TIDMRAT
Underlying profit before tax up 11.5% to GBP48.3 million
Philip Howell, Chief Executive of Rathbone Brothers Plc, said:
"The first half of 2018 has been a busy one for Rathbones as we
progressed a full project agenda and announced the acquisition of Speirs
& Jeffrey whilst maintaining our focus on day-to-day operations. We
remain confident in the outlook for the business."
Highlights:
-- Underlying profit before tax* increased 11.5% from GBP43.3 million to
GBP48.3 million in the first six months of 2018. Underlying profit margin
remained strong at 31.5% compared to 30.4% in 2017. Underlying earnings
per share increased 11.3% to 76.1p (2017: 68.4p).
-- Profit before tax for the half year increased 64.3% from GBP26.6 million
to GBP43.7 million. This not only reflects our underlying performance but
also a number of significant non-underlying items in 2017, which have not
recurred in 2018. Basic earnings per share increased 64.2% to 68.3p
(2017: 41.6p).
-- The board recommends a 24.0p interim dividend for 2018 (2017: 22.0p).
-- Total funds under management at 30 June 2018 were GBP39.9 billion, up
2.0% from GBP39.1 billion at 31 December 2017. This compared to a
decrease of 0.7% in the FTSE 100 Index and a decrease of 0.2% in the MSCI
WMA Private Investor Balanced Index over the same period.
-- Total net organic and acquired growth in the funds managed by Investment
Management was GBP0.5 billion in the first six months of 2018,
representing a net annual growth rate of 2.5% (2017: 4.0%). Net organic
growth of GBP0.4 billion for the first half represents an underlying
annualised rate of net organic growth of 2.1% (2017: 2.9%).
-- Underlying operating income in Investment Management of GBP135.3 million
in the first six months of 2018 (2017: GBP127.4 million) was up 6.2%. The
average FTSE 100 Index was 7418 on quarterly billing dates in 2018,
compared to 7322 in 2017, an increase of 1.3%.
-- Funds under management in Unit Trusts were GBP5.8 billion at 30 June 2018
(31 December 2017: GBP5.3 billion). Net inflows were GBP299 million in
the first half of 2018 (2017: GBP269 million). Underlying operating
income in Unit Trusts was GBP17.9 million in the six months ended 30 June
2018, an increase of 20.1% from GBP14.9 million in the first half of
2017.
-- Shareholders equity of GBP447.8 million at 30 June 2018 increased 23.3%
since 31 December 2017 (GBP363.3 million) and 30.8% since 30 June 2017
(GBP342.4 million), largely due to a GBP60 million equity placing in June
2018.
* Excluding charges in relation to client relationships and goodwill,
the London head office relocation and acquisition-related costs.
25 July 2018
For further information contact:
Rathbone Brothers Plc
Tel: 020 7399 0000
email: shelly.patel@rathbones.com
Philip Howell, Chief Executive
Paul Stockton, Group Finance Director & Managing Director Rathbone
Investment Management
Shelly Patel, Head of Investor Relations
Camarco
Tel: 020 3757 4984
email: ed.gascoigne-pees@camarco.co.uk
Ed Gascoigne-Pees
Hazel Stevenson
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. This
includes discretionary investment management, unit trusts, tax planning,
trust and company management, pension advice and banking services.
Rathbones has over 1,200 staff in 15 UK locations and Jersey; its
headquarters is 8 Finsbury Circus, London.
rathbones.com http://www.rathbones.com
Investment management report
The first half of 2018 was a busy period as we progressed a full project
agenda, announced an important acquisition and implemented some
significant regulatory change. Investment markets were somewhat volatile
in the period but the FTSE 100 Index ended the period at 7637, broadly
flat on the 7688 finishing point at the end of 2017. Our net organic
growth in funds under management continues to contribute to our positive
year-on-year financial performance.
Continuing growth in funds under management
Funds under management reached GBP39.9 billion at 30 June 2018, up 2.0%
from GBP39.1 billion at 31 December 2017 and up 9.0% from GBP36.6
billion at 30 June 2017. Total net organic growth in the business was
3.3% (30 June 2017: 4.1%).
Funds under management in our Investment Management business reached
GBP34.1 billion, up 6.6% from the GBP32.0 billion we reported a year
ago. Funds managed by our Unit Trusts business grew very strongly to
GBP5.8 billion, a 26.1% increase year on year.
