TIDMRAT
Rathbones' funds under management grow 24%
This is a preliminary statement of annual results published in
accordance with FCA Listing Rule 9.7A.
It covers the year ended 31 December 2014.
Mark Nicholls, Chairman of Rathbone Brothers Plc, said:
"2014 was a challenging year for most investment markets, which became
increasingly volatile in the second half. Despite this, Rathbones had
another good year and achieved strong and broad-based growth. Our total
funds under management grew by 23.6 % over the year to GBP27.2 billion
and we warmly welcomed more than 5,000 new clients during the year.
"Rathbones looks forward to future growth opportunities in the sector,
but remains aware of the possible adverse market effects that current
political and economic uncertainty, both in this country and overseas,
may have. I look forward to seeing the full benefit of our 2014
acquisitions in 2015, and working with our board in the coming years to
develop and grow the business."
Highlights:
-- Total funds under management were GBP27.2 billion at 31 December 2014, up
23.6% from GBP22.0 billion at 31 December 2013. The FTSE 100 Index
decreased by 2.7% and the FTSE WMA Balanced Index increased by 4.2% over
the same period.
-- The total net annual growth rate of funds under management for Rathbone
Investment Management was 19.6% (2013: 9.0%). This comprised GBP3.2
billion of acquired inflows (2013: GBP0.6 billion), including GBP2.6
billion in relation to the Jupiter Asset Management and Deutsche Asset &
Wealth Management transactions, and GBP0.8 billion of net organic growth
(2013: GBP0.9 billion). The underlying rate of net organic growth was
4.0% in 2014 (2013: 5.4%).
-- Rathbone Unit Trust Management saw record gross sales of GBP1.0 billion
in 2014, and saw funds under management increase by 38.9% to GBP2.5
billion at 31 December 2014 (2013: GBP1.8 billion).
-- Underlying operating income in Rathbone Investment Management of GBP185.3
million for the year ended 31 December 2014 (2013: GBP165.3 million)
represents an increase of 12.1%. The average FTSE 100 Index was 6657 on
our quarterly billing dates (2013: 6419), an increase of 3.7%.
-- Underlying operating expenses increased 10.6% to GBP139.3 million largely
reflecting inflation, growth of the business and higher performance-based
staff costs.
-- Underlying profit before tax (excluding a refund of levies for the
Financial Services Compensation Scheme, gain on disposal of financial
securities, gain on disposal of our pension administration business,
charges in relation to client relationships and goodwill, contribution to
legal settlement and transaction costs) increased 21.8% to GBP61.5
million from GBP50.5 million. Underlying earnings per share increased by
18.1% to 102.4p (2013: 86.7p).
-- Profit before tax was GBP45.7 million for the year ended 31 December
2014, an increase of 3.4%, compared to GBP44.2 million in 2013. Basic
earnings per share decreased by 0.3% to 75.9p (2013: 76.1p).
-- The board recommends a 33p final dividend for 2014 (2013: 31p), making a
total of 52p for the year (2013: 49p), an increase of 6.1% on 2013.
Ends
Issued on 19 February 2015
For further information contact:
Rathbone Brothers Plc Quill PR
Tel: 020 7399 0000 Tel: 020 7466 5054
email: marketing@rathbones.com email: hugo@quillpr.com
Mark Nicholls, Chairman Hugo Mortimer-Harvey
Philip Howell, Chief Executive
Paul Stockton, Finance Director
Rathbone Brothers Plc
Rathbone Brothers Plc is a leading provider of high-quality,
personalised investment and wealth management services for private
clients, charities and trustees. This includes discretionary investment
management, unit trusts, tax planning, trust and company management,
pension advice and banking services.
Rathbones has over 900 staff in 13 UK locations and Jersey, and has its
head office at 1 Curzon Street, London.
www.rathbones.com
Chairman's Statement
Overview of 2014
2014 was a challenging year for most investment markets, which became
increasingly volatile in the second half. Despite this, Rathbones had
another good year and achieved strong and broad-based growth. Our total
funds under management grew by 23.6 % over the year to GBP27.2 billion.
We warmly welcomed more than 5,000 new clients during the year.
We made two significant acquisitions in 2014, which added GBP2.6 billion
of funds under management, and throughout the year we continued to
attract experienced investment managers. The net organic growth rate in
our investment management business was resilient and our unit trust
business had a particularly strong year. We also reported an underlying
operating margin of 30% for the year.
The board is recommending a final dividend of 33p per share. This brings
the total dividend for the year to 52p per share, an increase of 6.1%
over last year.
We carried out a very successful share placing in April, which raised
GBP23.6 million. We also continued to invest in the business to ensure
that our people and infrastructure can support future growth. Important
investments completed in 2014 were the upgrading of our online portal
for clients and intermediaries, the development of our finance systems
and the completion of our data centre outsourcing project. We continue
to strengthen our investment process and have bolstered both our
research function and our investment risk management framework.
In accordance with our succession plan, Philip Howell became chief
executive on 1 March 2014. The handover from Andy Pomfret went very
smoothly and reflects well on them both. Philip has made a strong start
as chief executive and has set a clear course for the business both
internally and externally. Also in our plans, James Dean succeeded
Oliver Corbett as chairman of the audit committee on 3 June 2014 and we
are already benefitting from his considerable skill and experience.
Strategy
As I mentioned last year, the development of our strategic thinking and
processes was a priority for 2014. Since the appointment of a new chief
executive we have spent considerable time developing our strategy for
the medium term. We have agreed that we will not change or dilute our
core discretionary investment management model but will proactively seek
related opportunities for growth. In particular, we will provide more
services for high net worth clients and will widen our distribution
capability. This evolutionary strategy has been presented to all staff
in 'town hall' meetings. It was also the focus of separate presentations
to investment analysts and major shareholders. The strategy provides
clarity in articulating both what we will do, and what we will not do.
Delivery of our strategic objectives is a major task and we are fully
committed to achieving our goals.
Governance, the board and senior management
Good culture and ethics are the best guardians of sound corporate
governance and of course we continue to respond to ever-changing
governance codes and standards. The board is well aware of the
importance of setting the right 'tone from the top', and thereby
ensuring that not only our clients but all our stakeholders benefit from
a longstanding ethical culture. This culture must be nurtured.
During the year, in addition to regulatory matters, the board spent
considerable time discussing strategy, risk management, potential
acquisitions and the resolution of the Jersey legal proceedings referred
to below. The discussions in the board meetings were robust, thorough
and constructive. A third party board effectiveness review was carried
out towards the end of the year by an independent assessor which
confirmed that the board was effective and working well. The review
suggested some further refinements, albeit there were no surprises in
these suggestions. We will be working on the recommendations made during
the current year.
I mentioned in last year's report that we were intending to appoint an
additional female non-executive director by 2015. I am delighted to
report that on 21 January 2015 Sarah Gentleman was appointed as a
non-executive director. Sarah has had a career embracing both technology
and financial services and I am sure she will make a significant
contribution.
Philip Howell outlines in his report how the growth in our business has
necessitated strengthening our senior management team in the areas of
risk, strategy and organisation development. We have made some strong
appointments and are now well placed for further growth.
Risk and litigation
We have made good progress in developing a risk management framework and
we look forward to the arrival of a chief risk officer who we expect to
join us in March 2015. We continue to believe that the most significant
risks to our business are operational risks that arise from the growth
in our business and regulatory risks that may arise from continual
changes to rules and standards in our sector.
It is important to maintain and develop good relations with all our
regulators and this is a high priority for our senior management.
Increasing attention has been paid by the Financial Conduct Authority to
'conduct risk' and conflicts of interest in relation to the outcomes for
clients. The long-standing culture of Rathbones in putting the interests
of our clients first is our best protection here, but we will remain
vigilant. A new board conflicts of interest committee has been
established, chaired by James Dean.
In July we announced that we had entered into an agreement to settle
legal proceedings in Jersey involving a former director and employee of
a former subsidiary and in respect of our legal proceedings against
certain of our insurers. Although our case was strong (and indeed
judgement was given subsequently in our favour by the Court of Appeal in
the insurance proceedings), the continuing costs and uncertainty of
litigation, together with the management time taken, led the board to
conclude that this settlement was in the best interest of shareholders.
Employees
The high calibre of our employees makes Rathbones a very enjoyable place
to work, and a quality firm to do business with. Our employees have
worked hard in a year of considerable change, to secure the very smooth
integration of two significant new businesses.
Shareholders
The successful share placing in April 2014, which was carried out at no
discount to the prevailing market price, was evidence of the strong
relationship we have developed with our shareholder base. We are
fortunate to have several engaged institutional shareholders with a
significant investment in the company. We have, and will continue to
maintain, a regular and constructive dialogue with them.
Outlook
Rathbones looks forward to future growth opportunities in the sector,
but remains aware of the possible adverse market effects that current
political and economic uncertainty, both in this country and overseas,
may have. I look forward to seeing the full benefit of our 2014
acquisitions in 2015, and working with our board in the coming years to
develop and grow the business.
Mark Nicholls
Chairman
18 February 2015
Chief executive's statement
Having taken over as chief executive on 1 March 2014, this is my first
report and I am very pleased to start with what has been a particularly
busy and successful year for Rathbones.
2014 financial performance
Aside from a degree of volatility in the last quarter of 2014, financial
markets were reasonably stable during the year. The FTSE 100 Index ended
the year in broadly the same place it started and interest rates did not
move from historical lows. Notwithstanding this backdrop, we continued
to grow organically, which, together with a number of significant
acquisitions and a strong performance in our unit trust business,
increased our total funds under management by 23.6% to GBP27.2 billion
at 31 December 2014 from GBP22.0 billion a year ago.
The purchase of part of Deutsche Asset & Wealth Management's
London-based private client investment management business was completed
in June adding GBP0.6 billion of funds under management, and the
acquisition of Jupiter's private client and charity investment
management business added a further GBP2.0 billion in September. We
continue to be successful in attracting investment managers to Rathbones,
with both individuals and their clients settling in well. Total new
acquired business in Rathbone Investment Management for 2014 was up
substantially to GBP3.2 billion from GBP0.6 billion in 2013.
In addition, Rathbone Investment Management posted a net organic growth
rate of 4.0% (2013: 5.4%) which is a resilient performance albeit below
our 5% target. Our unit trust business continues to gain momentum, with
GBP2.5 billion of funds under management at 31 December 2014 (2013:
GBP1.8 billion). It attracted some GBP554 million of net funds in 2014,
an increase of 69.4% on the GBP327 million reported last year.
This growth is only partially reflected in the 13.8% increase in our
underlying operating income to GBP200.8 million from GBP176.4 million in
2013, due to the timing of acquisitions. Net interest income of GBP9.2
million increased by 7.0% on the GBP8.6 million in 2013, largely
reflecting higher cash balances in the year. Our client loan book grew
9.2% to GBP97.4 million from GBP89.2 million at the end of 2013.
Underlying operating expenses of GBP139.3 million grew very much in line
with the growth in the business.
