AGM 2020

Apr 30, 2020

Hello, and welcome to the Schroders PLC AGM. Throughout the start of the call, all participants will be in listen-only mode. Afterwards, there will be a question and answer session where you will be invited to submit your questions to the board. Today, I am pleased to present your Chairman, Michael Dobson. Please go ahead with your meeting. Good morning, ladies and gentlemen. This is Michael Dobson, Chairman of Schroders PLC, and I would like to welcome you to the 2020 Annual General Meeting. I am sorry that we cannot hold an open meeting this year, but we thought it was important to proceed with the meeting on the appointed date, and we aim so far as possible to do everything we would normally do at the AGM, but over the telephone. Thank you for your understanding on this. I am in our head office at One London Wall Place, the venue for the AGM, and we have the necessary quorum of three shareholders to hold a valid meeting, including our Chief Financial Officer, Richard Keers, and our Company Secretary, Graham Staples. The rest of the board, including Peter Harrison, the Group Chief Executive, Ian King, the Senior Independent Director, and Damon Buffini, Chair of the Remuneration Committee, are on the telephone. Also joining by telephone are Matthew Westerman and Claire Fitzalan Howard, who are seeking election to the board today for the first time. The impact of COVID-19 to public health and the economy is unprecedented, and I would like to place on record our sincere condolences to all who have lost relatives and friends to the virus. Schroders has remained fully operational throughout this time. The board has been meeting regularly by telephone to discuss not only our own business, but also how we can support our wider stakeholders in line with our corporate purpose. You will hear shortly from the Chief Executive about the resilience of Schroders business and the collective action we are taking to help those impacted by COVID-19, including a material increase in our direct charitable donations this year and in our match giving with employees. We believe it is right for the company to increase our charitable support, assisting those who are most impacted by this crisis. The board has decided to donate to COVID-19 charities 25% of our salaries and fees for three months, and the Chief Executive and Chief Financial Officer will, in addition, donate their entitlement to their 2020 long-term incentive plan to charity. I would like to comment on board composition. This is something we spend a lot of time on, and it is a continuous process and focus for the board. Since the last AGM, Nichola Pease has left the board. I would like to place on record our thanks to Nichola for her significant contribution over more than eight years as a member of the board and as Chair of the Remuneration Committee and a member of the Audit and Risk Committee. Matthew Westerman joined the board as an Independent non-executive Director on the 9th of March 2020 and is standing for election for the first time today. Matthew brings to the board significant experience of global financial markets after a distinguished career in investment banking. We look forward to benefiting from his contribution. Philip Mallinckrodt will retire from the board at the conclusion of this AGM after 11 years as a Director. Over a total of 24 years at Schroders, Philip has served in a number of senior executive positions, and for the last three years as a non-executive Director. I would like to thank Philip on behalf of the board for his commitment and contribution to Schroders over many years. Claire Fitzalan Howard is standing for election today for the first time. Claire's appointment reflects the commitment to the company of the principal shareholder group, which has been an important part of Schroders success over the long term. Since becoming Chairman in 2016, I have overseen significant changes to the board. I believe the board is well-positioned to take the business forward in line with our strategy. We will continue to review board composition and succession plans. In that context, as I indicated in the annual report, I have asked Ian King, a Senior Independent Director, to lead the nominations committee in planning for my own succession. We will now hear from Peter Harrison, the Chief Executive, with a summary of the results for 2019, our performance in the first quarter of 2020, and how the company is dealing with the COVID-19 crisis. Before we turn to the formal business of today's meeting, after Peter's presentation, I will formally put all the resolutions to the meeting, following which there will be an opportunity for you to ask questions. Please press 01 on your phone if you would like to ask a question, and the operator will open your line in due course and invite you to proceed. With that, Peter, over to you. Many thanks, Mike. First, I would like to echo Mike's opening remarks and thank you all for your continued support, and also for your understanding and flexibility in attending today's AGM in a somewhat unusual format. In most years, I would start by talking about the events of the previous year. However, given the unprecedented events we find ourselves in, it seems more appropriate that I start with the COVID-19 situation. First and foremost, I would say that this is a public health crisis, and our key priority has been and continues to be the wellbeing of all our employees and their families. We are committed to supporting all our colleagues, clients, and the wider community through this crisis. I should say right at the beginning, we are not seeking any government assistance globally, nor are we furloughing any employees or enacting any related redundancy programs. We're committed