TIDMRAT
Funds under management up 17.1% to GBP34.2 billion
This is a preliminary statement of annual results published in
accordance with FCA Listing Rule 9.7A.
It covers the year ended 31 December 2016.
Mark Nicholls, Chairman of Rathbone Brothers Plc, said:
"After a nervous start to 2016, the FTSE 100 performed increasingly
strongly as the year progressed, largely reflecting the impact of a
sharp fall in sterling after the EU Referendum vote. Nevertheless, the
recovery in the second half had a favourable impact on our financial
performance, helping our total funds under management to grow by 17.1%
to GBP34.2 billion.
"In spite of continuing political and economic uncertainties, we will
pursue our planned strategic growth initiatives and continue to take
advantage of growth opportunities in the sector."
Highlights:
-- Total funds under management were GBP34.2 billion at 31 December 2016, up
17.1% from GBP29.2 billion at 31 December 2015. The FTSE 100 Index
increased by 14.4% and the FTSE WMA Balanced Index increased by 13.6%
over the same period.
-- The total net annual growth rate of funds under management for Investment
Management was 4.5% (2015: 5.7%). This comprised GBP0.8 billion of net
organic growth (2015: GBP0.7 billion) and GBP0.4 billion of acquired
inflows (2015: GBP0.7 billion). The underlying rate of net organic growth
was 2.9% in 2016 (2015: 3.0%).
-- Unit Trusts saw gross sales of GBP1.3 billion in 2016 (2015: GBP0.9
billion) and funds under management increase by 29.0% to GBP4.0 billion
at 31 December 2016 (2015: GBP3.1 billion).
-- Underlying operating income in Investment Management of GBP226.3 million
for the year ended 31 December 2016 (2015: GBP209.0 million) represents
an increase of 8.3%. The average FTSE 100 Index was 6659 on our quarterly
billing dates (2015: 6415), an increase of 3.8%.
-- Total underlying operating expenses increased 11.1% to GBP176.4 million
largely reflecting continued investment in strategic initiatives as well
as underlying growth in the business.
-- Underlying profit before tax (excluding acquisition-related costs, head
office relocation costs and charges in relation to client relationships
and goodwill) increased 6.4% to GBP74.9 million from GBP70.4 million.
Underlying earnings per share increased by 4.4% to 122.1p (2015:
117.0p).
-- Reflecting acquisition-related costs, head office relocation costs and
charges in relation to client relationships and goodwill, profit before
tax was GBP50.1 million for the year ended 31 December 2016, a decrease
of 14.5%, compared to GBP58.6 million in 2015. Basic earnings per share
decreased 19.0% to 78.9p (2015: 97.4p).
-- The board recommends a final dividend of 36p for 2016 (2015: 34p), making
a total of 57p for the year (2015: 55p), an increase of 3.6% on 2015.
Ends
Issued on 23 February 2017
For further information contact:
Rathbone Brothers Plc Camarco
Tel: 020 7399 0000 Tel: 020 3757 4984
email: shelly.patel@rathbones.com email: ed.gascoigne-pees@camarco.co.uk
Philip Howell, Chief Executive Ed Gascoigne-Pees
Paul Stockton, Finance Director
Shelly Patel, Investor Relations Manager
Rathbone Brothers Plc
Rathbone Brothers Plc ("Rathbones"), through its subsidiaries, is a
leading provider of high-quality, personalised investment and wealth
management services for private clients, charities and trustees. Our
services include discretionary investment management, unit trusts,
banking and loan services, financial planning, unitised portfolio
services and UK trust, legal, estate and tax advice.
Rathbones has over 1,100 staff in 16 locations across the UK and Jersey;
its headquarters is 8 Finsbury Circus, London.
rathbones.com http://www.rathbones.com
Chairman's Statement
Overview of 2016
After a nervous start to 2016, the FTSE 100 performed increasingly
strongly as the year progressed, largely reflecting the impact of a
sharp fall in sterling after the EU Referendum vote. This vote, and the
Trump victory in the US, are perhaps examples of "events" that Harold
Macmillan was alleged to have been fearful of. Nevertheless, the
recovery in the second half had a favourable impact on our financial
performance, helping our total funds under management to grow by 17.1%
to GBP34.2 billion. For investors though, the full ramifications of
these events, and the possibility of further political change to come,
have still to play out.
In February 2017, we moved our London office from Curzon Street to
Finsbury Circus. This move will not only manage our property expenditure
going forward but will also enable our growing headcount in London to
remain under one roof.
Profit before tax for 2016 reflects the full impact of acquisition and
head office relocation costs of GBP13.0 million, so at GBP50.1 million
represents a fall of 14.5% on the GBP58.6 million earned in 2015.
Accordingly, earnings per share of 78.9p fell 19.0%, also reflecting the
impact of the placing in the last quarter of the year.
Underlying profit before tax was GBP74.9 million in the year ended 31
December 2016, up 6.4% from the previous year and representing a profit
margin of 29.8% (2015: 30.7%). This translates into underlying earnings
per share of 122.1p for 2016, up 4.4% on the 117.0p last year.
The board is recommending a final dividend of 36p per share, which
brings the total dividend for the year to 57p per share, an increase of
3.6% over last year.
In October 2016, the board concluded that we could not continue to
tolerate the risks of the open ended pension fund obligations of our
legacy defined benefit pension schemes. We therefore decided to initiate
a member consultation to close the schemes to future accrual. Since
closure generates a short term increase in our regulatory capital
requirements, we undertook a share placing raising GBP36.9 million, net
of placement costs. These funds are retained on our balance sheet.
Our strategy
In 2014, the board approved an ambitious medium term strategic plan
which did not change or dilute our core discretionary investment
management model, but sought to add strategic growth initiatives. One
such initiative was the establishment of a Rathbones Private Office
serving clients at the higher end of the wealth spectrum. A second was
the enhancement of our distribution capability to position ourselves
more favourably with the professional intermediary market, whilst a
third, more recent, initiative has been to expand our financial planning
service. The aim of all of these initiatives is to meet the demands of
both existing and prospective clients for a more comprehensive range of
services complementary to pure investment management.
The board remains well aware that delivery of these initiatives imposes
demands on our people and impacts upon our profitability and financial
resources. These pressures are kept under continuous review by the board
to ensure that we do not undermine our profitability or increase risk
unnecessarily.
Culture, governance and the board
One of my priorities this year has been to ensure board oversight of the
firm's culture and its development. As a first stage, the board worked
with the executive committee to establish a balanced assessment of our
current culture. This assessment was then debated with the executive
committee at our strategy day. The culture of the firm is healthy in
most respects, particularly in terms of our professionalism, putting
clients first and integrity. It was also recognised that even though the
right tone must be set at the top, there is a need to continue to
cascade this throughout the organisation through a combination of strong
leadership, inspiring role models and effective supervision.
The board has formed initial views on what our target culture should be
and the nature of the management information we need to monitor our
cultural development. Metrics and other information will be collated and
reviewed by the conduct risk committee in the first instance, and a
report will be presented to the board quarterly. This will provide
useful background, but will be supplemented by the direct personal
experiences of directors (both executive and non-executive) as they
engage with the business. Particularly in times of change, I believe
that it is very important that all directors are close enough to the
pulse of a business to ensure the best aspects of a culture are
promoted.
During the year, in addition to regulatory matters, the board paid
particular attention to the progress of our strategic growth initiatives
referred to above, the bedding in of management structures put in place
last year, the volatility associated with our defined benefit pension
scheme, and the financial implications of our London office move. The
last of these included the adverse impact of the Brexit vote on the
availability of prospective tenants for our existing space in Curzon
Street. We have also discussed how we operate as a board and the
interaction between executive and non-executive directors as well as
considering both management and non-executive succession plans which
remain a work in progress.
In November, we announced that Paul Chavasse was stepping down as an
executive director. The responsibilities of Paul's role as head of
investment have been split among the Executive team. The board would
like to thank Paul for his very significant contribution to Rathbones
over the fifteen years he has been with the firm. As the former chief
operating officer and head of investment, Paul has played a very
important part in helping to steer the company through a period of
growth and success and we wish him well for the future.
David Harrel, senior independent director and chairman of our
remuneration committee, is standing down at this year's AGM having
served nine years. The board has benefited hugely from David's wisdom
and sense of humour. I am particularly grateful for his advice when
reshaping the board appropriately for the challenges of a changing
industry.
We also had a helpful and positive board effectiveness review carried
out this year.
Risks
We continue to enhance our risk management framework. Particular
attention is being given to identifying and monitoring emerging risks
such as cyber crime, money laundering and data theft. We remain vigilant
to risks associated with our defined benefit pension scheme and
subletting our existing space in Curzon Street. Beyond this, we believe
that other significant risks to our business are operational risks that
arise from growth and regulatory risks that may arise from continual
changes to rules and standards in our sector. Maintaining our regulatory
standards has always been a high priority for our senior management and
is highlighted in the personal objectives of the executive directors.
Remuneration
All executive directors have clear objectives, both corporate and
personal. At the beginning of 2017, a new remuneration scheme was
introduced for investment managers throughout the firm. The scheme
contains a larger performance element to encourage initiative-taking and
organic growth, balanced by a more direct link to performance against
risk and compliance standards.
Employees
The high quality of our employees is a major differentiator for us and
they are the most valuable asset of our firm. They are always a pleasure
to work with at all levels and I take great pride in the unsolicited,
positive feedback I receive from clients about their dealings with the
firm.
Shareholders
We are fortunate to have a number of positively engaged institutional
shareholders with a significant investment in the company. Both my
executive colleagues and I welcome opportunities to talk to shareholders
and we will continue to maintain a regular and constructive dialogue
with them.
Outlook
In spite of continuing political and economic uncertainties, we will
pursue our planned strategic growth initiatives and continue to take
advantage of growth opportunities in the sector.
Mark Nicholls, Chairman
22 February 2017
Chief executive's statement
Growth in an unpredictable market
Brexit and the US presidential election were key events in 2016, both
producing considerable market trepidation in the run-up and some
surprise at the outcomes. In spite of this, the markets shrugged off the
longer term economic and trade uncertainties with the FTSE 100 Index
rising 14.4% over the year. Back in February, with the FTSE 100 Index
having fallen to 5537 on pre-Brexit fears, few would have anticipated it
would end the year at 7143.
During that uncertain climate, private investors were inevitably
cautious in switching investment manager or in committing new funds; a
good indicator of this being the cash element within client portfolios
rising to cyclical highs of near 7.0% compared to a more normal 5.0%.
In such an eventful year, we maintained our growth momentum with total
funds under management growing to GBP34.2 billion at 31 December 2016,
up 17.1% from GBP29.2 billion at the end of 2015.
Financial performance
Our 2016 financial performance was strong, benefitting in particular
from a favourable second half. Total funds under management in our
Investment Management business at 31 December 2016 were GBP30.2 billion,
up 15.7% from GBP26.1 billion in 2015, whilst our Unit Trusts business
also reached a new high of GBP4.0 billion, up 29.0% in the year.
Fee income of GBP184.8 million increased 14.5% year on year (2015:
GBP161.4 million), reflecting both the rising markets and our continued
growth. Fee and advisory income improved to 79.9% of underlying
operating income, up from 76.5% a year ago as more clients adopt our fee
only tariff. Whilst trading volumes were lacklustre in the first half of
the year, commission income recovered in the second half, ending the
year at GBP38.9 million (2015: GBP43.1 million). Net interest income of
GBP11.6 million increased by 7.4% as deposit balances increased over the
course of the year.