Maintaining underlying profit margins
Underlying profit before tax reached GBP48.3 million, up 11.5% from the
GBP43.3 million recorded at 30 June 2017. This represents an underlying
operating margin of 31.5% (30 June 2017: 30.4%). Underlying earnings per
share of 76.1p increased 11.3% from 68.4p in 2017, reflecting both
underlying earnings growth and the impact of our GBP60 million share
placing in June 2018.
Profit before tax for the six months to 30 June 2018 of GBP43.7 million
was 64.3% higher than the GBP26.6 million in 2017. This reflects not
only our underlying performance but also a number of significant
non-underlying items in 2017.
At the beginning of June, we successfully assigned all legacy Curzon
Street leases to a third party, which has resulted in a net write-back
of non-underlying head office relocation costs of GBP2.9 million (30
June 2017: net costs of GBP15.8 million) in the period and has
significantly reduced our exposure to property risk. A full
reconciliation of underlying profit before tax and profit before tax can
be found in note 9.
Our balance sheet remains healthy with a consolidated Common Equity Tier
1 ratio of 26.4% at 30 June 2018 (31 December 2017: 20.7%; 30 June 2017:
18.2%) and a consolidated leverage ratio of 9.9% at 30 June 2018 (31
December 2017: 7.8%; 30 June 2017: 6.2%). Our capital surplus of own
funds (excluding year-to-date post-tax profits) over our regulatory
capital requirement was GBP127.6 million at 30 June 2018 (GBP74.0
million at 31 December 2017), largely reflecting the impact of our GBP60
million placing ahead of the completion of the Speirs & Jeffrey
acquisition.
The value of retirement benefit obligations remained relatively steady
at GBP14.1 million at 30 June 2018, 9.6% lower than the GBP15.6 million
recorded at 31 December 2017. This reflects an increase in long-term
corporate bond yields and a reduction in the forecast rate of inflation,
partially offset by an increase in the commutation factors applied by
the trustees for members taking cash on retirement.
Finally, in line with our progressive dividend policy, the interim
dividend has been increased by 2p per share to 24p (2017: 22p) and will
be paid on 2 October 2018.
Acquisition of Speirs & Jeffrey
In June 2018 we announced the acquisition of Speirs & Jeffrey,
Scotland's largest independent wealth manager with funds under
management of GBP6.7 billion as at 10 May 2018. This is an exciting
opportunity for us, adding a like-minded business with a similar culture
to our own and further strengthening Rathbones' long-held commitment to
Scotland. Synergies arising from the combined business will have many
benefits for stakeholders, including creating capacity to invest in our
people, processes and infrastructure, as well as achieving additional
strength and scale in the market.
The acquisition awaits regulatory approval and, as a result, is not due
to complete until later this year, but work has commenced on a detailed
plan to bring the business seamlessly into our group. Our priority is to
ensure there is minimal disruption to Speirs & Jeffrey clients as well
as our own operations, so, accordingly, the migration to our systems
will be executed in a measured and carefully-planned way towards the
middle of 2019. Our commitment to keeping client needs at the forefront
of our plans will remain key in guiding our joint decision making.
As we announced in June, we expect this transaction to generate an
underlying earnings per share accretion of at least 8% and return on
investment of approximately 13% by the end of 2021.
Continued strategic progress across business lines
Investment Management
During the first six months of the year, our Investment Management
business added GBP1.7 billion gross organic funds under management
compared to GBP1.6 billion a year ago. Outflows of GBP1.3 billion (30
June 2017: GBP1.2 billion) in the first half represent 3.8% (30 June
2017: 4.0%) of opening funds under management and include the impact of
a small number of investment manager departures. Net organic growth
consequently totalled GBP0.4 billion, representing an annualised net
organic growth rate of 2.1% (30 June 2017: 2.9%). Funds brought in by
new teams added a further GBP0.1 billion of purchased business (30 June
2017: GBP0.2 billion) in the period.
We have continued to improve our client relationship management tools,
to enhance our client documentation and to design automated solutions
that will improve workflow in investment teams. We also continue to
develop our investment process, adding additional overseas research
resources to our equity research team in the first half of the year.
