Annual Report and Accounts 2019
Profit before tax
and exceptional items
£701.2m
(2018: £761.2m)
Profit before tax
£624.6m
(2018: £649.9m)
Total dividend per share
114p
(2018: 114p)
Basic earnings per share
before exceptional items
201.6p
(2018: 215.8p)
Basic earnings per share
178.9p
(2018: 183.1p)
Total equity
£3.8bn
(2018: £3.6bn)
Assets under management
£500.2bn
(2018: £407.2bn)
Net new business
£43.4bn
(2018: (£9.5)bn)
Strategic report
Our purpose
Our business at a glance
Chairman’s statement
Group Chief Executive’s review
Our business model
Market review
Our strategy for 2020 and beyond
Key performance indicators
Business and financial review
Our people
Corporate responsibility
Key risks and mitigations
Governance
Board of Directors and Company Secretary
Group Management Committee
Corporate Governance report
Nominations Committee report
Audit and Risk Committee report
Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Financial statements
Consolidated financial statements
Schroders plc financial statements
Independent auditor’s report
Shareholder information
Shareholder information
Five-year consolidated financial summary
Glossary
1
2-3
4-5
6-9
10-11
14-15
16-17
18-19
22-27
30-33
36-43
44-51
52-53
54-55
56-63
64-65
66-71
72-108
109-111
112
114-168
169 -185
186 -193
194
195
196-198
Our Annual General Meeting (AGM) will be held at 11.30am on
30 April 2020 at 1 London Wall Place, London, EC2Y 5AU.
A glossary of terms used throughout the Annual Report and Accounts,
including details of Alternative Performance Measures, can be found
from page 196.
Our purpose
As a global investment manager we recognise we have an important part
to play in shaping the future of all our stakeholders.
Our focus on doing the right thing for our clients, our people and wider
society lies at the centre of our culture. We are committed to delivering
positive outcomes for all.
Creating a better future by investing
responsibly for our clients
What our purpose means for our stakeholders
Actively
helping our
clients achieve
their long-term
financial goals
Rewarding our
shareholders
through the
sustained
success of our
business
Giving fulfilling
work to our
people and
sharing values
Directing our
decisions and
actions
towards
supporting
wider society
Read about how we
create value for our
clients from page 10
Read about how we
create value for our
shareholders from
page 18
Read about how we
create value for our
people from page 30
Read about how we
create value for
society from page 36
Schroders Annual Report and Accounts 2019
1
Our business at a glance
An active approach to creating
better futures
We actively and responsibly manage investments for a wide range of institutions and
individuals, to help them meet their financial goals as they change over time. The world is
forever changing but throughout our long history we have continued to adapt our business,
keeping our focus on what matters most to our clients, today and in the future.
Asset Management
Wealth Management
We manage investments for institutions and private
investors throughout the client lifecycle.
Our clients include insurance companies, pension schemes,
sovereign wealth funds, distributors, financial advisers and
fund platforms. We manage private assets, institutional
portfolios, mutual funds and client solutions.
We believe that the key to delivering positive outcomes lies
in gathering highly talented people who bring a diverse
range of thoughts and ideas. Our 42 investment teams in
35 global locations actively manage investments across a
range of asset classes. Our approach allows us to channel
our resources into positive outcomes for our clients.
Our client service teams build lasting relationships, which
allow us to develop a clear view of our clients’ needs and
how these may change over time.
By combining these client relationships with market
insights and our strong investment capabilities, we design
bespoke products and services. These solutions
are designed to fit our clients’ needs and are tested to
ensure that they are fit for purpose.
We provide a wide range of wealth management services,
which focus on preserving and growing our clients’ wealth.
Our strategic ambition is to provide wealth management
services across the wealth spectrum in the UK and for high
net worth clients in the Channel Islands, Switzerland and Asia.
Our business has three key components:
Cazenove Capital (in the UK and Channel Islands) and
Schroders Wealth (in Switzerland, Singapore and Hong
Kong) offer bespoke discretionary and advisory investment
services, wealth planning and banking to private clients,
family offices and charities.
Benchmark Capital provides technology-led regulatory and
administrative services for a network of independent
financial advisers, as well as providing platform services.
This year we launched our joint venture with Lloyds Banking
Group plc (LBG), branded Schroders Personal Wealth. This
business aims to build a leading position in financial
planning for the UK affluent segment, drawing on referrals
from LBG and the investment expertise of Schroders.
Contribution to Group net income
Contribution to Group net income
£1,781.2m
£309.6m
Infrastructure
Our infrastructure teams provide critical services that support the business and include capabilities across Technology, Operations,
Finance, Risk, Human Resources, Compliance, Legal, Governance, Internal Audit and Tax.
Group
The overall governance and corporate management of the Group is driven by the Chairman, Group Chief Executive and Chief Financial
Officer, as well as employees involved in corporate development, governance and strategy.
Read more about how our business creates value from our business model on pages 10-11.
2
Schroders Annual Report and Accounts 2019
A diversified strategy
for growing our business
We are committed to delivering long-term value for all our stakeholders. Our approach is
underpinned by a diversified business model which builds in resilience to changing economic
conditions and is combined with an emphasis on three strategic opportunities for growth.
Strategic opportunities
Growing Asset
Management
Building closer relationships
with our end clients
Expanding capabilities in
Private Assets
Increasingly we are providing complete
solutions to help clients achieve their
financial goals, rather than being solely a
component provider. There is value in
building relationships based on these
solutions as they are typically longer-term
in nature and improve our client longevity.
We expect growth from an increasingly
diversified global footprint and see
opportunities in Americas and Asia Pacific.
Developing a range of innovative products
that achieve positive outcomes for clients
is essential and we invest seed capital to
support these ideas.
There has historically been a high level of
intermediation between investment
managers and their end clients, which can
increase client turnover and the fees they
pay. To reduce the impact of this and
increase client longevity, we are working to
build closer relationships with our end
clients, particularly in Wealth Management.
We have developed several key strategic
initiatives to support this objective. These
include the launch of Schroders Personal
Wealth in the UK and the acquisition of the
wealth management business of ThirdRock
in Singapore.
As the number of publicly listed companies
falls, we are seeing increased demand
from clients for access to private markets.
Broadening our investment expertise and
product offering within Private Assets
remains a strategic focus for us. In recent
years we have made a number of
successful acquisitions to add further
Private Assets capabilities to our product
set, including private equity micro finance
and impact investing, securitised credit
and real estate.
Delivered through five business priorities
Build and maintain
long-term client
relationships
Offer a range
of innovative
products
Deliver consistent
outcomes for
clients
Invest in leading
technology
Develop and
retain talented
people
Read more about our strategy on pages 16-17.
Assets under management (£500.2bn)
Geographies
Asset classes
Business areas
UK
Asia Pacific
Europe, Middle East and Africa
Americas
48%
20%
19%
13%
Equities
Multi-asset
Fixed Income
Private Assets & Alternatives
Wealth Management
36%
24%
18%
9%
13%
Private Assets & Alternatives
Solutions
Mutual Funds
Institutional
Wealth Management
9%
29%
20%
29%
13%
Schroders Annual Report and Accounts 2019
3
Strategic report Chairman’s statement
Investing for the future
Our results in 2019 were close to what we had
budgeted at the beginning of the year. Net
income at £2,122.6 million (2018: £2,110.1 million)
was almost exactly in line with the previous year
as we felt the effect of market weakness during
the second half of 2018 and continued to see
some reduction in revenue margins. Profit before
tax and exceptional items at £701.2 million
(2018: £761.2 million) reflected our programme of
ongoing investment in the business, specifically
in technology, in upgrading several of our major
offices around the world, and in talent. Net
inflows were £43.4 billion (2018: net outflows
£9.5 billion) taking assets under management at
the end of the year to a new high of £500.2 billion
(2018: £421.4 billion).
4
Schroders Annual Report and Accounts 2019
Dividend
Our policy is to provide shareholders with a progressive and
sustainable dividend, maintaining a pay out ratio of around 50 per
cent. The Board will recommend to shareholders at the Annual
General Meeting an unchanged final dividend of 79 pence per share
(2018: 79 pence), taking the full year dividend to 114 pence per share
(2018: 114 pence). The final dividend will be paid on 7 May to
shareholders on the register at 27 March 2020.
Our role as asset managers
As one of the largest asset management companies in Europe we
have an important role to play in enabling a broad range of investors
to meet their financial goals. Whether our clients are pension funds,
insurance companies, sovereign wealth funds or individual investors
from around the world, we are mindful of the fact that successfully
fulfilling our mandate in relation to the £500 billion with which we
have been entrusted will have a direct impact on individuals’ lives.
We channel capital to companies and governments to support them
in investing for growth and actively engage with the companies
in which we invest in relation to strategy, risks, management
succession, governance and environmental impact. We meet the
management of more than 4,000 companies every year to assess
progress in these areas.
Our business philosophy is based on the belief that if we deliver
for our clients, by offering them investment capabilities which
successfully protect and enhance their capital, then we will deliver
for our shareholders by creating long term shareholder value. We
also recognise that we have a wider range of stakeholders including
our counterparties and suppliers, society as a whole and our
employees. We take that responsibility very seriously and apply the
same standards to the management of our own business as we do
to the companies in which we invest.
The Board
We announced in November 2019 that Nichola Pease was stepping
down from the Board to take up another opportunity. Nichola had
been on the Board for nearly eight years and I would like to thank
her for her significant contribution over that time as a member of
the Board, as Chair of the Remuneration Committee and as a
member of the Audit and Risk Committee.
Matthew Westerman will join the Board as a Non-executive Director
on 9 March. Matthew brings significant experience of global financial
markets after a distinguished career in investment banking and we
look forward to his contribution.
Our commitment to our stakeholders
Section 172 Statement
Section 172 of the Companies Act 2006 requires the
directors to act in the way that they consider, in good
faith, would most likely promote the success of the
company for the benefit of its members as a whole.
In doing this s.172 requires a director to have regard,
amongst other matters, to:
– the likely consequences of any decisions in the
long-term;
– the interests of the company’s employees;
– the need to foster the company’s business
relationships with suppliers, customers and others;
– the impact of the company’s operations on the
community and environment;
– the desirability of the company maintaining a
reputation for high standards of business conduct; and
– the need to act fairly as between members of the
company.
Further information can be found
on pages 61 - 63 of this Report.
Philip Mallinckrodt will retire as a Director at the conclusion of the
Annual General Meeting on 30 April having served on the Board for
11 years. Over a total of 24 years he served in a number of senior
executive positions and in the last three years as a non-executive
Director. I would like to thank Philip for his commitment and
contribution to Schroders.
Our stated position is that having two members of the family serving
on the Board benefits the company and all its shareholders in
aligning interests and reinforcing long term thinking. Consequently,
the Nominations Committee consulted with the trustees of the
family trusts and other members of the principal shareholder group.
Following those consultations, the trustees of the family trusts
confirmed their support for Claire Fitzalan Howard to join the
Board. The Nominations Committee decided to recommend to the
Board her appointment as a Director. Subject to her election by
shareholders at the Annual General Meeting, Claire Fitzalan Howard
will join the Board and the Nominations Committee at the conclusion
of the meeting.
Following these appointments Schroders will have a majority of
independent Directors on the Board, in line with our policy.
Our people
Schroders’ success stems from our reputation and values, our
diversified business model, our financial strength and, above all, our
more than 5,500 people. We remain committed to developing the
exceptional pool of talent we have at Schroders around the world
and to providing an environment that is open, collaborative and
based on merit.
2019 was another year of good progress in most areas of our
business and, on behalf of the Board, I would like to thank all our
employees for their contribution to this success.
Michael Dobson
Chairman
Schroders Annual Report and Accounts 2019
5
Strategic report Group Chief Executive’s review
Investing for growth through the cycle
2019 was another year of progress for Schroders towards our key strategic objectives. We have
continued to invest for growth across our business and have delivered good results against a market
backdrop which, despite picking up in the fourth quarter, remains uncertain.
6
Schroders Annual Report and Accounts 2019
Evolving industry trends in an uncertain environment
In previous years, I have discussed the many well-publicised trends
and challenges facing our industry. None of these have abated
through 2019. Passive products, untested in volatile markets or
persistent downturns, continue to attract client flows. Top line
margin pressure demands a rigorous approach to efficiency. The
number of public companies continues to shrink with increased
regulatory burden and public scrutiny, restricting the opportunities
for active managers. Our future success will be defined by how we
react to these trends.
Our strategy remains to invest for growth. We see opportunities in
wealth management, in private markets, in client solutions and in
rapidly growing markets such as China. We have increased our
investment in all of these areas during the year and have seen the
benefit of these growth initiatives offsetting the headwinds
elsewhere, particularly in equities. We have continued to invest
heavily in creating a strong technology platform that will deliver both
an enhanced client experience and greater efficiency.
Sustainability remains a key focus for us as we strive for the highest
possible standards within both our own company and those in which
we invest. We have strengthened our capabilities through
proprietary tools and a growing team, while expanding into impact
investing through the acquisition of a majority stake in BlueOrchard.
Earlier in 2019, I set out the three strategic areas that we believe will
drive our future growth. These are to grow the Asset Management
business, to build closer relationships with our end clients and to
expand our capabilities in Private Assets.
Each of the decisions, acquisitions and investments we made this
year have been designed to drive growth in at least one of these
strategic areas. The progress we have made towards each of these
strategic objectives is discussed in more detail on the following page.
We have also increased the granularity of our reporting to help give
more clarity on the changes we are making.
Towards the end of 2018, investor sentiment turned sharply
negative. Increasing levels of macro and political uncertainty across
the globe led to a “risk-off” environment, particularly for retail clients,
which continued into 2019.
As a result, the asset management industry has seen a general trend
of outflows from equities and other risk assets. Despite this, we
generated net inflows in all asset classes, with particular client
demand for Fixed Income (£19.1 billion), Multi-asset (£4.9 billion) and
Private Assets & Alternatives (£2.8 billion) strategies.
Wealth Management continued to generate strong inflows, with net
new business of £14.7 billion. There was positive client demand from
both Cazenove Capital and Benchmark Capital, as well as
£12.6 billion from Schroders Personal Wealth.
Across the Group, we saw record net inflows in 2019 of £43.4 billion
(2018: net outflows of £9.5 billion) and grew AUM to a new high of
£500.2 billion (31 December 2018: £407.2 billion).
We generated net income before exceptional items of
£2,124.8 million (2018: £2,123.9 million) and achieved a ratio of total
costs to net income of 67% (2018: 64%). Pre-exceptional profit before
tax was £701.2 million (2018: £761.2 million).
We continued to deliver value for our shareholders and our Board
recommended a total dividend for the year of 114 pence per share
(2018: 114 pence), representing a payout ratio of 57% (2018: 53%).
Our ordinary shares saw a significant increase in their price through
2019, rising more than 35%.
More information on our financial performance is set out in the Business
and financial review from page 22.
A commitment to sustainability
I have long been of the view that it is vital for a company, including
our own, to have a wide social purpose. Being focused exclusively on
generating profits is simply not enough today.
At Schroders, our overall purpose is to improve futures by investing
responsibly for our clients. We have a strong belief in the value that
investment can create in our society and appreciate that we have an
important responsibility in driving positive outcomes for the world
around us. Accordingly, we are committed to operating our business
on a net zero carbon basis from 2020.
Increasingly, we are seeing that our clients
are no longer interested solely in the returns
generated by their investments, but also in
the broader impact of those investments.
This is a philosophy that we also extend to the companies in which
we invest. Social and environmental change is happening faster than
ever and we believe those companies that can apply robust
governance processes to adapt to these changes are the ones which
will be successful in the long term.
Increasingly, we are seeing this viewpoint is reflected in our clients’
investment decisions, where they are not only interested in the
returns generated by their investments, but also in the broader
impact of those investments.
We believe that a forward-looking, active investment approach is
needed to fully understand the impact of these rapidly changing
factors. It requires analysing how a company interacts with
society and its environment as well as the profit it generates.
And it means having a team of investment professionals who can
apply experience and knowledge to specific situations and help
manage risks appropriately.
As sustainability grows in importance, so does the need for rigorous,
data-driven analysis. We have worked hard to develop proprietary
tools that are evidence-driven, enable systematic analysis, and draw
on the expertise of our financial and sustainability analysts.
But our focus on stringent analysis and active engagement is not
limited to equity strategies. We continue to integrate Environmental,
Social and Governance (ESG) processes across our product range
and have committed to integration across 100% of our managed
assets by the end of 2020. We aspire to be a leader in sustainable
investing globally and were rated as the top Pan-European manager
in this area by ShareAction.
We took a further significant step along this journey this year with
the acquisition of a majority stake in BlueOrchard. Investing in more
than 80 markets globally, BlueOrchard is a leading impact investor
and a pioneer in the world of micro finance. It has a long-term focus
and a commitment to sustainability, contributing to progress in 13 of
the 17 UN Sustainable Development Goals.
This acquisition allows us to continue to expand our sustainability
expertise and offer a new range of solutions to the increasing
number of clients who are seeking investments that have a
beneficial impact on society and the environment, as well as
generating positive investment returns.
Schroders Annual Report and Accounts 2019
7
Strategic report Building closer relationships with our end clients
Having closer, direct relationships with our end clients allows us to
understand more fully their changing needs, resulting in better
outcomes and improved client longevity. Our Wealth Management
business clearly has a significant role to play in achieving this and we
have seen strong progress through the year. Both Schroders Wealth
and Benchmark Capital have attracted client inflows this year, with
net new business of £1.2 billion and £0.9 billion respectively.
Schroders Personal Wealth was also formally launched this year,
with around £14 billion AUM and 300 advisers. We are excited about
the opportunity to grow this joint venture as we expand the business
into an under-served and under-advised part of the UK savings and
advice market.
We also expanded our international presence with the acquisition of
the wealth management business of ThirdRock. The Singapore-
based business brought £1.7 billion of AUM and helped develop the
investment expertise we offer to private clients in Asia.
We also expanded our international presence
with the acquisition of the wealth management
business of ThirdRock.
Expanding capabilities in Private Assets & Alternatives
The number of companies publicly listed on Western exchanges
continues to decrease, as increasing regulation and a lack of need
for public growth capital has led to many companies going private.
Investors have followed this trend and have continued to increase
their allocations to private markets in search of less correlated, and
potentially better, investment returns.
We have continued to see growing client demand within Private
Assets & Alternatives this year, with net new business of
£2.8 billion led by private equity and securitised credit strategies.
We have also seen inorganic growth as we continued to diversify our
product offering. In addition to BlueOrchard, we further
strengthened our Private Assets capabilities with the acquisition of
Blue Asset Management, a Germany-based real estate business.
Our Private Assets & Alternatives strategies now account for 9% of
AUM and 13% of net operating revenue. We continue to target
growing the revenue contribution to 20% over the longer term.
Group Chief Executive’s Statement continued
Consistent investment performance
As an active asset manager, our key priority remains consistently
delivering positive outcomes for our clients. Client investment
performance over three years (our key performance indicator)
remained strong to 31 December 2019, with 68% of Asset
Management assets outperforming their stated comparator. Over
five years, 71% of assets outperformed and over one year the figure
was 68%. More information on how we measure investment
performance is shown from page 196.
Growing Asset Management
Our Asset Management business continues to generate the majority
of our revenues and we see a number of growth opportunities.
Increasingly, our clients are not looking for Schroders to simply be a
component provider of investment products but, rather, they want
us to play a wider role and to offer a complete solution to help them
achieve their financial goals.
This could be de-risking a pension scheme, matching balance sheet
liabilities for an insurance company or providing a regular,
sustainable income. In 2019, we continued to grow our Solutions
business, most notably through on-boarding the first tranches of the
Scottish Widows mandate, part of the relationship with Lloyds
Banking Group.
We have also grown our Asset Management business through
further diversifying our global footprint. We see further
opportunities in Asia, South America and Eastern Europe.
One of the most significant opportunities for active asset managers
globally is expanding into China, as the regulatory regime becomes
more favourable to international companies. We have two important
associate interests to support this growth. In China, our partnership
with Bank of Communications has had another successful year and
AUM has reached £55 billion. In India, our partnership with Axis
Bank has also seen strong growth and is now managing £14 billion
of assets and has a top five market position.
One of the most significant opportunities for active
asset managers globally is expanding into China,
as the regulatory regime becomes more
favourable to international companies.
We currently have more than 50 employees across Shanghai and
Beijing, which will increase through this year as we develop
investment track records, expand our distribution reach and build
infrastructure support. China is one of the most significant alpha
opportunities for active managers globally and we have interest
from clients across the world looking to increase their allocations to
the Chinese market.
The management of equity portfolios for our clients has long been a
strength of Schroders. 2019 saw the active market shrink
significantly and our business was not immune to this. Although we
expect further industry pressures in 2020, one of our key
differentiators is our investment in a state-of-the-art Data Insights
Unit. This will support us in delivering positive outcomes for our
clients and demonstrate the value of active management.
8
Schroders Annual Report and Accounts 2019
Investing in technology
The asset management industry has struggled with a technology
deficit for a number of years, failing to keep pace with the rate of
technological change seen across other industries and wider society.
We have been investing in leading-edge technology for a number of
years. I continue to believe passionately that we can deliver value for
our clients by thoughtful, targeted investments in innovative
technology. We have focused on employing technology to produce
better investment returns, to improve our clients’ experience and to
deliver operational efficiencies. We are proud to have created a
scalable and efficient technology platform that acts as a genuine
competitive advantage.
We have continued to focus on employing leading-
edge technology to produce better investment
returns, to improve our clients’ experience and to
deliver operational efficiencies.
With the pressure on revenue margins facing the industry, it remains
vital that we invest today in order to drive efficiencies to maintain
profitability tomorrow.
Success through talented people and an
inclusive culture
The success that we have achieved this year could only have been
delivered through the hard work and dedication of our talented
employees across the world. We remain proud of our culture, built
on collaboration and ensuring that we do the right thing for all of
our stakeholders. In 2019, we conducted a Group-wide employee
opinion survey and I was delighted to see that 91% of respondents
are proud to be associated with Schroders and 88% believe strongly
in Schroders’ goals and objectives.
But we recognise that there is still work to be done. In common with
financial services as a whole, our industry has failed to attract and
retain diverse talent. Diversity and inclusion has again been an
important focus for us throughout the year. We have worked to
gather better data across the Group and are using this to help build
an ever more inclusive culture. Continuing to improve on this will
remain a key area of focus for us.
Diversity and inclusion has been an important
focus for us throughout the year. We have worked
to gather better data across the Group and are
using this to help build an ever more inclusive culture.
Well-positioned for future growth
This year’s results were delivered against a challenging backdrop of
uncertain market conditions and negative investor sentiment,
particularly at the start of the year. The well-publicised headwinds
facing the industry have continued this year and we do not expect
them to abate through 2020.
Despite this, our diversified business model has performed well and
we have made good progress this year towards each of our three
key strategic objectives. Schroders Personal Wealth has been
launched to the wider market and we have begun to manage around
£45 billion of assets across the Group through our relationship with
Lloyds Banking Group.
We have continued to expand our capabilities in Private Assets
through organic growth and selective acquisitions. We have
materially improved our position in sustainable investing through a
majority holding in BlueOrchard, a leader in micro finance and
impact investing.
We will continue our strategy of investing for growth through the
cycle. Our key priority remains achieving positive investment
outcomes for our clients.
In the near term, Covid-19 is creating considerable uncertainty for
economies and markets. We believe that our business resilience is
sufficient to deal with this, but the impact on economies and
markets will be highly correlated with how effective containment
measures are.
Peter Harrison
Group Chief Executive
4 March 2020
More information on how we seek to attract, retain and develop our
people, as well as our achievements against diversity and inclusion
objectives, can be found from page 30.
Key awards in 2019
Financial News
Asset Manager
of the Year
Investment Week
Global Group
of the Year
Investment Europe
Group of the Year
Citywealth Magic Circle
Private Client Asset Manager
(Cazenove Capital)
MoneyAge
Consumer Champion
of the Year (MoneyLens)
Schroders Annual Report and Accounts 2019
9
Strategic report
Our business model
Designed to deliver positive outcomes
What we offer
How we do it
We invest actively and responsibly to create
better futures for our clients. In doing so, we are
able to deliver positive outcomes for our
other stakeholders, including our
shareholders, our people and wider society.
Our clients are at the centre of the business and
our ongoing success is built on an understanding
of their evolving needs. We partner with them
and construct products and solutions that help
them meet their changing financial goals. We are
proud of our track record of delivering positive
outcomes for clients.
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Creating better futures
for our clients
We recognise that we have an important role to play in
shaping our clients’ financial futures. By aiming to deliver
investment outperformance and to provide value for money
to our clients, we can continue to successfully grow our
business and deliver for our other stakeholder groups.
We earn fees charged as a percentage of our clients’ AUM.
We may also earn other revenues, such as performance fees,
carried interest and transaction-related fees.
We offer innovative products and solutions across our
five business areas and invest in a wide range of asset
classes and diverse geographies.
Our clients include insurance companies, pension
schemes, sovereign wealth funds, endowments and
foundations. We also manage assets for end clients as
part of our relationships with distributors, financial
advisers and online platforms.
Our Wealth Management offering reflects our strategic
ambition to provide wealth management and financial
planning services to clients across the wealth spectrum.
We offer a wide range of wealth management services
which focus on preserving and growing our clients’ wealth.
We differentiate ourselves
from our competitors through
Maintaining a strong financial position
Our ownership structure and strong capital base
enables us to take a truly long-term perspective. It means
we can remain focused on our strategy and take
advantage of opportunities in any market environment.
Building close, lasting relationships
We focus on developing strong relationships with our
clients, which gives us an in-depth understanding of their
changing financial needs. We use these insights to identify and
build solutions that help our clients to achieve their
financial goals.
Diversifying our business
Our business is genuinely diversified, by geography, asset
class and client type. This means that we are more resilient
to changes in client demand or economic cycle and can
focus on delivering for our stakeholders.
10
Schroders Annual Report and Accounts 2019
The right
capabilities
to deliver for
clients
Understand
clients’ goals
We build principled
partnerships with our clients
to understand their financial
goals. This allows us to provide
a high level of client service
and select appropriate products
to meet their needs.
Develop innovative
products
We design innovative
products to meet our clients’
financial needs, whether that is
outperforming a comparator,
providing a regular sustainable
income or delivering an
absolute return.
Actively manage
investments
We take an active and responsible
approach to investing in order to
create better futures for our
clients over the long term.
What we deliver for our other stakeholders
Our client-led approach allows us to deliver for our other
stakeholders, including our shareholders, our people,
regulators, suppliers and society.
The right proposition to deliver for shareholders
Our business model focuses on delivering growth over the long term, which
enables us to generate sustainable shareholder returns. We rely on the support
and engagement of our shareholders to generate long-term growth. The
interests of our shareholders are very closely aligned with those of our clients,
which means that in doing the right thing for our clients, we are also able to
deliver value to those who have invested in our business.
Dividend per share
114p
Read our investment proposition on page 22.
The right culture to deliver for our people
Our people are central to the ongoing success of the business. We are proud
of our reputation as an employer of choice that provides our people with
inspiring and motivating places to work. Our people strategy aims to attract,
develop and retain an agile and diverse workforce, who we are able to employ
with fulfilling roles.
Retention of key talent
94%
Read about our people on page 30.
The right principles to deliver for wider society
We believe that engaging with the companies in which we invest and
demanding high levels of corporate responsibility for wider society is the right
thing to do. As part of our commitment to society, we build positive
relationships with our regulators globally. We also have good relationships with
the external service providers we use to supplement our own infrastructure.
Company engagements on environmental, social and
governance (ESG) issues
1,750
Read about our impact on society from page 36.
Schroders Annual Report and Accounts 2019
11
Strategic report Actively and responsibly
investing to create better
futures for our clients
12
Schroders Annual Report and Accounts 2019
Combining our commitment to active
management and focus on sustainability,
our strategic capabilities are designed to
deliver positive outcomes for our clients
Strategic capabilities
Alpha Equity
Targeting higher
active equity returns
Credit
Intelligently
crafted fixed
income solutions
Emerging
Markets
Helping capture
emerging market
growth with
confidence
Alternatives
Diversifying
beyond traditional
asset classes
Multi-asset
Helping build
better outcomes
Private Assets
Accessing specialist
investment
opportunities
Solutions
Increasing investment
certainty, intelligently
Sustainability
Sustainably delivering
long-term value in a
fast-changing world
68%
Three-year
client investment
performance
Schroders Annual Report and Accounts 2019
13
Strategic report Market review
A growing trend towards
sustainable investing
2019 began with some uncertainty following the challenges
investors faced in 2018 when, for only the second time since 1900,
both equities and bonds generated negative returns. Markets in
2019 provided something of a reprieve although the challenges that
characterised the previous year did not fully disappear. There were
gradual and periodic improvements in trade relations between
the US and China and lower interest rates continued with rate
cuts in the US.
But the trends of the year were not only driven by economic factors.
2019 also saw investors increasingly look to their investments to
address global challenges relating to the environment and broader
society. Against a backdrop of widespread climate protests and
social unrest across the globe, investors increased their focus and
asset allocation towards sustainable investing to ensure that their
money was put to work in a responsible way.
How economic factors affected markets
On the economic front, much of the focus was on the Federal
Reserve which, having raised rates throughout 2018, reversed their
view in 2019 and cut interest rates three times during the year.
Whilst this was welcomed by investors, it was clear that the cuts
reflected concerns about US growth prospects. Concerns that were
heightened in the first quarter when short-term rates moved higher
than long-term rates. This yield curve inversion has historically
preceded a recession.
It was not just the US that suffered with signs of slowing growth.
The Chinese economy experienced its worst growth in nearly three
decades, prompting both the government and the central bank to
take steps to support the economy. Some of the slowdown can be
attributed to weaker trade because of the US-China trade war
which began in 2018. To date, the US has applied tariffs of
around $500 billion on Chinese exports; China in turn has
imposed $185 billion worth of tariffs on the US.
Europe was also afflicted by growth concerns. Italy moved into
recession at the beginning of the year while Germany, the largest
economy in Europe, narrowly avoided doing so during the year.
However by the third quarter, the economic outlook was sufficiently
negative that the central bank opted to introduce a number of
growth-supportive measures. Europe also remains at risk of
becoming involved in its own trade war with the US. Duties have
Asset class returns in 2019
been imposed upon European steel and aluminium exports, while
the automobile industry is widely viewed as the next to be at risk.
The UK was also not immune to fears around growth, but did just
manage to avoid recession. No interest rate cuts were forthcoming
however, as the central bank appeared optimistic that global growth
would stabilise and a Brexit deal would eventuate. The year was
defined by an ever shifting Brexit timeline and narrative, with the
country undergoing a change in prime minister, a general election
and three extensions of the Brexit deadline.
Risk appetite returns to financial markets
In contrast to the previous year, financial markets in 2019 generated
widespread positive returns. Riskier assets outperformed, with
equity markets generally outperforming fixed income assets. In turn,
the riskier, lower quality and high yielding parts of the bond market
outperformed better quality, but lower-yielding, government bonds.
Within equity markets, growth assets performed especially well
given the combination of a relatively muted growth and low interest
rate environment. The MSCI World Growth Index returned 34.1% in
US dollar terms over the period. However, as the year progressed,
more value-oriented shares saw something of a recovery with the
MSCI World Value Index posting returns of 22.7%, driven to some
extent by the attraction of extremely low valuations in these parts
of the market.
In terms of regional performers, the US stock market once again
stood out, with the S&P 500 Index returning 31.5%. Europe also
performed well; the MSCI EMU Europe returned 26.5% in euro
terms, helped by the economically-supportive policy measures
implemented by the central bank during the year. UK indices
delivered a more muted performance, with Brexit uncertainty
limiting investors’ risk appetite. The FTSE All Share posted returns
of 19.2% in sterling terms.
Many Asian markets have been amongst the most heavily impacted
by the US-China trade dispute, given their importance in global supply
chains. Slowing Chinese growth was unhelpful too, as the wider Asian
economy relies heavily on Chinese demand for its products.
130
120
110
100
90
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
MSCI World U$ – Total Return Index
ICE BofA Global High Yield Index – Total Return Index Value
US Benchmark 10-year DS Govt. Index – Total Return Index
ICE BofA Global Corporate Index
Source: Schroders. Thomson Reuter Refinitiv data correct as at 31 December 2019. Total returns form MSCI World Index, BofA Global High Yield Index,
BofA Global Corporate Index and US 10-year Treasury priced in dollars. Past performance is not a guide to future returns.
14
Schroders Annual Report and Accounts 2019
The MSCI China Index returned 23.3%, as the economy was impacted
by challenged trade relations with the US. Emerging markets as a
whole came in behind their developed peers with the MSCI Emerging
Markets Index returning 18.9% in US dollar terms (18.5% in local
currency). US dollar strength weighed on those markets with
dollar-denominated debt as well as commodity exporters.
The US dollar acted as a safe haven currency for investors’
nervousness and consequently strengthened through most of the
year. It ended the year only slightly lower as optimism on the
US-China trade war increased. The euro depreciated over the year as
central bank policy measures lowered the attractiveness of the
currency for international investors. Sterling was the stand out
performer, ending up 4%, although it was also highly volatile
reflecting changing sentiment on Brexit.
Amid growth fears and expectations of ongoing cuts to interest
rates, bond market yields fell as prices rose over the year. Corporate
bonds, especially those in high-yielding, riskier parts of the market,
outperformed government bonds as investors responded to
improved risk sentiment as the year progressed, searching for ways
to generate income in a low interest rate environment. Emerging
market bonds benefited from these factors too and performed well.
The less risky part of the bond market, government and
investment grade corporate bonds, also put in a good performance.
The US 10-year Treasury yield ended the year significantly lower at
1.91% down from 2.69% at the start of the period. On two occasions
during the year, it moved lower than the yield on the three-month
Treasury bill.
European government yields also saw significant moves lower. The
German 10-year yield fell below zero early in the year, as did France’s
later on. A growing proportion of bond yields became negative
yielding during the year. Italy’s 10-year yield declined from 2.77% to
1.42% while the UK’s 10-year gilt yield also fell from 1.27% to 0.82%
as both countries experienced significant political uncertainty.
Outlook
Looking forward to 2020, the world remains as unpredictable as it
was at the end of 2019. The year had started off reasonably well
given investors’ relief about the signing of an initial trade deal
between the US and China. This should have been beneficial for
global trade and capital investment, boosting economic growth in
the UK, Europe, Japan and the US.
However, the outbreak of Covid-19 creates a new and highly
unpredictable challenge. Whilst we had expected global economic
growth to improve, we now expect there to be a marked slowdown
in activity, particularly in Asia. The eventual outcome is very
dependent on how successful authorities are at containing the
outbreak. The backdrop will be further complicated by the outcome
of the US presidential election.
Risk assets, such as equities, will continue to benefit from ongoing
low interest rates, which are also supportive of fixed income
markets. However, there are heightened risks. Geopolitical
uncertainty remains high and could trigger another flight to safety.
The profit outlook is also challenging for corporates given rising
costs, particularly in the US, and the contraction in trade created by
Covid-19.
It remains challenging to predict with any certainty how events will
unfold throughout 2020. We expect economic growth to weaken, but
an easing of trade tensions and the actions of central banks to
stimulate growth through low interest rates and easy monetary
policy will provide an important offset to weakness in earnings.
In short, investors will have to continue to seek the themes that will
deliver growth in a difficult environment. This may be enough to
keep share prices moving upwards, but not at the same growth
rates seen through 2019, not least because the bond markets
remain relatively unattractive to investors. It may be another year in
which asset allocation could prove challenging.
Our focus will remain on delivering positive investment outcomes for
our clients and our wider stakeholders, whatever the economic or
political backdrop.
Currency returns in 2019
110
105
100
95
90
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
US dollar
Euro
British pound sterling
Source: Schroders. Thomson Reuter Refinitiv data correct as at 31 December 2019. Price performance for the US dollar is based on the dollar index
(against a basket of currencies). Price performances for euro and sterling are against the US dollar. Past performance is not a guide to future returns.
Schroders Annual Report and Accounts 2019
15
Strategic report Our strategy for 2020 and beyond
Strategic focus for sustainable
long-term growth
We remain focused on our long-term strategy to invest for growth across the business. We have
prioritised three key areas as strategic opportunities: growing Asset Management, expanding our
capabilities in Private Assets and building closer relationships with our end clients. Achievement in
these areas will be delivered by our five business priorities set out below.
Strategic
opportunities
Business
priorities
Build and maintain
long-term client relationships
Offer a range of
innovative products
Deliver consistent
outcomes for clients
Invest in leading
technology
Develop and retain
talented people
By building close partnerships with our
clients, we gain a deeper understanding of
their needs, helping us develop products
to meet their needs over time, leading to
greater client longevity and new business
opportunities.
The service we provide as well as the
insights we develop means we are well
placed to build enduring relationships
based on trust, as we focus on delivering
positive outcomes.
One of our strategic priorities is to focus
on developing closer relationships with
our end clients, particularly in Wealth
Management. This allows us to reduce the
impact of intermediation between us as
manufacturers and our clients.
Providing innovative products and
solutions to meet the complex needs of
our clients is crucial to our future growth.
Our clients are increasingly looking for
solutions that can provide a specific
outcome tailored to their personal needs,
rather than just offering exposure to a
market or asset class. Our range of
strategic capabilities is designed to help
our clients create better futures.
We continually look to expand our product
offering and move into new areas of
investment expertise. In recent years,
we have also focused particularly
on developing our capabilities in
Private Assets.
– Net new business
– Net income
– Net new business
– Net income
Read more within the key performance indicator section and Directors’ remuneration report
on pages 18-19 and pages 72-108 respectively.
– Generated record net inflows of
£43.4 billion
– On-boarded £44.6 billion of assets
through the relationship with Lloyds
Banking Group
– Launched Schroders Personal Wealth
to the wider market with £13.7 billion
of AUM at 31 December 2019
– Acquisition of wealth management
business ThirdRock in Singapore
– Attract and retain business with clients,
particularly in strategically important
growth areas
– Increase client longevity through focus
on products and client relationships
– Transfer remainder of Scottish Widows
mandate
– Collaborate with Schroders Personal
Wealth
– Continued focus on sustainability,
including moving into impact investing
through the acquisition of BlueOrchard
– Expansion of Private Assets capabilities
with the acquisitions of Blue Asset
Management and BlueOrchard
– Increased seed and co-investment to
support new products
– Launched 41 new products, focusing
on strategically important growth
areas, including sustainability and
Private Assets
– Continue to develop our strategic
capabilities in line with changing
client demand
– Maintain our focus on sustainability
and commitment to developing
new products
– Expanding Private Assets capabilities,
diversifying our business away from
public markets
As an active investment manager,
we are committed to delivering
consistent outcomes for our
clients over the long term.
While many of our strategies seek to
Our business inherently involves
Developing and retaining a diverse and
processing and analysing data to achieve a
talented workforce is key to the delivery of
desired outcome. It is critical to our
ongoing success that we have leading
technology to support this.
our business model.
We invest heavily in our people, offering
opportunities to grow their knowledge,
outperform a stated benchmark or peer
Technology can be better used to innovate,
skills and capabilities. We also focus on
group, client demand is increasing for
improving productivity and efficiency. In
providing them with a positive working
outcome-oriented solutions, which provide
doing so, we can continue to evolve and
environment that supports productivity,
a specific result such as income or risk
develop our business, adding value for
innovation and collaboration.
management.
our clients and other stakeholders.
In supporting our people to operate at
Delivering outperformance or achieving a
Our philosophy of investing in the future
their very best, we are able to deliver
predefined outcome increases value for
growth of our business includes an
positive outcomes for our stakeholders.
our clients and builds trust in our business.
emphasis on embracing technology and
comes with a focus on cost discipline
through the cycle.
– Client investment performance
– Net new business
– Net income
– Ratio of total costs to net income
– Client investment performance
– Retention of key talent
– 68% of our assets outperformed their
– Having implemented a new front
stated comparator over three years.
More details on our performance
reporting can be found on pages 18,
25 and 196
– Developed our ability to deliver
complex, risk-managed solutions to
meet client needs
office technology platform, we have
worked to optimise processes globally
– Continued investment in technology
solutions across the business
– 94% retention rate of
highly-rated employees
– 91% of employees proud to
be associated with Schroders
– Female representation in senior
management roles ended the year
at 32%
– 40% of employees have been with
us for six years or more
– Continue to deliver high levels of
investment performance for clients
– Provide value for money and build
– Continue to invest in technology across
– Maintain strong retention rate
the Group
for highly-rated employees
– Ongoing investment in robotics
– An increased target to reach 35% for
trusted relationships with our clients
and automation
– Maintain cost discipline through
focus on ratio of total costs to net
income through the cycle
female representation in senior
management roles by 2022
– New target of 28% female
representation in roles immediately
below GMC
1
2
3
5
6
11
17
18
1
2
3
5
6
8
9
10
1
3
4
5
6
18
2
2
3
3
5
6
12
13
16
19
3
5
11
13
15
19
Find out about these risks and how our strategy mitigates them from page 44.
Why it’s
important
Growing Asset
Management
Building
closer
relationships
with our
end clients
Key
performance
indicators
Progress
through 2019
Growth
opportunities
Expanding
capabilities
in Private
Assets
Key risks
16
Schroders Annual Report and Accounts 2019
Strategic
opportunities
Business
priorities
Build and maintain
long-term client relationships
Offer a range of
innovative products
Deliver consistent
outcomes for clients
Invest in leading
technology
Develop and retain
talented people
Why it’s
important
By building close partnerships with our
Providing innovative products and
clients, we gain a deeper understanding of
solutions to meet the complex needs of
their needs, helping us develop products
our clients is crucial to our future growth.
to meet their needs over time, leading to
greater client longevity and new business
opportunities.
Our clients are increasingly looking for
solutions that can provide a specific
outcome tailored to their personal needs,
The service we provide as well as the
rather than just offering exposure to a
insights we develop means we are well
market or asset class. Our range of
placed to build enduring relationships
strategic capabilities is designed to help
based on trust, as we focus on delivering
our clients create better futures.
positive outcomes.
We continually look to expand our product
One of our strategic priorities is to focus
offering and move into new areas of
on developing closer relationships with
investment expertise. In recent years,
our end clients, particularly in Wealth
we have also focused particularly
Management. This allows us to reduce the
on developing our capabilities in
impact of intermediation between us as
Private Assets.
manufacturers and our clients.
– Net new business
– Net income
– Net new business
– Net income
Read more within the key performance indicator section and Directors’ remuneration report
on pages 18-19 and pages 72-108 respectively.
– Generated record net inflows of
£43.4 billion
– On-boarded £44.6 billion of assets
through the relationship with Lloyds
Banking Group
– Launched Schroders Personal Wealth
to the wider market with £13.7 billion
– Continued focus on sustainability,
including moving into impact investing
through the acquisition of BlueOrchard
– Expansion of Private Assets capabilities
with the acquisitions of Blue Asset
Management and BlueOrchard
– Increased seed and co-investment to
of AUM at 31 December 2019
support new products
– Acquisition of wealth management
– Launched 41 new products, focusing
business ThirdRock in Singapore
on strategically important growth
areas, including sustainability and
Private Assets
– Attract and retain business with clients,
– Continue to develop our strategic
particularly in strategically important
capabilities in line with changing
growth areas
client demand
– Increase client longevity through focus
– Maintain our focus on sustainability
on products and client relationships
– Transfer remainder of Scottish Widows
and commitment to developing
new products
– Collaborate with Schroders Personal
mandate
Wealth
– Expanding Private Assets capabilities,
diversifying our business away from
public markets
Find out about these risks and how our strategy mitigates them from page 44.
Key
performance
indicators
Progress
through 2019
Growth
opportunities
As an active investment manager,
we are committed to delivering
consistent outcomes for our
clients over the long term.
While many of our strategies seek to
outperform a stated benchmark or peer
group, client demand is increasing for
outcome-oriented solutions, which provide
a specific result such as income or risk
management.
Delivering outperformance or achieving a
predefined outcome increases value for
our clients and builds trust in our business.
Our business inherently involves
processing and analysing data to achieve a
desired outcome. It is critical to our
ongoing success that we have leading
technology to support this.
Technology can be better used to innovate,
improving productivity and efficiency. In
doing so, we can continue to evolve and
develop our business, adding value for
our clients and other stakeholders.
Our philosophy of investing in the future
growth of our business includes an
emphasis on embracing technology and
comes with a focus on cost discipline
through the cycle.
Developing and retaining a diverse and
talented workforce is key to the delivery of
our business model.
We invest heavily in our people, offering
opportunities to grow their knowledge,
skills and capabilities. We also focus on
providing them with a positive working
environment that supports productivity,
innovation and collaboration.
In supporting our people to operate at
their very best, we are able to deliver
positive outcomes for our stakeholders.
– Client investment performance
– Net new business
– Net income
– Ratio of total costs to net income
– Client investment performance
– Retention of key talent
– 68% of our assets outperformed their
stated comparator over three years.
More details on our performance
reporting can be found on pages 18,
25 and 196
– Developed our ability to deliver
complex, risk-managed solutions to
meet client needs
– Having implemented a new front
office technology platform, we have
worked to optimise processes globally
– Continued investment in technology
solutions across the business
– 94% retention rate of
highly-rated employees
– 91% of employees proud to
be associated with Schroders
– Female representation in senior
management roles ended the year
at 32%
– 40% of employees have been with
us for six years or more
– Continue to deliver high levels of
investment performance for clients
– Provide value for money and build
– Continue to invest in technology across
the Group
– Maintain strong retention rate
for highly-rated employees
– Ongoing investment in robotics
– An increased target to reach 35% for
trusted relationships with our clients
and automation
– Maintain cost discipline through
focus on ratio of total costs to net
income through the cycle
female representation in senior
management roles by 2022
– New target of 28% female
representation in roles immediately
below GMC
Key risks
1
2
3
5
6
11
17
18
1
2
3
5
6
8
9
10
1
3
4
5
6
18
2
2
3
3
5
6
12
13
16
19
3
5
11
13
15
19
Schroders Annual Report and Accounts 2019
17
Strategic report Key performance indicators
Tracking our strategic progress
To ensure that we are delivering against our strategy, we track progress against a number
of key performance indicators.
Client investment performance (%)
68%
We target at least 60% of our AUM to outperform its stated
comparator over rolling three-year periods.
Net new business (£bn)
£43.4bn
We seek to generate positive net new business across the Group.
2015
2016
2017
2018
2019
72
74
74
74
68
2015
2016
2017
2018
2019
(9.5)
13.1
1.1
9.6
43.4
Investment performance over a three-year period remained strong
in 2019, with 68% of assets outperforming their stated comparator.
We have been above our target for each of the past five years.
Five-year investment outperformance was 71% and the
one-year figure was 68%.
More details on our performance reporting can be found on pages 25
and 196.
We generated record net new business in 2019 of £43.4 billion. The
first tranches of the Scottish Widows mandate were transferred
towards the end of the year, which contributed to net inflows into
Solutions strategies of £34.5 billion. Private Assets & Alternatives
generated £2.8 billion of net inflows.
Mutual Funds and Institutional saw net outflows as the traditional
asset management industry continued to face challenges.
Wealth Management continued to perform strongly, with net inflows
of £14.7 billion.
Assets under management (£bn)
Retention of key talent (%)
£500.2bn
94%
We aim to grow AUM over time in excess of market growth through
positive investment outperformance and net new business. As a
sterling denominated reporter, currency movements may also
impact asset levels.
Developing and retaining talented people is key to our ongoing
success. We actively monitor our retention of those employees who
have been rated as either outstanding or exceed expectations in their
annual performance review.
2015
2016
2017
2018
2019
313.5
386.0
435.7
407.2
500.2
2015
2016
2017
2018
2019
94
95
94
94
94
AUM increased by 23% in 2019 to £500.2 billion.
Rising markets increased AUM by £56.3 billion while currency
movements, notably a strengthening of sterling, reduced assets by
£12.9 billion.
We generated net new business of £43.4 billion and acquisitions
added £6.2 billion of AUM.
Our retention of highly-rated employees has consistently been more
than 90%. This represents a committed and engaged workforce,
which is aligned with Schroders’ values.
18
Schroders Annual Report and Accounts 2019
Net income* (£m)
£2,124.8m
Ratio of total costs to net income* (%)
67%
Net income comprises net operating revenue, which is primarily
revenues generated from AUM less cost of sales, net gains on
financial instruments, share of profit of associates and joint
ventures, and other income. We aim to grow net income over time.
We target a 65% ratio of total costs to net income through the
market cycle, recognising that in weaker markets the ratio may be
higher than our long-term target.
2015
2016
2017
2018
2019
1,658.5
1,793.1
2015
2016
2017
2018
2019
2,068.9
2,123.9
2,124.8
63
64
61
64
67
Net income increased £0.9 million from 2018 to £2,124.8 million.
Changes in business mix offset higher average AUM, resulting in a
decrease in net operating revenue. This was offset by increased
other income, driven by share of profits of associates and joint
ventures and net gains on financial instruments.
In 2019, our ratio of total costs to net income was 67%, having
previously been better than our target for each of the prior five
years. This ratio increased as we continued to strategically invest in
the future growth of the business.
Basic earnings per share* (p)
Dividend per share (p)
201.6p
114p
We aim to grow earnings per share consistently, recognising the
potential impact of market volatility on results in the short term.
Our policy is to provide shareholders with a progressive and
sustainable dividend, maintaining a payout ratio of around 50%. For
more information, see page 27.
2015
2016
2017
2018
2019
176.9
186.3
226.9
215.8
201.6
2015
2016
2017
2018
2019
87
93
113
114
114
In 2019, basic earnings per share before exceptional items was
201.6 pence.
The Board is recommending a final dividend of 79 pence per share,
bringing the total dividend for the year to 114 pence per share. This
represents a payout ratio of 57%.
* Before exceptional items
Schroders Annual Report and Accounts 2019
19
Strategic report A business strategy
aligned with our
shareholders’ interests
Delivering growth over the longer term allows us
to generate sustainable shareholder returns
Lasting client relationships and a focus on positive outcomes
An in-depth understanding of our clients’ financial needs, coupled with data-driven market intelligence,
help us build a clear picture of future trends and changing client demands.
A strong financial position
Our ownership structure and strong capital base allow us to take a long- term perspective. This supports us
in staying focused on our strategy and investing in opportunities to deliver value for our stakeholders.
114p
Total dividend
per share
20
Schroders Annual Report and Accounts 2019
Schroders Annual Report and Accounts 2019
21
Strategic report Business and financial review
Delivering on our strategy
have greater longevity than most other products. We are also seeing
a product shift, with an increasing benefit from strategic
relationships such as our partnership with LBG and demand for
outcome-orientated solutions products. The strength of our
Solutions capability, supported by our new operating platform,
underpin these developments. Although this type of business
typically comes at a lower price point, it is an important part of our
growth strategy. Significantly it also has greater longevity and offers
significant long-term value to the Group.
Our Wealth Management business has also shown continued
growth and contributed £309.6 million (2018: £289.8 million) of net
income in 2019. Wealth Management is underpinned by the strength
of the long-term client relationships we build. In October, we
launched our new joint venture, SPW. This is part of a strategic
partnership with LBG. LBG also acquired a 19.9% interest in our
existing UK Wealth Management business. This resulted in us
realising a £153.6 million gain that is not reflected in our income
statement but increases our distributable profits.
Other income included a significant contribution from China, where
we have a 30% interest in a long-standing venture with Bank of
Communications, which provides investment services to Chinese
investors and saw assets under management increase to
£54.6 billion (2018: £50.2 billion). These assets do not form part of
the Group’s AUM but are an important aspect of our existing
presence in the region. They contribute to our brand recognition and
mean that we are well positioned to take advantage of opportunities
as the Chinese investment market further opens up to international
investment. Our venture with Axis Bank in India, in which we have a
25% interest, also showed good growth, with assets under
management increasing 46% from £9.3 billion to £13.6 billion.
These developments contributed to a £10.6 million increase in
our share of profits from associates and joint ventures.
Our proprietary investments, which comprise seed capital
investments, co-investments and other financial
instruments held as part of our investment capital
portfolio, also performed well generating £23.5 million
of returns in 2019 (2018: loss of £1.1 million). Given
the increased importance of these other sources of
income we have changed our Group key
performance indicator from net operating revenue
to net income in 2019.
Although we grew our net income, the increase
was more than offset by an expected rise in
our cost base.
We delivered profit before tax and exceptional
items of £701.2 million (2018: £761.2 million)
and profit after tax of £495.7 million
(2018: £504.7 million) as we grew our AUM to a
new high of £500.2 billion (2018: £407.2 billion).
This was a resilient performance given the
relative market weakness that existed at the
start of 2019. We made good progress towards
our strategic goals as we continued to position
the Group for the future in the face of the
ongoing industry headwinds.
In Asset Management, we grew our Solutions business as we took
on the first parts of the Scottish Widows mandate, one of the largest
ever awarded. We also further expanded our Private Assets
capabilities through both organic growth and acquisitions, including
the acquisition of a majority stake in BlueOrchard, a leading impact
investor and the acquisition of Blue Asset Management, a German
real estate business. In Wealth Management, we launched an
exciting new joint venture with Lloyds Banking Group plc (LBG),
branded Schroders Personal Wealth (SPW). This further strengthens
our offering by building our presence in the UK affluent market,
complementing the high-net-worth and ultra-high-net-worth
markets serviced by Cazenove Capital and Schroders Wealth.
These strategic developments helped us grow our AUM to a new
high. The 23% increase in AUM is comprised of three components:
net new business, investment returns and acquisitions. We
generated £43.4 billion of net inflows and delivered £43.4 billion of
positive investment returns for clients. Acquisitions added a further
£6.2 billion and were again focused on expanding our capabilities in
our strategic areas of growth, specifically Private Assets and Wealth
Management. Despite significant growth over the year, the timing of
the increases meant that our average AUM was only 2% higher than
in 2018. As a result we are yet to see the full financial benefit of this
increase in AUM.
Net income before exceptional items increased to £2,124.8 million in
2019 (2018: £2,123.9 million). We continued to see client demand
focus on lower risk, lower margin products. Together with other
changes in the mix of our business, this resulted in a two basis point
reduction to our net operating revenue margins, which declined to
45 basis points (2018: 47 basis points). The impact was partly offset
by higher performance fees and net carried interest, as we
generated £73.1 million in 2019 (2018: £55.0 million). This meant that
our net operating revenues decreased to £2,052.4 million (2018:
£2,070.7 million).
The Group Chief Executive’s review, on pages 6 to 9, sets out how
our business is changing in line with our strategy, which is designed
to address market-wide pressures through closer relationships with
our end clients, and further diversifying our Asset Management
business into Private Assets and Solutions. We are beginning to see
the financial benefit of the progress we have made towards this.
To better present the impact of these changes, we are providing
more information on the four business areas within Asset
Management, namely Private Assets & Alternatives, Solutions,
Mutual Funds and Institutional. Further detail on these areas
is set out on the opposite page.
Income from our Private Assets & Alternatives business has
increased by 112% in the past five years to £300.2 million in 2019.
Private Assets & Alternatives products are less exposed to the pricing
pressures impacting the traditional asset management industry and
22
Schroders Annual Report and Accounts 2019
Assets under management
by business area (£500.2bn)
Private Assets & Alternatives
Solutions
Mutual Funds
Institutional
Wealth Management
9%
29%
20%
29%
13%
The Group Chief Executive’s review on pages 6 to 9
sets out our three part strategy to drive future growth
in the business. We are reporting our assets under
management, net new business and net operating
revenue for the following five business areas, to
better align with those business priorities.
Private Assets & Alternatives - Investment
opportunities that are available through private
markets, including real estate, private equity,
infrastructure and other alternative products. Our
clients have increased their allocation to private
markets and alternative investments in search of
longer-term, less correlated and potentially better
investment returns.
Solutions - Increasingly, our clients look to us to play a
wider role and to offer a complete solution to help
them achieve their financial goals. This includes
strategic partnerships, liability offset solutions and risk
mitigation.
Mutual Funds - Mutual Funds provided through our
intermediary network for retail clients that are either
solely or dual-branded as ‘Schroders’.
Institutional - We continue to provide institutions
with index-relative products as a component of their
overall investment strategy or as part of a sub-advised
mandate.
Wealth Management - We provide a wide range of
wealth management services, which focus on
preserving and growing our clients’ wealth.
Schroders Annual Report and Accounts 2019
23
Strategic report Business and financial review continued
As a people-focused business, attracting and retaining talent is
central to the ongoing success of the company and maintaining
appropriate remuneration structures is therefore a key priority. This
year we saw the temporary accounting benefit that arose as a result
of the changes we made to deferred compensation arrangements
for material risk takers (MRTs) in 2017 fully unwind. We increased
our total compensation ratio to 44% (2018: 43%), which takes us back
to the level we had before the adjustment for MRTs. This remains
below our target range of 45% to 49%. Further details on our
remuneration policy are set out in the remuneration report on
pages 72 to 108.
Delivering long-term sustainable returns for shareholders is
dependent on maintaining an efficient and scalable operating
model. It is for this reason that we have been investing in technology
and reviewing our operating effectiveness for some time. The
investments we have previously made, including our new investment
platform, are already having a positive impact on the Group. They
provide a scalable platform and enable us to efficiently manage a
wider, more sophisticated range of products, which can provide a
competitive advantage in helping us win new business. These
investments mean that there is some increase to our non-
compensation costs in 2019. Together with the changes to our total
compensation ratio, it means a total cost to net income ratio of
67% (2018: 64%). The result is profit before tax and exceptional
items of £701.2 million (2018: £761.2 million).
In 2019, we have undertaken a further targeted cost reduction
programme. This will enable us to realise additional operating
efficiencies, made possible by the investments we have made, and to
reward our people appropriately. We have recognised a one-off
charge of £29.0 million to achieve this, which has been presented as
an exceptional item. Other exceptional items mainly relate to
acquisition-related costs, principally amortisation of intangible
assets. The total cost of exceptional items in 2019 was £76.6 million
(2018: £111.3 million). This results in pre-tax profit of £624.6 million
(2018: £649.9 million). Profit after tax was £495.7 million
(2018: £504.7 million).
We are well prepared for Brexit and do not currently expect it to
have a significant impact on our business or operating model having
already taken steps to review our corporate structure across Europe.
Notwithstanding this, we continue to monitor closely the
negotiations between the UK and EU regarding the future
relationship for trade and services arrangements.
Overall, we believe we are well placed to deal with the ongoing
industry challenges, while remaining focused on our long-term
strategic priorities. Reflecting our dividend policy and the reduction
in pre-exceptional profits this year, the Board is recommending a
final dividend of 79 pence per share (2018: 79 pence). After the
interim dividend of 35 pence per share this brings the total dividend
for the year to 114 pence (2018: 114 pence).
The following commentary provides a more detailed review of our
financial results.
Assets under management (AUM)
Our AUM increased by £93.0 billion, or 23%, to close 2019 at a record
high of £500.2 billion (2018: £407.2 billion). Understanding the
movement in AUM is critical to understanding our results. There are
three components to this:
– net new business from clients;
– assets acquired or disposed of through corporate activity; and
– investment returns, including currency movements.
In 2019, we generated £43.4 billion of net inflows from clients (2018:
outflows of £9.5 billion), including £44.6 billion from our strategic
partnership with LBG. Acquisitions added £6.2 billion of assets across
Private Assets & Alternatives and Wealth Management. We also
generated £43.4 billion of investment returns for clients, after
foreign exchange movements. The Market review, on pages 14 and
15, provides further details on the key external factors impacting the
Group. Despite the strong growth in AUM during the year, the
timing of movements meant that our average AUM only increased
by 2%. The chart below illustrates how our AUM moved during the
year and the impact this had on our average AUM.
AUM in the Asset Management segment increased by £70.0 billion,
or 19%, to £433.5 billion at 31 December 2019 (2018: £363.5 billion).
We generated £28.7 billion of net new business from clients in 2019.
Acquisitions added a further £3.9 billion of assets (£2.9 billion from
the acquisition of a majority stake in BlueOrchard and £1.0 billion
from Blue Asset Management).
Our Solutions business generated £34.5 billion of net inflows,
including £32.0 billion from the Scottish Widows mandate. Solutions
strategies are designed to provide clients with an outcome over the
life of the product and typically have a higher longevity than more
traditional products. We also saw continued demand from clients for
other higher longevity products, particularly within Private Assets &
Alternatives with £2.8 billion of net inflows in this business. Private
Assets & Alternatives products are typically made available through
close ended vehicles and can have a life cycle of over 10 years. The
net inflows from these businesses were partly offset by net outflows
of £7.1 billion from our Institutional business and £1.5 billion from
Mutual Funds.
Wealth Management continues to be a strategic area of growth and
generated £14.7 billion of net new business in 2019. This included
£12.6 billion of assets from clients of Schroders Personal Wealth with
a further £2.3 billion added through acquisitions. Our Schroders
Wealth business generated £1.2 billion of net new business with a
further £0.9 billion of inflows through Benchmark Capital.
£bn
500
480
460
440
420
400
Dec ‘17
+ 2%
FY-18 average AUM
£433.1bn
FY-19 average AUM
£441.8bn
Mar ‘18
Jun ‘18
Sept ‘18
Dec ‘18
Mar ‘19
Jun ‘19
Sept ‘19
Dec ‘19
24
Schroders Annual Report and Accounts 2019
£bn
1 January 2019
Gross inflows
Gross outflows
Net flows
Acquisitions
Investment returns*
Transfers
31 December 2019
Private Assets
& Alternatives
Solutions
Mutual Funds
Institutional
AUM
Asset
Management
Wealth
Management
38.0
9.6
(6.8)
2.8
3.9
(0.5)
–
95.9
46.6
(12.1)
34.5
–
12.4
–
95.1
39.4
(40.9)
(1.5)
–
9.6
(0.8)
44.2
142.8
102.4
134.5
16.7
(23.8)
(7.1)
–
16.7
–
144.1
363.5
112.3
(83.6)
28.7
3.9
38.2
(0.8)
433.5
43.7
20.3
(5.6)
14.7
2.3
5.2
0.8
66.7
Total
407.2
132.6
(89.2)
43.4
6.2
43.4
–
500.2
69.2
Assets managed by associates
* Includes currency movements which decreased AUM by around £12.9 billion.
AUM is the key driver of our net operating revenues and the basis
for our net operating revenue margins. We are now using this as our
key performance indicator, with revenues from assets under
administration included in net income, another key performance
indicator.
Client investment performance
Our ability to generate positive investment outcomes for clients is
central to our success as an active investment manager. Investment
performance over a three-year period (our key performance
indicator) remained above our target of 60%, with 68% of assets
outperforming their stated comparator (2018: 74%). Five-year
investment outperformance was 71% (2018: 76%) and the one-year
figure was 68% (2018: 43%).
Client investment performance is calculated internally by Schroders
to give shareholders and financial analysts general guidance on how
our AUM is performing. The data is aggregated and is intended to
provide information for comparison to prior reporting periods only.
It is not intended for clients or potential clients investing in our
products. Calculations for investment performance are made gross
of fees with the exception of those for which the stated comparator
is a net of fees competitor ranking. Further information about the
calculation of investment performance is provided in the glossary on
pages 196 to 198.
The Group’s financial performance
Net income before exceptional items increased to £2,124.8 million in
2019 (2018: £2,123.9 million). Net operating revenues decreased by
1% to £2,052.4 million (2018: £2,070.7 million). Although our average
AUM increased by 2%, we began 2019 with a £35 million headwind
as a result of the 2018 net outflows. We also had net outflows in the
first six months of 2019 and are therefore yet to see the full financial
benefit of the £43.4 billion of net inflows we generated over the year
as a whole. Our net operating revenue margin decreased by two
basis points as a result of mix changes in 2019 to 45 basis points
(2018: 47 basis points). The resulting reduction in management fees
was partly offset by higher performance fees and net carried
interest, which were up 33% to £73.1 million (2018: £55.0 million).
Other sources of income grew by £19.2 million and are an
increasingly significant part of our business. Net gains on financial
instruments and other income before exceptional items increased by
£8.6 million to £41.9 million (2018: gain of £33.3 million). This
included good returns from our seed capital portfolio where we
invest to support new product strategies, and from co-investments
we make alongside our clients. There was also a £10.6 million
increase in our share of profits from associates and joint ventures.
These contributed £30.5 million of profits in 2019 (2018:
£19.9 million). They include long-standing partnerships with Bank of
Communications in China and with Axis Bank in India and in 2019,
we also began to benefit from our new joint venture SPW, which we
entered into at the beginning of October.
Our operating expenses excluding exceptional items increased by
4% to £1,423.6 million (2018: £1,362.7 million). We are a people-
focused business and around 65% of our cost base is related to
compensation. Our ability to attract and retain the best people is
central to the future growth of the business and rewarding our
people appropriately underpins our retention of talent, a key
performance indicator.
We manage our compensation costs as a proportion of the Group’s
net income, with the total compensation ratio increasing by one
percentage point to 44% in 2019. This reflects a more normalised
compensation ratio following the accounting benefit taken over the
last two years for MRTs. In 2017, we made changes to our
remuneration approach for employees deemed to be MRTs under
the UCITS or AIFM Directives. We increased bonus deferral levels for
these employees to create further alignment with clients and
shareholders and to meet regulatory requirements. This resulted in
an increase in the proportion of variable remuneration deferred, and
created an accounting benefit that improved our total compensation
ratio by one percentage point in 2017. This temporary accounting
benefit unwound over 2018 and 2019.
Clients are increasingly demanding investment solutions that help
them to achieve their long-term financial goals, whatever these may
be. At the same time, pricing pressures continue to impact the asset
management industry. We recognised these changing dynamics a
number of years ago and have made significant investments in our
systems and processes. These investments have provided us with a
strong foundation to grow and are already helping to attract new
business. They enable us to manage an increasingly broad range of
products and to offer solutions designed to meet the varied needs of
our clients. Given the investments we have already made, we are
now focused on targeted opportunities which, where appropriate,
leverage technology to deliver new capabilities.
Acquisitions increased our costs by around £3.2 million in 2019. This
increase includes the acquisitions made this year, most notably
BlueOrchard and Blue Asset Management, combined with the
full-year impact from acquisitions made in 2018. As a result,
non-compensation costs excluding exceptional items increased to
£496.3 million (2018: £459.4 million).
Pre-exceptional profit before tax was £701.2 million
(2018: £761.2 million), a decrease of 8% on the previous year. The
effective tax rate before exceptional items decreased from 21.5% to
20.0%, mainly due to the increase of deferred tax assets in respect of
share awards following the increase in our share price. This resulted
in a basic earnings per share before exceptional items of
201.6 pence (2018: 215.8 pence).
Exceptional items in 2019 mainly relate to acquisitions completed by
the Group, including amortisation of intangible assets as well as the
targeted cost reduction programme. Further information on
exceptional items is provided in note 1(b) to the accounts. After
exceptional items, profit before tax was £624.6 million (2018:
£649.9 million).
Schroders Annual Report and Accounts 2019
25
Strategic report Business and financial review continued
We had a post-exceptional tax rate of 20.6%, which meant profit
after tax of £495.7 million was 2% down (2018: 504.7 million),
and basic earnings per share was down 2% to 178.9 pence
(2018: 183.1 pence).
Asset Management
Asset Management net income reduced 1% to £1,781.2 million
in 2019 (2018: £1,801.2 million). Net operating revenue decreased
1% to £1,763.1 million (2018: £1,788.8 million). Management fees
decreased by £84.0 million, or 4%, mainly due to changes in
asset mix.
Excluding performance fees and net carried interest, the net
operating revenue margin on average AUM reduced by two basis
points to 43 basis points (2018: 45 basis points). This was in line with
our expectations, with the impact of external fee pressures being
partly offset by the positive effect of growth in our Private Assets &
Alternatives business. The decrease was partly offset by higher
performance fees and net carried interest which increased by 32% to
£72.2 million (2018: £54.6 million).
Our Asset Management segment is comprised of four business
areas: Private Assets & Alternatives; Solutions; Mutual Funds; and
Institutional. These are further explained on page 23. Expanding our
capabilities in Private Assets is a strategic growth opportunity and
we have developed the business significantly over the last five
years. In 2019, net operating revenue from our Private Assets
& Alternatives business increased 10% to £300.2 million
(2018: £273.7 million), demonstrating the success of the
investments we have made to expand our capabilities.
Along with the development of our Private Assets & Alternatives
business, we see significant growth opportunities from our Solutions
business. In 2019, net operating revenue from Solutions increased
3% to £226.1 million (2018: £219.3 million). These two businesses
together with Wealth Management, our other growth priority,
now represent more than 50% of our AUM. Notwithstanding this,
our Mutual Funds and Institutional businesses continue to
generate significant revenues for the Group. Net operating
revenue from our Mutual Funds business was £734.8 million in 2019
(2018: £784.1 million) and Institutional contributed £502.0 million
(2018: £511.7 million).
The decrease in overall Asset Management net operating revenue
was partly offset by increased income from our share of profits from
associates and joint ventures, which increased 50% to £23.5 million
(2018: £15.7 million).
Operating expenses before exceptional items increased to
£1,174.3 million (2018: £1,130.4 million). Non-compensation costs
increased as we grew our AUM, completed a number of strategic
acquisitions, and as a result of the investments in technology
and infrastructure we have made to support the future growth
of the business.
In 2019, we further developed our capabilities to support the
on-boarding of assets from the Scottish Widows mandate and
other client assets from our strategic partnership with LBG.
We also outsourced the transfer agency function for our
European fund range.
Profit before tax and exceptional items decreased by 10% to
£606.9 million (2018: £670.8 million). There were exceptional items of
£41.4 million. These mainly relate to acquisitions, including
amortisation of acquired intangible assets and £22.3 million relating
to the targeted cost reduction programme. After exceptional items,
profit before tax decreased to £565.5 million (2018: £588.2 million).
Wealth Management
Wealth Management net income increased by 7% to £309.6 million
(2018: £289.8 million), driven by management fees, which increased
by £25.9 million to £253.2 million (2018: £227.3 million). Following
26
Schroders Annual Report and Accounts 2019
the commencement of the Group’s interest in SPW on 3 October
2019, the Wealth Management segment now includes our
proportional share of the income and expenses of SPW on an
individual account line basis. The Consolidated income statement
includes our share of the post-tax profits of SPW within Share of
profit of associates and joint ventures. A reconciliation between the
two different presentations is shown in the segmental note on page
118. SPW contributed £14.9 million to revenue in the period from
3 October 2019 to 31 December 2019. The remaining increase in
management fees was driven by an 8% rise in average AUM
(excluding SPW).
Performance fees amounted to £0.9 million (2018: £0.4 million).
Other fees, principally transaction related, were slightly down at
£37.6 million (2018: £38.5 million) and net banking interest
decreased to £24.0 million (2018: £26.8 million) as our net interest
margin reduced slightly. Net operating revenue margins were down
two basis points from the prior year at 59 basis points (2018: 61 basis
points), mainly driven by the lower levels of transactional income
and changes in product mix.
Other income amounted to £7.5 million (2018: £7.9 million), which
primarily comprises administrative services provided by the
Benchmark Capital business.
Operating expenses before exceptional items were £222.1 million,
up 13% (2018: £196.4 million). The increase was partly driven by the
inclusion of our proportionate share of the operating expenses of
SPW of £10.9 million for the first time. The remaining increase was
mainly within Benchmark Capital, driven by investments made in
preparation for the on-boarding of the SPW assets to the Benchmark
Capital platform.
Profit before tax and exceptional items decreased 6% to
£87.5 million (2018: £93.4 million). Exceptional items within Wealth
Management mainly comprise costs incurred in relation to
acquisitions, including amortisation of acquired intangible assets,
together with expenses as part of the cost reduction programme.
After exceptional items, profit before tax reduced to £52.9 million
(2018: £68.0 million).
Group segment
The Group segment comprises central management costs, returns
on investment capital, including income from financial instruments
and our associate interests in RWC Partners Limited (RWC). During
2019, we reached provisional agreement to sell our 41% interest in
RWC, however this disposal will only be accounted for in 2020 when
the deal completes. The 2019 results therefore include our share of
profits after tax of RWC for the year ended 31 December 2019.
Net income for the Group segment was £44.9 million
(2018: £32.9 million). Costs in the Group segment increased to
£38.1 million (2018: £35.9 million). This resulted in a profit before tax
and exceptional items of £6.8 million (2018: loss of £3.0 million).
Financial strength and liquidity
The Group’s net assets increased by £226.3 million during 2019 to
£3,847.5 million (2018: £3,621.2 million).
As part of the strategic partnership with LBG, we sold 19.9% of our
UK Wealth Management business. This resulted in a £153.6 million
gain on disposal, representing the difference between the
consideration received for the 19.9% shareholding (£204.7 million)
and the carrying value of the proportion of the business disposed of.
The gain was recognised in the Group’s Consolidated statement of
changes in equity and is distributable to shareholders.
We generated total comprehensive income of £426.4 million
(2018: £519.5 million) and distributed £312.3 million to shareholders
in the form of the 2018 final and 2019 interim dividends
(2018: £311.7 million).
The different forms of business that we conduct affect our total
assets and liquidity. Certain assets managed on behalf of investors
are recognised in the Consolidated statement of financial position,
while others are not. The table below sets out how these assets are
broken down between on-balance sheet assets and others that form
part of our total AUM.
Not recorded
in the
Statement
of financial
position
£bn
Statement
of financial
position
£bn
–
421.1
421.1
63.7
484.8
Life Company
Other Asset Management
Total Asset
Management
Wealth Management
Total AUM
Investment capital
Seed and co-investment
capital
Other assets
Total Group assets
excluding clients’
investments
Total Group assets
12.4
–
12.4
3.0
15.4
0.6
0.6
4.7
5.9
21.3
Total
£bn
12.4
421.1
433.5
66.7
500.2
Within Asset Management, assets that are managed for clients are
not generally owned by the Group and are not recorded in the
Consolidated statement of financial position. However, certain
clients invest through life insurance policies that are managed by the
Life Company. The assets backing these policies are owned by the
Life Company and are included in the Consolidated statement of
financial position along with a matching policyholder liability.
Wealth Management principally provides investment management,
wealth planning and financial advice, platform services and banking
services. Those subsidiaries that provide banking services are legally
responsible for the banking assets and liabilities. They are therefore
included in the Consolidated statement of financial position. The
assets are managed to earn a net interest margin with consideration
of the liquidity demands that may arise from clients. These assets
are not made available for wider corporate purposes.
Reflecting these structures, the Group’s total assets increased to
£21.3 billion at 31 December 2019 (2018: £19.6 billion). Excluding
those assets that form part of AUM, the Group’s total assets
increased to £5.9 billion (2018: £5.1 billion), principally as a result of
increases in other assets.
Investment capital represents surplus assets held in excess of
operating requirements. It is managed in accordance with limits set by
the Board, with the aim of making a low volatility return. The Group
Capital Committee supports the Chief Financial Officer in managing
the investment capital portfolio with consideration of potential capital
and liquidity demands, including dividend distributions.
Investment capital is mainly comprised of investment-grade
corporate bonds and investments in our own pooled funds. During
2019, investment capital reduced by £74 million to £556 million
(2018: £630 million), primarily as we used capital to fund acquisitions,
and seed new investment strategies and co-invest alongside our
clients. Our seed and co-investment capital increased from
£535 million at 31 December 2018 to £578 million at the end of 2019.
Other assets increased by £687 million to £4,665 million (2018:
£3,978 million). This represents assets that support our ongoing
operating activities. The increase was mainly driven by the adoption
of the new leasing standard (IFRS 16) which resulted in the
recognition of a £395 million right-of-use asset, representing the
future benefit of the leased asset. In addition, our interest in SPW
increased the associates and joint ventures balance by £196 million.
In 2019, we continued to invest in the future growth of the business
with a number of acquisitions, the most significant of which were the
purchase of a majority stake in BlueOrchard and the acquisition of
Blue Asset Management. Acquisitions increased goodwill and
intangible assets by £154 million, before amortisation and foreign
exchange movements. We continued to invest in technology to
support our strategic priorities and take on of the Scottish Widows
mandate resulting in additions to software intangible assets of
£100 million before amortisation and foreign exchange movements.
The Group’s liquidity and regulatory capital position remains
strong and further information on this is set out in note 20 of
the financial statements.
Dividends
It is our policy to provide shareholders with a progressive and
sustainable dividend, maintaining a payout ratio of around 50%. The
payout ratio is determined as the total dividend per share in respect of
the year, divided by the Group’s pre-exceptional basic earnings per
share. In line with this policy, and as pre-exceptional profit after tax
decreased this year, the Board is recommending a final dividend of
79 pence per share (2018: 79 pence per share). It means a total
dividend for the year of 114 pence per share (2018: 114 pence per
share) and represents a payout ratio of 57% (2018: 53%).
In setting the dividend, the Board has regard to overall Group
strategy, capital requirements, liquidity and profitability. This
approach enables the Group to maintain sufficient surplus capital to
take advantage of future investment opportunities while providing
financial security to withstand possible risk scenarios and periods of
economic downturn.
The distributable profits of Schroders plc are £2.9 billion (2018:
£2.8 billion). The Group’s ability to pay dividends is, however,
restricted by the need to hold regulatory capital and to maintain
sufficient operating capital to support its ongoing business activities.
Operating capital requirements include co-investments with clients
and seed capital investments in our funds to support new
investment strategies.
Circumstances that could adversely impact the Group’s ability
to pay dividends in line with the policy include a combination of
significantly increased costs and a prolonged deterioration in
markets or performance leading to reduced revenues and a
consequential increase in the ratio of total costs to net income.
After deducting the regulatory capital requirement and regulatory
capital buffer, there continues to be sufficient capital to maintain
our current dividend level for at least two years before taking
account of any future profits.
We are clear on our strategy and are beginning to see the benefit of
the investments we have been making. The growth in AUM
demonstrates the resilience of our business model and we expect to
see further benefit from this growth in 2020.
Richard Keers
Chief Financial Officer
4 March 2020
Schroders Annual Report and Accounts 2019
27
Strategic report Our people are central
to our unique culture and
working environment
Enabling everyone to work at their best
contributes to our overall success as a business
and we continue to focus on developing careers,
ensuring inclusivity and mental wellbeing
Our values
We strive for
excellence
Being good at what we do is a
powerful way to create value for all our
stakeholders and secure a long-term
future for our business.
