Schroders has reaped the rewards of its Cazenove buy with a 24% rise in pre-tax profit in 2013.
When exceptional items were accounted for, profit before tax stood at £447.5 million, aided by higher than expected performance fees of £80 million. Excluding exceptional items and tax, profit was up 41% on the year at £507.8 million.
Asset management divisional profits rose 23% to £468.6 million, while profit before tax and exceptional items for the newly enlarged wealth business stood at £34.3 million. However, when exceptional items were accounted for, profit was hit by a £15 million provision relating to a possible liability from an industry-wide review by the US Department of Justice in relation to Swiss banks that may not have been US-tax compliant weighed on profits.
Net inflows for the group were down £1.5 billion on the year to £7.9 billion, while assets under management rose 24% to £262.9 billion. Schroders upped its dividend by 35% on the back of the promising full-year results.
Net revenue was also up a comfortable 24% to £1.4 billion over the 12 months to 2013.
Wealth management assets for the combined businesses of Cazenove and Schroders stood at £30.1 billion at the end of the year, up from £16.3 billion at the end of 2012. However, net outflows for the division amounted to £1.5 billion, which the group said was the result of the expected loss of two large mandates in the second half of the year.
Net revenue increased 59% to £150.0 million, while profit before tax and exceptional items for the newly enlarged wealth business was £34.3 million. Exceptional items of £30.9 million included integration costs and the amortisation of client relationships in relation to the acquisition in relation to Cazenove Capital, alongside a provision of £15 million relating to a possible liability arising from an industry-wide review by the US Department of Justice with regard to accounts held in Swiss banks that may not have been US-tax compliant. This provision relates principally to closed accounts.
The fund management business was buoyed by £9.4 billion of net new business, generated equally across institutional and intermediary. Multi-asset saw net inflows of £6.9 billion and equities attracted £2.8 billion. Total assets under management stood at £232.8 billion.
Net revenue margins excluding performance fees were little changed on the year at 53 basis points, while profit before tax and exceptional items was up 34% to £468.6 million. Exceptional items of £13.5 million related to the amortisation of the value of client relationships acquired with STW and Cazenove Capital, and integration costs arising from the two acquisitions.
Michael Dobson (pictured), chief executive, commented: "2013 was a record year for Schroders, with profit before tax and exceptional items up 41 per cent. to £507.8 million and assets under management up 24 per cent. to £262.9 billion. The momentum across our business continued through the year with £2.4 billion of net inflows in the fourth quarter. This strong performance was the result of our highly diversified business and focus on growth over the long term.'
Schroders has this morning released its annual results for the year to 31 December 2013. As with the experience a year ago, the company has ended the year strongly. Year end AUM of £263bn has comfortably exceeded our estimate (£257bn) through better flows (Q4’13 +£2.4bn vs. our estimate +£1.3bn) and stronger than expected investment returns. Although gross performance fees were materially stronger than we anticipated (by £21m), that alone cannot explain the £31m outperformance in PBT from Asset Management. The 35% increase in the full year dividend to 58p means that the company has delivered for 2013 the DPS we had anticipated for 2014. We reiterate our Overweight recommendation.
Analysts at JP Morgan Cazenove increased Schroders' December 2014 price target to 2946p from 2802p on the back of the strong results, pointing out that asset management profits had come in £30 million ahead of consensus.
'Although gross performance fees were materially stronger than we anticipated (by £21 million), that alone cannot explain the £31 million outperformance in profit before tax from asset management,' JP Morgan Cazenove added.
At 8:40 Schroders' share price was up 5.8% on the day, trading at 2,739p.