Our underlying operating expenses increased to GBP176.4 million
reflecting both the growth in the business and the GBP6.0 million costs
of planned strategic initiatives. Fixed staff costs of GBP79.8 million
increased 8.6% reflecting both inflation and an 8.7% growth in average
headcount to 1,066 (2015: 981), partially offset by a GBP0.7 million
reduction in pension costs. Headcount now includes all 27 full time
equivalent employees of Vision following the acquisition on 31 December
2015. Variable staff costs of GBP45.0 million increased 13.4% in line
with continued growth and increased profitability and represented 37.5%
of underlying profit before tax and variable staff costs (2015: 36.1%).
Underlying profit before tax for the year increased to GBP74.9 million,
up 6.4% from GBP70.4 million in 2015, having absorbed GBP6.0 million of
strategic expenditure we planned for and announced at the start of 2016.
Managing the balance between investment in the future and ongoing
profitability is a key management discipline, evidenced this year by an
underlying operating margin of 29.8% (2015: 30.7%), well within the
parameters we set at the beginning of the year.
Profit before tax decreased 14.5% to GBP50.1 million (2015: GBP58.6
million) reflecting the full impact of the acquisition and head office
relocation costs.
Our balance sheet remains strong with a consolidated Common Equity Tier
1 ratio at 31 December 2016 (including verified profits for the year) at
17.7% compared with 15.4% at 31 December 2015. Our consolidated leverage
ratio (including audited profits for the year) at 31 December 2016 was
6.6% compared with 7.7% at 31 December 2015.
Pension scheme and share placing
During the first nine months of 2016, we witnessed a fall in the yield
on long term corporate bonds to historic lows. These yields are a key
metric in determining the discount rate applied in valuing the future
pension fund obligations of our two legacy defined benefit schemes
covering approximately 200 current employees. As with many other
companies, this had a material impact on the value of retirement benefit
obligations, causing the pension deficit to reach GBP58.3 million by 30
September 2016, a substantial increase on the previously manageable
level at 31 December 2015 of GBP4.5 million.
In the face of such unprecedented market conditions, and the prospect of
unaffordable rises in future service cost, we concluded to consult with
members to cap pensionable salaries, and close the schemes to future
accrual. Following a constructive dialogue with trustees and employees,
we now expect to implement these measures with effect from 1 July 2017.
In October 2016, we estimated that these measures would generate an
increase of up to GBP20 million in our regulatory capital requirement.
We therefore undertook a 4.6% share placing, raising GBP36.9 million net
of placement costs to enable us to pursue the proposed measures. Current
estimates continue to support this rationale.
It is important to note that these funds continue to be retained on our
balance sheet and could be available for more accretive corporate
initiatives should the financial position of the pension scheme
normalise for a sustained period. At 31 December 2016, the pension
deficit reduced to GBP39.5 million.
Building for the future
In 2014, we embarked on a comprehensive 5 year strategic plan. From a
starting point at 1 January 2014 of FUM GBP22.0 billion, our projections
demonstrated that the strategy, inclusive of acquisitions and moderate
market growth, could achieve GBP40.0 billion by 31 December 2018 and
included an ambition to achieve a sustained net organic growth rate of
5.0% per annum derived from:
-- Improved organisation and management discipline driving organic growth;
-- Development of the core investment process and research capability;
-- Investment in core IT infrastructure and operational efficiency and;
-- New strategic growth initiatives
In spite of some notable events and periods of considerable market
volatility in the three years of this strategic plan, we have only seen
moderate market movements. Overall therefore, we have made reasonable
progress so far with growth evident from a number of sources.
In the context of a year of continuing political and economic
uncertainty, the annualised net organic growth rate for our core
Investment Management segment of 2.9% (2015: 3.0%) was satisfactory,
albeit short of our strategic objective of 5.0%. We continue to resource
investment teams as they seek to grow, and reduce administration. We
have also refreshed our incentive schemes as part of a package of
measures aimed at stimulating organic growth through the remaining two
years of the plan period. This effort will be enhanced by the insights
now available from our new management information system. We have also
continued to invest in developing our in-house financial planning
capability to support our existing clients and importantly, to further
strengthen our appeal to prospective clients. We anticipate run rate
costs will increase by c.GBP2 million as we widen financial planning
coverage across the firm, and add support costs.
We challenged our Charities business to double its funds under
management from a starting point of GBP2.7 billion during the plan
period. It was therefore pleasing to see continued momentum as the
business reached GBP4.1 billion (2015: GBP3.5 billion), in addition to
being awarded Charity Investment Manager of the Year for the fourth year
running by Citywealth. In tandem, our ethical investment business
Rathbone Greenbank continues to make good progress, now managing GBP863
million (2015: GBP760 million).
Our distribution strategy, focussed on promoting our discretionary
management services to professional intermediaries, principally national
and regional IFA networks, also continues to make good progress. We now
have twelve strategic relationships with networks and national advisory
firms across the UK. Our distribution team is spending considerable time
and effort in promoting our differentiated service to these partnerships
and we expect to see meaningful flows of c.GBP200 million over 2017
through this channel. To augment our full discretionary service for
intermediaries, we will be launching a new Managed Portfolio Service for
lower value clients of intermediary partnerships, being a centrally
managed execution only service based on our Rathbone Multi Asset
Portfolio funds.
Our strategic partnership with Vision forms an integral part of our
distribution strategy. After a deliberate period of consolidation in the
first half of the year, the business resumed its high growth rate in the
second half, ending the year with 99 appointed representatives (2015:
81) and funds under advice up 21.2% to GBP1.03 billion at 31 December
2016 (2015: GBP0.85 billion).
During 2016, we made progress in establishing Rathbones Private Office,
intending to provide an advisory service to clients with over GBP10
million of investable assets. The nucleus team is now in place and the
infrastructure fully operational. This includes our strategic
partnership with Credit Suisse, which provides us with a full
international private banking capability. Whilst run rate costs are
expected to increase by c.GBP1 million in 2017, we anticipate proving
the concept with our first clients joining us by mid-2017, targeting
c.GBP200 million of funds under management by the end of the year.
Reinforcing the quality of our discretionary investment management
service is crucial to the success of all these growth initiatives.
During the year, we continued to invest in our in-house research
capability by hiring additional analysts who are supported by continuing
input from our investment managers and unit trust fund managers. We have
also continued to improve our investment risk management framework and
frontline technology including a new research hub facilitating the
dissemination of research output to an expanding community of investment
managers and sharing of investment ideas. We were grateful to receive
recognition of our efforts in being awarded Investment Week's Gold
Standard Award for Discretionary Portfolio Management for the third year
in a row.
In contrast to the trend of net redemptions experienced across the
industry, our Unit Trusts business continues to demonstrate strong
growth with total net inflows of GBP554 million (2015: GBP371 million).
The business continues to exhibit strong operating leverage, with profit
margin increasing to 34.8% in the year (2015: 32.7%). Fund performance
remains strong and the business continues to play an integral role in
our overall investment strategy.
Alongside these strategic initiatives, we continue to be alert to
bolt-on acquisition opportunities and selective team hires. Inorganic
growth from new joiners has been higher than we originally anticipated
in our strategic plan with acquired funds in 2016 of GBP437 million
(2015: GBP675 million). We were particularly pleased to end the year
with our newest offices showing excellent growth with Newcastle growing
26.6% to GBP361 million and Glasgow 59.1% to GBP296 million, well ahead
of plan.
Developing our infrastructure
In August 2016, we made the senior appointment of a Chief Information
Officer charged with ensuring that planned investment in our technology
architecture and skills base is synchronised with business growth and
meets our digital strategy aspirations. This medium term programme will
focus on further improving our client experience, including installation
of a new client relationship management system during 2017, and strive
for greater operational efficiency in our support functions. We expect
IT related capital expenditure to increase by c.GBP1 million in 2017 as
a result, with operating expenditure upgrading our IT skills and
infrastructure adding approximately GBP2 million to the 2016 cost run
rate in 2017.
We have recently relocated our London head office to 8 Finsbury Circus,
a brand new yet elegant building in the City with excellent travel
links. This provides us with 75,000 sq ft, securing sufficient space to
accommodate our long term growth trajectory compared to our previous
44,000 sq ft in 1 Curzon Street. Subletting of 11,000 sq ft in Finsbury
Circus has progressed as planned, leaving us a sensible level of
remaining room for expansion. We very much look forward to welcoming our
clients and professional partners to our new London home.
Outlook
Despite the prospect of some volatile market conditions in 2017, we
intend to maintain the momentum in our strategic growth initiatives.
We continue to work to a target operating margin of approximately 30%.
However, this may be impacted in 2017 by the GBP5 million of additional
expenditure outlined above, which will be reviewed if we encounter a
prolonged market downturn during the year.
We continue to look for accretive acquisition opportunities that fit
with our culture and investment philosophy, and look forward with
cautious optimism.
Philip Howell, Chief Executive
22 February 2017
Our performance
Financial performance remained strong in 2016, benefitting from
continuing growth and more favourable market conditions particularly in
the second half of the year. Total funds under management increased
17.1% to GBP34.2 billion (2015: GBP29.2 billion).
Profit before tax of GBP50.1 million was down 14.5% on 2015, reflecting
the costs relating to the relocation of the London head office and the
acquisition of Vision Independent Financial Planning in 2015. On an
underlying basis, profit before tax increased by 6.4%. A full
reconciliation between underlying profit and profit attributable to
shareholders is provided in table 2.
Our underlying operating margin remained steady around the 30% mark,
despite additional planned expenditure. Underlying earnings per share
grew 4.4% to 122.1p and dividend per share grew 3.6% to 57p for the full
year.
Table 1. Group's overall performance
2016 2015
GBPm GBPm
Underlying operating income 251.3 229.2
Underlying operating expenses (176.4) (158.8)
Underlying profit before tax(1) 74.9 70.4
Underlying operating margin(2) 29.8% 30.7%
Profit before tax 50.1 58.6
Effective tax rate 23.8% 20.8%
Taxation (11.9) (12.2)
Profit after tax 38.2 46.4
Underlying earnings per share 122.1p 117.0p
Earnings per share 78.9p 97.4p
Dividend per share(3) 57p 55p
1 A reconciliation between underlying profit before tax and profit
before tax is shown in table 2
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 grew 9.6% in 2016, as higher investment
markets and continued organic and acquired growth led to higher levels
of fee income in all business areas.
Fee income continues to represent a greater proportion of our total
income as more fee only tariffs are applied to client accounts.
Commissions in the first half was abnormally low as market uncertainty
ahead of the referendum on EU membership led to a reduction in trading
activity generally.
Group underlying operating expenses
Growth in underlying operating expenses of 11.1% reflects continuing
investment in strategic initiatives as well as underlying growth in the
business.
Total fixed staff costs increased by 8.6% to GBP79.8 million in 2016,
reflecting growth in average full time equivalent headcount of 8.7% to
1,066 (2015: 981) and salary inflation. Salary growth was partially
offset, however, by a GBP0.7 million reduction in pension costs,
principally reflecting the impact of employees who chose to transfer out
of the defined benefit schemes.
Total variable staff costs increased by 13.4% to GBP45.0 million,
principally driven by growth in profits and funds under management.
Variable staff costs in 2016 represented 17.9% of underlying operating
income (2015: 17.3%) and 37.5% of underlying profit before variable
staff costs and tax (2015: 36.1%).
Underlying operating expenses also included GBP4.0 million (2015: GBP3.3
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).
Outlook for expenditure
Staff costs in 2017 will reflect the full year impact of hiring activity
in 2016 in addition to salary inflation of around 3%. Following the
completion of a review of remuneration schemes for investment management
staff in 2016, we are implementing changes in 2017 which will provide
additional performance-based incentives for investment managers.
