Rathbone Brothers PLC : Annual Financial Report update
April 19 2012 - 8:21AM
UK Regulatory
TIDMRAT
Rathbone Brothers Plc ("the Company")
Report and accounts 2011
This is an update to the announcement regarding the publication of the Rathbone
Brothers Plc Annual Report and Accounts for the year ended 31 December 2011
("the 2011 Report and Accounts") made on 18 April 2012.
The information below, which is extracted from the 2011 Report and accounts is
included solely for the purposes of complying with DTR 6.3.5 and the
requirements it imposes on issuers as to how to make public an annual financial
report. It should be read in conjunction with the Company's preliminary
announcement issued on 21 February 2012. Together these constitute the material
required by DTR 6.3.5 to be communicated to the media in unedited full text
through a Regulatory Information Service. This material is not a substitute for
reading the full 2011 Report and Accounts. Page numbers and cross references in
the extracted information below refer to page numbers and cross reference in the
2011 Report and Accounts.
Risk Management
Rathbones has a clear risk management framework, the key objective of which is
to identify and manage risk within a Board-approved risk appetite. The Board
believes that the most effective way of achieving this is by embedding risk
management throughout the organisation. We achieve this by ensuring that all
identified risks are owned by specific committees who have responsibility for
risk identification and risk management. These committees in turn report to the
risk management committee, which takes a more holistic view of risk, identifying
trends and correlations and providing guidance to other committees and to the
Board. This approach allows for risk decisions to be taken at the most
appropriate level and also be subject to robust review and challenge.
Ian Buckley is the executive director with oversight responsibility for risk
management. The risk management committee comprises all members of the group
executive committee, together with the group heads of personnel, compliance and
internal audit. During 2011, two non-executive directors, Oliver Corbett and
Kathryn Matthews, became members of the committee and on 1 March 2012 Kathryn
Matthews will become chairman of the committee.
The responsibilities of the risk management committee include:
* advising the Board on the Group's overall risk appetite and risk strategy,
taking into account the current and prospective macroeconomic and financial
environment;
* overseeing the current risk exposures of the Group;
* reviewing the risk assessment processes;
* supporting the Board's assessment of any proposed strategic business change;
and
* assessing reports on any material breaches of risk limits and the adequacy
of proposed management action.
The full remit of the committee is detailed within its terms of reference, which
is subject to annual review and approval by the Board. The risk management
committee meets on a quarterly basis. The risk management framework is broadly
unchanged from 2010.
Risk appetite
Rathbones' risk appetite is defined as the level of risk it is prepared to
accept, within defined tolerance levels, in the pursuit of its strategic
objectives. The Board recognises that taking risks is a normal part of running a
business, and that the business will necessarily bear losses from financial and
operational and IT risks which may manifest themselves either as reductions in
income or directly or indirectly as operating or opportunity costs. The Board is
committed to mitigating such losses as much as possible, but would be prepared
to accept loss of up to GBP10 million in any five year period before it materially
changes the current business model.
Risk register
A risk register is maintained which is considered the principal tool for
monitoring risks. During 2011, for reporting purposes, we completed an exercise
to classify each major financial and non-financial risk facing the Group as a
financial business, or operational and IT risk. These risks are assessed by
management as having a potential material impact on the Company. The 13 major
risks are listed below in alphabetical order, grouped within the wider risk
categories, together with details of the key mitigators. These are not
exhaustive listings.
Risk scoring
During 2011 changes were made to the risk scoring methodology adopted by
Rathbones, as approved by the risk management committee. Each risk is now
assessed using a 1 - 4 scoring system; previously a 1 - 5 approach had been
utilised. The rationale for this reduction is to remove the tendency,
inadvertent or otherwise, to default to the median.
Each risk is rated by assessing the probability of the risk occurring and its
impact if it does occur. The inherent risk is then reduced given an assessment
of the internal controls environment or by insurance to give a residual risk
score.
Business risks
=------------------+-------------------------+---------------------------------
Risk |Definition |Key mitigators
=------------------+-------------------------+---------------------------------
Competition Competition risk covers Business
material loss of clients, * Regular reviews of pricing
and a reduced ability to structure.
grow the business, as * Continued investment in
well as key staff loss. marketing, the investment
process and service
Key staff loss is the standards.
risk of losing either a
member of the group
executive committee, a Staff
key investment * Competitive remuneration
professional or a senior packages.
manager. This could have * Investment in staff training
a negative effect on and development.
either the growth of the * Contractual clauses with
business or the retention restrictive covenants.
of existing business.