We promote
innovation & teamwork
We challenge how things are done,
anticipate future opportunities and
understand that to deliver this value it
will take collaboration and a healthy
respect for individual skills.
We have
passion & integrity
We are realistic about what we can
achieve, but are ambitious too,
approaching everything we do with
energy and drive. This sits alongside an
openness and responsibility to deliver on
our promises.
of employees are proud to be
associated with Schroders
91%
28
Schroders Annual Report and Accounts 2019
Schroders Annual Report and Accounts 2019
29
Strategic report Our people
Our culture is one of our greatest strengths
We believe that people remain at the heart of investing and our long-term focus is on retaining,
developing and attracting the right talent for our current and future business needs. To achieve this
we concentrate on our sense of purpose, our working environment and quality of work, and strive to
provide a positive, inclusive and collaborative culture for this key stakeholder group to thrive within.
We measure our effectiveness by actively seeking feedback via multiple channels to ensure we evolve
our employee proposition alongside our business strategy. Our intention is to provide the best possible
environment, where regardless of role, location or background all employees can realise their potential.
2019 at a glance*
Our people around
the world
Schroders is widely seen
as a good place to work
We focus on retaining our
most talented employees
87%
94%
would recommend Schroders
as a good place to work
retention of high-performing
employees
58%
UK
Europe, Middle East and Africa 17%
18%
Americas
7%
Asia
An engaged and motivated workforce
Proud to work at Schroders
Inclusive environment
Believing in our purpose
91%
83%
88%
are proud to be associated
with Schroders
feel they are treated with
fairness and respect
believe strongly in Schroders’
goals and objectives
Value wellbeing
Strong diversity values
81%
82%
believe Schroders’
management is interested in
the wellbeing of employees
feel that Schroders recognises
and values diversity among its
employees
Opportunities for personal
development
78%
feel they have the opportunity
for personal growth and
development at Schroders
* Statistics quoted are based on responses from our 2019 Employee Opinion Survey.
30
Schroders Annual Report and Accounts 2019
Employer of choice
We seek to be an employer of choice by providing a collaborative
and innovative culture where everyone can thrive. We focus on
delivering and enhancing our experiences across the employee
lifecycle, creating an environment where people can do their best
work and producing the sustainable outcomes our clients and
shareholders expect from us.
Building skills for the future
We appreciate that our employees want guidance on their future
careers. Therefore we run global learning and career weeks, giving
employees opportunities to build skills for the future and better
understand how to manage and drive their careers. Over 100
sessions saw around 1,500 employees participate in a mixture of
virtual, in-person and digital sessions to broaden their development.
Our purpose
As a global investment manager, we recognise that we have an
important part to play in shaping the future for all our stakeholders.
Our focus on doing the right thing for our clients, our people and
wider society lies at the centre of our culture and so we are
committed to delivering positive outcomes for all.
We see our purpose as creating a better future by investing
responsibly for our clients.
We have built a diverse team of individually-minded people who
work together to bring more insightful perspectives for our clients.
In a fast moving, data-driven world we have the ingenuity and
intuition to capture insights and identify the trends that will shape
the prosperity of individuals, businesses and future generations.
Connecting with our people
Our Group Chief Executive leads the effort to ensure our people are
aware of the factors affecting the Group’s performance. In 2019, this
started with a global session to reflect on our achievements, the
Group’s overall performance and to provide clarity on strategic
areas of focus.
At the release of our Gender Pay Gap report in March, and at the
announcement of senior management changes in September, our
Group Chief Executive again takes the lead. These sessions have
employee Q&A, with subsequent videos, intranet articles and
podcasts being released to provide content in accessible ways. We
provide on-going communications with our quarterly in-house
magazine and use our recently refreshed interactive intranet to
allow employees to share views and get actively involved.
In 2019, we created a global employee forum in addition to our UK
employee forum. This new body enables the voices of our people to
be heard directly by our Board of Directors. 12 appointed
representatives from across Asia, Europe and the Americas meet
twice a year with the designated non-executive Director, Ian King.
The remit of this forum is intended to cover Group strategy; financial
performance; diversity and inclusion; employee engagement; and
other such items.
Our employee opinion survey runs annually with Directors briefed
on the results and our Group Chief Executive engaging with our
GMC members on accountable action plans designed to actively
respond to employees’ sentiments. We then continue to measure
engagement in those respective functions and take further actions
as necessary.
Opportunities to develop and grow
Our ongoing success is driven by our people and providing them
with the resources to reach their full potential is critical to our
employee engagement. We aim to do this through different
experiences such as rotations and job shadowing as well as offering
the tools and resources they need to grow. We see this as a key
driver in executing our business strategy and continue to take steps
to future-proof our workforce for an ever changing world.
Offering digital learning
Our global learning management system, Spark, launched in late
2018. Its success is reflected in continued engagement with the
platform; on average around a quarter of our workforce is accessing
content every month, reflecting our learning agility and keen desire
to develop and grow. Employees are able to create their own
playlists of content around topics to share with others, with over
180 created since launch.
Supporting our managers
We believe our managers are critical in helping us deliver the best
working environment for our people, driving employee engagement
and championing change as we continue to grow and adapt as a
business. A set of manager expectations launched this year gives
them a framework to understand how to succeed. Our formal
learning programmes have been redesigned around this framework,
to offer a consistent experience across our offices. We have also given
managers the ability to seek feedback on these expectations as part of
encouraging ongoing dialogue at any time throughout the year.
Manager expectations
Nurturers and
exporters of talent
Developers of a
change mindset
Role models
of collaboration
Translators
of strategy
Facilitators of
high-performing teams
Enablers of diversity
and inclusion
Employee development
Developing talent at every level of the organisation continues to be
part of our people strategy. Our early careers programmes, with
investment in apprentices, trainees (as part of the Investment 2020
scheme) and graduates, help build our pipeline of new talent.
Of the graduates who have joined since 2010, 64% are still at
Schroders, reflecting the unique proposition that our programme
offers. From a new talent scheme that brings together potential future
leaders from all over the world to participation in initiatives that build
external perspective at mid and senior levels of the organisation, we
are focused on developing our leaders with the right skills to face the
coming years.
Mobility and succession planning
We know that gaining different experiences is a key part of career
development at Schroders and look to fill our open roles with internal
candidates where possible. In 2019, 25% of our hires were filled in this
way. This offers people the chance to take more responsibility, learn
new areas of the business and also to put new skills into practice. A
key outcome of mobility is also internal succession. Growing and
developing our people has enabled us to make several key
management changes internally. These highly skilled individuals have
a deep understanding of the organisation and are able to make an
immediate impact.
Creating the right environment for all
We are committed to fostering an inclusive culture and the
continuous encouragement of greater diversity in our global
workforce is championed by our Group Chief Executive. Talented
people who can understand and embrace different perspectives
are crucial to our continued business success. This means attracting,
retaining and developing a diverse team regardless of age,
gender, ethnicity, sexual orientation, disability, religious
beliefs or other characteristics.
Schroders Annual Report and Accounts 2019
31
Strategic report Our people continued
Gender diversity statistics (2018 vs. 2019)
Whilst it is clear there are
industry-wide challenges
with achieving true equality,
we are committed to
creating an inclusive culture
where everyone can thrive.
Directors
Senior management1
2019
2018
2019
2018
Female
Male
Female
Male
Female
Male
Female
Male
4
6
3
8
270
586
263
549
Subsidiary directors2
Total senior management
All employees
2019
2018
2019
2018
2019
2018
Female
Male
Female
Male
Female
Male
Female
Male
26
84
30
84
296
670
293
633
Female
2,273
Male
3,400
Female
2,034
Male
3,005
1. Senior management includes members of the GMC, the direct reports of members of the GMC and the direct reports one level below that, in each case excluding administrative
and other ancillary roles. In the charts above, the data excludes the executive Directors of Schroders plc and includes some individuals who are also subsidiary directors.
2. Subsidiary directors comprise directors of subsidiaries who are not classified above as senior management or Directors of Schroders plc.
3. Total senior management in the charts above is the sum of the senior management and subsidiary directors categories.
4. All employees include permanent and temporary staff.
We recognise that each individual needs to be able to benefit from
an environment that allows them to manage the balance in their
lives and we are rolling out flexible working policies globally so
employees feel supported and included.
We are committed to providing equal employment opportunities
and combating discrimination. Where possible, we monitor the
ethnicity, age and gender composition of our workforce and those
applying for jobs.
In line with our longer-term plans, we achieved our initial target of
30% females within senior management positions during the first
quarter of 2017 and at the end of December 2019 reached 32%.
This is just short of our 33% target.
In keeping with our equal opportunities policy, we give fair
consideration to all employment applications, including from
disabled people, considering particular aptitudes and abilities.
If employees become disabled, employment continues wherever
possible, with retraining given if necessary. For the purposes of
training, career development and progression, all employees are
treated equally as part of our commitment to making Schroders an
inclusive place to work. More on our approach to diversity and
inclusion can be found at schroders.com/inclusion.
We are proud to have been a Living Wage accredited employer in the
UK since 2015. All of our UK-based employees and contractors are
paid above the real Living Wage.
Employee-led inclusion
We have 13 active Employee Resource Groups across our business,
including gender equality, sexual orientation, disability, mental health,
religion and ethnicity groups. They are a key feature of our identity as
an inclusive place to work. Additionally diversity and inclusion (D&I) is
owned in the business both via functional D&I groups and in-country
employee-led Diversity & Inclusion Councils outside of the UK
(including Singapore, Hong Kong, Japan, Australia and North America).
Recognising the changing generational dynamics of the workplace,
our newest Employee Resource Group, Millennials@Work, was set up
in the Asia Pacific region this year.
Members not only run events to celebrate their heritage but also work
together to raise awareness around challenges that under-
represented groups might face. As part of our Career Week 2019, our
Employee Resource Groups collaborated to bring together a panel of
external and internal leaders (Levelling the Playing Field for Ethnic
Minorities) to dispel some of the myths and discuss challenges around
career progression.
Inclusion embedded in the employee lifecycle
We believe that each step of our employee experience should be
considered with a view to creating an inclusive organisation. This
includes being thoughtful about our policies ‒ for example offering
both maternity and paternity coaching and shared parental leave ‒ as
well as implementing changes to continue to allow for a diverse
workforce and reduce bias.
32
Schroders Annual Report and Accounts 2019
We are proud to have been part of the inaugural
Bloomberg 2019 Equality Index in January 2019,
which recognises us as a leader in advancing
gender equality globally.
In 2019, we have:
– Reduced bias by changing our early careers recruitment using a
newly designed digital assessment and removing use of
traditional CVs until assessment centre stage
– Designed a new talent development experience whereby
employees are able to self nominate and go through an objective
assessment to participate in a Future of Work workshop, as well as
gain developmental coaching to support their career progression.
A fit and healthy work environment
We have a multi-generational workforce and it is vital that our
people are provided with support and opportunities to optimise their
health and wellbeing. By focusing on education and prevention, we
try to reduce the risk of future health problems developing and
encourage healthier life choices.
We support our people across five key areas: mind, workplace, body,
financial and work-life balance. In 2019 we held events across our
global network, including:
– A month long ‘Move More and Count It!’ physical activity
challenge, to encourage individuals to increase their general
activity levels, improve awareness around the impact of sedentary
behaviour and drive team spirit
– For Mental Health Awareness week, we launched a new e-learning
module ‘Wellbeing in the Workplace’, combining drama with real
life experiences and expert advice. The learning modules
‘Wellbeing in the Workplace’ and ‘Active Listening’ were developed
by Samaritans using the same principles by which they train their
volunteers. On Global Mental Health day in October, we rolled
out a Global Employee Assistance Programme to help ensure
employees are provided with access to free, independent
and confidential support, including short-term counselling.
In the UK, over 40 colleagues have qualified as mental health first
aiders and our aim is to expand this initiative to other locations.
Since 2017, we have supported the Lord Mayor’s Appeal Green
Ribbon Campaign and encourage our people to wear a green
ribbon as a sign of their support to help end the stigma and show
colleagues that they care about their mental health and wellbeing.
Also, we are proud to have signed up to the Mental Health At Work
Commitment.
Case study: Our award-winning workplace
In November, we won the Best Workplace Design at the Business
Culture awards, for our head office in London. The judges were
impressed with the way the building was designed to encourage
collaboration, as well as positioning employee wellbeing at the heart
of the project. Factors such as daylight and lighting, air quality, noise
and biophilia were carefully considered. High quality amenities
include a Health, Fitness and Wellbeing Centre with onsite gym, spin
studio, fitness studio and multifunctional clinical treatment including
private dentist, GP, nurse, physiotherapists, and cognitive
behavioural therapists. The building contains a number of open air
terraces with gardens created to support natural wildlife and to
encourage healthier ways of commuting we have facilities for those
who want to cycle or run. Our goal was to ensure the new workplace
is one that our people are proud of and they enjoy coming to work.
Focus on conduct
We understand the importance of doing the right thing for our clients,
employees and shareholders, and to embed this each employee has a
conduct goal as part of their annual objectives.
We have a whistleblowing policy, under which employees can report
any concerns. A widely publicised 24-hour external hotline is available
to allow them to do so anonymously. Personal securities trading by
employees is subject to clearly defined internal policies. Employees
are not permitted to solicit or accept any gifts, entertainment or
inducements that are likely to conflict with their duties. We have
policies in place and train employees on identifying potential tax
evasion, anti-money laundering, awareness of terrorist financing,
anti-bribery, market integrity and data protection. Due diligence is
undertaken before entering any material new client relationship and
this is enhanced for higher-risk countries, entities or individuals.
Aligning reward to our values and our clients
Competitive benefits and remuneration that reflects the
performance of each employee as well as the business is important
in retaining our people. Our approach is explained in the
remuneration report on pages 72 to 108.
Key awards in 2019
Key memberships and partnerships
LinkedIn
Top place to work
Pensions & Investments
Best Place to Work
Ministry of Defence
ERS scheme
Gold winner
BCA
Workplace Design
Financial News
Chief Executive of the Year
(Peter Harrison)
HR Excellence Awards
(Singapore) Gold for
Diversity & Inclusion
Schroders Annual Report and Accounts 2019
33
Strategic report Our decisions and actions
can make a real difference
to wider society
We are committed to improving futures for those
around us and support programmes and initiatives
that have lasting impact
Ensuring diversity of thought through diversity of action
Key achievements in 2019 include
Carried out more than 1,750 ESG engagements
Volunteered 1,707 work hours
Committed to net zero carbon emissions from 2020
100%
34
Schroders Annual Report and Accounts 2019
ESG integration
across our managed
assets by end 2020
Schroders Annual Report and Accounts 2019
35
Strategic report Corporate responsibility
Committed to creating positive impacts
The impact we have on society and the environment is at the centre of our approach to corporate
responsibility. We focus on driving progress and improving futures across each of our identified
stakeholder groups with sustainability remaining a priority.
We launched an employee photography competition
focused on the 17 UN Sustainable Development Goals (four
winners are shown below)
Social and environmental issues have become fundamental factors
to consider for any organisation or business. Stakeholder
expectations demand that they are considered and increasingly
legislation and regulation seek to address some of the more
pressing issues, such as climate change, human rights and
corruption. Sustainability as a concept is now mainstream for many
organisations, with notable leadership from the United Nations with
its 17 Sustainable Development Goals (SDGs).
Towards the end of 2019, we signed up to the UN Global Compact,
the world’s largest corporate sustainability initiative, which calls on
companies to align strategies and operations with universal
principles on human rights, labour, environment and anti-
corruption, and take actions that advance societal goals. As a
signatory we have committed to do business responsibly by aligning
our strategies and operations with its ten principles and take action
to advance broader societal goals, such as the UN SDGs, with an
emphasis on collaboration and innovation.
In defining positive outcomes, we use the SDGs as our benchmark,
recognising their role in setting truly global objectives. While an
issue like climate change may already demand specific focus for us,
as a global investment business we should aim to progress most, if
not all, of them while we go about our work.
Our immediate stakeholders include our clients, shareholders,
people, suppliers, service providers, investment funds, investee
companies and the communities in which we operate. We also have
clear responsibilities to general society and the environment.
A positive impact towards improving futures is what we want to
achieve for each of these groups. This applies to both engaging on
sustainability with investee companies as well as reducing our
carbon footprint, and supporting our people volunteering their time
to break down barriers to education and employment.
Our approach to society
Human rights
Respect for human rights is fundamental to contributing properly to
society and is central to the responsibility we have towards our
stakeholders. Our business model is designed to comply with
applicable human rights legislation in the countries in which we
operate and, as a signatory to the UN Global Compact, we fully
support the United Nations’ Guiding Principles on Business and
Human Rights. This applies equally to our own people and any
individuals with whom we have contact through our operations.
We are strongly opposed to slavery and human trafficking in any
form and we actively manage our supply chain so that our zero
tolerance approach to human rights abuses is maintained. We
provide specific training for everybody involved in managing our
suppliers and service providers. Whilst our business is undertaken
predominantly in countries with a clear commitment in this area and
the majority of our suppliers are headquartered in low-risk countries,
we have additional due diligence procedures in place where the risk
is higher. More information can be found in our Slavery and Human
Trafficking statement at schroders.com/slavery.
As a responsible investor, we include human rights assessments in
our evaluation of companies from a sustainability perspective. This
includes specific modern slavery assessments across our holdings in
higher-risk sectors.
36
Schroders Annual Report and Accounts 2019
Our suppliers
We rely on external service providers to provide goods and services
globally as essential contributors to our own infrastructure. This
enables us to benefit from their expertise or specialist skills, with
access to lower costs and efficient service delivery.
We engage proactively with our external service providers and have
an established framework that governs our approach to selection,
on-boarding, management, oversight and reporting across our
supply chain. Our Supplier Code of Conduct sets out the high
standards and behaviours we expect from them, covering human
rights, ethical sourcing, bribery and corruption, living wages,
diversity and inclusion, health and safety and the environment.
We perform ongoing critical assessments of our supply chain and
our Audit and Risk Committee reviews our material supplier
relationships and framework annually to confirm that our approach
remains appropriate, consistent and adds value to supplement our
own infrastructure.
As a signatory to the UK’s Prompt Payment Code, we are committed
to the principles regarding treatment of suppliers, which include
paying on time, providing clear guidance on our terms and
encouraging our suppliers to adopt the code.
Our relationships with regulators
As a global company, we aim to maintain positive relationships with
our regulators around the world. They provide important oversight
of how we run our business. Our clients’ interests are best served
when we have positive relations and work constructively with our
regulators.
We regularly engage with regulators and policymakers to ensure
that our business understands, and contributes to, the evolving
regulatory environment. Senior management hold regular meetings
with regulators to foster healthy working relationships and we
frequently contribute to consultations, both directly and through
relevant trade associations. We also report regularly to the Board
and the Audit and Risk Committee on engagement with regulators,
and how changes in regulatory regimes may impact our business
processes and procedures. In 2019, these reports included the
implementation of SMCR in the UK, Conduct Risk and MiFID II.
Our approach to tax
We aim to comply with both the spirit and letter of the law and
are committed to conducting our tax affairs in an open and
transparent way.
This means that we comply with our tax filing, reporting and
payment obligations globally. We also seek to maintain good
relationships with the tax authorities in the jurisdictions in which
we operate. This may take the form of discussing key developments
in our business and the potential impact of those developments on
the amount of tax we pay. From time to time, our views on the
appropriate tax treatment in any given situation may differ
from those of the tax authorities. Where this occurs, we work
constructively and proactively to achieve an early resolution.
We comply with the UK’s Code of Practice on Taxation for Banks and
are treated as ‘low risk’ by HM Revenue & Customs.
We believe it is important that businesses behave responsibly and
build trust within society regarding their role and contribution on
tax. With this in mind, we support initiatives to improve international
transparency on taxation matters, including the Organisation for
Economic Co-operation and Development measures on country-by-
country reporting and automatic exchange of information.
Our tax strategy, available at schroders.com/taxstrategy, sets out
our approach to tax matters across the Group more generally. This
strategy is reviewed and approved annually by the Audit and
Risk Committee.
Taxes borne
Taxes borne by the Group include corporate income tax on the
profits arising in each country, indirect taxes such as value added tax
on our expenses and payroll taxes on our employees’ remuneration.
The total tax borne by the Group in 2019 was £245.7 million (2018:
£253.1 million).
Taxes collected
Companies also have an important role to play in collecting and
administering taxes on behalf of governments, where the cost of tax
is borne by others. This includes income tax and social security
payments deducted from our employees’ remuneration and indirect
taxes charged to our clients. These are taxes paid in addition to the
taxes we bear as a business, which are referred to above.
The total tax collected in 2019 was £244.4 million (2018:
£223.0 million).
The combined taxes borne by us as a business and the amounts
collected by us on behalf of tax authorities in 2019 were
£490.1 million (2018: £476.1 million).
Further information on taxes borne and collected can be found at
schroders.com/taxtransparency.
Our clients
Sustainability continues to grow in importance for our clients
globally, with more interest in how they can make their investment
portfolios more sustainable and resilient for an ever-changing world.
In our 2019 Global Investor Study, 57% of end investors said they will
always consider sustainability factors when selecting an investment
product. However, they still prioritise financial objectives over
investing sustainably; avoiding losing money and meeting their
return expectations were ranked the most important factors.
Changes to regulations, better financial advice and easy to
understand information were ranked among the top factors
that would help encourage investors to invest more in
sustainable products.
Stewardship
Through our Sustainability Accreditation, we seek to provide clarity
to our clients on the different roles that ESG plays in the investment
processes of our funds. We have committed to integrating
environmental, social and governance factors across all of our
managed assets by the end of 2020.
Companies play a critical role in society and need to maintain a
strong relationship with shareholders, employees, suppliers,
communities, customers and regulators and support the
environment to be sustainable in the long run. It is essential to
question and challenge companies about issues that could materially
affect their value. We engage with companies to understand how
they are identifying and managing relevant ESG issues and
encourage them to move towards best practice. We actively exercise
our voting rights and are not afraid to vote against management if
we feel it is in the best interests of clients to do so.
In 2019, we carried out more than 1,750 ESG engagements across 57
countries. We have addressed a wide range of issues ranging from
climate change to human capital management and shareholder
rights. We voted at more than 5,850 company meetings around the
world and instructed a vote against at least one resolution at 47% of
meetings.
For the fifth consecutive year, we received a UNPRI A+ ranking for
our approach to responsible investment. We also received an A+ for
our active ownership.
For more information on our approach to sustainability and
stewardship, please see schroders.com/sustainability.
Schroders Annual Report and Accounts 2019
37
Strategic report Corporate responsibility continued
Our communities
We have a responsibility to create lasting positive impact in the
societies in which we live and work. This year we have continued to
build and establish new strategic community partnerships through
Schroders Giving across the globe, moving from responsive funding
to international multi-year partnerships with organisations that meet
our aims of improving futures. This has allowed greater investment
into social capital and maximises the impact we can have on the
beneficiaries. Through our partnerships we are actively supporting
the United Nations 17 Sustainable Development Goals with a
particular focus on: reduced inequalities; quality education; decent
work and economic growth; and good health and wellbeing.
Schroders Giving
Our new charity partnerships underpin our ambition of improving
futures and through them we tackle the issues we feel strongly
about, including improving social mobility, breaking down barriers
to education and employment, and supporting mental health, with
the help of our talented workforce. It is important to us that through
these partnerships, we’re able to provide our employees with
meaningful volunteering opportunities, where they are able to use
their skills to contribute to making a lasting positive social impact.
We have continued to focus on improving social mobility, which
plays an integral role in our continued success as a business. In the
UK, we have continued our partnership with the Social Mobility
Foundation (SMF), which supports high-achieving students from
low-income backgrounds. Over our four-year partnership, we have
successfully secured SMF candidates onto the Investment 2020
programme, into our formal recruitment process and placed almost
20 students through SMF’s One+1 work placement scheme. We
continue to run ‘Futures Days’, aiming to break down barriers to the
asset management industry and develop participating students’
skills. This year, we have also partnered with the Amos Bursary,
Snowdon Trust and Sutton Trust to fund university places for
students from less fortunate backgrounds, with disabilities, and
young black, Asian and minority ethnic men.
We have established partnerships across the globe to break down
the barriers to education and employment. In the UK, through our
partnership with Teach First, we have funded the training of
11 teachers who are placed into schools in low-income areas, which
has in turn impacted over 1,500 students. To continue our focus on
education, we have partnered with Enactus UK and IntoUniversity,
ensuring access to education through the funding of a new
IntoUniversity centre and empowering university teams across the
UK to tackle social challenges with innovative solutions through
the Enactus network. We have established a number of partnerships
across our regional offices including: Jonk Entrepreneuren, a
Luxembourg association that aims to inspire and prepare young
people to enter the world of work; The Music Children Foundation in
Hong Kong, which provides free music education to children from
low-income families; and with Read Alliance in the US, through which
we have helped almost 1,000 elementary pupils with their reading
skills in 2019.
Charitable giving in figures
2019
1,707
£994,438
Number of volunteer hours taken by
employees during working hours
Donations made by employees
through employee charity matching
schemes (including payroll giving,
fundraising and time matching) –
before Schroders matching
38
Schroders Annual Report and Accounts 2019
We continue to look for opportunities to raise awareness on mental
health. We have a responsibility not just to support our employees
but our communities as well. That’s why we have established a new
multi-year partnership with Samaritans, a charity that aims to
provide support to anyone in emotional distress or at risk of suicide
in the UK. Through that partnership, we will help grow and expand
Samaritans’ support service by means of employee volunteering and
activities. In 2020, Samaritans is launching its ‘City Hub’, a new
flexible volunteering delivery centre, which the charity hopes will
help meet the growing number of calls as well as provide new
volunteering opportunities. Our partnership complements our
internal focus on employee wellbeing. We recently signed the
Mental Health at Work Commitment, which provides a framework of
standards to create a working environment for employees to thrive.
Case study: Improving reading skills in low-income communities
This year we continued our decade-long partnership with Read
Alliance, a US charity that offers one-to-one reading to
underprivileged children by employing teens in those same
communities to serve as tutors. Over our ten years of partnership,
we have raised more than $500,000 for the charity through
employee fundraising events and company donations. We have also
hosted teen leaders for workshops covering topics such as public
speaking, presentation skills and social media, and their impacts on
careers. In 2019, it has worked with over 900 teen leaders and
almost 1,000 early elementary students across New York, including
the Bronx and Queens.
Case study: Breaking down the barriers to our industry
The East London Business Alliance (ELBA) aims to build connections
between business and local communities, bringing time, skills and
resources of the private sector to address social mobility, regeneration,
poverty and inequality in East London and beyond. In our 13 years of
partnership, we have had almost 380 employees volunteer their time as
mentors and have mentored over 600 students. Through mentoring,
our people have helped to improve prospects for young people and
inspire them to succeed, contributing to the programme’s objectives of
introducing young people to the world of work and raising aspirations.
Charitable giving
Supporting our people in their charitable efforts matters to us and
is part of our strategy to be an employer of choice. We have a long
history of positively contributing to local communities through
monetary donations and employee time. In 2019, we donated
£2.1 million to charitable causes around the world (2018:
£2.1 million), £569,000 of which was outside the UK (2018: £447,000).
Alongside our new company-led partnerships, we continue to run
employee-led charitable giving schemes, supporting our employees
in their charitable efforts through a number of generous matched
giving schemes including external fundraising and payroll giving.
In 2019, we focused on rolling out matching schemes across our
regional offices and implementing a streamlined approach to our
employee charitable giving. In the UK, 29% of our employees give
through Give As You Earn (2018: 29%), which saw £855,350 (2018:
£670,0000) donated by employees before the contributions were
matched by Schroders.
In addition to financial donations, we have provided gifts in kind,
organised frequent charitable collections and supported our
employees giving back to the community through volunteering.
We offer a time matching scheme for volunteering outside of office
hours and up to 15 hours of volunteer leave per year. In a recent
UK volunteer survey, 97% of respondents said they thought it was
important for a business to offer volunteer opportunities, while
80% agreed that volunteering improved their mental health and
wellbeing. This year, we have aligned our community impact with
our learning and development strategy and have established
two new partnerships with Governors for Schools and Reach
Volunteering to develop, build and use our people’s skills for
good causes in the charity sector. We recognise volunteering as a
fundamental development tool to progress our people’s professional
and personal skills.
Empowering our people to improve
futures across the globe
In 2019, we rolled out our improving futures strategy across
the globe with the objective of engaging our people to make
a positive impact. We decided to launch a competition,
asking our global colleagues to tell us about the charities
that they thought were driving progress and improving
futures in their communities.
Our employees had the chance to win £50,000, £30,000 or
£15,000 (or the local equivalent) on behalf of their charities,
if they could show how they were making a real difference
around the world.
Our judging panel comprised Peter Harrison, Group Chief
Executive; Leonie Schroder, non-executive Director; and Sir
Damon Buffini, independent non-executive Director.
To engage our colleagues further, we established a ‘People’s
Choice’ award. Once our three finalists were chosen, they
had to work with their charities to create a short video,
highlighting the impact they were having in their
communities. Our colleagues then voted on their favourite
video and the one with the most votes received an additional
donation.
Our judges chose these three winners and we are proud to
support these causes, which align to our corporate focus on
climate change, social impact and social mobility.
st
Cool Earth, global
Cool Earth works alongside rainforest
communities to halt deforestation and climate
change. This charity shares and promotes the
most effective conservation methods around the
world and invests in those methods with the
potential for best outcomes for people and the
rainforest.
nd
SEWA, India
SEWA has been making women in India self-
sufficient since the 1970s. It is made up of a
network of self-employed women on low incomes,
whose financial wellbeing is therefore
unprotected. The charity transforms women’s lives
by empowering them with leadership skills,
entrepreneurship and skills training to gain
full-time employment.
rd
Beyond Social Services, Singapore
Beyond Social Services is dedicated to
helping children and youths from less privileged
backgrounds break away from the poverty
cycle in Singapore. The charity provides guidance,
care and resources that enable families and
communities to keep their young people in
school and out of trouble.
Schroders Annual Report and Accounts 2019
39
Strategic report Corporate responsibility continued
Climate change
We believe that climate change will be a defining driver of the global
economy, society and financial markets in the future, and that
investors will be unable to avoid the impacts of this.
We have been a supporter of the Financial Stability Board’s Task
Force on Climate-related Financial Disclosures (TCFD) since June
2017. TCFD seeks to provide investors with increased awareness of
climate-related risks and opportunities, and we support this
objective. We are also signatories of the 2018 Global Investor
Statement on Climate Change and as a founding member of the
Carbon Disclosure Project (CDP) we continue to use the CDP climate
change questionnaire as our means of comprehensive disclosure. In
this report we provide a summary of our disclosures, using the TCFD
headings as a guide.
Governance
The Group Chief Executive retains overall responsibility for Group
strategy in relation to ESG matters, including climate change. The
Group has an established risk management framework to identify
risk and opportunities and the governance mechanism for reviewing
the potential impact of these is through the Audit and Risk
Committee. The Committee receives reports on risks impacting the
business, one of which is climate change, and reports to the Board
on these at least annually.
The management of climate-related risks and opportunities
relating to our clients’ investments is the responsibility of the
Global Head of Investment.
For our own operations, Climate change risk is managed as part of
our physical infrastructure and supply chain management functions
which report to the Chief Financial Officer.
Strategy
The Group Chief Executive and Board consider ESG risks and
opportunities, including climate change, to be integral to the Group’s
overall strategy.
Key aspects of climate-related risk that currently influence Group
strategy are the risks and opportunities associated with the assets
we manage on behalf of our clients. We consider these risks as a
major long-term challenge for economies and markets, and for
our purpose to deliver positive outcomes for our clients.
We consider that a multi-faceted approach is needed to
successfully mitigate the impacts.
We have been actively monitoring client views on this topic with the
aim to meet rapidly evolving expectations, with regular surveys of
both retail and institutional clients since 2017. In 2019, we saw
greater industry and investor awareness of climate change. In our
Global Investor Study, protecting the planet was ranked the top
priority for stewardship, with almost three-quarters of investors
(71%) believing man-made climate change is a real phenomenon
that is impacting the world. Of this number, 40% believed the impact
would be ‘significant’, with 63% of investors believing it will have
some impact on investments. Our Institutional Investor Study saw
climate change rank above corporate strategy globally as the top
engagement issue for the first time. We are seeking to address these
evolving client needs in a number of ways.
We are launching and evolving sustainable funds to meet client
needs. We have operated a Global Climate Change fund since 2007.
This is a diversified, global thematic fund that invests in companies
that recognise the threats of climate change and embrace the
challenges early, or that form part of the solution to the problems
linked to climate change. During 2019, we launched a Global Energy
Transition fund which only invests in companies involved in the
sustainable energy value chain as the world transitions to low-
carbon power. Both of these funds sit alongside our fossil fuel free
and low-carbon solutions. We recognise the need to evolve our
products; our Global Sustainable Growth fund became explicitly
fossil fuel free in 2019, joining a number of existing products
of this nature.
40
Schroders Annual Report and Accounts 2019
We are increasing our interaction with clients on this complex
issue. As well as discussing the issue in client events and webinars,
our quarterly and annual investment reports include updates on
the topic and in 2019 we wrote a specific thought leadership
piece on divestment.
We are increasing our engagement activity on climate change, both
bilaterally and with collective engagement such as joining the
Powering Past Coal Alliance.
We engage with policymakers to ensure that we stay ahead of fast
moving expectations and to share our experience of building
effective investment solutions in this area.
Our product strategy is reviewed annually by our Product
Strategy Committee, made up of senior stakeholders from across
Investment, Product and Distribution and attended by our Group
Chief Executive, so that we are evolving our proposition in line with
changing expectations.
Risk management
Climate change is recognised within our overall risk management
framework as a key risk facing the Group. It arises from both
physical risks from extreme weather events linked to increasing
global temperatures and transition risks as the global economy
shifts to a low-carbon environment.
It is our central thesis that significant and disruptive changes are
needed to limit rises to the 2°C commitment global leaders made in
Paris. Failure to make those changes in time will lead to escalating
physical damage, social instability and economic losses. The impact
of climate change is therefore unavoidable, even if the timing and
types of impact remain uncertain. Every part of the global economy,
every industry and every company will be affected to some extent,
not just the most obviously challenged. The complexity of this
change means that it is a source of considerable risk for the markets
in which we invest.
Approximately 80% of emissions are embodied in sectors that
represent 20% of market capitalisation so these will feel the brunt of
the transition impacts but the effects in others will also be important.
Decarbonising the global economy will create huge disruption, but
there will also be significant investment opportunities. Investors can
either focus on the sectors that will face the largest direct pressures,
or they can look at the broader impacts and more nuanced indirect
effects which may be less acute in many cases but are also typically
less well understood by the market. We expect most of these to
unfold over the medium and longer term. We have focused our
activities on building tools that enable this to happen, even if we are
less than certain when risks like transition will begin to occur.
For our investment activities, our fund managers are responsible for
identifying and managing risks to their portfolios, including those
relating to climate change. The Sustainable Investment team has an
important role to play in providing research and the tools to enable
this to happen. The team reports into the Global Head of Investment,
who is a member of the GMC and works with the different
investment teams to ensure that these tools are used as
effectively as possible.
All of our analysis shows us that overall the risks are significant for
markets. Climate change has therefore been a major strand of our
engagement activity. In 2019, we had more than 230 climate change-
related engagements with more than 200 companies, including
collective engagement through the Climate Action 100, focusing on
the worlds’ largest emitters. Equally, we are aware that there are few
sectors that are not impacted. We have also hosted events to share
the findings of our research with the companies in which we invest.
We hope that this will equip boards to make better capital allocation
decisions and build resilience. In 2019, we focused on physical risk.
We also complement our engagement activity with voting.
Metrics and targets
Regarding the management of investments, the integration of ESG
factors into our investment process is a key initiative for the
business. We have targeted 100% integration of all our managed
assets by the end of 2020, separately verified by our Sustainable
Investment team and by 31 December 2019 we had achieved this for
the majority of our AUM.
Regarding our own corporate activities, as a signatory of the RE100
initiative we are committed to using only renewable electricity
globally by 2025 and we have an interim target of 75% by
31 December 2020. By 31 December 2019 we had achieved
a total of 68% of electricity from renewable sources.
In 2019, we introduced an objective of achieving year-on-year
reductions in gross GHG emissions measured in tonnes of CO2e
per employee. In 2019, we achieved an 11% reduction in CO2e
emissions as they fell to 3.05 tonnes per employee
(2018: 3.44 tonnes per employee).
As part of our ambition to meet the EP100 Net Zero Carbon Buildings
pathway in the UK, we plan to own and occupy only assets that are
net zero carbon in operation by 2030. As an interim target we have
pledged to reduce our emissions by 10% per square foot by 2025,
focusing on our London estate which currently accounts for
approximately 45% of our global emissions.
We continue to participate in the CDP Climate Change
Questionnaire. We use conversion factors provided by DEFRA to
calculate our CO2e emissions for all consumption apart from
overseas electricity, for which we use the International Energy
Agency’s conversion factors as recommended by DEFRA. Our data
has been verified and further information is disclosed in our CDP
submission. Our total carbon output in 2019 has reduced by 2%,
despite the increase in the size and scale of our business as we
increased our AUM to £500.2 billion and grew our average
headcount by 10%. For the last three years, we have used
the internationally accepted GHG Protocol Corporate
Standards for reporting.
Our workplace and the environment
As part of our commitment to responsible consumption and
production, we aim to minimise the impact that our own business
has on the environment. We constantly review opportunities to
minimise the environmental impact of our operations and to deliver
continuous improvements in our environmental performance.
In 2018, we consolidated our London office portfolio and relocated
to our new London Headquarters at 1 London Wall Place. In 2019 we
were pleased to achieve an Excellent BREEAM rating for the fit-out of
the building. The BREEAM rating is the world’s leading sustainability
assessment for buildings and the Excellent rating reflects our
building being in the top 10% of UK new non-domestic buildings.
The building has a number of sustainability initiatives including
Recycling at 1 London Wall Place
75%
1,591
20,880
recycling rate achieved
trees saved
fuel logs produced from
coffee grounds
grey-water toilets which re-use basin and sink water, and reducing
carbon emissions by recycling heat from catering fridges into the hot
water system. With our New York office having achieved Leadership
in Energy and Environment Design (LEED) Gold certification, and our
Singapore office certified BCA Green Mark Gold for sustainable
design and construction, we now have over 60% of our employees
working from buildings demonstrating excellence in sustainability.
We have continued to review our waste management processes
across the Group and recognise our responsibility to reduce our
waste and run efficient operations. Starting with our London offices,
we have run employee awareness campaigns around our recycling
programmes to help increase our recycling rates. We took part in the
‘Plastic-free July’ campaign, calling on colleagues to reduce their
reliance on single-use plastics. In an internal survey, 60% of
respondents said they were more confident on how to dispose of
their waste and 100% said they would change their habits around
single-use plastics after they attended a talk hosted by the founder
of Plastic Oceans UK. We have seen high engagement across the
Group about plastics and in our US office colleagues took the
initiative to run their own plastics campaign to help continue to raise
awareness about the damaging effects of plastic pollution. We seek
to achieve recycling rates of 75% in our UK operations and plan to
extend our targets to our worldwide operations.
Commitment to net zero carbon emissions
In support of the long-term goal of the Paris Agreement to keep
global average temperature to below 2°C above pre-industrial levels,
we recognise our responsibility to play our part in reducing global
emissions and that a balance between emissions and removals
should be achieved by 2050.
In addition to our programme to reduce our gross emissions, from
1 January 2020 we have been investing in sufficient carbon offsetting
activities to ensure that our own operations will be net zero for
carbon emissions. We commit to reporting on our offsetting
investments, alongside our gross emissions, on an annual basis.
Total CO2e emissions (tonnes)
16,352
CO2e emissions per employee (tonnes)
CO2e emissions per employee (tonnes)
3.05
CO2e emissions per employee (tonnes)
2018
621
5,092
11,054
2019
709
4,965
10,678
16,767
16,352
2018
2019
3.44
3.05
Scope 1: Natural gas, oil and company-owned vehicles
Scope 2: Electricity
Scope 3: Business travel
1. The 2018 figures have been adjusted to align with 2019 emissions calculations.
Schroders Annual Report and Accounts 2019
41
Strategic report Corporate responsibility continued
Our Sustainable Investment team
Schroders has a long-serving and well-resourced Sustainable Investment team. It is comprised of ESG specialists who are responsible for
analysis, engagement, voting and facilitating ESG integration into investment processes across teams and asset classes. We also employ
dedicated product and client resources. For more details, visit schroders.com/sustainableinvestment.
The below table gives information on some of the sustainable investment tools that we have built, the impacts that we have identified
and the steps we have taken to mitigate them. As well as quantifying the overall impacts on markets, we also find that the performance gap
between companies that we identify as winners and losers via these tools is significant:
Tool
Features
High level findings
Uses
More information
Climate Progress
Dashboard
Carbon
Value at Risk
Updated quarterly, it tracks
indicators across policy,
technology, finance and
incumbent industry against
International Energy Agency
(IEA) scenarios to assess
what degree of temperature
rises we can expect given
current trajectories.
This measures the extent to
which company profits and
investor returns could be at
risk from higher carbon prices
as we transition to a lower
carbon economy. Our model
examines carbon emissions
from companies’ direct and
indirect operations, and
elasticity of demand for
their products.
Temperatures are
set to rise by 3.8°C by
the end of the century if no
progress is made from where
we are today.
Almost half of listed global
companies would face a rise
or fall of more than 20% in
earnings if carbon prices rose
to $100 a tonne.
schroders.com/
climate-dashboard
schroders.com/
climate-dashboard/
var
The dashboard indicates areas
of particular weaknesses and
industries that might be
subject to more disruptive
policy action if the status quo
remains. For example, carbon
capture and storage still
has significant progress
to make before it offers
a viable solution.
By estimating supply chain
emissions and identifying
which companies will suffer
the largest potential earnings
drop we have been able to
do more in-depth analysis
than is possible through
conventional carbon
footprinting. The tool is also
useful for identifying winners
and losers within sectors.
Physical Risk
This estimates what it
would cost companies as a
percentage of their total value
to protect their assets against
more extreme climate-related
weather events based on
the location of their assets
until 2030.
While the impact on global
values is small at around 1%,
these costs are certain to be
incurred. We find that
asset-heavy industries
such as mining in locations
around the Pacific are
particularly impacted.
As well as showing company
and portfolio-level physical
risk, this has been a useful
engagement tool, so we can
contact those companies
most exposed to better
understand how they are
tackling the challenge.
schroders.com/
climate-dashboard/
physical
SustainEx
This tool quantifies the hidden
environmental and social
costs that companies create,
both positive and negative,
that are evidenced by
academic research.
If all of the impacts our
research identified were
crystallised as financial costs,
the $4.1 trillion of profits
generated by listed
companies would fall by 55%.
schroders.com/
sustainex
This tool is available to our
investment teams through a
number of channels including
our portfolio management
platform. It enables them to
have a holistic understanding
of the net impact that their
portfolio and individual
companies have on society and
the environment.
42
Schroders Annual Report and Accounts 2019
Non-Financial Reporting Directive
The table below sets out where stakeholders can find more information that relates to non-financial matters, as required under
the new Non-Financial Reporting Directive.
Reporting
requirements
Environmental
matters
Employees
Human rights
Social matters
Policies and standards which
govern our approach1
Due diligence, outcomes and
additional information
Page
number
Environmental, social and governance policy
Statement of compliance with UN Principles for
Responsible Investment
Our approach to corporate responsibility
ESG engagements
Climate change and the environment
Guiding principles and values
Directors’ remuneration policy
Policy on Board diversity
Group health and safety policy
Group malus and clawback policy
Internal HR policies including equal opportunities
policy, flexible working policy, parents and family leave
policy, mental health and wellbeing policy, trans-
inclusion policy
Slavery and human trafficking statement
Supplier Code of Conduct
Personal data policy
Environmental, social and governance policy
United Nations Guiding Principles on Business and
Human Rights
Retention of key talent
Creating a place where people want to work
Gender diversity
Employee opinion survey highlights
Employee length of service
Policy on Board diversity
Remuneration report
Our approach to corporate responsibility
Human rights
Our suppliers
Our clients
Human rights
Volunteering policy
Supplier code of conduct
Environmental, social and governance policy
Statement of compliance with the UK Stewardship Code
Statement of compliance with UN Principles for
Responsible Investment
Our approach to corporate responsibility
Our communities
Charitable giving
Our clients
The environment
Our approach to tax
36
34
40
30
31-33
32
30
30
64
72-108
36
36
37
37
36
36
38
38
37
41
37
Anti-bribery and
anti-corruption
Anti-bribery and corruption and inducements
policies (including gifts and entertainment)
Anti-money laundering and counter-terrorist
financing policy
Group tax strategy and tax evasion policy
Whistleblowing policy
1. Certain policies, standards and guidelines are not published externally.
Key risks and mitigations
Process risk
Creating a place people want to work
44-50
49
31
Additional information
Key risks and mitigations
Description of key risks
Business model
Non-financial indicators
44-50
47-49
10-11
18-19
Schroders Annual Report and Accounts 2019
43
Strategic report Key risks and mitigations
Risk management culture focused
on integrity and good conduct
We are exposed to a variety of risks as a result of our global business activities. Effective
risk management is a core competence and we actively monitor the potential impact of
current and emerging risks. We place significant focus on the integrity and good conduct
of employees and doing the right thing for our stakeholders. Our risk management
framework is underpinned by a strong control culture with clear oversight responsibilities.
Managing risk
The Board is accountable for risk and oversight of the risk
management process. It assesses the most significant risks facing
the business and also uses quantitative exposure measures, such as
stress tests, where appropriate, to understand the potential impact
on the business. Non-executive oversight of the risk management
framework process with respect to standards of integrity, risk
management and internal control is exercised through the Audit and
Risk Committee, more details of which are on page 66.
It is the responsibility of all employees to uphold the control culture
of Schroders. We embed risk management within all areas of the
business at a Group and legal entity level. The Group Chief Executive
and GMC, as the principal advisory committee, have responsibility
for regularly reviewing the key risks we face. This includes ensuring
that their respective business areas in all legal entities are
identifying, monitoring and reporting on relevant risks and controls.
They are also responsible for monitoring that individual behaviours
reflect the culture and core values of the business.
The executive oversight of risk is delegated by the Group Chief
Executive to the Chief Financial Officer. The Chief Financial Officer
has responsibility for the risk and control framework of the Group.
Independent monitoring and reporting of risks and controls across
the Group and at a legal entity level is undertaken by the second line.
The Chief Financial Officer chairs the Group Risk Committee, which
normally meets ten times a year. The Group Risk Committee
supports the Chief Financial Officer and GMC in discharging their
risk management responsibilities. The committee is attended by the
heads of the control functions (Group Risk, Compliance, Legal and
Internal Audit) along with chief operating officers from across the
business and senior management from Distribution, Product and
Wealth Management. Other GMC members regularly attend. The
Group Risk Committee reviews and monitors the adequacy and
effectiveness of the Group’s risk management framework, including
relevant policies and limits. It also reviews trends and current
exposures to our key risks and considers issues as they arise. The
Group Risk Committee and the Wealth Management Audit and Risk
Committee (WMARC), details of which are on page 66, receive
reports relating to the risk profile of Wealth Management.
Lines of defence
The first line of defence against undesirable outcomes is the
business functions themselves and the line managers across the
Group. Heads of each business area take the lead role with respect
to identifying potential risks in their area and implementing and
maintaining appropriate controls to manage these risks, including
through the Risk and Control Assessment process.
Line management is supplemented by the control and oversight
functions, including Group Risk, Compliance, Legal, Governance,
Finance, Tax and Human Resources, which constitute the second
line of defence. The compliance monitoring programme reviews
the effective operation of relevant key processes against
regulatory requirements.
Internal Audit provides retrospective, independent assurance over
the operation of controls and forms the third line of defence. The
internal audit programme includes reviews of risk management
processes and recommendations to improve the control
environment, supplemented by external assurance from the
Group’s auditors. The team also carries out thematic compliance
monitoring work.
We maintain comprehensive insurance cover with a broad range
of policies covering a number of insurable events.
Lines of defence overview
External independent assurance
Three lines of defence
3rd line: Internal
independent assurance
2nd line: Control and
oversight functions
Group
Risk
Committee
Group
Management
Committee
Audit and
Risk
Committee
The Group Conflicts Committee supports the Group Risk Committee
and GMC in identifying and managing conflicts that may arise from
time to time in our diversified business.
1st line: Business
operations and support
44
Schroders Annual Report and Accounts 2019
Our control framework is underpinned by a set of policies, which
are reviewed annually to ensure they remain relevant. Our
approach is to have simple, principles-based policies that are
adopted across the Group. This means our employees are well
supported with clear guidance on what they should do and what
we expect of them, while similarly our service providers and
partners are briefed on the standards we expect them to adhere to.
The Group policy framework helps our newly acquired businesses
understand the culture of the Group and the parameters we expect
them to operate within.
Specific initiatives were undertaken during 2019 by Group Risk that
covered a wide range of activities across the Group. Some of these
are summarised below:
– Continued to provide focused oversight of our cyber risk through
the Information Security Risk Oversight Committee (ISROC). This
included the sponsorship of an independent review that provided
us with a benchmark of the Group’s security capabilities against
industry best practice and assessed the security control
framework against our risk appetite. The results were presented
to the Group Risk Committee and to the Audit and Risk Committee
and used to inform the information security strategy.
– We have reviewed and enhanced the Group’s business continuity
and disaster recovery strategy, the results of which were
presented to the Group Risk Committee and the Audit and Risk
Committee. A key focus is ensuring our critical business services
are resilient and that we can continue to operate in the event of
loss of a critical service provider.
– Working closely with our Information Security team, our annual
crisis management exercise challenged and tested our GMC
members to navigate through a cyber attack, the loss of a critical
service provider and a potential external fraud scenario.
– We have tested our business continuity and recovery options,
including our pandemic plans, which have been activated in
response to Covid-19.
– Working with our investment operations teams we have been
assessing the resilience of our investment platform and our ability
to service our customers in the event of an outage.
– We have reviewed our procurement approach to improve
management of third-party suppliers and in turn strengthened
the linkage to resilience of the Group’s activities.
– We have supported growth initiatives in our Private Assets
business and our global operating strategy.
– We have assessed the risks in our acquisitions, investments and
joint ventures including ThirdRock, Blue Asset Management,
BlueOrchard and Schroders Personal Wealth.
– We have combined our cyber and technology risk oversight team
with our business continuity team.
– A number of thematic investment risk reviews have been
conducted to support the oversight and challenge of risk-taking
within portfolios. Themes covered included fund capacity, private
asset risks and the levels of active risk taking.
– We have enhanced our liquidity oversight framework. Additional
metrics were introduced to provide early warning signals and an
enhanced Liquidity Management Plan was established to support
decision making under stressed market conditions.
The Risk and Control Assessment (RCA) process continues to be a key
part of our operational risk framework and is summarised in the
following diagram. In 2019, we have strengthened the challenge and
oversight performed by our extended second line functions:
Governance, Compliance, HR, Tax, Finance and Legal.
Risk and Control Assessment Process
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Key risks
Assessment of key risks
We periodically assess the risks faced by our business and as a result
the key risks for the Group are updated to ensure they are well
understood and managed. We have identified 19 key risks across
Strategic, Business and Operational risk categories, as shown on the
following pages.
These risks have been assessed in light of the current environment,
taking into consideration the views of subject matter experts and
risk owners within the firm, geopolitical risks that may impact our
clients, market conditions and the ability of our employees to
operate in local offices around the world. Regulatory sentiment,
changes within the business and threats with uncertain impact,
probability and timeframes could impact the Group. We continuously
monitor internal and external environments to identify new and
emerging risks. We then analyse each risk and assess how this can
be managed and mitigated.
We have added Climate change risk as a new Business risk, to
highlight the risk of climate change to the Group and the portfolios
we manage. We have considered the physical risks, as a result of
more extreme weather events and prolonged climate impacts from
increased global temperatures, and the transition risk as economies
of the world shift towards a low carbon environment. Importantly we
have recognised the impact if we do not deliver on our commitments
made to stakeholders and the reputational damage this may cause.
We have added Business services resilience risk as a new
Operational risk, which replaces Third-party service provider risk.
This provides an aggregate view of the interdependencies between
Technology risk, third-party service providers and Process risk which
must be managed to mitigate a failure of a critical business process.
This also meets regulatory expectations as required.
Schroders Annual Report and Accounts 2019
45
Strategic report
Key risks and mitigations continued
The Group determines which key risks it considers to be heightened, for example those that are more costly if they materialised, and we then
undertake further work to manage these actively. When considering these risks, we take into account the objectives of regulators to ensure
market integrity, good conduct, appropriate consumer protection and the promotion of competition within the industry. The diagram below
illustrates the relative likelihood and impact of our risks and is an outcome of our assessments.
Strategic risks
Operational risks
1 Changing investor requirements
11 Conduct and regulatory risk
2 Fee attrition
12 Information security risk
3 Business model disruption
13 Process risk
14 Business services resilience risk
15 Fraud risk
16 Technology risk
17 Legal risk
18 Tax risk
19 People and employment practices risk
Reporting on our
material risks
The diagram below illustrates
our key risks before mitigation.
The horizontal axis shows the
impact of a key risk if it were to
materialise and the vertical axis
shows the likelihood of this
occurring. The scales of each axis
are set on a relative basis
between each risk and are based
on the residual risks.
Details of these risks, and how
we manage them, are described
in the tables on the following
pages. The risks that we consider
to have either a higher potential
impact on the organisation, or
with a higher likelihood of
occurring, are shown above the
diagonal line.
4 Market returns
Business risks
5 Reputational risk
6 Investment performance risk
7 Climate change risk
8 Product risk
9 Business concentration risk
10 Financial instrument risk
Risk impact matrix
19
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18
13
7
17
16
8
10
9
1
4
14
12
15
11
5
6
Low
Medium
Impact
High
46
Schroders Annual Report and Accounts 2019
Key risks
Strategic risks
Impact for Schroders: These risks relate to our strategy and the environment in which we operate. If these risks are not carefully managed,
our AUM may be lowered and likewise the income we receive may decrease. Our business plans seek to address these risks by responding to
the challenges faced and by growing our assets and earnings.
Higher-rated key risks
How we manage this
1
Changing investor requirements
Client requirements are evolving rapidly. Failing to adapt or
evolve our business model and product range to reflect these
changes could lead to a drop in AUM.
This continues to be notable in the Solvency II driven investment
requirements of clients and the move from Defined Benefit to
Defined Contribution pensions for example.
ESG is a material part of our client considerations and we expect
Climate change risk to feature more heavily in future investment
requirements and offerings.
2
Fee attrition
We have a dedicated Product, Solutions and Quant division that
focuses on developing our product strategy. We continue to
expand our capabilities into new areas, including Private Assets,
and to commit seed capital to developing Solutions. We carefully
manage our cost base to respond to our clients’ changing asset
allocation requirements.
Clients allocate more of their assets to passive products with a
lower fee budget allocated to public markets, which results in a
smaller pool of capital allocated to active fund managers and
increased competition on price.
We are increasing our focus on Solutions and outcome-oriented
strategies and Private Assets, which diversify our fee income. We
are also increasingly diversifying our product offering, supporting
long-term profitability.
A move towards vertical integration can also impact revenues of
investment managers as the pricing power may reside with the
organisations that have the end client relationship.
We also remain focused on our strategic objectives of moving
closer to the end client.
3
Business model disruption
Our business model could be disrupted by a range of external
factors including technology changes, product evolution and
market participants.
Changes in regulation such as the value assessment, RDR and
PRIIPS could be disruptors to the traditional role of asset
managers.
4
Market returns
Our income is primarily derived from the assets we manage.
Falling markets reduce our AUM and therefore impact revenues.
This could be sudden in cases such as Covid-19 where material
disruption to the supply chain and distribution networks in
consumer activity may occur. Market falls may also be
exacerbated by geopolitical risks and the currency in which the
AUM is denominated and clients are billed.
Economic uncertainty and slowing global economies may also
impact markets. The response of central banks may have a
dependency on fiscal measures which could impact market
returns. Greater cooperation across central banks may be
required, at a time when economies are becoming more inward
looking. Capital investment may be targeted at domestic growth
rather than being allocated to cross border initiatives.
Lower levels of capital raising on public markets shrinks the size
of the investable market and the opportunity for returns.
We are increasing our delivery of efficiencies and insights
through technology. Digital initiatives are in progress to improve
client experience, engagement and servicing. We are investing in
our technology platform to support scalability, agility in our
product offering and our expanding Private Assets business.
We have diversified income streams across a range of markets to
mitigate falling markets in any one area.
Our focus on growing our Private Assets & Alternative product
range allows us to have a broader range of income streams
which are less directly linked to public markets.
We strive to outperform our competitors with a view to attracting
assets, which may offset a decline or fall in any given market
while pursuing returns for our clients.
Schroders Annual Report and Accounts 2019
47
Strategic report Key risks and mitigations continued
Business risks
Impact for Schroders: In executing our strategy, a number of key risks arise that could impact our ability to attract and retain clients. By
evolving our product offering and delivering good investment performance, we have the best opportunity to be selected by clients when
allocating assets. A failure to achieve these could lead to a decrease in AUM.
Higher-rated key risks
5
Reputational risk
This may arise from poor conduct, judgement or risk events due
to weaknesses in systems or controls. The reputation of
Schroders can be impacted by any of our key risks and in
particular for Conduct and regulatory risks which may
materialise.
6
Investment performance risk
There is a risk that portfolios may not meet their investment
objectives or that there is a failure to deliver consistent
performance, resulting in clients moving assets away from the
Group, or a failure to attract new assets.
7 Climate change risk
In terms of the assets we manage, this is the risk of a failure to
understand the pricing of assets affected by climate change due
to declining cash flows from industries or those with a lower
demand from investors. This may lead to poor investment
decisions and more volatile pricing as asset prices adjust to
reflect the increasing regulation of carbon emissions. Our
business may also be impacted if we fail to offer climate friendly
products which will impact our performance, brand and
reputation.
Our business activities are directly or indirectly disrupted if we do
not meet corporate emissions targets.
How we manage this
We consider reputational risks when initiating changes to our
strategy or operating model and maintain high standards of
conduct.
We have clearly defined investment processes designed to meet
investment targets within stated parameters, which are subject
to independent review and challenge.
Oversight of both risk and performance is embedded in our
business processes and governance.
We have developed a range of tools to better understand the
impacts of climate change on the portfolios we manage,
including a physical risk model and a transition risk model.
We assess our corporate exposure to physical climate change
risks and that of our supply chain.
We actively monitor our emissions and have adopted targets to
reduce our carbon footprint.
Lower-rated key risks
8 Product risk
How we manage this
There is a risk that our product offering is not suitably diversified,
or does not provide access to strategies that will help clients to
meet their objectives. There is also the risk that the product
liquidity is not consistent with the product description, or the
redemption requirements of clients.
9 Business concentration risk
The risk that insufficient diversification in distribution channels,
products, clients, markets or income streams could impact our
business.
10 Financial instrument risk
We face market, credit, liquidity and capital risks from the
instruments we manage as part of our AUM, as well as those
arising from holding investments where we act as principal. The
impact of financial instrument risks on our business may
negatively affect our earnings, balance sheet or our ability to
invest in our business.
Our dedicated Product, Solutions and Quant function focuses on
strategy, innovation and changing client requirements.
We have established a Product Governance Committee to
monitor products at each stage of their lifecycle.
We have a liquidity risk management framework and monitor
liquidity on an ongoing basis.
We have a broad range and scale of products, distribution and
investment channels and our development of strategic
relationships and acquisitions enables further diversification of
income streams.
We manage capital and liquidity through Board-set limits and in
the Group Capital Committee, and the Assets and Liabilities
Committees of the private banks.
We monitor our credit and counterparty exposure in the Group
balance sheet and in the bank lending portfolios.
We manage market risks in our investment capital and foreign
exchange risk in our income.
48
Schroders Annual Report and Accounts 2019
Operational risks
Impact for Schroders: Operational risks are inherent in all activities and processes. They exist in the normal course of business and are
sometimes heightened when we implement changes to our organisation. When Operational risk events occur, this may impact our clients and
our ability to serve them. We may be liable for financial losses or fines, which could affect our business performance and may weaken our
standing with stakeholders.
Higher-rated key risks
11 Conduct and regulatory risk
How we manage this
The risks of inappropriate conduct, conflicts management
practices or behaviour resulting in detriment and client harm, or
market abuse, and of failing to meet regulatory requirements
and changes.
We promote a strong compliance culture among all our staff
through communication of our Group’s purpose and values,
policies and procedures, appropriate governance, monitoring
and assurance activities, staff training, appropriate remuneration
structures and the annual appraisal process.
12
Information security risk
The risk that our technology is compromised or inadequate,
resulting in the confidentiality, integrity or availability of our
clients’ and our own data or Schroders’ services being negatively
impacted.
Formal governance of information security (cyber) risks exists
across the three lines of defence and is monitored by the
Information Security Risk Oversight Committee.
13 Process risk
The risk of failure of significant business processes, such as
mandate compliance, client suitability checks, financial crime risk
management and asset pricing.
Our key business processes are regularly reviewed and the risks
assessed through the RCA process. When we undertake change,
such as acquisitions, we assess new processes that may arise.
14 Business services resilience risk
The risk we are unable to operate critical business services, this
includes our third parties’ readiness to manage the risk from
Covid-19.
We manage this through relevant processes, procedures and
plans which are tested to ensure we can maintain service,
respond or recover.
Lower-rated key risks
15 Fraud risk
How we manage this
Fraud could arise from any attempt to defraud the business or
our clients by circumventing our processes and controls.
Controls are in place, which are assessed as part of the RCA
process. We apply particular focus to our payment processes.
16 Technology risk
A change or failure in technology could pose a risk to the integrity
or availability of the services we offer.
Policies and technical standards are deployed, together with
robust project and change management processes, which cover
the assessment of business requirements, risk and scalability.
17 Legal risk
The risk that we, our clients, our suppliers or other third parties
fail to meet or record legal or regulatory obligations, and related
disputes.
Our policies and procedures consider Legal risk as part of their
design. We have an escalation process for areas of material risk
and our Legal function supports our employees globally across
our business.
18 Tax risk
We and the funds we manage are exposed to tax compliance and
reporting risks, which include the submission of late or inaccurate
tax returns.
Our tax strategy sets out our approach to managing our tax
affairs, underpinned by a governance framework and supported
by the Tax function, which works with management and advisers
to monitor our position and relevant tax changes.
19 People and employment practices risk
The inability to attract, retain or develop key employees to
support our business, offer an attractive value proposition under
remuneration regulations or maintain high standards in
employment practices.
We have sustainable succession and employee development
processes and recruit selectively through our entry-level and
experienced hire programmes. We have competitive
remuneration, which is designed to encourage retention, and we
build depth and strength in our workforce.
Schroders Annual Report and Accounts 2019
49
Strategic report Key risks and mitigations continued
Our position on Brexit
The United Kingdom left the European Union on 31 January 2020
under the terms of the European Union (Withdrawal Agreement) Act
2020, beginning a transition period to 31 December 2020 during
which EU law and the rulings of the European Court of Justice will still
apply within and to the UK. Negotiations on the future relationship
between the UK and the EU will continue but uncertainty remains as
to what will be agreed before the end of the year.
Schroders remains well-positioned to manage the challenges
that may arise as a result of Brexit, regardless of the outcome
of the negotiations. Our diversified business model and
significant presence in Continental Europe mean that our ability
to service our European clients and continue to grow our
business should be unaffected.
We have a long-standing presence in Europe with over 800
employees across 15 offices. We have obtained additional
investment management permissions in Luxembourg to ensure
that we can continue to offer the full range of investment services
to all our EU clients. We have substance and portfolio management
oversight experience in the EU to enable Schroders to perform
portfolio management and to delegate portfolio management
of our Luxembourg fund range and EU client mandates as
appropriate to our investment centres across the world.
We have registered our Luxembourg fund ranges under the
UK Financial Conduct Authority’s temporary permissions regime
to allow EU27-based funds to continue to be offered to clients based
in the UK if necessary in future. We are closely monitoring
developments to support continuity for our clients and our business.
50
Schroders Annual Report and Accounts 2019
Viability statement
In accordance with the UK Corporate Governance Code, the Directors have
carried out a robust assessment of the key risks facing the Group and expect
that Schroders plc will continue to be viable for at least the next five years.
Assessment of prospects
A five-year period to December 2024 is in line with the Group’s
strategic business planning and forecasting period. The Group’s
strategic and financial planning process includes a detailed review of
the business model and key planning assumptions. It is led by the
Group Chief Executive and Chief Financial Officer in conjunction with
management teams, with the one-year outlook most recently
updated in March 2020. The business planning process considers the
longer-term headwinds that may materially impact the Group, and
assesses the need for business model changes. The business plan
reflects the Group’s strategy, which is summarised on pages 16-17.
Key assumptions underpinning the financial planning process
include AUM growth from both markets and net new business;
changes to net operating revenue margins owing to changes in
business mix, planned business activity and industry-wide margin
pressures; and additional costs comprising the expected total
compensation cost ratio and non-compensation costs including
those arising from continued investment in the development
of the business.
Progress against financial budgets and key objectives are reviewed
throughout the year by both the Directors and the GMC, along with
periodic reviews of the capital and dividend policies.
Assessment of viability
The assessment of the Group’s viability requires the Directors to
consider the principal risks that could affect the Group, which are
outlined on the previous pages. The Directors review the key risks
regularly and consider the options available to the Group to
mitigate these risks so as to ensure the ongoing viability of
the Group is sustained.
Stress testing is performed on the Group’s business plan, which
considers the impact of a number of the Group’s key risks
crystallising over the assessment period. This includes consideration
of new and emerging risks, identified through the business planning
process, that could have a material impact over the five-year
planning period.
The severe but plausible stress scenarios applied to the business
plan include the following factors which, where relevant, use
assumptions more severe than the regulatory stress scenario
required by the Prudential Regulation Authority:
– Outflows of our AUM, or deterioration in the value of our AUM, as
a result of, for example, a market downturn, foreign exchange
movements, climate change risks or poor investment
performance;
– a significant decline in net operating revenue margins reducing
projected revenues, together with an increase in the ratio of total
costs to net income;
– the impact of a material operational risk event which could lead to
reputational damage and outflows of our AUM.
The stress scenarios are consistent with those used in the Group’s
consolidated Internal Capital Adequacy Assessment Process and
Internal Liquidity Adequacy Assessment Process.
Having reviewed the results of the stress tests, the Directors have
concluded that the Group would have sufficient capital and liquid
resources in the respective scenarios and that the Group’s ongoing
viability would be sustained. In drawing this conclusion, the
Directors have regard to business model changes that may be
required given the new environment in which the Group would be
operating. The stress scenario assumptions include maintaining
the Group’s dividend policy but this and other assumptions would
be reassessed if the circumstances determined this to be necessary
over the longer term.
It is possible that a stress event could be more severe and have a
greater impact than we have determined plausible. Actions are
available that may reduce the impact of more severe scenarios, but
these have not been considered in this viability statement.
The Directors’ current, reasonable expectation is that Schroders plc
will be able to continue in operation, meeting its liabilities as they fall
due, over a viability horizon of at least five years. The Board’s
five-year viability and longer-term assessment is based on
information known today.
Schroders Annual Report and Accounts 2019
51
Strategic report Board of Directors and Company Secretary
Leading a world class business
Michael Dobson
Chairman
Peter Harrison
Group Chief Executive
Richard Keers
Chief Financial Officer
Appointed Chairman in April 2016, having
been Chief Executive since November 2001.
He first joined the Board as a non-executive
Director in April 2001.
Experience: Prior to joining Schroders he
was Chief Executive of Morgan Grenfell
Group and a member of the Board of
Managing Directors of Deutsche Bank AG.
External appointments: Member of the
President’s Committee of the Confederation
of British Industry.
Committee membership: Chairman of the
Nominations Committee.
Appointed Group Chief Executive in April
2016. He was an executive Director and
Head of Investment from May 2014.
Experience: He began his career at
Schroders and subsequently held roles at
Newton Investment Management, J.P.
Morgan Asset Management as Head of
Global Equities and Multi-Asset and at
Deutsche Asset Management as Global
Chief Investment Officer. He was Chairman
and Chief Executive of RWC Partners before
re-joining Schroders as Global Head of
Equities in March 2013.
External appointments: Chairman of the
Investment Association until 1 May 2020, a
Director of FCLT Global and a member of
the Takeover Panel.
Appointed a Director and Chief Financial
Officer in May 2013.
Experience: He is a chartered accountant
and was a senior audit partner of
PricewaterhouseCoopers LLP (PwC) until
May 2013. He became a partner of PwC in
1997 and has 25 years’ experience in the
audits of global financial services groups.
His experience includes time spent in
PwC’s New York, Sydney, Edinburgh
and London offices.
External appointments: He was a
non-executive member of Lloyd’s Franchise
Board and Chairman of its Audit Committee
until 31 December 2019.
Ian King
Senior Independent Director
Sir Damon Buffini
Independent non-executive Director
Rhian Davies
Independent non-executive Director
Appointed in February 2018.
Appointed in July 2015.
Experience: He has over 25 years’
experience in private equity, joining
Schroder Ventures in 1988. He was
Managing Partner of Permira from
1997 to 2007 before becoming
Chairman. He retired in 2015
and remains a Senior Adviser.
External appointments: Chair of the
National Theatre and was Chair of the
Government’s Patient Capital Review.
Committee membership: Chairman of the
Remuneration Committee and a member of
the Nominations Committee.
Experience: She is a chartered accountant
and was a partner at Electra Partners, an
independent private equity fund manager,
until June 2015, and then a Senior Adviser
until March 2017. She previously worked in
PwC’s audit and insolvency practice before
joining Electra in 1992.
Committee membership: Chairman
of the Audit and Risk Committee.
Member of the Nominations and
Remuneration Committees.
Appointed Senior Independent Director in
April 2018 having been a non-executive
Director since January 2017.
Experience: He was Chief Executive of BAE
Systems plc from 2008 to 2017 having been
originally appointed to the BAE board as
Chief Operating Officer, UK and Rest of the
World. Prior to this, he was Chief Executive
of Alenia Marconi Systems. He also served
as a non-executive Director and Senior
Independent Director of Rotork plc until
June 2014.
External appointments: Senior Adviser
to the Board of Gleacher Shacklock LLP,
Chairman of Senior plc and lead
non-executive Director for the
Department of Transport.
Committee membership: Member of the
Nominations and Remuneration Committees.
52
Schroders Annual Report and Accounts 2019
Rakhi Goss-Custard
Independent non-executive Director
Philip Mallinckrodt
Non-executive Director
Leonie Schroder
Non-executive Director
Appointed in January 2017.
Experience: She is an experienced
executive in digital retailing, having spent
11 years at Amazon. Prior to joining
Amazon, she held roles at TomTom and in
management consultancy in the US.
External appointments: Non-executive
Director of Kingfisher plc and Rightmove plc.
Committee membership: Member
of the Nominations and Audit and
Risk Committees.
Appointed as an executive Director in
January 2009 and a non-executive Director
on 1 March 2017.
Experience: He started his career at Credit
Suisse First Boston in 1985. He first joined
Schroders in 1994, and then worked for
Citigroup from 2000 to 2002. He rejoined
Schroders in 2002 as Head of Corporate
Development, was Group Head of Wealth
Management from 2006 to 2016, and then
Group Head of Private Assets and Wealth
Management until 1 March 2017. He will
retire at the AGM in April 2020.
External appointments: Non-executive
Director of The Economist and a member
of the International Advisory Council of the
Brookings Institution.
Committee membership: Member of the
Nominations Committee.
Appointed in March 2019.
Experience: She is a descendant of John
Henry Schroder, co-founder of Schroders in
1804. She has held a number of roles in the
charity sector and is currently a director of
the Schroder Charity Trust and a number of
private limited companies. Leonie’s
appointment reflects the commitment to
Schroders of the principal shareholder
group, which has been an important part of
Schroders’ success over the long term.
External appointments: Schroders Charity
Trust and a number of private limited
companies.
Committee membership: Member of the
Nominations Committee.
Deborah Waterhouse
Independent non-executive Director
Appointed in March 2019.
Experience: She has been the CEO of
ViiV Healthcare, a major international
business, since 2017. ViiV Healthcare
is a leading global company, majority
owned by GlaxoSmithKline and focused
on advancing science into HIV treatment,
prevention and care.
External appointments: Private limited
companies relating to ViiV Healthcare.
Committee membership: Member
of the Nominations and Audit and
Risk Committees.
Graham Staples
Group Company Secretary
He joined Schroders in 2004.
Previously, he held senior
company secretarial, compliance
and business development
roles at NatWest, Barclays,
TSB and Computershare.
He is responsible for the Group’s
governance framework and
advising the Board and GMC on
all governance matters.
Schroders Annual Report and Accounts 2019
53
Governance Group Management Committee
Experienced leadership
The Group Management Committee (known as the GMC) is our senior management team and is the
principal advisory committee to Peter Harrison, our Group Chief Executive.
Full biographies of the GMC members are available at
schroders.com/en/investor-relations/shareholders-and-governance/group-management-committee
Peter Harrison
Group Chief Executive
Richard Keers
Chief Financial Officer
Rory Bateman
Head of Equities
Stewart Carmichael
Chief Technology Officer
Lieven Debruyne
Global Head of Distribution
Peter Hall
Global Head of Wealth Management
Emma Holden
Global Head of Human Resources
Louise Hosking
Chief of Staff
54
Schroders Annual Report and Accounts 2019
Committee changes
Karl Dasher, Nicky Richards and John Troiano stood down from the Committee in 2019. Their biographies are set out in the 2018 Annual
Report and Accounts. Carolyn Sims will step down from the Committee in May 2020.
Johanna Kyrklund
Group CIO and Global Head of Multi-asset Investments
Philippe Lespinard
Head of Fixed Income
Carolina Minio-Paluello
Global Head of Product, Solutions & Quant
Richard Mountford
Head of Planning, Adviser to the Group Chief Executive
Charles Prideaux
Global Head of Investment
Carolyn Sims
Chief Financial Officer of Wealth Management
Howard Trust
General Counsel
Georg Wunderlin
Global Head of Private Assets
Schroders Annual Report and Accounts 2019
55
Governance Corporate Governance report
Focusing on strategy and purpose
I am pleased to introduce our corporate governance report for 2019 in which we describe our
governance arrangements, the operation of the Board and its Committees and how the Board
discharged its responsibilities during the year.
2019 saw continuing change in the corporate governance
environment. The revised UK Governance Code took full effect, with
its emphasis on corporate purpose and stakeholders other than
shareholders. There was further scrutiny of the audit market
culminating in Sir Donald Brydon’s proposals for the audit
profession. We are also seeing more detail on the likely role,
structure and approach of the new regulatory body, the Audit,
Reporting and Governance Authority, proposed by Sir John Kingman.
The Board has continued to monitor these developments closely and
fully supports efforts to improve governance standards. High
standards of governance are essential in rebuilding trust in business
and in making the UK an attractive place to do business.
We have not made any fundamental changes to our governance
framework, but the Board has increased its emphasis on its
consideration of our wider stakeholders and on our overall
corporate purpose.
We continued to focus primarily on our long term strategy and we
have outlined in this report the principal agenda items for the eight
Board meetings we held in 2019. We have also referred to the
subjects we covered at our regular Board Briefing sessions, one of
which concentrated on corporate purpose.
In addition to our annual in depth review of the Group’s overall
strategy which we held in May, initially in Shanghai and Hong Kong
and then in London, we also reviewed most of our major businesses
during the year.
The Board continues to evolve, both in its membership and in how it
operates. We continually seek improvements, in the focus of the
agenda and our discussions, in Board papers, in follow through and
in regular reviews of the efficacy of the Board’s decisions. In 2019
we used an external consultant to conduct the annual Board Review
and the feedback was very encouraging, referencing the
improvement that we have seen in the workings of the Board
in recent years. We give more detail on this on page 60.
We welcomed Leonie Schroder and Deborah Waterhouse
to the Board in 2019, both of whom are making a valuable
contribution. We look forward to Claire Fitzalan Howard
and Matthew Westerman joining the Board. Following
their appointments we will have a majority of
independent non-executive Directors on the
Board in line with our policy.
I would like to thank all my colleagues on the
Board for their contribution during the year.
Michael Dobson
Chairman
4 March 2020
56
Schroders Annual Report and Accounts 2019
Directors are expected to attend all meetings of the Board and Committees on which they serve. Details of Board and Committee attendance
are included in the table below. Where a Director is unable to attend a meeting their views are sought in advance and shared with the Board.
2019 Board and Committee meeting attendance
Michael Dobson
Executive Directors
Peter Harrison
Richard Keers
Non-executive Directors
Ian King3
Robin Buchanan4
Sir Damon Buffini5
Rhian Davies6
Rakhi Goss-Custard
Philip Mallinckrodt
Nichola Pease7
Bruno Schroder8
Leonie Schroder9
Deborah Waterhouse9
Board1
8/8
8/8
8/8
8/8
1/1
8/8
7/8
8/8
8/8
5/6
7/7
7/7
Audit and Risk
Committee
Remuneration
Committee2
Nominations
Committee
4/4
4/4
2/2
4/4
4/4
4/4
4/4
3/3
1/1
2/2
2/2
8/9
1/1
9/9
1/1
8/8
1/1
5/5
5/5
4/4
1/1
1. There were five scheduled Board meetings held during the year and three additional meetings to consider Group strategy and the remuneration policy, the acquisition of BlueOrchard
and the resignation of Nichola Pease.
2. There were four scheduled Remuneration Committee meetings held during the year and five additional meetings outlined on page 80.
3. Ian King was unable to attend one of the additional Remuneration Committee meetings, which was scheduled at short notice, due to a prior commitment.
4. Robin Buchanan was an independent non-executive Director until his retirement on 2 May 2019.
5. Sir Damon Buffini became Chair of the Remuneration Committee on 6 November 2019.
6. Rhian Davies missed one additional Board meeting, which was scheduled at short notice, due to a prior commitment. Rhian became a member of the Remuneration Committee
on 6 November 2019.