Unit Trusts
Our Unit Trusts business continues to perform strongly, attracting net
inflows of GBP299 million in the period. This has driven total funds
under management to a record GBP5.8 billion at 30 June 2018 (30 June
2017: GBP4.6 billion). We continue to see positive momentum across our
three largest funds (Income, Global Opportunities and Ethical Bond),
with each now reporting over GBP1 billion under management. This strong
growth is reflected in the financial performance of the Unit Trusts
business which reported a profit before tax of GBP6.4 million in the
first six months of 2018 compared to GBP5.1 million a year ago,
generating an operating profit margin of 35.6% compared to 34.2% a year
ago. Income in 2018 continues to benefit from the generation of 'risk
free' box dealing profits (GBP1.8 million in 2018 to date) but this is
not expected to recur in 2019. Alongside the wider asset management
industry, we also expect to face higher regulatory costs in 2019.
Charities and ethical investment
As a firm, we have long recognised the growing cohort of clients who
want to make a positive impact with their investments and this year our
dedicated ethical and sustainable investment division, Rathbone
Greenbank Investments, reached a record GBP1.2 billion of funds under
management.
In line with growing retail demand, we also announced our intention to
launch the Rathbone Global Sustainability Fund in July 2018. The fund
will work closely with Rathbone Greenbank Investments and will invest in
companies whose activities or ways of operating are aligned with
sustainable development and will actively engage with companies to
encourage positive change. The launch was the next logical step for our
funds business, building on the success and strong growth of the
Rathbone Ethical Bond Fund which now manages GBP1.2 billion and earned
the Judges' Choice for Fixed Income at the Investment Week Fund Manager
of the Year awards in July 2018.
Our charities business also continues to be a leader in its field as the
fourth largest charity manager in the UK. Funds managed with a
charitable mandate across the firm increased 4.3% to GBP4.9 billion in
the six months ended 30 June 2018. We continue to build our profile,
supported by our seventh annual charity symposium in May, which gave
charity trustees from across the UK a chance to discuss and debate the
challenges of running a charity in the current political and economic
environment.
Continuing to build on distribution through intermediaries
Building our presence in the intermediary market also remains an
important priority. Net flows from external IFA networks sourced by our
specialist intermediary team were GBP153 million in the first half of
2018, up from GBP108 million a year ago.
Vision Independent Financial Planning continues to make excellent
progress with funds under advice on its discretionary investment
management panel now totalling GBP1.5 billion, up from GBP845 million
when it was first fully acquired at the end of 2015. Recruitment in this
business continues to be strong with a total of 121 advisers, up from 81
when it was initially acquired. Income from our internal financial
planning service increased by 5.0% to GBP2.1m in the period and plans to
roll out an enhanced proposition in the second half are well advanced.
Responding to industry change
The wealth management industry continues to undergo considerable change
and the business is responding proactively to this. We continue to
expect that our capital expenditure will remain at similar levels to
2017, reflecting ongoing improvements to our technology and additional
client relationship management system developments, in addition to the
regulatory costs associated with implementing MiFID II and GDPR in
particular.
In March 2018, we published our gender pay gap data and the board
recognises the importance of remedying the drivers behind the outcome.
During the period, we also became signatories of the Women in Finance
Charter as we look to help build a more balanced industry.
We will update our strategy for the medium term towards the end of this
year and will continue to respond positively to the significant changes
faced by our industry and take advantage of the opportunities these may
present.
Aligning incentives with shareholders
At the time we announced our 2017 full year results, we stated our
intention to increase the level of employee ownership of Rathbone
Brothers Plc shares. In May, we introduced a five year equity plan for
eligible investment managers that gives them an opportunity to own
shares at the end of a five year period and thereby share in the future
success of Rathbones. Awards will be made in the form of nil-paid
options over Rathbone Brothers Plc shares and are expected to cost
approximately GBP4.5 million per annum over the award period, with a
pro-rata charge in 2018. Shares will be purchased by the company in the
open market over the award period. Further detail can be found in note
17.
Board and senior management changes
We were delighted to welcome Terri Duhon to the board as a non-executive
director in June 2018, subject to regulatory approval. Terri's breadth
of experience in the financial services industry will be of great value
to the board in the years ahead.
In May 2018, we announced that Paul Stockton, group finance director,
had been appointed to the newly created role of managing director of
Rathbone Investment Management. The additional role will strengthen the
executive team as the business continues to grow. Paul will hold two
executive roles until the process to recruit a new group finance
director is completed.
