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Schroders’ profits halved

Schroders saw its pre-tax profit fall by 54% on a yearly basis in the first quarter of 2009, from £77.9m in the first quarter of 2008 to £36.1m this year before tax and exceptional items.

However, its retail asset management division saw net inflows of £200m, a turnaround from outflows of £3.1 billion in the fourth quarter of 2008. The group said this resulted from strong demand for fixed income products.

Institutional outflows in the first quarter amounted to £2.4 billion, which the group said was mainly down to the withdrawal of a large institutional account which decided to invest in index-linked products.

Total assets under management declined 6.4% from December 31 last year to £103.1 billion.

In its asset management division overall, income was £131.9m, down 33% from the same quarter last year. Costs before exceptional items were also down, falling 20% against the same quarter last year to £27.6m.

However, the company reported exceptional items of £6.7m, including £4.5m of redundancy costs. It said these measures had been taken in expectation of continued drags on investor demand from market volatility, and would help to reduce costs later in the year.

The chief executive officer, Mark Dobson, said in a conference call for investors that Schroders’ overall profit margin – calculated as gross profit divided by a weighted average of funds under management – was down from 65 basis points to 58.

He said two thirds of this was a result of the product mix, with investors switching out of equities to fixed income, which carries a lower profit margin. Assets under management are now held 43% in equities, 14% in fixed income, 14% in alternatives, 18% in multi-asset and 11% in private banking, according to the firm.

Questioned on the firm’s large capital cushion, Dobson and Kevin Parry, the chief financial officer, said the group was considering acquisitions.

Parry said, “In the current climate, with this level of volatility we see holding cash as an asset class, particularly in the context of a corporate that is looking for opportunities, I think it does make sense. Any acquisition that we would make needs to be strategically and tactically appropriate for Schroders.”

Dobson said any acquisition would be in Britain or continental Europe and would “not necessarily” have a fixed income bias.

“We have an efficient platform: if we can add scale, especially in equities, that would be attractive,” he added.

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