In 2017, we also expect to continue to grow the Rathbones Private Office,
strengthen our financial planning and research capability, and upgrade
our IT skills and infrastructure. The above investments are expected to
add c.GBP5 million to underlying operating expenses in 2017; absent a
prolonged market downturn, which would cause us to review such
expenditure.
In addition, run rate costs for our London office are expected to rise
by c.GBP1 million in 2017. Although in 2018, the annual cost will be
broadly the same as we would have been paying for our former premises.
Other anticipated costs associated with the relocation of the new London
head office are described in the sections below.
Capital expenditure
As planned, capital expenditure increased by GBP9.2 million to GBP15.1
million in 2016. Capital expenditure of GBP9.9 million arose from the
fit out of the new London head office at 8 Finsbury Circus. Further
capital expenditure of GBP4.3 million is expected to be incurred in 2017
to complete the fit out of the new London premises.
Group 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 our results on a statutory basis only. These measures are
widely used by research analysts covering the group. Underlying results
exclude income and expenditure falling into the three categories
explained below.
Underlying profit before tax grew by 6.4% to GBP74.9 million in 2016.
The underlying operating margin, which is calculated as the ratio of
underlying profit before tax to underlying operating income, was 29.8%
for the year; in line with our target of 30% over the cycle (2015:
30.7%). Profit before tax decreased by 14.5% to GBP50.1 million for the
year, down from GBP58.6 million in 2015.
Table 2. Reconciliation of underlying profit before tax to profit before
tax
2016 2015
GBPm GBPm
Underlying profit before tax 74.9 70.4
Charges in relation to client relationships and goodwill (11.8) (11.0)
Head office relocation costs (7.0) (0.4)
Acquisition-related costs (6.0) (0.4)
Profit before tax 50.1 58.6
Charges in relation to client relationships and goodwill
Client relationship intangible assets are created when we acquire a
business or a team of investment managers. The charges associated with
these assets represent a significant non-cash item and they have,
therefore, been excluded from underlying profit, which represents
largely cash-based earnings more directly relating to the reporting
period. Charges for amortisation of client relationship intangibles in
the year ended 31 December 2016 were GBP11.8 million (2015: GBP11.0
million), reflecting historic acquisitions.
Head office relocation costs
On 13 May 2016, we entered into a series of five 17-year leases on
office space at 8 Finsbury Circus and moved our London head office to
the new premises during February 2017. Charges incurred in relation to
the double running of both London premises and the relocation amounted
to GBP7.0 million in 2016 (2015: GBP0.4 million). This amount largely
represents the accounting charge for rent on the new premises during the
fit out period, and additional depreciation charges writing off the
value of fixtures and fittings in the 1 Curzon Street office which are
now at the end of their useful life. This charge is GBP2.5 million below
the GBP9.5 million announced in February 2016 following a favourable
assessment of business rates and a later than expected handover of the
new premises.
A non-cash charge of GBP10.0 million was recognised on 13 February 2017,
when the Curzon Street premises were vacated. Prior to the vacation of
these premises, 2017 accounting charges for double running costs and
accelerated depreciation totalled GBP1.5 million.
Acquisition related costs
Costs of GBP6.0 million were incurred in relation to the acquisitions of
Vision Independent Financial Planning Limited ('Vision') and Castle
Investment Solutions Limited ('Castle'), which were completed on 31
December 2015. These include the cost of payments to vendors of the
business who remain in employment with the group, as required by
accounting standards. The corresponding charge of GBP0.4 million in 2015
includes the impact of fair value adjustments for our 19.9% holding in
the companies prior to the acquisition, the write off of the related
options and associated professional fees.
Other deferred payments to vendors who remain in employment of GBP5.5
million are being charged to profit or loss on a straight line basis
over the deferral period, ending in 2019.
Taxation
The corporation tax charge for 2016 was GBP11.9 million (2015: GBP12.2
million), and represents an effective tax rate of 23.8% (2015: 20.8%). A
full reconciliation of the income tax expense is provided in note 4.
The Finance Bill 2015 introduced a banking surcharge, which adds 8% to
the effective tax rate for banks exceeding certain thresholds relating
to the scale of banking operations. However, the measures incorporated
in the final version of the 2015 Finance Bill mean that as long as the
accepting of deposits remains ancillary to our asset management
activities, we will be exempt from the tax surcharge. We have confirmed
with HMRC that we remain below the relevant thresholds for 2016.
The Finance Bill 2016, which included provisions for the UK corporation
tax rate to be reduced to 17% in April 2020, from 19% in April 2017,
gained royal assent on 15 September 2016. Deferred tax balances have
therefore been calculated based on these reduced rates where timing
differences are forecast to unwind in future years.
Basic earnings per share
Basic earnings per share for the year ended 31 December 2016 were 78.9p
compared to 97.4p in 2015. This reflects the full impact of planned
non-underlying charges and the placing of 2.2 million shares during
2016. On an underlying basis, earnings per share increased by 4.4% to
122.1p in 2016 (see note 6).
Dividends
In light of the results for the year, the board has proposed a final
dividend for 2016 of 36p. This results in a full year dividend of 57p,
an increase of 2p on 2015 (3.6%). The proposed dividend is covered 1.4
times by basic earnings and 2.1 times by underlying earnings.
Segmental review
The group is managed through two key operating segments, Investment
Management and Unit Trusts.
Investment Management
The financial performance of Investment Management is largely driven by
revenue margins earned from 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
client loans.
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
2016 2015
Funds under management at 31 December(1) GBP30.2bn GBP26.1bn
Underlying rate of net organic growth in Investment
Management funds under management(1) 2.9% 3.0%
Underlying rate of total net growth in Investment
Management funds under management(1) 4.5% 5.7%
Average net operating basis point return(2) 74.2 bps 76.2 bps
Number of Investment Management clients 48,000 47,000
Number of investment managers 273 260
1 See table 4
2 See table 7
During 2016, Investment Management has continued to attract new clients
both organically and through acquisitions. The total number of clients
(or groups of closely related clients) increased from 47,000 in 2015 to
approximately 48,000 during the year. During 2016, the total number of
investment managers increased to 273 at 31 December 2016 from 260 at the
end of 2015.
Funds under management
Investment Management funds under management increased by 15.7% to
GBP30.2 billion at 31 December 2016 from GBP26.1 billion at the start of
the year. This increase is analysed in table 4, below.
Table 4. Investment Management - funds under management
2016 2015
GBPbn GBPbn
As at 1 January 26.1 24.7
Inflows 2.7 3.0
- organic(1) 2.3 2.3
- acquired(2) 0.4 0.7
Outflows(1) (1.5) (1.6)
Market adjustment(3) 2.9 -
As at 31 December 30.2 26.1
Net organic new business(4) 0.8 0.7
Underlying rate of net organic growth(5) 2.9% 3.0%
Underlying rate of total net growth(6) 4.5% 5.7%
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 percentage of opening funds under
management
6 Net organic new business and acquired inflows as a percentage of
opening funds under management
In the context of a year of continuing political and economic
uncertainty, our annualised net organic growth rate for our core
Investment Management segment of 2.9% (2015: 3.0%) was a sound
performance albeit short of our strategic objective of 5.0%.
Charity funds under management continued to grow strongly and reached
GBP4.1 billion at 31 December 2016, up 17.1% from GBP3.5 billion at the
start of the year. The most recent Charity Finance survey ranked the
group within the top five largest charity investment managers in the UK
by funds under management as at 30 June 2016.
We retained our 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
2016, ending the year at GBP6.7 billion.
In total, net organic and acquired growth added GBP1.2 billion to
Investment Management funds under management in 2016 (2015: GBP1.4
billion), representing an underlying rate of total net growth of 4.5%
(2015: 5.7%).
At 31 December 2016, Vision advised on client assets of GBP1.03 billion
up 21.2% from 2015.
Average investment returns across all Investment Management clients were
positive, albeit some 2% lower than the FTSE WMA Balanced Index. This
was due in large part to the impact of Brexit on gilt rates where the
WMA weighting is typically higher than ours. Currency effects in the
second half of the year also impacted our generally underweight holding
in overseas equities, particularly in the US. Overall performance
against other competitor indices, such as the Private Client Indices
published by ARC, was robust.
Financial performance
Table 5. Investment Management - financial performance
2016 2015
GBPm GBPm
Net investment management fee income(1) 163.3 143.8
Net commission income 38.9 43.1
Net interest income(2) 11.6 10.8
Fees from advisory services(3) and other income 12.5 11.3
Underlying operating income 226.3 209.0
Underlying operating expenses(4) (160.1) (145.2)
Underlying profit before tax 66.2 63.8
Underlying operating margin(5) 29.3% 30.5%
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;
excludes interest on own reserves and interest payable on Tier 2 loan
notes issued
3 Fees from advisory services includes income from trust, tax and
financial planning services
4 See table 8
5 Underlying profit before tax as a percentage of underlying
operating income
Investment Management income is derived from:
-- a tiered scale of investment management or advisory fees, which are
applied on our charging dates based on the value of clients' funds under
management;
-- commissions, which are levied on transactions undertaken on behalf of
clients who are not on a fee only tariff; and
-- an interest margin earned on the cash held in clients' portfolios and on
loans to clients.
Net investment management fee income increased by 13.6% to GBP163.3
million in 2016, benefiting from a full year of fees from clients on the
new fee-only tariff and growth in funds under management. Fees are
applied to the value of funds on quarterly charging dates. Average funds
under management on these billing dates in 2016 were GBP28.2 billion, up
9.7% from 2015 (see table 6).
Table 6. Investment Management - average funds under management
2016 2015
GBPbn GBPbn
Valuation dates for billing:
- 5 April 26.1 26.1
- 30 June 27.3 25.6
- 30 September 29.3 24.8
- 31 December 30.2 26.1
Average 28.2 25.7
Average FTSE 100 level(1) 6659 6415
1 Based on the corresponding valuation dates for billing
In 2016, net commission income of GBP38.9 million was down 9.7% on
GBP43.1 million in 2015. This was primarily due to market sentiment,
particularly in the first half of the year as uncertainty ahead of the
referendum on membership of the EU reduced investment activity more
generally. The fee tariff changes in 2015 also reduced commission income
as new clients pay a clean fee only.
Net interest income of GBP11.6 million in 2016 was 7.4% above the
GBP10.8 million in 2015 as the balance of cash in client portfolios
increased over the course of the year. Cash held at the Bank of England
grew from GBP583.2 million at 31 December 2015 to GBP1.08 billion at the
end of 2016. The Investment Management loan book contributed GBP3.0
million to net interest income in 2016 (2015: GBP2.9 million). Included
in net interest income is GBP1.3 million (2015: GBP0.5 million) of
interest payable on the Tier 2 notes issued in August 2015.
The average net operating basis point return on funds under management
has fallen by 2bps to 74.2bps in 2016, reflecting both lower commission
levels in the first half, and lower interest margins.
Table 7. Investment Management - revenue margin
2016 2015
bps bps
Basis point return(1) from:
- fee income 57.9 56.0
- commission 13.8 16.8
- interest 2.5 3.4
Basis point return on funds under management 74.2 76.2
1 Underlying operating income (see table 5), excluding interest on
own reserves, interest payable on Tier 2 notes issued, fees from
advisory services and other income, divided by the average funds under
management on the quarterly billing dates (see table 6)
Underlying operating expenses in Investment Management for 2016 were
GBP160.1 million, compared to GBP145.2 million in 2015, an increase of
10.3%. This is highlighted in table 8 below.