Underlying profit before tax was GBP61.5 million, up 21.8% on the
GBP50.5 million earned last year, representing an underlying operating
margin of 30.6% which is consistent with our intent to deliver an
underlying operating margin of circa 30% throughout the economic cycle
(2013: 28.6%). Underlying earnings per share of 102.4p were up 18.1% on
the 86.7p earned in 2013 and also reflect the impact of the successful
placing of 1,343,000 shares at no discount on 1 April 2014.
Profit before tax of GBP45.7 million was marginally up on the GBP44.2
million reported last year and reflects a number of one-off items, the
most significant being the cost of the settlement of legal proceedings
involving a former director and employee of a former subsidiary Rathbone
Trust Company Jersey Limited and the realisation of gains from sales of
equity securities. We welcome the GBP1.0 million Financial Services
Compensation Scheme levy refund for costs of Keydata claims received in
December.
Our consolidated Common Equity Tier 1 ratio at 31 December 2014
(including verified profits for the year) stood at 17.7%, as compared to
21.0% at 31 December 2013. This reflects the cost of the Jupiter Asset
Management and Deutsche Asset & Wealth Management transactions which
completed during the year, offset by the impact of the placing in April
2014.
Our consolidated leverage ratio (including verified profits for the
year) at 31 December 2014 was 7.5% compared to 11.5% at 31 December
2013; this fall was due to growth in the balance sheet and the increase
in intangible assets which have reduced Common Equity Tier 1 capital.
Key events in 2014
A lot of hard work went into making our 2014 acquisitions a success,
proving that we have the capability not only to attract new teams and
clients, but also to make their journey to Rathbones as smooth and
efficient as possible. Once again, staff from across the business worked
tirelessly to ensure that the transfer of client accounts was seamless.
We remain committed to ensuring that clients receive a quality
experience at Rathbones, and this has been clearly demonstrated by the
positive client survey feedback we received this year. We also made
improvements to our online client and advisor portal and other client
communications that were well received, as were the key client events we
held at the Royal Academy, Imperial War Museum and our annual charity
symposium at the Saatchi Gallery. We gratefully received a number of
investment awards in 2014, including a Gold Standard award for
discretionary portfolio management by Incisive Media, CityWealth Magic
Circle's award for charity investment manager of the year, six separate
awards in Rathbone Unit Trust Management Limited and the Citywealth
International Financial Centre Award for the Investment Management
Company of the Year, Channel Islands, awarded to Rathbone Investment
Management International.
In 2014, we combined the intermediary distribution teams in our
investment management and unit trust businesses. This will allow us to
provide the relationship and service structure that larger
intermediaries and IFA networks demand. We continue to hold a 19.9%
interest in Vision Independent Financial Planning Limited. Our
relationship with Vision continues to bear fruit and we will consider
whether to exercise our option to acquire the remaining 80.1% of the
company in 2015.
As we grow, we continue to invest in our infrastructure, spending some
GBP4.6 million in capital expenditure in 2014 compared to GBP4.5 million
in 2013. In addition to upgrading our front office workflow, online
portal and finance systems, in May 2014 we successfully completed our
planned data centre move in the North West which was the last stage of a
programme to materially upgrade the resilience and flexibility of our IT
systems.
Full time equivalent headcount in Rathbones has grown from 833 at the
start of the year to 880 at the end. This increase is a result of adding
a mix of investment management teams and support roles, but also a
select number of senior roles that we believe are necessary to manage
future growth. In the second half of 2014 for example, we added a head
of strategy and organisational development, and strengthened our
research and investment risk teams. We expect a chief risk officer to
join us in March 2015.
As I reported in July, we were pleased to have closed off the
long-running legal proceedings which avoided the prospect of several
more years of very substantial legal expenses and allowed our senior
management team to apply its full focus to executing our strategic plan.
Key initiatives for 2015
We launched our strategy in November through a series of 'town hall'
presentations to all Rathbones staff, an analyst dinner and an investor
day. All these events were well attended and we were encouraged by the
positive feedback.
Our strategy recognises that we are building on a successful track
record and sets out a package of incremental initiatives that will drive
growth in the medium term. These initiatives aspire to a net organic
growth rate of 5% on average across the cycle in our core private client
and charity businesses. This will be supplemented by the establishment
of a Rathbones Private Office serving clients at the higher end of the
wealth spectrum towards the end of 2015. We will also continue to
enhance our distribution capability to position us more favourably with
the professional intermediary market and plan to continue to grow our
unit trust business.
We have a strong culture within Rathbones that we will continue to
nurture. Our management approach reaffirms our commitment to retaining
our individualism and independence whilst making sure that our people
are well informed and focused on delivering quality service. We also
intend to launch a new Rathbones brand in 2015 that reflects the
progressive company that Rathbones has become.
Outlook
We will continue to invest in both people and infrastructure, working
within the financial disciplines required to deliver a 30% underlying
operating margin throughout the economic cycle.
In 2015, the heightened geo-political and economic risks we face will
almost certainly result in greater market volatility.
Notwithstanding this challenging environment, we will continue to focus
on delivering organic growth whilst remaining alert to sensible
acquisition opportunities. There is strong momentum in the business to
maintain our position as one of the leading providers of investment
management services in the UK wealth market.
Philip Howell
Chief Executive
18 February 2015
Rathbones' performance
2014 was a year of growth for Rathbones despite some uncertainty and
volatility in financial markets in the latter part of the year. Overall,
the FTSE 100 Index and the FTSE WMA Balanced Index ended the year little
changed from their opening levels.
Table 1. Extracts from the consolidated statement of comprehensive
income
2014 2013
GBPm GBPm
Underlying operating income 200.8 176.4
Underlying operating expenses (139.3) (125.9)
Underlying profit before tax(1) 61.5 50.5
Underlying operating margin(2) 30.6% 28.6%
Profit before tax 45.7 44.2
Effective tax rate 22.1% 21.3%
Taxation (10.1) (9.4)
Profit after tax 35.6 34.8
Underlying earnings per share 102.4p 86.7p
Earnings per share 75.9p 76.1p
Dividend per share(3) 52p 49p
1 Profit before tax excluding refund of levies for the Financial
Services Compensation Scheme, gain on disposal of financial securities,
gain on disposal of pension administration business, charges in relation
to client relationships and goodwill, contribution to legal settlement
and transaction costs
2 Underlying profit before tax as a % of underlying operating income
3 The total interim and final dividend proposed for the financial
year
Group underlying operating income
Underlying operating income increased 13.8% to GBP200.8 million in 2014
reflecting fees and commissions earned on higher levels of funds under
management. A detailed analysis of each component of income is set out
in the segmental analysis in note 3 below.
Group underlying operating expenses
Underlying operating expenses have increased 10.6% to GBP139.3 million,
which largely reflects a combination of business growth and investment.
Total fixed staff costs, including support staff, increased by 9.0% to
GBP61.9 million in 2014, including inflation of 4% and growth of 5.6% in
average full time equivalent headcount to 880 (2013: 833). This growth
reflects the acquisitions in the year and the addition of new revenue
generating teams in London and Chichester. We have also taken on more
staff in operational roles and support departments in line with our
strategic plan.
Total variable staff costs, including variable awards for business
support staff, increased by 26.2% to GBP35.2 million. This reflects the
higher cost of cash-settled awards, in line with share price growth and
higher profitability. Variable staff costs in 2014 represented 17.5% of
underlying operating income (2013: 15.8%) and 36.4% of underlying profit
before tax and variable staff costs (2013: 35.6%).
As planned, infrastructure costs increased by GBP1.1 million, largely as
a result of expenditure to improve automation and help drive process
efficiencies.
Underlying operating expenses also included GBP1.5 million of legal fees
(2013: GBP2.7 million) in relation to the legal proceedings outlined
below and GBP2.8 million (2013: GBP0.5 million) for awards payable to
new investment managers for the introduction of new clients where those
managers have been in situ for more than 12 months (see note 2).
Underlying profit before tax/operating margin
Underlying profit before tax and earnings per share are considered by
the board to be a better reflection of true business performance than
looking at Rathbones' results on a statutory basis only. These measures
are widely used by research analysts covering the group. Underlying
results exclude income and expenditure falling in the six categories
explained below. A full reconciliation between underlying profit and
profit attributable to shareholders is provided in table 2.
Table 2. Reconciliation of underlying profit before tax to profit before
tax
2014 2013
GBPm GBPm
Underlying profit before tax 61.5 50.5
Refund of levies for the Financial Services Compensation
Scheme 1.0 -
Gain on disposal of financial securities 6.8 -
Gain on disposal of pension administration business 0.7 -
Charges in relation to client relationships and goodwill (8.3) (6.3)
Contribution to legal settlement (15.0) -
Transaction costs (1.0) -
Profit before tax 45.7 44.2
Refund of levies for the Financial Services Compensation Scheme
In 2010, the group incurred exceptional levies of GBP3.2 million from
the Financial Services Compensation Scheme (FSCS) as a result of the
failure of Keydata and other intermediaries. In December 2014, the FSCS
announced that they had made recoveries of approximately GBP50 million
and consequently reimbursed part of the exceptional costs levied to
scheme participants. The share of recoveries returned to the group was
GBP1.0 million.
Gain on disposal of financial securities
During 2014, the group disposed of its remaining holdings of shares in
the London Stock Exchange Group Plc and Euroclear Plc, raising GBP6.8
million from the disposals. The group acquired the shares as it was a
member of the London Stock Exchange and Crest at the time of their
respective listings. As at 31 December 2014, the group had no remaining
non-core equity holdings.
Gain on disposal of pension administration business
On 31 December, the group disposed of its Self Invested Personal Pension
(SIPP) administration business, which was no longer considered to be a
core component of the group's activities. This generated net proceeds of
GBP0.7 million. No assets or liabilities were derecognised as a result
of the disposal and all staff were retained within the group and
assigned to new roles. This business generated GBP0.7m of revenue in
2014.
Charges in relation to client relationships and goodwill
As explained in note 2, client relationship intangible assets are
created in the course of acquiring funds under management. The
amortisation charge associated with these assets represents a
significant non-cash item. It has, therefore, been excluded from
underlying profit, which represents largely cash-based earnings. Charges
for amortisation of client relationship intangibles in the year ended 31
December 2014 were GBP8.3 million (2013: GBP6.3 million), reflecting
recent acquisitions.
Contribution to legal settlement
On 24 July 2014, the group announced that it had reached a conditional
agreement to contribute GBP15.0 million to a settlement of legal
proceedings in Jersey involving a former director and employee of a
former subsidiary and in respect of legal proceedings against certain of
Rathbones' civil liability (professional indemnity) insurers. On 18
August 2014, the group announced that all conditions had been satisfied
and Rathbones had paid its share of the settlement. No such costs were
incurred in 2013.
Transaction costs
Transaction related costs of GBP1.0 million were incurred in relation to
the purchase of part of Deutsche Asset & Wealth Management's
London-based private client investment management business and the
acquisition of Jupiter's private client and charity investment
management business (2013: GBPnil).
Underlying profit before tax grew 21.8% from GBP50.5 million in 2013 to
GBP61.5 million. The underlying operating margin, which is calculated as
the ratio of underlying profit before tax to underlying operating income,
was 30.6% for the year ended 31 December 2014 (2013: 28.6%). Profit
before tax increased 3.4% to GBP45.7 million for the year, up from
GBP44.2 million in 2013.
