Schroders plc

Good morning, everyone. Welcome to the Schroders 2021 full year results. We've got a lot of people online today, so we're going to try and mix it up between the room and online. But what I'm going to start, normal format, I will take you through big picture flows, Richard will take you through the financial numbers, and then we'll do Q&A both in the room and online. So just starting with the high-level numbers, you've seen these. Top line grew 18%, profit before exceptionals up strongly, cost-income ratio down slightly, number we're proud of 35.3 billion of new flows. But importantly, the underlying drivers of this, strong performance in our private assets business, strong performance in wealth business, but also good organic growth coming through from our traditional core business. And I think We'll talk more about that. But the investments we've made over the last five years really started to come through across the business in terms of decent organic growth. Getting into the detail, we are nothing without being able to produce strong returns as an active manager. We were very pleased. Our three-year performance number last time we got together a year ago was 74%. Today it's 79% of funds outperforming over three years. But what that actually means in practice, I've taken here the top 25 funds across our fund range. Over five years, these funds have outperformed their index by 16.1% net of fees. So as an active manager, the importance of making money for clients is absolutely central. And I think that's a good way of demonstrating what that 79% means to people at the end of the day in their funds. Assets under management reached a new high of £732 billion. I've put on the right-hand side the mix of revenues across the business. Clearly, when you've got a compound growth rate of 10% across your business, all areas are growing. But what we're starting to see is those high margin, high longevity areas growing as an increasing portion of the group. And I'll come back and talk about what that's meant for the longevity of our business and the stickiness of clients. But the dynamics of that virtuous circle of growth starting to come through here. In anticipation of the question, if you look at the AUM growth rate X joint venture associates, it's still 7% compound over that five-year period. Just a quick reminder in terms of strategy. This chart won't be new to you. It's precisely the chart that we've shown really for the last five years. We're wanting to get closer to our end customer to improve our client stickiness and avoid disintermediation. We're reinventing our core asset management business by doing more in solutions, more in the attractive contemporary products, more in sustainability, expanding our geographical reach so that we're doing more in North America, more in Asia. And what you've seen is those areas coming through. And then, obviously, we've talked a lot about this, the attractions of private markets. And over the five years, clearly the markets recognised the attractiveness of that segment. both client longevity and revenue margin. That's the strategy. What I want to do now is link the results directly to this. Here's our overall flow picture for the year. We saw 20.2 billion of new flows coming from our JVs and associates, particularly in China and India. And I'll come back and talk more about that. And on the right hand side of this chart, you can see those high margin areas delivering 19 billion of net new business. Institutional saw a small outflow, but there was quite a lot of churn within that. And actually our move towards higher margin areas within the institutional business, actually the net new revenues was 6 million pounds that we earned in our institutional business. So, if you looked at our asset growth rate, you get to a 5% organic growth rate. To my mind, perhaps the more important number, if you just take out the Joint Ventures Associates for a moment and look at the annualised net new revenue that are coming from those five business areas, was running at an organic growth rate of 7.3%. So, The 144 million of net, 145 million of net new revenues which is coming from the traditional asset and wealth management business is a 7.3% organic growth rate on net new business alone in 2021. A number that we're really pleased with because that if you like is paying the bills this year but also providing the base for future years. Clearly, I'll just give you the stats for this if you look through a geographic lens or a product lens. Private assets and alternatives saw £6.9 billion of inflows. Our equity business saw £3.8 billion of inflows. Our fixed income business saw £2 billion of inflows. A multi-asset was out by £1.7 billion. Within equities, the major areas of inflow was global equities. The major areas of outflow was quantitative equities. So there's a nice mixed change within there. The other areas to talk about is geographically. We saw Europe was the strongest market, 7.1 billion of inflows into Europe, 5.3 billion of inflows into North America, both retail and institutional. The UK saw small outflow, as did Asia, ex-associates of 0.2. The UK was 1.2 out. Clearly, the Asian business was flattered very much if you add in joint ventures and associates because we saw 20 billion of net inflow into Asia. So to my mind, a really rebalancing of the group, but growth where we wanted to see it. And I'd say that underlying revenue growth rate of 7.3% compound in the organic business. So we've talked a lot about trying to reposition the business into areas where there is fast-flowing water. And this has not got the consolidation adjustments in, but I wanted just to demonstrate those areas that we talk about in strategy, saying we can see new growth in those. So we talked about the joint ventures, but Schroders Capital, our private assets business, so this is without the alternatives, saw 7.4 billion of inflows. And that's before... £2.5 billion of dry powder, which we have not invested and we don't include in our assets under management. You'll recall, for those of you who attended our Capital Markets Day, that we said we would be able to achieve growth of £5 