Annual Report and Accounts 2018 Highlights Contents Profit before tax Strategic report and exceptional items Our purpose 1 Our business at a glance 2-3 £761.2m Chairman’s statement 4-5 (2017: £800.3m) Group Chief Executive’s review 6-9 Market review 10-11 Profit before tax Our investment capabilities 12-13 Our strategy for 2018 and beyond 14-15 £649.9m Key performance indicators 16-17 (2017: £760.2m) Our business model 18-19 A strong financial position 20-21 Total dividend per share Business and financial review 22-29 Creating a place people want to work 30-31 114p Our people 32-33 (2017: 113p) Driving high levels of corporate responsibility 34-35 Our impact on society 36-39 Basic earnings per share Key risks and mitigations 40-47 before exceptional items Governance 215.8p Board of Directors and Bruno Schroder 48-50 Group Management Committee and Company Secretary 51-53 (2017: 226.9p) Corporate governance report 54-59 Nominations Committee report 60-61 Basic earnings per share Audit and Risk Committee report 62-67 183.1p Remuneration report 68-90 Directors’ report 91-93 (2017: 215.3p) Statement of Directors’ responsibilities 94 Total equity Financial statements Consolidated financial statements 96-150 £3.6bn Schroders plc financial statements 151-167 Independent auditor’s report 168-175 (2017: £3.5bn) Shareholder information Shareholder information 176 Five-year consolidated financial summary 177 Glossary 178-180 Our Annual General Meeting (AGM) will be held at 11.30am on 2 May 2019 at 1 London Wall Place, London, EC2Y 5AU. A glossary of terms used throughout the Annual Report and Accounts, including details of Alternative Performance Measures, can be found from page 178. Strategic report As a global investment manager, our overall purpose is to help build the long-term future prosperity of our clients. We recognise that we have an important role to play in shaping our clients’ futures as well as having a strong focus on doing the right thing for our people, our suppliers and for society more widely. By understanding the needs of our stakeholders, we can deliver long-term growth for our shareholders. In order to deliver for our stakeholders, we prioritise growing a sustainable business that takes a long-term approach. We do this by investing behind strategic growth opportunities, which help us deliver on our commitment to provide positive outcomes for all of our clients, society, our shareholders and our people. When our stakeholders prosper, so do we. Clients Society Our clients are at the centre of our business. Our ongoing As a principle-led business, we believe that engaging with success is built upon our understanding of their evolving needs companies on corporate responsibility is the right thing to do. and partnering with them to construct products and solutions As part of our commitment to society, we maintain positive that help them meet their financial goals. We are proud of our relationships with our regulators. We also build strong track record of delivering long-term performance for clients. relationships with our external service providers. Three-year client investment Environmental, social and governance (ESG) performance* engagements 74% 2,200 Read about how we Read about how we create value for our clients create value for society from page 13. from page 35. Read about how we Read about how we create value for our people create value for our shareholders from page 31. from page 21. People Shareholders Our people are key to the ongoing success of the business. We rely on the support of our shareholders in order to generate We are proud of our reputation as an employer of choice and sustainable long-term growth. Our business model aligns the of the talented people who drive our business. Our people interests of our shareholders with those of our clients. This strategy aims to attract, retain and develop an agile and diverse means that in delivering for our clients, we create value for workforce, who we are able to provide with engaging and those invested in our business. rewarding work. Basic earnings per share before Retention of key talent exceptional items 94% 215.8p * More information on how we measure investment performance is set out on pages 24 and 178-179. Schroders Annual Report and Accounts 2018 1 Our business at a glance An active approach to building long-term future prosperity We manage investments for institutions and individuals to help them meet their financial goals and prepare for the future. As the world changes, so do our clients’ needs. That’s why we have a long history of adapting to meet the challenges of the times, keeping our focus on what matters most to our clients. From pension funds and insurance companies to individuals and charities, we work with a wide range of clients, whose needs are as diverse as they are. Asset Management Wealth Management We manage investments for institutions and private investors We provide a wide range of wealth management throughout the client life cycle. services, which focus on preserving and