7. Nichola Pease was an independent non-executive Director until her resignation on 6 November 2019.
8. Bruno Schroder was a non-executive Director until he passed away on 20 February 2019.
9. Leonie Schroder and Deborah Waterhouse were appointed to the Board with effect from 11 March 2019.
Compliance with the 2018 UK Corporate
Governance Code (Code)
Throughout 2019, the Company has applied the main principles and
provisions of the Code with the exception of Provisions 9, 19 and 32.
Michael Dobson was not independent on appointment as Chairman
in April 2016, and has served on the Board more than nine years
since he was first appointed. The Chairman’s appointment was fully
explained in the 2015 Annual Report and Accounts and the Board
confirms its view that the Chairman’s continued service is in the best
interests of the Company and its stakeholders. Sir Damon Buffini
was appointed as Chair of the Remuneration Committee on 6
November 2019, having served on the Committee for marginally less
than the full 12 months required under Provision 32. This was due to
Nichola Pease leaving the Board at short notice in November. Until
then, there was an absolute majority of independent Directors on
the Board. Matthew Westerman will join the Board on 9 March,
following which there will again be an absolute majority of
independent non-executives on the Board, in line with the
Board’s stated policy.
Copies of the Code can be obtained from the FRC’s website at frc.org.uk.
The Board and its committees
The Board has collective responsibility for the management,
direction and performance of the Company. It is accountable to
shareholders for the creation and delivery of strong, sustainable
financial performance and long-term shareholder value. In
discharging its responsibilities, the Board takes appropriate account
of the interests of our wider stakeholders including clients,
employees, external service providers, regulators and wider society.
Certain decisions can only be taken by the Board, including deciding
on the Group’s overall strategy, significant new business activities
and the strategy for management of the Group’s investment capital.
These are contained in the Schedule of Matters Reserved to the
Board, which can be found on the Company’s Investor Relations
website, schroders.com/ir.
The Board has delegated specific responsibilities to Board
committees, notably the Nominations Committee, Audit and Risk
Committee, and the Remuneration Committee. The minutes of
committee meetings are made available to all Directors. At each
Board meeting, the Chairman of each committee provides the Board
with an update of the work currently being carried out by the
committee they chair. Membership of the committees is detailed in
each committee’s report. The committees’ terms of reference can be
found on the Company’s Investor Relations website.
There is also a Chairman’s Committee whose membership is
comprised of the non-executive Directors. The Chairman’s
Committee is not a committee of the Board and serves as an
informal forum for the discussion of such matters as the Chairman
considers appropriate. In 2019, the Chairman’s Committee discussed
the results of the external Board evaluation, the performance of the
Group Chief Executive, acquisition opportunities and talent and
succession planning.
There have been five Board calls during the year. These calls are used
as an additional avenue for communication that supplements the
formal Board meeting programme. At each call, the Group Chief
Executive and Chief Financial Officer provide updates on the Group’s
financial performance, and an update on business issues. The
Chairman also used the Board calls to update the Board on the search
for new Directors.
Schroders Annual Report and Accounts 2019
57
Governance Corporate Governance report continued
Governance framework
Board
The Board is responsible for the management, direction and performance of the Company.
Chairman
The Chairman is responsible
for the leadership of the
Board, ensuring its
effectiveness and setting its
agenda. He is responsible
for creating an environment
for open, robust and
effective debate and
challenge. The Chairman is
also responsible for
ensuring effective
communication with
shareholders and other
stakeholders.
Group Chief Executive
The Group Chief Executive is
responsible for the
executive management of
the Company and its
subsidiaries. He is
responsible for proposing
the strategy for the Group
and for its execution. He is
assisted by members of the
GMC in the delivery of his
and the Board’s objectives
for the business.
Non-executive
Directors
Non-executive Directors are
expected to provide
independent oversight and
constructive challenge and
help develop proposals on
strategy, performance and
resources, including key
appointments and
standards of conduct.
Senior Independent
Director (SID)
The SID’s role is to act as a
sounding board for the
Chairman, oversee the
evaluation of the Chairman’s
performance and serve as
an intermediary for the
other Directors if necessary.
He is also available as an
additional point of contact
for shareholders and other
stakeholders should they
wish to raise matters with
him rather than the
Chairman or Group Chief
Executive. He is the
designated non-executive
Director responsible for
engagement with the
workforce as key
stakeholders in the
Company, in accordance
with the Code.
Nominations Committee
Responsible for reviewing and
recommending changes to the
composition of the Board and its
Committees.
Audit and Risk Committee
Responsible for overseeing
financial reporting, risk
management and internal
controls, internal and external audit.
Remuneration Committee
Responsible for the remuneration
strategy for the Group, the
remuneration policy for Directors and
overseeing remuneration firm-wide.
Chairman: Michael Dobson
Chairman: Rhian Davies
Chairman: Sir Damon Buffini
See page 64 for the
Committee Report.
See page 66 for the
Committee Report.
See page 72 for the
Committee Report.
Group Management Committee
The GMC comprises the senior management team and is the principal advisory committee to the Group Chief Executive.
Group Capital Committee
Assists the Chief Financial Officer in the deployment of
operating, seed, co-investment and investment capital.
Group Risk Committee (GRC)
Assists the Chief Financial Officer in discharging his
responsibilities in respect of risk and controls. The GRC has a
sub-committee the Group Conflicts Committee, which reviews
and manages the process for identifying conflicts of interest.
Board composition at 31 December 2019
Board composition
Length of tenure
Executive Directors
Non-independent
non-executive Directors
Independent
non-executive Directors
20%
30%
50%
0-3 years
3-6 years
6-9 years
9+ years
50%
20%
10%
20%
58
Schroders Annual Report and Accounts 2019
The Board believes that it operates most effectively with an
appropriate balance of executive Directors, independent non-
executive Directors and Directors who have a connection with the
Company’s principal shareholder group. No individual or group of
individuals is in a position to dominate the Board’s decision-making.
The Nominations Committee report contains more detail on our
approach to Board composition. Biographies of each of the Directors
are set out on pages 52 to 53.
Independence
There was a short period between the unexpected resignation of
Nichola Pease and the appointment of Matthew Westerman when
there was not an absolute majority of independent Directors on the
Board. However, the Board remains committed to its stated policy
regarding the benefits of an absolute majority of independent
Directors. All the non-executive Directors are independent in terms
of character and judgement.
Philip Mallinckrodt is not considered independent as he is a former
executive Director, has served on the Board for more than nine years
and a member of the principal shareholder group. Philip
Mallinckrodt will retire from the Board at the conclusion of the AGM.
Michael Dobson, as former Chief Executive and having served more
than nine years since his first appointment, is not considered
independent under the Code. Leonie Schroder is not considered
independent as she is a member of the principal shareholder group.
The Nominations Committee believes the judgement and experience
of Michael Dobson and Leonie Schroder continues to add value to
the Board and the Group. The Board will therefore recommend their
re-election at the 2020 AGM.
Director appointments and time commitment
The rules providing for the appointment, election, re-election and
removal of Directors are contained in the Company’s Articles of
Association and remain unchanged from the previous year. The
Company may only amend its Articles of Association by special
resolution of the shareholders.
The Company has decided that all Directors should retire and stand
for re-election annually, unless they are retiring from the Board.
Details of the Directors’ length of tenure are set out on page 58.
Non-executive Directors’ letters of appointment stipulate that they
are expected to commit sufficient time to discharge their duties. The
Board has adopted a policy that allows executive Directors to take up
one external non-executive directorship. Non-executive Directors are
required to notify the Chairman before taking on any additional
appointments. The Board is satisfied that all Directors standing for
re-election at the 2020 AGM continue to be effective and
demonstrate commitment to their respective roles.
For details of executive Directors’ service contracts, termination
arrangements and non-executive Directors’ letters of appointment,
please refer to our Directors’ Remuneration report from page 72.
Key areas of focus during the year
At each scheduled Board meeting the Board discusses reports
from the Group Chief Executive on the performance of the business,
the Chief Financial Officer on financial performance, the Company
Secretary on governance developments, and, where relevant, a report
from each of the Board Committees. In addition to these regular
matters, specific areas of focus by the Board during 2019 included:
Meeting dates Key areas considered
March
– Multi-asset strategy
– Strategic partnership with LBG
– Wealth Management strategy
– Slavery and Human Trafficking statement
– Annual Report and Accounts 2018 and
dividend proposal
May
– Group strategic update, including
competitor activity, review of acquisitions,
our clients, talent, and the evolution of the
core business
July
September
– Asia Pacific strategy
– China strategy
– Investment strategy
– Investment performance review
– Political risk
– Capital update
– Remuneration policy
– Half–year results and dividend proposal
– ICAAP and ILAAP
– Strategic forecast update
– Private assets strategy
– Capital update
– Group recovery plan and resolution pack
– Wind down plan
– People strategy
November
– Equities strategy
– Capital update
– 2020 budget
– BlueOrchard strategy
Throughout the year, the Board continued to focus on the
development of our overall strategy for the Group and the key
individual drivers of growth over the next five years. Particular focus
was given to the regional strategy, along with competitor activity,
acquisitions, our clients, the evolution of our core business and
investing for growth opportunities. As part of this, the Board visited
mainland China and Hong Kong in May.
There were three additional Board meetings in 2019 to further
consider the Group strategy and the remuneration policy, to
approve the acquisition of BlueOrchard and to consider the
resignation of Nichola Pease.
Board induction and training
The Group Company Secretary supports the Chairman and Group
Chief Executive in providing a personalised induction programme to
all new Directors. This helps to familiarise them with their duties and
the Group’s culture and values, strategy, business model,
businesses, operations, risks and governance arrangements.
Following the appointment of Leonie Schroder and Deborah
Waterhouse in March 2019, a comprehensive and tailored induction
programme was provided and is ongoing.
The induction process involves:
– Meeting all members of the GMC to gain an insight into and an
understanding of the opportunities and challenges facing their
area of responsibility
– One-to-one meetings with other senior management across the
Company, including from the first, second and third lines of
defence, to understand the Group’s internal control and risk
management framework
The induction process is reviewed on a regular basis and is updated
and tailored to ensure it remains appropriate for the needs of newly
appointed Directors.
Committee-specific inductions are also arranged when Committee
membership changes, and these induction processes are tailored to
the skills and knowledge of the individual and the forthcoming
Committee agenda items.
Induction and briefing meetings are generally opened up to all
Directors to attend on an optional basis.
The Board believes that the ongoing development and briefing of
Directors is an important aspect of the Board’s agenda. Briefing
sessions are arranged each year which, during 2019, included
presentations on our corporate responsibility activities and our
corporate purpose. Members of the Board Committees also
receive regular updates on technical developments at scheduled
Committee meetings.
2018 Board evaluation (internal)
The Board undertook an internal evaluation process. The 2018 Board
evaluation identified a number of recommendations to maintain and
improve the Board’s effectiveness:
Recommendation
Actions taken/progress
Understanding culture,
employee engagement and
compensation
More opportunities for the
Board directors to meet with
senior management
Ian King now chairs the global
employee forum
Non-executive directors now
attend GMC lunches
There are more informal
meetings between Board and
senior management
GMC members are invited to
attend Board meetings
Broadening and deepening the
non-executives’ knowledge of
the industry and our business
outside the formal Board
meetings
The Board visited mainland
China and Hong Kong
Continued Board and
Committee briefings on topical
issues
Schroders Annual Report and Accounts 2019
59
Governance Corporate Governance report continued
2019 Board evaluation
The 2019 Board evaluation was facilitated externally, one year earlier
than required by the Code. Independent Board Evaluation (IBE) were
selected to facilitate the evaluation. They have no other connection
with the Company. The process was undertaken between September
and November. Representatives from IBE attended one meeting
each of the Board, Remuneration Committee, Audit and Risk
Committee and Nominations Committee. They also undertook
detailed interviews with all Directors and a number of senior
executives who attended at or presented to the Board and the
Committees during the year.
IBE prepared separate reports on the Board, each of the
Committees, each Director and the Chairman. The Board report was
discussed at a meeting of the Chairman’s Committee in November.
The Committee reports were discussed directly with the Chairs of the
respective Committees. Ian King discussed the Chairman’s report
directly with the Chairman. The individual Director reports were sent
to the respective Director under cover of a note from the Chairman,
with some being followed up with meetings or calls.
The feedback from Board members was very positive. The Board is
confident in its own high degree of accountability to shareholders
and of the high standard of governance and compliance work
overseen by the Board supported by a high-quality secretariat.
These are consistent themes in recent board evaluations. Pockets
of excellence are also developing in the way in which the Board
handles recruitment of new Directors and the induction process.
Other areas that came out well included a marked improvement in
the quality of Board papers and the process around decision-
making, and more and better-quality contact between the Board
and members of the GMC and high-potential employees. The Board
also felt the balance of the Board’s agenda and its focus on major
issues was of a high standard.
The areas where there was some desire for improvement or
evolution covered elements of the strategy process and board
composition, with a focus on replacing skills that will be lost or
have recently been lost as longer-serving Directors leave the Board.
Succession planning for both the Board and key executives
emerged as a priority for the year ahead. Board dynamics were
good but there remains room for improvement. The overall
conclusion was that the Board was continuing to improve from a
relatively high level already but there were still areas which could
be fine-tuned to improve its effectiveness further. A number of
recommendations were put forward by IBE and the following were
agreed by the Board:
– Reviewing the induction programme for new Directors, aligning it
to the forward calendar of Board topics wherever possible and
incorporating other suggestions to help them get up to speed on
board culture and practices as soon as possible.
– Increasing the amount of informal time the Board spends
together to help new members to get to know their colleagues.
– Developing a programme of informal meetings with key
high-potential executives in tandem with the succession plan, to
get to know them better over time.
– Including more competitor information and a stronger customer
lens into Board discussions.
– Updating the board skills matrix to guide future appointments,
with the focus on creating alignment between the skills of the
board and the strategy.
– Prioritising asset management and breadth of plc experience in
any forthcoming non-executive recruitment processes and
encouraging executive Directors to find appropriate and
non-conflicting non-executive board roles with another
listed company.
These recommendations will be followed through during the
course of 2020.
60
Schroders Annual Report and Accounts 2019
Priorities for 2020
In light of the recommendations of the 2018 evaluation and
following the 2019 process, the Board agreed a set of high-level
objectives for 2020 and these include:
– Establishing clear KPIs for the most important financial and
strategic measures of performance aligned to the budget and the
five year plan.
– Reviewing our technology strategy and our competitive standing
versus peers, particularly as it relates to risk, efficiency and client
needs.
– Reviewing our Asset Management product strategy across all key
segments and key areas of opportunity from both market trends
and peers.
– Enabling the Board to have greater insight into our senior talent
pool and how it compares with our peers.
– Reviewing our control environment and structures to ensure they
are fit for purpose.
– Reviewing our culture and conduct position to ensure alignment
with the needs of all our stakeholders.
– Reviewing the progress of Schroders Personal Wealth.
– Reviewing four key areas of opportunity: North America, China,
Fixed Income and Wealth Management.
– Regularly reviewing investment performance across all asset
classes.
Group Company Secretary
All Directors have access to the advice and support of the Group
Company Secretary and his team. Through him Directors can
arrange to receive additional briefings on the business, external
development and professional advice independent of the Company,
at the Company’s expense.
Shareholder engagement
The Group continues to operate a complete investor relations
programme. Through 2019, we implemented many of the
recommendations from the investor perception study conducted in
2018. These included broadening the scope of senior management’s
investor relations activity, continuing to periodically hold capital
markets days for shareholders and analysts and positioning our
messaging around a wider strategic context.
During the year, the Group Chief Executive and Chief Financial
Officer conducted roadshows in both the UK and North America.
They met with a number of major shareholders in both share
classes to discuss our strategy for driving the future growth of
the Group. Investor Relations also conducted roadshows in
continental Europe and Schroders was represented at a
number of key industry conferences.
We held a capital markets day in May 2019. This was designed to
provide the investment community with a deeper understanding of
our strategic objectives, as well as access to senior management
responsible for delivering them. This year’s event focused on our
strategic objective of building closer relationships with our end clients.
It included presentations from members of our Wealth Management
senior management team, as well as discussions on investments in
technology and Schroders’ focus on sustainable investing.
In addition to the above, the primary means of communicating with
shareholders is through the Annual General Meeting, the Annual
Report and Accounts, full-year and half-year results and related
presentations. All of these are available on the Company’s website
and the Annual Report and Accounts is posted to all shareholders
who elect to receive it. The Group’s website also contains information
on the business of the Company, Corporate Governance, all
regulatory announcements, key dates in the financial calendar and
other important shareholder information.
The AGM is an opportunity to meet with shareholders, hear their
views and answer their questions about the Group and its business.
All resolutions are voted on by way of a poll. This allows the
Company to count all votes rather than just those of shareholders
attending the meeting.
All resolutions are voted on separately and the final voting results
are published as soon as practicable after the meeting. Together
with the rest of the Board, the Chairmen of the Audit and Risk,
Remuneration and Nominations Committees will be present to
answer questions. The 2020 AGM will be held on Thursday 30 April
2020 at 11.30 a.m.
Stakeholder interests and engagement
In discharging their section 172 duties the Directors have regard to the factors set out in the Chairman’s statement on page 5 and
any other factors considered relevant to the decision being made, such as the interests of employees and the views of regulators.
The Directors acknowledge that every decision made will not necessarily result in a positive outcome for all our stakeholders. By
considering the Company’s purpose, vision and values together with its strategic priorities and having a process in place for
decision-making, the Board does, however, aim to make sure that its approach to decision making and consideration of stakeholder
interests is consistent.
The examples provided below show how the Board considered the matters set out in section 172 in respect of some of the key
decisions made during 2019. Our methods of engagement with our key stakeholders and further information on how the Board has
considered their interests during the year are set out below and on pages 62 and 63.
Acquisition of a 70%
stake in BlueOrchard
In line with the Group’s
strategy to diversify our
business model and expand
our private assets
capabilities to deliver more
options for our clients, in
October 2019 we acquired a
70% stake in BlueOrchard, a
Switzerland-based impact
investing asset
management business with
£2.9 billion AUM. This
acquisition also increases
our presence in emerging
markets and microfinance.
Impact investing aims to
generate positive and
measurable social and
environmental impact
alongside a financial return,
as investors continue to look
beyond pure financial return
from their investments.
BlueOrchard boosts the
Group’s ESG offering which
has been a growing need
for our client base. The
Board assessed a number of
factors before deciding that
proceeding with the
acquisition was overall in
the long-term best interests
of the Company and its
stakeholders.
Climate change and
leadership
The Board recognises the importance
of climate change to society as a
whole and that to preserve the planet
for the next generation we need to
make meaningful changes to our
operations and the way we work
now. The Board decided that from 1
January 2020, the business will
operate on a net zero carbon basis,
which will be achieved where possible
by minimising our carbon footprint.
To help meet this ambitious target,
we are planning to reduce
non-essential business travel and will
be planting trees to offset the carbon
we cannot avoid producing. We are a
signatory to the United Nations
Sustainable Development Goals,
and aim to be a leader on
the investment implications of
climate change.
Independent non-executive representation
on subsidiary boards
The Board recognises the views of global regulators as
stakeholders. In light of this and in the interests of our
clients and effective governance, the Board has decided
to appoint two independent non-executive directors to
our principal UK regulated subsidiary, Schroder
Investment Management Limited, even though there is
no regulatory requirement to do so. The inclusion of
independent non-executive directors allows us to
encourage diversity of thought, to provide independent
challenge and oversight and to meet the challenges of
developing regulatory expectations alongside acting in
our clients’ interests.
Remuneration policy
Ahead of proposing a new remuneration policy for
approval by shareholders at the AGM in 2020, the Board
and senior management have engaged with our key
shareholders over the past 12 months, in order to
understand concerns and create alignment across
stakeholder groups. This has been a key consideration
during the year for the Remuneration Committee and the
Board. Our remuneration principles are designed to
promote the long-term sustainable success of the Group
in the interests of all stakeholders. The proposed policy
looks to address the feedback received during the
consultation process and from previous engagement.
Global Employee Forum (GEF) discussions
The Board considers the impacts on and, where
possible, the views of employees in relevant key
decisions. The GEF is one mechanism used in this
process. As part of our 2020 planning process
and in light of the impact of challenging market
conditions across the asset management
industry, the Board commenced a cost reduction
initiative reviewing both compensation and
non-compensation costs. The Board considered
the long-term consequences of this programme
including the interests of employees and the
impact on operations, recognising the
importance of continued investment in areas of
strategic growth. The forum, which consists of
elected regional representatives of Schroders’
global workforce, was briefed in advance to
enable them to engage with the wider workforce
in a transparent way and allow representatives
to support impacted employees more effectively.
Ian King, the designated non-executive Director
responsible for gathering workforce feedback,
chaired the forum to engage with and listen to
employee views. The Board recognises that the
cost reduction programme was not in the
interests of all stakeholders but considered it was
in the long-term interests of the majority of
stakeholders to proceed with the programme.
Schroders Annual Report and Accounts 2019
61
Governance Corporate Governance report continued
Stakeholder interests
Our stakeholders
Clients
Shareholders
People
Society
External service partners
Regulators
See page 10
See page 20
See page 30
See page 36
See page 37
See page 37
Why they are important
Clients are the central focus of our
business. The Group’s resilience and
ongoing success is built upon an ability to
understand clients’ needs and respond to
them. This allows us to anticipate how
these needs will evolve and to construct
products that meet their financial goals
and create better futures.
We rely on the support and engagement
of our shareholders to deliver our
strategic objectives and grow the
business. Our shareholder base supports
the long-term approach we take in the
management of our business.
Our people are central to the ongoing
success of the business. We are proud of
our reputation as an employer of choice.
Our people strategy aims to develop an
agile workforce as we continue to attract,
retain, develop and motivate the right
people for our current and future
business needs.
How we engage and consider their interests
The client service teams build lasting
relationships with current and potential
clients to develop a clear view of
client objectives and how these
are likely to evolve.
A strategic goal of the Group is to get
closer to the end client investing in our
products, which was a key consideration
in setting up Schroders Personal Wealth,
which was launched in October 2019. We
view this joint venture and our strategic
partnership with LBG as highly beneficial
to the Group’s clients and shareholders.
The expansion of our product range and
further development of our private assets
business was a key consideration for the
Board in relation to the acquisition of a
70% stake in BlueOrchard. We have also
committed to integrating Environment,
Social and Corporate Governance (ESG)
across 100% of our managed assets
by the end of 2020, in response to
client expectations.
The Board considered the full-year and
half-year results. The Group
Chief Executive and Chief Financial Officer
presented them to shareholders. The
Board answered questions around
strategy and our impact on society at
the 2019 AGM.
Outside of results presentations, meetings
are held with shareholders throughout
the year, with engagement from both
executive and non-executive Directors.
We held a capital markets day in 2019 to
give shareholders the opportunity
to better understand our strategy and
engage with senior management.
Schroders also engaged with
shareholders in relation to the updated
remuneration policy that will be
considered by shareholders at the
2020 AGM, and is set out in the
Remuneration report from page 72.
We engage with our people through
a variety of channels including
management briefings, videos, an internal
magazine and presentations by the Group
Chief Executive to discuss progress made
by the business, together with future
objectives and challenges. We also
conduct an annual employee opinion
survey and have invested in our
corporate communications to help
employees understand and deliver
our strategic objectives.
The Board considers the Group’s
employees to be an important
stakeholder and the consideration of their
interests forms part of many Board
discussions. The Board discussed the
results of the 2019 employee opinion
survey and agreed an action plan to
address the issues raised. The Board also
met with employees based in the Hong
Kong and Shanghai offices when it visited
Asia in May 2019.
Ian King, the Senior Independent Director,
is the designated non-executive Director
responsible for gathering workforce
feedback, a key requirement of the Code.
Ian chairs the Global Employee Forum
meetings to hear directly from employees
on the issues that concern them and
report these back to the Board.
62
Schroders Annual Report and Accounts 2019
We recognise the responsibility we have
We rely on the use of external service
As a global business, we build positive
to wider society and other key
partners to supplement our own
relationships with our regulators around
stakeholders. Schroders is a principles-led
infrastructure, benefiting from the
the world.
business and we believe that demanding
expertise our partners provide.
high levels of corporate responsibility is
This enables access to lower costs
the right thing to do.
for service delivery.
Regulators provide key oversight of how
we run our business. Our clients’ best
interests are served by us working
constructively with regulators.
We aim for high standards of governance
We actively engage with our external
We regularly engage with regulators and
across the Group. As an asset manager,
service partners and have a Supplier Code
policymakers to ensure that our business
we frequently engage with companies in
of Conduct that sets out the high
understands and contributes to evolving
which we invest on ESG concerns.
standards and behaviours we expect from
regulatory requirements. Senior
The Board agreed the Group’s approach to
corporate responsibility with a Corporate
Responsibility Committee established with
key stakeholders from our businesses.
This Committee reports to the Board on
the Group’s Corporate Responsibility
strategy and external reporting.
We committed to operating on a net zero
carbon basis from 1 January 2020, which
we will do, in part, reducing non-essential
business travel.
them. This Code requires that a
management hold regular meetings
prohibition of forced labour and human
with our regulators to foster good
trafficking, together with the ethical and
working relationships.
responsible sourcing of goods or services,
are incorporated into the sourcing
governance and execution processes of
our suppliers.
The Audit and Risk Committee receives
regular reports from these meetings that
cover the Group’s regulatory processes and
procedures and its relationship with
The Audit and Risk Committee reviews the
regulators around the world. The reports
Group’s material outsource providers
also outline the material changes in the
annually to ensure that the strategy for
regulatory environment in which the Group
the use of outsourced suppliers remains
operates. During 2019, these included the
consistent with our objective of using
extension of SMCR to our core Asset
We are proud to support the communities
service partners to add value to
Management entities in the UK.
in which we operate and have a long
supplement our own infrastructure.
history of contributing through donations
and employee time. The Board has
received a briefing on the Group’s
corporate responsibility activities, which
have four pillars: clients, people,
community and the environment.
The oversight of outsourced service
providers and the use of the new front
office technology platform have been key
areas of focus for both the Audit and Risk
Committee and the Board in 2019.
Stakeholder interests
Our stakeholders
Clients
Shareholders
People
Society
External service partners
Regulators
See page 10
See page 20
See page 30
See page 36
See page 37
See page 37
Why they are important
Clients are the central focus of our
business. The Group’s resilience and
ongoing success is built upon an ability to
strategic objectives and grow the
of our shareholders to deliver our
success of the business. We are proud of
our reputation as an employer of choice.
understand clients’ needs and respond to
business. Our shareholder base supports
Our people strategy aims to develop an
them. This allows us to anticipate how
the long-term approach we take in the
agile workforce as we continue to attract,
We rely on the support and engagement
Our people are central to the ongoing
these needs will evolve and to construct
management of our business.
retain, develop and motivate the right
people for our current and future
business needs.
products that meet their financial goals
and create better futures.
How we engage and consider their interests
The client service teams build lasting
The Board considered the full-year and
We engage with our people through
relationships with current and potential
half-year results. The Group
a variety of channels including
Chief Executive and Chief Financial Officer
management briefings, videos, an internal
clients to develop a clear view of
client objectives and how these
are likely to evolve.
A strategic goal of the Group is to get
closer to the end client investing in our
presented them to shareholders. The
Board answered questions around
strategy and our impact on society at
the 2019 AGM.
products, which was a key consideration
Outside of results presentations, meetings
in setting up Schroders Personal Wealth,
are held with shareholders throughout
which was launched in October 2019. We
the year, with engagement from both
view this joint venture and our strategic
executive and non-executive Directors.
partnership with LBG as highly beneficial
to the Group’s clients and shareholders.
We held a capital markets day in 2019 to
give shareholders the opportunity
The expansion of our product range and
to better understand our strategy and
further development of our private assets
engage with senior management.
business was a key consideration for the
Schroders also engaged with
Board in relation to the acquisition of a
shareholders in relation to the updated
70% stake in BlueOrchard. We have also
remuneration policy that will be
committed to integrating Environment,
considered by shareholders at the
Social and Corporate Governance (ESG)
2020 AGM, and is set out in the
Remuneration report from page 72.
across 100% of our managed assets
by the end of 2020, in response to
client expectations.
magazine and presentations by the Group
Chief Executive to discuss progress made
by the business, together with future
objectives and challenges. We also
conduct an annual employee opinion
survey and have invested in our
corporate communications to help
employees understand and deliver
our strategic objectives.
The Board considers the Group’s
employees to be an important
stakeholder and the consideration of their
interests forms part of many Board
discussions. The Board discussed the
results of the 2019 employee opinion
survey and agreed an action plan to
address the issues raised. The Board also
met with employees based in the Hong
Kong and Shanghai offices when it visited
Asia in May 2019.
Ian King, the Senior Independent Director,
is the designated non-executive Director
responsible for gathering workforce
feedback, a key requirement of the Code.
Ian chairs the Global Employee Forum
meetings to hear directly from employees
on the issues that concern them and
report these back to the Board.
We recognise the responsibility we have
to wider society and other key
stakeholders. Schroders is a principles-led
business and we believe that demanding
high levels of corporate responsibility is
the right thing to do.
We rely on the use of external service
partners to supplement our own
infrastructure, benefiting from the
expertise our partners provide.
This enables access to lower costs
for service delivery.
We aim for high standards of governance
across the Group. As an asset manager,
we frequently engage with companies in
which we invest on ESG concerns.
The Board agreed the Group’s approach to
corporate responsibility with a Corporate
Responsibility Committee established with
key stakeholders from our businesses.
This Committee reports to the Board on
the Group’s Corporate Responsibility
strategy and external reporting.
We committed to operating on a net zero
carbon basis from 1 January 2020, which
we will do, in part, reducing non-essential
business travel.
We are proud to support the communities
in which we operate and have a long
history of contributing through donations
and employee time. The Board has
received a briefing on the Group’s
corporate responsibility activities, which
have four pillars: clients, people,
community and the environment.
We actively engage with our external
service partners and have a Supplier Code
of Conduct that sets out the high
standards and behaviours we expect from
them. This Code requires that a
prohibition of forced labour and human
trafficking, together with the ethical and
responsible sourcing of goods or services,
are incorporated into the sourcing
governance and execution processes of
our suppliers.
The Audit and Risk Committee reviews the
Group’s material outsource providers
annually to ensure that the strategy for
the use of outsourced suppliers remains
consistent with our objective of using
service partners to add value to
supplement our own infrastructure.
The oversight of outsourced service
providers and the use of the new front
office technology platform have been key
areas of focus for both the Audit and Risk
Committee and the Board in 2019.
As a global business, we build positive
relationships with our regulators around
the world.
Regulators provide key oversight of how
we run our business. Our clients’ best
interests are served by us working
constructively with regulators.
We regularly engage with regulators and
policymakers to ensure that our business
understands and contributes to evolving
regulatory requirements. Senior
management hold regular meetings
with our regulators to foster good
working relationships.
The Audit and Risk Committee receives
regular reports from these meetings that
cover the Group’s regulatory processes and
procedures and its relationship with
regulators around the world. The reports
also outline the material changes in the
regulatory environment in which the Group
operates. During 2019, these included the
extension of SMCR to our core Asset
Management entities in the UK.
Schroders Annual Report and Accounts 2019
63
Governance Committee membership
– Michael Dobson (Chairman)
– Robin Buchanan (until 2 May 2019)
– Sir Damon Buffini
– Rhian Davies
– Rakhi Goss-Custard
– Ian King
– Philip Mallinckrodt
– Nichola Pease (until 6 November 2019)
– Bruno Schroder (until 20 February 2019)
– Leonie Schroder (from 11 March 2019)
– Deborah Waterhouse (from 11 March 2019)
See page 57 for meeting attendance.
Responsibilities of the Nominations
Committee
The Committee is responsible for keeping under review
the composition of the Board and its Committees and for
ensuring appropriate executive and non-executive
Director succession plans are in place.
The Committee’s terms of reference are available
on the Company’s Investor Relations website at
schroders.com/ir.
Biographical details and experience of the Committee
members are set out on pages 52 and 53.
Policy on board diversity
The Board recognises the importance of diversity and
that it is a wider issue than gender and ethnicity. We
believe that members of the Board should collectively
possess a diverse range of skills, expertise, industry
knowledge, business and other experience necessary for
the effective oversight of the Group. The Nominations
Committee considers diversity as one of many factors
when recommending new appointments to the Board.
As at 31 December 2019, 40% of the Board comprised
women. After the appointment of Claire Fitzalan Howard
this will increase to 45%.
We intend only to use the services of executive search
firms who have signed up to the Voluntary Code of
Conduct on Gender Diversity.
Nominations Committee report
Evolving the Board
I am pleased to present the Nominations Committee report for 2019.
Activities of the Nomination Committee
As we stated in our last annual report, our priorities in 2019 were
Board composition and succession planning for senior management
and non-executive Directors.
Leonie Schroder joined the Board as a non-executive Director on
11 March 2019 in succession to Bruno Schroder.
Deborah Waterhouse also joined the Board as a non-executive
Director on 11 March in succession to Robin Buchanan who was
due to retire at the 2019 Annual General Meeting after nine years
on the Board. Following these two appointments we continued to
maintain a majority of independent directors on the Board, in line
with our policy.
At the Committee’s September meeting we discussed Board
composition, including executive representation at the Board. The
Committee agreed that additional executive input at Board meetings
would be beneficial. However, we were also mindful of the need to
maintain a majority of independent Directors and to avoid having a
Board which was too large to be effective. Therefore we decided to
invite two senior executives to attend Board meetings beginning
November 2019. This arrangement will be reviewed annually.
We also began the process for succession to Nichola Pease, who we
had expected to stand down at the 2021 Annual General Meeting
when she would have completed nine years on the Board. The
Committee discussed the key skills and experience we were looking
for, notably experience in international financial markets and
excellent business judgement. A detailed role profile was drawn up
and approved by all Directors.
The Committee appointed Russell Reynolds Associates to undertake
the search. Russell Reynolds had undertaken the search for
non-executive Directors for our joint venture with LBG, but otherwise
had no recent business relationship with Schroders.
In November, Nichola Pease informed us that she wished to step
down from the Board early to take up another opportunity. Given
that she would leave the Board in any event in 2021, we agreed to let
her stand down with immediate effect with a view to taking up her
new role in March 2020.
Russell Reynolds produced an initial long list of candidates aligned to
our desired role profile. From these, I met eight candidates for initial
interview with five going on to be interviewed by the Board as a
whole. The Committee met on 3 March 2020 to make its final
recommendation that Matthew Westerman be appointed to the
Board. Matthew will join the Board, the Audit and Risk Committee
and the Nominations Committee on 9 March 2020.
64
Schroders Annual Report and Accounts 2019
Also in light of Nichola’s departure, the Board made consequential
changes to the composition of the Committees. Damon Buffini, who
joined the Remuneration Committee in 2018, was appointed as its
Chairman and Rhian Davies was appointed a member of the
Committee. Deborah Waterhouse was appointed to the Audit and
Risk Committee.
Philip Mallinckrodt will retire at the conclusion of the Annual General
Meeting on 30 April after 11 years as a Director. Philip is a member
of the principal shareholder group and the Board’s stated position is
that having two members of the family serving on the Board benefits
the Company in aligning interests and reinforcing long term
thinking. Consequently, the Nominations Committee consulted with
the trustees of the family trusts and other members of the principal
shareholder group. Following those consultations, the trustees of
the family trusts confirmed their support for Claire Fitzalan Howard
to join the Board. The Nominations Committee took this into
consideration and recommended to the Board Claire’s appointment
as a Director. Subject to her election by shareholders at the Annual
General Meeting, Claire will join the Board and the Nominations
Committee at the conclusion of the meeting on 30 April.
Directors standing for re-election
The Committee agreed that all Directors standing for re-election
continue to make a valuable contribution to the Board’s
deliberations and recommends their re-election.
As required by the UK Listing Rules, the appointment of independent
Directors must be approved by a simple majority of all shareholders
and by a simple majority of the independent shareholders. Further
details are set out in the 2020 Notice of AGM.
Diversity
Diversity goes beyond gender or ethnic background. We look for
diversity of skills, experience and background, which is important for
an effective Board and management team, and this will continue to
be the primary criterion by which we select candidates for the Board.
The Board fully understands the importance of increasing gender
diversity and committed to have a minimum of 33% of Board
positions held by women by 2020. Currently 40% of the Board is
comprised of women and with the appointment of Claire Fitzalan
Howard, this will increase to 45%. We intend only to use the services
of executive search firms which have signed up to the Voluntary
Code of Conduct on Gender Diversity. The full Board diversity policy
is on page 64 and also on our website.
Evaluating the performance of the Committee
The external evaluation process for 2019 is set out in detail on page 60.
Priorities for 2020
In recent years I have seen significant changes to the Board as part
of our ongoing succession planning and the Board is well positioned
to take the business forward in line with our strategy. During 2020,
we will continue to review Board composition and succession
planning for senior management and non-executive Directors. In
this context I have asked Ian King, the Senior Independent Director,
to lead the Committee in taking forward planning for my own
succession as Chairman.
Michael Dobson
Chairman of the Nominations Committee
4 March 2020
Schroders Annual Report and Accounts 2019
65
Governance Audit and Risk Committee report
A focused approach to monitoring
and oversight
Committee membership
– Rhian Davies (Chairman)
– Robin Buchanan (until 2 May 2019)
– Rakhi Goss-Custard
– Nichola Pease (until 6 November 2019)
– Deborah Waterhouse (from 6 November 2019)
See page 57 for meeting attendance.
Responsibilities of the Audit and Risk
Committee
The principal role of the Committee is to assist the Board
in fulfilling its oversight responsibilities in relation to
financial reporting, financial controls and audit, risk and
internal controls.
All members of the Committee are independent
non-executive Directors. Biographical details and the
experience of Committee members are set out on pages
52 and 53. The Board has determined that, by virtue of
their previous experience gained in other organisations,
members collectively have the competence relevant
to the sector in which the Group operates. In addition,
the Board considers that Rhian Davies, a chartered
accountant, has the recent and relevant financial
experience required to chair the Committee.
The Chairman, Group Chief Executive and Chief Financial
Officer were invited to attend meetings by the Chairman
of the Committee. Other regular attendees who advised
the Committee were the Group Financial Controller, the
heads of Compliance, Risk and Internal Audit and the
General Counsel. Other members of senior management
were also invited to attend as appropriate. The Chairman
of the Wealth Management Audit and Risk Committee
(WMARC), who is an independent non-executive director
of Schroder & Co. Limited, attended one meeting and
provided an update to each meeting on matters related
to the Wealth Management business.
Representatives from EY, including Julian Young, lead
audit partner for the 2019 financial year, attended all of
the Committee’s scheduled meetings. During 2019, two
private meetings were held with the external auditor
without management present. Private meetings were
also held with the Chief Financial Officer and the heads of
the Compliance, Risk and Internal Audit functions. These
meetings provided an opportunity for any matters to be
raised confidentially.
The Committee’s responsibilities include reviewing the
half-year and full-year results and the Annual Report and
Accounts before recommending them to the Board for
approval. The Committee’s responsibilities also include
oversight of the effectiveness of the external audit, the
independence of the external auditor and
recommending to the Board the appointment of the
external auditor. Providing oversight of the external
auditor also supports the Committee’s responsibilities
with respect to the content and integrity of financial
reporting, the appropriateness of accounting estimates
and judgements, and the effectiveness of the financial
control framework.
I am pleased to present the Committee’s report for the year ended
31 December 2019. The Committee plays a key role in overseeing the
integrity of the Company’s financial statements and the robustness
of the Group’s systems of internal control and financial and risk
management systems.
The Committee recognises its role in promoting the integrity of the
Group’s financial results and high quality reporting. We are thankful
for the support of management and the assurance provided by EY as
external auditor. We note the recommendations of the Kingman and
Brydon reviews and the revised Ethical Standard and welcome the
opportunity to engage in relation to these in due course.
The Committee also plays an important role in reviewing culture and
conduct risk in the Group. We have continued to oversee the
development of our conduct programme, designed to identify
emerging trends and heightened risk issues. Culture and conduct
risk is informed by a number of metrics, including conduct risk
reports, employee opinion surveys and oversight by the second and
third line of defence functions. The FCA has highlighted the link
between conduct and corporate purpose and we believe that
Schroders’ conduct risk framework is well placed against these
standards.
During 2019, the Committee continued to focus on its responsibility
for the monitoring and oversight of the Group’s control environment
and system of internal controls and the Group’s management of risk
and compliance related activities. As part of this work, the
Committee considered the Group’s ICAAP, ILAAP, wind down plan,
risk appetite, risk control assessments and various operational stress
scenarios to support the Board’s conclusions on the viability
statement set out on page 51.
The Committee received briefings on key business topics during the
year, including product governance and the FCA’s Assessment of
Value requirements, fund liquidity, FinTech solutions and the front
office technology platform.
I would like to welcome Deborah Waterhouse as a member of the
Committee. Deborah replaced Nichola Pease who stood down from
the Board in November 2019. On behalf of the Committee, I would
like to thank Nichola for her contribution over the past six years.
I am grateful to all members of the Committee for their support in
2019 and I look forward to continuing our work in 2020.
Rhian Davies
Chairman of the Audit and Risk Committee
4 March 2020
66
Schroders Annual Report and Accounts 2019
The Committee’s primary activities are the oversight of:
Financial reporting, financial controls and audit
Risk and internal controls
– The content and integrity of financial
and Pillar 3 reporting
– The appropriateness of accounting estimates and
judgements
– Monitoring the effectiveness of the financial control
framework
– The effectiveness of the external auditor
– The independence of the external auditor
– Recommending to the Board the appointment of the
external auditor
– The Group’s risk and control framework and
whistleblowing procedures and the Head of Financial
Crime Risk’s reports
– The Group’s ICAAP, ILAAP, wind down plan, risk appetite
and the recovery plan and resolution pack
– The Group’s regulatory compliance processes and
procedures and its relationships with regulators and
compliance monitoring
– The Group’s Internal Audit function
– Emerging and thematic risks that may have a material
impact on the Group’s operations in the future
Key areas of focus during the year
The table below summarises the key issues that the Committee considered at each of its meetings during 2019. At each quarterly
meeting, the Committee receives updates from Internal Audit, Compliance, Risk, Legal and External Audit covering ongoing
projects, the key issues that have arisen since the prior meeting and reviews a dashboard of metrics in place for monitoring key
risks.
Meeting
Financial reporting, financial controls
and audit
March
– 2018 Annual Report and Accounts, including
financial estimates and judgements, oversight of
the external auditor and governance
considerations
– Going Concern and Viability Statement
– Pillar 3 regulatory disclosures
May
– External audit plan, including significant audit
risks (being improper recognition of revenue and
cost of sales)
– Quality and effectiveness of EY’s 2018 audit
Risk and internal controls
– Report from WMARC Chairman
– Key risks and risk management framework
– Internal audit control framework review
– Global operating strategy review
– ICAAP and ILAAP
– Business continuity and resilience
– Financial crime and AML review
– Outsourced providers
– Senior Managers and Certification Regime update
July
– Half-year results, including financial estimates
and judgements
– Accounting and governance considerations
– ICAAP and ILAAP
– Key risks
– Risk and control assessments
September
– Tax strategy
– Audit quality review
November
– Internal controls update
– Accounting policies and key areas of judgement
– Policies for safeguarding the independence of the
external auditor
– Cognitive science and automation
– Group recovery plan and resolution pack
– Wind down plan
– Whistleblowing
– Culture and conduct risk oversight
– Global operating strategy update
– MiFID II
– Information security independent review
– Technology risk
– Cyber security
– Key risk review
– Insurance review
– Conflicts of interest update
– 2020 Internal Audit and Compliance testing plans
Significant accounting estimates and judgements
The preparation of the financial statements requires the application of certain estimates and judgements. The material areas of either
estimation or judgement are set out in the note on the presentation of the financial statements on page 168. Each of these areas is considered
by the Committee based on reports prepared by Finance. EY consider each estimate and judgement and present their conclusions to the
Committee. The significant estimates and judgements considered in respect of the 2019 financial statements and the agreed action by the
Committee are summarised on the following page.
Schroders Annual Report and Accounts 2019
67
Governance Audit and Risk Committee report continued
Significant estimates and judgements
Action and conclusion
Acquisition of subsidiaries, associates and joint ventures in 2019
During 2019, the Group acquired a number of subsidiaries, associates and an
interest in a joint venture, SPW. Significant judgements were made to estimate
the fair value of the acquired intangible assets for BlueOrchard and SPW. The
judgements were mainly in respect of the estimation of forecast returns from the
businesses and the applicable discount rates. The other acquisitions did not
require any significant estimate or judgement in the context of the Group’s
results.
The Committee considered a report from Finance that set out
the principal estimates and judgements in respect of
BlueOrchard and SPW. The Committee considered the
assumptions and the sensitivity of the fair values to changes in
these assumptions.
Within their Audit Results Report, EY also provided the
Committee with a summary of the findings from their audit of
the acquisition accounting for both BlueOrchard and SPW. The
Committee discussed the findings with EY who confirmed they
had not identified any significant matters to draw to the
Committee’s attention.
Once the Committee was satisfied with the proposals,
it concluded that the estimates and judgements
were appropriate.
Please refer to note 10 and note 29 in respect of estimates and judgements made in respect of acquisitions made in 2019
Carried interest
The Group recognises carried interest from its Private Assets business. This
revenue stream is dependent on the future value of certain investments that may
not crystallise until an uncertain date in the future. The Group is contractually
committed to make payments based on a relevant proportion of carried interest
received to various parties, including as part of deferred consideration
arrangements.
For financial reporting purposes, the Group is required to estimate the value of
carried interest receivable, in accordance with the requirements of IFRS 15
Revenue from Contracts with Customers; and the fair value of related amounts
payable based on the requirements of IFRS 9 Financial Instruments.
The key inputs used in determining carried interest comprised the fair value of
the relevant assets on which carried interest may be earned, future growth rates,
the expected realisation dates and the discount rates.
The Committee received a report from Finance, which
reviewed the inputs for estimating the amounts receivable and
payable in respect of carried interest. The Committee
considered the judgement applied in determining the principal
assumptions and the sensitivity of the relevant balances to
those assumptions.
The Committee discussed the accounting for carried interest
with EY and considered the findings from their audit work. Once
the Committee was satisfied with the estimates and judgements
applied, the estimated carrying values were approved.
The Committee considered the disclosures presented in
respect of 2019 and concluded that they were appropriate.
Please refer to note 2 for the estimates and judgements made in respect of carried interest receivable and amounts payable in respect of carried interest
Pension schemes
The Group’s principal defined benefit pension scheme is in respect of certain UK
employees and former employees (the “Scheme”). The Scheme was closed to
future accrual on 30 April 2011 and, as at 31 December 2019, had a funding
surplus. The pension obligation, which was valued as £865.2 million at the year
end, is estimated based on a number of assumptions, including mortality rates,
future investment returns, interest rates and inflation. The Scheme’s assets are
invested in a portfolio designed to generate returns that closely align with known
cash flow requirements and to hedge the interest rate and inflation risks.
Finance provided the Committee with a report that included
the key financial assumptions, which had been applied by the
independent qualified actuaries, Aon Hewitt Limited, to
determine the Scheme surplus. EY’s report set out their
conclusions on the pensions surplus. The Committee
considered the proposed assumptions and was satisfied that
the estimates were appropriate.
Please refer to note 25 for more information on the estimates and judgements made in respect of the Scheme
Presentation of profits
The consolidated income statement separately presents exceptional items.
This presentation is permitted by accounting rules for specific items of income
or expense that are considered material. This presentation involves judgement
to identify the items that warrant specific disclosure in accordance with
accounting standards.
The Committee considered, and was satisfied with, the
continued presentation of exceptional items within a separate
column in the consolidated income statement. This
presentation is considered appropriate as it provides a
transparent view of certain items and the underlying
performance of the business. EY’s report set out their
conclusions on the presentation of profits. For 2019,
exceptional items principally comprised costs associated with
acquisitions including amortisation of acquired intangible
assets, and a cost reduction programme similar in nature to
one undertaken in 2018.
Please refer to note 1b for more information on exceptional items
68
Schroders Annual Report and Accounts 2019
Financial reporting and financial controls
The Committee reviews whether suitable accounting policies have
been adopted and whether management have made appropriate
estimates and judgements, including those summarised on page 68.
The Committee is also required to report to shareholders on the
process it followed in its review of significant estimates and
judgemental issues that it had considered during the year. These
areas are set out on page 168. During 2019, the Committee
considered the Group’s proposals for the adoption of IFRS 16, the
new accounting standard for leases. The impact of this standard is
summarised in the basis of preparation of the financial statements
on pages 167 to 168.
Financial reporting relies on there being an appropriate financial
control environment. The Committee receives reports on the existing
control environment as well as plans to enhance controls in the
future, along with progress made against previous planned changes.
The reports provide a comprehensive summary of the controls that
exist across the Finance function globally and support the Group’s
risk and control assessments. For more details, see page 44. For
2019, the reports mainly focused on the integration of acquired
businesses and the controls relating to revenue and rebates.
The Committee considers other controls that might have an impact
on financial reporting. During 2019, the Committee received an
independent report on the Group’s cyber security arrangements
from PwC. In addition, the Committee reviews the Group’s tax
strategy annually, which is discussed with the external auditors. For
more details see page 37.
The financial control environment is also subject to audit procedures
by both the Group’s internal and external auditors. The Committee
considered that an effective system of internal controls had been in
place during the course of 2019.
The Committee also considers the Group’s financial projections and
the application of stress scenarios so that the Board can make the
Viability Statement, as set out on page 51, and to support the going
concern basis of preparation of the financial statements.
A key focus of the Committee is its work in assisting the Board in
ensuring that the Annual Report and Accounts, when taken as a
whole, is fair, balanced and understandable and assessing whether
it provides the information necessary for shareholders to assess
the Group’s position and performance, business model and
strategy. The Committee considered the key messages
communicated in the 2019 Annual Report and Accounts, as well as
the information provided to the Committee and the Board as a
whole during the year.
The Committee, having completed its review, recommended to the
Board that, when taken as a whole, the 2019 Annual Report and
Accounts is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
Oversight of the external auditor
A key part of the Committee’s work consists of overseeing the
relationship with EY including safeguarding independence,
approving non-audit fees and recommending their appointment at
the AGM. The external audit was last put out to tender in 2016, with
EY replacing PwC as the Group’s auditor for the financial year
commencing 1 January 2018. The next external audit tender will
take place within ten years of their appointment and the audit
partner will be rotated within five years in line with requirements.
The external auditor attends all the Committee’s scheduled
meetings and the Committee holds private meetings with the
external auditor without management present. The Committee
confirms that the Company has complied with the provisions of the
Competition and Markets Authority Order 2014 relating to the UK
audit market for large companies throughout the year under
review and as at the date of this report.
Assessment of audit quality and effectiveness
In March 2020, ahead of the consideration of the 2019 Annual
Report and Accounts, the Committee received initial feedback on the
conduct of EY’s 2019 audit, which identified no significant areas of
concern. A full assessment of the quality and effectiveness of EY’s
2018 audit was considered by way of a questionnaire completed by
key stakeholders in accordance with the FRC’s guidance on assessing
audit quality. The findings from this questionnaire were presented to
the Committee in May 2019. EY generally scored highly in the auditor
effectiveness questionnaire with areas of improvement
communicated to EY before they commenced work on the 2019
audit. During the year, the Committee also discussed the Audit
quality review findings and root cause analysis performed by EY.
A more detailed assessment of EY’s 2019 audit will be considered by
the Committee at their May 2020 meeting and any findings will be
implemented for their 2020 audit.
Independence and non-audit services
The Committee has responsibility for monitoring the independence
and objectivity of the external auditor. Since their appointment, EY
has continued to confirm their independence during 2019 and prior
to issuing their opinion on the Annual Report and Accounts. No
Committee member has a connection with the external auditor.
A key factor in ensuring auditor independence is the Committee’s
consideration of the provision of certain non-audit services by EY.
The Committee maintains a policy on the engagement of the auditor
for the provision of non-audit services to safeguard their
independence and objectivity. This policy is reviewed annually and
takes account of relevant regulatory restrictions and guidance in the
jurisdictions in which the Group operates, including those in the UK.
The policy prohibits the provision of certain non-audit services and
contains rules regarding the Committee approving permitted
non-audit services.
In March 2020, the Committee considered the FRC’s revisions to the
Ethical Standard that governs auditor independence and approved
changes to the policies regarding the provision of services by the
external auditor.
Details of the total fees paid to EY are set out in note 4 to the
accounts. The policy on non-audit services restricts the appointment
of EY to the provision of services that are closely related to the audit.
Other services, where they are not prohibited, may also be
considered but these will not normally be approved by the
Committee. Certain services that are provided to the Group are
closely related to the audit but are not required by regulation. The
Committee considers that these services are most appropriately
performed by the Group’s external auditor as they support the
statutory audit as well as providing the external auditor with relevant
insights on aspects of the business, although they are not
necessarily directly related to the financial statements.
Non-audit fees, excluding audit-related assurance services required
under regulation, equated to 16% of audit fees (2018: 14%).
For 2019, the non-audit services not required by regulation mainly
comprised assurance services in respect of controls reports, issued
under International Standard on Assurance Engagements 3402 or
similar principles, which are normally conducted by a Group’s
external auditor but are not required by regulation, and Global
Investment Performance Standards verification. These services are
assurance in nature and are not considered to present a risk to
independence.
Auditor oversight conclusion
The Committee is satisfied with the work of EY and that they are
objective and independent. Accordingly, the Committee has
recommended to the Board that a resolution be put to the 2020
AGM for the reappointment of EY as external auditor, and the Board
has accepted this recommendation.
Schroders Annual Report and Accounts 2019
69
Governance Audit and Risk Committee report continued
Risk and internal controls
The Board has overall responsibility for the Company’s system of
internal controls, the ongoing monitoring of risk and internal control
systems and for reporting on any significant failings or weaknesses.
The system of control is designed to manage rather than eliminate
the risk of failure to achieve the Group’s strategic objectives and can
only provide reasonable assurance against material misstatement or
loss. The Board has delegated to the Committee responsibility for
monitoring and reviewing the effectiveness of the risk and internal
controls framework.
On behalf of the Board, the Committee carried out the annual
assessment of the effectiveness of internal controls during 2019,
including those related to the financial reporting process. The
Committee also considered the adequacy of the Group’s risk
management arrangements in the context of the Group’s business
and strategy. In carrying out its assessment, the Committee
considered reports from the Group Financial Controller, the heads of
Compliance, Risk and Internal Audit, and EY. This enabled an
evaluation of the effectiveness of the Group’s internal control
framework. The Group continually works to enhance systems to
support and improve the control environment.
Risk
Risk reports set out changes in the level or nature of the risks faced
by the Group, developments in risk management, and operational
events, including significant errors and omissions. Separate reports
allowed the Committee to consider a range of factors when
determining the key risks and uncertainties faced by the Group.
These included assessments of risk tolerance and stress testing of
the Group’s capital position, as well as the production of the Group’s
ICAAP, ILAAP, the wind down plan and the Group’s recovery plan and
resolution pack.
The Committee also considers emerging and thematic risks that may
have a material impact on the Group. The Committee agreed that
climate change and business services resilience risk were new key
risks. Acquisition and integration risks were reviewed by the Board
as a whole during 2019. During the year, the Committee reviewed
the Group’s arrangements in the areas of information and cyber
security, robotics and technology, financial crime and culture and
conduct risk.
Further information can be found in the key risks and mitigations
section of the Strategic report set out on pages 44 to 50.
Set out on this and the following page are summaries of the
Committee’s activity in four areas where members of the first line
of defence attended and presented to the Committee in relation to
emerging and thematic risks.
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Schroders Annual Report and Accounts 2019
Information and cyber security
The Committee has focused on information and cyber
security over a number of years in light of the increase in
high profile cyber attacks and the constantly evolving
external landscape. The sophistication of attacks has
increased with attackers using a wide variety of tactics.
The Information Security team have been vigilant in
protecting the Group and its clients against these attacks.
In November 2019, the results of an independent
review of the Group’s information security undertaken
by PwC were presented to the Committee. The review
showed that the Group was in a good position relative
to similar organisations.
Robotics and technology
Robotics and technology are key to supporting the growth
of the Group’s business and improving the client
experience. In September 2019, the Committee received
an update on the Cognitive Science and Automation (CSA)
programme which had been set up to enhance digital
working and deploys robotics in a number of Group
functions. There are a number of key risks that arise from
implementing robotics, therefore the CSA programme has
worked closely with the Technology, Risk and Information
Security teams to design and implement a control
framework to mitigate and monitor them. The Committee
will continue to monitor the work of the CSA programme
as robotics are deployed across the Group during 2020.
Financial crime
Financial crime mitigation is high on the Group’s agenda
and is a priority for all our key regulators globally. In
Europe, higher standards have been and will be imposed
by the 5th and 6th EU Money Laundering Directives. In
light of this, there have been a number of areas of
enhancement across the Group in respect of due
diligence, including payment screening and transaction
monitoring of clients and third parties. The acquisition of
BlueOrchard and the continued growth of the Private
Assets & Alternatives business has resulted in increased
exposure in higher risk countries in respect of financial
crime, therefore we will continue to enhance our policies
and broaden and adapt their application as we integrate
new acquisitions into the Group. Progress is being made
towards a more consistent global approach to managing
financial crime risks through a financial crime operating
model and further enhancements to the procedural
framework are in train.
The Committee recognises that the Group’s financial
crime risk framework in 2020 is key to supporting the
Board’s strategic goal to grow Schroders’ Private
Assets & Alternatives business and will continue
to review this in 2020.
Culture and conduct risk
Culture and conduct risk continues to be a priority for the
Group and our regulators. The Committee receives a
quarterly risk dashboard which highlights any key risks in
this area and an annual update on how the Group
manages its culture, mitigates conduct risk and complies
with regulatory requirements in this area.
In December 2019 the Senior Managers and Certification
Regime was extended to apply to all our UK regulated
entities. This required greater clarity of roles and
responsibilities and a set of conduct rules for everyone
working in financial services. Page 107 describes some of
the Group’s activities around culture and conduct risk.
Conduct or cultural issues are reviewed by the control
function heads to identify root causes and these are
responded to accordingly.
The Conduct Risk framework is being rolled out by
business line to Schroders’ international businesses during
2020 with existing governance structures and processes
being utilised where possible. The Committee will continue
to review Schroders’ approach to culture and conduct risk
in light of the developing regulatory landscape.
Compliance
Compliance reports describe the status of our relationships and
dealings with our principal regulators and material changes in the
regulatory environment in which the Group operates. The reports
also outline key compliance issues, and the planning and execution
of the compliance testing programme. Monitoring is carried out
globally to assess the Group’s compliance with local regulatory
standards and requirements.
During 2019, the Committee considered the FCA’s supervisory input
and oversight for the principal UK regulated entities within the
Group, which outlined proposed FCA work programmes for the
coming 24 months and prompted some changes and further
enhancements to our governance and overall risk management
arrangements. The Committee was kept informed of the Group’s
preparations for Brexit over the course of 2019.
Internal Audit
The Committee has authority to appoint or remove the Group Head
of Internal Audit, who reports directly to the Chairman of the
Committee. The Chairman of the Committee is accountable for
setting the objectives of the Group Head of Internal Audit, appraising
his performance against those objectives and for recommending his
remuneration to the Remuneration Committee, with advice from the
Group Chief Executive.
The Committee also has responsibility for approving the Internal
Audit budget and being satisfied that the Internal Audit function has
appropriate resources and continues to be an effective and valued
assurance function within the Group. The Committee satisfies itself
as to the quality, experience and expertise of the function through
regular interaction with the Group Head of Internal Audit, both when
the Committee meets and also through other regular meetings
outside the formal meeting schedule. In addition there is an external
review of the Internal Audit function every five years, which provides
further assurance.
The Committee reviews Internal Audit reports on progress against a
rolling plan of audits approved by the Committee on an annual
basis. These reports include any significant findings from audits
performed and their subsequent remediation and recommendations
to improve the control environment. During the year, the Committee
agreed to proposed amendments to the Internal Audit plan to
address the evolving environment in which our business operates. In
2019, additional audit work was undertaken in relation to the
Group’s readiness for the implementation of the Senior Managers
and Certification Regime and the on-boarding of the Scottish
Widows mandates and other client assets from the strategic
partnership with LBG.
Both the annual compliance testing and Internal Audit plans
are developed on a risk-adjusted basis to provide proportionate
assurance over the Group’s controls for the key risks set out
on pages 44 to 50.
Evaluating the performance of the Committee
The annual evaluation of the Committee’s effectiveness was
undertaken as part of the overall Board evaluation process. The
findings relating to the Committee were discussed with the
Committee Chairman. Overall, the Committee is considered to be
performing well and to be rigorous and effective in discharging its
responsibilities and providing the Board with assurance.
Priorities for 2020
As well as considering the standing items of business, the
Committee will also focus on the following areas during 2020:
– Information and cyber security
– Thematic risks - conduct, culture and climate change risk
– Financial crime
– Operational resilience including outsourced services
– Audit and regulatory changes
– LIBOR replacement
– Global operating strategy
Committee’s assessment of internal control and risk
management arrangements
The Committee was content with the effectiveness of the Group’s
processes governing financial and regulatory reporting and controls,
its culture, ethical standards and its relationships with regulators.
The Committee was also satisfied with the appropriateness and
adequacy of the Group’s risk management arrangements and
supporting risk management systems including: the risk monitoring
processes, internal controls framework and the three lines of
defence model.
By order of the Board.
Rhian Davies
Chairman of the Audit and Risk Committee
4 March 2020
Schroders Annual Report and Accounts 2019
71
Governance Remuneration report
Paying for performance in a simple
and transparent way
Structure of the Remuneration report
Remuneration overview
Remuneration governance
Directors’ remuneration policy
Annual report on remuneration
72 to 79
80 to 81
82 to 92
93 to 108
Committee membership
– Sir Damon Buffini (Chairman)
– Robin Buchanan (until 2 May 2019)
– Rhian Davies (from 6 November 2019)
– Ian King
– Nichola Pease (until 6 November 2019)
See page 57 for meeting attendance and page 80 for a
summary of the responsibilities of the Committee.
On behalf of the Board, I am pleased to present our 2019
Remuneration report, my first since I took over as Committee
Chairman. I would like to thank Nichola Pease for her contribution
to the Committee over the past five years and welcome Rhian Davies
as a member of the Committee.
The Remuneration report covers the required regulatory
information, balanced against commercial sensitivities, and provides
further context and insight into our pay arrangements for Directors
and other employees of the Group. We set out our major decisions
since last year, focused on our new Directors’ remuneration policy,
the assessment of 2019 performance and determination of pay, and
our approach to employee carried interest programmes.
Long-term thinking continues to govern our approach to
remuneration. We pay for performance in a simple and transparent
way, clearly aligned to shareholder and client interests, to the
financial performance of the firm and to the progress made towards
our strategic goals. Our remuneration strategy must reflect the
global marketplace in which we operate, helping us to attract,
motivate, reward and retain the talented individuals we need to
maintain the Group’s success.
New Directors’ remuneration policy
We are nearing the end of our current Directors’ remuneration policy
approval and will ask shareholders to approve a new Directors’
remuneration policy at the 2020 AGM. During 2019, the
Remuneration Committee and the Board reviewed in detail our
remuneration approach for the executive Directors.
Shareholder views and feedback have been central to our
deliberations throughout this year. We recognise the evolution of
the corporate governance landscape over the past three years. We
have actively consulted with our largest shareholders during 2019 to
better understand their views and concerns and our policy proposals
reflect the feedback we received. Pages 87 and 88 give more details.
We believe that the principles that underlie our approach remain
relevant. We align employee pay with the interests of our
shareholders, clients and our financial performance, aim to pay
levels of total pay that are competitive with our predominantly
international, and in many cases privately-owned, competitors and
design our remuneration structures to encourage our employees to
stay with us for the longer term. More information on our
remuneration principles is set out below.
Our remuneration principles
The overall remuneration policy is designed to promote the long-term, sustainable success of the Group. The Committee has
developed the remuneration policy with the following principles in mind:
Aligned with shareholders A significant proportion of variable remuneration is granted in the form of deferred awards over
Schroders shares, thereby aligning the interests of employees and shareholders. Executive Directors and other members of the
GMC are required, over time, to acquire and retain a significant holding of Schroders shares or rights to shares. On stepping down,
the executive Directors are required to maintain a level of shareholding for a further two years.
Aligned with clients A significant proportion of higher-earning employees’ and material risk takers’ variable remuneration is
granted as fund awards, which are notional investments in funds managed by the Group, thereby aligning the interests
of employees and clients. This includes the executive Directors, other members of the GMC and other key employees such as senior
fund managers.
Aligned with financial performance We target a 65% ratio of total costs to net income through the market cycle. Within that, the
total spend on remuneration is managed as a percentage of net income, the total compensation ratio. This ratio is determined by
the Committee and recommended to the Board. This approach aligns remuneration with financial performance.
Competitive Employees receive a competitive remuneration package, which is reviewed annually and benchmarked by reference to
the external market. This allows us to attract and retain highly talented people, who know that good performance will be rewarded.
Designed to encourage retention Deferred variable remuneration does not give rise to any immediate entitlement. Awards normally
require the participant to be employed continuously by the Group until at least the third anniversary of grant in order to vest in full.
72
Schroders Annual Report and Accounts 2019
Changes to the executive Directors’ remuneration policy
The changes that we propose to the executive Directors’
remuneration policy align strongly with our remuneration principles,
while taking into account evolving shareholder expectations and
best practice. We have identified a number of areas where we
propose to refine our approach to improve its effectiveness and
alignment to Schroders’ long-term business strategy, as follows:
– Greater transparency around annual bonus decision-making
for the executive Directors. We currently assess performance
across a range of factors before setting executive Directors’
bonuses. We propose to take this further, adopting an annual
bonus “scorecard” for the executive Directors, which we believe
will increase transparency and certainty for shareholders and
Directors. The scorecard will consist of 70% financial factors and
30% non-financial factors.
– Introduction of a maximum level of total remuneration for
each executive Director. This addresses concerns that some
shareholders raised with our current uncapped remuneration
approach, while ensuring Schroders remains able to attract, retain
and motivate the calibre of individual required to run a business
whose main competitors do not operate in the same UK-listed
environment and are often privately owned. This will be expressed
as a maximum total remuneration grant value, defined separately
for each executive Director, rather than as a percentage of salary.
The maximum total remuneration for the current Group Chief
Executive will be £9 million, broadly in line with the historic highest
pay we have awarded for this role, while the maximum for the
current Chief Financial Officer will be £4.5 million.
– Increased shareholder alignment. We will achieve this through
a greater proportion of remuneration in shares and higher
post-employment shareholding requirements. The proportion of
any deferred bonus that is delivered in shares will increase from
50% to 75%, alongside share-based awards under the Long Term
Incentive Plan (LTIP). The remaining 25% of any deferred bonus,
plus 50% of the upfront portion of the bonus (i.e. the part that is
not deferred) will be delivered as fund awards, maintaining crucial
alignment to clients and our regulatory obligations under the
UCITS Directive and AIFMD. We are also increasing the
shareholding that executive Directors must maintain for two years
after stepping down as an executive Director to 500% of salary for
the Group Chief Executive and 300% of salary for other executive
Directors, or the actual level of shareholding on stepping down
if lower.
– Seeking shareholder approval for new LTIP and deferred
bonus plan rules. Our LTIP continues to provide long-term
alignment to shareholders. The net new business and EPS
measures remain challenging and the four-year vesting period
followed by a one-year holding period already aligns with best
practice. At the 2020 AGM, we will be seeking shareholder
approval for new LTIP rules, as the current plan was approved in
2010 and so is due to expire. At the same time, we will seek
shareholder approval for the Deferred Award Plan (DAP). The
operation of bonus deferral for the executive Directors will be
governed by the Directors’ remuneration policy but the DAP rules
also provide the flexibility we need to operate the different
incentive structures that we require across our global operations.
For awards under the proposed new DAP and LTIP rules, if the
Committee uses discretion to permit a retiring executive Director
to retain unvested incentive awards, the unvested elements of
their awards that they are entitled to retain remain at risk of
forfeiture for 12 months if the former Director gets an executive
role at another publicly listed company before the award vests.
The new LTIP and DAP rules are summarised in the 2020 Notice
of AGM.
Page 90 provides further details and additional context.
We will retain many features of our existing policy, where they
already support our business strategy and ethos or where we have
adopted best practice early:
– The Board has set a target ratio of total costs to net income of
65%, while recognising that in weaker markets the ratio may be
higher than our long-term target. Within that, the Remuneration
Committee sets a target range for our spend on remuneration,
our largest cost item, capping overall spend within a total
compensation ratio range of up to 45% to 49% depending on
market conditions. These ratios are simple to understand and
clear for both shareholders and employees.
– This approach allows us to keep base salaries relatively low,
ensuring we are able to control our cost base when times are
challenging. We believe maintaining this approach is preferable at
a time when the asset management industry is undergoing
significant change. The salaries of our executive Directors are
among the lowest in the FTSE-100 and we have only increased
them once in the last 10 years.
– In determining annual bonus outcomes, we focus primarily on
paying for performance rather than positioning against market
rates. We use market benchmarking as a sense check for
remuneration decisions rather than as a driver. The Committee
last reviewed the peer groups that we use when considering pay
outcomes for the executive Directors during 2018. No peer group
is perfect; all companies are different so there are few if any that
face exactly the same opportunities and challenges that we do.
We continue to believe that our publicly and privately-owned asset
management peer group, along with the FTSE-100 financial
services and FTSE-100 peer groups, provide useful context for our
decision-making (see page 97).
– Benefits for the executive Directors, including pension
entitlements, are aligned to those of our London-based workforce.
As a result, the level of these benefits is low when compared to
norms for executive Directors in the FTSE-100. Pension
contributions (or cash in lieu) are currently 16% of pensionable
salary plus a contribution to match employee contributions up to
a further 2% of pensionable salary. As pensionable salary is
capped at £250,000, the executive Directors’ effective contribution
rates as a percentage of their actual salary are 8-9% for the Group
Chief Executive and 11-12% for other executive Directors,
compared to 16-18% for most UK employees.
– We believe in a balance between more formulaic and discretionary
approaches to assessing performance and determining annual
bonus awards. While formulaic incentives can provide greater
transparency, they also risk driving the wrong behaviours and the
wrong long-term outcomes for shareholders, clients and other
stakeholders. We look to reward appropriately all employees who
perform well and adhere to the firm’s values – excellence,
innovation, teamwork, passion and integrity – and who
demonstrate the behaviours we expect in a client-centric culture.
Our approach also ensures we can reflect performance on
management of risks and adherence to compliance controls in
pay outcomes (see page 107).
– Our malus and clawback policy (see pages 86 and 87) sets out the
circumstances in which awards granted under our incentive plans,
including the LTIP, might be delayed, reduced or forfeited prior to
payment (malus) or recovered following payment (clawback). The
cash element of any annual bonus award to the executive
Directors is also subject to clawback terms in the event of
individual misconduct.
– Our incentive plan rules include post-employment restrictions
when the Committee uses discretion to permit a departing
employee to retain unvested incentive awards, such that the
unvested elements of their awards that they are entitled to retain
normally remain at risk of forfeiture for a specified period, in the
event that the former employee joins a competitor or poaches
Schroders’ clients or employees before the award vests.
Schroders Annual Report and Accounts 2019
73
Governance Remuneration report continued
Executive Directors’ remuneration policy illustrations
The new Directors’ remuneration policy will be submitted to shareholders for approval at our 2020 AGM and is set out on pages 82 to 92. The
diagram below illustrates the proposed structure of the executive Directors’ remuneration, including the timing of when they may receive each
component of their total remuneration, across the fixed remuneration paid in the year (salary, benefits and allowances, and contributions to
retirement benefits or cash in lieu), any annual bonus award in respect of the year and the LTIP awards to be granted following the year end.
LTIP
4-year deferral, subject to performance conditions, followed by a 1-year holding period from vesting
Holding period
Shares
Deferred
bonus –
fund award
(circa 15% of
bonus)
Deferred
bonus – share
award (circa
45% of
bonus)
P
A
D
e
h
t
r
e
d
n
u
d
e
t
n
a
r
G
3.5-year deferral
2.5-year deferral
1.5-year deferral
3-year deferral
Funds
Funds
Funds
Shares
2-year deferral
Shares
1-year deferral
Shares
Upfront bonus
– fund award
(circa 20% of
bonus)
6-month
holding
period
Funds
Upfront bonus
– cash
(circa 20% of
bonus)
a
i
v
d
a
P
i
l
l
o
r
y
a
p
Cash
Deferred
portion of any
annual bonus
award is circa
60%
Upfront
portion of any
annual bonus
award is circa
40%
Deferred portion of any
annual bonus award granted
75% as a deferred share
award, available to exercise in
equal instalments after 1, 2
and 3 years from grant
through to the 10th
anniversary of grant, and 25%
as a deferred fund award,
available to exercise in equal
instalments after 1.5, 2.5 and
3.5 years from grant through
to the 5th anniversary of grant.
Upfront portion of any annual
bonus award paid half in cash
in February after the end of the
performance year and half
granted as an upfront fund
award that is subject to a
6-month holding period,
available to exercise through
to the 5th anniversary of grant.
Fixed pay
Performance year
2020
Feb
Sep
Mar
Sep
Mar
Sep
Mar
Sep
2021
2022
2023
2024
2025
Mar
2026
Strategic alignment of remuneration
The Committee ensures that the measures and targets used to determine the variable elements of the executive Directors’ remuneration
are designed to deliver value over the long term in line with our purpose, and are aligned with our strategic priorities and key performance
indicators. This is illustrated below for the annual bonus scorecard metrics that the Committee has adopted for performance year 2020 and
on the opposite page for the metrics that the Committee has selected to determine the vesting of LTIP awards to be granted in March 2020.
How the executive Directors’ annual bonus awards for performance year 2020 will be determined
Annual bonus scorecard measures
Rationale for inclusion
Link to strategy
Financial (70% weighting)
Profit before tax and exceptional
items (35%)
A long-standing measure of the firm’s financial performance, which is recognised by
its stakeholders. The Committee will consider the impact of exceptional items during
the period and will have the discretion to make adjustments as appropriate.
Client investment performance
over 3 and 5 years (20%)
Central to our purpose. Represents a core output of our business.
Helps our clients achieve their long-term financial goals.
Annual net new business (15%)
Net new business is a long-standing firm-wide key performance indicator.
A key driver of AUM and revenues.
Non-financial (30% weighting)
Strategic progress
Sustainability
People and talent
Risk and conduct
Personal goals
The Committee will set targets to assess strategic progress, sustainability, retention of
key talent, conduct and risk metrics. These are all fundamental to the Group’s
long-term success. Performance of each executive Director against the annual
objectives agreed for 2020 will also be considered.
Growing Asset Management
Building closer relationships with our end clients
Expanding capabilities in Private Assets
74
Schroders Annual Report and Accounts 2019
How the vesting of LTIP awards to be granted to the executive Directors in March 2020 will be determined
LTIP measures over four years
Rationale for inclusion
Link to strategy
Earnings per share growth
(50%)
Basic earnings per share (EPS) is a firm-wide key performance indicator and supports
long-term financial sustainability. We aim to grow earnings per share consistently, recognising
the potential impact of market volatility on results in the short term. For the LTIP, we target
adjusted EPS growth over the four-year performance period to be 20-40% higher than the
growth in a composite index that the Committee believes is a reasonable proxy for the market
movement of Schroders assets under management.
Cumulative net new
business (50%)
Net new business (NNB) is a firm-wide key performance indicator and is a key driver of assets
under management, and in turn of revenue and profit. We seek to generate positive net new
business across the Group. For the LTIP, we target cumulative NNB of £15-25 billion across the
four-year performance period.
Read more about the implementation of the remuneration policy for 2020 on page 108.
Future regulatory uncertainty
New legislation in Europe, in particular the fifth iteration of the Capital Requirements Directive and the new Investment Firms Directive, has the
potential to result in further remuneration policy changes being required. Much remains uncertain, not least the impact of the UK’s exit from the
European Union, but the executive Directors may fall under remuneration rules that limit variable remuneration to no more than 1x fixed
remuneration, which can be increased to 2x with shareholder approval. If this happens, we will need to revisit the Directors’ remuneration policy
and make changes, in which case we will consult with shareholders, as and when we have more clarity on the requirements and how they will
apply to Schroders, and seek shareholder approval as necessary.
2019 performance and pay outcomes
2019 saw further progress towards our strategic objectives. Following
our announcement during 2018 of our strategic partnership with LBG,
2019 saw the formal launch of our Schroders Personal Wealth joint
venture and the on-boarding of the first tranches of the Scottish
Widows investment mandate. We expanded our Private Assets
capabilities, with £2.8 billion of net new business, and by acquiring a
majority stake in impact investor BlueOrchard and German-based real
estate business Blue Asset Management. We grew our Wealth
Management business both organically and by acquiring the
Singapore-based wealth management business of ThirdRock Group.
We also grew our Asset Management business, through further
diversifying our global footprint, growing our Solutions business to
deliver complex, risk-managed solutions to meet client needs and
strengthening our sustainable investment capabilities through further
development of our proprietary tools and growing the team.
Client investment performance is a key measure of success. We
remain ahead of our target, with 68% of assets outperforming their
stated comparator over three years and 71% over five years.
We generated record net new business of £43.4 billion (2018: outflows
of £9.5 billion), helping our AUM reach a record £500.2 billion (2018:
£407.2 billion). Our ratio of total costs to net income was 67% (2018:
64%), above our 65% target, reflecting our investment to retain key
talent in a challenging environment and increased non-compensation
costs as a result of continued investment in systems and processes to
maintain an efficient and scalable operating model as the platform for
our future growth. This, combined with broadly flat net income, led to
profit before tax and exceptional items of £701.2 million (2018: £761.2
million), an 8% decrease on the previous year. Basic earnings per
share before exceptional items was 201.6 pence (2018: 215.8 pence),
down 7%. The Board is recommending a final dividend for the year of
79 pence per share (2018: 79 pence), bringing the total dividend for
the year to 114 pence per share (2018: 114 pence), in line with our
dividend policy.