Table 8. Investment Management - underlying operating expenses
2016 2015
GBPm GBPm
Staff costs(1)
- fixed 57.6 51.3
- variable 32.4 29.4
Total staff costs 90.0 80.7
Other operating expenses 70.1 64.5
Underlying operating expenses 160.1 145.2
Underlying cost/income ratio(2) 70.7% 69.5%
1 Represents the costs of investment managers and teams directly
involved in client-facing activities
2 Underlying operating expenses as a percentage of underlying
operating income (see table 5)
Fixed staff costs of GBP57.6 million increased by 12.3% year-on-year,
principally reflecting a 10.6% increase in average headcount; partially
offset by a reduction in the accounting charge for pension costs as a
number of high earners transferred out of the scheme following the
changes to personal taxation of pensions in 2015. Variable staff costs
are also higher, reflecting higher underlying profitability and growth
in funds under management.
Other operating expenses of GBP70.1 million include property,
depreciation, settlement, IT, finance and other central support services
costs. The year-to-year increase of GBP5.6 million (8.7%) reflects
increased investment in the business, recruitment and higher variable
awards in line with business performance.
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
2016 2015
Funds under management at 31 December(1) GBP4.0bn GBP3.1bn
Underlying rate of net growth in Unit Trusts funds
under management(1) 18.0% 14.7%
Underlying profit before tax(2) GBP8.7m GBP6.6m
1 See table 10
2 See table 12
Funds under management
Net retail sales in the asset management industry of GBP4.7 billion were
down GBP12.1 billion (72%) on 2015, as reported by the Investment
Association (IA). The IA cited the impact of extraordinary geopolitical
challenges on investor confidence during the year as the principal
reason for the fall; although sales growth recovered towards the end of
2016. The post-referendum rally also helped industry funds under
management to end the year at GBP1,045 billion, up 12.6% on the end of
2015.
In contrast to the general industry picture, positive momentum in sales
of our funds continued through 2016, particularly in the second half of
the year. Gross sales in 2016 totalled over GBP1.3 billion (2015: GBP0.9
billion); although sales slowed slightly into the year end and this has
continued into early 2017. Redemptions also remained elevated in 2016 at
GBP0.7 billion (2015: GBP0.5 billion), reflecting the increased levels
of disinvestment seen across the industry.
Net inflows of GBP0.6 billion (2015: GBP0.4 billion) continued to be
spread across the range of funds, with the Income, Global Opportunities
and Ethical Bond funds seeing particularly strong net flows in the year.
As a result, Unit Trusts funds under management closed the year up 29.0%
at GBP4.0 billion (see table 10).
In May 2016, we launched a range of Luxembourg-based feeder funds for
our Multi Asset, Income and Ethical Bond funds. These funds also
contributed strongly to growth, particularly in the Strategic Growth and
Total Return multi asset portfolios and the Ethical Bond fund. At 31
December 2016, we had GBP219 million under management in the feeder
funds.
Table 10. Unit Trusts - funds under management
2016 2015
GBPbn GBPbn
As at 1 January 3.1 2.5
Net inflows 0.6 0.4
- inflows(1) 1.3 0.9
- outflows(1) (0.7) (0.5)
Market adjustments(2) 0.3 0.2
As at 31 December 4.0 3.1
Underlying rate of net growth(3) 18.0% 14.7%
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
The short term performance of the funds during 2016 was impacted by the
volatile markets. All funds were relatively defensively positioned
during the year, taking a more pessimistic view of market prospects post
Brexit and the US elections, which reflects the funds' longer term
investment horizon. Consequently, the funds underperformed their peer
group during the reflation rally following the US election which saw
banks and cyclical stocks drive the market higher; both areas in which
our funds are underweight due to concerns about the global outlook for
2017. Despite this, the range of funds maintained their strong long term
performance track record, which is critical to sales momentum.
Table 11. Unit Trusts - fund performance
2016/(2015) Quartile ranking(1) over: 1 year 3 years 5 years
Rathbone Blue Chip Income and Growth Fund 3 (1) 2 (2) 2 (2)
Rathbone Ethical Bond Fund 4 (1) 2 (1) 1 (1)
Rathbone Global Opportunities Fund 4 (1) 2 (1) 1 (1)
Rathbone Income Fund 3 (1) 1 (1) 2 (1)
Rathbone Recovery Fund 3 (1) 3 (1) 2 (2)
Rathbone Strategic Bond Fund(2) 2 (2) 2 (2) 3 (n/a)
1 Ranking of institutional share classes at 31 December 2016 and
2015 against other funds in the same IA sector
2 The Rathbone Strategic Bond Fund was launched on 3 October 2011
Investors continued to switch from retail to institutional units across
all of our funds during the year. Institutional units carry a lower
annual management charge (typically half that of retail units) but do
not allow for any form of trail commission. By 31 December 2016 some 85%
of holdings in Unit Trusts' retail funds were in institutional units (31
December 2015: 76%).
During 2016, the total number of investment professionals in Unit Trusts
increased to 14 at 31 December 2016 from 13 at the end of 2015.
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
intra-day sales and redemptions of units and market movements on the very
small stock of units that are held on our books overnight.
Table 12. Unit Trusts - financial performance
2016 2015
GBPm GBPm
Net annual management charges 21.5 17.6
Net dealing profits 3.1 2.2
Interest and other income 0.4 0.4
Underlying operating income 25.0 20.2
Underlying operating expenses(1) (16.3) (13.6)
Underlying profit before tax 8.7 6.6
Underlying operating margin(2) 34.8% 32.7%
1 See table 13
2 Underlying profit before tax divided by underlying operating
income
Net annual management charges increased 22.2% to GBP21.5 million in
2016, driven principally by the rise in average funds under management.
Net annual management charges as a percentage of average funds under
management fell marginally to 62 bps (2015: 63 bps).
Net dealing profits of GBP3.1 million increased by 40.9% on GBP2.2
million in 2015 due to a higher level of both gross sales and
redemptions throughout the year. Underlying operating income as a
percentage of average funds under management remained steady at 72 bps
in 2016.
Table 13. Unit Trusts - underlying operating expenses
2016 2015
GBPm GBPm
Staff costs:
- fixed 3.0 3.0
- variable 5.3 3.8
Total staff costs 8.3 6.8
Other operating expenses 8.0 6.8
Underlying operating expenses 16.3 13.6
Underlying cost/income ratio(1) 65.2% 67.3%
1 Underlying operating expenses as a % of underlying operating
income (see table 12)
Fixed staff costs of GBP3.0 million for the year ended 31 December 2016
were unchanged from the GBP3.0 million recorded in 2015.
Variable staff costs of GBP5.3 million were 39.5% higher than GBP3.8
million in 2015 as higher profitability and growth in gross sales drove
increases in profit share and sales commissions.
Other operating expenses have increased by 17.6% to GBP8.0 million,
reflecting an increase in third party administration costs in line with
growth in the business, and higher inter-segment charges as noted above.
Financial position
Table 14. Group's financial position
2016 2015*
GBPm GBPm
(unless stated) (unless stated)
Capital resources:
- Common Equity Tier 1 ratio(1) 17.7% 15.4%
- Total Own Funds ratio(2) 19.5% 17.2%
- Total equity 324.8 300.2
- Tier 2 subordinated loan notes 19.6 19.5
- Risk weighted assets 892.7 840.8
- Return on assets(3) 1.8% 2.6%
- Leverage ratio(4) 6.6% 7.7%
Other resources:
- Total assets 2,404.0 1,833.9
- Treasury assets(5) 1,995.2 1,453.2
- Investment management loan book(6) 106.3 111.8
- Intangible assets from acquired
growth(7) 160.7 164.5
- Tangible assets and software(8) 23.1 17.0
Liabilities:
- Due to customers(9) 1,888.9 1,402.9
- Net defined benefit liability 39.5 4.5
* Restated for measurement period adjustment in respect of business
combinations (see note 1)
1 Common Equity Tier 1 capital as a proportion of total risk exposure
amount
2 Total own funds (see table 15) as a proportion of total risk exposure
amount
3 Profit after tax divided by average total assets
4 Common Equity Tier 1 capital as a percentage of total assets,
excluding intangible assets, plus certain off balance sheet exposures
5 Balances with central banks, loans and advances to banks and
investment securities
6 Net book value of acquired client relationships and goodwill
7 Net book value of property, plant and equipment and computer software
8 Total amounts of cash in client portfolios held by Rathbone Investment
Management as a bank
Regulatory own funds
Rathbones is classified as a banking group for regulatory capital
purposes and are therefore required to operate within the restrictions
on capital resources and banking exposures prescribed by the Capital
Requirements Regulation, as applied in the UK by the Prudential
Regulation Authority (PRA).
At 31 December 2016, the group's regulatory capital resources (including
verified profits for the year) were GBP174.2 million (2015: GBP144.3
million).
Table 15. Regulatory capital resources
2016 2015*
GBPm GBPm
Share capital and share premium 142.5 100.1
Reserves 188.5 206.3
Less:
- Own shares (6.2) (6.2)
- Intangible assets(1) (166.4) (170.5)
Total Common Equity Tier 1 capital resources 158.4 129.7
Tier 2 capital resources 15.8 14.6
Total own funds 174.2 144.3
* Restated for measurement period adjustment in respect of business
combination (see note 1)
1 Net book value of goodwill, client relationship intangibles and
software are deducted directly from capital resources
Common Equity Tier 1 capital (CET1) resources increased by GBP28.7
million during 2016, largely due to the issue of 2.2 million shares on
20 October 2016 which raised net proceeds of GBP36.9 million. Verified
profits for the 2016 financial year, net of dividend, were more than
offset by post-tax actuarial losses of GBP31.4 million arising from the
remeasurement of defined benefit pension schemes, reflecting
historically low long term corporate bond yields.
Our consolidated CET1 ratio is higher than the banking industry norm.
This reflects the low-risk nature of our banking activity. The CET1
ratio has grown to 17.7% from 15.4% at the previous year end mainly due
to the impact of the share placing, partially offset by the growth in
the pension deficit.
The leverage ratio was 6.6% at 31 December 2016, down from 7.7% at 31
December 2015. The leverage ratio represents our CET1 capital as a
percentage of our total assets, excluding intangible assets, plus
certain off balance sheet exposures.
The business is primarily funded by equity, supported by GBP20 million
of 10-year Tier 2 subordinated loan notes. The notes introduce some
gearing into our balance sheet as a way of financing future growth in a
cost-effective and capital-efficient manner. They are repayable in
August 2025, with a call option for the issuer in August 2020 and
annually thereafter. Interest is payable at a fixed rate of 5.856% until
the first call option date and at a fixed margin of 4.375% over 6-month
LIBOR thereafter.
The consolidated balance sheet remains healthy with total equity of
GBP324.8 million at 31 December 2016, up 8.2% from GBP300.2 million at
the end of 2015, primarily reflecting the impact of the share issue,
offset by a deterioration in the reported position of our defined
benefit pension schemes.
Own funds requirement
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
we need 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.
We are required to hold capital to cover a range of own funds
requirements, classified as Pillar 1 and Pillar 2.
Pillar 1 - minimum requirement for capital
Pillar 1 focuses on the determination of risk-weighted assets and
expected losses in respect of the group's exposure to credit,
counterparty credit, market and operational risks and sets a minimum
requirement for capital.
At 31 December 2016 the group's risk weighted assets were GBP892,650,000
(2015 (restated - note 1): GBP840,800,000).
Pillar 2 - Supervisory review process
Pillar 2 supplements the Pillar 1 minimum requirement with a firm
specific Individual Capital Guidance (Pillar 2A) and a framework of
regulatory capital buffers (Pillar 2B).