to doing the right thing by all of our stakeholders in this unprecedented time. Today, 99.5% of our employees globally are working from home. Despite this enormous upheaval, I'm very proud indeed of how our people have reacted. Their adaptability and resilience has meant that the business has really not missed a beat. Productivity remains strong thanks to the investment we've made in improving our technology and operating platform over the last few years. I was particularly proud that we've successfully brought in the remaining Scottish Widows assets during the lockdown period. This contributed to net new business in the first quarter of 2020 of over GBP 30 billion, a remarkable result given the environment in which we find ourselves. As an active investor in companies, we remain very engaged in supporting business through these extraordinary times. There are many well-managed businesses with otherwise strong fundamentals that find themselves facing severe challenges. We're keenly aware that we've a role to play in supporting these companies with the aim of protecting the long-term interests of all our stakeholders. As Mike has already said, we believe that now is also the right time to materially increase our charity support to support those most impacted. In addition to donations by the members of the board, we've launched a group-wide collective action campaign. Through this, our employees can donate 25% of their salaries for three months or make one-off donations, which will be double matched by Schroders. We're also increasing the number of days employees can take to undertake charity work from two to five, so that we can give practical as well as financial support to those most affected. If we now take a moment to look back further at the events of last year. For us, 2019 was another year of significant progress towards our strategic objectives. We were delighted to see that the structural changes we've made in the business resulted in a robust performance. We generated record net new business of over GBP 43 billion and reported net assets under management of over half a trillion pounds for the first time. Although our closing assets under management represented a 23% increase year over year, because net flows funded late in the period and markets only significantly improved through the fourth quarter, our average AUM, which is a more important measure from a revenue point of view, was up 2%. Net income increased slightly from the year to GBP 2.1 billion. A decline in net operating revenue was offset by high performance fees and carried interest, and a strong contribution from joint ventures and associates. To deliver the scalable operating platform, which has been so crucial to the business over the last few weeks and months, we continued to invest in technology across the business and grew headcount in areas of strategic growth. Pre-exceptional profits declined 8% to GBP 701.2 million. The board's recommending maintaining the final dividend at 79 pence per share, bringing the total dividend to 114 pence per share, a payout ratio of 57%. From a strategic point of view, I'd say that there have been three key initiatives that took place during 2019. The first was taking on board the first part of the mandate from Lloyds Bank, which saw over 45 billion of assets flow into the business. The second was the acquisition of BlueOrchard, which gives us a leadership position in impact investing. I believe impact investing will prove to be the next mega-trend within asset management. The third was the initiative within wealth management to launch a joint venture with Lloyds called Schroders Personal Wealth, because this is an important partnership for future growth. We also made changes to our financial reporting in 2019 to give our shareholders and the wider investment community more granularity, more transparency, and to align reporting much more meaningfully to our strategy. We now report across five business areas: private assets and alternatives, solutions, mutual funds, institutional asset management, and then wealth management. If I take a moment to remind you of our three parts to our growth strategy. First, we aim to grow our core business through solutions. Second, we want to move closer to the end consumer through wealth management and through our joint ventures. Thirdly, expanding our expertise in private assets, which is a clear area of market growth. We expect the majority of our growth to come from these three business areas. We saw good growth throughout 2019, generating over GBP 50 billion of net new business, and at the year-end represented over half our assets under management and 40% of our revenues. The final two business areas are mutual funds and institutional. Could perhaps be described as more mature traditional asset management. Whilst there are challenges facing this part of the industry, such as passive management and ongoing revenue margin pressures, we do still see growth opportunities here too. The mutual fund business tends to react swiftly to market events and is clearly in a risk-off environment at the moment. If we look at the historical growth rate in revenues, we've seen annual compound growth of 5%, which isn't unattractive. The traditional index-relative institutional business has seen outflows over recent years, as a number of clients have moved into either private assets, passive, or full solutions. Aside from the obvious cross-selling opportunities, it's here that we expect our greater focus on sustainability to come through. It's an area we aspire to lead the market in. We've committed to ESG integration across 100% of our assets under management by the end of this year, and it's a really important initiative for us. So overall, a robust