We remain cognisant of the significant challenges that our industry
faces and in light of this wish to remain prudent on pay levels. We
recommended to the Board an increase in our total compensation
ratio to 44% (2018: 43%), recognising the importance to the Group’s
success of attracting, motivating and retaining talent. This remains
below our target range of 45% to 49%, as we must manage our costs
overall and continue to position the firm for the headwinds facing
the industry. As a result, the annual bonus pool is down 11% on
last year.
Read more about our progress towards our strategic objectives and on
business and financial performance in the Group Chief Executive’s
statement from page 6, Our strategy for 2020 and beyond on pages 16
and 17, our Key performance indicators on pages 18 and 19 and the
Business and financial review from page 22.
The chart below shows how net income has been utilised over the ten
years ended 31 December 2019, as we have continued to invest for
future growth, showing remuneration costs before exceptional items,
other operating expenses, taxes arising, earnings retained and
shareholder distributions. Distributions to shareholders in respect of
2019 formed a similar proportion of the total as they did for 2018.
£millions
Net income 2019 was £2,125 million,
up 80% since 2010
2,500
2,000
1,500
1,000
500
0
26%
13%
23%
11%
12%
15%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Fixed remuneration
Other operating expenses
Retained earnings
Variable remuneration
Corporate tax and social security
Interim and final dividend
Read more about the relative spend on pay on page 94.
Schroders Annual Report and Accounts 2019
75
Governance Remuneration report continued
The basis for determining the executive Directors’
remuneration
For the executive Directors’ annual bonus awards in respect of 2019
performance and the LTIP awards we intend to grant to them in
March 2020, we continue to manage the executive Directors’
remuneration in line with our current Directors’ remuneration policy
and did not change our implementation of that policy during 2019.
Our approach to determining annual bonus awards for the executive
Directors in respect of 2019 performance was consistent with the
approach for the rest of our employees, with the Committee
determining their annual bonus awards on a discretionary basis. We
look to reward a balanced approach to growing the business
profitably and sustainably, encouraging the longevity of client
relationships, while retaining and developing our talented people
who are key to organisational stability and long-term success.
Strategic progress and financial performance were central to the
Committee’s assessment of the performance of the Group, when
determining the annual bonus awards of the executive Directors.
The charts below illustrate some of the factors that the Committee
considered in assessing the performance of the Group.
The annual bonus award for each executive Director reflects their
achievements during the year and their contribution to the Group, in
the context of annual results for the Group that saw year-on-year
declines in profit, uncertain market conditions and negative
investor sentiment.
We awarded Peter Harrison, our Group Chief Executive, an annual
bonus of £5.68 million, down 8% on 2018. Peter achieved a great
deal during 2019, producing commendable results in a tough
environment. He focused strongly on our strategic priorities and
made good progress, including: concluding the partnership with
LBG; launching the Schroders Personal Wealth joint venture;
acquiring Blue Asset Management, a majority stake in BlueOrchard
and the wealth management business of ThirdRock; agreeing a
wide-ranging partnership with Bank of Communications in China;
and growing the Solutions business. Net new business was a record
£43.4 billion. He successfully implemented a new management
structure, promoting internally into key roles and also bringing in
new talent from outside the firm where appropriate. Schroders’
reputation is good and we believe we are seen as positively
differentiated from our key competitors.
We awarded Richard Keers, our Chief Financial Officer, an annual
bonus of £2.35 million, down 10% on 2018. Richard had a strong
year in 2019. Having taken on responsibility for our operations
platform two years ago, he successfully delivered a clear global
operations strategy and strong operational delivery, including the
successful transfer in of the first tranches of the Scottish Widows
mandate. The Global Operating, Group Risk and Capital Committees
continue to operate well under his leadership. Our internal controls
framework and risk monitoring processes remain strong.
Read more about the basis on which the Committee determined the
annual bonus awards for the executive Directors on pages 99 and 100.
Key factors in assessing the performance of the Group
The following key performance indicators were among those that formed part of the Committee’s determination of the executive
Directors’ annual bonus awards. In reviewing performance, the Committee has looked to separate Schroders-specific performance
from general market factors.
Client investment
performance over 3 years (%)
Net new business (£bn)
AUM (£bn)
2018
2019
74
68
(9.5)
2018
2019
2018
2019
43.4
407.2
500.2
Target ≥ 60%
Target: positive NNB
Target: AUM growth in excess of market growth
Retention of key talent (%)
Ratio of total costs
to net income* (%)
Basic earnings per share* (p)
2018
2019
94
94
2018
2019
64
67
2018
2019
215.8
201.6
Target ≥ 90%
Target = 65%
Target: grow consistently recognising potential impact
of market volatility
* Before exceptional items.
Criteria met
Partially met
Not met
76
Schroders Annual Report and Accounts 2019
Vesting of LTIP awards granted in 2016
The LTIP performance conditions remain highly demanding and, in March 2020, we expect LTIP awards granted in 2016 to vest at 50%, based
on net new business. The earnings per share target will again not be met. This vesting outcome is illustrated in the chart below.
0%
20%
40%
60%
80%
Vesting (% of award)
Earnings per share*
(EPS)
Net new business
(NNB)
Growth in composite index
42.2%
+20%
+20%
Schroders EPS growth
7.6%
£bn
0
20
Target range
Schroders cumulative NNB
Target range
40
£44.6bn
60
Total expected to vest in relation to performance over the four years to 31 December 2019
* Before exceptional items.
Criteria met
Partially met
Not met
Read more about the basis on which the Committee determined the vesting of LTIP awards granted in March 2016 on page 101.
0%
50%
50%
Executive Directors’ single total remuneration figures
The chart below compares the single total remuneration figures for 2018 and 2019 for each executive Director.
Executive Director
Single total remuneration figure (£’000)
Group Chief Executive
Peter Harrison
2018
2019
8%
8%
19%
18%
19%
18%
Chief Financial Officer
Richard Keers
2018
14%
18%
18%
25%
25%
2019
14%
17%
17%
23%
23% 6%
27%
26%
27%
6,735
26%
4%
6,483
3,027
2,958
Fixed pay
Upfront bonus – cash
Upfront bonus – fund award
Deferred bonus – share award
Deferred bonus – fund award
LTIP vesting
Read more about the single total remuneration figures for the executive Directors on pages 96 to 102.
Schroders total shareholder return vs. Group Chief Executive’s total remuneration history
The graph on the right compares the
total shareholder return of Schroders
shares with that of the FTSE-100, of
which Schroders is a long-standing
constituent. Over the past 10 years,
the index has returned 104%,
compared with a 234% return for
Schroders ordinary shares and a 242%
return for Schroders non-voting
ordinary shares. This graph also
shows the Group Chief Executive’s
single total remuneration figure over
the 10 years ended 31 December
2019, for comparison.
Schroders ordinary shares
Schroders non-voting ordinary shares
FTSE-100 Index
Group Chief Executive’s total remuneration
9
0
0
2
r
e
b
m
e
c
e
D
1
3
n
o
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
400
300
200
100
0
0
10
8
6
4
2
0
2010
2011
2012
2013
2014
2015
2016
2016
2017
2018
2019
Michael Dobson
Peter Harrison
l
a
t
o
t
e
g
n
i
s
l
’
s
e
v
i
t
u
c
e
x
E
f
e
h
C
p
u
o
r
G
i
)
m
£
(
e
r
u
g
fi
n
o
i
t
a
r
e
n
u
m
e
r
Read more about the Group Chief Executive’s single total remuneration figure over the past 10 years on page 98.
Schroders Annual Report and Accounts 2019
77
Governance
Remuneration report continued
Shareholder alignment and Directors’ shareholdings
Alignment with shareholders is one of the principles underpinning our Directors’ remuneration policy, as outlined on page 72. The chart below
compares each executive Director’s shareholdings with that required under our personal shareholding policy.
Value of shareholding vs. shareholding policy (% of salary)
Group Chief Executive
Peter Harrison
Policy
Actual
Chief Financial Officer
Richard Keers
500%
Policy
300%
791%
Actual
447%
Read more about the personal shareholding policy on page 86. Read more about the Directors’ shareholdings on pages 105 to 107.
Pay outcomes in the wider workforce
The Committee reviews each year the allocation of the bonus pool
between different areas of the business. The Group Chief Executive
outlines the rationale for those allocations, in light of each area’s
relative performance and any other strategic and commercial
factors. The Committee considers the distribution of year-on-year
bonus outcomes for employees in each area of the firm to consider
whether these are reasonable in light of the performance of each
business area and of the Group as a whole, and the resulting
constraints of affordability.
The Committee reviewed the distribution of bonuses and salary
increases for the full workforce in January and February 2020, prior
to setting the executive Directors’ bonuses. The Group Chief
Executive and Chief Financial Officer have seen decreases in their
single total remuneration figures of 4% and 2% respectively,
compared with a median total remuneration increase of 0% and a
mean increase of 2% for employees who worked in the Group for all
of 2018 and 2019.
The Group Chief Executive’s total remuneration is 43 times the mean
full-time equivalent total remuneration for UK employees of the
Group and 72 times the median. This is the first year since the rules
on these pay ratios were finalised and came into effect. In future
years we will provide a year-on-year comparison and over time we
will be able to comment on longer-term trends.
Read more on our UK pay ratios on page 98.
Diversity and our gender pay gap
We are committed to creating an inclusive working environment and
ensuring employee diversity. Talented people are celebrated and
valued at Schroders, whatever their gender, age, ethnicity, sexual
orientation, disability, religion, beliefs or other characteristics. We
pride ourselves on always being open to different ways of thinking.
This year, we have continued working to increase the representation
of women in senior management roles. Having been one of the first
signatories of the Women in Finance Charter in the UK, we originally
set ourselves a target of 30% female representation within senior
management by the end of 2019. We achieved that initial target
during the first quarter of 2017 and so increased our target for the
end of 2019 to 33%. At the end of 2019, female representation in
senior management was 32% (2018: 32%), falling slightly short of
that revised target. We are continuing to work on this. We have
increased female representation on the GMC to 31%, from 7% at the
end of 2016.
Our analysis of comparable roles continues to show that we reward
females and males fairly for similar work but our gender pay gap
reflects the lower representation of females at senior levels within
the organisation. Our work to promote senior management diversity
is reflected in improvements in our global gender pay gap. Since our
first disclosure, in respect of 2016 pay outcomes, the gap for mean
salaries and cash allowances has narrowed from 31% to 27% and the
gap for the median narrowed from 33% to 27%. The gap for the
mean bonus has narrowed from 66% to 58% and the gap for the
median bonus has narrowed from 59% to 50%.
78
Schroders Annual Report and Accounts 2019
Diversity extends beyond gender. We have spent 2019 encouraging
our people to complete their diversity profiles, to allow us to begin
reporting on other measures of diversity, including ethnicity and
disability, and we will continue to do so during 2020. During the
year-end compensation review, we consider bonus outcomes
through both a gender and an ethnicity lens to satisfy ourselves that
recommendations are appropriate and help identify any
unconscious bias.
Diversity and inclusion remains a priority at Schroders and we have
published more information on diversity and gender pay in a
separate report on our website at schroders.com/inclusion.
Read more on female representation and our gender pay gap on page 95.
Changes to the Remuneration Committee
terms of reference
During 2019, the Board reviewed the Committee’s terms of reference
and made minor changes to bring closer alignment with the revised
UK Corporate Governance Code. In particular, the role and remit of
the Committee was clarified, to make explicit the Committee’s
responsibility to set the level and structure of remuneration for
senior executives other than the executive Directors, and broadened,
so the Committee (rather than the Board as a whole) is responsible
for determining the remuneration of the Group Chairman. The
Committee’s role overseeing any arrangements to share carried
interest with employees was also reflected. More detail on the remit
and activities of the Committee can be found on page 80.
Sir Damon Buffini
Chairman of the Remuneration Committee
4 March 2020
Employee carried interest programmes
The Committee spent a significant amount of time during 2019
discussing our approach to sharing carried interest with our
employees. Expanding further our capabilities in Private Assets is
one of the three pillars of the Group’s strategy for growing our
business (see page 3). Arrangements to share carried interest with
employees are a competitive necessity if we are to achieve this.
Clients look for these arrangements to align investment team
interests with their own and, with the Group retaining a share of
carried interest, this also aligns the team’s interests with those of
the firm, and therefore our shareholders. The Committee concluded
that carried interest-sharing with our employees is necessary in
many areas of Private Assets capability, though not all, for us to
attract, retain and motivate the talent we need to succeed in
these endeavours.
During 2019, we put in place a number of arrangements to share
any carried interest that the Group earns on particular investment
vehicles with employees. We have also agreed key principles for how
we will do this in the future and a framework for what this might
look like in practice. Our approach to allocating carried interest
entitlements will focus on individuals’ contribution to the investment
vehicle, and employee co-investment will be encouraged. The
vesting period for these entitlements will be aligned to the lifecycle
of the fund in question.
The executive Directors are not eligible to participate in any of our
arrangements to share carried interest with employees.
Schroders Annual Report and Accounts 2019
79
Governance Remuneration report continued
Remuneration governance
Responsibilities of the Remuneration Committee
The responsibilities of the Committee include:
The Committee’s terms of reference are available on our website at
schroders.com/ir.
– Reviewing the Group’s remuneration strategy and recommending
the Directors’ remuneration policy to the Board
– Determining the remuneration of the Group Chairman and the
executive Directors within the policy approved by shareholders
– Determining the level and structure of remuneration for other
senior executives and the Group Company Secretary; reviewing
the remuneration of the Heads of Compliance, Risk, Internal Audit,
Human Resources and the General Counsel; monitoring the level
and structure of remuneration for other material risk takers; and
overseeing remuneration more broadly across the Group
– Recommending to the Board the annual spend on fixed and
variable remuneration
– Reviewing the design and operation of share-based remuneration,
of other deferred remuneration plans and of employee carried
interest-sharing arrangements
– Overseeing any major change in the employee benefits structure
throughout the Group
– Reviewing remuneration disclosures and ensuring compliance
with relevant requirements
– Receiving and considering feedback from shareholders and
representative shareholder bodies
All members of the Committee are independent non-executive
Directors. Biographical details and the experience of Committee
members are set out on pages 52 and 53.
Internal advisers
At the invitation of the Committee Chairman, the Group Chairman
attended nine Committee meetings during 2019 and the Group
Chief Executive and Chief Financial Officer each attended
six meetings.
The Group Head of Risk, the General Counsel, the Global Head of
Compliance and the Group Head of Internal Audit advised the
Committee on matters that could influence remuneration decisions
and were available to attend meetings if required. The Global Head
of Private Assets attended two meetings and Deloitte LLP attended
one meeting to advise the Committee on employee carried
interest-sharing arrangements. PricewaterhouseCoopers LLP (PwC)
attended seven meetings as independent Remuneration Committee
advisers. The Global Head of Human Resources and the Head of
Compensation and Benefits attended meetings to provide advice
and support to the Committee.
No Director or employee participates in decisions determining his or
her own remuneration.
Key areas of focus during the year
The table below summarises the key issues that the Committee considered at each of its meetings during 2019. Remuneration
packages for new hires, severance arrangements for roles subject to the Committee’s oversight and regulatory developments were
reviewed at each meeting as required.
Meeting date
Key issues considered
February
– Compensation outcomes for 2018
– Conduct matters
– Remuneration disclosures
– Forecast vesting of 2015 LTIP grants
– Performance conditions for 2019 LTIP grants
– Carried interest-sharing arrangements in
particular business areas
May
– Shareholder and voting agency feedback on
– Alignment of remuneration to shareholder
remuneration
and client interests
– Potential implications of the fifth iteration of
– Remuneration arrangements in
the Capital Requirements Directive and of the
Investment Firms Directive
– Carried interest-sharing arrangements in
particular business areas
Benchmark Capital
– Review of the Committee’s terms of reference
– Review of advisers to the Committee
June / July
– Executive Directors’ remuneration policy (five meetings)
June Board meeting
– Executive Directors’ remuneration policy
July Board meeting
– Executive Directors’ remuneration policy
October
December
– Executive Directors’ remuneration policy
– Compensation review 2019
– Carried interest-sharing framework
– Approval of deferred remuneration grants for
sustained high performance and potential
– Gender pay gap
– Remuneration arrangements in particular
business areas
– Material risk taker framework and population
– Internal audit of remuneration compliance
– Executive Directors’ remuneration policy
– Carried interest-sharing framework
– Compensation review 2019
– Sustainability of earnings
– Risk, legal, compliance, internal audit and
conduct matters
– Remuneration disclosures
– Forecast vesting of 2016 LTIP grants
– Remuneration arrangements in particular
business areas
– Remuneration benchmarking
– Risk adjustment framework for remuneration
– Total compensation ratio target for 2020
80
Schroders Annual Report and Accounts 2019
External advisers
The Committee appointed or received advice on executive Director pay during 2019 from the external advisers shown in the table below.
Advisers were selected on the recommendation of the Global Head of Human Resources and the Head of Compensation and Benefits.
Appointed
by
Services provided
to the Committee
Other services
provided to the Group
Fees paid for advice to the
Committee during 2019 on
executive Director pay (£’000)
PwC
The
Committee
Independent advisers to the
Committee, including advice on
the development of the proposed
remuneration policy for the
executive Directors
HR consulting services and advice
to management on remuneration
design, regulatory implications,
tax, social security, governance,
operational and technical issues
McLagan (Aon)
Limited
(McLagan)
The
Committee
Information on competitive rates
of pay and market conditions
Information on competitive rates
of pay and market conditions
226
2
The Committee assesses the performance of its advisers, the
associated fees and the quality of advice provided annually, to
ensure that the advice is independent of any support provided to
management.
The Committee retained PwC to provide independent advice as their
team are among the market leaders in this area, with a good
understanding of the firm through their other consulting work with
Schroders. A fixed fee structure has operated since appointment to
cover standard services, with any additional items charged on a
time/cost basis. PwC also provides professional services in the
ordinary course of business, including tax, consulting, regulatory
compliance, support for corporate acquisitions and other advice to
the Group. PwC was the Group’s statutory auditor until 2018.
The Committee utilised McLagan data on market conditions and
competitive rates of pay, as McLagan provides remuneration
benchmarking data covering a wide cross section of the Group’s
competitors, including firms that are not publicly listed and so
are not required to publish their directors’ remuneration.
The Committee is satisfied that the advice received from
McLagan was independent and objective, as it was factual and not
judgemental. McLagan is part of Aon plc, which also provides advice
and services to the Group in relation to pension benefit valuations
and pension actuarial advice. McLagan’s fees were charged on the
basis of a fixed fee for the preparation of reports setting out the
information requested.
Neither PwC nor McLagan has a connection to the Company or any
individual director, save as outlined above.
Evaluating the performance of the Committee
The annual evaluation of the Committee’s effectiveness was
undertaken as part of the overall Board evaluation process (see page
60) and Independent Board Evaluation attended one meeting as part
of this. The findings relating to the Committee were discussed first
with the Committee Chairman and then with the Committee as a
whole. The overall view was that the Committee had operated
effectively and had discharged its duties diligently.
Shareholder voting on remuneration
At the 2019 AGM, shareholders approved the remuneration report that was published in the 2018 Annual Report and Accounts. Shareholders
approved the current Directors’ remuneration policy at the 2017 AGM and that policy applies for three years from the date of approval. The
results of these votes are shown below, together with the result of previous shareholder votes on remuneration resolutions since 2014.
To approve the remuneration report at the 2019 AGM
To approve the Directors’ remuneration policy
at the 2017 AGM
12%
88%
Votes for
Votes against
(Votes withheld)
2019 AGM voting
175,805,066
23,992,740
1,351,623
6%
94%
Votes for
Votes against
(Votes withheld)
2017 AGM voting
181,963,125
12,623,229
461,454
To approve the relevant remuneration report
Votes for
Votes against
To approve the relevant Directors’ remuneration policy
Votes for
Votes against
2014 AGM
2015 AGM
2016 AGM
2017 AGM
2018 AGM
2019 AGM
94%
97%
96%
95%
96%
88%
6%
3%
4%
5%
4%
12%
2014 AGM
2017 AGM
92%
94%
8%
6%
Schroders Annual Report and Accounts 2019
81
Governance
Remuneration report continued
Directors’ remuneration policy
The new Directors’ remuneration policy proposed by the Committee and the Board is set out on pages 82 to 92. Shareholders will be asked to
approve the new policy at the 2020 AGM on 30 April 2020. This policy will take effect for Directors from the date it is approved and is expected
to apply for three years. The Company is also seeking shareholder approval for new DAP and LTIP rules at the 2020 AGM, which will be used for
awards following that approval, and the policy therefore sets out the position assuming these new plans are approved.
Remuneration policy for employees including the executive Directors
The table below sets out the policy for each component of remuneration for the executive Directors, subject to approval at the 2020 AGM. The
current approach for other employees is also included to set the remuneration policy for executive Directors in the context of the wider
workforce. The remuneration policy for non-executive Directors is set out on page 90.
Component, purpose
and link to strategy
Current approach for the
wider workforce
Policy for the executive Directors
Base salary
To help recruit, reward
and retain talent of the
calibre and experience
required to develop and
deliver the Group’s
strategy. Reflects a
market competitive rate
of pay taking account of
the employee’s role and
responsibilities, skills
and experience, and
ongoing contribution.
Benefits and
allowances
To help recruit, reward
and retain talent.
Supports employee
health and wellbeing
and reflects local market
practice.
y
a
p
d
e
x
i
F
Share Incentive Plan
(SIP)
To help increase the
number of employee
shareholders and
increase their
participation as
shareholders. Provides
potential UK tax
benefits.
Retirement benefits
To help recruit, reward
and retain talent.
Enables and encourages
provision for retirement
and reflects local market
practice.
Base salary is paid in cash via payroll. We review
base salaries annually. The Group actively targets
its spend on salary increases at lower-paid
employees, for whom fixed pay forms a larger
proportion of total remuneration, and at
employees whose roles and responsibilities have
increased significantly during the year or where
salary is below market rates. The financial
situation of the Group and the performance of
the individual are taken into account when
determining the appropriate level of base salary
increase each year, if any. For higher-paid
employees we adjust base salaries infrequently.
We aim to pay executive Directors base salaries that
are competitive with other large international asset
management firms. As a result, it is likely that salaries
will be relatively low when compared to other listed
financial services firms and FTSE-100 companies. Like
other higher-paid employees, the executive Directors’
base salaries are adjusted infrequently. When salaries
for executive Directors are increased, the percentage
increase will not normally exceed the average
annualised increase across the wider workforce.
Larger increases may be awarded when Directors’
salaries have fallen significantly below
international competitors.
Employee benefits vary between jurisdictions,
reflecting local market requirements. Cash
allowances are sometimes paid, typically after a
benefit has been phased out and cash in lieu
offered in exchange.
UK employees are provided with a range of
benefits. Available benefits include private
healthcare, life assurance, personal accident
insurance, sickness insurance and tax-efficient
charitable donations that are matched by the
Group. No performance conditions apply.
Most UK employees are eligible to participate in
the SIP. Participating employees use their own
funds to acquire Schroders shares (partnership
shares). In return they receive matching awards
of shares from Schroders (matching shares),
currently up to £100 per month based on the
market value of the shares, and awards of shares
equivalent to dividends (dividend shares). To
qualify for maximum tax benefits these shares
must normally be left in the SIP for five years.
Participants are free to withdraw their
partnership shares at any time but currently may
forfeit the corresponding matching shares if they
do so (or if they cease to be in employment)
within one year of acquiring the relevant
partnership shares, except in certain
circumstances as set out in the rules of the SIP.
Retirement benefits vary between jurisdictions in
a similar way to benefits and allowances. Base
salary is generally the only pensionable element
of remuneration. No performance conditions
apply.
In the UK, base salary up to a maximum of
£250,000 is pensionable. In some circumstances,
employees may take as cash some or all of the
amount the Group would otherwise contribute to
the pension plan.
Executive Directors receive flexible access to a range of
benefits in kind on the same basis as other London-
based employees, which are relatively low by UK
standards for executive Directors. Directors are
covered by the Group’s Directors’ and Officers’ Liability
Insurance. Executive Directors may also benefit from
private use of a car and driver. The cost of providing
benefits varies according to a range of factors, such as
insurance premium rates, so no formal maximum
exists. Additional benefits may be provided if required,
for example to support international relocation.
Executive Directors are eligible to participate in the SIP
on the same basis as other London-based employees.
The value of any SIP matching shares awarded to the
executive Directors during the year is included within
the value reported for benefits and allowances.
SIP participation for the executive Directors is subject
to the same statutory maximum limits as for other
eligible employees, currently £1,800 per tax year in
partnership shares (or 10% of income if lower) and a
maximum ratio of 2:1 for matching shares.
Executive Directors may participate in pension
arrangements, or receive cash in lieu, on the same
basis as other London-based employees. The Group’s
contributions are currently 16% of pensionable salary
plus a contribution to match employee contributions
up to a further 2%. Employees have flexibility and
choice over the balance between employer pension
contributions and cash in lieu, with options to take as
cash some or all of the amount the Group would
otherwise contribute to the pension plan.
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Component, purpose
and link to strategy
Current approach for the
wider workforce
Policy for the executive Directors
Maximum total
remuneration
To provide shareholders with
clarity on the maximum total
remuneration that each
executive Director might be
awarded each year.
Annual bonus award
To motivate employees
to achieve financial, non-
financial and personal
objectives for the
financial year, which are
consistent with the
Group’s strategy. Helps
reward talent for their
individual contribution.
For executive Directors,
awards reflect annual
performance along with
performance over a
longer time frame for
some metrics.
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Total remuneration for employees other than
the executive Directors is not subject to a
defined maximum limit.
Permanent employees are eligible to be
considered for an annual bonus award. Awards
in respect of each financial year are fully
discretionary and non-pensionable. The Group’s
total spend on remuneration is managed via the
total compensation ratio. Individual awards are
not capped.
The amount, if any, that eligible employees are
awarded is determined based on a number of
financial and non-financial factors that may vary
from year to year to ensure alignment with the
Group’s strategic goals, including individual
performance objectives and an assessment of
behaviours compared to the Schroders values.
Bonuses are delivered as follows:
– Any annual bonus award worth up to £52,000
will normally be payable in cash.
– For most employees, larger annual bonus
awards are subject to a graduated level of
deferral, up to 50%. The upfront portion (i.e.
that part that is not deferred) is paid in cash in
February following the end of the financial year
and the deferred portion is granted as a
combination of share and fund awards, as
described on the following page.
– For employees who are material risk takers
under the UCITS Directive or AIFMD (UCITS/AIF
MRTs), including members of the GMC, larger
annual bonus awards are subject to 40% to 60%
deferral. Of the upfront portion, 50% is paid in
cash in February following the end of the
financial year and the other 50% granted as an
upfront fund award. The deferred portion is
granted as a combination of share and fund
awards.
Read more about share awards and fund awards on
the following page. Malus and clawback terms apply
to the non-cash portions of annual bonus awards for
all employees (see pages 86 and 87).
The Committee has defined a maximum limit for the
total remuneration of each executive Director each
year, based on the aggregate value of: fixed
remuneration paid in the year; annual bonus awarded
in respect of the year; and the grant-date market
value of shares under the LTIP award granted
following the financial year end. This will not exceed
£9 million for the current Group Chief Executive and
£4.5 million for the current Chief Financial Officer.
Annual bonus awards for the executive Directors
operate in the same way as for other employees who
are UCITS/AIF MRTs except that for the executive
Directors:
– the proportion of bonus that is deferred is initially
fixed at 60%
– the amount of the bonus that is deferred is reduced
to reflect any LTIP award, such that at a minimum
60% of overall variable pay is deferred
– the deferred portion of bonus is granted 75% as
share awards and 25% as fund awards.
The aggregate value of fixed remuneration paid in the
year, annual bonus awarded in respect of the year and
the grant-date market value of LTIP shares granted
following the year end will not exceed £9 million for
the current Group Chief Executive and £4.5 million for
the current Chief Financial Officer.
In setting executive Directors’ bonuses, the Committee
operates an annual bonus scorecard. At the beginning
of each performance year, the Committee agrees the
scorecard metrics and a range of targets for each
metric, taking into account the recommendations of
the Group Chairman and Group Chief Executive, the
Board-approved budget, market expectations,
prior-year financial outcomes, strategic priorities and
the wider economic landscape. There are no
prescribed metrics or weightings but financial
performance factors will make up at least 70% of the
scorecard each year. The remainder, no more than
30% of the scorecard, will be based on a combination
of non-financial factors, such as strategic progress,
sustainability, people and talent, risk and conduct and
each executive Director’s individual objectives for the
year. For threshold performance, 25% of the maximum
opportunity is payable.
The metrics, targets and actual performance will be
disclosed retrospectively in the next available Annual
report on remuneration, together with commentary
for strategic and individual measures, as these are
commercially sensitive. The Committee may apply
discretion to adjust annual bonus awards to the extent
it judges that the outcomes of the annual bonus
scorecard do not align with results achieved, or in light
of unexpected or unforeseen circumstances. Any such
adjustment would be disclosed in the relevant
Remuneration report.
Malus and clawback terms apply to the executive
Directors’ annual bonus awards on the same basis as
for other employees. In addition, executive Directors’
service contracts extend clawback to the upfront cash
portion of any annual bonus awards in the event of
individual misconduct (see pages 86 and 87).
Schroders Annual Report and Accounts 2019
83
Governance
Remuneration report continued
Directors’ remuneration policy continued
Component, purpose
and link to strategy
Current approach for the wider workforce and policy for the executive Directors
Deferred Award Plan
(DAP)
The Group’s main
deferral arrangement
for annual bonus
awards, including for
the executive Directors.
Aligns the interests of
employees with those of
shareholders and
clients, provides an
incentive for the
employee to stay at
Schroders and makes it
more expensive for
competitors to recruit
talent from Schroders.
May be used to
compensate new
recruits who forfeit
remuneration from their
previous employer to
join Schroders. Awards
are subject to the DAP
rules, which will be put
to shareholders for
approval at the 2020
AGM.
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Awards relate to past performance and so no further performance conditions apply. Share awards are
conditional rights to acquire shares in the Company, at nil cost. Additional shares equivalent to dividends
paid accrue on a compound basis until the share award is exercised. Fund awards are conditional rights to
receive a cash sum based on the value of a notional investment in a range of Schroders funds.
An upfront fund award cannot be exercised for six months from the date of grant. It is not normally subject
to forfeiture if the holder leaves the Group. The deferred portion of annual bonus awards is generally
delivered as a combination of share awards and fund awards; in recent years we have generally granted
deferrals equally between share and fund awards, subject to a minimum fund award of £10,000.
Both upfront and deferred DAP awards are subject to malus terms from the date of grant to the date of
settlement and clawback terms for 12 months from the date of settlement (see pages 86 and 87). Unvested
awards are normally forfeited if the award-holder leaves the Group (see page 92).
Deferred bonus awards for UCITS/AIF MRTs, including the executive Directors
We grant DAP awards to the executive Directors on a similar basis as to other UCITS/AIF MRTs, save that
the executive Directors’ deferred bonuses are granted 75% as share awards and 25% as fund awards.
To provide an incentive to stay at Schroders, deferred share awards normally require the MRT to be
employed continuously by the Group until three years from grant to vest in full. These awards normally
vest and are available to exercise in three equal instalments after 1, 2 and 3 years from grant. If an MRT
resigns prior to the final vesting date then they normally forfeit part of these awards, as follows:
Years since grant date:
% forfeited for share awards
Less than 1
100%
1 to 2
66.7%
2 to 3
33.3%
For deferred fund awards, the deferral period is 3.5 years rather than three. These awards normally vest
and are available to exercise in three equal instalments after 1.5, 2.5 and 3.5 years from grant. If an MRT
resigns prior to the final vesting date then the normal forfeiture terms are as follows:
Years since grant date:
% forfeited for fund awards
Less than 1.5
100%
1.5 to 2.5
66.7%
2.5 to 3.5
33.3%
Deferred bonus awards for employees who are not UCITS/AIF MRTs
These operate on similar terms to those outlined above, save that if a participant resigns before the third
anniversary of grant, awards are normally subject to forfeiture as follows:
Years since grant date:
% forfeited for both share and fund awards
Less than 1
100%
1 to 2
66.7%
2 to 3
33.3%
Awards for sustained high performance and potential
Deferred awards with a five-year vesting period are used very selectively each year to reward sustained
high performance and potential. Executive Directors are not eligible to receive awards on these terms.
These awards normally require the participant to be employed continuously by the Group until the fifth
anniversary of grant. If a participant resigns before the fifth anniversary of grant, awards are normally
forfeited in full. There are no further performance conditions.
Awards for new recruits who forfeit remuneration from their previous employer to join Schroders
When DAP awards are used in this way as part of recruitment, the Committee can set a different vesting
period to better align with the awards that the recruit is forfeiting.
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Component, purpose
and link to strategy
Current approach for the wider workforce and policy for the executive Directors
Long Term Incentive
Plan (LTIP)
To incentivise executive
Directors to deliver
long-term performance
and the achievement of
strategic priorities, while
maximising alignment
with shareholder
interests. May also be
used to compensate
new recruits who forfeit
remuneration from their
previous employer to
join Schroders. Awards
are subject to the new
LTIP rules, which will be
put to shareholders for
approval at the 2020
AGM.
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Employees other than the executive Directors are not eligible to receive LTIP awards currently.
Executive Directors typically receive an LTIP award in March each year. LTIP awards are conditional rights
to acquire shares in the Company at nil cost. Annual LTIP awards can be up to four times base salary for
any individual. The aggregate value of fixed remuneration paid in the year, annual bonus awarded in
respect of the year and the grant-date market value of LTIP shares granted following the year-end will not
exceed £9 million for the current Group Chief Executive and £4.5 million for the current Chief Financial
Officer.
LTIP awards normally have a four-year performance period. The Committee determines the performance
conditions for each award and uses its judgement to set challenging criteria that are consistent with the
Group’s strategy, at least half of which will be financially based. Since the current LTIP was approved by
shareholders in 2010, the vesting of awards has been subject to performance conditions based on earnings
per share (EPS) growth, in respect of 50% of each award, and net new business (NNB), in respect of the
other 50%.
– EPS growth was chosen as a measure of profitability and is measured relative to a composite index that
the Committee believes to be a reasonable proxy for the market movement of Schroders’ AUM. As a
result, earnings increases or decreases purely as a result of movements in financial markets are
excluded from the measurement of performance. Each year that this EPS performance condition has
been used, the balance of Schroders’ AUM at the previous year end has been reviewed to determine the
weighting of the underlying indices that make up the composite index for new awards. If the growth of
adjusted EPS in the fourth year compared with that in the year prior to grant exceeds the growth in the
composite index over the same period by 20% then 12.5% of the award vests, rising on a straight-line
basis to 50% of the award vesting for comparative growth of 40% or more. Comparative growth of 20%
or less is not rewarded. Targets were set at 20% to 40% as a range of outperformance of the composite
index that is very stretching.
– NNB, being gross sales less gross redemptions, was chosen as a measure of the Group’s organic growth.
If cumulative NNB over the four-year performance period is £15 billion then 12.5% of the award vests,
rising on a straight-line basis to 50% vesting for NNB of £25 billion or more. NNB of less than £15 billion
is not rewarded. Targets were set by reference to historical actual performance, aiming to provide
targets that are stretching but not unrealistic.
Following the end of the performance period, the Committee will determine the extent to which the
performance conditions have been met and the proportion of awards that will therefore vest. To avoid
overly formulaic outcomes, when determining vesting the Committee has discretion to reduce (including to
nil) the extent to which awards vest. This discretion applies if any member of the Group has suffered a
material failure of risk management or if the Committee judges that the unadjusted outcome from the
performance conditions does not reflect underlying performance of the Group, any member of the Group,
any business unit or the participant.
From when they vest, awards are subject to a 12-month holding period, during which they cannot be
exercised. They may then be exercised within 12 months of the end of the holding period. Malus and
clawback terms apply (see pages 86 and 87). Unvested awards are normally forfeited if the LTIP participant
leaves the Group (see page 92).
The Committee may amend the performance conditions applicable to an LTIP award if an event occurs that
causes it to consider that it is appropriate to do so, provided that the amended performance condition is, in
the opinion of the Committee, no more or less difficult to satisfy than it was originally intended to be.
Awards for new recruits who forfeit remuneration from their previous employer to join Schroders
The plan rules allow LTIP awards to be used as part of recruitment, including for employees other than the
executive Directors, in which case the Committee can set a different vesting period and performance
conditions to better align with the awards that the recruit is forfeiting. In practice this facility is not
expected to be used often.
Schroders Annual Report and Accounts 2019
85
Governance
Remuneration report continued
Directors’ remuneration policy continued
Component, purpose
and link to strategy
Current approach for the
wider workforce
Policy for the executive Directors
The personal shareholding policy for the Group Chief
Executive requires the acquisition and retention of
shares or rights to shares equivalent to 500% of base
salary. For the other executive Directors the
requirement is 300% of base salary.
On stepping down as an executive Director, the
shareholding required while an executive Director, or
the actual level of shareholding on stepping down if
lower, must be maintained for two years.
Personal shareholding
policy
To align the interests of senior
management with those of
shareholders.
Members of the GMC are required, over time, to
acquire and retain a holding of Schroders shares
or rights to shares equivalent to 300% of base
salary. Each GMC member undertakes not to sell
or transfer any Schroders shares until their
share ownership target has been reached and
to ensure that the required shareholding is
maintained when selling or transferring shares,
except that shares may be sold to satisfy tax and
social security liabilities arising when an award
vests or is exercised. For these purposes, rights
to shares includes the estimated after-tax value
of vested and unvested DAP share awards (and
those under the Group’s previous incentive
plans) and vested LTIP awards, including those
subject to a holding period, but does not include
any unvested LTIP awards as these remain
subject to performance conditions. The Group
prohibits the hedging of share awards during
their deferral and/or holding periods, save in
respect of currency risk.
Shareholder dilution
Incentive plans involving Schroders shares are non-dilutive to shareholders as shares to satisfy awards are
purchased in the market.
In approving the application of this policy to the executive Directors, authority is given for the Group to honour any commitments entered into
with current or former Directors prior to the approval and implementation of the policy (such as payment of pension or the grandfathering of
past awards), provided that such commitments complied with any applicable remuneration policy in effect at the time they were entered into.
Any remuneration commitment made prior to an individual becoming a Director and not in anticipation of their appointment to the Board may
be honoured, even where it is not consistent with the Directors’ remuneration policy in place at the time it is fulfilled. For these purposes,
commitments include the satisfaction of past awards of variable remuneration, the terms of which are set at the time the award is granted.
The rules of the DAP and the LTIP are being submitted to shareholders for approval at the 2020 AGM. There are various discretions afforded to
the Committee in these incentive plans, such as the treatment of leavers (see page 92), the discretion to override formulaic LTIP outcomes (see
page 85), discretion to adjust the structure of awards in the event a participant is internationally mobile to avoid unfavourable legal, regulatory
or tax outcomes for participants or the Group, or in the event of a variation of the Company’s share capital or other corporate event. At the
Committee’s discretion, share-based awards may be settled in cash but this would only be used in exceptional circumstances, for instance in a
jurisdiction where settlement in shares would create an adverse outcome for the Group or award holder. The terms of awards may be amended
in accordance with the relevant plan rules, for example to take account of legal, tax and regulatory changes. The general application of each
plan is subject to variation in some jurisdictions to reflect local restrictions, regulation and practice.
Malus and clawback policy
The Group malus and clawback policy allows incentive awards to be risk-adjusted in certain circumstances. Under malus terms, awards granted
under the DAP and LTIP may be delayed, reduced or cancelled, at the Committee’s discretion, during the period from grant to settlement.
Under clawback terms, amounts paid or values released from such awards may be recovered for a period of 12 months from the date of
settlement, or longer if an investigation is underway that could lead to clawback, at the Committee’s discretion. The policy sets out a range of
circumstances in which these terms can be used, including (in the opinion of the Committee):
– Fraud, misconduct or misbehaviour by the participant
– Serious error by the participant as a result of the participant’s negligent conduct or omission
– A significant failure of risk management for which the participant has significant responsibility
– Corporate failure or a significant downturn in financial performance to which the participant’s negligent conduct has significantly contributed
– A material financial misstatement for which the participant has significant responsibility or which has led to a greater portion of an award
being released to the participant than would otherwise have been the case
– Vesting or settlement based on erroneous or misleading data
– A regulatory sanction or serious reputational damage to which the conduct or omission of the participant significantly contributed.
The Committee reviews the malus and clawback policy from time to time, with the aim that the potential triggers outlined within it reflect the
circumstances in which it might be appropriate for malus or clawback terms to be applied.
In addition, executive Directors’ service contracts extend clawback terms to the upfront cash portion of any annual bonus awards in the event
of individual misconduct.
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Illustration of the period over which malus and clawback apply
The diagram below illustrates the period over which malus and clawback apply. For awards under the LTIP, and for each portion of awards
under the DAP, malus terms apply until the award is exercised and settled, and then clawback terms apply for 12 months from settlement. The
diagram shows the period that malus applies, and then illustrates what the clawback period would be if the award is exercised and settled at
the point indicated, from which point malus terms would cease to apply and the clawback period would commence.
Start of
performance period
Granted
LTIP
+1 year
+2 years
+3 years
+4 years
+5 years
+6 years
+7 years
and beyond
Four-year performance period
Malus from grant until exercised
Vests
Holding
period
Available to exercise
for 12 months
Exercised (malus applies until settlement)
Clawback for 12
months from
settlement
Granted
1/3 vests
1/3 vests
1/3 vests
Deferred
bonus –
fund award
Performance
period
Deferral period
Available to exercise through
to the 5th anniversary of grant
Malus from grant until exercised
Exercised (malus applies until settlement)
Clawback for 12
months from
settlement
Granted
1/3 vests
1/3 vests
1/3 vests
Deferred
bonus –
share award
Performance
period
Upfront
bonus –
fund award
Granted and vests
Performance
period
Holding
period
Upfront
bonus – cash
Performance
period
Clawback for 12
months from payment
Paid
Deferral period
Available to exercise through to the day before
the 10th anniversary of grant
Malus from grant until exercised
Exercised (malus applies until settlement)
Clawback for 12
months from
settlement
Available to exercise through to
the 5th anniversary of grant
Malus from grant until exercised
Exercised (malus applies until settlement)
Clawback for 12
months from
settlement
Considerations when setting policy and the Committee’s decision-making process
In recommending the Directors’ remuneration policy to the Board and to shareholders, the Committee aims to ensure that policies and
practices are consistent with the principles outlined on page 72, while supporting effective risk management so as not to encourage excessive
or inappropriate risk-taking. The Group’s remuneration policies and practices take account of legislation, regulation, corporate governance
standards, best practice and guidance issued by regulators, shareholders and shareholder representative bodies. Reward policies comply with
the relevant provisions of the FCA’s Remuneration Codes, the Remuneration Part of the PRA Rulebook and the UK Corporate Governance Code.
The responsibilities of the Committee are set out in its terms of reference and summarised on page 80. To avoid conflicts of interest, no Director
or employee participates in decisions determining their own remuneration. The Committee assesses the performance of its external advisers
annually, to ensure that the advice provided is independent of any support provided to management (see page 81). In determining the
remuneration of the General Counsel and Global Head of Human Resources, and reviewing the remuneration of the Heads of Compliance,
Risk and Internal Audit, the Committee looks to ensure that remuneration is appropriate based on the achievement of objectives linked to their
functions and that any conflicts of interest are identified and managed.
During 2018, the Committee and the Board carried out a detailed review of our remuneration philosophy for the executive Directors and
concluded that the fundamental principles that underpin the policy remain appropriate.
The Committee considered the proposed new Directors’ remuneration policy at length during 2019, including holding a number of additional
meetings. Several of those Committee discussions took place without the Group Chief Executive and Chief Financial Officer being present. The
Board as a whole also discussed the policy on more than one occasion. The Committee identified a number of strengths of the current
approach, such as its relative simplicity and helping keep the fixed cost base of the Group relatively low. In other areas the Committee identified
changes, to address shareholder concerns, to further align to developing corporate governance best practice and to further improve the
policy’s effectiveness and alignment to Schroders’ long-term business strategy.
Shareholder views and feedback have been central as the Committee considered the new Directors’ remuneration policy. Strong shareholder
support for the current policy was seen at the 2017 AGM, with 94% of votes cast in favour of its approval, and in the 96% support for the
remuneration report at the 2018 AGM. Shareholder support for the 2018 remuneration report fell to 88%, which was still strongly supportive
but suggested an increase in shareholder concern. In response, the Committee Chairman and Senior Independent Director actively consulted
with the Group’s largest shareholders and proxy voting agencies, to better understand their views and any concerns that each may have.
The table on the following page summarises concerns raised by a minority of shareholders during 2019 and the Committee’s conclusions and
proposed policy responses as a result.
Schroders Annual Report and Accounts 2019
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Governance Remuneration report continued
Directors’ remuneration policy continued
Shareholder
comments
Committee’s considerations during 2019
2018 bonus outcomes
considered not to
reflect the Company’s
performance.
To provide shareholders with greater transparency around annual bonus decision-making for the executive
Directors, the Committee is adopting a scorecard approach to determining their annual bonus awards, with effect
from performance year 2020. More details of the policy for determining annual bonus awards are set out on page
83. Information on the annual bonus scorecard for performance year 2020 is set out on page 108.
Total remuneration
for the executive
Directors is
considered to
be too high.
The Group aims to pay employees, including the executive Directors, competitive levels of total remuneration,
which are reviewed annually and benchmarked by reference to the external market. Schroders must attract,
retain and motivate the calibre of individual required to run a business whose main competitors do not operate in
the same UK-listed environment or are privately owned. Levels of pay are driven by the performance of the Group
and of each Director. Benchmarking is used to establish a frame of reference for what competitors are paying,
rather than as a starting point or primary factor when remuneration decisions are made. Information on the
competitive positioning of executive Directors’ remuneration is provided on page 97.
The remuneration
of each executive
Director should
be subject to an
individual maximum.
In response to shareholder concerns with uncapped remuneration, the Committee proposes to introduce a
maximum total remuneration level for each executive Director. This will be expressed as a maximum total
remuneration value, rather than a maximum bonus or a percentage of salary, defined separately for each
executive Director. The maximum total remuneration for the current Group Chief Executive will be £9 million,
broadly in line with the historic highest pay for this role, and the maximum for the current Chief Financial Officer
will be £4.5 million.
Remuneration is
too short-term and
does not create
sufficient shareholder
alignment. LTIP
awards should make
up more of total
remuneration.
The proportion of any annual bonus awards for executive Directors that is deferred is approximately 60%. In
addition, half of the upfront portion (that part which is not deferred) is granted as an upfront fund award that
cannot be exercised for six months, creating further alignment with clients. To create additional shareholder
alignment, the deferred portion of the executive Directors’ annual bonus awards will be delivered 75% as share
awards and 25% as fund awards, compared to 50/50 in the current policy. The Committee believes that the LTIP
continues to be useful, alongside significant deferral of annual bonus awards into share and fund awards. The
LTIP incentivises long-term performance and the achievement of strategic priorities but also creates challenges in
setting meaningful longer-term targets that are aligned with the interests of shareholders and clients and remain
so as economic and business cycles evolve.
The LTIP performance
metrics are
too complex.
The Committee recognises that the composite index used for EPS performance measurement is complex but
considers that the benefits, in excluding earnings increases or decreases purely as a result of movements in
financial markets, justify the continuation of this approach.
Wider workforce engagement
The Committee debates and discusses key areas of remuneration policy and pay outcomes for the wider workforce throughout the year, the
annual bonus pool and resulting pay outcomes for employees across the Group, the budget for salary increases, gender and ethnicity pay
outcomes, gender pay gap reporting and any changes to the structure of workforce compensation. As far as possible, the remuneration policy
for executive Directors is consistent with that applied for other employees, as shown in the tables on pages 82 to 86. The Committee does not
set fixed ratios for Directors’ pay relative to other employees as it believes this would restrict flexibility in aligning reward and performance
appropriately, and to reflect the competitive market rates for each role across the Group. While employees are not expressly consulted on
Directors’ remuneration, feedback from employees is gathered by management and the Board in a range of ways through the year, including:
Employee forums
Elected employee
representatives have regular
direct access to senior
management to discuss the
topics and issues that they
and the employees they
represent consider are
important. The Senior
Independent Director chairs
meetings of the Global
Employee Forum to hear
directly from employees on
the issues that concern them
and report these back as
appropriate to the
Committee, of which he is a
member, and the Board.
Employee opinion survey
The outcomes of the
employee opinion survey are
reviewed by the GMC and the
Board and taken into account
when setting remuneration
policy if appropriate. Each
GMC member creates an
action plan designed to
proactively respond to
employees’ feedback and
continually improve
engagement in their
respective functions. The
Group Chief Executive
ensures that the delivery of
those plans is a priority.
Town hall meetings
The Group Chief Executive
and other senior
management hold town hall
meetings regularly. Some
focus on the Group’s strategic
progress and performance,
some on particular issues
such as diversity and
inclusion, and others on
issues specific to a particular
area of the business or team.
The format of these meetings
varies. Some are broadcast to
employees across the globe
via the intranet. Employees
are given opportunities to
ask questions, anonymously
where possible, to help
provide insight into
areas of concern.
Overview of
pay and policy decisions
The Remuneration
Committee’s remit includes
oversight of remuneration
strategy and remuneration
policies across the Group.
The Committee reviews the
remuneration outcomes for
the wider workforce, and
other significant
remuneration-related
matters. The Committee
considers a broad range of
reference points when
setting policy and pay levels,
including external market
benchmarks as well
as internal reference points.
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Executive Directors’ remuneration policy illustration
The diagram on page 74 illustrates the structure of the executive Directors’ remuneration, including the timing of when they receive each
component of their total remuneration, across the following:
– Fixed components of pay, for salary, benefits and allowances based on when they are paid or enjoyed, and for retirement benefits on when
contributions are made or cash in lieu paid;
– The different components of any annual bonus award, showing for each portion when it will be paid or available to exercise; and
– The LTIP performance and holding periods, based on the LTIP awards to be granted following the financial year end.
The potential value of each component of remuneration for the executive Directors is illustrated below. These scenario charts show, for each of
the executive Directors, the relative split of fixed components of remuneration, annual bonus awards and LTIP awards, in accordance with the
proposed new Directors’ remuneration policy.
Executive Director
Peter Harrison
Group Chief Executive
Fixed
100%
27%
Threshold
21% 16% 16%
31% 10% 6%
Mid-point
10%
17%
17%
38%
12% 6%
27%
27%
£’000
561
2,671
5,835
Maximum
6%
18%
18%
38%
13%
7%
9,000
Richard Keers
Chief Financial Officer
Fixed
100%
14% 14% 26%
Threshold
30%
9%
7%
Mid-point
15% 16% 16%
34% 11% 8%
Maximum
9%
17%
17%
36%
12% 9%
427
1,445
2,973
4,500
Fixed pay
Upfront bonus – cash
Upfront bonus – fund award
Deferred bonus – share award
Deferred bonus – fund award
LTIP vesting
The remuneration policy illustrations above are based on the proposed new remuneration policy for the executive Directors, as follows:
Fixed pay
Fixed pay consists of base salary, benefits and allowances and retirement benefits. Base salary is the annual salary
effective from 1 March 2020. Benefits and allowances and retirement benefits are the actual amounts received in
respect of 2019, as shown in the single total remuneration figure table on page 96.
£’000
Peter Harrison
Richard Keers
Threshold
Base salary
Benefits and allowances
Retirement benefits
Total fixed pay
500
375
16
7
45
45
561
427
Mid-point
Maximum
Annual
bonus award
The amount payable if all of the
threshold targets in the annual bonus
scorecard are met, which is 25% of
the maximum scenario.
The mid-point of the threshold and
maximum scenarios.
The maximum payable if all of the
maximum targets for each metric
in the annual bonus scorecard are
met.
In all three scenarios the annual bonus award is then partly paid in cash, partly granted as an upfront fund award
and partly subject to deferral into share and fund awards, as outlined in the policy.
LTIP
The face value of the March 2020
award, assuming 25% vesting.
The mid-point of the threshold and
maximum scenarios.
The face value of the March 2020
award, assuming 100% vesting.
The aggregate value of fixed remuneration paid in the year, the annual bonus award in respect of the year and the grant-date market value of
the LTIP shares granted following the year end will not exceed £9 million each year for the current Group Chief Executive and £4.5 million for
the current Chief Financial Officer. The single total remuneration figure for the Group Chief Executive over the past 10 years is shown on page
98. The maximum total remuneration for Peter Harrison is similar to the highest single total remuneration figure awarded to the Group Chief
Executive over that period.
The maximum scenario above includes the face value of the March 2020 LTIP award, assuming 100% vesting. If the Schroders share price
increased between the date of grant and date of vesting of the LTIP award, the remuneration value disclosed in the single total remuneration
figure table would be higher. Share price growth of 50% would increase those maximum total remuneration values to £9.3 million and £4.7
million respectively, which was calculated by uplifting the face value at grant of the LTIP shares to be granted in March 2020 by 50%.
Schroders Annual Report and Accounts 2019
89
Governance Remuneration report continued
Directors’ remuneration policy continued
Remuneration policy changes
The key changes proposed to the remuneration policy for the
executive Directors’ are set out in the Committee Chairman’s
Remuneration overview, on page 73. The table below sets out more
detail and any particular context in each case.
– Adopting an annual bonus scorecard for the executive
Directors, consisting of 70% financial factors and 30%
non-financial factors. This will increase transparency and
certainty for shareholders and Directors. The weighting towards
financial factors reflects the Group’s principle that remuneration
should be aligned with financial performance, while the use of
non-financial factors provides scope to reflect achievement in
other areas, such as strategic progress, sustainability, people and
talent, risk and conduct and individual objectives for the year.
– Introducing a maximum level of total remuneration for each
executive Director. This responds to concerns that some
shareholders raised with our current uncapped remuneration
approach, while ensuring Schroders remains able to attract, retain
and motivate the calibre of individual required to run a business
whose main competitors do not operate in the same UK-listed
environment and are often privately owned.
– Increasing from 50% to 75% the proportion delivered in
shares of any deferred bonus awarded to the executive
Directors. This will increase shareholder alignment, alongside
share-based awards under the LTIP. Keeping the remainder of
deferred bonus in fund awards, along with 50% of the upfront
portion of the bonus, maintains crucial alignment to clients and
our regulatory obligations under the UCITS Directive and AIFMD.
– Increasing the level of shareholding that must be maintained
after stepping down as an executive Director. We propose to
increase this to be based on 500% of salary for the Group Chief
Executive and 300% of salary for other executive Directors, which
is 100% of the level of shareholding that they are required to
acquire and maintain while an executive Director, under the
personal shareholding policy. This will increase shareholder
alignment and reflects developments in corporate governance
best practice.
– Seeking shareholder approval for new LTIP rules. The LTIP
continues to provide long-term alignment to shareholders. The
net new business and EPS measures remain challenging and the
four-year performance period followed by a one-year holding
period already aligns with best practice. At the 2020 AGM, we will
be seeking shareholder approval for new LTIP rules, as the current
plan was approved in 2010 and so is due to expire.
– Seeking shareholder approval for new DAP rules. The operation
of bonus deferral for the executive Directors will be governed by
the Directors’ remuneration policy, utilising the DAP rules as the
framework under which upfront and deferred fund awards and
deferred share awards will be granted, as set out on page 84. The
DAP rules also provide the flexibility we need to operate the
different incentive structures that we require across our global
operations.
– Introducing mitigation terms for retiring executive Directors.
The proposed new DAP and LTIP rules introduce terms such that,
if the Committee uses discretion to permit a retiring executive
Director to retain unvested incentive awards, the unvested
elements of their awards that they are entitled to retain remain at
risk of forfeiture for 12 months if the former Director gets an
executive role at another publicly listed company before the
award vests. This mitigates the cost to the Group in these
circumstances and reflects developments in corporate governance
best practice.
– Broadening the Committee’s discretion to reduce LTIP vesting.
Under the current LTIP rules, the Committee has the discretion to
reduce LTIP vesting if any member of the Group has suffered a
material failure of risk management or if the Committee judges
that the unadjusted outcome from the performance conditions
does not reflect the underlying performance of the Company. In
the proposed new LTIP rules, this latter element is extended to
include the underlying performance of the Group, any business
unit or subsidiary, or the LTIP participant. This broadens the range
of circumstances in which the Committee has discretion to reduce
LTIP vesting.
Read more about the new LTIP and DAP rules in the 2020 Notice of AGM.
Remuneration policy for the non-executive Directors
The table below sets out the remuneration policy for non-executive Directors, who only receive fixed pay and benefits.
Component
Operation
Fees
To reflect the
skills, experience
and time required
to undertake the
role.
Fees for the Chairman are determined by the Committee,
and fees for other non-executive Directors are determined
by the Board, in each case based on market information for
comparable asset managers and other financial services
groups and the constituent companies of the FTSE-100
Index. Non-executive Directors do not participate in
decisions concerning their own fees.
Benefits
To enable the
non-executive
Directors to
undertake their
roles.
Non-executive Directors’ benefits are principally expenses
incurred in connection with the Group’s business and reflect
business needs. Non-executive Directors may receive private
use of a driver, car parking, meals, travel costs and tax on
reimbursed benefits. Michael Dobson receives life insurance
benefits on the same terms as UK employees and private
healthcare and medical benefits for him and his family.
y
a
p
d
e
x
i
F
Further information
Fees are usually reviewed biennially.
Non-executive Directors do not participate in
post-employment or retirement benefits, or in any
of the Group’s incentive arrangements. As former
executive Directors, Michael Dobson and Philip
Mallinckrodt have accrued pension benefits. Both
have ceased accruing any further entitlement.
Michael Dobson has been in receipt of a pension
since May 2012.
90
Schroders Annual Report and Accounts 2019
Recruitment of new Directors
The table below summarises the remuneration policy when hiring new executive Directors.
Policy and operation
Overall
approach
On appointment, the Committee aims to pay executive Directors remuneration that is appropriate in level and
structure to attract, motivate, retain and reward Directors of the quality required to run the Group successfully,
while avoiding paying more than is necessary.
Maximum total
remuneration
On appointment of any new executive Directors to the Board, the Committee will consider the appropriate
maximum total remuneration value for the role, within the parameters of the current policy.
Notice periods
The Group’s general policy is that each executive Director will have a rolling contract of employment with mutual
notice periods of six months. The Committee will consider the appropriate notice period when appointing any new
executive Director. If necessary to secure a new hire, a notice period of up to 12 months may be offered. When
recruiting new executive Directors, the Committee’s policy is that contracts will not contain any provision for
compensation upon early termination.
Base salary
Base salary is likely to be set at the same level as for other executive Directors, provided this is justifiable by
reference to the candidate’s skills and experience, and taking into account remuneration in their most recent role,
internal relativities and external market rates for roles with similar responsibilities.
Other fixed pay
Benefits and allowances, retirement benefits and SIP participation will be provided to new executive Directors on a
similar basis as those available to other employees. If the Group hires a new executive Director internationally
then relocation support may be offered, on a similar basis to that which might be offered for other employees.
This may include support such as temporary accommodation, assistance finding new accommodation,
transportation of household goods, school search for children moving internationally with the Director, tax advice
and assistance preparing tax returns and a one-off cash allowance of up to £5,000 after tax.
Annual bonus
award
New executive Directors would be eligible to be considered for annual bonus awards in the same way as existing
Directors. The Group does not award guaranteed annual bonuses to executive Directors.
LTIP
New executive Directors would be eligible to be considered for LTIP awards in the same way as existing Directors.
Legal fees
The Group may pay reasonable fees for a new executive Director to obtain independent legal advice in relation to
their appointment.
Buy-out awards Where a candidate will forfeit remuneration as a result of leaving their current employer or joining Schroders, the
Group may mitigate that loss by making one-off awards as a term of their appointment. The Committee will take
reasonable steps (within the terms of the Group’s incentive plans) so any buy-out awards are aligned in amount
and terms with the remuneration being forfeited. Malus and clawback terms will apply to any such awards.
Appointments
outside the UK
If a new executive Director is based outside the UK, the Committee will adapt the terms of the Directors’
remuneration policy to comply with local requirements and so the executive Director can participate in
arrangements that are in line with the wider workforce in that jurisdiction.
Grandfathering
Any remuneration commitment made prior to an individual becoming a Director and not in anticipation of their
appointment to the Board will be honoured, even where it is not consistent with the Directors’ remuneration policy
in place at the time it is fulfilled.
New non-executive Directors receive fees and benefits in line with the policy for other non-executive Directors. Non-executive Directors are
engaged under letters of appointment. They do not have service contracts. When recruiting new non-executive Directors, the Board’s policy is
that letters of appointment will have a mutual notice period of six months.
Directors’ service contracts and letters of appointment
Each of the executive Directors has a rolling service contract with a mutual notice period of six months. Each of the non-executive Directors has
a letter of appointment with a mutual notice period of six months. Letters of appointment and service contracts are available for shareholders
to view at the Company’s registered office on business days between the hours of 9 a.m. and 5 p.m. and will be available at each AGM.
Schroders Annual Report and Accounts 2019
91
Governance Remuneration report continued
Directors’ remuneration policy continued
Policy on termination arrangements
The table below sets out the remuneration policy on termination of a Director.
Policy and operation
Overall approach When an executive Director leaves the Group, the Committee will review the circumstances and apply the
treatment that it believes is appropriate. Any payments will be determined in accordance with the Directors’
remuneration policy, as well as the terms of the Directors’ service contract and the rules of any applicable incentive
plans. There are no contractual provisions for non-executive Directors to receive compensation upon termination.
Fixed pay
Annual bonus
awards
DAP awards
LTIP awards
Restrictive
covenants
Shareholding
requirements
Legal fees
Base salary, benefits and allowances, and retirement benefits for executive Directors, and fees for non-executive
Directors, will continue to be paid through the notice period. The Committee also has the discretion to make a
payment in lieu of notice to executive Directors, normally based on salary only. The treatment of shares acquired
or awarded under the SIP will be in accordance with the plan rules.
Departing executive Directors do not have a contractual entitlement to an annual bonus award. If a departing
Director works during the notice period to achieve the Group’s goals and supports an effective transition of
responsibilities, or leaves due to death, ill health, injury or disability, the Committee may recommend to the Board
that a discretionary payment be made to reflect the Director’s contribution during the proportion of the financial
year worked. Any such payment will normally be subject to the same deferral arrangements as an annual bonus
award, provided this is permitted under applicable law and regulations, and except in the case of death, ill health,
injury or disability when at the Committee’s discretion payment may be fully in cash.
The treatment of awards under the DAP will be in accordance with the relevant plan rules. The normal treatment is
that unvested awards are forfeited (see page 84). In certain circumstances, such as death, ill health or injury, or
otherwise at the Committee’s discretion (which might be used in circumstances such as retirement with the
agreement of the Company or leaving by mutual agreement), those rules permit participants to retain some or all
of their unvested awards following the termination of their employment. Any unvested awards that are retained
vest on their normal vesting date, or vest immediately in the case of death, or ill health, injury or disability at the
Committee’s discretion.
The treatment of awards under the LTIP will be in accordance with the relevant plan rules. The normal treatment is
that unvested awards are forfeited (see page 85). In certain circumstances, such as death, ill health or injury, or
otherwise at the Committee’s discretion (which might be used in circumstances such as retirement with the
agreement of the Company or leaving by mutual agreement), the award normally still vests after the performance
period, subject to the performance conditions and holding period, with the proportion that vests reduced pro-rata
for the proportion of the performance period worked. Vesting will be accelerated if the participant dies, with the
proportion that vests determined by estimating the extent to which the performance conditions will be met.
Departing executive Directors are not eligible to receive new LTIP awards.
Executive Directors’ service contracts include restrictions prohibiting the solicitation of Schroders clients or
employees for a period of 12 months after leaving employment, against which any period spent on notice or
garden leave is offset. If the Committee uses its discretion to permit a departing Director to retain unvested DAP or
LTIP awards, the unvested portions of their awards that the leaver is allowed to retain normally remain at risk of
forfeiture for a specified period if they join a competitor or solicit Schroders’ clients or employees before the award
vests. The same applies if a retiring executive Director is allowed to retain portions of their unvested awards and
then takes up an executive role at another publicly listed company within 12 months.
On stepping down, executive Directors are required to maintain for a period of two years a holding of shares or
interests in shares equal in number to that which applied under the personal shareholding policy while they were
an executive Director, or the number actually held on stepping down if lower.
The Group may pay reasonable fees for a departing Director to obtain independent legal advice in relation to their
termination arrangements and nominal consideration for agreement to any contractual terms protecting the
Company’s rights following termination. If the value of either of these exceeds £10,000 it will be disclosed in the
Annual report on remuneration.
Retirement gifts
The Board may choose to make a retirement gift to a departing Director. If the value of any such gift exceeds
£10,000 it will be disclosed in the Annual report on remuneration.
Settlement
agreements
The Committee may agree additional exit payments where such payments are made in good faith to discharge an
existing legal obligation, as damages for breach of such obligation, in settlement or compromise of any claim or
potential claim arising on termination of a Director’s office or employment or to strengthen the Group’s rights
post-termination. This may include the provision of outplacement support. If the value of any such payment
exceeds £10,000 it will be disclosed in the Annual report on remuneration.
Other payments
Other payments to former Directors that do not exceed £10,000 will not be disclosed in the Annual report on
remuneration. Payments can also be made where an amendment to the policy authorising the Company to make
the payment has been approved by shareholders.
92
Schroders Annual Report and Accounts 2019
Annual report on remuneration
Pages 93 to 108 constitute the Annual report on remuneration.
Shareholders will have an advisory vote on this section, together
with the Remuneration overview on pages 72 to 79 and the
Remuneration governance section on pages 80 and 81, at the AGM.
Where required, this information has been audited by EY.
This section sets out remuneration outcomes for 2019, across
Schroders as a whole and specifically for the executive and non-
executive Directors, and compares them to remuneration outcomes
for 2018. The Directors’ remuneration was managed in line with the
current Directors’ remuneration policy, approved by shareholders at
the 2017 AGM and summarised at schroders.com/directors-
remuneration-policy.
This section also sets out the context for the Directors’ remuneration,
including the main performance metrics that the Committee
considered when setting the overall annual bonus pool and
information on how annual bonus awards were allocated across the
Group. It details the key performance criteria considered when
determining executive Directors’ annual bonus awards. Returns to
shareholders over the past 10 years are compared with the total
remuneration of the Group Chief Executive over the same period.
Directors’ rights under fund and share awards and the share
interests of Directors and their connected persons are also detailed.
Aligning pay and performance across Schroders
Group performance
Net income excluding exceptional items increased by less than 1% in
2019, reflecting reduced 2019 management fees from net new
business in 2018 and 2019. The Group’s profit before tax and
exceptional items was £701.2 million, down 8%, and basic earnings
per share before exceptional items was 201.6 pence, down 7%,
reflecting higher non-compensation costs as well as the year-on-year
revenue trend. The Board is recommending a final dividend of 79
pence, bringing the total dividend for the year to 114 pence, in line
with the total dividend for 2018.
Record net inflows were £43.4 billion (2018: outflows of £9.5 billion).
AUM ended the year at £500.2 billion (2018: £407.2 billion) and 68%
(2018: 74%) of our internally-managed Asset Management AUM
outperformed its stated comparator over the three years to 31
December 2019.
Further information on the Group’s operating and financial performance
can be found in the Business and financial review, from page 22. Page 3
and the table on pages 16 and 17 outline the Group’s strategy. Pages 18
and 19 show our performance against our key performance indicators
over the five years to 31 December 2019.
Aligning remuneration costs with financial
performance
The total spend on remuneration is managed by reference to the
total compensation ratio, measuring total remuneration expense
against net income. This aligns the interests of employees with the
Group’s financial performance.
The Committee received a report on the underlying strength and
sustainability of the business and reports on compliance, legal, risk
and internal audit matters from the heads of those areas. These
were considered as part of the 2019 compensation review.
The Committee determined the annual bonus pool for the year
ended 31 December 2019 based on a total compensation ratio of
44% (2018: 43%). The total compensation ratio is below our target
range of 45% to 49%, as the Committee and the Board as a whole
remain mindful of the challenges the asset management industry
faces. From 2018 to 2019, headcount is up 13% and fixed
remuneration costs are up 9%. The annual bonus pool was down
11%, or down 15% based on the mean bonus per bonus-eligible
employee, assuming constant currency rates in each case (as shown
in the table on page 94).
Key performance metrics
Key remuneration metrics
(8%)
(5%)
(5%)
(7%)
3%
+0%
1%
+0%
Net income*
Profit before tax*
Earnings per share*
Dividend per share
2018 vs. 2017
2019 vs. 2018
* Before exceptional items.
9%
9%
13%
12%
Headcount
Fixed remuneration costs*
Annual bonus pool
(7%)
(11%)
Total remuneration costs*
2%
3%
2018 vs. 2017
2019 vs. 2018
Schroders Annual Report and Accounts 2019
93
Governance Remuneration report continued
Relative spend on pay
The charts below illustrate the relative spend on pay for 2019 compared with 2018. The values are taken from the financial statements and
show how remuneration costs before exceptional items compare with shareholder distributions, taxes arising and earnings retained, to
illustrate how net income is utilised. Distributions to shareholders in respect of 2019 formed a similar proportion of the total to that for 2018.
2018
13%
11%
15%
24%
10%
5%
22%
Fixed remuneration
Variable remuneration
– upfront
Variable remuneration
– deferred
Other operating expenses
Corporate tax and
social security1
Retained earnings
Interim dividend paid and
final dividend recommended
vs.
2017
£518.5m +12%
£218.6m
(9)%
£102.0m
(3)%
£459.5m
£227.4m
+19%
(6)%
£286.1m
£311.8m
(11)%
+1%
2019
12%
11%
15%
26%
9%
4%
23%
Fixed remuneration
Variable remuneration
– upfront
Variable remuneration
– deferred
Other operating expenses
Corporate tax and
social security1
Retained earnings
Interim dividend paid and
final dividend recommended
vs.
2018
£562.9m +9%
£200.1m
(8)%
£82.0m
(20)%
£496.3m
£222.8m
+8%
(2)%
£248.2m
£312.5m
(13)%
+0%
1. Corporate tax and social security includes employer’s social security costs, which for 2019 was equal to 4% of net income (2018: 3%).
The annual bonus pool and annual bonus award allocations across the Group
The Group Chief Executive allocates the overall annual bonus pool between the divisions or functions headed by GMC members, taking into
consideration both financial and non-financial performance. Variable remuneration awards for individual employees, other than for the Group
Chief Executive and his direct reports, are recommended to the Group Chief Executive by members of the GMC, taking account of individual
performance against objectives, the performance of the relevant business area and the levels of reward for comparable roles in the market.
The Committee determines the remuneration for the executive Directors, other members of the GMC and the Group Company Secretary,
monitors and reviews remuneration for the control function heads and other MRTs, and also provides oversight of the compensation review
outcomes for employees more broadly. The Committee determines Directors’ remuneration in the context of remuneration across the Group,
including financial performance, the total compensation ratio and the remuneration outcomes for the wider workforce. For 2019, the
Committee was satisfied that the year-end process was rigorous and that the allocation of the pool and the individual bonus awards took
account of both financial and non-financial performance, including conduct and behaviours as described on page 107.
The table below compares the annual bonus pools for performance years 2019 and 2018, divided into amounts paid in cash, upfront fund
awards and amounts deferred into share awards and fund awards. The 2018 figures are also shown after adjustment to reflect the foreign
exchange rates used during the 2019 compensation review, to provide a better comparison of what was awarded to employees each year. The
bonus pool is shown on the basis of the amounts awarded to employees in respect of performance each year, rather than the costs charged to
each year’s income statement, and includes amounts that are reported as exceptional items as they relate to cost-reduction programmes.
Total compensation ratio
Annual bonus awards:
– paid in cash
– granted in upfront fund awards
– deferred into share awards
– deferred into fund awards
Bonus pool
Proportion of bonus pool that is deferred
Number of bonus-eligible employees
Mean annual bonus award per bonus-eligible employee
Median annual bonus award per bonus-eligible employee
Group Chief Executive’s bonus as a % of the bonus pool
Aggregate bonuses to executive Directors as a % of the bonus pool
1. Adjusted to the same foreign exchange rates as those used for the 2019 figures.
94
Schroders Annual Report and Accounts 2019
2019
44%
£m
179.8
27.0
48.1
44.1
299.0
31%
4,365
£68,505
£15,600
1.9%
2.7%
Adjusted
20181
n/a
£m
198.7
28.4
56.1
51.6
334.8
32%
4,169
£80,305
£18,744
1.8%
2.6%
2018
43%
£m
195.9
28.1
55.5
51.0
330.5
32%
4,169
£79,270
£18,500
1.9%
2.7%
The amounts shown for the Group Chief Executive are those shown
in the single total remuneration figure table on page 96.
Hourly
fixed pay
Comparison of the percentage change in base salary,
benefits and annual bonus award
The chart below compares, for each of base salary, benefits and
annual bonus award, the percentage change from performance year
2018 to 2019 for the Group Chief Executive with the average
year-on-year percentage change across employees of the Group
taken as a whole (except where noted).
Comparison of the percentage change in value from
2018 to 2019
Base salary1
+0%
5%
3%
Benefits2
Bonus3
(3)%
(8)%
(4)%
Peter Harrison
Employees of the Group
1. For base salary, employees of the Group are those who were in
employment for the full year to 31 December 2019 and represents the
average salary increase during 2019.
2. For benefits, employees of the Group is a per capita figure for those
who were in employment in the UK for the full year to 31 December
2019 and represents the average change in benefits value during 2019.
3. For bonus, employees of the Group is a per capita figure for bonus-
eligible employees who were in employment for all of 2019 and 2018.
Peter Harrison received no base salary increase in 2019. Salary
increases across the Group during 2019 were targeted at employees
whose roles had increased in scope materially during the year and
those whose fixed pay significantly lagged behind market rates.
Particular attention was also given to those on lower salaries, for
whom fixed pay forms a greater proportion of total remuneration.
The value of Peter Harrison’s benefits increased by 3%, reflecting
slightly greater usage of a car and driver, offset somewhat by lower
income protection and life assurance costs after these were
renegotiated effective 1 May 2019. Benefits for other employees
reduced by 3% due to the renegotiation of those costs.
Peter Harrison’s annual bonus award for 2019 was 8% lower than for
2018, in line with the year-on-year decline in profit before tax and
exceptional items. The mean annual bonus award decrease for
bonus-eligible employees who worked in the Group for all of 2019
and 2018 was 4%, as shown above, and the median was 11%.
Individual annual bonus awards for 2019 compared with 2018 varied
from an increase in excess of 100% to a reduction to zero bonus,
reflecting our pay for performance philosophy.
Peter Harrison’s single total remuneration figure decreased by 4%
year-on-year, compared with a median increase of 0% and a mean
increase of 2% for employees who worked in the Group for all of
2018 and 2019.
Female representation and gender pay
Schroders is committed to promoting diversity of thought and
ensuring Schroders is an inclusive place to work. That commitment is
broader than gender and pages 31 and 32 provide more information
on the Group’s approach to inclusion and diversity.
In 2016, Schroders committed to increase female representation in
senior management from 25% at the end of 2015 to 30% by the end
of 2019. That goal was met during 2017. As a result, this target was
increased to 33% female representation in senior management by
the end of 2019. At the end of 2019, female representation in senior
management was 32% (2018: 32%), falling slightly short of that
revised target. Work on this will continue. Female representation on
the GMC has been increased from 7% to 31% since the end of 2016
(2018: 31%).
The data below illustrates the gender representation issue by
looking at the proportion of employees by gender according to
quartile pay bands, based on hourly fixed pay, which reflects base
salary and any cash allowances.
The proportion of female vs. male employees according to quartile pay bands
Top quartile of employees
based on hourly fixed pay
2nd quartile
3rd quartile
Bottom quartile
Total workforce
24% females, 76% males
38% females, 62% males
49% females, 51% males
55% females, 45% males
42% females, 58% males
Analysis of pay levels for comparable roles across Schroders shows
that male and female employees are paid fairly for similar work.
However, the lower representation of women at senior levels within
the Group, which is an issue across the financial services sector, is
reflected in the gender pay gaps shown below. This looks across the
total workforce and sets out the gender pay gap for both hourly
fixed pay and total variable pay, consisting of the annual bonus
awarded in respect of 2019 plus any other incentive awards during
the year.
The amount by which the male
median exceeds the female median,
as a % of the male median
The amount by which the male
mean exceeds the female mean,
as a % of the male mean
Total
variable
pay
The amount by which the male
median exceeds the female median,
as a % of the male median
The amount by which the male
mean exceeds the female mean,
as a % of the male mean
Schroders globally
27%
(2018: 30%)
27%
(2018: 29%)
50%
(2018: 56%)
58%
(2018: 60%)
The proportion of female and
male employees who received
variable pay
92% of females,
91% of males
(2018: 93% / 94%)
The work to date to promote senior management diversity, and the
diversity across other higher-paid roles in the Group, is reflected in
improvements in these gender pay gaps, though there remains
more to do. There is also a higher proportion of males in lower paid
roles in 2019 compared to 2018, which reduces our gender pay gaps.
Compared to pay outcomes when the Group first reported its global
gender pay gap, in respect of 2016, the gap for the median hourly
fixed pay has narrowed from 33% to 27%, while the gap for the
mean narrowed from 31% to 27%. The gap for the median bonus
has narrowed from 59% to 50% and the gap for the mean bonus has
narrowed from 66% to 58%.
For more information on diversity and inclusion at Schroders,
including our UK gender pay gap disclosures, see our website at
schroders.com/inclusion.
Schroders Annual Report and Accounts 2019
95
Governance Remuneration report continued
Single total remuneration figure for each executive Director (audited)
The total remuneration of each of the executive Directors for the years ended 31 December 2019 and 31 December 2018 is set out below.
2019 (£’000)
Peter Harrison
Richard Keers
Total
2018 (£’000)
Peter Harrison
Richard Keers
Total
Base
salary
Benefits and
allowances
Retirement
benefits
Total
fixed pay
Annual
bonus award
LTIP
vested
Total
variable pay
Total
remuneration
500
375
875
500
375
875
16
7
23
15
7
22
45
45
90
45
45
90
561
427
988
560
427
987
5,680
2,350
8,030
6,175
2,600
8,775
242
181
423
–
–
–
5,922
2,531
8,453
6,175
2,600
8,775
6,483
2,958
9,441
6,735
3,027
9,762
The methodology for determining the single total remuneration figure is set out below. A chart illustrating the figures above can be found in
the Remuneration overview on page 77:
Base salary
Represents the value of salary earned and paid during the financial year.