The Pillar 2A own funds requirement is set by the PRA to reflect those
risks, specific to the firm, which are not fully captured under the
Pillar 1 own funds requirement.
Pension obligation risk
The potential for additional unplanned costs that the group would incur
in the event of a significant deterioration in the funding position of
the group's defined benefit pension schemes. The full impact on Pillar 2
capital of the member consultation process currently underway and the
triennial review of the funding position of the scheme will be assessed
in 2017. When plans to begin a member consultation to close the scheme
were announced in October 2016, it was expected that this could add
c.GBP20 million to our capital requirement at that time.
Interest rate risk in the banking book
The potential losses in the non-trading book resulting from interest
rate changes or widening of the spread between Bank base rates and LIBOR
rates.
Concentration risk
Greater loss volatility arising from a higher level of loan default
correlation than is assumed by the Pillar 1 assessment.
The group is also required to maintain a number of Pillar 2B regulatory
capital buffers, all of which must be met with CET1 capital.
Capital conservation buffer (CCB)
The CCB is a general buffer of 2.5% of risk-weighted assets designed to
provide for losses in the event of a stress and is being phased in from
1 January 2016 to 1 January 2019. As at 31 December 2016, the buffer
rate was 0.625% of risk-weighted assets. On 1 January 2017, it increased
to 1.25% of risk-weighted assets.
Countercyclical capital buffer (CCyB)
The CCyB is time-varying and is designed to act as an incentive for
banks to constrain credit growth in times of heightened systemic risk.
The amount of the buffer is determined by reference to rates set by the
FPC for individual countries where the group has credit risk exposures.
The buffer rate is currently set at zero for the UK, however non-zero
rates for Norway, Sweden and Hong Kong, where the group has small
relevant credit risk exposures, results in an overall rate of 0.04% of
risk weighted assets for the group as at 31 December 2016. The FPC has
announced that it expects to maintain a rate of 0% for the UK until at
least June 2017.
PRA buffer
The PRA also determines whether any incremental firm-specific buffer is
required, in addition to the CCB and the CCyB. The PRA requires any such
buffer to remain confidential between the group and the PRA.
The group's own funds requirements were as follows.
Table 16. Group own funds requirement
2016 2015*
GBPm GBPm
Credit risk requirement 36.9 36.5
Market risk requirement 0.4 0.3
Operational risk requirement 34.2 30.4
Pillar 1 own funds requirement 71.5 67.2
Pillar 2A own funds requirement 27.9 26.8
Total Pillar 1 & 2A own funds requirements 99.4 94.0
* Restated for measurement period adjustment in respect of business
combination (see note 1)
As at 31 December 2016, the surplus of own funds over total Pillar 1 and
2A own funds requirements was GBP74.8 million, up from GBP50.3 million
at the end of 2015.
In managing the group's regulatory capital position over the next few
years, we will continue to be mindful of:
-- future volatility in pension scheme valuations which affect both the
level of CET1 own funds and the value of the Pillar 2A buffer for pension
risk
-- the staged introduction of incremental CRD IV buffers over the next three
years
-- regulatory developments
-- the demands of future acquisitions which generate intangible assets and,
therefore, directly reduce CET1 resources
We keep these issues under constant review to ensure that any necessary
capital raising activities are carried out in a planned and controlled
manner.
The group's Pillar 3 disclosures are published annually on our website
(www.rathbones.com/investor-relations/results-and-presentations) and
provide further details about regulatory capital resources and
requirements.
Total assets
Total assets at 31 December 2016 were GBP2,404.0 million (2015:
GBP1,833.9 million), of which GBP1,888.9 million (2015: GBP1,402.9
million) represents the cash element of client portfolios that is held
as a banking deposit.
Treasury assets
As a licensed deposit taker, Rathbone Investment Management holds our
surplus liquidity on its balance sheet together with clients' cash. Cash
in client portfolios as held on a banking basis of GBP1,888.9 million
(2015: GBP1,402.9 million) represented 6.3% of total investment
management funds at 31 December 2016 compared to 5.5% at the end of
2015. Cash held in client money accounts was GBP4.5 million (2015:
GBP4.5 million).
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. It invests in a range of
securities issued by a relatively large number of counterparties. These
counterparties must be single '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
GBP1,075.7 million from GBP583.2 million at 31 December 2015, reflecting
the marked increase in the level of cash held in client portfolios over
the period.
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 our nominee
name, requiring two times cover, and are usually advanced for up to one
year. In addition, 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
review by the banking committee. Our ability to provide such loans is a
valuable additional service, for example, to clients that require
bridging finance when moving home.
Loans advanced totalled GBP106.3 million at the end of 2016 (2015:
GBP111.8 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 2016, the total carrying value of intangible assets arising
from acquired growth was GBP160.7 million (2015: GBP164.5 million).
During the year, client relationship intangible assets of GBP7.9 million
were capitalised (2015: GBP15.8 million, including GBP4.5 million
relating to the acquisition of Vision and Castle). No goodwill was
acquired during 2016 (2015: GBP5.9 million).
Client relationship intangibles are amortised over the estimated life of
the client relationship, generally a period of 10 to 15 years. When
client relationships are lost, any related intangible asset is
derecognised in the year. The total amortisation charge for client
relationships in 2016, including the impact of any lost relationships,
was GBP11.7 million (2015: GBP10.7 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 GBP0.1 million was
recognised in relation to this element of goodwill (2015: GBP0.3
million).
Capital expenditure
During 2016, we have continued to invest for future growth with
capitalised expenditure on our premises and systems totalling GBP15.1
million (2015: GBP5.9 million). As noted above, capital expenditure in
2016 included GBP9.9 million for the fit out of the new London head
office and further costs will be incurred into 2017.
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. In 2017
we plan to install a new client relationship management system.
Excluding the London office fit out costs, new investment accounted for
approximately 67% of capital expenditure in 2016, 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.
Defined benefit pension schemes
We operate two defined benefit pension schemes, both of which have been
closed to new members for several years.
The accounting valuation is largely driven by the discount rate used to
value the schemes' liabilities, which is derived from the yield on
highly rated sterling corporate bonds. Following the referendum on EU
independence in June, sterling bond yields fell rapidly, which resulted
in a material increase in the accounting deficit on the pension schemes
and, at 30 September 2016, the combined deficit stood at GBP58.3 million,
up from GBP4.5 million at 31 December 2015.
As a result of the increased volatility in the schemes following the
referendum, we commenced a consultation with members of the defined
benefit pension scheme with a view to closing the schemes. The
consultation period ended on 31 January 2017 and the decision was taken
to close the scheme to future accrual and break the link to final salary
with effect from 1 July 2017.
Since 30 September 2016, corporate bond yields have increased and the
combined deficit in the schemes at 31 December 2016 had fallen to
GBP39.5 million.
Triennial funding valuations form the basis of the annual contributions
that we make into the schemes. Funding valuations of the schemes were
last carried out as at 31 December 2013. As a result there have been no
changes to the level of regular contributions made to the schemes.
Funding valuations as at 31 December 2016 will be carried out during
2017.
Liquidity and cash flow
Table 17. Extracts from the consolidated statement of cash flows
2016 2015
GBPm GBPm
Cash and cash equivalents at the end of the year 1,263.1 703.6
Net cash inflows from operating activities 567.3 176.5
Net change in cash and cash equivalents 559.5 (132.2)
Fee income is largely collected directly from client portfolios and
expenses, by and large, are predictable; consequently we operate with a
modest amount of working capital. Larger cash flows are principally
generated from banking and treasury operations when investment managers
make asset allocation decisions about the amount of cash to be held in
client portfolios.
As a bank, we are 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 GBP1,075.7 million at 31 December
2016 (2015: GBP583.2 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. Consequently cash flows, as
reported in the financial statements, include the impact of capital
flows in treasury assets.
Net cash flows from operating activities include the effect of a
GBP486.0 million increase in banking client deposits (2015: GBP120.8
million increase) and a GBP16.8 million decrease in the component of
treasury assets placed in term deposits for more than three months
(2015: GBP5.6 million increase).
In addition, cash flows included a net inflow of GBP7.0 million from the
maturity of longer dated certificates of deposit (2015: GBP278.3 million
net outflow from purchase of longer dated certificates of deposit),
which is shown within investing activities in the consolidated statement
of cash flows.
The most significant non-operating cash flows during the year were as
follows:
-- inflow of GBP40.2 million from the issue of ordinary shares, including
the placing of 2.2 million shares on 20 October 2016 generating GBP36.9
million net of placement costs and the remainder from the issue of shares
to satisfy awards under share based incentive plans for employees;
-- outflows relating to the payment of dividends of GBP26.5 million (2015:
GBP25.8 million);
-- outflows relating to payments to acquire intangible assets (other than as
part of a business combination) of GBP14.0 million (2015: GBP20.3
million);
-- net outflow of GBP2.5 million for deferred consideration payments made
following the acquisition of Vision Independent Financial Planning and
Castle Investment Solutions; and
-- GBP12.2 million of capital expenditure on property, plant and equipment
(2015: GBP2.5 million).
Risk management
During 2016 we have continued to enhance the group's risk management
framework, through evolving our risk governance, risk processes and risk
infrastructure. We have reviewed and continued to strengthen our
operating model, infrastructure and resources for risk management to
further support our lines of defence model. We will continue to mature
and evolve our framework during 2017 to ensure it reflects emerging
challenges and our approach continues to focus on managing risk in a
consistent and appropriate manner across the group to protect our
stakeholders.
Risk culture
We believe that embedding an appropriate risk culture enhances the
effectiveness of risk management across the group. The board is
responsible for setting the right tone and encouraging characteristics
and behaviours which support a strong risk culture. As a result, the
consideration of risk is accepted as being part of everyone's day to day
responsibilities and activities. Risk management is linked to
performance and development, along with the group's remuneration and
reward schemes. The aim of this is to create an open and transparent
working environment encouraging employees to engage positively in risk
management and support the effective achievement of its strategic
objectives.
Three lines of defence
We adopt a three lines of defence model to support our risk management
framework. Under the framework, responsibility and accountability for
risk management are broken down as follows:
First line: Senior management and operational business units are
responsible for managing risks, by developing and maintaining effective
internal controls to mitigate risk.
Second line: The risk, compliance and anti-money laundering functions
maintain a level of independence from the first line. They are
responsible for providing oversight and challenge of the first line's
day to day management, monitoring and reporting of risks to both senior
management and governing bodies.
Third line: The internal audit function is responsible for providing an
independent assurance to both senior management and governing bodies as
to the effectiveness of the group's governance, risk management and
internal controls.
Risk appetite
We define risk appetite as both the amount and type of risk the group is
prepared to accept or retain in pursuit of our strategy. Our appetite is
subject to regular review to ensure it remains aligned to our strategic
goals. Within our risk appetite framework there are some overarching
parameters, alongside specific primary and secondary measures for each
risk category. At least annually the board, group executive committee
and group risk committee will formally review and approve the risk
appetite statement for the group and assess whether the firm has
operated in accordance with the stated risk appetite measures during the
year. Overall, and notwithstanding the expectations for business growth
and a strategic change programme for 2017, the board remains committed
to having a relatively low overall appetite for risk and to ensuring our
internal controls mitigate risk to within appropriate levels. The board
continues to recognise that the business is susceptible to fluctuations
in investment markets and will bear losses from financial and
operational risks from time-to-time, either as reductions in income or
increases in operating costs.
Identification and profiling of principal risks
Our risks are classified using a hierarchical approach. The highest
level (Level 1) identifies risks as financial, conduct or operational.
