Annual Report and Accounts 2020
Strategic report
Our purpose
Business at a glance
Chairman’s statement
Group Chief Executive’s statement
Business model
Strategy
Market proposition
Market review
Key performance indicators
Business and financial review
A responsible business
Our key stakeholders
Section 172 statement
Our people
Society and communities
The environment
Climate-related financial disclosures
Key risks and mitigations
Governance
Board of Directors and Company Secretary
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
8
10
14
16
18
20
22
24
30
32
33
34
38
42
44
50
58
60
67
69
75
103
106
107
164
180
187
188
189
Our Annual General Meeting (AGM) will be held at 11.30am on 29 April 2021 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 189.
ACCELERATING
POSITIVE
CHANGE
Our purpose is to provide excellent
investment performance to our clients
through active management.
By serving clients, we serve wider society.
Channelling capital into sustainable and durable
businesses accelerates positive change in the world.
Funding the future is a privilege; we use it
wisely and responsibly.
Schroders Annual Report and Accounts 2020
1
Strategic report THE POWER
OF ACTIVE
DECISION-MAKING
The events of 2020 were exceptional. Our response mirrored our response to crises before:
we held firm and took decisions that best served the interests of our clients, our people,
our shareholders and other stakeholders.
Our core belief that investments should be actively managed was rewarded. Fund managers
who were free to take deliberate decisions in the interest of clients, performed well during last
year’s periods of market volatility.
More broadly, we nurture a long-term culture that cares about people and outcomes.
It creates the right environment for our strategy to flourish.
Performance
The conscious and considered decisions of our
fund managers have driven positive outcomes
for clients while a focus on sustainability
underpins our corporate performance.
Over three years
72%
of client assets
outperformed
their respective
benchmarks
Over five years
81%
of client assets
outperformed
their respective
benchmarks
People
The responses in our employee surveys
reflect the positive culture on which we
build our business.
98%
of employees proud
to be associated with
Schroders
94%
retention of highly-
rated employees
Sustainalytics
ESG Risk Rating of
18.8
low risk and in the
top 15% for diversified
financials sector
Reached
33%
target of female
representation
in senior management
Progress
At every level of our organisation, we
understand our role in supporting wider
society through an unprecedented crisis.
MSCI ESG Rating of
AAA
putting us in the top
3% of our sector with
a consistent score for
more than five years
73%
reduction in CO2e
emissions per
employee globally
£4.3m
raised through
#CollectiveAction,
including director and
employee donations
and corporate matching
For more information about how we calculate client investment performance refer to the Glossary on page 189.
2
Schroders Annual Report and Accounts 2020
Strong investment
outperformance underpins strong
financial performance
By building a strong and caring culture, we can achieve the outcomes our clients want. It is this,
and a commitment to bold and conscious decision-making, that underpin our financial strength
and powers our growth. The numbers highlight a solid performance during the challenges of
2020. The key performance indicators (KPIs) used by the Board to track strategic progress can be
found on pages 22-23.
Financial highlights
Net income
£2,179.2m
(2019: £2,124.8m)
Basic earnings
per share before
exceptional items
200.8p
(2019: 201.6p)
Assets under
management
£574.4bn
(2019: £500.2bn)
Key awards in 2020
Outstanding
Investment House
– Fund Manager of the
Year Awards
‘Advanced’ recognition
in Morningstar
ESG Commitment
Level Assessment
Profit before tax and
exceptional items
£702.3m
(2019: £701.2m)
Basic earnings
per share
172.4p
(2019: 178.9p)
Net new business
£42.5bn
(2019: £43.4bn)
Profit before tax
£610.5m
(2019: £624.6m)
Total dividend
per share
114p
(2019: 114p)
Total equity
£4.1bn
(2019: £3.8bn)
Best Investor
Engagement Award
at IR Society’s Best
Practice Awards 2020
SustainExTM first place for
Impact Reporting in the
Environmental Finance
IMPACT Awards 2020
Group CIO
Johanna Kyrklund:
one of the top 100 most
influential women in
European finance
Cazenove Capital
wins gold at the
ESG Investing
Olympics
Schroders Annual Report and Accounts 2020
3
Strategic report RESILIENCE
THROUGH
DIVERSIFICATION
Our robust business model enabled us to deliver positive results for our stakeholders despite the
challenging environment.
Business resilience was critical in 2020. Faced with changes that affected almost every aspect
of life, our diverse business model and strategy met the challenge. Growth was notable in Solutions
and Wealth Management. By diversifying and focusing on active investment, our business grew stronger.
Assets under management
£574.4bn
By asset class
By region
By business area
Equities
Multi-asset
Fixed Income
Private Assets & Alternatives
Wealth Management
33%
29%
17%
8%
13%
UK
Asia Pacific
Europe, Middle East and Africa
Americas
48%
18%
19%
15%
Private Assets & Alternatives
Solutions
Mutual Funds
Institutional
Wealth Management
8%
33%
18%
28%
13%
For more information on our strategy see pages 16-17
4
Schroders Annual Report and Accounts 2020
Our robust business model
proved resilient in challenging times
Our assets under management break down across five business
areas that align to our strategic priorities.
Private Assets & Alternatives
Comprises opportunities available in private markets, such as real
estate, private equity and infrastructure, as well as alternatives
Mutual Funds
Offered through intermediary networks providing retail clients with
access to our investment capabilities
Solutions
Provides complete solutions and partnerships, including
liability offsets and risk mitigation
Institutional
Investment components made available directly to institutions and
through sub-advisory mandates
AUM by business area, £bn
2018
135
95
44
38
96
Wealth Management
Wealth Management and financial planning for ultra high-net-worth,
high-net-worth and affluent individuals and charity clients as well as
family offices and advisers
2019
144
102
67
44
143
2020
160
104
72
46
192
Private Assets & Alternatives
Solutions
Mutual Funds
Institutional
Wealth Management
54% of AUM (2019: 51%)
within our key strategic growth areas of Wealth Management,
Private Assets & Alternatives and Solutions.
Schroders Annual Report and Accounts 2020
5
Strategic report
FOCUSED ON
RESPONSIBILITY
A year as challenging as 2020 offered a test of corporate character and a test of purpose.
We met the challenge, as a corporate and as a steward of our clients’ capital. We honoured
our pledge to integrate sustainability measures within our investment processes. We went
further, building tools to assess the impact, both positive and negative, of the companies we
invest in. Our corporate initiatives on a range of environmental and social issues accelerated,
improving the sustainability of our business. Our people, who in the face of adversity
responded very well, made us proud. Their professionalism maintained standards and
services, ensuring business stability.
January
February
March
April
May
June
For society
For society
For our people
For our people
For shareholders
For our people
Signed the UN Global
Compact, the world’s
largest corporate
sustainability initiative
Started a three-year
charity partnership
with Samaritans in the
UK as part of our
commitment to
improving mental
health and wellbeing
Published our fourth
consecutive Gender
Pay Gap report,
demonstrating
continued
commitment to
equality and inclusion
in the workplace
Committed to not
making any Covid-19
related redundancies
or using government
support schemes
Paid our final dividend
for 2019
For society
Raised £4.3 million in
support of more than
90 charities
Our LGBTQ+ group
organised virtual Pride
celebrations around
the world, raising
money for Albert
Kennedy Trust and
True Colors United
For more details on our gender diversity see page 37
For more information on our key stakeholders and how we engage with them see pages 32-33
6
Schroders Annual Report and Accounts 2020
We act as a responsible
steward for all our stakeholders
Our stakeholders
Clients
Our people
Shareholders
Society
July
August
September
October
November
December
For society
For clients
For shareholders
For our people
For society
For shareholders
Cazenove Capital won
gold in the ESG
Investing Olympics
Joined forces with
Jamie Murray to
sponsor the ‘Battle of
the Brits’ tennis
tournament and raise
money for NHS
Charities Together
Participated in global
‘Plastic Free July’
movement
Received an ‘Excellent’
investment
management quality
rating from Fitch
Ratings for the 16th
consecutive year,
demonstrating the
viability of our
business over the long
term
Celebrated ‘Inclusion
Month’ with a series of
virtual activities and an
inclusion survey of
employees worldwide
For clients
Established a regional
Centre of Excellence
for Sustainability
(CoES) in Singapore
Ranked in the Social
Mobility Index for the
first time, highlighting
us as an employer
doing the most to
change how they find,
recruit and advance
talented employees
from different social
class backgrounds
Calculated our own
SustainExTM score to be
+3.1% (compared to
industry average of
-0.3%)
For society
Awarded an A- score
for our 2020 CDP
submission
For clients
Achieved full ESG
integration1 across our
managed assets
1. For details see the Glossary on pages 189-192
Schroders Annual Report and Accounts 2020
7
Strategic report Chairman’s statement
PERFORMING
IN CHALLENGING
TIMES
Schroders’ results in 2020 demonstrated the resilience
of our business model in the face of some
unprecedented challenges.
Net operating revenue at £2,059.6 million (2019: £2,052.4 million) was in
line with the previous year, as was profit before tax and exceptional
items at £702.3 million (2019: £701.2 million). At a time of volatile
financial markets and unpredictable investor demand, it was very
pleasing to achieve high levels of net new business at £42.5 billion
(2019: £43.4 billion) and assets under management ended the year at a
new high of £574.4 billion (2019: £500.2 billion).
Dividend
Our policy is to provide shareholders with a progressive and sustainable
dividend, targeting a pay out ratio of around 50 per cent. Last year, at a
time when many companies were cutting or cancelling their dividends
as a result of the pandemic, the Board maintained both the final
dividend in relation to 2019 and the interim dividend for 2020.
In view of our confidence in the resilience of the business and the
capital position, the Board will recommend to shareholders at the
Annual General Meeting an unchanged final dividend of 79 pence per
share (2019: 79 pence), taking the full year dividend to 114 pence per
share (2019: 114 pence), representing a pay out ratio of 57 per cent. The
final dividend will be paid on 6 May to shareholders on the register at 26
March 2021.
Our responsibility
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 recognise
that we have a wider range of stakeholders including our employees,
our counterparties and suppliers, and society as a whole. In 2020 we
worked particularly hard to discharge that responsibility to all our
stakeholders.
For clients, over 80 per cent of assets under management have
outperformed their benchmarks over five years, and we continued to
enhance our digital offering which was important as we could not meet
clients face to face during much of 2020.
Our Annual General Meeting, held virtually, was open to all
shareholders.
We were able to seamlessly switch to remote working because of the
major investment we have made in technology in recent years and we
have not furloughed any staff during the pandemic.
Our operational platform was resilient and we enjoyed an excellent
relationship with regulators throughout the year.
We engaged actively with the companies in which we invest to see if
there were particular areas where we could be supportive in a very
challenging environment.
8
Schroders Annual Report and Accounts 2020
“Our business philosophy is
based on the belief that if we
deliver for our clients, we deliver
for our shareholders.”
George Mallinckrodt KBE 1930 – 2021
George (Gowi) Mallinckrodt dedicated more than half a
century to Schroders. Joining the business in 1954, he
served on the Board for 31 years, including 11 years as
Executive Chairman until 1995, before retiring in 2008.
Gowi had a profound impact on Schroders over many
years, covering the Company’s listing, the sale of the
investment bank and the growth of asset and wealth
management that is the business today.
His passion for Schroders and his commitment to the firm
will be remembered by us all.
Executive directors waived a proportion of their awards under the long
term incentive plan and all directors donated part of their salaries or
fees to charity. Employees as a whole donated £0.9 million to Covid
related charities globally. The Company itself increased its charitable
contribution during the year to £4.9 million.
The Board
Matthew Westerman and Claire Fitzalan Howard joined the Board as
Non-executive directors in March and April 2020 respectively. The Board
comprises 11 directors, the majority of whom are independent in line
with our policy, and we now have an almost equal balance between
men and women on the Board.
Given the unprecedented circumstances in which we found ourselves,
the Board met 19 times during the year to receive regular trading
updates from management in addition to our normal Board agenda.
Our people
Schroders’ success is built on our reputation and values, our diversified
business model, our financial strength and above all on the quality,
professionalism and commitment of our people. This was never more
so than in 2020 and, although there is still much for us to do as an
organisation as we confront high levels of disruption and market
volatility, we could not have delivered these results, served our clients,
or contributed to wider society in the way we have if our employees had
not risen to the challenge of these extraordinary times. On behalf of the
Board as a whole, I would like to thank them for what they have done
and continue to do for Schroders.
Michael Dobson
Chairman
Schroders Annual Report and Accounts 2020
9
Strategic report Group Chief Executive’s statement
DELIVERING
ACTIVE
PERFORMANCE
The past year has been extraordinary for us all. Managing a business and
caring for other people’s money meant addressing at least three crises: a
financial crisis during March and April, an economic crisis and a social and
health crisis, which are still with us.
Swift action from governments and central banks helped steady the
financial system and lent support to global economies. Most importantly,
the development of vaccines has given us hope that an easing of the
health crisis is in sight. Nevertheless, the effects will be long lasting.
Regardless of what comes next, I will continue to marvel at how the
human race responded and adapted in the face of such adversity.
In the face of these challenges, I am delighted with the performance we
have delivered and the way our people responded to the challenge.
Delivering strong investment performance
Looking after our clients’ investments during the market turmoil was of
the utmost importance for us. Our investment culture of research, team
work and internal communications continued to function well, even when
most of our portfolio managers were working from home. We remained
highly proactive and our Data Insights Unit provided innovative research,
in particular on the developments of Covid-19, with high levels of
engagement from our investment desks.
This meant our teams did not miss a beat and, as a result, we delivered
strong investment performance despite the behaviour of markets. Over
three and five years, 72% and 81% of client assets have outperformed
their respective benchmarks. This is a major achievement and highlights
the ability of active managers to successfully generate alpha.
Client investment performance*
2020
2019
1 year
75%
70%
3 years
5 years
72%
70%
81%
72%
* For more information about how we calculate client investment
performance see the Glossary on page 189
10
Schroders Annual Report and Accounts 2020
I am pleased to say that we continued to meet client requests and
increased face time with our clients, albeit virtually, throughout the
year despite the disruption. Digital engagement was key. Fortunately,
we have been investing for some time in the infrastructure to service
clients digitally and so were able to quickly transition our events platform
to be fully online and deliver regular insight to our global audiences.
This included the launch of SchrodersTV to provide regular market
views and a vast increase in webinars, allowing clients to speak directly
to our portfolio managers. As a result, we were ranked first for digital
engagement in 2020 across the asset management industry by
Living Group.
Our new business flows remained strong
Overall, total net inflows reached £42.5 billion for the year, or £14.3 billion
excluding the remaining tranches from the Scottish Widows mandate,
the first tranches of which were transitioned to Schroders during 2019.
Our joint ventures and associates contributed £12.4 billion of net inflows,
bringing the total for the year of net flows from which we benefitted to
£54.9 billion. This was a very pleasing result for our business, especially
when considering the backdrop of the year.
Our assets under management reached a record level of £574.4 billion,
£663.0 billion including joint ventures and associates. The growth of our
assets was supported by two acquisitions, positive investment
performance and strong net inflows.
Sustainability, ESG and impact investing continue to be on the minds of
many of our stakeholders and I am particularly proud of the progress we
have made in becoming a leader in this space. We are now rated
amongst the very best ESG investment firms by MSCI and Sustainalytics.
This is not a new avenue for us, as we have had sustainable investment
expertise for more than 20 years. At the end of 2019, we had integrated
ESG into the financial analysis of just over 50% of our assets and targeted
full ESG integration1 by the end of 2020. I am pleased that we were able
to achieve this target despite the challenges of the year. ESG integration
provides a broader assessment of the world in which our investee
companies operate, identifying ESG risks as well as fundamental value
1. For more information see the Glossary on pages 189-192
“We invest in the best interests
of our clients to accelerate positive
change in the world.”
opportunities in order to deliver returns for our clients. Our tools are
state of the art and having identified the trend early, we have been
able to capitalise on client demand. Our innovative work through our
Data Insights Unit is delivering both investment performance and
real differentiation and our newly launched products are gaining
good traction.
Since January 2019, we have been operating the business on a carbon
neutral basis, which was an important first step. But climate change is
one of the most pressing issues the world is facing and in December 2020
we became a founding member of the Net Zero Asset Managers
initiative. The group comprises leading asset managers committed to
supporting the goal of net zero greenhouse gas emissions by 2050 or
sooner, as our industry plays a crucial part in helping efforts to limit
global warming to 1.5°C. It is through understanding how companies are
positioned to respond to this climate transition that we can meet our
clients’ investment objectives. To that effect, we committed to reducing
our emissions in line with a science-based target not only for our business
but also for the investments we manage on behalf of our clients. I am
optimistic about the role finance can play to address the issues we are
currently faced with.
2020 was the ultimate test of operational resilience
One of our major achievements was the transition of the remaining
tranches of Scottish Widows’ assets. This was a landmark mandate
secured from Lloyds Banking Group (LBG). We on-boarded an additional
£29.5 billion with the remaining tranches transitioned mostly remotely
without a hitch and on time. I felt that was an incredible show of
resilience. Separately, we also successfully completed the transition of our
transfer agency business to a new provider, a major undertaking.
We recognised that our working practices would change over the long
term and a company-wide survey showed a desire for greater flexibility.
We adopted our flexible working charter in response, setting a new
industry standard. Our Global Head of Human Resources put it well at
the time: “in the space of a few months, we have made 20 years’ progress
in attitudes towards flexible working, and we are going to continue with
this momentum.”
Our employee engagement survey showed that 98% of our people are
proud to be associated with Schroders and the number of people who
believe that the firm cares about employees’ mental health increased to
96%. This is above the normal results within financial services, by 11%
and 23% respectively. Financial services is a people industry, which is why
it is crucial for us to create an environment where our talent can flourish.
By being an employer of choice we can attract and retain the best people.
I am proud to say that our resilience at Schroders has been a remarkable
testament to our people and our business. We took advantage of the
opportunity, extending our position as an industry leader whilst acting
with real responsibility towards all our stakeholders, whether they be our
clients, shareholders, people, suppliers, regulators or wider society.
Responding during a crisis
It was always clear to us that we would not accept money from support
schemes, nor would we furlough any staff. We also committed not to
make anyone redundant in 2020 due to the impact of Covid-19. As for the
companies in which we invest, we encouraged them to carefully think
about the actions they took to honour their own social contracts.
We have built a strong and resilient business based on the right
foundations. We have sustained our progressive dividend policy and this
remains incredibly important to us. It means that we are able to
recommend maintaining our final dividend for shareholders at 79 pence
per share, representing a payout ratio of 57%.
Our business generated net income before exceptional items of £2,179.2
million and achieved a ratio of total costs to net income of 68% whilst
pre-exceptional profits were £702.3 million.
A fundamental measure of our success is the value we create over the
long term for all our stakeholders. This value is a direct result of our ability
to diversify and further strengthen our business.
Schroders Annual Report and Accounts 2020
11
Strategic report Group Chief Executive’s statement continued
£574.4bn
Assets under
management
£663.0bn
Assets under
management inc.
associates
£42.5bn
Net new
business
£54.9bn
Net new business
inc. associates
15%
AUM growth
year-on-year
16%
AUM growth year-on-
year inc. associates
Making strategic progress throughout the year
We continued to execute on our strategy by investing for strong,
diversified growth, and continued to pivot into higher growth areas of
Wealth Management and Private Assets & Alternatives. I have highlighted
a few key achievements here but you can find a comprehensive view of
our strategy on pages 16-17.
We also generated strong net inflows over the year, as we continued to
grow our Wealth Management, Private Assets & Alternatives and
Solutions businesses. These now constitute 54% of our AUM, and 43% of
our revenues.
To further build our Wealth Management proposition in the UK, we
acquired Sandaire, a London-based multi-family office. This provides us
with an exceptional opportunity to grow Cazenove Capital’s leading
position in the UK’s ultra-high-net-worth segment. Our Wealth business
contributed strongly this year with net income increasing by 24% from
the previous year, reaching £382.7 million. This led to a significant
increase in profit before exceptional items of 26% to £110.5 million.
Another key strategic initiative is to broaden our private markets
capabilities, which we pursue through a combination of acquisitions and
organic expansion. In 2020, we acquired a majority stake in Pamfleet, a
Hong Kong-based real estate manager. We will continue to look for
opportunities to add private markets expertise in other areas or where
we can expand our geographical reach. We also made key hires to build
our capabilities organically, in real estate debt for example, and to
broaden our dedicated Private Assets sales team.
It was a good year for our private markets fundraising activities,
particularly our infrastructure, private equity and real estate teams. I view
this part of our business as a key revenue generator in the future and we
expect to further expand into the space organically and inorganically.
Another pillar of our strategy is to continue to grow our Asset
Management business. There are many avenues of growth left for us to
explore. These include geographical expansions and new product
launches, including products with a focus on environmental, social and
governance factors.
We now have a comprehensive range of sustainable funds, offering
compelling long-term investment propositions and strong performance.
We increased the number of funds within our Global Transformation
Range of thematic strategies. Three sustainable strategies, Global
Sustainable Growth, Global Climate Change and Global Energy Transition,
as well as Global Disruption, all passed key AUM milestones, which
should help us gain further traction. We are planning to offer these
products in suitable vehicles to more clients around the world.
In 2020, we continued to diversify our business geographically. The US is
a key opportunity for us and this year our US business reached an
important local milestone and exceeded assets under management of
$100 billion (£73.3 billion at year end), as net flows from US clients
reached £11.2 billion. This was supported by our long-standing
partnership with Hartford.
We also made progress in China and have been granted permission to
obtain a Fund Management Company licence, enabling us to provide
solutions not only to onshore institutions but also to retail customers.
The Chinese onshore market remains one of the biggest opportunities
for us and we are working hard to broaden our footprint organically
and through partnerships. There is a clear opportunity for Schroders to
bring international investment expertise to the growing onshore asset
management market.
A proactive response to Covid-19
January
February
March
April
May
For clients
For our people
For our people
For society
For society
Rolled out our SustainEx™
tool as a forward-looking
measure of the impact of
our investments
Our offices across Asia
moved to remote working
in response to the Covid-19
pandemic, with many other
offices following suit
Launched weekly podcast
to keep our people
connected to the firm and
informed about the latest
developments
Directors donated 25% of
salary / fees for three
months and waived 2020
LTIP award to Covid-19
relief efforts
Our CEO signed an open
letter to UK businesses
urging pragmatism and
offering support in
response to Covid-19
For clients
Increased our digital
engagement with clients in
response to Covid-19
measures
Collaborated with other
investors to engage with
FTSE 100 companies on
employee mental health
during Covid-19
12
Schroders Annual Report and Accounts 2020
Expanding our partnership network globally
Our joint venture with Lloyds Banking Group was impacted by the
lockdown, as referrals slowed due to branch closures. This year was
foundational for Schroders Personal Wealth, as a new leadership team
was established and organisational improvements were implemented.
Over the year, the migration of all of Schroders Personal Wealth clients
onto Benchmark Capital’s digital platform was completed, entirely
remotely. The future plans for the business give me great confidence.
Our existing partnerships with Bank of Communications in China,
Axis in India and Nippon Life in Japan all performed well and contributed
positively. Axis continues to grow its market share over
the year reaching 5.7%. BoCom Schroders has improved its market
position and is now ranked within the top 15 in China by assets
under management. This is due to its strong brand, competitive
investment performance and successful product launches.
I am especially pleased that our strong partnership with Bank of
Communications meant that we were their preferred partner to form a
Wealth Management Company joint venture. Once we commence
business activities, I foresee significant growth potential by partnering
with one of China’s largest banks, a partner we have worked with for
many years.
If there is one thing we can learn from the pandemic, it is the role
financial services can play. Although these are incredibly difficult times,
they serve as an important reminder that what we do as a company can
make a big difference to many people. Last year, I noted that we were
increasingly seeing that clients were no longer interested solely in the
returns generated by their investments but also in the broader impact
of those investments.
Our understanding of the impact of companies on society and
on the planet is growing ever stronger. Accurate measurement of
impact is critical. Our SustainEx™ analysis uses big data and measures
the external impacts of a business by qualifying the economic costs and
benefits companies create for society. For example, we estimate the
social impact of activities like carbon emissions or access to basic
services and attribute those impacts to companies systematically
and quantitatively.
of sales. The average financial services business has a SustainEx™ score
of -0.3%. (For more details on SustainEx™, please see the Glossary on
pages 189-192.)
If one accepts that not all profits are created equal, active asset
managers have an important role to play when allocating capital.
This will be particularly true in credit markets, where new capital is
being made available.
I have a strong belief in the powerful role the financial system can
play in addressing some of the perceived shortcomings of capitalism.
Investment managers play a pivotal role, between asset owners, our
clients, and asset creators, the companies and entrepreneurs we invest
in. Given the unprecedented amount of government capital invested
in financial markets we should expect to see increased intervention.
There is a suite of new legislation and regulation being implemented on
ESG factors.
Our impact comes from the careful management of more than half a
trillion pounds of our clients’ assets. How we approach this will prove far
more influential than how we behave as a corporate entity, although the
two must be aligned. There is an urgency now to get this right because of
the compounding effect of early action. The benefit of acting now is so
much stronger and the downside of not acting is so much greater.
Many more companies and investors are waking up to this reality; the
Covid-19 crisis has been a catalyst. Schroders remains committed to
being a leader and we will continue to invest actively in the best interests
of our clients, into businesses that are well-positioned to maximise
returns and accelerate positive change in the world.
A tribute to our people
I would like to conclude by paying tribute to our people who have gone
above and beyond and kept our organisation going without missing a
beat, delivering under extremely difficult circumstances. I also could not
be more proud that our people supported and fundraised towards our
#CollectiveAction campaign, donating £4.3 million to Covid-19 related
charities. Keeping our people safe and looking after their wellbeing
continues to be paramount and I am grateful to each and every one for
their continued dedication.
We must be prepared to turn this scrutiny on ourselves. So, for the
record, Schroders’ own SustainEx™ score is +3.1%, or expressed a
different way, we create £3.10 of additional social value for every £100
Peter Harrison
Group Chief Executive
3 March 2021
June
August
November
December
For society
For our people
For clients
For society
Participated in the Diversity
Project’s ‘Talk About Black’
campaign and joined other
businesses in making a
diversity pledge
Launched our flexible working
charter for all employees globally,
offering them the opportunity to
work in the way most effective
for them
BlueOrchard launched a Covid-19
support fund, with funding from
Schroders among others, to
support the microfinance market
through the pandemic
Became a founding member of the
Net Zero Asset Manager initiative
For clients
Launched the British Opportunities
Trust, investing in British
businesses through the pandemic
and beyond
Launched the Schroder BSC Social
Impact Trust, which invests with a
focus on delivering a positive social
impact in the UK
Schroders Annual Report and Accounts 2020
13
Strategic report Business model
Providing excellent performance
through active decision-making
Why we do what we do
To provide excellent investment performance
Our purpose is to provide excellent investment performance
to our clients through active decision-making.
To channel capital to support businesses
We actively select companies with sustainable and durable
business models; those that are evolving to survive and thrive
in the challenges of the decades ahead.
To help accelerate positive change
We actively select forward-thinking companies, but we also support
them in their journey to a fully sustainable future.
Creating value for our stakeholders
Delivering returns for clients and shareholders
With a long-term shareholder base we can take a long-term view, in our
careful decision-making for the company and for clients.
Taking decisions to benefit society
We know that as stewards of more than £500 billion, we can channel
money to benefit society. Equally, every decision as a corporate entity is
mindful of the impact and implication for the world beyond Schroders.
Taking decisions to benefit our people
We take immense pride in our culture. By promoting flexible working,
championing diversity and making health and wellbeing a priority, we have
created the conditions for our people to thrive. This culture is the cornerstone
of our business.
Global network of partnerships
We have a number of strategic partnerships with key investment
clients around the world, coupling our investment expertise with
our clients’ distribution networks, to meet the needs of their
customers. Our partnership strategy gives us access to new
distribution opportunities around the world, including some of the
world’s highest growth markets.
14
Schroders Annual Report and Accounts 2020
Our joint venture with BoCom in China
continues to deliver strong performance.
Net new business totalled £7.7 billion in
2020 reaching total AUM of £68.4 billion.
Our joint venture with Axis in India has
been growing its market share steadily to
5.7%, ranking 7th in India in terms of
AUM. The joint venture generated net
sales of £4.4 billion with AUM reaching
over £19.3 billion in 2020.
How we deliver for clients
By designing innovative products and services
We strive to understand what clients want and apply this to the funds we offer
and the bespoke solutions we develop. Because of our deep relationships and
use of technology, we can track and respond to these changing needs. This is
underpinned by our carefully designed structure based on capabilities, which
opens up our expertise to every client.
By active and intelligent use of technology
Technology and data is at the heart of our ceaseless push for investment
excellence. Our award-winning SustainEx™ impact measurement tool
is one example.
By motivating and nurturing talented employees
Our business model wouldn’t work if our people were unable to thrive.
We nurture a culture that allows the individual and the company to make the
most of their skills.
What differentiates us
Deep expertise in all asset classes
Our heritage is unique. For more than two centuries we have evolved our
understanding of markets and therefore the offering we take to clients.
Today, we comprise five business areas: Private Assets & Alternatives,
Solutions, Mutual Funds, Institutional and Wealth Management.
Actively driving the growth of our business
We have grown into areas of exceptional growth potential. We can offer
access to private markets as equally as public markets. We are a leading
specialist in impact investing. We look forward and we change.
Global expertise
Our investment capabilities span the globe. But so does our extensive
distribution infrastructure which brings the best of the Schroders proposition
to our clients wherever they are.
Our relationship with Hartford in the
US comprises ten sub-advised strategies
tailored for the US retail customer.
In 2020, the funds achieved £0.6 billion
of net inflows with AUM reaching
over £7.5 billion.
Our joint venture with Nissay, the asset
management arm of Nippon Life,
delivered benchmark-beating returns for
clients in 2020. Our business with Nippon
Life continues to grow.
Our recently established joint venture with
Lloyds Banking Group, Schroders Personal
Wealth now employs over 300 financial
advisers and reached £13.8 billion AUM at
the end of 2020.
Schroders Annual Report and Accounts 2020
15
Strategic report Strategy
Delivering long-term value for our clients
Changes in the investment industry continue to gather pace. Our strategy looks decades ahead; it is carefully
designed to benefit our clients, as we further diversify our business model towards higher demand areas.
Our focus
FOCUSE
D O
N
G
R
O
W
T
H
16
Schroders Annual Report and Accounts 2020
Grow Asset Management
We focus on offering products and
solutions that are distinctive and of
pinpoint relevance to each client.
Product innovation is key to future proofing our
business. As is geographically expanding our reach so
we can serve more clients in more jurisdictions. To stay
relevant for all our Asset Management clients, we are
increasingly providing complete solutions. Reducing
the level of intermediation between investment
solutions providers and end clients increases client
longevity and revenue margins. All these initiatives are
underpinned by progressively using technology as our
competitive advantage.
Build closer relationships
with end clients
End investors can benefit from the breadth
of our expanding investment capabilities.
We have the opportunity to leverage our global
investment expertise to build a leading Wealth
Management franchise. Wealth Management is
an attractive business area where trusted adviser
relationships lead to greater longevity and higher,
more sustainable margins. Schroders’ long history
of family ownership, our international institutional
investment expertise, our Private Assets capability
and our sustainability research are key strengths in
building a leading Wealth Management business.
Expand Private Assets & Alternatives
Build on the surging client demand for
new alternative sources of return.
Our Private Assets business is built to provide investors
with a range of portfolio building blocks and
customised private asset strategies. Our teams have
over two decades of experience in delivering
risk-adjusted returns in all private asset classes,
covering private equity, real estate, private debt and
infrastructure. We offer access to alternative
investments via our GAIA (Global Alternative Investor
Access) platform, which offers Schroders and
third-party funds. The continued expansion of our
Private Assets & Alternatives business remains a
strategic focus for the Group.
Read more about our distinct capabilities on pages 18-19
Our progress in 2020
Growth opportunities
We have made significant progress this year towards our sustainability
ambitions and achieved full ESG integration into the financial analysis
of our managed assets. We now have a comprehensive range of
sustainable funds with more fund launches in the pipeline next year. In
the US, we have broadened our presence in the institutional space and
have continued our strong relationship with Hartford. We have made
progress strengthening our onshore presence in China from a
distribution and investment perspective and have now been granted
permission to obtain a licence to serve retail clients as well as
institutions. We also reached an agreement to establish our second
joint venture with Bank of Communications. We will jointly be setting up
a Wealth Management Company. Our Solutions business grew
significantly last year and achieved £43.4 billion of net inflows, mainly
driven by the transfer of assets under the Scottish Widows mandate.
We see material upside in our continued product innovation
programme which helps maintain our strong position
in sustainability. This is one of our key ambitions for our
business, alongside being a strong Solutions provider for
our clients globally.
We expect growth from an increasingly diversified global
footprint and see opportunities in the Americas and Asia.
Developing a range of innovative products that achieve
positive outcomes for clients is essential. We invest seed capital
to support these initiatives.
In the UK, we completed the purchase of Sandaire, adding to
our strong multi-family office franchise, and from this we integrated an
additional £2.4 billion of AUM. Cazenove Capital, our UK high-net-
worth brand, continued its UK regional expansion to leverage
Lloyds Banking Group’s (LBG) business bank relationships and
target business owners. It also accelerated its growth organically
and improved its digital, private assets and sustainable offering.
Benchmark Capital expanded its IFA network, generated record
profits and successfully migrated Schroders Personal Wealth clients
on to its platform. Whilst referrals from LBG were impacted by the
pandemic, Schroders Personal Wealth laid the foundations for future
growth with new leadership and improved IT infrastructure.
We will continue to grow our presence in the UK wealth market
across all segments. Schroders Personal Wealth and Benchmark
Capital are well-positioned to grow post-lockdown in the affluent
segment. We also see opportunities to build on our acquisition of
ThirdRock in Asia and Sandaire in the UK, as well as our Swiss and
Channel Islands businesses, to create a leading family office
service in Europe and Asia.
In recent years we have extended our Private Assets capabilities,
and our offering includes private equity, insurance-linked securities,
securitised credit, infrastructure and real estate. All of these asset
classes have experienced strong organic growth and contributed
positively to the Group. We have strengthened our management team,
including our real estate team, and completed the purchase of a
majority stake in Pamfleet, a Hong-Kong based real estate manager. We
have also started several organic expansions across the platform
including public-private strategies, Australian private debt, real estate
debt, securitised credit and impact investing. The development of our
dedicated Private Assets sales team has continued globally and we
are confident that our clients are benefitting from a specialised
approach to client service focusing on local requirements and
supported by a global perspective.
We continue our focus to grow the contribution to the Group’s
revenues of our Private Assets & Alternatives business to 20%
over the medium term. That means becoming the private assets
provider of choice for clients by offering innovative products and
by scaling up the businesses we have acquired. Building on our
strong track record and deep expertise we also see significant
opportunities to further develop our Private Assets capability with
innovative structures and to establish ourselves as a leader in the
ESG and impact investing space.
Read more about how we track our strategic progress on pages 22-23
Read more about how we manage our risks on pages 50-55
Schroders Annual Report and Accounts 2020
17
Strategic report Market proposition
Our distinctive capabilities
We have a long history of adapting our offering to meet the needs of our clients in an
ever-changing world. As society moves to recover from the effects of a global pandemic
and a low rate environment continues to impact the search for income, our market
proposition will allow us to meet the current challenges head on and provide positive
outcomes for clients across both our asset and wealth management businesses.
A world in recovery
Thematics
At its simplest, successful investing is rooted in understanding
how the world is changing. And so it is with thematics. The managers
of these funds specialise in understanding the greatest issues of
our age; climate change, energy transition and disruptive technology,
to name a few.
As the world begins to recover from the social, health and economic
impacts of the Covid-19 pandemic, and as the move towards net zero
emissions increasingly comes into focus, these strategies are designed to
offer clients access to some of the most powerful and persistent themes
transforming our planet and our daily lives.
Our Global Transformation Range aims to uncover and invest in
companies that are innovating and addressing the imbalances in our
world, whether between populations and resources or supply and demand
within individual markets. These funds seek out long-term opportunities
and provide clients with a global and unconstrained opportunity set, which
can form part of their core, active portfolios.
Emerging markets
High debt and poor demographics in a number of developed
market economies pose a challenge to growth. In contrast, emerging
markets are well-positioned to benefit from rapid industrialisation,
urbanisation and the adoption of new technologies.
We have operated on the ground in emerging markets for more than
80 years and are one of the top five global leaders in the asset class. Our
established capabilities in emerging markets span a range of asset classes.
In equities, the trends in our favour include further growth in demand for
China-focused funds and increased attention on sustainability. On the fixed
income side, we are continuing to build on our offering with strategies that
focus on company bonds, local currency and hard-currency sovereigns.
Sustainability
As an active manager, we have to understand the effect each company has on the world. Not only do clients
want to understand this impact, but it is essential to considered investment decision-making.
Accurate measurement of impact has therefore become a cornerstone of our approach, made possible by the
development of our proprietary tools. With them we can understand the true costs of companies’ activities and estimate
their ‘impact-adjusted profits’. Active management also means active ownership. We encourage the companies we invest in
to adopt more sustainable business models, increasing their resilience and supporting future growth. In 2020, we
conducted over 2,150 sustainability-focused engagements across 58 countries. We also voted on 99% of resolutions at over
6,500 company meetings around the world.
18
Schroders Annual Report and Accounts 2020
New drivers of growth
Private Assets & Alternatives
In an environment where a great deal of uncertainty and fragility
in the system remains, private markets and alternative asset classes
offer growth opportunities that can be difficult to find in more
traditional markets.
We have expanded our private markets capabilities significantly in
recent years, both organically and via bolt-on acquisitions. We now offer
a broad range of private assets strategies and have launched a number
of funds in response to increasing client demand in this area.
On the alternatives side, our GAIA platform is an example of industry
innovation and allows us to move quickly with fewer resources by
leveraging external managers in addition to our own investment
teams. With Helix at its core, we will continue to develop the platform’s
offering in response to client demand.
Low rate environment
Income
The current low interest rate environment is not a new
phenomenon, short-term rates have been low since the global
financial crisis more than a decade ago. The Covid-19 pandemic has
pushed them even lower, as central banks make every effort
to support economic activity.
Investors are facing a considerable challenge in achieving sustainable
income in this environment and are looking for income-generating funds
to help address the issue. We offer one of the most comprehensive
ranges of income strategies in the market, with products across all asset
classes, yields and risk/liquidity levels.
Our existing, well-developed credit franchise also provides ample
opportunity for meeting this demand on the fixed income side and
extending our offering into newer areas, particularly in Asia.
ImpactIQ A sustainability lens on our investments
SustainExTM
ThemEx
Quantifies the hidden environmental and
social costs and benefits created by
companies, providing a forward-looking
measure of their impact. This allows investors
to better understand the risks that companies
could face in the future.
Demonstrates alignment with the UN
Sustainable Development Goals (SDGs) and
allows us to create bespoke solutions for
clients, which focus on the impact goals that
matter most to them.
Schroders Annual Report and Accounts 2020
19
Strategic report Market review
A year of unexpected change
It has been a remarkable year and one that will not easily be forgotten,
however much we might wish it to be. Life as we know it was turned
upside down by the Covid-19 virus towards the end of 2019. Countries
locked down as unprecedented measures were brought in to contain
the spread of the virus. Borders were closed, industrial activity was
largely paused, social gatherings were banned and people were
ordered to work from home where they could.
Extreme turbulence hit financial markets as investors became spooked
by the pandemic’s implications.
MSCI World (Total return)
12000
10500
9000
7500
6000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug Sep Oct Nov Dec
MSCI World U$ – Total Return Index
* Source: Schroders. Refinitiv, January 2021
FAANG performance 2020
200%
165%
130%
95%
60%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug Sep Oct Nov Dec
S&P 500
Alphabet
Facebook
Netflix
Apple
Amazon
* Source: Schroders. Refinitiv, January 2021
The famous FAANG quintet of stocks (Facebook, Apple, Amazon, Netflix
and Google) continued to power ahead, not to mention the seemingly
inexorable performance of communications technology enablers like
Zoom.
Zoom performance 2020
Even the perceived safe havens of bonds and gold suffered as investors
feared for the stability of the whole financial market system.
1000%
Nearly as rapidly as they crashed, markets recovered, buoyed by the
aggressive and unparalleled levels of central bank- and government-
enacted stimulus measures. This included very significant levels of
government spending to prop up economies, but also lowering of
interest rates around most of the world.
The developed world, where interest rates were already low to start off
with, saw rates reach zero in many instances. This new era of #theZero,
as Schroders has termed it, will have widespread consequences for
economies and stock markets around the world.
We believe it will change the investment landscape meaningfully. In a
world where bonds offer zero income, traditional asset allocation may
not be able to deliver the benefits it has historically done.
Homebody economy
Another feature of the historical market crash and subsequent recovery
was how those stocks related to the ‘homebody economy’ flourished.
With everyone confined to the four walls of their homes, it became the
norm for people to conduct their lives online to a greater extent than
ever before. Existing trends like online shopping and remote working
arrangements were accelerated, making years of progress in a few
weeks. Companies providing internet infrastructure, support and
entertainment naturally thrived.
20
Schroders Annual Report and Accounts 2020
750%
500%
250%
0%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug Sep Oct Nov Dec
Zoom
* Source: Schroders. Refinitiv, January 2021
Other areas of the market, some of them unexpected, took off too. Pet
ownership, for example, boomed thanks to the likely new normal of
owners working from home a few times a week. Many people took
advantage of the time at home to renovate and refurbish, to the benefit
of businesses such as home builders and DIY retail.
The role of the stock market
But many other companies did not find themselves in such a privileged
position. Many had to close their doors permanently as global activity
shut down and revenues dried up across the world, resulting in millions
of job losses. Various governments made large sums of debt available
to struggling companies through loan programmes and the deferral of
certain tax payments, for example. This undoubtedly saved some
businesses and jobs but more needed to be done given the scale of
the crisis.
Equity markets stepped up to the plate. All over the world they provided
funding to ailing corporates: an astonishing $3.6 trillion (The Economist,
9 December 2020) was raised over the year by non-financial firms.
Record levels of corporate debt and secondary stock sales were issued.
Our analysis shows £31 billion was raised by more than 500 companies
on the London Stock Exchange during 2020 (source: Bloomberg). This
was more than in any year since companies scrambled to repair their
balance sheets during the 2008-09 crisis.
The China story
China, once the epicentre of the virus, staged a remarkable recovery in
2020, both from an economic and a financial markets perspective. Its
economy posted 2.3% GDP growth over 2020, the only major economy
to expand over the year (source: National Bureau of Statistics of China).
The economic recovery spurred equity markets onto new heights – the
value of the stock market breached the $10 trillion mark in October for
the first time since 2015 (Bloomberg, October 2020).
The rise of S in ESG
Companies did not only experience financial stresses and strains as a
result of Covid-19. They also came under pressure from investors to
demonstrate the strength of their social contract with stakeholders
(employees, suppliers and customers). Since then we have seen
numerous firms pay more attention to the interests of other
stakeholders, beyond just shareholders. All over the world, executives
and board members took pay cuts, albeit temporary, in response to the
pandemic. While executive pay cuts might not do much to bolster a
company’s finances, they send a message of solidarity to employees
and investors. Especially when companies are cutting dividends,
investors prefer to see management ‘sharing the pain’. In short, this
crisis has actually increased the visibility and perceived importance of
sustainable business practices.
US elections
The US presidential election also brought the topic of sustainability front
and centre. The uncertainty about who would win was a theme that
dominated markets and investor sentiment, and contributed to
elevated market volatility in the run-up to November’s ballot. A ‘Biden
bounce’ in the stock markets followed the announcement of the
Democratic Party’s popular and electoral college vote victory over
incumbent Donald Trump.
The ESG implications of Biden’s presidency could be profound. We will
likely see a change in US climate policy as Biden re-commits the country
to the Paris Agreement and to a net zero emissions reduction target by
2050. Beyond the climate agenda, a Biden victory could have significant
implications on consumer, healthcare and tech companies as Biden
seeks to strengthen labour protection, improve access and affordability
in healthcare and regulate big tech. It is hoped that Biden’s presidency
will also help thaw relations between the US and China, which became
increasingly frosty during Trump’s tenure.
Brexit impact
The uncertainty contributed to the UK stock market’s relatively weak
performance over the year. In currency markets the pound made gains
against the dollar throughout the year, with the strongest rallies in the
weeks before the UK parliament’s approval of a post-Brexit trade deal.
Dollar vs basket of currencies
105
100
95
90
85
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug Sep Oct Nov Dec
US Dollar
* Source: Schroders. Refinitiv, January 2021.
Looking ahead
Inflation remains, as ever, a key consideration for markets. Some fear
that central banks may permit higher inflation to assist indebted
companies and governments. However, the pandemic has had such an
impact on demand that we see little inflationary pressure on a
three-year view.
We think low interest rates are going to dominate investor sentiment.
Income is going to become increasingly difficult to find with interest
rates at such lows and investors are going to have to turn to places
they might have overlooked in the past, in order to achieve growth.
We believe this will provide further impetus to the increased demand
we saw in 2020 for private assets.
This environment of low rates will also likely put pressure on the US
dollar, which has already seen a 7% decline compared to a basket of
peers over the course of 2020.
The use of big data will empower investors to be more specific about
their impact. We also foresee growing demand from investors to back
particular themes, seeking positive impact and sustainable and
robust returns.
Investors are also likely to become increasingly concerned with the
measurement of the impact their investments are having on society
and the environment.
We expect strong interest in the biggest themes of our age – climate
change, energy transition, healthcare advancements and accelerating
urbanisation. This shift could be a distinguishing characteristic for
markets in 2021 and beyond.
Schroders Annual Report and Accounts 2020
21
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 (%)
Net new business (£bn)
72%
£42.5bn
We target at least 60% of our AUM to outperform its stated comparator
over rolling three-year periods.
We seek to generate positive net new business across the Group.
2016
2017
2018
20191
2020
74
74
74
70
72
2016
2017
2018
2019
2020
1.1
9.6
(9.5)
43.4
42.5
Investment performance over a three-year period remained strong in
2020, with 72% of assets outperforming their stated comparator. We
have been above this target for each of the past five years.
