Schroders PLC

LSE:SDR

Earnings Call Analysis

Earnings Call Transcript 2021-Q4

[Peter Harrison]

Good morning, everyone.

Welcome

to

the

Schroders'

2021

Full

Year

Results.

We've got

lot of

people on the line

today,

so

we're

going to

try

and

mix

it

up

between

the

room

and

online.

But

well I

can

start the

normal

format,

I

will

take

you

through

big

picture

flows.

Rich

will

take

you through

the

financial

numbers

and

then

we'll

do

Q&A

both

in the

room

and

online.

So,

just

starting

with

the

high

level

numbers.

You've

seen

these

with

top

line

grew

18%,

profit

before

exceptionals,

up

strongly.

Cost to

income

ratio

down

slightly.

Number

we're

proud

of

£35.3

billion

of

new

flows.

But

importantly,

the

underlying

drivers

of

this

strong

performance

in

our

Private

Assets

business,

strong

performance

in

Wealth

business,

but

also

good

organic

growth

coming

through

from

our

traditional

core

business.

And

I

think

we'll

talk

more

about

that.

But

the

investments

we've

made

over

the

last

five

years

really

start

to

come

through

across

the

business

in

terms

of

decent

organic

growth.

Getting

into

the

detail,

we

are

nothing

without

being

able

to

produce

strong

returns

as

an

active

manager.

We

were

very

pleased

our

three-year

performance

number.

Last

time

we

got

together

a

year

ago

was

74%.

To-date,

it's

79%

of

funds

outperforming

over

three

years.

But

what

that

actually

means

in

fact

is

I've

take

here

the

top

25

funds

across

our

fund

range.

Over

five

years,

these

funds

have outperformed

their

index

by

16.1%

net

of

fees.

So,

as

an

active

manager,

the

importance

of

making

money

for

clients

is

absolutely

essential, and

I

think

that's

a

good

way

of

demonstrating

what

that

79%

means

to

people

at

the

end

of

the

day in

their

fund.

Assets

under

management

reached

a

new

high

of

£732

billion.

I

put

on

the

right-hand

side

the

mix

of

revenues

across

the

business.

Clearly,

when

you've

got

a

compound

growth

rate

of

10%

across

your

business,

all

areas

are

growing.

But

what

we're

starting

to

see

is

those

high

margin,

high

longevity

areas

growing

as

an

increasing

portion

of

the

group.

And

I'll

come

back

and

talk

about

what

that's

meant

for

the

longevity

of

our

business

and

the stickiness

of

clients.

But

the

dynamics

of

that

virtuous

circle

of

growth

starting

to

come

through

here.

In

anticipation

of

the

question,

if

you

look

at

the

AUM

growth

rate

ex-joint

venture

associates,

it's

still

7%

compound

over

that

five-year

period.

Just

a quick

reminder

in

terms

of

strategy.

This

chart

won't

be

new

to

you.

It's

precisely

the

chart

that

we've

shown

really

for

the

last

five

years.

We're

wanting

to

get

closer

to

our

end

customer

to

improve

our

client

stickiness

and

avoid

disintermediation.

We're

reinventing

our

core

asset

management

business

by

doing

more

in

solutions,

more

in

the

attractive

contemporary

products,

more

in

sustainability,

expanding

our

geographical

reach

so

that

we're

doing

more

in

North

America,

more

in

Asia

and

what

you

see

in

those

areas

coming

through.

And

then

obviously,

we've

talked

a

lot

about

this,

the

attractions

of

private

markets. And

over

the

five

years,

clearly,

the

markets

recognized

the

attractiveness

of

that

segment

but

client

longevity

and

revenue

margin,

that's

the

strategy.

What

I

want

to

do

now

is

link

the

results

directly

to

this.

Here's

our

overall

flow

picture

for

the

year. We

saw

£20.2

billion

of

new

flows

coming

from

our

JVs

and

associates,

particularly

in

China

and

India.

And

I'll

come

back

and

talk

more

about

that.

And

on

the

right-hand

side

of

this

chart,

you

can

see

those

high-margin

areas

delivering

£19

billion

of

net

new

business.

Institutional

saw

a

small

outflow,

but

there

was

quite a

lot of

churn

within

that

and

actually

I'll

move

towards

higher

margin

areas

within

the

Institutional

business.

Actually,

the

net

new

revenues

was

£6

million

that

we

earned

in

our

Institutional

business.

So,

if

you

looked

at

our

asset

growth

rate,

you

get

to

a

5%

organic

growth

rate.

To

my

mind,

that

perhaps

the

more

important

number,

if

you

just

take

out,

take

out

the

joint

ventures

and associates

for

a

moment,

and

look

at

the

annualized

net

new

revenue

that are

coming

from

those

five

business

areas

was

running

as

an

organic

growth

rate

of

7.3%.

So,

£144

million

of

net

– £145

million

of

net

new

revenues

which

is

coming

from

the

traditional

asset

and

wealth

management

business,

is

a

7.3%

organic

growth

rate

on

net

new

business

alone

in

2021,

a

number

that

we're

really

pleased

with

because

that's

the

–

that

if

you

like,

is

paying

the

bills

this

year,

but

also

providing

the

base

for

future

years.

Then I'll

just

give

you

the

stats

for

this,

if

you

look

through

a

geographic

lens

or

product

lens,

Private

Assets

and

Alternatives

saw

£6.9

billion

of

inflows.

Our

equity

business

saw

£3.8

billion

of

inflows.

Our

fixed

income

business

saw

£2

billion

of

inflows. Our

multi-asset

was

out

by

£1.7

billion.

Within

equities,

the

major

areas

of

inflow

were

global –

was

global

equities.

The

major

outflow

was

quantitative

equity.

So,

there's

a

nice

mix

change

within

there.

The

other

areas

to talk

about

is

geographically,

we

saw

Europe

was

the

strongest

market

£7.1

billion

of

inflows

into

Europe.

£5.3

billion of

inflows into

North

America both

retail and land

institutional. The UK saw

small

outflow,

as

did

Asia

ex-associates

of

£0.2

billion,

UK

was

£1.2

billion out.

Clearly,

the

Asian

business

was

flat

very

much

if

you

add

in

joint

ventures

and

associates

because

we

saw

£20 billion

of

net

inflow

into

Asia.

So,

to

my

mind,

a really

rebalancing

of

the

group

but

growth

where

we

wanted

to

see

it.

So,

that

underlying

revenue

growth

rate

of

7.3%

compound

in

the

organic

business.

So,

we've

talked

a

lot

about

trying

to

reposition

the

business

into

areas

where

there

is

fast

flowing

water

and

this

has not got the

consolidation adjustments

in, but

I

wanted

just

to

demonstrate

those

areas

that

we

talk

about

some

strategy,

saying

we

can

see

new

growth

in

those.

So,

if

you

– look,

we

talked about

the

joint

ventures.

But

Schroders

Capital, our

private

assets

business,

so

this

without

the

alternatives

saw

£7.4

billion

of

inflows,

and

that's

before

£2.5

billion

of

dry

powder,

which

we

have

not

invested

and

we

don't

include

in

our

assets

under

management.

You'll

recall,

for

those

of

you

who

attended

our

Capital

Markets

Day,

that

we

said

we

would

be

able

to

achieve

growth

of

£5

billion

to

£8

billion

for

Schroders

Capital

business.

We've

done

that.

In

fact,

if

you

think

about

the

dry

powder,

we've

actually

exceeded

it,

but

we've

done

that

here.

Article

8

and 9

funds,

those

funds

which

are

focused

on

sustainability

in

Europe,

£5.7

billion

of

inflows.

Thematic

funds,

an

area

of

big

growth,

£4.4

billion

of

net

inflows.

Wealth

Management

I'll

talk

more

about.

North

America,

we

said,

is

a

strategic

priority;

again,

very

strong

inflows

both

in

North

America

and

in

South

America,

areas

that

we've

put

in

organic

investment

and we're

now

seeing

the

payback

from

those

areas.

So,

to

my

mind,

what

this

is

demonstrating

is

the

strategy

we

put

in

place

is

coming

through

across

the

areas

that

we

would

expect

it

to

do

so.

And

if

you

look

at

that

in

a

bigger

picture

and

go

back

to

those

things,

the

areas

we've

talked

about,

Private

Assets,

Wealth,

Solutions,

those

have

all

more

than

doubled

over

this

period.