billion to £8 billion for Schroders Capital Business. We've done that. In fact, if you think about the dry powder, we've actually exceeded it, but we've done that. Article 8 and 9 funds, those funds which are focused on sustainability in Europe, 5.7 of inflows. Thematic funds, an area of big growth, 4.4 billion of net inflows. Wealth management, I'll talk more about. North America, we said, is a strategic priority. Again, very strong inflows, both in North America... and in South America, areas that we put in organic investment, and we're now seeing the payback from those areas. So to my mind, what this is demonstrating is the strategy we put in place is coming through across the areas that we would expect it to do so. And if you look at that in a bigger picture and go back to those things, the areas we've talked about, private assets, wealth, solutions, those have all more than doubled over this period. And I think, to my mind, it's that rebalancing of the group which is going on nicely. And that, from Richard Knight's perspective, the more we can do that, the more that enables the revaluation of the business to be driven by the quality of the earnings that are coming through. Just going back into wealth management, to my mind we've set out again as a capital markets day that we hope to achieve 5% organic growth rate from next year. We've actually achieved it this year with a 5.7% organic growth rate. We've excluded from that number another 0.6 billion of MPS flows because that's serving existing clients, so it didn't fit our definition of NMB. But nevertheless, even without that, that 5% growth rate has been achieved. Just quickly in terms of that breakdown, I've shown it on the charts, but what was important to us was that the Schroeder personal wealth business, having been in outflow for many years, has turned positive. We saw a very significant change in the Lloyds rate of referrals. So if you go back, last year we had 22,000 referrals. This year we've had 56,000 referrals. and 103,000 meetings, I think, if I recall correctly. So we're starting to get to this business to becoming industrial scale. But once you've turned that corner on net new business, I think our confidence of seeing that grow nicely from here is clearly growing stronger and stronger. I've mentioned I come back to joint ventures and associates. This has been clearly an important part of the driver, but is increasingly a dependable part of our business. In India, we're now the largest equity manager. Our market share increased from five point 6% last year to 6.7% this year. And the Bocom FNC venture, a joint venture, assets increased 32%. So India and China growing strongly, and we see it as a potential for future growth, that being clear. The bit that we haven't yet got in these numbers is the launch of our WMC. That formally launched on the 28th of February. The first products will be launched early in April. We anticipate that being a significant additional driver to growth going forward. And then later in the year, we will launch our wholly owned FMC business, which we expect will take longer to ramp up. But nevertheless, the WMC, which is a 51% owned business, we think will ramp up pretty quickly. So overall, those businesses all demonstrating good growth. And I think the dynamics of future growth also looking strong. The issue on sustainability is not new to anybody here. And I put just a few proof points on this chart because I think it has to be taken in the round. There's no single answer that demonstrates whether or not you're good at sustainability or not. But to my mind, what we're able to look at is, We're pretty well the only major asset manager to have set a science-based target, have that approved. CDP rating of A- is a very strong rating. MSCI rating of AAA. 5.7 billion of new flows into sustainable assets. The acquisition of Greencoat last year, I think looking increasingly timely, not only clearly you're going to see a very rapid acceleration of renewable energy in Europe for very tragic reasons, but that trend is just going to be accelerated. But also if you think about the change to Solvency II regulation is going to enable a wider set of insurance assets to also want to invest more into renewable renewable energy. So I think our net of our efforts here coming through really very strongly, our brand in this area performing very strongly, our engagement with clients being very strong. And I think this is a critical battleground to win. You've got to be good at it as a business, but you've also got to be good at it as an investor. Private assets, final piece of those variables. I've mentioned the 7.4 billion of flow from Schroder Capital. You'll hear later that following on from the acquisition of Greencoat, we think it's appropriate to increase that objective we set in the past. So we previously said we thought we could do five to eight billion of new business growth a year. To my mind, that number probably needs to be nearer. 7 to 10 billion of net new business growth a year. So we will change our guidance on that. Because not only do we do 7.4 billion of growth, but we also have 2.5 billion of dry powder. And just to reconcile for you that number difference, Schroders Capital did 7.4 billion. We had a small outflow from our liquid alternatives business, which is why the division did 6.9 billion of flows, just to tie those two numbers up. Now, we talked a lot about the importance of creating more client longevity. And I thought this chart just tried to make that point very clear to you in terms of what the impact of the changes we've had made looks like on the business. And it looks at our outflows as a percent of our assets. So our longevity may have gone over the last five years from 4.1 years to 5.3 years, but the stickiness of our assets, so for every 100 billion of assets, 25% used to flow out every year. Previously, now that number is 17.6%. That, to my mind, means we're running a lot less hard to stand still, and it's one of the key differentiators if you benchmark those numbers against the rest of the industry you'll see that we start with an inherently stickier book of business which means