Overall, total net inflows reached £42.5 billion for the year, or £14.3
billion excluding the remaining tranches from the Scottish Widows
mandate.
Five-year investment outperformance was 81% and the
one-year figure was 75%.
More details on our performance reporting can be found
on pages 189.
Overall, Solutions net new business reached £43.4 billion which was
also supported by a mandate win in the US in the first half of the year.
Wealth Management contributed £1.7 billion of net flows, while our
Private Assets & Alternatives business contributed £0.5 billion.
Assets under management (£bn)
Retention of key talent (%)
£574.4bn
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.
2016
2017
2018
2019
2020
386.0
2016
435.7
2017
407.2
2018
500.2
2019
574.4
2020
95
94
94
94
94
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.
AUM increased by 15% in 2020 to £574.4 billion.
Rising markets and currency movements increased AUM by
£28.4 billion.
We generated net new business of £42.5 billion and acquisitions
added £3.3 billion of AUM.
1. Restated to include additional Solutions and Wealth Management assets
22
Schroders Annual Report and Accounts 2020
Basic earnings per share* (p)
Ratio of total costs to net income* (%)
200.8p
68%
We aim to grow earnings per share consistently, recognising the
potential impact of market volatility on results in the short term.
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.
2016
2017
2018
2019
2020
186.3
2016
226.9
2017
215.8
2018
201.6
2019
200.8
2020
In 2020, basic earnings per share before exceptional items was
200.8 pence.
In 2020, our ratio of total costs to net income was 68%. This ratio
increased as we continued to strategically invest in the
future growth of the business.
Net income* (£m)
£2,179.2m
Dividend per share (p)
114p
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.
Our policy is to provide shareholders with a progressive and
sustainable dividend, targeting a payout ratio of around 50%.
For more information, see page 24.
2016
2017
2018
2019
2020
1,793.1
2016
2,068.9
2017
2,123.9
2018
2,124.8
2019
2,179.2
2020
64
61
64
67
68
93
113
114
114
114
Net income increased £54.4 million from 2019 to £2,179.2 million.
Changes in business mix offset higher average AUM, resulting in net
operating revenue increasing marginally from £2,052.4 million in 2019
to £2,059.6 million in 2020. Net income was supported by an increased
contribution from associates and joint ventures and net gains on
financial instruments.
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 2020
23
Strategic report Business and financial review
RESILIENCE
IN A CHANGING
WORLD
The events of 2020 were quite extraordinary. The global pandemic and
ongoing political uncertainty impacted investor sentiment and led to
market volatility. Against this backdrop, I am very pleased with not only
the results we have delivered, but also the progress we have made in
enhancing our operational capabilities and in making sure we continue
to do the right thing for society.
Our diversified business model has again shown its benefits as we
delivered pre-exceptional profit before tax of £702.3 million, a small
increase on 2019 (2019: £701.2 million). Profit after tax and exceptional
items decreased slightly to £486.0 million (2019: £495.7 million),
principally due to higher acquisition related costs and other one-off
items in our associates and joint ventures. Given this performance
the Board is recommending a final dividend of 79 pence per share
(2019: 79 pence per share). This means a total dividend for the year
of 114 pence per share (2019: 114 pence per share) and represents
a payout ratio of 57% (2019: 57%).
Resilient results in exceptional times
We have previously set out three strategic areas, which we believe
will drive our future growth: the continued advancement of our global
Asset Management business; the development of our Private Assets
& Alternatives capabilities; and the expansion of our Wealth
Management business through closer relationships with end clients.
Although 2020 was not without its obstacles, we continued
to make good progress in each of these areas.
In Asset Management, our focus on delivering investment
outperformance, combined with ongoing innovation and product
development, has enabled us to continue to attract positive net new
business despite the market uncertainty.
We have also continued to build out our Private Assets & Alternatives
capabilities, most notably through the purchase of a majority stake
in a Hong Kong based real estate manager, Pamfleet, which extends
our geographical real estate capabilities into Asia. This acquisition
contributed £0.6 billion of additional AUM, which helped increase
our Private Assets & Alternatives AUM to £46.1 billion.
24
Schroders Annual Report and Accounts 2020
Across our Asset Management segment we generated £40.8 billion
of net new business, with particularly strong growth in our Solutions
business. These developments, together with positive investment
returns, enabled us to grow our Asset Management AUM to
£502.4 billion (2019: £433.5 billion).
In Wealth Management, the acquisition of Sandaire, which completed
late in the year, further strengthened our strong family office franchise
and added to our capabilities in the UK ultra-high-net-worth sector.
We also made progress in expanding our presence in Singapore and
across the various regions in the UK as we made a number of key hires
in both markets. Our joint venture with Lloyds Banking Group plc,
Schroders Personal Wealth (SPW), which we launched in the second
half of 2019, made positive progress despite the challenging market
environment. Across our Wealth Management segment we generated
£1.7 billion of net new business as we grew our AUM to £72.0 billion
(2019: £66.7 billion).
These strategic developments helped us to grow our total AUM to
a record high of £574.4 billion (2019: £500.2 billion), with total net
new business of £42.5 billion. Our associates and joint ventures had a
successful year and at 31 December, managed £88.6 billion of AUM,
which is not currently included as part of our Group AUM. In 2020
these businesses generated £12.4 billion of additional net new
business. Management fees were down slightly at £2,327.2 million
(2019: £2,380.2 million). This was driven by a shift in the mix of our
business as a result of the growth in our Solutions business and the
impact of markets. We delivered strong investment performance for
our clients, resulting in £95.7 million of performance fees and net
carried interest, up from £73.1 million in 2019. This growth was partly
offset by lower real estate transactional income, which was impacted by
reduced deal volumes as a result of the global pandemic, and lower net
banking interest in Wealth Management due to the low interest rate
environment. Overall, net operating revenue was up slightly at
£2,059.6 million (2019: £2,052.4 million).
“Our diversified business model
has enabled us to deliver a robust
set of results, as we continue
to make progress against our
strategic objectives.”
As the Group Chief Executive’s statement sets out, our global
partnership network is a key component of our growth plans, and our
interests in joint ventures and associates, particularly our long-standing
venture with Bank of Communications in China, showed strong returns
in 2020. As a result, income from joint ventures and associates
increased to £64.1 million (2019: £30.5 million). Our proprietary
investments, which comprise seed capital, co-investments and our
investment capital portfolio also performed well, generating gains
of £42.5 million (2019: £23.5 million), notwithstanding the fact that
they are managed on a market neutral basis. These returns are
included within net gains on financial instruments and other income
and contributed to net income increasing to £2,179.2 million
(2019: £2,124.8 million).
The increase in net income was largely offset by higher costs.
We increased our Total compensation ratio from 44% to 45%.
Non-compensation costs were slightly higher at £502.2 million
(2019: £496.3 million), largely due to the impact of acquisitions, and
as a result of the strategic investments we have been making in our
technology and infrastructure. The cost increases were dampened by
reductions in travel due to the impact of the global pandemic and other
cost savings. This resulted in a total profit before tax and exceptional
items of £702.3 million (2019: £701.2 million).
The investments we are making in the business are an important part
of our growth strategy. They include strategic investments in China,
where we have recently announced two new businesses. The first is an
investment in a Wealth Management Company, a joint venture with the
Bank of Communications. The second is a wholly owned Fund
Management Company. Both provide a significant opportunity for us to
bring more of our investment capability to the region by growing our
onshore presence.
Changing working habits, which have been accelerated by the
pandemic, have enabled us to review our office capacity needs.
As a result, we took the decision to reduce our office space in London
and Hong Kong. The costs associated with the changes to our property
estate amounted to £16.3 million and have been presented as
exceptional items within our Group segment. Other exceptional items
are largely acquisition related, including the amortisation of intangible
assets and one-off costs relating to the transformation and set up of
SPW which is part of our Wealth Management segment. In total,
exceptional items were £91.8 million (2019: £76.6 million), which meant
a profit before tax of £610.5 million, down 2% on 2019. Profit after tax
was £486.0 million (2019: £495.7 million).
Advancing our operational capabilities
The Group Chief Executive’s statement refers to our operational
resilience, in particular highlighting our successful onboarding of assets
under the Scottish Widows’ mandate which completed during the first
UK lockdown. This was achieved as we benefited from the investments
we have made in technology and infrastructure. These enabled us to
make the switch to remote working efficiently across our global
network with no impact on our ability to deliver for our clients.
The year also saw us advance our operational capabilities in a number
of other ways. We relocated operational processes from Luxembourg
and London to our site in Horsham, West Sussex, enhancing our
efficiency and effectiveness. In the UK, we also changed our transfer
agency provider to HSBC. This provides us with a competitive and
innovative service in a market that had previously been dominated by a
single player. Elsewhere, in Singapore, we significantly expanded our
investment operations team in response to the increasing needs of our
growing Asian business.
Schroders Annual Report and Accounts 2020
25
Strategic report Business and financial review continued
Contributing to society
Covid-19 has had an undeniably disruptive impact on society and we
recognise that we have a responsibility not only to our clients and
shareholders but also to wider society and the communities in which
we operate. Our diversified business model and operational resilience
meant that we were well placed to manage the challenges that it posed.
Recognising the important role we play, we have actively supported our
suppliers, people and wider society. We were particularly mindful of the
impact lower employee presence in our offices would have on our
facilities team and service providers. We maintained all salaries, paying
everyone in full throughout the year. We did not furlough any
employees or make any redundancies as a result of the pandemic. Nor
did we seek or accept any government support.
We also increased our wider support for charities and our total
contribution to charities during the year was £4.9 million. A key element
of this was the Group’s contributions to our #CollectiveAction campaign,
assisting those most impacted by Covid-19, as outlined on page 41.
As an active asset manager, investing across public and private
markets, we have a fundamental role to play in encouraging the
companies that we invest in to recognise their environmental and social
responsibilities. This includes encouraging them to address the climate
impact of their businesses. It is equally important that we lead by
example, and we are committed to planning for, and executing on,
the transition towards net zero emissions within our own operations.
We continue to target significant reductions in our greenhouse gas
emissions, and in 2020 our CO2e emissions per employee reduced by
73% to 1.21 tonnes (2019: 4.49 tonnes). Notwithstanding the reductions
that arose as a result of Covid-19, particularly from less travel, we made
good progress in line with our plans. For more information see page 42.
Reflecting our ambition to demonstrate leading practice when it comes
to minimising the negative impact of our business on the environment,
we have taken a number of other significant steps in 2020. We became
a founding member of the Net Zero Asset Managers initiative and
committed to setting a science-based emissions target by the end of
2021. As part of these commitments, we will be publishing our climate
action plan later this year. This plan will outline how we intend to
transition towards net zero emissions across our own operations and
wider value chain by 2050 or sooner, as well as highlighting interim
targets in this area.
This aligns with our increased focus on climate change within our
broader corporate responsibility (CR) strategy, which focuses on our
impact on people and the planet. In particular, we are looking at how
our activities as a business can play a role in reducing inequalities and
tackling climate change. More information on our approach to CR can
be found from page 30.
Corporate Responsibility Strategy
People
Planet
Reducing inequality
Focusing on inclusion, wellbeing and human rights
Tackling climate change
Focusing on science-based targets and a net zero emissions pathway
Delivered by
Investment solutions
Tools and measurement
Operations and supply chain
Our culture and values
Policies and standards
Partnerships
Charitable giving, fundraising and
volunteering
All underpinned by
Business areas
In 2019, we presented our AUM across our five business areas of
Private Assets & Alternatives, Solutions, Mutual Funds, Institutional and
Wealth Management for the first time. This presentation better aligns
with the way we manage our business and the shift in client demands.
Both Private Assets & Alternatives and Wealth Management are
explicitly linked to two of our strategic objectives. The three other areas
are a key part of our strategy to grow Asset Management. Solutions in
particular is a key area of growth where we are able to use our active
investment expertise to differentiate ourselves and help meet the
increasing demand from clients for the management of balance
sheet risk.
Providing high quality active management to Institutional clients
remains a core part of our business. Whilst our Mutual Funds business
faces wider market pressures, it remains an important component of
our overall Asset Management segment. We continue to innovate in
this area, for example through the development of our Global
Transformation Range of funds.
26
Schroders Annual Report and Accounts 2020
Movements in AUM
£bn
1 January 2020
Gross inflows
Gross outflows
Net flows
Acquisitions
Investment returns1
Transfers
Private Assets
& Alternatives
44.2
7.7
(7.2)
0.5
0.6
0.8
–
Solutions
142.8
68.8
(25.4)
43.4
–
4.9
1.2
Mutual
Funds
102.4
39.0
(42.1)
(3.1)
–
4.9
–
AUM
Institutional
Asset
Management
Wealth
Management
144.1
24.4
(24.4)
–
–
15.7
–
433.5
139.9
(99.1)
40.8
0.6
26.3
1.2
Group
Total
500.2
148.5
Associates
69.2
173.4
Total
Including
Associates
569.4
321.9
(106.0)
(161.0)
(267.0)
42.5
3.3
28.4
–
12.4
–
7.0
–
54.9
3.3
35.4
–
574.4
88.6
663.0
66.7
8.6
(6.9)
1.7
2.7
2.1
(1.2)
72.0
31 December 2020
46.1
192.3
104.2
159.8
502.4
1. Includes currency movements which increased AUM by around £5.8 billion.
The following commentary provides a more detailed review of our
financial results and the development of our AUM, which is a key driver
of our performance.
Assets under management
Our AUM increased by £74.2 billion, or 15%, to close 2020 at a record
high of £574.4 billion (2019: £500.2 billion).
In 2020, we generated £42.5 billion of net inflows from clients (2019:
£43.4 billion), including £28.2 billion of assets from the Scottish Widows
mandate into our Solutions business. Acquisitions added £3.3 billion of
assets across Private Assets & Alternatives and Wealth Management
and we generated investment returns, after foreign exchange, of
£28.4 billion for our clients.
The composition of our AUM and the nature of the movements is an
important driver of our results. The impact of the risk-off environment
at the start of the year and the growth in our Solutions business
impacted the mix of our AUM by increasing the weighting of lower
margin products.
In the Asset Management segment, AUM increased by £68.9 billion, or
16%, to £502.4 billion at 31 December 2020 (2019: £433.5 billion). We
generated £40.8 billion of net new business from clients in 2020 and the
acquisition of a majority stake in Pamfleet contributed £0.6 billion.
Within Private Assets & Alternatives, we saw encouraging demand in
our Private Assets business with net inflows of £1.7 billion principally
across real estate, infrastructure finance and private equity. These
strong flows were partially offset by outflows from our liquid
alternatives range, which was more impacted by the market
environment and experienced net outflows of £1.2 billion.
Our Solutions business generated £43.4 billion of net inflows, with
several notable wins in addition to the latest tranche of the Scottish
Widows mandate. Solutions strategies are designed to provide clients
with an outcome over the life of the product and whilst they attract
lower fee margins than more traditional products, they typically have
greater longevity.
Our Institutional AUM grew 11%, driven by £15.7 billion of investment
returns we generated for our clients, net of currency movements. We
also saw an increase in client demand in this business area as gross
inflows increased by £7.7 billion.
Our Mutual Funds business was impacted by the risk-off environment
at the start of the year, with net outflows of £4.8 billion in the first six
months. This sentiment changed in the second half of the year, as we
generated net inflows of £1.7 billion.
In the Wealth Management segment, we achieved £1.7 billion of net
new business in 2020. Net inflows of £1.2 billion from our Schroders
Wealth business and £0.7 billion through Benchmark Capital were
partially offset by £0.2 billion of outflows from SPW. The performance of
SPW was impacted by Covid-19 related Lloyds branch closures which
led to lower client referrals.
Asset Management results
Asset Management net income was slightly higher than the prior year
at £1,786.9 million (2019: £1,781.2 million), although net operating
revenue decreased 1% to £1,747.2 million (2019: £1,763.1 million). This
decrease was principally due to lower revenue margins as the mix of
business was impacted by markets and the strong flows we generated
in our Solutions business. Despite the challenging market conditions,
particularly in the first half of the year, our investment performance was
strong with 72% of assets outperforming over three years. As a result,
performance fees increased to £85.8 million (2019: £42.9 million).
We also benefited from £8.8 million of net carried interest (2019:
£29.3 million) despite Covid-19 impacting private asset transactions.
Real estate transaction fees were particularly impacted, reducing
by £16.0 million to £3.4 million as the number of new property
transactions fell.
As a result, Private Assets & Alternatives net operating revenue reduced
by £6.9 million to £293.3 million (2019: £300.2 million). The reduction in
performance related fees and transaction fees more than offset the
acquisition of BlueOrchard which completed in October 2019 and
contributed £30.2 million of additional revenues in 2020. The net
operating revenue margin, excluding performance and transaction
related fees, was 62 basis points (2019: 63 basis points).
Net operating revenue in our Solutions business increased 12%
to £253.0 million (2019: £226.1 million) reflecting the strong net new
business we generated. The net operating revenue margin fell in
line with our expectations to 15 basis points (2019: 21 basis points).
This decrease reflects the impact of lower fee rates on more
recent mandates that are individually significant in size.
Schroders Annual Report and Accounts 2020
27
Strategic report Business and financial review continued
In our Mutual Funds business, net operating revenue decreased by 7%
to £686.4 million (2019: £734.8 million), although an increase in
performance fees of £7.4 million partly offset the impact of lower
average AUM. Excluding performance fees, the net operating revenue
margin fell to 71 basis points (2019: 73 basis points) due to changes in
mix as a result of the risk-off environment at the start of the year.
Performance fees in our Institutional business were also strong, up
£34.8 million to £74.2 million (2019: £39.4 million). This increase more
than offset the impact of lower management fees and resulted in net
operating revenue of £514.5 million (2019: £502.0 million). The net
operating revenue margin excluding performance fees fell to 31 basis
points (2019: 32 basis points).
The decrease in overall Asset Management net operating revenue was
partly offset by an increase in our share of profits from associates and
joint ventures, which more than doubled to £49.5 million (2019: £23.5
million), with continued strong returns from our venture with Bank of
Communications in China.
Operating expenses before exceptional items increased to
£1,213.6 million (2019: £1,174.3 million) as the scale of our
business grew, including through acquisitions. As a result, profit
before tax and exceptional items decreased by 6% to £573.3 million
(2019: £606.9 million).
Exceptional items reduced to £29.8 million (2019: £41.4 million), these
costs principally relate to acquisitions, including amortisation of
acquired intangible assets. After exceptional items, profit before tax
decreased to £543.5 million (2019: £565.5 million).
Wealth Management results
Wealth Management net income increased by 24% to £382.7 million
(2019: £309.6 million), driven by growth in management fees, which
increased by £79.2 million to £332.4 million (2019: £253.2 million).
This was mainly a result of the full year impact of SPW, which was
acquired in October 2019 and contributed an increase in management
fees of £49.9 million in 2020. The Wealth Management segment
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 112.
The remaining increase in management fees was principally due to a
£15.7 million increase in Benchmark Capital due in part to the migration
of SPW assets on to the Benchmark Capital platform. Net banking
interest decreased to £14.1 million (2019: £24.0 million) as a result of the
low interest rate environment. The net operating revenue margin
excluding performance fees, fell from 59 basis points to 56 basis points
due to lower net interest margins and changes in asset mix. Other
income increased £8.3 million to £15.8 million (2019: £7.5 million),
primarily due to an increased contribution from SPW of £7.5 million.
Operating expenses before exceptional items were £272.2 million, up
23% (2019: £222.1 million), including the proportional share of SPW
costs. Profit before tax and exceptional items increased 26% to £110.5
million (2019: £87.5 million). Exceptional items within Wealth
Management increased £11.1 million to £45.7 million mainly due to
implementation and other costs in relation to the transformation and
set-up of SPW. The remaining exceptional items mainly comprise costs
incurred in relation to acquisitions, including amortisation of acquired
intangible assets. After exceptional items, profit before tax increased to
£64.8 million (2019: £52.9 million).
28
Schroders Annual Report and Accounts 2020
Group segment results
The Group segment comprises central management costs and returns
on investment and seed capital. Net income for the Group segment
increased by £13.2 million to £58.1 million (2019: £44.9 million). Gains
on financial instruments increased by £29.3 million, including positive
returns on seed capital. This more than offset lower interest income
and lower income from associates, following the sale of our interest in
RWC earlier in the year. Costs in the Group segment increased slightly
to £39.6 million (2019: £38.1 million). This resulted in a profit before tax
and exceptional items of £18.5 million (2019: £6.8 million). In 2020, we
incurred exceptional items of £16.3 million (2019: £0.6 million). These
expenses predominantly comprise real estate related costs, following
our decision to reduce office space reflecting increased flexible working
habits. After exceptional items, there was a profit before tax of £2.2
million (2019: £6.2 million).
Financial strength and liquidity
The Group’s net assets increased by £238.4 million during 2020 to
£4,085.9 million (2019: £3,847.5 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 following table 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
–
490.3
490.3
68.4
558.7
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
12.1
–
12.1
3.6
15.7
0.4
0.6
5.0
6.0
21.7
Total
£bn
12.1
490.3
502.4
72.0
574.4
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 £21.7
billion at 31 December 2020 (2019: £21.3 billion). Excluding those assets
that form part of AUM, the Group’s total assets increased to £6.0 billion
(2019: £5.9 billion), principally as a result of retained profits being held to
meet increased working capital requirements.
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
2020, investment capital reduced by £139 million to £417 million (2019:
£556 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 £578 million at 31 December
2019 to £612 million at the end of 2020.
Other assets increased by £343 million to £5,008 million (2019: £4,665
million). This represents assets that support our ongoing operating
activities in the form of working capital, including assets that are
inadmissible for regulatory purposes.
In 2020, we continued to invest in the future growth of the business with
several acquisitions, the most significant of which was the purchase of
Sandaire. Acquisitions increased goodwill and intangible assets by £62
million, before amortisation and foreign exchange movements. We
advanced our operational capabilities by investing further in our
technology, resulting in additions to software assets of £74 million.
The Group’s liquidity and regulatory capital position remains
strong. 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, targeting 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, the Board is recommending a final
dividend of 79 pence per share (2019: 79 pence per share). It means a
total dividend for the year of 114 pence per share (2019: 114 pence per
share) and represents a payout ratio of 57% (2019: 57%).
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 (2019: £2.9
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 three
years before taking account of any future profits.
Overall, I am pleased with the results which demonstrate continued
resilience in the context of the global pandemic and further progress
against our strategic priorities. We believe that this will enable future
growth once broader conditions normalise.
Richard Keers
Chief Financial Officer
3 March 2021
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 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 2020 was £245.9 million (2019: £245.7 million).
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 2020 was £240.7 million (2019: £244.4 million).
The combined taxes borne by us as a business and the amounts collected by
us on behalf of tax authorities in 2020 was £486.6 million (2019: £490.1 million).
Further information on taxes borne and collected can be found at
https://www.schroders.com/en/about-us/corporate-responsibility/our-economic-contribution/
Schroders Annual Report and Accounts 2020
29
Strategic report A responsible business
RESPONSIBILITY
FOR ALL
We recognise that we have an important part to play in shaping the future of our stakeholders. It is a
responsibility we take seriously. We apply the same core values and high standards to the activities we undertake
as a business as we do when investing for our clients. Collaboration is key to this success and we work with a
number of external partners and as a signatory to the UN Global Compact to help inform our approach as a
responsible business, and to advance progress towards the UN Sustainable Development Goals (SDGs).
2020 highlighted the tremendous challenges that climate change
and social inequalities continue to pose for all of our futures. The
bushfires in Australia, the first ‘gigafire’ in California, destructive floods
in China and the ongoing worldwide pandemic clearly demonstrate
the acceleration of our impact on nature. In May, the shocking killing
of George Floyd reignited the Black Lives Matter movement,
sparking global protests against systemic racism. Covid-19 has also
exacerbated social inequalities and accelerated changes to all of
our lives. The opportunity for society to step up and respond has
never been more apparent.
Since becoming a signatory to the UN Global Compact initiative,
we have reviewed our Corporate Responsibility (CR) approach and
aligned it against the ten principles, relating to four key areas of human
rights, people (labour), environment and anti-corruption. The ten
principles are derived from the Universal Declaration of Human Rights,
the International Labour Organisation’s Declaration on Fundamental
Principles and Rights at Work, the Rio Declaration on Environment and
Development, and the UN Convention Against Corruption.
Respect for human rights is fundamental to contributing to society. Our
Group Human Rights Statement describes the governance, policies and
processes we have in place to actively manage our human rights risks
as an employer, as a buyer of goods and services, and as a provider of
financial services and an investor in companies. Our Slavery and Human
Trafficking Statement details how we assess and manage modern
slavery risks within our business operations and supply chain, including
company engagement activities.
An approach to corporate responsibility driven by
leadership and governance
Our CR strategy is governed by the CR Committee, chaired by the
Group Chief Executive and made up of senior representatives from
across the business. The Committee is responsible for reviewing and
agreeing new CR commitments and policies as well as monitoring
progress against targets. It meets at least quarterly and reports to the
Group Management Committee (GMC) and the Board on an annual
basis.
We also have a global Employee Forum to enable the voices of our
people to be heard directly by the Board. It comprises 12 appointed
representatives from across Asia, Europe and the Americas and meets
twice a year with Ian King, the Senior Independent Director and chair.
For more information on the Employee Forum, please see page 65. The
Forum covers topics such as Group strategy, financial performance,
diversity and inclusion and employee engagement.
Looking forward
It is important that we build leadership in key areas that are important
to our stakeholders, reflect important social priorities and in which we
are able to make a meaningful contribution. In 2020, we analysed the
results of a number of surveys, including our annual Global Investor
30
Schroders Annual Report and Accounts 2020
We use the same values
and principles in how we operate
as a company as we do in our
investment activities.
Study, Institutional Investor Study, Cazenove Capital client service
survey and our Employee Opinion Survey, as well as industry reports, to
assess the sustainability topics that are of material importance to our
key stakeholders, and build a global strategy in response. We will
continue to build on our values, culture and progress to date, focusing
on advancing progress on diversity and inclusion, creating a lasting
positive impact on society, and improving our impact on the
environment. We are also developing our leadership ambitions around
two specific areas, which will allow us to leverage the full capabilities of
the business and create lasting impact. These two areas are reducing
inequalities and climate change, focusing on three SDGs and touching
many others.
Key awards in 2020
Diamond award
for payroll giving
Peter Harrison, Garth Taljard
and Amy Cho — Top 100
LGBT+ Executive Allies
Employer of the Year,
Singapore office
Susan Soh
CEO of the Year
Best Employee Engagement
Programme
Rated 1st for digital
engagement with clients
Pledges and partnerships
We will continue to build on existing programmes of work covering
workforce wellbeing, human rights and social mobility to support
resilience and social cohesion within organisations and society. We also
want to help lead the transition to a low-carbon economy and have
committed to setting a science-based target in line with a 1.5°C
emissions reduction pathway and reaching net zero by 2050 or sooner.
The CR strategy will be developed and delivered in collaboration
with our stakeholders and partners. Not only do they provide a
critical perspective on how we run our business, but they are also
integral to its success.
Schroders Annual Report and Accounts 2020
31
Strategic report Our key stakeholders
Delivering positive outcomes for all
A vital aspect of our strategy is to identify, understand and engage with
our key stakeholders. We see our relationships with all our stakeholders
as inter-linked and interdependent.
For more information on how the Board engages with and considers
the interests of stakeholders in order to fully understand their views and
take them into account in our decision-making, see pages 65 and 66.
Clients
Shareholders
Actively helping our clients
achieve their long-term financial
goals
Clients are the central focus of our business.
The Group’s resilience and ongoing success
are built upon our ability to understand
clients’ needs and respond to them. We work
to anticipate how client needs will evolve and
to construct products that meet their
investment needs and build future prosperity.
How do we engage with them and
consider their interests?
Our client service teams are the first point of
contact for clients. They 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 clients investing in our products,
which was a key consideration in the
acquisition of Sandaire.
Another key strategic goal is to expand
capabilities in Private Assets & Alternatives in
response to increased demand from clients,
which was a consideration during the
Pamfleet acquisition.
Rewarding our shareholders
through the sustained success of
our business
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.
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.
How do we engage with them and
consider their interests?
The Board engages with shareholders at the
AGM, which gives shareholders the
opportunity to ask questions and engage
with the Board. As we were unable to hold a
physical AGM in 2020 we organised it virtually
which enabled any shareholder to join and
ask questions of the Board. To help the Board
maintain an understanding of the views of
our major shareholders, we again
commissioned an independent investor
perception study, covering views on strategy,
results and competitive position.
During 2020, we continued to operate a
complete investor programme, adapting to
the external environment by meeting
investors virtually.
Regulators
Building respectful relationships
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.
How do we engage with them and
consider their interests?
We regularly engage with regulators and policymakers so that
our business understands and contributes to evolving regulatory
32
Schroders Annual Report and Accounts 2020
requirements. Senior management hold regular meetings with
our regulators to foster good working relationships. The frequency of
these meetings and communication increased during the pandemic.
The Audit and Risk Committee receives regular reports on
engagement with regulators, including how changes in regulatory
regimes may impact our business.
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.
Our people
Wider society
Directing our decisions and actions
towards supporting wider society
We recognise the responsibility we have to
wider society. Schroders is a principles-led
business and we believe that demanding high
levels of corporate responsibility is the right
thing to do.
How do we engage with them and
consider their interests?
We are committed to helping communities
around the world, by raising funds for specific
causes and volunteering. Our employees are
widely engaged with the selection of causes
that we support.
We launched two investment trusts, the
Schroder British Opportunities Trust, which
invests in a diversified public equity and
private equity portfolio of predominantly UK
companies, and Schroder BSC Social Impact
Trust, which invests with a focus on delivering
a positive social impact in the UK.
Morningstar, a leading provider of
independent investment research, has
awarded Schroders with ‘Advanced’
recognition in its first assessment report
following the introduction of the Morningstar
ESG Commitment level.
The Board receives an annual update on the
Group’s corporate responsibility activities.
Offering fulfilling work and
shared values to our people
Our people are central to the ongoing
success of the business and our culture is one
of our greatest assets. We are proud of our
reputation as an employer of choice.
Our people strategy aims to develop an agile
and diverse workforce as we continue to
attract, retain, develop and motivate the right
people for our current and future business
needs.
How do we engage with them and
consider their interests?
We engage with our people through a variety
of channels including management briefings,
videos, an internal magazine and, most
recently, weekly updates from the Group Chief
Executive. We have dedicated teams and
activities in every region that ensure everyone
is connected to the key priorities, corporate
developments and support networks. At the
start of the year, all employees are invited to
join sessions on business strategy and have the
opportunity to ask questions of senior
management.
We also conduct employee opinion surveys
and have invested in our internal
communications to help employees
understand and deliver our strategic objectives.
Ian King, our Senior Independent Director, is
our designated non-executive Director
responsible for gathering workforce feedback,
and chairs the global Employee Forum to hear
directly from employees on issues that
concern them, and report back to the Board.
See page 65 for more details.
External suppliers
Working with trusted partners
We have established a global network of external service partners
to supplement our own infrastructure, benefiting from the expertise
and specialised skills our partners provide.
How do we engage with them and
consider their interests?
We engage proactively with our external service providers through
regular communication from employees 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.
The Audit and Risk Committee reviews the Group’s material
outsource providers annually to ensure that the strategy for their
use remains consistent with our strategy to use service partners
as a way to add value to our infrastructure.
Schroders Annual Report and Accounts 2020
33
Strategic report Our people
SHAPING
OUR CULTURE
Our people
Our people are integral to how we deliver value for our clients and other stakeholders.
They have a key role to play in shaping our culture, which has been amplified this year
as we have engaged and collaborated in new ways and under different circumstances,
whilst remaining focused on wellbeing and development.
Our values underpin our culture
Responding to Covid-19
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 value takes 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.
Engaging with employees
The global pandemic has undoubtedly had a profound impact on
our employees and the way that they work, condensing years of
change into a matter of months. It has highlighted the strength of
our culture and the agility of our organisation. The majority of our
employees have successfully worked from home during the crisis,
and we have reaped the benefits of investing in our technology
and embracing more flexible ways of working in recent years. We
have not taken any government support or had to make any
redundancies as a result of Covid-19.
In order to maintain connectivity, our leadership team globally
has taken a proactive role in running more frequent all-employee
meetings to ensure continued collaboration and understanding
of priorities.
Employees worked remotely at various
times during the year
99%
Our people around the world
57%
17%
7%
19%
UK
Europe, Middle East and Africa
Americas
Asia
Government support and number of
redundancies resulting from the
pandemic
0
Adapting to a virtual environment
Our digital learning platform, Spark, allowed us to respond
quickly, providing our people with support in key areas such as
adapting to remote working, building resilience and coping with
stress, as well as continuing to provide other relevant training
34
Schroders Annual Report and Accounts 2020
2020 employee survey results*
I am proud to be
associated with
Schroders
Schroders is
interested in
the wellbeing of its
employees
The organisation is
doing an excellent job
of keeping employees
informed about matters
affecting us during
this time
I have access to the
training I need to
help me adapt and be
resilient at work
98%
96%
96%
88%
digitally. We have also adapted our approach to enable virtual
interviews and on-boarding sessions, and have received positive
feedback on this. More than 270 people have accessed the new joiner
curriculum since it launched at the end of March. During this period, we
have also seen the number of new users accessing Spark grow by 27%,
to more than 3,400 users. This provides scale to our learning range and
a more consistent approach to training for our people, allowing us to
directly engage with employees and address skill gaps.
The shift towards remote working brought with it a broad range of new
challenges for our people. We were able to recognise this and quickly
respond to requests for additional training and toolkits in areas such as
virtual communication skills, mental wellbeing and managing remote
and hybrid teams. We ran virtual sessions for around 700 employees to
help them adjust to this adapted way of working.
Continuing our commitment to early careers talent
To honour our commitment to developing early careers talent we
provided our usual internship programme in a new, virtual format
last summer. For six weeks, students joined the programme in
roles across the business, gaining valuable experience and further
understanding of the industry. Our online recruitment tool won an
award for ‘Excellence in Applying Innovative Technology in Business
Psychology’ at the Association of Business Psychology Workforce
Experience Awards 2020. The award was for our technology-driven,
diversity-enabling, innovative approach to assessment.
In September, 61 graduates, trainees and apprentices joined
the business in London, Singapore, Hong Kong, Taiwan,
Luxembourg and the US. The five-week induction phase of the
programme was delivered virtually in half-day modules to
accommodate a range of international time zones.
New users accessing Spark for online learning
+27%
Number of new graduates, trainees and
apprentices
61
Providing remote support
Our people have truly risen to the challenge throughout 2020 and the
strong collaborative culture we are all proud of has shone through.
Our communications have centred around creating a sense of
belonging and giving people a direct flow of information from senior
leaders, emphasising the human side: this has included weekly
podcasts from the Group Chief Executive, as well as a regular blog by
our Global Head of Human Resources on topics such as juggling home
schooling with a demanding role. It has also given us a chance to share
stories from our people around the world, highlighting activities that
they are undertaking at home to keep fit and healthy, blending our
work and home lives.
Listening to our employees
Given the shift to remote working, we ran a number of more regular
pulse surveys in place of our annual Employee Opinion Survey to
maintain a clear understanding of the issues affecting our people. This
has allowed us to gather feedback at specific moments in time, and to
understand and respond to any concerns quickly. This has been critical
in considering our approach to an eventual return to some office-based
working, and the support our people require from a mental health and
wellbeing perspective.
* Data from June 2020 Pulse Survey
Schroders Annual Report and Accounts 2020
35
Strategic report
Our people continued
Mental health & wellbeing
The safety and wellbeing of our employees and their families has
been at the forefront of our decision-making process throughout
the pandemic. We held a number of global wellbeing events and have
offered the Covid-19 antibody and antigen testing to employees in many
locations. Wherever possible we have continued to give employees
access to professional support during lockdown, using secure digital
communications tools to deliver services remotely. In Hong Kong, we
launched a virtual doctor service to provide support during their local
lockdown. We have promoted alternative ways to travel, such as cycling
or walking, for those who have wanted to attend the office where and
when it was safe to do so without using public transport.
Inclusion month: Each one, reach one
Throughout October we ran a series of accessible challenges
to help colleagues around the world embrace and share
inclusion. Our engagement opportunities ranged from digital
workout training sessions, panel discussions with external
leaders, to podcasts with senior colleagues and Q&A
sessions. Almost 600 of our colleagues joined one or more of
our learning sessions and over 580 completed the inclusion
digital workout, aimed to help us learn how to be more
inclusive of different people. The month was celebrated
around the world from World Mental Health Day in Hong
Kong, to self-care and connection in Singapore, to taking a
stand for racial justice in the US. Our internal webinars were
hosted by our Group Chief Executive and Group Chief
Investment Officer on our key initiatives and our Head of
Talent & Inclusion and Chair of the Schroders Black
Professionals Network on exploring the role of race and
representation when it comes to inclusive leadership. Over
2,700 employees completed our first inclusion pulse survey
giving us further data to continue to develop our inclusion
strategy into 2021. The statements below show how our
approach to inclusion is yielding results.
At Schroders people
are treated with
fairness and respect
My manager supports
flexible working in my
team
85%
up 2% from 2019
93%
up 10% from 2019
Sufficient effort is
made to get the
opinions and thinking
of employees
Schroders recognises
and values diversity
amongst its
employees
84%
up 14% from 2019
86%
up 4% from 2019
My team has a climate
in which diverse
perspectives are
valued
82%
up 3% from 2019
36
Schroders Annual Report and Accounts 2020
Breaking taboos
During Mental Health Awareness Week in May, our senior leaders
shared their experiences of dealing with their mental health to
encourage open, honest conversations across the organisation. We also
ran a series of wellbeing events in collaboration with the Really Helpful
Club to help normalise conversations about female-specific health
conditions.
Career & performance
We have continued to focus on supporting our employees’ careers and
cultivating a strong culture of feedback at Schroders. As part of our shift
to remote working we introduced changes to performance
management, incorporating quarterly employee led ‘check-ins’ instead
of a formal mid-year review. This approach, along with a greater focus
on feedback, fosters a greater sense of accountability and adaptability
to change.
Aligning reward to our values and our clients
Competitive benefits and remuneration that reflect each employee’s
individual performance as well as that of the business are important as
we prioritise retaining our people and maintaining our ongoing
success. Our approach is explained in the Remuneration report on
pages 75-104.
Opportunities to grow & develop
We continue to invest and nurture our workforce whilst appreciating
that our ways of working are changing. Our annual learning event
‘Learnfest’ was fully virtual for the first time, with more than 950
employees attending. The most popular sessions included
sustainability, AI, know your strengths, thriving under pressure, and
business story telling. A digital skills programme was rolled out in Asia
to build capabilities, and a new external provider for internal data
apprenticeships has been brought on board.
Continuing to invest in our managers
Our foundational programmes for new and experienced managers
moved online in 2020. In recognition of the challenges our managers
might be facing we created specific toolkits focused on resilience and
wellbeing, working remotely, being an inclusive manager and our year
end performance reviews in light of Covid-19, which were delivered
alongside training sessions to support them in these areas.
Our future leadership pipeline
Our succession plans for leadership and critical roles are reviewed on
an annual basis to ensure we have the right people in place for the
future success of the business. Whilst we look to bring in external talent
where necessary to build new unique skills, our culture is such that we
look to develop internal successors wherever possible. We filled over
100 roles with internal candidates in 2020.
Leading with inclusion
Our commitment to creating a truly inclusive culture at Schroders is at
the centre of our people strategy, and is led by our Group Chief
Executive, along with executive sponsorship from our GMC members.
We are committed to providing equal employment opportunities and
combating all forms of discrimination. 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 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. Where possible, we monitor the
ethnicity, age, disability and gender composition of our workforce and
those applying for jobs. Our strategy and decisions are informed by the
data we collect from our employees and the benchmarking initiatives
we are involved in.
Monitoring our progress
We strive to make well-informed, data-driven decisions when it comes to
diversity and inclusion and we continue to encourage our employees to
share relevant information with us via our HR systems. In 2020,
we added questions to provide additional insights on the socio-economic
background of our employees. We also capture data about those
applying for roles within the business to confirm that we are attracting a
diverse range of candidates. This data is used to inform our on-boarding
processes, and is also incorporated into pulse and exit surveys.
We achieved our target of 33% female representation in senior
management in 2020. Diversity and inclusion remains a priority for the
Board in 2021 and we will publish new targets later this year.
Our innovative digital approach to early careers recruiting has now been
expanded to our experienced hiring processes. We also offered two
‘returnships’ (those returning to industry after a career break) in our ESG
business to encourage a more diverse pipeline of talent in our
investment business. Our involvement in the #100blackinterns campaign
and a new inclusive mentoring programme for ethnic minorities also
forms part of our strategy to build a more diverse workforce.
A robust framework
Our 13 Employee Resource Groups (ERGs) have continued to support
our grass roots approach to driving awareness and building an inclusive
culture: our Black Professionals Network expanded to New York in
2020, our millennial network ran a reverse mentoring programme in
Asia and over 200 people signed up to this year’s virtual Diwali events.
Despite the challenges of Covid-19, online events have continued
throughout the year and have been supplemented with multimedia
digital content on key topics like mental health and race. Our executive
sponsors have been able to participate in events, sharing their own
stories with employees.
A new approach to flexibility
In response to feedback from our employees, we were able to
introduce a new set of principles, which govern our approach to flexible
working. Our industry leading flexible working charter is central to our
inclusion strategy, particularly following the increase in remote working
as a result of the Covid-19 pandemic, opening an opportunity for all
employees to work more flexibly going forward.
Driving change in our industry
We firmly believe that the need to address representation in the
workforce is a challenge affecting our whole industry, and is not just an
organisational one. As such, we endeavour to participate in initiatives
focused on driving change as well as benchmarking our efforts as a
company. As part of our commitment to the UN Global Compact, we
participated in the Women’s Empowerment Principles benchmark for the
first time. We also engaged with over 180 companies during 2020 on
employee and board diversity issues.
In 2020, we have purposefully broadened our pledges to reflect our
wider commitment to ethnicity and disability as well as being a more
gender balanced organisation. This has included becoming a signatory
to the Race at Work Charter, the Valuable500, and Change the Race
Ratio as well as supporting the #FlexUK campaign and continuing to
meet the Board diversity targets set by the Parker Review. As part of our
being Disability Confident Level 1 (committed) we are able to respond
and make adjustments to those who flag a disability during the
interview process. We were listed in the top 75 employers in the Social
Mobility Foundation’s benchmark and participated in new research
around social mobility, sponsored by the Diversity Project. We have
worked closely with the Diversity Project and the Investment
Association on initiatives to position investment management as an
attractive industry for diverse talent. This includes programmes like
i2020 and a recent research report on socio-economic barriers to entry
to the financial services industry.
Gender diversity statistics
(2019 vs. 2020)
Schroders plc Directors
Senior management1
2020
2019
2020
2019
Female
5 (45%)
Male
6 (55%)
Female
4 (40%)
Male
6 (60%)
Female
Male
Female
Male
327 (33%) 674 (67%)
270 (32%) 586 (68%)
Subsidiary directors2
Total senior management
All employees3
2020
2019
2020
2019
2020
2019
Female
Male
Female
Male
Female
Male
Female
Male
Female
Male
Female
Male
31 (24%) 97 (76%)
26 (24%) 84 (76%)
358 (31%) 781 (69%)
296 (31%) 670 (69%)
2,283 (41%) 3,288 (59%)
2,273 (40%) 3,400 (60%)
1. Senior management includes members of the GMC, the direct reports of the GMC and the direct reports one level below that, in each case excluding
administrative and other ancillary roles. The data excludes executive Directors and includes some persons who are also subsidiary directors.
2. Other subsidiary directors comprises directors of subsidiaries who are not classified as Senior management.
3. All employees includes permanent and temporary staff.
Schroders Annual Report and Accounts 2020
37
Strategic report Society and communities
CREATING
POSITIVE IMPACT
Society and communities
We remain committed to our strategy of driving progress and improving futures.
2020 quickly became the year when this mattered more than ever. Supporting the
communities around us is a vital role we were proudly able to fulfil. Our people led the
way with many forms of direct support right across the business.
Improving futures with Schroders Giving
Our Schroders Giving partnerships underpin our ambition to improve
futures and we remain committed to supporting them during these
difficult times. We fast tracked eight grants in 2020, paying them early
to help charities carry on their vital work and deliver many of their
programmes online.
Empowering our people to improve futures
across the globe
This year we ran our second annual charity competition.
This opportunity allowed our employees around the globe to
propose charities of their choice, under two categories, people and
the planet. Fifty charity submissions were made and over 1,100
employees around the world engaged with the platform either
through voting or submitting their own choice of charities. The
winners were Action Against Hunger and the Marine Conservation
Society, who were each awarded £50,000.
Looking after our communities
Covid-19 thrust the ‘S’ of ESG (environmental, social and governance)
into the spotlight and amplified existing inequalities across many areas,
including income, health, education and ethnicity. Our communities
have never needed our support more and we are proud that our people
have taken action together, contributing to our response to the
pandemic. In March, we reallocated £500,000 of our charitable funds
towards an emergency grants programme, which targeted those most
affected by the crisis. Our approach was focused on charities that
supported: children in need; those struggling with their mental health;
food banks; helping the helpers; and supporting the elderly. A month
later, we launched our global Schroders Giving campaign called
#CollectiveAction. Through donations and fundraising challenges, our
people collectively raised £3.8 million in 16 weeks for 95 charities
around the world, totalling £4.3 million for the overall campaign. More
about the campaign can be found on pages 40-41 of this report.
Alongside our #CollectiveAction campaign, we have continued to work
with our existing community partners to have a positive impact in the
societies in which we live and work. Our focus remains on inclusion, as
we tackle social mobility and support mental health. We continue to
make progress towards the UN Sustainable Development Goals
through our partnerships, with a particular focus on: reduced
inequalities, quality education, decent work and economic growth, and
reduced inequalities.