=------------------------------------------------------------------------------
Legal & Compliance Legal and compliance risk * Retained specialist legal
includes the risk of advisers.
potential loss arising * Compliance department.
from litigation, as a * Data protection policy.
result of a breach of * Documented policies,
legislative requirements, procedures and practices.
such as Companies Act
requirements, data
protection, employment
law or health and safety
regulations.
=------------------------------------------------------------------------------
Regulatory Regulatory risk is the * Comprehensive compliance
risk that a change in monitoring.
regulation will * Awareness of regulatory
materially affect the developments.
market in which Rathbones * Active involvement with
operates and increase the representative industry
risk of non-compliance. bodies.
* Close contact with the
regulators.
=------------------------------------------------------------------------------
Reputational Reputational risk covers * Strong compliance culture.
the risk that negative * Treating customers fairly
publicity will lead to a governance.
loss of income for * Monitoring of media coverage.
Rathbones or litigation. * Proactive communications with
shareholders/investor
It also includes relations.
investment performance * Investment process.
risk, which is the risk * Investment management
that portfolios and/or performance monitoring.
funds fail to achieve * Investment in staff training
performance benchmarks, and development.
leading to client
dissatisfaction.
Reputational damage is
more likely to arise
following the
materialisation of
another risk factor
rather than as a
standalone risk.
=------------------------------------------------------------------------------
Financial risks
=---------+--------------------------------+-----------------------------------
Risk |Definition |Key mitigators
=---------+--------------------------------+-----------------------------------
Credit Credit risk is the risk of a * Robust counterparty limits.
market counterparty defaulting * Active monitoring of exposure.
on monies deposited with it, or
a counterparty failing to fulfil
their contractual obligations.
=------------------------------------------------------------------------------
Liquidity Liquidity risk is the risk that * Annual Individual Liquidity
the Group will encounter Adequacy Assessment (including
difficulty in meeting stress testing).
obligations associated with * Daily reporting to senior
financial liabilities that are management.
settled by delivering cash or
another financial asset.
=------------------------------------------------------------------------------
Market Market risk includes interest * Documented policies and
rate risk, foreign exchange risk procedures.
and price risk. Market risk is * Daily monitoring.
the risk that the Company's * Robust application of policy
earnings or capital will be and investment limits.
adversely affected by changes in
the level or volatility of
interest rates, foreign currency
exchange rates or market prices.
=------------------------------------------------------------------------------
Further detailed discussion of the Group's exposures to financial risks is
included in note 28 to the consolidated financial statements.
Operational & IT risks
=---------------------+--------------------------+-----------------------------
Risk |Definition |Key mitigators
=---------------------+--------------------------+-----------------------------
Business continuity Business continuity risk * Documented disaster
is the risk of an event recovery and
arising which could have a crisis/incident
material impact on the management plans.
operations of the * Regular disaster recovery
business. This includes testing.
the inability to recover * Continuous monitoring of
IT systems or the IT systems availability.
restricted or denied * Off-site data centre.
access to office premises.
=------------------------------------------------------------------------------
Data integrity Data integrity risk * System access controls.
includes the risks * Policy and procedures.
associated with breaches
of client confidentiality,
as well as potential
failures with the
maintenance, accuracy and
consistency of stored
data.
=------------------------------------------------------------------------------
Outsourcing Outsourcing risk is the * Active relationship
risk of failure in respect management, including
of the provision of regular service review
services by a third meetings.
party. Any significant * Service level agreements
disruption to services, or and monitoring of key
deterioration in the performance indicators.
performance of a key
supplier, could have a
negative impact on the
ability of Rathbones to
deliver services to our
clients.
=------------------------------------------------------------------------------
Processing Processing risk includes * Dealing limits and
the potential risk of loss supporting system
of client or company controls.
assets through inadequate * Continued investment in
or failed internal automated processes.
processes and systems or * Counter review/4-eyes
fraud. processes.
* Segregation of duties.
* Documented procedures.
* Annual controls
assessment including an
ISAE3402 report.
=------------------------------------------------------------------------------
Project management Project management and * Documented IT strategy.
and control control risks cover those * Two-stage assessment,
areas of uncertainty which challenge and approval of
can arise and have a project plans.
negative impact on the * Dedicated projects office
performance or delivery of function.
a project either in terms * Evolutionary system
of duration, cost or in changes, with close user
meeting requirements. involvement.