Business risks
The board believes that the nature of the principal risks and
uncertainties which may have a material effect on the group's
performance remain largely unchanged from those identified in the
strategic report and group risk committee report in our 2017 annual
report and accounts (pages 21 to 28 and pages 68 to 69 respectively).
We continue to monitor the potential consequences of Brexit very closely
and while our current assessment is that the direct impacts will be
manageable given our largely UK-based business model, we are conscious
that the position might change and could raise unexpected challenges.
Outlook
During the second half of the year, we will continue to prioritise the
investment of time and financial resources in our investment management
business, seeking to improve our services and the efficiency of our
infrastructure. Alongside this, we will also focus on completing the
Speirs & Jeffrey acquisition and planning for its successful transition
into the Rathbones family.
This six month period has been a positive one for Rathbones and we
remain confident in the outlook for the business.
Mark Nicholls Philip Howell
Chairman Chief Executive
24 July 2018
Consolidated interim statement of comprehensive income
for the six months ended 30 June 2018
Unaudited Audited
Unaudited Six months to Year to
Six months to 30 June 2017 31 December 2017
30 June 2018 GBP'000 GBP'000
Note GBP'000 (note 1) (note 1)
Interest and similar income 8,991 6,323 13,501
Interest expense and similar charges (2,088) (723) (1,907)
Net interest income 6,903 5,600 11,594
Fee and commission income 154,232 144,600 292,034
Fee and commission expense (10,855) (10,636) (22,715)
Net fee and commission income 143,377 133,964 269,319
Net trading income 1,777 1,769 3,071
Gain on plan amendment of defined benefit pension
schemes 15 - 5,523 5,523
Other operating income 1,134 1,041 2,065
Operating income 153,191 147,897 291,572
Charges in relation to client relationships and goodwill 12 (6,198) (5,960) (11,716)
Acquisition-related costs 4 (1,308) (487) (6,178)
Head office relocation 5 2,924 (15,769) (16,248)
Other operating expenses (104,933) (99,095) (198,529)
Operating expenses (109,515) (121,311) (232,671)
Profit before tax 43,676 26,586 58,901
Taxation 7 (8,931) (5,612) (12,072)
Profit for the period attributable to equity holders
of the company 34,745 20,974 46,829
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net remeasurement of defined benefit liability (17) 13,495 17,288
Deferred tax relating to the net remeasurement of
defined benefit liability 3 (2,294) (2,939)
Items that may be reclassified to profit or loss
Revaluation of available for sale investment securities:
-- net gain from changes in fair value - 110 163
-- net profit on disposal transferred to profit or loss
during the period - (43) (43)
- 67 120
Deferred tax relating to revaluation of available
for sale investment securities - (11) (20)
Other comprehensive income net of tax (14) 11,257 14,449
Total comprehensive income for the period net of tax
attributable to equity holders of the company 34,731 32,231 61,278
Dividends paid and proposed for the period per ordinary
share 8 24.0p 22.0p 61.0p
Dividends paid and proposed for the period 13,000 11,274 30,429
Earnings per share for the period attributable to
equity holders of the company: 9
- basic 68.3p 41.6p 92.7p
- diluted 67.6p 41.3p 91.9p
Consolidated interim statement of changes in equity
for the six months ended 30 June 2018
(note 1) (note 1)
Share capital Share premium Merger reserve Available for sale reserve Own shares Retained earnings Total equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2017 (audited) 2,535 139,991 31,835 150 (6,243) 156,545 324,813
Profit for the period 20,974 20,974
Net remeasurement of defined benefit liability 13,495 13,495
Revaluation of available for sale investment securities:
-- net gain from changes in fair value 110 110
-- net profit on disposal transferred to profit or loss
during the year (43) (43)
Deferred tax relating to components of other comprehensive
income (11) (2,294) (2,305)
Other comprehensive income net of tax - - - 56 - 11,201 11,257
Dividends paid (18,236) (18,236)
Issue of share capital 16 27 2,718 2,745
Share-based payments:
-- value of employee services 1,095 1,095
-- cost of own shares acquired (437) (437)
-- cost of own shares vesting 1,336 (1,336) -
-- tax on share-based payments 232 232