The next level (Level 2) contains 16 risk categories which are listed
below. Detailed risks (Level 3) are then identified as a subset of Level
2 risks and are captured and maintained within a group risk register,
which is the principal tool for monitoring risks. The classification
ensures a structured approach to identifying all known material risks to
the business and those emerging risks which may impact future
performance, and is regularly reviewed.
We review and monitor our risk exposures closely, considering the
potential impact and any management actions required to mitigate the
impact of emerging issues and future events. To ensure we identify and
manage our principal risks, regular reviews take place with risk owners,
senior management and business units across the group. The risk function
conducts these reviews and risk workshops during the year. A watch list
is maintained to record any current issues, threats, business
development and regulatory or legislative change which will or could
have the potential to impact the firm's current or future risk profile
and therefore may require active risk management, through process
changes or systems development. The group's risk profile, risk register
and watch list are regularly reviewed by the executive, senior
management, board and governance committees.
We assess 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 and overall risk
rating of high, medium, low or very low is then derived for the five
year period by taking into account an assessment of the internal control
environment or insurance mitigation.
Risk assessment process
As part of the risk management framework, the board and senior
management are actively involved in a continuous risk assessment
process. A regular review and risk assessment is conducted for the
board's 5 year strategic plan, supported by the annual Internal Capital
Adequacy Assessment Process (ICAAP) and Individual Liquidity Adequacy
Assessment (ILAA) work which assesses the principal risks facing the
group.
Activities undertaken in relation to ICAAP, ILAA and reverse stress
testing support the risk assessment process, and stress tests include
consideration of the impact of a number of severe but plausible events
that could impact the business. The work also takes account of the
availability and likely effectiveness of mitigating actions that could
be taken to avoid or reduce the impact or occurrence of the underlying
risks.
Day-to-day, our risk assessment process considers both the impact and
likelihood of risk events, which could materialise affecting the
delivery of strategic goals and annual business plans. A top-down and
bottom-up approach ensures that the risk assessment process is
challenged and reviewed on a regular basis. The board and senior
management receive regular reports and information from line management,
risk oversight functions and specific risk committees.
The group executive, group risk committee and other key risk focused
committees consider the risk assessments and provide challenge, which is
reported though the governance framework and ultimately considered by
the board.
Profile and mitigation of principal risks
There are 44 level 3 risks which form the basis of the group's risk
register, each of which is classified under one of the 16 Level 2 risk
categories.
Our 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 some changes to the 16 Level 2 risk
categories; however, the underlying risk profile and ratings for the
majority of Level 2 risks have remained consistent during 2016. The
following table summarises the most important changes to the risk
ratings.
Ref Risk Risk change Description of change
in 2016
D Pension Increase The schemes' valuation and funding deficit increased
materially due to corporate bond yield volatility
in the period. Actions were taken in October 2016
towards mitigating this exposure.
G Regulatory Increase Volume of regulation remains high together with continued
focus on conduct, remuneration and taxation across
the financial services industry.
K Data Increase Continued increase in the threat of cyber attack within
integrity the financial services sector.
and
security
Based upon the risk assessment processes identified above, the board
believes that the principal risks and uncertainties facing the group
have been identified and consider the impact of strategic change in the
year. The board remains vigilant to the risks associated with the
pension scheme deficit and the subletting of vacant office space in
London. Otherwise, the board continues to believe that the other key
risks to the business are operational risks that arise from growth, and
regulatory risks that may arise from continual changes to rules and
standards in our sector.
Our overall risk profile and control environment are described below.
The board receives assurance from first line senior management that the
systems of internal control are operating effectively, and from the
activities of the second line and third line that there are no material
control issues which would affect the board's view of its principal
risks and uncertainties.
In line with current guidance, we also include in the tables the
potential impacts (I) the firm might face and our assessment of the
likelihood (L) of each principal risk arising in the event it
materialises. These assessments take into account the controls in place
to mitigate the risks. However, as always the case, should a risk
materialise, a range of outcomes (both in scale and type) might be
experienced. This is particularly relevant for firms such as Rathbones
where the outcome of a risk event can be influenced by market conditions
as well as internal control factors.
We have used ratings of high, medium and low in this risk assessment. We
perceive high risk items as those which have the potential to impact the
delivery of strategic objectives, with medium and low rated items having
proportionately less impact on the firm. Likelihood is similarly based
on a qualitative assessment.
Emerging risks and threats
Emerging risks, including regulatory change, have the potential to
impact the group and its strategy. These risk factors are monitored
through our Watch List. During the year, the executive committee
continued to recognise a number of emerging risks and threats to the
financial services sector as a whole and our business. In addition to
the group's view that we can reasonably expect volatile market
conditions throughout 2017, emerging risks include, for example, cyber
threats, regulatory change and scenarios potentially arising from
geopolitical developments, including Brexit.
Financial risks
Residual
rating
Ref Level 2 risk I L How the risk arises Control environment
A Credit Low Low This risk can arise from placing funds with other - Banking committee oversight
The risk that one or more counterparties fail to fulfil banks and holding interest-bearing securities. There - Counterparty limits and credit reviews
contractual obligations, including stock settlement is also a limited level of lending to clients - Treasury policy and procedures
- Active monitoring of exposures
- Client loan policy and procedures
- Annual Individual Capital Adequacy Assessment Process
B Liquidity Low Low This risk can arise through day-to-day operations - Banking committee oversight
The risk of having insufficient financial resources in so far as a significant proportion of client funds - Daily treasury procedures, reconciliations and reporting
to meet obligations as they fall due, or that to secure could be withdrawn in a short time period and marketable to senior management
access to such resources would be at an excessive assets may not be realised in time and at the value - Cash flow forecasting
cost required - Contingency funding plan
- Annual Individual Liquidity Adequacy Assessment
(including stress testing)
C Market Low Low This risk can arise through two primary areas: the - Banking committee oversight
The risk that regulatory own funds will be adversely exposure to mismatch between repricing of the firm's - Documented policies and procedures
affected by changes in the level or volatility of own financial assets and liabilities and, to a lesser - Daily monitoring of interest rates, exchange rates,
interest rates, foreign currency exchange rates or extent, transactional foreign exchange risk maturity mismatch and extent of marketable assets
market prices - Robust application of policy and investment limits
D Pension High High This risk can arise through a sustained deficit between - Board, senior management and trustee oversight
The risk that funding our defined benefit pension the schemes' assets and liabilities. A number of factors - Monthly valuation estimates
schemes increases, or its valuation affects dividends, impact a deficit including increased life expectancy, - Triennial independent actuarial valuations
reserves and capital falling interest rates and falling equity prices - Investment policy
- Senior management review and defined management
actions
- Annual Individual Capital Adequacy Assessment Process
- Actions taken in October 2016 towards mitigating
this exposure
Conduct risks
Residual
rating
Ref Level 2 risk I L How the risk arises Control environment
E Business model Med Med This risk can arise from both strategic decisions - Board and executive oversight
The risk that the business model does not respond which fail to consider the current operating environment - A documented strategy
in an optimal manner to changing market conditions or can be influenced by external factors such as material - Annual business targets, subject to regular review
such that sustainable growth, market share or profitability changes in regulation, or legislation within the financial and challenge
is adversely affected services sector - Regular reviews of pricing structure
- Continued investment in the investment process,
service standards and marketing
- Trade body participation
- Regular competitor benchmarking and analysis
F Performance and advice Med Med This risk can arise through a failure to appropriately - Investment governance and structured committee oversight
The risk that clients receive inappropriate financial, understand the wealth management needs of our clients - Management oversight and segregated quality assurance
trust or investment advice, inadequate documentation and a failure to apply suitable advice or investment and performance teams
or unsuitable portfolios resulting in a failure to strategies, along with having inadequate tools and - Performance measurement and attribution analysis
meet clients' investment and/or other objectives or systems in place to support our client facing financial - Weekly investment management meetings
expectations professionals -Investment manager reviews through supervisor sampling
- Compliance monitoring
G Regulatory High Low This risk can arise from failures by the business - Board and executive oversight
The risk of failure by the group or a subsidiary to to comply with existing regulation or failure to identify - Active involvement with industry bodies
fulfil regulatory requirements and comply with the and react to regulatory change - Compliance monitoring programme to examine the control
introduction of new or changes to the existing regulation of key regulatory risks
- Separate anti-money laundering role with specific
responsibility
- Oversight of industry and regulatory developments
- Documented policy and procedures
- Staff training and development
H Reputational Med Low This risk can arise due to a variety of reasons, primarily - Staff training and development
The risk of reputational damage from financial and within Rathbones. This could be from the conduct of - Board and executive oversight
non-financial events or failing to meet stakeholders' the company or its employees, and from the service - Strong corporate values and approach to governance
expectations or products provided to clients - Positive culture regarding risk and regulation,
supported by appropriate remuneration practices
- Appropriate emphasis on the control environment
through the three lines of defence
- Proactive and positive communications with key stakeholders
- Crisis response plan
- Monitoring of company performance relative to competitors
Operational risks
Residual
rating
Ref Level 2 risk I L How the risk arises Control environment
I Business change Med Low This risk can arise if the business is too aggressive - Executive and board oversight of material change
The risk that the planning or implementation of change and unstructured with its change programme to manage programmes
is ineffective or fails to deliver desired outcomes, project risks, resource capacity and capabilities - Group programme board
the impact of which may lead to unmitigated financial to deliver business benefits. The firm also recognises - Dedicated project office function, use of internal
exposures the risks associated with its office move in London, and, where required, external subject matter experts
which will lead to the subletting of some premises - Documented business plans and IT strategy
- Two-stage assessment, challenge and approval of
project plans
- Documented project and change procedures
- Active marketing of vacant space
J Business continuity Med Low This risk can arise from the business failing to effectively - Group business continuity committee oversight
The risk that an internal or external event results control and administer its core operating systems, - Documented crisis/incident management and disaster
in either failure of, or detriment to core business manage current and future resource requirements and recovery plans
processes or services maintain appropriate security of its infrastructure - Regular disaster recovery testing
- Continuous monitoring of IT systems availability
- Off-site data centre
K Data integrity and security Med Low This risk can arise from the firm failing to maintain - Data security committee oversight
The risk of a lack of integrity of, inappropriate and keep secure at all times sensitive and confidential - Data protection policy and procedures
access to, or disclosure of, client or company-sensitive data through its operating infrastructure, including - System access controls and encryption
information the activities of employees and cyber threats - Penetration testing and multi layer network security
- Training and employee awareness programmes
- Physical security at all locations
L Fraud Med Low This risk can arise from failures to implement appropriate - Executive oversight
The risk of fraudulent action, either internal or management controls to detect or mitigate impropriety - Documented policies and procedures
external, being taken against the group or a subsidiary either within or external to the business and services - Segregation of duties between front and back office
provided - System authority and payment limits
- System access controls
- Training and employee awareness programmes
M Legal Med Low This risk can arise from inappropriate behaviour of - Executive oversight
The risk of legal action being taken against the group individuals or from the inadequate drafting of the - Retained specialist legal advisers
or a subsidiary or failure to comply with legislative firm's contractual documentation - Routine control of risks which might lead to litigation
requirements resulting in financial loss and reputational if adverse outcomes are experienced by clients or
damage other third parties
- Documented policies and procedures
- Training and employee awareness programmes
N Outsourcing Med Low This risk can arise due to significant unknown operational - Executive oversight
The risk of one or more third parties failing to provide changes at key outsourced relationships or a material - Supplier due diligence and regular financial reviews
or perform outsourced services to standards expected change to their business model which affects their - Active relationship management, including regular
by the group, impacting the ability to deliver core ability to provide the required services for Rathbones service review meetings
services - Service level agreements and monitoring of key performance
indicators
- Compliance monitoring
O People Med Med This risk can arise across all areas of the business - Executive oversight
The risk of loss of key staff, lack of skilled resources as a result of resource management failures or from - Succession and contingency planning
and inappropriate behaviour or actions. This could external factors such as increased competition or - Transparent, consistent and competitive remuneration
lead to lack of capacity or capability threatening material changes in regulation schemes
the delivery of business objectives or behaviour leading - Contractual clauses with restrictive covenants
to complaints, regulatory action or litigation - Continual investment in staff training and development
- Employee engagement survey
- Appropriate balanced performance
measurement system
P Processing Low Med This risk can arise from the failure of management - Authorisation limits and management oversight
The risk that the design or execution of client/financial/settlement to implement and control operational processes and - Dealing limits and supporting system controls
transaction processes (including dealing activity) systems to support the volumes of transactions processed - Active investment in automated processes
are inadequate or fail to deliver an appropriate level on a daily basis - Counter review/four-eyes processes
of service and protection to client or company assets - Segregation of duties
- Document procedures
- Annual controls assessment (ISAE 3402 report)
Assessment of the company's prospects
The board prepares or reviews its strategic plan annually, completing
the Internal Capital Adequacy Assessment Process (ICAAP) and Individual
Liquidity Adequacy Assessment (ILAA) work which forms the basis for
capital planning and regular discussion with the Prudential Regulatory
Authority (PRA).