We also regularly engage with the companies in which we invest on
community-related issues. For example, in 2020 we collaborated with
other investors to write to leading mining companies about their
indigenous communities practices. The letter requested further
information on actions companies have undertaken to manage risks in
light of the destruction of the Juukan caves in Australia. While this
example arose in Australia and aimed to prevent future loss of
indigenous heritage, the principles apply to projects globally.
38
Schroders Annual Report and Accounts 2020
Supporting good mental health
The pandemic has had a major impact on mental health and wellbeing
across the world. Good mental health is vital to the success and
productivity of our people and we have worked closely with our partner,
Samaritans, to run a number of mental health workshops for our UK
employees this year.
We are also supporting their work to be there for people who need
someone to listen, with both funding and time. Despite lockdown, 91
employees in the UK have registered to become a Samaritan at the new
City Hub in London Bridge, which launched in September.
We worked with a number of other investors to encourage other FTSE
100 companies to put measures in place to help support employees’
mental health during the Covid-19 pandemic. In line with our own
actions, we asked companies to consider training for line managers,
increased flexibility in both working patterns and performance
appraisals and provide appropriate support systems.
Inclusion
We partner with a number of leading organisations to tackle social
mobility in the UK and despite the challenges lockdown has brought,
each partnership has continued to work effectively to support students
across multi-channel communication platforms. The Sutton Trust, who
champion social mobility from birth to workplace, launched their new
online platform which has supported 7,600 students this summer. We
support their Pathways to Banking and Finance programme which
supports a cohort of about 100 students. They have worked with 13 of
their university partners to deliver their UK Summer Schools online and
have delivered six new pieces of research which aim to keep the social
mobility consequences of the pandemic front and centre.
We have continued to run our own virtual engagement opportunities
with our UK partners, including virtual work placements and moving
our annual ‘Futures Day’ event online, which was joined by over 100
students from social mobility cold spots across the country. Our
mentoring programmes with the Social Mobility Foundation, which
supports high-achieving students from low-income backgrounds,
reached capacity this year. We have also worked with Key4Life to run
similar programmes which are dedicated to supporting some of the
most marginalised members of our society.
IntoUniversity aims to address the problem of educational inequality and
social exclusion by supporting young people from disadvantaged
backgrounds to aspire and achieve their full potential. As a partner, we
sponsor their Kennington branch in South London. The centre team were
able to engage with more than 1,000 students across their programmes
of academic and pastoral support between September 2019 and March
2020. Following the lockdown they provided remote services to continue
student support and made over 1,200 calls to their families.
Our partner Enactus UK, a charity that supports young people in the UK
to engage in youth social action and enterprise, ran their National
Competition virtually. Our partnership supports the delivery of their school
and university ‘youth social action’ and ‘youth social programme’, including
the funding for training of their coaches and teachers. The Enactus
programme works in 60 universities, engaging up to 3,000 students a
year. At their National Competition this year, the University of Nottingham
won for their social enterprises which tackle food waste and their project
to combat malnutrition in Ugandan school children. We are proud to work
with the Amos Bursary who work to reduce the opportunity gap for young
black men. We sponsor three students on the programme over five years
which offers support at university, opportunities to participate in overseas
internships as well as increased networking opportunities. We have also
worked with the Snowdon Trust to reduce the barriers for disabled
students, supporting seven talented students to fulfil their potential.
Launch of Improving Futures: virtual series
Despite lockdown and an inability to run in-person events we
wanted students to continue the conversation with our employees
and break down the barriers to our industry. In September, we
launched an ‘Improving Futures: virtual series’. The series created
an opportunity for students from low socio-economic
backgrounds to meet experts from across our business. We
worked with seven of our strategic partners to run the workshops
and choose the topics. Our pilot series ran for nine weeks and 80
students either joined the sessions or watched the recorded
sessions. The sessions covered both practical skills such as
application writing tips, as well as insights into the career journeys
of our people, our culture and values, and day-to-day roles.
Schroders Annual Report and Accounts 2020
39
Strategic report Society and communities continued
In the US, we have continued our longtime partnership with READ
Alliance, which works to improve the educational trajectory of early
elementary students by providing one-to-one foundational reading
skills from older students. During Covid-19, they moved their dual-
impact programme online and in their five-week pilot served 106
children, employing 74 teens to continue supporting students.
In Singapore, we launched an inaugural SchAuction, raising employee
donations (with company matching) for our long-term partner Beyond
Social Services and its Family Assistance Fund. This helped support over
1,200 low-income families affected by the crisis and allowed them to
continue running their youth programmes.
In Hong Kong, our partner Music Children Foundation provide music
education to underprivileged children, which helps to build their skills
and values. They moved their programmes online and continued their
annual concert, allowing hundreds of children to continue showcasing
their musical talents.
Charitable giving
We have always supported our people in their own charitable efforts
and it is part of our strategy to be an employer of choice. We commit to
empowering our employees to support the causes that matter to them
by running a number of charitable schemes that enable them to make
monetary contributions and donate their time. In 2020, we donated
£4.9 million to charitable causes around the world (2019: £2.1 million),
£821,000 of which was outside of the UK (2019: £569,000). Alongside
our Schroders Giving partnerships, we continue to run our employee-
led charitable giving schemes, which will match internal and external
employee fundraising. This year we were awarded the Diamond Payroll
Giving award by the Charities Aid Foundation: 28% of our UK employees
used the Give As You Earn scheme (2019: 29%), which saw £1,098,408
(2019: £855,350) donated by employees before the contributions were
matched by Schroders.
In addition to financial donations, we have provided gifts in kind,
organised charitable collections and supported our employees in giving
back to the community through volunteering. In 2020, Australia fought
one of its worst bushfire seasons, fuelled by record-breaking
temperatures and months of drought. We ran an emergency appeal to
support our Australian colleagues’ fundraising efforts. Over £4,000 was
raised for the Australian Red Cross.
We offer a time matching scheme for volunteering outside office hours
and up to 15 hours of volunteer leave per year. This year we doubled our
volunteer leave to empower colleagues to support their communities.
Employees around the world contributed over 1,675 hours of volunteer
work, inside and outside of office hours. We have continued to work 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 and will build on this next year.
#COLLECTIVE
ACTION
Driving progress and improving futures is at
the heart of what we want to achieve through
Schroders Giving. We maintained this ethos
during the pandemic, while pivoting our efforts
to meet the needs of communities made
vulnerable around the world. With the aim
of helping people most affected by the pandemic,
£4.3 million was donated to over 90 charities
through our charitable campaign.
In April, we launched our charitable response to Covid-19 and
asked our people to unite in #CollectiveAction to support our
local communities. Our people helped us to choose the focus of
our charitable giving and the three themes that mattered most
to them:
– Providing food and essentials
– Helping the helpers
– Supporting vulnerable people
Our donations went towards many
causes, here are just three impact
stories from our #CollectiveAction
campaign:
National Emergencies Trust (NET), UK
Helping the helpers
£261,000
Towards their Coronavirus Appeal which distributes funds to
frontline charities and groups all over the UK helping the most
vulnerable in their communities. Since March 2020 the Appeal has
supported more than 12,000 local projects. Seven million people
expect to seek charitable support in the coming year; nearly
two-thirds for the first time ever.
New York Cares, US
Providing food and essentials
£74,000
Towards providing meals for homebound and food-insecure
elderly people, and transitioning 15% of their programming to
virtual and phone banking.
Amount employees in the UK donated through the
payroll giving scheme before matching
Beyond Social Services, Singapore
£1,098,408
40
Schroders Annual Report and Accounts 2020
Supporting vulnerable people
£171,00
Towards the Covid-19 Family Assistance Fund, which at the end
of June has supported 1,155 families. The funds are distributed
to families whose income is now further reduced because of
Covid-19; each family receives between £170-£290 for a period of
three months.
“It is testament to the
incredible spirit of generosity
and kindness within
Schroders that we have been
able to raise this much in such
a short space of time.”
Peter Harrison, Group Chief Executive
Money raised for
charities supporting
vulnerable people
Money raised for
charities providing
food and essentials
Money raised for
charities helping
the helpers
Money raised for
other charities
affected by Covid-19
£821,000
£578,000
£1,460,000
£1,444,000
Watch our #CollectiveAction impact video and read our full impact report at
schroders.com/collectiveaction-impactreport
Campaign summary
– Directors donated 25% of pay for three months
– Executive Directors gave up their long term incentive plan awards
granted in March 2020 in favour of a corporate charity donation
– Payroll scheme allowed our people to donate up to 25% of salary for
three months – with matching by Schroders
– A doubling of volunteer leave and ‘mapathon’ events launched with
the Missing Maps Project to map developing countries such as Peru
and Botswana
– Our #WeAre5110 and #34Together fundraising challenges raised
£30,000 for Médecins Sans Frontières – with matching by Schroders
Schroders Annual Report and Accounts 2020
41
Strategic report The environment
PROTECTING
OUR ENVIRONMENT
The environment
We recognise that environmental issues, including climate change, present some of the most significant
challenges facing the world. We anticipate that these challenges will be a defining driver of the global economy
and financial markets over the coming years, as well as having a significant impact for wider society.
Significant and disruptive changes are needed to decarbonise the
global economy quickly enough to achieve targets set by world leaders
in Paris in 2015. By early 2021, countries representing around
two-thirds of global GDP have committed to carbon neutrality, with a
growing list of policy initiatives to underpin those goals. The entire
global economy and every industry and company that forms part of it
will be affected to some extent.
As an active investment manager and a responsible business, we have
an important role to play in managing the impact that our business and
wider value chain has on the world around us. As part of our
commitment to responsible consumption and production, we aim to
minimise the impact that our own business has on the environment
and actively engage and work with those that we invest in to encourage
them to do the same.
Following analysis of stakeholder surveys and feedback, we have
recently developed our CR strategy to focus on two core areas –
reducing inequalities and climate change. This highlights our ambition
to lead the transition to a low carbon economy through our investment
activities and the action that we take within our own operations. As part
of this, we have committed to setting a science-based target in 2021,
which will be in line with a 1.5°C emissions reduction pathway and
reaching net zero across our value chain by 2050, or sooner.
Within our investment business, we achieved full ESG integration in
2020. We intend to migrate our assets under management to align with
a net zero pathway, mindful of the fiduciary duty that we have to our
clients. As part of this goal, we have joined the Net Zero Asset Managers
initiative, signalling our intention to achieve net zero emissions in our
managed assets by 2050, with interim targets set along the way. We
firmly believe that companies that demonstrate good governance and
sustainability practices will be more likely to deliver returns to investors,
and that integrating ESG factors into our investment process will result
in positive outcomes for our clients.
Our path to net zero
Committed to setting a science-based target by the end of 2021
Operating on a carbon neutral basis within our own
operations since 2019
Targeting transition of managed assets in line with a net zero
pathway by 2050 or sooner
Scope 1 (direct emissions)
Scope 2 (indirect emissions
from electricity)
Scope 3 (all other indirect emissions in our value chain)
Key actions and commitments
Commitment to use 100% renewable electricity by 2025
Signatory to Net Zero Asset Managers initiative
ISO 14001 accreditation
Letter to FTSE 350 calling for transparency on climate action
Ongoing disclosure via CDP and TCFD frameworks
42
Schroders Annual Report and Accounts 2020
Carbon offsetting with ClimateCare
Since 2019, we have been operating our business on a carbon
neutral basis. We have partnered with ClimateCare to develop an
environmentally credible carbon offset programme that will
predominantly support the protection and generation of natural
carbon sinks. Our employees selected three projects in Brazil,
Uganda and Sierra Leone.
The clear winner in our employee vote was a forest protection
project in the Amazon. The Climate, Community and Biodiversity
Standards double gold project located in the micro region of Portel,
Para, protects 180,000 hectares of unique biome. To prevent
deforestation and degradation, the project actively engages
with local residents, training them in forest management and
monitoring techniques. The project will save 22 million tonnes
of CO2e over the project’s 40-year lifespan.
Our operational greenhouse gas footprint reduced significantly in 2020 compared to 2019, mainly due to reduced business travel. For more
information on our greenhouse gas footprint, please see page 46. We remain committed to our carbon offsetting programme and have chosen to
retire the same amount of verified carbon credits for 2020 as we did in 2019.
Sustainability and environmental rankings
A-
AAA
18.8/low risk
We have been a supporter of the Financial Stability Board’s Task Force for Climate-related
Financial Disclosures (TCFD) since its launch in June 2017 and are committed to aligning
our reporting with its recommendations. TCFD seeks to provide investors with increased
awareness of climate-related risks and opportunities, and we support this objective.
Schroders Annual Report and Accounts 2020
43
Strategic report The environment continued
Climate-related financial disclosures
Governance
Our response to climate-related issues forms an integral part of our
business strategy, with overall responsibility for the delivery of that
strategy sitting with the Group Chief Executive. The business has an
established risk management framework to identify risks and
opportunities. The governance mechanism for reviewing the potential
impacts of these is through the Audit and Risk Committee, which
receives quarterly reports on key risks impacting the business, once of
which is climate change. The Committee provides an update to the
Board after each meeting on matters discussed.
The Group Risk Committee (GRC), chaired by the Chief Financial Officer,
works to assess and manage climate-related risks and opportunities,
both in our own operations and investing activities. The GRC is
made up of senior stakeholders across our business globally and
normally meets ten times per year.
work closely with the Global Head of Investment to ensure they are
effectively identifying climate-related risks in their portfolios. Our own
business operations are managed as part of our physical infrastructure
and supply chain management functions, reporting to the Chief
Financial Officer.
We have a Corporate Responsibility (CR) Committee, which is chaired
by the Group Chief Executive and includes management
representatives from across the business. It meets at least quarterly
and is responsible for assessing and managing our CR strategy, which
includes our approach to climate-related issues. The CR Committee
reports at least annually to the GMC and the Board. In November 2020,
the Group Chief Executive presented to the Board on corporate
purpose, which included an update on CR and covered climate-related
risks and opportunities. This discussion helped guide our ambition in
this area and focus on climate-related issues.
The management of climate-related risks and opportunities in our
investments is the responsibility of the Global Head of Investment, who
is supported by a number of committees, including the ESG Steering
Committee. He is also a member of the GMC. Our fund managers
Members of the GMC have specific objectives relating to sustainability
and the management of climate-related issues, with a proportion
of their variable remuneration dependent on progress against
these objectives.
Strategy
The decarbonisation of the global economy as we transition towards net zero poses a number of risks and opportunities to our business and those
that we invest in. We consider these over the following time horizons:
0-5 years: Short term
5-10 years: Medium term
10 years +: Long term
Risk
Description
Timeframe
Impact
Market
Changing client behaviour impacting demand for our products
Medium term
Decreased revenue
Physical
The impact on physical operations of extreme weather events or
changes in temperature
Long term
Increased capital expenditure
Regulatory
and legal
Changes to current/emerging climate-related regulation that
impact how companies operate
Long term
Decreased profitability
Reputation
Perception of not having responded appropriately to
climate challenges
Medium term
Decreased revenue
Technology
The need to keep up with technological advancements to examine
and manage climate risks and opportunities
Medium term
Impact on fund performance
and revenue
Opportunity
Description
Timeframe
Impact
Products
and services
Evolution of product range in response to opportunities
Medium term
Increased revenue
Market
Adapting investment proposition to reflect client preferences
Medium term
Better competitive position and
increased revenue
Resilience
Providing products to manage the impacts of climate change
Short term
Increased revenues
Energy
source
Use of new technology and lower emission sources to reduce our
environmental impact
Medium term
Reduced indirect costs
44
Schroders Annual Report and Accounts 2020
The impact of these risks and opportunities, and our ability to continue
operating, is monitored on an ongoing basis by business areas across
the organisation. This is supplemented with at least annual assessments
of our business continuity arrangements and operational resilience.
The process of assessing and measuring climate risk and opportunities
in client portfolios is undertaken via a number of proprietary tools,
which provide a forward-looking measure of the impact of businesses.
This covers their impact from both a climate and broader sustainability
perspective, as well as looking at the financial risks and opportunities
they face. We also make use of external measures, such as MSCI
Carbon Emissions and MSCI ESG scores.
Scenario analysis is a vital element of our ability to assess the
implications of different climate pathways for our business and those
businesses that we invest in, and helps us prepare for the potential
impacts. We have reviewed many of the emissions scenarios published
by various organisations. However, we have primarily focused on those
produced by the International Energy Agency (IEA), which are widely
used by policy makers and other stakeholders. In particular, we have
focused on the Sustainable Development Scenario (SDS) analysis in our
assessment of a more rapid climate transition.
The SDS analysis plots the trajectory of emissions over the coming
decades, globally and in specific economic sectors, needed to limit long
term temperature rises to 1.6-1.8°C above pre-industrial levels. Rather
than aiming to restate or refine that analysis, we focus on building an
understanding of the implications of that transition for the value drivers
that will impact our business, both through their effects on our own
operations and the investments we manage. In particular, we have
focused on five dimensions of impact:
– The effects of the higher carbon prices that will be needed to
incentivise a transition away from carbon intensive activities
– Stranded assets, leaving identified fossil reserves undeveloped
– The impact on growth and value of the capital reallocation needed to
reshape economies and industries
– The credit risks posed to financial institutions
– The impacts of rising risks to companies’ physical assets
In each case, we assess the changes required to cut emissions
sufficiently to meet that scenario pathway. We have developed models
to assess the impacts of those changes on the investments we manage
and on our own operations, where material. To date, the analysis of our
investments has focused predominantly on public equity and credit
markets, and sovereign bonds.
We have used our proprietary tools to assess investment risks and
opportunities on our own business. Our model implies that there would
not be a material impact on our profitability as a result of carbon prices
rising to USD 100/t, or as a consequence of other physical risks. This
reflects the progress we have made to incorporate ESG factors into our
investment decisions processes, and the limited exposure of our
operational activities.
All of our analysis suggests that risks are significant for markets more
broadly, which is why climate change has been a major strand of our
engagement with investee companies and our clients. We continue to
increase and evolve this engagement, participating in initiatives such as
CDP’s non-disclosure campaign and sharing research on the subject on
our website.
Understanding our stakeholders’ views on climate change is also key to
effectively managing risks and opportunities. We actively monitor client
views via surveys including our annual Global Investor Study and
engage with policymakers and many other stakeholders to ensure we
can meet their expectations and provide effective solutions in this area.
More information on our industry involvement and advocacy in this
area can be found in our 2020 Sustainable Investment Report.
Risk management
Climate change is recognised as a key risk within our risk management
framework, which can be seen on pages 53-55. This incorporates both
physical risks from extreme weather events and transition risks as the
global economy decarbonises.
Individual business areas are responsible for identifying, assessing
and responding to the climate-related risks and opportunities within
their specific activities, with oversight carried out by the Group Risk
function and risks reported to the GRC, the Audit and Risk Committee,
and the Board.
A climate lens on the impact of our investments
Climate Progress
Dashboard
An objective, transparent
and comprehensive view
of the pace and scale of
global climate action.
Tracks the pace of change
across a range of
measures required to
meet long-term emissions
reduction targets.
Physical Risk
Estimates the cost of
protecting assets against
extreme weather events as
a percentage of a
company’s total value.
Incorporates data on
location of assets to drive
engagement with most
exposed companies.
Carbon VaR
Measures the extent to
which higher carbon prices
could put profits and
returns at risk as we
transition to a lower-
carbon economy.
SustainEx™
Quantifies the
environmental and social
benefits and impacts
created by companies.
Uses academic research to
analyse more than 9,000
companies.
Schroders Annual Report and Accounts 2020
45
Strategic report The environment continued
Business areas carry out impact assessments and develop plans to
ensure continued operation in the case of a climate change event,
overseen by business continuity specialists in the organisation. In
addition, we carry out regular reviews on our properties, which include
a detailed assessment of risks and opportunities. Where opportunities
for enhancements are identified, recommendations are escalated to the
GRC and GMC for discussion and agreement.
From an investment perspective, we need to ensure that our fund
managers are able to identify and assess climate-related risks and
opportunities. Research teams include physical and transition risks and
opportunities as part of the company analysis that fund managers use.
Metrics and targets
We use a number of metrics and targets to track progress against our
strategy on climate change and ensure that we are responding
appropriately to risks and opportunities facing our business.
Our greenhouse gas footprint
As part of our commitment to increasing transparency and reducing
our impact on the environment, we have enhanced our emissions
disclosure for 2020, providing a more detailed breakdown and
reporting additional Scope 1 and 3 emissions, including company-
owned vehicles, transmission and distribution of purchased energy,
and waste.
To standardise and streamline this research process, the Sustainable
Investment team has developed proprietary tools, designed to support
understanding of the sustainability of a company’s business model. This
allows for easier sharing of information between teams and allows us
to identify market-wide trends and insights.
We have also decided to include the radiative forcing index to our air
travel emissions from 2020 and have restated our 2019 greenhouse gas
footprint figures accordingly. This takes into consideration the impacts
of non-CO2 aircraft emissions at high altitudes, such as water vapour,
aerosols and nitrogen oxides.
Our greenhouse gas footprint
Scope 1 – gas (fuel building-related)
Scope 1 – company-owned vehicles
Total Scope 1 emissions
Scope 2 – purchased electricity (location-based)
Scope 2 – purchased electricity (market-based)
Scope 2 – purchased heat (location-based)
Total Scope 2 emissions (location-based)
Scope 3 – fuel-and-energy-related activities (not included in Scope 1 or 2)
Scope 3 – waste generated in operations
Scope 3 – business travel
Total Scope 3 emissions (transmission, waste & travel)
Total Scope 1, 2, and selected 3 emissions (location-based)
CO2e emissions per employee
Streamlined energy and carbon reporting
Energy consumed (kWh)
Scope 1 and 2 (location-based) emissions (tCO2e)
Scope 1 and 2 (market-based) emissions (tCO2e)
UK operations
Outside UK operations
UK operations
Outside UK operations
UK operations
Outside UK operations
2020
(tCO2e)
381
123
504
3,202
2019
(tCO2e)
520
280
800
4,184
1,503 Data not collected
397
3,599
608
4,792
262 Data not collected
150 Data not collected
2,209
2,621
6,724
1.21
2020
10,575,897
5,459,453
2,311
1,792
18,485
18,485
24,077
4.49
2019
14,124,439
7,024,828
3,330
2,262
258 Data not collected
1,749 Data not collected
The following footnotes apply to both tables above. Emissions and energy data disclosed is from 1 January to 31 December inclusive. The financial control boundary approach has been
applied to our greenhouse gas inventory. Entities excluded from this reporting boundary are Pamfleet and Sandaire.
We report our global emissions inventory using the GHG Protocol Corporate Standard as our framework for calculations and disclosure. In line with GHG Protocol guidance, a market-
based emissions methodology is used to calculate Scope 2 emissions, using information from the specific energy source or supplier. This reflects our emissions from purchased energy and
includes details of renewable energy usage, which reduces overall emissions. It represents the active choices that we have made in our energy consumption decisions. So that comparisons
can be made where a market-based system is not available, companies also report a location-based emissions figure. This reflects average emissions intensity and is based on information
captured at a national or regional level. Our Scope 3 emissions reported have been calculated in accordance with the GHG Protocol Scope 3 Calculation Guidance.
In the streamlined energy and carbon reporting table, energy consumed is presented in kWh and the information presented correlates to Scope 1 and 2 emissions totals in the greenhouse
gas footprint table.
We have used the UK Government GHG Conversion Factors for Company Reporting 2020, EPA and other internationally recognised sources.
Our Scope 1, 2 and reported Scope 3 emission data points have been independently reviewed by Incendium Consulting and assured for accuracy. BlueOrchard figures for 2019 have been
assured by South Pole.
46
Schroders Annual Report and Accounts 2020
For our own business operations, business travel has historically been
the highest contributor. As part of our 2020 budget, we committed to
reducing this by 30% in 2020. Given the impact of the Covid-19
pandemic, we have seen an even more significant reduction in business
travel with international travel reducing by 88%. Once travel restrictions
are lifted we will be able to evaluate the impact of flexible working and
improved conferencing technology on maintaining a reduction in
business travel to below our 2019 emissions levels.
The lockdown measures imposed across many of the countries that
we operate in throughout 2020 have also had a knock-on effect for a
number of our other emissions figures across Scope 1 and 2. While
several of our larger offices remained open as usual (with additional
hygiene protocols in place) in order to maintain critical processes, which
could not be conducted virtually, there were various points in the year
where a number of our offices were closed. This has reduced our
overall consumption of electricity and heat, as well as gas and vehicle
emissions, over the course of the year. We also looked at ways to save
energy, for example, our Global Technology team in our London and
Horsham offices changed the power settings on monitors in the new
Covid-safe set up, saving 8,700 kWh of electricity each week.
Due to more people working remotely in 2020, both as a result of
Covid-19 response measures and our new Flexible Working Charter, we
conducted a global employee survey to estimate additional emissions
from remote working. Homeworking emissions have been calculated
using the whitepaper from EcoAct. We undertook a survey of our
employees to understand working practices before and during the
pandemic, and have used various industry sources to capture the
impact of our employees working at home including heating and
cooling requirements, lighting, and use of technology. Based on a
sample size of 974 employees across 23 countries, we estimate that the
global emissions associated with home working was 1,838 tCO2e in
2020. We also estimate the emissions associated with employee
commuting was 1,047 tCO2e. We will continue to review and develop
the accuracy of the data points used in this pilot methodology for future
reporting years.
In 2019, we committed to targeting year-on-year reductions in
gross greenhouse gas emissions, measured in tonnes of CO2e per
employee. In 2020, we achieved a 73% reduction in CO2e emissions
with a decrease to 1.21 tonnes per employee (2019: 4.49 tonnes
per employee).
Our total carbon output has reduced by 72% in 2020, despite the
increase in size and scale of our business, as we increased our AUM
to £574.4 billion and grew our average headcount by 4%.
In 2019, we committed to using 100% renewable electricity across all
operational properties by 2025 and have achieved 67% to date. This has
decreased by 1% from 2019 as our property estate has increased in
2020. This is also below our 2020 interim target of 75%. In 2021, we will
develop a global energy procurement strategy to increase our focus on
achieving this target.
Our data has been verified and further information is disclosed in our
CDP submission, publicly available on the CDP website. This is our
method of comprehensive climate change disclosure and where we
have achieved a leadership level score of A- for the first time in 2020.
In order to make continuous improvements to our performance
across various environmental metrics, we made a number of changes
to our operational tools and processes in 2020. We rolled out an
environmental accounting tool to improve the measurement and
transparency of our environmental impact across energy, transport,
waste, water and paper.
Our global headquarters in London was awarded ISO 14001
accreditation, an international environmental standard that helps
businesses to minimise their environmental impact, and we began
the process of seeking the same accreditation for our offices in
New York and Hong Kong.
We also plan to pursue the EP100 Net Zero Carbon Buildings pathway
in the UK, meaning that we will only own and occupy assets that are
net zero emissions by 2030. We have set an interim target to reduce
our emissions by 10% per square foot by 2025, focusing primarily on
our London headquarters, which currently accounts for approximately
half of our building-related global emissions.
This is the first year that we have gathered data on a global basis for
waste and recycling. We plan to further develop waste targets for all of
our sites and prioritise awareness raising to drive behavioural change,
which is key to achieving our ambitions. We achieved a rate of 72%
recycling in our London headquarters and have increased this target to
80% by 2022.
Within our investment business, we achieved the full integration
of ESG factors into the investment analysis of all managed assets in
2020, verified by the Sustainable Investment team. Our fund managers
use ESG risk dashboards to monitor climate and sustainability risk
within their portfolios, with a number of our proprietary tools providing
key metrics within those dashboards.
Schroders Annual Report and Accounts 2020
47
Strategic report The environment continued
The environment continued
Employees championing positive environmental impact
The battle against plastic pollution has been constrained by
Covid-19, following increased demand for single-use items such
as personal protective equipment and a spike in the use of online
retail and food packaging. Reducing our single-use plastic
consumption is important to us, that is why we joined millions of
people around the world to take part in the Plastic Free July
movement, aiming to raise awareness and tackle the issue. We
hosted an Investor Download podcast with our Head of ESG
Engagement and Senior Corporate Responsibility Executive on
‘How do we tackle plastics at Schroders?’, highlighting the important
role we play in engaging with companies on plastics and looking at
our own operations. Colleagues across the business took part in a
short film called ‘Time to kick our throwaway culture’ and joined a
‘zero-waste mindset’ workshop to challenge our own individual
habits. We also caught up with our partner Hannah Mills, British
Olympic Sailor, on the Big Plastic Pledge which aims to eradicate
single-use plastics in sport. After competing in the 2016 Rio Olympic
Games, Hannah’s eyes were opened to the plastics crisis we face,
and she set up the Big Plastic Pledge to unite athletes and sports
fans alike to kick the plastic problem.
Earth Day 2020
In April, Schroders joined a billion people around the world to
take part in Earth Day – the world’s largest environmental
movement. This year’s theme was ‘climate action’ and we worked
with colleagues across the business to create a video. Colleagues
from around the world shared what they do in their day-to-day
lives to have a positive impact on the environment, from minimising
their meat consumption to cycling to work. We also heard from
experts in our Sustainable Investment team highlighting how
we are integrating climate change considerations, using our
Climate Progress Dashboard, and broader ESG into our investment
processes and client conversations.
48
Schroders Annual Report and Accounts 2020
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.
Policies and standards which
govern our approach1
Due diligence, outcomes and
additional information
Page
Reporting
requirements
Environmental
matters
Employees
Human rights
Social matters
Anti-bribery and
anti-corruption
Environmental, social and governance policy
Statement of compliance with UN Principles for
Responsible Investment
Group Environment Statement
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
UN Guiding Principles on Business and Human Rights
Group Human Rights Statement
Our approach to corporate responsibility
ESG engagements
Climate change and the environment
Retention of key talent
Creating a place where people want to work
Gender diversity
Employee opinion survey highlights
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
Financial Crime policies (covering anti-money
laundering, counter-terrorist financing, anti-bribery,
sanctions and tax evasion)
Inducements policy
Whistleblowing policy
Conflicts of Interest policy
Group Tax Strategy
Key risks and mitigations
Process risk
Creating a place people want to work
1. Certain policies, standards and guidelines are not published externally.
2. Certain policies, standards and guidelines are available at www.schroders.com
Additional information
Key risks and mitigations
Description of key risks
Business model
Non-financial indicators
30
18
42
24
34
37
35
67
75
30
30
33
32
30
30
38
40
32
42
29
50
55
34
50
53-55
14
2
Schroders Annual Report and Accounts 2020
49
Strategic report Key risks and mitigations
Our approach to risk management
supports our strategic priorities
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. This was particularly important in 2020 given the market turbulence caused by
Covid-19. 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 pages 69-74. We embed risk management within all
areas of the business at a Group and legal entity level. The Group Chief
Executive and Group Management Committee (GMC), as the principal
advisory committee to the Group Chief Executive, have responsibility for
regularly reviewing the key risks we face. This includes their respective
business areas identifying, monitoring and reporting in all legal entities
on relevant risks and controls. They are also responsible for monitoring
that individual behaviours reflect the culture and core values of the
business. It is the responsibility of all employees to uphold the control
culture of Schroders.
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 (GRC), which
normally meets ten times a year. The GRC supports the Chief Financial
Officer and GMC in discharging their risk management responsibilities.
The committee is attended by the heads of Group Risk, Compliance,
Legal and Internal Audit, chief operating officers and chief
administrative officers from across the business, and senior
management from Distribution, Investment, Product and Wealth
Management. Other GMC members regularly attend. The GRC 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 GRC is supported by a number of sub-
committees, including the Conflicts of Interest committee and the
Group Regulatory Oversight committee, which review and challenge
risks and report significant risk matters to the GRC.
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 oversight functions, including
Group Risk, Compliance, Legal, Governance, Finance, Tax and HR, which
constitute the second line of defence. The compliance assurance
programme reviews the effective operation of relevant key processes
against regulatory requirements.
50
Schroders Annual Report and Accounts 2020
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
Group
Risk
Committee
Group
Management
Committee
Audit and
Risk
Committee
2nd line
Control and oversight
functions
1st line
Business operations
and support
Risk appetite
Risk appetite statements are set by the Board and cover all our key risks
(excluding strategic risk as this risk type mainly comprises factors that
are external to our operating model). They apply to Asset Management,
Wealth Management and the Group itself. Tailored versions of the risk
appetite statements have been created for some of our legal entities.
Each risk appetite statement is supported by a number of metrics and
tolerances to quantify risk appetite and to enable us to provide an
assessment of risk position against risk appetite. Risk position versus
appetite is formally assessed on an annual basis and is reviewed and
challenged by the GRC, GMC and Audit and Risk Committee prior to
the Board.
The risk appetite statements and their supporting metrics and
tolerances were reviewed in 2020 and a number of improvements
were made. New metrics were added to reflect the changing business
environment and to allow a more quantified assessment of risk.
Covid-19 response
Our response to the pandemic demonstrated the resilience of our employees and the strength of the infrastructure
supporting our business processes. Our people worked extremely hard to meet our clients’ needs and our systems
coped well. There was no significant impact on business operations despite a significant number of staff working
remotely at various times over the year. Prior to 2020, we had already evolved our Business Continuity Strategy
primarily to a work from home model, with an initial focus on our London office. As changes to our infrastructure
had already been made, we were very well positioned to switch to working from home with minimal disruption.
Key highlights
Our response was governed by the Crisis Management
Team (CMT) which met regularly from January to May.
A key focus of the CMT was protecting the welfare of our
employees and ensuring we could continue to deliver the
standard of service our clients expect. The central co-ordination of the
response by the CMT, combined with the response of regional Incident
Management Teams and a level of office autonomy, meant we were
able to flex our approach at a regional and office level dependent on
government guidance and level of infection.
The delivery of the annual business continuity programme
is reliant on a framework of business continuity
co-ordinators and plan owners across the business.
They played a key role in our response by ensuring effective
co-ordination of activities across the business, which included capturing
any additional technology requirements for home working and
delivering our minimum viable presence approach (i.e. ensuring those
staff who performed critical activities which could not be undertaken
from home were in the office).
Our systems performed well and our IT environment
remained stable throughout the pandemic. In order
to further support colleagues who were working from
home, we increased our internet capacity from 2GB
We quickly identified key suppliers who, if impacted
by Covid-19, could potentially have the most significant
impact upon our own operations. For a six-week period,
we implemented daily reporting from key suppliers. Once it
to 10GB. We also enhanced our remote working capabilities through
upgrading our virtual conferencing capabilities and rolling out
a collaboration platform.
was established that service performance was being maintained and
any potential significant risks had been mitigated, the reporting moved
to weekly and then monthly.
Our Risk and Control Assessments, already a core part
of our operational risk framework, were key in enabling us
to quickly assess the extent to which business processes
and controls were impacted by the need to work from
home, and therefore required additional or amended controls.
We supported our employees by sending approximately
900 laptops, monitors and other hardware to their homes,
allowing them to maintain productivity.
Elevated liquidity risks, particularly during March 2020,
highlighted the importance of our robust fund liquidity risk
management framework. We were able to promptly
identify, report and escalate areas where liquidity risk was
heightened. We operated a cross-functional Liquidity Management
Oversight meeting for information sharing, escalation of concerns and
resolution of issues.
In consideration of the heightened market volatility we
moved to more frequent monitoring of certain investment
risk metrics and held more regular oversight meetings to
review the risk and performance of portfolios. In addition,
our Group Pricing Committee met regularly to consider pricing and
valuation issues caused by the volatility.
We strengthened our communications to employees to
help them feel supported and engaged. Our internal
communications and employee interactions remained a key
focus throughout 2020.
Our global offices were reconfigured to
meet local government guidelines thereby allowing
staff to safely return when and where this
was permitted and appropriate.
Schroders Annual Report and Accounts 2020
51
Strategic report Key risks and mitigations continued
Group policies
Our control framework is underpinned by a set of Group 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 supported with clear guidance
on what they should and should not do, while similarly our service
providers 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 within which
we expect them to operate.
2020 Developments
Whilst Covid-19 dominated much of the year (and is covered in more
detail on page 51), a number of other initiatives were undertaken
during 2020 by Group Risk. Some of these are summarised below:
– A formal Operational Resilience Programme was established to build
on our existing resilience capabilities. As part of this our key business
processes are reassessed and stress tested to ensure we can
continue to operate during extreme events.
– Alongside Information Security, we enhanced our data loss
prevention approach through improvements to controls and data
surveillance capabilities.
– The Risk and Control Assessment Process (summarised in the
diagram on the right) continues to be a key part of our operational
risk framework and assisted with our response to Covid-19 (further
details are on page 51). We improved the alignment of the Risk Event
process and our Risk and Control Assessment Process to update the
documentation of controls with the goal of minimising the re-
occurrence of Risk Events.
– The Asset Class Risk & Performance Committees were enhanced by
improving processes to review performance and by applying a
broader range of methods for overseeing exposure concentrations.
These committees are the primary venue for the first and second line
functions to review and challenge risk and performance.
– We developed ESG risk toolkits for the investment risk assessment of
portfolios. These are used for day-to-day risk oversight and formal
review and challenge at the Asset Class Risk & Performance
Committees.
Key risks
Assessment of key risks
We periodically assess the risks faced by our business and update the
detail of the Group’s key risks. This provides us with a good
understanding of the risk profile of the Group, enabling our risks to be
managed effectively. We have 19 key risks across Strategic, Business
and Operational risk categories, as shown in the table on the right and
on pages 53-55.
These risks have been assessed in light of the current environment
(including Covid-19), geopolitical factors, market conditions, changing
client demand and regulatory sentiment. We have taken into
consideration the views of subject matter experts and risk owners
within the business, and the working environments faced by our
employees around the world. We 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.
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.
52
Schroders Annual Report and Accounts 2020
– We conducted thematic investment risk reviews including active risk
taking in portfolios and liquidity risk management.
– Our credit risk monitoring processes were enhanced with the
addition of a new external provider that aggregates internal credit
ratings from large banks and produces consensus ratings.
– A portal for identifying and monitoring negative news relating to
counterparties was implemented to strengthen our credit risk
management processes.
– We developed a dashboard for monitoring the governance
arrangements associated with User Defined Tools. A User Defined
Tool is a technology application created or modified outside the core
Technology function.
Risk and Control Assessment Process
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The following Key Risks are ranked within each category based on our
combined assessment of the impact and likelihood of each occurring
after our controls are applied.
Strategic risks
Operational risks
1 Changing investor
requirements
11 Conduct and
regulatory
2 Fee attrition
12 Process
3 Market returns
4 Business model disruption
Business risks
5 Reputational
6 Investment
performance
7 Climate change
13 Business services
resilience
14 Information security
15 Fraud
16 Legal
17 Technology
18 Tax
8 Financial instrument
19 People and employment
9 Product
10 Business concentration
practices
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 and the income we therefore receive may be lowered. Our business plans seek to address these risks by responding to
the challenges faced and growing our assets and earnings.
Description
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 is 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 risks to feature more heavily in future investment
requirements and offerings.
2
Fee attrition
Fee attrition caused by clients allocating more of their assets to
passive products and a lower allocation to public markets, and a
smaller pool of capital allocated to active fund managers resulting in
increased competition on price.
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.
3 Market returns
We have intensified our focus on ESG by ensuring our investment
criteria includes integration of ESG into the decision process, subject
to local requirements, and we have launched thematic products
related to Climate and Energy Transition. We continue to expand
our capabilities in Private Assets & Alternatives, including a majority
interest in an Asian-based Real Estate business, Pamfleet. Seed
capital has been deployed in 22 new funds during 2020. We carefully
manage our cost base to reflect our clients’ changing asset
allocation requirements, investing in new products where client
demand exists.
We have continued to focus on Solutions and outcome-oriented
strategies, and Private Assets & Alternatives, which diversify our fee
income, increasing our AUM by £51 billion in these areas over the
year. We are also increasingly diversifying our product offering,
supporting long-term profitability.
Our income is derived from the value of the assets we manage.
Falling markets reduce our AUM and therefore impact revenues.
Market falls may be exacerbated by geopolitical risks and the
currency in which the AUM is denominated.
We have diversified income streams across a range of markets to
mitigate falling markets in any one area. We now have 54% of AUM
from Solutions, Private Assets & Alternatives and Wealth
Management, up from 51% in 2019.
Current economic uncertainty with 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 co-operation 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.
4 Business model disruption
Our business model could be disrupted by a range of external
factors including technology advancements, product evolution and
market participants.
We see mass customisation of products coupled with changes in
regulation such as the value assessment, requiring a response from
asset managers, in addition to an increasing move to private markets.
Our focus on growing our Private Assets & Alternatives product
range allows us to have a broader range of income streams which
are less directly linked to markets. We have made key hires and
management appointments in this part of the business to
strengthen our leadership and drive growth in our product offering.
The further development of our Wealth Management business,
including the acquisition of Sandaire, a London-based multi-family
office, enables us to leverage the greater longevity and higher, more
sustainable margins that come with this business.
We continue to deliver 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 & Alternatives business. A key focus on
leveraging data by our Data Insights Unit has supported this.
Movement during the year
Increased
Decreased
Remained the same
Schroders Annual Report and Accounts 2020
53
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 investment performance, we have the best opportunity to be selected by clients when
allocating assets. A failure to achieve this could lead to a decrease in AUM.
Description
5 Reputational risk
How we manage this
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.
We consider reputational risks when initiating changes to our strategy
or operating model and maintain high standards of conduct.
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.
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.
7 Climate change risk
A failure to understand the pricing of assets affected by climate
change due to declining cash flows from industries or a lower
demand for impacted assets. This may lead to poor investment
decisions, more volatile pricing as asset prices adjust to reflect the
increasing regulation of carbon emissions and a failure to offer
climate positive products impacting our performance, brand and
reputation.
We have developed a range of proprietary 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 and we actively monitor our emissions and
have adopted targets to reduce our carbon footprint.
8
Financial instrument risk
We face market, credit, liquidity and capital risks from the
instruments we use when managing 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 (due to market, credit or liquidity
risk) or ability to invest in our business (due to insufficient capital).
9 Product risk
There is a risk that our product offering is not suitably diversified,
or does not provide access to strategies that will help investors to
meet their objectives. There is also the risk that products are not
accurately described, or that they do not perform in alignment
with their investment objective(s) for a sustained period.
There is also the risk that product liquidity is not consistent
with the product description, or the redemption requirements
of investors.
10 Business concentration risk
We manage capital, liquidity and the Group’s own investments through
Board-set limits and in the Group Capital Committee. Equity market
risk in seed capital is hedged where it is economic and practicable to
do so and foreign currency Group investments are hedged back to
sterling.
We monitor our credit and counterparty exposure in the Group
balance sheet, bank lending portfolios and in our client assets.
Our dedicated Product and Solutions function focuses on strategy,
innovation and changing investor requirements.
In the first instance, identified risks are managed within the formal
Product Governance Framework, which includes the Product Strategy
Committee, Product Development Committee, Product Governance
Committee and Capacity Committee.
We have a liquidity risk management framework and monitor the
liquidity of our products on an ongoing basis.
Insufficient diversification in distribution channels, products,
clients, markets, or income streams could pose a risk to
our business.
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.
54
Schroders Annual Report and Accounts 2020
Operational risks
Impact for Schroders: Operational risks are inherent in all activities and processes. They exist in the normal course of business and
are heightened when we undertake changes to our organisation. When operational risk events occur, this may affect 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.
Description
How we manage this
11 Conduct and regulatory risk
The risk of inappropriate conduct, conflicts management
practices or behaviours negatively impacting on client outcomes
or markets and participants, or of failing to comply with existing
or new regulations. This includes financial crime requirements.
We promote a strong compliance culture and seek to maintain good
relationships with our regulators. We also encourage appropriate
conduct and regulatory compliance via our conduct risk framework,
supported by compliance assurance programmes.
12 Process risk
The risk of failure of significant business processes, such as
mandate compliance, trade execution for investment portfolios,
client suitability checks, financial crime risk management and
asset pricing.
Our key business processes are regularly reviewed and the risks
assessed through the Risk and Control Assessment Process. When we
undertake change, such as acquisitions, we assess new processes that
may arise.
13 Business services resilience risk
The risk that we are unable to operate critical business services.
14
Information security risk
The risk that our technology is compromised or inadequate,
resulting in the confidentiality, integrity or availability of our data
or Schroders’ services being negatively impacted.
15 Fraud risk
Fraud could arise from any attempt to defraud the firm or our
clients by circumventing our processes and controls.
16 Legal risk
Our crisis management, business continuity and disaster recovery
processes are tested regularly to ensure that we can respond and
recover from extreme events.
We have a dedicated Information Security function responsible for the
design and operation of our information security risk framework.
Information security risk is overseen by specialists within both the
second and third line of defence and is monitored by the Information
Security Risk Oversight Committee.
Controls are in place, which are assessed as part of the Risk and
Control Assessment Process. We continue to apply particular focus to
our payment processes.
The risk that we, our clients, suppliers or other third parties fail to
meet or record legal or regulatory obligations.
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 and the business.
17 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.
18 Tax risk
We and the funds we manage are exposed to tax compliance,
reporting and transactional 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. See page 29 for further details.
19 People and employment practices risk
The inability to attract, retain or develop key employees
to support our business or maintain high standards in
employment practices.
We have competitive remuneration and retention plans and build
depth and strength in our workforce. We have sustainable succession
and employee development processes and recruit selectively through
our entry-level and experienced hire programmes.
Schroders Annual Report and Accounts 2020
55
Strategic report 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 2025 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 2021.
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 environments 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.
56
Schroders Annual Report and Accounts 2020
NAVIGATING
THE FUTURE
The UK left the European Union on 31 January 2020 and entered a
‘transition period’ while the UK Government negotiated its future
relationship with the EU. On 24 December 2020, both parties
announced that they had reached agreement on a free trade
agreement, the UK-EU Trade and Cooperation Agreement, with its
terms taking effect immediately after the transition period concluded
on 31 December 2020. As widely anticipated, the trade agreement does
not make specific provision for financial services firms in the UK to
continue to access the EU single market and, as a result, those firms lost
those passporting rights.
Schroders was well positioned for such a no deal scenario for financial
services. Our diversified business model and significant presence in the
EU mean that we have been well placed without making significant
changes to our operating models. We had obtained additional
investment management permissions in Luxembourg to ensure that
we can continue to offer the full range of investment services to our
clients. We had also made some structural changes to enable us to
continue to service our clients regardless of their geographic location.