Taxation
The tax charge for 2014 was GBP10.1 million (2013: GBP9.4 million), and
represents an effective tax rate of 22.1% (2013: 21.3%).
The effective tax rate is slightly higher than the derived UK standard
rate of corporation tax of 21.5% due to:
-- the impact of disallowable expenses; partially offset by
-- an increase in the tax deduction available for share-based awards driven
by a higher share price; and
-- a lower rate of tax payable on earnings from our Jersey business.
A full reconciliation of the income tax expense is provided in note 4.
The Finance Bill 2013, which included provisions for the UK corporation
tax rate to be reduced to 20% in April 2015, was passed by the House of
Commons on 2 July 2013 and the reductions are therefore deemed to be
substantively enacted. Deferred tax balances have therefore been
calculated based on this reduced rate where timing differences are
forecast to unwind in future years.
Basic earnings per share
Basic earnings per share for the year ended 31 December 2014 were 75.9p,
down 0.3% on 76.1p in 2013, incorporating the impact of the placing of
1,343,000 shares in April 2014. On an underlying basis, earnings per
share increased by 18.1% to 102.4p in 2014 (see note 6).
Dividends
In light of the results for the year, the board have proposed a final
dividend for 2014 of 33p. This results in a full year dividend of 52p,
an increase of 3p on 2013 (6.1%). The proposed dividend is covered 1.5
times by basic earnings and 2 times by underlying earnings.
Legal proceedings
As reported in the 2013 report and accounts, a claim relating to the
management of a Jersey trust had been filed against a former employee
(and director) of a former subsidiary and others (and that former
subsidiary had recently been joined in as a defendant). In addition,
the company issued proceedings against certain of its civil liability
(professional indemnity) insurers in respect of the former employee's
potential liabilities arising out of the Jersey claim.
In November 2013 the company announced that judgment had been handed
down following the trial in the Commercial Court in London in respect of
the insurance case. In December 2013, the company and the former
employee in question decided to appeal subrogation aspects of the
judgment and our insurers also decided to appeal coverage aspects of the
judgment. On 14 November 2014, judgement was given in our favour on all
points by the Court of Appeal in the insurance case.
On 23 July 2014, mindful that litigation is never without risk and that
the company could face several more years of substantial legal costs as
well as the potential unwarranted negative impact on its reputation, the
company joined into a conditional agreement to contribute GBP15.0
million to a settlement of the legal proceedings in Jersey and the
insurance case. On 18 August 2014, the conditions of the agreement were
satisfied and the group contributed its share of the settlement.
Segmental review
The group reports its results in its two key operating segments;
Investment Management and Unit Trusts.
Investment Management
The financial performance of Investment Management is largely driven by
the value of funds under management. Revenue margins are expressed as a
basis point return, which depends on a mix of tiered fee rates,
commissions charged for transactions undertaken on behalf of clients and
the interest margin earned on cash in client portfolios and loans to
clients, as described below. Portfolios are closely managed by
investment managers, who maintain relationships with clients that are
critical to the retention of client accounts.
Year on year changes in the key performance indicators for Investment
Management are shown in table 3, below:
Table 3. Investment Management - key performance indicators
2014 2013
Funds under management at 31 December(1) GBP24.7bn GBP20.2bn
Underlying rate of net organic growth in Investment
Management funds under management(1) 4.0% 5.4%
Underlying rate of total net growth in Investment
Management funds under management(1) 19.6% 9.0%
Average net operating basis point return(2) 77.2bps 80.5bps
Number of Investment Management clients 46,000 41,000
Number of investment managers 249 209
1 See table 4
2 See table 7
During 2014 we have continued to attract new clients both organically
and through acquisitions. The total number of clients (or groups of
closely related clients) increased from 41,000 to 46,000 during the year,
with some 2,800 clients joining us in the year as a result of our
transactions with Deutsche Asset & Wealth Management and Jupiter Asset
Management. During 2014, the total number of investment managers
increased to 249 at 31 December 2014 from 209 at the end of 2013.
Average net operating basis point return on funds under management has
fallen in 2014, largely due to an increase in the proportion of
execution only accounts (GBP500m of which transferred to us from
Jupiter) which generate lower returns. In addition, the continued trend
towards fee only business has reduced the return from commissions.
Fund flows
Investment Management funds under management increased by 22.3% to
GBP24.7 billion at 31 December 2014 from GBP20.2 billion at the start of
the year. This increase is analysed in table 4, below.
Table 4. Investment Management - funds under management
2014 2013
GBPbn GBPbn
As at 1 January 20.2 16.7
Inflows 5.5 2.7
- organic(1) 2.3 2.1
- acquired(2) 3.2 0.6
Outflows(1) (1.5) (1.2)
Market adjustment(3) 0.5 2.0
As at 31 December 24.7 20.2
Net organic new business(4) 0.8 0.9
Underlying rate of net organic growth(5) 4.0% 5.4%
Underlying rate of total net growth(6) 19.6% 9.0%
1 Value at the date of transfer in/(out)
2 Value at 31 December
3 Represents the impact of market movements and investment
performance
4 Organic inflows less outflows
5 Net organic new business as a % of opening funds under management
6 Net organic new business and acquired inflows as a % of opening
funds under management
Net organic growth in 2014 of 4.0% (2013: 5.4%) was resilient but
slightly below our expectation of 5% organic growth across the economic
cycle. Organic growth in the fourth quarter was reduced by the loss of
two large but low margin clients close to the end of the year.
All areas of the business contributed to growth in 2014, with referrals
from existing clients remaining a key source of new business. Charity
funds under management continued to grow strongly, supported by good
investment performance, and reached GBP3.3 billion at 31 December 2014,
up 22.2% from GBP2.7 billion at the start of the year. The most recent
Charity Finance survey placed Rathbones as the sixth largest charity
investment manager in the UK by funds under management as at 30 June
2014.
We retained our marketing focus on intermediaries during the year. Funds
under management in accounts linked to independent financial advisers
(IFAs) and provider panel relationships increased by GBP1.2 billion
during 2014, ending the year at GBP4.8 billion; an increase of 33.3%. Of
this amount, Vision Independent Financial Planning Limited, in which we
have a 19.9% stake, represented GBP496 million.
Acquired inflows of GBP3.2 billion in the year include GBP2.6 billion
from the purchase of part of Deutsche Asset & Wealth Management's
London-based private client investment management business and the
acquisition of Jupiter Asset Management Limited's private client and
charity investment management business in June 2014 and September 2014
respectively, and funds introduced by newly joining investment managers
who are subject to earn-out arrangements (see note 2).
In total, net organic and acquired growth added GBP4.0 billion to
Investment Management funds under management in 2014 (2013: GBP1.5
billion), representing an underlying rate of total net growth of 19.6%
(2013: 9.0%).
Overall, average investment returns across all Investment Management
clients were positive in 2014, but lagged the WMA Balanced Index by
1.8%. This was due, in large part, to the strong rally in Gilts, which
are not widely used in private client portfolios as many offer negative
real returns after tax. UK equity selection was favourable, benefitting
from an underweighting in oil and mining stocks as oil and commodity
prices slid in the final quarter. A lower than average overseas
exposure acted as a further slight drag on relative performance, however,
as sterling fell back against the US dollar in the second half of the
year.
Financial performance
Investment Management income is derived from:
-- a tiered scale of investment management or advisory fees, which are
applied based on the value of clients' funds under management, and a flat
fee for each account;
-- commissions which are levied on transactions undertaken on behalf of
clients; and
-- an interest margin earned on the cash held in clients' portfolios and on
loans to clients.
Table 5. Investment Management - financial performance
2014 2013
GBPm GBPm
Net investment management fee income(1) 120.5 104.2
Net commission income 43.7 42.0
Net interest income(2) 9.2 8.6
Fees from advisory services(3) and other income 11.9 10.5
Underlying operating income 185.3 165.3
Underlying operating expenses(4) (127.8) (116.2)
Underlying profit before tax 57.5 49.1
Underlying operating margin(5) 31.0% 29.7%
1 Net investment management fee income is stated after deducting
fees and commission expenses paid to introducers
2 Presented net of interest expense paid on client accounts
3 Fees from advisory services includes income from trust, tax and
pensions advisory services
4 See table 8
5 Underlying profit before tax as a % of underlying operating income
Net investment management fee income increased by 15.6% from GBP104.2
million to GBP120.5 million in 2014, benefitting from continuing growth
in funds under management. Fee income arising from the clients subject
to the transactions with Jupiter Asset Management and Deutsche Asset &
Wealth Management accrued from the date of acquisition in 2014. The
group will see the full effect of these transactions on its income in
2015. For the majority of clients, fees are calculated based on a tiered
fee scale applied to the value of funds at our quarterly charging dates.
Average funds under management on these billing dates in 2014 were
GBP22.2 billion, up 16.8% from 2013.
Table 6. Investment Management - average funds under management
2014 2013
GBPbn GBPbn
Valuation dates for billing
- 5 April 20.7 18.2
- 30 June 21.6 18.4
- 30 September 22.0 19.1
- 31 December 24.7 20.2
Average 22.2 19.0
Average FTSE 100 level 6657 6419
In 2014, net commission income of GBP43.7 million was up 4.0% on GBP42.0
million in 2013. Commission levels remained relatively strong across
the year, despite the usual seasonal factors weighing on commission
income in the second half.
Net interest income of GBP9.2 million in 2014 was 7.0% above GBP8.6
million in 2013 as we increased the amount of cash held at the Bank of
England from GBP211.0 million to GBP727.2 million over the course of the
year. The Investment Management loan book contributed GBP2.7 million to
net interest income in 2014 (2013: GBP2.2 million).
As our fee rates are tiered, rising markets reduce the average net
return earned on fees. This contributed to a decrease in the return
earned on average funds under management to 77.2 basis points from 80.5
basis points in 2013, as shown in table 7 below.
Table 7. Investment Management - revenue margin
2014 2013
bps bps
Basis point return(1) from
- fee income 54.2 54.9
- commission 19.7 22.1
- interest 3.3 3.5
Basis point return on funds under management 77.2 80.5
1. Underlying operating income (see table 5) excluding interest on own
reserves, fees from advisory services and other income, divided by the
average funds under management on the quarterly billing dates (see table
6)
On 1 January 2015, we launched a revised tariff for new clients. The new
rates are intended to provide increased transparency to clients on the
overall level of charges, and are in line with the trend in the industry
away from commissions. It is not expected that the new rates will
substantially increase our overall revenue margin.
Fees from advisory services and other income of GBP11.9 million were
13.3% higher than 2013 reflecting the impact of business growth and the
acquisition of the legal services trade and assets of Rooper & Whately
on 1 May 2014 (see note 7).
Underlying operating expenses in Investment Management for 2014 were
GBP127.8 million, compared to GBP116.2 million in 2013, an increase of
10.0%. This is highlighted in table 8 below.