At 30 June 2017 (unaudited) 2,562 142,709 31,835 206 (5,344) 170,475 342,443
Profit for the period 25,855 25,855
Net remeasurement of defined benefit liability 3,793 3,793
Net gain on revaluation of available for sale investment
securities 53 53
Deferred tax relating to components of other comprehensive
income (9) (645) (654)
Other comprehensive income net of tax - - - 44 - 3,148 3,192
Dividends paid (11,184) (11,184)
Issue of share capital 16 4 380 384
Share-based payments:
-- value of employee services 2,496 2,496
-- cost of own shares acquired (4) (4)
-- cost of own shares vesting 484 (484) -
-- tax on share-based payments 96 96
At 31 December 2017 (audited) 2,566 143,089 31,835 250 (4,864) 190,402 363,278
Adjustment on initial application of IFRS 9 (net of
tax) 2 (250) 102 (148)
Adjustment on initial application of IFRS 15 (net
of tax) 2 8,443 8,443
Adjusted balance at 1 January 2018 (unaudited) 2,566 143,089 31,835 - (4,864) 198,947 371,573
Profit for the period 34,745 34,745
Net remeasurement of defined benefit liability (17) (17)
Deferred tax relating to components of other comprehensive
income 3 3
Other comprehensive income net of tax - - - - - (14) (14)
Dividends paid (19,858) (19,858)
Issue of share capital 16 142 61,472 61,614
Share-based payments:
-- value of employee services 1,603 1,603
-- cost of own shares acquired (2,225) (2,225)
-- cost of own shares vesting 1,605 (1,605) -
-- tax on share-based payments 395 395
At 30 June 2018 (unaudited) 2,708 204,561 31,835 - (5,484) 214,213 447,833
Consolidated interim balance sheet
as at 30 June 2018
Unaudited Audited
Unaudited 30 June 2017 31 December 2017
30 June 2018 GBP'000 GBP'000
Note GBP'000 (note 1) (note 1)
Assets
Cash and balances with central banks 1,306,881 1,480,932 1,375,382
Settlement balances 75,519 99,197 46,784
Loans and advances to banks 127,328 148,257 117,253
Loans and advances to customers 10 122,864 123,303 126,213
Investment securities:
-- fair value through profit or loss 91,682 - -
-- amortised cost 775,839 - -
-- available for sale - 126,800 109,312
-- held to maturity - 590,005 701,966
Prepayments, accrued income and other
assets 94,366 72,323 74,445
Property, plant and equipment 11 16,207 17,133 16,457
Deferred tax asset 7,709 8,623 9,061
Intangible assets 12 163,149 163,323 161,977
Total assets 2,781,544 2,829,896 2,738,850
Liabilities
Deposits by banks 3,785 9,065 1,338
Settlement balances 84,396 122,026 54,452
Due to customers 2,115,080 2,215,117 2,170,498
Accruals, deferred income and other
liabilities 74,375 71,497 84,679
Current tax liabilities 7,134 5,395 5,598
Provisions for liabilities and charges 13 15,138 24,692 23,712
Subordinated loan notes 14 19,751 19,643 19,695
Retirement benefit obligations 15 14,052 20,018 15,600
Total liabilities 2,333,711 2,487,453 2,375,572
Equity
Share capital 16 2,708 2,562 2,566
Share premium 16 204,561 142,709 143,089
Merger reserve 31,835 31,835 31,835
Available for sale reserve 2 - 206 250
Own shares (5,484) (5,344) (4,864)
Retained earnings 214,213 170,475 190,402
Total equity 447,833 342,443 363,278
Total liabilities and equity 2,781,544 2,829,896 2,738,850
The condensed consolidated interim financial statements were approved by
the board of directors and authorised for issue on
24 July 2018 and were signed on their behalf by:
Philip Howell Paul Stockton
Chief Executive Finance Director
Company registered number: 01000403
Consolidated interim statement of cash flows
for the six months ended 30 June 2018
Unaudited Audited
Unaudited 30 June 2017 31 December 2017
30 June 2018 GBP'000 GBP'000
Note GBP'000 (note 1) (note 1)
Cash flows from operating activities
Profit before tax 43,676 26,586 58,901
Net profit on disposal of available for sale investment
securities - (43) (43)
Net interest income (6,903) (5,600) (11,594)
Net impairment charges/(recoveries) on loans and advances 34 (15) 1
Net (release)/charge for provisions 13 (3,119) 16,198 16,728
Depreciation, amortisation and impairment 10,063 10,014 19,415
Foreign exchange movements (910) - 1,480
Gain on plan amendment of defined benefit pension
schemes 15 - (5,523) (5,523)
Defined benefit pension scheme charges 175 2,134 2,575
Defined benefit pension contributions paid (1,740) (2,553) (3,619)
Share-based payment charges 2,803 1,765 3,871
Interest paid (2,022) (676) (1,663)
Interest received 9,385 9,455 13,084
51,442 51,742 93,613
Changes in operating assets and liabilities:
-- net decrease/(increase) in loans and advances to
banks and customers 32,660 17,364 (16,643)
-- net increase in settlement balance debtors (28,735) (61,410) (8,997)
-- net increase in prepayments, accrued income and oth
er
assets (20,019) (9,746) (8,318)
-- net (decrease)/increase in amounts due to customers
and deposits by banks (52,971) 334,991 282,647
-- net increase in settlement balance creditors 29,944 82,737 15,163
-- net (decrease)/increase in accruals, deferred incom
e,
provisions and other liabilities (10,690) (2,592) 8,146
Cash generated from operations 1,631 413,086 365,611
Tax paid (5,697) (6,833) (14,087)
Net cash (outflow)/inflow from operating activities (4,066) 406,253 351,524
Cash flows from investing activities
Purchase of property, equipment and intangible assets (9,068) (9,923) (16,123)
Purchase of investment securities (480,211) (295,703) (746,566)
Proceeds from sale and redemption of investment securities 407,215 405,160 742,581
Net cash (used in)/generated from investing activities (82,064) 99,534 (20,108)
Cash flows from financing activities
Issue of ordinary shares 20 59,389 2,308 2,688
Dividends paid (19,858) (18,236) (29,420)
Net cash generated from/(used in) financing activities 39,531 (15,928) (26,732)
Net (decrease)/increase in cash and cash equivalents (46,599) 489,859 304,684
Cash and cash equivalents at the beginning of the
period 1,567,758 1,263,074 1,263,074
Cash and cash equivalents at the end of the period 20 1,521,159 1,752,933 1,567,758
Notes to the condensed consolidated interim financial statements
1 Basis of preparation
Rathbone Brothers Plc ('the company') is the parent company of a group
of companies ('the group') that is a leading provider of high-quality,
personalised investment and wealth management services for private
clients, charities and trustees. This includes discretionary investment
management, unit trusts, tax planning, trust and company management,
pension advice and banking services. The products and services from
which the group derives its revenues are described in 'our business at a
glance' on page 2 of the annual report and accounts for the year ended
31 December 2017 and have not materially changed since that date.
These condensed consolidated interim financial statements are presented
in accordance with IAS 34 'Interim Financial Reporting' as adopted by
the EU. The condensed consolidated interim financial statements have
been prepared on a going concern basis, using the accounting policies,
methods of computation and presentation set out in the group's financial
statements for the year ended 31 December 2017 except as disclosed in
note 2. The condensed consolidated interim financial statements should
be read in conjunction with the group's audited financial statements for
the year ended 31 December 2017, which are prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU.
The information in this announcement does not comprise statutory
financial statements within the meaning of section 434 of the Companies
Act 2006. The comparative figures for the financial year ended 31
December 2017 are not the group's statutory accounts for that financial
year. The group's financial statements for the year ended 31 December
2017 have been reported on by its auditors and delivered to the
Registrar of Companies. The report of the auditors on those financial
statements was unqualified and did not draw attention to any matters by
way of emphasis. It also did not contain a statement under section 498
of the Companies Act 2006.
Developments in reporting standards and interpretations
Standards and interpretations adopted during the current reporting
period
This is the first set of the group's financial statements where IFRS 9
and IFRS 15 have been applied. These new standards were adopted from 1
January 2018. Under the transition methods chosen, comparative
information is not restated. Changes to significant accounting policies
are described in note 2.
The following amendments to standards have also been adopted in the
current period, but have not had a significant impact on the amounts
reported in these financial statements:
-- Classification and Measurement of Share-based Payment Transactions
(Amendments to IFRS 2).
Future new standards and interpretations
IFRS 16 'Leases'
IFRS 16 is effective for periods commencing on or after 1 January 2019.
The standard was endorsed by the EU during 2017. The group has not
adopted this standard early.