Benefits and allowances
Includes one or more of: private healthcare, life assurance, permanent total disability insurance, Share
Incentive Plan matching shares and private use of a company car and driver.
Retirement benefits
– see page 102
Represents the aggregate of contributions to defined contribution (DC) pension arrangements and cash in
lieu of pension for Peter Harrison, and cash in lieu of pension for Richard Keers.
Page 102 shows how the retirement benefits figures above are comprised for each Director.
Annual bonus award
– see pages 99 to 101
LTIP vested
– see pages 101 and 102
Represents the total value of the annual bonus award for performance during the relevant financial year.
Pages 99 and 100 set out the basis on which annual bonus awards for 2019 were determined. Page 101 breaks down the
annual bonus awards for 2019 into cash paid through the payroll in February 2020 and the upfront fund awards, deferred
fund awards and deferred share awards that will be granted in March 2020.
Represents the estimated value that is expected to vest on 5 March 2020 from LTIP awards granted on
7 March 2016, using the average closing mid-market share price over the three months ended 31 December
2019 and the percentage of the awards that is expected to vest. The comparative value shown for 2018 is nil
because LTIP awards granted on 9 March 2015 lapsed without vesting, as the performance conditions for
those awards were not met.
Page 101 sets out more information on the performance achieved and how vesting will be determined and page 102 shows
how the value shown above has been calculated, including how much of the value is attributable to share price growth
during the period from grant to vesting.
Page 104 sets out information on LTIP awards granted to the executive Directors during 2019. These awards are not
reflected above as they will vest in 2023, subject to performance conditions over performance years 2019 to 2022, and the
value expected to vest will be included in the single total remuneration figures for 2022 performance. Page 108 sets out
information on LTIP awards to be granted to the executive Directors in March 2020. Again, these are not reflected above as
they will vest in 2024, subject to performance conditions over the performance years 2020 to 2023, and the value expected to
vest will be reflected in the single total remuneration figures for 2023 performance.
96
Schroders Annual Report and Accounts 2019
Competitive positioning
We compete for talent in a global marketplace. Most of our key
competitors are headquartered outside the UK, particularly in the
US, and many are not publicly listed and are therefore subject to
lower standards of transparency. It is against this backdrop that the
Committee determines both our pay structures and levels of pay,
to ensure that we are able to attract, motivate, reward and retain
the best talent.
Remuneration levels for employees, including the executive
Directors, are reviewed annually and benchmarked by reference to
the external market to ensure they remain appropriately
competitive. The chart below illustrates the competitive positioning
of pay for each executive Director, while the table on the right
provides additional commentary on the remuneration benchmarking
approach in each case. Total compensation (abbreviated in the chart
to total comp.) reflects base salary at the year end, annual bonus
award for 2019 and the market value at the date of grant of any LTIP
shares granted during the year (see page 104), assuming 50%
vesting. The market data used in benchmarking these roles was
provided independently by external advisers and reflects competitor
pay for 2018, which is the most up-to-date data available, whereas
the position shown for Schroders in each case reflects remuneration
awarded for 2019.
In considering competitiveness, the Committee focuses on levels
of total compensation for comparable roles at other large
international asset management firms, though the benchmark peer
group is adjusted for some roles to provide a more appropriate
comparison. This benchmarking is used to establish a frame of
reference for what competitors are paying for comparable roles,
rather than as the starting point or a primary factor when
remuneration decisions are made. As outlined on pages 99 and 100,
annual bonus awards are based on the Committee’s assessment of
the overall performance of the business and of each executive
Director. The policy is to aim to pay executive Directors base salaries
that are competitive with other large international asset
management firms. As a result, it is likely that salaries will be
relatively low when compared with other FTSE-100 financial services
firms and the FTSE-100 more broadly, as can be seen below.
Role
Commentary
Group Chief Executive
Chief Financial Officer
Approximately half of the global asset
manager comparator roles are from
non-listed businesses, including firms
owned by a bank or insurance group
and privately-owned businesses,
whereas Schroders is an independent
publicly listed company. Schroders
differs from most of the global asset
managers as it also includes a wealth
management business within the Group
Chief Executive’s remit, alongside Asset
Management. As a result, the Schroders
Group Chief Executive role sits among
the more complex of the roles making
up this competitive benchmark.
The Schroders Chief Financial Officer
has wider responsibilities than the
market norm, covering direct
responsibility for a range of operational
areas and firm-wide operational
oversight and coordination, as well as
financial management, risk
management, human resources, capital
and treasury. A comparison is also
shown against the rates of pay for the
Chief Operating Officer (COO) role at
other global asset management firms,
as an additional reference point to
reflect these wider responsibilities. As
for the Group Chief Executive, the
inclusion of a wealth management
business including banking licences also
adds complexity to the Schroders role
compared to most comparators.
Group Chief Executive
Peter Harrison
Chief Financial Officer
Richard Keers
Global asset
managers
FTSE-100 financial
services
FTSE-100
Global asset
managers: CFO
Global asset
managers: COO
FTSE-100 financial
services: CFO
FTSE-100: CFO
Top quartile
2nd quartile
3rd quartile
Bottom
quartile
Base
salary
Total
comp.
Base
salary
Total
comp.
Base
salary
Total
comp.
Base
salary
Total
comp.
Base
salary
Total
comp.
Base
salary
Total
comp.
Base
salary
Total
comp.
Positioning of remuneration at Schroders relative to the market benchmarks
Schroders Annual Report and Accounts 2019
97
Governance Remuneration report continued
Performance of Schroders shares against the FTSE-100 Index and the Group Chief Executive’s total remuneration
The graph on the right compares the
total shareholder return of Schroders
shares with that of the FTSE-100, of
which Schroders is a long-standing
constituent. Over the past 10 years, the
index has returned 104%, compared
with a 234% return for Schroders
ordinary shares and 242% for Schroders
non-voting ordinary shares. This graph
also shows the Group Chief Executive’s
single total remuneration figure
over the 10 years ended 31 December
2019, for comparison. The table
below sets this out in figures, as well
as showing how variable pay plans
have paid out each year.
Financial year
Schroders ordinary shares
Schroders non-voting ordinary shares
FTSE-100 Index
Group Chief Executive’s total remuneration
9
0
0
2
r
e
b
m
e
c
e
D
1
3
n
o
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
400
300
200
100
0
0
10
8
6
4
2
0
2010
2010
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
2016
20163
2016
20164
2017
2017
2018
2018
2019
2019
Michael Dobson Peter Harrison
l
a
t
o
t
e
g
n
i
s
l
’
s
e
v
i
t
u
c
e
x
E
f
e
h
C
p
u
o
r
G
i
)
m
£
(
e
r
u
g
fi
n
o
i
t
a
r
e
n
u
m
e
r
Single total remuneration figure (£’000)
6,267 5,570 4,870 8,414 8,155 8,905
2,451 6,311 7,059 6,735 6,483
Annual bonus award (actual award
as a % of 10-year highest bonus)1
73% 65% 56% 81% 87% 100%
25% 70% 82% 78% 72%
LTIP (vesting as a % of maximum)2
n/a
n/a
n/a 100% 50% 50%
50% 50%
n/a
0% 50%
1. Each annual bonus award is shown as a percentage of the highest bonus award over the past 10 years, as no maximum annual bonus opportunity was
in place.
2. The years from 2010 to 2012 are shown as ‘n/a’ as the LTIP was introduced in May 2010 and the first award vested on 5 March 2014 based on the
four-year performance period ended on 31 December 2013 and so is shown under 2013 in the table. 2017 shows as ‘n/a’ as Peter Harrison did not
receive an LTIP award in 2014 and so had no LTIP due to vest based on performance to the end of 2017.
3. The 2016 remuneration for Michael Dobson reflects the actual remuneration that he received for the portion of 2016 that he served as Chief Executive.
4. Peter Harrison was appointed Group Chief Executive on 3 April 2016. The 2016 remuneration value above reflects his full-year single total
remuneration figure.
UK pay ratios table
The table below compares the Group Chief Executive’s single total remuneration figure for 2019 to the remuneration of the Group’s UK
workforce as at 31 December 2019.
Year
2019
Method
Option A
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
42 : 1
72 : 1
117 : 1
The rules that require this disclosure to be made set out three possible methodologies that companies can adopt, which it terms Options A, B
and C. The Group has adopted Option A as this is the most robust methodology, requiring the Group to calculate the pay and benefits of all its
UK employees for the relevant financial year in order to identify the total remuneration at the 25th percentile, at the median and at the 75th
percentile. We have based the calculation of these total remuneration percentiles on salaries as at 31 December 2019 plus any annual bonus
award in respect of 2019 and any other incentive awards granted during 2019. In calculating these ratios, salary and any annual bonus award
for employees who work part time have been pro-rated up to a full-time equivalent. We have not included any taxable travel benefits, such as
the reimbursement of occasional travel home from work that was covered by the Group’s travel and expenses policy but did not qualify as
tax-free under HMRC rules on taxable benefits. No other assumptions or statistical modelling were required.
The total remuneration value for the employee at the 25th percentile, median and 75th percentile was £154,667, £89,743 and £55,400
respectively, of which the salary component made up £85,000, £68,000 and £50,000 respectively.
This is the first year since the introduction of this disclosure requirement and so it is too soon to provide a year-on-year comparison or to
determine longer-term trends.
98
Schroders Annual Report and Accounts 2019
Basis for determining annual bonus awards
In determining the annual bonus award for the executive Directors, the Committee made an assessment of the overall performance of the
business using our key performance indicators, as outlined on pages 18 and 19, which are aligned to the Group’s strategy. An assessment of
each individual’s performance was also made, including business performance within each individual’s responsibilities, and the extent to which
they have met annual objectives.
Financial factors such as profitability, cost control and investment performance represent the majority of measures the Committee considered,
to ensure that remuneration outcomes are aligned to financial performance. Both short-term and long-term performance were taken into
account. Strategic progress was also a key element of the Committee’s consideration. Non-financial factors such as risk management, conduct
and talent retention were also considered, although had less prominence in determining the annual bonus awards. The factors in the summary
below resemble those in the annual bonus scorecard that we propose to adopt for 2020, subject to shareholder approval.
Based on its assessment of performance, the Committee applied its judgement to determine annual bonus awards, without attaching a
weighting to each performance factor or setting a value payable for achievement of each target. The Group Chief Executive’s recommendation
was taken into account for the Chief Financial Officer.
Group-wide factors considered when determining the executive Directors’ annual bonus awards included:
Criteria
Target
Performance in 2019
Extent to which target has been met
Financial factors
Trend in profit
for the year1
and
appropriate
cost control
Ratio of total cost to net
income 65%.
Total compensation ratio
45% to 49% depending on
market conditions.
67% (2018: 64%).
44% (2018: 43%).
Client
investment
performance1
At least 60%
outperformance over three
years.
68% (2018: 74%).
NNB1
Achieve budgeted new
business flows.
£43.4bn (2018: £(9.5)bn).
Share price
performance
Total shareholder returns in
excess of that of the
FTSE-100 Index.
Over one, three and five years, the
return on ordinary shares was 42%,
24% and 47%, and on non-voting
ordinary shares was 29%, 30% and 51%
respectively, versus FTSE-100 returns of
17%, 20% and 41% respectively.
2019 saw a reduction in profit, with profit before
tax and exceptional items down 8% and basic
earnings per share before exceptional items
down 7%, as we continued to invest in the future
growth of the business. The ratio of total cost to
net income was above our target, reflecting that
investment in future growth. The total
compensation ratio was below our target range.
Investment performance over three years
remains strong.
NNB saw record inflows, driven by Solutions
strategies, Wealth Management and Private
Assets & Alternatives. Mutual Funds and
Institutional saw net outflows as clients continued
to de-risk their portfolios.
Schroders continues to create value for
shareholders over the long term (see page 98).
Strategic factors
Strategic
progress
Progress in identified
strategic opportunities:
growing Asset
Management; building
closer relationships with our
end clients; expanding our
capabilities in Private
Assets.
2019 saw significant progress across a number of strategically important areas, including:
– We grew our Asset Management business through further diversifying our global
footprint, growing our Solutions business and building out teams to meet client demand.
– We strengthened our sustainable investment capabilities through further development of
our proprietary tools and growing the team.
– We launched our joint venture with LBG, Schroders Personal Wealth, and acquired the
Singapore-based wealth management business of ThirdRock Group.
– We expanded our Private Assets capabilities via a majority stake in impact investor
BlueOrchard and acquiring Germany-based real estate business Blue Asset Management.
– We agreed a wide-ranging partnership with Bank of Communications in China, building
on the joint venture that we have had with them since 2005.
1. Included in the key performance indicators on pages 18 and 19.
Criteria met
Partially met
Not met
Schroders Annual Report and Accounts 2019
99
Governance Remuneration report continued
Group-wide factors continued:
Criteria
Target
Performance in 2019
Extent to which target has been met
Non-financial factors
Talent retention1
and succession
planning
Diversity and
inclusion
Retention of at least 90% of
key talent.
Identify and implement
succession plans for key
employees.
33% female representation
within senior management
by the end of 2019.
94% retention (2018: 94%).
Retention of key talent remains above target.
Succession plans for key employees were reviewed
by the Board in September 2019.
32% (2018: 32%).
We met our original target of 30% and increased
this to 33%. At the end of 2019, this ratio was 32%.
Risk management
and good conduct
Key issues considered by
Audit and Risk Committee.
No significant issues
identified during the year.
Major business change including the transfer in of
the first tranches of the Scottish Widows mandate
has been successfully implemented and the
associated risks managed. See also the Audit and
Risk Committee report (page 66) and information on
conduct, compliance and risk management in
remuneration (page 107).
1. Included in the key performance indicators on pages 18 and 19.
Individual performance criteria considered when determining the executive Directors’ annual bonus awards included:
Executive
Director Criteria
Performance in 2019 and extent to which the Committee judged each
performance criterion has been met
All
Overall performance
of the Group
Group performance is outlined in the Business and financial review (from page 22) and
summarised on the previous page. Against the backdrop of well-publicised headwinds
facing the asset management industry, the executive Directors have continued to develop
our business in line with our strategy. They produced commendable results in a
challenging environment, including record net new business, although profit is down 8%
year-on-year. We believe Schroders is well positioned compared to many other active
managers. Investment performance for clients remains ahead of our target.
Peter
Harrison
Strategic progress
2019 saw Peter drive significant progress against each of the strategic objectives that we
believe will drive the future growth of the business, as outlined on the previous page.
People and talent
Risk and reputation
Richard
Keers
Global operations oversight
Oversee a strong risk and
control function
Peter successfully implemented a new management structure during 2019, promoting
internally into key roles and also bringing in new talent from outside the firm where
appropriate. There remains further work to be done on planning senior management
succession. Talent retention has been good.
Peter takes a personal lead in ensuring Schroders’ reputation is good with a wide group of
stakeholders, including clients, shareholders, governments, regulators and industry
associations. His work internally and externally in this regard is well respected. The risk
and control framework has delivered what is required. SMCR was successfully
implemented for our UK-regulated asset management entities.
Richard has reconfigured global operations, bringing experienced senior talent into the
Group, and successfully delivered a clear global operations strategy, reducing complexity,
improving resilience and providing enhanced scalability. Strong operational delivery,
including the transfer in of the first tranches of the Scottish Widows mandate.
The Group Risk and Capital Committees continued to operate well under Richard’s
leadership. No significant issues were reported in a year of significant operational change
for the Group, with further improvements to internal risk-assessment processes. Feedback
on risk oversight of fund liquidity and active risk taking is good. The Audit and Risk
Committee report provides more information (from page 66).
Accurate, appropriate, clear
and timely reporting and
oversight of the Group’s
financial position
Richard ensured key reports were accurate and timely and succeeded in reducing the
length and complexity of reports without compromising quality or insights. He received
positive feedback from the Audit and Risk Committee, analysts, shareholders and other
industry bodies.
Criteria met
Partially met
Not met
The metrics and targets outlined above and on the previous page represent the most material criteria by which the Group’s performance and
the performance of the executive Directors were assessed. The Committee members and the Board as a whole also review performance across
a broad range of other metrics as part of their normal course of business throughout the year and during the year-end process. Performance
against many of these metrics is disclosed in the half-year and annual results announcements and in the Annual Report and Accounts.
100
Schroders Annual Report and Accounts 2019
Variable pay – annual bonus award (audited)
The table below sets out details of how the annual bonus award for each executive Director for performance during 2019 was structured. The
total annual bonus award values are reflected in the single total remuneration figure for each executive Director on page 96. The table shows
the face value of the LTIP award granted during 2019 (see page 104) and the percentage of variable pay that is deferred across annual bonus
and LTIP combined.
2019 (£’000)
Peter Harrison
Richard Keers
Upfront cash
bonus award
Upfront
fund award
Deferred
share award
Deferred
fund award
Total
DAP award
Total annual
bonus award
Percentage
deferred 1
LTIP granted
during 2019
DAP award
LTIP award
Percentage of
total variable
pay deferred 1
1,173
495
1,173
495
1,667
680
1,667
680
4,507
1,855
5,680
2,350
59%
58%
600
400
63%
64%
1. In calculating the value of each executive Director’s annual bonus award that is deferred, the amount of the bonus that is deferred is reduced to reflect
the LTIP award granted during the year, though at a minimum 60% overall of total variable pay is deferred.
Upfront fund awards normally cannot be exercised for six months from grant but are not at risk of forfeiture if the holder resigns and leaves the
Group. Deferred share awards normally require the holder to remain in employment for three years following grant to vest in full and are available to
exercise in three equal instalments after 1, 2 and 3 years from grant. Deferred fund awards normally require the holder to remain in employment for
3.5 years following grant to vest in full and are available to exercise in three equal instalments after 1.5, 2.5 and 3.5 years from grant.
Variable pay – determining vesting of prior LTIP awards (audited)
The LTIP awards granted on 7 March 2016, covering the 2016 to 2019 performance period, are expected to vest on 5 March 2020. The criteria
for determining the extent of vesting are set out below. Despite the strong performance of Schroders since these awards were granted, the
very demanding EPS target will not be met.
Performance measure
EPS
If the growth of adjusted EPS in the fourth year compared with
the year prior to grant exceeds the defined composite index by:
– less than 20%
– equal to 20%
no vesting
12.5% vests
– between 20-40%
straight-line basis
– 40% or greater
50% vests
NNB cumulative over the four-year performance period:
– less than £15 billion
no vesting
– equal to £15 billion
12.5% vests
– between £15-25 billion
straight-line basis
– £25 billion or greater
50% vests
Total expected to vest in relation to 2016 to 2019 performance
Maximum %
of award
Performance achieved
Vesting %
of award
50 The four-year growth in the composite index was
0
42.2% (see below). Four-year growth in adjusted EPS
was 7.6%, which is less than the composite index and
is insufficient to trigger any vesting of this part of the
LTIP awards.
50 The four-year cumulative NNB from 2016 to 2019
was £44.6 billion, which is sufficient to trigger full
vesting of this part of the LTIP awards.
50
50
The Audit and Risk Committee independently reviews key estimates made by management that impact the financial statements to ensure these
are reasonable. This is reflected in the LTIP vesting calculations.
The composite index against which EPS performance was measured for these awards was set at the time they were granted. The table below
sets out the make-up of that composite index and its growth over the four-year performance period:
Index
Morgan Stanley Capital International (MSCI) All Countries Asia Pacific
MSCI All Countries World ex US
MSCI Emerging Markets
FTSE All Share
MSCI Europe
Barclays Capital Global Aggregate
Composite index (calculated as a weighted average)
Weighting
Growth over the four-year
performance period
15.0%
15.0%
7.5%
7.5%
5.0%
50.0%
58.6%
54.2%
71.8%
42.4%
46.6%
28.8%
42.2%
Schroders Annual Report and Accounts 2019
101
Governance Remuneration report continued
Value at vesting of prior LTIP awards (audited)
The following table shows, for each Director, the estimated value expected to vest on 5 March 2020 from LTIP awards granted on 7 March 2016,
based on the average closing mid-market share price over the three months ended 31 December 2019 and the expected vesting percentage
shown on page 101. For each executive Director, the total value expected to vest is reflected in the single total remuneration figures on page
96.
Individual
Peter Harrison
Richard Keers
Philip Mallinckrodt
Grant-date face
value of LTIP award
£’000
Proportion expected
to vest in relation
to 2016-2019
performance
Value of shares expected to vest (£’000)
Face value at
time of grant
Pro-rata reduction
on leaving
employment
Impact of share
price appreciation
since grant
Total estimated
value vesting
Number of shares
expected to vest
400
300
300
50%
50%
50%
200
150
150
–
–
(107)
42
31
8
242
181
51
7,621
5,716
2,126
The LTIP rules under which these awards were granted do not allow for awards to accrue additional value equivalent to dividends on the
underlying shares. The awards for Peter Harrison and Richard Keers are over ordinary shares and for Philip Mallinckrodt is over non-voting
ordinary shares. The award for Philip Mallinckrodt was granted while he was an executive Director and has been reduced pro-rata for the
proportion of the performance period that he remained an employee of the Group. This reduction is reflected in the table above. Pages 105
and 106 detail his remaining rights under share and fund awards.
Fixed pay – retirement benefits (audited)
The following table shows details of retirement benefits provided to executive Directors for the years ended 31 December 2019 and 31
December 2018. For the executive Directors, the sum of employer contributions and cash in lieu each year is reflected in the single total
remuneration figures on page 96. Employer contributions represent contributions paid into DC pension arrangements during the year and
exclude any contributions made by the Directors. There has been no DB pension accrual since 30 April 2011.
£’000
Peter Harrison
Richard Keers
2019 employer
contributions
2019 cash in lieu
of pension1
2019 retirement
benefits total
2018 employer
contributions
2018 cash in lieu
of pension1
2018 retirement
benefits total
10
–
35
45
45
45
10
–
35
45
45
45
Accrued DB
pension at
31 December
2019
–
–
Normal
retirement
age2
60
60
1. Peter Harrison received a combination of employer contributions to the Group’s DC pension arrangement and cash in lieu of pension contributions,
and Richard Keers received cash in lieu of pension contributions.
2. Normal retirement age is the earliest age at which a Director can elect to draw their pension under the rules of the Schroders Retirement Benefits
Scheme without the need to seek the consent of the Company or the pension scheme trustee.
Fees from external appointments
The executive Directors are permitted to retain for their own benefit fees they receive from any external non-executive directorships, provided
the directorships do not relate to any interest held by the Group. Richard Keers served throughout 2019 as a non-executive member of the
Franchise Board of Lloyds, the specialist insurance market, until he stepped down on 31 December 2019. He received fees from Lloyds of
£77,500 for 2019, including in respect of being a member and chair of the Franchise Board’s Audit Committee during the year. These fees do
not relate to the Group and so are not included in the single total remuneration figures on page 96. Peter Harrison does not receive any fees in
respect of his external non-executive roles.
102
Schroders Annual Report and Accounts 2019
Non-executive Directors’ remuneration (audited)
The total remuneration of each of the non-executive Directors for the years ended 31 December 2019 and 31 December 2018 is set out below,
based on the structure of non-executive Directors’ fees set out below the table.
2019
2018
£’000
Basic fee
Committee
chairman
Committee
member
Taxable
benefits
SID
Total
Basic fee
Committee
chairman
Committee
member
Taxable
benefits
SID
Michael Dobson
625
Sir Damon Buffini
Rhian Davies
Rakhi Goss-Custard
Ian King
Philip Mallinckrodt
Leonie Schroder
Deborah Waterhouse
Robin Buchanan
Nichola Pease
Bruno Schroder
80
80
80
80
80
65
65
27
68
18
–
4
25
–
–
–
–
–
–
19
–
–
20
23
20
20
–
–
3
14
34
–
–
–
–
–
20
–
–
–
–
–
–
17
–
–
–
–
–
–
–
–
–
3
642
104
128
100
120
80
65
68
41
121
21
625
73
80
80
80
80
–
–
80
80
108
–
–
25
–
–
–
–
–
–
14
–
–
2
20
2
20
–
–
–
40
40
–
–
–
–
–
14
–
–
–
–
–
–
10
–
–
1
–
–
–
–
–
–
3
Total
635
75
125
83
114
80
–
–
120
134
111
The fees shown in each Director’s case reflect the portion of 2018 and 2019 that they each served in their respective roles.
– Leonie Schroder and Deborah Waterhouse were appointed to the Board with effect from 11 March 2019 and Sir Damon Buffini was
appointed to the Board with effect from 1 February 2018. In each case, on appointment as non-executive Directors their fees were set at the
same level as for other non-executive Directors.
– Ian King was appointed SID and Nichola Pease was appointed Remuneration Committee Chairman on 26 April 2018.
– Bruno Schroder died on 20 February 2019 after a short illness, having made an enormous contribution to the Company over more than 50
years.
– On 6 November 2019, Nichola Pease stepped down from the Board, Sir Damon Buffini was appointed Chairman of the Remuneration
Committee, Rhian Davies was appointed a member of the Remuneration Committee and Deborah Waterhouse was appointed a member of
the Audit and Risk Committee. Nichola Pease and the Company mutually agreed to waive her six-month notice period and her fee ceased
from the date she stepped down.
The benefits for Michael Dobson were private healthcare and medical benefits for him and his family, life assurance and occasional private use
of a company car and driver. Benefits for Bruno Schroder were private healthcare and medical benefits. Benefits for Rakhi Goss-Custard were
travel and accommodation expenses.
Philip Mallinckrodt received a LTIP award on 7 March 2016, when he was in an executive role on the Board. This LTIP award is expected to vest
on 5 March 2020 and the estimated value expected to vest to Philip is £51,000 (see page 102).
Matthew Westerman will join the Board with effect from 9 March 2020. He will be a member of the Audit and Risk Committee and the
Nominations Committee. His fees will be set at the same level as for other non-executive Directors.
In July 2019, the Board agreed that the annual fees paid to the Remuneration Committee Chairman would increase to £25,000 with effect from
1 July 2019. This brings that fee into line with the annual fees paid to the Audit and Risk Committee Chairman and the Board felt that this was a
better reflection of the responsibilities of and time commitment required by the Remuneration Committee Chairman role. The fees for the other
non-executive Directors were not changed.
The structure of non-executive Directors’ fees is shown below. Fees are usually reviewed biennially.
Chairman
Board member1
Senior Independent Director
Audit and Risk Committee Chairman2
Audit and Risk Committee member
Nominations Committee Chairman
Nominations Committee member
Remuneration Committee Chairman2
Remuneration Committee member
£
625,000
80,000
20,000
25,000
20,000
nil
nil
25,000
20,000
1. Bruno Schroder also received an additional annual fee of £28,000 for services to the Group.
2. In addition to the Committee membership fee.
Schroders Annual Report and Accounts 2019
103
Governance Remuneration report continued
DAP and LTIP awards granted during 2019 (audited)
The following awards under the DAP were granted to Directors on 11 March 2019 in respect of deferred bonuses for performance during 2018.
No further performance conditions need to be met for awards to vest. An upfront fund award cannot be exercised for six months from the date
of grant but is not normally subject to forfeiture if the holder leaves the Group. Deferred share awards normally require the participant to
remain in employment with the Group for three years after the date of grant to vest in full, or 3.5 years for a deferred fund award. DAP fund
awards are conditional rights to receive a cash sum based on the value of a notional investment in a range of Schroders funds, granted as
nil-cost options. DAP share awards are conditional rights to receive Schroders shares, granted as nil-cost options. These awards were included
in the 2018 single total remuneration figures disclosed last year and form part of the prior year value shown in this year’s single total
remuneration figures on page 96. They are also shown in the tables of Directors’ rights under fund and share awards on pages 105 and 106.
Individual
Basis of DAP award granted
Face value at grant (£’000)
Upfront
fund
awards
Deferred
share
awards
Deferred
fund
awards
Total DAP
award
Share
price at
grant
Number
of
shares
Peter Harrison
Richard Keers
Deferral of bonus awarded for
performance in 2018
1,272
1,815
1,815
4,902 £25.41 71,428
545
755
755
2,055 £25.41 29,712
Performance conditions
Awarded for performance in
2018. No further performance
conditions apply.
The following awards under the LTIP were granted to Directors on 11 March 2019 as nil-cost options. These awards do not appear in the single
total remuneration figure on page 96 as they are subject to performance conditions and will not vest until 2023, after which they will be subject
to a further 12-month holding period. They are shown in the table of Directors’ rights under share awards on page 106.
Individual
Peter Harrison
Richard Keers
Basis of LTIP award
granted
Face value at
grant (£’000)
Vesting maximum
as % of face value
% of face value
that would vest
at threshold1
Share price
at grant
Number of
shares
End of performance
period
A specified face
value of shares on
the date of grant
600
400
100
100
25
25
£25.41
£25.41
23,612 31 December 2022
15,741 31 December 2022
1. Percentage of face value that would vest if performance under both the EPS and NNB performance measures was at the threshold level to achieve
non-zero vesting.
All DAP share awards and LTIP awards were granted over ordinary shares. The number of shares under each DAP share award and LTIP award
is determined by dividing the grant-date face value by the mid-market closing share price on the last trading day prior to the date of grant.
Vesting of LTIP awards granted during 2019 is subject to the same performance conditions as applied to awards expected to vest following the
end of 2019, which are set out on page 101, save that the composite index against which EPS performance will be measured for these awards is
as follows:
Index
MSCI All Countries Asia Pacific
MSCI All Countries World
MSCI Emerging Markets
MSCI Europe
FTSE All Share
Barclays Capital Global Aggregate
Payments to former Directors (audited)
No payments were made to former Directors during 2019, including any payments for loss of office.
Weighting
%
17.5
15.0
7.5
5.0
5.0
50.0
104
Schroders Annual Report and Accounts 2019
Personal shareholding policy (audited)
To align the interests of senior management with those of
shareholders, the executive Directors and the other members of the
GMC are required, over time, to acquire and retain a holding of
Schroders shares or rights to shares equivalent to 300% of base
salary or, in the case of the Group Chief Executive, 500% of base
salary. Each executive Director and GMC member undertakes not to
sell any Schroders shares until their share ownership target has
been reached, subject to some limited exceptions. The executive
Directors’ service contracts provide that, on stepping down as an
executive Director, the level of shareholding required while an
executive Director must be maintained for a further two years, or the
actual level of shareholding on stepping down if lower.
For the purposes of the personal shareholding policy (see page 86),
rights to shares include the estimated after-tax value of unvested
deferred share awards under the DAP or previous incentive plans
(shown as “Other unvested share awards” on page 106) and of
vested DAP or LTIP awards (shown as “Vested but unexercised share
awards” on page 106) but do not include unvested LTIP awards as
these rights to shares are subject to performance conditions.
The charts below compare the value of each executive Director’s
shareholdings as at 3 March 2020 with the shareholding required
under the personal shareholding policy, as a percentage of salary,
including the LTIP awards expected to vest on 5 March 2020 (see
page 102) and DAP deferred share awards to be granted in respect
of performance in 2019 (see page 101).
Value of shareholding vs. shareholding policy (% of salary)
Group Chief Executive
Peter Harrison
Policy
Actual
500%
791%
Chief Financial Officer
Richard Keers
Policy
Actual
300%
447%
Executive Directors’ alignment to share price
The table below shows the number of shares currently owned by each executive Director, the number of shares over which they have been
granted rights under the Group’s incentive plans and the estimated after-tax value of those shares, on the same basis as outlined above.
Individual
Shares owned
Rights to shares
Total share
exposure
On
3 March 2019
On
3 March 2020
Peter Harrison
Richard Keers
721
713
196,714
197,435
83,608
84,321
2,923
1,254
3,072
1,317
Rights to shares to
be granted in
March 2020
Impact of a 10%
share price
movement
883
360
395
168
Difference
149
64
Estimated after tax value (£’000)
Directors’ rights under fund and share awards, and Directors’ share interests
This section outlines Directors’ rights during 2019 from fund and share awards granted under the Group’s incentive plans. It goes on to set out
the total interests in shares of the Directors and their connected persons at 31 December 2019.
Directors’ rights under fund awards (audited)
Directors had the following rights under fund awards granted under the Group’s incentive plans, based on the award values at grant.
Unvested fund
awards
£’000
Vested fund
awards
£’000
Peter Harrison
At 31 December 2018
Richard Keers
Granted
Vested
Exercised
At 31 December 2019
At 31 December 2018
Granted
Vested
Exercised
At 31 December 2019
Michael Dobson
At 31 December 2018
Vested
Exercised
At 31 December 2019
Philip Mallinckrodt
At 31 December 2018
Vested
At 31 December 2019
4,238
1,815
(1,613)
–
4,440
1,969
755
(842)
–
1,882
1,925
(1,925)
–
–
875
(456)
419
Total
£’000
4,238
3,087
–
–
1,272
1,613
(2,885)
(2,885)
–
–
545
842
(1,120)
267
1,675
1,925
4,440
1,969
1,300
–
(1,120)
2,149
3,600
–
(3,600)
(3,600)
–
–
456
456
–
875
–
875
Schroders Annual Report and Accounts 2019
105
Governance Remuneration report continued
Directors’ rights under share awards (audited)
Directors had the following rights to shares under the Group’s incentive plans, in the form of nil-cost options, based on the number of shares in
each case.
Unvested LTIP
awards1
Other unvested
share awards2
Vested but
unexercised
share awards
Total
147,049
58,790
283,933
Peter Harrison
(Ordinary shares)
At 31 December 2018
Granted
Dividend-equivalent accrual
Vested
Lapsed where LTIP conditions were not met
Exercised
At 31 December 2019
At 31 December 2018
Granted
Dividend-equivalent accrual
Vested
Lapsed where LTIP conditions were not met
Exercised
At 31 December 2019
At 31 December 2018
Dividend-equivalent accrual
Vested
Richard Keers
(Ordinary shares)
Michael Dobson
(Ordinary shares)
78,094
23,612
–
–
(25,388)
–
76,318
49,102
15,741
–
–
(12,694)
–
52,149
7,933
–
–
Lapsed where LTIP conditions were not met
(7,933)
Philip Mallinckrodt
(Non-voting ordinary
shares)
Exercised
At 31 December 2019
At 31 December 2018
Dividend-equivalent accrual
Vested
Lapsed where LTIP conditions were not met
Exercised
At 31 December 2019
–
–
13,212
–
–
(8,960)
–
4,252
95,040
6,825
–
(25,388)
(94,999)
265,411
137,818
45,453
3,301
–
(12,694)
(43,837)
130,041
400,189
10,000
–
71,428
5,907
–
918
(60,720)
60,720
–
–
163,664
69,549
29,712
2,812
–
(94,999)
25,429
19,167
–
489
(32,428)
32,428
–
(43,837)
8,247
311,299
10,000
80,957
–
–
69,645
80,957
–
(80,957)
–
–
–
45,874
984
(25,586)
–
–
21,272
–
(7,933)
(402,256)
(402,256)
–
31,699
1,241
25,586
–
(31,699)
26,827
–
90,785
2,225
–
(8,960)
(31,699)
52,351
1. These awards will only vest to the extent that the relevant performance conditions are met. Includes LTIP awards granted on 7 March 2016, which were
unvested as at 31 December 2019. These awards are expected to partially vest on 5 March 2020 (see pages 101 and 102) and any balance will lapse.
2. No performance conditions apply for these awards. As well as awards granted under the DAP, this includes awards granted under the Equity
Compensation Plan, which was used for deferred bonus awards granted to the executive Directors until 2018, and the Equity Incentive Plan (EIP), used
very selectively in the past to reward high potential employees and sustained high performance. Although executive Directors were not eligible to
receive EIP awards, Peter Harrison received an EIP award in December 2013, prior to his appointment as an executive Director in May 2014.
During 2019, the aggregate gain on nil-cost options for the Directors, which were settled in shares, was as follows:
– Peter Harrison received £2,591,000 from exercising nil-cost options over 94,999 ordinary shares, granted as part of his annual bonus awards
for performance in 2014, 2015 and 2017.
– Richard Keers received £1,341,000 from exercising nil-cost options over 43,837 ordinary shares, granted as part of his annual bonus awards
for performance in 2014 and 2015.
– Michael Dobson received £12,348,000 from exercising awards over 402,256 ordinary shares, granted as part of his annual bonus awards for
performance in 2010 and in 2012 to 2015, when he was Group Chief Executive.
– Philip Mallinckrodt received £629,000 from exercising awards over 31,699 non-voting ordinary shares, granted as part of his annual bonus
award for performance in 2014 and the vested element of the LTIP award granted in 2014, when he was an executive Director.
106
Schroders Annual Report and Accounts 2019
Directors’ share interests (audited)
The Directors and their connected persons had the following interests in shares in the Company.
Executive Directors
Peter Harrison
Richard Keers
Non-executive Directors
Michael Dobson
Sir Damon Buffini
Rhian Davies1
Rakhi Goss-Custard
Ian King
Philip Mallinckrodt2
Leonie Schroder2
Deborah Waterhouse
Former Directors
Robin Buchanan3
Nichola Pease4
Bruno Schroder5
Number of shares at 31 December 2019
Ordinary shares
Non-voting
ordinary shares
706
698
–
–
79,965
196,165
–
79
669
–
80,985,757
84,313,924
–
–
176
5,000
1,000
–
2,641
6,363,370
7,671,700
–
9,839
951
13,881,416
1,482,417
1. The interests of Rhian Davies include 79 ordinary shares held by a connected person as at 18 August 2019, the date that he ceased to be a connected
person.
2. The interests of Philip Mallinckrodt and Leonie Schroder include their personal holdings and the beneficial interests held by them and their connected
persons in their capacity as members of a class of potential beneficiaries under certain settlements made by members of the Schroder family.
3. The interests of Robin Buchanan refer to the position as at 2 May 2019, the date he stepped down as a Director of the Company.
4. The interests of Nichola Pease refer to the position as at 6 November 2019, the date she ceased to be a Director of the Company, and include 176
ordinary shares held by a connected person as at that date.
5. The interests of Bruno Schroder refer to the position as at his death on 20 February 2019. They include his personal holdings and beneficial interests
that were held by him and his connected persons in their capacity as members of a class of potential beneficiaries under certain settlements made by
members of the Schroder family.
Between 31 December 2019 and 3 March 2020, the only movements in the Directors’ share interests were the acquisition under the SIP of 15
ordinary shares by Peter Harrison and 15 ordinary shares by Richard Keers.
Conduct, compliance and risk management in remuneration
Schroders’ core values are excellence, innovation, teamwork, passion and integrity. We expand on these in our guiding principles to more clearly
articulate the behaviours that we expect from our employees. Pages 28 to 33 provide more information on key elements of our people strategy.
Performance management and remuneration are important tools to reinforce expected standards of behaviour. During the annual performance
appraisal, line managers assess each employee’s behaviours, to identify those whose behaviour exemplifies our values as well as any employees
whose behaviour falls short of the standards that we expect. To drive positive change and reinforce those behavioural expectations, we also
operate a global employee recognition scheme, which provides an opportunity to recognise those who champion our values.
The Group’s control functions independently review potential conduct or cultural issues to identify any instances where performance or
behaviours have fallen short of our expectations. Any issues identified in this way are fed into the performance appraisal and compensation
review processes. This provides a further opportunity to reflect attitudes to risk and compliance and behaviours in line with our values in the
determination or allocation of the bonus pool and in individual employee performance ratings and remuneration outcomes.
We identify employees whose professional activities can have a particular risk impact on the Group, or on certain regulated subsidiaries. Our
approach to identifying these MRTs takes account of the different regulatory requirements and guidance that apply across the Group. Our
MRTs are subject to enhanced scrutiny and oversight, including enhanced control function oversight of their activities and direct oversight of
their remuneration by the Committee. Some MRTs, specifically those identified under the UCITS Directive or AIFMD, are subject to higher levels
of bonus deferral and a higher proportion of remuneration in fund awards, creating greater alignment with shareholders and clients.
To ensure the Remuneration Committee is adequately informed of risks facing the Group and the management of those risks, the Chairman of
the Audit and Risk Committee serves on the Remuneration Committee. The Remuneration Committee also receives reports from the Heads of
Compliance, Legal, Risk and Internal Audit as part of its consideration of remuneration proposals.
The Committee reviewed the Group’s regulatory disclosures in the context of the applicable FCA and PRA requirements. The remuneration
disclosures required under the Capital Requirements Directive are incorporated into the Group’s Pillar 3 disclosures and are available at
schroders.com/ir. Other regulatory remuneration disclosures can be found at schroders.com/remuneration-disclosures.
Schroders Annual Report and Accounts 2019
107
Governance Remuneration report continued
Priorities for 2020
As well as considering the standing items of business, the
Committee will also focus on the following areas during 2020:
– Regulatory developments and the potential impact on the
structure of remuneration at Schroders
– Carried interest-sharing arrangements
– Remuneration Committee effectiveness and best practice.
Implementation of the remuneration
policy for 2020
Shareholders will be asked to approve the new Directors’
remuneration policy (pages 82 to 92) at the 2020 AGM.
Executive Directors’ salaries
The Committee did not increase the executive Directors’ salaries
during the 2019 compensation review, which are £500,000 for the
Group Chief Executive and £375,000 for the Chief Financial Officer.
Basis for determining executive Directors’ annual bonus
awards for performance in 2020
The Committee will determine executive Directors’ bonuses for
performance in 2020 based on an annual bonus scorecard across a
range of metrics. In considering the metrics and the range of targets
for each metric, the Committee takes into account the
recommendation of the Group Chairman and Group Chief Executive,
the Board-approved budget, market expectations, prior-year
achievement, strategic priorities and the wider economic landscape.
In line with the proposed new Directors’ remuneration policy,
financial performance factors make up 70% of the scorecard. The
remaining 30% of the scorecard is based on a combination of
non-financial factors, namely strategic progress, sustainability,
people and talent, risk and conduct and each executive Director’s
individual objectives for the year.
The table below sets out the annual bonus scorecard metrics and
weightings for 2020. The rationale for selecting these metrics is set
out on page 74.
Annual bonus scorecard metrics
Financial
Weighting
70%, of which
Profit before tax and exceptional items
Client investment performance over 3 and 5 years
Annual net new business
Non-financial
35%
20%
15%
30%
Strategic progress
Sustainability
People and talent
Risk and conduct
Individual performance objectives for each executive Director
The Committee has adopted a robust process for setting targets, in
light of budgeted performance, prior-year actual performance and
the Group’s strategic plans. The Committee and the Board assess
subjectively how achieveable the budget is as part of the
Committee’s work to ensure that targets are appropriately
stretching. Targets are commercially sensitive and so the target
range and the actual performance achieved for each metric will be
disclosed retrospectively in the Annual report on remuneration
in respect of 2020, together with commentary for the
non-financial factors.
108
Schroders Annual Report and Accounts 2019
The Committee may apply discretion to adjust annual bonus awards
to the extent it judges that the results of the annual bonus scorecard
do not align with results achieved, or in light of unexpected or
unforeseen circumstances. In assessing profit performance, the
Committee will consider the impact of exceptional items during
the period and will have the discretion to make adjustments
as appropriate.
The Committee is able to consider corporate performance on ESG
issues when setting remuneration of the executive Directors and is
satisfied that the Directors’ remuneration policy and its
implementation do not raise ESG risks by inadvertently motivating
the wrong behaviours in the executive Directors. The annual
performance objectives for the Group Chief Executive include goals
relating to sustainability and ESG as an asset manager, as well as
goals related to the sustainability of Schroders’ own business policies
and practices.
The intention is for the new DAP, which is being put to shareholders
for approval at the 2020 AGM, to be used for the executive Directors’
upfront fund awards and deferred share and fund awards in respect
of performance in 2020.
LTIP awards to be granted in 2020
In accordance with the current Directors’ remuneration policy, the
Committee intends to grant LTIP awards over shares with the
following values to the executive Directors in March 2020:
Director
Peter Harrison
Richard Keers
LTIP face value at grant
£600,000
£400,000
These awards will be granted under the current LTIP rules, which
were approved by shareholders in 2010.
The vesting of these awards will be based on the same EPS and NNB
performance conditions and targets as the awards that are expected
to vest on 5 March 2020, outlined on page 101, save that the
Committee has updated the weightings of the indices that make up
the composite index against which EPS performance will be
measured.
The Committee reviewed the make-up of Schroders assets under
management at 31 December 2019 to determine the indices and
weightings that will make up the composite index, as a proxy for the
market movement of Schroders assets under management. For
awards to be granted in March 2020, the following weighted basket
of indices will be used:
Weighting
%
15
15
10
5
5
50
Index
MSCI All Countries Asia Pacific
MSCI All Countries World
MSCI Emerging Markets
MSCI Europe
FTSE All Share
Barclays Capital Global Aggregate
By Order of the Board.
Sir Damon Buffini
Chairman of the Remuneration Committee
4 March 2020
Directors’ report
The information contained in the sections of this Annual Report and
Accounts identified below forms part of this Directors’ report:
– Strategic report
– Board of Directors
– Corporate governance report, including the Nominations
Committee report and the Audit and Risk Committee report
– The Statement of Directors’ responsibilities.
Share capital
Schroders has developed under stable ownership for more than 200
years and has been a public company whose ordinary shares have
been listed on the London Stock Exchange since 1959. The
Company’s share capital is comprised of ordinary shares of £1 each
and non-voting ordinary shares of £1 each. The ordinary shares have
a premium listing on the London Stock Exchange and the non-voting
ordinary shares have a standard listing on the London Stock
Exchange.
226,022,400 ordinary shares (80% of the total issued share capital)
were in issue throughout the year. The Company has no authority to
issue or buy back any ordinary shares. Each ordinary share carries
the right to attend and vote at general meetings of the Company.
56,505,600 non-voting ordinary shares (20% of the total issued share
capital) were in issue throughout the year. No shares were held in
treasury.
The non-voting ordinary shares were created in 1986 to facilitate the
operation of an employee share plan without diluting the voting
rights of ordinary shareholders. The non-voting ordinary shares
carry the same rights as ordinary shares except that they do not
provide the right to attend and vote at general meetings of the
Company and that, on a capitalisation issue, they carry the right to
receive non-voting ordinary shares rather than ordinary shares.
When the non-voting ordinary shares were created, the ratio of
ordinary shares to non-voting ordinary shares was 4:1. The Company
has at times issued non-voting ordinary shares, principally in
connection with the Group’s employee share plans or as
consideration for an acquisition. The Company has not intended and
does not intend to increase the issued non-voting ordinary share
capital over the medium term and therefore has, at times, bought
back non-voting ordinary shares to maintain the 4:1 ratio.
At the 2019 AGM, shareholders renewed the Directors’ authority to
issue 5,000,000 non-voting ordinary shares in order to provide the
Directors with the flexibility to issue non-voting ordinary shares or to
grant rights to subscribe for, or convert securities into, non-voting
ordinary shares. Shareholders also gave approval for the Company
to buy back up to 14,100,000 non-voting ordinary shares and gave
authority for the disapplication of pre-emption rights in relation to
the issue of up to 5,000,000 non-voting ordinary shares. Renewal of
these authorities to a maximum of 5,000,000 non-voting ordinary
shares, will be sought at the 2020 AGM, which will be held at 11.30
a.m. on 30 April 2020.
Under the terms of the Schroders Employee Benefit Trust and the
Schroder US Holdings Inc. Grantor Trust, ordinary and non-voting
ordinary shares are held on trust on behalf of employee share plan
participants. The trustees of these trusts may exercise the voting
rights in any way they think fit. In doing so, they may consider the
financial and non-financial interests of the beneficiaries and their
dependents. As at 3 March 2020, being the latest practicable date
before the publication of this Annual Report and Accounts, the
Schroders Employee Benefit Trust and the Schroder US Holdings Inc.
Grantor Trust together held 8,207,904 ordinary shares and 65,670
non-voting ordinary shares.
Under the terms of the Share Incentive Plan, as at 3 March 2020,
745,684 ordinary shares were held in trust on behalf of plan
participants. At the participants’ direction, the trustees can exercise
the voting rights over ordinary shares in respect of participant share
entitlements.
There are no restrictions on the transfer of the Company’s shares
save for:
– Restrictions imposed by laws and regulations;
– Restrictions on the transfer of shares imposed under the
Company’s Articles of Association or under Part 22 of the UK
Companies Act 2006, in either case after a failure to supply
information required to be disclosed following service of a request
under section 793 of the UK Companies Act 2006; and
– Restrictions on the transfer of shares held under certain employee
share plans while they remain subject to the plan.
The Company is not aware of any agreement between shareholders
that may restrict the transfer of securities or voting rights.
Substantial shareholdings
The table below shows the holdings of major shareholders in the
voting rights of the Company, as at 31 December 2019, as notified
and disclosed to the Company in accordance with the Disclosure
Guidance and Transparency Rules. There have been no changes to
these notifications or additional notifications as at the date of the
report.
Member
Vincitas Limited1
Veritas Limited1
Flavida Limited2
Fervida Limited2
Lindsell Train Limited3
Harris Associates L.P.3
Class of shares
No. of voting rights held
% of voting rights held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
60,724,609
36,795,041
60,951,886
39,724,396
22,507,143
11,443,978
26.87
16.28
26.97
17.58
9.958
5.06
1. Vincitas Limited and Veritas Limited are trustee companies which act as trustees of certain settlements made by members of the Schroder family. Vincitas Limited and Veritas
Limited are party to the Relationship Agreement.
2. Flavida Limited and Fervida Limited are protector companies which act as protectors of certain settlements made by members of the Schroder Family. Flavida Limited and
Fervida Limited are parties to the Relationship Agreement. Their interests in shares are principally in respect of shares in which Vincitas Limited and Veritas Limited are also
interested.
3. Lindsell Train Limited and Harris Associates L.P. are not party to the Relationship Agreement.
Schroders Annual Report and Accounts 2019
109
Governance Directors’ report continued
Relationship Agreement
Following changes made to the UK Listing Rules in May 2014,
companies with a shareholder or shareholders who could, when
acting in concert, exercise 30% or more of the voting rights of a
company at a general meeting, are required to enter into a binding
agreement with that shareholder or shareholders. This is intended
to ensure that the parties to the agreement comply with certain
independence provisions as set out in the Listing Rules. Accordingly,
on 14 November 2014, the Company entered into such an
agreement (the Relationship Agreement) with a number of
shareholders who own or control the ordinary shares (and
associated voting rights) referred to on page 109.
The Schroder family interests are in shares owned directly or
indirectly by trustee companies which act as trustees of various
trusts settled by family individuals, in shares owned by family
individuals, and in shares owned by a family charity. The trustee
holdings include the interests (43.15%) held by Vincitas Limited and
Veritas Limited, as disclosed in the table on page 109, and further
interests (1.6%) held by two other trustee companies which are not
required to be disclosed under the Disclosure Guidance and
Transparency Rules.
If aggregated, the total interests covered by the Relationship
Agreement including shares held by the trustee companies,
individuals and the family charity amount to 108,323,711 of the
Company’s ordinary shares (47.93%).
In accordance with Listing Rule 9.8.4(14), the Board confirms that for
the year ended 31 December 2019:
– the Company has complied with the independence provisions
included in the Relationship Agreement; and
– so far as the Company is aware, the independence provisions
included in the Relationship Agreement have been complied with
by the other parties to the Relationship Agreement and their
associates.
Dividends
The Directors are recommending a final dividend of 79 pence per
share, which if approved by shareholders at the AGM, will be paid on
7 May 2020 to shareholders on the register of members at close of
business on 27 March 2020. Details on the Company’s dividend
policy are set out on page 27. Dividends payable in respect of the
year, subject to this approval, along with prior year payments, are
set out below.
Ordinary shares and
non-voting ordinary shares
Interim
Final*
Total
2019
2018
pence
35.0
79.0
114.0
£m
95.8
216.7
312.5
pence
35.0
79.0
114.0
£m
95.7
216.5
312.3
* Subject to approval by shareholders at the 2020 AGM.
The Schroders Employee Benefit Trust and the Schroder US Holdings
Inc. Grantor Trust have waived their rights to dividends paid on both
the ordinary and non-voting ordinary shares in respect of 2019 and
future periods. See notes 7 and 22 to the financial statements.
Corporate responsibility
Details of the Company’s employment practices, including diversity
and employee involvement, can be found in the Strategic report
from page 30.
We are committed to minimising the environmental impact of our
operations and to delivering continuous improvement in our
environmental performance. See page 41 for more details on our
total CO2e emissions data.
110
Schroders Annual Report and Accounts 2019
Indemnities and insurance
At the 2007 AGM, shareholders authorised the Company to provide
indemnities to, and to fund defence costs for, Directors in certain
circumstances. All Directors, at the time shareholder approval was
received, were granted specific deeds of indemnity and any Director
appointed subsequently has been granted such an indemnity. This
means that, on their appointment, new Directors are granted an
indemnity as defined in the Companies Act 2006 in respect of any
third-party liabilities that they may incur as a result of their service
on the Board. All Directors’ indemnities were in place during the year
and remain in force.
Directors’ and Officers’ Liability Insurance is maintained by the
Company for all Directors.
Under the Trust Deed & Rules of the Schroders Retirement Benefit
Scheme (the Scheme), the Company provides a qualifying pension
scheme indemnity in line with the Companies Act 2006. The
indemnity covers each director of the trustee company that acts as
trustee of the Scheme and the provisions have been in force during
the financial year.
As part of the integration of Cazenove Capital, the Cazenove Capital
Management Limited Pension Scheme was merged with the
Schroders Retirement Benefits Scheme, with effect from 31
December 2014. Pursuant to that merger, a qualifying pension
scheme indemnity (as defined in section 235 of the Companies Act
2006) provided by Schroders plc for the benefit of the Directors of
Cazenove Capital Management Pension Trustee Limited, a subsidiary
of the Company, was put in place at that time and remains in force.
This indemnity covers, to the extent permitted by law, certain losses
or liabilities incurred by the Directors of Cazenove Capital
Management Pension Trustee Limited in connection with that
company’s activities as trustee of the Cazenove Capital Management
Limited Pension Scheme.
Directors’ conflicts of interest
The Company has procedures in place to identify, authorise and
manage conflicts of interest, including of Directors of the Company,
and they have operated effectively during the year. In circumstances
where a potential conflict arises, the Board (excluding the Director
concerned) will consider the situation and either authorise the
arrangement in accordance with the Companies Act 2006 and the
Company’s Articles of Association, or take other appropriate action.
All potential conflicts authorised by the Board are recorded in a
conflicts register, which is maintained by the Company Secretary and
reviewed by the Board on an annual basis. Directors have a
continuing duty to update the Board with any changes to their
conflicts of interest.
Change of control
The Company does not consider that it has any significant
agreements to which the Company is a party that take effect, alter or
terminate upon a change of control of the Company following a
takeover bid that are required to be disclosed pursuant to paragraph
13(2) (j) of Schedule 7 of the Large and Medium Sized Companies
and Groups (Accounts and Reports) Regulations 2008 (as amended)
other than as disclosed below:
Under the Group’s Revolving Credit Facility Agreement, if a change of
control of the Company occurs, the lenders are not obliged to
provide further funding under the facility. The Company and lenders
have up to 30 days to agree the continued use of the facility. If there
is no agreement, repayment of the facility and accrued interest may
be requested by the lenders with not less than 10 days’ notice.
Under the Amended and Restated Framework Agreement
(Framework Agreement) with Lloyds Banking Group plc (LBG) signed
on 3 October 2019 in relation to the strategic partnership announced
on 23 October 2018, a change of control of the Company to: (1)
either a material competitor of an LBG business or (2) an entity or
person on, or controlled by an entity or person on, a recognised
sanctions list or located in a specified jurisdiction, LBG may
terminate the Framework Agreement. Such termination provisions
provide for LBG and the Company to return to the status quo prior
to establishing the strategic partnership in relation to shareholdings
in subsidiary entities, with any implementing transactions conducted
at specified valuations.
Directors’ and employees’ employment contracts do not normally
provide for compensation for loss of office or employment as a
result of a change of control. However, the provisions of the
Company’s employee share schemes may cause awards granted to
employees under such schemes to vest on a change of control.
Political donations
No political donations or contributions were made or expenditure
incurred by the Company or its subsidiaries during the year (2018:
nil) and there is no intention to make or incur any in the current year.
UK Listing Authority Listing Rules (LR) – compliance
with LR 9.8.4C
The majority of the disclosures required under LR 9.8.4 are not
applicable to Schroders. The table below sets out the location of the
disclosures for those requirements that are applicable:
Applicable sub-paragraph within LR 9.8.4
(12) Details of any arrangements under which a
shareholder has waived or agreed to waive any
dividends.
(13) Where a shareholder has agreed to waive
future dividends, details of such waiver together
with those relating to dividends which are payable
during the period under review.
(14) A statement made by the Board that the
Company has entered into an agreement under
LR 9.2.2A, that the Company has, and, as far as it
is aware, the other parties to the agreement have,
complied with the provisions in the agreement.
Disclosure provided
See page 110
See pages
110,127 and 152
See page 110
Going concern
The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set out
in the Strategic report. In addition, the financial statements include
information on the Group’s approach to managing its capital and
financial risk; details of its financial instruments and hedging
activities; and its exposures to credit and liquidity risk.
The Group has considerable financial resources, a broad range of
products and a geographically diversified business. As a
consequence, the Directors believe that the Group is well placed to
manage its business risks in the context of the current economic
outlook.
Accordingly, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence for the foreseeable future. They therefore
continue to adopt the going concern basis in preparing the Annual
Report and Accounts.
In addition, the Directors have assessed the Company’s viability over
a period of five years. The results of this assessment are set out on
page 51.
By Order of the Board.
Graham Staples
Company Secretary
4 March 2020
Schroders Annual Report and Accounts 2019
111
Governance Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and
the Consolidated financial statements in accordance with applicable
law and regulations.
The Companies Act 2006, being the applicable law in the UK, requires
the Directors to prepare financial statements for each financial year.
The Directors have prepared the Group and the Company financial
statements in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU. Under the Companies Act
2006, the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of
affairs of the Company and the Group and of the profit or loss of the
Group for that period.
In preparing those financial statements the Directors are
required to:
– Select suitable accounting policies and then apply them
consistently.
– Make estimates and judgements that are reasonable and prudent.
– State that the financial statements comply with IFRS as adopted by
the EU, subject to any material departure disclosed and explained
in the financial statements.
– Prepare the financial statements on a going concern basis, unless it
is inappropriate to presume that the Group will continue in
business, in which case there should be supporting assumptions or
qualifications as necessary.
The Directors are also required by the Disclosure and Transparency
Rules of the FCA to include a management report containing a fair
review of the business and a description of the principal risks and
uncertainties facing the Company and the Group.
The Directors are responsible for keeping proper books of accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and to enable them
to ensure that the financial statements and the Remuneration report
comply with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the International Accounting
Standards Regulation. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
Directors’ statement
Each of the Directors, whose name and functions are listed in the
Board of Directors section of this Annual Report and Accounts,
confirms that, to the best of each person’s knowledge and belief:
The consolidated financial statements, prepared in accordance with
IFRS as adopted by the EU and in accordance with the Companies Act
2006, give a true and fair view of the assets, liabilities, financial
position and profit of the Company and the Group.
The Directors’ report contained in this Annual Report and Accounts
which comprises the sections described on page 109, includes a fair
review of the development and performance of the business and the
position of the Company and the Group and a description of the
principal risks and uncertainties that they face.
So far as the Director is aware, there is no relevant audit information
of which the Company’s auditors are unaware.
The Director has taken all the steps that ought to have been taken as
a Director in order to make himself or herself aware of any relevant
audit information and to establish that the Company’s auditors are
aware of that information.
In addition, each of the Directors considers that this Annual Report
and Accounts, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy.
The Directors are responsible for the maintenance and integrity of the
audited financial information on the website at schroders.com.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Forward-looking statements
This Annual Report and Accounts and the Schroders website may
contain forward-looking statements with respect to the financial
condition, performance and position, strategy, results of operations
and businesses of the Company and the Group. Such statements and
forecasts involve risk and uncertainty because they are based on
current expectations and assumptions but relate to events and
depend upon circumstances in the future and you should not place
reliance on them. Without limitation, any statements preceded or
followed by or that include the words ‘targets’, ‘plans’, ‘believes’,
‘expects’, ‘confident’, ‘aims’, ‘will have’, ‘will be’, ‘will ensure’, ‘estimates’
or ‘anticipates’ or the negative of these terms or other similar terms
are intended to identify such forward-looking statements. There are a
number of factors that could cause actual results or developments to
differ materially from those expressed or implied by forward-looking
statements and forecasts. Forward-looking statements and forecasts
are based on the Directors’ current view and information known to
them at the date of this Annual Report and Accounts. The Directors do
not make any undertaking to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. Nothing in this Annual Report and Accounts should be
construed as a forecast, estimate or projection of future financial
performance.
112
Schroders Annual Report and Accounts 2019 Financial statements
Financial statements contents
Consolidated financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the accounts
Segmental reporting
1.
Net operating revenue
2.
Net gain on financial instruments and other income
3.
Operating expenses
4.
Tax expense
5.
Earnings per share
6.
Dividends
7.
Trade and other receivables
8.
Financial assets
9.
Associates and joint ventures
10.
Property, plant and equipment
11.
12.
Leases
13. Goodwill and intangible assets
14. Deferred tax
15. Unit-linked liabilities and assets backing unit-linked liabilities
16.
17.
18.
19. Derivative contracts
20.
21.
22. Own shares
23.
24.
25.
26.
27.
28.
29.
Reconciliation of net cash from operating activities
Commitments
Retirement benefit obligations
Share-based payments
Related party transactions
Interests in structured entities
Business combinations
Trade and other payables
Financial liabilities
Provisions and contingent liabilities
Financial instrument risk management
Share capital and share premium
Presentation of the financial statements
Schroders plc financial statements
Schroders plc – Statement of financial position
Schroders plc – Statement of changes in equity
Schroders plc – Cash flow statement
Significant accounting policies
Expenses and other disclosures
Trade and other receivables
Trade and other payables
Schroders plc – Notes to the accounts
30.
31.
32.
33.
34. Deferred tax
35.
36. Own shares
37.
38.
Related party transactions
Subsidiaries and other related undertakings
Financial instrument risk management
114
114
115
116
117
118
120
123
125
126
127
127
128
128
131
133
134
134
136
137
138
139
140
142
144
151
152
153
154
155
159
162
163
165
167
169
170
171
171
172
172
172
173
173
173
174
175
Independent auditor’s report
186
113
Schroders Annual Report and Accounts 2019Financial statements
Financial statements
Consolidated income statement
for the year ended 31 December 2019
Revenue
Cost of sales
Net operating revenue
Net gain on financial instruments and other income
Share of profit of associates and joint ventures
Net income
Operating expenses
Profit before tax
Tax
Profit after tax1
Earnings per share
Basic
Diluted
Total dividend per share
Notes
Before
exceptional
items
£m
2,537.0
(484.6)
2
2,052.4
3
10
41.9
30.5
2,124.8
2019
Exceptional
items2
£m
2018
Before
exceptional
items
£m
Exceptional
items2
£m
Total
£m
–
–
–
2,537.0
2,626.4
(484.6)
(555.7)
2,052.4
2,070.7
–
–
–
Total
£m
2,626.4
(555.7)
2,070.7
1.1
(3.3)
(2.2)
43.0
27.2
33.3
19.9
(13.0)
(0.8)
20.3
19.1
2,122.6
2,123.9
(13.8)
2,110.1
4
(1,423.6)
(74.4)
(1,498.0)
(1,362.7)
(97.5)
(1,460.2)
701.2
(76.6)
624.6
761.2
(111.3)
649.9
5(a)
(140.5)
560.7
11.6
(65.0)
(128.9)
495.7
(163.3)
597.9
18.1
(93.2)
(145.2)
504.7
6
6
7
201.6p
198.0p
(22.7)p
(22.2)p
178.9p
175.8p
215.8p
211.8p
(32.7)p
(32.1)p
183.1p
179.7p
114.0p
114.0p
Consolidated statement of comprehensive income
for the year ended 31 December 2019
Profit after tax
Items that may or have been reclassified to the income statement:
Net exchange differences on translation of foreign operations after hedging
Net gain/(loss) on financial assets at fair value through other comprehensive income
Tax on items taken directly to other comprehensive income
Items that will not be reclassified to the income statement:
Net actuarial loss on defined benefit pension schemes
Tax on items taken directly to other comprehensive income
Other comprehensive income for the year, net of tax1
Total comprehensive income for the year1
1. Non-controlling interest is presented in the Consolidated statement of changes in equity.
2. See note 1(b) for a definition and further details of exceptional items.
Notes
2019
£m
495.7
2018
£m
504.7
3
5(b)
25
5(b)
(56.0)
6.3
(0.4)
(50.1)
(23.2)
4.0
(19.2)
31.0
(5.9)
(0.7)
24.4
(11.6)
2.0
(9.6)
(69.3)
14.8
426.4
519.5
114
Schroders Annual Report and Accounts 2019 Consolidated statement of financial position
at 31 December 2019
Assets
Cash and cash equivalents
Trade and other receivables
Financial assets
Associates and joint ventures
Property, plant and equipment
Goodwill and intangible assets
Deferred tax
Retirement benefit scheme surplus
Assets backing unit-linked liabilities
Cash and cash equivalents
Financial assets
Total assets
Liabilities
Trade and other payables
Financial liabilities
Lease liabilities
Current tax
Provisions
Deferred tax
Retirement benefit scheme deficits
Notes
8
9
10
11, 12
13
14
25
15
16
17
12
18
14
2019
£m
2018
£m
2,660.3
806.7
3,016.4
398.0
652.3
1,133.4
36.9
136.3
2,683.4
748.9
3,354.9
175.2
249.4
968.2
42.8
155.6
8,840.3
8,378.4
972.6
11,453.3
12,425.9
598.2
10,657.7
11,255.9
21,266.2
19,634.3
921.7
3,531.1
425.3
54.1
32.2
16.2
12.2
988.6
3,660.6
–
44.2
31.4
15.1
17.3
4,992.8
4,757.2
Unit-linked liabilities
15
12,425.9
11,255.9
Total liabilities
Net assets
Total equity1
17,418.7
16,013.1
3,847.5
3,621.2
3,847.5
3,621.2
1. Non-controlling interest is presented in the Consolidated statement of changes in equity.
The financial statements were approved by the Board of Directors on 4 March 2020 and signed on its behalf by:
Richard Keers
Director
115
Schroders Annual Report and Accounts 2019Financial statements Financial statements continued
Consolidated statement of changes in equity
for the year ended 31 December 2019
Attributable to owners of the parent
Share
capital
£m
Share
premium
£m
Own
shares
£m
Notes
Net
exchange
differences
reserve
£m
Associates
and joint
ventures
reserve
£m
Profit
and loss
reserve
£m
Non-
controlling
interest
£m
Total
£m
Total
equity
£m
At 1 January 2019
282.5
124.2
(163.9)
184.4
83.1
3,108.2
3,618.5
2.7
3,621.2
Restatement on adoption of IFRS 161
–
–
–
–
–
(6.9)
(6.9)
–
(6.9)
At 1 January 2019 (restated)
282.5
124.2
(163.9)
184.4
83.1
3,101.3
3,611.6
2.7
3,614.3
Profit for the year
Other comprehensive income2
Total comprehensive income for the year
Own shares purchased
Share-based payments
Tax in respect of share schemes
Movements in ownership interests in subsidiaries3
Other movements4
Dividends
Transactions with shareholders
Transfers
At 31 December 2019
22
26
5(c)
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(81.0)
–
–
–
–
–
(81.0)
75.8
–
27.2
466.9
494.1
(56.0)
–
(13.3)
(69.3)
1.6
–
495.7
(69.3)
(56.0)
27.2
453.6
424.8
1.6
426.4
–
–
–
–
–
–
–
–
–
–
–
–
–
(81.0)
61.6
5.2
61.6
5.2
127.3
127.3
(0.7)
(55.6)
(56.3)
–
–
–
48.4
16.3
(81.0)
61.6
5.2
175.7
(40.0)
–
(312.3)
(312.3)
(2.4)
(314.7)
(0.7)
(173.8)
(255.5)
62.3
(193.2)
(3.5)
(72.3)
–
–
–
282.5
124.2
(169.1)
128.4
106.1
3,308.8
3,780.9
66.6
3,847.5
Attributable to owners of the parent
Share
capital
£m
Share
premium
£m
Own
shares
£m
Notes
Net
exchange
differences
reserve
£m
Associates
and joint
ventures
reserve
£m
Profit
and loss
reserve
£m
Non-
controlling
interest
£m
Total
£m
Total
equity
£m
At 1 January 2018
282.5
124.2
(162.3)
153.4
65.8
2,995.1
3,458.7
12.3
3,471.0
Restatement on adoption of IFRS 9 and IFRS 15
–
–
–
–
–
(18.5)
(18.5)
–
(18.5)
At 1 January 2018 (restated)
282.5
124.2
(162.3)
153.4
65.8
2,976.6
3,440.2
12.3
3,452.5
Profit for the year
Other comprehensive income2
Total comprehensive income for the year
Own shares purchased
Share-based payments
Tax in respect of share schemes
Other movements
Dividends
Transactions with shareholders
Transfers
At 31 December 2018
22
26
5(c)
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(74.9)
–
–
–
–
(74.9)
73.3
–
31.0
19.1
485.9
–
(16.2)
505.0
14.8
(0.3)
504.7
–
14.8
31.0
19.1
469.7
519.8
(0.3)
519.5
–
–
–
–
–
–
–
–
–
–
0.5
–
–
63.9
(3.3)
(74.9)
63.9
(3.3)
–
–
–
(16.0)
(15.5)
(311.7)
(311.7)
(7.9)
(1.4)
(74.9)
63.9
(3.3)
(23.4)
(313.1)
0.5
(267.1)
(341.5)
(9.3)
(350.8)
(2.3)
(71.0)
–
–
–
282.5
124.2
(163.9)
184.4
83.1
3,108.2
3,618.5
2.7
3,621.2
1. The adoption of IFRS 16 reduced the Group’s equity by £6.9 million, see Presentation of the financial statements on page 167.
2. Other comprehensive income reported in the net exchange differences reserve comprises the net foreign exchange (loss)/gain on the translation of foreign
operations net of hedging. Other comprehensive income reported in the profit and loss reserve comprises the post-tax actuarial loss on the Group’s retirement
benefit scheme surplus and post-tax fair value movements on financial assets at fair value through other comprehensive income.
3. Movements in ownership interests in subsidiaries principally relates to a gain of £153.6 million on the sale of a 19.9% interest in the Group’s UK Wealth Management
business (see note 10).
4. Other movements principally comprises amounts relating to the acquisition of BlueOrchard Finance AG (see note 29), including an option to acquire the remaining
interest currently held by third parties.
116
Schroders Annual Report and Accounts 2019 Consolidated cash flow statement
for the year ended 31 December 2019
Net cash from operating activities
Cash flows from investing activities
Net acquisition of businesses, associates and joint ventures
Net acquisition of property, plant and equipment and intangible assets
Acquisition of financial assets
Disposal of financial assets
Non-banking interest received
Distributions received from associates and joint ventures
Net cash used in investing activities
Cash flows from financing activities
Purchase of subsidiary shares
Lease payments
Acquisition of own shares
Dividends paid
Other flows
Net cash used in financing activities
Notes
23
2019
£m
1,002.0
2018
£m
513.9
(152.4)
(142.9)
(1,730.2)
1,841.2
22.5
3.5
(131.8)
(204.1)
(2,241.3)
2,143.7
27.8
3.1
(158.3)
(402.6)
(44.3)
(26.5)
(81.0)
(314.7)
(0.5)
(467.0)
–
–
(74.9)
(313.1)
(0.7)
(388.7)
10
12
22
7
Net increase/(decrease) in cash and cash equivalents
376.7
(277.4)
Opening cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate changes
Closing cash and cash equivalents
Closing cash and cash equivalents consists of:
Cash and cash equivalents available for use by the Group
Cash held in consolidated pooled investment vehicles
Cash and cash equivalents presented within assets
Cash and cash equivalents presented within assets backing unit-linked liabilities
Closing cash and cash equivalents
3,281.6
376.7
(25.4)
3,632.9
2,578.4
81.9
2,660.3
972.6
3,632.9
3,519.5
(277.4)
39.5
3,281.6
2,650.3
33.1
2,683.4
598.2
3,281.6
117
Schroders Annual Report and Accounts 2019Financial statements Financial statements continued
Notes to the accounts
1. Segmental reporting
(a) Operating segments
The Group has three business segments: Asset Management, Wealth Management and the Group segment. The Asset Management
segment principally comprises investment management including advisory services in respect of equity, fixed income, multi-asset solutions
and private assets and alternatives products. The Wealth Management segment principally comprises investment management, wealth
planning and financial advice, platform services and banking services. The Group segment principally comprises the Group’s investment
capital and treasury management activities, corporate development and strategy activities and the management costs associated with
governance and corporate management.
Segmental information is presented on the same basis as that provided for internal reporting purposes to the Group’s chief operating
decision maker, the Group Chief Executive. Following the acquisition of a 49.9% interest in Scottish Widows Schroder Wealth Holdings
Limited, a joint venture with Lloyds Banking Group plc (LBG) that trades as Schroders Personal Wealth (SPW), the Wealth Management
segment now includes the Group’s proportional share of the income and expenses of SPW on an individual account line basis. This reflects
the basis on which the Group monitors the performance of the business. The adjustment column re-presents the results of SPW on a
post-tax basis within share of profit of associates and joint ventures in accordance with the accounting rules.
Operating expenses includes an allocation of costs between the individual business segments on a basis that aligns the charge with the
resources employed by the Group in respect of particular business areas. This allocation provides management with the relevant
information as to the business performance to effectively manage and control expenditure.
Year ended 31 December 2019
Revenue
Cost of sales
Net operating revenue
Net gain on financial instruments and other income
Share of profit of associates and joint ventures
Net income
Operating expenses
Profit before tax and exceptional items
Year ended 31 December 2018
Revenue
Cost of sales
Net operating revenue
Net gain on financial instruments and other income
Share of profit of associates and joint ventures
Net income
Operating expenses
Profit before tax and exceptional items
Asset
Management
£m
Wealth
Management
£m
2,217.9
(454.8)
1,763.1
(5.4)
23.5
334.0
(31.9)
302.1
6.5
1.0
1,781.2
309.6
Group
£m
–
–
–
40.8
4.1
44.9
Segmental
total
£m
2,551.9
(486.7)
2,065.2
Adjustments
£m
(14.9)
2.1
Group
total
£m
2,537.0
(484.6)
(12.8)
2,052.4
41.9
28.6
–
1.9
41.9
30.5
2,135.7
(10.9)
2,124.8
(1,174.3)
606.9
(222.1)
87.5
(38.1)
(1,434.5)
6.8
701.2
10.9
–
(1,423.6)
701.2
Asset
Management
£m
Wealth
Management
£m
2,317.6
(528.8)
1,788.8
(3.3)
15.7
1,801.2
(1,130.4)
670.8
308.8
(26.9)
281.9
7.5
0.4
289.8
(196.4)
93.4
Group
£m
–
–
–
29.1
3.8
32.9
(35.9)
(3.0)
Total
£m
2,626.4
(555.7)
2,070.7
33.3
19.9
2,123.9
(1,362.7)
761.2
Segment assets and liabilities are not required to be presented as such information is not presented on a regular basis to the Group’s chief
operating decision maker.
118
Schroders Annual Report and Accounts 2019
1. Segmental reporting continued
(b) Exceptional items
Exceptional items are significant items of income and expenditure that have been separately presented by virtue of their nature to enable a
better understanding of the Group’s financial performance. Exceptional items relate principally to items arising from acquisitions undertaken
by the Group, including amortisation of acquired intangible assets, and the cost reduction programmes undertaken in 2018 and 2019.
Year ended 31 December 2019
Profit before tax and exceptional items
Exceptional items presented within net income:
Net gain on financial instruments and other income
Associates and joint ventures amortisation of acquired
intangible assets and other costs
Exceptional items presented within operating expenses:
Amortisation of acquired intangible assets
Cost reduction programme
Other expenses
Asset
Management
£m
Wealth
Management
£m
606.9
87.5
Group
£m
6.8
Segmental
total
£m
701.2
1.1
–
1.1
(9.1)
(22.3)
(11.1)
(42.5)
–
(3.3)
(3.3)
(20.9)
(5.7)
(4.7)
(31.3)
–
–
–
–
(1.0)
0.4
(0.6)
1.1
(3.3)
(2.2)
(30.0)
(29.0)
(15.4)
(74.4)
Profit before tax and after exceptional items
565.5
52.9
6.2
624.6
Adjustments
£m
–
–
–
–
–
–
–
–
–
Year ended 31 December 2018
Profit before tax and exceptional items
Exceptional items presented within net income:
Net gain on financial instruments and other income
Amortisation of acquired intangible assets relating to associates and joint ventures
Exceptional items presented within operating expenses:
Cost reduction programme
Amortisation of acquired intangible assets
Other expenses
Asset
Management
£m
Wealth
Management
£m
670.8
93.4
(12.9)
–
(12.9)
(55.6)
(8.6)
(5.5)
(69.7)
–
(0.8)
(0.8)
(0.4)
(20.2)
(4.0)
(24.6)
Group
£m
(3.0)
(0.1)
–
(0.1)
–
–
(3.2)
(3.2)
Group
total
£m
701.2
1.1
(3.3)
(2.2)
(30.0)
(29.0)
(15.4)
(74.4)
624.6
Total
£m
761.2
(13.0)
(0.8)
(13.8)
(56.0)
(28.8)
(12.7)
(97.5)
Profit before tax and after exceptional items
588.2
68.0
(6.3)
649.9
(c) Geographical information
The Group’s non-current assets1 are located in the following countries:
Country
United Kingdom
Switzerland
United States
China
France
Singapore
Other
Total
2019
£m
1,411.7
272.2
122.6
118.2
85.0
57.1
117.0
2018
£m
852.7
168.2
70.6
104.4
82.3
33.0
81.7
2,183.8
1,392.9
1. Comprises the following non-current assets: property, plant and equipment, goodwill and intangible assets, associates and joint ventures and prepayments.