Table 8. Investment Management - underlying operating expenses
2014 2013
GBPm GBPm
Staff costs(1)
- fixed 43.9 39.8
- variable 25.8 20.6
Total staff costs 69.7 60.4
Other operating expenses 58.1 55.8
Underlying operating expenses 127.8 116.2
Underlying cost/income ratio(2) 69.0% 70.3%
1 Represents the costs of investment managers and teams directly
involved in client facing activities
2 Underlying operating expenses as a % of underlying operating
income (see table 5)
Fixed staff costs of GBP43.9 million increased by 10.3% year on year
principally reflecting teams joining the front office, in particular in
London and Chichester, increased pension costs and salary inflation.
Variable staff costs are also higher, reflecting higher underlying
profitability and growth in funds under management.
Other operating expenses of GBP58.1 million include property,
depreciation, settlement, IT, finance and other central support services
costs. The year to year increase of GBP2.3 million (4.1%) reflects
increased investment in the business, recruitment and higher variable
awards in support functions in line with growth in business
profitability.
Unit Trusts
Unit Trusts' financial performance is principally driven by the value
and growth of funds under management. Year on year changes in the key
performance indicators for Unit Trusts are shown in table 9, below.
Table 9. Unit Trusts - key performance indicators
2014 2013
Funds under management at 31 December(1) GBP2.5bn GBP1.8bn
Underlying rate of net growth in Unit Trusts funds
under management(1) 33.3% 23.1%
Underlying profit before tax(2) GBP4.0m GBP1.4m
1 See table 10
2 See table 13
Fund flows
The retail asset management industry saw a continuation of the improving
trend in net retail sales, with 2014 representing the highest overall
total since 2010 at GBP20.8 billion, up by 1.5% on 2013 as reported by
the Investment Association (IA). Despite this growth, sales across the
industry remained concentrated in a small number of funds.
Equity remained the best-selling asset class, by net sales, in 2014 at
GBP8.6 billion, although this was down 25.2% from GBP11.5 billion in
2013. UK Equity Income, where we have expertise and two strong product
offerings, was the best selling IA sector for the last eight months of
the year and 2014 overall.
Against the backdrop of improving industry sales, Unit Trusts' positive
momentum continued through 2014, which was a record year with gross
sales of GBP1.0 billion. As a result, net inflows accelerated to GBP0.6
billion, doubling from GBP0.3 billion in 2013. Net inflows in 2014 were
spread across the range of funds, although the Income, Global
Opportunities and Ethical Bond funds saw particularly strong sales in
the year.
Unit Trusts' funds under management increased by 38.9% year on year (the
industry was up 8.2%, according to data reported by the IA) to GBP2.5
billion from GBP1.8 billion at the end of 2013, as shown in table 10
below.
Table 10. Unit Trusts - funds under management
2014 2013
GBPbn GBPbn
As at 1 January 1.8 1.3
Net inflows 0.6 0.3
- inflows(1) 1.0 0.6
- outflows(1) (0.4) (0.3)
Market adjustments(2) 0.1 0.2
As at 31 December 2.5 1.8
Underlying rate of net growth(3) 33.3% 23.1%
1 Valued at the date of transfer in/(out)
2 Impact of market movements and relative performance
3 Net inflows as a % of opening funds under management
At 31 December 2014, the value of assets managed in each fund was as
follows.
Table 11. Unit Trusts - fund assets
2014 2013
GBPm GBPm
Rathbone Income Fund 995 656
Rathbone Global Opportunities Fund 504 330
Rathbone Ethical Bond Fund 255 148
Rathbone Global Alpha Fund 110 100
Rathbone Recovery Fund 74 76
Rathbone Blue Chip Income and Growth Fund 67 56
Rathbone Strategic Bond Fund 65 55
Rathbone Active Income Fund for Charities 52 39
Rathbone Multi Asset Portfolios 164 138
Other funds 234 251
2,520 1,849
During 2014, the range of funds maintained their strong long term
performance track record, which is critical to maintaining sales
momentum.
Table 12. Unit Trusts - fund performance
2014/(2013) Quartile ranking(1) over: 1 year 3 years 5 years
Rathbone Blue Chip Income and Growth Fund 2 (3) 2 (2) 2 (2)
Rathbone Ethical Bond Fund 2 (1) 1 (1) 1 (1)
Rathbone Global Opportunities Fund 2 (1) 1 (1) 1 (1)
Rathbone Income Fund 1 (2) 1 (1) 1 (1)
Rathbone Recovery Fund 4 (1) 2 (1) 1 (n/a)
Rathbone Strategic Bond Fund(2) 2 (3) 3 (n/a) n/a (n/a)
1 Ranking of institutional share classes at 31 December 2014 and
2013
2 Performance data for the Rathbone Strategic Bond Fund is not yet
available beyond three years as the fund was launched on 3 October 2011
Investors continued to switch from retail to institutional units across
all of our funds during the year, as expected post-RDR. Institutional
units carry a lower annual management charge (typically half that of
retail units) and do not allow for any form of trail commission to
advisers who must now levy their own charges directly to investors. By
31 December 2014 some 60% of holdings in our retail funds were in
institutional units (31 December 2013: 36%).
Financial performance
Unit Trusts' income is primarily derived from:
-- annual management charges, which are calculated on the daily value of
funds under management, net of rebates and trail commission payable to
intermediaries; and
-- net dealing profits which are earned on the bid-offer spread from sales
and redemptions of units and market movements on the small stock of units
that are held on our books overnight.
Table 13. Unit Trusts - financial performance
2014 2013
GBPm GBPm
Net annual management charges 13.3 9.5
Net dealing profits 1.9 1.4
Interest and other income 0.3 0.2
Underlying operating income 15.5 11.1
Underlying operating expenses(1) (11.5) (9.7)
Underlying profit before tax 4.0 1.4
Underlying operating margin(2) 25.8% 12.6%
1 See table 14
2 Underlying profit before tax divided by underlying operating
income
Net annual management charges increased 40.0% to GBP13.3 million in
2014, driven principally by the rise in average funds under management.
Net annual management charges as a percentage of average funds under
management fell to 60 basis points (2013: 62 basis points) as a result
of the launch of super-institutional class for certain funds, to secure
greater certainty over distribution, and the continued switch from
retail to institutional units by the platforms during the year.
Net dealing profits of GBP1.9 million increased by 35.7% on GBP1.4
million in 2013 as the level of gross sales grew significantly in 2014.
Underlying operating income as a percentage of average funds under
management fell to 70 basis points in 2014 from 72 basis points in 2013.
Table 14. Unit Trusts - underlying operating expenses
2014 2013
GBPm GBPm
Staff costs
- fixed 3.3 3.1
- variable 2.8 1.8
Total staff costs 6.1 4.9
Other operating expenses 5.4 4.8
Underlying operating expenses 11.5 9.7
Underlying cost/income ratio(1) 74.2% 87.4%
1 Underlying operating expenses as a % of underlying operating
income (see table 13)
Fixed staff costs of GBP3.3 million for the year ended 31 December 2014
were 6.5% higher than in 2013 due to the recruitment of a new fund
manager and additional sales resource during the year.
Variable staff costs of GBP2.8 million were 55.6% higher than GBP1.8
million in 2013 as higher profitability and growth in gross sales drove
increases in profit share and sales commissions.
Other operating expenses have increased by 12.5% to GBP5.4 million,
principally as a result of higher third party administration costs,
reflecting both the launch of super-institutional class shares and the
increased level of sales of units.
Financial position
Table 15. Extracts from the consolidated balance sheet and components of
regulatory capital
2014 2013
GBPm GBPm
(unless stated) (unless stated)
Capital resources
- Common Equity Tier 1 ratio(1) 17.7% 21.0%
- Total equity 270.7 251.0
- Return on assets(2) 2.5% 2.9%
- Consolidated leverage ratio(3) 7.5% 11.5%
Other resources
- Total assets 1,668.2 1,229.8
- Treasury assets(4) 1,316.6 940.8
- Investment management loan book 97.4 89.2
- Intangible assets from acquired
growth(5) 153.6 99.7
- Tangible assets and software(6) 16.3 16.8
- Net defined benefit asset - 1.6
Liabilities
- Due to customers(7) 1,282.4 891.9
- Net defined benefit liability 13.7 -
1 Common Equity Tier 1 capital as a proportion of total risk exposure
amount
2 Profit after tax divided by average total assets
3 Common Equity Tier 1 capital as a percentage of total assets,
excluding intangible assets and investment in associates, plus a
proportion of off balance sheet exposures
4 Balances with central banks, loans and advances to banks and
investment securities (excluding available for sale equity investments)
5 Net book value of acquired client relationships and goodwill
6 Net book value of property, plant and equipment and computer software
7 Total amounts of cash in client portfolios held by Rathbone Investment
Management as a bank
Regulatory capital
Rathbones is classified as a banking group under the Capital
Requirements Directive and we are therefore required to operate within a
wide range of restrictions on capital resources and banking exposures
that are prescribed by the prudential rules of the Prudential Regulation
Authority (PRA). At 31 December 2014, the group had regulatory capital
resources of GBP112.2 million (2013: GBP142.3 million calculated on a
Basel III equivalent basis) as follows:
Table 16. Regulatory capital resources
2014 2013
GBPm GBPm
Share capital and share premium 95.4 67.8
Reserves 180.9 188.9
Less:
- Own shares (5.5) (5.7)
- Intangible assets(1) (159.7) (105.0)
- Other regulatory adjustments(2) 1.1 (3.7)
Total regulatory capital resources (all of which are
Tier 1) 112.2 142.3
1 Net book value of goodwill, client relationship intangibles and
software are deducted directly from capital resources
2 Adjustments to exclude balances related to the group's pension schemes
and own shares held in the Employee Benefits Trust
The group's Pillar 3 disclosures are published annually on our website
(www.rathbones.com/investor-relations/results-and-presentations/pillar-3-disclosures)
and provide further details about regulatory capital resources and
requirements.
Our consolidated Common Equity Tier 1 ratio is much higher than the
banking industry norm. This reflects the low risk nature of our banking
activity and our lack of debt financing. The Common Equity Tier 1 ratio
has fallen to 17.7% from 21.0% at the previous year end mainly due to an
increase in intangible assets following the purchase of part of Deutsche
Asset & Wealth Management's London-based private client investment
management business and acquisition of Jupiter Asset Management's
private client and charity investment management business, partially
offset by the proceeds from the placing of 1.3 million shares in April.
The consolidated leverage ratio was 7.5% at 31 December 2014, down from
11.5% at 31 December 2013; this fall was due to the growth in the
balance sheet and the increase in intangible assets, which have reduced
Common Equity Tier 1 capital. The leverage ratio represents the group's
Common Equity Tier 1 capital as a percentage of its total assets,
excluding intangible assets and investment in associates, plus a
proportion of off balance sheet exposures.
As required under PRA rules we perform an Internal Capital Adequacy
Assessment Process (ICAAP) and Individual Liquidity Adequacy Assessment
(ILAA) annually, which includes performing a range of stress tests to
determine the appropriate level of regulatory capital and liquidity that
the group needs to hold. In addition, we monitor a wide range of capital
and liquidity statistics on a daily, monthly or less frequent basis as
required. Surplus capital levels are forecast on a monthly basis, taking
account of proposed dividends and investment requirements, to ensure
that appropriate buffers are maintained. Investment of proprietary funds
is controlled by our treasury department.