And

I

think,

to

my

mind,

that

rebalancing

of

the

group,

which

is

going

on

nicely

and

that's –

from

Richard

and I's

perspective,

the

more

we

can

do

that,

the

more

that

enables

the

revaluation

of

the

business

to

be

driven

by

the

quality

of

the

earnings

that

are

coming

through.

Just

going

back

into

Wealth

Management,

to

my

mind,

we've

set

out,

again,

at

the

Capital

Markets

Day that

we

hope

to

achieve

5%

organic

growth

rate

from

next

year.

We've

actually

achieved

it

this

year

with

a

5.7%

organic

growth

rate.

We've

excluded

from

that

number

another

£0.6

billion

of

MPS

flows

because

that's

serving

existing

clients

so it

didn't

fit

our

definition

of

NMB.

But

nevertheless,

even

without

that,

that

5%

growth

rate

has

been

achieved.

Just

quickly

in

terms

of

the

breakdown,

I've

shown

this

on

the

charts.

But

what

was

important

to

us

was

that

they

show

the

Personal

Wealth

business,

having

been

an

outflow

for

many

years,

has

turned

positive.

We

saw

a

very

significant

change

in

the Lloyds'

rate

of

referral.

So,

if

you

go back

to

last

year,

we

had

22,000

referrals.

This

year

we've

had

56,000

referrals

and

103,000

meetings,

I

think,

if

I

recall

correctly.

So,

we're

starting

to

get

to

this

business

to

becoming

industrial

scale.

But

once

you've

turned

that

corner

on

net

new

business,

I

think

our

confidence

of

seeing

that

grow

nicely

from

here is

clearly

growing

stronger

and

stronger.

I've

mentioned I'll

come

back

to

joint

ventures

and

associates.

This

has

been

clearly

an

important

part of

the

driver,

but

it's

increasingly

a

dependable

part

of

our

business. In

India,

we're

now

the

largest

equity

manager.

Our

market

share

increased

from

5.6%

last year

to

6.7%

this

year.

And

the

BOCOM

FMC

venture –

joint

venture,

assets

increased

32%.

So,

India

and

China

growing

strongly

and

we

see

it

as

a

potential

for

future

growth

that

being

clear.

Now,

the

bit that

we

haven't

yet

got

in

these

numbers

is

the

launch

of

our

WMC.

That

formally

launched

on

the

28th

of

February.

The

first

products

will

be

launched

early

in

April.

We

anticipate

that

being

a

significant

additional

driver

to

growth

going

forward.

And

then,

later

in

the

year,

we

will

launch

our

wholly

owned

FMC

business,

which

we

–

that

we'll

expect

will

take

longer

to

ramp

up.

But

nevertheless,

the

WMC,

which

is

a

51%

owned

business,

we

think,

will

ramp

up

pretty

quickly.

So,

overall,

those

businesses

all

demonstrating

good

growth,

and

I

think

the

dynamics

of

future

growth

also

looking

strong.

The

issue

on sustainability

is not

new

to

anybody

here,

and

I'll

put

just

a

few

proof

points

on

this

chart,

because

I

think

it

has

to

be

taken

in

the

round.

There's

no

single

answer that

demonstrates

whether

or

not

you're

good

at

sustainability

or

not.

But

to

my

mind,

what

we're

able

to

look

at

is

we're

the –

pretty

well

the

only

major

asset –

[ph]



well,

the

only

(00:11:24) major

asset

manager

to

have

set

a

science-based

target,

have

that

approved,

CDP

rating

of

A-

is

a

very

strong

rating,

MSCI

rating

of

AAA,

£5.7

billion

of

new

flows

in

sustainable

assets.

The

acquisition

of

Greencoat

last

year,

I

think, looking increasingly timely.

Not

only clearly

you're going

to

see

a

very

rapid

acceleration

of

renewable

energy

in

Europe

for

very

tragic

reasons,

but

that

trend

is

just

going

to

be

accelerated.

But

also,

if

you

think

about

the

change

to

Solvency

II

regulation,

is

going

to

enable

a

wider

set

of

insurance

assets

to

also

want

to

invest

more

into

renewable

energy.

So,

I

think

net

of

our

efforts

here

coming

through

really

very

strongly,

our

brands

in

this

area

are

performing

very

strongly,

our

engagement

with

clients

being

very

strong.

And

I

think this

is

a

critical

battleground

to

win.

You've

got

to be

good

at

it

as

a

business,

but

you've

also

got

to be

good

at

it

as

an

investor.

Private

assets,

final

piece

of

those

variables.

I've

mentioned

the

£7.4

billion

of

flow

from

Schroders

Capital.

You'll

hear

later

that

following

on

from

the

acquisition

of

Greencoat,

we

think

it's

appropriate

to

increase

that

objective

we

set

in

the

past.

So,

we've

previously

said

we

thought we

could

do

£5 billion

to

£8

billion

of

new

business

growth

a

year.

To

my

mind,

that

number

probably

needs to

be

nearer £7

billion

to

£10

billion

of

net

new

business

growth

a

year.

So,

we

will

change

our

guidance

on

that,

because

we

– not

only

do

we

do

£7.4

billion

of

growth, but

we

also

had

£2.5

billion

of

dry

powder.

And

just

to

reconcile

for

you

that

number

different,

Schroders

Capital

did

£7.4

billion.

We

had

a small

outflow

from

our

liquid

alternatives

business,

which

is

why

the

division,

that

£6.9

billion

of

flows

just

to

tie

those

two

numbers

up.

Now,

we

talked

a

lot

about

the

importance

of

creating

more

client

longevity.

And

I

thought

that

this

chart

was

–

just

trying

to

make

that

point

very

clear

to

you

in

terms

of

what

the

impact

of

the

changes

we've

had

made

looks

like

on

the

business,

and

it

looks

at

our

outflows

as

a

percent

of

our

assets.

So,

our

longevity

may

have

gone

over

the

last

five

years

from

4.1

years

to

5.3

years.

But

the

stickiness

of

our

assets,

so

for

every

£100 billion

of

assets,

25%

used

to

flow

out

every

year

previously.

Now,

that

number

is

17.6%.

That,

to

my

mind,

means

we're

running

a

lot

less

hard

to

stand

still,

and

it's

one

of

the

key

differentiators.

If

you

benchmark

those

numbers

against

the

rest

of the

industry,

you'll

see

we

start

with

an

inherently

stickier

book

of

business,

which

means

that

the

sales

that

we

make

are

much

more

likely

to translate

directly

into

net

new

business

rather

than

just

gross

inflows.

So,

I

think

a

metric

which

isn't

often

measured,

but

a

really

important

one

to

draw

your

attention

is

that

transformation

is working

through.

And

I

think,

given

the

changes

we're

making,

we

expect

that

to

carry

on

flowing

through

into

future

years.

So,

we've obviously

done

a

bit

more

this

year

to

drive

that

strategy

harder

and

I

think

we've

made

three

strategically

important

acquisitions.

I

just want to

spend

a

moment

talking

about

the

rationale

behind

those.

And

I'll

start

with

River

&

Mercantile

because

that

was

a

really

important

acquisition

in

the

UK

fiduciary

management

market.

When

the

CMA

came

in,

reviewed

that

market,

it

was

very

clear

that

there

was

an

opportunity

for

a

new

entrant

to

be

more

disruptive

to

enable

a

more

rapid

scaling

of

UK

pension

funds

wanting

to

transition

towards

buyout.

Clearly,

a

lot

of

that

is

going to

be done

through

private

assets

as

well.

We

acquired

the

River

&

Mercantile

business,

fantastic

to

see.

And

the

pension

[indiscernible]



(00:15:48)

River

and

Mercantile,

the

fiduciary

management

of

the year

so,

clearly,

got

something

right.

But

what has

been

really

interesting,

since

we

acquired

that

business,

we've

already

won

a

number

of

new

mandates.

And

now

anybody who

knows

the

pension

fund

well,

you

don't

win

new

mandates

immediately

after

change of

control.

But

I

think

what

you're

seeing

is

the

clients

saying

that

the

combination

of

Schroders

and

River

& Mercantile

makes

really

good

strategic

sense

and

having

a

new

competitor

in

that

space

is

unlocking

a

lot

of

pent-up

demand.

So,

an

important

acquisition

and

one

where

we

expect

to

see

follow-on

growth.

And

then

a

really

important acquisition

from

a

solutions

perspective

because

the

duration

of

these

assets

I

think

is

near

17

years.