119
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
1. Segmental reporting continued
(d) Non-cash items
Year ended 31 December 2019
Operating expenses include the following non-cash
items:
Asset
Management
£m
Wealth
Management
£m
Group
£m
Segmental
total
£m
Adjustments
£m
Group
total
£m
Share-based payments
Depreciation and amortisation
(53.4)
(111.1)
(4.6)
(27.0)
(3.6)
(0.6)
(61.6)
(138.7)
–
–
(61.6)
(138.7)
Year ended 31 December 2018
Operating expenses include the following non-cash items:
Share-based payments
Depreciation and amortisation
Asset
Management
£m
Wealth
Management
£m
(56.9)
(57.2)
(4.4)
(23.1)
Group
£m
(2.6)
(0.5)
Total
£m
(63.9)
(80.8)
Where applicable, exceptional items are included in the non-cash items presented above.
2. Net operating revenue
Revenue
The Group’s primary source of revenue is fee income from investment management activities performed within both the Asset Management
and Wealth Management segments. Fee income includes management fees, performance fees, carried interest and other fees. Revenue
also includes interest income earned within the Wealth Management segment.
Management fees are generated through investment management agreements and are generally based on an agreed percentage of the
valuation of AUM. Management fees are recognised as the service is provided and it is probable that the fee will be collected.
Performance fees and carried interest are earned from some arrangements when contractually agreed performance levels are exceeded
within specified performance measurement periods. They are only recognised where there is deemed to be a low probability of a significant
reversal in future periods. Performance fees are typically earned over one year and are recognised at the end of the performance period.
Carried interest is earned over a longer time frame and is recognised when the performance obligations are expected to be met and it is
highly probable that a significant reversal will not occur. This may result in the recognition of revenue before the contractual crystallisation
date.
Other fees principally comprise revenues for other services, which are typically driven by levels of AUM, along with revenues that vary
according to the volume of transactions. Other fees are recognised as the relevant service is provided and it is probable that the fee will
be collected.
Within Wealth Management, earning a net interest margin is a core activity. Interest income earned as a result of placing loans and deposits
with other financial institutions, advancing loans and overdrafts to clients, and holding debt and other fixed income securities is recognised
within revenue. Interest income is recognised as it is earned using the effective interest method, which allocates interest at a constant rate
of return over the expected life of the financial instrument based on the estimated future cash flows.
Cost of sales
Fee expenses incurred by the Group that relate directly to revenue are presented as cost of sales. These expenses include commissions,
external fund manager fees and distribution fees payable to financial institutions, investment platform providers and financial advisers that
distribute the Group’s products.
Fee expense is generally based on an agreed percentage of the valuation of AUM and is recognised in the income statement as the service is
received.
Cost of sales also includes amounts payable to third parties in respect of financial obligations arising from carried interest. Amounts payable
in respect of carried interest are determined based on the current value of the amount that is expected to be paid when the carried interest
crystallises at the end of the performance period. As a result, the cost of sales recognised in respect of carried interest payable may increase
or decrease over time, dependent on the fair value of the obligation, until it crystallises.
Wealth Management pays interest to clients on deposits taken. Within Wealth Management, earning a net interest margin is a core activity.
Interest payable in respect of these activities is therefore recorded separately from finance costs elsewhere in the business and is reported
as part of cost of sales. Interest is recognised using the effective interest method (see above).
120
Schroders Annual Report and Accounts 2019 2. Net operating revenue continued
a) Net operating revenue by segment is presented below:
Year ended 31 December 2019
Management fees
Performance fees
Carried interest
Other fees
Wealth Management interest income earned
Revenue
Fee expense
Cost of financial obligations in respect of carried interest
Wealth Management interest expense incurred
Cost of sales
Asset
Management
£m
Wealth
Management
£m
2,140.3
253.2
42.9
23.4
11.3
–
0.9
–
37.6
42.3
2,217.9
334.0
(460.7)
5.9
–
(454.8)
(13.6)
–
(18.3)
(31.9)
Net operating revenue
1,763.1
302.1
Group
£m
–
–
–
–
–
–
–
–
–
–
–
Segmental
total
£m
2,393.5
Adjustments
£m
Group
total
£m
(13.3)
2,380.2
43.8
23.4
48.9
42.3
–
–
(1.6)
–
43.8
23.4
47.3
42.3
2,551.9
(14.9)
2,537.0
(474.3)
5.9
(18.3)
(486.7)
2.1
–
–
2.1
(472.2)
5.9
(18.3)
(484.6)
2,065.2
(12.8)
2,052.4
Wealth
Management
£m
Group
£m
Year ended 31 December 2018
Management fees
Performance fees
Carried interest
Other fees
Wealth Management interest income earned
Revenue
Fee expense
Cost of financial obligations in respect of carried interest
Wealth Management interest expense incurred
Cost of sales
Asset
Management
£m
2,224.3
26.2
55.7
11.4
–
2,317.6
(501.5)
(27.3)
–
(528.8)
227.3
0.4
–
38.5
42.6
308.8
(11.1)
–
(15.8)
(26.9)
Net operating revenue
1,788.8
281.9
–
–
–
–
–
–
–
–
–
–
–
Total
£m
2,451.6
26.6
55.7
49.9
42.6
2,626.4
(512.6)
(27.3)
(15.8)
(555.7)
2,070.7
121
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
2. Net operating revenue continued
b) Net operating revenue is presented below by region based on the location of clients:
Year ended 31 December 2019
Management fees
Performance fees
Carried interest
Other fees
Wealth Management interest income earned
Revenue
Fee expense
Change in financial obligations in respect of carried interest
Wealth Management interest expense incurred
Cost of sales
Continental
Europe &
Middle East
£m
UK
£m
727.9
750.5
6.0
–
32.1
34.3
15.0
23.4
10.1
6.6
Asia Pacific
£m
Americas
£m
Segmental
total
£m
Adjustments
£m
Group
total
£m
622.8
14.6
–
6.6
1.4
292.3
2,393.5
(13.3)
2,380.2
8.2
–
0.1
–
43.8
23.4
48.9
42.3
–
–
(1.6)
–
43.8
23.4
47.3
42.3
800.3
805.6
645.4
300.6
2,551.9
(14.9)
2,537.0
(58.1)
(194.9)
(180.4)
(40.9)
(474.3)
2.1
(472.2)
–
(15.7)
(73.8)
5.9
(2.5)
–
(0.1)
–
–
5.9
(18.3)
–
–
5.9
(18.3)
(191.5)
(180.5)
(40.9)
(486.7)
2.1
(484.6)
Net operating revenue
726.5
614.1
464.9
259.7
2,065.2
(12.8)
2,052.4
Year ended 31 December 2018
Management fees
Performance fees
Carried interest
Other fees
Wealth Management interest income earned
Revenue
Fee expense
Change in financial obligations in respect of carried interest
Wealth Management interest expense incurred
Cost of sales
UK
£m
720.3
2.1
–
31.3
30.6
784.3
(64.4)
–
(12.3)
(76.7)
Continental
Europe &
Middle East
£m
820.6
4.7
55.7
12.0
10.4
903.4
(231.1)
(27.3)
(3.4)
(261.8)
Asia Pacific
£m
622.8
12.5
–
6.5
1.6
Americas
£m
287.9
7.3
–
0.1
–
Total
£m
2,451.6
26.6
55.7
49.9
42.6
643.4
295.3
2,626.4
(178.4)
–
(0.1)
(38.7)
–
–
(178.5)
(38.7)
(512.6)
(27.3)
(15.8)
(555.7)
Net operating revenue
707.6
641.6
464.9
256.6
2,070.7
Estimates and judgements – revenue
Carried interest represents the Group’s contractual right to a share of the profits of around 85 private asset investment vehicles
(2018: 74 vehicles), if certain performance hurdles are met. It is recognised when the relevant services have been provided and there is a low
probability that a significant reversal will occur.
The amount of carried interest that will be received by the Group is dependent on the cash flows realised by the respective investment
vehicles when the underlying investments are successfully disposed of. The resultant cash flows are assessed against the applicable
performance hurdle, which is dependent on the capital invested and timing and quantum of distributions to clients in the vehicle. The
outcome is discounted to determine the present value of the carried interest to be recognised.
The Group estimates the cash flows that will be received by the investment vehicles with reference to the current fair value of the underlying
investments. Judgement is applied to determine certain assumptions used in the estimate. Those assumptions principally relate to the
future growth and the timing of cash flows following the realisation of the underlying investments. No future growth is assumed, reflecting
the uncertainty of future investment returns. The timing of distributions to clients is based on the expectations of the individual investment
managers as to the realisation of a large number of underlying individual securities.
The Group assesses the maturity of the respective investment vehicles by reference to the percentage of committed capital invested and
original capital returned to clients. This helps the Group to understand whether a significant risk of reversal exists and to determine whether
the revenue should be recognised or further constrained in accordance with the accounting standards.
122
Schroders Annual Report and Accounts 2019 2. Net operating revenue continued
Estimates and judgements – cost of sales
The change in financial obligations in respect of carried interest (carried interest payable) is based on an assessment of the fair value of the
amounts that have been received or may be received in the future and the proportion that is payable to third parties. The settlement of
these obligations is contingent on the receipt of the related revenue. The Group therefore applies the same estimates and judgements as
those used to determine the present value of the carried interest receivable, as set out on page 122. The amount payable at maturity will
depend on the realised value of the carried interest receivable and may differ from the projected value. An increase in the growth rate of 3%
would increase cost of sales by £3.2 million, although this would be smaller than the corresponding increase in revenue. An average
acceleration/delay in crystallisation dates of one year would increase/reduce cost of sales by £3.0 million/£2.4 million and this amount would
be lower than the corresponding increase/reduction in revenue.
3. Net gain on financial instruments and other income
The Group holds financial instruments to support its Group capital strategies, which comprise operating capital, seed and co-investment
capital and other investible equity. Operating capital is retained in the Group’s operating entities to meet minimum local regulatory capital
requirements and other capital required for day-to-day operational purposes. Operating capital principally comprises cash and cash
equivalents and other low-risk financial instruments, as well as financial instruments held to hedge fair value movements on certain
deferred fund awards. Seed and co-investment capital represents strategic investments in the Group’s products to develop new investment
strategies and co-invest selectively alongside clients. Seed and co-investment capital is financed from investment capital and, where
practical, the market risk on seed capital investments is hedged. Other investible equity held in excess of operating requirements is
transferred to investment capital, which is managed centrally in accordance with limits approved by the Board.
A portion of the Group’s financial instruments measured at fair value are classified as financial instruments at fair value through profit or
loss (FVTPL). Net gains and losses on financial instruments at FVTPL principally comprise market returns on investments in debt securities,
equities, pooled investment vehicles, gains and losses on derivatives (which mainly arise from hedging activities) and gains and losses on
contingent consideration arising from business combinations (and amounts related to carried interest). Net gains and losses on financial
instruments at FVTPL that are held to hedge deferred employee cash awards are presented separately and are included within operating
expenses (see note 4). The cost of financial obligations in respect of carried interest (other than that relating to contingent consideration) is
presented separately and is included within cost of sales (see note 2). In both instances, the presentation better reflects the substance of
these transactions and provides more relevant information about the Group’s net income and operating expenses.
The remainder of the Group’s financial assets measured at fair value are classified as financial assets at fair value through other
comprehensive income (FVOCI). Unrealised gains and losses on debt securities classified as financial assets at FVOCI are recorded in other
comprehensive income, and the cumulative gains and losses are transferred to the income statement if the investment is sold or otherwise
realised. Interest earned on these assets is recognised using the effective interest method and recorded as net finance income within net
gains on financial instruments and other income. An explanation of how the Group’s financial assets and financial liabilities are classified and
measured is included in notes 9 and 17.
Expected credit losses are calculated on financial assets measured at amortised cost and debt instruments measured at FVOCI and are
recognised in the income statement (see note 20).
Net finance income is derived from interest on non-banking activities, principally generated from cash and deposits with banks, but also as
a result of holding investments in debt securities at amortised cost or FVOCI. Debt securities and cash held outside of Wealth Management
entities are managed mainly by Group Treasury to earn competitive rates of return and provide liquidity throughout the Group. Significant
amounts of the Group’s cash and interest-earning securities are held within Wealth Management and are managed by the Wealth
Management treasury team. Interest earned on the assets held within Wealth Management is included in revenue and interest incurred on
the liabilities assumed is included in cost of sales. Interest is recognised using the effective interest method (see note 2).
Other income includes amounts arising from ancillary services provided by Benchmark Capital, gains and losses on foreign exchange and
rent receivable from subletting properties.
123
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
3. Net gain on financial instruments and other income continued
2019
Income
statement
£m
Other
comprehensive
income
£m
2018
Other
comprehensive
income
£m
Total
£m
–
(13.9)
(5.7)
(0.2)
(5.9)
(5.7)
–
(5.7)
–
–
8.4
25.6
Income
statement
£m
(13.9)
–
0.2
0.2
8.4
25.6
Total
£m
0.6
6.8
–
6.8
–
6.8
(0.5)
6.3
–
–
8.3
33.6
6.3
49.3
20.3
(5.9)
14.4
–
–
21.3
(11.3)
5.9
(27.3)
–
–
(11.3)
(27.3)
6.3
76.5
(18.3)
(5.9)
(24.2)
0.6
–
0.5
0.5
8.3
33.6
43.0
21.3
5.9
70.2
Year ended 31 December
Net gain/(loss) on financial instruments at FVTPL
Net gain/(loss) arising from fair value movements
Net transfers on disposal
Net gain/(loss) on financial assets at FVOCI
Net finance income
Other income
Net gain on financial instruments and other income1
Net gain/(loss) on financial instruments held to hedge employee
deferred cash awards – presented within operating expenses
Change in financial obligations in respect of carried interest –
presented within cost of sales
Net gain/(loss) on financial instruments and other income – net of
hedging and carried interest financial obligations
1. Includes a credit of £1.1 million (2018: £13.0 million charge) of exceptional items.
124
Schroders Annual Report and Accounts 2019 4. Operating expenses
Operating expenses represents the Group’s administrative expenses and is recognised as the services are received. Certain costs, including
leases and capitalised costs, are charged evenly over the life of the relevant contract or useful life of the asset. The biggest component of the
Group’s operating expenses is the cost of employee benefits, as shown below. Other costs include accommodation, information technology,
marketing and outsourcing costs.
The control of costs, including compensation costs, is a key performance objective of the Group. Compensation costs are managed
to a target total compensation ratio of between 45% and 49%. Targeting a total compensation ratio range provides some flexibility to
manage the overall cost base in response to market conditions. Total costs are managed to a target long-term key performance indicator
ratio of total costs to net income of 65%.
Employee benefits expense includes salaries and wages, together with the cost of other benefits provided to employees such as pension
and bonuses. Employee benefits expense is presented net of gains and losses on financial instruments held to hedge deferred employee
cash awards (see note 3). The Group makes some performance awards to employees that are deferred over a specified vesting period. Such
awards are charged to the income statement over the performance period and the vesting period. The Group holds investments that are
linked to these performance awards in order to hedge the related expense. Gains and losses on these investments are netted against the
relevant costs in the income statement but are presented separately below.
Further detail on other types of employee benefit can be found elsewhere within these financial statements, see note 25 for pension costs
and note 26 for more detail on compensation that is awarded in Schroders plc shares.
(a) Employee benefits expense and number of employees
Year ended 31 December
Salaries, wages and other remuneration
Social security costs
Pension costs
Employee benefits expense
Net (gain)/loss on financial instruments held to hedge deferred cash awards
Employee benefits expense – net of hedging
2019
£m
855.6
84.2
44.1
983.9
(21.3)
962.6
2018
£m
839.7
66.5
45.6
951.8
11.3
963.1
The employee benefits expense net of hedging of £962.6 million (2018: £963.1 million) includes £35.3 million (2018: £59.8 million) that is
presented within exceptional items. This comprises £6.3 million (2018: £3.8 million) arising from acquisitions completed by the Group and
£29.0 million (2018: £56.0 million) of expenses in relation to the cost reduction programme.
Information about the compensation of key management personnel can be found in note 27. Details of the amounts paid to or receivable
from Directors along with the number of Directors who exercised share options in the year is provided in the Remuneration report on pages
72 to 108.
The monthly average number of employees of the Company and its subsidiary undertakings during the year was:
Full-time employees
Contract and temporary employees
Employed as follows:
Asset Management
Wealth Management
Group
(b) Audit and other services
Year ended 31 December
Fees payable to the auditor for the audit of the Company and Consolidated financial statements
Fees payable to the auditor and its associates for other services:
Audit of the Company’s subsidiaries
Audit-related assurance services
Other assurance services
Other non-audit services
2019
Number
4,778
581
5,359
4,222
1,101
36
5,359
2019
£m
0.6
3.4
1.0
0.5
0.1
5.6
2018
Number
4,383
489
4,872
3,910
924
38
4,872
2018
£m
0.6
3.3
1.0
0.5
0.1
5.5
125
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
5. Tax expense
The Group is headquartered in the UK and pays taxes according to the rates applicable in the countries and states in which it operates.
Most taxes are recorded in the income statement (see part (a)) and relate to taxes payable for the reporting period (current tax). The charge
also includes benefits and charges relating to when income or expenses are recognised in a different period for tax and accounting
purposes or specific treatment relating to acquisitions (deferred tax – see note 14). Some current and deferred taxes are recorded through
other comprehensive income (see part (b)) or directly to equity, where the tax arises from changes in the value of remuneration settled as
shares (see part (c)).
(a) Analysis of tax charge reported in the income statement
Year ended 31 December
UK current year charge
Rest of the world current year charge
Adjustments in respect of prior year estimates
Total current tax
Origination and reversal of temporary differences
Adjustments in respect of prior year estimates
Effect of changes in corporation tax rates
Total deferred tax
2019
£m
60.9
67.7
(1.1)
127.5
(4.1)
2.5
3.0
1.4
2018
£m
56.9
78.6
1.7
137.2
7.9
0.1
–
8.0
Tax charge reported in the income statement
128.9
145.2
(b) Analysis of tax credit reported in other comprehensive income
Year ended 31 December
Current tax (credit)/charge on movements in financial assets at fair value through other comprehensive income
Deferred tax credit on actuarial gains and losses on defined benefit pension schemes
Deferred tax charge/(credit) on other movements through other comprehensive income
Tax credit reported in other comprehensive income
(c) Analysis of tax (credit)/charge reported in equity
Year ended 31 December
Current tax credit on Equity Compensation Plan and other share-based remuneration
Deferred tax (credit)/charge on Equity Compensation Plan and other share-based remuneration
Tax (credit)/charge reported in equity
2019
£m
(1.1)
(4.0)
1.5
(3.6)
2019
£m
(2.6)
(2.6)
(5.2)
2018
£m
1.5
(2.0)
(0.8)
(1.3)
2018
£m
(2.6)
5.9
3.3
(d) Factors affecting tax charge for the year
The UK standard rate of corporation tax for 2019 is 19% (2018: standard rate of 19%). The tax charge for the year is higher (2018: higher) than a
charge based on the UK standard rate. The differences are explained below:
Year ended 31 December
Profit before tax
Less post-tax net profit of associates and joint ventures
Profit before tax of Group entities
2019
£m
624.6
(27.2)
597.4
2018
£m
649.9
(19.1)
630.8
Profit before tax of consolidated Group entities multiplied by corporation tax at the UK standard rate
113.5
119.9
Effects of:
Different statutory tax rates of overseas jurisdictions
Permanent differences including non-taxable income and non-deductible expenses
Net movement in timing differences for which no deferred tax is recognised
Deferred tax adjustments in respect of changes in corporation tax rates
Adjustments in respect of prior year estimates
Tax charge reported in the income statement
8.0
1.7
1.3
3.0
1.4
8.7
11.1
3.7
–
1.8
128.9
145.2
126
Schroders Annual Report and Accounts 2019 5. Tax expense continued
Estimates and judgements
The calculation of the Group’s tax charge involves a degree of estimation and judgement. Liabilities relating to open and judgemental
matters, including those in relation to deferred taxes, are based on the Group’s assessment of the most likely outcome based on the
information available. As a result, certain tax amounts are based on estimates using factors that are relevant to the specific judgement.
The Group engages constructively and transparently with tax authorities with a view to early resolution of any uncertain tax matters. Where
the final tax outcome of these matters is different from the amounts provided, such differences will impact the tax charge in a future period.
Such estimates are based on assumptions made on the probability of potential challenge within certain jurisdictions and the possible
outcome based on relevant facts and circumstances, including local tax laws. There was no individual judgemental component of the
tax expense that was material to the Group results when taking into account the likely range of potential outcomes.
Amounts recorded within the 2019 tax charge relating to these judgements were not material (2018: same).
6. Earnings per share
This key performance indicator shows the portion of the Group’s profit after tax that is attributable to each share issued by the Company,
excluding own shares held by the Group. The calculation is based on the weighted average number of shares in issue during the year. The
diluted figure recalculates that number as if all share options that would be expected to be exercised, as they have value to the option
holder, had been exercised in the year. Shares that may be issued are not taken into account if the impact does not reduce earnings per
share.
Reconciliation of the figures used in calculating basic and diluted earnings per share:
Year ended 31 December
Weighted average number of shares used in the calculation of basic earnings per share
Effect of dilutive potential shares – share options
Effect of dilutive potential shares – contingently issuable shares
Weighted average number of shares used in the calculation of diluted earnings per share
2019
Number
Millions
276.2
4.8
0.1
281.1
2018
Number
Millions
275.9
5.2
–
281.1
The pre-exceptional earnings per share calculations are based on profit after tax excluding non-controlling interest of £4.0 million
(2018: £2.6 million). After exceptional items, the profit after tax attributable to non-controlling interest was £1.6 million (2018: loss of
£0.3 million).
7. Dividends
Dividends are distributions of profit to holders of the Group’s share capital, usually announced with the Group’s half-year and annual results.
Dividends are recognised only when they are paid or approved by shareholders. The reduction in equity in the year therefore comprises the
prior year final dividend and the current year interim dividend.
Prior year final dividend paid
Interim dividend paid
Total dividends paid
2020
£m
Pence per
share
2019
2018
£m
216.5
95.8
312.3
Pence per
share
79.0
35.0
114.0
£m
216.0
95.7
311.7
Pence per
share
79.0
35.0
114.0
Current year final dividend recommended
216.7
79.0
Dividends of £9.8 million (2018: £10.5 million) on shares held by employee benefit trusts have been waived and dividends may not be paid on
treasury shares. The Board has recommended a 2019 final dividend of 79.0 pence per share (2018 final dividend: 79.0 pence), amounting to
£216.7 million (2018 final dividend: £216.5 million). The dividend will be paid on 7 May 2020 to shareholders on the register at 27 March 2020
and will be accounted for in 2020.
In addition, the Group paid £2.4 million of dividends to holders of non-controlling interests in subsidiaries of the Group during 2019
(2018: £1.4 million), resulting in total dividends paid of £314.7 million (2018: £313.1 million).
127
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
8. Trade and other receivables
Trade and other receivables includes prepayments and deposits with banks in the form of bullion as well as amounts the Group is due to
receive from third parties in the normal course of business. Trade and other receivables, other than deposits with banks in the form of
bullion, are recorded initially at fair value and subsequently at amortised cost (see note 9), after the deduction of provisions for impairment.
Prepayments arise where the Group pays cash in advance for services. As the service is provided, the prepayment is reduced and the
operating expense is recognised in the income statement. Accrued income, other than amounts relating to carried interest, represents
unbilled revenue and is not dependent on future performance. Amounts due from third parties also include settlement accounts for
transactions undertaken on behalf of funds and investors. Deposits with banks in the form of bullion are recorded at fair value.
Trade and other receivables held at amortised cost:
Fee debtors
Settlement accounts
Accrued income
Prepayments
Other receivables
Current tax
Trade and other receivables held at fair value:
Deposits with banks in the form of bullion
–
–
71.2
0.1
16.2
–
87.5
–
87.5
Non-current
£m
2019
Current
£m
Total
£m
Non-current
£m
2018
Current
£m
Total
£m
72.6
170.1
394.5
36.0
59.6
7.0
87.8
150.2
365.5
42.4
51.4
16.5
87.8
150.2
436.7
42.5
67.6
16.5
–
–
56.8
0.1
5.5
–
72.6
170.1
337.7
35.9
54.1
7.0
713.8
801.3
62.4
677.4
739.8
5.4
719.2
5.4
806.7
–
62.4
9.1
686.5
9.1
748.9
The fair value of trade and other receivables held at amortised cost approximates their carrying value. Deposits with banks in the form of bullion
are categorised as level 1 in the fair value hierarchy (see note 9).
Estimates and judgements
Accrued income includes £75.7 million of receivables in respect of carried interest (2018: £74.7 million). This income is due over a number of
years and only when contractually agreed performance levels are exceeded. The income received may vary as a result of the actual
experience, including future investment returns, differing from that assumed. Further information regarding the estimates and judgements
applied is set out in note 2.
9. Financial assets
The Group holds financial assets including equities, debt securities, pooled investment vehicles and derivatives to support its Group capital
strategies and its Wealth Management banking book, including loans to clients. The Group also enters into derivatives on behalf of Wealth
Management clients, referred to as client facilitation (see note 19).
Classification and measurement
The Group initially records all financial assets at fair value. The Group subsequently holds each financial asset at FVTPL or FVOCI or at
amortised cost. Fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants.
Amortised cost is the amount determined based on moving the initial amount recognised for the financial instrument to the maturity value
on a systematic basis using a fixed interest rate (the effective interest rate), taking account of repayment dates and initial premiums or
discounts.
Financial assets at amortised cost
Financial assets are measured at amortised cost when their contractual cash flows represent solely payments of principal and interest and
they are held within a business model designed to collect cash flows. This classification typically applies to the Group’s loans and advances,
trade receivables and some debt securities held by the Group’s Wealth Management entities. The carrying value of amortised cost financial
assets is adjusted for impairment under the expected loss model (see note 3 and note 20).
Financial assets at fair value through other comprehensive income
Financial assets are held at FVOCI when their contractual cash flows represent solely payments of principal and interest and they are held
within a business model designed to collect cash flows and to sell assets. This classification applies to certain debt securities within the
Group’s Wealth Management entities and to debt securities held as part of the Group’s investment capital portfolio. Impairment is
recognised for debt securities classified as FVOCI under the expected loss model (see note 3 and note 20).
Financial assets at fair value through profit or loss
All other financial assets are held at FVTPL. The Group’s financial assets at FVTPL principally comprise investments in debt securities, equities,
pooled investment vehicles and derivatives.
128
Schroders Annual Report and Accounts 2019 9. Financial assets continued
Estimates and judgements – fair value measurements
The Group holds financial instruments that are measured at fair value. The fair value of financial instruments may require some estimation
or may be derived from readily available sources. The degree of estimation involved depends on the individual financial instrument and is
reflected in the fair value hierarchy below. The hierarchy also reflects the extent of judgements used in the valuation but this does not
necessarily indicate that the fair value is more or less likely to be realised. Judgements may include determining which valuation approach
to apply as well as determining appropriate assumptions. For level 2 and 3 financial instruments, the judgement applied by the Group gives
rise to an estimate of fair value. The approach to determining the fair value estimate of level 2 and 3 financial instruments is set out below,
with no individual input giving rise to a material component of the carrying value for the Group. The fair value levels are based on the
degree to which the fair value is observable and are defined as follows:
– Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities and
principally comprise investments in pooled investment vehicles, quoted equities and government debt, daily-priced funds and exchange-
traded derivatives;
– Level 2 fair value measurements are those derived from prices that are not traded in an active market but are determined using valuation
techniques, which make maximum use of observable market data. The Group’s level 2 financial instruments principally comprise foreign
exchange contracts, certain debt securities, asset and mortgage backed securities, and loans held at fair value. Valuation techniques may
include using a broker quote in an inactive market or an evaluated price based on a compilation of primarily observable market
information utilising information readily available via external sources. For funds not priced on a daily basis, the net asset value which
is issued monthly or quarterly is used; and
– Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data. The Group’s level 3 financial assets principally comprise investments in private equity funds that are
measured by applying appropriate valuation techniques in accordance with International Private Equity and Venture Capital Valuation
Guidelines 2018. Level 3 financial assets also include investments in property investment vehicles that operate hotel businesses. These are
valued based on the expected future cash flows that could be generated from the hotel business.
Financial assets at amortised cost:
Loans and advances to banks
Loans and advances to clients
Debt securities
Financial assets at FVOCI:
Debt securities
Financial assets at FVTPL:
Loans and advances to clients
Debt securities
Pooled investment vehicles
Equities
Derivative contracts
2019
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
598.3
598.3
–
4.4
546.6
282.5
0.5
834.0
–
–
–
–
318.6
318.6
4.6
213.6
28.5
13.7
54.5
314.9
–
–
–
–
–
–
–
5.6
95.3
29.7
4.3
134.9
Not at
fair value
£m
350.2
398.5
67.0
815.7
–
–
–
–
–
–
–
–
Total
£m
350.2
398.5
67.0
815.7
916.9
916.9
4.6
223.6
670.4
325.9
59.3
1,283.8
1,432.3
633.5
134.9
815.7
3,016.4
129
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
9. Financial assets continued
Financial assets at amortised cost:
Loans and advances to banks
Loans and advances to clients
Debt securities
Financial assets at FVOCI:
Debt securities
Financial assets at FVTPL:
Loans and advances to clients
Debt securities
Pooled investment vehicles
Equities
Derivative contracts
Current
Non-current
2018
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
487.3
487.3
–
260.7
614.5
197.4
5.2
1,077.8
–
–
–
–
442.0
442.0
2.4
103.3
5.0
0.7
24.1
135.5
–
–
–
–
–
–
–
5.0
80.9
21.5
9.0
116.4
Not at
fair value
£m
384.2
572.6
139.1
Total
£m
384.2
572.6
139.1
1,095.9
1,095.9
–
–
–
–
–
–
–
–
929.3
929.3
2.4
369.0
700.4
219.6
38.3
1,329.7
1,565.1
577.5
116.4
1,095.9
3,354.9
2019
£m
2,606.4
410.0
3,016.4
2018
£m
2,822.9
532.0
3,354.9
The fair value of financial assets at amortised cost approximates to their carrying value. No financial assets were transferred between levels
during 2019 (2018: none).
Movements in financial assets categorised as level 3 during the year were:
At 1 January
Exchange translation adjustments
Net gain recognised in the income statement
Additions
Disposals
At 31 December
2019
£m
116.4
(2.4)
1.3
35.2
(15.6)
134.9
2018
£m
71.9
1.9
6.3
48.4
(12.1)
116.4
130
Schroders Annual Report and Accounts 2019 10. Associates and joint ventures
Associates are entities in which the Group has an investment and over which it has significant influence, but not control, through
participation in the financial and operating policy decisions. Joint ventures are entities in which the Group has an investment where it, along
with one or more other shareholders, has contractually agreed to share control of the business and where the major decisions require the
unanimous consent of the joint partners. In both cases, the Group initially records the investment at the fair value of the purchase
consideration, including purchase related costs. The Group’s income statement reflects its share of the entity’s profit or loss after tax and
amortisation of intangible assets. The statement of other comprehensive income records the Group’s share of gains and losses arising from
the entity’s financial assets at FVOCI (see note 9). The statement of financial position subsequently records the Group’s share of the net
assets of the entity plus any goodwill and intangible assets that arose on purchase less subsequent amortisation. The statement of changes
in equity records the Group’s share of other equity movements of the entity. Goodwill and intangible assets are assessed regularly for
impairment.
The associates and joint ventures reserve in the statement of changes in equity represents the Group’s share of profits in its investments yet
to be received (for example, in the form of dividends or distributions), less any amortisation of intangible assets. Certain associates are held
at fair value where permitted by accounting standards and are recorded within financial assets (see note 9). Information about the Group’s
principal associates measured at fair value is disclosed within this note.
(a) Investments in associates and joint ventures accounted for using the equity method
At 1 January
Exchange translation adjustments
Additions
Disposals
Profit for the year after tax1
Other movements in reserves of associates and joint ventures
Distributions of profit
At 31 December
1. Includes £3.3 million of costs that are presented within exceptional items.
2019
Associates
£m
Joint ventures
£m
173.1
(8.3)
12.6
(0.7)
26.9
(0.7)
(2.7)
200.2
2.1
(0.1)
196.3
–
0.3
–
(0.8)
197.8
Total
£m
175.2
(8.4)
208.9
(0.7)
27.2
(0.7)
(3.5)
2018
Associates
£m
Joint ventures
£m
141.8
2.1
1.0
22.7
(8.9)
18.4
0.5
(2.4)
–
–
–
0.7
–
(0.7)
2.1
398.0
173.1
Total
£m
143.9
1.0
22.7
(8.9)
19.1
0.5
(3.1)
175.2
On 3 October 2019, the Group acquired a 49.9% equity interest in a joint venture, Scottish Widows Schroder Wealth Holdings Limited, that trades
as ‘Schroders Personal Wealth’ (SPW). A 19.9% interest in Schroder Wealth Holdings Limited (SWHL), the Group’s UK Wealth Management
business, was transferred as consideration for the 49.9% interest in SPW and the acquisition of a portfolio of Wealth Management clients (see
note 29). A gain of £153.6 million was recognised in the Group’s statement of changes in equity as a result of the partial disposal of SWHL.
The Group invested in four other associate undertakings during the year for a total consideration of £12.6 million.
Information about the significant associates and joint ventures held by the Group at 31 December 2019 is shown below. The companies are
unlisted.
Name of associate or joint venture
Nature of its
business
Scottish Widows Schroder Wealth Holdings Limited (SPW)
Wealth management
RWC Partners Limited (RWC)
Investment management
Principal place of
business
England
England
Bank of Communications Schroder Fund Management Co.
Ltd. (BoCom)
Investment management
China
Axis Asset Management Company Limited (Axis)
Investment management
A10 Capital Parent Company LLC (A10)
Real estate lending
India
USA
Class of share
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Common units
Percentage
owned by the
Group
49.9%
41.0%
30.0%
25.0%
20.0%
On 31 January 2020, the Group disposed of its 41.0% interest in RWC.
131
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
10. Associates and joint ventures continued
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Total equity
SPW
£m
RWC
£m
BoCom
£m
217.3
1.7
28.3
137.5
83.5 470.7
2019
Axis
£m
16.9
36.3
2018
A10
£m
Other
£m
Total
£m
RWC
£m
BoCom
£m
Axis
£m
A10
£m
Other
£m
Total
£m
894.2
4.3 1,162.7
5.9
29.1
20.5
868.3
2.3 926.1
93.0
18.6
839.6
76.0 399.8
54.2
129.4
20.9 680.3
(20.1)
(0.1)
(4.2)
(3.5)
(882.4)
(1.3)
(911.6)
(0.1)
–
(4.0) (903.5)
(2.3) (909.9)
(63.2)
(38.5) (101.5)
(10.7)
(61.4)
(4.0)
(279.3)
(40.1)
(81.1)
(39.3)
(55.0)
(3.5) (219.0)
271.5
46.6 393.3
39.0
43.4
17.6
811.4
41.7 347.8
31.4
39.2
17.4 477.5
Group’s share of net assets
135.5
19.1 118.0
Goodwill and intangible assets
Deferred tax liability
63.7
(3.4)
9.7
–
–
–
9.8
11.0
–
8.4
1.3
–
5.7
19.2
–
296.5
104.9
(3.4)
17.3 104.3
9.7
–
–
–
7.8
11.7
–
Carrying value held by the Group
195.8
28.8 118.0
20.8
9.7
24.9
398.0
27.0 104.3
19.5
7.9
1.4
–
9.3
5.5 142.8
9.6
32.4
–
–
15.1 175.2
Net income
25.8
55.0 195.8
43.1
29.8
15.1
364.6
52.4 158.8
82.3
11.7
13.2 318.4
Profit for the year
Total comprehensive income
0.8
0.8
10.6
10.6
66.5
66.5
11.3
11.3
5.5
5.5
0.2
0.2
94.9
94.9
10.1
10.1
54.4
54.4
2.1
2.1
(5.3)
(5.3)
0.0
0.0
61.3
61.3
Group’s share of profit for the year
before amortisation
Amortisation charge
Group’s share of profit for the year
Group’s share of total
comprehensive income
0.4
(0.9)
(0.5)
4.3
20.0
–
–
4.3
20.0
2.8
–
2.8
1.1
0.4
–
(0.9)
1.1
(0.5)
29.0
(1.8)
27.2
4.2
16.3
–
–
4.2
16.3
0.5
–
0.5
(1.1)
0.0
19.9
–
(0.8)
(0.8)
(1.1)
(0.8)
19.1
(0.5)
4.3
20.0
2.8
1.1
(0.5)
27.2
4.2
16.3
0.5
(1.1)
(0.8)
19.1
(b) Investments in associates measured at fair value
Where the Group holds units in pooled investment vehicles that give the Group significant influence, but not control, through participation in the
financial and operating policy decisions, the Group records such investments at fair value. Information about the Group’s principal associates
measured at fair value is shown below. The investments are recorded as financial assets within the Group’s statement of financial position.
2019
Schroder
Advanced Beta
Global Equity
Small and
Mid Cap
£m
Schroder Fusion
Managed
Defensive
£m
Schroder
Fusion
Portfolio 3
£m
Schroder
YEN Target
(Annual)
£m
Schroder
India Equity
£m
Schroder
Absolute Return
Emerging
Markets Debt
Portfolio LP
£m
Schroder ISF
Dynamic Indian
Income Bond
£m
53.0
–
53.0
13.0
12.7
12.7
UK
39%
15.2
–
15.2
–
–
–
26.2
–
26.2
–
–
–
9.9
–
9.9
0.5
0.5
0.5
UK
34%
UK
25%
Japan
34%
20.8
–
20.8
0.1
0.1
0.1
UK
28%
5.6
–
5.6
0.4
0.3
0.3
16.8
–
16.8
0.1
0.1
0.1
US Luxembourg
28%
21%
Current assets
Current liabilities
Total equity
Net income
Profit for the year
Total comprehensive income
Country of incorporation
Percentage owned by the Group
132
Schroders Annual Report and Accounts 2019 10. Associates and joint ventures continued
2018
Schroder Global
Multi-Factor
Equity Fund
£m
Schroder ISF
European
Alpha Focus
£m
Schroder
Fusion
Portfolio 3
£m
Schroder
YEN Target
(Annual)
£m
Sicredi – FI
Multimercado
Elite Credito
Privado LP
£m
Schroder
Absolute Return
Emerging
Markets Debt
Portfolio LP
£m
Current assets
Current liabilities
Total equity
Net income
Profit for the year
Total comprehensive income
841.7
(1.3)
840.4
19.5
16.8
16.8
86.8
–
86.8
(9.0)
(9.0)
(9.0)
Country of incorporation
Percentage owned by the Group
UK
Luxembourg
37%
19%
11. Property, plant and equipment
25.3
(4.4)
20.9
(0.2)
(0.2)
(0.2)
UK
29%
7.3
–
7.3
0.4
0.4
0.4
6.9
–
6.9
0.3
0.3
0.3
Japan
33%
Brazil
31%
7.1
–
7.1
0.1
0.1
0.1
US
22%
The Group’s property, plant and equipment provides the infrastructure to enable the Group to operate, and principally comprises leasehold
improvements, freehold land and buildings, fixtures and fittings and computer equipment. Assets are initially stated at cost, which includes
expenditure associated with acquisition. The cost of the asset is recognised in the income statement as a depreciation charge on a straight
line basis over the estimated useful life, with the exception of land as it is assumed to have an indefinite useful life.
2019
2018
Leasehold
improvements
£m
Land and
buildings
£m
Other
assets
£m
Total
£m
Leasehold
improvements
£m
Land and
buildings
£m
Cost
At 1 January
Exchange translation adjustments
Additions
Disposals
189.0
19.7
110.9
319.6
(1.9)
3.7
(3.2)
–
–
–
(1.5)
39.4
(3.4)
(3.4)
43.1
(6.6)
At 31 December
187.6
19.7
145.4
352.7
Accumulated depreciation
At 1 January
Exchange translation adjustments
Depreciation charge
Disposals
At 31 December
(22.3)
1.2
(14.3)
1.4
(34.0)
(0.6)
–
(0.3)
–
(0.9)
(47.3)
1.0
(16.6)
2.7
(60.2)
(70.2)
2.2
(31.2)
4.1
(95.1)
166.0
2.0
58.6
(37.6)
189.0
(50.5)
(1.3)
(8.1)
37.6
(22.3)
23.1
–
0.6
(4.0)
19.7
(0.1)
–
(0.5)
–
(0.6)
Other
assets
£m
72.4
1.9
51.9
(15.3)
110.9
(48.1)
(1.1)
(13.2)
15.1
(47.3)
Total
£m
261.5
3.9
111.1
(56.9)
319.6
(98.7)
(2.4)
(21.8)
52.7
(70.2)
Net book value at 31 December
153.6
18.8
85.2
257.6
166.7
19.1
63.6
249.4
Right-of-use assets (see note 12)
Property, plant and equipment
net book value at 31 December
394.7
652.3
133
Financial statementsSchroders Annual Report and Accounts 2019
Financial statements continued
Notes to the accounts continued
12. Leases
The Group’s lease arrangements primarily consist of operating leases relating to office space.
IFRS 16 Leases (IFRS 16) replaced IAS 17 Leases (IAS 17) on 1 January 2019 (see Presentation of the financial statements on page 167). Until
31 December 2018, in accordance with IAS 17, obligations under lease agreements were not recorded on the Group’s Consolidated
statement of financial position but were disclosed as commitments (see note 24). The Group has not restated comparative information.
The Group initially records a lease liability in the Group’s Consolidated statement of financial position reflecting the present value of the
future contractual cash flows to be made over the lease term, discounted using the Group’s incremental borrowing rate. A right-of-use (ROU)
asset is also recorded at the value of the lease liability plus any directly related costs and estimated dilapidation expenses and is presented
within property, plant and equipment (see note 11). Interest is accrued on the lease liability using the effective interest rate method to give a
constant rate of return over the life of the lease whilst the balance is reduced as lease payments are made. The ROU asset is depreciated
over the life of the lease as the benefit of the lease is consumed.
The Group considers whether the lease term should include options to extend or cancel the lease. Relevant factors that could create an
economic incentive to exercise the option are considered and the option is included if it is reasonably certain to be exercised. After the
commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control
and affects the likelihood that it will exercise (or not exercise) the option.
At 1 January
Exchange translation adjustments
Additions and remeasurements of lease obligations
Lease payments
Depreciation charge
Interest expense
At 31 December
2019
Right-of-use
assets
£m
Lease
liabilities
£m
411.9
(4.0)
27.1
–
(40.3)
–
394.7
418.3
(6.0)
27.1
(26.5)
–
12.4
425.3
The depreciation charge and interest expense relating to leases are recorded within operating expenses.
13. Goodwill and intangible assets
Intangible assets (other than software) arise when the Group acquires a business and the fair value paid exceeds the fair value of the net
tangible assets acquired. This premium reflects additional value that the Group determines to be attached to the business. Identifiable
acquired intangible assets relating to business combinations include technology, contractual agreements to manage client assets and gain
additional access to new or existing clients, geographies and brand names. Where such assets can be identified, they are classified as
acquired intangible assets and charged to the income statement over time.
Consideration paid to acquire a business in excess of the acquisition date fair value of net tangible and identifiable intangible assets is
known as goodwill. Goodwill is not charged to the income statement unless its value has diminished. Assessment of whether goodwill has
become impaired is based on the expected future returns of the relevant cash-generating unit (CGU) as a whole.
Software purchased and developed for use in the business is also classified as an intangible asset. The cost of purchasing and developing
software is taken to the income statement over time as an amortisation charge within operating expenses. The treatment is similar to
property, plant and equipment, and the asset is normally amortised on a straight line basis over three to five years, but can have an
estimated useful life of up to 10 years.
134
Schroders Annual Report and Accounts 2019 13. Goodwill and intangible assets continued
Cost
At 1 January
Exchange translation adjustments
Additions
Disposals
At 31 December
Accumulated amortisation
At 1 January
Exchange translation adjustments
Amortisation charge for the year
Disposals
At 31 December
2019
Acquired
intangible
assets
£m
Software
£m
Total
£m
Goodwill
£m
2018
Acquired
intangible
assets
£m
Software
£m
Total
£m
278.4
251.4
1,206.3
595.1
247.3
177.4
1,019.8
(3.6)
51.2
–
(2.0)
99.8
(8.6)
(15.9)
255.5
(17.5)
10.6
70.8
–
4.0
27.1
–
1.6
90.8
(18.4)
16.2
188.7
(18.4)
326.0
340.6
1,428.4
676.5
278.4
251.4
1,206.3
Goodwill
£m
676.5
(10.3)
104.5
(8.9)
761.8
–
–
–
–
–
(154.1)
(84.0)
(238.1)
1.5
(30.0)
(0.1)
1.0
(37.2)
7.9
2.5
(67.2)
7.8
(182.7)
(112.3)
(295.0)
–
–
–
–
–
(123.3)
(2.0)
(28.8)
–
(154.1)
(70.7)
(1.5)
(30.2)
18.4
(84.0)
(194.0)
(3.5)
(59.0)
18.4
(238.1)
Carrying amount at 31 December
761.8
143.3
228.3
1,133.4
676.5
124.3
167.4
968.2
Of the total goodwill, £556.6 million (2018: £492.0 million) is allocated to Asset Management and £205.2 million (2018: £184.5 million) is allocated
to Wealth Management. £66.1 million (2018: £65.0 million) of Wealth Management’s goodwill relates to Benchmark Capital.
The Group acquired £49.9 million (2018: £24.9 million) of intangible assets as a result of business combinations completed in 2019, £37.0 million
of which related to the acquisition of Blue Asset Management GmbH and BlueOrchard Finance AG in the Asset Management segment, and
£12.9 million of which related to five other business combinations within the Wealth Management segment. The Group also acquired
£1.3 million (2018: £2.2 million) of customer contracts through Benchmark Capital that were not considered to be business combinations.
Estimates and judgements
The Group estimates the fair value of intangible assets acquired at the acquisition date based on forecast profits, taking account of
synergies, derived from existing contractual arrangements. This assessment involves judgement in determining assumptions relating to
potential future revenues, profit margins, appropriate discount rates and the expected duration of client relationships. The difference
between the fair value of the consideration and the value of the identifiable assets and liabilities acquired, including intangible assets, is
accounted for as goodwill.
At each reporting date, the Group applies judgement to determine whether there is any indication that goodwill or an acquired intangible
asset may be impaired. If any indication exists and a full assessment determines that the carrying value exceeds the estimated recoverable
amount at that time, the assets are written down to their recoverable amount.
The recoverable amount of goodwill is determined using a discounted cash flow model. Any impairment is recognised immediately in the
income statement and cannot be reversed. Goodwill acquired in a business combination is allocated to the CGUs that are expected to
benefit from that business combination. For all relevant acquisitions, it is the Group’s judgement that the lowest level of CGU used to
determine impairment is segment level for Asset Management. The Benchmark Capital business within Wealth Management is assessed
separately from the rest of Wealth Management.
The recoverable amount of acquired intangible assets is the greater of fair value less costs to sell and the updated discounted valuation
of the remaining net residual income stream. Any impairment is recognised immediately in the income statement but may be reversed
if relevant conditions improve.
The recoverable amounts of the CGUs are determined from value-in-use calculations applying a discounted cash flow model using the
Group’s five-year strategic business plan cash flows. The key assumptions on which the Group’s cash flow projections are based include
long-term market growth rates of 2% per annum (2018: 2%), a pre-tax discount rate of 10% (2018: 11%), expected fund flows and expected
changes to margins. The results of the calculations indicate that goodwill is not impaired.
135
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
13. Goodwill and intangible assets continued
The sensitivity of the carrying amounts of goodwill to the methods and assumptions used in estimating the recoverable amounts
of the CGUs is small. This is due to the amount of goodwill allocated to the relevant CGU relative to the size of the relevant future
profitability estimate.
Movements in the growth rate and/or the discount rate of 1% would not lead to any impairment. A comparison of actual results to the
projected results used to assess goodwill impairment in prior years shows that the Group would have recognised no changes (2018: nil)
to its goodwill asset in the year as a result of inaccurate projections.
14. Deferred tax
Deferred tax assets and liabilities represent amounts of tax that will become recoverable and payable in future accounting periods. They
arise as a result of temporary differences, where the time at which profits and losses are recognised for tax purposes differs from the time
at which the relevant transaction is recorded. A deferred tax asset represents a tax reduction that is expected to arise in a future period
based on past transactions. A deferred tax liability represents taxes that will become payable in a future period as a result of current or
prior year transactions.
Deferred tax liabilities also arise on certain acquisitions where the amortisation of the acquired intangible asset does not result in a tax
deduction. The deferred tax liability is established on acquisition and is released to the income statement to match the intangible asset
amortisation.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the year end date.
2019
2018
Accelerated
capital
allowances
£m
Deferred
employee
awards
£m
Pension
schemes
£m
Other net
temporary
differences
£m
Total
£m
Accelerated
capital
allowances
£m
Deferred
employee
awards
£m
Pension
schemes
£m
Other net
temporary
differences
£m
At 1 January
(2.1)
75.6
(26.1)
(19.7)
27.7
0.1
83.7
(27.4)
(17.2)
Total
£m
39.2
Restatement on adoption of new
accounting standards1
Income statement credit/(charge)
Income statement charge due to changes
in tax rates
Credit to other comprehensive income
Credit/(charge) taken to equity
Business combinations (see note 29)
Exchange translation adjustments
At 31 December
–
(4.3)
0.6
–
–
–
0.1
(5.7)
–
4.4
(4.0)
–
2.6
(0.1)
(1.2)
–
(0.3)
0.1
4.0
–
–
–
0.6
1.8
0.3
(1.5)
–
0.6
1.6
(3.0)
2.5
2.6
(9.9)
(10.0)
(0.2)
(1.3)
77.3
(22.3)
(28.6)
20.7
–
–
–
1.7
1.7
(2.0)
(3.7)
(0.7)
(1.6)
(8.0)
–
–
–
–
(0.2)
(2.1)
–
–
(5.9)
–
1.5
–
2.0
–
–
–
–
0.8
–
(3.8)
0.4
–
2.8
(5.9)
(3.8)
1.7
75.6
(26.1)
(19.7)
27.7
1. Restated following the adoption of IFRS 16 on 1 January 2019, see Presentation of the financial statements on page 167. The 2018 restatement reflects the adoption
of IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’.
A deferred tax asset of £19.0 million (2018: £18.8 million) relating to realised and unrealised capital losses has not been recognised as there
is insufficient evidence that there will be sufficient taxable gains in the future against which the deferred tax asset could be utilised.
Deferred tax assets of £9.9 million (2018: £8.0 million) relating to other losses and other temporary differences have not been recognised as
there is insufficient evidence that there will be sufficient taxable profits in the future against which these deferred tax assets could be utilised.
After offsetting deferred tax assets and liabilities where appropriate within territories, the net deferred tax asset comprises:
2019
£m
36.9
(16.2)
20.7
2018
£m
42.8
(15.1)
27.7
Deferred tax assets
Deferred tax liabilities
136
Schroders Annual Report and Accounts 2019 15. Unit-linked liabilities and assets backing unit-linked liabilities
The Group operates a unit-linked life assurance business through the wholly-owned subsidiary Schroder Pension Management Limited (the
Life Company). The Life Company provides investment products through a life assurance wrapper. The investment products do not provide
cover for insurance risk and are therefore recognised and accounted for as financial instruments and presented as financial liabilities due to
Life Company investors (policyholders) within unit-linked liabilities.
The investment product is almost identical to a unit trust. As it is a life assurance product, the contractual rights and obligations of the
investments remain with the Group and the AUM is therefore included on the Group’s statement of financial position, together with the
liability to investors. The Group earns fee income from managing the investment, which is included in revenue.
Financial assets and liabilities held by the Life Company are measured at FVTPL. Other balances include cash and receivables, which are
measured at amortised cost (see note 9). The Life Company’s assets are regarded as current assets as they represent the amount available
to Life Company investors (or third party investors in consolidated funds) who are able to withdraw their funds on call, subject to certain
restrictions in the case of illiquidity. Gains and losses from assets and liabilities held to cover investor obligations are attributable to investors
in the Life Company or third party investors in the funds. As a result, any gain or loss is offset by a change in the obligation to investors.
Financial liabilities due to Life Company investors
Financial liabilities due to third parties1
2019
£m
9,814.1
2,611.8
2018
£m
8,811.3
2,444.6
12,425.9
11,255.9
1. In accordance with accounting standards, the Group is deemed to hold a controlling interest in certain funds as a result of the investments held by the Life
Company. This results in all of the assets and liabilities of those funds being consolidated within the Group’s Consolidated statement of financial position and the
third party interest in the fund being recorded as a financial liability due to third party investors.
The Group has no primary exposure to market risk, credit risk or liquidity risk in relation to the investments due to Life Company investors. The
risks and rewards associated with its investments are normally borne by the investors in the Life Company’s investment products or third party
investors in the funds and not by the Life Company itself.
Fair value measurements of Life Company financial assets and liabilities
Each of the Life Company’s financial assets and liabilities has been categorised using a fair value hierarchy as shown below. These levels are
based on the degree to which the fair value is observable and are defined in note 9.
Assets backing unit-linked liabilities
Unit-linked liabilities
Assets backing unit-linked liabilities
Unit-linked liabilities
Level 1
£m
8,724.3
12,310.5
Level 1
£m
6,832.0
10,992.4
2019
Level 3
£m
29.5
–
2018
Level 3
£m
37.3
–
Level 2
£m
2,596.2
56.5
Level 2
£m
3,573.4
64.4
Not at
fair value
£m
1,075.9
58.9
Not at
fair value
£m
813.2
199.1
Total
£m
12,425.9
12,425.9
Total
£m
11,255.9
11,255.9
The fair value of financial instruments not held at fair value approximates to their carrying value.
The types of investments found in each of the levels 1 and 3 for the Life Company are the same as those listed for the non-Life Company
instruments in note 9. Level 2 investments principally comprise commercial paper, certificates of deposit, forward foreign exchange contracts
and certain debt securities. No financial assets were transferred from level 1 to level 2 during the year.
Movements in financial assets categorised as level 3 during the year were:
At 1 January
Exchange translation adjustments
Gains recognised in the income statement
Additions
Disposals
At 31 December
2019
£m
37.3
(1.8)
2.7
1.4
(10.1)
29.5
2018
£m
54.6
0.3
10.7
–
(28.3)
37.3
137
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
16. Trade and other payables
Trade and other payables includes amounts the Group is due to pay in the normal course of business, accruals and deferred income, being
fees received in advance of services provided as well as deferred cash awards and bullion deposits by customers. Trade and other payables,
other than deferred cash awards and bullion deposits, are recorded initially at fair value and subsequently at amortised cost (see note 9).
Amounts due to the Group in the normal course of business are made up of creditors and accruals. Accruals represent costs, including
remuneration, that are not yet billed or due for payment, but for which the goods or services have been received. Deferred cash awards,
being deferred employee remuneration payable in cash, and bullion deposits by customers are recorded at fair value.
Trade and other payables at amortised cost:
Settlement accounts
Trade creditors
Social security
Accruals and deferred income
Other payables
Trade and other payables at fair value:
Deferred cash awards
Bullion deposits by customers
Non-current
£m
2019
Current
£m
Total
£m
Non-current
£m
2018
Current
£m
–
–
24.1
24.2
0.2
48.5
83.4
–
83.4
145.0
15.7
65.8
459.3
25.9
711.7
72.7
5.4
78.1
145.0
15.7
89.9
483.5
26.1
760.2
156.1
5.4
161.5
–
–
17.6
26.9
13.2
57.7
73.2
–
73.2
177.7
17.3
58.3
512.8
20.2
786.3
62.3
9.1
71.4
Total
£m
177.7
17.3
75.9
539.7
33.4
844.0
135.5
9.1
144.6
131.9
789.8
921.7
130.9
857.7
988.6
The fair value of trade and other payables held at amortised cost approximates to their carrying value. The fair value of bullion deposits by
customers is derived from level 1 inputs (see note 9). The fair value of deferred cash awards is derived from level 1 inputs, being equal to the fair
value of the units in funds to which the employee award is linked.
The Group’s trade and other payables contractually mature in the following time periods:
Less than 1 year1
1 – 2 years
2 – 5 years
More than 5 years
2019
£m
789.8
59.6
72.1
0.2
2018
£m
857.7
48.7
68.5
13.7
131.9
130.9
921.7
988.6
1. Settlement accounts are generally settled within four working days and trade creditors have an average settlement period of 21 working days
(2018: 22 working days).
138
Schroders Annual Report and Accounts 2019 17. Financial liabilities
The Group’s financial liabilities principally comprise deposits by Wealth Management clients and banking counterparties. They also include
derivatives held for client facilitation or interest rate matching in Wealth Management (see note 19), and the hedging of risk exposures
within investment capital. Other financial liabilities at fair value mainly comprise liabilities that arise from financial obligations in respect
of carried interest, contingent consideration and other financial liabilities arising from acquisitions completed by the Group, and third party
interests in consolidated funds. Consolidation occurs when the Group is deemed to control a fund, usually in respect of Life Company or
seed capital investments. When a fund is consolidated, the Group accounts for the fund in its statement of financial position as if it were
wholly-owned by the Group, but records an additional liability representing the fair value of the proportion of the fund owned by third-party
investors. Where the investment is held by the Life Company, the fair value of the proportion of the fund owned by third-party investors is
shown as part of unit-linked liabilities (see note 15). Each instrument has been categorised within one of three levels using a fair value
hierarchy (see note 9).
Financial liabilities at amortised cost:
Client accounts
Deposits by banks
Other financial liabilities
Financial liabilities at fair value through profit or loss:
Derivative contracts (see note 19)
Other financial liabilities
Financial liabilities at amortised cost:
Client accounts
Deposits by banks
Other financial liabilities
Financial liabilities at fair value through profit or loss:
Derivative contracts (see note 19)
Other financial liabilities
2019
Level 1
£m
Level 2
£m
Level 3
£m
Not at
fair value
£m
Total
£m
–
–
–
–
3.1
187.6
190.7
–
–
–
–
39.6
–
39.6
–
–
–
–
–
155.1
155.1
3,041.3
3,041.3
97.1
7.3
97.1
7.3
3,145.7
3,145.7
–
–
–
42.7
342.7
385.4
190.7
39.6
155.1
3,145.7
3,531.1
2018
Level 1
£m
Level 2
£m
Level 3
£m
Not at
fair value
£m
Total
£m
–
–
–
–
3.2
222.6
225.8
–
–
–
–
18.9
–
18.9
–
–
–
–
–
154.4
154.4
3,235.5
3,235.5
19.8
6.2
19.8
6.2
3,261.5
3,261.5
–
–
–
22.1
377.0
399.1
225.8
18.9
154.4
3,261.5
3,660.6
For the maturity profiles of client accounts, deposits by banks and derivative contracts see notes 19 and 20.
The fair value of financial liabilities held at amortised cost approximates to their carrying value.
Current
Non-current
2019
£m
3,386.8
144.3
3,531.1
2018
£m
3,527.0
133.6
3,660.6
139
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
17. Financial liabilities continued
Estimates and judgements
The carrying value of financial liabilities may involve estimation or be derived from readily available sources. Financial liabilities have been
categorised using a fair value hierarchy that reflects the extent of estimates and judgements used in the valuation (see note 9). The Group’s
financial liabilities categorised as level 3 principally consist of obligations arising from contingent consideration and other third party
liabilities related to carried interest arrangements and other financial liabilities arising from prior acquisitions completed by the Group.
Information about the estimates and judgements made in determining the fair value of carried interest payable is set out in note 2.
The carrying values of level 3 financial liabilities are typically derived from an estimate of the expected future cash flows required to settle
the liability. These estimates reflect the projected performance of the acquired businesses for a number of years into the future.
Movements in financial liabilities categorised as level 3 during the year were:
At 1 January
Exchange translation adjustments
Net (gain)/loss recognised in the income statement
Additions
Disposals and settlements
At 31 December
18. Provisions and contingent liabilities
2019
£m
154.4
(2.9)
(12.0)
54.4
(38.8)
155.1
2018
£m
72.4
4.4
38.1
47.4
(7.9)
154.4
Provisions are liabilities where there is uncertainty over the timing or amount of settlement and therefore usually require the use of
estimates. They are recognised when three conditions are fulfilled: when the Group has a present obligation (legal or constructive) as a
result of a past event, when it is probable that the Group will incur a loss in order to settle the obligation and when a reliable estimate can be
made of the amount of the obligation. They are recorded at the Group’s best estimate of the cost of settling the obligation. Any differences
between those estimates and the amounts for which the Group actually becomes liable are taken to the income statement as additional
charges where the Group has underestimated and credits where the Group has overestimated. Where the estimated timing and settlement
is longer term, the amount is discounted using a rate reflecting specific risks associated with the provision.
Contingent liabilities are potential liabilities, which could include a dependency on events not within the Group’s control, but where there is a
possible obligation. Contingent liabilities are only disclosed where significant and are not included within the statement of financial position.
Dilapidations
£m
Legal, regulatory
and other
£m
5.7
11.8
(0.3)
(0.8)
0.4
(1.9)
–
14.9
25.7
–
–
(2.1)
–
(7.5)
1.2
17.3
Total
£m
31.4
11.8
(0.3)
(2.9)
0.4
(9.4)
1.2
32.2
At 1 January 2019
Restatement on adoption of IFRS 16
Exchange translation adjustments
Provisions utilised
Additional provisions charged
Unused amounts reversed
Acquired
At 31 December 2019
140
Schroders Annual Report and Accounts 2019 18. Provisions and contingent liabilities continued
Current – 2019
Non-current – 2019
Current – 2018
Non-current – 2018
The Group’s provisions are expected to mature in the following time periods:
Less than 1 year
1 – 2 years
2 – 3 years
3 – 4 years
4 – 5 years
More than 5 years
Dilapidations
£m
Legal, regulatory
and other
£m
0.7
14.2
14.9
2.6
3.1
5.7
3.2
14.1
17.3
9.6
16.1
25.7
2019
£m
3.9
15.6
0.1
–
0.8
11.8
28.3
Total
£m
3.9
28.3
32.2
12.2
19.2
31.4
2018
£m
12.2
17.1
0.4
–
0.2
1.5
19.2
The provision for dilapidations covers lease commitments with a weighted average maturity of 16 years (2018: two years).
Legal and regulatory obligations associated with the Group’s business arise from past events that are estimated to crystallise mainly within two
years (2018: two years). These matters are ongoing.
32.2
31.4
Estimates and judgements
The timing and amount of settlement of each legal claim or potential claim, regulatory matter and constructive obligation is uncertain.
The Group applies judgement to determine whether a provision is required. The Group performs an assessment of the timing and amount
of each event and reviews this assessment periodically. For some provisions there is greater certainty as the cash flows have largely been
determined. Potential legal claims, regulatory related costs and other obligations to third parties arise as a consequence of normal business
activity. They can arise from actual or alleged breaches of obligations and may be covered by the Group’s insurance arrangements, but
subject to insurance excess. In certain circumstances, legal and regulatory claims can arise despite there being no error or breach. The
Group’s risk management and compliance procedures are designed to mitigate, but are not able to eliminate, the risk of losses occurring.
Where such claims and costs arise there is often uncertainty over whether a payment will be required and estimation is required in
determining the quantum and timing of that payment. As a result, there is also uncertainty over the timing and amount of any insurance
recovery, although this does not change the likelihood of insurance cover being available, where applicable. The Group makes periodic
assessments of all cash flows, including taking external advice where appropriate, to determine an appropriate provision. Some matters
may be settled through commercial negotiation as well as being covered in whole or in part by the Group’s insurance arrangements. The
Group has made provisions based on the reasonable expectation of likely outflows. The inherent uncertainty in such matters and the results
of negotiations and insurance cover may result in different outcomes.
At 31 December 2019, there are no key judgements or estimates that would result in any additional material provisions being recognised
or any material contingent liabilities being disclosed in the financial statements (31 December 2018: none). The provisions included in the
financial statements at 31 December 2019 are based on estimates of reasonable ranges of likely outcomes, applying assumptions regarding
the probability of payments being due and the settlement value. The aggregate reasonable ranges have been assessed as not materially
different to the carrying values.
141
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
19. Derivative contracts
(a) The Group’s use of derivatives
The Group holds derivatives for risk management, client facilitation and within its investment portfolios to provide exposure to market
returns. The Group most commonly uses forward foreign exchange contracts, where it agrees to buy or sell specified amounts of a named
currency at a future date, allowing the Group effectively to fix exchange rates so that it can avoid unpredictable gains and losses on financial
instruments in foreign currencies. The Group uses equity contracts to hedge market-related gains and losses on its seed capital investments
where the purpose of investing is to help establish a new product rather than gain additional market exposure. Interest rate contracts are
used to hedge exposures to fixed or floating rates of interest.
The Group designates certain derivatives as hedges of a net investment in a foreign operation. In these scenarios, and where relevant
conditions are met, hedge accounting is applied and the Group formally documents the relationship between the derivative and any hedged
item, its risk management objectives and its strategy for undertaking the various hedging transactions. It also documents its assessment,
both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in
offsetting changes in the fair value of hedged items. In respect of hedges of a net investment in a foreign operation, the portion of the gain
or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in other comprehensive income. The
Group’s net investment hedges are generally fully effective, but any ineffective portion that may arise is recognised in the income statement.
On disposal of the foreign operation, the cumulative gain or loss on the hedging instrument recognised directly in other comprehensive
income is transferred to the income statement.
Risk management: the Group actively seeks to limit and manage its exposures to risk where that exposure is not desired by the Group.
This may take the form of unwanted exposures to a particular currency, type of interest rate or other price risk. By entering into derivative
contracts, the Group is able to mitigate or eliminate such exposures. The principal risk that the Group faces through such use of derivative
contracts is credit risk.
Client facilitation: the Group’s Wealth Management entities are involved in providing portfolio management, banking and investment advisory
services, primarily to private clients. In carrying out this business, they transact as agent or as principal in financial assets and liabilities (including
derivatives) in order to facilitate client portfolio requirements. Wealth Management’s policy is to hedge, as appropriate, exchange rate and
interest rate risk on its client facilitation positions. This does not eliminate credit risk.
For details of how the Group manages its exposure to credit risk, see below and note 20.
(b) Derivatives used by the Group
Forwards are contractual obligations to buy or sell foreign currency on a future date at a specified exchange rate. The maximum exposure to
credit risk is represented by the fair value of the contracts.
Currency and interest rate swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of
currencies or interest rates (for example, fixed rate for floating rate) or a combination of all these (i.e. cross-currency interest rate swaps). No
exchange of principal takes place, except in the case of certain currency swaps. The Group’s credit risk represents the potential cost of replacing
the swap contracts if counterparties fail to perform their obligations. This risk is monitored on an ongoing basis with reference to the current fair
value, the proportion of the notional amount of the contracts, and the liquidity of the market. To control the level of credit risk taken, the Group
assesses counterparties in accordance with its internal policies and procedures.
Foreign exchange, equity and interest rate options are contractual agreements under which the seller grants the purchaser the right, but not the
obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specific amount of a foreign currency or a
financial instrument at a predetermined price. The seller receives a premium from the purchaser and assumes foreign exchange, equity or
interest rate risk. Options may be either exchange-traded or negotiated between the Group and a customer or market counterparty.
The Group is exposed to credit risk on purchased options only, and only to the extent of their carrying amount, which is their fair value.
Futures contracts are standardised contracts to buy or sell specified assets for an agreed price at a specified future date. Contracts are
negotiated at a futures exchange, which acts as an intermediary between the two parties. For futures contracts, the maximum exposure to credit
risk is represented by the fair value of the contracts.
142
Schroders Annual Report and Accounts 2019 19. Derivative contracts continued
(b) Derivatives used by the Group continued
The fair value of derivative instruments becomes favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market interest
rates, indices, foreign exchange rates and other relevant variables relative to their terms. The aggregate contractual amount of derivative
financial instruments held, the extent to which instruments are favourable or unfavourable, and thus the aggregate fair values of derivative
financial assets and liabilities, can fluctuate significantly from time to time. The fair values are set out below:
Forward foreign exchange contracts
Equity contracts
Net-settled derivative contracts1 maturing/repricing2 in:
Less than 1 year
1 – 3 years
3 – 5 years
More than 5 years
Gross-settled derivatives3 maturing/repricing2 in less than 1 year:
Gross inflows
Gross outflows
Difference between future contractual cash flows and fair value
1. Interest rate and equity contracts.
2. Whichever is earlier.
3. Forward foreign exchange contracts.
2019
2018
Assets
£m
49.1
10.2
59.3
Liabilities
£m
(29.1)
(13.6)
(42.7)
Assets
£m
9.0
29.3
38.3
Liabilities
£m
(13.0)
(9.1)
(22.1)
2019
2018
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
5.9
4.3
–
–
(13.6)
–
–
–
20.3
9.0
–
–
(9.1)
–
–
–
10.2
(13.6)
29.3
(9.1)
1,118.7
(1,082.0)
12.4
49.1
322.3
(337.2)
(14.2)
(29.1)
852.7
(846.9)
3.2
9.0
624.0
(627.5)
(9.5)
(13.0)
59.3
(42.7)
38.3
(22.1)
143
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
20. Financial instrument risk management
The Group Capital Committee (GCC) is responsible for the management of the Group’s capital and sets objectives for how it is deployed. This
note explains how the Group manages its capital, setting out the nature of the risks the Group faces as a result of its operations, and how
these risks are quantified and managed.
The Group is exposed to different forms of financial instrument risk including: (i) the risk that money owed to the Group will not be received
(credit risk); (ii) the risk that the Group may not have sufficient cash available to pay its creditors as they fall due (liquidity risk); and (iii) the
risk that the value of assets will fluctuate as a result of movements in factors such as market prices, interest rates and foreign exchange
rates (market risk). The management of such risks is embedded in managerial responsibilities fundamental to the wellbeing of the Group.
The Group’s primary exposure to financial instrument risk is derived from the financial instruments that it holds as principal. In addition,
due to the nature of the business, the Group’s exposure extends to the impact on investment management and other fees that are
determined on the basis of a percentage of AUM and are therefore impacted by the financial instrument risk exposure of our clients – the
secondary exposure. This note deals only with the direct or primary exposure of the risks from the Group’s holding of financial instruments
(see the Key risks and mitigations report on page 44).
The Life Company provides investment products through a life assurance wrapper. The financial risks of these products are largely borne by
the third party investors, consistent with other investment products managed by the Group. However, since the Life Company, which is a
subsidiary, issues the investment instrument and holds the relevant financial assets, both the investments and the third party obligations
are recorded in the statement of financial position. Financial instrument risk management disclosures in respect of the Life Company’s
financial instruments are set out in note 15.
(a) Capital
The Group’s approach to capital management is to maintain a strong capital position to enable us to invest in the future of the Group, in line
with our strategy, and to support the risks inherent in conducting our business. Capital management is an important part of our risk
management framework and is underpinned by our Internal Capital Adequacy Assessment Process (ICAAP). The ICAAP considers the relevant
current and future risks to the business and the capital we consider necessary to support these risks. We actively monitor our capital base to
ensure we maintain sufficient and appropriate capital resources to cover the relevant risks to the business and to meet consolidated and local
regulatory and working capital requirements.
Our lead regulator is the Prudential Regulation Authority (PRA) as the Group includes an entity with a UK banking licence. We are required to
maintain adequate capital resources to meet our Total Capital Requirement (TCR) of £858 million (2018: £827 million). The TCR incorporates our
Pillar 1 regulatory capital requirement of £679 million (2018: £605 million). In addition to the TCR of our banking group, we are required to hold
additional capital of £269 million (2018: £194 million) in respect of our insurance companies and EU regulatory buffers. The Group’s overall
regulatory capital requirement was £1,127 million at 31 December 2019 (2018: £1,021 million).
In managing our capital position, we consider the composition of our capital base, which consists of: working capital deployed to support the
Group’s general operating activities and regulatory requirements; investment capital held in excess of these operating requirements; and other
items that are not investible or otherwise available to meet our operating or regulatory requirements.
The table below shows the components of our capital position:
Working capital – regulatory and other
Working capital – seed and co-investment
Investment capital – liquid
Investment capital – illiquid
Other items
Total equity
2019
£m
1,216
578
408
148
1,498
3,848
2018
£m
1,341
535
465
165
1,115
3,621
(i) Working capital
The Group’s policy is for subsidiaries to hold sufficient working capital to meet their regulatory and other operating requirements.
Local regulators oversee the activities of, and impose minimum capital and liquidity requirements on, the Group’s operating entities.
At 31 December 2019, the Group complied with all externally imposed regulatory capital requirements.
Working capital is also deployed through certain subsidiaries to support new investment strategies and growth opportunities and to co-invest
alongside the Group’s clients.
144
Schroders Annual Report and Accounts 2019 20. Financial instrument risk management continued
(a) Capital continued
(ii) Investment capital
Available capital held in excess of working capital requirements is transferred to investment capital. Investment capital is managed with the aim
of achieving a low-volatility return. It is mainly held in investment grade corporate bonds and funds managed by the Group. Liquid investments
are available to support the organic development of existing and new business strategies and to respond to other investment and growth
opportunities as they arise, such as acquisitions. Investment capital also includes certain commercial private equity investments and illiquid
legacy investments.
(iii) Other items
Other items comprises assets that are not investible or available to meet the Group’s general operating or regulatory requirements. It includes
assets that are actually or potentially inadmissible for regulatory capital purposes, principally goodwill, intangible assets and pension scheme
surplus.
The tables below provide a detailed breakdown of the Group’s capital in accordance with IFRS 9:
Financial
instruments at
amortised cost
£m
Financial assets
at fair value
through other
comprehensive
income
£m
2019
Financial
instruments
at fair value
through
profit or loss1
£m
Non-financial
instruments
£m
Assets
Cash and cash equivalents
Trade and other receivables
Financial assets:
Loans and advances to banks
Loans and advances to clients
Debt securities
Pooled investment vehicles
Equities
Derivatives
Associates and joint ventures
Property, plant and equipment
Goodwill and intangible assets
Deferred tax
Retirement benefit scheme surplus
Assets backing unit-linked liabilities
Total assets
Liabilities
Trade and other payables
Financial liabilities
Lease liabilities
Current tax
Provisions
Deferred tax
Retirement benefit scheme deficits
Unit-linked liabilities
Total liabilities
Capital
2,660.3
742.3
350.2
398.5
67.0
–
–
–
–
–
–
–
–
1,075.9
5,294.2
670.3
3,145.7
425.3
–
–
–
–
58.9
4,300.2
–
–
–
–
916.9
–
–
–
–
–
–
–
–
–
916.9
–
–
–
–
–
–
–
–
–
–
–
–
4.6
223.6
670.4
325.9
59.3
–
–
–
–
–
11,350.0
12,633.8
156.1
385.4
–
–
–
–
–
12,367.0
12,908.5
Total
£m
2,660.3
806.7
350.2
403.1
1,207.5
670.4
325.9
59.3
398.0
652.3
–
64.4
–
–
–
–
–
398.0
652.3
1,133.4
1,133.4
36.9
136.3
–
2,421.3
95.3
–
–
54.1
32.2
16.2
12.2
–
210.0
36.9
136.3
12,425.9
21,266.2
921.7
3,531.1
425.3
54.1
32.2
16.2
12.2
12,425.9
17,418.7
3,847.5
1. Financial assets at fair value through profit or loss includes £11,391.8 million of assets that are designated at fair value through profit or loss and £1,242.0 million
that are mandatorily measured at fair value through profit or loss. Financial liabilities at fair value through profit or loss includes £12,823.2 million of liabilities that
are designated at fair value through profit or loss and £85.3 million that are mandatorily measured at fair value through profit or loss.
145
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
20. Financial instrument risk management continued
(a) Capital continued
Assets
Cash and cash equivalents
Trade and other receivables
Financial assets:
Loans and advances to banks
Loans and advances to clients
Debt securities
Pooled investment vehicles
Equities
Derivatives
Associates and joint ventures
Property, plant and equipment
Goodwill and intangible assets
Deferred tax
Retirement benefit scheme surplus
Assets backing unit-linked liabilities
Total assets
Liabilities
Trade and other payables
Financial liabilities
Current tax
Provisions
Deferred tax
Retirement benefit scheme deficits
Unit-linked liabilities
Total liabilities
Capital
2018
Financial assets
at fair value
through other
comprehensive
income
£m
Financial
instruments at fair
value through
profit or loss1
£m
Financial
instruments at
amortised cost
£m
Non-financial
instruments
£m
2,683.4
696.8
384.2
572.6
139.1
–
–
–
–
–
–
–
–
813.2
5,289.3
768.1
3,261.5
–
–
–
–
199.1
4,228.7
–
–
–
–
929.3
–
–
–
–
–
–
–
–
–
929.3
–
–
–
–
–
–
–
–
–
–
–
2.4
369.0
700.4
219.6
38.3
–
–
–
–
–
10,442.7
11,772.4
135.5
399.1
–
–
–
–
11,056.8
11,591.4
–
52.1
–
–
–
–
–
–
175.2
249.4
968.2
42.8
155.6
–
1,643.3
85.0
–
44.2
31.4
15.1
17.3
–
193.0
Total
£m
2,683.4
748.9
384.2
575.0
1,437.4
700.4
219.6
38.3
175.2
249.4
968.2
42.8
155.6
11,255.9
19,634.3
988.6
3,660.6
44.2
31.4
15.1
17.3
11,255.9
16,013.1
3,621.2
1. Financial assets at fair value through profit or loss includes £10,475.6 million of assets that are designated at fair value through profit or loss and £1,296.8 million
that are mandatorily measured at fair value through profit or loss. Financial liabilities at fair value through profit or loss includes £11,501.9 million of liabilities that
are designated at fair value through profit or loss and £89.5 million that are mandatorily measured at fair value through profit or loss.
(b) Credit risk, liquidity risk and market risk
The Group is exposed to credit, liquidity and market risk as a result of the financial instruments it holds. Settlement of financial instruments
(on both a principal and agency basis) also gives rise to operational risk. The Group’s risk management framework is critical to effective
management of these risks and considerable resources are dedicated to this area. Risk management is the direct responsibility of the Board,
with responsibility for oversight delegated to the Audit and Risk Committee. The Group applies the three lines of defence model to risk
management, which includes financial instrument risk. More details on the risk management framework and approach are set out in the Key
risks and mitigations report and the Audit and Risk Committee report on pages 44 and 66 respectively.