Table 17. Group Pillar I own funds requirement
2014 2013
GBP'm GBP'm
Credit risk requirement 26.7 32.6
Market risk requirement 0.2 0.2
Operational risk requirement 23.7 21.3
Pillar I own funds requirement 50.6 54.1
In addition to the above, the group is also required to hold capital to
cover a company-specific Pillar II requirement, which is agreed
confidentially with the Prudential Regulation Authority and which we are
prohibited from disclosing.
On 19 January 2015, the FCA issued a consultation paper setting out
proposed changes to the Pillar 2 framework, which include provisions to
allow banks to publish details of their aggregate Pillar 2A capital
requirements in addition to Pillar 1 components. We welcome this
proposed increase in transparency.
Capital resources
The consolidated balance sheet remains healthy with total equity of
GBP270.7 million at 31 December 2014, up 7.8% from GBP251.0 million at
the end of 2013, reflecting the impact of the placing of 1.3 million
shares in April 2014. The group does not rely on wholesale markets to
fund its operations and is wholly funded by equity.
Total assets
Total assets at 31 December 2014 were GBP1,668.2 million (2013:
GBP1,229.8 million), of which GBP1,282.4 million (2013: GBP891.9
million) represents the cash held in banking client portfolios.
Treasury assets
As a licensed deposit taker, Rathbone Investment Management holds the
group's surplus liquidity on its balance sheet together with clients'
cash held on a banking basis. Cash in client portfolios of GBP1,288.8
million (2013: GBP896.8 million), including GBP6.4 million (2013: GBP4.9
million) held in client money accounts, represented 5.2% of total
investment management funds at 31 December 2014 compared to 4.4% at the
end of 2013.
The treasury department of Rathbone Investment Management, reporting
through the banking committee to the board, operates in accordance with
procedures set out in a board-approved treasury manual and monitors
exposure to market, credit and liquidity risk. The treasury department
invests in a range of securities issued by a relatively large number of
counterparties. These counterparties must be 'A' rated or higher by
Fitch and are regularly reviewed by the banking committee. During the
year, we increased the share of treasury assets held with the Bank of
England to GBP727.2 million from GBP211.0 million at 31 December 2013.
Loans to clients
Loans are provided as a service to investment management clients who
have short to medium term cash requirements. Such loans are normally
made on a fully secured basis against portfolios held in Rathbones'
nominee name, requiring 2x cover, and are usually advanced for up to one
year. In addition, equitable charges may be taken on property held by
the client to meet security cover requirements. All loans (and any
extensions to the initial loan period) are subject to approval by the
banking committee. Our ability to provide such loans is a valuable
additional service, for example, for clients that require bridging
finance when moving home.
We have continued to increase the size of the investment management loan
book during 2014, to take advantage of the higher demand for client
loans. Outstanding loans totalled GBP97.4 million at the end of 2014
(2013: GBP89.2 million).
Intangible assets
Intangible assets arise principally from acquired growth in funds under
management and are categorised as goodwill and client relationships. At
31 December 2014, the total carrying value of intangible assets arising
from acquired growth was GBP153.6 million (2013: GBP99.7 million).
During the year, client relationship intangible assets of GBP51.2
million were capitalised (2013: GBP13.2 million), including GBP42.6
million relating to the transactions with Deutsche Asset & Wealth
Management and Jupiter Asset Management. Goodwill totalling GBP11.0
million was acquired during 2014 (2013: GBPnil).
Client relationship intangibles are amortised over the estimated life of
the client relationship, generally a period of ten to fifteen years.
When client relationships are lost, any related intangible asset is
derecognised in the year. The total amortisation charge for client
relationships in 2014, including the impact of lost relationships, was
GBP7.9 million (2013: GBP6.3 million).
Goodwill which arises from business combinations is not amortised, but
is subject to a test for impairment at least annually. During the year,
the goodwill relating to the trust and tax business was found to be
impaired as the growth forecasts for that business have not kept pace
with cost inflation. An impairment charge of GBP0.4 million was
recognised in relation to this element of goodwill (2013: GBPnil).
Capital expenditure
During 2014, we have continued to invest for future growth with
capitalised expenditure on our premises and systems totalling GBP4.6
million (2013: GBP4.5 million). Investment in new systems continues at a
steady pace as we continue to improve the efficiency of our systems and
our back office. Although some of this is driven by regulatory change,
much is driven by our desire to optimise the service that our clients
receive and to give our investment managers the tools they need to
manage portfolios more easily.
New investment accounted for approximately 70% of capital expenditure in
2014, with the balance being maintenance and replacement of existing
software and equipment. This split is broadly consistent with the
spending pattern in the recent past, although there was only very
limited expenditure on property during the year.
In 2015, we expect capital expenditure to remain at 2014 levels as we
continue to invest in our internet portal for clients and advisers as
part of our ongoing endeavours to improve and develop the business.
Defined benefit pension schemes
We operate two defined benefit pension schemes, both of which have been
closed to new members for several years.
The fall in corporate bond yields during the second half of 2014 has
been the primary factor responsible for reducing the valuation of the
schemes in the group's balance sheet at 31 December 2014 to a combined
deficit of GBP13.7 million compared to a combined surplus of GBP1.6
million at 31 December 2013.
Funding valuations, which form the basis of the annual contributions
that we make into the schemes, are required to be more prudent than
valuations used for financial reporting. Triennial funding valuations of
the schemes as at 31 December 2013 were carried out during 2014.
Following the completion of the valuations, the deficit funding
contributions for the Rathbone 1987 Scheme were maintained at their
current level of GBP2.75 million per year in 2015 and 2016, whilst the
contributions to the Laurence Keen scheme were ceased as the valuation
showed the scheme to be in surplus on a funding basis. Regular annual
contributions to the Rathbone 1987 Scheme were increased from 14.8% of
pensionable salaries to 20.3%. An additional GBP1 million was also paid
into the Rathbone 1987 Scheme in January 2015, reflecting the backdating
of the uplift in regular annual contributions to 1 January 2014.
Liquidity and cash flow
Table 18. Extracts from the consolidated statement of cash flows
2014 2013
GBPm GBPm
Cash and cash equivalents at the end of the year 835.8 319.8
Net cash inflows from operating activities 417.7 145.3
Net increase in cash and cash equivalents 516.0 89.7
Fee income is largely collected directly from client portfolios and
expenses, by and large, are predictable; consequently Rathbones operates
with a modest amount of working capital. Larger cash flows are
principally generated from banking/treasury operations when investment
managers make asset allocation decisions about the amount of cash to be
held in client portfolios.
As a bank, Rathbones is subject to the PRA's ILAA regime, which requires
us to hold a suitable Liquid Assets Buffer to ensure that short-term
liquidity requirements can be met under certain stressed scenarios.
Liquidity risks are actively managed on a daily basis and depend on
operational and investment transaction activity.
Cash and balances at central banks was GBP727.2 million at 31 December
2014 (2013: GBP211.0 million).
Cash and cash equivalents, as defined by accounting standards, includes
cash, money market funds and banking deposits which had an original
maturity of less than three months.
Net cash flows from operating activities include the effect of a
GBP390.5 million increase in banking client deposits (2013: GBP62.9
million increase) and a GBP11.1 million increase in the component of
treasury assets placed in term deposits for more than three months
(2013: GBP37.9 million decrease).
In addition, cash flows included a net inflow of GBP152.7 million from
the maturity of certificates of deposit and the liquidation of holdings
in money market funds (2013: GBP16.9 million net outflow), shown within
investing activities in the consolidated statement of cash flows.
The most significant non-operating cash flows during the year were as
follows:
-- outflow of GBP15.0 million relating to Rathbones' contribution to legal
settlement;
-- outflows of GBP40.1 million in relation to the transactions with Jupiter
Asset Management and Rooper & Whately;
-- inflow of GBP25.9 million from the issue of ordinary shares, which
includes GBP23.6 million raised in the placing in April 2014 (after
associated costs);
-- outflows relating to the payment of dividends of GBP23.8 million (2013:
GBP22.1 million);
-- outflows relating to payments to acquire intangible assets (other than as
part of a business combination) of GBP14.3 million (2013: GBP17.0
million); and
-- GBP1.7 million of capital expenditure on property, plant and equipment
(2013: GBP2.4 million).
Risk management
Rathbones continues to enhance its risk management framework which
provides a structured and consistent approach across the group. During
the year, we have further established our operating model for risk
management and improved our risk governance and lines of defence model
to ensure that all identified risks are owned by management, business
units and, in some cases, specific committees. A dedicated chief risk
officer is expected to join us in March 2015.
Three lines of defence
Rathbones operates a 3 lines of defence model to support the risk
management framework. Responsibility and accountability for risk
management are effectively broken down into three lines as follows:
1st line: Rathbones senior management and operational business units own
and are responsible for managing risks, by developing and maintaining
effective internal controls to mitigate risk.
2nd line: Rathbones risk function and compliance function maintain a
level of independence from, and are responsible for oversight and
challenge of 1st line's day to day management, monitoring and reporting
of risks.
3(rd) line: Rathbones internal audit function is responsible for
providing an independent assessment and assurance as to the
effectiveness of governance, risk management and internal controls
operating within the group.
Risk assessment
Rathbones reviews and monitors risk exposures closely, considering the
potential impact and any management actions required to mitigate the
impact of emerging issues and future events. The group risk register is
the principal tool for monitoring risks which are classified in a strict
hierarchy. The highest level (Level 1) identifies risks as financial,
business or operational. The next level (Level 2) contains fifteen risk
categories which are listed below. Detailed risks (Level 3) are a subset
of Level 2 risks and are captured and maintained across the company
within separate business unit risk registers. The risk function
regularly reviews risks with risk owners and also conducts ad hoc
reviews or risk workshops. A watch list is maintained to record any
emerging issues and future events which will or could have the potential
to impact Rathbones' risk profile and may therefore require active
management, process changes or systems development. The group risk
register and watch list are regularly reviewed by the executive, senior
management, board and governance committees.
Risk appetite
Rathbones' risk appetite is defined as both the amount and type of risk
the company is prepared to take or retain in the pursuit of its
strategy. Our appetite articulates some overarching parameters, and
specific measures for each Level 2 risk category. During 2014 Rathbones
operated within its stated risk appetite and the board remains committed
to mitigating risk to within levels that are consistent with a
relatively low overall appetite for risk. The board continues to
recognise that the business is susceptible to market fluctuations and
will bear losses from financial and operational risks from time to time
either as reductions in income or increases in operating costs.
Risk scoring
Rathbones assesses risks using a 1 - 4 scoring system with each Level 3
risk rated by assessing the likelihood of its occurrence in a five year
period and the associated impact. A residual risk score is then derived
by taking into account an assessment of the internal control environment
or insurance mitigation.
Risk Profile
Thirty-nine Level 3 risks continue to form the basis of the group's risk
register, each of which is classified under one of the fifteen Level 2
risk categories.
Rathbones approach to managing risk is underpinned by an understanding
of our current risk exposures and how risks change over time.