IFRS 16 eliminates the classification of leases as either operating
leases or finance leases. The group will be required to recognise all
leases with a term of more than 12 months as a right-of-use lease asset
on its balance sheet; the group will also recognise a financial
liability representing its obligation to make future lease payments.
Transition
Definition of a lease
On transition to IFRS 16, the group can choose whether to:
- apply the new definition of a lease to all its contracts as if IFRS 16
had always applied; or
- apply a practical expedient and retain its previous assessments of
which contracts contain a lease.
The group intends to apply the practical expedient and therefore will
not be reassessing those contracts that are not deemed to contain a
lease prior to the date of adoption.
Retrospective approach
As a lessee, the group can apply the standard using either:
- a retrospective approach; or
- a modified retrospective approach with optional practical expedients.
The group has assessed the impact of both approaches in relation to its
existing lease contracts, and is most likely to apply the modified
retrospective approach.
Potential impact
The group has conducted an initial quantification of the impact of
adopting the standard, based on its existing lease contracts.
The group's total assets and total liabilities will be increased by the
recognition of lease assets and liabilities. The lease assets will be
depreciated over the shorter of the expected life of the asset and the
lease term. The lease liability will be reduced by lease payments,
offset by the unwinding of the liability over the lease term.
The most significant impact is in respect of its London head office
premises. As at 30 June 2018, the group's future minimum lease payments
under non-cancellable operating leases amounted to GBP89,841,000, on an
undiscounted basis, of which GBP75,946,000 relates to its 8 Finsbury
Circus office.
On the group's statement of comprehensive income, the profile of lease
costs will be front-loaded, at least individually, as the interest
charge is higher in the early years of a lease term as the discount rate
unwinds. The total cost of the lease over the lease term is expected to
be unchanged.
In addition to the above impacts, recognition of lease assets will
increase the group's regulatory capital requirement.
Lessor accounting
The group is not required to make any adjustments for leases in which it
is a lessor except where it is an intermediate lessor in a sub-lease.
The work to quantify the impact of being an intermediate lessor remains
ongoing.
2 Changes in significant accounting policies
Except as described below, the accounting policies applied in these
condensed consolidated interim financial statements are the same as
those applied in the group's consolidated financial statements as at and
for the year ended 31 December 2017.
The changes in accounting policies will also be reflected in the group's
consolidated financial statements as at and for the year ending 31
December 2018.
The group has adopted IFRS 9 'Financial Instruments' and IFRS 15
'Revenue from Contracts with Customers' from 1 January 2018.
The effect of applying these standards is mainly attributed to the
following:
-- an increase in impairment losses recognised on financial assets (IFRS 9);
-- an increase in client relationship intangibles in respect of the
additional capitalisation of payments made to investment managers (IFRS
15); and
-- earlier recognition of revenue in Rathbone Trust Company Limited (IFRS
15).
IFRS 9 'Financial Instruments'
IFRS 9 governs the accounting treatment for the classification and
measurement of financial instruments and the timing and extent of credit
provisioning. The standard replaces IAS 39.
Transition
The group has taken advantage of the exemption from restating
comparative information for prior periods with respect to classification
and measurement (including impairment) requirements. Differences in the
carrying amounts of financial assets and financial liabilities resulting
from the adoption of IFRS 9 are recognised in retained earnings and
reserves as at 1 January 2018. Accordingly, the information presented
for 2017 does not generally reflect the requirements of IFRS 9 but
rather those of IAS 39.
Under the requirements of IFRS 9, the following assessments have been
made on the basis of the facts and circumstances that existed at the
date of initial application.
-- The nature of the business model under which a financial asset is
managed.
-- Whether the SPPI (solely payments of principal and interest) criterion is
met.
-- The designation of certain financial assets as measured at fair value
through profit or loss.
If an investment in a debt instrument had a low credit risk at the date
of initial application of IFRS 9, then the group assumes that the credit
risk on the asset has not increased significantly since its initial
recognition.
The following table summarises the impact, net of tax, of transition to
IFRS 9 on the opening balance of reserves and retained earnings:
Impact of adopting IFRS 9 on opening balance
Available for sale reserve Retained earnings
GBP'000 GBP'000
Recycle to retained earnings of available for sale
reserve (250) 250
Recognition of expected credit losses under IFRS 9 - (148)
Impact at 1 January 2018 (250) 102
The hedge accounting requirements of IFRS 9 have not been applied, as
the group was not party to any hedging relationships as at 1 January
2018.