growing our clients’ wealth. There will soon be three key Our institutional clients include local authorities, pension schemes, components to supplement our existing wealth insurance companies and sovereign wealth funds. We also manage management offering, which reflects our strategic assets for end clients as part of our relationship with distributors, ambition to provide wealth management and financial advisers and online platforms. financial planning services to clients across the We believe that the key to delivering better outcomes lies in gathering wealth spectrum. highly talented people who bring a diverse range of thoughts and ideas. Cazenove Capital (in the UK and Channel Islands) Our 42 investment teams in 19 global locations actively manage and Schroder Wealth (outside the UK) offer bespoke investments across a range of asset classes. Our approach allows us discretionary and advisory investment services to to channel our insights into the right outcomes for our clients. private clients, family offices and charities. Our client service teams build lasting relationships, which allow us to Benchmark Capital provides technology-led develop a clear view of our clients’ needs and how these may change regulatory and administrative services for a network over time. of independent financial advisers, as well as By combining these client relationships with market insights and our providing platform services. strong investment capabilities, we can design bespoke products and We have announced our plans to create a joint services. These solutions are designed to fit our clients’ needs and are venture with Lloyds Banking Group in the UK. The rigorously tested to ensure that they are fit for purpose. business will be named Schroders Personal Wealth and will address the growing gap in the advice market by offering personalised financial planning and investment services to affluent customers. Contribution to Group net income Contribution to Group net income £1,801.2m £289.8m Infrastructure Our infrastructure teams provide critical services that support the business and include capabilities across Technology, Operations, Finance, Risk, Human Resources, Compliance, Legal, Governance, Internal Audit and Tax. Group The overall governance and corporate management of the Group is driven by the Chairman, Group Chief Executive and Chief Financial Officer, as well as employees involved in corporate development and strategy. Read more about how our business creates value in our business model on pages 18-19. 2 Schroders Annual Report and Accounts 2018 Strategic report A diversified strategy for growing our business Taking a diversified approach is important in an environment of uncertainty. By ensuring diversity across our business model, we are able to maintain our resilience to industry headwinds and generate long-term growth through the cycle. This means we can take a long-term view and continue to invest in our business. Assets under management (£407.2bn) Geographies Asset classes Clients UK 40% Equities 38% Institutional 59% Asia Pacific 23% Multi-asset 25% Intermediary 30% Europe, Middle East and Africa 22% Fixed Income 17% Wealth Management 11% Americas 15% Private Assets and Alternatives 9% Wealth Management 11% Expanding the core business At our core we are a committed active investment manager. Our product offering and range of strategic capabilities are structured around the areas that we believe demonstrate the clear, repeatable benefits of active management. We deploy seed capital to develop new strategies to achieve positive outcomes for our clients. This allows us to continue growing a core business that is diversified across geography, asset class and client type. Developing capabilities Building closer relationships in private assets with our end clients As the number of publicly- We have recently made There has historically been a clients, particularly in wealth listed companies continues a number of successful high level of intermediation management. We have to fall, we are seeing acquisitions and investments between investment developed several key increased demand from to add further private equity, managers and their end strategic partnerships to clients for access to private infrastructure finance, clients, which can increase support this objective. These markets. Broadening our securitised credit and real client turnover and the fees include Schroders Personal investment expertise and estate capabilities to our they pay. To reduce the Wealth in the UK, our product offering within product set. impact of this and improve partnership with Maybank in private assets and client longevity, we are Malaysia and our distribution alternatives remains a key working to build closer relationship with Hartford strategic focus for us. relationships with our end Funds in the US. Schroders Annual Report and Accounts 2018 3 Chairman’s statement Performing in more challenging times 2018 was a challenging year for investors, particularly in the second half as most markets declined.