Directorr
Bruno
B
Schrode
er
Non-executive Directorr
6 March 2013
31
Five-yea
F
ar conssolidated financcial sum
mmary
Profit
P
before taxx
2012
£m
360.0
2011
£m
407.3
2010
£m
406.9
2009
£m
137.5
2008
8
£m
m
123.1
Tax
T
(76.8)
(91.5)
(95.7))
(41.8)
(51.8
8)
Profit
P
after tax
x
283.2
315.8
311.2
95.7
71.3
3
2012
Pence
104.7
2011
Pence
115.9
2010
Pence
111.8
2009
Pence
34.3
2008
8
Pence
e
27.5
5
Diluted
D
earning
gs per share
101.3
111.9
108.3
34.2
27.3
3
Dividends
D
Cost
C (£m)
2012
104.1
2011
104.8
2010
87.6
2009
84.9
2008
8
86.7
7
Pence
P
per sharre*
39.0
39.0
32.0
31.0
31.0
0
Total
T
equity (£
£m)
2,069.9
1,901.6
1,799.7
1,649.0
1,632.2
2
733
673
620
571
569
9
Earnings
E
per s
share:
Basic
B
earnings per share
Net
N assets perr share (pence
e)**
*D
Dividends per sha
are are those am
mounts approved by the sharehold
ders to be paid wiithin the year on a per share basiss to the sharehold
ders on the
re
egister at the spe
ecified dates.
***Net assets per sshare are calculatted by using the actual
a
number off shares at the ye
ear-end date.
Assets
A
under manage
m
ement – 2012 flows
f
Tota
al
£b
bn
187..3
Instituttional
£bn
108.4
Inteermediary
£bn
62.9
Private
Banking
£bn
16.0
Gross
G
inflows
57.6
21.8
31.8
4.0
Gross
G
outflowss
(48.2)
(15.4)
(28.5)
(4.3))
9..4
6.4
3.3
(0.3))
Investment
I
retu
urns
15.3
8.9
5.8
0.6
31
3 December 2
2012
212..0
123.7
72.0
16.3
1 January 2012
Net
N flows
32
Income and co
ost metrrics for tthe Gro
oup
Cost:
C
net reven
nue ratio
2012
70%
2011
66%
Compensation
C
cost: operating
g revenue ratio
49%
44%
Bonus:
B
pre-bon
nus operating profit
p
42%
39%
Return
R
on averrage capital (pre
e-tax)
18%
22%
Return
R
on averrage capital (po
ost-tax)
14%
17%
Exchan
E
ge rate
es – clos
sing
31
3 December
Sterling:
S
2012
2011
2010
2009
2008
Euro
E
1.23
1.20
1.17
1.13
1.03
US
U dollar
1.63
1.55
1.57
1.61
1.44
Swiss
S
franc
1.49
1.45
1.46
1.67
1.53
Australian
A
dolla
ar
1.57
1.52
1.53
1.80
2.06
Hong
H
Kong dolllar
Japanese
J
yen
Singaporean
S
do
ollar
12.60
12.07
12.17
12.52
11.14
140.55
119.57
126.98
150.33
130.33
1.99
2.02
2.01
2.27
2.07
33