During the year the board has considered a number of stress tests and
scenarios which focus on material or severe but plausible events that
could impact the business and company's financial position. The board
also considers the plans and procedures in place in the event that
contingency funding is required to replenish regulatory capital. On a
monthly basis, critical capital projections and sensitivities have been
refreshed and reviewed taking into account current or expected market
movements and business developments.
The board's assessment considers all the principal risks identified by
the group, and assesses the sufficiency of all Pillar 1 risks (credit,
market and operational risks) to required regulatory standards. In
addition, the following risks were focused on for enhanced stress
testing: equity market risk, interest rate risk, a loss of
business/competition risk, business expansion risk and pension
obligation risk.
The group considers the possible impacts of serious business
interruption as part of its operational risk assessment process and
remains mindful of the importance of maintaining its reputation. Whilst
the business is almost wholly UK situated, it does not suffer from any
material client, geographical or counterparty concentrations.
Whilst this review does not consider all of the risks that the group may
face, the directors consider that this stress testing based assessment
of the group's prospects is reasonable in the circumstances of the
inherent uncertainty involved.
Viability statement
In accordance with the UK Corporate Governance Code, the board has
assessed the prospects and viability of the group over a three year
period taking into account the risk assessments (which are based upon a
five year period as detailed above). The directors have taken into
account the firm's current position and the potential impact of the
principal risks and uncertainties set out above. As part of the
viability statement the directors confirm that they have carried out a
robust assessment of the principal risks facing the group including
those that would threaten its business model, future performance,
solvency or liquidity.
The directors have determined that a three year period to 31 December
2019 constitutes an appropriate period over which to provide its
viability statement. The board does consider five year projections as
part of its annual regulatory reporting cycle and its opinion of the
likelihood of risks materialising; however, the uncertainties associated
with predicting the future impact of investment markets on the business
make a three year period more aligned with its detailed capital planning
activity.
Based on this assessment, the directors confirm that they have a
reasonable expectation that the company will be able to continue in
operation and meet its liabilities as they all fall due over the period
to 31 December 2019.
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
the chairman's statement, chief executive's statement, strategic report
and group risk committee report.
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 3 disclosures
annually on its website, which provide detail about its regulatory
capital resources and requirements. In July 2015, Rathbone Investment
Management issued GBP20 million of 10 year subordinated loan notes to
finance future growth. The group has no other external borrowings.
In 2016, 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.
Consolidated statement of comprehensive income
for the year ended 31 December 2016
2016 2015
Note GBP'000 GBP'000
Interest and similar income 13,890 12,663
Interest expense and similar charges (2,319) (1,822)
Net interest income 11,571 10,841
Fee and commission income 253,192 222,638
Fee and commission expense (17,936) (8,049)
Net fee and commission income 235,256 214,589
Net trading income 3,103 2,230
Other operating income 1,353 1,361
Share of profit of associates - 157
Gain on remeasurement of non-controlling interest - 885
Operating income 251,283 230,063
Charges in relation to client relationships and goodwill (11,735) (11,014)
Acquisition-related costs (5,985) (162)
Loss on derivative financial instruments - (1,030)
Head office relocation costs (7,031) (412)
Other operating expenses (176,403) (158,813)
Operating expenses (201,154) (171,431)
Profit before tax 50,129 58,632
Taxation 4 (11,972) (12,261)
Profit after tax 38,157 46,371
Profit for the year attributable to equity holders
of the company 38,157 46,371
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net remeasurement of defined benefit liability (37,318) 6,524
Deferred tax relating to net remeasurement of defined
benefit liability 5,936 (1,509)
Items that may be reclassified to profit or loss
Net gain on revaluation of available for sale investment
securities 93 53
Deferred tax relating to revaluation of available
for sale investment securities (14) (10)
Other comprehensive income net of tax (31,303) 5,058
Total comprehensive income for the year net of tax
attributable to equity holders of the company 6,854 51,429
Dividends paid and proposed for the year per ordinary
share 5 57.0p 55.0p
Dividends paid and proposed for the year 28,267 26,305
Earnings per share for the year attributable to equity
holders of the company: 6
- basic 78.9p 97.4p
- diluted 78.2p 96.6p
Consolidated statement of changes in equity
for the year ended 31 December 2016
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 2015 2,395 92,987 31,835 28 (5,531) 149,557 271,271
Profit for the year 46,371 46,371
Net remeasurement of defined benefit liability 6,524 6,524
Net gain on revaluation of available for sale investment
securities 53 53
Deferred tax relating to components of other comprehensive
income (10) (1,509) (1,519)
Other comprehensive income net of tax - - - 43 - 5,015 5,058
Dividends paid (25,836) (25,836)
Issue of share capital 12 4,656 4,668
Share-based payments:
- value of employee services 1,022 1,022
- cost of own shares acquired (2,413) (2,413)
- cost of own shares vesting 1,767 (1,767) -
- tax on share-based payments 51 51
At 1 January 2016 2,407 97,643 31,835 71 (6,177) 174,413 300,192
Profit for the year 38,157 38,157
Net remeasurement of defined benefit liability (37,318) (37,318)
Net gain on revaluation of available for sale investment
securities 93 93
Deferred tax relating to components of other comprehensive
income (14) 5,936 5,922
Other comprehensive income net of tax - - - 79 - (31,382) (31,303)
Dividends paid (26,479) (26,479)
Issue of share capital 128 42,003 42,131
Share-based payments:
- value of employee services 3,035 3,035
- cost of own shares acquired (1,585) (1,585)
- cost of own shares vesting 1,084 (1,084) -
- own shares sold 345 435 780
- tax on share-based payments (115) (115)
At 31 December 2016 2,535 139,991 31,835 150 (6,243) 156,545 324,813
Consolidated balance sheet
as at 31 December 2016
2015
2016 GBP'000
GBP'000 (restated - note 1)
Assets
Cash and balances with central banks 1,075,673 583,156
Settlement balances 37,787 17,948
Loans and advances to banks 114,088 108,877
Loans and advances to customers 110,951 117,269
Investment securities:
- available for sale 105,421 53,386
- held to maturity 700,000 707,745
Prepayments, accrued income and other assets 65,710 59,513
Property, plant and equipment 16,590 10,006
Net deferred tax asset 10,601 4,577
Intangible assets 167,192 171,453
Total assets 2,404,013 1,833,930
Liabilities
Deposits by banks 294 299
Settlement balances 39,289 21,481
Due to customers 1,888,895 1,402,890
Accruals, deferred income, provisions and
other liabilities 85,154 78,716
Current tax liabilities 6,523 6,359
Subordinated loan notes 19,590 19,492
Retirement benefit obligations 39,455 4,501
Total liabilities 2,079,200 1,533,738
Equity
Share capital 2,535 2,407
Share premium 139,991 97,643
Merger reserve 31,835 31,835
Available for sale reserve 150 71
Own shares (6,243) (6,177)
Retained earnings 156,545 174,413
Total equity 324,813 300,192
Total liabilities and equity 2,404,013 1,833,930
Consolidated statement of cash flows
for the year ended 31 December 2016
2016 2015
Note GBP'000 GBP'000
Cash flows from operating activities
Profit before tax 50,129 58,632
Share of profit of associates - (157)
Net interest income (11,571) (10,841)
Net impairment charges on impaired loans and advances 9 19
Net charge for provisions 1,355 1,045
Profit on disposal of property, plant and equipment (16) (4)
Loss on fair value of derivative financial instrument - 1,030
Gain on remeasurement of non-controlling interest - (885)
Depreciation, amortisation and impairment 20,716 16,115
Defined benefit pension scheme charges 3,058 4,217
Defined benefit pension contributions paid (5,422) (6,902)
Share-based payment charges 5,201 4,629
Interest paid (2,308) (1,282)
Interest received 14,085 11,349
75,236 76,965
Changes in operating assets and liabilities:
- net decrease/(increase) in loans and advances to
banks and customers 16,785 (5,606)
- net increase in settlement balance debtors (19,839) (2,058)
- net increase in prepayments, accrued income and
other assets (6,392) (2,396)
- net increase in amounts due to customers and deposits
by banks 486,000 120,763
- net increase/(decrease) in settlement balance
creditors 17,808 (1,103)
- net increase in accruals, deferred income, provisions
and other liabilities 9,762 329
Cash generated from operations 579,360 186,894
Tax paid (12,025) (10,414)
Net cash inflow from operating activities 567,335 176,480
Cash flows from investing activities
Dividends received from associates - 107
Acquisition of subsidiaries, net of cash acquired (2,532) (3,528)
Purchase of property, plant, equipment and intangible
assets (26,137) (22,879)
Proceeds from sale of property, plant and equipment 16 33
Purchase of investment securities (905,701) (988,127)
Proceeds from sale and redemption of investment
securities 912,745 709,853
Net cash used in investing activities (21,609) (304,541)
Cash flows from financing activities
Issue of ordinary shares 40,199 2,255
Net proceeds from the issue of subordinated loan notes - 19,454
Dividends paid 5 (26,479) (25,836)
Net cash generated from/(used in) financing activities 13,720 (4,127)
Net increase/(decrease) in cash and cash equivalents 559,446 (132,188)
Cash and cash equivalents at the beginning of the
year 703,628 835,816
Cash and cash equivalents at the end of the year 8 1,263,074 703,628
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 2016. The accounting policies have been applied consistently
to all periods presented in this statement, except as detailed below.
Standards not affecting the reported results or the financial position
The following new and revised standards and interpretations have been
adopted in the current year. Their adoption has not had any significant
impact on the amounts reported in the financial statement but may impact
the accounting for future transactions and arrangements:
-- Equity Method in Separate Financial Statements (Amendments to IAS 27)
-- Disclosure Initiative (Amendments to IAS 1)
Measurement period adjustment
In the current year, the group recognised a measurement period
adjustment to provisional amounts in respect of a business combination
completed on 31 December 2015. This has arisen due to payments made to
the previous owners of the acquired companies during the current year,
in respect of the net assets of the companies at the acquisition date.
Comparatives have been restated for the impact of the adjustment. As at
31 December 2015, the group's total assets have been increased by
GBP301,000, and total liabilities have been increased by the same
amount. There has been no impact on operating income, profit or
shareholders' equity in the current or prior periods.