performance in 2019, generating strong inflows and ending the year with assets at a new high. This time last year, I said a few words around how I believe that we've an important role to play in shaping and improving the futures of all of our stakeholders. This, of course, includes our shareholders, and we're confident that we continue to generate value for you. This also means our clients, for whom we have to remain absolutely focused on delivering positive outcomes. As an active responsible investor, we're engaged with companies on environmental, social, and governance issues. We did this 1,750 times throughout 2019, and we voted on 6,000 company meetings around the world. For the fifth consecutive year, we were proud to receive the UNPRI A+ rating for responsible investing, and we're also awarded an A+ for our active ownership. Our people are also a key stakeholder, and we aim to be the employer of choice in our sector. I was delighted in the recent employer opinion poll that we asked employees, 91% were proud to work for Schroders. We recognize there is still work to do to attract and retain a diverse pool of talent. Diversity and inclusion has been an important focus for us over the past years, and we are working on gathering better data across the group to help build an ever more inclusive culture. I have already mentioned our approach to helping the communities in which we live, and we have significantly ramped up these measures over recent months in response to the COVID-19 crisis. Finally, I recognize we have a responsibility from an environmental perspective. To further this commitment, we signed the UN Global Compact towards the end of 2019. The UN Global Compact is the world's largest sustainability initiative, and we have aligned our operations and strategies to their 10 universally accepted principles. From this year onwards, we have committed to operating on a net zero carbon basis across the group. We are a signatory to the RE100 initiative and have also committed to using only renewable energy globally by 2025, and with an interim target of 75% by the 31st of December 2020. At the end of 2019, we have achieved a total of 68% of electricity from renewable sources, and even before the current crisis, we had set out what at the time felt a very ambitious target of cutting our air travel across the group by 30% this year. That now seems a relatively odd target. To look further ahead, I think it is clear that this crisis is a marathon, not a sprint. There are certainly challenging times ahead of us. I do not believe that we yet know the full economic and social impacts. I do believe, however, there will be a fundamental change in the contract between business and society, and there will be profound changes for the way in which we do business going forward across all sectors. There have been extraordinary levels of market volatility in recent weeks, and whilst we seem to have just reached a relatively stable period on a day-to-day basis. Global markets have not recovered. The FTSE 100, for example, is down almost 20% from the levels we saw in mid-February. Growth forecasts globally have been slashed, and a global recession is now a certainty. As I touched upon earlier, as an active, responsible investor, these are challenging times. We have an important role to play in refinancing companies and rebuilding economies. Crucially, it is worth restating that our overall strategy is to drive growth of the business. This remains unchanged. We will continue to invest through the market cycle and continue to generate value for our clients and for our shareholders. Once again, thank you very much for your continuing support. I hope to see you all in person when we can return to a usual format. With that, I will hand you back to Mike. Thank you. Thank you, Peter. I turn to the formal business of today's meeting. The notice of meeting was issued on March 27, and I propose to take it as read. I will formally put all the resolutions to the meeting. As we are unable to meet in person and as we announced on April 16, we have asked shareholders to vote by proxy this year. All shareholders present have already voted by proxy, and therefore we will not hold a poll. However, we do believe it is important that shareholders have the opportunity to ask questions. Therefore, I would now like to take any questions on the business of the AGM, including the report and accounts. As I mentioned earlier, to ask a question, please press 01 on your keypad. We will take questions in turn, and the operator will invite you to ask your question. We will continue until all questions have been asked. When it comes to your turn, please make sure your line is unmuted, and please give your name and confirm you are a shareholder. Operator, we are ready now for questions. Thank you, sir. As a reminder, if you would like to ask a question, please press 01 on your telephone keypad. There will now be a brief pause while questions are being registered. First question we have is from the line of Andre Robson. Andre, please go ahead. Sir, your line is open. Can you please say your name and confirm you are a shareholder? Operator, I suspect the name has been registered incorrectly, and I think it is- Yes the representative of ShareAction who wants to ask a question. Please go ahead. Sure. If this is my line open, this is Simon Rawson. I am asking a question on behalf of ShareAction. We are a shareholder of Schroders. I would like to start by thanking Schroders for holding this AGM as a virtual event at a time when most companies are holding their AGMs behind closed doors. Schroders came seventh in our recent ranking of 75 of the world's largest asset managers in their approach to responsible investment. Climate change is