So,

again,

pushing

on

that

point

of

stickiness

of

assets.

Greencoat,

for

very

different

reasons.

I

mean,

more

and more

clients

are

engaging

with

us

saying

how

do

we

go

on

our

decarbonization

journey.

Very

obvious

thing then

to

do

is

to

own

more

negative

carbon

assets

and

renewable

energy

assets. Clearly,

Greencoat

has

performed very

strongly

in

the

past.

We

would

expect

to

see

good

inflows

in

the

future,

hence,

the

reason

we've

upgraded

our

private

asset

target

of

future

growth.

But

it's

an

important

and

rare

asset

in

being

able

to

offer

that

full

suite

of

products to

clients.

And

I

think

there's a

really

important

point here.

There

are

very,

very,

virtually

perhaps one

other

asset

manager

that's

able

to

engage

with

clients

right

away

through

from

an

LDI

perspective,

all

the way

through

their

public

equities

and

all their

private

markets

engagement.

And

that

that

total

engagement

is

becoming

more

and

more

important

to clients.

As

you

say,

how

do

I

solve

the

whole

of

my

investment

problem?

And

as

you

think

about

a

world

where

returns

are

low,

inflations

are

high,

we

expect

strategically

that

market

to grow

very

significantly.

So,

being

able to

fill

all

these

pieces

so

you

can

have

that

holistic

engagement

will

position

us

very

strongly.

I

should

mention

Cairn

not

because

it

was

a

big

acquisition,

but

because

strategically,

it

provided

the

missing

piece

of

our

European

real

estate.

We

didn't

have

a

Dutch

real

estate

[indiscernible]



(00:17:50). We've

now

got

a

pan-European

real

estate

[indiscernible]



(00:17:54) in every

country

we're

strong.

So,

that

will unlock

both

Dutch

demand,

but

also

pan-European

demand,

and

that's

an

important

step.

So,

we

feel

that

we've

made

good

progress

in

building

out

the

last

bits

of

our

private

asset

jigsaw

over

the

course

of

the last

12

months.

So,

what

does that

mean in

terms

of

that

virtuous

cycle

of

–

as

we've

done

more

in

these

three

areas,

we've

enabled

us

to

do

yet

more

and

more.

So,

when

we

did

the

Lloyds

transaction,

off

the

back

of

that

Schroders

Personal

Wealth,

we've

been

able

to

open

up

a

regional

network

for

Cazenove.

We've

also

been

able

to

open

up

a

major

family

office

business

so,

for –

right

at the

top

end

of

the market.

So,

we've

got

a

lot

closer

to

consumers

from

the

£100,000

client,

right

the

way

through

to

the

£500

million

client.

And

that

virtuous

circle

has

been

reinforced.

We've

put

organic

growth

into

our

Asset

Management

business

and

this

is

really

important

because

this

is

a

business

which

I

think

most

analysts

said

it's

going

to

really

struggle.

It's

got

major

pricing

power,

indexation,

etcetera.

But

through

launching

the

right

products,

growing

in

the

right

geographies,

making

that

organic

investment,

we've

seen

good

organic

growth

coming

from

those

areas.

And

I

think

with

the

WMC

launching

this

year,

with

more

sustainability

product and

more

Thematic

products,

with

79%

of

our

funds

outperforming,

we're

demonstrating

that

you

can

grow

as

a

good

active

manager.

And

then

finally,

we've

built

out

a

suite

of

private

asset

products

and,

I

think,

now

putting

our

solutions

capability

on

top

of

it

so,

combining

them

together

into

an

income

solution

or

a

holistic

private

markets

product

for

smaller

pension

funds,

we're

able

to

really

address

markets

that

perhaps

others

aren't

able

to

get

to.

So,

that

strategy

is

starting

to

open

up,

as

we've

gone

through,

opens

up

yet

more

optionality

to

do

more

in

other

areas.

And

so,

we're

pleased

with the

progress

this

year

just

from

an operational

perspective,

but

also

because

strategically

I

think

we're

starting

2022

in

better

shape.

So,

lots

of

good

things

happening.

I've

touched

on

many

of

them.

The

one

I

probably

haven't

spoken

enough

about

is

the

importance

of

talent.

You

will

have

read

lots

of

words

about

talent

retention.

I

can

say

that

our talent

retention

has

remained

at

extremely

high

level.

84%

of

our

employees

are

shareholders.

Our

talent

retention

rate

is

over

94%.

It

feels

to

me

that

we're

in

a

good

position

to

carry

on

retaining

the

people

who've

been

driving

the

strategy

which

is,

frankly,

the

most

important

thing

from

a delivery

perspective.

With that,

I'm

going

to

hand

over to

Richard who'll

talk

more

about

this

year

and

I'll

come

back

for

the

outlook

and

we'll

go

from

there.

Thank

you.

[Richard Keers]

Thank

you,

Peter,

and

good

morning,

everybody.

I'm

really

pleased

to

be taking

you

through

what

I

believe

are

very

good

set

of

results.

This

performance

reflects

a

lot

of

what

Peter

has

talked

about

already.

In

particular,

the

results

show

firstly,

very

good

growth

in

our

strategic

focus

areas

of

private

assets

and

wealth;

secondly,

the

success

of

our

ventures

with

BOCOM

and

Axis;

and

thirdly,

high

growth

in

our

core

asset

management

business

especially

mutual

funds,

which

were

in

high

demand.

As

a

result,

we

delivered

profit

before-tax

and exceptional

items

of

£836

million,

which

represents

a

new

high,

and

our

profit

after-tax

increased

by

28%

to

£624 million.

Now,

for some

more

detail

starting

with

net

income.

Net

income increased

by

18%

from

£2.2

billion

to

£2.6

billion.

The

largest

component

of

this

was

the

increase

in

net

operating

revenue,

which

grew

by

£350

million

to

£2.4

billion.

As

you

know,

average

AUM

is

the

main

driver

of

our

net

operating

revenue.

This

increased

by

15%

to

£597

billion,

excluding

joint

ventures

and

associates

in

our

Asset

Management

segment.

There were

two

main

reasons

for

this.

The

first

was

the

rise

in

markets

which,

net

of

currency

headwinds,

drove

an increase

in

average

AUM

of

around

£55

billion.

This

translated

into

£204

million

additional

net

operating

revenue.

Secondly,

our

net

new

business

led

to

an

increase

in

average

AUM

of

approximately

£20 billion.

This

generated

£101

million

in

additional

revenue,

including

a

tailwind

of

£14

million

from

net

flows

in

2020.

And

turning

to 2022

for

a

moment,

we

have

a

tailwind

of

£58

million

at

the

start

of

the

year

due

to

net

new

business

we

won

in

2021.

The

next

largest

increase

in

our

net

operating

revenue

came

from

performance

fees

and

carried

interest.

As

you've heard

from

Peter

already,

we

delivered

strong

investment

performance

for

our

clients

during

the year.

This

enabled

us

to

grow

performance

fees

and

carried

interest

by

£31

million

to

£126

million.

£23

million

of

this

increase

came

from

carried

interest,

an

important

part

of

the

overall

contribution

from

Schroders

capital.

And

virtually

all

our

performance

fees

are

from

institutional

clients.

Looking

at performance

fees

and

carried

interest over

a

five-year

period,

you

can

see

that

normalized

level

has

increased

over

time.

This

time

last

year,

we

increased

our

guidance

to

£70

million

based

on

a

three-year

rolling

average.

The

three-year

average

has

now

grown

to

just

under

£100

million,

highlighting

the

increased

value

of

this

revenue

stream.

Although

given

markets

in

January

and

February,

if

I

were

you,

I

might

haircut

this

back

to

last

year's

guidance.

Now, let

me

talk you

through

how

all

this

breaks

down

by

business

area,

starting

with

Wealth

Management.

In

here,

we

explain

how

[indiscernible]



(00:24:11)

Wealth

Management

business

and

its significance to the whole group.

The

segment has

shown

good

progress

during

the

year.

This

is

illustrated

by

the

growth

in

annualized

net

new

revenue

as

shown in

this

slide.

Average

AUM

increased

by

17%

to

£76

billion,

which

drove

an

increase

in

management

fees

of

21%.

Net

operating

revenue

increased

by

15%

to £421

million.

Within

this

figure,

the

growth

in

management

fees

was

partly

offset

to

reductions

to

transaction

fees

and

net

banking

interest.

Peter

has

talked

about

the

progress

SPW

has

made

during

the

year.