During the year there have been minor changes to the fifteen Level 2
risk categories, however the underlying risk profile and ratings for the
majority of Level 2 risks have remained consistent during 2014. The
following table summarises the changes.
Ref Risk Risk Description of change
change
in
2014
A Credit Down Cash held with central banks has increased by 245%.
D Pension Up Impact of significantly lower long term gilt rates
has increased IFRS and funding deficit.
H Business Up The operational integration of two acquisitions increased
change our business change risk.
J Data Up Increased threat of fraud or cyber attack.
integrity
&
security
K Legal Down Settlement of Jersey trust legal proceedings has reduced
our overall risk exposure.
O Regulatory Up Volume of regulation remains high and a continued
focus on conduct across the financial services industry.
During the year, the executive have also recognised a number of emerging
risks. The 3 main risks are listed below:
Emerging risk Description
Cyber risk Higher risk of an unwelcomed attack on core systems
and data.
Political risk Increased market volatility from the possibility of
EU uncertainties and other geopolitical factors.
Business model risk Need for banks to strengthen capital buffers in line
with CRD IV framework.
The board believes that the principal risks and uncertainties facing the
group have been identified within the information below, and has
recognised the impact of strategic change in the year. The board
continues to believe that the most significant risks to the business are
operational risks that arise from the growth in our business, and
regulatory risks that may arise from continual changes to rules and
standards in our sector. Our overall risk profile and ways in which we
mitigate risks are analysed below. The risk mitigation listed is not
exhaustive and exclude the oversight provided by board committees.
Financial risks
Ref Level 2 Definition Key Mitigators
Risk
A Credit The risk that one or more counterparties fail to fulfil
contractual obligations, including stock settlement. -- Banking committee oversight.
-- Counterparty limits and credit reviews.
-- Treasury policy and procedures manual.
-- Active monitoring of exposures.
-- Annual Individual Capital Adequacy Assessment
Process.
-- Client loan policy.
B Liquidity The risk of having insufficient financial resources
to meet obligations as they fall due, or that to secure -- Banking committee oversight.
access to such resources would be at an excessive
cost. -- Daily reconciliations and reporting to senior
management.
-- Cash flow forecasting.
-- Contingency funding plan.
-- Annual Individual Liquidity Adequacy Assessment
(including stress testing).
C Market The risk that earnings or capital will be adversely -- Banking committee oversight.
affected by changes in the level or volatility of -- Documented policies and procedures.
interest rates, foreign currency exchange rates or -- Daily monitoring of interest rates, exchange rates
market prices. and maturity mismatch.
-- Robust application of policy and investment limits.
D Pension The risk that the cost of our defined benefit pension
schemes increases, or its valuation affects dividends, -- Management and trustee oversight.
reserves and capital.
-- Monthly valuation estimates.
-- Triennial independent actuarial valuations.
-- Investment policy and oversight.
-- Monthly management information.
-- Annual Individual Capital Adequacy Assessment
Process.
Business risks
Ref Level 2 Risk Definition Key Mitigators
E Business The risk that the business model does not respond
model in an optimal manner to changing market conditions -- Board and executive oversight.
such that sustainable growth, market share or profitability
is adversely affected. -- A documented strategy.
-- Annual business targets, subject to regular review
and challenge.
-- Regular reviews of pricing structure.
-- Continued investment in marketing, the investment
process, and service standards.
-- Trade body participation.
-- Regular competitor benchmarking and analysis.
F Performance The risk that clients receive inappropriate financial,
& advice trust or investment advice, inadequate documentation -- Investment governance and structured committee
or unsuitable portfolios resulting in a failure to oversight, specifically strategic asset allocation
meet clients' investment and/or other objectives or and stock selection.
expectations.
-- Management oversight and active client service.
-- Performance measurement and attribution analysis.
-- Weekly investment management meetings.
-- Monthly investment manager peer reviews.
-- Consistent and competitive remuneration schemes.
-- Compliance monitoring.
G Reputational The risk of reputational damage from financial and -- Executive oversight with a strong compliance culture.
non-financial events or failing to meet stakeholders' -- Conflicts of interest committee.
expectations. -- Investment in staff training and development.
-- Proactive communications with shareholders/investor
relations.
-- Investment process, management and performance
monitoring.
-- Conduct risk framework.
-- Strong values and approach to governance.
-- Monitoring of media coverage.
Operational risks
Ref Level 2 Definition Key Mitigators
Risk
H Business The risk that the planning or implementation of change
change is ineffective or fails to deliver desired outcomes. -- Project and IT committees.
-- Dedicated project office function.
-- Documented business plans and IT strategy.
-- Two-stage assessment, challenge and approval of
project plans.
-- Documented project and change procedures.
I Business The risk that an internal or external event results
continuity in either failure or detriment to core business processes -- Group business continuity committee oversight.
or services.
-- Documented crisis/incident management and disaster
recovery plans.
-- Regular disaster recovery testing.
-- Continuous monitoring of IT systems availability.
-- Off-site data centre.
J Data The risk of a lack of integrity of, inappropriate
integrity & access to, or disclosure of, client or company-sensitive -- Data security committee oversight.
security information.
-- Data protection policy and procedures.
-- System access controls and encryption.
-- Penetration testing & multi layer network security.
-- Training and employee awareness programmes.
-- Physical security at all locations.
K Legal The risk of legal action being taken against the group
(and / or a subsidiary) or failure to comply with -- Executive oversight.
legislative requirements resulting in financial loss
and reputational damage. -- Retained specialist legal advisers.
-- Data protection policy and compliance monitoring.
-- Documented policies and procedures.
-- Training and employee awareness programmes.
L Outsourcing The risk of one or more third parties failing to provide -- Executive oversight.
or perform outsourced services to standards expected -- Supplier due diligence and regular financial reviews.
by the group, impacting the ability to deliver core -- Active relationship management, including regular
services. service review meetings.
-- Service level agreements and monitoring of key
performance indicators.
-- Compliance monitoring.
M People The risk of loss of key staff, lack of skilled resources
and inappropriate behaviour or actions. -- Executive oversight.
-- Succession and contingency planning.
-- Transparent, consistent and competitive remuneration
schemes.
-- Investment in staff training and development.
-- Contractual clauses with restrictive covenants.
N Processing The risk that the design or execution of client/financial/settlement
transaction processes (including dealing activity) -- Authorisation limits and management oversight.
are inadequate or fail to deliver an appropriate level
of service and protection to client or company assets. -- Dealing limits and supporting system controls.
-- Active investment in automated processes.
-- Counter review/4-eyes processes.
-- Segregation of duties.
-- Documented procedures.
-- Annual controls assessment (ISAE3402 report).
O Regulatory The risk of failure by the group (and / or a subsidiary)
to fulfil its regulatory requirements and comply with -- Active involvement with representative industry
the introduction of new or changes to the existing bodies.
regulation.
-- Compliance monitoring and oversight of industry and
regulatory developments.
-- Close contact with the regulators.
-- Documented policy and procedures.
Going concern
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
this announcement.
Group companies are regulated by the PRA and FCA and perform 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. During the year, and as at 31
December 2014, the group has had no external borrowings and is wholly
funded by equity.
In 2014, the group has continued to generate organic growth in client
funds under management 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.
Consolidated statement of comprehensive income
for the year ended 31 December 2014
2014 2013
GBP'000 GBP'000
(re-presented
Note - note 1)
Interest and similar income 10,024 9,212
Interest expense and similar charges (865) (604)
Net interest income 9,159 8,608
Fee and commission income 196,637 173,251
Fee and commission expense (9,126) (8,864)
Net fee and commission income 187,511 164,387
Dividend income 74 127
Net trading income 1,878 1,226
Other operating income 2,012 1,972
Share of profit of associates 169 89
Refund of levies for the Financial Services Compensation
Scheme 982 -
Gain on disposal of financial securities 6,833 -
Gain on disposal of pension administration business 683 -
Operating income 209,301 176,409
Charges in relation to client relationships and goodwill (8,287) (6,306)
Contribution to legal settlement (15,000) -
Transaction costs (1,057) -
Other operating expenses (139,299) (125,899)
Operating expenses (163,643) (132,205)
Profit before tax 45,658 44,204
Taxation 4 (10,021) (9,453)
Profit after tax 35,637 34,751
Profit for the year attributable to equity holders
of the company 35,637 34,751
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net remeasurement of defined benefit liability/asset (17,466) 2,188
Deferred tax relating to net remeasurement of defined
benefit liability/asset 3,493 (788)
Items that may be reclassified to profit or loss
Revaluation of available for sale investment securities:
- net gain from changes in fair value 959 2,072
- net profit on disposal transferred to profit or
loss during the year (6,820) (5)
(5,861) 2,067
Deferred tax relating to revaluation of available
for sale investment securities 1,172 (298)
Other comprehensive income net of tax (18,662) 3,169
Total comprehensive income for the year net of tax
attributable to equity holders of the company 16,975 37,920
Dividends paid and proposed for the year per ordinary
share 5 52.0p 49.0p
Dividends paid and proposed for the year 24,863 22,645
Earnings per share for the year attributable to equity
holders of the company: 6
- basic 75.9p 76.1p
- diluted 75.3p 75.6p
Consolidated statement of changes in equity
for the year ended 31 December 2014
Available
Share Share Merger for sale Own Retained Total
capital premium reserve reserve shares earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2013 2,298 62,160 31,835 2,948 (5,844) 136,096 229,493
Profit for the year 34,751 34,751
Net remeasurement of defined benefit asset 2,188 2,188
Revaluation of available for sale investment securities:
- net gain from changes in fair value 2,072 2,072
- net profit on disposal transferred to profit or
loss during the year (5) (5)
Deferred tax relating to components of other comprehensive
income (298) (788) (1,086)
Other comprehensive income net of tax - - - 1,769 - 1,400 3,169
Dividends paid (22,096) (22,096)
Issue of share capital 17 3,324 3,341
Share-based payments:
- value of employee services 2,918 2,918
- cost of own shares acquired (609) (609)
- cost of own shares vesting 731 (731) -
- tax on share-based payments 33 33
At 1 January 2014 2,315 65,484 31,835 4,717 (5,722) 152,371 251,000
Profit for the year 35,637 35,637
Net remeasurement of defined benefit liability (17,466) (17,466)
Revaluation of available for sale investment securities:
- net gain from changes in fair value 959 959
- net profit on disposal transferred to profit or
loss during the year (6,820) (6,820)
Deferred tax relating to components of other comprehensive
income 1,172 3,493 4,665
Other comprehensive income net of tax - - - (4,689) - (13,973) (18,662)
Dividends paid (23,793) (23,793)
Issue of share capital 80 27,503 27,583
Share-based payments:
- value of employee services 374 374
- cost of own shares acquired (1,655) (1,655)
- cost of own shares vesting 1,846 (1,846) -
- tax on share-based payments 248 248
At 31 December 2014 2,395 92,987 31,835 28 (5,531) 149,018 270,732
Consolidated balance sheet
as at 31 December 2014
2014 2013
GBP'000 GBP'000
Assets
