Chairman’s and Chief Executive’s statement

2010 was a record year. Net new business inflows were £27.1 billion.

2010 was a record year on most measures. Net new business inflows were £27.1 billion (2009: £15.0 billion) taking funds under management at the year end to an all time high of £196.7 billion (2009: £148.4 billion). Net revenue was £1.16 billion (2009: £749.8 million) and profit before tax was £406.9 million (2009: £137.5 million).

Asset Management

Asset Management net revenue increased to £996.2 million (2009: £679.2 million) including performance fees of £72.6 million (2009: £34.5 million). Although we saw net inflows in traditionally lower margin products such as fixed income and liability-driven investment, net revenue margins were slightly ahead at 63 basis points (2009: 62 basis points). Asset Management profit before tax was £381.0 million (2009: £174.7 million).

Investment performance has been good with 81 per cent. of funds outperforming their benchmark or peer group over the three years to the end of 2010. As a result, net inflows were generated across equities, fixed income, multi-asset and alternatives. Net inflows into fixed income were particularly noteworthy at £9.8 billion taking fixed income assets under management to £33.8 billion, almost double the level of two years ago.

We also had £5.0 billion of net inflows in multi-asset with major new mandates from UK and international clients. This represents a turnaround from recent years when we were seeing net outflows in multi-asset as a result of the run off of UK balanced mandates.

Our Institutional business had a strong year reflecting good investment performance and a range of innovative products. Gross inflows totalled £31.4 billion for the year (2009: £18.6 billion) and net new business amounted to £16.8 billion (2009: £4.9 billion). All regions had net inflows. Funds under management in Institutional ended the year up 39 per cent. at £106.4 billion (2009: £76.7 billion).

Gross inflows in our global Intermediary business increased to £39.2 billion (2009: £29.0 billion), and net inflows were at a high level at £7.9 billion, although down slightly on the previous year (2009: £9.6 billion). This reflected higher levels of redemptions in Asia although we still had positive net flows in that region. In addition, our joint venture asset management company in China ended the year with funds under management of £5.2 billion (not included in overall funds under management) and contributed £10.1 million of profit. We generated significant net inflows in continental Europe, in the UK and in our growing Intermediary business in the US. Funds under management in Intermediary ended the year up 25 per cent. at £74.1 billion (2009: £59.1 billion).

Private Banking

Private Banking net new business reached a high of £2.4 billion (2009: £0.5 billion) and funds under management ended the year up 29 per cent. at £16.2 billion (2009: £12.6 billion). This reflects the strength of our proposition for private clients as well as additional client facing private bankers. However, net revenue was only slightly ahead at £103.3 million (2009: £97.7 million) as higher management fee income was offset by lower interest income. Higher costs, principally staff costs as we added headcount as well as a small increase in doubtful debt provisions, resulted in a decline in profit before tax to £10.1 million (2009: £20.1 million).

There are further good growth opportunities across the full range of our businesses.

With record levels of funds under management and one off costs incurred in 2010 falling away, we expect increasing profitability in Private Banking in 2011.

Group

Profit before tax in the Group segment was £15.8 million (2009: loss £57.3 million) with satisfactory returns achieved on our diversified investment capital portfolio. After the purchase of 7.4 million ordinary shares and a net 4.6 million non-voting ordinary shares during the year at a cost of £151.9 million, shareholders’ equity at the end of 2010 was £1.80 billion (2009: £1.65 billion).

Dividend

The Board is recommending an increased final dividend of 26.0 pence per share, payable on 12 May 2011 to shareholders on the Register at 25 March 2011. This brings the total dividend for the year to 37.0 pence per share (2009: 31.0 pence), an increase of 19 per cent.

Outlook

We expect the economic recovery to continue in 2011 which should support asset prices over the year. However, markets will continue to be volatile in the face of increasing inflationary pressures, interest rates trending upwards in many countries and heightened political risk in developing markets.

There are further good growth opportunities across the full range of our businesses and, to ensure Schroders is well positioned to take advantage of them, we will continue to invest in talent, upgrading our information technology and operational infrastructure and in meeting the requirements of a more stringent regulatory environment.

We believe our strategy of building a broadly diversified business, investing in organic growth opportunities and maintaining a strong financial position will continue to create substantial value for clients and shareholders over the long term.