Schroders : Annual Results 2023 - Transcript

Schroders Annual Results 2023

Transcript

Peter Harrison (Group Chief Executive):

Morning, everybody. Welcome to the Schroders 2023 financial results. We're going to follow the same format as normal, which will be familiar to all of you, but I'll kick off and then Richard will talk about financials, and then we'll do Q&A, if I may. Some of you won't know Richard Oldfield. Let me just introduce him quickly. Richard joined us in October, took over from Richard Keers, obviously been with us for ten years as CFO and retired. Richard joined us from PwC, having previously been a partner for 20 years, Head of the financial services practice. But I think, much more interestingly, was on the global board of PwC and was responsible for their client group globally. So not just a PwC, man. So, Richard, it's good, fantastic to be working with you.

Strategic execution delivering positive flows despite industry headwinds

Let me get straight into the details. It's not a surprise to anybody in here that the environment last year was not straightforward. And plenty's been said about that. We were focused on three really important things. The first was delivering the strategic pivot that we've talked about, and the fact that we've ended up the period with 56% of our assets in those areas of fast flowing water that we've talked about really,

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really key. The second was ensuring that we delivered growth, that the execution on those businesses was strong. And you'll see some of the statistics we get into it. But critically, 23 billion of new assets, up 92% in those areas of fast flowing water. But three, and really importantly, coming out of 22, and the inflation environment that was there, that we delivered on costs, and we've delivered a flat cost number year over year, which, when we talk about it, Richard will unpack it in detail, was a really important achievement.

Executing on our strategic transformation

So let's get straight on to strategy. And this is a chart which will be familiar to you. But go back to 2016, when we first set out this strategy, 31% of our business was in these areas of potentially fast flowing water, but none of them were growing. Today, that number is 56%. 48% of our revenues are now in these areas. But most importantly, they're growing strongly and in wealth, in private markets and solutions. And I want to talk more about that. But that has enabled us to overcome the headwinds which have been talked about so much in the rest of the industry.

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Resilient top line performance and strong cost discipline

I'll just go on to the numbers at a headline level. First of all, I should say, these are the numbers off the face of the P&L. They're not adjusted numbers. Revenues were down 1%. That is, despite average assets under management being down 4% during the year. Because if, you know, we came into the year with markets lower, so average assets down four, but revenues down just one. I've said costs were flat. Operating profit came in at £661 million. That was due in part to the contribution from our Asian JVs being down. And you'll be very well aware of the risk off environment in Asia. Assets under management up 2% and that's after a 3% FX headwind. So 5% ex-FX. But as I said, most importantly, £9.7 billion of net new assets. And it's not lost on us that despite not having passive in the group not running money market funds, that is an overall growth number.

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Strong discipline on cost management continues

Let me come on to costs. We were absolutely delighted to hold costs flat. I think that was a really important thing in the environment we were in coming out of 2022 and we saw all the pressure on salary costs around in every part of the world. We had the full year impact of acquisitions to deal with and we had a number of major growth initiatives going on in private markets, in growing wealth, in growing China. And there was some FX. So despite all of those things, we were absolutely focused that we had to hold costs flat. And to do that we took a charge, and we finished doing, executing, implementing that £86 million. Richard will talk more about it, but that sets us up well for this year because we come into the year assets are higher and costs have been held flat.

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Strategic priorities driving growth

So let's unpack this further. When we set the strategy out, we talked about these areas of fast flowing water, and you can see the compound annual growth rates we've achieved in each of those areas. Solutions up 13% compound over seven years, private markets up 17% compound and wealth management up 16% compound public up one, primarily because of our investment in new products and particularly in sustainability, which I'll talk more about in a moment. Importantly, I think the compounding impact of this is really important because as those businesses get ever larger, they dominate and change the quality of the business over time.

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Continued good outcomes for clients

The other key thing we talked about was having more sticky assets. So I'm really pleased again that this year we've improved the longevity of our assets further. We managed to deliver gross sales flat year over year, which in a market where gross sales were generally down a lot, we kept gross sales flat. But increased longevity is obviously really important in driving net redemptions. Performance obviously essential one year performance, 56% five-year performance, three-year performance, 30%, 60% rather, and five-year performance, 77%. And importantly, in the areas that I think are really key to driving future growth: equities at 80%, fixed income at 89% and wealth at 81%. So doing a good job for clients, both in keeping them for longer, but also delivering strong investment performance. I'll now just go through each of those areas in more detail and starting with wealth management.

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Excellent Wealth Management performance

The wealth management business, I think, had an excellent period. I think it's now 23% of group profits. We grew advised assets at 8%. It won't be lost on you that advised asset growth generally fell last year across the industry. We actually accelerated our advised asset growth, in part because of the build out of our regional network. Profits are up 16% and the restructuring that we talked to you about, the capital Markets Day last June is very much on track. So moving the service centre from Zurich to Horsham is on track and being delivered, and obviously part of the restructuring charge that you saw. So we're very comfortable about the commitments we gave you last time round.

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Driving profitability in Schroders Personal Wealth

Schroders Personal Wealth normally gets quite a lot of attention, so let me just head straight there. We believe that this is now one of the most compelling value propositions in the market for clients. The time when value propositions are becoming really front and centre. We saw 6% advised growth on the front book, we saw 6% growth in clients, and we saw 23% growth in the size of assets that we're taking in from clients. More importantly, we've now finished the reshaping of the business model and we've got all the plans for that are done. Regulatory positions well advanced. That reshaping of the business that's been planned and is underway gives us very clear line of sight of an £80 million EBITDA in 2025. It's clearly a 50:50 joint venture, so our share of that would be £40 million of EBITDA. So that then becomes quite a valuable business and a significant increase over the contribution this year.

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Growth in Schroders Capital despite challenging backdrop

Turning to Schroders Capital, our private markets business, we now have all four pillars of this in real estate, infrastructure, private equity, and private debt. That's really valuable because we can then have the cross- cutting solutions conversation with clients, because we can service each of those areas. We've delivered 16% compound organic growth since 2019. And the formation of our debt pillar, which is a $30 billion debt pillar, I think is very timely, given the environment we're seeing. With private debt markets starting to really come into focus. Fundraising was undoubtedly more challenged across the market. So we achieved a £4.5 million billion net new business target, which is below the £7 to £10 billion, we said, but we're standing by that target. We believe across the cycle this business is very capable of delivering that.

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Fundraising pillars delivering across Private Markets

And interestingly, as a part of the proof of that, we raised £9.3 billion of assets last year. £9.3 billion is a 15% asset raising rate, which if you look at all of our quoted peers, is best in class across those areas. So I think the asset raising is going well. I think as a proof statement, and this is really important from our internal perspective, is we attracted 135 new clients, we did 140 or so last year, and those clients are clients which were in our traditional world and went cross selling into private markets into those clients. And I think it's demonstrating that that model can work, that you can have these things, two things under the same roof, and be able to move those relationships more broadly. And I think proving that distribution model has been a really important confidence boost for the future in terms of knowing that this idea of having public and private sitting alongside each other is helpful. We're also confident for the future. We've got some really interesting partnership conversations underway. We've got some great new funds launched. We obviously early in launching LTAFs, which I think will be very helpful given the move in the UK, push more DC money into long term assets and we built out Greencoat across the US and Europe and are out busy fundraising for that. So a lot of progress going on in private markets, a lot of organic investment, but I think gives us future confidence.

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