Its

net

operating

revenue

increased

by

12%

as

it

started

to

emerge

from

pandemic-related

constraints.

Across

the

Wealth

Management

business

as

a

whole,

the

net

operating

revenue

margin,

excluding

performance

fees,

decreased

to

55

basis

points.

That's

slightly

less

than

the

guidance

we

gave

at

Capital

Markets

Day,

but

you

should

note,

this

reflects

only

the effective

roundings

[indiscernible]

(00:25:08)

55.5

basis

points.

For

2022,

as

we

enter

a

higher

interest

rate

environment

and

as

we

see

other

fees

return

to

more

normalized

levels,

we

expect

the

margin

to

increase

to

around

56

to

57

basis

points.

Now, moving

on

to

the

business

areas

within

our

Asset

Management

segment,

starting

with

private

assets and

alternatives.

Peter

has

already

highlighted

that

the

strong

net

new

business

we

generated

within

Schroders

Capital

more

than

offset

small

outflows

in

liquid

alternatives.

As

a

result,

average

AUM

increased

by

9%

to

£49

billion.

Net

operating

revenue

increased

by

20%

to

£351

million,

including

£44

million

of

carried

interest

and

performance

fees,

and

£11

million

of real

estate

transaction

fees.

This

translated

into

a

net

operating

revenue

margin

of

72

basis

points.

Excluding

carried

interest

and

performance

fees,

the

margin

was

62

basis

points,

which

is

in

line

with

last

year.

In

2022,

we

expect

this

to

reduce

due

to

the

change

in

mix

and

the

onboarding

of

the

SWIFT

real

estate

mandate.

However,

the

acquisition

of

Greencoat

later

in

Q2

should

increase

the

margin

back

to

62

basis

points

for the

year

as

a

whole.

Now

moving

on

to

Solutions.

Average

AUM

increased

by

12%

to

£193

billion,

driven

by

strong

investment

returns.

This

drove an

increase

in

net

operating

revenue

of

9%

to

£276

million.

The

net

operating

revenue

margin

was

14

basis

points,

in

line

with

my

previous

guidance.

We

expect

this

to

reduce

by

1 bp

in

2022

as

the

impact

of

the

£43

billion

of

AUM

we

acquired

through

the

acquisition

of

River

and

Mercantile

comes

through.

This

transaction is

a

testament

to

the

continued

importance

of

our

Solutions

business,

the

assets

which

have

high

longevity,

as

you've

heard

from

Peter

just

now.

Next,

on to

our

Mutual

Funds

business.

Peter

has

already

talked

about

high

level of

demand

for

mutual

fund

equity

products

we

experienced

throughout

2021.

They

sustained

the

strong

momentum

I

highlighted

to

you at

the

start

of

the

year,

and

you

can see

the

impact

of

these

flows

on

our

annualized

revenues

on

the

chart.

These

flows,

together

with

strong

investment

returns,

resulted

in

average

AUM

increasing

by

19%

to

£113

billion.

In

turn,

this

drove

an

increase

in

net

operating

revenues of

19%

to

£815

million.

Excluding

performance

fees,

the

net

operating

revenue

margin

for

the

year

was

72

basis

points.

That's

1

bp

higher

than

last

year

due

to

the

mix

impact

to

net

new

business

and

markets.

We

expect

this

to

reduce

to

around

71

basis

points

in

2022

due

to

continued

fee

headwinds.

But

as

ever, the

impact

of

markets

and

business

mix

may

also

have

an

effect.

Now,

finally,

on

to our

Institutional

business

area.

In

total,

net

operating

revenue

for

our

Institutional

business

increased

by

17%

to

£601

million.

As

a

result

of

strong

investment returns,

average

AUM

increased

from

£143

billion

to

£166

billion.

Those

investment

returns

helped

us

generate

£79 million in performance fees. Excluding

those

fees,

the

net

operating

revenue margin increased a

touch

to

31

basis

points,

in

line

with

my

guidance

from

the

half

year.

We

expect

the

margin

to

be

at

a

similar

level

in

2022.

So

that

covers

off

the

key

movements

in

net

operating

revenue.

Now

let's

return

to

the

net

income

bridge.

We

generated

net

investment

gains

of

£57

million.

This

principally

comprises

returns

on

both

seed

capital

and

the

co-investments

we

make

alongside

our

clients

in

our

private

asset

funds.

Given

market

returns

since

the

start

of

the

year,

we

wouldn't

expect

to

see

the

same size

gain

in

2022.

Moving

on

to

returns from

associates

and

JVs.

Our

associates

and JVs

continue

to

perform

very

strongly.

And

this

historical

trend

highlights

the success

of

our

investments

in

these

businesses.

Over

this

period,

our

share

of

profits

has

increased

by

compound annual

growth rate

of

28%.

In 2021,

the AUM

of these

interests

increased

by

over 30%

to

£116

billion,

and

our

share

of

profits

increased

by

48%

to

£75

million.

That

represents

11%

of

the

group's

profits

as

a

whole,

underlying

their

significant

contribution

to

the

group's

performance.

Our existing

venture

with BOCOM

again

performed

particularly

strongly with

our

share

of

profit

increasing

to

£60

million,

driven

by

greater

AUM

and

a

shift

in

the

mix

of

assets

to

higher quality

equity

products.

That

increasing quality

is

also

true

of

Axis

and

contributed

to

an

increase

in

the

overall

revenue

margin

for

these

interests,

increasing

from

35

basis

points

to

39

basis

points.

So,

overall,

our

total

segmental

net

income

increased

by

18%

to

£2.6

billion.

Now,

moving

on

to

our

operating

expenses,

starting

with

compensation

costs. This

time

last

year,

I

talked

about

the investment

we

were

making

to

build

out

two

key

priorities

for

us,

UK

regional

wealth

and

China.

At

the

time,

I

expected

this

to

represent

around

1%

of

our

income

and

for

the

total

compensation

ratio

to,

therefore,

increase

to

45%

to

46%.

The

strength

of

our

financial

performance

this

year

has,

however,

enabled

us

to

keep

the

ratio

at

45%.

And

we expect

to

remain

at

this

level

for

2022.

Non-compensation

costs

for

the

year

increased

to

£565

million.

That's

higher

than the

guidance

I

gave

you

at

the

half

year,

and

they

were,

therefore,

worth

a

bit

more

detail

for

me.

The

main

driver

is

our

decision

to

accelerate

our

cloud

migration

program.

The

majority

of these

costs

cannot

be

capitalized

under

accounting

rules.

This

acceleration

means we

will

have

migrated

the

vast

majority

of

our

estate

within

the

next

two

years.

Importantly,

we

expect

the

program

to

drive

cost

savings

on

a

like-for-like

basis

of

at

least

£50

million

per

annum

from

2024.

The

transition

to

the

cloud

will

deliver

other

benefits,

improving

our

speed

to

market,

providing

better

data

and

insights,

increasing

our

resilience

to

cyber

risk,

and

also

resulting

in

a

very

significant

reduction

in

real

world

emissions.

Together,

these

benefits

will

provide

us

with

a

competitive

advantage. And

I

want

to

reiterate,

that

transition

is

going

to

take

two

years

as

we

really

have

accelerated

that

program. We

believe

it's

the

right

time

to

do

that.

You've

heard me

say

on

a

number

of

occasions

that

our

non-comp

costs

as

a

percentage

of

our

average

AUM

gives

us

a

good

indication

of

operational

leverage.

It's

true that

the acceleration

of

our

cloud

program

has

had

a

dampening

effect.

But

in

spite

of

this,

the

percentage

has

continued

to

fall.

For

2022,

we

expect

non-compensation

costs

to

increase

to

around

£620

million.

There

are

four

key

components

of

this.

First,

the

variable

costs

that

are

linked

to

the

growth

of

the

business

and

AUM,

and

increasingly,

we

are

changing

our

own

non-comp

cost

to

software

as

a

service,

Aladdin

is

a

good

example,

Salesforce

is

another,

Oracle

in

the

cloud.

So,

the

variable

nature

of

those

costs

is

increasing.

Second,

the

acquisitions

we

have

announced.

They're

substantial

businesses

that

come

with costs;

along

with

the

continued

build

out

of

our

China

businesses,

particularly

the

FMC

in

2022.

Third,

marketing

expenses.

They

returned

to

more

historical

levels

with

easing

of

COVID-related

restrictions.

But

importantly,

we

have

something

to

talk

about.