=------------------------------------------------------------------------------
Settlement Settlement risk is the * Daily monitoring of
risk that counterparty settlement performance.
will fail to deliver the * Delivery versus payment
terms of a contract at the approach, wherever
time of settlement. possible.
* Automated processes.
* Authorisation and
management oversight.
=------------------------------------------------------------------------------
Related party transactions
The remuneration of the key management personnel of the Group, who are defined
as the Company's directors and other members of senior management who are
responsible for planning, directing and controlling the activities of the Group,
is set out below. Historically, the key management personnel of the Group were
considered to be limited to the Company's directors. The comparative balances
in this note have been restated to reflect the revised presentation. Further
information about the remuneration of individual directors is provided in the
audited part of the directors' remuneration report.
=--------------------------------------------------------------
2011 2010
GBP'000 GBP'000
=--------------------------------------------------------------
Short term employee benefits 6,029 5,990
Post employment benefits 321 320
Other long term benefits 964 1,333
Share-based payments 1,828 1,876
=--------------------------------------------------------------
9,142 9,519
=--------------------------------------------------------------
Dividends totalling GBP399,000 were paid in the year (2010: GBP432,000) in respect
of ordinary shares held by key management personnel.
At 31 December 2011, the Group had provided interest-free season ticket loans of
GBP8,000 (2010: GBP7,000) to key management personnel.
At 31 December 2011, key management personnel and their close family members had
gross outstanding deposits of GBP1,040,000 (2010: GBP1,395,000) and gross
outstanding banking loans of GBP1,685,000 (2010: GBP1,299,000), of which GBP1,685,000
(2010: GBP1,299,000) were made on normal business terms. A number of the
Company's directors and their close family members make use of the services
provided by companies within the Group. Charges for such services are made at
various staff rates.
The Group's transactions with the pension funds are described in note 24. At 31
December 2011, GBP10,000 was due from the pension schemes (2010: GBP4,000).
The Group managed 18 unit trusts and OEICs during 2011 (2010: 16 unit trusts and
OEICs). Total annual management charges of GBP14,451,000 (2010: GBP12,823,000) were
earned, calculated on the bases published in the individual fund prospectuses,
which also state the terms and conditions of the management contract with the
Group. Annual management fees owed to the Group as at 31 December 2011 totalled
GBP1,208,000 (2010: GBP1,078,000).
All amounts outstanding with related parties are unsecured and will be settled
in cash. No guarantees have been given or received. No provisions have been
made for doubtful debts in respect of the amounts owed by related parties.
Going Concern basis
Details of the Group's business activities, results, cash flows and resources,
together with the risks it faces and other factors likely to affect its future
development, performance and position are set out in the chairman's statement,
chief executive's statement, strategy and business performance, business review,
financial review and risk management report. In addition, notes 28 and 29 to
the consolidated financial statements provide further details.
The Company is regulated by the FSA and performs annual capital adequacy
assessments which include the modelling of certain extreme stress scenarios. The
Company publishes Pillar III disclosures annually on its website which provide
detail about its regulatory capital resources and requirements. Since 6 April
2011, the Group has had no external borrowings and is fully equity financed.
In 2011, the Group has continued to generate organic growth in client funds
under management despite the unhelpful market conditions, and this is expected
to continue. The directors believe that the Company is well placed to manage its
business risks successfully despite the continuing uncertain economic and
political outlook.
As the directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future, they
continue to adopt the going concern basis of accounting in preparing the annual
financial statements. In forming their view, the directors have considered the
Company's prospects for a period exceeding 12 months from the date the financial
statements are approved.
Responsibility statement of Directors on the annual report
The responsibility statement below has been prepared in connection with the
Group's full annual report for the year ending 31 December 2011. Certain parts
thereof are not included within this announcement.
We confirm that to the best of our knowledge:
* the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Company and its undertakings included
in the consolidation taken as a whole; and
* the directors' report, together with the information provided in the
business review, financial review and risk management report, includes a
fair view of the development and performance of the business and the
position of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties that they face.
By Order of the Board
A D Pomfret
Chief Executive
20 February 2012
Legal Notice
This document contains certain forward-looking statements which were made by the
directors in good faith based on the information available to them at the time
of their approval of the 2011 Report and Accounts. Forward looking statements
contained within the document should be treated with some caution due to the
inherent uncertainties, including economic, regulatory and business risk
factors, underlying any such forward looking statements.
Richard Loader
Company Secretary
020 7399 0000
19 April 2012
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Rathbone Brothers PLC via Thomson Reuters ONE
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