The acquiree's identifiable assets, liabilities and contingent
liabilities are recognised at their fair value at the acquisition date,
except for deferred tax assets or liabilities, and assets or liabilities
related to employee benefit arrangements, which are measured in
accordance with applicable accounting policies.
2 Critical accounting judgements and key sources of estimation and
uncertainty
The group makes estimates and assumptions that affect the reported
amounts of assets and liabilities within the next financial year.
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
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.
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. Upfront
payments made to investment managers upon joining are expensed as they
are not judged to be incremental costs for acquiring the client
relationships.
The group determines a suitable period during which awards accruing to
new investment managers are capitalised. Typically, this will be for
the period ending up to 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 GBP7,926,000 of payments made to
investment managers and expensed GBP4,005,000 (2015: GBP11,308,000
capitalised and GBP3,254,000 expensed). A reduction in the
capitalisation period by one month would decrease client relationship
intangibles by GBP617,000 and decrease profit before tax by GBP617,000
(2015: GBP256,000 and GBP256,000 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 10-15 year period. Amortisation of GBP11,594,000
(2015: GBP10,698,000) was charged during the year. A reduction in the
average amortisation period of one year would increase the amortisation
charge by approximately GBP1,100,000 (2015: GBP1,000,000). At 31
December 2016, the carrying value of client relationship intangibles was
GBP97,201,000 (2015: GBP100,869,000).
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 2016 GBP'000 GBP'000 GBP'000 GBP'000
Net investment management fee income 163,268 21,532 - 184,800
Net commission income 38,904 - - 38,904
Net interest income 11,571 - - 11,571
Fees from advisory services and other income 12,578 3,430 - 16,008
Underlying operating income 226,321 24,962 - 251,283
Staff costs - fixed (57,613) (3,020) (19,123) (79,756)
Staff costs - variable (32,437) (5,333) (7,210) (44,980)
Total staff costs (90,050) (8,353) (26,333) (124,736)
Other direct expenses (22,882) (5,355) (23,430) (51,667)
Allocation of indirect expenses (47,184) (2,579) 49,763 -
Underlying operating expenses (160,116) (16,287) - (176,403)
Underlying profit before tax 66,205 8,675 - 74,880
Charges in relation to client relationships and
goodwill (11,735) - - (11,735)
Acquisition-related costs (5,985) - - (5,985)
Segment profit before tax 48,485 8,675 - 57,160
Head office relocation costs (7,031)
Profit before tax attributable to equity holders of
the company 50,129
Taxation (note 4) (11,972)
Profit for the year attributable to equity holders
of the company 38,157
Investment
Unit
Management Trusts Total
GBP'000 GBP'000 GBP'000
Segment total assets 2,340,973 54,912 2,395,885
Unallocated assets 8,128
Total assets 2,404,013
Investment Indirect
Unit
Management Trusts expenses Total
31 December 2015 GBP'000 GBP'000 GBP'000 GBP'000
Net investment management fee income 143,777 17,632 - 161,409
Net commission income 43,136 - - 43,136
Net interest income 10,841 - - 10,841
Fees from advisory services and other income 11,241 2,551 - 13,792
Underlying operating income 208,995 20,183 - 229,178
Staff costs - fixed (51,277) (2,966) (19,296) (73,539)
Staff costs - variable (29,460) (3,794) (6,493) (39,747)
Total staff costs (80,737) (6,760) (25,789) (113,286)
Other direct expenses (19,186) (4,370) (21,971) (45,527)
Allocation of indirect expenses (45,306) (2,454) 47,760 -
Underlying operating expenses (145,229) (13,584) - (158,813)
Underlying profit before tax 63,766 6,599 - 70,365
Charges in relation to client relationships and
goodwill (11,014) - - (11,014)
Acquisition-related costs (162) - - (162)
Loss on derivative financial instruments (1,030) - - (1,030)
Gain on remeasurement of non-controlling interest 885 - - 885
Segment profit before tax 52,445 6,599 - 59,044
Head office relocation costs (412)
Profit before tax attributable to equity holders of
the company 58,632
Taxation (note 4) (12,261)
Profit for the year attributable to equity holders
of the company 46,371
Investment
Unit
Management Trusts Total
GBP'000 GBP'000 GBP'000
Segment total assets 1,793,558 37,806 1,831,364
Unallocated assets 2,566
Total assets 1,833,930
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:
2016 2015
GBP'000 GBP'000
United Kingdom 241,882 221,957
Jersey 9,401 8,106
Operating income 251,283 230,063
The following is an analysis of the carrying amount of non-current
assets analysed by the geographical area in which the assets are
located:
2015
2016 GBP'000
GBP'000 (restated - note 1)
United Kingdom 178,172 175,304
Jersey 5,610 6,155
Non-current assets 183,782 181,459
Major clients
The group is not reliant on any one client or group of connected clients
for generation of revenues.
4. Taxation
2016 2015
GBP'000 GBP'000
Current tax:
- charge for the year 12,366 12,266
- adjustments in respect of prior years (177) 17
Deferred tax:
- credit for the year (233) (27)
- adjustments in respect of prior years 16 5
11,972 12,261
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 (2015: higher) than the
standard rate of corporation tax in the UK of 20.0% (2015: 20.2%). The
differences are explained below:
2016 2015
GBP'000 GBP'000
Tax on profit from ordinary activities at the standard
rate of 20.0% (2015: 20.2%) 10,026 11,871
Effects of:
- disallowable expenses 958 584
- share-based payments (72) (179)
- tax on overseas earnings (183) (75)
- (over)/underprovision for tax in previous years (161) 22
- deferred payments to previous owners of acquired
companies 1,237 -
- other 63 (37)
Effect of change in corporation tax rate on deferred
tax 104 75
11,972 12,261
5. Dividends
2016 2015
GBP'000 GBP'000
Amounts recognised as distributions to equity holders
in the year:
- final dividend for the year ended 31 December 2015
of 34.0p (2014: 33.0p) per share 16,336 15,766
- interim dividend for the year ended 31 December
2016 of 21.0p (2015: 21.0p) per share 10,143 10,070
Dividends paid in the year of 55.0p (2015: 54.0p)
per share 26,479 25,836
Proposed final dividend for the year ended 31 December
2016 of 36.0p (2015: 34.0p) per share 18,124 16,235
An interim dividend of 21.0p per share was paid on 5 October 2016 to
shareholders on the register at the close of business on 9 September
2016 (2015: 21.0p).
A final dividend declared of 36.0p per share (2015: 34.0p) is payable on
16 May 2017 to shareholders on the register at the close of business on
21 April 2017. The final dividend is subject to approval by shareholders
at the Annual General Meeting on 11 May 2017 and has not been included
as a liability in the financial statements.
6. Earnings per share
Earnings used to calculate earnings per share on the bases reported in
this announcement were:
2016 2015
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 74,880 (15,816) 59,064 70,365 (14,637) 55,728
Gain on
remeasurement of
non-controlling
interest - - - 885 (179) 706
Charges in relation
to client
relationships and
goodwill (11,735) 2,347 (9,388) (11,014) 2,230 (8,784)
Acquisition-related
costs (5,985) 91 (5,894) (162) 33 (129)
Loss on derivative
financial
instruments - - - (1,030) 209 (821)
Head office
relocation costs (7,031) 1,406 (5,625) (412) 83 (329)
Profit attributable
to shareholders 50,129 (11,972) 38,157 58,632 (12,261) 46,371
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 48,357,728 (2015:
47,612,026).
Diluted earnings per share is the basic earnings per share, adjusted for
the effect of contingently issuable shares under the Long Term and
Executive 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:
2016 2015
Weighted average number of ordinary shares in issue
during the year - basic 48,357,728 47,612,026
Effect of ordinary share options/Save As You Earn 114,415 174,219
Effect of dilutive shares issuable under the Share
Incentive Plan 37,186 26,636
Effect of contingently issuable shares under the Long
Term and Executive Incentive Plans 260,655 204,110
Diluted ordinary shares 48,769,984 48,016,991
2016 2015
Underlying earnings per share for the year attributable
to equity holders of the company:
- basic 122.1p 117.0p
- diluted 121.1p 116.1p
7. 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.
2016 2015
GBP'000 GBP'000
Short term employee benefits 10,750 10,659
Post-employment benefits 330 791
Other long term benefits 1,581 1,706
Share-based payments 2,775 2,878
15,436 16,034
Dividends totalling GBP302,000 were paid in the year (2015: GBP108,000)
in respect of ordinary shares held by key management personnel and their
close family members.
As at 31 December 2016, the group had outstanding interest-free season
ticket loans of GBP6,000 (2015: GBP6,000) issued to key management
personnel.
At 31 December 2016, key management personnel and their close family
members had gross outstanding deposits of GBP5,464,000 (2015:
GBP862,000) and gross outstanding banking loans of GBP959,000 (2015:
5,805,000), all of which (2015: 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 2016, no amounts were outstanding with either the
Laurence Keen Scheme or the Rathbone 1987 Scheme (2015: GBPnil).
One group subsidiary, Rathbone Unit Trust Management, has authority to
manage the investments within a number of unit trusts. Another group
company, Rathbone Investment Management International, acted as
investment manager for a protected cell company offering unitised
private client portfolio services. During 2016, the group managed 27
unit trusts, Sociétés d'investissement à Capital Variable
(SICAVs) and open-ended investment companies (OEICs) (together,
'collectives') (2015: 22 unit trusts and OEICs).
The group charges each fund an annual management fee for these services,
but does not earn any performance fees on the unit trusts. The
management charges are calculated on the bases published in the
individual fund prospectuses, which also state the terms and conditions
of the management contract with the group.
8. 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:
2016 2015
GBP'000 GBP'000
Cash and balances at central banks 1,075,673 583,156
Loans and advances to banks 83,844 68,156
Available for sale investment securities 103,557 52,316
At 31 December 1,263,074 703,628
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:
2016 2015
GBP'000 GBP'000
Share capital issued 128 12
Share premium on shares issued 42,348 4,656
Shares issued in relation to share-based schemes for
which no cash consideration was received (1,631) (2,413)
Shares issued in relation to business combinations (646) -
40,199 2,255
9. Events after the balance sheet date
Member consultation on closing the pension scheme
On 20 October 2016, the group commenced a consultation with members of
the schemes with a view to ceasing future accrual and breaking the link
to final salary in both schemes. The consultation period ended on 31
January 2017. Following the consultation period, the group has confirmed
to members its intention to close the Rathbone 1987 Scheme to future
accrual and to break the link to final salary for both schemes, with
effect from 1 July 2017. The impact of these changes, if they had been
confirmed on 31 December 2016, would have been to reduce the reported
defined benefit obligation by an estimated GBP6,100,000.
Relocation of the London head office
The move to the 8 Finsbury Circus office concluded on 13 February 2017,
which triggered recognition of a provision for the net cost of the
surplus property at 1 Curzon Street until the end of the existing lease.
The ultimate amount of the provision is dependent on the timing of any
subletting agreement and the associated terms agreed with relevant third
parties. Based on management's expectations of future costs for the
premises and potential rental income, and timings thereof, a net charge
to profit or loss of GBP10,000,000 was recognised on 13 February 2017.
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
2016 or 2015. Statutory financial statements for 2015 have been
delivered to the Registrar of Companies. Statutory financial statements
for 2016 will be delivered to the Registrar of Companies following the
Company's Annual General Meeting. The auditor has reported on both the
2015 and 2016 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 2016 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 Corporate Solutions on behalf
of Nasdaq 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
http://www.rathbones.com/
(END) Dow Jones Newswires
February 23, 2017 02:01 ET (07:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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