Cash and balances with central banks 727,178 211,005
Settlement balances 15,890 19,611
Loans and advances to banks 144,399 106,327
Loans and advances to customers 101,640 95,543
Investment securities:
- available for sale 15,514 53,985
- held to maturity 429,974 575,838
Prepayments, accrued income and other assets 55,272 46,368
Property, plant and equipment 10,242 11,522
Net deferred tax asset 7,042 1,699
Investment in associates 1,434 1,296
Intangible assets 159,654 104,969
Surplus on retirement benefit schemes - 1,614
Total assets 1,668,239 1,229,777
Liabilities
Settlement balances 22,584 27,626
Due to customers 1,282,426 891,897
Accruals, deferred income, provisions and other
liabilities 74,574 55,282
Current tax liabilities 4,213 3,972
Retirement benefit obligations 13,710 -
Total liabilities 1,397,507 978,777
Equity
Share capital 2,395 2,315
Share premium 92,987 65,484
Merger reserve 31,835 31,835
Available for sale reserve 28 4,717
Own shares (5,531) (5,722)
Retained earnings 149,018 152,371
Total equity 270,732 251,000
Total liabilities and equity 1,668,239 1,229,777
Consolidated statement of cash flows
for the year ended 31 December 2014
2014 2013
Note GBP'000 GBP'000
Cash flows from operating activities
Profit before tax 45,658 44,204
Share of profit of associates (169) (89)
Net profit on disposal of available for sale investment
securities (6,820) (5)
Net interest income (9,159) (8,608)
Net (recoveries)/impairment charges on impaired loans
and advances (589) 290
Net charge for provisions 380 500
Loss/(profit) on disposal of property, plant and
equipment 517 (1)
Depreciation, amortisation and impairment 13,367 10,580
Defined benefit pension scheme charges 3,332 3,188
Defined benefit pension contributions paid (5,474) (4,744)
Share-based payment charges 5,477 4,833
Interest paid (852) (615)
Interest received 10,284 9,802
55,952 59,335
Changes in operating assets and liabilities:
- net (increase)/decrease in loans and advances to
banks and customers (11,074) 37,904
- net decrease/(increase) in settlement balance debtors 3,721 (7,005)
- net increase in prepayments, accrued income and
other assets (8,982) (6,678)
- net increase in amounts due to customers and deposits
by banks 390,529 62,936
- net (decrease)/increase in settlement balance
creditors (5,042) 9,034
- net increase/(decrease) in accruals, deferred income,
provisions and other liabilities 2,842 (409)
Cash generated from operations 427,946 155,117
Tax paid (10,215) (9,830)
Net cash inflow from operating activities 417,731 145,287
Cash flows from investing activities
Dividends received from associates 31 30
Acquisition of business combinations, net of cash
acquired (40,129) -
Purchase of property, plant, equipment and intangible
assets (15,953) (19,415)
Proceeds from sale of property, plant and equipment (517) 1
Purchase of investment securities (641,858) (839,938)
Proceeds from sale and redemption of investment
securities 794,548 823,062
Net cash generated from/(used in) investing activities 96,122 (36,260)
Cash flows from financing activities
Issue of ordinary shares 25,928 2,732
Dividends paid 5 (23,793) (22,096)
Net cash generated from/(used in) financing activities 2,135 (19,364)
Net increase in cash and cash equivalents 515,988 89,663
Cash and cash equivalents at the beginning of the
year 319,828 230,165
Cash and cash equivalents at the end of the year 9 835,816 319,828
Notes to the preliminary announcement
1. Accounting policies
In preparing the financial information included in this statement the
group has applied accounting policies which are in accordance with
International Financial Reporting Standards as adopted by the EU at 31
December 2014. The accounting policies have been applied consistently
to all periods presented in this statement.
Standards affecting the reported results or the financial position
In the current year, there have been no new or revised standards and
interpretations that have been adopted and which have had a significant
impact on the amounts reported in these financial statements.
Changes in accounting disclosure
Segmental information has been re-presented to show the constitution of
centrally incurred indirect expenses in the segmental table (note 3).
Net fee and commission income previously included a fund management fee
in Investment Management receivable from Unit Trusts. The group has
concluded that this should be classified as intersegment sales and it
has been re-presented accordingly. This re-presentation has decreased
fee and commission income by GBP1,404,000 (2013: GBP1,074,000) and
decreased fee and commission expense by the same amount. The
re-presentation has had no impact on operating income, profit or equity
in either year.
2. Critical accounting judgements and key sources of estimation and
uncertainty
Client relationship intangibles
Client relationship intangibles purchased through corporate transactions
When the group purchases client relationships through transactions with
other corporate entities, a judgement is made as to whether the
transaction should be accounted for as a business combination or as a
separate purchase of intangible assets. In making this judgement, the
group assesses the assets, liabilities, operations and processes that
were the subject of the transaction against the definition of a business
in IFRS 3. In particular, consideration is given to the scale of the
operations subject to the transaction, whether ownership of a corporate
entity has been acquired and to whom any amounts payable under the
transaction are payable, among other factors.
During the year, the group entered into transactions to purchase part of
Deutsche Asset & Wealth Management's London-based private client
investment business and to acquire Jupiter's private client and charity
investment management business (note 7). The group treated the
transaction with Deutsche Asset & Wealth Management as a separate
purchase of intangible assets as the main element of the consideration
was payable to the investment managers. The transaction with Jupiter was
treated as a business combination, principally due to the scale of
operations acquired and the fact that consideration was payable to
Jupiter (the previous corporate owner of the business).
Payments to newly recruited investment managers
The group assesses whether payments made to newly recruited investment
managers under contractual agreements represent payments for the
acquisition of client relationship intangibles or remuneration for
ongoing services provided to the group. Payments made for the
acquisition of client relationship intangibles are capitalised whereas
those that are judged to be in relation to the provision of ongoing
services are expensed in the period in which they are incurred.
The group determines a suitable period during which awards accruing to
new investment managers are capitalised. Typically, this will be for 12
months after the cessation of any non-compete period. After the defined
period has elapsed, any payments made are charged to profit or loss.
During the year the group capitalised GBP22,073,000 of payments made to
investment managers and expensed GBP2,824,000 (2013: GBP13,245,000
capitalised and GBP487,000 expensed). A reduction in the capitalisation
period by 1 month would decrease client relationship intangibles by
GBP257,000 and decrease profit before tax by GBP257,000 (2013: GBP56,000
and GBP56,000 respectively).
Amortisation of client relationship intangibles
The group makes estimates as to the expected duration of client
relationships to determine the period over which related intangible
assets are amortised. The amortisation period is estimated with
reference to historical data on account closure rates and expectations
for the future. During the year client relationship intangible assets
were amortised over a ten to fifteen year period. Amortisation of
GBP8,287,000 (2013: GBP6,306,000) was charged during the year. A
reduction in the average amortisation period of one year would increase
the amortisation charge by approximately GBP700,000 (2013: GBP600,000).
At 31 December 2014, the carrying value of client relationship
intangibles was GBP95,720,000 (2013: GBP52,487,000).
Retirement benefit obligations
The group makes estimates about a range of long term trends and market
conditions to determine the value of the surplus or deficit on its
retirement benefit schemes, based on the group's expectations of the
future and advice taken from qualified actuaries. Long term forecasts
and estimates are necessarily highly judgemental and subject to risk
that actual events may be significantly different to those forecast. If
actual events deviate from the assumptions made by the group then the
reported surplus or deficit in respect of retirement benefit obligations
may be materially different.
3. Segmental information
For management purposes the group is currently organised into two
operating segments: Investment Management and Unit Trusts. The cost of
staff providing support services is included in indirect expenses. The
allocation of these costs is shown in a separate column in the table
below, alongside the information presented for internal reporting to the
executive committee.
Investment Indirect
Unit
Management Trusts expenses Total
31 December 2014 GBP'000 GBP'000 GBP'000 GBP'000
Net investment management fee income 120,561 13,281 - 133,842
Net commission income 43,723 - - 43,723
Net interest income 9,159 - - 9,159
Fees from advisory services and other income 11,908 2,171 - 14,079
Underlying operating income 185,351 15,452 - 200,803
Staff costs - fixed (43,885) (3,304) (14,760) (61,949)
Staff costs - variable (25,790) (2,751) (6,664) (35,205)
Total staff costs (69,675) (6,055) (21,424) (97,154)
Other direct expenses (17,065) (2,788) (22,292) (42,145)
Allocation of indirect expenses (41,085) (2,631) 43,716 -
Underlying operating expenses (127,825) (11,474) - (139,299)
Underlying profit before tax 57,526 3,978 - 61,504
Refund of levies for the Financial Services Compensation
Scheme 907 75 - 982
Gain on disposal of pension administration business 683 - - 683
Charges in relation to client relationships and goodwill (8,287) - - (8,287)
Transaction costs (1,057) - - (1,057)
Segment profit before tax 49,772 4,053 - 53,825
Gain on disposal of financial securities 6,833
Contribution to legal settlement (15,000)
Profit before tax attributable to equity holders of
the company 45,658
Taxation (note 4) (10,021)
Profit for the year attributable to equity holders
of the company 35,637
Investment Indirect
Unit
Management Trusts Expenses Total
GBP'000 GBP'000 GBP'000 GBP'000
Segment total assets 1,630,464 32,878 - 1,663,342
Unallocated assets 4,897
Total assets 1,668,239
Investment Indirect
Unit
Management Trusts expenses Total
31 December 2013 (re-presented - note 1) GBP'000 GBP'000 GBP'000 GBP'000
Net investment management fee income 104,222 9,651 - 113,873
Net commission income 42,051 - - 42,051
Net interest income 8,608 - - 8,608
Fees from advisory services and other income 10,456 1,421 - 11,877
Underlying operating income 165,337 11,072 - 176,409
Staff costs - fixed (39,848) (3,059) (13,939) (56,846)
Staff costs - variable (20,588) (1,799) (5,546) (27,933)
Total staff costs (60,436) (4,858) (19,485) (84,779)
Other direct expenses (19,456) (2,400) (19,264) (41,120)
Allocation of indirect expenses (36,348) (2,401) 38,749 -
Underlying operating expenses (116,240) (9,659) - (125,899)
Underlying profit before tax 49,097 1,413 - 50,510
Charges in relation to client relationships and
goodwill (6,306) - - (6,306)
Profit before tax attributable to equity holders of
the company 42,791 1,413 - 44,204
Taxation (note 4) (9,453)
Profit for the year attributable to equity holders
of the company 34,751
Investment Indirect
Unit
Management Trusts Expenses Total
GBP'000 GBP'000 GBP'000 GBP'000
Segment total assets 1,195,571 23,556 - 1,219,127
Unallocated assets 10,650
Total assets 1,229,777
The following table reconciles underlying operating income to operating
income:
2014 2013
GBP'000 GBP'000
Underlying operating income 200,803 176,409
Refund of levies for the Financial Services Compensation
Scheme 982 -
Gain on disposal of financial securities 6,833 -
Gain on disposal of pension administration business 683 -
Operating income 209,301 176,409
The following table reconciles underlying operating expenses to
operating expenses:
2014 2013
GBP'000 GBP'000
Underlying operating expenses 139,299 125,899
Charges in relation to client relationships and goodwill 8,287 6,306
Transaction costs 1,057 -
Contribution to legal settlement 15,000 -
Operating expenses 163,643 132,205
Centrally incurred indirect expenses are allocated to operating segments
on the basis of the cost drivers that generate the expenditure;
principally the headcount of staff directly involved in providing those
services from which the segment earns revenues, the value of funds under
management and the segment's total revenue.
