UPDATE 2-Fund firm Schroders profit down, cautious on flows
(adds detail, CEO comments)
LONDON, August 8 (Reuters) - UK fund firm Schroders (SDR.L) reported a 27 percent fall in profits on Friday, hit by writedowns and client outflows, and warned demand from retail investors would weaken.
The firm, which traces its roots back more than 200 years, said retail clients withdrew 750 million pounds ($1.45 billion) in assets on a net basis in the second quarter, bringing first-half outflows to 200 million pounds.
"We expect retail investor demand for mutual funds to be increasingly affected by the volatility of financial markets. This will have a negative impact on revenues in our retail business," the firm said in a note.
In contrast, during the first half of 2007 the firm had 3.6 billion pounds of net inflows into retail products, which tend to command higher margins than institutional funds.
Citi analyst Haley Tam, who rates the shares a sell, said in a note that there was a high risk of further outflows from the group's AS Agriculture fund and Commodity fund, which are both down 14 percent since end-June.
Total assets under management fell to 130.2 billion pounds from 139.1 billion pounds at the end of last year due to market falls and 1.1 billion pounds of net outflows, mostly from institutional investors.
Schroders' figures come at a tough time for the British funds industry.
In June net sales of retail funds and tax-advantaged Individual Savings Accounts (ISAs) fell to their lowest since January, according to the Investment Management Association.
At 0800 GMT Schroders' shares were 1.8 percent lower at 989 pence.
Pretax profit came in at 135.7 million pounds, down from 185.6 million pounds a year ago, while the interim dividend is 10 pence per share, up from 9 pence a year ago.
Profit from private equity dropped to 7.4 million pounds from 36.2 million pounds a year ago due to unfavourable market conditions, the company said.
However, profit from the firm's asset management business rose to 136.7 million pounds from 123.2 million pounds, helped by a rise in gross profit margin to 65 basis points from 57 basis points as it sold more higher margin products.
Dobson said on a call to journalists that current conditions would continue "for the balance of the year and certainly into the early part of 2009".
"I think volatility will continue for a while. Investors want to see a bit more visibility on the economy before they commit money," he said.
In April Schroders said it had taken an unrealised mark-to-market writedown of 25.8 million pounds on U.S. mortgage and asset-backed securities in the first quarter and also announced a 7.7 million-pound writedown on seed capital invested in new funds at the time.
However, in the second quarter the firm saw a gain in its fixed income portfolio, including both income and mark-to-market gains, of 7.6 million pounds and a further 1 million pound writedown in seed capital, it said on Friday.
Dobson reiterated that the tougher market environment would provide opportunities for acquisitions.
"With valuations down sharply and with people looking to consolidate there will be opportunities to make further acquisitions. Certainly prices have moved in our direction and we're in a position to take advantage of that." (Editing by David Cowell)