Our aim throughout has been to ensure that our clients receive a
seamless service.
Pages 1 to 57 constitute the Strategic report, which was approved by
the Board on 3 March 2021 and signed on its behalf by:
Peter Harrison
Group Chief Executive
3 March 2021
We will continue to closely monitor future negotiations and regulatory
developments with respect to financial services, including any
frameworks for regulatory cooperation between the UK and the EU that
might affect our business and our clients.
We have registered our Luxembourg fund ranges under the UK
Financial Conduct Authority’s temporary permissions regime to allow
our EU based funds to continue to be offered to clients based in the UK
for the foreseeable future.
Schroders Annual Report and Accounts 2020
57
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, Advisor to G3 Group.
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.
Appointed a Director and Chief Financial
Officer in May 2013.
Experience: He is a chartered accountant and
was a senior audit partner at
PricewaterhouseCoopers LLP (PwC) until May
2013. He became a partner at 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: None.
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: Member of the
Investment Association Advisory Council and
the Impact-Weighted Accounts Initiative
Leadership Council. He is a Director of FCLT
Global and a member of the Advisory Board
of Antler Global.
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 Chair of Royal
Anniversary Trust UK.
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, Director of High Speed Two (HS2)
Limited and lead non-executive Director for
the Department of Transport.
Committee membership: Member of the
Nominations and Remuneration Committees.
58
Schroders Annual Report and Accounts 2020
Claire Fitzalan Howard
Non-executive Director
Rakhi Goss-Custard
Independent non-executive Director
Leonie Schroder
Non-executive Director
Appointed in April 2020.
Appointed in January 2017.
Appointed in March 2019.
Experience: She began her career at Kleinwort
Benson, where she worked from 1982 to 1987.
She subsequently joined Gauntlet Insurance
Services, insurance brokers specialising in high
net worth clients, where she had an executive
role until 1996 and was a non-executive
Director from 2004 until 2019. She is a
descendant of John Henry Schroder, co-founder
of the Schroders business in 1804.
External appointments: Non-executive
Director of Caledonia Investments plc, Director
of the Schroder Charity Trust and a trustee of a
number of other charitable foundations.
Committee membership: Member of the
Nominations Committee.
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.
Experience: 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. She is a
descendant of John Henry Schroder,
co-founder of the Schroders business in 1804.
External appointments: Schroder Charity
Trust and a number of private limited
companies.
Committee membership: Member of the
Nominations Committee.
Deborah Waterhouse
Independent non-executive Director
Matthew Westerman
Independent non-executive Director
Appointed in March 2019.
Appointed in March 2020.
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
(GSK) and focused on advancing science into
HIV treatment, prevention and care. She is a
member of the GSK Corporate Executive Team.
External appointments: Private limited
companies relating to ViiV Healthcare.
Committee membership: Member of the
Nominations and Audit and Risk Committees.
Experience: He started his career in 1986 at
Credit Suisse First Boston. He subsequently
worked at Rothschild & Co where he became
Managing Director and Joint Chief Executive
of ABN AMRO Rothschild. He joined Goldman
Sachs in 2000 where he was a Partner for 14
years. Between 2016 and 2017 he was
Co-Head of Global Banking at HSBC.
External appointments: MW&L Capital
Partners, Chairman of the Board of Trustees
of the Imperial War Museum and a
Foundation Fellow of Balliol College, Oxford,
Trustee of the UK Holocaust Memorial
Foundation.
Committee membership: Member of the
Nominations, Audit and Risk, and
Remuneration 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 2020
59
Governance Corporate Governance report
ENSURING
EFFECTIVE
OVERSIGHT
I am pleased to introduce our corporate governance report for 2020 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.
2020 was a year of unprecedented challenges. The speed with which
the Covid-19 crisis took hold, and its impact on the macro economy and
financial markets, was extraordinary and required a swift response to
ensure that our business was able to continue to operate effectively.
Throughout this Annual Report we have illustrated some of the steps
we took to protect clients, our employees and the interests of our
wider stakeholders.
The Board quickly recognised that we needed to change our approach
to ensure that we could continue to maintain effective oversight. We
implemented regular business updates from management in addition
to our normal board agenda and met as a Board 19 times during the
year, in person or virtually. Standing items on our agenda included a
report from the Chief Executive on how the business was operating; an
update on financial markets and their impact on clients and the funds
we manage on their behalf; the impact on our workforce and the steps
we were taking to facilitate working from home and protect our
employees’ wellbeing generally; and the financial impact on the
Company’s profits and capital position.
Due to Government restrictions, shareholders were unable to attend
our Annual General Meeting in person. We nevertheless wanted to
enable shareholders to participate as fully as possible, so we facilitated
live attendance by telephone and gave shareholders the opportunity to
ask questions of the Board. All presentation materials and shareholder
questions were shown on our website.
Although the pandemic was naturally a major focus of the Board’s
discussions, we continued to focus on the long term opportunities and
challenges. These strategic discussions were best held face to face so
we delayed our annual strategy meeting from May until July, with
further meetings held in the Autumn.
We welcomed Matthew Westerman and Claire Fitzalan Howard to the
Board in early 2020, both of whom are making a valuable contribution.
The challenges posed by the pandemic have required, and continue to
require, Non-executive colleagues to commit significantly more of their
time than usual to the Company and I would like to thank them for that
commitment. I would also like to pay tribute to the hard work of our
two Executive Directors, and senior management generally, in steering
the Company so well through these difficult times.
Michael Dobson
Chairman
3 March 2021
60
Schroders Annual Report and Accounts 2020
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.
2020 Board and Committee meeting attendance
Michael Dobson3
Executive Directors
Peter Harrison
Richard Keers
Non-executive Directors
Ian King
Sir Damon Buffini4
Rhian Davies
Rakhi Goss-Custard
Claire Fitzalan Howard5
Philip Mallinckrodt6
Leonie Schroder
Deborah Waterhouse
Matthew Westerman7
Board1
19/19
19/19
19/19
19/19
19/19
19/19
19/19
13/13
5/6
19/19
19/19
17/17
Audit and Risk
Committee
Remuneration
Committee2
Nominations
Committee
4/6
6/6
3/6
6/6
6/6
4/4
1/2
6/6
6/6
4/4
9/9
9/9
9/9
1/1
5/5
5/5
5/5
4/4
1. There were five scheduled Board meetings held during the year and 14 additional meetings to consider the impact of the Covid-19 pandemic, business strategy
and specific acquisition opportunities.
2. There were four scheduled Remuneration Committee meetings held during the year and five additional meetings outlined on page 90.
3. Michael Dobson did not attend Nominations Committee meetings that discussed the Chairman’s succession.
4. Damon Buffini was unable to attend three meetings of the Nominations Committee.
5. Claire Fitzalan Howard was appointed to the Board and as a member of the Nominations Committee on 30 April 2020.
6. Philip Mallinckrodt retired from the Board on 30 April 2020. He did not attend the Nominations Committee or the Board meeting that discussed his retirement.
7. Matthew Westerman was appointed to the Board and as a member of the Nominations and Audit and Risk Committees on 9 March 2020. He joined the
Remuneration Committee on 19 November 2020.
Compliance with the 2018 UK Corporate Governance
Code (Code)
Throughout 2020, 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 for 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 12 months
required under Provision 32. This was fully explained in the 2019 Annual
Report and Accounts.
Copies of the Code can be obtained from the FRC’s website at frc.org.uk.
The Board and its committees
The Board decided it needed to meet more frequently than usual
during the year in order to be able to discharge its duties, due to the
fast pace of change and disruption caused by the Covid-19 pandemic.
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 decisions 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.
Board composition at 31 December 2020
Executive Directors
Non-independent non-executive directors
Independent non-executive directors
18%
27%
55%
Length of tenure at 31 December 2020
0-3 years
3-6 years
46%
27%
6-9 years
9+ years
18%
9%
Schroders Annual Report and Accounts 2020
61
Governance Corporate Governance report continued
The Board has delegated specific responsibilities to Board committees,
notably the Nominations Committee, the 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
2020, 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 was one Board call during the year in January. Board 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. Due to the
frequency of Board meetings from March onwards as a result of the
pandemic, there were no further calls as the Board was being updated
on key issues regularly through those meetings.
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 67 for the Committee Report.
See page 69 for the Committee Report.
See page 75 for the Committee Report.
Group Management Committee (GMC)
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
number of sub-committees, which look at specific areas of risk
including conflicts of interest.
62
Schroders Annual Report and Accounts 2020
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 58 to 59.
Independence
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.
Michael Dobson, as former Chief Executive and having served more
than nine years since his first appointment, is not considered
independent under the Code. Claire Fitzalan Howard and Leonie
Schroder are not considered independent as they are members of the
principal shareholder group. The Nominations Committee believes the
judgement and experience of Michael Dobson, Claire Fitzalan Howard
and Leonie Schroder continue to add value to the Board and the Group.
The Board will therefore recommend their re-election at the 2021 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. 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 61.
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 2021 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 75.
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. Due to the Covid-19 pandemic, the Board made
the decision to postpone the review of the Group’s strategy originally
scheduled for May to July, in order that the Board could debate in
person. In addition to these regular matters, specific areas of focus by
the Board during 2020 included:
Meeting dates
Key areas considered
March
July
(rescheduled from
May)
July
October
November
– Wealth Management strategy
– Slavery and Human Trafficking
statement
– Annual Report and Accounts 2019 and
dividend proposal
– Board priorities 2020
– Group strategy update
– Financial forecasts, including capital
– Investment performance review
– People strategy, diversity and inclusion
– Acquisition proposal
– Half-year results and dividend proposal
– China strategy
– Technology strategy
– ICAAP and ILAAP
– North America strategy
– Culture, Conduct and Controls
– Resolution and wind-down plan
– Product strategy
– Corporate purpose, corporate and social
responsibility including climate change
– Recovery plan
– 2021 budget
Throughout the year, the Board has considered workforce welfare,
external markets, the impact on our clients, the Group’s capital position,
business operations and the need to keep the market updated on key
developments. The Board also 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
competitive environment, our clients, the evolution of our core business
and investing for growth opportunities, including the consideration of
potential acquisitions. The Board considered the Group’s approach to
diversity and inclusion and how it impacts our business.
There were 14 additional Board meetings in 2020 to ensure the Board
maintained effective oversight of the business during the pandemic, to
consider the Group’s strategy and to consider specific acquisition
opportunities.
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 Matthew Westerman in March and Claire
Fitzalan Howard in April, a comprehensive and tailored induction
programme was provided on a virtual basis and is ongoing.
The induction process involved:
– 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.
Schroders Annual Report and Accounts 2020
63
Governance Corporate Governance report continued
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 2020, included
presentations on Schroders Personal Wealth, our joint venture with
Lloyds Banking Group, Group Capital Management and Data Insights
on how data can drive alpha. Members of the Board Committees also
receive regular updates on technical developments at scheduled
Committee meetings.
2019 Board evaluation
The 2019 Board evaluation was facilitated externally by Independent
Board Evaluation (IBE). They have no other connection with the
Company.
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 in 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 were followed through during the course
of 2020 or plans were put in place where not completed due to
the pandemic.
64
Schroders Annual Report and Accounts 2020
2020 Board evaluation (internal)
The 2020 evaluation was undertaken internally. The Chairman asked
each Director to provide a written evaluation focusing specifically on
five key areas:
– To what extent we had achieved the priorities we set ourselves at the
start of 2020, recognising that Covid-19 had impacted a number of
our plans.
– How the Board and the management team performed in light of the
pressures brought on by the Covid-19 crisis.
– Whether the Committees had discharged their responsibilities
effectively and the quality of the reporting to the Board.
– The induction process for new Directors.
– The areas of focus for the Board in 2021.
Directors were also asked to provide any further comments they wished
to on any aspect of Board, Committee and Director performance.
The overall conclusion was that the Board and Committees performed
well in 2020. The regular meetings held throughout the year
contributed to the Board working effectively together. Most of the
priorities set for 2020 had been achieved despite the Covid crisis,
although there was a recognition that the Board should revisit some of
the areas reviewed in 2020 to gain a broader and deeper
understanding of them. The key area of focus for all Directors was the
Group’s strategy. There was a clear feeling that the Board and the
executives had responded well to the Covid crisis. The Company’s
performance at an extremely challenging time was seen as vindicating
the work of the Board and the Committees in 2020 and in previous
years. There was a high degree of confidence in the work of the
Remuneration Committee and the Audit and Risk Committee and the
reporting to the Board was of high quality. The Nominations Committee
was seen to have performed well in bringing on the new Directors in
2020. In terms of the induction process, this had had to be undertaken
remotely rather than face to face as normal, which was clearly
sub-optimal.
Priorities for 2021
In light of the findings of the 2020 evaluation and the conclusions of a
Chairman’s Committee discussion on priorities, the Board agreed a set
of high level objectives for 2021 and these include:
– Establishing clear KPIs for the most important financial and strategic
measures of performance and reviewing them regularly against
budget and five year plans.
– Agreeing a five year strategic plan with a particular focus on organic
growth opportunities and a detailed review of inorganic
opportunities.
– Focusing on senior management talent and succession planning.
– Reviewing all key business areas.
– Reviewing investment performance in key asset classes.
– Reviewing all acquisitions made in the past five years.
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.
Stakeholder interests and engagement
In discharging their section 172 duties the Directors have regard to the factors set out on page 33 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 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 and on page 66 show how the Board considered the matters set out in section 172 in respect of some of the key
decisions made during 2020. More information on our methods of engagement with our key stakeholders and further information on how their
interests have been considered during the year are set on pages 32 to 33.
Engagement through our Investor Relations
programme
We continued to operate a complete Investor Relations
programme during 2020, even though much of our activity had to
adapt to an online environment. The Group Chief Executive and
Chief Financial Officer met with a number of our major
shareholders to discuss our results and strategy for driving future
growth. Investor Relations also led meetings with continental
European investors and Schroders was represented at a number of
industry conferences.
Engagement and communication at the AGM
The primary means of communicating with shareholders is
through the AGM, 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.
To ensure that the Board maintained an understanding of the
views of our major shareholders, we again commissioned an
independent investor perception study, following the last investor
study in 2018. A third party provider conducted in-depth interviews
with 12 of the Company’s largest shareholders in the UK and North
America. These interviews covered shareholder views on the
Group’s results, strategy, future prospects, competitive positioning
and quality of senior management. The findings were then
presented to the GMC and the Board.
We consider the AGM as an important opportunity to meet with
shareholders, hear their views and answer their questions about the
Group and its business. As we were unable to hold a physical AGM in
2020, we organised a conference call which enabled any shareholder
to join and ask questions of the Board. For shareholders who wished
to ask a question but were unable to join us on the day, we offered
the option to send questions in advance. After the meeting the
website was updated with a summary of the presentations and the
question and answer session.
The Group is also planning two capital markets days for the
investor community in 2021, following the last event in 2019. The
event will look to provide the investment community with a deeper
understanding of our strategic objectives, as well as access to
senior management responsible for delivering them.
Remuneration policy
We consulted with our major shareholders ahead of proposing a new remuneration policy at the AGM in 2020. The engagement process
enabled the Board and senior management to understand concerns and create alignment across stakeholder groups. Our remuneration
principles are designed to promote the long-term sustainable success of the Group in the interests of all stakeholders, and following our
consultation process we received a vote of 97.89% in favour of the revised policy at the AGM.
Communication and engagement with employees
Ian King, the Senior Independent Director, is the designated non-executive Director responsible for gathering workforce feedback.
Ian chairs the Global Employee Forum meetings to discuss directly with employees key issues relating to the business and our employees and to
report views back to the Board. The Forum met twice in 2020, in April and October.
From the April meeting feedback from the Forum was that the Company’s actions in the Covid-19 crisis showed that staff were valued and that the
Company was taking a very positive stance on corporate responsibility issues. The various communications, including the weekly podcasts, had been
well received in particular. The Forum had been interested in how the Board had been operating during the crisis and how we would be getting back
to a ‘business as usual’ status. The Forum had also asked about Board succession, the AGM in the lockdown and remuneration and in particular
whether we would be able to retain talent should results be depressed by the impact of Covid. Ian had given insights into how the Board addressed
all of these issues and the information had been well received by Forum members.
At the October meeting the focus remained on the impact of the pandemic. The Forum felt that the Company had responded well, was communicating
with and was compassionate towards employees. There remained a very positive view of the Company. There was significant discussion on the blurring
of home and business boundaries during the crisis and a strong recognition that everyone was dealing with different challenges. The major change
since the last Forum was one of increased fatigue across the workforce and uncertainty over the future, especially regarding returning to the office. The
provision of a safe working environment was something that the Company took very seriously because we recognised that not all our people felt
comfortable or could work from home. The Forum also discussed many of the issues the Board was considering, including our investment in
technology which enabled effective working in the pandemic; the resilience of our business model and the benefits of diversity; the increasing
importance of Environmental, Social and Governance (ESG) issues and how these contribute to our wider purpose, including the decision not to take any
government assistance or make any redundancies resulting from the pandemic; and the rationale for continuing to pay dividends during the pandemic.
The Board has found this additional feedback from our employees extremely valuable in terms of its own consideration of the issues facing the
business and will continue to engage via the Forum in 2021.
Schroders Annual Report and Accounts 2020
65
Governance Corporate Governance report continued
Stakeholder interests and engagement
Acquisitions
Response to the Covid-19 pandemic
The Board met 19 times in 2020, 14 of which were additional
meetings to consider, amongst other matters, the Group‘s
response to the challenges posed by the Covid-19 pandemic, and
how best to meet these challenges in the interests of
stakeholders. The Board identified a number of key priorities,
including the welfare of our workforce, the impact on our clients
of a volatile external market and the performance of our funds,
alongside the Group’s capital position, business operations and
the need to keep the market updated of any key developments.
The Board reviewed the impact of our workforce transitioning to
working from home, the resilience of our technology platforms
and key counterparty risk. It was agreed that an increased
programme of communication was essential, both to the
workforce and our regulators, and that the welfare of the
workforce was paramount to business performance. The Board
considered the payment of the 2019 final dividend, taking into
account the Group’s financial position and an external
environment of approximately one third of the FTSE 100
companies announcing they would defer, cut or cancel their
dividends in light of the crisis. The Board concluded that the
dividend should be paid in full and that this decision was
supported by the Group’s financial position. The executive
Directors and senior management engaged with the PRA and FCA
to demonstrate the resilience of the Group and its ability to pay
the final dividend. The Board also considered the interests of
shareholders and pension funds, who would likely experience a
fall in dividend income from their other investments. This decision
was in line with the Board’s policy of providing shareholders with
a progressive and sustainable dividend.
During the early stages of the pandemic, the Board considered
the impact of the Group’s charitable giving, and agreed it was
appropriate to increase matched giving significantly to support a
range of Covid-19 related charitable causes. In addition, the
Board unanimously agreed to donate 25% of their fees and
salaries to charity for a period of three months. The executive
Directors volunteered to waive the value of their 2020 LTIP awards.
In November 2020, the Board unanimously agreed a 50%
increase in the budget for charitable giving. This allows us to
sustain employee matched giving and develop long-term
partnerships with charities around the world. The Board agreed
that this was an important step given the global impact of
Covid-19 on charities and society as a whole.
The Board believes that, in line with strategy, investing for
growth is in the best interest of all stakeholders and has
continued to examine potential acquisitions as one avenue
in pursuit of this goal.
Sandaire
The Board considered the acquisition of Sandaire, a London
based multi-family office with £2.4 billion of discretionary assets
under management, as part of the strategy of expansion by the
Group’s Wealth Management business. The Board agreed this
acquisition would contribute towards Schroders’ strategic
priorities of expanding the Wealth Management business,
providing closer relationships with end clients, targeting markets
with greater longevity and establishing Cazenove Capital as a
leader in the UK’s multi-family office space.
When deciding to proceed with the acquisition the Board
considered the interests of a number of key stakeholders. In
addition senior management held engagement meetings with
key stakeholders. The subsequent review of that engagement by
the Board confirmed that there was both a good cultural fit for
employees and that the acquisition would promote the Group’s
strategy. The impact of the transaction on Sandaire’s clients was
considered, including the Group’s ability to design future products
to meet their requirements, by utilising the expertise of the wider
Group in Private Assets & Alternatives. Sandaire’s clients will also
benefit from the integration of the business into Schroders’
operational platform and wider range of investment capabilities.
The interests of Sandaire’s employees were also of key
importance as upon completion, a number of employees
from Sandaire joined our Wealth Management business and will
be key to driving the integration, future growth and success of
the business.
The acquisition was subject to approval by the FCA, therefore
engagement with them was paramount. In addition, there was
engagement with LBG who hold a minority stake in our UK
Wealth Management business.
Pamfleet
The other major acquisition undertaken during 2020 was the
acquisition of a majority stake in Pamfleet, an independent,
employee owned Asian real estate manager with focus in Hong
Kong, Shanghai and Singapore.
The Board is aware of the appetite of our clients for Private Assets
& Alternatives products, therefore growing our capability in that
area was a key consideration. The acquisition offered the
opportunity for continued growth of the Group’s Private Assets &
Alternatives business and achieving access to the Asian real estate
market where the Group historically had little penetration.
Stakeholder engagement was carried out by senior management
from our Private Assets & Alternatives business, and this included
discussions with Pamfleet’s management to assess their cultural
fit with Schroders. The engagement showed that cultural
alignment was strong, with Pamfleet having a hands-on
approach, which added value to their investments, generating
performance in excess of their peer group. Following that
engagement the structure of the deal was geared to
incentivise growth, with Pamfleet’s owners retaining a 49%
stake in the business.
66
Schroders Annual Report and Accounts 2020
Nominations Committee report
Benefitting from diversity
I am pleased to present the Nominations Committee report for 2020.
Two new non-executive Directors joined the Board in 2020. Matthew
Westerman was appointed on 9 March and Claire Fitzalan Howard was
appointed on 30 April at the conclusion of the Annual General Meeting.
We continue to maintain a majority of independent Directors in line
with our policy, and we now have an almost equal balance between
men and women on the Board.
We benefit from the diverse experience of our non-executive Directors,
the Board is well positioned to take the business forward and all
Directors are making a significant contribution to our deliberations.
In November, Matthew Westerman joined the Remuneration
Committee bringing the membership of the Committee to four.
His long experience in financial services is particularly relevant to
that Committee.
We continue to review succession in relation to senior management
and non-executives. In that context, having overseen significant
changes to the Board over the last few years in terms of its composition
and how it operates, I asked Ian King last year, in his capacity as Senior
Independent Director, to lead the Committee in taking forward plans
for my own succession as Chairman. Ian’s update on the process is
included in this report.
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 2021 Notice of AGM.
Committee membership
– Michael Dobson (Chairman)
– Sir Damon Buffini
– Rhian Davies
– Claire Fitzalan Howard (from 30 April 2020)
– Rakhi Goss-Custard
– Ian King
– Philip Mallinckrodt (until 30 April 2020)
– Leonie Schroder
– Deborah Waterhouse
– Matthew Westerman (from 9 March 2020)
See page 61 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 58 and 59.
Policy on Board Diversity
The Board recognises the importance of diversity and that it is a wider
issue than gender and ethnicity.
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.
The Board fully understands the importance of increasing gender
diversity and committed to having a minimum of 33% of Board
positions held by women by 2020. Currently women comprise 45%
of the Board. We intend only to use the services of executive search
firms which have signed up to the Voluntary Code of Conduct on
Gender Diversity.
Additional information on diversity and inclusion within the business
can be found in our strategic report.
Schroders Annual Report and Accounts 2020
67
Governance Nominations Committee report continued
Evaluating the performance of the Committee
The internal evaluation process for 2020 is set out in detail on page 64.
Priorities for 2021
During 2021, we will continue to review Board composition and
succession planning for senior management and non-executive
Directors. Ian King will continue the process of finding my successor as
Chairman.
Michael Dobson
Chairman of the Nominations Committee
3 March 2021
The process of succession to the Chairman
In the 2019 Annual Report, Michael Dobson said that, having
overseen significant change to the composition of the Board and
how it operates, he thought the time was right to ask me to begin
the process of identifying his successor as Chairman.
In May, I agreed with the Nominations Committee a process for
identifying Michael’s successor. The first step was selecting and
appointing an external search firm to assist in identifying potential
candidates. Following a competitive selection process we appointed
Russell Reynolds Associates. A formal candidate profile was drawn
up and agreed with the Nominations Committee and Russell
Reynolds produced a long list of potential candidates which we
subsequently narrowed down to a high quality shortlist. I met all of
those on the shortlist, but only virtually as a result of the restrictions
imposed by the Covid-19 pandemic.
At our meeting in November, the Nominations Committee, chaired
by me and without Michael being present, discussed the succession
process in detail. Whilst good progress had been made, critical
factors such as the current availability of candidates as well as
restrictions on our ability to engage with them in person because of
the pandemic, have impacted timelines. We therefore decided to
extend the process.
The Nominations Committee is grateful that Michael has agreed to
defer his retirement from the Board until a successor is in place,
particularly given the importance of maintaining stability as we
manage the impact of the pandemic on the Company. We will
continue the process and make an announcement in due course,
with the candidate succeeding Michael once an orderly handover
has been completed.
Ian King
Senior Independent Director
3 March 2021
68
Schroders Annual Report and Accounts 2020
Audit and Risk Committee report
Adapting and evolving to meet new
challenges
I am pleased to present the Committee’s report for the year ended
31 December 2020. 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.
The Committee is grateful for the support of management and Ernst &
Young (EY) as external auditor in promoting the integrity of the Group’s
financial results. We welcome the FRC’s discussion paper on the future
of corporate reporting, with which we have engaged and will continue
to do so as the conversation evolves.
During 2020, 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 particularly in light of the stresses placed
on the business by the Covid-19 pandemic. As part of this work, the
Committee considered the Group’s operational resilience and risk and
control assessments, in addition to the ICAAP, ILAAP, wind down plan,
and various operational stress scenarios which had been updated to
take into account the impact of the pandemic to support the Board’s
conclusions on the viability statement set out on page 56.
The Committee continues to review culture and conduct risk in the
Group and assesses the ongoing development of Schroders’ 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 Committee also
received an update on people and employment practices risk and we
believe that Schroders’ conduct risk framework is well placed against
regulatory standards.
The Committee received briefings on business topics during the year
including Liability Driven Investment risk management and an update
on operational risk capital modelling in support of the Group ICAAP.
I am grateful to all members of the Committee for their support in 2020
and I look forward to continuing our work in 2021.
Rhian Davies
Chairman of the Audit and Risk Committee
3 March 2021
Committee membership
– Rhian Davies (Chairman)
– Rakhi Goss-Custard
– Deborah Waterhouse
– Matthew Westerman (from 9 March 2020)
See page 61 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 58 and 59.
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 Group Chief Executive and Chief Financial Officer
attended all meetings at the invitation of 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 of the Committee 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 2020 financial year, attended all of the
Committee’s scheduled meetings. During 2020, 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.
Schroders Annual Report and Accounts 2020
69
Governance Audit and Risk Committee report continued
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
– The effectiveness of the financial control framework
– The effectiveness of the external auditor
– The independence of the external auditor
– The recommendation to the Board of the appointment of the
external auditor
– The Group’s risk and control framework and whistleblowing
procedures and the financial crime framework
– 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
– The Group’s legal risk profile and disputes
– 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 2020. 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
– 2019 Annual Report and Accounts, including
financial estimates and judgements, oversight
of the external auditor and audit effectiveness
and governance considerations
– Going concern and viability statement
– Pillar 3 regulatory disclosures
– Internal controls update
May
– External audit plan, including key audit matters
– Quality and effectiveness of EY’s 2019 audit
Risk and internal controls
– Report from the WMARC Chairman
– Key risks and risk management framework
– Internal Audit control framework review
– Contingency planning for Covid-19
– Business services resilience
– Outsourced providers
– Financial crime and anti-money laundering review
– MiFID II transaction reporting
– Multi-asset update
– Management response to Covid-19
July
– Half-year results, including the impact of
Covid-19 on the financial results and control
environment and consideration of significant
accounting estimates and judgements
– ICAAP and ILAAP
– Key risks
– Risk and control assessments
– Review of client on-boarding processes and ongoing
– Other accounting and governance
client procedures
considerations
September
– Tax strategy
November
– Internal controls update
– Accounting policies and key areas of
judgement
– Policies for safeguarding the independence of
the external auditor
– Business integration review
– Group resolution process
– Group wind down plan
– Whistleblowing
– Culture and conduct risk oversight
– LIBOR transition review
– Information and cyber security review
– Technology risk
– Key risk review
– Insurance review
– Group Recovery Plan
– Conflicts of interest update
– 2021 Internal Audit and Compliance testing plans
– Global operating strategy update
70
Schroders Annual Report and Accounts 2020
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 pages 161 and 162. 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 2020 financial statements and the agreed action by the Committee are
summarised below.
Significant estimates and judgements
Action and conclusion
Carried interest
The Group recognises carried interest from its Private Assets &
Alternatives business area. 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 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
2020 and concluded that they were appropriate.
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.
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 2020, had a funding surplus. The pension obligation, which
was valued as £909.0 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.
Please refer to note 1b for more information on exceptional items
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 2020, exceptional items
principally comprised costs associated with acquisitions including
amortisation of acquired intangible assets and certain one-off costs
relating to the Group’s property estate.
Schroders Annual Report and Accounts 2020
71
Governance Audit and Risk Committee report continued
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 71. 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 considered during the year, as set out on pages 161 and 162.
Financial reporting is reliant 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 50. In 2020, the
reports continued to focus on the integration of acquired businesses
and included a review on the impact of Covid-19 and the revised
working practices adopted by the Group to enable it to operate during
the pandemic. In addition, the Committee reviews the Group’s tax
strategy annually, which is discussed with the external auditors. For
more details see page 29.
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 2020.
The Committee conducted an in-depth review of the Group’s financial
projections and the application of stress scenarios with particular
attention paid to the impact of the Covid-19 pandemic, so that the
Board can make the viability statement, as set out on page 56,
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 2020
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 2020 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
The Committee places great importance on the quality, effectiveness
and independence of the external audit process. The Committee
oversees 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 10 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.
72
Schroders Annual Report and Accounts 2020
Assessment of audit quality and effectiveness
The Committee is responsible for evaluating the performance of the
external auditor. In March 2020, ahead of the consideration of the 2019
Annual Report and Accounts, the Committee received initial feedback
on the conduct of the 2019 audit, which identified no significant areas of
concern. A full assessment of the external auditor was carried out by
way of a questionnaire prepared in accordance with the FRC’s guidance
and completed by key stakeholders. Interviews with senior managers
and Group Finance were also held. The findings of the questionnaire
were presented to the Committee in May 2020. EY generally scored
highly in the auditor effectiveness questionnaire and were assessed to
have improved in the second year of their audit. Areas of improvement
were identified and discussed with EY in advance of the 2020 audit.
The Committee reviewed EY’s transparency report and discussed the
findings from the EY audit quality inspection report published by the
FRC and the impact on the Schroders audit plan.
In March 2021, ahead of the consideration of the 2020 Annual Report
and Accounts, the Committee received initial feedback on the conduct
of EY’s 2020 audit, which identified no significant areas of concern. The
detailed assessment of EY’s 2020 audit will be considered by the
Committee at its May 2021 meeting with any findings implemented for
the 2021 audit.
Independence and non-audit services
The Committee has responsibility for monitoring the independence and
objectivity of the external auditor. Since their appointment, EY have
continued to confirm their independence during 2020 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 4b 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 15% of audit fees (2019: 16%).
During 2020, non-audit services mainly comprised assurance services in
respect of controls reports and regulatory reporting normally conducted
by the Group’s external auditor. 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 2021 AGM
for the reappointment of EY as external auditor, and the Board has
accepted this recommendation.
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 controls 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
control framework.
On behalf of the Board, the Committee carried out the annual
assessment of the effectiveness of internal controls during 2020,
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 risk
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 process.
The Committee also considers emerging and thematic risks that
may have a material impact on the Group. In 2020, the Committee
considered the risks arising from the Covid-19 pandemic which had
an impact on pricing, valuations, liquidity, market returns, business
resilience and continuity and information security. Acquisition and
integration risk was also reviewed to support the Group’s strategy.
Climate change risk was discussed at the Board meeting in November
as part of our corporate purpose discussions. The Committee regularly
reviews the Group’s approach to the management of legal risks and
risk events.
Further information can be found in the key risks and mitigations
section of the Strategic report set out on pages 50 to 55 and 57.
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.
Information and cyber security
Information and cyber security has been a key area of focus
for the Committee for a number of years but during 2020
the Covid-19 pandemic created an environment where there
was increased opportunity for cyber attacks and fraud.
The sophistication of attacks continues to increase with
attackers using a wide variety of tactics to target the Group,
therefore the Information Security and Cyber Security team
have been vigilant in protecting the Group and its clients
against these attacks.
A key focus during 2020 was the work undertaken to carry out
the recommendations made by PricewaterhouseCoopers
(PwC) in their external review carried out in 2019. The
in-sourcing of the Security Operations Centre was completed
and in addition management has focused on the enhancement
of firewalls and rolling out additional training for employees in
high risk roles.
The Committee recognises the need to constantly evolve the
Group’s information security defences in light of the pace of
developments and threats in this area.
Operational resilience
The Committee continued to monitor the Group’s operational
resilience during 2020 particularly in the context of the
disruption caused by the Covid-19 pandemic. Prior to 2020, the
Group had invested in enhancing its technology capability and
had revised its business continuity plans. These enhancements
meant that the majority of the workforce around the world
could work remotely and that the interests of clients could be
safeguarded. The Committee was apprised of the work of the
Crisis Management Team which met regularly during the early
stages of the pandemic. The business updated risk and control
assessments and regular dialogue has been maintained with
the Group’s regulators.
The Committee will continue to closely monitor the Group’s
operational resilience as the disruption from the Covid-19
pandemic continues in 2021.
Financial crime
Financial crime risk mitigation continues to be high on the
Group’s agenda and is a priority for all our key regulators
globally. In Europe, higher standards imposed by the 5th EU
Money Laundering Directive and the 6th EU Money Laundering
Directive came into force in 2020. During the year, the Financial
Crime team made enhancements to the Group’s framework
including updating procedures and policies to take into
account the nature of the Private Assets & Alternatives
business, which has exposure to higher risk countries for
financial crime and more complex transactions, and the EU
legislative requirements.
The Committee receives regular reports and recognises the
importance of having a consistent global approach to
managing financial crime risk and welcomed these
enhancements in supporting the Group’s strategy.
Schroders Annual Report and Accounts 2020
73
Governance Audit and Risk Committee report continued
Business integration
The Group has made a number of acquisitions and entered
into joint ventures and strategic partnerships in recent years in
support of the Board’s strategic aim of investing for growth. In
2020, the Committee reviewed the Group’s approach to each
acquisition which is determined on a case by case basis within
an integration framework. The framework enables the
business to balance the focus on growth alongside risk
mitigation requirements, depending on the regulatory
environment and the Group’s risk appetite.
Elements of the Group’s financial crime risk framework,
information and data security procedures and the financial
control environment are targeted for implementation from
completion of an acquisition and the general practice is for
Internal Audit to visit the acquired business within the first
year. The Committee recognises that it can take time for
acquired businesses to implement all of the Group’s policies on
a risk aware basis and there can be heightened reputational
risk and risk to the internal control environment during the
integration period.
The Committee recognises the importance of growing the
business and will continue to have sight of the integration
framework so that the risks arising from acquisitions, joint
ventures and strategic partnerships are appropriately managed.
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 2020, the Group’s engagement with regulators across the globe
increased as we discussed key issues arising from the Covid-19
pandemic including operational resilience to safeguard the interests of
clients. The Committee also considered the actions being taken to
enhance MiFID II transaction reporting following a review by PwC.
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.
74
Schroders Annual Report and Accounts 2020
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,
including any observations on culture, recommendations to improve
the control environment and their subsequent remediation. During
2020, the Committee agreed to proposed amendments to the Internal
Audit plan as the Covid-19 pandemic led to audits taking longer to
complete than would otherwise be the case with the team working
remotely and unable to travel to all offices. The 2020 Internal Audit plan
was continually reassessed by the Committee and Internal Audit to
ensure that it remained focused on the areas of highest risk. The 2021
Internal Audit plan has been developed to take into account the impact
of the pandemic.
The annual compliance testing and Internal Audit plans are developed
using a risk-based approach to provide proportionate assurance
together over the Group’s controls for the key risks set out on pages 50
to 55 and 57.
Evaluating the performance of the Committee
The annual evaluation of the Committee’s effectiveness was undertaken
as part of the overall Board evaluation process. Reporting to the Board
on the committee activities was felt to be comprehensive. 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 2021
As well as considering the standing items of business, the Committee
will also focus on the following areas during 2021:
– Information and cyber security
– Thematic risks
– 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
3 March 2021
Remuneration report
Paying for performance in a simple
and transparent way
On behalf of the Board, I am pleased to present our 2020 Remuneration
report. The report provides context and insight into our pay
arrangements for Directors and other employees of the Group. In
addition to meeting the statutory requirements, this year’s report
includes a particular focus on the impact of Covid-19 on remuneration,
the assessment of 2020 performance and pay, and our focus on pay
fairness across the workforce.
Acting as a responsible steward for all our stakeholders is at the core of
our purpose. Our commitment to that purpose has not wavered during
this challenging year, with Schroders being at the forefront of many
corporate initiatives in response to the global pandemic, as described
on pages 12-13. The Committee did not make any adjustment to the
annual bonus scorecards for the executive Directors or the long term
incentive plan (LTIP) performance conditions, despite these targets
having been determined before the scale of the impact of the global
pandemic began to be more fully understood.
We are proud of how our people responded when faced with these
challenging circumstances, with our past investment in technology and
our operating platform facilitating an efficient transition to remote
working, helping to keep our people safe and maintain a high level of
productivity. Our emphasis on supporting our employees during this
period was reflected in our employee engagement scores being at a
record high, with 98% of employees proud to be associated with
Schroders in our 2020 employee survey. Our people’s unwavering focus
on our clients was reflected in our continued delivery of strong
investment performance and our quick transition to digital engagement
with our clients. Schroders did not furlough any employees, make any
Covid-19 related redundancies or accept government assistance
globally. From a shareholder perspective, the Group delivered a robust
performance in 2020, maintaining our dividend in both 2019 and 2020
and delivering total shareholder returns in excess of the FTSE 100. AUM
reached a record high, including significant investment returns, strong
net sales and successful completion of two acquisitions.
Structure of the Remuneration report
Annual report on remuneration in 2020
Remuneration focus in 2021
Remuneration governance
Notes to the annual report on remuneration
75 to 87
88 to 89
90 to 91
92 to 102
Committee membership
– Sir Damon Buffini (Chairman)
– Rhian Davies
– Ian King
– Matthew Westerman (from 19 November 2020)
See page 61 for meeting attendance and page 90 for
a summary of the responsibilities of the Committee.
Covid-19 impact on Directors’ remuneration
The Committee and executive Directors took positive action in recognition of the societal impact of the global pandemic:
Action taken
No adjustment to
performance targets
– for the annual
bonus scorecard or
LTIP vesting
Giving back to society
– voluntary
#CollectiveAction
campaign
– The Committee considered whether annual bonus scorecard or LTIP performance targets should be adjusted
in light of the unforeseen pandemic and determined that no adjustment should be made to any targets set
before the pandemic.
– In assessing the non-financial metrics in the scorecard for the executive Directors, the Committee considered
the impact of Covid-19 on the wider environment, and then further reduced their bonuses as outlined below.
– The executive Directors each donated 25% of their salaries for three months.
– The Group Chairman and non-executive Directors each donated 25% of their fees for three months.
– Schroders matched these donations 1:1, resulting in total donations of £293,750.
LTIP awards waived
– voluntary action by
the executive Directors
– The executive Directors waived their 2020 LTIP awards, with a total grant date face value of £1 million.
– The executive Directors intend to waive their 2021 LTIP awards, with a face value of a further £1 million.
– Schroders made £2 million of charitable donations in 2020 and intends to make a further £1 million of
charitable donation during 2021.
Reduction in bonuses
for 2020 – with the
full support of the
executive Directors
– Despite strong personal performance by each executive Director, the Committee acknowledged the societal
impact of Covid-19 and adjusted the non-financial element of the annual bonus scorecard accordingly.
– The Committee then further reduced the 2020 bonus by £250,000 and £100,000 for the Group Chief Executive
and Chief Financial Officer respectively, with the full support of each of the executive Directors.
– The Group intends to make further charitable donations of £700,000.
Schroders Annual Report and Accounts 2020
75
Governance Remuneration report continued
The strong outcomes delivered in 2020 for shareholders, clients and
our people, notwithstanding the extraordinary and unforeseen
circumstances, were reflected in the outcomes for the financial metrics
in the executive Directors’ bonus scorecard for 2020. Each executive
Director also performed strongly against the non-financial scorecard
metrics. However, although these outcomes were reflective of
performance delivered, the Committee wanted to recognise the
challenging wider context and elected to reduce the non-financial
scorecard outcomes below what they would have been based solely on
an assessment of the pre-determined scorecard metrics. The Committee
also exercised its discretion to further reduce the executive Directors’
bonus outcomes, by a total of £350,000. The executive Directors fully
supported these reductions, which are in addition to them voluntarily
waiving their 2020 and 2021 LTIP awards, with a grant date face
value totalling £1 million each year. More details can be found on
pages 80-83.
Given the extensive impact of Covid-19, we felt that it was important to
give back to society, as well as showing moderation as part of our
remuneration decisions this year. The table on page 75 summarises the
actions taken. Combining contributions from our people, including the
Directors, and Schroders’ matching donations, £4.3 million was raised for
charities through our #CollectiveAction campaign last year, dedicated
to supporting those most affected by Covid-19. The Group intends to
donate a further £1.7 million following the executive Directors’ decision
to waive their 2021 LTIP awards and the reductions made to the
executive Directors’ annual bonus awards for 2020.
Remuneration approach for the executive Directors
Our Directors’ remuneration policy was approved at our AGM in 2020
and I would like to thank our shareholders for their support, with 98% of
votes cast to approve our policy (see page 78). 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
Group 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. The diagram below
illustrates the remuneration policy for the executive Directors while
page 77 sets out more context on how our remuneration approach
aligns with our purpose.
Executive Directors’ remuneration policy illustration
The Directors’ remuneration policy was approved by shareholders at our 2020 AGM and can be found on our website at
www.schroders.com/directors-remuneration-policy.
The remuneration policy defines a maximum limit for the total remuneration of each executive Director each year, being £9 million for the Group
Chief Executive and £4.5 million for the Chief Financial Officer. The diagram below illustrates the structure of the executive Directors’ remuneration,
including the timing of when they receive each component of remuneration, across the fixed components paid in the year (salary, benefits and
allowances, 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 financial 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
portion of
any annual
bonus
(circa 60% of
bonus)
Deferred
bonus – share
award
(circa 45% of
bonus)
Granted
under the
Deferred
Award Plan
(DAP)
3.5-year deferral
2.5-year deferral
1.5-year deferral
3-year deferral
Funds
Funds
Funds
Shares
2-year deferral
Shares
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.
1-year deferral
Shares
6-month
holding
period
Funds
Paid via
payroll
Cash
Upfront
portion of any
annual bonus
(circa 40% of
bonus)
Upfront bonus
– fund award
(circa 20% of
bonus)
Upfront bonus
– cash
(circa 20% of
bonus)
Fixed pay
Performance year
2020
76
Schroders Annual Report and Accounts 2020
Feb
Sep
Mar
Sep
Mar
Sep
Mar
Sep
Mar
Sep
2021
2022
2023
2024
2025
Mar
2026
How our remuneration aligns to our purpose:
To provide excellent investment performance to our clients through active management
How we create value for our stakeholders
Delivering returns for
clients
Delivering returns for
shareholders
Taking decisions to
benefit our people
Taking decisions to
benefit society
Our remuneration principles
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
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.
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 recommended by the
Committee 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, retain and motivate
highly talented people, who
know that good performance
will be rewarded.
Designed to promote
the long-term,
sustainable success of
the Group
The Committee designed the
overall remuneration policy
with this in mind and it was
this overarching objective that
resulted in the remuneration
principles outlined to the left.
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.
Our executive Director remuneration approach
9 3 and 5-year client
9 Circa 45% of bonus paid in
9 Competitiveness considered
investment performance
tested in the annual bonus
scorecard
9 Circa 35% of bonus paid in
fund awards
shares
9 Stretching shareholding
requirements
9 Requirement to maintain a
level of shareholding for
two years on stepping
down
by reference to total
compensation for
comparable roles at other
large international asset
management firms
9 Used as a frame of
reference, not as a starting
point / primary factor in
remuneration decisions
9 Bonus scorecard 30%
non-financial metrics,
including strategic progress
and sustainability
9 Committee discretion to
adjust scorecard outcomes,
taking into account the
wider social and economic
context
9 Financial metrics comprise
9 Circa 60% of bonus
70% of annual bonus
scorecard
9 LTIP awards based on
long-term financial
performance (earnings per
share and net new business)
deferred over a 3 to 3.5
year period
9 LTIP subject to 4-year
deferral and 1-year
holding period
For more detail on our purpose see page 1, and on our business model and how we create value for our stakeholders see pages 14-15.
Schroders Annual Report and Accounts 2020
77
Governance Remuneration report continued
Shareholder voting on remuneration
At the 2020 AGM, on 30 April 2020, shareholders approved the Remuneration report and Directors’ remuneration policy that were published in the
2019 Annual Report and Accounts, both receiving strong votes in favour.
To approve the Remuneration report
at the 2020 AGM
To approve the Directors’ remuneration policy
at the 2020 AGM
To approve the relevant
Remuneration report
Votes
for
Votes
against
1%1%1%
99%
99%
99%
2017 AGM
2018 AGM
2019 AGM
2020 AGM
2%2%2%
98%98%98%
95%
96%
88%
99%
5%
4%
12%
1%
2020 AGM voting
To approve the relevant
Directors’ remuneration policy
Votes
for
Votes
against
2017 AGM
2020 AGM
94%
98%
6%
2%
Votes for
Votes against
194,573,414
2,012,357
Votes withheld
3,871,165
Votes for
Votes against
192,427,541
4,157,537
2020 AGM voting
Votes withheld
3,871,858
Future regulatory uncertainty
We expect to operate the current Directors’ remuneration policy for three years from the 2020 AGM, though there remains the possibility that we
could require a new Directors’ remuneration policy sooner than we would otherwise intend to address future regulatory changes. During the latter
part of 2020, we consulted with our largest shareholders on changes that we thought might have been necessary to comply with the UK’s
implementation of the fifth iteration of the Capital Requirements Directive (CRD V). At present Schroders is not required to comply with those parts of
CRD V that would require the most fundamental policy changes and so we will continue to operate the policy that shareholders approved last year.