We've

got

a

great

sustainable

range.

We've

got

fantastic

investment

performance.

We

took

the

decision

that

we're

going

to

increase

and

market

those

to

generate

new

growth

in

2022

and

beyond.

And

finally,

the

year

two

cost

of

our investment

in

our

cloud

migration

program.

Before

I

finish

on

non-compensation

costs,

it

is

worth

noting

that

we

expect

our

travel

costs

to

remain

at

about

half

pre-COVID

levels.

They

are

not

normalizing

to

an extent,

they

were

basically

nothing

but

half

what

they

were

pre-pandemic. This

is,

in

part,

highlighting

our ongoing

commitment

to

reducing

our

carbon

emissions.

Now,

let's

move

on

to

our

group

capital

position.

The

sustainability of

our

business

model

has

enabled

us

to

build

a

strong

capital

position.

And

at

the

end

of

2021,

we

had

a

capital

surplus

of

£1.5

billion,

but

we're using

some

of

this

to

invest

in

the

three

strategic

acquisitions

that

we

have

already

talked

about.

As

the

transactions

were

not

complete

during

2021,

they're

not

reflected

in

our

year-end

capital

position,

but

we

expect

that

they

will

reduce

our

2022

capital

surplus

by

approximately

£760

million.

So,

in

summary,

and

pulling

all

the

key

numbers

together,

we

generated

a

record

profit

before

tax

and

exceptional

items

of

£836

million,

an

increase

of

19%

on

the

prior

year.

We

had

exceptional

items

of

£72

million,

a

decrease

of

£20

million.

These

are

acquisition-related,

principally

amortization

of

intangible

assets.

By

2022,

we

expect

these

to

increase

to

around

£100

million,

mainly

as

a

result

of the

three

acquisitions

we

have

already

talked

about.

Profit

after

these

exceptional

items

was

£764

million

The

tax

rate

after

exceptional

items

was

18.4%.

We

expect

this

to

remain

at

around

this

level

in

2022

but,

as

usual,

the

mix

of our

profits

may

affect

this.

This

resulted

in

a

post-tax

profit

of

£624

million.

That

represents

an

increase

in

our

post-exceptional

EPS

of

28%.

And,

reflecting

our

progressive

dividend

policy,

we

have

declared

an

increase

in

the

final

dividend

of

£0.06

per

share,

meaning

a

total

dividend

per

share

of

£1.22

per

share. Overall,

as

I

said

at

the

start,

we

see

this

as

a strong

set

of results.

Now, back to you, Peter.

[Peter Harrison]

Thanks, Richard.

The

outlook,

it's

a

challenging

time

to

give

a

clear

outlook

given

what's

going

on

in

the

world.

The

world

is

paddling

hard

but

we

believe

that

the

strategy

has

addressed

many

of

the

chinks

in

the

armor

of

asset

managers.

But

I

think

if

I

look

at

the

primary

drivers

of

growth

historically,

we've

upgraded

our

Schroder (sic) [Schroders]

Capital

forecast

today

to

£7 billion

to £10

billion

of

growth.

We've

exceeded

our

Wealth

Management

growth

commitment,

even

excluding

the

MPS

additional

assets.

So,

both

of

those,

we

feel

very

comfortable

about

giving

a

renewed

commitment

on

those.

We

know

we've

launched

the

WMC,

and

that

will

kick

off

later

in

the year.

It's

hard

to

predict

how

much.

You

will have

seen

Amundi,

which

is

quite

analogous

business,

scale

of

their

business

over

the

first

year.

So, whether

that's

benchmark

or

not,

I

don't know,

but

certainly,

we

believe that

it's

going to

be

meaningful

in

the

context

of

our

results.

We've

materially

changed

our

mutual

fund

range,

we

believe

it's highly

attractive,

79%

of

funds

outperforming

across

the

group.

But

importantly

there,

in

areas

where

we

believe

there

is

fast

flowing

water.

That

positioning

of

asset

management

business

in the

fast

flowing

water

is

particularly going

to

be

helpful

with

Schroders

Solutions.

We

believe

and

already

seeing

a

good

growth

of

the

pipeline

there.

So,

the

underlying

drivers

of

the

business

are

all

looking

positive.

And

then

there's

a

but,

the

macro

environment.

And

that's

the

challenging

piece,

is

to

try

and

reflect

how

is

what's

going

on

today,

higher

energy

prices,

higher

inflation,

a

redrawing

of

geopolitical

risk,

going

to

impact

on

markets. Everyone

in

this

room

will

have

their

own

views

on

that.

Clearly,

it's

not

an

unimportant

judgment,

but

we

do

believe

that

we

are

incredibly

well-diversified,

we're

in

the

areas

of

fast

flowing

water,

the

resilience

of

the

business

has

improved

very

significantly

as

a

result

of

the

management

actions

we've

taken.

So,

we

feel

good

about

the

underlying,

but

we

can't

predict

the

short-term.

Before

I

go on,

in

anticipation

of

the

first

question,

let

me

answer

it.

Total

Russian

assets,

including

Belarus,

including

debt

equity,

amount

to

less

than

0.1%

of

our

total

assets

under

management.

We

had,

if

you

recall,

a

Russian

desk

in

our

Wealth

business,

we

closed

that

– or we

sold

it

actually

rather

in

2018.

It

felt

like

the

right

thing

to

do

then,

it

feels

even

more

right

to

have

done

it

today.

So,

our

Russian

exposure

is

really

very,

very

de

minimis,

I

think,

is

probably

the

right

phrase

for

it.

[Peter Harrison]

So, we're

going to

move

to

Q&A.

What

I

would

do

is

I'll

start

with

questions

in

the

room,

if

I

may.

If

you

could

please

wait

for

a

microphone,

so

that

people

can

understand

fully

and

state

your

name

and

firm,

and

Richard and

I

will

do

our

best

to

answer

your

questions.

[Hubert Lam, Analyst, BofA Securities]

Good

morning.

It's

Hubert

Lam

from

Bank

of America.

I've

got

three

questions.

Firstly,

on

WMC.

I

know,

Peter,

you

mentioned

that.

But

what

should

be

our

expectations

for

flows

near term

and

medium term?

Basically

this

is

brand

new

so

all

the

gross

flows

you'll

be

getting will

be

net.

So,

theoretically, it

could

be

quite

good

for

this

year. I'm

just

wondering

how

should

we

think

about

that.

And

also,

can you

remind

us

on

the

medium-term

guidance

in

terms

of

assets

or

flows

for

WMC?

That

would

be

great.

Second

question

is

on

ESG.

I

think

this

the first

time

you've

disclosed

your

ESG

flow

numbers

and

asset

numbers.

So,

you've

got

£5.5

billion

– £5.7

billion

for

last

year.

What

are your

expectations

for

this

year? Do

you

expect

it

to

be

at

least

the

same

amount?

And

also,

like,

how

much

of

that

is

really

net

flows?

Because

I

assume

some

of

that

will also

come

from

– come

out

of

your

non-ESG

assets.

So,

maybe

the

net

number,

excluding

the

outflows

[ph]



you

lack

in

the (00:40:32)

non-ESG

would

be

a

lower

number.

Just

wondering

how

we

should

think

about

that.

And

lastly,

on

M&A.

I

guess

performance

surplus

capital

is

probably closer

to

about £700

million

now,

if

you

include

the

deals

that

you're

going

to

be

paying

for.

How

should we

think

about

deals

going

forward?

You

did

a

bevy

of

deals

at

the

end

of

last

year.

Are

you

going

to kind

of

sit

tight

for the

time

being?

Or

are you

still

hungry

to

do

deals,

even

though

your

surplus

is

much

lower

now?

Thanks.

[Peter Harrison]

Hubert,

thanks.

Richard,

do

you want

to

kick

off

on

guidance

for

WMC?

[Richard Keers]

Hubert,

no,

we

don't

normally

get

drawn

in

terms

of

giving

too

much

guidance

on

flows.

I

know

we changed

our

tune

slightly

in

the

Capital

Market

Days

for

wealth

and

private

assets,

but

historically

we've

never

really

guided

to

what

we

expect

in

such

a

short

period

of time.

Now,

Peter,

referred

to –

this

business

is

very

similar

to

the

WMC

launched

by

Amundi

about

a

year

ago.

And

you

would

have

seen

what

they

delivered.

[Peter Harrison]

€11

billion,

I

think

over

15

months

was

the

number.