(i) Credit risk
Credit risk is the risk that a counterparty to a financial instrument, loan or commitment will cause the Group financial loss by failing to discharge
their obligations. For this purpose, the impact on fair value of a credit loss arising from credit spread price changes in a portfolio of investments
is excluded. This risk is addressed within pricing risk.
146
Schroders Annual Report and Accounts 2019 20. Financial instrument risk management continued
(b) Credit risk, liquidity risk and market risk continued
(i) Credit risk continued
The Group has exposure to credit risk from its normal activities where it is exposed to the risk that a counterparty will be unable to pay, in full,
amounts when due. The Group carefully manages its exposure to credit risk by: approving lending policies that specify the type of acceptable
collateral and minimum lending margins; setting limits for exposures to individual counterparties and sectors; and by taking security. The
Group’s maximum exposure to credit risk is represented by the gross carrying value of its financial assets.
Externally published credit ratings are indicators of the level of credit risk associated with a counterparty. A breakdown of the Group’s relevant
financial assets held with rated and unrated counterparties is set out below:
Cash and cash equivalents
Loans and advances to banks
Debt securities
Credit rating:
AAA
AA+
AA
AA-
A+
A
A-
BBB+ and lower
Not rated
2019
£m
320.9
16.4
2018
£m
374.3
0.9
1,072.9
1,148.0
342.2
446.7
318.2
117.3
24.0
1.7
247.6
489.6
249.8
161.7
7.1
4.4
2019
£m
–
8.5
26.4
125.0
157.4
24.1
8.8
–
–
2018
£m
–
–
27.0
36.8
256.6
42.9
20.9
–
–
2019
£m
172.3
9.2
418.8
91.7
98.4
60.7
59.1
186.3
111.0
2018
£m
356.5
12.6
209.6
214.0
95.6
142.7
78.8
270.3
57.3
2,660.3
2,683.4
350.2
384.2
1,207.5
1,437.4
Expected credit losses are calculated on all of the Group’s financial assets that are measured at amortised cost and all debt instruments that are
measured at fair value through other comprehensive income. Factors considered in determining whether a default has taken place include how
many days past the due date a payment is, deterioration in the credit quality of a counterparty, and knowledge of specific events that could
influence a counterparty’s ability to pay.
A three stage model is used for calculating expected credit losses, which requires financial assets to be assessed as:
– Performing (stage 1) – Financial assets where there has been no significant increase in credit risk since original recognition;
– Under-performing (stage 2) – Financial assets where there has been a significant increase in credit risk since initial recognition, but no default;
or,
– Non-performing (stage 3) – Financial assets that are in default.
For financial assets in stage 1, expected credit losses are calculated based on the credit losses that are expected to be incurred over the following
12-month period. For financial assets in stages 2 and 3, expected credit losses are calculated based on credit losses expected to be incurred over
the life of the instrument. The Group applies the simplified approach to calculate expected credit losses for trade and other receivables. Under
this approach, instruments are not categorised into three stages and expected credit losses are calculated based on the life of the instrument.
Wealth Management activities
All client credit requests are presented to the relevant Wealth Management approval authorities and counterparty exposures are monitored
daily against limits. Loans, overdrafts and advances to clients, as well as certain derivative positions, are secured on a range of assets including
real estate (both residential and commercial), cash, client portfolios and life insurance policies.
The Group does not usually provide loans, overdrafts or advances to clients on an unsecured basis. Where disposal of non-cash collateral is
required, in the event of default, the terms and conditions relevant to the specific contract and country will apply. Portfolios held as collateral are
marked to market daily and positions compared to clients’ exposures. Credit limits are set following an assessment of the market value and
lending value of each type of collateral, depending on the perceived risk associated with the collateral. Clients are contacted if these limits are
expected to be or are breached, or if collateral is not sufficient to cover the outstanding exposure.
The collateral accepted by the Group includes certain investment-grade securities that can be sold or repledged without default of the provider.
At 31 December 2019, the fair value of collateral that could be sold or repledged but had not been, relating solely to these arrangements, was
£632.4 million (2018: £497.4 million).
Debt securities held within the Wealth Management treasury book are mainly unsecured. Policies covering various counterparty and market risk
limits are set and monitored by the relevant Wealth Management asset and liability management committees. All instruments held within the
Wealth Management treasury book have an investment grade credit rating.
147
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
20. Financial instrument risk management continued
(b) Credit risk, liquidity risk and market risk continued
(i) Credit risk continued
Wealth Management takes a conservative approach to its treasury investments, placing them with, or purchasing debt securities issued by,
UK and overseas banks and corporates, central banks, supranational banks and sovereigns.
Expected credit losses on financial assets at amortised cost within the Wealth Management entities at 31 December 2019 were £0.3 million
(2018: £0.4 million). Loans and advances to clients includes no under-performing (stage 2) loans (2018: £1.8 million) and £1.6 million of non-
performing (stage 3) loans (2018: £0.2 million) giving rise to nil and £0.2 million of expected credit losses respectively (2018: £0.1 million and
£0.2 million respectively). All other financial assets at amortised cost (excluding trade and other receivables to which the three stage model is not
applied) were performing (stage 1) (2018: same).
Expected credit losses on financial assets at fair value through other comprehensive income within the Wealth Management entities at
31 December 2019 were £0.2 million (2018: £0.1 million). All financial assets at fair value through other comprehensive income were performing
(stage 1) (2018: same).
Other activities
Fee debtors and other receivables arise as a result of the Group’s asset management activities and amounts are monitored regularly.
Historically, default levels have been insignificant and unless a client has withdrawn its funds, there is an ongoing relationship between
the Group and the client.
Fee debtors past due but not in default as at 31 December 2019 were £45.0 million (31 December 2018: £20.0 million), the majority of which
were less than 90 days past due (31 December 2018: less than 90 days).
The Group seeks to manage its exposure to credit risk arising from debt securities and derivatives within the investment portfolio by adopting
a conservative approach and through ongoing credit analysis. Corporate bond portfolios have an investment grade mandate, and exposure to
sub-investment grade debt is low.
Derivative positions, other than forward foreign exchange contracts, are taken in exchange-traded securities where there is minimal credit risk.
Forward foreign exchange positions generally have a maturity of one month.
The Group’s cash and cash equivalents in the non-Wealth Management entities are held primarily in current accounts, on deposit with well-rated
banks, or invested in money market funds.
Expected credit losses on financial assets at amortised cost within non-Wealth Management entities at 31 December 2019 were £0.7 million
(2018: £0.7 million). All financial assets at amortised cost (excluding trade and other receivables to which the three stage model is not applied)
were performing (stage 1) (2018: same).
Expected credit losses on financial assets at fair value through other comprehensive income within non-Wealth Management entities at
31 December 2019 were £0.4 million (2018: £0.6 million). Debt securities includes £11.0 million of under-performing (stage 2) securities
(2018: £11.3 million) giving rise to £0.1 million of expected credit losses (2018: £0.2 million). All other financial assets at fair value through other
comprehensive income were performing (stage 1).
(ii) Liquidity risk
Liquidity risk is the risk that the Group cannot meet its obligations as they fall due or can only do so at a cost. The Group has a clearly defined
liquidity risk management framework in place in the form of a Consolidated Group Internal Liquidity Adequacy Assessment Process (ILAAP).
The Group policy is that its subsidiaries should trade solvently, comply with regulatory liquidity requirements and have access to adequate
liquidity for all activities undertaken in the normal course of business. As part of its ILAAP, the Group performs stress testing to confirm that
sufficient liquidity is available to cover severe but plausible stress events.
Wealth Management activities
The principal liquidity risk in the Group’s Wealth Management business arises as a result of its banking activities, where the timing of cash flows
from liabilities relating to client accounts can be impacted by client action. The objective of the Group’s liquidity policy is to maintain sufficient
liquidity within the relevant entities to meet regulatory and prudential requirements, to cover cash flow imbalances and fluctuations in funding
and the timely repayment of funds to depositors.
Liquidity positions are actively monitored and cash flows are managed so that sufficient liquidity is available to cover potential liquidity risks
in individual currencies and in aggregate.
148
Schroders Annual Report and Accounts 2019 20. Financial instrument risk management continued
(b) Credit risk, liquidity risk and market risk continued
(ii) Liquidity risk continued
The contractual maturity of Wealth Management financial assets and liabilities is set out below:
Assets
Cash and cash equivalents
Loans and advances to banks
Loans and advances to clients
Debt securities
Other financial assets
Total financial assets
Liabilities
Client accounts
Deposits by banks
Other financial liabilities
Total financial liabilities
Less than 1 year
£m
1–2 years
£m
2–3 years
£m
2019
3–4 years
£m
4–5 years
£m
More than 5 years
£m
Total
£m
2,076.1
335.9
203.5
589.4
12.4
–
–
51.7
53.9
–
–
–
–
–
–
–
33.3
25.5
74.2
–
–
–
–
–
–
–
–
14.9
–
–
2,076.1
335.9
403.1
643.3
12.4
3,217.3
105.6
33.3
25.5
74.2
14.9
3,470.8
3,041.3
97.1
21.5
3,159.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,041.3
97.1
21.5
3,159.9
Cumulative gap
57.4
163.0
196.3
221.8
296.0
310.9
310.9
Assets
Cash and cash equivalents
Loans and advances to banks
Loans and advances to clients
Debt securities
Other financial assets
Total financial assets
Liabilities
Client accounts
Deposits by banks
Other financial liabilities
Total financial liabilities
Less than 1 year
£m
1–2 years
£m
2–3 years
£m
2018
3–4 years
£m
4–5 years
£m
More than 5 years
£m
Total
£m
2,097.7
368.8
393.7
404.7
4.2
3,269.1
3,232.8
19.8
11.8
3,264.4
–
–
54.6
198.6
–
253.2
1.1
–
2.9
4.0
–
–
–
–
–
–
54.3
17.0
55.4
–
–
–
–
–
–
54.3
17.0
55.4
1.6
–
–
1.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,097.7
368.8
575.0
603.3
4.2
3,649.0
3,235.5
19.8
14.7
3,270.0
Cumulative gap
4.7
253.9
306.6
323.6
379.0
379.0
379.0
Other activities
The Group’s exposure to liquidity risk outside of its Wealth Management activities is low. Excluding the Life Company and consolidated funds, the
Asset Management and Group segment together hold cash and cash equivalents of £502.3 million (2018: £552.6 million). Financial liabilities
relating to other operating entities are £371.2 million (2018: £390.6 million).
The Group has a committed loan facility of £510.0 million (2018: £510.0 million), which expires on 4 October 2024. The facility was undrawn at
31 December 2019 (31 December 2018: undrawn).
(iii) Market risk
Market risk is the risk that the value of assets will fluctuate as a result of movements in factors such as market prices, interest rates and foreign
exchange rates.
Pricing risk
Pricing risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market prices other
than those arising from interest rate risk or currency risk.
In respect of financial instrument risk, the Group’s exposure to pricing risk is principally through investments held in investment capital,
seed and co-investment capital, deferred employee compensation in the form of fund awards and some investments held for regulatory
capital purposes.
149
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
20. Financial instrument risk management continued
(b) Credit risk, liquidity risk and market risk continued
(iii) Market risk continued
Pricing risk continued
The Group does not hedge exposures to pricing risk except in relation to seed capital, where it is practical to do so, and in respect of deferred
employee compensation awards, where these can be matched by interests in funds managed by the Group. Where financial instruments are
held to hedge deferred compensation awards, movements in the fair value of the asset are normally offset by changes in the amounts payable
to employees (see note 4).
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market
interest rates.
Wealth Management activities
In Wealth Management, interest rate risk is monitored against policies and limits set by the relevant risk committee on a daily basis. Interest rate
risk is managed within set limits by matching asset and liability positions and through the use of interest rate swaps.
Sensitivity-based and stress-based models are used for monitoring interest rate risk. These models assess the impact of a prescribed basis
point rise in interest rates, and potential impact of severe but plausible stress scenarios. The impact is calculated regularly for individual currency
exposures and in aggregate.
Other activities
Cash held by the other operating companies is not normally expected to be placed on deposit for longer than three months and is not exposed
to significant interest rate risk.
The Group’s capital includes investments in corporate investment-grade bonds managed by the Group’s fixed income fund managers.
The market risk (including interest rate risk) exposure of these investments is actively monitored against limits set by the Board.
Foreign exchange risk
Foreign exchange risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign
exchange rates.
Wealth Management activities
In Wealth Management, some loans and advances to clients, client deposits and a proportion of the treasury activities are undertaken in foreign
currencies. This is managed by the treasury departments within agreed limits that are set and monitored by the relevant risk committees.
Other activities
The Group’s policy in relation to foreign exchange risks arising from revenue, expenditure and capital currency exposure from its Asset
Management activities is generally not to hedge. The Group’s revenue is earned and expenditure incurred in many currencies and the resulting
exposure is considered to be a normal part of the Group’s business activities.
The Group also has exposure to foreign currency through investments in currencies other than sterling. The Group uses forward foreign
exchange contracts with third parties to mitigate this exposure. The gain or loss on the hedging instruments is included in the statement of
other comprehensive income or the income statement, as appropriate. The use of such instruments is subject to approval by the GCC.
The sensitivities to market risk are estimated as follows:
Variable1
Interest rates2
US dollar against sterling
Euro against sterling
US dollar against Euro
FTSE-All Share Index3
31 December 2019
31 December 2018
A reasonable change
in the variable within
the next calendar year
%
Increase/
(decrease) in
post-tax profit
£m
A reasonable change in
the variable within
the next calendar year
%
Increase/
(decrease) in
post-tax profit
£m
-increase
-decrease
-strengthen
-weaken
-strengthen
-weaken
-strengthen
-weaken
-increase
-decrease
0.8
(0.5)
10
(10)
8
(8)
10
(10)
20
(20)
4
(2)
3
(2)
1
(1)
3
(2)
39
(39)
1.0
(0.5)
15
(20)
7
(10)
7
(10)
20
(20)
4
(2)
2
(2)
1
(1)
2
(2)
42
(42)
1. The underlying assumption is that there is one variable increase/decrease with all other variables held constant.
2. Assumes that the fair value of assets and liabilities will not be affected by a change in interest rates.
3. Assumes that changes in the FTSE-All Share Index correlate to changes in the fair value of the Group’s equity investments.
The reasonable changes in variables will have no impact on any other components of equity. These sensitivities concern only the direct impact
on financial instruments and exclude indirect impacts on fee income and certain costs that may be affected by changes in the variable. The
changes used in the sensitivity analysis were provided by the Group’s Global Economics team who determine reasonable assumptions.
150
Schroders Annual Report and Accounts 2019 21. Share capital and share premium
Share capital represents the number of issued ordinary and non-voting ordinary shares in Schroders plc multiplied by their nominal value of
£1 each. Share premium substantially represents the aggregate of all amounts that have ever been paid above nominal value to Schroders
plc when it has issued ordinary and non-voting ordinary shares. There are certain circumstances in which the share premium can be reduced
but these did not arise in 2018 or 2019. The Company has no authority to issue, buy back, or cancel ordinary shares in issue (including those
held in trust) and has authority limited by shareholder resolution to issue or purchase non-voting ordinary shares, which may either be
cancelled or held in treasury.
At 1 January 2019
At 31 December 2019
At 1 January 2018
At 31 December 2018
Issued and fully paid:
Ordinary shares of £1 each
Non-voting ordinary shares of £1 each
Number
of shares
Millions
282.5
282.5
Number
of shares
Millions
282.5
282.5
Ordinary
shares
£m
226.0
226.0
Ordinary
shares
£m
226.0
226.0
Non-voting
ordinary
shares
£m
56.5
56.5
Non-voting
ordinary
shares
£m
56.5
56.5
Total
shares
£m
282.5
282.5
Total
shares
£m
282.5
282.5
Share
premium
£m
124.2
124.2
Share
premium
£m
124.2
124.2
2019
Number
of shares
Millions
2018
Number
of shares
Millions
226.0
56.5
282.5
226.0
56.5
282.5
The difference between the share classes
The non-voting ordinary shares carry the same rights as ordinary shares except that they do not confer the right to attend and vote at any
general meeting of the Company, and that on a capitalisation issue they carry the right to receive non-voting ordinary shares rather
than ordinary shares.
151
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
22. Own shares
Own shares are recorded by the Group when non-voting ordinary shares are acquired by the Company, or ordinary or non-voting ordinary
shares are acquired through employee benefit trusts. This enables the Group to hold some of its shares in treasury to settle option exercises
or for other permitted purposes. Own shares are held at cost and their purchase reduces the Group’s net assets by the amount spent.
When shares vest unconditionally or are cancelled, they are transferred from own shares to the profit and loss reserve at their weighted
average cost.
Movements in own shares during the year were as follows:
At 1 January
Own shares purchased
Awards vested
At 31 December
2019
£m
2018
£m
(163.9)
(162.3)
(81.0)
75.8
(74.9)
73.3
(169.1)
(163.9)
During the year 2.8 million own shares (2018: 2.2 million own shares) were purchased and held for hedging share-based awards. 2.8 million
shares (2018: 2.8 million shares) awarded to employees vested in the period and were transferred out of own shares.
The total number of shares in the Company held within the Group’s employee benefit trusts comprise:
Number of
vested
shares
Millions
2019
Number of
unvested
shares
Millions
2.0
–
2.0
6.3
0.1
6.4
Vested
shares
£m
2019
Unvested
shares
£m
168.4
210.7
0.7
1.0
43.9
66.5
0.1
0.7
44.0
67.2
Total
Millions
8.3
0.1
8.4
Total
£m
212.3
277.2
0.8
1.7
Number of
vested
shares
Millions
2.7
–
2.7
2018
Number of
unvested
shares
Millions
6.3
0.1
6.4
Vested
shares
£m
2018
Unvested
shares
£m
162.8
153.8
1.1
1.4
57.1
65.0
0.1
0.6
57.2
65.6
169.1
211.7
213.1
278.9
163.9
155.2
221.1
220.8
Total
Millions
9.0
0.1
9.1
Total
£m
219.9
218.8
1.2
2.0
Ordinary shares
Non-voting ordinary shares
Ordinary shares:
Cost
Fair value
Non-voting ordinary shares:
Cost
Fair value
Total:
Cost
Fair value
152
Schroders Annual Report and Accounts 2019 23. Reconciliation of net cash from operating activities
This note should be read in conjunction with the Consolidated cash flow statement. It provides a reconciliation to show how profit before
tax, which is based on accounting rules, translates to cash flows.
Profit before tax
Adjustments for income statement non-cash movements:
Depreciation of property, plant and equipment and amortisation of intangible assets
Net gain on financial instruments
Share-based payments
Net release for provisions
Other non-cash movements
Adjustments for which the cash effects are investing or financing activities:
Net finance income
Interest expense on lease liabilities
Share of profit of associates and joint ventures
Adjustments for statement of financial position movements:
Decrease in loans and advances within Wealth Management
Increase in trade and other receivables
Decrease in deposits and client accounts within Wealth Management
(Decrease)/increase in trade and other payables, other financial liabilities and provisions
Adjustments for Life Company and consolidated pooled investment vehicles movements:
Net (increase)/decrease in financial assets backing unit-linked liabilities
Net increase/(decrease) in unit-linked liabilities
Net increase/(decrease) in cash within consolidated pooled investment vehicles
Tax paid
Net cash from operating activities
2019
£m
624.6
138.7
(28.3)
61.6
(9.0)
(20.9)
142.1
(8.3)
12.4
(27.2)
(23.1)
198.8
(101.0)
(101.5)
(57.5)
(61.2)
2018
£m
649.9
80.8
52.3
63.9
(0.6)
(20.3)
176.1
(8.4)
–
(19.1)
(27.5)
406.2
(36.2)
(545.2)
12.0
(163.2)
(795.6)
2,756.2
1,170.0
(2,730.5)
48.8
423.2
(4.1)
21.6
(103.6)
(143.0)
1,002.0
513.9
153
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
24. Commitments
Commitments represent amounts the Group has contractually committed to pay to third parties but do not yet represent a liability or impact
the Group’s financial results for the year, except in the case of operating leases where the Group is the lessee. For these leases, a lease
liability is recognised in the Group’s statement of financial position and a maturity analysis of the liabilities is shown below. Previously under
IAS 17, such commitments were not recorded in the Group’s statement of financial position.
The Group’s commitments primarily relate to operating lease commitments, investment call commitments, commitments for the purchase
of property, plant and equipment and commitments under IT service agreements.
The Group sublets a small number of its owned and leased properties where such properties, or parts of such properties, are not required
for use by the Group. The table below discloses the commitments sub-lessees have made in respect of such arrangements. These
commitments are not recorded on the statement of financial position in advance of the period to which they relate.
Operating leases as lessee
Undrawn loan facilities
Investment call commitments
Commitments for purchase of property, plant and equipment
Commitments under IT service agreements
Total commitments
Operating leases receivable as lessor
Net commitments payable
Operating leases as lessee
Undrawn loan facilities
Investment call commitments
Commitments for purchase of property, plant and equipment
Commitments under IT service agreements
Total commitments
Operating leases receivable as lessor
Net commitments payable
2019
No later than
1 year
£m
Later than 1 year
and no later
than 5 years
£m
50.0
–
32.3
2.2
12.0
96.5
(1.2)
95.3
142.7
47.9
–
1.4
34.5
226.5
(3.8)
222.7
2018
Later than
5 years
£m
354.7
–
2.1
–
–
Total
£m
547.4
47.9
34.4
3.6
46.5
356.8
679.8
(1.9)
354.9
(6.9)
672.9
No later than
1 year
£m
Later than 1 year
and no later
than 5 years
£m
Later than
5 years
£m
30.0
14.6
29.4
18.0
25.4
160.5
309.6
18.0
13.8
0.3
50.5
–
1.1
–
–
Total
£m
500.1
32.6
44.3
18.3
75.9
117.4
243.1
310.7
671.2
(1.5)
115.9
(3.6)
239.5
(0.2)
310.5
(5.3)
665.9
Office property sub-leases have a weighted average term of 4.1 years (2018: 3.6 years) and rentals are fixed for a weighted average term
of 4.1 years (2018: 3.6 years). Lease payments recognised as an expense were £52.7 million, see note 12 (2018: £37.3 million).
154
Schroders Annual Report and Accounts 2019 25. Retirement benefit obligations
The Group has two principal types of pension benefit for employees: defined benefit (DB), where the Group has an obligation to provide
participating employees with pension payments that represent a specified percentage of their final salary for each year of service, and
defined contribution (DC), where the Group’s contribution to an employee’s pension is measured as, and limited to, a specified percentage
of salary.
Accounting for DB schemes requires an assessment of the likely quantum of future pension payments to be made. If ring-fenced assets are
held specifically to meet this cost, the scheme is funded, and if not, it is unfunded. The Group periodically reviews its funded DB schemes
using actuarial specialists to assess whether it is on course to meet the expected pension payments that current and former employees are,
or will be, entitled to. In the case of a projected shortfall, a plan must be formulated to reverse the deficit.
The income statement charge or credit represents the sum of pension entitlements earned by employees in the period, plus a notional net
interest charge (if the scheme is in deficit) or income (if it is in surplus) based on the market yields on high quality corporate bonds.
Experience differences, principally the difference between actual investment returns and the notional interest amount, as well as actuarial
changes in estimating the present value of future liabilities are recorded in other comprehensive income.
Assets or liabilities recognised in the statement of financial position represent the differences between the fair value of plan assets (if any)
and the actuarially-determined estimates of the present value of future liabilities. The Group closed its largest DB scheme to future accrual
on 30 April 2011, although it still operates some small unfunded schemes overseas. This means that no future service will contribute to the
closed scheme member benefits but those members continue to have the benefits determined by the Scheme rules as at 30 April 2011.
The Group’s exposure to funding DC pension schemes is limited to the contributions it has agreed to make. These contributions generally
stop when employment ceases. The income statement charge represents the contributions the Group has agreed to make into employees’
pension schemes in that period.
The disclosures within this note are provided mainly in respect of the principal DB scheme, which is the DB section of the funded Schroders
Retirement Benefits Scheme (the Scheme).
The income statement charge for retirement benefit costs is as follows:
Pension costs – defined contribution plans
Pension credit – defined benefit plans
Other post-employment benefits
2019
£m
51.6
(7.7)
0.2
44.1
2018
£m
47.9
(2.5)
0.2
45.6
(i) Profile of the Scheme
The Scheme is administered by a trustee company, Schroder Pension Trustee Limited (the Trustee). The board of the Trustee comprises an
independent chairman, three directors appointed by the employer and two directors elected by the Scheme members. The Trustee is required
by law to act in the interest of all relevant beneficiaries and is responsible for setting the investment strategy and for the day-to-day
administration of the benefits. The Trustee’s investment committee comprises four of the Trustee directors and two representatives of the
Group. This committee, which reports to the Trustee board, is responsible for making investment strategy recommendations to the board
of the Trustee and for monitoring the performance of the investment manager.
Under the Scheme, employees are entitled to annual pensions on retirement based on a specified percentage of their final pensionable salary
or, in the case of active members at 30 April 2011 (the date the DB section of the Scheme closed for future accrual), actual pensionable salaries
at that date, for each year of service. These benefits are adjusted for the effects of inflation, subject to a cap of 2.5% for pensions accrued after
12 August 2007 and 5.0% for pensions accrued before that date.
As at 31 December 2019, there were no active members in the DB section (2018: nil) and 2,127 active members in the DC section (2018: 1,973).
The weighted average duration of the Scheme’s DB obligation is 18 years (2018: 18 years).
Membership details of the DB section of the Scheme as at 31 December are as follows:
Number of deferred members
2019
1,251
2018
1,327
Total deferred pensions (at date of leaving Scheme)
£9.4m per annum
£10.0m per annum
Average age (deferred)
Number of pensioners
Average age (pensioners)
Total pensions in payment
52
885
70
52
849
70
£20.4m per annum
£19.6m per annum
(ii) Funding requirements
The last completed triennial valuation of the Scheme was carried out as at 31 December 2017. The funding level at that date was 115% on the
technical provisions basis and no contribution to the Scheme was required (2017: nil). The next triennial valuation is due as at 31 December 2020
and will be performed in 2021.
155
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
25. Retirement benefit obligations continued
(iii) Risks of the Scheme
The Company and the Trustee have agreed a long-term strategy for reducing investment risk as and when appropriate. This includes an
asset-liability matching policy that aims to reduce the volatility of the funding level of the Scheme by investing in assets that perform in line with
the liabilities of the Scheme.
The most significant risks to which the Scheme exposes the Group are:
Asset volatility
The liabilities are calculated using a discount rate set with reference to corporate bond yields. If assets underperform this yield, this will reduce
the surplus or may create a deficit. The Group manages this risk by holding 64% (2018: 51.6%) of Scheme assets in an LDI portfolio and the
remainder in growth assets such as the Schroder Life Diversified Growth Fund. This asset mix is designed to provide returns that match or
exceed the unwinding of the discount rate in the long term, but that can create volatility and risk in the short term. The allocation to growth
assets is monitored to ensure it remains appropriate given the Scheme’s long-term objectives.
Credit risk
The assets of the Scheme include LDI and other fixed income instruments that expose the Group to credit risk. A significant amount of this
exposure is to the UK Government as a result of holding gilts and bonds guaranteed by the UK Government. Other instruments held include
derivatives, which are collateralised daily to cover unrealised gains or losses. The minimum rating for any derivatives counterparty is BBB.
Interest rate risk
A decrease in corporate bond yields will increase the value placed on the Scheme’s liabilities for accounting purposes, although this should be
partially offset by an increase in the value of the Scheme’s LDI portfolio, which comprises gilts and other LDI instruments. The LDI portfolio has
been designed to mitigate interest rate exposures measured on a funding rather than an accounting basis. One of the principal differences
between these bases is that the liability under the funding basis is calculated using a discount rate set with reference to gilt yields; the latter uses
corporate bond yields. As a result, the LDI portfolio hedges against interest rate risk by purchasing instruments that seek to replicate
movements in gilt yields rather than corporate bond yields. Movements in the different types of instrument are not exactly correlated, and it is
therefore likely that a tracking error can arise when assessing whether the LDI portfolio has provided an effective hedge against interest rate risk
on an accounting basis. At 31 December 2019, the LDI portfolio was designed to mitigate 83% (2018: 77%) of the Scheme’s exposure to changes
in gilt yields.
Inflation risk
A significant proportion of the Scheme’s benefit obligations are linked to inflation and higher inflation will lead to higher liabilities. However,
in most cases, caps on the level of inflationary increases are in place. The majority of the growth assets are either unaffected by or not closely
correlated with inflation, which means that an increase in inflation will also decrease any Scheme surplus. The LDI portfolio includes instruments
such as index-linked gilts to provide protection against inflation risk. At 31 December 2019, the LDI portfolio was designed to mitigate 83%
(2018: 77%) of the Scheme’s exposure to inflation risk.
Life Expectancy
The majority of the Scheme’s obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an
increase in the liability.
(iv) Reporting at 31 December
The principal financial assumptions used for the Scheme are:
Discount rate
RPI inflation rate
CPI inflation rate
Future pension increases (for benefits earned before 13 August 2007)
Future pension increases (for benefits earned after 13 August 2007)
Average number of years a current pensioner is expected to live beyond age 60:
Men
Women
2019
%
2.1
3.1
2.2
3.0
2.2
2018
%
2.9
3.3
2.2
3.2
2.2
Years
Years
28
29
28
29
Average number of years future pensioners currently aged 45 are expected to live beyond age 60:
Years
Years
Men
Women
29
30
29
30
Net interest income is determined by applying the discount rate to the opening net surplus in the Scheme. The Group determines the
appropriate discount rate at the end of each year. This is the interest rate that is used to determine the present value of estimated future cash
outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the
interest rates of high quality, long dated corporate bonds that are denominated in the currency in which the benefits will be paid.
156
Schroders Annual Report and Accounts 2019 25. Retirement benefit obligations continued
Estimates and judgements
The Group estimates the carrying value of the Scheme by applying judgement to determine the assumptions as set out on page 156 to
determine the valuation of the pension obligation using member data and applying the Scheme rules. The Scheme assets are mainly quoted
in an active market. The sensitivity to those assumptions is set out below. The most significant judgemental assumption relates to mortality
rates, which are inherently uncertain. The Group’s mortality assumptions are based on standard mortality tables with Continuous Mortality
Investigation core projection factors and a long-term rate of mortality improvement of 1.0% (2018: 1.0%) per annum. An additional
adjustment, an “A parameter” set to 0.5% per annum, introduced this year, allows for the typically higher rate of mortality improvement
among members of the Scheme compared to general population statistics. Mortality tables for male pensioners are scaled back by 2.5%
(2018: 5%) and female pensioners are scaled back by 7.5% (2018: 10%) to reflect the history of longer life expectancy of the Group’s
employees.
The Group reviews its assumptions annually in conjunction with its independent actuaries and considers this adjustment appropriate given
the geographic and demographic profile of Scheme members. Other assumptions for pension obligations are based in part on current
market conditions.
The financial impact of the Scheme on the Group has been determined by independent qualified actuaries, Aon Hewitt Limited, and is based on
an assessment of the Scheme as at 31 December 2019.
The amounts recognised in the income statement are:
Interest income on Scheme assets
Interest cost on Scheme liabilities
Net interest income recognised in the income statement in respect of the Scheme
Income statement (credit)/charge in respect of other defined benefit schemes
Total defined benefit schemes income statement credit
The amounts recognised in the statement of comprehensive income are:
(Return)/loss on Scheme assets in excess of that recognised in interest income
Actuarial gains due to change in demographic assumptions
Actuarial losses/(gains) due to change in financial assumptions
Actuarial (gains)/losses due to experience
Total other comprehensive loss in respect of the Scheme
Other comprehensive (income)/loss in respect of other defined benefit schemes
Total other comprehensive loss in respect of defined benefit schemes
The sensitivity of the Scheme pension liabilities to changes in assumptions are:
Assumption
Discount rate
Discount rate
Assumption change
Increase by 0.5% per annum
Decrease by 0.5% per annum
Expected rate of pension increases
Increase by 0.5% per annum
Expected rate of pension increases
Decrease by 0.5% per annum
Life expectancy
Life expectancy
Increase by one year
Decrease by one year
2019
£m
(27.1)
22.6
(4.5)
(3.2)
(7.7)
2019
£m
(54.6)
(6.4)
90.4
(5.6)
23.8
(0.6)
23.2
2018
£m
(26.1)
21.9
(4.2)
1.7
(2.5)
2018
£m
56.8
(18.3)
(36.3)
9.3
11.5
0.1
11.6
2019
2018
Estimated
(increase)/
decrease in
pension
liabilities
£m
Estimated
(increase)/
decrease in
pension
liabilities
%
Estimated
(increase)/
decrease in
pension
liabilities
£m
Estimated
(increase)/
decrease in
pension
liabilities
%
71.7
(84.0)
(65.3)
67.3
(37.9)
37.5
8.3
(9.7)
(7.5)
7.8
(4.4)
4.3
65.8
(72.1)
(56.3)
52.6
(32.3)
33.5
8.3
(9.1)
(7.1)
6.6
(4.1)
4.2
157
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
25. Retirement benefit obligations continued
Movements in respect of the assets and liabilities of the Scheme are:
At 1 January
Interest on assets
Remeasurement of assets
Benefits paid
Fair value of plan assets
At 1 January
Interest cost
Actuarial gains due to change in demographic assumptions
Actuarial (losses)/gains due to change in financial assumptions
Actuarial gains/(losses) losses due to experience
Benefits paid
Present value of funded obligations
Net assets
2019
£m
951.2
27.1
54.6
(31.4)
1,001.5
(795.6)
(22.6)
6.4
(90.4)
5.6
31.4
2018
£m
1,029.2
26.1
(56.8)
(47.3)
951.2
(866.3)
(21.9)
18.3
36.3
(9.3)
47.3
(865.2)
(795.6)
136.3
155.6
The Group has not materially changed the basis of any of the principal financial assumptions underlying the calculation of the Scheme’s
net financial position during 2019, although such assumptions have been amended where applicable to reflect current market conditions
and expectations.
Administration expenses and the levy payable to the Pension Protection Fund are met directly by the Group.
The fair value of the Scheme’s plan assets at the year end date are:
Liability-driven investments
Bonds (excluding those held as part of the liability-driven investment portfolio)
Portfolio funds
Exchange-traded futures and over-the-counter derivatives
Cash
2019
2018
Of which not
quoted in an
active market
£m
–
–
6.1
(8.1)
–
(2.0)
Value
£m
643.2
–
345.6
(7.8)
20.5
1,001.5
Of which not
quoted in an
active market
£m
12.9
–
7.8
(4.2)
–
16.5
Value
£m
491.3
78.8
348.0
(5.7)
38.8
951.2
158
Schroders Annual Report and Accounts 2019 26. Share-based payments
Share-based payments are remuneration payments to selected employees that take the form of an award of shares in Schroders plc.
Employees are generally not able to exercise such awards in full until three years after the award has been made, although conditions vary
between different types of award. The accounting for share-based awards settled by transferring shares to the employees (equity-settled)
differs from the accounting for similar awards settled in cash (cash-settled). The charge for equity-settled share-based payments is
determined based on the fair value of the award on the grant date or, in the case of grandfathered awards arising on business
combinations, the fair value of the share awards at the acquisition date. Such awards can include share options or share awards that may or
may not have performance criteria. The initial fair value of the award takes into account the current value of shares expected to be issued
(i.e. estimates of the likely levels of forfeiture and achievement of performance criteria), the contribution, if required, by the employee and
the time value of money. This initial fair value is charged to the income statement reflecting benefits received from employment, where
relevant, in the performance period and over the vesting period. The income statement charge is offset by a credit to the statement of
changes in equity, where the award is expected to be settled through the issue of shares. Such awards constituted 7.2% (2018: 7.6%) of
salaries, wages and other remuneration (see note 4).
The Group may make share-based payments to employees through awards over or linked to the value of ordinary and non-voting ordinary
shares and by the grant of market value share options over ordinary or non-voting ordinary shares. These arrangements involve a maximum
term of 10 years.
It is the Group’s practice to hedge all awards to eliminate the impact of changes in the market value of shares between the grant date and
the exercise date.
Awards that lapse or are forfeited during the vesting period result in a credit to the income statement (reversing the previous charge) in the
year in which they lapse or are forfeited.
The Group recognised total expenses of £63.7 million (2018: £63.8 million) arising from share-based payment transactions during the year,
of which £61.6 million (2018: £63.9 million) were equity-settled share-based payment transactions. In 2019, there were total exceptional costs
of £4.6 million included within equity-settled share-based payments (2018: £10.6 million).
The Group has the following share-based payment arrangements (further details of the current schemes may be found in the
Remuneration report):
(a) 2000 Equity Compensation Plan and 2011 Equity Compensation Plan
Awards over ordinary and non-voting ordinary shares made under the Group’s Equity Compensation Plans are charged at fair value as
‘Operating expenses’ in the income statement. There are no performance conditions attached to the awards. For the 2000 Equity
Compensation Plan the fair value of an award is calculated using the market value of the shares at the date of grant, discounted for the
dividends forgone over the average holding period of the award. For the 2011 Equity Compensation Plan the fair value of an award is
calculated using the market value of the shares on the date of grant. The fair value charges, adjusted to reflect actual levels of vesting, are
spread over the performance period and the three-year vesting period of the awards. Awards are structured as nil-cost options.
2019
2018
Number of
ordinary
shares
Millions
Number of
non-voting
ordinary shares
Millions
Number of
ordinary
shares
Millions
Number of
non-voting
ordinary shares
Millions
Rights outstanding at 1 January
Granted
Forfeited
Exercised
Rights outstanding at 31 December
Vested
Unvested
Weighted average fair value of shares granted (£)
Weighted average share price at dates of exercise (£)
The weighted average exercise price per share is nil.
5.5
0.9
(0.1)
(2.4)
3.9
1.4
2.5
25.49
28.76
0.1
–
–
–
0.1
0.1
–
–
19.83
6.5
0.9
(0.1)
(1.8)
5.5
2.2
3.3
33.22
33.08
A charge of £21.6 million (2018: £25.6 million) was recognised during the financial year.
The table below shows the expected charges for awards issued under the Equity Compensation Plan to be expensed in future years:
2020
2021
2022
0.3
–
–
(0.2)
0.1
–
0.1
–
23.72
£m
5.6
1.5
–
7.1
159
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
26. Share-based payments continued
(b) Deferred Award Plan
Awards over ordinary shares made under the Group’s Deferred Award Plan are charged at fair value as ‘Operating expenses’ in the income
statement. Fair value is determined at the date of grant and is equal to the market value of the shares at that time. The fair value charges,
adjusted to reflect actual levels of vesting, are spread over the performance period and the vesting periods of the awards. Typically, one
third of an award will vest and become exercisable on each of the first, second and third anniversaries of the grant date. Awards are
structured as nil-cost options.
Rights outstanding at 1 January
Granted
Forfeited
Exercised
Rights outstanding at 31 December
Vested
Unvested
Weighted average fair value of shares granted (£)
Weighted average share price at date of exercise (£)
The weighted average exercise price per share is nil.
2019
Number of
ordinary
shares
Millions
2018
Number of
ordinary
shares
Millions
1.2
1.9
(0.1)
(0.2)
2.8
0.1
2.7
–
1.3
(0.1)
–
1.2
–
1.2
26.54
27.35
33.41
–
A charge of £32.5 million (2018: £29.6 million) was recognised during the financial year.
The table below shows the expected charges for awards issued under the Deferred Award Plan to be expensed in future years:
2020
2021
2022
(c) Equity Incentive Plan
£m
11.3
4.6
4.0
19.9
Awards over ordinary shares made under the Group’s Equity Incentive Plan are charged at fair value as ‘Operating expenses’ to the income
statement, over a five-year vesting period. Fair value is determined at the date of grant and is equal to the market value of the shares at that
time. Awards are structured as nil-cost options.
Rights outstanding at 1 January
Granted
Forfeited
Exercised
Rights outstanding at 31 December
Vested
Unvested
Weighted average fair value of shares granted (£)
Weighted average share price at dates of exercise (£)
The weighted average exercise price per share is nil.
A charge of £5.3 million (2018: £7.4 million) was recognised during the financial year.
160
2019
Number of
ordinary
shares
Millions
2018
Number of
ordinary
shares
Millions
2.0
0.2
(0.1)
(0.7)
1.4
0.4
1.0
2.1
0.2
(0.1)
(0.2)
2.0
0.5
1.5
32.19
31.08
26.81
25.06
Schroders Annual Report and Accounts 2019 26. Share-based payments continued
(c) Equity Incentive Plan continued
The table below shows the expected charges for awards issued under the Equity Incentive Plan to be expensed in future years:
2020
2021
2022
2023
2024
(d) Long Term Incentive Plan
£m
5.1
3.7
2.3
1.5
0.7
13.3
Awards over ordinary and non-voting ordinary shares made under the Group’s Long Term Incentive Plan are charged at fair value to the
income statement over a four-year vesting period. Fair value is calculated using the market value of the shares at the grant date, discounted
for dividends forgone over the vesting period of the award and adjusted based on an estimate at the year end date of the extent to which
the performance conditions are expected to be met. Awards are structured as nil-cost options.
2019
2018
Number of
ordinary
shares
Millions
Number of
non-voting
ordinary shares
Millions
Number of
ordinary
shares
Millions
Number of
non-voting
ordinary shares
Millions
Rights outstanding at 1 January
Granted
Forfeited
Exercised
Rights outstanding at 31 December – unvested
Weighted average fair value of shares granted (£)
Weighted average share price at dates of exercise (£)
The weighted average exercise price per share is nil.
0.1
0.1
(0.1)
–
0.1
21.32
–
0.1
–
–
–
0.1
–
19.82
0.2
–
(0.1)
–
0.1
29.31
34.25
A charge of £0.4 million (2018: £0.4 million credit) was recognised during the financial year.
The table below shows the expected charges for awards issued under the Long Term Incentive Plan to be expensed in future years:
2020
2021
2022
(e) Share Incentive Plan
The employee monthly share purchase plan is open to UK permanent employees and provides free shares from the Group to match the
employee purchase of shares up to a maximum of £100 per month. The shares vest after one year.
Pursuant to this plan, the Group purchased 68,291 ordinary shares in 2019 (2018: 61,046) at a weighted average share price of £28.91
(2018: £30.84). A charge of £1.8 million (2018: £1.7 million) was recognised during the financial year.
0.1
–
–
–
0.1
–
23.72
£m
0.3
0.2
0.1
0.6
161
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
26. Share-based payments continued
(f) Cash-settled share-based awards
Certain employees have been awarded cash-settled equivalents to these share-based awards. The fair value of these awards is determined
using the same methods and models used to value the equivalent equity-settled awards. The fair value of the liability is remeasured at each
balance sheet date and at settlement date.
At 31 December 2019, the total carrying value of liabilities arising from cash-settled share-based awards was £4.1 million (2018: £2.6 million).
The total intrinsic value at 31 December 2019 of liabilities for which the employee’s right to cash or other assets had vested by that date was
£2.3 million (2018: £0.6 million).
A charge of £2.1 million (2018: credit of £0.1 million) was recognised during the financial year. This charge has arisen as the liability was
remeasured at the balance sheet date at a share price of £33.34 (31 December 2018: £24.43).
27. Related party transactions
Transactions between the Group and parties related to the Group are required to be disclosed to the extent that they are necessary for an
understanding of the potential effect of the relationship on the financial statements. Other disclosures, such as key management personnel
compensation, are also required.
The Group is not deemed to be controlled or jointly controlled by a party directly or through intermediaries under accounting standards.
As a result the related parties of the Group are members of the Group, including associates and joint ventures, key management personnel,
close family members of key management personnel and any entity controlled by those parties.
Cash transactions with associates or joint ventures are reported in the Consolidated cash flow statement and in note 10.
£56.5 million (2018: £55.7 million) was held in customer accounts in respect of amounts payable to key management personnel or their
related parties.
Included within loans and advances to clients are amounts owed from related parties of £0.4 million (2018: £4.3 million). All related party loans
and advances were at commercial rates.
Some of the plan assets of the Schroders Retirement Benefit Scheme are invested in products managed by the Life Company (see note 15). At
31 December 2019, the fair value of these assets was £169.8 million (2018: £219.5 million).
At 31 December 2019, Peter Harrison had an interest of 100,252 shares (2018: 100,252) in an associate of the Group, RWC Partners Limited,
representing 5.3% (2018: 5.4%) of its issued share capital. On 31 January 2020, Peter Harrison disposed of this interest at the same time and on
the same terms as the Group disposed of its interest.
Transactions between the Group and its related parties were made at market rates. Any amounts outstanding are unsecured and will be settled
in cash. No guarantees have been given or received.
Key management personnel compensation
Key management personnel are defined as members of the Board or the Group Management Committee. The remuneration of key
management personnel during the year was as follows:
Type of remuneration
Typical composition of this type of benefit
Short-term employee benefits
Salary and upfront bonus
Share-based payments
Other long-term benefits
Termination benefits
Deferred share awards
Deferred cash awards
Termination benefits
Post-employment benefits
Pension plans
2019
£m
22.3
13.2
13.1
0.3
0.1
49.0
2018
£m
21.6
13.0
14.1
–
0.1
48.8
The remuneration of key management personnel is based on individual performance and market rates. The remuneration policy (which applies
to Directors and management) is described in more detail at schroders.com/directors-remuneration-policy.
162
Schroders Annual Report and Accounts 2019 28. Interests in structured entities
Structured entities are those entities that have been designed so that voting or similar rights are not the dominant factor in deciding who
has control, such as when any voting rights relate to administrative tasks only, or when the relevant activities are directed by means of
contractual arrangements. The Group’s interests in consolidated and unconsolidated structured entities are described below.
The Group has interests in structured entities as a result of contractual arrangements arising from its principal activity, the management of
assets on behalf of its clients. AUM, excluding deposits by Wealth Management clients and some segregated client portfolios held within the
the Group’s Asset Management business, is managed within structured entities. These structured entities typically consist of investment
vehicles such as Open Ended Investment Companies, Authorised Unit Trusts, Limited Partnerships and Sociétés d’Investissement à Capital
Variable, which entitle investors to a percentage of the vehicle’s net asset value. The vehicles are financed by the purchase of units or shares
by investors. The Group also has interests in structured entities through proprietary investments. These are mainly into vehicles that help
facilitate the Group’s stated aim of generating a return on investment capital and when it deploys seed and co-investment capital in
developing new investment strategies. Additionally, the Group holds interests in structured entities for liquidity management purposes, for
example via investments in money market funds.
The Group does not guarantee returns on the investments it manages or commit to financially support its structured entities. A small
proportion of the Group’s AUM, principally real estate funds, is permitted to raise finance through loans from banks and other financial
institutions. Where external finance is raised, the Group does not provide a guarantee for the repayment of any borrowings.
The business activity of all structured entities in which the Group has an interest, is the management of assets in order to generate
investment returns for investors from capital appreciation and/or investment income. The Group earns a management fee from its
structured entities, normally based on a percentage of the entity’s net asset value, committed capital value or gross asset value and, where
contractually agreed, a performance fee or carried interest, based on outperformance against predetermined benchmarks. In addition,
where the Group owns a proportion of the structured entity it is entitled to receive investment returns.
(a) Interests arising from managing assets
The Group’s interests in structured entities arising as a result of contractual relationships from its principal activity, the management of assets on
behalf of its clients, are reflected in the Group’s AUM.
Asset Management
Wealth Management
Asset Management
Wealth Management
2019
AUM outside of
structured
entities
£bn
AUM within
consolidated
structured
entities
£bn
AUM within
unconsolidated
structured
entities
£bn
222.4
60.0
282.4
200.7
6.7
207.4
10.4
–
10.4
2018
AUM outside of
structured
entities
£bn
AUM within
consolidated
structured
entities
£bn
AUM within
unconsolidated
structured
entities
£bn
167.8
37.6
205.4
9.4
–
9.4
186.3
6.1
192.4
Total
£bn
433.5
66.7
500.2
Total
£bn
363.5
43.7
407.2
Certain AUM is managed in pooled vehicles that are not considered to be structured entities. Within Asset Management, this occurs either
because it is formed of segregated investment portfolios for institutional clients comprising directly-held investments in individual financial
instruments, or because the voting structures of the vehicles themselves allow the investment manager to be removed without cause. Within
Wealth Management, AUM is not considered to be within structured entities due to contractual relationships existing with clients rather than
structured entities, for example discretionary and advisory asset management and banking services. In addition, Wealth Management AUM in
the form of loans and advances to customers is conducted outside of structured entities.
Certain structured entities are deemed to be controlled by the Group and are accounted for as subsidiaries and consolidated in accordance with
IFRS 10. AUM within consolidated structured entities represents the net assets of the beneficial interest in the consolidated structured entity
owned by third parties.
AUM within unconsolidated structured entities constitutes the remaining balance, represented principally by the net asset value of pooled
vehicles managed for Intermediary clients, as well as some assets invested in pooled vehicles on behalf of Institutional and Wealth Management
clients. The Group’s beneficial interest in structured entities is not included within AUM and is described separately overleaf.
The Group has no direct exposure to losses in relation to the AUM reported above, as the investment risk is borne by clients. The main risk the
Group faces from its interest in AUM managed on behalf of clients is the loss of fee income as a result of the withdrawal of funds by clients.
Outflows from funds are dependent on market sentiment, asset performance and investor considerations.
163
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
28. Interests in structured entities continued
(a) Interests arising from managing assets continued
Fee income includes £1,346.7 million (2018: £1,445.6 million) of fees from structured entities managed by the Group. The table below shows the
carrying value of the Group’s interests in structured entities as a result of its management of assets, where income is accrued over the period for
which assets are managed before being invoiced. The carrying value represents the Group’s maximum exposure to loss from these interests.
Fee debtors
Accrued income
Total exposure due to asset management activities
2019
£m
24.5
167.2
191.7
2018
£m
16.7
213.1
229.8
(b) Interest arising from the Group’s investment in unconsolidated structured entities
The table below shows the carrying values of the Group’s proprietary investments in unconsolidated structured entities, which resulted in a net
gain on financial instruments and other income of £3.1 million (2018: loss of £3.8 million). The carrying values represent the Group’s maximum
exposure to loss from these interests.
Cash and cash equivalents
Financial assets
Total exposure due to the Group’s investments
2019
£m
141.2
446.2
587.4
2018
£m
61.9
575.4
637.3
The Group’s proprietary investments include interests in unconsolidated structured entities in the form of cash and cash equivalents and
financial assets. Cash and cash equivalents comprise investments in money market funds, of which £3.5 million (2018: £3.0 million) is managed
by the Group. Financial assets comprise investments in pooled vehicles and legacy private equity investments and include seed and
co-investment capital and hedges of deferred cash awards. Of the financial assets, £445.3 million (2018: £574.2 million) is invested in funds
managed by the Group. The Group has no interest apart from its role as investor in those funds for which it does not act as manager. The main
risk the Group faces from its interests in unconsolidated structured entities arising from proprietary investments is that the investments will
decrease in value. Note 20 includes further information on the Group’s exposure to market risk arising from proprietary investments.
The Group has contractual commitments to co-invest alongside its clients and provide a minimum level of capital for certain private assets and
alternative vehicles. The Group’s investment call commitments are set out in note 24.
The Group’s statement of financial position also includes the Life Company assets of £12,425.9 million (2018: £11,255.9 million), which are
included in the AUM information presented on page 27. The exposure to the risks and rewards associated with these assets is borne by
unit-linked policyholders, or, where Life Company funds are consolidated, third-party investors in those funds.
Financial support for consolidated structured entities where there is no contractual obligation to do so
The Group supports some of its funds through the injection of seed capital in order to enable the funds to establish a track record before they
are more widely marketed. During the year, the Group purchased units at a cost of £214.0 million (2018: £173.0 million) to provide seed capital
to investment funds managed by the Group, of which £133.8 million (2018: £112.6 million) resulted in the consolidation of those funds and
£80.2 million (2018: £60.4 million) did not.
164
Schroders Annual Report and Accounts 2019 29. Business combinations
The Group applies the acquisition method to account for business combinations. The consideration for the acquisition of a subsidiary is the
fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and any equity interests issued by the
Group. The consideration includes the fair value of any asset or liability resulting from contingent or deferred consideration arrangements.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair
values at the acquisition date. The Group recognises any non-controlling interest (NCI) at the fair value of the proportionate share of the
acquiree’s identifiable net assets.
The Group completed seven business combinations during the year.
The most significant of these transactions completed on 31 October 2019 when the Group acquired 70% of the issued share capital of
BlueOrchard Finance AG (BlueOrchard), a leading impact investment manager, specialising in fostering inclusive finance and sustainable growth,
for a total consideration of £90.6 million. The acquisition contributed £2.9 billion of Asset Management AUM and strengthens the Group’s Private
Asset capabilities.
On 24 May 2019, the Group acquired 100% of the issued share capital of Blue Asset Management GmbH (Blue Asset Management), a real estate
asset management business, for a total consideration of £22.8 million. The acquisition contributed £1.0 billion of Asset Management AUM and
strengthens the Group’s Private Asset capabilities.
The Group completed five further acquisitions during the year for a combined consideration of £31.9 million. These acquisitions contributed
£2.3 billion of Wealth Management AUM and increase the scale and capability of the Group’s Wealth Management business.
Net assets acquired
The fair values of the net assets acquired in the transactions together with the goodwill and intangible assets arising are as follows:
Net assets acquired:
Cash
Property, plant and equipment
Trade and other receivables
Other assets
Trade and other payables
Lease liabilities
Other liabilities
Tangible net assets
Goodwill
Intangible assets arising on acquisition
Deferred tax arising on acquisition
Non-controlling interest
Total
Satisfied by:
Cash
Contingent consideration
Deferred consideration
Total
BlueOrchard
£m
Blue Asset
Management
£m
Other
£m
12.4
–
4.5
3.0
(9.6)
–
(1.8)
8.5
66.0
32.0
(5.4)
(10.5)
90.6
£m
90.6
–
–
0.6
0.8
1.2
–
(0.9)
(0.8)
–
0.9
17.7
5.0
(0.8)
–
22.8
£m
22.8
–
–
90.6
22.8
1.0
–
0.2
–
(0.2)
–
(0.6)
0.4
20.8
12.9
(2.2)
–
31.9
£m
24.8
3.9
3.2
31.9
Total
£m
14.0
0.8
5.9
3.0
(10.7)
(0.8)
(2.4)
9.8
104.5
49.9
(8.4)
(10.5)
145.3
Total
£m
138.2
3.9
3.2
145.3
165
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
29. Business combinations continued
The goodwill arising on the acquisitions is attributable to the value arising from:
– Additional investment capabilities;
– A broader platform for business growth;
– Talented management and employees; and
– Opportunities for synergies from combining certain activities.
Goodwill will not be deductible for tax purposes.
In the period between the acquisition dates and 31 December 2019, the seven acquired businesses contributed £18.3 million to the Group’s net
income. The contribution to profit before tax and exceptional items was £9.0 million and exceptional costs of £4.6 million were incurred in
respect of amortisation of the acquired intangible assets and deferred compensation costs. Additionally, acquisition costs of £4.0 million were
recorded within ‘Operating expenses’ and classified as exceptional in the Consolidated income statement.
If the acquisitions had been completed on 1 January 2019, the Group’s pre-exceptional net income for the year would have been £2,175.3 million
and the profit before tax and exceptional items for the year on the same basis would have been £725.2 million.
Estimates and judgements
The fair value of certain items of consideration, assets acquired and liabilities assumed requires some estimation. For intangible assets and
contingent consideration payable, this estimation required assumptions regarding the level of future management fees that will be earned
over the relevant period.
The net impact of changes to these assumptions would be to change the carrying value of individual assets and liabilities with a
corresponding change to goodwill.
166
Schroders Annual Report and Accounts 2019 Presentation of the financial statements
(a) Basis of preparation
The consolidated financial statements are prepared in accordance
with IFRS, as adopted by the European Union, which comprises
Standards and Interpretations approved by either the IASB or the IFRS
Interpretations Committee or their predecessors, and with those
parts of the Companies Act 2006 applicable to companies reporting
under IFRS.
The consolidated financial information presented within these
financial statements has been prepared on the going concern basis
under the historical cost convention, except for the measurement at
fair value of derivative financial instruments and financial assets and
liabilities that are held at fair value through profit or loss or at fair
value through other comprehensive income, liabilities in respect of
deferred cash awards and certain deposits both with banks and by
customers and banks (including those that relate to bullion).
The statement of financial position is shown in order of liquidity. The
classification between current and non-current is set out in the notes.
The Group’s Life Company business is reported separately. If the
assets and liabilities of the Group’s Life Company business were to be
included within existing captions on the Group’s statement of financial
position, the effect would be to gross up a number of individual line
items to a material extent. By not doing this, the Group can provide a
more transparent presentation that shows the assets of the Life
Company and the related unit-linked liabilities as separate and distinct
from the remainder of the Group’s statement of financial position.
The Group’s principal accounting policies have been consistently
applied. Further information is provided below and highlighted in the
notes to the accounts.
(b) New accounting standards and interpretations
The Group has applied IFRS 16 Leases and IFRIC 23 Uncertainty over
Income Tax Treatments (IFRIC 23) from 1 January 2019. The nature
and effect of these changes are disclosed below.
IFRS 16 Leases
IFRS 16 Leases (IFRS 16) replaces IAS 17 Leases and became effective
on 1 January 2019.
On adoption of IFRS 16, the Group has calculated the ROU asset as if
the standard had always been applied but based on an incremental
borrowing rate at 1 January 2019. Lease liabilities were recognised
based on the present value of the remaining lease payments,
discounted using the appropriate discount rate at the adoption date.
Comparative information has not been restated as the Group has
applied IFRS 16 retrospectively with the cumulative effect of initially
applying the standard recorded as an adjustment to the opening
profit and loss reserve at 1 January 2019.
The Group has applied the optional exemption contained within IFRS
16, which permits the cost of short-term (less than 12 months) leases
to be expensed on a straight-line basis over the lease term. These
lease arrangements are not material to the Group.
At 31 December 2018, the Group had non-cancellable operating lease
commitments of £500.1 million. As a result of applying IFRS 16, the
Group recognised a lease liability and ROU asset at 1 January 2019 of
£418.3 million and £411.9 million respectively and restated its net
assets to reflect a reduction of £6.9 million, net of tax. The weighted
average lessee’s incremental borrowing rate applied to the lease
liabilities on 1 January 2019 was 2.95%.
The opening lease commitments as at 1 January 2019 are reconciled
to the opening lease liability as follows:
Lease commitments at 1 January 2019
Interest to be unwound over the lease term
Opening lease liability at 1 January 2019
£m
500.1
(81.8)
418.3
The Group’s accounting policies in respect of IFRS 16 are set out in
note 12.
IFRIC 23 Uncertainty over Income Tax Treatments
On 7 June 2017, the IASB issued IFRIC 23 which became effective on
1 January 2019. The interpretation provides clarification as to how the
recognition and measurement requirements of IAS 12 Income Tax
should be applied. IFRIC 23 does not have a material impact on the
Group’s financial statements.
(c) Future accounting developments
The Group did not implement the requirements of any other
Standards or Interpretations that were in issue but were not required
to be adopted by the Group at the year end date. No other Standards
or Interpretations have been issued that are expected to have a
material impact on the Group’s financial statements.
(d) Basis of consolidation
The consolidated financial information includes the total
comprehensive gains or losses, the financial position and the cash
flows of the Company and its subsidiaries, associates and joint
ventures. Details of the Company’s related undertakings are
presented in note 38. This includes share ownership trusts established
for certain share-based awards. In the case of associates and joint
ventures, those entities are presented as single line items in the
Income statement and Statement of financial position (see note 10).
Intercompany transactions and balances are eliminated on
consolidation. Consistent accounting policies have been applied
across the Group in the preparation of the consolidated financial
statements.
The entities included in the consolidation may vary year on year due
to both the restructuring of the Group (including acquisitions and
disposals) and changes to the number of pooled investment vehicles
controlled by the Group.
In such cases, the investment vehicle is consolidated and the third
party interest is recorded as a financial liability until the Group loses
control. This consolidation has no net effect on the Group’s
Consolidated income statement. The cash flow statement separately
presents acquisitions and disposals of interests in consolidated
pooled vehicles. Cash movements within the pooled vehicles are
shown net within cash flows from operating activities as the cash held
within the underlying pooled vehicles is restricted and is not available
to the Group for corporate purposes. This presentation provides more
relevant information about the impact of the Group’s investment in
pooled vehicles on corporate cash resources than an analysis of the
underlying cash flows of the vehicles.
167
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Notes to the accounts continued
The estimates and judgements that could have a significant effect
on the carrying amounts of assets and liabilities are set out in the
following notes, including sensitivities where relevant:
Note 2
Note 5
Note 8
Note 9
Note 13
Note 17
Note 18
Note 25
Note 29
Net operating revenue
Tax expense
Trade and other receivables
Financial assets
Goodwill and intangible assets
Financial liabilities
Provisions and contingent liabilities
Retirement benefit obligations
Business combinations
In applying IFRS 10 Consolidated Financial Statements, the Group
uses judgement to determine whether its interests in funds (and
other entities), including those held by the Life Company, constitute
controlling interests. The Group has interests in funds through its role
as fund manager and through its proprietary investments in funds.
The Group considers all relevant facts and circumstances in assessing
whether it has power over specific funds or other entities. This
includes consideration of the purpose and design of an investee, the
extent of the Group’s exposure to variability of returns as an investor
and, where appropriate, as a fund manager, and the Group’s ability to
direct the relevant activities, including whether it has substantive or
protective rights through voting rights and potential voting rights.
These considerations are reassessed if there are indications that
circumstances have changed since the original assessment.
Presentation of the financial statements continued
(d) Basis of consolidation continued
In 2019, the Group acquired a 49.9% equity interest in SPW (see note
10) and a portion of the Wealth Management business of LBG. The
Group sold 19.9% of its shareholding in SWHL, the Group’s UK Wealth
Management business, for £204.7 million. Accordingly, the Group
attributed 19.9% of the net assets of SWHL to non-controlling interest.
This resulted in the Group recognising a gain of £153.6 million in the
Group’s Consolidated statement of changes in equity. The profit after
tax of SWHL was £7.0 million for the period from 3 October 2019 to
31 December 2019 and no dividends were paid to SWHL’s non-
controlling interests during this period. The net assets of SWHL were
£264.3 million at 31 December 2019.
(e) Net gains and losses on foreign exchange
Many subsidiaries are denominated in currencies other than sterling.
The results of these subsidiaries are translated at the average rate of
exchange. At the year end, the assets and liabilities are translated at
the closing rate of exchange. Gains or losses on translation are
recorded in the Group’s statement of comprehensive income and as a
separate component of equity together with gains or losses on
any hedges of overseas operations. Such gains or losses are
transferred to the Income statement on disposal or liquidation
of the relevant subsidiary.
Transactions undertaken in foreign currencies are translated into the
functional currency of the subsidiary at the exchange rate prevailing
on the date of the transaction. Foreign currency monetary assets and
liabilities are translated into the functional currency at the rates of
exchange ruling at the year end date. Any exchange differences
arising are included within ‘Net gain on financial instruments and
other income’ in the Group’s income statement. Foreign currency
non-monetary assets and liabilities are translated at the closing rate
of exchange and gains or losses are recorded in the Group’s
statement of comprehensive income.
(f) Estimates and judgements
The preparation of the financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group’s accounting policies and in determining whether
certain assets and liabilities should be recorded or an impairment
recognised. Any areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are significant
to the financial statements, are disclosed within the notes and
identified under the title estimates and judgements. Estimates and
judgements used in preparing the financial statements are
periodically evaluated and are based on historical experience and
other factors, including expectations of future events that are believed
to be reasonable. The resulting accounting estimates may not equal
the related actual results.
168
Schroders Annual Report and Accounts 2019 Schroders plc – Statement of financial position
at 31 December 2019
Assets
Trade and other receivables
Retirement benefit scheme surplus
Investments in subsidiaries
Total assets
Liabilities
Trade and other payables
Deferred tax
Total liabilities
Net assets
Equity at 1 January
Profit for the year
Dividends
Other changes in equity
Equity at 31 December
Notes
2019
£m
2018
£m
32
25
38
33
34
1,504.7
136.3
3,092.6
4,733.6
29.4
20.0
49.4
1,435.7
155.6
3,092.6
4,683.9
30.4
20.9
51.3
4,684.2
4,632.6
4,632.6
4,538.3
401.4
(312.3)
(37.5)
423.7
(311.7)
(17.7)
4,684.2
4,632.6
The financial statements were approved by the Board of Directors on 4 March 2020 and signed on its behalf by:
Richard Keers
Director
169
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Schroders plc – Statement of changes in equity
for the year ended 31 December 2019
At 1 January 2019
Profit for the year
Items that will not be reclassified to the income statement:
Net actuarial loss on defined benefit pension scheme
25
Tax on items taken directly to other comprehensive income
Other comprehensive income
Total comprehensive income for the year
Own shares purchased
Share-based payments
Tax in respect of share schemes
Dividends
Transactions with shareholders
Transfers
At 31 December 2019
At 1 January 2018
Restatement on adoption of IFRS 9
At 1 January 2018 (restated)
Profit for the year
36
7
Notes
Items that will not be reclassified to the income statement:
Net actuarial loss on defined benefit pension scheme
25
Tax on items taken directly to other comprehensive income
Other comprehensive income
Total comprehensive income for the year
Own shares purchased
Share-based payments
Tax in respect of share schemes
Dividends
Transactions with shareholders
Transfers
At 31 December 2018
36
7
Notes
Share
capital
£m
282.5
Share
premium
£m
Own
shares
£m
Profit and
loss
reserve
£m
124.2
(146.1)
4,372.0
Total
£m
4,632.6
401.4
(23.8)
4.0
(19.8)
401.4
(23.8)
4.0
(19.8)
381.6
381.6
–
53.2
1.0
(312.3)
(258.1)
(71.9)
53.2
1.0
(312.3)
(330.0)
–
–
–
–
–
(71.9)
–
–
–
(71.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
66.1
(66.1)
–
282.5
124.2
(151.9)
4,429.4
4,684.2
Share
capital
£m
282.5
–
282.5
Share
premium
£m
Own
shares
£m
Profit and
loss
reserve
£m
Total
£m
124.2
(150.0)
4,281.6
4,538.3
–
–
(1.1)
(1.1)
124.2
(150.0)
4,280.5
4,537.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
423.7
423.7
(11.5)
2.0
(9.5)
(11.5)
2.0
(9.5)
414.2
414.2
(66.7)
–
–
–
(66.7)
–
60.3
(0.7)
(311.7)
(252.1)
(66.7)
60.3
(0.7)
(311.7)
(318.8)
70.6
(70.6)
–
282.5
124.2
(146.1)
4,372.0
4,632.6
The distributable profits of Schroders plc are £2.9 billion (2018: £2.8 billion) and comprise retained profits of £3.0 billion (2018: £2.9 billion),
included within the ‘Profit and loss reserve’, less amounts held within the own shares reserve.
The Group’s ability to pay dividends is however restricted by the need to hold regulatory capital and to maintain sufficient other operating capital
to support its ongoing business activities. In addition, the Group invests in its own funds as seed capital for the purposes of supporting new
investment strategies. An analysis of the Group’s capital position is provided in note 20.
170
Schroders Annual Report and Accounts 2019 Schroders plc – Cash flow statement
for the year ended 31 December 2019
Profit before tax
Adjustments for:
Increase in trade and other receivables
Decrease in trade and other payables
Net credit taken in respect of the defined benefit pension scheme
Share-based payments
Amounts received in respect of Group tax relief
Net cash from operating activities
Cash flows from financing activities:
Repayment of loan received from a Group company
Acquisition of own shares
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Opening cash and cash equivalents
Net decrease in cash and cash equivalents
Closing cash and cash equivalents
30. Significant accounting policies
2019
£m
397.1
2018
£m
418.2
(68.6)
1.0
(4.5)
53.2
8.0
(76.8)
(10.0)
(4.2)
60.3
5.4
386.2
392.9
(2.0)
(71.9)
(312.3)
(386.2)
(14.5)
(66.7)
(311.7)
(392.9)
–
–
–
–
–
–
–
–
The separate financial statements of Schroders plc (Company) have been prepared on a going concern basis in accordance with the
Companies Act 2006 (Act) applicable to companies reporting under IFRS, and accounting policies that have been applied consistently.
As permitted by the Act, the separate financial statements have been prepared in accordance with IFRS (as adopted by the European Union),
which comprises standards and interpretations approved by either the International Accounting Standards Board or the IFRS Interpretations
Committee or their predecessors, as at 31 December 2019. The Company has taken advantage of the exemption in section 408 of the Act not
to present its own income statement and statement of comprehensive income.
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those
set out in the Group’s financial statement note disclosures, where applicable. In addition, note 38 sets out the accounting policy in respect of
investments in subsidiary undertakings.
171
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Schroders plc – Notes to the accounts
31. Expenses and other disclosures
The auditor’s remuneration for audit services to the Company was £0.6 million (2018: £0.6 million). There were no fees relating to further
assurance services in the year (2018: nil).
Key management personnel compensation
The remuneration policy is described in more detail at schroders.com/directors-remuneration-policy. The Company has no employees. The key
management personnel of the Company are defined as the Board of Directors. The remuneration of key management personnel during the year
was as follows:
Type of remuneration
Typical composition of this type of benefit
Short-term employee benefits
Salary and upfront bonus
Share-based payments
Other long-term benefits
Deferred share awards
Deferred cash awards
32. Trade and other receivables
Amounts due from subsidiaries
Other receivables
2019
£m
6.4
4.1
3.8
14.3
2018
£m
6.8
1.7
2.3
10.8
2019
£m
2018
£m
1,496.3
1,427.9
8.4
7.8
1,504.7
1,435.7
Trade and other receivables are initially recorded at fair value and subsequently at amortised cost. All trade and other receivables are due within
one year or repayable on demand.
Expected credit losses on trade and other receivables at 31 December 2019 were £1.2 million (2018: £1.1 million). Note 20 sets out the details of
the expected credit loss calculation.
33. Trade and other payables
Trade and other payables held at amortised cost:
Social security
Accruals
Amounts owed to subsidiaries
2019
2018
Non-current
£m
Current
£m
Total
£m
Non-current
£m
Current
£m
1.5
3.9
–
5.4
1.5
7.8
14.7
24.0
3.0
11.7
14.7
29.4
3.0
4.5
–
7.5
The Company’s trade and other payables mature in the following time periods:
Less than one year
1 – 2 years
2 – 3 years
3 – 4 years
Total
£m
5.2
17.7
7.5
30.4
2018
£m
22.9
4.6
2.0
0.9
7.5
2.2
13.2
7.5
22.9
2019
£m
24.0
2.3
3.1
–
5.4
Amounts owed to subsidiaries include an interest-bearing loan of £5.0 million (2018: £7.0 million) that is repayable on demand.
29.4
30.4
172
Schroders Annual Report and Accounts 2019 34. Deferred tax
At 1 January
Income statement charge
Income statement charge/(credit) due to changes in tax rates
Credit to statement of other comprehensive income
Charge taken to equity
At 31 December
Deferred
employee
awards
£m
(5.5)
2.3
0.1
–
–
2019
Pension
surplus
£m
26.4
0.8
(0.1)
(4.5)
0.5
Total
£m
20.9
3.1
–
(4.5)
0.5
(3.1)
23.1
20.0
Deferred
employee
awards
£m
(7.8)
1.3
–
–
1.0
(5.5)
2018
Pension
surplus
£m
27.7
0.7
–
(2.0)
–
Total
£m
19.9
2.0
–
(2.0)
1.0
26.4
20.9
35. Financial instrument risk management
The Company’s policy is to have adequate capital for all activities undertaken in the normal course of business. In particular, it should have
adequate capital to maintain sufficient liquid funds to meet peak working capital requirements. Generally, surplus capital is loaned back to
the Group’s investment capital management entities.
The risk management processes of the Company are aligned with those of the Group as a whole. Details of the Group’s risk management
processes are outlined in the ‘Key risks and mitigations’ section within the Strategic report and the ‘Risk and internal controls’ section within
the Audit and Risk Committee report as well as in note 20. The Company’s specific risk exposures are explained below.
Credit risk
The Company has exposure to credit risk from its normal activities where the risk is that a counterparty will be unable to pay in full amounts
when due. The Company’s counterparties are predominantly its subsidiaries and therefore there is minimal external credit risk exposure.
Liquidity risk
Liquidity risk is the risk that the Company cannot meet its obligations as they fall due or can only do so at a cost. The Group’s liquidity policy is
to maintain sufficient liquidity to cover any cash flow funding, meet all obligations as they fall due and maintain solvency. The Company holds
sufficient liquid funds to cover its needs in the normal course of business. The Company can recall intercompany loans to subsidiaries or utilise
the Group loan facility to maintain sufficient liquidity.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in market interest
rates.
At 31 December 2019, if interest rates had been 75 bps higher (2018: 100 bps higher) or 50 bps lower (2018: 50 bps lower) with all other variables
held constant, the Company estimates that post-tax profit for the year would have increased by £8.7 million (2018: increased by £11.0 million)
or decreased by £5.8 million (2018: decreased by £5.5 million) respectively. These changes are mainly as a result of net interest income on the
Company’s interest-bearing intercompany receivables and payables and cash. Other components of equity are not directly affected by interest
rate movements.
The model used to calculate the effect on post-tax profits does not take into account the indirect effect of interest rates on the fair value of other
assets and liabilities.
Foreign exchange and pricing risk
Foreign exchange risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign
exchange rates. Pricing risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market
prices. The Company is not directly exposed to foreign exchange or pricing risk. The Company’s investments in its directly-held subsidiaries are
in sterling and are held at historic cost. It has indirect exposure to foreign exchange and pricing risk in the Group, which could result in the
impairment of these subsidiaries. There are currently sufficient resources in subsidiaries to absorb any normal market events.
36. Own shares
Movements in own shares during the year were as follows:
At 1 January
Own shares purchased
Awards vested
At 31 December
2019
£m
2018
£m
(146.1)
(150.0)
(71.9)
66.1
(66.7)
70.6
(151.9)
(146.1)
During the year 2.5 million own shares (2018: 2.1 million own shares) were purchased and held for hedging share-based awards. 2.5 million
shares (2018: 2.6 million shares) awarded to employees vested in the period and were transferred out of own shares.
173
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Schroders plc – Notes to the accounts continued
36. Own shares continued
The total number of shares in the Company held within the Company’s employee benefit trusts comprise:
Ordinary shares
Non-voting ordinary shares
Ordinary shares:
Cost
Fair value
Non-voting ordinary shares:
Cost
Fair value
Total:
Cost
Fair value
Number of
vested
shares
Millions
2.0
–
2.0
Vested
shares
£m
44.2
66.4
0.2
0.7
44.4
67.1
2019
Number of
unvested
shares
Millions
5.5
0.1
5.6
2019
Unvested
shares
£m
151.2
184.6
0.7
1.0
Total
Millions
7.5
0.1
7.6
Total
£m
195.4
251.0
0.9
1.7
151.9
185.6
196.3
252.7
Number of
vested
shares
Millions
2.6
–
2.6
Vested
shares
£m
57.5
65.0
0.2
0.7
57.7
65.7
2018
Number of
unvested
shares
Millions
5.5
0.1
5.6
2018
Unvested
shares
£m
144.9
133.9
1.2
1.4
Total
Millions
8.1
0.1
8.2
Total
£m
202.4
198.9
1.4
2.1
146.1
135.3
203.8
201.0
37. Related party transactions
The Company is not deemed to be controlled or jointly controlled by a party directly or through intermediaries under IFRS. As a result, the
related parties of the Company comprise principally subsidiaries, joint ventures and associates, key management personnel, close family
members of key management personnel and any entity controlled by those parties.
The Company has determined that key management personnel comprises only the Board of Directors.
Transactions between related parties
Details of transactions between the Company and its subsidiaries, which are related parties of the Company, and transactions between the
Company and other related parties, excluding compensation (which is set out in note 31), are disclosed below:
Subsidiaries of the Company
Key management personnel
Subsidiaries of the Company
Key management personnel
Revenue
£m
418.0
0.3
Expenses
£m
18.5
–
Revenue
£m
447.0
0.4
Expenses
£m
22.4
–
2019
Interest
receivable
£m
8.5
–
2018
Interest
receivable
£m
5.6
–
Interest
payable
£m
Amounts owed
by related
parties
£m
Amounts owed
to related
parties
£m
0.1
(0.1)
1,496.3
–
(14.7)
(46.3)
Interest
payable
£m
Amounts owed
by related
parties
£m
Amounts owed
to related
parties
£m
0.2
0.1
1,427.9
3.8
(7.5)
(42.5)
Transactions with related parties were made at market rates. The amounts outstanding are unsecured and will be settled in cash.
174
Schroders Annual Report and Accounts 2019 38. Subsidiaries and other related undertakings
The Group operates globally, which results in the Company having a corporate structure consisting of a number of related undertakings,
comprising subsidiaries, joint ventures, associates and other qualifying undertakings. A full list of these undertakings, the country of
incorporation, registered office, classes of shares held and the effective percentage of equity owned at 31 December 2019 is disclosed below.
Additionally, related undertakings include entities where the Company has a significant holding of a share class or unit class of a pooled
vehicle. These holdings can arise through the Group’s investment management activities on behalf of clients or as part of the stated aim of
generating a return on investment capital. Additionally, the seeding of structured entities in order to develop new investment strategies can
give rise to these holdings. A listing of related undertakings arising from the Company’s interest in structured entities along with registered
offices is included on pages 183 to 185.
(a) Related undertakings arising from the Company’s corporate structure
Principal subsidiaries
The principal subsidiaries listed below are those that, in the opinion of the Directors, principally affect the consolidated profits or net assets of
the Company, or are regulated. The principal subsidiary entities are wholly-owned subsidiary undertakings of the Company, unless otherwise
stated. All undertakings operate in the countries where they are registered or incorporated and are stated at cost less, where appropriate,
provision for impairment.