Regulatory uncertainty remains, particularly with the FCA and PRA due to finalise and implement the UK’s new Investment Firms Prudential Regime
and the bedding in of CRD V. We would consult with shareholders if regulatory changes were to mean a new policy is required.
Shareholder alignment and Directors’ shareholdings (audited)
Alignment with shareholders is one of the principles underpinning our Directors’ remuneration policy, as outlined on page 77. Both Peter Harrison
and Richard Keers have shareholdings well in excess of the level required under our personal shareholding policy. This ensures that their interests are
aligned with those of our shareholders. As outlined on page 100, a 10% share price movement equates to a change in value of the shareholdings of
Peter Harrison and Richard Keers of £525,000 and £237,000 respectively, not including the value of LTIP shares that are still subject to performance
conditions and therefore do not count for the purposes of the 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%
1,050%
156%
Actual
633% 138%
Policy
Shareholding
LTIP shares subject to performance conditions
For more detail on the personal shareholdings policy and the basis of the figures shown in this chart see page 100. For more detail on the Directors’ rights to
shares and shareholdings see pages 101 and 102.
78
Schroders Annual Report and Accounts 2020
2020 performance and pay outcomes
2020 was an extraordinary year that tested our operational resilience
and the resilience of our people. Despite these challenges, we delivered
strong investment performance for our clients and resilient results for
our shareholders, made significant progress across a number of
strategically important areas, continued to enhance our operational
capabilities and made sure that we continue to do the right thing for
society. More detail is set out in the Group Chief Executive’s statement
on pages 10-13, our Strategy on pages 16-17, our Key performance
indicators on pages 22-23 and our Business and financial review on
pages 24-29, and considering the perspectives of other key
stakeholders on pages 30-49.
Our AUM closed 2020 at a record high of £574.4 billion (2019: £500.2
billion), through a combination of £42.5 billion of net flows, £28.4 billion
of investment returns and £3.3 billion of acquisitions. We delivered
strong investment performance for our clients, with 72% and 81% of
assets outperforming their stated comparator over three and five years
respectively (2019: 70% and 72% respectively), and with net carried
interest and performance fees of £95.7 million (2019: £73.1 million).
Overall, net income before exceptional items increased to £2,179.2
million (2019: £2,124.8 million). Our ratio of total costs to net income
rose to 68% (2019: 67%), principally due to the impact of acquisitions,
our investment in technology and infrastructure and the increase in our
ratio of total compensation to net income. As a result we saw profit
before tax and exceptional items of £702.3 million (2019: £701.2 million).
Basic earnings per share before exceptional items was 200.8 pence
(2019: 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,
in line with the total dividend for 2019.
We considered the circumstances of the year and the ongoing
economic and social uncertainty, and remain cognisant of the
significant challenges that our industry faces. We recommended to the
Board an increase in our total compensation ratio to 45% (2019: 44%),
recognising the importance of sustaining the Group’s success in
attracting, motivating and retaining talent. This remains at the lower
end of our target range of 45% to 49%, as we must manage our costs
overall and continue to position the Group for the headwinds facing our
industry. As a result, the annual bonus pool is up 2% on last year,
following reductions in 2018 and 2019 of 7% and 11% respectively.
For more detail on the annual bonus pool see page 92.
The lower chart on the right shows how net income has been utilised
over the 10 years ended 31 December 2020, as we have continued to
invest in future growth. During that period, the percentage of net
income distributed to shareholders via the interim and final dividend
paid has increased by 61%, from 9% to 14%.
Key performance and remuneration metrics
Net income*
Profit before tax*
(8%)
Earnings per share*
(7%)
Dividend per share
+0%
+3%
+0%
(0)%
+0%
+0%
Headcount
+13%
Fixed remuneration costs*
(2%)
Annual bonus pool
(11%)
Total remuneration costs*
+9%
+5%
+2%
+3%
+5%
* Before exceptional items. 2019 vs. 2018 2020 vs. 2019
Relative spend at a glance
£millions
Net income: £2,179 million
up 86% since 2011
2,500
2,000
1,500
1,000
500
0
27%
14%
23%
10%
12%
14%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Fixed remuneration
Variable remuneration
Other operating expenses
Corporate tax and social security
Retained earnings
Interim and final dividend paid
For more detail on this chart please see page 92.
Schroders Annual Report and Accounts 2020
79
Governance Remuneration report continued
Determining the executive Directors’ pay outcomes
During 2020 we managed the executive Directors’ remuneration in line
with the Directors’ remuneration policy that shareholders approved
at our 2020 AGM. This included the determination of their annual
bonus awards in respect of performance during 2020, assessment of
performance for the LTIP awards expected to vest on 4 March 2021 and
agreeing the LTIP awards that we intend to grant to them in March 2021.
Determining the executive Directors’ annual bonus awards in
respect of 2020 performance
We determine the annual bonus awards for the executive Directors
using a scorecard. At the beginning of the performance year, we
determined the scorecard metrics, which for 2020 were weighted 70%
to financial factors and 30% to non-financial factors. We also
determined the level of performance required under each metric to
trigger threshold, target and maximum payout, taking into account the
recommendations of the Group Chairman and the Group Chief
Executive, the Board-approved budget, market expectations, prior-year
financial outcomes, strategic priorities and the wider economic
landscape. Target payout is 65% of the maximum opportunity while for
threshold performance 25% is payable, and no payment is triggered for
performance below threshold. The performance metrics in the
scorecard are consistent with those adopted for 2021 and are aligned to
the Group’s strategy, as outlined on page 88.
The Committee did not make any adjustment to the scorecard targets
as a result of Covid-19, as set out on page 75. Having assessed
performance against the scorecard, for the financial elements the
performance achieved was sufficient to drive a 75.4% payout, as set out
opposite. Profits were marginally ahead of prior year but marginally
behind budget, leading to profit outcomes of 66% and 65% of
maximum respectively. Client investment performance exceeded the
maximum target over both 3 and 5 years, leading to a 100% payout in
respect of this element. Net new business came in at £42.5 billion,
which gives a 66% payout for this element; this excludes net flows from
our joint ventures with the Bank of Communications in China and Axis
Bank in India as these were not factored in when setting the targets.
To determine each Director’s bonus, we then considered the non-
financial elements of the scorecard. In doing so, the Committee
assessed progress against pre-determined strategic goals, as well as
achievement against sustainability goals, including targets relating to
ESG, talent and governance. This was supplemented by an assessment
of each individual’s performance, including consideration of business
performance within each individual’s responsibilities and the extent to
which they have met annual performance objectives. To ensure a
balanced overall assessment of performance the scorecard does not
have pre-determined weightings for each non-financial performance
factor. Rather the Committee applied its judgement to determine an
overall outcome for the non-financial aspects of the scorecard for each
executive Director, taking into account performance against the relevant
metrics and targets. The Group Chief Executive’s recommendation was
taken into account for the Chief Financial Officer.
Peter Harrison’s performance in 2020 was strong, in particular the
personal leadership he showed during the year in navigating the
Group’s response during the global pandemic. Strategic progress was
also good despite the difficult economic and political background.
Wealth Management, Private Assets & Alternatives and Solutions now
constitute 54% of our AUM and 43% of revenues, having grown Wealth
Management through a combination of organic growth and the
acquisition of Sandaire and expanded our Private Assets offering
through the acquisition of a majority stake in Pamfleet, organic growth
and with key hires to build our capabilities. We achieved full ESG
integration of our managed assets by the end of 2020 and have a
comprehensive range of sustainable funds, such as our Global
Climate Change strategy. Despite this strong personal performance,
in recognition of the impact of Covid-19 on society more broadly,
for the non-financial element of the scorecard we gave Peter a 65%
outcome. With the financial outcomes, this would have resulted in a
bonus of £5.678 million.
Richard Keers also performed strongly during 2020, in a year that
tested our operational resilience. Our investment in technology over the
last few years enabled us to switch to remote working efficiently across
our global network, with no impact on our ability to deliver for our
clients over this period. The transition of the remaining tranches of the
Scottish Widows mandate was completed, the last tranche entirely
through remote working, on time and without any significant issues.
We also relocated operational processes from Luxembourg and London
to Horsham, built out our operations teams in Singapore and
successfully moved to a new Transfer Agent, which was a major
undertaking. Richard continued to provide highly effective global
operations oversight, a strong risk and control environment and
accurate and timely financial reporting. Again, despite this strong
personal performance during the year, to reflect the broader societal
context, for the non-financial element of the scorecard we gave Richard
a 51% outcome. Together with the financial outcomes, this would have
resulted in a bonus of £2.503 million.
Under our Directors’ remuneration policy, 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. The
Committee considered the extraordinary circumstances of 2020. Our
resilient results delivered favourable outcomes for our clients and
shareholders, as outlined on page 75. Nonetheless, given the wider
context the Committee determined that the annual bonus awards for
the executive Directors should be reduced further, despite the strong
personal performance from each of the executive Directors.
As a result, the Committee reduced the annual bonus award for Peter
Harrison by £250,000 to £5.428 million and for Richard Keers by
£100,000 to £2.403 million. The executive Directors were supportive of
the reductions that the Committee made to their bonuses, in light of
the wider context in which we are operating.
80
Schroders Annual Report and Accounts 2020
Assessment of the executive Directors’ 2020 annual bonus scorecard (audited)
These charts illustrate the executive Directors’ annual bonus scorecards for 2020, the performance achieved and the resulting annual bonus awards.
Weighting
Threshold
25% payout
Target
65% payout
Maximum
100% payout
Achievement
Payout for
this metric
Resulting
bonus payout
Performance
measure
Financial metrics
Profit before tax
and exceptional
items (£m)
Investment
performance
35%
20%
vs. budget
632.7
703.0
702.3
vs. prior year
631.1
701.2
702.3
3-year
50%
5-year
55%
60%
65%
773.3
771.3
70%
72%
75%
81%
Net new business (£bn)
15%
32.0
42.0
42.5
53.9
Total bonus payout for financial metrics
75.4%
Peter Harrison – Group Chief Executive
Strategic progress,
sustainability, conduct
and personal goals1
30%
Overall scorecard outcome
for Peter Harrison
Initial scorecard outcome for Peter Harrison (£000)
Discretionary Covid-19 reduction in annual bonus award (£000)
Annual bonus award for Peter Harrison (£000)
Richard Keers – Chief Financial Officer
Strategic progress,
sustainability, conduct
and personal goals1
30%
Overall scorecard outcome
for Richard Keers
Initial scorecard outcome for Richard Keers (£000)
Discretionary Covid-19 reduction in annual bonus award (£000)
Annual bonus award for Richard Keers (£000)
65%
72.4%
51%
68.1%
702.3
65%
702.3
66%
72%
100%
81%
100%
42.5
66%
22.8%
20.0%
10.0%
75.4%
out of 100%
52.7%
out of 70%
65%
out of 100%
51%
out of 100%
19.6%
out of 30%
72.4%
out of 100%
5,678
(250)
5,428
15.4%
out of 30%
68.1%
out of 100%
2,503
(100)
2,403
1.
The Committee assessed the non-financial element of each executive Director at these levels, despite their personal performance, to reflect the impact of
Covid-19 on society more broadly.
For more detail on the non-financial outcomes for each executive Director see pages 82-83.
Schroders Annual Report and Accounts 2020
81
Governance Remuneration report continued
The non-financial outcomes in the annual bonus scorecard for each executive Director
The annual bonus scorecard that the Committee used in determining the annual bonus awards for the executive Directors, along with the
Committee’s assessment of performance against the scorecard, is outlined on pages 80-81. The tables that follow outline the Committee’s assessment
of the non-financial elements of the scorecard.
In making its performance assessment for 2020, the Committee acknowledged the strong personal performance achieved by each of the executive
Directors during the year and significant progress against strategic and sustainability goals. However, in applying its judgement to the overall
non-financial outcome for 2020, the Committee took into account the broader stakeholder experience, in particular the impact of Covid-19 on society
more broadly. As a result, the Committee marked the scorecard for the non-financial outcomes below the level that would otherwise be expected if
based on the executive Directors’ performance against the pre-determined scorecard targets.
Group-wide factors considered when assessing the non-financial elements of the annual bonus scorecards
Criteria
Performance in 2020
Target
Strategic factors
Progress in
identified
strategic
opportunities
Grow Asset Management
– Grew the Asset Management business via a range of initiatives, including market-leading ESG
insights, significant growth in the Group’s range of thematic strategies, continuing to grow and
leverage a powerful Data Insights Unit and being granted a fund management licence in China
to enable Schroders to provide solutions to retail customers there.
– Expanded the Group’s partnership network globally, via the partnership and joint venture with
Lloyds Banking Group (LBG) and partnerships with Axis in India, Nippon Life in Japan and Bank
of Communications in China, including agreement with the latter to form a new wealth
management company joint venture during 2022.
Build closer relationships
with end clients
– Grew the Wealth Management business through both net inflows and the acquisition of
Sandaire, a London-based multi-family office, providing an exceptional opportunity to grow
Cazenove Capital’s leading position in the UK’s ultra high-net-worth segment.
– Schroder Personal Wealth laid the foundations for future growth with new leadership and
improved IT infrastructure but referrals from LBG were impacted by Covid-19.
Expand Private Assets &
Alternatives
– Expanded private markets capabilities via the acquisition of Pamfleet, a Hong Kong-based real
estate manager, and via key hires to build capabilities organically and broaden the dedicated
Private Assets sales team.
– Overall growth in Private Assets & Alternatives was relatively modest.
Strategy formulation and
overall strategic outcome
– 2020 saw progress across strategic objectives, as outlined above.
– Key strategic growth areas of Wealth Management, Private Assets & Alternatives and Solutions
now constitute 54% of AUM and 43% of revenues.
Sustainability goals
ESG
integration
Integrate ESG into the
investment process for all
Schroders managed assets
Talent
retention1 and
succession
planning
Retention of at least 90% of
key talent
Identify and implement
succession plans for key
employees
– Full integration was achieved across Schroders managed assets in December 2020, having
started the year with ESG integration for just over 50% of managed assets.
– Retention of key talent remains above target, at 94% (2019: 94%).
– Succession plans for key employees were reviewed by the Board in July 2020.
Diversity and
inclusion
33% female representation
within senior management
by the end of 2020
– Met the Group’s original target of 30% representation by the end of 2019 and increased this to
33%. During 2020, achieved the 33% target. More needs to be done and the new target is 35%
by the end of 2023 (see page 87).
Reduce and
offset
emissions
Move to operate on a
carbon net-neutral basis
– For Schroders’ business operations, business travel is the largest source of greenhouse gas
emissions and has significantly reduced during the Covid-19 pandemic. Since 2019, the Group
has partnered with Climate Care to develop an environmentally credible carbon offset
programme that will predominantly support the protection and generation of natural carbon
sinks (see page 43).
Governance goals
Appropriate
governance
of the Group
Oversight of the Group’s
activities within an effective
governance framework
– The executive Directors steered the Group well through the challenges posed by the pandemic,
with appropriate consideration of stakeholder interests.
1. Included in the key performance indicators on pages 22-23.
82
Schroders Annual Report and Accounts 2020
Individual factors considered when assessing the non-financial elements of the annual bonus scorecards
Executive
Director Criteria
Performance in 2020
Peter
Harrison
– Group
Chief
Executive
Strategic progress
People and talent
Risk and reputation
Global operations
oversight
Richard
Keers
– Chief
Financial
Officer
Oversee a strong risk and
control function
Accurate, appropriate,
clear and timely reporting
and oversight of the
Group’s financial position
In 2020, the Group achieved significant progress against its strategic objectives, which the Board
believes will drive the future growth of the business, as outlined on the previous page.
Employee engagement is high, with 98% of employees proud to be associated with Schroders in
the Group’s 2020 employee survey results and 96% responding that Schroders is interested in the
wellbeing of its employees. Peter Harrison actively champions inclusion and diversity across the
firm. Key talent across Schroders has been stable with low voluntary turnover. There remains
further work to be done on succession planning.
During the pandemic, Schroders’ reputation has remained strong with all stakeholders, including
clients, shareholders, governments, regulators and industry associations. Peter Harrison takes
personal accountability for this and his work internally and externally in this regard is well
respected. The risk and control framework has delivered what is required to ensure good
governance under the Senior Managers and Certification Regime.
Operational efficacy remained high throughout the pandemic, with considerable on-boarding
activities throughout the year, as well as high volumes. Despite the challenging external
environment, the Group’s operations platform performed well in what was a key year, including
the completion of the on-boarding of the Scottish Widows mandate. Richard Keers has also
delivered successfully the majority of the Group’s global operating strategy transformation,
reducing complexity, improving resilience and providing enhanced scalability.
The financial crisis earlier in the year demonstrated that the Group’s risk assessments and cash
management processes were robust. All regulatory capital and liquidity papers have satisfied
regulators and Richard Keers has played an active role in the Regulatory College assessments. The
Group Risk and Capital Committees continued to operate well under Richard Keers’s leadership.
No significant issues were reported in the year. The Audit and Risk Committee report provides
more information (from page 69).
As above, Richard Keers has overseen the Group’s financial position during the crisis, playing a key
role in the management of the Group’s investment capital. He received positive feedback from the
Audit and Risk Committee, analysts, shareholders and other industry bodies.
The metrics and targets outlined above and on the previous page represent the most material criteria by which the Group’s non-financial
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 the 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.
Determining the executive Directors’ LTIP awards to be granted in
March 2021
Each year the executive Directors are considered for an LTIP award. The
Committee agreed to grant LTIP awards over shares with the following
values to the executive Directors in March 2021:
Director
Peter Harrison
Richard Keers
LTIP face value at grant
£600,000
£400,000
Corporate charitable donations
As outlined earlier, the Committee reduced the annual bonus awards for
Peter Harrison and Richard Keers by £250,000 and £100,000 respectively
and the executive Directors have also indicated that they intend to give
up their 2021 LTIP awards, with a face value at grant of £600,000 and
£400,000 respectively. The Board has subsequently resolved that the
Group will make donations totalling £1.7 million to our Schroders Giving
#CollectiveAction campaign. With the £4.3 million already donated
during 2020, this will bring the total donated to £6.0 million.
The executive Directors have subsequently indicated that they intend to
give up their 2021 LTIP awards, as they did those granted to them in
March 2020. If those awards are not actively accepted by the respective
executive Directors then under the rules of the LTIP they will lapse.
Schroders Annual Report and Accounts 2020
83
Governance Remuneration report continued
Determining the vesting of LTIP awards granted to the executive Directors in 2017 (audited)
The LTIP performance conditions remain highly demanding and, in March 2021, we expect LTIP awards granted in 2017 to vest at 50%, based on net
new business. The earnings per share target, which requires 20% outperformance against the growth in a composite index, will again not be met. This
vesting outcome is illustrated in the chart below.
Vesting of LTIP awards granted to the executive Directors in 2017
Weighting
0%
20%
40%
60%
Vesting (% of award)
Earnings per share*
(EPS)
50%
Net new business
(NNB)
50%
Growth in composite index
26.7%
+20%
+20%
Schroders EPS growth
5.8%
£bn
0
Schroders cumulative NNB
30
Target
range
Target range
60
90
£86.0bn
Total expected to vest in relation to performance over the four years to 31 December 2020
*
Before exceptional items.
Criteria met Partially met Not met
For more detail on the basis on which the Committee determined the vesting of LTIP awards granted in March 2017 see page 96.
0%
out of 50%
50%
out of 50%
50%
out of 100%
No increases to the executive Directors’ salaries
We review base salaries annually but for the executive Directors, like other more highly-paid employees, we adjust them infrequently. Neither of the
executive Directors received a base salary increase in 2020 or in 2021. We last increased the level of base salary for the executive Directors in 2014.
Executive Directors’ single total remuneration figures
The chart below compares the single total remuneration figures for 2020 for each executive Director with the maximum total remuneration that could
be awarded under the Directors’ remuneration policy and the single total remuneration figures for 2019. The Group Chief Executive single figure has
decreased 3% on prior year whilst the Chief Financial Officer single figure outcome increased by 3%.
Single total remuneration figures
Executive Director
Single total remuneration figure (£’000)
Group Chief Executive
Peter Harrison
Chief Financial Officer
Richard Keers
6,453
8,990
6,277
2,936
4,492
3,025
Fixed pay
Upfront bonus – cash
Upfront bonus – fund award
Deferred bonus – share award
Deferred bonus – fund award
LTIP vesting
1. The 2020 maximum above is based on the LTIP expected to vest in 2021, as shown on page 97, but assuming the performance conditions were met in full
(i.e. 100% vesting rather than the 50% vesting that is expected). The maximum total remuneration under the Directors’ remuneration policy is defined as
£9 million and £4.5 million for the Group Chief Executive and Chief Financial Officer respectively, based on the face value of LTIP to be granted in 2021 as
described on page 76.
For more detail on the single total remuneration figures for the executive Directors see pages 94 to 97.
We compete for talent in a global marketplace. Most of our key competitors are headquartered outside the UK, particularly in the US. Many are not
publicly listed and therefore are subject to lower standards of transparency. It is against this backdrop that the Committee determines our pay
structures and levels of pay, to ensure that we are able to attract, motivate, reward and retain the best talent. The upper charts on the page opposite
illustrate the competitive positioning of pay for each executive Director, including commentary on the remuneration benchmarking approach in each
case. The market data used in benchmarking these roles was provided independently by external advisers and reflects competitor pay for 2019, which
is the most up-to-date data available, whereas the position shown for Schroders in each case reflects the single total remuneration figure for 2020.
The lower chart compares the Group Chief Executive’s single total remuneration figure for the last 10 years with returns to Schroders shareholders
over the same period.
84
Schroders Annual Report and Accounts 2020
2019 actual2020 maximum19%6%8%15%9%17%17%36%12%9%14%17%17%34%12%17%17%23%23%18%18%38%13%18%18%38%13%7%18%18%26%26%3%5%5%6%2019 actual2020 maximum12020 actual2020 actual
Pay competitiveness for the executive Directors
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
Group Chief Executive benchmarking commentary
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.
Chief Financial Officer benchmarking commentary
The Schroders Chief Financial Officer has wider responsibilities than the
market norm, with firm-wide operational oversight and coordination, direct
responsibility for a range of operations teams, 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. The wealth
management business adds complexity compared to most comparators.
The Group Chief Executive’s total remuneration history vs. Schroders total shareholder return
The graph on the right shows the
Group Chief Executive’s single total
remuneration figure over the 10 years
ended 31 December 2020.
Schroders ordinary shares
Schroders non-voting ordinary shares
FTSE 100 Index
£300
Group Chief Executive’s total remuneration
Overlaid on that is a comparison of 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 60%, compared
with a 144% return for Schroders
ordinary shares and a 134% return for
Schroders non-voting ordinary shares.
For more detail on the Group Chief
Executive’s total remuneration over
the last 10 years see page 95.
0
1
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2
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e
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0
0
1
£
f
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e
u
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V
l
£200
£100
0
2011
2012
2013
2014
2015
2016
Michael Dobson
2017
2016
Peter Harrison
2018
2019
2020
10
8
6
4
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Focusing on pay fairness across the workforce
The global pandemic has had a profound impact on all our employees. Treating our employees fairly remains a priority, as reflected in our decisions
to not furlough any of our staff, take any government support or make any redundancies as a result of Covid-19.
As in prior years, we set a firm-wide salary budget for the year-end compensation review and sought to target this towards increases for our lower
earners, for whom fixed compensation generally comprises a more significant portion of total compensation, as well as those whose salaries were
below market or who had taken on more responsibilities. Prompted by market data on salary increases across the industry, we undertook an
additional review of salary competitiveness amongst our lower earners, to ensure they were paid favourably. A number of additional increases were
approved for this population, which contributed to the Group-wide cost of salary increases coming in slightly ahead of the original budget.
Schroders Annual Report and Accounts 2020
85
Governance
Remuneration report continued
Ensuring pay fairness across our workforce
Our commitment
Actions taken in 2020
Salaries
– Pay a fair, market competitive rate of pay to all our
employees, based on role and geography.
– Target salary increases towards lower-paid
employees, employees whose roles and
responsibilities have increased or where salary is
below market rates.
– No employees furloughed, even where Covid-19 meant
individuals were not able to perform their duties in full.
– Additional salary budget was provided to ensure
competitiveness of salaries amongst lower paid employees
in particular. Resulting distribution of salary increases is
heavily in favour of lower-paid populations.
– Ensure the balance between fixed and variable is
– The balance between fixed and variable remuneration was
appropriate for employees, in particular for
lower-paid employees and those in support and
control functions.
reviewed for all support roles, with a handful of adjustments
made as a result.
Benefits
– Offer market-facing benefits to employees in all
markets.
– Used to help recruit, reward and retain talent,
support employee health and wellbeing and
reflect local market practice.
Variable pay
– All permanent employees eligible to receive an
annual bonus award.
– Ensure pay decisions reflect the performance of
individuals and the business they work in, as well
as the conduct and behaviours of each individual.
Pay
administration
– Provide reliable and transparent pay
administration.
– Maintained employee access to benefits to support mental
health and wellbeing throughout the pandemic, moving
support services to virtual delivery wherever possible.
– Launch of the Schroders Flexible Working Charter, to apply
permanently beyond any Covid-19 restrictions.
– Engaged a global benefits management system provider to
use analytics to drive improved global benefit decisions.
– Staff who were not able to perform their duties in full due to
Covid-19 (e.g. in facilities management) were still eligible for
and received bonuses. This recognised that their
‘underemployment’ was through no fault of their own and
recognised the loss of overtime payments experienced this
year compared to prior years.
– The Group’s control functions reviewed potential conduct or
cultural issues to identify any instances where performance
or behaviours have fallen short of our expectations. For 2020
there were 8 cases where this resulted in a direct impact on
individual performance ratings and remuneration outcomes
(2019: 8 cases). See page 102 for more information on
conduct, compliance and risk management in remuneration.
– We moved to online compensation statements from this
year, providing greater flexibility for employees and
supporting remote working.
We provide benefits to all our employees, which vary between
jurisdictions to reflect local market practice. The flexible benefits
offering available to London-based employees is the same as for the
executive Directors, including private healthcare, life assurance,
personal accident insurance and retirement savings, amongst others.
Pension contributions (or cash in lieu) are based on pensionable salary,
which is capped at £250,000, and as a result 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.
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. Each
year, the Committee reviews 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 commercial factors.
The Committee considered 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. Remuneration outcomes 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, the performance of the
relevant business area and the levels of reward for comparable roles in
the market. For 2020, 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 102.
The Committee reviews the Group-wide compensation review
outcomes before determining executive Director compensation for the
year. The annual bonus award for the Group Chief Executive for 2020
performance was 4% down year-on-year, while his single total
remuneration figure decreased by 3%. For the Chief Financial Officer,
the 2020 annual bonus award was 2% up year-on-year, while his single
total remuneration figure increased by 3%. For employees who worked
in the Group for all of 2019 and 2020, the median year-on-year change
in bonus was 0% and the median change in total compensation was up
2%. The Group Chief Executive’s total remuneration is 42 times the
mean full-time equivalent total remuneration for UK employees of the
Group (2019: 43 times) and 70 times the median (2019: 72 times),
representing slight reductions on prior year.
For more detail on pay in the wider workforce see page 93. For more detail
on our UK pay ratios see page 95.
86
Schroders Annual Report and Accounts 2020
Diversity and our gender pay gap
Individuals’ pay reflects their role, responsibilities, behaviours and
contribution. Gender, age, race, sexual orientation, disability, religion,
socio-economic background or other characteristics are irrelevant when
it comes to pay determination; we celebrate and value talented
individuals regardless of their characteristics. Our analysis of
comparable roles continues to show that we reward diverse talent fairly
for similar work.
During the year-end compensation review, the management team
considers salary, bonus and total compensation outcomes through
different diversity lenses, based on the data that our people have
provided, to screen for unconscious bias. Last year, we introduced more
granular analysis of pay outcomes by ethnicity within each of our
regions and we built on this further this year. Using this, we identified
certain populations where pay outcomes warranted further
investigation. The HR team, supported by senior management, was
then able to review the pay outcomes with local managers to
understand the context and ensure any differentials were justified by
robust and appropriate factors. By doing this, we were able to satisfy
ourselves that the individual pay outcomes were appropriate and fair.
This year we have continued working to increase female representation
in senior management roles. Having started with 25% female
representation in senior management at the end of 2015, we were
targeting 33% representation by the end of 2019. We fell slightly short
of that target last year but achieved it during 2020. Female
representation on the GMC has also been increased, from 7% to 29%
since the end of 2015.
The chart below illustrates how our global gender pay gaps for hourly
fixed pay have narrowed since 2016, when we first calculated and
published this data.
Our global gender pay gap
35%
30%
25%
20%
It is the progress that we have made over time to improve gender
diversity in senior management and other more highly paid roles across
the Group that has been key to reducing our gender pay gaps. We are
proud of what we have achieved so far but more needs to be done and
so our focus on increasing representation of diverse talent continues.
Our commitment to creating a truly inclusive culture is at the centre of
our people strategy. We are now targeting 35% female representation
in senior management by the end of 2023. We are purposefully
broadening our pledges to reflect our wider commitment to ethnicity
and disability, as well as to greater gender balance. During 2020 we
continued to encourage 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 2021. We
remain committed to publishing our ethnicity pay gap once 80% of our
employees have completed their diversity profiles and we are already at
over 70% completion. Diversity and inclusion remains a priority for the
Board in 2021 and we will publish our targets later this year. We have
published more information on diversity and gender pay on our
website at schroders.com/inclusion.
Complying with the CRD V remuneration rules
The CRD V remuneration rules came into effect in December 2020.
These rules apply to Schroder & Co. Limited, our main UK Wealth
Management operating entity. Roles in Schroders that are material risk
takers in respect of Schroder & Co. Limited are subject to the CRD V
remuneration requirements. This includes a range of measures
including requirements on how the Remuneration Committee should
be able to risk-adjust remuneration, such as extended clawback periods
and specific malus and clawback triggers. In some cases this includes a
‘bonus cap’, limiting variable pay to up to 200% of fixed pay.
Our remuneration approach for many years has been to keep our fixed
remuneration relatively low, ensuring we are able to control our cost
base when times are challenging. However, to ensure we can continue
to pay competitively to attract, retain, motivate and reward the talent
we need to deliver our strategy, the CRD V bonus cap left us with no
choice but to increase fixed remuneration for a small number of
impacted roles. The bonus cap does not currently apply to the executive
Directors of Schroders plc.
Annual report on remuneration
This statement from the Remuneration Committee Chairman, together
with the Remuneration focus in 2021 section on pages 88-89, the
Remuneration governance section on pages 90-91 and the notes on
pages 92-102, constitute the annual report on remuneration, on which
shareholders will have an advisory vote at the AGM. Where required
and indicated, this information has been audited by EY.
2016
2017
2018
2019
2020
Pay gap for median
Pay gap for mean
By order of the Board.
Sir Damon Buffini
Chairman of the Remuneration Committee
For more detail on female representation and our gender
pay gap see page 93.
3 March 2021
Schroders Annual Report and Accounts 2020
87
Governance Remuneration report continued
Remuneration focus for 2021
The Remuneration Committee’s priorities for 2021
As well as considering the standing items of business, the Committee will also focus on the following areas during 2021:
– Regulatory developments and the potential impact on the structure of remuneration at Schroders
– Pay fairness across the workforce
– Conduct, compliance and risk management in remuneration
Implementation of the remuneration policy for 2021
Executive Directors’ salaries
The Committee did not increase the executive Directors’ salaries during the 2020 compensation review, which are £500,000 for the Group Chief
Executive and £375,000 for the Chief Financial Officer.
Executive Directors’ maximum total remuneration for 2021
The remuneration policy defines a maximum limit for the total remuneration of each executive Director each year, being 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. The maximum total remuneration for the current Group Chief Executive and Chief Financial Officer will be
unchanged, at £9 million and £4.5 million respectively.
Basis for determining executive Directors’ annual bonus awards for performance in 2021
The Committee will determine executive Directors’ bonuses for performance in 2021 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 2020, 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 2021 and the rationale for selecting these metrics.
How the executive Directors’ annual bonus awards for performance year 2021 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 Group’s financial performance, which is recognised by
our 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 Group-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 their agreed
annual objectives for 2021 will also be considered.
Grow Asset Management
Build closer relationships with end clients
Expand Private Assets & Alternatives
For more detail on our strategy see pages 16-17.
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 achievable 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 2021, together with commentary for the non-financial factors.
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.
88
Schroders Annual Report and Accounts 2020
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. Schroders has achieved full ESG integration across our
managed assets and so our client investment performance is derived from ESG-integrated investment processes, which is another mechanism
through which sustainability and sustainability risks are integrated into remuneration.
The executive Directors’ upfront fund awards and deferred share and fund awards, in respect of performance in both 2020 and in 2021, will be
granted under the DAP, which shareholders approved at the 2020 AGM.
LTIP awards to be granted in 2021
Page 83 sets out the LTIP awards that the Committee intends to grant to the executive Directors in March 2021, in accordance with the Directors’
remuneration policy. These awards will be granted under the LTIP rules that were approved by shareholders in 2020.
As outlined on page 83, the executive Directors have indicated that they intend to give up their 2021 LTIP awards, as they did those granted to them in
March 2020. If those awards are not actively accepted by the respective executive Directors then under the rules of the LTIP they will lapse.
At the time that they are granted, 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 4 March 2021, outlined on page 96, 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 rationale for selecting these metrics is set out below.
How the vesting of LTIP awards to be granted to the executive Directors in March 2021 will be determined
LTIP measures over four years
Rationale for inclusion
Link to strategy
Earnings per share growth
(50% weighting)
Basic earnings per share (EPS) is a Group-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% weighting)
Net new business (NNB) is a Group-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 LTIP awards that the Committee intends to grant to the executive Directors in March 2021 on page 83.
The Committee reviewed the make-up of Schroders assets under management at 31 December 2020 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 2021, the following weighted basket of indices will be used:
Index
Morgan Stanley Capital International (MSCI) All Countries Asia Pacific
MSCI All Countries World
MSCI Emerging Markets
MSCI Europe
FTSE All Share
Bloomberg Barclays Global Aggregate
Weighting
%
15
15
10
5
5
50
Schroders Annual Report and Accounts 2020
89
Governance Remuneration report continued
Remuneration governance
Responsibilities of the Remuneration Committee
The responsibilities of the Committee include:
– 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; 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
The Committee’s terms of reference are available on our website at schroders.com/ir.
Remuneration Committee independence
All members of the Committee are independent non-executive Directors. Biographical details and the experience of Committee members are set out
on pages 58-59.
Key areas of focus during the year
The table below summarises the key issues that the Committee considered at each of its meetings during 2020. Remuneration packages for
new hires or 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
January
– Compensation outcomes for 2019
February
– Compensation outcomes for 2019
– Conduct review
– Remuneration disclosures
– Forecast vesting of 2016 LTIP grants
– New deferred incentive plan rules
– Executive Directors’ annual bonus scorecards for 2020
– Performance conditions for 2020 LTIP grants
– Remuneration arrangements and carried interest-sharing
arrangements in particular business areas
2 March
– Executive Directors’ remuneration policy and shareholder voting expectations
25 March
– Covid-19 and the approach to pay and conditions
– Covid-19 and Directors’ remuneration
for the wider workforce
May
July
– CRD V remuneration implications
– Review of advisers to the Committee
– Shareholder and voting agency feedback on remuneration
– Remuneration Committee best practice
– CRD V remuneration implications
– Potential executive Directors’ remuneration policy changes
September
– CRD V remuneration implications
– Executive Directors’ remuneration policy
– CRD V remuneration policy for material risk takers other than
the executive Directors
October
December
– CRD V remuneration implications
– Compensation review 2020
– Gender and ethnicity pay data
– Approval of deferred remuneration grants for
sustained high performance and potential
– Executive Directors’ annual bonus scorecards for 2020
– Remuneration arrangements in particular business areas
– Material risk taker framework and population
– Internal audit of remuneration compliance
– CRD V remuneration implications
– Executive Directors’ remuneration policy
– CRD V remuneration policy for material risk takers
other than the executive Directors
– Executive Directors’ annual bonus scorecards for 2020
– Executive Directors’ annual bonus scorecards for 2021
– Forecast vesting of 2017 LTIP grants
– Remuneration arrangements and carried interest-sharing
– Compensation review 2020
– Sustainability of earnings
– Risk, legal, compliance and internal audit matters
– Pay and conditions for the wider workforce
arrangements in particular business areas
– Remuneration benchmarking
– Group risk adjustment framework for remuneration
– Total compensation ratio target for 2021
90
Schroders Annual Report and Accounts 2020
Internal advisers
At the invitation of the Committee Chairman, the Group Chairman attended nine meetings, the Group Chief Executive attended seven meetings and
the Chief Financial Officer attended eight 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 Human Resources, the
Head of Compensation and Benefits and the Head of Compensation attended meetings to provide advice and support the Committee.
To avoid conflicts of interest, no Director or employee participates in decisions determining his or her own remuneration.
External advisers
The Committee appointed PricewaterhouseCoopers LLP (PwC) and McLagan (Aon) Limited (McLagan) to provide advice on executive Director pay
during 2020. Advisers were selected on the recommendation of the Global Head of Human Resources and the Head of Compensation and Benefits.
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.
PwC attended eight meetings as independent Remuneration Committee advisers. The Committee retained PwC in this role as their team are among
the market leaders in this area, with a good understanding of the Group. A fixed fee structure has operated since appointment to cover standard
services, with any additional items charged on a time/cost basis. The total fees paid for advice to the Committee during 2020 on executive Director pay
totalled £99,000. PwC also provides professional services in the ordinary course of business, including HR consulting services and advice to
management on remuneration design and its regulatory implications, tax, social security, governance, operational and technical issues, as well as
other professional services including tax, consulting, regulatory compliance, support for corporate acquisitions and other advice to the Group.
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 total fees paid for advice to the Committee during 2020 on executive Director pay totalled £2,000. 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. The findings relating to the
Committee were discussed with the Committee Chairman. The feedback on the Committee was wholly positive. It is chaired effectively, reports to the
Board are seen as high quality and there was recognition that the adoption of the new Directors’ remuneration policy was well managed.
Compliance with the 2018 UK Corporate Governance Code (the Code)
The Code requires a description of how the Remuneration Committee has addressed the following factors:
Code requirements
How the Committee has addressed the requirement
Clarity – remuneration arrangements should be transparent
and promote effective engagement with shareholders and
the workforce
– Prospective disclosure of bonus and LTIP metrics (pages 88-89)
– Full retrospective disclosure of financial targets and non-financial factors
(pages 81-84)
– Consultation with shareholders regarding possible policy changes (page 78)
Simplicity – remuneration structures should avoid
complexity and their rationale and operation should be easy
to understand
– Executive Directors incentivised via annual bonus with deferral and LTIP (page 76)
– Clear disclosure of rationale and operation of each element (see Directors’
remuneration policy)
Risk – remuneration arrangements should ensure
reputational and other risks from excessive rewards, and
behavioural risks that can arise from target-based incentive
plans, are identified and mitigated
– Defined maximum limit for annual total remuneration (page 76)
– Significant deferral, providing alignment to clients and shareholders (page 76)
– Committee discretion to adjust formulaic bonus or LTIP outcomes (page 80)
– Extensive malus and clawback provisions (see Directors’ remuneration policy)
Predictability – the range of possible values of rewards to
individual directors and any other limits or discretions should
be identified and explained at the time of approving the policy
– Scenario charts and key Committee discretions outlined (see Directors’
remuneration policy)
– Regular Committee review of likely bonus scorecard outcomes (page 90)
Proportionality – the link between individual awards, the
delivery of strategy and the long-term performance of the
company should be clear. Outcomes should not reward
poor performance
Alignment to culture – incentive schemes should drive
behaviours consistent with company purpose, values
and strategy
– Annual bonus and LTIP performance measures reviewed annually against strategic
priorities (pages 88-89)
– Significant deferral, providing alignment to clients and shareholders (page 76)
– Extensive malus and clawback provisions (see Directors’ remuneration policy)
– Remuneration principles aligned to our purpose (page 77)
– Executive Director remuneration considered in the context of employee outcomes
(pages 85-86)
– Commitment to pay fairness across the workforce (page 86)
Schroders Annual Report and Accounts 2020
91
Governance Remuneration report continued
Notes to the annual report on remuneration
The notes set out on pages 92-102 supplement the information set out in the main narrative on pages 75-87, combining both statutory and voluntary
disclosures, including additional detail on matters within the narrative and other elements that do not fit within that narrative.
Annual bonus pool and annual bonus award allocations across the Group – additional detail
The table below compares the annual bonus pools for performance years 2020 and 2019, divided into amounts paid in cash, upfront fund awards and
amounts deferred into share awards and fund awards. The 2019 figures are shown after adjustment to reflect the foreign exchange rates used during
the 2020 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 2020 figures.
2020
45%
£m
178.8
29.1
51.8
44.3
304.0
32%
4,663
£65,188
£14,000
1.8%
2.6%
20191
44%
£m
179.2
27.0
48.0
44.0
298.2
31%
4,365
£68,319
£15,500
1.9%
2.7%
The employee mean and median figures in the table above represent the bonus value across all bonus-eligible employees each year. As such, part of
the difference in value year-on-year is due to differences in population, from new hires and leavers, as well as higher or lower bonus awards for
individual employees who were employed by Schroders both years.
Relative spend on pay chart – additional detail
The charts below illustrate the relative spend on pay for 2020 compared with 2019. 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.
2019
2020
15%
12%
11%
23%
26%
9%
4%
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%
14%
12%
10%
23%
27%
10%
4%
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.
2019
£589.9m +5%
£207.8m
+4%
£94.5m
+15%
£502.2m
£216.0m
+1%
(3)%
£256.8m
£312.0m
+3%
0%
1. Corporate tax and social security includes employer’s social security costs, which for 2020 was equal to 4% of net income (2019: 4%).
92
Schroders Annual Report and Accounts 2020
Pay in the wider workforce – additional detail
The table below compares, for each of base salary or fees, benefits and
annual bonus award, the percentage change from performance year
2019 to 2020 for each of the Directors with the average year-on-year
percentage change across employees of the Group taken as a whole.
The outcome for employees of Schroders plc is also included as this is a
statutory requirement but is shown as not applicable as the legal entity
Schroders plc does not itself have any employees.
The values shown for the executive Directors are based on those shown
in the single total remuneration figure table on page 94 while those
shown for the non-executive Directors are based on those shown in the
non-executive Directors remuneration table on page 98. The employee
mean and median figures in this table represent the change
experienced for individual employees who were employed by Schroders
both years, as outlined in the notes to the table.
2020
Base salary / fee
Benefits
Bonus
Executive Directors
Peter Harrison1
Richard Keers1
Non-executive Directors
Michael Dobson
Sir Damon Buffini2
Rhian Davies2
Claire Fitzalan Howard
Rakhi Goss-Custard
Ian King
Leonie Schroder2
Deborah Waterhouse2
Matthew Westerman
Former Directors
Philip Mallinckrodt
Employees
Employees of Schroders plc
Employees of the Group3,4,5
– Mean
– Median
+0%
+0%
+0%
+20%
+13%
n/a
+0%
+0%
+24%
+47%
n/a
–67%
n/a
+4%
+2%
–45%
–3%
–35%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
–4%
+2%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
+2%
+3%
+7%
+0%
1. The value of benefits for Peter Harrison and Richard Keers decreased by
45% and 3% respectively, principally reflecting reduced usage of a car and
driver and slightly lower income protection and life assurance costs after
these were renegotiated effective 1 May 2019.
2. The fee increases shown for Damon Buffini, Rhian Davies, Leonie Schroder
and Deborah Waterhouse reflect the timing of their appointment to the
Board and appointment to roles on Board Committees, as set out on page
98. The fees for the non-executive Directors were not changed in 2020.
3. For base salary, employees of the Group are those who were in
employment for the full year to 31 December 2020 and represents the
mean and median salary increase during 2020. Salary increases across the
Group during 2020 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.
4. For benefits, the mean percentage change for employees of the Group is
a per capita figure for those who were in employment for all of 2020 and
2019 and represents the average change in benefits value during 2020,
while the median is the median percentage change of individual
employees within the same population. The increase principally reflects
salary increases over the period, offset for those in the UK by slightly lower
income protection and life assurance costs after these were renegotiated
effective 1 May 2019.
5. For bonus, the mean and median percentage change for employees of
the Group is the mean and the median respectively of the individual
year-on-year percentage change in bonus for employees who were in
employment and bonus-eligible for all of 2020 and 2019. More commentary
on the annual bonus award for each executive Director can be found on
pages 80-83.
Female representation and gender pay – additional detail
Schroders is committed to promoting diversity of thought and ensuring
Schroders is an inclusive place to work. That commitment is broader
than gender and the Our people section on pages 34-37 provides more
information on the Group’s approach to inclusion and diversity.
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
26% females, 74% 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 2020
plus any other incentive awards during the year.
Hourly
fixed 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
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
26%
(2019: 27%)
26%
(2019: 27%)
46%
(2019: 50%)
57%
(2019: 58%)
The proportion of female and
male employees who received
variable pay
93% of females,
94% of males
(2019: 92% / 91%)
These statistics, and the chart on page 87 showing how our gender pay
gaps have narrowed since we first published them in 2016,
demonstrate the continued improvement in our gender pay gaps,
although there remains more to do.
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 2020
93
Governance
Remuneration report continued
Single total remuneration figure for each executive Director – additional detail (audited)
The total remuneration of each of the executive Directors for the years ended 31 December 2020 and 31 December 2019 is set out below.