Geographic analysis
The following table represents operating income by the geographical
location of the group entity providing the service:
2014 2013
GBP'000 GBP'000
United Kingdom 202,634 170,786
Jersey 6,667 5,623
Operating income 209,301 176,409
The following is an analysis of the carrying amount of non-current
assets analysed by the geographical area in which the assets are
located:
2014 2013
GBP'000 GBP'000
United Kingdom 162,901 114,015
Jersey 6,995 2,476
Non-current assets 169,896 116,491
Major clients
The group is not reliant on any one client or group of connected clients
for generation of revenues.
4. Taxation
2014 2013
GBP'000 GBP'000
Current tax:
- charge for the year 10,587 11,096
- adjustments in respect of prior years (136) (821)
Deferred tax:
- charge for the year (521) (687)
- adjustments in respect of prior years 91 (135)
10,021 9,453
The tax charge is calculated based on our best estimate of the amount
payable as at the balance sheet date. Any subsequent difference between
these estimates and the actual amount paid are recorded as adjustments
in respect of prior years.
The tax charge on profit for the year is higher (2013: lower) than the
standard rate of corporation tax in the UK of 21.5% (2013: 23.2%). The
differences are explained below:
2014 2013
GBP'000 GBP'000
Tax on profit from ordinary activities at the standard
rate of 21.5% (2013: 23.2%) 9,813 10,276
Effects of:
- disallowable expenses 587 348
- share-based payments (339) (232)
- tax on overseas earnings (143) (44)
- overprovision for tax in previous years (45) (956)
- other 112 (31)
Effect of change in corporation tax rate on deferred
tax 36 92
10,021 9,453
5. Dividends
2014 2013
GBP'000 GBP'000
Amounts recognised as distributions to equity holders
in the year:
- final dividend for the year ended 31 December 2013
of 31.0p (2012: 30.0p) per share 14,734 13,800
- interim dividend for the year ended 31 December
2014 of 19.0p (2013: 18.0p) per share 9,059 8,296
Dividends paid in the year of 50.0p (2013: 48.0p)
per share 23,793 22,096
Proposed final dividend for the year ended 31 December
2014 of 33.0p (2013: 31.0p) per share 15,804 14,349
An interim dividend of 19.0p per share was paid on 8 October 2014 to
shareholders on the register at the close of business on 12 September
2014 (2013: 18.0p).
A final dividend declared of 33.0p per share (2013: 31.0p per share) is
payable on 19 May 2015 to shareholders on the register at the close of
business on 24 April 2015. The final dividend is subject to approval by
shareholders at the Annual General Meeting on 14 May 2015 and has not
been included as a liability in these financial statements.
6. Earnings per share
Earnings used to calculate earnings per share on the bases reported in
these financial statements were:
2014 2014 2014 2013 2013 2013
Pre-tax Taxation Post-tax Pre-tax Taxation Post-tax
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Underlying profit attributable to shareholders 61,504 (13,426) 48,078 50,510 (10,919) 39,591
Refund of levies for the Financial Services Compensation
Scheme 982 (211) 771 - - -
Gain on disposal of financial securities 6,833 (1,469) 5,364 - - -
Gain on disposal of pension administration business 683 (147) 536 - - -
Charges in relation to client relationships and goodwill (8,287) 1,781 (6,506) (6,306) 1,466 (4,840)
Contribution to legal settlement (15,000) 3,224 (11,776) - - -
Transaction costs (1,057) 227 (830) - - -
Profit attributable to shareholders 45,658 (10,021) 35,637 44,204 (9,453) 34,751
Basic earnings per share has been calculated by dividing profit
attributable to shareholders by the weighted average number of shares in
issue throughout the year, excluding own shares, of 46,971,196 (2013:
45,667,571).
Diluted earnings per share is the basic earnings per share, adjusted for
the effect of contingently issuable shares under the Long Term Incentive
Plans, employee share options remaining capable of exercise and any
dilutive shares to be issued under the Share Incentive Plan, all
weighted for the relevant period (see table below):
2014 2013
Weighted average number of ordinary shares in issue
during the year - basic 46,971,196 45,667,571
Effect of ordinary share options/Save As You Earn 21,684 45,814
Effect of dilutive shares issuable under the Share
Incentive Plan 63,866 60,078
Effect of contingently issuable ordinary shares under
the Long Term Incentive Plan 247,202 222,122
Diluted ordinary shares 47,303,948 45,995,585
2014 2013
Underlying earnings per share for the year attributable
to equity holders of the company:
- basic 102.4p 86.7p
- diluted 101.6p 86.1p
7. Business combinations
Jupiter Asset Management Limited's private client and charity investment
management business
On 1 April 2014, the group announced that it had agreed to purchase
Jupiter Asset Management Limited's private client and charity investment
management business. The acquisition completed on 26 September 2014 and
cash consideration totalling GBP39.6 million was paid, no deferred
consideration is payable. At 31 December 2014, the acquisition had added
GBP2.0 billion to the group's funds under management.
The acquired business' net assets at the acquisition date were as
follows:
Carrying Fair value Recognised
amounts adjustments values
31 December 2014 GBP'000 GBP'000 GBP'000
Intangible assets - 28,794 28,794
Goodwill - 10,766 10,766
Total net assets acquired - 39,560 39,560
Cash 39,560
Total consideration 39,560
Included within the consolidated statement of comprehensive income for
the year ended 31 December 2014 is operating income of GBP2,578,000 and
a profit before tax of GBP1,782,000 relating to the acquired business.
Goodwill of GBP10,766,000 arises as a result of expected synergies once
the business is fully integrated into the group and future growth of the
group's business as a result of this acquisition. Any impairment of
goodwill in future periods is expected to be deductible for tax
purposes.
Acquisition related costs totalling GBP670,000 for legal and
professional advice have been recognised in transaction costs in the
period in relation to this transaction (2013: GBPnil).
Rooper & Whately
On 1 May 2014, the group acquired the trade and assets of Rooper &
Whately, a partnership that provides legal services, to add depth to the
range of its advisory services. Total cash consideration of GBP569,000
was paid in 2 tranches in May 2014. Deferred, contingent consideration
of GBP30,000 is also payable in February 2015.
The acquired business' net assets at the acquisition date were as
follows:
Carrying Fair value Recognised
amounts adjustments values
31 December 2014 GBP'000 GBP'000 GBP'000
Loans and advances to customers 41 - 41
Prepayments, accrued income and other
assets 223 - 223
Intangible assets - 303 303
Goodwill - 227 227
Accruals, deferred income and other
liabilities (195) - (195)
Total net assets acquired 69 530 599
Cash 569
Deferred contingent consideration 30
Total consideration 599
Included within the consolidated statement of comprehensive income for
the year ended 31 December 2014 is operating income of GBP407,000 and a
loss before tax of GBP42,000 relating to the acquired business.
The fair value of acquired loans and advances to customers and
prepayments, accrued income and other assets is equal to the contractual
amounts receivable, all of which are expected to be collected.
Goodwill of GBP227,000 arises as a result of expected synergies once the
business is fully integrated into the group and future growth of the
group's business as a result of this acquisition. Any impairment of
goodwill in future periods is expected to be deductible for tax
purposes.
Acquisition related costs totalling GBP20,000 for legal and professional
advice have been recognised in transaction costs in the period in
relation to this transaction (2013: GBPnil).
If the group had made both acquisitions on 1 January 2014, the group
operating income and profit before tax would have been GBP217,254,000
and GBP51,016,000 respectively.
8. Related parties
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.
2014 2013
GBP'000 GBP'000
Short term employee benefits 8,089 6,063
Post employment benefits 132 640
Other long term benefits 948 546
Share-based payments 1,582 2,867
10,751 10,116
Dividends totalling GBP93,000 were paid in the year (2013: GBP84,000) in
respect of ordinary shares held by key management personnel and their
close family members.
As at 31 December 2014, the group had no outstanding interest-free
season ticket loans (2013: none) issued to key management personnel.
At 31 December 2014, key management personnel and their close family
members had gross outstanding deposits of GBP838,000 (2013: GBP436,000)
and gross outstanding banking loans of GBP3,859,000 (2013: GBP6,488,000),
all of which (2013: all) were made on normal business terms. A number of
the group's key management personnel 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.
At 31 December 2014, GBP55,000 was payable to the Laurence Keen Scheme
(2013: GBPnil) and GBP55,000 was due from the Rathbone 1987 Scheme
(2013: GBPnil).
The group managed 21 unit trusts and OEICs during 2014 (2013: 22 unit
trusts and OEICs). Total management charges of GBP23,061,000 (2013:
GBP19,169,000) were earned during the year, calculated on the bases
published in the individual fund prospectuses, which also state the
terms and conditions of the management contract with the group.
Management fees owed to the group as at 31 December 2014 totalled
GBP2,076,000 (2013: GBP1,785,000).
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.
9. Consolidated statement of cash flows
For the purposes of the consolidated statement of cash flows, cash and
cash equivalents comprise the following balances with less than three
months until maturity from the date of acquisition:
2014 2013
GBP'000 GBP'000
Cash and balances at central banks 727,178 211,005
Loans and advances to banks 93,638 61,171
Available for sale investment securities 15,000 47,652
835,816 319,828
Available for sale investment securities are amounts invested in money
market funds which are realisable on demand.
Cash flows arising from issue of ordinary shares comprise:
2014 2013
GBP'000 GBP'000
Share capital issued 80 17
Share premium on shares issued 27,503 3,324
Shares issued in relation to share-based schemes for
which no cash consideration was received (1,655) (609)
25,928 2,732
10. Financial information
The financial information set out in this preliminary announcement has
been extracted from the group's financial statements, which have been
approved by the board of directors and agreed with the company's
auditor.
The financial information set out above does not constitute the
company's statutory financial statements for the years ended 31 December
2014 or 2013. Statutory financial statements for 2013 have been
delivered to the Registrar of Companies. Statutory financial statements
for 2014 will be delivered to the Registrar of Companies following the
company's Annual General Meeting. The auditor has reported on both the
2013 and 2014 financial statements. Their reports were unqualified and
did not draw attention to any matters by way of emphasis. They also did
not contain statements under Section 498 of the Companies Act 2006.
11. Forward-looking statements
This announcement contains certain forward-looking statements, which are
made by the directors in good faith based on the information available
to them at the time of their approval of the 2014 annual report.
Statements contained within this announcement should be treated with
some caution due to the inherent uncertainties (including but not
limited to those arising from economic, regulatory and business risk
factors) underlying any such forward-looking statements. This
announcement has been prepared by Rathbone Brothers Plc to provide
information to its shareholders and should not be relied upon for any
other purpose.
This announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Rathbone Brothers PLC via Globenewswire
HUG#1895441
http://www.rathbones.com/
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