that the sales that we make are much more likely to translate directly into net new business rather than just gross inflows. So I think a metric which isn't often measured but a really important one to draw your attention that that transformation working through and I think given the changes we're making we expect that to carry on flowing through into future years. So we've obviously done a bit more this year to drive that strategy harder. I think we've made three strategically important acquisitions. I just want to spend a moment talking about the rationale behind those. And I'll start with River and Mercantile because that was a really important acquisition in the UK fiduciary management market. When the CMA came in, reviewed that market, it was very clear that there was an opportunity for a new entrant to be more disruptive, to enable a more rapid scaling of UK pension funds wanting to transition towards buyout. Clearly a lot of that's going to be done through private assets as well. We acquired the River & Mercantile business, fantastic to see, and the Pensions Age Award, anyone who saw the Pensions Age Award last week, both Greencoat, Alternatives Manager of the Year, River & Mercantile, the Fiduciary Manager of the Year, so clearly got something right. But what's been really interesting is since we acquired that business, we've already won a number of new mandates. now anybody who knows the pension fund world you don't win new mandates immediately after a change of control but I think what you're seeing is the clients saying that the combination of Schroders River Mercantile makes really good strategic sense and having a new competitor in that space is unlocking a lot of pent-up demand so an important acquisition and one where we expect to see follow-on growth and a really important acquisition from a solutions perspective because the duration of these assets, I think, is nearer 17 years. So again, pushing on that point of stickiness of assets. Greencoat, for very different reasons. I mean, more and more clients are engaging with us saying, how do we go on a decarbonisation journey? The very obvious thing for them to do is to own more negative carbon assets, renewable energy assets. they've clearly green coat has performed very strongly in the past we would expect to see good inflows in the future hence the reason we've upgraded our private asset target of future growth but this is an important and rare asset in being able to offer that full suite of products to clients and I think there's a there's a really important point here there are very very virtually perhaps one other asset manager that was able to engage with clients right the way through from an LDI perspective, all the way through their public equities and all their private markets engagement. And that total engagement is becoming more and more important to clients. As you say, how do I solve the whole of my investment problem? And if you think about a world where returns are low, inflations are high, we expect strategically that market to grow very significantly. So being able to fill all these pieces so you can have that holistic engagement will position us very strongly. I shouldn't mention Cairn, not because it was a big acquisition, but because strategically it provided the missing piece of our European real estate. We didn't have a Dutch real estate capability. We've now got a pan-European real estate capability in every country we're strong. So that will unlock both Dutch demand, but also pan-European demand. And that's an important step. So we feel that we've made good progress in building out the last bits of our private asset jigsaw over the course of the last 12 months. So, what does that mean in terms of that virtuous cycle of, you know, as we've done more in these three areas, we've enabled us to do yet more and more. So, when we did the Lloyd's transaction, off the back of that Stroda Personal Wealth, we've been able to open up a regional network for Casanova. We've also been able to open up a major family office business, so for right at the top end of the market. that we've got a lot closer to consumers from the 100,000 pound client right the way through to the 500 million pound clients. And that virtual circle has been reinforced. We've put organic growth into our asset management business. And this is really important because this is a business which I think most analysts said it's gonna really struggle. It's got major pricing power, indexation, et cetera. But through launching the right products, growing in the right geographies, making that organic investment. We've seen good organic growth coming from those areas. And I think with the WMC launching this year, with more sustainability product, more thematic product, with 79% of our funds outperforming, we're demonstrating that you can grow as a good active manager. And then finally, we've built out the suite of private asset products and I think now putting our solutions capability on top of it, so combining them together into an income solution or a holistic private markets product for smaller pension funds, we're able to really address markets that perhaps others aren't able to get to. So that strategy starting to open up as we've gone through it, opens up yet more optionality to do more in other areas. And so we're pleased with the progress this year. just from an operational perspective, but also because strategically, I think we're starting 2022 in better shape. So lots of good things happening. I've touched on many of them. The one I probably haven't spoken enough about is the importance of talent. You will have read lots of words about talent retention. I can say that our talent retention has remained at an extremely high level. 84% of our employees are shareholders. Our talent retention rate is over 94%. It feels to me like we're in a good position to carry on retaining the people who've been driving the strategy, which is frankly the most important thing from a delivery perspective. With that, I'm going to hand over to Richard, who'll talk more about this year, and I'll come back and talk about the outlook, and we'll go from there. Thank you.