2020 (£’000)
Peter Harrison
Richard Keers
Total
2019 (£’000)
Peter Harrison
Richard Keers
Total
Base
salary
Benefits
and
allowances
Retirement
benefits
Total
fixed pay
Initial
scorecard
outcome
Discretionary
annual bonus
reduction
Annual
bonus award
LTIP
vested
Total
variable pay
Total
remuneration
500
375
875
500
375
875
9
6
15
16
7
23
45
45
90
45
45
90
554
426
980
561
427
988
5,678
2,503
8,181
–
–
–
(250)
(100)
(350)
–
–
–
5,428
2,403
7,831
5,680
2,350
8,030
295
196
491
212
159
371
5,723
2,599
8,322
5,892
2,509
8,401
6,277
3,025
9,302
6,453
2,936
9,389
The methodology for determining the single total remuneration figure is set out below. A chart illustrating the figures above can be found on page 84.
Base salary
Represents the value of salary earned and paid during the financial year, before any donations to charity (see
page 75).
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 97
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.
Annual bonus award
– see pages 80-83 plus
additional detail on page 96
Page 97 shows how the retirement benefits figures above are comprised for each Director.
Represents the total value of the annual bonus award for performance during the relevant financial year.
The column headed ‘Initial scorecard outcome’ represents what the annual bonus award would have been
based solely on the annual bonus scorecard. In determining this, the Committee acknowledged the societal
impact of Covid-19 and marked the non-financial elements of the scorecard below the level that would
otherwise be expected based on the executive Directors’ performance against the pre-determined
scorecard targets.
The column headed ‘Discretionary annual bonus reduction’ shows the Committee’s further one-off reduction
from that initial scorecard outcome for 2020, given the extraordinary circumstances of 2020, to reach the
actual annual bonus award for each executive Director.
Pages 80-83 set out the basis on which annual bonus awards for 2020 were determined. Page 96 breaks down the annual
bonus awards for 2020 into cash paid through the payroll in February 2021 and the upfront fund awards, deferred fund
awards and deferred share awards that will be granted in March 2021.
LTIP vested
– see page 84 plus additional
detail on pages 96-97
Represents the estimated value that is expected to vest on 4 March 2021 from LTIP awards granted on
6 March 2017, using the average closing mid-market share price over the three months ended 31 December
2020 and the percentage of the awards that is expected to vest.
The comparative value shown for 2019 represents the actual value that vested on 5 March 2020 from LTIP
awards granted on 7 March 2016. The 2019 LTIP vested values disclosed last year were estimates, as the
Annual Report and Accounts was finalised prior to the vesting date.
Page 84 sets out the performance achieved and how vesting will be determined, with further detail on page 96, and page 97
shows how the value shown above has been calculated, including how much of the value is attributable to share price
movement during the period from grant to vesting.
Page 99 sets out information on LTIP awards granted to the executive Directors during 2020, which the Directors
subsequently waived. These awards are not reflected above. Page 83 sets out information on LTIP awards to be granted to
the executive Directors in March 2021. The executive Directors have indicated that they intend not to accept these awards.
Again, these are not reflected above.
94
Schroders Annual Report and Accounts 2020
The Group Chief Executive’s total remuneration over the last 10 years – additional detail
The table below sets out the Group Chief Executive’s single total remuneration figure over the 10 years ended 31 December 2020, as well as showing
how variable pay plans have paid out each year. A chart illustrating the single total remuneration figures over this period, and comparing them to the
total shareholder return of Schroders shares and of the FTSE 100, is shown on page 85.
Financial year
2011
2012
2013
2014
2015
20163
20164
2017
2018
2019
2020
Michael Dobson Peter Harrison
Single total remuneration figure (£’000)
5,570 4,870 8,414 8,155 8,905
2,451 6,311 7,059 6,735 6,453 6,277
Annual bonus award (outcome as a % of maximum, or actual
award as a % of 10-year highest bonus)1
65% 56% 81% 87% 100%
25% 70% 82% 78% 72% 69%
LTIP (vesting as a % of maximum)2
n/a
n/a 100% 50% 50%
50% 50%
n/a
0% 50% 50%
1. For performance year 2020, this represents the Group Chief Executive’s actual annual bonus award as a percentage of the maximum annual bonus award for
the year. For performance years prior to 2020, 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. 2011 and 2012 are shown as ‘n/a’ as the LTIP was introduced in May 2010 and so there was no LTIP vesting outcome in those years. The first LTIP 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 – additional detail
The table below compares the Group Chief Executive’s single total remuneration figure for 2020 to the remuneration of the Group’s UK workforce as
at 31 December 2020, along with the comparative figures for the previous year.
2020
2019
Method
Option A
Option A
Pay ratio to
upper quartile UK employee
Pay ratio to
median UK employee
Pay ratio to
lower quartile UK employee
42: 1
42: 1
70: 1
72: 1
110: 1
117: 1
The rules that require this disclosure to be made set out three possible methodologies that companies can adopt, termed 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 upper quartile, at the median and at the lower quartile. We have based the
calculation of these total remuneration quartiles on salaries as at 31 December 2020 plus any annual bonus award in respect of 2020 and any other
incentive awards granted during 2020. 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.
£
2020
2019
Method
Option A
Option A
Upper quartile UK employee
Median UK employee
Lower quartile UK employee
Total pay and
benefits
150,310
154,667
Total salary
122,500
85,000
Total pay and
benefits
89,541
89,743
Total salary
58,000
68,000
Total pay and
benefits
57,205
55,400
Total salary
45,000
50,000
Comparing the ratios for 2020 with those for 2019, the pay ratio to the upper quartile UK employee is unchanged, while the pay ratio to the median
employee has reduced slightly and to the lower quartile employee has reduced more significantly. In part this is attributable to the reduction
year-on-year in the Group Chief Executive’s single total remuneration figure, which is 3% lower for 2020 compared to 2019. The upper quartile
employee total remuneration is also 3% lower for 2020 compared to 2019 and so the pay ratio to the upper quartile employee is consistent year-on-
year. The median UK employee total remuneration is down only marginally year-on-year, by less than half of 1%, and so the reduction in the median
pay ratio is largely attributable to the reduction in the Group Chief Executive’s remuneration. The lower quartile UK employee total remuneration is 3%
higher for 2020 compared to 2019. This increase combined with the reduction in the Group Chief Executive’s remuneration drives the reduction in the
pay ratio to the lower quartile employee.
As well as new hires and leavers in the normal course of business, the changes to the total pay for the upper quartile, median and lower quartile UK
employee also reflect some structural changes to our workforce, including moving some contractors into employee roles and the relocation of some
operational roles that were based in London and Luxembourg to our Horsham campus. The slight narrowing of the median pay ratio and more
significant narrowing of the pay ratio to the lower quartile UK employee is consistent with the Group’s focus on pay fairness across the workforce,
particularly for the Group’s lower-paid employees, as outlined on pages 85-86, and as such the Group believes these outcomes to be consistent with
the pay and reward policies for the Group’s UK employees as a whole.
Schroders Annual Report and Accounts 2020
95
Governance Remuneration report continued
Variable pay – annual bonus award – additional detail (audited)
The table below sets out details of how the annual bonus award for each executive Director for performance during 2020 was structured. The total
annual bonus award values are reflected in the single total remuneration figure for each executive Director on page 94. The table also shows the face
value of the LTIP award granted during 2020 (see page 99) and the percentage of variable pay deferred across annual bonus and LTIP combined.
2020 (£’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
deferred1
LTIP granted
during 2020
DAP award
LTIP award
Percentage of
total variable
pay deferred1
1,123
506
1,123
506
2,387
1,043
795
348
4,305
1,897
5,428
2,403
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, subject to a minimum 60% of total variable pay being 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 – additional detail (audited)
The LTIP awards granted on 6 March 2017, covering the 2017 to 2020 performance period, are expected to vest on 4 March 2021. 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
Maximum %
of award
Performance achieved
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 2017 to 2020 performance
50 The four-year growth in the composite index was
26.7% (see below). Four-year growth in adjusted EPS
was 5.8%, 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 2017 to 2020
was £86.0 billion, which is sufficient to trigger full
vesting of this part of the LTIP awards.
Vesting %
of award
0
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
MSCI All Countries Asia Pacific
MSCI All Countries World
MSCI Emerging Markets
FTSE All Share
MSCI Europe
Bloomberg Barclays Global Aggregate
Composite index (calculated as a weighted average)
96
Schroders Annual Report and Accounts 2020
Weighting
Growth over the four-year
performance period
15.0%
15.0%
7.5%
7.5%
5.0%
50.0%
47.1%
52.6%
48.5%
10.0%
26.0%
12.0%
26.7%
Variable pay – estimated value vesting from prior LTIP awards – additional detail (audited)
The following table shows, for each Director, the estimated value expected to vest on 4 March 2021 from LTIP awards granted on 6 March 2017, based
on the average closing mid-market share price over the three months ended 31 December 2020 and the expected vesting percentage shown on page
96. For each executive Director, the total value expected to vest is reflected in the single total remuneration figures on page 94. Awards are over
ordinary shares.
Individual
Peter Harrison
Richard Keers
Grant-date face
value of LTIP award
£’000
Proportion expected
to vest in relation
to 2017-2020
performance
Face value at
time of grant
Impact of dividend
equivalents since
grant1
Impact of share
price movement
since grant
Total estimated
value vesting
Number of shares
expected to vest
Value of shares expected to vest (£’000)
600
400
50%
50%
300
200
–
–
(5)
(4)
295
196
9,768
6,512
1. 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.
Fixed pay – retirement benefits – additional detail (audited)
The following table shows details of retirement benefits provided to executive Directors for the years ended 31 December 2020 and 31 December
2019. 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 94. Employer contributions represent contributions paid into DC pension arrangements during the year and exclude any contributions made by
the Directors. There has been no defined benefit (DB) pension accrual since 30 April 2011.
£’000
Peter Harrison
Richard Keers
2020 employer
contributions
2020 cash in lieu
of pension1
2020 retirement
benefits total
2019 employer
contributions
2019 cash in lieu
of pension1
2019 retirement
benefits total
10
–
35
45
45
45
10
–
35
45
45
45
Accrued DB
pension at
31 December
2020
–
–
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. Neither Peter Harrison nor Richard Keers received any fees in respect of external
non-executive roles during 2020.
Schroders Annual Report and Accounts 2020
97
Governance
Remuneration report continued
Non-executive Directors’ remuneration (audited)
The total remuneration of each of the non-executive Directors for the years ended 31 December 2020 and 31 December 2019 is set out below, based
on the structure of non-executive Directors’ fees set out below the table.
£’000
Michael Dobson
Sir Damon Buffini
Rhian Davies
Claire Fitzalan Howard
Rakhi Goss-Custard
Ian King
Leonie Schroder
Deborah Waterhouse
Matthew Westerman
Philip Mallinckrodt
Basic fee
Committee
chairman
Committee
member
Taxable
benefits
SID
Total
Basic fee
Committee
chairman
Committee
member
Taxable
benefits
SID
2020
2019
625
80
80
53
80
80
80
80
65
27
–
25
25
–
–
–
–
–
–
–
–
20
40
–
20
20
–
20
19
–
–
–
–
–
–
20
–
–
–
–
11
–
1
1
2
1
1
1
–
–
636
125
146
54
102
121
81
101
84
27
625
80
80
–
80
80
65
65
–
80
–
4
25
–
–
–
–
–
–
–
–
20
23
–
20
20
–
3
–
–
–
–
–
–
–
20
–
–
–
–
17
–
–
–
–
–
–
–
–
–
Total
642
104
128
–
100
120
65
68
–
80
The fees shown in each Director’s case reflect the portion of 2019 and 2020 that they each served in their respective roles, and are shown before any
donations to charity (see page 75).
– Leonie Schroder and Deborah Waterhouse were appointed to the Board with effect from 11 March 2019. Matthew Westerman was appointed to
the Board with effect from 9 March 2020. Claire Fitzalan Howard was appointed to the Board with effect from 30 April 2020. In each case, on
appointment as non-executive Directors their fees were set at the same level as for other non-executive Directors.
– On 6 November 2019, 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. Matthew Westerman was
appointed a member of the Audit and Risk Committee from his appointment to the Board on 9 March 2020 and was appointed a member of the
Remuneration Committee on 19 November 2020.
– Philip Mallinckrodt retired from the Board at the conclusion of the 2020 AGM, on 30 April 2020. His fee ceased on the date he retired.
The benefits for Michael Dobson were private healthcare and medical benefits for him and his family, life assurance, travel expenses and occasional
private use of a company car and driver. Benefits for Rhian Davies, Claire Fitzalan Howard, Rakhi Goss-Custard, Ian King, Leonie Schroder and
Deborah Waterhouse were travel expenses.
The fees for the non-executive Directors were not changed in 2020, having last been reviewed during 2019. The structure of non-executive Directors’
fees is shown below. Fees are usually reviewed biennially.
£
625,000
80,000
20,000
25,000
20,000
nil
nil
25,000
20,000
Chairman
Board member
Senior Independent Director
Audit and Risk Committee Chairman1
Audit and Risk Committee member
Nominations Committee Chairman
Nominations Committee member
Remuneration Committee Chairman1
Remuneration Committee member
1. In addition to the Committee membership fee.
98
Schroders Annual Report and Accounts 2020
DAP and LTIP awards granted during 2020 (audited)
The following awards under the DAP were granted to Directors on 11 March 2020 in respect of deferred bonuses for performance during 2019.
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 with an initial value equal to the value of bonus being deferred, granted as nil-cost options. That value is
notionally invested in a range of Schroders funds and so the actual amount paid when the award is exercised is the initial amount plus or minus
returns on those notional investments. DAP share awards are conditional rights to receive Schroders shares, granted as nil-cost options. These awards
were included in the 2019 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 94. They are also shown in the tables of Directors’ rights under fund and share awards on pages 100-101.
Individual
Basis of DAP award granted
Peter Harrison
Richard Keers
Deferral of bonus awarded for
performance in 2019
Face value at grant (£’000)
Upfront
fund
awards
Deferred
share
awards
Deferred
fund
awards
Total DAP
award
Share
price at
grant
Number
of
shares
Performance conditions
1,173
1,667
1,667
4,507 £23.61 70,584 Awarded for performance in
495
680
680
1,855 £23.61 28,801
2019. No further performance
conditions apply.
The following awards under the LTIP were granted to Directors on 11 March 2020 as nil-cost options. Each executive Director subsequently elected
not to accept their respective awards and so each award was void and took no effect. As a result, they are not reflected in the table of Directors’ rights
under share awards on page 101. These awards do not appear in the single total remuneration figure on page 94.
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
£23.61
25,412 31 December 2023
£23.61
16,941 31 December 2023
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 2020 was subject to the same performance conditions as applied to awards expected to vest following the end
of 2019, which are set out on page 96, save that the composite index for the measurement of EPS performance for these awards was as follows:
Index
MSCI All Countries Asia Pacific
MSCI All Countries World
MSCI Emerging Markets
MSCI Europe
FTSE All Share
Bloomberg Barclays Global Aggregate
Weighting
%
15
15
10
5
5
50
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.
Payments for loss of office and payments to former Directors (audited)
No payments for loss of office were paid to Directors or former Directors during 2020. No other payments were made to former Directors during
2020.
Schroders Annual Report and Accounts 2020
99
Governance
Remuneration report continued
Personal shareholding policy – additional detail
(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. The required shareholding is
equivalent to 500% of base salary for the Group Chief Executive, 300%
of base salary for other executive Directors and 150-300% of base salary
for other members of the GMC depending on their role. 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, 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 101) and of vested DAP or LTIP awards
(shown as ‘Vested but unexercised share awards’ on page 101) but do
not include unvested LTIP awards as these rights to shares are subject
to performance conditions.
The charts on page 78 compare the value of each executive Director’s
shareholdings as at 2 March 2021 with the shareholding required under
the personal shareholding policy, as a percentage of salary, including
the LTIP awards expected to vest on 4 March 2021 (see pages 96-97)
and DAP deferred share awards to be granted in respect of
performance in 2020 (see page 96).
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 or will be
granted rights under the Group’s incentive plans and the estimated after-tax value of those shares, on the same basis as outlined above.
As at 31 December 2020
Individual
Shares
owned
Rights to
shares
SIP shares
acquired in
January and
February 2021
LTIP shares
expected to
vest 4 March
2021
Total share
exposure
Rights to shares
to be granted
under the DAP
in March 2021
(£000)
At the
2 March 2020
share price
At the
2 March 2021
share price
Estimated after-tax value (£’000)
Peter Harrison
4,868
193,446
Richard Keers
830
88,900
13
13
9,768
208,095
6,512
96,255
2,387
1,043
4,458
2,011
5,250
2,373
Impact of a 10%
share price
movement
525
237
Difference
793
362
Directors’ rights under fund and share awards, and Directors’ share interests
This section outlines Directors’ rights during 2020 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 2020.
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.
Peter Harrison
At 31 December 2019
Richard Keers
Philip Mallinckrodt1
Granted
Vested
Exercised
At 31 December 2020
At 31 December 2019
Granted
Vested
Exercised
At 31 December 2020
At 31 December 2019
Vested
Exercised
At 31 December 2020
Unvested fund
awards
£’000
Vested fund
awards
£’000
4,440
1,667
(2,593)
–
3,514
1,882
680
(1,112)
–
1,450
419
(419)
–
–
–
1,173
2,593
(3,766)
–
267
495
1,112
(1,874)
–
456
419
(456)
419
Total
£’000
4,440
2,840
–
(3,766)
3,514
2,149
1,175
–
(1,874)
1,450
875
–
(456)
419
1. Philip Mallinckrodt was an executive Director of Schroders until he moved to a non-executive role on 1 March 2017. During his period in an executive role he
received part of his annual bonus awards in fund awards, in line with the remuneration policy for executive Directors at that time.
100
Schroders Annual Report and Accounts 2020
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.
Peter Harrison
(Ordinary shares)
At 31 December 2019
Granted
LTIP award granted but not accepted
Dividend-equivalent accrual
Vested
Lapsed where LTIP conditions were not met
Richard Keers
(Ordinary shares)
Exercised
At 31 December 2020
At 31 December 2019
Granted
LTIP award granted but not accepted
Dividend-equivalent accrual
Vested
Lapsed where LTIP conditions were not met
Philip Mallinckrodt3
(Non-voting ordinary
shares)
Exercised
At 31 December 2020
At 31 December 2019
Dividend-equivalent accrual
Vested
Lapsed where LTIP conditions were not met
Exercised
At 31 December 2020
Unvested LTIP
awards1
Other unvested
share awards2
76,318
25,412
(25,412)
–
(7,621)
(7,622)
–
61,075
52,149
16,941
(16,941)
–
(5,716)
(5,716)
–
40,717
4,252
–
(2,126)
(2,126)
–
–
163,664
70,584
–
7,847
(94,051)
–
–
148,044
69,645
28,801
–
3,605
(40,536)
–
–
61,515
21,272
–
(21,272)
–
–
–
Vested but
unexercised
share awards
25,429
–
–
2,159
101,672
–
(83,858)
45,402
8,247
–
–
623
46,252
–
(27,737)
27,385
26,827
1,188
23,398
–
(26,827)
24,586
Total
265,411
95,996
(25,412)
10,006
–
(7,622)
(83,858)
254,521
130,041
45,742
(16,941)
4,228
–
(5,716)
(27,737)
129,617
51,110
1,188
–
(2,126)
(26,827)
24,586
1. These awards will only vest to the extent that the relevant performance conditions are met. Includes LTIP awards granted on 6 March 2017, which were
unvested as at 31 December 2020. These awards are expected to partially vest on 4 March 2021 (see pages 96-97) 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.
3. Philip Mallinckrodt was an executive Director of Schroders until he moved to a non-executive role on 1 March 2017. During his period in an executive role he
received part of his annual bonus awards in share awards and received LTIP awards, in line with the remuneration policy for executive Directors at that time.
During 2020, the aggregate gain on nil-cost options for the Directors, which were settled in shares, was as follows:
– Peter Harrison received £2,306,000 from exercising nil-cost options over 83,858 ordinary shares, in part granted as an element of his annual bonus
award for performance in 2016, in part being the vested element of the LTIP award granted to him in 2016 and in part granted as an Equity
Incentive Plan award granted to him in December 2013, prior to his appointment as an executive Director in May 2014.
– Richard Keers received £793,000 from exercising nil-cost options over 27,737 ordinary shares, in part granted as an element of his annual bonus
award for performance in 2016 and in part being the vested element of the LTIP award granted to him in 2016.
– Philip Mallinckrodt received £508,000 from exercising awards over 26,827 non-voting ordinary shares, granted as part of his annual bonus award
for performance in 2015.
Schroders Annual Report and Accounts 2020
101
Governance Remuneration report continued
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 Davies
Claire Fitzalan Howard1
Rakhi Goss-Custard
Ian King
Leonie Schroder1
Deborah Waterhouse
Matthew Westerman
Former Directors
Philip Mallinckrodt2
Number of shares at 31 December 2020
Ordinary shares
Non-voting
ordinary shares
4,868
830
79,965
–
–
80,942,658
669
–
–
–
196,165
5,000
1,000
6,263,708
–
2,641
90,422,110
7,671,700
–
2,000
–
–
80,985,757
6,363,370
1. The interests of Claire Fitzalan Howard 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.
2. The interests of Philip Mallinckrodt refer to the position as at 30 April 2020, the date he stepped down as a Director of the Company. 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 2020 and 2 March 2021, the only movements in the Directors’ share interests were the acquisition under the Share Incentive
Plan of 13 ordinary shares by Peter Harrison and 13 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 34-37 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 ‘material risk takers’ takes account of the different regulatory requirements and guidance that apply across the Group. Our
material risk takers 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 material risk takers, 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. Information on remuneration changes for certain material risk takers identified under the UK implementation of CRD V is set out on page 87;
this does not include the executive Directors.
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.
102
Schroders Annual Report and Accounts 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
buy back up to 5,000,000 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 2021 AGM.
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 2020 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
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 dependants. As
at 2 March 2021, 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
8,596,186 ordinary shares and 38,843 non-voting ordinary shares.
Under the terms of the Share Incentive Plan, as at 2 March 2021,
860,068 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.
Articles of Association
A special resolution to adopt new Articles of Association will be
considered by the shareholders at the 2021 AGM.
2021 Annual General Meeting
The 2021 AGM will be held on Thursday 29 April 2021 at 11.30 a.m. 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 Nominations, Audit and Risk, and
Remuneration Committees will be present to answer questions.
Schroders Annual Report and Accounts 2020
103
Governance Directors’ report continued
Substantial shareholdings
The table below shows the holdings of major shareholders in the voting rights of the Company, as at 31 December 2020, as notified and disclosed to
the Company in accordance with the Disclosure Guidance and Transparency Rules. On 15 January 2021, Harris Associates L.P., notified the Company
that their holding had decreased to 11,293,745 ordinary shares, which is 4.99% of voting rights held.
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.
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) and additional
shareholders have adhered to the Relationship Agreement as required
since that date.
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
above table, and further interests held by 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 2020:
– 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.
104
Schroders Annual Report and Accounts 2020
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 6 May
2021 to shareholders on the register of members at close of business
on 26 March 2021. Details of the Company’s dividend policy are set out
on page 29. 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
2020
2019
pence
35.0
79.0
114.0
£m
95.7
216.3
312.0
pence
35.0
79.0
114.0
£m
95.8
216.7
312.5
* Subject to approval by shareholders at the 2021 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 2020 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 46 for more details on our total
CO2e emissions data.
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.
employee share schemes may cause awards granted to employees
under such schemes to vest on a change of control.
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. 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 at
that time, 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.
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, on 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
Political donations
No political donations or contributions were made or expenditure
incurred by the Company or its subsidiaries during the year (2019: 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
Disclosure provided
(5) Details of any arrangements under which a
director of the company has waived or agreed to
waive any emoluments from the company or any
subsidiary undertaking;
(6) Where a director has agreed to waive future
emoluments, details of such waiver together
with those relating to emoluments which were
waived during the period under review;
(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.
See page 75
See page 75
See pages 104
121 and 146
See pages 104,
121 and 146
See page 104
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 12 months from the date the Annual Report
and Accounts is signed. 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 56.
By order of the Board.
Graham Staples
Company Secretary
3 March 2021
Schroders Annual Report and Accounts 2020
105
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 Company financial statements in
accordance with international accounting standards in conformity with
the requirements of Companies Act 2006 and the Group financial
statements in conformity with the requirements of the Companies Act
2006 and international financial reporting standards adopted pursuant
to Regulation (EC) No. 1606/2002 as it applies to the European Union.
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 international
accounting standards in conformity with the requirements of the
Companies Act 2006 and international financial reporting standards
adopted pursuant to Regulation (EC) No. 1606/2002 as it applies to
the European Union, 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. 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.
106
Schroders Annual Report and Accounts 2020
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
international accounting standards in conformity with the requirements
of the Companies Act 2006 and international financial reporting
standards adopted pursuant to Regulation (EC) No. 1606/2002 as it
applies to the European Union, 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 103, 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.
Financial statements
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
108
108
109
110
111
112
114
117
119
120
121
121
122
122
125
127
128
128
130
131
132
133
134
136
138
145
146
147
148
149
153
156
157
159
161
163
164
165
165
166
166
166
167
167
167
168
169
Independent auditor’s report
180
107
Schroders Annual Report and Accounts 2020Financial statements
Financial statements continued
Consolidated income statement
for the year ended 31 December 2020
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
2,512.7
(453.1)
2
2,059.6
2020
Exceptional
items2
£m
2019
Before
exceptional
items
£m
Exceptional
items2
£m
Total
£m
–
–
–
2,512.7
2,537.0
(453.1)
(484.6)
2,059.6
2,052.4
–
–
–
Total
£m
2,537.0
(484.6)
2,052.4
3
10
55.5
64.1
2,179.2
0.4
(21.0)
(20.6)
55.9
43.1
41.9
30.5
2,158.6
2,124.8
1.1
(3.3)
(2.2)
43.0
27.2
2,122.6
4
(1,476.9)
(71.2)
(1,548.1)
(1,423.6)
(74.4)
(1,498.0)
702.3
(91.8)
610.5
701.2
(76.6)
624.6
5(a)
(133.5)
568.8
9.0
(82.8)
(124.5)
486.0
(140.5)
560.7
11.6
(65.0)
(128.9)
495.7
6
6
7
200.8p
197.2p
(28.4)p
(27.9)p
172.4p
169.3p
201.6p
198.0p
(22.7)p
(22.2)p
178.9p
175.8p
114.0p
114.0p
Consolidated statement of comprehensive income
for the year ended 31 December 2020
Profit after tax1
Items that may or have been reclassified to the income statement:
Net exchange differences on translation of foreign operations after hedging
Net gain on financial assets at fair value through other comprehensive income
Net gain on financial assets at fair value through other comprehensive income held by associates
Tax on items taken directly to other comprehensive income
Items that will not be reclassified to the income statement:
Net actuarial gain/(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
2020
£m
486.0
2019
£m
495.7
3
10
5(b)
25
5(b)
37.8
1.4
0.1
(0.3)
39.0
30.4
(5.0)
25.4
(56.0)
6.3
–
(0.4)
(50.1)
(23.2)
4.0
(19.2)
64.4
(69.3)
550.4
426.4
108
Schroders Annual Report and Accounts 2020
Consolidated statement of financial position
at 31 December 2020
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
2020
£m
2019
£m
3,469.6
840.3
2,871.8
405.2
590.9
2,660.3
806.7
3,016.4
398.0
652.3
1,208.0
1,133.4
32.9
168.2
36.9
136.3
9,586.9
8,840.3
746.3
11,339.9
12,086.2
972.6
11,453.3
12,425.9
21,673.1
21,266.2
927.7
4,085.2
397.2
21.5
26.4
31.5
11.5
921.7
3,531.1
425.3
54.1
32.2
16.2
12.2
5,501.0
4,992.8
Unit-linked liabilities
15
12,086.2
12,425.9
Total liabilities
Net assets
Total equity1
17,587.2
17,418.7
4,085.9
3,847.5
4,085.9
3,847.5
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 3 March 2021 and signed on its behalf by:
Richard Keers
Director
109
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Consolidated statement of changes in equity
for the year ended 31 December 2020
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 2020
282.5
124.2
(169.1)
128.4
106.1
3,308.8
3,780.9
66.6
3,847.5
Profit for the year
Other comprehensive income1
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 2020
22
26
5(c)
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(58.3)
–
–
–
–
(58.3)
67.6
–
37.2
43.1
0.1
433.2
26.5
476.3
63.8
9.7
0.6
486.0
64.4
37.2
43.2
459.7
540.1
10.3
550.4
–
–
–
–
–
–
–
–
–
–
0.2
–
–
(58.3)
56.1
3.5
(8.0)
56.1
3.5
(7.8)
–
–
–
6.3
(58.3)
56.1
3.5
(1.5)
(311.7)
(311.7)
(0.1)
(311.8)
0.2
(260.1)
(318.2)
6.2
(312.0)
(15.9)
(51.7)
–
–
–
282.5
124.2
(159.8)
165.6
133.6
3,456.7
4,002.8
83.1
4,085.9
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 16
–
–
–
–
–
(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 income1
Total comprehensive income for the year
Own shares purchased
Share-based payments
Tax in respect of share schemes
Movements in ownership interests in subsidiaries2
Other movements
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
1. Other comprehensive income reported in the net exchange differences reserve comprises the net foreign exchange gain/(loss) on the translation of foreign
operations net of hedging. Other comprehensive income reported in the associates and joint ventures reserve represents post-tax fair value movements on
financial assets at fair value through other comprehensive income. Other comprehensive income reported in the profit and loss reserve comprises the post-tax
actuarial gain/(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.
2. Movements in ownership interests in subsidiaries in 2019, 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.
110
Schroders Annual Report and Accounts 2020
Consolidated cash flow statement
for the year ended 31 December 2020
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 from/(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
Net increase in cash and cash equivalents
Opening cash and cash equivalents
Net increase 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
Notes
23
2020
£m
832.5
2019
£m
1,002.0
12
22
7
(18.3)
(92.8)
(1,728.2)
1,974.2
14.9
1.5
151.3
(15.8)
(44.4)
(58.3)
(311.8)
(0.8)
(431.1)
(152.4)
(142.9)
(1,730.2)
1,841.2
22.5
3.5
(158.3)
(44.3)
(26.5)
(81.0)
(314.7)
(0.5)
(467.0)
552.7
376.7
3,632.9
3,281.6
552.7
30.3
376.7
(25.4)
4,215.9
3,632.9
3,421.9
47.7
3,469.6
746.3
4,215.9
2,578.4
81.9
2,660.3
972.6
3,632.9
111
Schroders Annual Report and Accounts 2020Financial 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. The Wealth Management segment includes the Group’s proportional share of the income and
expenses of its 49.9% interest in 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 standards.
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 functions. This allocation provides management with the relevant
information as to the business performance to effectively manage and control expenditure.
Year ended 31 December 2020
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 2019
Revenue
Cost of sales
Net operating revenue
Net gain on financial instruments and other income
Share of profit of associates and joint ventures
Asset
Management
£m
Wealth
Management
£m
2,182.6
(435.4)
1,747.2
(9.8)
49.5
1,786.9
(1,213.6)
573.3
393.3
(26.4)
366.9
14.7
1.1
382.7
(272.2)
110.5
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
Net income
1,781.2
309.6
Group
£m
–
–
–
58.1
–
58.1
(39.6)
18.5
Group
£m
–
–
–
40.8
4.1
44.9
Segmental
total
£m
2,575.9
(461.8)
2,114.1
Adjustments
£m
(63.2)
8.7
Group
total
£m
2,512.7
(453.1)
(54.5)
2,059.6
63.0
50.6
(7.5)
13.5
55.5
64.1
2,227.7
(48.5)
2,179.2
(1,525.4)
702.3
48.5
–
(1,476.9)
702.3
Segmental
total
£m
2,551.9
(486.7)
2,065.2
41.9
28.6
Adjustments
£m
(14.9)
2.1
(12.8)
–
1.9
Group
Total
£m
2,537.0
(484.6)
2,052.4
41.9
30.5
2,135.7
(10.9)
2,124.8
Operating expenses
Profit before tax and exceptional items
(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
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.
112
Schroders Annual Report and Accounts 2020
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 (including
associates and joint ventures) undertaken by the Group, including amortisation of acquired intangible assets, certain one-off costs in 2020
relating to the Group’s property estate, and in 2019, the cost reduction programme.
Year ended 31 December 2020
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
Other expenses
Asset
Management
£m
Wealth
Management
£m
573.3
110.5
Group
£m
18.5
Segmental
total
£m
702.3
0.4
–
0.4
(13.8)
(16.4)
(30.2)
–
(21.0)
(21.0)
(22.5)
(2.2)
(24.7)
–
–
–
–
(16.3)
(16.3)
0.4
(21.0)
(20.6)
(36.3)
(34.9)
(71.2)
Profit before tax and after exceptional items
543.5
64.8
2.2
610.5
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
(c) Geographical information
The Group’s non-current assets1 are located in the following countries:
United Kingdom
Switzerland
China
United States
France
Singapore
Other
Total
Adjustments
£m
–
–
–
–
–
–
–
–
Adjustments
£m
–
–
–
–
–
–
–
–
–
Group
total
£m
702.3
0.4
(21.0)
(20.6)
(36.3)
(34.9)
(71.2)
610.5
Group
total
£m
701.2
1.1
(3.3)
(2.2)
(30.0)
(29.0)
(15.4)
(74.4)
624.6
2020
£m
2019
£m
1,513.4
1,411.7
187.4
159.4
111.7
86.6
44.2
107.6
272.2
118.2
122.6
85.0
57.1
117.0
2,210.3
2,183.8
1. Comprises the following non-current assets: property, plant and equipment, goodwill and intangible assets, associates and joint ventures and prepayments.
113
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Notes to the accounts continued
1. Segmental reporting continued
(d) Non-cash items
Year ended 31 December 2020
Operating expenses include the following non-cash items:
Asset
Management
£m
Wealth
Management
£m
Group
£m
Segmental
total
£m
Adjustments
£m
Share-based payments
Depreciation and amortisation
(48.9)
(125.6)
(4.1)
(30.4)
(3.1)
(12.8)
(56.1)
(168.8)
–
–
Group
total
£m
(56.1)
(168.8)
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
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)
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 certain arrangements when contractually agreed performance levels are exceeded
within specified performance measurement periods. They are only recognised where it is highly probable that a significant reversal will not
occur 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. 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 and interest is therefore recognised within revenue. Interest
income is 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. 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 the cost of financial obligations arising from carried interest. Amounts payable in respect of carried interest are
determined based on the proportion of carried interest income that is payable to third parties.
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 arising elsewhere in the business and is
reported as part of cost of sales. Interest is recognised using the effective interest method (see above).
114
Schroders Annual Report and Accounts 2020 2. Net operating revenue continued
a) Net operating revenue by segment is presented below:
Year ended 31 December 2020
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
Asset
Management
£m
Wealth
Management
£m
2,058.0
332.4
85.8
21.3
17.5
–
1.1
–
42.6
17.2
2,182.6
393.3
(422.9)
(12.5)
–
(435.4)
(23.3)
–
(3.1)
(26.4)
Net operating revenue
1,747.2
366.9
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
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
–
–
–
–
–
–
–
–
–
–
–
Group
£m
–
–
–
–
–
–
–
–
–
–
–
Segmental
total
£m
2,390.4
Adjustments
£m
Group
total
£m
(63.2)
2,327.2
86.9
21.3
60.1
17.2
–
–
–
–
86.9
21.3
60.1
17.2
2,575.9
(63.2)
2,512.7
(446.2)
(12.5)
(3.1)
(461.8)
8.7
–
–
8.7
(437.5)
(12.5)
(3.1)
(453.1)
2,114.1
(54.5)
2,059.6
Segmental
total
£m
2,393.5
43.8
23.4
48.9
42.3
Adjustments
£m
Total
£m
(13.3)
2,380.2
–
–
(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
115
Schroders Annual Report and Accounts 2020Financial statements 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 2020
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
784.4
724.4
7.8
–
37.1
14.5
31.9
21.3
14.0
2.3
Asia Pacific
£m
Americas
£m
589.6
26.5
292.0
20.7
–
8.9
0.4
–
0.1
–
Segmental
total
£m
Adjustments
£m
Group
total
£m
2,390.4
(63.2)
2,327.2
86.9
21.3
60.1
17.2
–
–
–
–
86.9
21.3
60.1
17.2
843.8
793.9
625.4
312.8
2,575.9
(63.2)
2,512.7
(59.8)
(175.6)
(171.4)
(39.4)
(446.2)
8.7
(437.5)
–
(3.0)
(62.8)
(12.5)
(0.1)
–
–
–
–
(12.5)
(3.1)
–
–
(12.5)
(3.1)
(188.2)
(171.4)
(39.4)
(461.8)
8.7
(453.1)
Net operating revenue
781.0
605.7
454.0
273.4
2,114.1
(54.5)
2,059.6
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
Estimates and judgements – revenue
Carried interest represents the Group’s contractual right to a share of the profits of around 95 private asset investment vehicles
(2019: 85 vehicles), if certain performance hurdles are met. It is recognised when the relevant services have been provided and it is highly
probable that a significant reversal will not occur.
The amount of carried interest that will ultimately 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 the timing and quantum of distributions to clients in the
vehicle. For accounting purposes, 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 individual investment managers’
expectations as to the realisation of cash flows from the successful disposal of the 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.
116
Schroders Annual Report and Accounts 2020 2. Net operating revenue continued
Estimates and judgements – cost of sales
The crystallisation of financial obligations in respect of carried interest (carried interest payable) is contingent on the Group receiving 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 116, adjusted to reflect the portion that is payable to third parties. The actual 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 £2.8 million (2019: £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 £1.6 million/
£3.0 million (2019: £3.0 million/£2.4million) and this amount would be lower than the corresponding increase/reduction in revenue.
3. Net gain on financial instruments and other income
The Group’s net gain on financial instruments and other income principally arises from financial instruments it holds to support its 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. 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 net gains on financial investment and other income 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.
117
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Notes to the accounts continued
3. Net gain on financial instruments and other income continued
Year ended 31 December
Net gain on financial instruments at FVTPL
Net gain arising from fair value movements
Net transfers on disposal
Net gain on financial assets at FVOCI
Net finance income
Other (loss)/income
2020
2019
Income
statement
£m
Other
comprehensive
income
£m
58.0
–
–
0.5
0.5
1.1
(3.7)
1.9
(0.5)
1.4
–
–
Total
£m
58.0
1.9
–
1.9
1.1
(3.7)
Income
statement
£m
Other
comprehensive
income
£m
0.6
–
0.5
0.5
8.3
33.6
–
6.8
(0.5)
6.3
–
–
Total
£m
0.6
6.8
–
6.8
8.3
33.6
Net gain on financial instruments and other income1
55.9
1.4
57.3
43.0
6.3
49.3
Net gain on financial instruments held to hedge employee deferred
cash awards – presented within operating expenses (see note 4)
Change in financial obligations in respect of carried interest – presented
within cost of sales (see note 2)
Net gain on financial instruments and other income – including
amounts presented elsewhere
1. Includes a credit of £0.4 million (2019: £1.1 million credit) of exceptional items.
25.6
(12.5)
–
–
25.6
21.3
(12.5)
5.9
–
–
21.3
5.9
69.0
1.4
70.4
70.2
6.3
76.5
118
Schroders Annual Report and Accounts 2020 4. Operating expenses
Operating expenses represents the Group’s administrative expenses and is recognised as the services are received. Certain costs, such as
depreciation of property, plant and equipment, 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. 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 (see note 3).
Further detail on other employee benefits can be found elsewhere within these financial statements, see note 25 for pension costs and note
26 for 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 on financial instruments held to hedge deferred cash awards
Employee benefits expense – net of hedging
2020
£m
871.5
82.5
54.1
1,008.1
(25.6)
982.5
2019
£m
855.6
84.2
44.1
983.9
(21.3)
962.6
The employee benefits expense net of hedging of £982.5 million (2019: £962.6 million) includes £7.8 million (2019: £35.3 million) that is
presented within exceptional items. This comprises £7.8 million (2019: £6.3 million) arising from acquisitions completed by the Group and, in
2019, £29.0 million 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 payable to Directors along
with the number of Directors who exercised share options in the year is provided in the Remuneration report on pages 75 to 102.
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
2020
Number
5,165
391
5,556
4,384
1,142
30
5,556
2020
£m
0.6
3.6
1.1
0.5
–
5.8
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
119
Schroders Annual Report and Accounts 2020Financial statements 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
2020
£m
49.9
69.3
(4.8)
114.4
0.5
5.0
4.6
10.1
2019
£m
60.9
67.7
(1.1)
127.5
(4.1)
2.5
3.0
1.4
Tax charge reported in the income statement
124.5
128.9
(b) Analysis of tax charge/(credit) reported in other comprehensive income
Year ended 31 December
Current tax charge/(credit) on movements in financial assets at fair value through other comprehensive income
Deferred tax charge/(credit) on actuarial gains and losses on defined benefit pension schemes
Deferred tax (credit)/charge on other movements through other comprehensive income
Deferred tax - effect of changes in corporation tax rates
Tax charge/(credit) reported in other comprehensive income
(c) Analysis of tax credit reported in equity
Year ended 31 December
Current tax credit on Deferred Award Plan and other share-based remuneration
Deferred tax credit on Deferred Award Plan and other share-based remuneration
Deferred tax - effect of changes in corporation tax rates
Tax credit reported in equity
2020
£m
0.2
5.6
(0.1)
(0.4)
5.3
2020
£m
(2.7)
(0.5)
(0.3)
(3.5)
2019
£m
(1.1)
(4.0)
1.5
–
(3.6)
2019
£m
(2.6)
(2.6)
–
(5.2)
(d) Factors affecting tax charge for the year
The UK standard rate of corporation tax for 2020 is 19% (2019: standard rate of 19%). The tax charge for the year is higher (2019: higher) than a
charge based on the UK standard rate. The differences are explained below:
Year ended 31 December
Profit before tax
Less share of profit of associates and joint ventures
Profit before tax of Group entities
2020
£m
610.5
(43.1)
567.4
2019
£m
624.6
(27.2)
597.4
Profit before tax of consolidated Group entities multiplied by corporation tax at the UK standard rate
107.8
113.5
Effects of:
Different statutory tax rates of overseas jurisdictions
Permanent differences including non-taxable income and non-deductible expenses
Net movement in temporary 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
5.9
10.0
(4.0)
4.6
0.2
8.0
1.7
1.3
3.0
1.4
124.5
128.9
120
Schroders Annual Report and Accounts 2020 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.
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
2020
Number
Millions
276.2
5.0
0.1
281.3
2019
Number
Millions
276.2
4.8
0.1
281.1
The pre-exceptional earnings per share calculations are based on profit after tax excluding non-controlling interest of £14.2 million
(2019: £4.0 million). After exceptional items, the profit after tax attributable to non-controlling interest was £9.7 million (2019: £1.6 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
2021
£m
Pence per
share
2020
2019
£m
216.0
95.7
311.7
Pence per
share
79.0
35.0
114.0
£m
216.5
95.8
312.3
Pence per
share
79.0
35.0
114.0
Current year final dividend recommended
216.3
79.0
Dividends of £10.4 million (2019: £9.8 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 2020 final dividend of 79.0 pence per share (2019 final dividend: 79.0 pence), amounting to
£216.3 million (2019 final dividend: £216.0 million). The dividend will be paid on 6 May 2021 to shareholders on the register at 26 March 2021
and will be accounted for in 2021.
In addition, the Group paid £0.1 million of dividends to holders of non-controlling interests in subsidiaries of the Group during 2020
(2019: £2.4 million), resulting in total dividends paid of £311.8 million (2019: £314.7 million).
121
Schroders Annual Report and Accounts 2020Financial statements 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). 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.
Non-current
£m
2020
Current
£m
Total
£m
Non-current
£m
2019
Current
£m
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
–
–
53.8
6.2
7.6
–
77.6
155.2
430.2
52.3
39.5
14.8
77.6
155.2
484.0
58.5
47.1
14.8
67.6
769.6
837.2
–
67.6
3.1
772.7
3.1
840.3
–
–
71.2
0.1
16.2
–
87.5
–
87.5
Total
£m
87.8
150.2
436.7
42.5
67.6
16.5
87.8
150.2
365.5
42.4
51.4
16.5
713.8
801.3
5.4
719.2
5.4
806.7
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 £90.7 million of receivables in respect of carried interest (2019: £75.7 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, FVOCI or 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 expected 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.
122
Schroders Annual Report and Accounts 2020 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 be derived from readily
available sources or may require some estimation. 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, government debt 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
2020
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
343.0
343.0
–
99.0
668.5
293.7
0.6
–
–
–
–
246.5
246.5
4.1
168.0
62.8
21.5
33.5
1,061.8
289.9
–
–
–
–
–
–
–
6.2
108.8
23.3
–
138.3
Not at
fair value
£m
206.5
477.9
107.9
792.3
–
–
–
–
–
–
–
–
Total
£m
206.5
477.9
107.9
792.3
589.5
589.5
4.1
273.2
840.1
338.5
34.1
1,490.0
1,404.8
536.4
138.3
792.3
2,871.8
123
Schroders Annual Report and Accounts 2020Financial statements 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
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
–
–
–
–
–
–
–
5.6
95.3
29.7
4.3
314.9
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
2020
£m
2,354.3
517.5
2,871.8
2019
£m
2,606.4
410.0
3,016.4
The fair value of financial assets at amortised cost approximates their carrying value. No financial assets were transferred between levels during
2020 (2019: 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
2020
£m
134.9
3.0
4.1
23.3
(27.0)
138.3
2019
£m
116.4
(2.4)
1.3
35.2
(15.6)
134.9
124
Schroders Annual Report and Accounts 2020 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. At each reporting date, the Group applies judgement to
determine whether there is any indication that the carrying value of associates and joint ventures may be impaired.