an important part of responsible investment, and it continues to present material financial risks. As Schroders' own head of sustainability research has said, failure to make significant moves away from fossil fuel will tie the world into escalating physical damage, rising sea levels, less agricultural land, and more volatile weather. Meanwhile, the banking sector continues to finance high carbon activities, undermining efforts to keep global warming to well below 2 degrees Celsius. Barclays, in particular, is the largest financer of fossil fuels in Europe and the sixth largest in the world. ShareAction has led a shareholder resolution calling on Barclays to phase out its financing of fossil fuel companies that are active agents in driving the climate crisis. Will Schroders publish its stewardship strategy for the banking sector and join the many investors that have already committed to vote for ShareAction's resolution at Barclays AGM? Peter, will you answer that question? I will, Mike. Certainly. It's an important area. Thank you, Simon. We've a long history of engaging with the banking sector on ESG, and particularly on fossil fuel exposure. For example, last year, we supported ShareAction's engagement with HSBC on their lending to coal projects, and we've been continuing this specific dialogue with HSBC and widening that conversation to include their approach to climate change more generally. In 2019, we also endorsed the Principles for Responsible Banking and were pleased to be one of the very first asset managers to do so. Our in-house research tool, which we call Context, looks at the fossil fuel exposure of banks, insurance, drawing on NGO data. And we'll obviously update that with your recently published assessment for the sector. As you'd expect, we've been engaging actively with Barclays around climate change ahead of their AGM. I'm afraid it's not our policy to preannounce voting decisions, but we will be publishing some details of some engagements with banks in our future sustainable investment report. Thank you, Peter. We look forward to that. Thank you. Can we go to the next question? The next question is from Andrew Golter. Please go ahead, sir. Morning, Mr. Dobson and Mr. Harrison and Mr. Staples. I hope you will accept my question. It is not really a question; it is a congratulation. I am calling on behalf of my wife, who is a registered shareholder. I am also a shareholder, but my shares are in a nominee name. Is that okay for me to go ahead? Yes, please do. Okay. Well, thank you very much. I just wanted to congratulate you on the excellent performance of the firm over many years, and in particular since 2000, when Schroders was split in two. I went with the other half to Citigroup, and the performance really has been absolutely spectacular over the last 20 years. We live in very difficult circumstances now. But I wanted also to commend Mr. Harrison and all the other board members and executives for ceding some of their remuneration for the COVID-19 charities. I think that is very commendable, and I hope maybe you will be able to get a bit of good press publicity from that, because I know Mr. Harrison took a bit of stick in The Times a couple of weeks ago. But I think that is a very generous gesture on his behalf and also others. Perhaps you might be able to get a decent report because the papers tend to publish bad news and not so much of the good. So perhaps you could try and do something to address that. Well, sir, thank you very much for your supportive comments. We took this decision about sacrificing some fees and salary and long-term incentive plan, not for press coverage, but because we thought it was the right thing to do. In fact, there has been some notice of this in the press, including The Times, as a matter of fact. Oh, good. Okay. As I say, we didn't do it for press coverage. No, I'm sure you didn't. No. Yeah. But it has been picked up, and I think it's been picked up by a number of people I've met or seen recently, not necessarily shareholders, and I think of the competitors. So I think it was the right thing to do, and I think it's consistent with what we try to do at Schroders. Well, it always was a very good firm and continues to be one. Thank you very much. As far as my shareholding is concerned, I'm looking at my screen. Well, it's gone up over 500%. So my wife's has gone up 500% and 300% for the non-voting, so we're certainly happy bunnies. Well, thank you very much. And we hope you remain long-term supportive shareholders. Don't worry. So are us. Thank you. Very nice to talk to you, sir. Thank you for joining us. Bye-bye. Goodbye. Can we go to the next question? Sure. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press 01 on your telephone keypad. That is 01 on your telephone keypad. There will be a short pause at the moment while we wait for any further questions to come through. As a final reminder, ladies and gentlemen, if you would like to ask a question, please press 01 on your telephone keypad. There will be a short pause while we wait for any further questions to come through on the audio line. Well, if there are no further questions, that completes the formal business of the meeting. We will announce the full proxy voting figures later today, and they will be posted on our website. We anticipate that all the resolutions will be passed based on the proxy votes submitted before the meeting. Thank you again for joining us, for your continued support. On behalf of Schroders, I wish you and your families well. We look forward to engaging in a more traditional way as soon as we can. I now declare the meeting closed. Thank you very much. Ladies and gentlemen, thank you for attending the Schroders PLC AGM. The call will now be closed.