Thank you, Peter, and good morning, everybody. I'm really pleased to be taking you through what I believe are a very good set of results. This performance reflects a lot of what Peter has talked about already. In particular, the results show, firstly, very good growth in our strategic focus areas of private assets and wealth. Secondly, the success of our ventures with Bocom and Axis. And thirdly, high growth in our core asset management business, especially mutual funds, which were in high demand. As a result, we delivered profit before tax and exceptional items of £836 million, which represents a new high. And our profit after tax increased by 28% to £624 million. Now for some more detail, starting with net income. Net income increased by 18% from 2.2 billion to 2.6 billion. The largest component of this was the increase in net operating revenue, which grew by 350 million to 2.4 billion. As you know, average AUM is the main driver of our net operating revenue. This increased by 15% to 597 billion, excluding joint ventures and associates in our asset management segment. There were two main reasons for this. The first was the rise in markets, which net of currency headwinds drove an increase in average AUM of around 55 billion. This translated into 204 million additional net operating revenue. Secondly, our net new business led to an increase in average AUM of approximately 20 billion. This generated 101 million in additional revenue, including a tailwind of 14 million from net flows in 2020. And turning to 2022 for a moment, we have a tailwind of 58 million at the start of the year due to the net new business we won in 2021. The next largest increase in our net operating revenue came from performance fees and carried interest. As you've heard from Peter already, we delivered strong investment performance for our clients during the year. This enabled us to grow performance fees and carried interest by 31 million to 126 million. 23 million of this increase came from carried interest, an important part of the overall contribution from Traders Capital. And virtually all our performance fees are earned from institutional clients. Looking at performance fees and carried interest over a five-year period, you can see that the normalized level has increased over time. This time last year, we increased our guidance to 70 million based on a three-year rolling average. The three-year average has now grown to just under 100 million, highlighting the increased value of this revenue stream. Although given markets in January and February, if I were you, I might haircut this back to last year's guidance. Now let me talk you through how all this breaks down by business area, starting with wealth management. In October, we explained how we were building our wealth management business and its significance to the overall group. The segment has shown good progress during the year. This is illustrated by the growth in the annualised net revenue that is shown on this slide. Average AUM increased by 17% to £76 billion, which drove an increase in management fees of 21%. Net operating revenue increased by 15% to £421 million, Within this figure, the growth in management fees was partly offset by some reductions to transaction fees and net banking interest. Peter's talked about the progress SPW has made during the year. Its net operating revenue increased by 12% as it started to merge from pandemic related constraints. Across the wealth management business as a whole, the net operating revenue margin excluding performance fees decreased to 55 basis points. That's slightly less than the guidance we gave at Capital Markets Day, but you should note this reflects only the effective roundings either side of 55 and a half basis points. For 2022, as we enter a higher interest rate environment, and as we see other fees return to more normalised levels, we expect the margin to increase to around 56 to 57 basis points. Now moving on to the business areas within our asset management segment, starting with private assets and alternatives. Peter has already highlighted that the strong net new business we generated within Schroders Capital more than offset small outflows in liquid alternatives. As a result, average AUM increased by 9% to £49 billion. Net operating revenue increased by 20% to £351 million, including £44 million of carried interest and performance fees, and £11 million of real estate transaction fees. This translated into a net operating revenue margin of 72 basis points. Excluding carried interest and performance fees, the margin was 62 basis points, which is in line with last year. In 2022, we expect this to reduce due to the change in mix and the onboarding of the SWIFT real estate mandate. However, the acquisition of Greencoat later in Q2 should increase the margin back to 62 basis points for the year as a whole. Now moving on to solutions. Average AOM increased by 12% to 193 billion driven by strong investment returns. This drove an increase in net operating revenue of 9% to 276 million. The net operating revenue margin was 14 basis points in line with my previous guidance. We expect this to reduce by a bit in 22 as the impact of the 43 billion of AUM we acquired through the acquisition of River and