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
within financial assets at fair value through profit or loss at fair value where permitted by the accounting standards (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/(loss) for the year after tax
Gains recognised in other comprehensive income
Other movements in reserves of associates and joint ventures
Distributions of profit
At 31 December
2020
Associates
£m
Joint ventures
£m
200.2
197.8
2.0
0.2
(34.3)
48.5
0.1
0.2
(5.9)
211.0
(0.1)
2.5
–
(5.4)
–
–
(0.6)
194.2
Total
£m
398.0
1.9
2.7
(34.3)
43.1
0.1
0.2
(6.5)
2019
Associates
£m
Joint ventures
£m
173.1
(8.3)
12.6
(0.7)
26.9
–
(0.7)
(2.7)
2.1
(0.1)
196.3
–
0.3
–
–
(0.8)
197.8
405.2
200.2
Total
£m
175.2
(8.4)
208.9
(0.7)
27.2
–
(0.7)
(3.5)
398.0
On 31 January 2020, the Group disposed of its 41.0% interest in RWC for £34.0 million. Peter Harrison disposed of his interest at the same time
and on the same terms as the Group disposed of its interest. Also included in disposals are other movements in the carrying value of associates.
Information about the significant associates and joint ventures held by the Group at 31 December 2020 is shown below. The companies are
unlisted.
Name of associate or joint venture
Nature of its
business
Principal place of
business
Class of share
Percentage
owned by the
Group
Scottish Widows Schroder Wealth Holdings Limited (SPW)
Wealth management
England
Ordinary shares
49.9%
Bank of Communications Schroder Fund Management Co.
Ltd. (BoCom)
Investment management
Axis Asset Management Company Limited (Axis)
Investment management
A10 Capital Parent Company LLC (A10)
Real estate lending
China
India
USA
Ordinary shares
Ordinary shares
Common units
30.0%
25.0%
19.3%
125
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Notes to the accounts continued
10. Associates and joint ventures continued
2020
Non-current assets
Current assets
SPW
£m
BoCom
£m
216.0
36.7
143.0 636.4
Axis
£m
13.1
58.5
A10
£m
Other
£m
Total
£m
SPW
£m
RWC
£m
BoCom
£m
2019
Axis
£m
A10
£m
Other
£m
Total
£m
953.2
2.2 1,221.2
217.3
1.7
28.3
16.9
894.2
4.3 1,162.7
125.5
19.4
982.8
137.5
83.5 470.7
36.3
93.0
18.6
839.6
Non-current liabilities
(22.0)
(0.9)
(4.7)
(956.6)
(0.7)
(984.9)
(20.1)
(0.1)
(4.2)
(3.5) (882.4)
(1.3)
(911.6)
Current liabilities
Total equity
(68.1) (142.2)
(6.8)
(77.9)
(3.7)
(298.7)
(63.2)
(38.5) (101.5)
(10.7)
(61.4)
(4.0)
(279.3)
268.9 530.0
60.1
44.2
17.2
920.4
271.5
46.6 393.3
39.0
43.4
17.6
811.4
Group’s share of net assets
134.2 159.0
Goodwill and intangible assets
Deferred tax liability
60.9
(3.1)
–
–
15.0
10.4
–
8.5
1.2
–
6.1
13.0
–
322.8
135.5
19.1 118.0
85.5
(3.1)
63.7
(3.4)
9.7
–
–
–
9.8
11.0
–
Carrying value held by the Group
192.0 159.0
25.4
9.7
19.1
405.2
195.8
28.8 118.0
20.8
8.4
1.3
–
9.7
5.7
19.2
296.5
104.9
–
(3.4)
24.9
398.0
Net income
125.2 263.3
57.4
34.0
23.4
503.3
25.8
55.0 195.8
43.1
29.8
15.1
364.6
Profit/(loss) for the year
Other comprehensive income
(6.8) 141.7
22.7
–
–
–
Total comprehensive income
(6.8) 141.7
22.7
4.0
0.5
4.5
4.1
–
4.1
165.7
0.5
166.2
0.8
10.6
66.5
11.3
–
–
–
–
0.8
10.6
66.5
11.3
Group’s share of profit/(loss) for the
year before amortisation
Amortisation charge
Group’s share of profit/(loss) for the
year
Group’s share of other comprehensive
income
Group’s share of total
comprehensive income
(3.4)
42.5
(2.8)
–
5.7
–
0.8
1.6
–
(1.3)
47.2
(4.1)
0.4
(0.9)
4.3
20.0
–
–
2.8
–
(6.2)
42.5
5.7
0.8
0.3
43.1
(0.5)
4.3
20.0
2.8
1.1
(0.5)
27.2
–
–
–
0.1
–
0.1
–
–
–
–
–
–
–
(6.2)
42.5
5.7
0.9
0.3
43.2
(0.5)
4.3
20.0
2.8
1.1
(0.5)
27.2
(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.
2020
Schroder
Absolute Return
Emerging
Markets Debt
Portfolio LP
£m
Schroder ISF
Healthcare
Innovation
£m
Schroder
Indian
Equity
£m
Schroder
Global CB
Fund PPIT
Unhedged
£m
Schroder
Fusion
Managed
Defensive
£m
ICBC (Europe)
ECITS SICAV
£m
SPW
Balanced
Portfolio
£m
Schroder
Long Dated
Corporate
Bond
£m
Schroder All
Maturities
Corporate
Bond
£m
5.9
–
5.9
0.4
0.4
0.4
38.2
30.0
–
–
38.2
30.0
2.1
2.1
2.1
–
–
–
17.6
–
17.6
2.2
2.2
2.2
21.8
–
21.8
0.6
0.6
0.6
22.3
–
22.3
0.2
0.2
0.2
4.5
–
4.5
–
–
–
395.6
1,231.2
–
–
395.6
1,231.2
11.1
20.8
11.1
11.1
20.7
20.7
US Luxembourg
UK
Japan
UK Luxembourg
UK
UK
UK
30%
21%
23%
24%
25%
33%
24%
26%
34%
Current assets
Current liabilities
Total equity
Net income
Profit/(loss) for the year
Total comprehensive income
Country of incorporation
Percentage owned by the
Group
126
5.5
–
5.5
1.1
–
0.2
–
0.2
94.9
–
94.9
0.4
(0.9)
29.0
(1.8)
Schroders Annual Report and Accounts 2020 10. Associates and joint ventures continued
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
11. Property, plant and equipment
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.
2020
2019
Leasehold
improvements
£m
Land and
buildings
£m
Other
assets
£m
Total
£m
Leasehold
improvements
£m
Land and
buildings
£m
Other
assets
£m
Total
£m
Cost
At 1 January
Exchange translation adjustments
Additions
Disposals
187.6
19.7
145.4
352.7
189.0
19.7
110.9
319.6
–
4.9
(3.8)
–
–
–
0.9
14.0
(2.8)
0.9
18.9
(6.6)
(1.9)
3.7
(3.2)
–
–
–
(1.5)
39.4
(3.4)
(3.4)
43.1
(6.6)
At 31 December
188.7
19.7
157.5
365.9
187.6
19.7
145.4
352.7
Accumulated depreciation
At 1 January
Exchange translation adjustments
Depreciation charge
Disposals
At 31 December
(34.0)
(0.1)
(19.6)
3.0
(50.7)
(0.9)
–
(0.4)
–
(1.3)
(60.2)
(0.2)
(19.6)
2.2
(77.8)
(95.1)
(0.3)
(39.6)
5.2
(129.8)
(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)
Net book value at 31 December
138.0
18.4
79.7
236.1
153.6
18.8
85.2
257.6
Right-of-use assets (see note 12)
Property, plant and equipment
net book value at 31 December
354.8
590.9
394.7
652.3
127
Schroders Annual Report and Accounts 2020Financial statements
Financial statements continued
Notes to the accounts continued
12. Leases
The Group’s lease arrangements primarily consist of operating leases relating to office space.
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. This is the rate that
we would have to pay for a loan of a similar term, and with similar security to obtain an asset of similar value. 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 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 from
commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term as the benefit of the asset is
consumed. Increases or decreases that occur at contractually agreed market rent review dates are included in the lease liability once revised
market rents have been agreed.
The Group considers whether the lease term should reflect options to extend or reduce the life of the lease. Relevant factors that could
create an economic incentive to exercise the option are considered and the extensions/termination 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. Should this occur, the Group modifies the
lease liability and associated ROU asset to reflect the revised remaining expected cashflows.
At 1 January
Exchange translation adjustments
Additions and remeasurements of lease obligations
Lease payments
Depreciation charge
Interest expense
At 31 December
2020
Right-of-use
assets
£m
394.7
0.1
4.4
–
(44.4)
–
354.8
The depreciation charge and interest expense relating to leases are recorded within operating expenses.
Lease liabilities – current
Lease liabilities – non-current
The Group’s lease liabilities contractually mature in the following time periods:
2019
Lease
liabilities
£m
Right-of-use
assets
£m
Lease
Liabilities
£m
425.3
(0.7)
5.0
(44.4)
–
12.0
397.2
411.9
(4.0)
27.1
–
(40.3)
–
394.7
2020
35.9
361.3
397.2
418.3
(6.0)
27.1
(26.5)
–
12.4
425.3
2019
37.1
388.2
425.3
2020
2019
No later than
1 year
£m
Later than 1 year
and no later
than 5 years
£m
Later than
5 years
£m
Total
£m
No later than
1 year
£m
Later than 1 year
and no later
than 5 years
£m
Later than
5 years
£m
Total
£m
Lease liabilities
48.7
161.9
283.5
494.1
50.0
142.7
354.7
547.4
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 amortised on a straight line basis, primarily over seven years.
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. The 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.
128
Schroders Annual Report and Accounts 2020 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
2020
Acquired
intangible
assets
£m
Goodwill
£m
Software
£m
Total
£m
Goodwill
£m
2019
Acquired
intangible
assets
£m
Software
£m
Total
£m
761.8
326.0
340.6
1,428.4
16.6
33.3
–
5.4
31.4
–
0.6
73.9
(1.9)
22.6
138.6
(1.9)
811.7
362.8
413.2
1,587.7
676.5
(10.3)
104.5
(8.9)
761.8
278.4
251.4
1,206.3
(3.6)
51.2
–
(2.0)
99.8
(8.6)
(15.9)
255.5
(17.5)
326.0
340.6
1,428.4
–
–
–
–
–
(182.7)
(112.3)
(295.0)
(1.2)
(36.3)
–
(0.6)
(48.5)
1.9
(1.8)
(84.8)
1.9
(220.2)
(159.5)
(379.7)
–
–
–
–
–
(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)
Carrying amount at 31 December
811.7
142.6
253.7
1,208.0
761.8
143.3
228.3
1,133.4
The Group acquired £29.1 million (2019: £49.9 million) of intangible assets as a result of business combinations completed in 2020 (see note 29).
The Group also acquired £2.3 million (2019: £1.3 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. Of the total goodwill, £583.1 million (2019: £556.6 million) is allocated to Asset
Management and £228.6 million (2019: £205.2 million) is allocated to Wealth Management, of which £68.1 million (2019: £66.1 million)
relates to Benchmark Capital.
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 (2019: 2%), a pre-tax discount rate of 10% (2019: 10%), expected flows and expected
changes to margins. The results of the calculations indicate that goodwill is not impaired.
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.
129
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Notes to the accounts continued
13. Goodwill and intangible assets continued
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 (2019: nil)
to its goodwill asset in the year as a result of inaccurate projections.
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.
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.
At 1 January
Restatement on adoption of new
accounting standards
Income statement (charge)/credit
Income statement (charge)/credit due
to changes in tax rates
(Charge)/credit to other
comprehensive income
Credit/(charge) to statement of other
comprehensive income due to changes in
tax rates
Credit to equity
Credit to equity due to changes in tax rates
Business combinations (see note 29)
Exchange translation adjustments
At 31 December
2020
2019
Accelerated
capital
allowances
£m
Deferred
employee
awards
£m
Pension
schemes
£m
Other net
temporary
differences
£m
(5.7)
77.3
(22.3)
(28.6)
Total
£m
20.7
Accelerated
capital
allowances
£m
Deferred
employee
awards
£m
Pension
schemes
£m
Other net
temporary
differences
£m
Total
£m
(2.1)
75.6
(26.1)
(19.7)
27.7
–
1.3
–
1.1
–
(0.5)
–
–
(7.4)
(5.5)
–
(4.3)
–
4.4
–
(0.3)
0.6
1.8
0.6
1.6
(0.3)
3.2
(3.4)
(4.1)
(4.6)
0.6
(4.0)
0.1
0.3
(3.0)
–
–
–
–
–
0.1
(4.6)
–
–
0.5
0.3
–
(0.1)
(5.6)
0.1
(5.5)
0.6
(0.2)
0.4
0.5
0.3
–
–
0.6
(5.5)
(5.5)
–
–
–
–
82.3
(31.2)
(45.1)
0.6
1.4
0.1
(5.7)
–
–
–
–
–
–
–
2.6
–
(0.1)
(1.2)
4.0
(1.5)
2.5
–
–
–
–
–
–
–
–
–
2.6
–
(9.9)
(10.0)
(0.2)
(1.3)
77.3
(22.3)
(28.6)
20.7
On 11 March 2020 it was announced (and enacted on 22 July 2020) that the UK corporation tax rate would remain at 19% and not reduce to 17%
(the previously enacted rate) from 1 April 2020. The UK deferred tax balances have been calculated with reference to the rate of 19%. In response
to the global pandemic, various governments around the world have taken significant steps to support their relevant economies. This has led to
increased government borrowing, which may have an impact on future corporation tax rates when enacted. Any such changes will have an
impact on deferred tax assets and liabilities.
A deferred tax asset of £7.6 million (2019: £19.0 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. A deferred
tax asset of £11.1 million (2019: £9.9 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:
Deferred tax assets
Deferred tax liabilities
130
2020
£m
32.9
(31.5)
1.4
2019
£m
36.9
(16.2)
20.7
Schroders Annual Report and Accounts 2020 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
2020
£m
9,727.6
2,358.6
2019
£m
9,814.1
2,611.8
12,086.2
12,425.9
1. In accordance with the 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
9,459.7
11,963.8
Level 1
£m
8,724.3
12,310.5
2020
Level 3
£m
28.1
–
2019
Level 3
£m
29.5
–
Level 2
£m
1,728.6
58.9
Level 2
£m
2,596.2
56.5
Not at
fair value
£m
869.8
63.5
Not at
fair value
£m
1,075.9
58.9
Total
£m
12,086.2
12,086.2
Total
£m
12,425.9
12,425.9
The fair value of financial instruments not held at fair value approximates 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 between levels during the year (2019: 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
2020
£m
29.5
(0.9)
3.4
2.1
(6.0)
28.1
2019
£m
37.3
(1.8)
2.7
1.4
(10.1)
29.5
131
Schroders Annual Report and Accounts 2020Financial statements 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 be paid 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
2020
Current
£m
Total
£m
Non-current
£m
2019
Current
£m
–
–
21.0
13.4
0.3
34.7
84.7
–
84.7
151.7
11.0
70.1
463.3
18.9
715.0
90.2
3.1
93.3
151.7
11.0
91.1
476.7
19.2
749.7
174.9
3.1
178.0
–
–
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
Total
£m
145.0
15.7
89.9
483.5
26.1
760.2
156.1
5.4
161.5
119.4
808.3
927.7
131.9
789.8
921.7
The fair value of trade and other payables held at amortised cost approximates 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
2020
£m
808.3
59.0
59.3
1.1
2019
£m
789.8
59.6
72.1
0.2
119.4
131.9
927.7
921.7
1. Settlement accounts are generally settled within four working days and trade creditors have an average settlement period of 23 working days
(2019: 21 working days).
132
Schroders Annual Report and Accounts 2020 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
2020
Level 1
£m
Level 2
£m
Level 3
£m
Not at
fair value
£m
Total
£m
–
–
–
–
3.9
279.9
283.8
–
–
–
–
29.1
–
29.1
–
–
–
–
–
143.7
143.7
3,550.3
3,550.3
72.8
5.5
72.8
5.5
3,628.6
3,628.6
–
–
–
33.0
423.6
456.6
283.8
29.1
143.7
3,628.6
4,085.2
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
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 their carrying value.
Current
Non-current
2020
£m
3,945.5
139.7
4,085.2
2019
£m
3,386.8
144.3
3,531.1
133
Schroders Annual Report and Accounts 2020Financial statements 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, 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.
Movements in financial liabilities categorised as level 3 during the year were:
At 1 January
Exchange translation adjustments
Net loss/(gain) recognised in the income statement
Additions
Disposals and settlements
At 31 December
18. Provisions and contingent liabilities
2020
£m
155.1
4.6
14.6
18.4
(49.0)
143.7
2019
£m
154.4
(2.9)
(12.0)
54.4
(38.8)
155.1
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.
At 1 January 2020
Exchange translation adjustments
Provisions utilised
Additional provisions charged
Unused amounts reversed
At 31 December 2020
Dilapidations
£m
Legal, regulatory
and other
£m
14.9
(0.1)
–
0.4
–
15.2
17.3
0.3
–
2.8
(9.2)
11.2
Total
£m
32.2
0.2
–
3.2
(9.2)
26.4
134
Schroders Annual Report and Accounts 2020 18. Provisions and contingent liabilities continued
Current – 2020
Non-current – 2020
Current – 2019
Non-current – 2019
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
–
15.2
15.2
0.7
14.2
14.9
5.2
6.0
11.2
3.2
14.1
17.3
2020
£m
5.2
7.5
1.5
0.3
–
11.9
21.2
Total
£m
5.2
21.2
26.4
3.9
28.3
32.2
2019
£m
3.9
15.6
0.1
–
0.8
11.8
28.3
Dilapidation provisions associated with the Group’s office leases have a weighted average maturity of 13 years (2019: 16 years).
Legal and regulatory obligations associated with the Group’s business arise from past events that are estimated to crystallise mainly within two
years (2019: two years). These matters are ongoing.
26.4
32.2
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 2020, 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 2019: none). The provisions included in the
financial statements at 31 December 2020 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.
135
Schroders Annual Report and Accounts 2020Financial statements 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, market 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.
136
Schroders Annual Report and Accounts 2020 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.
2020
2019
Assets
£m
32.2
1.9
34.1
Liabilities
£m
(21.1)
(11.9)
(33.0)
Assets
£m
49.1
10.2
59.3
Liabilities
£m
(29.1)
(13.6)
(42.7)
2020
2019
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
1.9
(11.9)
–
–
–
–
–
–
5.9
4.3
–
–
(13.6)
–
–
–
1.9
(11.9)
10.2
(13.6)
1,402.2
(1,374.1)
4.1
32.2
874.4
(889.8)
(5.7)
(21.1)
1,118.7
(1,082.0)
12.4
49.1
322.3
(337.2)
(14.2)
(29.1)
34.1
(33.0)
59.3
(42.7)
137
Schroders Annual Report and Accounts 2020Financial statements 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 50).
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 £874 million (2019: £858 million). The TCR incorporates our
Pillar 1 regulatory capital requirement of £717 million (2019: £679 million). In addition to the TCR of our banking group, we are required to hold
additional capital of £256 million (2019: £269 million) in respect of our insurance companies and regulatory buffers. The Group’s overall
regulatory capital requirement was £1,130 million at 31 December 2020 (2019: £1,127 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
2020
£m
1,548
612
320
97
1,509
4,086
2019
£m
1,216
578
408
148
1,498
3,848
(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.
The Group complied with all externally imposed regulatory capital requirements during the year.
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.
138
Schroders Annual Report and Accounts 2020 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
2020
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
3,469.6
763.9
206.5
477.9
107.9
–
–
–
–
–
–
–
–
869.8
5,895.6
658.6
3,628.6
397.2
–
26.4
–
–
63.5
4,774.3
–
–
–
–
589.5
–
–
–
–
–
–
–
–
–
589.5
–
–
–
–
–
–
–
–
–
–
–
–
4.1
273.2
840.1
338.5
34.1
–
–
–
–
–
11,216.4
12,706.4
174.9
456.6
–
–
–
–
–
12,022.7
12,654.2
Total
£m
3,469.6
840.3
206.5
482.0
970.6
840.1
338.5
34.1
405.2
590.9
–
76.4
–
–
–
–
–
–
405.2
590.9
1,208.0
1,208.0
32.9
168.2
–
2,481.6
94.2
–
–
21.5
–
31.5
11.5
–
158.7
32.9
168.2
12,086.2
21,673.1
927.7
4,085.2
397.2
21.5
26.4
31.5
11.5
12,086.2
17,587.2
4,085.9
1. Financial assets at fair value through profit or loss includes £11,255.0 million of assets that are designated at fair value through profit or loss and £1,451.4 million
that are mandatorily measured at fair value through profit or loss. Financial liabilities at fair value through profit or loss includes £12,602.4 million of liabilities that
are designated at fair value through profit or loss and £51.8 million that are mandatorily measured at fair value through profit or loss.
139
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Notes to the accounts continued
20. Financial instrument risk management continued
(a) Capital continued
2019
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
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.
(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 50 and 69 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.
140
Schroders Annual Report and Accounts 2020 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
2020
£m
2019
£m
140.4
159.2
277.3
2,131.6
437.7
44.9
231.7
44.7
2.1
320.9
16.4
1,072.9
342.2
446.7
318.2
117.3
24.0
1.7
2020
£m
–
–
55.2
27.1
119.5
–
4.7
–
–
2019
£m
–
8.5
26.4
125.0
157.4
24.1
8.8
–
–
3,469.6
2,660.3
206.5
350.2
2020
£m
257.8
9.1
11.0
159.9
139.9
40.0
59.5
206.5
86.9
970.6
2019
£m
172.3
9.2
418.8
91.7
98.4
60.7
59.1
186.3
111.0
1,207.5
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 assurance 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 2020, the fair value of collateral that could be sold or repledged but had not been, relating solely to these arrangements, was
£831.8 million (2019: £632.4 million).
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.
141
Schroders Annual Report and Accounts 2020Financial statements 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 2020 were £0.4 million
(2019: £0.3 million). Loans and advances to clients includes one under-performing (stage 2) loan of £2.9 million (2019: none) and £2.0 million of
non-performing (stage 3) loans (2019: £1.6 million) giving rise to nil and £0.2 million of expected credit losses respectively (2019: nil 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) (2019: same).
Expected credit losses on financial assets at fair value through other comprehensive income within the Wealth Management entities at
31 December 2020 were £0.3 million (2019: £0.2 million). All financial assets at fair value through other comprehensive income were performing
(stage 1) (2019: 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 2020 were £54.3 million (31 December 2019: £45.0 million), the majority of which
were less than 90 days past due (31 December 2019: 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.
Most 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 between one and three months.
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 2020 were £0.7 million
(2019: £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) (2019: same).
Expected credit losses on financial assets at fair value through other comprehensive income within non-Wealth Management entities at
31 December 2020 were £0.3 million (2019: £0.4 million). Debt securities includes £10.7 million of under-performing (stage 2) securities
(2019: £11.0 million) giving rise to £0.1 million of expected credit losses (2019: £0.1 million). All other financial assets at fair value through other
comprehensive income were performing (stage 1) (2019: same).
(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.
142
Schroders Annual Report and Accounts 2020 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
2020
3–4 years
£m
4–5 years
£m
More than 5 years
£m
Total
£m
2,894.1
189.9
228.9
322.6
13.9
3,649.4
3,550.3
72.8
20.9
3,644.0
–
–
49.8
107.3
–
157.1
–
–
–
–
–
–
–
–
–
–
77.4
56.6
69.3
–
–
–
–
–
–
77.4
56.6
69.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,894.1
189.9
482.0
429.9
13.9
4,009.8
3,550.3
72.8
20.9
3,644.0
Cumulative gap
5.4
162.5
239.9
296.5
365.8
365.8
365.8
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
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 £527.8 million (2019: £502.3 million). Financial liabilities
relating to other operating entities are £441.2 million (2019: £371.2 million).
The Group has a committed revolving credit facility of £595.0 million (2019: £510.0 million), which expires on 4 October 2024. The facility was
undrawn at 31 December 2020 (31 December 2019: 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.
143
Schroders Annual Report and Accounts 2020Financial statements 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 the potential impact of severe but plausible stress scenarios.
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 these contracts 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 2020
31 December 2019
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
0.2
(0.4)
10
(10)
8
(8)
10
(10)
20
(20)
1
(2)
2
(2)
1
(1)
4
(3)
38
(38)
0.8
(0.5)
10
(10)
8
(8)
10
(10)
20
(20)
4
(2)
3
(2)
1
(1)
3
(2)
39
(39)
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.
144
Schroders Annual Report and Accounts 2020 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 2019 or 2020. 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 2020
At 31 December 2020
At 1 January 2019
At 31 December 2019
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
2020
Number
of shares
Millions
2019
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.
145
Schroders Annual Report and Accounts 2020Financial statements 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
2020
£m
2019
£m
(169.1)
(163.9)
(58.3)
67.6
(81.0)
75.8
(159.8)
(169.1)
During the year 2.4 million own shares (2019: 2.8 million own shares) were purchased and held for hedging share-based awards. 2.6 million
shares (2019: 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
2020
Number of
unvested
shares
Millions
2.4
0.1
2.5
6.2
–
6.2
Vested
shares
£m
2020
Unvested
shares
£m
159.6
207.7
0.2
0.3
58.1
82.7
0.2
0.6
58.3
83.3
Total
Millions
8.6
0.1
8.7
Total
£m
217.7
290.4
0.4
0.9
Number of
vested
shares
Millions
2.0
–
2.0
2019
Number of
unvested
shares
Millions
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
159.8
208.0
218.1
291.3
169.1
211.7
213.1
278.9
Total
Millions
8.3
0.1
8.4
Total
£m
212.3
277.2
0.8
1.7
Ordinary shares
Non-voting ordinary shares
Ordinary shares:
Cost
Fair value
Non-voting ordinary shares:
Cost
Fair value
Total:
Cost
Fair value
146
Schroders Annual Report and Accounts 2020 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
Increase/(decrease) in deposits and client accounts within Wealth Management
Decrease in trade and other payables, other financial liabilities and provisions
Adjustments for Life Company and consolidated pooled investment vehicles movements:
Net decrease/(increase) in financial assets backing unit-linked liabilities
Net (decrease)/increase in unit-linked liabilities
Net (decrease)/increase in cash within consolidated pooled investment vehicles
Tax paid
Net cash from operating activities
2020
£m
610.5
168.8
(71.6)
56.1
(5.3)
6.3
154.3
(1.1)
12.0
(43.1)
(32.2)
77.8
(6.9)
453.6
(26.7)
497.8
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)
113.4
(339.7)
(34.2)
(260.5)
(795.6)
1,170.0
48.8
423.2
(137.4)
(103.6)
832.5
1,002.0
147
Schroders Annual Report and Accounts 2020Financial statements 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.
The Group’s commitments primarily relate to investment call commitments, commitments for property, plant and equipment and future
leases not yet commenced 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.
Undrawn loan facilities
Investment call commitments
Commitments for property, plant and equipment and leases
Commitments under IT service agreements
Total commitments
Operating leases receivable as lessor
Net commitments payable
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
2020
No later than
1 year
£m
Later than 1 year
and no later
than 5 years
£m
Later than
5 years
£m
4.7
74.5
16.4
12.0
55.4
18.2
26.1
22.5
107.6
122.2
(1.3)
106.3
(3.0)
119.2
2019
–
1.8
21.3
–
23.1
(1.3)
21.8
No later than
1 year
£m
Later than 1 year
and no later
than 5 years
£m
Later than
5 years
£m
–
32.3
2.2
12.0
46.5
(1.2)
45.3
47.9
–
1.4
34.5
83.8
(3.8)
80.0
–
2.1
–
–
2.1
(1.9)
0.2
Total
£m
60.1
94.5
63.8
34.5
252.9
(5.6)
247.3
Total
£m
47.9
34.4
3.6
46.5
132.4
(6.9)
125.5
Office property sub-leases have a weighted average term of 3 years (2019: 4 years) and rentals are fixed for a weighted average term of 3 years
(2019: 4 years).
148
Schroders Annual Report and Accounts 2020 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
2020
£m
55.0
(1.1)
0.2
54.1
2019
£m
51.6
(7.7)
0.2
44.1
(a) 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 2020, there were no active members in the DB section (2019: nil) and 2,159 active members in the DC section (2019: 2,127).
The weighted average duration of the Scheme’s DB obligation is 19 years (2019: 18 years).
Membership details of the DB section of the Scheme as at 31 December are as follows:
Number of deferred members
2020
1,199
2019
1,251
Total deferred pensions (at date of leaving Scheme)
£8.2m per annum
£9.4m per annum
Average age (deferred)
Number of pensioners
Average age (pensioners)
Total pensions in payment
52
937
70
52
885
70
£20.8m per annum
£20.4m per annum
(b) 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. The next triennial valuation is due as at 31 December 2020 and will
be performed in 2021.
149
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Notes to the accounts continued
25. Retirement benefit obligations continued
(c) 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 71% (2019: 64%) of Scheme assets in a liability matching 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 liability matching portfolio, which comprises gilts, corporate bonds and other LDI
instruments. The liability matching investments have 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 liability matching 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 liability
matching portfolio has provided an effective hedge against interest rate risk on an accounting basis. At 31 December 2020, the liability matching
portfolio was designed to mitigate 83% (2019: 83%) 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 liability matching portfolio
includes instruments such as index-linked gilts to provide protection against inflation risk. At 31 December 2020, the liability matching portfolio
was designed to mitigate 83% (2019: 83%) 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.
(d) 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
2020
%
1.4
2.8
2.2
2.7
2.0
2019
%
2.1
3.1
2.2
3.0
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.
150
Schroders Annual Report and Accounts 2020 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 150 to
calculate 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% (2019: 1.0%) per annum. An additional
adjustment, an “A parameter” set to 0.25% (2019: 0.5%) per annum, allows for the typically higher rate of mortality improvement among
members of the Scheme compared to general population statistics. The latest base mortality tables have been adopted with no scaling
(2019: previously latest available base tables scaled back by 2.5% for men and 7.5% for women) following a scheme specific review of the
membership data.
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 2020.
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 charge/(credit) in respect of other defined benefit schemes
Total defined benefit schemes income statement credit
The amounts recognised in the statement of comprehensive income are:
Gains on Scheme assets in excess of that recognised in interest income
Actuarial losses/(gains) due to change in demographic assumptions
Actuarial losses due to change in financial assumptions
Actuarial gains due to experience
Total other comprehensive (gain)/loss in respect of the Scheme
Other comprehensive gain in respect of other defined benefit schemes
Total other comprehensive (gain)/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
2020
£m
(20.7)
17.8
(2.9)
1.8
(1.1)
2020
£m
(91.5)
0.6
74.8
(12.9)
(29.0)
(1.4)
(30.4)
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
2020
2019
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
%
78.1
(87.7)
(80.7)
62.3
(45.4)
44.6
8.6
(9.6)
(8.9)
6.9
(5.0)
4.9
71.7
(84.0)
(65.3)
67.3
(37.9)
37.5
8.3
(9.7)
(7.5)
7.8
(4.4)
4.3
151
Schroders Annual Report and Accounts 2020Financial statements 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 (losses)/gains due to change in demographic assumptions
Actuarial losses due to change in financial assumptions
Actuarial gains due to experience
Benefits paid
Present value of funded obligations
Net assets
2020
£m
1,001.5
20.7
91.5
(36.5)
2019
£m
951.2
27.1
54.6
(31.4)
1,077.2
1,001.5
(865.2)
(17.8)
(0.6)
(74.8)
12.9
36.5
(795.6)
(22.6)
6.4
(90.4)
5.6
31.4
(909.0)
(865.2)
168.2
136.3
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 2020, 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 values of the Scheme’s plan assets at the year end date are:
Liability matching investments
Portfolio funds
Exchange-traded futures and over-the-counter derivatives
Cash
2020
2019
Of which not
quoted in an
active market
£m
–
38.8
5.6
–
44.4
Value
£m
762.4
286.9
3.3
24.6
1,077.2
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
152
Schroders Annual Report and Accounts 2020 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. 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 6.4% (2019: 7.2%) 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 shares and by the grant of
market value share options over 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 £57.5 million (2019: £63.7 million) arising from share-based payment transactions during the year,
of which £56.1 million (2019: £61.6 million) were equity-settled share-based payment transactions. In 2020, there were total exceptional costs
of £2.0 million included within equity-settled share-based payments (2019: £4.6 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 vesting period of the awards. Awards are structured as nil-cost options.
2020
2019
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.
3.9
0.8
(0.1)
(1.1)
3.5
1.5
2.0
23.76
28.67
0.1
–
–
–
0.1
0.1
–
–
18.93
5.5
0.9
(0.1)
(2.4)
3.9
1.4
2.5
25.49
28.76
A charge of £10.3 million (2019: £21.6 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:
2021
2022
2023
0.1
–
–
–
0.1
0.1
–
–
19.83
£m
4.4
1.3
0.1
5.8
153
Schroders Annual Report and Accounts 2020Financial statements 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. 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.
2020
Number of
ordinary
shares
Millions
2019
Number of
ordinary
shares
Millions
2.8
1.7
(0.1)
(0.6)
3.8
0.6
3.2
1.2
1.9
(0.1)
(0.2)
2.8
0.1
2.7
23.86
27.43
26.54
27.35
A charge of £39.7 million (2019: £32.5 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:
2021
2022
2023+
(c) Equity Incentive Plan
£m
10.4
4.1
3.2
17.7
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 £3.8 million (2019: £5.3 million) was recognised during the financial year.
154
2020
Number of
ordinary
shares
Millions
2019
Number of
ordinary
shares
Millions
1.4
0.2
(0.1)
(0.2)
1.3
0.4
0.9
2.0
0.2
(0.1)
(0.7)
1.4
0.4
1.0
27.82
30.24
32.19
31.08
Schroders Annual Report and Accounts 2020 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:
2021
2022
2023
2024
2025
(d) Long Term Incentive Plan
£m
4.4
3.1
2.4
1.6
0.8
12.3
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.
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.
2020
2019
Number of
ordinary
shares
Millions
Number of
non-voting
ordinary shares
Millions
Number of
ordinary
shares
Millions
Number of
non-voting
ordinary shares
Millions
0.1
–
–
–
0.1
–
0.1
–
–
0.1
–
–
–
0.1
0.1
–
–
–
0.1
0.1
(0.1)
–
0.1
–
0.1
0.1
–
–
–
0.1
–
0.1
21.32
–
–
19.82
A charge of £0.3 million (2019: £0.4 million) 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:
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 73,339 ordinary shares in 2020 (2019: 68,291) at a weighted average share price of £29.22
(2019: £28.91). A charge of £2.0 million (2019: £1.8 million) was recognised during the financial year.
£m
0.2
0.1
0.3
155
Schroders Annual Report and Accounts 2020Financial statements 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 2020, the total carrying value of liabilities arising from cash-settled share-based awards was £4.1 million (2019: £4.1 million).
The total intrinsic value at 31 December 2020 of liabilities for which the employee’s right to cash or other assets had vested by that date was
£2.4 million (2019: £2.3 million).
A charge of £1.4 million (2019: £2.1 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 £33.37 (31 December 2019: £33.34).
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 the 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.
£40.4 million (2019: £56.5 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 due from related parties of £1.6 million (2019: £0.4 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 2020, the fair value of these assets was £136.4 million (2019: £169.8 million).
On 31 January 2020, Peter Harrison disposed of his interest in an associate of the Group, RWC Partners Limited, 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
2020
£m
23.3
12.8
12.8
–
0.1
49.0
2019
£m
22.3
13.2
13.1
0.3
0.1
49.0
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 www.schroders.com/directors-remuneration-policy.
156
Schroders Annual Report and Accounts 2020 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
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 or as it invests alongside its clients. 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
2020
AUM outside of
structured
entities
£bn
AUM within
consolidated
structured
entities
£bn
AUM within
unconsolidated
structured
entities
£bn
281.2
65.3
346.5
211.4
6.7
218.1
9.8
–
9.8
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
10.4
–
10.4
200.7
6.7
207.4
Total
£bn
502.4
72.0
574.4
Total
£bn
433.5
66.7
500.2
Certain AUM is managed outside of 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 as the contractual relationships exists directly with the client rather than with 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
the accounting standards. 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.
157
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Notes to the accounts continued
28. Interests in structured entities continued
(a) Interests arising from managing assets continued
Fee income includes £1,290.6 million (2019: £1,346.7 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
2020
£m
20.1
272.6
292.7
2019
£m
24.5
239.9
264.4
(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 £35.5 million (2019: loss of £3.1 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
2020
£m
203.4
693.9
897.3
2019
£m
141.2
446.2
587.4
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, none of which are managed by the Group
(2019: £3.5 million). 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, £458.6 million (2019: £445.3 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 £12,086.2 million (2019: £12,425.9 million), which are
included in AUM. 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 £120.3 million (2019: £214.0 million) to provide seed capital
to investment funds managed by the Group, of which £69.1 million (2019: £133.8 million) resulted in the consolidation of those funds and
£51.2 million (2019: £80.2 million) did not.
158
Schroders Annual Report and Accounts 2020 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 at the fair value of the proportionate share of the
acquiree’s identifiable net assets.
The Group completed three business combinations during the year.
On 31 July 2020, the Group acquired 51% of the issued share capital of Pamfleet Holdings (Hong Kong) Limited (Pamfleet), a real estate asset
management business, for a total consideration of £16.2 million. The acquisition contributed £0.6 billion of Asset Management AUM and
strengthens the Group’s Private Asset capabilities.
On 18 December 2020, the Group acquired 100% of the issued share capital of Sand Aire Limited (Sandaire), a UK wealth management business,
for a total consideration of £34.7 million. The acquisition contributed £2.4 billion of discretionary Wealth Management AUM and increases the
Group’s scale and capability for its UK private clients.
The Group completed one further acquisition during the year for £2.4 million. The acquisition contributed £0.3 billion of Wealth Management
AUM.
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
Trade and other receivables
Trade and other payables
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
Pamfleet
£m
Sandaire
£m
Other
£m
4.4
0.5
(2.3)
2.6
10.4
10.9
(2.1)
(5.6)
16.2
£m
16.2
–
–
16.2
2.7
3.5
(6.0)
0.2
21.5
16.0
(3.0)
–
34.7
£m
33.7
1.0
–
34.7
0.4
0.1
(0.2)
0.3
1.4
2.2
(0.4)
(1.1)
2.4
£m
1.5
–
0.9
2.4
Total
£m
7.5
4.1
(8.5)
3.1
33.3
29.1
(5.5)
(6.7)
53.3
Total
£m
51.4
1.0
0.9
53.3
159
Schroders Annual Report and Accounts 2020Financial statements 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 2020, the three acquired businesses contributed £4.5 million to the Group’s net
income. The contribution to profit before tax and exceptional items was £1.5 million and exceptional costs of £0.8 million were incurred in
respect of amortisation of the acquired intangible assets. Additionally, acquisition costs of £0.6 million were recorded within ‘Operating
expenses’ and classified as exceptional in the Consolidated income statement.
If the acquisitions had been completed on 1 January 2020, the Group’s pre-exceptional net income for the year would have been £2,193.8 million
and the profit before tax and exceptional items for the year on the same basis would have been £705.3 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.
160
Schroders Annual Report and Accounts 2020 The Group records any non-controlling interest at the proportionate
share of the acquiree’s identifiable assets. The most significant
non-controlling interest relates to a third party interest of 19.1% in
Schroders Wealth Holdings Limited (SWHL). The profit after tax of
SWHL was £22.4 million for the year (2019: £7.0 million for the period
from 3 October to 31 December 2019). The net assets of SWHL were
£291.2 million at 31 December 2020 (31 December 2019: £264.3
million) and no dividends were paid to SWHL’s non-controlling
interest during the year (2019: same).
(d) 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 assets and liabilities,
other than those measured at historical cost, 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.
(d) Estimates and judgements
The preparation of the financial statements in conformity with IFRS
requires the use of certain significant 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.
Presentation of the financial statements
(a) Basis of preparation
The consolidated financial statements are prepared in accordance
with international accounting standards in conformity with the
requirements of Companies Act 2006 and IFRS as adopted pursuant
to Regulation (EC) No 1606/2002 as it applies to the European Union.
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) 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.
(c) 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. 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. Details of the Company’s related undertakings are
presented in note 38.
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.
Where the Group controls a pooled investment vehicle, it 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 investment 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.
161
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Notes to the accounts continued
Presentation of the financial statements 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 or material:
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 pooled
investment vehicles. The Group considers all relevant facts and
circumstances in assessing whether it has power over these vehicles.
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.
162
Schroders Annual Report and Accounts 2020 Schroders plc – Statement of financial position
at 31 December 2020
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
2020
£m
2019
£m
32
25
38
33
34
1,536.1
168.2
3,092.6
4,796.9
25.2
28.8
54.0
1,504.7
136.3
3,092.6
4,733.6
29.4
20.0
49.4
4,742.9
4,684.2
4,684.2
4,632.6
346.4
(311.7)
24.0
401.4
(312.3)
(37.5)
4,742.9
4,684.2
The financial statements were approved by the Board of Directors on 3 March 2021 and signed on its behalf by:
Richard Keers
Director
163
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Schroders plc – Statement of changes in equity
for the year ended 31 December 2020
At 1 January 2020
Profit for the year
Items that will not be reclassified to the income statement:
Net actuarial gain on defined benefit pension scheme
25
Tax on items taken directly to other comprehensive income
Other comprehensive income
Total comprehensive income for the year
36
7
Own shares purchased
Share-based payments
Tax in respect of share schemes
Dividends
Transactions with shareholders
Transfers
At 31 December 2020
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
36
7
Notes
Share
capital
£m
282.5
Share
premium
£m
Own
shares
£m
Profit and
loss
reserve
£m
124.2
(151.9)
4,429.4
Total
£m
4,684.2
346.4
29.0
(4.9)
24.1
346.4
29.0
(4.9)
24.1
370.5
370.5
(50.9)
–
–
–
(50.9)
–
50.5
0.3
(311.7)
(260.9)
(50.9)
50.5
0.3
(311.7)
(311.8)
58.7
(58.7)
–
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)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
282.5
124.2
(144.1)
4,480.3
4,742.9
Notes
Share
capital
£m
282.5
Share
premium
£m
Own
shares
£m
Profit and
loss
reserve
£m
124.2
(146.1)
4,372.0
282.5
124.2
(151.9)
4,429.4
4,684.2
66.1
(66.1)
–
The distributable profits of Schroders plc are £2.9 billion (2019: £2.9 billion) and comprise retained profits of £3.0 billion (2019: £3.0 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.
164
Schroders Annual Report and Accounts 2020 Schroders plc – Cash flow statement
for the year ended 31 December 2020
Profit before tax
Adjustments for:
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Net credit taken in respect of the 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
2020
£m
344.1
2019
£m
397.1
(33.9)
(3.0)
(2.9)
50.5
9.0
(68.6)
1.0
(4.5)
53.2
8.0
363.8
386.2
(1.2)
(50.9)
(311.7)
(363.8)
(2.0)
(71.9)
(312.3)
(386.2)
–
–
–
–
–
–
–
–
The separate financial statements of Schroders plc (Company) have been prepared on a going concern basis in accordance with
international accounting standards in conformity with the requirements of Companies Act 2006 (Act) applicable to companies reporting
under IFRS. 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.
165
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Schroders plc – Cash flow statement continued
31. Expenses and other disclosures
The auditor’s remuneration for audit services to the Company was £0.6 million (2019: £0.6 million). There were no fees relating to further
assurance services in the year (2019: nil).
Key management personnel compensation
The remuneration policy is described in more detail at www.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
Prepayments and accrued income
Other receivables
2020
£m
6.3
3.6
3.0
12.9
2019
£m
6.4
4.1
3.8
14.3
2020
£m
2019
£m
1,525.0
1,496.3
0.2
10.9
–
8.4
1,536.1
1,504.7
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 2020 were £1.2 million (2019: £1.2 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
2020
2019
Non-current
£m
Current
£m
Total
£m
Non-current
£m
Current
£m
1.6
3.5
–
5.1
1.1
6.8
12.2
20.1
2.7
10.3
12.2
25.2
1.5
3.9
–
5.4
The Company’s trade and other payables mature in the following time periods:
Less than one year
1 – 2 years
2 – 5 years
Total
£m
3.0
11.7
14.7
29.4
2019
£m
24.0
2.3
3.1
5.4
1.5
7.8
14.7
24.0
2020
£m
20.1
2.0
3.1
5.1
Amounts owed to subsidiaries include an interest-bearing loan of £3.8 million (2019: £5.0 million) that is repayable on demand.
25.2
29.4
166
Schroders Annual Report and Accounts 2020 Schroders plc – Notes to the accounts
34. Deferred tax
At 1 January
Income statement charge
Income statement charge/(credit) due to changes in tax rates
Charge/(credit) to statement of other comprehensive income
(Credit)/charge to statement of other comprehensive income due to changes in
tax rates
At 31 December
Deferred
employee
awards
£m
(3.1)
0.4
(0.3)
–
–
(3.0)
2020
Pension
surplus
£m
23.1
0.5
3.3
5.5
Total
£m
20.0
0.9
3.0
5.5
(0.6)
31.8
(0.6)
28.8
Deferred
employee
awards
£m
2019
Pension
surplus
£m
(5.5)
2.3
0.1
–
–
(3.1)
26.4
0.8
(0.1)
(4.5)
0.5
23.1
Total
£m
20.9
3.1
–
(4.5)
0.5
20.0
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 2020, if interest rates had been 15 bps higher (2019: 75 bps higher) or 35 bps lower (2019: 50 bps lower) with all other variables
held constant, the Company estimates that post-tax profit for the year would have increased by £1.8 million (2019: increased by £8.7 million)
or decreased by £4.2 million (2019: decreased by £5.8 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
2020
£m
2019
£m
(151.9)
(146.1)
(50.9)
58.7
(71.9)
66.1
(144.1)
(151.9)
During the year 2.1 million own shares (2019: 2.5 million own shares) were purchased and held for hedging share-based awards. 2.2 million
shares (2019: 2.5 million shares) awarded to employees vested in the period and were transferred out of own shares.