Name
UK
Aspect8 Limiteda
Best Practice IFA Group Limiteda
Evolution Wealth Network Limiteda
Fusion Funds Limiteda
Fusion Wealth Limiteda
Leadenhall Securities Corporation Limited
Schroder & Co. Limited
Schroder Administration Limitedb
Schroder Corporate Services Limited
Schroder Financial Services Limited
Schroder Investment Company Limited
Schroder Investment Management Limited
Schroder Investment Management North America Limited
Schroder Pension Management Limited
Schroder Real Estate Investment Management Limited
Schroder Unit Trusts Limited
Schroder Wealth Management (US) Limited
Argentina
Schroder Investment Management S.A.
Australia
Share class
% Address
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
86.8% Holmwood House, Langhurstwood Road, Horsham, RH12 4QP, England
86.8%
86.8%
86.8%
86.8%
100% 1 London Wall Place, London, EC2Y 5AU, England
80.1%
100%
100%
100%
100%
100%
100%
100%
100%
100%
80.1%
95% Ing.Enrique Butty 220, Piso 12, Buenos Aires, C1001AFB, Argentina
Schroder Investment Management Australia Limited
OS, CPS
100% Level 20, Angel Place, 123 Pitt Street, Sydney, NSW 2000, Australia
Bermuda
Schroders (Bermuda) Limited
Brazil
Schroder Investment Management Brasil Ltda
China
Schroder Adveq Equity Investment Fund Management (Shanghai)
Co., Ltd.
Schroder Investment Management (Shanghai) Co., Ltd.
France
Schroder Real Estate (France)
Schroder AIDA SAS
Germany
Schroder Real Estate Investment Management GmbH
Schroder Real Estate Kapitalverwaltungsgesellschaft mbH
OS
OS
OS
OS
OS
OS
OS
OS
100% Wellesley House, 2nd Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda
100% 100 Joaquim Floriano, 14th Floor, Suite 142, Itaim Bibi, São Paulo, São
Paulo, 04534000, Brazil
100% Unit 33T52B, 33F, Shanghai World Financial Centre, 100 Century Avenue,
FTZ, Shanghai, China
100%
100% 1 rue Euler, 75008, Paris, France
70%
100% Taunustor 1, 60310, Frankfurt, Germany
100%
175
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Schroders plc – Notes to the accounts continued
38. Subsidiaries and other related undertakings continued
(a) Related undertakings arising from the Company’s corporate structure continued
Principal subsidiaries continued
Name
Guernsey
Burnaby Insurance (Guernsey) Limited
Schroders (C.I.) Limited
Schroder Investment Company (Guernsey) Limited
Schroder Investment Management (Guernsey) Limited
Share class
% Address
OS
OS
OS
OS
100% Heritage Hall, Le Marchant Street, St Peter Port, Guernsey, GY1 4JH,
Channel Islands
100% PO Box 334, Regency Court, Glategny Esplanade, St Peter Port, Guernsey,
GY1 3UF, Channel Islands
100%
100%
Schroder Venture Managers (Guernsey) Limited
OS, NCRPS 100%
Hong Kong
Schroder Adveq Management (Hong Kong) Limited
Schroder & Co. (Hong Kong) Limited
Schroder Investment Management (Hong Kong) Limited
Indonesia
PT Schroder Investment Management Indonesia
Ireland
Schroder Investment Management (Ireland) Limited
Japan
Schroder Investment Management (Japan) Limited
Jersey
Schroder Real Estate Managers (Jersey) Limited
Luxembourg
BlueOrchard Asset Management Luxembourg S.A.c
Schroder Investment Management (Europe) S.A.
OS
OS
OS
OS
OS
OS
OS
OS
OS
100% Sutie 616, 100 Queen’s Road Central, Central, Hong Kong, Hong Kong
100% Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, Hong Kong
100% Level 33, Two Pacific Place, 88 Queensway, Hong Kong, Hong Kong
99% 30th Floor, Indonesia Stock Exchange Building, Tower 1, Jl Jendral Sudirman
Kav 52-53, Jakarta, 12190, Indonesia
100% George’s Court, 54-62 Townsend Street, Dublin 2, Ireland
100% 8-3, Marunouchi 1-chome, Chiyoda-ku, Tokyo, 100-0005, Japan
100% 40 Esplanade, St Helier, Jersey, JE4 9WB, Channel Islands
70% 1 rue Goethe, L-1637, Luxembourg
100% 5 rue Höhenhof, L-1736 Senningerberg, Luxembourg
Schroder Real Estate Investment Management (Luxembourg) S.à.r.l. OS
100%
Mexico
Consultora Schroders, S.A. de C.V.d e
Singapore
Schroder & Co (Asia) Limited
Schroder Investment Management (Singapore) Ltd.
South Korea
Schroders Korea Limited
Switzerland
BlueOrchard Finance AG
Schroder Adveq Management AG
Schroder & Co Bank AG
Schroder Investment Management (Switzerland) AG
Taiwan
Schroder Investment Management (Taiwan) Limited
United States
Schroder Adveq Management US Inc.
Schroder Canada Inc.
Schroder Fund Advisors LLC
Schroder Investment Management North America Inc.
Schroder US Holdings Inc.
OS
99% Montes Urales 760 Desp. 101, Col. Lomas de Chapultepec, Mexico, DF,
11000, Mexico
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
COS
COS
COS
80.1% 138 Market Street, #23-02, CapitaGreen, Singapore, 048946, Singapore
100%
100% 26th fl., 136, Sejong-daero, Jung-gu, Seoul 100-768, Korea
70% Seefeldstrasse 233, 8008, Zurich, Switzerland
100% Affolternstrasse 56, 8050, Zurich, Switzerland
100% Central 2, 8021, Zurich, Switzerland
100%
100% 9/F, 108 Sec.5, Hsin-Yi Road, Hsin-Yi District, Taipei 11047, Taiwan
100% Corporate Trust Center, 1209 Orange Street, Wilmington, Delaware,
19801, USA
100% 7 Bryant Park, New York, New York, 10018, USA
100%
100%
100% National Registered Agents, Inc., 160 Greentree Drive, Suite 101, Dover,
Delaware, 19904, USA
176
Schroders Annual Report and Accounts 2019 38. Subsidiaries and other related undertakings continued
(a) Related undertakings arising from the Company’s corporate structure continued
Fully-owned subsidiaries
Name
UK
Adveq Founder Partner (GP) Limited
Adveq Founder Partner Limited
Adveq GP LLP
Algonquin Management Partners (UK) Ltd
Croydon Gateway Nominee 1 Limited
Croydon Gateway Nominee 2 Limited
Gatwick Hotel Feeder GP LLP
J. Henry Schroder Wagg & Co. Limitedf
Schroder Financial Holdings Limited
Schroder Infra Debt GP LLP
Schroder International Holdings Limited
Schroder Nominees Limitedf
Schroder Pension Trustee Limited
Schroder Private Assets Holdings Limited
Schroder Wealth International Holdings Limited
The Lexicon Management Company Limited
UK PEM Partners Limited
Cazenove Capital Management Limited (In Liquidation)
Schroder Adveq Management (UK) Limited (In Liquidation)
Australia
Schroder Australia Holdings Pty Limited
Austria
Schroder Real Estate Asset Management Österreich GmbH
Belgium
Algonquin Management Partners S.A.
Bermuda
Schroder General Partner (Bermuda) Limited
Schroder Management Company (Bermuda) Limited
Schroder Venture Managers Limited
SITCO Nominees Limited
Canada
Schroder Canada Investments Inc.
Cayman Islands
AEROW SMA Management I L.P.
AEROW SMA Management II L.P.
PEM Partners Ltd
Schroder Adveq cPl Global Management III L.P.
Chile
Schroders Chile SpA
China
Schroder Adveq Investment Management (Beijing) Co., Ltd.
Curaçao
Schroder Adveq Investors B.V.
cPl Schroder Adveq Investments Management B.V
Schroder Adveq Management N.V
France
Holdco LC Paris Blomet SAS
Germany
Blitz 06-953 GmbH
Real Neunzehnte Verwaltungsgesellschaft mbH
Schroder Adveq Management Deutschland GmbH
Schroder Eurologistik Fonds Verwaltungs GmbH
Share class
% Address
OS
OS
PI
OS
OS
OS
PI
OS
OS
PI
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
COS
OS
COS
PI
PI
OS
PI
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
100% 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ, Scotland
100%
100%
100% 5 Elstree Gate, Elstree Way, Borehamwood, Hertfordshire, WD6 1JD, England
100% 1 London Wall Place, London, EC2Y 5AU, England
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100% CVR Global LLP, Town Wall House, Balkerne Hill, Colchester, Essex,
CO3 3AD, England
100%
100% Level 20, Angel Place, 123 Pitt Street, Sydney, NSW 2000, Australia
100% Zwerchäckerweg 2-10, 1220 Vienna, Austria
100% Avenue Louise, 523 – 1050 Bruxelles, Belgium
100% Wellesley House, 2nd Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda
100%
100%
100%
100% Cidel Financial Group, 60 Bloor Street West, 9th Floor, Toronto, Ontario,
M4W 3B8, Canada
100% Maples & Calder, PO Box 309 GT, Ugland House, South Church Street,
George Town, Grand Cayman, Cayman Islands
100%
100%
100%
100% Avenida Cerro El Plomo 5420 Oficina 1104, Les Condes, Santiago, Chile
100% Room 1929-1932, Winland International Finance Centre, 7 Finance Street,
Xicheng District, Beijing, China
100% Johan van, Walbeeckplein 11, Willemstad, Curaçao
100%
100%
100% 1 rue Euler, 75008, Paris, France
100% Taunustor 1, 60310, Frankfurt, Germany
100%
100%
100%
177
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Schroders plc – Notes to the accounts continued
38. Subsidiaries and other related undertakings continued
(a) Related undertakings arising from the Company’s corporate structure continued
Fully-owned subsidiaries continued
Share class
% Address
Name
Germany (continued)
Schroder Holdings (Deutschland) GmbH
Schroder Italien Fonds Verwaltungs GmbH
SPrIM Holdings GmbH
SIMA 5 Verwaltungsgesellschaft mbH
Schroder Real Estate Asset Management GmbH
Schroder Real Estate Asset Management Austria GmbH
Guernsey
Schroder Investments (Guernsey) Limited
Schroder Nominees (Guernsey) Limited
SQ Revita I Limited
Secquaero Re (Guernsey) ICC Ltd
Hong Kong
Schroders Asia Nominees Limited
S & C Nominees Limited
Jersey
AAF Management II L.P.
AAF Management III L.P.
BKMS Management L.P.
BKMS Management II L.P.
Cresta Management L.P.
Cresta Management II L.P.
EEM Management II L.P.
EEM Opportunities Management L.P.
Gemini Management L.P.
GPEP Management IV L.P.
ICD Management L.P.
IST3 Manesse PE Management L.P.
IST3 Manesse PE2 Management L.P.
Milele Partners L.P.
SA-EL Asia Partners I L.P.
SA-EL Asia Partners II L.P.
SA RP CO Management 1 L.P.
SA (Project Golden Bear) Management L.P.
Salève 2017 Management L.P.
Salève 2020 Management L.P.
Schroder Adveq Asia Partners V L.P.
Schroder Adveq EEM Management I L.P.
Schroder Adveq Europe Direct Partners II L.P.
Schroder Adveq Europe Partners VII L.P.
Schroder Adveq Europe Partners VIII L.P.
Schroder Adveq Global Partners II L.P.
Schroder Adveq Healthcare Partners L.P.
Schroder Adveq Mature Secondaries (Orthros) Management II L.P.
Schroder Adveq Mature Secondaries (Orthros) Management III L.P.
Schroder Adveq Mature Secondaries (Orthros) Management IV L.P.
Schroder Adveq Mature Secondaries (Orthros) Management L.P.
Schroder Adveq Secondaries Management III L.P.
Schroder Adveq Technology Partners X L.P.
Schroder Adveq Technology Partners IX L.P.
CS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
Schroder Adveq Shanghai Private Equity Investment Management L.P. PI
Schroder Adveq US Partners V L.P.
SC-SA Co-Invest Opportunities 2018 Management L.P.
PI
PI
178
100% Taunustor 1, 60310, Frankfurt, Germany
100%
100%
100%
100% Maximilianstrasse 31, 80539 München, Germany
100%
100% PO Box 334, Regency Court, Glategny Esplanade, St Peter Port,
Guernsey, GY1 3UF, Channel Islands
100%
100%
100% PO Box 33, Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 4AT,
Channel Islands
100% Level 33, Two Pacific Place, 88 Queensway, Hong Kong, Hong Kong
100%
100% 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Schroders Annual Report and Accounts 2019 38. Subsidiaries and other related undertakings continued
(a) Related undertakings arising from the Company’s corporate structure continued
Fully-owned subsidiaries continued
Name
Jersey (continued)
TMC Management III L.P.
TMC Management IV L.P.
TMCO Management I L.P.
Wilmersdorf Secondary Management II L.P.
Cazenove Capital Holdings Limited
Croydon Gateway GP Limited
Croydon Gateway Investments Limited
Income Plus Real Estate Debt GP Limited
Schroder Adveq Management Jersey Ltd
UK Retirement Living Fund (ReLF) GP Limited
Luxembourg
Schroder Euro Enhanced Infra Debt Fund II GP S.à.r.l.
Schroder European Operating Hotel GP S.à.r.l.
SNI Management S.à.r.l.
SRE Invest SCSp
UK Retirement Living GP S.à.r.l.
Schroder Adveq Europe Management VIII S.à.r.l.
Schroder Adveq Healthcare Management S.à.r.l.
Schroder Adveq Management Luxembourg S.à.r.l.
Schroder Adveq Technology Management X S.à.r.l.
Schroder Adveq US Management V S.à.r.l.
Schroder Adveq Asia Management V S.à.r.l.
Netherlands
Schroder International Finance B.V.
Singapore
Schroder Singapore Holdings Private Limited
SIMBL Nominees Private Limited
Switzerland
Schroder Real Estate Management Switzerland GmbH
Schroder Adveq Holding AG
Schroder Trust AG (In Liquidation)
United States
Schroders Incorporated
Schroder Venture Managers Inc.
Schroder FOCUS II GP, LLC
Schroder FOCUS II-L GP, LLC
Schroder Securitized Credit Flexible Opportunities GP, LLC
Share class
% Address
PI
PI
PI
PI
OS
OS
OS
OS
OS
OS
OS
OS
OS
PI
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
COS
COS
PI
PI
PI
100% 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands
100%
100%
100%
100% 44 Esplanade, St Helier, Jersey, JE4 9WG, Channel Islands
100% 40 Esplanade, St Helier, Jersey, JE2 9WB, Channel Islands
100%
100%
100%
100%
100% 5 rue Höhenhof, L-1736 Senningerberg, Luxembourg
100%
100%
100%
100% 6C rue Gabriel Lippmann, Munsbach, L-5365, Luxembourg
100%
100%
100%
100%
100%
100%
100% 1 London Wall Place, London, EC2Y 5AU, England
100% 138 Market Street, #23-02, CapitaGreen, Singapore, 048946, Singapore
100%
100% PKF Consulting AG, Lavaterstrasse 40, 8002, Zurich, Switzerland
100% Affolternstrasse 56, 8050, Zurich, Switzerland
100% P.O. Box 3655, 8 rue d’italie, 1204, Geneva, Switzerland
100% 9 East Loockerman Street, Dover, Delaware, 19901, USA
100% 7 Bryant Park, New York, New York, 10018, USA
100% 1209 Orange Street, Wilmington, Delaware, 19801, USA
100%
100%
179
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Schroders plc – Notes to the accounts continued
38. Subsidiaries and other related undertakings continued
(a) Related undertakings arising from the Company’s corporate structure continued
Subsidiaries where the ownership is less than 100%
Name
UK
Alderbrook Financial Planning Limiteda f
Benchmark Capital Limitedd
Brian Potter Consultants Limiteda f
Bright Square Pensions Limiteda
Chilcomb Wealth Ltda
Creative Technologies Limiteda
CT Connecta f
GYP Limiteda
Invicta Independent Financial Advisers Limiteda f
PP Nominees Limiteda
PP Trustees Limiteda
RIA Pension Trustees Limiteda
Richard Martin Financial Solutions Limiteda f
Squirrel Financial Planning Limiteda
Mitchell & Company Holdings (Reigate) Limiteda
Mitchell & Company (IFA) Limiteda
Redbourne Wealth Management Ltda
Cazenove New Europe (CFM1) Limitedf
Cazenove New Europe (PPI) Limitedf
Cazenove New Europe Staff Interest Limitedf
CCM Nominees Limitedf
Residential Land Development (GP) LLP
Schroder & Co Nominees Limitedf
Schroder Wealth Holdings Limited
Argentina
Share class
% Address
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
PI
OS
OS
86.8% Holmwood House, Langhurstwood Road, Horsham, RH12 4QP, England
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
58% Belmont House, Shrewsbury Business Park, Shrewsbury, SY2 SLG,
England
80.1% 1 London Wall Place, London, EC2Y 5AU, England
80.1%
80.1%
80.1%
67%
80.1%
80.1%
Schroder S.A. Sociedad Gerente de Fondos Comunes de Inversion
OS
95% Ing.Enrique Butty 220, Piso 12, Buenos Aires, C1001AFB, Argentina
Cayman Islands
Schroder Adveq Asia Management I L.P.
Schroder Adveq Asia Management II L.P.
Schroder Adveq cPl Global Management L.P.
Schroder Adveq cPl Global Management II L.P.
Schroder Adveq Europe Management II L.P.
Schroder Adveq Europe Management IV A L.P.
Schroder Adveq Europe Management IV B L.P.
Schroder Adveq Technology Management IV L.P.
Schroder Adveq Technology Management V L.P.
Schroder Adveq Technology Management VI L.P.
Schroder Adveq US Management I L.P
Schroder Adveq US Management II L.P.
France
Schroder Mid Infra UP
Terre et Mer Holding SAS
Schroders IDF IV UP
Germany
CM Komplementr 06-379 GmbH & Co KG
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
OS
OS
OS
OS
75% Maples & Calder, PO Box 309 GT, Ugland House, South Church Street,
George Town, Grand Cayman, Cayman Islands
65%
63%
88%
20%
59%
70%
30%
89%
65%
76%
87%
70% 1 rue Euler, 75008, Paris, France
80%
70% 8-10 rue Lamennais, 75008, Paris, France
95% Taunustor 1, 60310, Frankfurt, Germany
180
Schroders Annual Report and Accounts 2019 38. Subsidiaries and other related undertakings continued
(a) Related undertakings arising from the Company’s corporate structure continued
Subsidiaries where the ownership is less than 100% continued
Share class
% Address
Schroder Adveq Real Assets Harvested Resources Management L.P. PI
Name
Jersey
AAF Management I L.P.
GPEP Management II L.P.
GPEP Management III L.P.
Schroder Adveq Asia Management III L.P.
Schroder Adveq Asia Management IV L.P.
Schroder Adveq Europe Co-Investments Management L.P.
Schroder Adveq Europe Management V L.P.
Schroder Adveq Europe Management VI L.P.
Schroder Adveq Global Management L.P.
Schroder Adveq Secondaries Management II L.P.
Schroder Adveq Technology Management VII L.P.
Schroder Adveq Technology Management VIII L.P.
Schroder Adveq US Management III L.P
Schroder Adveq US Management IV L.P.
TMC Management I L.P.
TMC Management II L.P.
Wilmersdorf Secondary Management L.P.
Luxembourg
BlueOrchard Invest S.à r.lc
Schroder Property Services B.V.
Netherlands
NEOS Finance Group B.V.
Peru
BlueOrchard America Latina S.A.Cc
Singapore
BlueOrchard Investments Singapore PTE Ltdc
United States
Safe Harbor Re Holdings LLCg
Associates and joint ventures
Name
UK
Algonquin (Liverpool) Limited (In Liquidation)
Algonquin (York) Limited (In Liquidation)
Clarke-Walker Financial Management Limiteda
Finura Partners Limiteda
Kellands (Bristol) Limiteda
Rayner Spencer Mills Research Limiteda
Regrowth Holdings Limiteda
Nippon Life Schroders Asset Management Europe Limitedd
Social Supported Housing CIP LLP
Social Supported Housing GP LLP
Robertson Baxter Limiteda
RWC Partners Limitedd
Scottish Widows Schroder Wealth Holdings Limited
Waterhouse Financial Planning Limiteda
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
OS
OS
OS
OS
OS
48% 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands
70%
70%
53%
70%
73%
73%
74%
71%
73%
53%
46%
78%
51%
73%
54%
49%
71%
70% 1 rue Goethe, L-1637, Luxembourg
70% 5 rue Höhenhof, L-1736, Senningerberg, Luxembourg
49% The Hofpoort Building, Hofplein 20, 21st Floor, 3032 AC Rotterdam,
Netherlands
70% 184 Calle German Schreiber, Office 201, San Isidro, Lima, Peru
70%
11 Amoy Street, #02-00, Singapore, 069931, Singapore
Class S, CPS
9% National Registered Agents, Inc., 160 Greentree Dr.Suite 101 Dover,
Delaware, 19904, USA
Share class
% Address
OS
OS
OS
OS
OS
OS
OS
OS
PI
PI
OS
OS
OS
OS
20% 5 Elstree Gate, Elstree Way, Borehamwood, Hertfordshire, WD6 1JD,
England
36% 6 Snow Hill, London, EC1A 2AY, England
17% 125-135 Preston Road, Fifth Floor Telecom House, Brighton, BN1 6AF,
England
42.5% 15 Bowling Green Lane, London, EC1R 0BD, England
27% Quays Office Park, Conference Avenue, Portishead, Bristol, BS20 7LZ,
England
43% 20 Ryefield Business Park, Belton Road, Silsden, Keighley, West
Yorkshire, BD20 0EE, England
21% New Barn Manor Farm Courtyard, Southam Lane Southam, Cheltenham,
Gloucestershire, GL52 3PB, England
33% 1 London Wall Place, London, EC2Y 5AU, England
50%
50%
21% Beck House, Abbey Road, Shepley, Huddersfield, HD8 8EP, England
41% 10 Bressenden Place, Verde 4th Floor, London, SW1E 5DH, England
49.9% 25 Gresham Street, London, EC2V 7HN, England
17% 1 Carlisle Terrace, Derry, BT48 6JX, Northern Ireland
181
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Schroders plc – Notes to the accounts continued
38. Subsidiaries and other related undertakings continued
(a) Related undertakings arising from the Company’s corporate structure continued
Associates and joint ventures continued
Name
Belgium
Algonquin Astrid
Algonquin BB (In Liquidation)
China
Bank of Communications Schroder Fund Management Company
Limited
France
Algonquin France Hotels Services
JV Hotel La Villette SAS
Guernsey
Share class
% Address
PS
OS
OS
OS
OS
33% Avenue Louise, 523 – 1050 Bruxelles, Belgium
33%
30% 2nd Floor Bank of Communications Tower, 188 Middle Yincheng Road,
Pudong New Area, Shanghai, 200120, China
36% 1 rue Euler, 75008, Paris, France
50%
Schroder Ventures Investments Limited
OS, R, D
50% PO Box 255, Trafalgar Court Les Banques, St Peter Port, Guernsey, GY1
3QL, Channel Islands
India
Axis Asset Management Company Limitedh
Jersey
Bracknell General Partner Limitede
UK Retirement Living Fund (CIP) GP Limited
Luxembourg
Geres Investment II S.à.r.l
Singapore
Nippon Life Global Investors Singapore Limited
Planar Investments Private Ltd
United States
OS
OS
OS
OS
OS
OS
25% 1st Floor, Axis House C-2 Wadia International Centre, Pandurang
Budhkar Marg, Worli-Mumbai, 400025, India
50% PO Box 490, 40 Esplanade, St Helier, Jersey, JE4 9WB, Channel Islands
50%
40% 2 Avenue, Charles De Gaulle, L-1653, Luxembourg
33% 138 Market Street, #22-03, CapitaGreen, Singapore, 048946, Singapore
24.7% 1 Phillip Street, #06-02, Royal One Phillip, Singapore, 048692, Singapore
A10 Capital Parent Company LLC
COS
20% 1209 Orange Street, Wilmington, Delaware, 19801, USA
Share class abbreviations
CS
COS
NCRPS
CPS
D
OS
PI
PS
R
Capital shares.
Common stock.
Non-cumulative redeemable preference shares.
Convertible preference shares.
Deferred shares.
Ordinary shares.
Partnership interest.
Promote shares.
Redeemable preference shares.
Footnotes
a Owned through Benchmark Capital Limited.
b Held directly by the Company.
c Owned through BlueOrchard Finance AG.
d The Company holds ordinary B shares.
e The Company holds ordinary A shares.
f Dormant company.
g The Company also holds convertible loan notes,
taking the Group’s effective holding to 65%.
h Financial year end 31 March.
182
Schroders Annual Report and Accounts 2019 38. Subsidiaries and other related undertakings continued
(b) Related undertakings arising from the Company’s interests in structured entities
The Company’s related undertakings also include funds in which it holds investments. These include fully and partially owned funds that are
classified as subsidiaries. Due to the number of share classes or unit classes that can exist in these vehicles, a significant holding in a single share
class or unit class is possible without that undertaking being classified as a subsidiary or associate.
Fully owned subsidiaries
Fund Name
UK
Schroder Flexible Retirement Benefit Fund
Brazil
Schroder Core Plus FIC FIA
Luxembourg
ICBC (Europe) UCITS SICAV
Schroder ISF Alternative Securitised Income
Schroder ISF Global Credit Income Short Duration
Schroder ISF Multi-Asset PIR Italia
Share/unit class
X Accumulation
I Accumulation
Unspecified
IZ Accumulation
I Accumulation
C Accumulation
Schroder Property FCP – FIS – Schroder Property German Residential Fund
B
SIF Global Credit Opportunities
I Accumulation
Subsidiaries where the ownership is less than 100%
Fund Name
UK
Schroder Advanced Beta Global Equity Value Fund
Schroder Diversified Growth Fund
Schroder Dynamic Multi Asset Fund
Schroder Dynamic Planner Portfolio 3
Schroder Dynamic Planner Portfolio 4
Schroder Dynamic Planner Portfolio 5
Schroder Dynamic Planner Portfolio 6
Schroder Dynamic Planner Portfolio 7
Schroder Global Emerging Markets Fund
Schroder ISF Sustainable EURO Credit
Schroder Long Dated Corporate Bond Fund
Schroder Multi-Asset Total Return Fund
Schroder QEP Global Active Value Fund
Schroder QEP Global Emerging Markets
Schroder Responsible Value UK Equity Fund
Schroder Securitized Credit Fund Limited
Schroder Sustainable Multi-Factor Equity Fund
Australia
Schroder Absolute Return Income Fund
Brazil
Schroder Best Ideas FIA
Schroder Fundo de Investimento Multimercardo Low Vol
Japan
Schroder Global CB Fund PPIT Unhedged
Schroder Global CB PPIT Hedged
Schroder YEN Target (Semi-Annual)
Luxembourg
Schroder Alternative Solutions Argentine Bond Fund
Schroder Alternative Solutions Asian Long Term Value Fund
Schroder Alternative Solutions Commodity Total Return Fund
Schroder Alternative Solutions Commodity Total Return Fund
Schroder Alternative Solutions Commodity Total Return Fund
Share/unit class
X Accumulation
I Accumulation
Z Accumulation
Z Accumulation
Z Accumulation
Z Accumulation
Z Accumulation
Z Accumulation
A Accumulation
I Accumulation
I Accumulation
X Accumulation
I Accumulation
I Accumulation
I Accumulation
A Distribution
X Accumulation
W Distribution
Unspecified
Unspecified
Unspecified
Unspecified
Unspecified
C Accumulation
I Accumulation
I Accumulation GBP Hedged
I Accumulation EUR Hedged
I Accumulation
Holding in
share/unit class
Total holding
in undertaking
via share/unit class
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Holding in
share/unit class
Total holding
in undertaking
via share/unit class
86%
95%
58%
87%
51%
56%
76%
80%
65%
55%
76%
99%
96%
92%
86%
89%
92%
93%
99%
99%
64%
53%
72%
95%
82%
99%
69%
98%
86%
95%
55%
87%
50%
56%
76%
80%
41%
55%
40%
59%
40%
88%
53%
89%
92%
93%
99%
99%
64%
53%
72%
89%
81%
9%
0%
89%
183
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Schroders plc – Notes to the accounts continued
38. Subsidiaries and other related undertakings continued
(b) Related undertakings arising from the Company’s interests in structured entities continued
Subsidiaries where the ownership is less than 100% continued
Fund Name
Luxembourg (continued)
Schroder GAIA Helix
Schroder GAIA Helix
Schroder GAIA II NGA Turnaround
Schroder GAIA II Specialist Private Equity
Schroder GAIA Nuveen US Equity Long Short
Schroder GAIA Nuveen US Equity Market Neutral
Schroder ISF Alternative Risk Premia
Schroder ISF Emerging Markets Equity Alpha
Schroder ISF European Large Cap
Schroder ISF European Sustainable Equity
Schroder ISF Global Credit Value
Schroder ISF Global Disruption
Schroder ISF Global Sustainable Convertible Bond
Schroder ISF Healthcare Innovation
Schroder ISF QEP Global Equity Market Neutral
Schroder ISF QEP Global Equity Market Neutral
Schroder ISF QEP Global Equity Market Neutral
United States
Share/unit class
Holding in
share/unit class
Total holding
in undertaking
via share/unit class
I Accumulation
100%
C Accumulation GBP Hedged 96%
I Accumulation
Unspecified
I Accumulation
I Accumulation
I Accumulation
I Accumulation
I Accumulation
I Accumulation
I Accumulation
I Accumulation
I Accumulation
I Accumulation
I Accumulation
100%
34%
50%
50%
42%
33%
71%
60%
99%
61%
47%
100%
100%
I Accumulation EUR Hedged
87%
I Accumulation GBP Hedged
100%
72%
0%
70%
34%
50%
48%
33%
33%
61%
59%
99%
52%
38%
99%
4%
0%
55%
50%
Hartford Schroders Opportunistic Income Fund
Unspecified
50%
Associates
Fund Name
UK
Schroder Advanced Beta Global Equity Small and Mid Cap Fund
Schroder Fusion Managed Defensive Fund
Schroder Fusion Portfolio 3
Schroder India Equity
Japan
Schroder YEN Target (Annual)
Luxembourg
Schroder ISF Dynamic Indian Income Bond
United States
Share/unit class
X Accumulation
F Accumulation
F Accumulation
X Accumulation
Unspecified
I Accumulation
Schroder Absolute Return Emerging Markets Debt Portfolio LP
Unspecified
Significant holdings in structured entities not classified as subsidiaries or associates
Holding in
share/unit class
Total holding
in undertaking
via share/unit class
87%
35%
25%
29%
34%
45%
21%
39%
35%
25%
28%
34%
45%
21%
Fund Name
UK
Schroder Advanced Beta Global Corporate Bond Fund
Schroder Advanced Beta Global Sovereign Bond Fund
Schroder All Maturities Corporate Bond Fund
Schroder European Fund
Schroder Global Equity Fund
Schroder Institutional Developing Markets Fund
Schroder Institutional Pacific Fund
Schroder QEP Global Core Fund
Schroder Sterling Broad Market Bond Fund
Schroder UK Mid 250 Fund
Schroder US Equity Income Maximiser
Schroders Global Multi Factor Equity Fund
184
Share/unit class
Holding in
share/unit class
Total holding
in undertaking
via share/unit
class
X Accumulation
X Accumulation
I Accumulation
I Income
I Accumulation
B Income
I Accumulation
I Accumulation
I Accumulation
L Accumulation
36%
61%
43%
35%
34%
95%
39%
34%
66%
39%
L Accumulation GBP Hedged 79%
X Accumulation
36%
12%
16%
13%
3%
19%
11%
14%
11%
8%
7%
0%
7%
Schroders Annual Report and Accounts 2019 38. Subsidiaries and other related undertakings continued
(b) Related undertakings arising from the Company’s interests in structured entities continued
Significant holdings in structured entities not classified as subsidiaries or associates continued
Fund Name
Cayman Islands
Share/unit class
Holding in
share/unit class
Total holding
in undertaking
via share/unit
class
Musashi Smart Premia Fund (Exclusively for Qualified Institutional Investors with Re-Sale
Restriction for the Japanese Investors)
Musashi Smart Premia Fund (Exclusively for Qualified Institutional Investors with Re-Sale
Restriction for the Japanese Investors)
B
C
100%
100%
Luxembourg
Schroder Alternative Solutions Agriculture Fund
Schroder Alternative Solutions Agriculture Fund
Schroder Alternative Solutions Agriculture Fund
Schroder Alternative Solutions Commodity Fund
Schroder GAIA BlueTrend
Schroder GAIA Two Sigma Diversified
Schroder ISF Asian Local Currency Bond
Schroder ISF China A
Schroder ISF Emerging Markets Debt Absolute Return
Schroder ISF Emerging Markets Debt Absolute Return
Schroder ISF Global Credit Income
Schroder ISF Global Energy
Schroder ISF Global Gold
Schroder ISF Global Gold
Schroder ISF Global High Yield
Schroder ISF Global Multi-Asset Balanced
Schroder ISF Global Recovery
Schroder ISF Global Target Return
Schroder ISF Middle East
Schroder ISF Multi-Asset Total Return
Schroder ISF QEP Global ESG
Schroder ISF QEP Global Value Plus
Schroder ISF Strategic Beta
Schroder ISF Strategic Bond
Schroder ISF Swiss Equity Opportunities
Schroder ISF US Large Cap
Schroder Property FCP – FIS – Schroder Property Eurologistics Fund No.1 (A)
Schroder Property FCP – FIS – Schroder Property Eurologistics Fund No.1 (B)
I Accumulation
99%
I Accumulation EUR Hedged
100%
I Accumulation GBP Hedged
94%
I Accumulation GBP Hedged
100%
I Accumulation CHF Hedged
C Accumulation
I Accumulation
I Accumulation
67%
59%
100%
29%
I Accumulation EUR Hedged
100%
I Accumulation
I Accumulation
I Accumulation
31%
100%
100%
I Accumulation EUR Hedged
99%
I Accumulation
100%
I Accumulation GBP Hedged
49%
I Accumulation CHF Hedged
100%
I Accumulation
I Accumulation
I Accumulation
I Accumulation EUR Hedged
I Accumulation
I Accumulation
I Accumulation
23%
52%
100%
98%
39%
100%
99%
I Accumulation EUR Hedged
100%
I Accumulation
I Accumulation
B
B
21%
38%
100%
100%
0%
1%
0%
0%
0%
0%
1%
10%
0%
12%
0%
6%
0%
0%
0%
1%
0%
2%
1%
11%
0%
0%
11%
7%
2%
0%
1%
7%
1%
3%
The registered offices for each of the related undertakings listed on page 183 to 185 and in the table above are reflected by country below:
UK
1 London Wall Place, London, EC2Y 5AU, England
Australia
Level 20, Angel Place, 123 Pitt Street, Sydney, NSW 2000, Australia
Brazil
Av. Presidente Wilson, nº 231, 11º andar, Rio de Janeiro, Brazil
Cayman Islands
Maples Corporate Services Limited, Ugland House, PO Box 309, Grand Cayman,
KY11-1104, Cayman Islands
Japan
The registered office for the following related undertakings is 1-8-3 Marunouchi
Chiyoda-Ku, Tokyo, Japan
Schroder Global CB Fund PPIT Unhedged
Schroder Global CB PPIT Hedged
The registered office for the following related undertakings is 1-1 Chuo-ku,
Saitama City, Saitama Shintoshin Godo Choushya 1st Building, Saitama
Prefecture, 330-9716, Japan
Schroder YEN Target (Annual)
Schroder YEN Target (Semi-Annual)
Luxembourg
The registered office for the Luxembourg related undertakings is 5 rue
Höhenhof, L-1736 Senningerberg, Luxembourg, except for the following:
The registered office for the following related undertakings is 80, route d’Esch,
L-1470 Luxembourg
ICBC (Europe) UCITS SICAV
Schroder Property FCP-FIS – Schroder Property German Residential Fund
Schroder Property FCP-FIS – Schroder Property EuroLogistics Fund No.1 (A)
Schroder Property FCP-FIS – Schroder Property EuroLogistics Fund No.1 (B)
United States
The registered office for the following related undertaking is 7 Bryant Park, New
York, New York, 10018, USA
Schroder Absolute Return Emerging Markets Debt Portfolio LP
The registered office for the following related undertaking is C/O Corporation
Service Company, Wilmington, Delaware, 19808, USA
Hartford Schroders Opportunistic Income Fund
185
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Independent auditor’s report to the members
of Schroders plc
Opinion
In our opinion, the financial statements of Schroders plc (the ‘Parent company’) and its subsidiaries (collectively, the ‘Group’):
– give a true and fair view of the state of the Group’s and of the Parent company’s affairs as at 31 December 2019 and of the Group’s profit for
the year then ended;
– have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (‘IFRS as
adopted by the EU’); and
– have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the Group financial statements, Article 4
of the IAS Regulation.
We have audited the financial statements of Schroders plc which comprise:
Group
Parent company
Consolidated income statement for the year ended 31 December 2019
Schroders plc - Statement of financial position at 31 December 2019
Consolidated statement of comprehensive income for the year
ended 31 December 2019
Schroders plc - Statement of changes in equity for the year ended
31 December 2019
Consolidated statement of financial position at 31 December 2019
Consolidated statement of changes in equity for the year ended
31 December 2019
Consolidated cash flow statement for the year ended 31 December 2019
Notes to the accounts 1 to 29 and Presentation of the financial statements
Schroders plc - Cash flow statement for the year ended
31 December 2019
Schroders plc - Notes to the accounts 30 to 38
The financial reporting framework that has been applied in their preparation is applicable law and IFRS as adopted by the EU and, as regards the
Parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We
are independent of the Group and Parent company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council’s (‘FRC’) Ethical Standard as applied to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK) require us to report to
you whether we have anything material to add or draw attention to:
– the disclosures in the Annual Report set out on pages 44 to 51 that describe the principal risks and explain how they are being managed or mitigated;
– the Directors’ confirmation set out on page 51 in the Annual Report that they have carried out a robust assessment of the principal risks facing
the entity, including those that would threaten its business model, future performance, solvency or liquidity;
– the Directors’ statement set out on page 111 in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
– whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or
– the Directors’ explanation set out on page 51 in the Annual Report as to how they have assessed the prospects of the entity, over what period
they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.
Overview of our audit approach
Key audit matters
– Improper recognition of revenue
– Improper recognition of cost of sales
– Accounting for corporate activity
The first two risks are significant risks, consistent with the 2018 audit.
Audit scope
– The Group is comprised of over 200 legal entities domiciled in 29 countries.
– We performed an audit of the complete financial information of seven legal entities and audit procedures on
specific balances for a further 17 legal entities.
– The legal entities where we performed full or specific audit procedures accounted for 98% of profit before tax and
exceptional items, 92% of revenue and 99% of total assets.
– Certain of the Group’s processes over financial reporting are centralised in the finance operations hubs of London,
Luxembourg, Singapore and Zurich and as a result, the majority of our testing was performed in these locations.
Materiality
– Overall Group materiality of £35 million, which represents 5% of profit before tax and exceptional items.
186
Schroders Annual Report and Accounts 2019 Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our
opinion thereon, and we do not provide a separate opinion on these matters.
Risk
Group only risk:
Improper recognition of revenue (£2,537.0 million,
2018: £2,626.4 million)
Refer to the Audit and Risk Committee report (page 66)
and Note 2 of the Consolidated financial statements
(pages 120 to 123)
Schroders manages funds in numerous domiciles, which
consist of many share classes. Schroders also manages
segregated portfolios for a range of institutions and
provides wealth management services. The inputs and
calculation methodologies that drive the fees vary
significantly across this population. In particular,
performance fees and segregated accounts have a range
of calculation methodologies due to the number of
bespoke arrangements. For certain revenue streams,
management must apply judgment in accordance with
IFRS 15 – Revenue from contracts with customers
(’IFRS 15’) to determine whether it is highly probable that
a significant reversal will not occur in the future.
The following are identified as the key risks or subjective
areas of revenue recognition:
– not all agreements in place have been identified and
accounted for;
– fee terms have not been correctly interpreted or
entered into the fee calculation and billing systems;
– assets under management (‘AUM’) has not been
properly attributed to fee agreements;
– errors in manually calculated revenues, such as
performance fees and carried interest; and
– inappropriate judgments are made by management in
the calculation and recognition of carried interest.
There is also the risk that management may influence the
recognition of revenue in order to meet market
expectations or net operating revenue-based targets.
The risk has neither increased nor decreased in the
current year.
Our response to the risk
We have:
– confirmed and updated our understanding of the procedures and controls in
place throughout the revenue process, both at Schroders, through
walkthrough procedures, and at third party administrators, through review of
independent controls assurance reports;
– IT systems: tested the controls over access to, and changes to, the systems
underpinning the revenue process, including testing controls over the flow of
data between systems for completeness and accuracy;
– fee agreements: tested the controls over new and amended fee agreements.
For a sample of fees, agreed the fee terms used in the calculation to
investment management agreements (‘IMAs’), fee letters or fund
prospectuses. Verified management’s interpretation of the calculation
methodology as set out in the agreement and applied in the revenue systems
or in management’s manual calculations;
– calculation: tested automated controls over the arithmetical accuracy of fee
calculations within the relevant systems;
– AUM: tested the controls in place for the calculation and existence of AUM
used in the fee calculation. For a sample of fees, tested the completeness and
accuracy of AUM included in the fee calculation systems to administrator
reports or Schroders’ investment management systems;
– billing: tested controls over the billing and cash management process. For a
sample of fees, agreed the amounts recorded to the invoice sent to the client,
as well as assessing the recoverability of debtors through subsequent cash
receipt and inspection of the aged debtors report;
– carried interest: challenged management over the judgments and estimates
used in the valuation of the carried interest receivable, as follows: for a
sample of Schroder Adveq funds, agreed the inputs used in the carried
interest calculations to accounting records, third party sources and legal
agreements, recalculated the value of the carried interest receivable, and
traced the discounted carried interest income to the revenue recorded;
– performance fees: for a sample of performance fees, we have agreed the
inputs used in the performance fee calculations to accounting records, third
party sources and legal agreements;
– review of other information: inspected the global complaints register and
operational incident log to identify any indication of errors in revenue; and
– management override: in order to address the residual risk of management
override we have performed enquiries of management, read minutes
throughout the year and performed journal entry testing.
We performed full and specific scope audit procedures over this risk area in five
locations, which covered 92% of the total revenue. Due to the centralised nature
of the revenue process, the majority of our testing was performed in London
and Luxembourg for Asset Management revenue and Zurich for Wealth
Management revenue.
Key observations communicated to the Schroders Audit and Risk Committee
All transactions tested have been recognised in accordance with the underlying agreements or other supporting documentation. Revenue has
been recorded materially in accordance with IFRS 15.
Based on the procedures performed, we have no matters to report in respect of revenue recognition.
187
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Independent auditor’s report to
the members of Schroders plc continued
Risk
Group only risk:
Improper recognition of cost of sales (£484.6 million,
2018: £555.7 million)
Refer to the Audit and Risk Committee report (page 66) and
Note 2 of the Consolidated financial statements (pages 120 to
123)
Schroders has fee expense agreements in place with many
parties. These expenses include: commissions, carried
interest payable, external fund manager fees, and
distribution fees payable to financial institutions,
investment platform providers and financial advisers. The
expenses are generally based on AUM.
The following are identified as the key risks or subjective
areas in correctly recognising fee expense:
– not all agreements in place have been identified and
accounted for;
– fee expense terms have not been correctly interpreted;
– AUM has not been properly identified or attributed to
clients or third parties with fee expense arrangements;
and
– inappropriate judgments are made by management in
the calculation of carried interest payable.
There is also the risk that management may influence the
recognition of cost of sales in order to meet market
expectations or net operating revenue-based targets.
The risk has neither increased nor decreased in the current
year.
Our response to the risk
We have:
– confirmed and updated our understanding of the procedures and controls in
place throughout the cost of sales process, both at Schroders, through
walkthrough procedures, and at third party administrators, through review of
independent controls assurance reports;
– IT systems: tested the controls over access to, and changes to, the systems
underpinning the fee expense process, including testing controls over the flow
of data between systems to test completeness and accuracy;
– fee expense agreements: tested the controls over new and amended fee
expense agreements. For a sample of fee expenses performed by Schroders
and an additional sample performed by external third parties, agreed the fee
expense terms used in the calculation to IMAs, fee letters or rebate agreements.
Verified management’s interpretation of the calculation methodology as set out
in the agreement and applied in the fee expense systems. For an additional
sample of fee expenses, confirmed fee expense terms used in the calculation
directly with the distributor;
– calculation: tested automated controls over the arithmetical accuracy of fee
expense calculations within the relevant systems;
– AUM: tested the controls in place for the calculation and existence of AUM used
in the fee expense calculations. For a sample of fee expenses, tested the
completeness and accuracy of the AUM included in the calculation to Schroders’
transfer agency or investment management systems;
– billing: tested controls over the billing and cash management process. For a
sample of fee expenses, agreed the amounts recorded to the invoice sent to the
client;
– carried interest: challenged management over the judgments and estimates
used in the valuation of the carried interest liability. For a sample of Schroder
Adveq funds: agreed the inputs used in the carried interest calculations to
accounting records, third party sources and legal agreements; recalculated the
value of the carried interest liability; and traced the discounted carried interest
expense to the cost of sales recorded;
– review of other information: inspected the global complaints register and
operational incident log to identify errors in fee expense and verified that fee
expense errors have been appropriately addressed; and
– management override: in order to address the residual risk of management
override we have performed enquiries of management, read minutes
throughout the year and performed journal entry testing.
We performed full and specific scope audit procedures over this risk area in
London and Luxembourg, which covered 90% of total cost of sales.
Key observations communicated to the Schroders Audit and Risk Committee
All transactions tested have been recognised in accordance with the underlying agreements or other supporting documentation. Cost of sales
has been recorded materially in accordance with IAS 1 – Presentation of Financial Statements (‘IAS 1’). Based on the procedures performed, we
have no matters to report in respect of cost of sales.
188
Schroders Annual Report and Accounts 2019 Prior year comparison
In the current year, our auditor’s report includes a key audit matter in relation to ‘Accounting for corporate activity’. This matter resulted in
increased audit effort in the current year due to the total number and materiality of transactions undertaken during the year and their overall
significance to the Schroders business. Accounting for transactions outside the ordinary course of business can be complex and management
must make specific accounting judgments for each transaction.
Risk
Our response to the risk
Our procedures tested the corporate activity outlined in the risk description.
We obtained an understanding of management’s processes and controls for the
recognition of the corporate activity during the year by performing walkthrough
procedures and discussing with management the governance structure and
protocols around their oversight of the accounting for these transactions. We
adopted a fully substantive approach to our testing.
For each transaction in excess of our testing threshold, we performed the
following procedures to assess whether the transaction had been accounted for in
line with the applicable accounting standards and whether the judgments and
estimates made by management in the valuation of intangible assets recognised
were appropriate:
– understood the nature of each transaction by obtaining and reading the
relevant legal agreements and other supporting documentation to assess
whether all material contractual obligations had been accounted for;
– consequently we challenged the accounting judgments made by forming an
independent view of how the transaction should be accounted for, and
compared this to management’s existent accounting;
– obtained and read management’s papers to assess whether the methodology
used to identify and ascribe value to the intangible assets acquired is in
accordance IAS 38 - Intangible Assets (’IAS 38’) and market practice valuation
techniques;
– with the support of our valuation specialists we formed an independent range
for the key assumptions used in the valuation of the intangible assets acquired,
with reference to relevant industry and market valuation considerations. We
then derived a range of values using our assumptions and we compared this to
management’s valuation. We discussed our results with both management and
the Audit Committee; and
– reviewed the disclosures in the Annual Report and Accounts for the year ended
31 December 2019.
Group only risk:
Accounting for corporate activity (additions to joint
ventures £196.3 million, 2018: £nil; additions to
goodwill and acquired intangible assets £154.4 million,
2018: £97.9 million)
Refer to the Audit and Risk Committee report (page 66) and
Notes 10, 13 and 29 of the Consolidated financial statements
(pages 131 to 133, 134 to 136 and 165 to 166)
Accounting for acquisitions, investments and disposals can
be complex. Management must use their judgment to
determine how these transactions should be accounted for
and disclosed in the consolidated financial statements.
There is a risk that the approach adopted by management
may not be in line with the applicable accounting
standards: IFRS 11 – Joint Arrangements (‘IFRS 11’), IAS 28
– Investments in Associates and Joint Ventures (‘IAS 28’),
IFRS 3 – Business Combinations (‘IFRS 3’) and IFRS 10 –
Consolidated Financial Statements (‘IFRS 10’).
Intangible assets arose in the year when the Group
acquired or invested in businesses and the fair value of the
consideration exceeded the fair value of the net tangible
assets acquired. Certain transactions entered into during
the year required management to estimate the value of the
intangible assets recognised on acquisition. The
assessment is subjective and requires a number of
estimates to be made by management in respect of: future
revenues, profit margins, discount rates and duration of
client relationships. There is a risk that inaccurate estimates
made by management could lead to the incorrect valuation
of intangible assets being recognised.
The most significant corporate activity in 2019 related to:
– the partnership with Lloyds Banking Group plc, which
resulted in an investment in Scottish Widows Schroder
Wealth Holdings Limited of £196.3 million and the
disposal of a 19.9% stake in Schroder Wealth Holdings
Limited to Lloyds Banking Group plc;
– the acquisition of a 70% stake in BlueOrchard Finance AG
for £90.6 million;
– the acquisition of Blue Asset Management Gmbh for
£22.8 million; and
– the acquisition of the wealth management business of
ThirdRock.
Key observations communicated to the Schroders Audit and Risk Committee
All transactions tested have been materially accounted for in accordance with IFRS. The valuation of intangible assets recognised on acquisition
are within a reasonable range. Based on our procedures performed, we have no matters to report in respect of accounting for corporate activity.
189
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Independent auditor’s report to
the members of Schroders plc continued
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size,
risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other factors such
as recent Internal Audit results when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, we selected 24 legal entities within the following countries: United Kingdom, Guernsey,
Switzerland, Luxembourg, Singapore, United States of America, China, Italy, Japan, Australia and Indonesia, which represent the principal
business units within the Group.
Of the 24 legal entities selected, we performed an audit of the complete financial information of seven legal entities (full scope entities) which
were selected based on their size or risk characteristics. For the remaining 17 legal entities (specific scope entities), we performed audit
procedures on specific accounts within that legal entity that we considered had the potential for the greatest impact on the significant accounts
in the Group financial statements, either because of the size of these accounts or their risk profile.
For the remaining entities that together represent 2% of the Group’s profit before tax and exceptional items, we performed other Group
procedures, including: analytical review, testing of consolidation journals and intercompany eliminations, tests of financial systems, centralised
processes and controls, and foreign currency translation recalculations, to respond to any potential risks of material misstatement to the Group
financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Profit before tax and exceptional items
Revenue
Full scope components
Specific scope components
Other procedures
90% (2018: 96%)
8% (2018: 2%)
2% (2018: 2%)
Full scope components
Specific scope components
Other procedures
67% (2018: 68%)
25% (2018: 26%)
8% (2018: 6%)
Changes from the prior year
Schroder (C.I.) Limited was considered a full scope entity for the current year audit. It was previously considered to be specific scope.
Involvement with overseas teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the legal
entities by us, as the Group audit team, or by local auditors from other EY global network firms operating under our instruction.
Schroders has centralised processes and controls over financial reporting within the finance operations hubs of London, Luxembourg, Singapore
and Zurich. Our teams performed centralised testing in the finance hubs for certain accounts including revenue, costs of sales, administrative
expenses, variable compensation, provisions and intercompany transactions.
For non-centralised processes, the audit work was performed by legal entity auditors. The Group audit team was responsible for the scope and
direction of the audit process in each entity, interacted regularly with the local EY teams during each stage of the audit and reviewed key working
papers. This, together with the additional procedures performed at Group level, and the centralised testing, gave us appropriate evidence for
our opinion on the Group financial statements.
During 2019, the Senior Statutory Auditor, Julian Young, and other Group audit team members visited legal entities across four countries,
including each of the finance operations hubs. This allowed the Group team to gain a greater understanding of the business issues faced in each
location, discuss the audit approach with the local team and any issues arising from their work, meet with local management, attend key
meetings and review key audit working papers. The visits also promoted deeper engagement with our EY audit teams, ensuring that a consistent
audit approach was adopted and that a high quality audit was executed. The countries visited were: Luxembourg, Switzerland, Singapore and
the United States of America.
190
Schroders Annual Report and Accounts 2019
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in
forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £35 million (2018: £38 million), which is 5% (2018: 5%) of profit before tax and exceptional items.
We believe that profit before tax and exceptional items is the most relevant performance measure to the stakeholders of the entity.
We determined materiality for the Parent company to be £47 million (2018: £46 million), which is 1% (2018: 1%) of net assets. The Parent
company primarily holds the investments in Group entities and, therefore, net assets is considered to be the key focus for users of the financial
statements.
During the course of our audit, we reassessed initial materiality based on 31 December 2019 profit before tax and exceptional items, and
adjusted our audit procedures accordingly.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgment was that
performance materiality was 75% (2018: 50%) of our planning materiality, namely £26 million (2018: £19 million). We have used a higher
threshold than in our first-year audit because we now have prior experience as to the likelihood of misstatements and the effectiveness of the
control environment and accounting processes.
Audit work at entity level, for the purpose of obtaining audit coverage over significant financial statement accounts, is undertaken based on a
percentage of total performance materiality. The performance materiality set for each entity is based on the relative scale and risk of the entity
to the Group as a whole and our assessment of the risk of misstatement at that entity. In the current year, the range of performance materiality
allocated to individual entities was £5.2 million to £14.3 million (2018: £3.9 million to £10.8 million).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit and Risk Committee that we would report to them all uncorrected audit differences in excess of £1.7 million
(2018: £1.9 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting
on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the Annual Report set out on pages 1 to 112 and 194 to 198, including the Strategic
report, Governance, and Shareholder information sections, other than the financial statements and our auditor’s report thereon. The Directors
are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report,
we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information
and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following
conditions:
– Fair, balanced and understandable set out on page 112 – the statement given by the Directors that they consider the Annual Report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess
the Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
– Audit and Risk Committee reporting set out on pages 66 to 71 – the section describing the work of the Audit and Risk Committee does not
appropriately address matters communicated by us to the Audit and Risk Committee or is materially inconsistent with our knowledge
obtained in the audit; or
– Directors’ statement of compliance with the UK Corporate Governance Code set out on page 56 – the parts of the Directors’ statement
required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions
specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
191
Financial statementsSchroders Annual Report and Accounts 2019 Financial statements continued
Independent auditor’s report to
the members of Schroders plc continued
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ Remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
– the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent company and its environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our
opinion:
– adequate accounting records have not been kept by the Parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
– the Parent company financial statements and the part of the Directors’ Remuneration report to be audited are not in agreement with the
accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the Statement of Directors’ responsibilities set out on page 112, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and Parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or the Parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are: to identify and assess the risks of material misstatement of the financial statements due to
fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and
implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the
primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Group and management.
Our approach was as follows:
– We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and have a direct impact on the
preparation of the financial statements. We determined that the most significant frameworks which are directly relevant to specific assertions
in the financial statements are those that relate to the reporting framework (IFRS as adopted by the EU, the Companies Act 2006 and UK
Corporate Governance Code) and relevant tax compliance regulations. In addition, we concluded that there are certain significant laws and
regulations which may have an effect on the determination of the amounts and disclosures in the financial statements being the Listing Rules
and relevant Prudential Regulation Authority (‘PRA’) and Financial Conduct Authority (‘FCA’) rules and regulations.
– We understood how Schroders plc is complying with those frameworks by making enquiries of senior management, including the Chief
Financial Officer, General Counsel, Company Secretary, Head of Compliance, Head of Risk, Head of Internal Audit and the Chairman of the
Audit and Risk Committee. We corroborated our understanding through our review of board and Committee meeting minutes, papers
provided to the Audit and Risk Committee and correspondence received from regulatory bodies.
– We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur, by meeting
with management to understand where they considered there was susceptibility to fraud. We also considered performance targets and their
potential influence on efforts made by management to manage or influence the perceptions of analysts. We considered the controls that the
Group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors
those controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk.
– Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations identified in
the paragraphs above. Our procedures involved: journal entry testing, with a focus on manual journals and journals indicating large or
unusual transactions based on our understanding of the business; enquiries of senior management, including those at full and specific
scope entities; and focused testing, as referred to in the key audit matters section above.
192
Schroders Annual Report and Accounts 2019 A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address:
– We were appointed by the Parent company on 9 March 2018 to audit the financial statements for the year ending 31 December 2018 and
subsequent financial periods. Our appointment as auditor was approved by shareholders at the Annual General Meeting on 26 April 2018.
– The period of total uninterrupted engagement including previous renewals and reappointments is two years, covering the years ending
2018 to 2019.
– The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent company and we remain
independent of the Group and the Parent company in conducting the audit.
– The audit opinion is consistent with the Audit Results Report to the Audit and Risk Committee.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Julian Young (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
4 March 2020
193
Financial statementsSchroders Annual Report and Accounts 2019 Shareholder information
Schroders plc
Registered in England and Wales Company No. 3909886
Registered office
1 London Wall Place, London, EC2Y 5AU
Tel: +44 (0) 20 7658 6000
Fax: +44 (0) 20 7658 6965
Email: companysecretary@schroders.com
Website: schroders.com
Share Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
UK Shareholder helpline:
Freephone (UK callers only): 0800 923 1530
International: +44 117 378 8170
Fax: +44 (0) 370 703 6101
Website: investorcentre.co.uk
Financial calendar
Ex-dividend date
Record date
26 March 2020
27 March 2020
DRIP election date deadline
16 April 2020
Annual General Meeting
30 April 2020
Final dividend payment date
7 May 2020
Half-year results announcement
30 July 2020
Interim dividend paid*
September 2020
* Date to be confirmed.
Annual General Meeting
Our AGM will be held at 11.30 a.m. on 30 April 2020 at 1 London Wall
Place, London, EC2Y 5AU.
Investor Centre
Computershare is the Company’s share registrar. Investor Centre is
Computershare’s free, self-service website where shareholders can
manage their interests online.
The website enables shareholders to:
– View share balances
– Change address details
– View payment and tax information
– Update payment instructions
– Update communication instructions
Shareholders can register their email address at investorcentre.co.uk
to be notified electronically of events such as AGMs, and can receive
shareholder communications such as the Annual Report and Accounts
and the Notice of Meeting online.
Enquiries and notifications concerning dividends, share certificates or
transfers and address changes should be sent to the Registrar.
Dividends
Paying dividends into a bank or building society account helps reduce
the risk of fraud and will provide you with quicker access to your
funds than payment by cheque. Applications for an electronic
mandate can be made by contacting the Registrar.
If your dividend is paid directly into your bank or building society
account, you will receive an annual consolidated dividend
confirmation, which will be sent to you in September each year at the
time the interim dividend is paid.
Dividend confirmations are available electronically at
investorcentre.co.uk to those shareholders who have their
payments mandated to their bank or building society accounts and
who have expressed a preference for electronic communications.
The Company operates a Dividend Reinvestment Plan (DRIP), which
provides shareholders with a way of increasing their shareholding in
the Company by reinvesting their dividends. A copy of the DRIP terms
and conditions and application form can be obtained from the
Registrar.
Details of dividend payments can be found in the Directors’ report on
page 110.
Schroders offers a service to shareholders in participating countries
that enables dividends to be received in local currencies. You can
check your eligibility and/or request a mandate form by contacting
the Registrar.
Warning to shareholders
Companies are aware that their shareholders have received
unsolicited telephone calls or correspondence concerning investment
matters. These are typically from overseas-based ‘brokers’ who target
UK shareholders, offering to sell them what often turn out to be
worthless or high risk shares or investments. These operations are
commonly known as ‘boiler rooms’. These ‘brokers’ can be very
persistent and extremely persuasive.
Shareholders are advised to be wary of any unsolicited advice, offers
to buy shares at a discount or offers of free company reports. If you
receive any unsolicited investment advice:
– Make sure you get the correct name of the person and
organisation.
– Check that they are properly authorised by the FCA before getting
involved by visiting register.fca.org.uk.
– Report the matter to the FCA by calling 0800 111 6768 or visiting
fca.org.uk/consumers/report-scam-unauthorised-firm.
– Do not deal with any firm that you are unsure about.
If you deal with an unauthorised firm, you will not be eligible to
receive payment under the Financial Services Compensation Scheme.
The FCA provides a list of unauthorised firms of which it is aware,
which can be accessed at fca.org.uk/consumers/unauthorised-firms-
individuals#list.
More detailed information on this or similar activity can be found on
the FCA website at fca.org.uk/consumers/protect-yourself-scams.
Capital gains tax
Capital gains tax values for the Company’s shares as at 31 March 1982
and values relating to the disposal of the investment banking
business in 2000 can be found on the Company’s website.
194
Schroders Annual Report and Accounts 2019 Five-year consolidated financial summary
Before exceptional items
Profit before tax
Tax
Profit after tax
After exceptional items
Profit before tax
Tax
Profit after tax
Pre-exceptional earnings per share:
Basic earnings per share1
Diluted earnings per share1
Post-exceptional earnings per share:
Basic earnings per share1
Diluted earnings per share1
Dividends:
Cost (£m)
Pence per share2
Total equity (£m)
2019
£m
701.2
(140.5)
560.7
2019
£m
624.6
(128.9)
495.7
2019
Pence
201.6
198.0
2019
Pence
178.9
175.8
2019
312.3
114.0
2018
£m
761.2
(163.3)
597.9
2018
£m
649.9
(145.2)
504.7
2018
Pence
215.8
211.8
2018
Pence
183.1
179.7
2018
311.7
114.0
2017
£m
800.3
(171.6)
628.7
2017
£m
760.2
(165.8)
594.4
2017
Pence
226.9
222.4
2017
Pence
215.3
211.0
2017
267.6
98.0
2016
£m
644.7
(132.4)
512.3
2016
£m
618.1
(127.9)
490.2
2016
Pence
186.3
182.4
2016
Pence
178.3
174.5
2016
236.6
87.0
2015
£m
609.7
(126.3)
483.4
2015
£m
589.0
(121.6)
467.4
2015
Pence
176.9
172.2
2015
Pence
171.1
166.5
2015
226.3
83.0
3,847.5
3,621.2
3,471.0
3,152.8
2,795.6
Net assets per share (pence)3
1,362
1,282
1,229
1,115
990
Group employees at year end 31 December
United Kingdom
Europe, Middle East and Africa
Americas
Asia Pacific
2019
Number
3,284
964
376
1,049
5,673
2018
Number
2,798
873
369
999
2017
Number
2,535
822
353
909
2016
Number
2,264
716
331
834
2015
Number
1,988
686
321
789
5,039
4,619
4,145
3,784
1. See note 6 for the basis of this calculation.
2. Dividends per share are those amounts approved by the shareholders to be paid within the year on a per share basis to the shareholders on the register at the
specified dates.
3. Net assets per share are calculated by using the actual number of shares in issue at the year end date (see note 21).
Exchange rates – closing 31 December
2019
2018
2017
2016
2015
Sterling:
Euro
US dollar
Swiss franc
Australian dollar
Hong Kong dollar
Japanese yen
Singaporean dollar
1.18
1.32
1.28
1.88
10.32
143.97
1.78
1.11
1.27
1.26
1.81
9.97
139.73
1.74
1.13
1.35
1.32
1.73
10.57
152.39
1.81
1.17
1.24
1.26
1.71
9.58
144.12
1.79
1.36
1.47
1.48
2.03
11.42
177.30
2.09
Exchange rates – average
2019
2018
2017
2016
2015
Sterling:
Euro
US dollar
Swiss franc
Australian dollar
Hong Kong dollar
Japanese yen
Singaporean dollar
1.14
1.28
1.27
1.84
10.03
139.63
1.74
1.13
1.33
1.30
1.78
10.44
147.17
1.80
1.15
1.30
1.27
1.69
10.10
145.42
1.79
1.23
1.36
1.34
1.83
10.52
149.31
1.88
1.38
1.53
1.48
2.04
11.84
184.79
2.10
195
Schroders Annual Report and Accounts 2019Shareholder information Shareholder information continued
Glossary
Alternative performance measures
An alternative performance measure (APM) is a financial measure
of historical or future financial performance, financial position,
or cash flows, other than a financial measure defined or specified
in the applicable financial reporting framework. Certain of the
Group’s APMs exclude exceptional items which are defined in note
1(b) on page 119 and presented separately in the Consolidated
income statement. The Group’s APMs are defined below.
Annualised net new revenue
The net operating revenue that would be earned over a one year
timeframe if the net new business was all transacted on the
same day and there were no market movements or other
changes to assets under management or fee rates over that
year. It is calculated as gross new funds from clients multiplied
by the applicable net operating revenue margin for each flow,
less gross funds withdrawn multiplied by the applicable net
operating revenue margin for each flow. This measure provides
additional information to better assess the impact of net new
business on the Group’s net operating revenue.
Basic or diluted earnings per share before exceptional items
Profit after tax but before exceptional items divided by the relevant
weighted average number of shares (see note 6 on page 127).
The presentation of earnings per share before exceptional items
provides transparency of recurring revenue and expenditure to
aid understanding of the financial performance of the Group.
Payout ratio
The total dividend per share in respect of the year (see note 7 on
page 127) dividend by the pre-exceptional basic earnings per share.
Profit before tax and exceptional items
Profit before tax but excluding exceptional items. This presentation
provides transparency of recurring revenue and expenditure to
aid understanding of the financial performance of the Group.
Ratio of total costs to net income
Total Group costs before exceptional items divided by net
income before exceptional items. A 65% ratio is targeted to
ensure costs are aligned with net income, although we recognise
that in weaker markets the ratio may be higher than our
long-term target.
Total compensation ratio
Pre-exceptional compensation costs (see note 4 on page 125)
divided by pre-exceptional net income. By targeting a total
compensation ratio of 45% to 49%, depending upon market
conditions, we align the interests of shareholders and employees.
Active management
The management of investments based on active decision-making
rather than with the objective of replicating the return of an index.
AIFMD
The Alternative Investment Fund Managers Directive was
implemented in the UK in July 2013 and is a regulatory framework
for alternative investment fund managers, including managers of
hedge funds, private equity firms and investment trusts.
Alpha
Excess return over market returns relative to a market benchmark.
Assets under management (AUM)
The aggregate value of assets managed on behalf of clients. In
Wealth Management this includes assets where Schroders provides
advisory services but the investment decisions are made by the
client. AUM also includes assets held in custody where the client
independently makes investment decisions, whether it is through
direct contact with Schroders or via the Fusion wealth platform.
For Schroder Adveq, the aggregate value of assets managed is
based on committed funds by clients. This is changed to the lower of
committed funds and net asset value, typically after seven years
from the initial investment, in line with the fee basis.
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Basis point (bps)
One one-hundredth of a percentage point (0.01%).
Beta
Market returns.
Business areas
The five business areas that make up our business are described as:
i) Private Assets & Alternatives - investment opportunities available
through private markets such as real estate, private equity and
infrastructure finance, and alternative investments
ii) Solutions - provision of complete solutions and partnerships,
including liability offsets and risk mitigation
iii) Mutual Funds - Mutual Funds are provided through our
intermediary network for retail clients, which are solely or dual-
branded ‘Schroders’
iv) Institutional - provision of index-relative investment components
for institutions as a component of their overall investment strategy
or as part of a sub-advised mandate
v) Wealth Management - a wide range of wealth management
services, which focus on preserving or growing our clients’ wealth
BREEAM
BREEAM (Building Research Establishment Environmental
assessment Method) is the world’s longest established method of
assessing, rating, and certifying the sustainability of buildings.
Carbon dioxide equivalent (CO2e)
A standard unit for measuring carbon footprints. It enables the
impact of different greenhouse gas emissions on global warming
to be expressed using an equivalent amount of carbon dioxide (CO2)
as a reference.
Carried interest
Carried interest is similar to the performance fees we earn on our core
business, but is part of Private Assets & Alternatives fee structures.
CDP
Also known as the Carbon Disclosure Project.
Client investment performance
Client investment performance is a measure of how investments are
performing relative to a benchmark or other comparator. It is
calculated internally by Schroders to give shareholders and financial
analysts general guidance on how our AUM are performing. The
data is aggregated and is intended to provide information for
comparison to prior reporting periods only. It is not intended for
clients or potential clients investing in our products. All calculations
for investment performance are made gross of fees with the
exception of those for which the stated comparator is a net of fees
competitor ranking.
When a product’s investment performance is disclosed in product or
client documentation it is specific to the strategy or product.
Performance will either be shown net of fees at the relevant fund
share-class level or it will be shown gross of fees with a fee schedule
for the strategy supplied.
The calculation includes 100% of internally-managed Asset
Management assets, excluding Liability-Driven Investments (LDI)
strategies, that have a complete track record over the respective
reporting period. Assets held in LDI strategies, which currently
amount to £35.3 billion, are excluded as these are not seeking to
outperform a stated objective but to match the liability profile of
pension funds. Assets managed by third parties are excluded and
primarily comprise the Luxembourg-domiciled GAIA fund range of
£3.2 billion and legacy private equity assets of £1.4 billion. We do not
calculate investment performance of hotels managed by Algonquin
(AUM of £1.9 billion).
Performance is calculated relative to the relevant stated comparator
for each strategy as below. These fall into one of four categories, the
percentages for each of which refer to the three year calculation:
– For 77% of assets included in the calculation, the comparator is
the stated benchmark.
– If the stated comparator is to competitor rankings, the relative
position of the fund to its peer group on a like-for-like basis is
used to calculate performance. This applies to 4% of assets in the
calculation.
– Assets for which the stated comparator is an absolute return
target are measured against that absolute target. This applies to
11% of assets in the calculation.
– Assets with no stated objective are measured against a cash
return, if applicable. This applies to 8% of assets in the calculation.
Clients
Within our Asset Management business we work with institutional
clients, including pensions funds, insurance companies and
sovereign wealth funds, as well as intermediaries, including financial
advisers, private wealth managers, distributors and online platforms.
GAIA
Global Alternative Investor Access.
GHG Protocol
Greenhouse gas protocol, a global standardised framework to
measure and manage greenhouse gas emissions.
GCC
Group Capital Committee.
GMC
Group Management Committee.
GOC
Global Operations Committee.
GRC
Group Risk Committee.
We also provide a range of Wealth Management services to private
clients, family offices and charities.
ICAAP
Internal Capital Adequacy Assessment Process.
At times, ‘client’ is used to refer to investors in our funds or
strategies, i.e. the end client.
IFRS
International Financial Reporting Standards.
We are increasingly focused on building closer relationships with the
end client, whose money is invested with us, often via an
intermediary or institution.
CMA
Competition and Markets Authority.
Compensation cost
Total cost of employee benefits.
Defined benefit (DB) pension scheme
A pension benefit where the employer has an obligation to provide
participating employees with pension payments that represent a
specified percentage of their salary for each year of service.
Defined contribution (DC) pension scheme
A pension benefit where the employer’s contribution to an
employee’s pension is measured as, and limited to, a specified
amount, usually a percentage of salary. The value of the ‘pension
pot’ can go up or down depending on how the investments perform.
DEFRA
Department for Environment, Food and Rural Affairs.
Employee benefit trust
A type of discretionary trust established to hold cash or other assets
for the benefit of employees, such as to satisfy share awards.
EPS
Earnings per share.
ESG
Environmental, social and governance.
EU27
The 27 countries within the European Union involved with
negotiating with the UK on Brexit.
Family offices
These manage and/or advise on the financial affairs and investments
of ultra high net worth individuals or families.
FCA
Financial Conduct Authority of the United Kingdom.
Fitch investment management quality rating
A forward-looking, relative assessment of an investment manager’s
investment capabilities and the strength of its operational platform.
Ratings have five key pillars: investment process; investment
resources; risk management; investment performance and the
company, including client servicing. Ratings are assigned on a five
tiered scale from ‘Excellent’ to ‘Weak’. Excellent indicates that the
investment manager has extremely strong investment capabilities
and operational characteristics.
FRC
Financial Reporting Council.
ILAAP
Internal Liquidity Adequacy Assessment Process.
Investment capital
Capital held in excess of operating requirements. It is managed with
the aim of achieving a low volatility return. It is mainly held in cash,
government and government-guaranteed bonds, investment grade
corporate bonds and Schroders’ funds. Investment capital is also
used to help support the organic development of existing and new
business strategies and to respond to other investment and growth
opportunities as they arise, such as acquisitions that will accelerate
the development of the business.
Investment returns
The increase in AUM attributable to investment performance, market
movements and foreign exchange.
LGBT+
Lesbian, Gay, Bisexual and Transgender and other groups of sexual
and gender minorities.
Liability-driven investment (LDI)
A form of investing where the main goal is to gain and maintain
sufficient assets to meet known liabilities, both current and future.
This form of investment is most prominent for defined benefit
pension schemes.
Life Company
Schroder Pension Management Limited, a wholly-owned subsidiary,
which provides investment products through a life assurance wrapper.
MiFID II
The second iteration of the Markets in Financial Instruments
Directive. MiFID II is an EU directive which standardises regulation
for investment services throughout the European Economic Area.
MRTs
Material risk takers. Employees deemed to be material risk takers
under one or more of the regulatory regimes that applies to the
Group and its subsidiaries, such as the UCITS Directive or AIFMD.
Net income
A sub-total comprising net operating revenue, net gains on financial
instruments and other income and share of profit of associates and
joint ventures.
Net new business
New funds from clients less funds withdrawn by clients. This is
also described as net inflows (when positive) or net outflows (when
negative). New funds and funds withdrawn are calculated as at
31 December 2019 on the basis of actual funding provided or
withdrawn.
Net zero carbon
A “net zero” target refers to reaching net zero carbon emissions
by a selected date and refers to balancing the amount of emitted
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Glossary
greenhouse gases with the equivalent emissions that are either
offset or sequestered.
Net operating revenue
A sub-total consisting of revenue less cost of sales as defined in note
2 of the financial statements.
Net operating revenue margins
Net operating revenue excluding performance fees, net carried
interest and real estate transaction fees divided by the relevant
average AUM.
Passive products
Products whose stated objective is to replicate the return of an index.
Pillar 1
The minimum capital requirements in relation to credit risk,
operational risk and market risk taken by the Group as principal.
Pillar 2
The requirement for companies to assess the level of additional
capital held against risks not covered in Pillar 1.
Pillar 3
This complements Pillar 1 and Pillar 2 with the aim of improving
market discipline by requiring companies to publish certain details
of their risks, capital and risk management. Schroders’ Pillar 3
disclosures are available at schroders.com/ir.
Platforms
Platforms in the UK savings market offer a range of investment
products such as unit trusts, Individual Saving Accounts (ISAs),
unit-linked life and pension bonds and Self-Invested Personal
Pensions (SIPPs) to facilitate investment in many funds from
different managers through one portal.
PRA
Prudential Regulation Authority.
PRIIPs
Packaged Retail Investment and Insurance-based Products. PRIIPs
make up a broad category of financial assets that are regularly
provided to consumers in the EU. It covers all packaged, publicly
marketed financial products that have exposure to underlying
assets, provide a return over time and have an element of risk.
Principal shareholder group
Four private trustee companies, a number of individuals and a
charity which, directly or indirectly, are shareholders in Schroders plc
and are parties to the Relationship Agreement. In aggregate these
parties own 47.93% of the ordinary shares of Schroders plc.
RCA
Risk and Control Assessment.
RDR
The Retail Distribution Review (RDR) is a Financial Conduct Authority
(FCA) initiative that aims to provide greater clarity about different types
of financial services available. It also seeks to improve transparency
around the costs and fees associated with financial advice. The
amount of risk capital set by legislation or local regulators,
which companies must hold against any difficulties such as market
or credit risks.
Regulatory surplus capital
Total equity less the Group’s overall regulatory capital requirement
and regulatory deductions, in accordance with the EU Capital
Requirements Regulation as set out in the Group’s Pillar 3 disclosures.
Schroders Personal Wealth (SPW)
Schroders Personal Wealth is a joint venture between Lloyds Banking
Group and Schroders. It provides personal wealth planning, advice
and investment management services to clients in the UK.
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Seed and co-investment capital
Seed capital comprises an initial investment put into a fund or
strategy by the business to allow it to develop a performance track
record before it is marketed to potential clients. Co-investment
comprises an investment made alongside our clients.
Senior management
Members of the GMC (including the executive Directors of Schroders
plc), the direct reports of members of the GMC and the direct reports
one level below that, in each case excluding administrative and other
ancillary roles.
SMCR
Senior Managers and Certification Regime. FCA regulation which
aims to strengthen market integrity by making senior individuals
more accountable for their conduct and competence.
TCFD
The Financial Stability Board Task Force on Climate-related Financial
Disclosures (TCFD) is a market-driven initiative to help investors
understand their financial exposure to climate risk and help
companies disclose this information in a clear and consistent way.
Total capital requirement
The requirement to hold the sum of Pillar 1 and Pillar 2A capital
requirements. Pillar 2A capital requirements are supplementary
requirements for those risk categories not captured by Pillar 1,
depending on specific circumstances of a company, as set out
by the PRA.
Total dividend per share
Unless otherwise stated, this is the total dividend in respect of the
year, comprised of the interim dividend and the proposed final
dividend. This differs from the IFRS dividend, which is comprised of
the prior year final and current year interim dividends declared and
paid during the year.
Total equity
Total assets less total liabilities.
UCITS
Undertakings for the Collective Investment in Transferable
Securities. UCITS is a regulatory framework of the European
Commission that creates a harmonised regime throughout Europe
for the management and sale of investment funds.
UCITS/AIF MRTs
Employees deemed to be material risk takers under the UCITS
Directive or AIFMD.
UK Stewardship Code
A set of principles or guidelines from the Financial Reporting Council
directed at institutional investors who hold voting rights in United
Kingdom companies.
UN PRI
The United Nations-supported Principles for Responsible Investment
Initiative is an international network of investment companies
working together to implement the six Principles for Responsible
Investment. Its goal is to understand the implications of
sustainability and support signatories to incorporate these issues
into their investment decision making and ownership practices.
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