Mercantile comes through. This transaction is a testament to the continued importance of our solutions business, the assets which have high longevity as you've heard from Peter just now. Next onto our mutual funds business. Peter has already talked about the high level of demand for mutual fund equity products we experienced throughout 21. This sustained the strong momentum I highlighted to you at the start of the year, and you can see the impact of these flows on our annualised revenues on the chart. These flows, together with strong investment returns, resulted in average AUM increasing by 19% to £113 billion. In turn, this drove an increase in net operating revenues of 19% to £815 million. Excluding performance fees, the net operating revenue margin for the year was 72 basis points. That's a bit higher than last year due to the mixed impact of net new business and markets. We expect this to reduce to around 71 basis points in 22 due to continued fee headwinds. But as ever, the impact of markets and business mix may also have an effect. Now finally, onto our institutional business area. In total, net operating revenue for our institutional business increased by 17% to £601 million. As a result of strong investment returns, average AUM increased from £143 billion to £166 billion. Those investment returns helped us generate £79 million in performance fees. Excluding those fees, the net operating revenue margin increased a touch to 31 basis points in line with my guidance from the half year. We expect the margin to be at a similar level in 2022. So that covers off the key movements in net operating revenue. Now let's return to the net income bridge. We generated net investment gains of £57 million. This principally comprises returns on both sea capital and the co-investments we make alongside our clients in our private asset funds. Given market returns since the start of the year, we wouldn't expect to see the same size gain in 2022. Moving on to returns from associates and JVs. our associates and JVs continue to perform very strongly. And this historical trend highlights the success of our investments in these businesses. Over this period, our share of profits has increased by a compound annual growth rate of 28%. In 2021, the AUM of these interests increased by over 30% to 116 billion, and our share of profits increased by 48% to 75 million. That represents 11% of the group's profits as a whole, underlying their significant contribution to the group's performance. Our existing venture with BOCOM again performed particularly strongly, with our share of profit increasing to 60 million, driven by greater AUM and a shift in the mix of assets to higher quality equity products. That increase in quality is also true of Axis, and contributed to an increase in the overall revenue margin for these interests, increasing from 35 basis points to 39 basis points. So overall, our total segmental net income increased by 18% to 2.6 billion. Now moving on to our operating expenses, starting with compensation costs. This time last year, I talked about the investment we were making to build out two key priorities for us, UK regional wealth and China. At the time, I expected this to represent around 1% of our income and for the total compensation ratio to therefore increase from 45 to 46%. The strength of our financial performance this year has, however, enabled us to keep the ratio at 45%. And we expect to remain at this level for 2022. Non-compensation costs for the year increased to £565 million. That's higher than the guidance I gave you at the half year and they were therefore worth a bit more detail from me. The main driver is our decision to accelerate our cloud migration programme. The majority of these costs cannot be capitalised under counting rules. This acceleration means we will have migrated the vast majority of our state within the next two years. Importantly, we expect the programme to drive cost savings on a light for light basis of at least £15 million per annum from 2024. The transition to the cloud will deliver other benefits. improving our speed to market, providing better data and insights, increasing our resilience to cyber risk, and also resulting in a very significant reduction in real-world emissions. Together, these benefits will provide us with a competitive advantage. And I want to reiterate, that transition is going to take two years. We really have accelerated that programme. We believe it's the right time to do that. You've heard me say on a number of occasions that our non-comp costs as a percentage of our average AUM gives us a good indication of operational leverage. It is true that the acceleration of our cloud programme has had a dampening effect. But in spite of this, the percentage has continued to fall. For 2022, we expect non-compensation costs to increase to around 620 million. There are four key components of this. First, there are variable costs that are linked to the growth of the business and AUM. Increasingly, we are changing off... our own non-comp costs to software as a service, Aladdin is a good example, Salesforce is another, Oracle in the cloud. So the variable nature of those costs is increasing. Second, the acquisitions we have announced, they're