167
Schroders Annual Report and Accounts 2020Financial statements 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
2.4
0.1
2.5
Vested
shares
£m
58.3
82.7
0.3
0.6
58.6
83.3
2020
Number of
unvested
shares
Millions
5.5
–
5.5
2020
Unvested
shares
£m
143.8
182.6
0.3
0.3
Total
Millions
7.9
0.1
8.0
Total
£m
202.1
265.3
0.6
0.9
144.1
182.9
202.7
266.2
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
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
370.9
0.3
Expenses
£m
18.9
–
Revenue
£m
418.0
0.3
Expenses
£m
18.5
–
2020
Interest
receivable
£m
4.1
–
2019
Interest
receivable
£m
8.5
–
Interest
payable
£m
Amounts owed
by related
parties
£m
Amounts owed
to related
parties
£m
0.1
–
1,525.0
1.0
(12.2)
(30.7)
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)
Transactions with related parties were made at market rates. The amounts outstanding are unsecured and will be settled in cash.
168
Schroders Annual Report and Accounts 2020 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 2020 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. 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 177 to 179.
(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 Limited
Best Practice IFA Group Limited
Bright Square Pensions Limited
Evolution Wealth Network Limited
Fusion Funds Limited
Fusion Wealth Limited
Mitchell & Company (IFA) Limited
Leadenhall Securities Corporation Limited
Sand Aire Limited
Schroder & Co. Limited
Schroder Administration Limited
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.
Schroder S.A. Sociedad Gerente de
Fondos Comunes de Inversion
Australia
Share class
Footnote
% Address
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
a
a
a
a
a
a
a
j
j
b
86.8% Holmwood House, Langhurstwood Road, Horsham, RH12 4QP,
England
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
100% 1 London Wall Place, London, EC2Y 5AU, England
80.9%
80.9%
100%
100%
100%
100%
100%
100%
100%
100%
100%
j
80.9%
95% Ing.Enrique Butty 220, Piso 12, Buenos Aires, C1001AFB, Argentina
95%
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
Cayman Islands
Pamfleet China Investment Management Limited
Pamfleet China Investment Management II Limited
Pamfleet International Limited
China
Schroder Adveq Equity Investment Fund Management
(Shanghai) Co., Ltd.
Schroder Investment Management (Shanghai) Co., Ltd.
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
c
c
c
51% PO Box 309, Maples Corporate Services Limited, Ugland House,
Grand Cayman, KY1-1104, Cayman Islands
35.7%
51%
100% Unit 33T52B, 33F, Shanghai World Financial Centre, 100 Century
Avenue, FTZ, Shanghai, China
100%
169
Schroders Annual Report and Accounts 2020Financial statements 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
France
Schroder AIDA SAS
Schroder Real Estate (France)
Germany
Share class
Footnote
% Address
OS
OS
70% 1 rue Euler, 75008, Paris, France
100%
Schroder Real Estate Kapitalverwaltungsgesellschaft GmbH
OS
100% Taunustor 1, 60310, Frankfurt, Germany
Guernsey
Burnaby Insurance (Guernsey) Limited
Schroders (C.I.) Limited
Schroder Investment Company (Guernsey) Limited
Schroder Investment Management (Guernsey) Limited
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% PO Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey,
Secquaero Re (Guernsey) ICC Ltd
Hong Kong
Schroder & Co. (Hong Kong) Limited
Schroder Adveq Management (Hong Kong) Limited (In
Liquidation)
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.
Schroder Investment Management (Europe) S.A.
Schroder Real Estate Investment Management (Luxembourg)
S.à.r.l.
Schroder Real Estate SICAV-SIF
Mexico
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
GY1 3QL, Channel Islands
100% PO Box 33, Dorey Court, Admiral Park, St Peter Port, Guernsey,
GY1 4AT, Channel Islands
100% Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong,
Hong Kong
100% 30th Floor, One Taikoo Place, 979 King’s Road, 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% 47 Esplanade, St Helier, JE1 0BD, Jersey, Channel Islands
d, e
81.5% 1 rue Goethe, L-1637, Luxembourg City, Luxembourg
100% 5 rue Höhenhof, L-1736 Senningerberg, Luxembourg
100%
100%
Consultora Schroders, S.A. de C.V.
OS
f, g
99% Montes Urales 760 Desp. 101, Col. Lomas de Chapultepec, Mexico,
DF, 11000, Mexico
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
OS
OS
OS
OS
OS
OS
OS
OS
OS
COS
COS
COS
170
100% 138 Market Street, #23-02, CapitaGreen, Singapore, 048946,
100%
Singapore
100% 15th Fl., Centropolis A, 26, Ujeongguk-ro, Jongno-gu, Seoul, Republic
of Korea
81.5% Seefeldstrasse 233, 8008, Zurich, Switzerland
100% Affolternstrasse 56, 8050, Zurich, Switzerland
100% Central 2, 8021, Zurich, Switzerland
100% Central 2, 8001, Zurich, Switzerland
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
Schroders Annual Report and Accounts 2020 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. Limited
Ruskin Square Management Company Limited
Schroder Financial Holdings Limited
Schroder Infra Debt GP LLP
Schroder International Holdings Limited
Schroder Nominees Limited
Schroder Pension Trustee Limited
Schroder Private Assets Holdings Limited
Schroder Wealth International Holdings 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
Share class
Footnote
% Address
OS
OS
PI
OS
OS
OS
PI
OS
OS
OS
PI
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%
h
100% CVR Global LLP, Town Wall House, Balkerne Hill, Colchester, Essex,
100%
CO3 3AD, England
100% Level 20, Angel Place, 123 Pitt Street, Sydney, NSW 2000, Australia
Schroder Real Estate Asset Management Österreich GmbH
OS
100% Zwerchäckerweg 2-10, 1220 Vienna, Austria
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
OS
OS
OS
COS
OS
COS
PI
PI
OS
PI
OS
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
Schroder Adveq Investment Management (Beijing) Co., Ltd.
OS
100% Room 1929-1932, Winland International Finance Centre, 7 Finance
Curaçao
cPI Schroder Adveq Investments Management B.V
Schroder Adveq Investors B.V.
Schroder Adveq Management N.V
France
Holdco LC Paris Blomet SAS
Schroder Adveq France UP SAS
Germany
Blitz 06-953 GmbH
Real Neunzehnte Verwaltungsgesellschaft mbH
Schroder Adveq Management Deutschland GmbH
Schroder Eurologistik Fonds Verwaltungs GmbH
OS
OS
OS
OS
OS
OS
OS
OS
OS
Street, Xicheng District, Beijing, China
100% Johan van, Walbeeckplein 11, Willemstad, Curaçao
100%
100%
100% 1 rue Euler, 75008, Paris, France
100% 37 avenue Pierre 1er de Serbie, 75008 Paris, France
100% Taunustor 1, 60310, Frankfurt, Germany
100%
100%
100%
171
Schroders Annual Report and Accounts 2020Financial statements 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
Name
Germany (continued)
Schroder Holdings (Deutschland) GmbH
Schroder Italien Fonds Verwaltungs GmbH
Schroder Real Estate Investment Management GmbH
SIMA 5 Verwaltungsgesellschaft mbH
SPrIM Holdings GmbH
Schroder Real Estate Asset Management Austria GmbH
Schroder Real Estate Asset Management GmbH
Guernsey
CC Private Debt Feeder Company Limited
CC Private Equity Feeder Company PCC Limited
Schroder Investments (Guernsey) Limited
Schroder Nominees (Guernsey) Limited
SQ Revita I Limited
Hong Kong
Schroders Asia Nominees Limited
S & C Nominees Limited
India
Schroders India Private Limited (In Liquidation)
Jersey
AAF Management II L.P.
AAF Management III L.P.
BKMS Management L.P.
BKMS Management II L.P.
Confluentes Partners I 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 I 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.
PSY Private Equity Partners L.P.
SA Co-Investment Management 1 L.P.
SA-EL Asia Partners I L.P.
SA-EL Partners II L.P.
SA RP CO Management 1 L.P.
SA TG Management L.P.
SA VS Management L.P.
Salève 2017 Management L.P.
Salève 2020 Management L.P.
Schroder Adveq Asia Partners V L.P.
Schroder Adveq cPl Global Management S.à.r.l.
Schroder Adveq cPl Global Partners IV L.P.
Schroder Adveq Direct Partners III 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 Global Partners III L.P.
Schroder Adveq Healthcare Partners I L.P.
172
Share class
Footnote
% Address
CS
OS
OS
OS
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
OS
PI
PI
PI
PI
PI
PI
PI
PI
PI
100% Taunustor 1, 60310, Frankfurt, Germany
100%
100%
100%
100%
100% Maximilianstrasse 31, 80539 München, Germany
100%
100% Trafalgar Court, Les Banques, St. Peter Port, Guernsey,
100% GY1 3QL, Channel Islands
100% PO Box 334, Regency Court, Glategny Esplanade, St Peter Port,
Guernsey, GY1 3UF, Channel Islands
100%
100%
100% Level 33, Two Pacific Place, 88 Queensway, Hong Kong, Hong Kong
100%
100% 1209, Navjivan Society, Bldg. No. 3, Lamington Road, Mumbai
Central, Mumbai, Maharashtra-MH, 400008, India
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%
Schroders Annual Report and Accounts 2020 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)
Schroder Adveq Mature Secondaries (Orthros)
Management 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 Multi Private Credit Management L.P.
Schroder Adveq Santé Direct Partners L.P.
Schroder Adveq Secondaries Management III L.P.
Schroder Adveq Secondaries Partners IV L.P.
Schroder Adveq Shanghai Private Equity Investment
Management L.P.
Schroder Adveq Technology Partners IX L.P.
Schroder Adveq Technology Partners X L.P.
Schroder Adveq US Partners V L.P.
SC-SA Co-Invest Opportunities 2018 Management L.P.
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 (In Liquidation)
Schroder Adveq Management Jersey Ltd
Croydon Gateway GP Limited
Croydon Gateway Investments Limited
Income Plus Real Estate Debt GP Limited
UK Retirement Living Fund (ReLF) GP Limited
Luxembourg
Schroder Euro Enhanced Infra Debt Fund II GP S.à.r.l.
Schroder Euro IG Infra Debt Fund V GP S.à.r.l.
Schroder European Operating Hotel GP S.à.r.l.
Schroder IFL S.à.r.l.
Schroder Real Estate (CIP) GP S.à.r.l.
SNI Management S.à.r.l.
Confluentes Management S.à r.l.
PSY Private Equity Management S.à.r.l.
Schroder Adveq Asia Management V S.à.r.l.
Schroder Adveq Direct Management III 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.
UK Retirement Living GP S.à.r.l.
Netherlands
Schroder International Finance B.V.
Singapore
Schroder Singapore Holdings Private Limited
SIMBL Nominees Private Limited (In Liquidation)
Switzerland
Schroder Adveq Holding AG
Schroder Real Estate Management Switzerland GmbH
Schroder Trust AG (In Liquidation)
Share class
Footnote
% Address
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
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% 44 Esplanade, St Helier, Jersey, JE4 9WG, Channel Islands
100% 40 Esplanade, St Helier, Jersey, JE2 9WB, Channel Islands
100% 47 Esplanade, St Helier, Jersey, JE1 0BD, Channel Islands
100%
100%
100%
100% 5 rue Höhenhof, L-1736 Senningerberg, Luxembourg
100%
100%
100%
100%
100%
100% 6C rue Gabriel Lippmann, Munsbach, L-5365, Luxembourg
100%
100%
100%
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% 24 Raffles Place, #07-03, Clifford Centre, Singapore, 048621,
Singapore
100% Affolternstrasse 56, 8050, Zurich, Switzerland
100% Lavaterstrasse 40, 8002, Zurich, Switzerland
100% P.O. Box 3655, 8 rue d’italie, 1204, Geneva, Switzerland
173
Schroders Annual Report and Accounts 2020Financial statements 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
Name
United States
Schroder Venture Managers Inc.
Schroders Incorporated
Schroder FOCUS II GP, LLC
Schroder FOCUS II-L GP, LLC
Schroder Helix Investment Partner LLC
Schroder Securitized Credit Flexible Opportunities GP, LLC
Schroder Taft-Hartley Income GP, LLC
Share class
Footnote
% Address
COS
COS
PI
PI
OS
PI
PI
100% 7 Bryant Park, New York, New York, 10018, USA
100%
100% 1209 Orange Street, Wilmington, Delaware, 19801, USA
100%
100%
100%
100%
Subsidiaries where the ownership is less than 100%
Share class
Footnote
% Address
a, h
86.8% Holmwood House, Langhurstwood Road, Horsham, RH12 4QP,
England
g
a, h
a
a
a, h
a
a, h
a
a
a
a
a, h
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
86.8%
a, f, g
86.8%
a
h, j
h, j
h, j
h, j
i
h, j
c
c
c
58% Belmont House, Shrewsbury Business Park, Shrewsbury, SY2 SLG,
England
80.9% 1 London Wall Place, London, EC2Y 5AU, England
80.9%
80.9%
80.9%
67%
80.9%
80.9%
50%
51% Vistra Corporate Services Centre, Wickhams Cay II, Road Town,
Tortola, VG1110, British Virgin Islands
51%
51%
75% Maples & Calder, PO Box 309 GT, Ugland House, South Church
Street, George Town, Grand Cayman, Cayman Islands
65%
63%
88%
20%
59%
70%
89%
65%
76%
87%
Name
UK
Alderbrook Financial Planning Limited (In Liquidation)
Benchmark Capital Limited
Brian Potter Consultants Limited (In Liquidation)
Chilcomb Wealth Ltd
Creative Technologies Limited
CT Connect Limited
GYP Limited (In Liquidation)
OS
OS
OS
OS
OS
OS
OS
Invicta Independent Financial Advisers Limited (In Liquidation) OS
Mitchell & Company Holdings (Reigate) Limited
PP Nominees Limited
PP Trustees Limited
RIA Pension Trustees Limited
Richard Martin Financial Solutions Limited (In Liquidation)
Squirrel Financial Planning Limited (In Liquidation)
Redbourne Wealth Management Ltd
Cazenove New Europe (CFM1) Limited
Cazenove New Europe (PPI) Limited
Cazenove New Europe Staff Interest Limited
CCM Nominees Limited
Residential Land Development (GP) LLP
Schroder & Co Nominees Limited
Schroder Wealth Holdings Limited
The Lexicon Management Company Limited
British Virgin Islands
Alpha Park Limited
Flete Holdings Limited
Pamfleet China Limited
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 V L.P.
Schroder Adveq Technology Management VI L.P.
Schroder Adveq US Management I L.P
Schroder Adveq US Management II L.P.
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
OS
PI
OS
OS
OS
OS
OS
OS
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
174
Schroders Annual Report and Accounts 2020 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
Name
China
Pamfleet (Shanghai) Enterprise Management Limited
France
Schroder Mid Core Infra II UP
Schroder Mid Infra UP
Schroders IDF IV UP
Terre et Mer Holding SAS
Germany
CM Komplementr 06-379 GmbH & Co KG
Guernsey
SV (Nominees) Limited
Hong Kong
Pamfleet Asset Management (China) Limited
Pamfleet Asset Management (HK) Limited
Pamfleet (HK) Limited
Pamfleet Holdings (Hong Kong) Limited
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 III L.P.
Schroder Adveq Europe Management V L.P.
Schroder Adveq Europe Management VI L.P.
Schroder Adveq Global Management L.P.
Schroder Adveq Real Assets Harvested Resources
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.l
Schroder Property Services B.V.
SRE Invest SCSp
SRE ReLF (CIP) SCSp
SRE SoHo (CIP) SCSp
Netherlands
NEOS Finance Group B.V.
Peru
BlueOrchard America Latina S.A.C
Singapore
BlueOrchard Investments Singapore PTE Ltd
Pamfleet Asset Management (Singapore) Pte. Limited
Share class
Footnote
% Address
OS
OS
OS
OS
OS
OS
c
51% 302 Block 9 No 697 Weihai Road, Jing’An, Shanghai, China
70% 1 rue Euler, 75008, Paris, France
70%
70%
80%
95% Taunustor 1, 60310, Frankfurt, Germany
OS
e
50%
PO Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey,
GY1 3QL, Channel Islands
OS
OS
OS
OS
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
PI
OS
OS
PI
PI
PI
OS
OS
OS
OS
c
c
c
51% 1803, 18/F Infinitus Plaza, 199 Des Voeux Road Central, Hong Kong,
51% Hong Kong
51%
51%
48% 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands
70%
70%
53%
70%
73%
87.9%
73%
74%
71%
73%
53%
46%
78%
51%
73%
54%
49%
71%
d, e
81.5% 1 rue Goethe, L-1637, Luxembourg
70% 5 rue Höhenhof, L-1736 Senningerberg, Luxembourg
81.8%
83.8%
82.8%
49% The Hofpoort Building, Hofplein 20, 21st Floor, 3032 AC Rotterdam,
Netherlands
d
d
c
81.5% 184 Calle German Schreiber, Office 201, San Isidro, Lima, Peru
81.5%
11 Amoy Street, #02-00, Singapore, 069931, Singapore
51% 3 Pickering Street, #02-37, Nankin Row, Singapore, 048660,
Singapore
175
Schroders Annual Report and Accounts 2020Financial statements 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
Name
UK
Algonquin (Liverpool) Limited (In Liquidation)
Clarke-Walker Financial Management Limited
Finura Partners Limited
Kellands (Bristol) Limited
Rayner Spencer Mills Research Limited
Regrowth Holdings Limited
Retirement Planning Partnership Ltd
Nippon Life Schroders Asset Management Europe Limited
Ruskin Square Phase One LLP
Social Supported Housing CIP LLP
Social Supported Housing GP LLP
Robertson Baxter Limited
Scottish Widows Schroder Wealth Holdings Limited
Waterhouse Financial Planning Limited
Belgium
Algonquin Astrid
British Virgin Islands
Graceful Lane Limited
China
Bank of Communications Schroder Fund Management
Company Limited
France
Algonquin France Hotels Services
JV Hotel La Villette SAS
Guernsey
Share class
Footnote
% Address
OS
OS
OS
OS
OS
OS
OS
OS
PI
PI
PI
OS
OS
OS
PS
OS
OS
OS
OS
a
a
a
a
a
a, f
g
a
a
20% 6 Snow Hill, City of London, London, EC1V 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
45.8% Kestrel House Alma Road, Romsey, Hampshire, SO51 8ED, England
33% 1 London Wall Place, London, EC2Y 5AU, England
50%
50%
50%
21% Beck House, Abbey Road, Shepley, Huddersfield, HD8 8EP, England
49.9% 25 Gresham Street, London, EC2V 7HN, England
17% 1 Carlisle Terrace, Derry, BT48 6JX, Northern Ireland
33% Avenue Louise, 523 – 1050 Bruxelles, Belgium
30% Vistra Corporate Services Centre, Wickhams Cay II, Road Town,
Tortola, VG1110, British Virgin Islands
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 Limited
Axis Mutual Fund Trustee Limited
Jersey
Bracknell General Partner Limited
UK Retirement Living (CIP) GP Limited
Luxembourg
Geres Investment II S.à.r.l
Singapore
Nippon Life Global Investors Singapore Limited
Planar Investments Private Ltd
United States
i
i
f
OS
OS
OS
OS
OS
OS
OS
25% 1st Floor, Axis House C-2 Wadia International Centre, Pandurang
25%
Budhkar Marg, Worli-Mumbai, 400025, India
50% 47 Esplanade, St Helier, JE1 0BD, Jersey
50%
40% 80, route d’Esch, L-1770 Luxembourg
33% 138 Market Street, #34-02, CapitaGreen, Singapore, 048946,
Singapore
24.1% 1 Phillip Street, #06-00, Royal One Phillip, Singapore, 048692,
Singapore
A10 Capital Parent Company LLC
COS
19.3% 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 Pamfleet Holdings (Hong Kong) Limited.
d Owned through BlueOrchard Finance AG.
e Financial year end 30 June.
f The Company holds ordinary A shares.
g The Company holds ordinary B shares.
h Dormant company.
i Financial year end 31 March.
j Owned through Schroder Wealth Holdings Limited.
176
Schroders Annual Report and Accounts 2020 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 Advanced Beta Global Equity Value Fund
Schroder Flexible Retirement Fund
Australia
Schroder Australian Equity Long Short Fund
Brazil
Schroder Best Ideas FIA
Schroder Core Plus FIC FIA
Schroder US Dollar Bond FIC FIM IE
Luxembourg
Schroder ISF Dynamic Indian Income Bond
Schroder ISF Sustainable Multi-Asset
Share/unit class
X Accumulation
X Accumulation
P Accumulation
Unspecified
Unspecified
Unspecified
I Accumulation
I Accumulation
Schroder Property FCP – FIS – Schroder Property German Residential Fund
B
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%
100%
100%
100%
100%
100%
100%
Holding in
share/unit class
Total holding
in undertaking
via share/unit class
28%
19%
95%
59%
47%
36%
83%
55%
87%
74%
80%
39%
65%
92%
58%
64%
95%
79%
54%
40%
80%
50%
1%
56%
94%
34%
3%
64%
57%
177
I Accumulation
Unspecified
Share/unit class
X Accumulation
I Accumulation
I Accumulation
Z Accumulation
F Accumulation
A Accumulation
X Accumulation
I Accumulation
I Accumulation
I Accumulation
X Accumulation
X Accumulation
X Accumulation
X Accumulation
X Accumulation
Unspecified
Unspecified
Unspecified
Unspecified
Unspecified
Unspecified
70%
32%
95%
63%
50%
65%
99%
99%
91%
84%
100%
100%
100%
100%
100%
64%
95%
79%
54%
40%
80%
E Accumulation
100%
C Accumulation GBP Hedged 99%
I Accumulation
I Accumulation
I Accumulation
C Accumulation
I Accumulation
I Accumulation
56%
100%
100%
10%
70%
57%
SIF Global Credit Opportunities
US
Schroder Global Sustainable Growth Fund (Canada)
Subsidiaries where the ownership is less than 100%
Fund Name
UK
Schroder Advanced Beta Global Sovereign Bond Fund
Schroder Advanced Beta Global Sovereign Bond Fund
Schroder Diversified Growth Fund
Schroder Dynamic Multi Asset Fund
Schroder Fusion Portfolio 3
Schroder Global Emerging Markets Fund
Schroder Multi-Asset Total Return Fund
Schroder QEP Global Active Value Fund
Schroder QEP Global Emerging Markets
Schroder Responsible Value UK Equity Fund
SPW Adventurous Portfolio Fund
SPW Cautious Portfolio Fund
SPW Discovery Portfolio Fund
SPW Dynamic Portfolio Fund
SPW Progressive Portfolio Fund
Australia
Schroder Absolute Return Income
Brazil
Schroder Premium 45 Advisory FI RF CP LP
Wellington Schroder GAIA FIC FIM IE
Japan
Schroder YEN Target
Schroder YEN Target (Annual)
Schroder YEN Target (Semi-Annual)
Luxembourg
Schroder GAIA Helix
Schroder GAIA Helix
Schroder ISF Alternative Risk Premia
Schroder ISF Changing Lifestyles
Schroder ISF European Alpha Focus
Schroder ISF European Alpha Focus
Schroder ISF European Large Cap
Schroder ISF European Sustainable Equity
Schroders Annual Report and Accounts 2020Financial statements 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
Holding in
share/unit class
Total holding
in undertaking
via share/unit class
Fund Name
Luxembourg (continued)
Schroder ISF Global Credit Income Short Duration
Schroder ISF Global Disruption
Schroder ISF Global Managed Growth
Schroder ISF Global Sustainable Convertible Bond
Schroder ISF QEP Global Equity Market Neutral
Schroder ISF QEP Global Equity Market Neutral
Schroder ISF QEP Global Equity Market Neutral
Schroder ISF Smart Manufacturing
Schroder ISF Sustainable Multi-Asset Income
SSSF Wealth Management USD Cautious
SSSF Wealth Management USD Growth
SSSF Wealth Management USD Balanced
United States
Hartford Schroders China A Fund
Hartford Schroders Opportunistic Income Fund
Schroder Securitized Credit Fund Limited
Associates
Fund Name
UK
Schroder All Maturities Corporate Bond Fund
Schroder All Maturities Corporate Bond Fund
Schroder Fusion Managed Defensive Fund
Schroder India Equity
Schroder Long Dated Corporate Bond Fund
SPW Balanced Portfolio Fund
Japan
Schroder Global CB Fund PPIT Unhedged
Luxembourg
ICBC (Europe) UCITS SICAV
Schroder ISF Healthcare Innovation
United States
Fund Name
UK
Schroder Absolute Return Bond Fund
Schroder Advanced Beta Global Corporate Bond Fund
Schroder European Fund
Schroder Global Equity Fund
Schroder Global Multi-Factor Equity Fund
Schroder Institutional Pacific Fund
Schroder Institutional UK Smaller Companies Fund
Schroder QEP Global Core Fund
Schroder Sterling Broad Market Bond Fund
Schroder US Equity Income Maximiser
Cayman Islands
Schroder Absolute Return Emerging Markets Debt Portfolio LP
Unspecified
Significant holdings in structured entities not classified as subsidiaries or associates
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%
178
I Accumulation GBP Hedged
100%
Share/unit class
I Accumulation
I Accumulation
I Accumulation
I Accumulation
I Accumulation EUR Hedged
I Accumulation
I Accumulation
C Accumulation
S Accumulation
S Accumulation
S Accumulation
SD Accumulation
SD Distribution
A Distribution
Share/unit class
X Accumulation
I Accumulation
F Accumulation
X Accumulation
I Accumulation
X Accumulation
Unspecified
X Accumulation USD
I Accumulation
Share/unit class
X Income
X Accumulation
I Income
I Accumulation
X Accumulation
I Accumulation
X Accumulation
I Accumulation
I Accumulation
L Accumulation GBP Hedged 89%
80%
52%
100%
66%
87%
12%
95%
100%
95%
80%
92%
100%
100%
85%
100%
37%
33%
37%
39%
42%
100%
41%
35%
Holding in
share/unit class
Total holding
in undertaking
via share/unit class
33%
44%
25%
23%
56%
100%
24%
33%
100%
30%
22%
12%
25%
23%
26%
24%
24%
33%
21%
30%
Holding in
share/unit class
Total holding
in undertaking
via share/unit class
65%
43%
99%
44%
57%
1%
4%
54%
45%
74%
72%
45%
44%
49%
85%
19%
9%
0%
1%
8%
8%
6%
4%
4%
0%
0%
1%
Schroders Annual Report and Accounts 2020 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
Luxembourg
Schroder Alternative Solutions Commodity Fund
Schroder Alternative Solutions Commodity Total Return Fund
Schroder Alternative Solutions Commodity Total Return Fund
Schroder GAIA BlueTrend
Schroder GAIA II Specialist Private Equity
Schroder GAIA II Specialist Private Equity
Schroder ISF Alternative Securitised Income
Share/unit class
Holding in
share/unit class
Total holding
in undertaking
via share/unit class
I Accumulation GBP Hedged
I Accumulation GBP Hedged
I Accumulation EUR Hedged
97%
99%
92%
C Accumulation CHF Hedged 43%
I Accumulation
C Accumulation
IZ Accumulation
89%
43%
100%
Schroder ISF Emerging Markets Debt Absolute Return
I Accumulation EUR Hedged
100%
Schroder ISF EURO High Yield
Schroder ISF Global Credit Income
Schroder ISF Global Energy
Schroder ISF Global Equity Yield
Schroder ISF Global Gold
Schroder ISF Global Gold
Schroder ISF Global High Yield
Schroder ISF Global Multi Credit
Schroder ISF Global Multi-Asset Balanced
Schroder ISF Global Recovery
Schroder ISF Global Sustainable Growth
Schroder ISF Inflation Plus
Schroder ISF Middle East
Schroder ISF Multi-Asset Total Return
Schroder ISF QEP Global Value Plus
Schroder ISF Strategic Bond
Schroder ISF Sustainable Swiss Equity
Schroder Property FCP – FIS – Schroder Property Eurologistics Fund No.1 (A)
Schroder Property FCP – FIS – Schroder Property Eurologistics Fund No.1 (B)
I Accumulation
I Accumulation
I Accumulation
I Accumulation EUR
I Accumulation EUR Hedged
I Accumulation
I Accumulation GBP Hedged
I Accumulation EUR Hedged
I Accumulation CHF Hedged
I Accumulation
I Accumulation GBP
I Accumulation
I Accumulation
77%
28%
32%
99%
99%
100%
42%
98%
88%
23%
54%
24%
100%
I Accumulation EUR Hedged
96%
I Accumulation
100%
I Accumulation EUR Hedged
100%
I Accumulation
B
B
20%
100%
100%
The registered offices for each of the related undertakings listed on pages 177 to 179 are reflected by country below:
0%
5%
1%
0%
8%
2%
1%
0%
0%
0%
0%
0%
0%
1%
0%
0%
0%
2%
14%
8%
0%
0%
3%
0%
2%
1%
3%
UK
1 London Wall Place, London, EC2Y 5AU, England
Australia
Level 20, Angel Place, 123 Pitt Street, Sydney, NSW 2000, Australia
Brazil
The registered office for the Brazil related undertakings is Av. Presidente Wilson,
nº 231, 11º andar, Rio de Janeiro, Brazil, except for the following:
The registered office for the following related undertaking is Núcleo Cidade de
Deus, Prédio Amarelo, 1o andar, Vila Yara, Osasco, SP, Brazil
Schroder Best Ideas FIA
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 undertaking is 1-8-3 Marunouchi
Chiyoda-Ku, Tokyo, Japan
Schroder Global CB Fund PPIT Unhedged
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
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 United States related undertakings is 7 Bryant Park,
New York, New York, 10018, USA, except for the following:
The registered office for the following related undertakings is 690 Lee Road,
Wayne, Pennsylvania, 19087, USA
Hartford Schroders China A Fund
Hartford Schroders Opportunistic Income Fund
179
Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Independent auditor’s report to the members
of Schroders plc
Opinion
In our opinion:
– Schroders plc’s Group financial statements and Parent company financial statements (the ‘financial statements’) give a true and fair view of the
state of the Group’s and of the Parent company’s affairs as at 31 December 2020 and of the Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No. 1606/2002
as it applies in the European Union;
– the Parent company financial statements have been properly prepared in accordance with international accounting standards in conformity
with the requirements of Companies Act 2006 as applied in accordance with section 408 of the Companies Act 2006; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Schroders plc (the ‘Parent company’) and its subsidiaries (the ‘Group’) for the year ended 31
December 2020 which comprise:
Group
Parent company
Consolidated income statement for the year ended 31 December 2020
Schroders plc – Statement of financial position at 31 December 2020
Consolidated statement of comprehensive income for the year ended 31
December 2020
Schroders plc – Statement of changes in equity for the year ended
31 December 2020
Consolidated statement of financial position at 31 December 2020
Consolidated statement of changes in equity for the year ended 31
December 2020
Consolidated cash flow statement for the year ended 31 December 2020
Notes to the accounts 1 to 29 and Presentation of the financial statements
Schroders plc – Cash flow statement for the year ended 31
December 2020
Schroders plc – Notes to the accounts 30 to 38
The financial reporting framework that has been applied in their preparation is applicable law and international accounting standards in
conformity with the requirements of the Companies Act 2006 and, as regards to the Group financial statements, international financial reporting
standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union and, as regards the Parent company financial
statements, as applied in accordance with section 408 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. 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 going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. To evaluate the Directors’ assessment of the Group and Parent company’s ability to continue to adopt the
going concern basis of accounting, we have:
– assessed the assumptions used in management’s five-year forecast and determined that the models are appropriate to enable management
to make an assessment on the going concern and viability of the Group. We also performed back-testing on prior year forecasts;
– evaluated the capital and liquidity position of the Group by reviewing the Internal Capital Adequacy Assessment Process, the Internal Liquidity
Adequacy Assessment Process and the Recovery Plan;
– assessed the appropriateness of the stress and reverse stress test scenarios that consider the key risks identified by management. We
evaluated management’s analysis by testing the clerical accuracy and assessing the conclusions reached in the stress and reverse stress test
scenarios;
– assessed the plausibility of available options to mitigate the impact of the key risks by comparing them to our understanding of the Group;
– performed enquiries of management and those charged with governance to identify risks or events that may impact the Group’s ability to
continue as a going concern. We also reviewed the management paper approved by the Board, minutes of meetings of the Board and its
committees, and made enquiries as to the impact of Covid-19 on the business; and
– assessed the appropriateness of the going concern disclosures by comparing the consistency with management’s assessment and for
compliance with the relevant reporting requirements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group and Parent company’s ability to continue as a going concern for twelve months from the
date the Annual Report and Accounts is signed.
180
Schroders Annual Report and Accounts 2020 In relation to the Group and Parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group and Parent company’s
ability to continue as a going concern.
Overview of our audit approach
Audit scope
– The Group is comprised of over 290 legal entities domiciled in 31 countries.
– We performed an audit of the complete financial information of six legal entities and audit procedures on specific
balances for a further 19 legal entities.
– The legal entities where we performed full or specific audit procedures accounted for 96% of profit before tax and
exceptional items, 92% of revenue and 95% 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.
Key audit matters
– Improper recognition of revenue
– Improper recognition of cost of sales
Materiality
– Overall Group materiality of £35 million, which represents 5% of profit before tax and exceptional items.
An overview of the scope of the Parent company and Group audits
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 the impact of the Covid-19 pandemic or 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 25 legal entities within the following countries: United Kingdom, Luxembourg,
Switzerland, Singapore, Australia, China, Guernsey, Indonesia, Japan, and United States of America.
Of the 25 legal entities selected, we performed an audit of the complete financial information of six legal entities (full scope entities) which were
selected based on their size or risk characteristics. For the remaining 19 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 4% 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, centralised processes and controls,
and foreign currency translation recalculations, to respond to 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
81% (2019: 90%)
15% (2019: 8%)
4% (2019: 2%)
Full scope components
Specific scope components
Other procedures
65% (2019: 67%)
27% (2019: 25%)
8% (2019: 8%)
Changes from the prior year
Schroder (C.I.) Limited was considered a specific scope entity for the current year audit. It was previously considered to be full scope.
Schroder Private Assets Holdings Limited was previously considered to be a specific scope entity, but was not considered to be specific or full
scope for the current year audit.
Schroder Singapore Holdings Private Limited and Fusion Wealth Limited were considered specific scope entities for the current year audit. Both
entities were previously considered to be neither specific nor full scope.
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Schroders Annual Report and Accounts 2020Financial statements
Financial statements continued
Independent auditor’s report to the members
of Schroders plc continued
The audit was largely conducted remotely using video calls, share-screen functionality, secure encrypted document exchanges and read-only
access to Schroders systems to avoid any limitation on the audit evidence required.
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 in these locations 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, interacting regularly with the local EY teams during each stage of the audit and reviewing 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 2020, it was not possible for the Senior Statutory Auditor, Julian Young, and other Group audit team members to visit component teams
outside the UK, as has occurred in previous years. The Group team maintained oversight of component teams through remote collaboration
platforms and regular meetings, in particular with the Luxembourg, Zurich, and Singapore audit teams. 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, virtually attend meetings with local management, and review key audit working papers.
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.
Our response to the risk
We have:
– confirmed and updated our understanding of the procedures and controls in place
throughout the revenue process, including those impacted by operational changes
due to COVID-19, 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 a sample
of fee calculations within the relevant systems;
– AUM: tested the controls in place for the calculation and existence of AUM used in
the fee calculations. 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 testing of subsequent cash
receipts 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, including the constraints applied
under IFRS 15. For a sample of Schroder Adveq funds, agreed the inputs used in
the carried interest calculations to third party sources, where applicable, 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; recalculating the value of the fee; and tracing the amounts
invoiced to the revenue recorded;
Risk
Group only risk:
Improper recognition of revenue (£2,512.7 million,
2019: £2,537.0 million)
Refer to the Audit and Risk Committee report (page 69)
and Note 2 of the Consolidated financial statements
(pages 114 to 117)
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 timing or recognition of revenue in order to meet
market expectations or net operating revenue-based
targets.
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Schroders Annual Report and Accounts 2020 Risk
Our response to the risk
The risk has increased in the current year due to the
COVID-19 pandemic as management’s processes
and controls may not operate as they were designed
to due to changes in operations as a result of
remote working.
– review of other information: inspected the global complaints register and operational
incident log to identify errors in revenue or control deficiencies due to changes to
operations as a result of remote working; 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.
Risk
Group only risk:
Improper recognition of cost of sales (£453.1
million, 2019: £484.6 million)
Refer to the Audit and Risk Committee report (page
69) and Note 2 of the Consolidated financial
statements (pages 114 to 117)
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:
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, including those impacted by operational changes
due to COVID-19, 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 agreements 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;
– calculation: tested automated controls over the arithmetical accuracy of a sample of fee
expense calculations within the relevant systems;
– not all agreements in place have been
– AUM: tested the controls in place for the calculation and existence of AUM used in the fee
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 timing or recognition of cost of
sales in order to meet market expectations or
net operating revenue-based targets.
The risk has increased in the current year due to
the COVID-19 pandemic as management’s
processes and controls may not operate as they
were designed to due to changes in operations
as a result of remote working.
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 cash management process. For a sample of fee expenses,
agreed the amount recorded to the rebate statement 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 or control deficiencies due to changes to
operations as a result of remote working, and to verify 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 94% 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. 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
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Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Independent auditor’s report to the members
of Schroders plc continued
Prior year comparison
In the prior year, our auditor’s report included a key audit matter in relation to ‘Accounting for corporate activity’. This is not considered to be a
key audit matter in the current year as the total number and materiality of transactions undertaken during the year has decreased.
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 (2019: £35 million), which is 5% (2019: 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 (2019: £47 million), which is 1% (2019: 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 2020 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% (2019: 75%) of our planning materiality, namely £26 million (2019: £26 million).
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 (2019: £5.2 million to £14.3 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 £1.8 million (2019: £1.7
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 106 and 187 to 192 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 in the Annual Report.
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.
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 course of 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 themselves. 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.
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Schroders Annual Report and Accounts 2020 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 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.
Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group and Parent company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
– Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties
identified, as set out on page 105;
– Directors’ explanation as to its assessment of the Parent company’s prospects, the period this assessment covers and why the period is
appropriate, as set out on page 56:
– Directors’ statement on fair, balanced and understandable, as set out on page 106;
– Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks, as set out on page 56;
– the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems, as set out on
page 73; and
– the section describing the work of the Audit and Risk Committee, as set out on page 69.
Responsibilities of Directors
As explained more fully in the Statement of Directors’ responsibilities set out on page 106, 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.
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Schroders Annual Report and Accounts 2020Financial statements Financial statements continued
Independent auditor’s report to the members
of Schroders plc continued
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of
not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,
or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Parent
company and management.
– We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most
significant are those that relate to the reporting framework (international financial reporting standards adopted pursuant to Regulation (EC)
No. 1606/2002 as it applies in the European Union, 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, including in a remote-working
environment; and how senior management monitors these 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.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’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
– Following the recommendation from the Audit and Risk Committee, 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 three years, covering the years ending
2018 to 2020.
– 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 Parent 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
3 March 2021
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Schroders Annual Report and Accounts 2020 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
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) 870 703 6101
Website: investorcentre.co.uk
Financial calendar
Ex-dividend date
Record date
DRIP election date deadline
Annual General Meeting
Final dividend payment date
Half-year results announcement
Interim dividend paid*
* Date to be confirmed.
25 March 2021
26 March 2021
14 April 2021
29 April 2021
6 May 2021
29 July 2021
September 2021
Annual General Meeting
Our AGM will be held at 11.30 a.m. on 29 April 2021 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.
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 104.
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.
Enquiries and notifications concerning dividends, share certificates or
transfers and address changes should be sent to the Registrar.
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.
187
Schroders Annual Report and Accounts 2020Shareholder information Financial statements continued
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)
2020
£m
702.3
(133.5)
568.8
2020
£m
610.5
(124.5)
486.0
2020
Pence
200.8
197.2
2020
Pence
172.4
169.3
2020
311.7
114.0
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
4,085.9
3,847.5
3,621.2
3,471.0
3,152.8
Net assets per share (pence)3
1,446
1,362
1,282
1,229
1,115
Group employees at year end 31 December
United Kingdom
Europe, Middle East and Africa
Americas
Asia Pacific
2020
Number
3,188
938
379
1,066
5,571
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
5,039
4,619
4,145
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
2020
2019
2018
2017
2016
Sterling:
Euro
US dollar
Swiss franc
Australian dollar
Hong Kong dollar
Japanese yen
Singaporean dollar
Chinese renminbi
Exchange rates – average
Sterling:
Euro
US dollar
Swiss franc
Australian dollar
Hong Kong dollar
Japanese yen
Singaporean dollar
Chinese renminbi
188
1.12
1.37
1.21
1.77
10.60
141.13
1.81
8.89
2020
1.13
1.29
1.21
1.87
10.05
137.89
1.78
8.93
1.18
1.32
1.28
1.88
10.32
143.97
1.78
9.23
2019
1.14
1.28
1.27
1.84
10.03
139.63
1.74
8.83
1.11
1.27
1.26
1.81
9.97
139.73
1.74
8.74
2018
1.13
1.33
1.30
1.78
10.44
147.17
1.80
88.82
1.13
1.35
1.32
1.73
10.57
152.39
1.81
8.81
2017
1.15
1.30
1.27
1.69
10.10
145.42
1.79
8.75
1.17
1.24
1.26
1.71
9.58
144.12
1.79
8.59
2016
1.23
1.36
1.34
1.83
10.52
149.31
1.88
8.99
Schroders Annual Report and Accounts 2020 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 113 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 121).
The presentation of earnings per share before exceptional items
provides transparency of recurring revenue and expenditure
from our operational activities 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 121) divided 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
from our operational activities 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 (see note 4 on page 119).
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 119)
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 as well as 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.
Basis point (bps)
One one-hundredth of a percentage point (0.01%).
Beta
Market returns.
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
The Carbon Disclosure Project is a not-for-profit charity that runs the
global disclosure system for investors, companies, cities, states and
regions to manage their environmental impacts.
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 invested assets 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 virtually all applicable assets under
management that have a complete track record over the one year,
three years and five years reporting periods. Where performance
figures are stated to 31 December 2019 they have been restated to
include Wealth Management and Solutions assets in line with the
five business areas aligned to our strategic priorities.
Applicable assets under management excludes £32.5 billion of
assets, principally comprising those managed by third parties, hotel
assets managed by Algonquin and Wealth Management assets held
on a custody-only, advisory or execution-only basis.
Performance is calculated relative to the relevant comparator for
each investment strategy as summarised below. These fall into one
of four categories, the percentages for each of which refer to the
three year calculation:
– For 74% of assets included in the calculation, the comparator is the
relevant benchmark.
– If the relevant 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 9% of assets in the
calculation.
– Assets for which the relevant comparator is an absolute return
target are measured against that absolute target. This applies to 9%
of assets in the calculation.
– Assets with no specific outperformance objective, including those
with a buy and maintain objective, that are measured against a cash
alternative, if applicable. This applies to 8% of assets in the
calculation.
Schroders Annual Report and Accounts 2020
189
Shareholder information Shareholder information continued
Glossary
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.
We also provide a range of Wealth Management services to private
clients, family offices and charities.
At times, ‘client’ is used to refer to investors in our funds or
strategies, i.e. the end client.
We are increasingly focused on building closer relationships with the
end client, whose money is invested with us, often via an
intermediary or institution.
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.
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.
ESG integration
ESG integration refers to the incorporation of ESG factors into
investment decision-making with the aim of delivering better
risk-adjusted returns to our clients. For certain businesses acquired
during the course of 2020 we have not yet integrated ESG factors
into investment decision-making. A small portion of our business for
which ESG integration is not practicable or possible, for example our
legacy businesses or investments in the process of or soon to be
liquidated, and certain joint venture businesses are excluded.
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.
GAIA
Global Alternative Investor Access.
GHG Protocol
Greenhouse gas protocol, a global standardised framework to
measure and manage greenhouse gas emissions.
Global Transformation Range
The Global Transformation Range is a suite of thematic strategies.
190
Schroders Annual Report and Accounts 2020
GCC
Group Capital Committee.
GMC
Group Management Committee.
GOC
Global Operations Committee.
GRC
Group Risk Committee.
ICAAP
Internal Capital Adequacy Assessment Process.
IFRS
International Financial Reporting Standards.
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.
LGBTQ+
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.
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 2020 on the basis of actual funding provided or
withdrawn.
Net zero target
A “net zero” target refers to reaching net zero carbon emissions
by a selected date and refers to balancing the amount of emitted
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
A number of 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.
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
Schroders Personal Wealth (SPW) 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.
Science-based target
A science-based target provides a clearly-defined pathway for
companies to reduce their greenhouse gas emissions. The target is
considered ‘science-based’ if it is in line with what the latest climate
science deems necessary to meet the goals of the Paris Agreement
– limiting global warming to well-below 2°C above pre-industrial
levels and pursuing efforts to limit warming to 1.5°C.
Seed 1
All direct greenhouse gas emissions from company facilities and
vehicles from e.g. gas and oil.
Seed 2
Indirect greenhouse emissions from consumption of purchased
electricity, heat or steam.
Seed 3
Other indirect emissions, such as the emissions associated with our
investments, electricity-related activities, waste disposal, business
travel, employee commuting, employee homeworking etc.
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.
Sustainalytics
Sustainalytics is a leading ESG research, ratings and data firm that
supports investors around the world with the development and
implementation of responsible investment strategies.
SustainEx™
SustainEx™ is Schroders’ proprietary measure of the social and
environmental impact that a company may create. Based on
independent data and research, the model combines measures of
both the harm companies can do (for example, through activities like
carbon emissions) and the good they can bring (for example,
through paying a “living wage”) to produce an aggregate measure of
each company’s social and environmental impact. The aim of the
model is to allow our investors to target their ESG investments
effectively by assessing the extent to which companies are in credit
or deficit having regard to such measures, and the risks they face if
the social and environmental “costs” they externalise are pushed into
their own financial costs.
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.
Transfer Agent
A trust company, bank or financial institution that maintains
investors’ financial records and tracks their account balance.
UCITS
Undertakings for the Collective Investment in Transferable
Securities. The UCITS directive is a regulatory framework of the
European Union that creates a harmonised regime throughout
Europe for the management and sale of investment funds.
Schroders Annual Report and Accounts 2020
191
Shareholder information Shareholder information continued
Glossary
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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Schroders Annual Report and Accounts 2020