[Richard Keers]

Yeah. I

think

that's

almost

the

best

guidance

I

can

give

you.

It's

difficult

that

it

doesn't

start

until

April.

I

think

when

we

sit

here

at

the

half

year,

we

can

talk

about

how

the

first

few

months

has

progressed

and

we'll

be

in

a

much

better

position

to

give

you

a

more

definitive

view

of

how

the

first

few

months

of

trading

has

risen.

[Peter Harrison]

Yeah.

We're

not

trying

to

be – we

don't

know.

Obviously,

we've

done

it

because

we

think

it's

a

significant

new

business.

We've

got

a

great

partner

who's

been

very

good

at

raising

funds

in

the

FMC,

but

let's

wait

and

see.

So,

just

on

ESG,

we

set

out

the £5.7

billion.

I

mean,

that's

what –

and if

you

like

the

Article

8

and

9

definition

of

it.

Obviously

it

doesn't

include

things

like

what

we're

doing

in

private

markets,

it

doesn't

include

what

was

going

on

in

BlueOrchard, obviously,

it

doesn't

include

Greencoat.

But

I

think

you'd –

it's

very

much

a

narrow

mutual

fund

answer

to

the

question.

I

think

your

bigger

point

though

is

that,

if

you

think

about

mutual

fund

wealth,

the

Article

6,

we

increasingly going

to

see

a

stranded

assets,

but

we're

not

going

to

see

flows

into

Article

6

funds.

But

the

new

world

is

all

going

to

be

people

want

–

we've

seen

it

with

many

European

distributors

saying,

if

you

haven't

got

an

Article

8

or

9

equivalent,

then

they'll

move

on

and

get

it

from

somewhere else.

They

can't

be

seen

to

be

allocating

to

Article

6.

So,

I

think

that

it's

going to

be

quite

hard

to

underpin

the

underlying

– the

clear

trend.

But

what

we

are

seeing

is

that

we've

got

15

new

funds

planned

in

that

area,

we

now

got

choice

for

every

major

area

that

people

want

to

allocate.

So,

if

you

want

– previously

want

to

go

into

global

equities,

you

can

now

go

into

global

sustainable

growth,

global

sustainable

income,

global

sustainable

values.

So,

there's

a

full

range.

And

our

view

is

that

we

need

the

whole

business

to

be

capable

of

delivering

across

the

piece.

So,

in

three

years'

time,

we're

not

talking

about

ESG.

It's

just

everything

is

there.

And

that's

why

we've

changed

everything

to

align

to

it.

So,

your

point

is

exactly

right.

Really

hard

to

predict

but

it

will

be

increasingly

dominant

in

our

flows

going

forward

because

we're

going

to see

a

run-off

on

the

other

side

of

the

book.

On

M&A,

so,

we

– given

the

timing

of

the

last

two

transactions

toward

the back

end

of

the

year and they were

both

bigger

than

the

average

transactions

we've

done

in

the

past,

plus

[ph]

can (00:44:14),

we're

very

focused

on

the

implementation

of

those.

So,

the

pipeline

is

quite

quiet

at

the

moment.

I

think

it's

– we've

always

been

driven

by

finding

really

high

quality

businesses,

whether they're

good

cultural

alignment

and

it's

really

hard

to

predict

when

they

become

available.

So,

we're

not

active

at

the

moment

but

we

do

believe

that we've –

if we

look

back

at

the

track

record

of

the

businesses

we've

bought,

we

haven't

bought

a

bad

one.

We've

seen

really

good

follow-on

growth

from

all

of

them,

and

that's

been

a

really

important

part

of

creating

a

new

set

of

DNA

in

the

firm.

So,

we're

alive

to

it

but

should

you

expect

it

in

the

next

– in

the

coming

months,

no.

[Richard Keers]

Perhaps,

Hubert,

I can go

back

to

WMC.

And

I don't want

my answer

to

sound

like

we

don't

have

confidence

in

it.

We're

very

excited

by

the

opportunity.

We've

invested

a

lot

of

money.

The

business

is

pretty

up-next.

We've

built

the

business.

It's

staffed

up.

And

we

think

it's

a

really

exciting

opportunity

for the –

over

the

next

five

years.

[Peter Harrison]

And

we're

very

early

as

well.

From

a

market

perspective,

this

is –

there's

probably,

I

think,

three

of

these

in

existence,

that

sort

of

thing.

So,

there

isn't

really

much

precedent

but

it

feels

as

if

it's

the

right –

yeah,

a

lot

of

fast

flowing

water

in

that

segment

and

backed

by

regulation.

Can

we

go

to the

next

question?

[Mandeep Jagpal, Analyst, RBC Capital Markets]

Morning. Mandeep Jagpal,

RBC

Capital

Markets.

Thank

you

for

the

presentation

and

taking

my

questions.

First

one

is

just

on

the

new

target

for

Schroders

Capital.

I

think

you

said

they

were

£8

billion to

£10 billion.

I

think

previous

target

was

£5

billion to

£8

billion?

[Peter Harrison]

Yeah, £7

billion

to

£10 billion,

I

meant

to

say.

[indiscernible]



(00:46:07)

£7

billion

to £10

billion

is

the

new

target.

[indiscernible]

[Mandeep Jagpal, Analyst, RBC Capital Markets]

(00:46:08) Sorry, yeah. I

was

wondering

what the

moving

parts

there

were

between

the

old

guidance and

the

new

guidance,

the

old

Greencoat,

were

there

other

moving

parts

in

there?

Sorry,

second

question

is

just

on

Solvency

II

reform.

So,

sticking

with

Private

Assets,

last

week

the

UK

Government

announced

more

flexibility

in

the

matching

adjustment

for

–

within

Solvency

II.

Do

you

think

this

will

increase

demand

for

illiquid

assets

from

your

life

insurance

clients

over

time?

And

could

you

further

upgrade

to

your

target

for

Private

Asset?

And

then,

final

question

is

just

on

ESG.

I

think

you

mentioned

last

year

that

you

were

targeting

75%

of

funds

in

Article

8

or

9.

I

was

wondering if

that

was

achieved

or

how

the

expectations

progressed

since

then?

[Peter Harrison]

Yeah.

So,

what

we

haven't

done

is

we

haven't

broken

out

the

£7 billion

to £10

billion

in

private

markets

but

our

thinking

is

that

it

should

be

a

£2

billion

addition

for

Greencoat.

We

haven't under –

we

have –

what

we're

not

doing

is

increasing

the underlying

thinking particularly,

so

it's

more

a

reflection

of the

fact

we

bought

the

Greencoat

business.

But

I

have

to say

that,

from

a

run

rate

basis,

the

fact that

we

were

able

to

do

£7.5

billion,

£7.4

billion

last

year

with

£2.5

billion

of

dry

powder,

it

did

make

the

old

target

look

comfortable.

I

think

we're

slightly

early

in

the

build

out

of

our

Solutions

business

to

change

our

guidance

on

that.

But

it's

fair

to

say

that

we've

invested

very

heavily

in

bringing

– in

how

we

bring

those

products

together.

So

it's

something

that

we

are

increasingly

confident

about

the

strength

of

that

business,

I

think it's

probably

the

first

thing. But

we're

not

going

beyond

£7 billion

to £10

billion

at

this

stage.

Your

point

on

the

matching

adjustment for

Solvency

II

is

absolutely spot

on.

I

mean,

it

was

designed

by

the

British

Government

to

[indiscernible]



(00:48:12)

to

try

and

drive

more

risk

assets

into

insurance

businesses,

and

that's

for

very

good

economic

reasons

but

also

good

for

policyholders.

And

I

think

the

inevitability

will

be

that

you'll

see

more in

private

markets,

and

that's

got

to

be

a

good

thing.

I

think

the

other

thing

we

haven't

spoken

much

about

is

that,

if

you

think

about

the

average

UK

DC

fund

in

the

UK

is

not

participating

at

all

in

the

real

strength

that we

have.

So,

take

our

life

sciences

industries,

which

are

full

of

brilliant

discoveries,

more

Nobel

laureates than

anything

else,

and

yet

our

UK

market

is

not

reflective

of

that;

and our

DC

funds

are

not

getting

exposure

to

private

markets.

I

think

you

should

expect,

I

would

hope,

that

there

will

be

changes

that

enable

more

of

those

assets

to

be

channeled

into

those

attractive

private

companies

that

they're

not yet,

and

I

think

that's

something

we

feel

really

strongly

about.