substantial businesses that come with costs, along with the continued build out of our China businesses, particularly the FMC in 2022. Third, marketing expenses. They returned to more historical levels with easing of COVID related restrictions. But importantly, we have something to talk about. We've got a great sustainable range. We've got fantastic investment performance. We took the decision that we're going to increase and market those to generate new growth in 2022 and beyond. And finally, the year two costs of our investment in our cloud migration program. Before I finish on non-compensation costs, it is worth noting that we expect our travel costs to remain at about half pre-COVID levels. They are not normalising to an extent. They were basically nothing, but half what they were pre-pandemic. This is in part highlighting our ongoing commitment to reducing our carbon emissions. Now let's move onto our group capital position. The sustainability of our business model has enabled us to build a strong capital position. And at the end of 2021, we had a capital surplus of 1.5 billion. But we're using some of this to invest in the three strategic acquisitions that we've already talked about. As the transactions were not complete during 2021, they're not reflected in our year-end capital position. But we expect that they will reduce our 2022 capital surplus by approximately 760 million. So in summary, and pulling all the key numbers together, we generated a record profit before tax and exceptional items of 836 million, an increase of 19% on the prior year. We had exceptional items of 72 million, a decrease of 20 million. These are acquisition-related, principally amortization of intangible assets. For 2022, we expect these to increase to around 100 million, mainly as a result of the three acquisitions we have already talked about. Profit after these exceptional items was 764 million. The tax rate after exceptional items was 18.4%. We expect this to remain at around this level in 2022, but as usual, the mix of our profits may affect this. This resulted in a post-tax profit of 624 million. That represents an increase in our post-exceptional EPS of 28%. And reflecting our progressive dividend policy, we have declared an increase in the final dividend of six pence per share, meaning a total dividend per share of 122 pence. Overall, as I said at the start, we see this as a strong set of results. Now back to you, Peter.

Thanks, Richard. The outlook. It's a challenging time to give a clear outlook, given what's going on in the world. The world is paddling hard, but we believe that the strategy has addressed many of the chinks in the armour of asset managers. But I think if I look at the primary drivers of growth historically, we've upgraded our Australia capital forecast today to 7 to 10 billion of growth. We've exceeded our wealth management growth commitment, even excluding the MPS additional assets. Both of those, we feel very comfortable about giving a renewed commitment on those. We know we've launched the WMC and that will kick off later in the year. It's hard to predict how much. You will have seen on Monday, which is quite an analogous business, the scale of their business over the first year. So whether that's a benchmark or not, I don't know. But certainly we believe it's going to be meaningful in the context of our results. We've materially changed our mutual fund range. We believe it's highly attractive, 79% of funds outperforming across the group. But importantly, they're in areas where we believe there is fast-flowing water. Positioning our asset management business into fast-flowing water is particularly going to be helpful with Schroeder Solutions, we believe, and already seeing a good growth of the pipeline there. So the underlying drivers of the business are all looking positive. And then there's a but, the macro environment. And that's the challenging piece, is to try and reflect how is what's going on today, higher energy prices, higher inflation, a redrawing of geopolitical risk going to impact on markets. And everyone in this room will have their own views on that. Clearly, it's not an unimportant judgment. But we do believe that we are incredibly well diversified. We're in the areas of fast-flowing water. The resilience of the business has improved very significantly as a result of the management actions we've taken. So we feel good about the underlying, but we can't predict the short term. Before I go on, in anticipation of the first question, let me answer it. Total Russian assets, including Belarus, including debt, equity, amount to less than 0.1% of our total assets under management. We had, if you recall, a Russian desk within our wealth business. We closed that, or sold it, actually, rather, in 2018. It felt like the right thing to do then. It feels even more right to have done it today. So our Russian exposure is really very, very significant. De minimis, I think, is probably the right phrase for it. So we're going to move to Q&A. What I will do is I'll start with questions in the room, if I may. If you could please wait for a microphone so that people can understand fully and state your name and firm. And Richard and I will do our best to answer your questions.