FTSE 100 axe hangs over Schroders as profits halve

Schroders, the 198-year-old asset management business, yesterday said profits before tax for the first half of the year had halved to £20.5m as it bore the effects of an inevitable pummelling from the stock market.

Shares in Schroders closed down 8.8 per cent at 471p, increasing the likelihood of the company being ejected from the FTSE 100 index next week. The shares were trading at a high of 947p in March.

Michael Dobson, the chief executive of Schroders, said he had little optimism for the next six months, and revenues would be affected if markets continued at their current levels. Underlying profits from asset management were £46.8m, down from £74.2m in the same period last year.

Mr Dobson – who joined the company in November – and Jonathan Asquith, the finance director, have been grappling with the company's cost base, and announced a further 390 jobs would be cut. Mr Asquith hopes to have a headcount of less than 2,500 by the end of the year, down from 3,117 staff at the start of 2001.

Mr Dobson said he was prepared to take further hits in the profit and loss account over the next six months to continue to reduce costs and improve efficiencies, and said the effects of the cost cutting programme will be visible on the company's bottom line by 2003. Redundancy costs were £7m for the half-year. Total administrative expenses have come down from £224m to £219m since last year.

"I am pretty tough on our business divisions, but I am not going to slash and burn the business and lose valuable assets to cover a short-term downturn in the market," Mr Dobson said. "Balancing cost cutting and damaging the long-term franchise of the business is difficult, but I am not going to destroy shareholder value. I am not satisfied with where we are at the moment, but I am not going to sit here and do nothing about it. Costs are beginning to move in the right direction. We have the staying power to see this downturn through." He said fund performance and the strength of the company's brand had helped Schroders through a tough trading year.

The company lost £2.3bn of customer funds in six months, narrowed from the loss of £7.6bn last year. About £2bn was lost in the US, where the company has £20bn under management.

Asset managers have been universally hit by the volatility seen in the stock market over the past few months. Funds under management shrank from £110bn to £102bn. "The figures are relatively in line with expectations, and Schroders has managed to outperform the market on a number of fronts. The size of their funds under management looks pretty robust given the market," one analyst said.

The interim dividend has been maintained at 5.5p a share.

There was positive news in the retail savings business, which saw sales increase dramatically by 120 per cent to £2bn. Analysts took comfort that the loss Schroders has seen in institutional mandates is being replaced by higher margin retail sales. The company also revealed it has £700m surplus capital that may be used to fund acquisitions.