The

UK

savers

to

benefit

from –

the

scientific

achievements,

the

fintech

businesses

in

the

UK,

you've

got

to have

a

flow

of

capital

coming

from

DC.

So,

I

think

that's

the

other

potential

change

that

will

come

on

top

of

Solvency

II

that

sees

more

growth

in

there.

I

don't

have

the

exact

number

on

ESG.

We

certainly

made

a

huge

amount

of

progress.

Whether we're

at 75%,

I'm

not

– we

can

come

back

to

you on

that.

But

if

you

think

about the

pipeline

we've

got

coming

through

of

new

launches

as

well,

the

momentum

there

is

very

significant,

indeed.

Any

more

questions

in

the

room?

I

can't

see

who's

online,

but

very

happy

to

take

questions

from

online.

I

don't

know how

we

do

the

choreography

of

this, though.

Okay,

right,

thank

you.

[Richard Keers]

If

you're

online

and

have

a

question,

please

raise

your

hand.

We've

got

a

question

from

Haley

Tam.

So,

Haley,

please

unmute

yourself,

restate

your

name

and

the

organization you're

from

before

asking

your

question.

[Haley Tam, Analyst, Credit Suisse Securities (Europe) Ltd.]

Good morning.

It's

Hayley

Tam

from

Credit

Suisse.

Congratulations

on

a

strong

set

of

results

and

thanks

for taking

the questions.

I

had

a

couple,

please.

One

is

a

follow-up

on

the

Private

Assets,

the

new

target

of

£7 billion

to £10

billion.

I

guess,

I

would

observe

£2

billion

seems

like

a

big

change

on

a

£6.8

billion

acquisition.

So,

I

guess,

any

comment

you

can

give

us

there

would

be

appreciated.

But

also,

Richard,

I

think

you

indicated

Greencoat

earns

a

much

higher

revenue

margin

than

the rest

of

that

business.

So,

help

us

understand

how

the

mix

might

affect

your

margin

progression

longer

term.

Could

you

help

us

with

what

the

margin

actually

might

be

at

Greencoat?

And

the second

question,

just

in

terms

of

costs.

Again,

thank

you

for

the

clear

guidance

on

the

non-comp

costs.

Could

you

give

us

any

idea

of

how

much

of that

£620 million

is

variable

linked

to

AUM

as

you

mentioned,

and

also

how

much

of

the

increase

from

£597

million is

actually

discretionary

that

you

potentially

could

hold

back

if market

conditions

actually

required

it?

And

if I'll

be

cheeky,

a

third

question

on sustainability

and

impact.

Is there

any

more

color

you

can

give

us on

exactly

how

you've

implemented

Articles

8

and

9

for

existing

funds

that

you've

converted?

I guess,

I'm

really

just

trying

to

understand

that

process

and understand

how

confident

you

are you'll

be

protected

against

any

sort

of

future

greenwashing

risks,

which

is

obviously –

was

a

hot

topic

until

about

10 days

ago.

Thank

you.

[Peter Harrison]

Thanks,

Haley,

and

thanks

for

your

comments.

Let

me

– so,

just

on

Greencoat,

you're

right

insofar

as

for

a

£6.8

billion

business –

actually,

the

prior

year,

they'd

grown

by

£1.9

billion

of

assets, if

I remember

right,

of

that

order,

so

it's

not

an

unachievable

number.

But

I

think

the

bigger

point

here

is

that

Greencoat

has

moved

from

being

predominantly

UK

and

Ireland

into

doing

much

more in

Europe

and

the

US,

and

we

see

that

as

a

very

significant

accelerating

factor.

And

clearly,

part

of

that

thinking

was

Schroders

provides

the

resource

to

expand

our

capability

from

sort

of

a

UK

investment

trust

background

to

a

much

more

– a

broader

sources

of

capital,

but

also

broader

sources

of

wind

farms

and

solar.

So,

those

build-outs

in the

Europe

and

the

US

are

underpinning

our

confidence

in

accelerating

that

growth.

And

then, obviously,

Solvency

II

is

a

bit

of

icing

on

the

cake.

Richard,

do

you want

to

take the

points

on

revenue

margin?

[Richard Keers]

Yeah,

on

revenue

margins,

again,

Haley,

we

don't

like

talking

about

margins

as

subcomponents

of

business

areas.

It's

hard

enough

giving

guidance

on a

business area

as

a

whole.

What

I'm

confident

about

is,

with

an

acquisition

towards

the

end

of

April,

we

will

improve

the

average

margin

enjoyed

by

the

business

area

by

about

1

basis

point.

Projecting

forward,

you

can

see

that

going

another

basis

point,

but

it's

difficult

looking

out

that

far

in

terms

of

the

competitiveness

in

marketplace

and

the

relative

mix

of

what's

driving

new

business

in

2023.

But

all

things

being

equal,

it

is

no

doubt

true

that Greencoat

is

a

slightly

higher-margin

business

and

will

have

a

small

incremental

improvement

factor.

In

terms

of

the

question

on

non-comp

and

how

much

is

variable,

it

is

increasing.

[ph]



And SIMNA

is (00:54:02)

very

variable.

Aladdin

is

charged

as

a

percentage

of

AUM

and

others

are

sort

of

softly

linked.

So,

I'm

not

being

evasive,

but

it's

difficult

to

be

precise.

But

I

would

say,

£100 million

of

that

number

is

increasingly

very

correlated

to

the

AUM

we're

running.

[Peter Harrison]

On Articles

8 and 9, Haley,

it's

a

really,

really

important

question

for

us.

I

mean,

there's

not

a

day

goes

by,

as

you

say,

until 10

days

ago,

where

you

couldn't

open

the

paper

and

say,

this

is

going to

be

a

source

of

legal

action;

and

that's the

one

thing

that

we

absolutely

don't

want.

So,

we've

invested

very

heavily

in

our

own

data,

and

we've

done

it

from

a

data-led

perspective.

And

you'll

be

aware

that

we've

got

a

proprietary

tool,

SustainEx,

which

we

believe

is

as

good

as

it

gets.

We've

had

20-odd

data

scientists

working

to

make

sure

that

our

data

is

state-of-the-art,

and

we

can

demonstrate

from

first

principles

that

the

SustainEx

goals

of

these

business

and

funds

exceeds

that

of

their

benchmarks.

And

I

think

that's

been

a

really

important

validation

point

as

we've

audited

the

process

to

make

sure

that

what

we're

doing

is,

A,

clearly auditable; but

B,

backed

by

data

rather

than

hand-waving,

because

we

do

believe

that

there

is

–

this

is

a

difficult

area

and

people's

views

differ,

so

you've

got

to

get

– be

able

to

get

back

to

underlying

data.

And

also,

you've

got

to be

able

to

demonstrate

the

engagements.

And

one

of

the

things

I've set out

on the chart was 2,000

engagements;

we've significantly

grown

our

engagement

team

so

that

we're

able

to

work

with

businesses,

A,

on

what

they're

doing;

but

B,

to

get

more

data.

And

I

think

that –

and

joining

a

number

of

coalitions

and

sponsoring

quite

a

lot of

change

in

this

area

has

been

important.

So,

we

feel

very

comfortable

about

the

position

we're

in,

and

we've

independently

verified

the

integration

into

our

teams

to

make

sure

that

we're

on

top

of

the –

what

we

say

we're

doing

is

actually

what

we

are

doing.

[Richard Keers]

The – one

of

Haley's

final

questions

was

in

terms

of

avoidable

non-comp

costs.

Ultimately,

we

can

avoid

a

lot,

but

it

would

damage

our

business.

If

we're

halfway

through

a

major

program that's

going to –

like

the

cloud

migration

that's

going

to

deliver £50

million

of

savings

every

year

from

2024

onwards,

yes,

we

could

stop

that

program

but

it

would

seem

absurd

to

cut

that

investment,

given

it

has

a

very

quick

payback

period.

I

think

marketing

cost

is

the

one

key

variable

that

we,

yeah,

move

up

and

down

depending

on

the

market

conditions.

It's

moved

from

£33

million

in

2020

to

£40

million

in

2021.

Now,

some

of

that

we

need

to

do

but,

clearly,

that

is

more

discretionary

in

nature.

Have

we

got

something

good

to

market?

Can

we

see

the

return

on

investment?

We

certainly

made

that

a

very

– a

key

decision

at

the

halfway

stage

last

year.

We

had

great

investment

performance.

We

had

– sustainability

was

increasingly

important.

Private

Assets,

we

wanted

to

rebrand,

that's

delivering

future

revenue

growth.

So,

we

made

the

decision

to

increase

our

marketing

spend

back

to

pre-pandemic

norms.

But

clearly,

we

can

move

that

back

down

or

we

could

increase

investment

further,

depending

on

market

conditions.

[Peter Harrison]

I

think

that's

the

external

spend.

We

obviously spent

a

lot

more

on

internally-generated

content,

et cetera.

[Richard Keers]

Yeah.

[Peter Harrison]

Next

question?

[Richard Keers]

Next

question's

from

Luke

Mason.

Luke,

please

unmute

yourself,

state your

name –

restate

your name

and

the

organization

before

asking

your

question.

[Luke Mason, Analyst, BNP Paribas Exane]

Yeah.

Thank

you.

It's

Luke

Mason

from

BNP

Paribas

Exane. Just

a

few

questions.

Firstly,

on

the

Private

Assets

target, the

£7 billion

to £10

billion.

I'm just

wondering

if

you could

comment,

would

you

see

any

impact

from

markets

or

macro

on

that type

of

target

or

do you

think

it's

pretty

set

in

stone?

I

mean,

could

you

talk

through

the

pipeline

of

some

of

the larger

fundraisings

within

that,

for

example?

Secondly,

just

on

the

WMC

business,

could

you

quantify

the

costs

made

to

date

in

that

business

or

how

we

should

think

about

a timeline

to

profitability?

And

then,

thirdly,

just

on

Schroders

Personal

Wealth,

so

flows

have

turned

positive

for

the

year and

you

talked

about

the

increasing

confidence

in

that

business.

I'm

just

wondering

if

you're

seeing

any

change

in

the

competitive

environment

or

some

of

the

– some

of the

D2C

players

coming

out

with

robo-advisor

type

offerings?

I

just

wonder

if

you

could

comment

on

that.

Thank

you.

[Peter Harrison]

Thanks,

Luke.

So,

the – I

think

the

Private

Asset

target

is

– clearly,

if

the

world

stops

completely,

then,

yes,

there's

an

issue.

But

what

we've

– the

more

powerful

trend

is

for

clients

who

need

to

re-up,

for

clients

who

need

to

rebalancing

their

portfolios.

And

many,

many

of

our

programs

that

we've

got

are

sustained

multi-year

programs,

so

I

think

that

that

is

much

more

resilient

target

than

perhaps

predicting

mutual

fund flows

from

one

month

to

the

next.

The

other

benefit

we're

having

is

that

we've

gone

– as

we've

launched

a

lot

of

organic

strategies,

you

go

from

Fund

I,

which,

by

definition,

is £100

million,

£200

million;

to

Fund

II,

which

might

be

£700 million

or £800

million;

to

Fund

III,

which

you're

able

to

raise

a

couple

of

billion.

And

in

many

strategies,

we're

at

Fund

III.

So

the

fund

–

so for –

in

infrastructure

debt,

for

example,

we've

got

Fund

III

coming.

Fund

II

actually

got

to

be

the

largest

infra

debt

fund

in

Europe,

Julie

II.

But

Julie

III,

we

think,

will

be

significantly

larger.

FOCUS

II, which

is

securitized

fund,

again,

was

a

significant

fund but

we

think

Fund

III,

which

is

coming

this

year,

will

be

larger.

And in

Private

Equity, there's

some

good

programs

coming

through

there,

and

also

some

good

separate

account

business

as

well

for – on

the pension

fund

world.

So

I

think,

on

balance, Luke,

we're

comfortable

because,

as

our

business

matures,

we're

[ph]



riding

up

that curve

(01:00:32). And

if

we

hit

the

targets

that

we'll

get

to,

we'll

get

to

being

a

top

10

player

in

Europe

this

year,

which

will

be

a

really

nice

achievement.

So,

we're

moving

through

quite

quickly.

The

WMC,

I

mean,

I

think

in

terms

of

profitability,

we

[indiscernible]



(01:00:51) to disclose on there.

[Richard Keers]

So,

in

terms

of

profitability,

obviously,

it

depends

on

–

we

have

no

revenue

yet.

Yeah,

so

we

haven't

won

any

funds.

We

haven't

launched

those

yet

but

I

would

anticipate

it's

going

to

be

around

the

breakeven

in

2022.

And

if

it

continues

to

grow,

you

should

expect

to

see

a

strong

profit

contribution

in

2023.

[Peter Harrison]

Yeah.

[Richard Keers]

But

broadly

flat

in

2022.

[Peter Harrison]

I

think

Hubert's

point

that

net

equals

gross

is

an

important

consideration

in

terms

of

the

build-out

of the

profit.

[Richard Keers]

But

the

reason

why

it's

flat

in 2022

is

revenues

haven't

started

and

it's

pretty

built-out

in

terms

of

cost

base.

It's

got

premises.

It's

had

all

the

people.

[Richard Keers]

And

it's

got

four

months

of

not

trading.

[Richard Keers]

Yeah.

[Richard Keers]

SPW –

I

actually

think

that,

in

SPW,

the

trends

are –

you're

right

insofar as

there's

a

lot

of

new

launches

but

we're

not

seeing

the

impact

on

the

business

because

the

state

of

the

UK

advice

market

is

still

– there is

still

a

vast

number

of

people

who

are

not

yet

advised,

and

there

is

a

great

deal

one

can

do

in

terms

of

taking

them

through

that

advice

journey

and

improving

the

outcomes

that

they

have

as

a

result.

So,

I

think

that

we

observed

– and there's

quite

a

lot

of

activity

digitally,

there's

been

an

awful

lot

of

M&A

of

people.

We

were

beneficiaries

of

selling

our

Nutmeg

business

to

JPMorgan

last

year,

or the

stake

we

had

in it.

We

observed

other

businesses

changing

hands.

But

I

think

the

advice-led

business

in

the

UK

has

got

very

good

growth.

We've

seen

that

from

SJP's

figures

and

we're

growing

the

market.

The

fact that

we've

got

the

Lloyds

referrals

and

Australia's

brand

and

product

range,

I

think,

is

very

helpful.

So,

the

key

thing

now

is

to

turn

those

referrals

and

increase

the

conversion

rate

of

meetings,

which

is

exactly

what

is

going

on

at

the moment.

So,

I

think

we

feel

comfortable

about

the

increase

in

growth

rate

there.

Luke,

thank

you.

Any

more

questions?

[Richard Keers]

The

next

question

is

from

David

McCann.

David,

please

unmute

yourself,

restate

your name

and

your

organization

before

asking

a

question.

[David McCann, Analyst, Numis Securities Ltd.]

Yeah.

Good

morning. It's

David McCann

from

Numis.

Just

one

on

the

non-voting

shares.

I

mean,

you've probably

observed,

they're

now

close to a

4%

discount

to

your

voting

shares. Just

wondered

if

the

company

had

any

intentions

to

try

and

do

anything

about

that?

I

mean, it

would

seem

to

me

that

you

still

have

decent amount

of surplus

capital

left

[indiscernible]



(01:03:29)

be

basically

pretty

accretive

transaction

you

could

do

there

with

basically zero

execution

risk,

given

it's

your

own

business

that

you

already

know.

So

just

wondered

if you

have

any

thoughts

on

anything

you can

do

to

close

that

gap?

[Peter Harrison]

Is

that

your – the

only question,

David?

[David McCann, Analyst, Numis Securities Ltd.]

That's

the

only question.

Thank

you.

[Peter Harrison]

Okay.

Brilliant.

Thanks.

And thanks

for

that.

Yes, it is –

it's

been

–

discounts

moved

out

quite

a

lot

during

this

– in

this

market

turmoil

and

it's

something

that we

do

keep

an

eye

on

but

we're

not

announcing, at the moment,

any

plans

specifically.

And obviously,

this

wouldn't

be

the

appropriate

audience

to

announce

it

to.

But

we

do

keep

it

under

review

and

always

done. Next

question?

[Richard Keers]

If

you're

online

and

have

a

question,

please

raise

your

hand.

[Peter Harrison]

Great.

Well,

thank you,

everybody.

I'm

very

conscious

that

it's been

a

full

hour.

So,

thanks

for

all

your

questions.

Thanks

for

those

who attended

in

person

and

all the

questions,

and

look

forward

to

seeing

you

next

time.

Thank

you

very much.

[Richard Keers]

Thank you.