Classification and measurement of financial assets and financial
liabilities
The basis of classification for financial assets under IFRS 9 is
different from that under IAS 39. Financial assets are classified into
one of three categories: amortised cost, fair value through profit or
loss (FVTPL) or fair value through other comprehensive income (FVOCI).
The held to maturity, loans and receivables and available for sale
categories available under IAS 39 have been removed.
The classification criteria for allocating financial assets between
categories under IFRS 9 require the group to document the business
models under which its assets are managed, distinguishing whether:
-- its objective is to hold assets to collect contractual cash flows;
-- its objective is both to collect contractual cash flows and to sell the
asset; or
-- it represents another type of business model (e.g. trading).
The group is also required to review contractual terms and conditions to
determine whether the cash flows arising on these assets are solely
payments of principal and interest on the principal amount outstanding.
All of the group's financial assets as at 1 January 2018 were managed
within business models whose objective is solely to collect contractual
cash flows, except equity securities and money market funds, which are
equity instruments not held for trading and have been classified as fair
value through profit or loss.
The effect of adopting IFRS 9 on the carrying amounts of financial
assets at 1 January 2018 relates solely to the new impairment
requirements, as described further below.
The following table explains the original measurement categories under
IAS 39 and the new measurement categories under IFRS 9 for each class of
the group's financial assets as at 1 January 2018.
Original New
Financial classification Original carrying amount under IAS 39 classification New carrying amount under IFRS 9
assets under IAS 39 GBP'000 under IFRS 9 GBP'000
Cash and
balances
with
central Loans and
banks receivables 1,375,382 Amortised cost 1,375,290
Loans and
advances Loans and
to banks receivables 117,253 Amortised cost 117,250
Loans and
advances
to Loans and
customers receivables 126,213 Amortised cost 126,191
Fair value
Equity Available for through profit
securities sale 2,565 or loss 2,565
Money Fair value
market Available for through profit
funds sale 106,747 or loss 106,747
Debt Held to
securities maturity 701,966 Amortised cost 701,935
Other
financial Loans and
assets receivables 112,483 Amortised cost 112,483
Total financial assets 2,542,609 2,542,461
The basis of classification for financial liabilities under IFRS 9
remains unchanged from under IAS 39. The two categories are amortised
cost or fair value through profit or loss (either designated as such or
held for trading).
The group has not designated any liabilities as fair value through
profit or loss. Therefore, under IFRS 9, the group has classified all
financial liabilities as amortised cost, with no material impact on
measurement.
Impairment of financial assets
Under IFRS 9, an expected credit loss (ECL) model replaces the incurred
loss model, meaning there no longer needs to be a triggering event in
order to recognise impairment losses. A credit loss provision must be
made for the amount of any loss expected to arise, whereas under IAS 39,
credit losses are recognised when they are incurred.
Under the ECL model, a dual measurement approach applies whereby a
financial asset will attract an ECL allowance equal to either:
-- 12 month expected credit losses (losses resulting from possible defaults
within the next 12 months); or
-- lifetime expected credit losses (losses resulting from possible defaults
over the remaining life of the financial asset).
The latter applies if there has been a significant deterioration in the
credit quality of the asset, albeit lifetime ECLs will always be
recognised for assets without a significant financing component.
The maximum period considered when estimating ECLs is the maximum
contractual period over which the group is exposed to credit risk.
Measurement of ECLs
Treasury book and investment management loan book
The group has developed a detailed model for calculating ECLs on its
treasury book and investment management loan book. This requires
considerable judgement in developing different economic scenarios and
probability-weighting them accordingly.
The economic scenarios in the model are based on the projections of GDP,
inflation, unemployment rates, house price indices, financial markets
and interest rates as set out in the banking system stress testing
scenario published annually by the PRA. In addition, management prepare
'better' and 'worse' case economic forecasts by adjusting the
projections for the economic variables.
Under each resultant scenario, an expected credit loss is forecast for
each exposure in the treasury book and investment management loan book.
The expected credit loss is calculated based on management's estimate of
the probability of default, the loss given default and the exposure at
default of each exposure taking into account industry credit loss data,
the group's own credit loss experience, the expected repayment profiles
of the exposures and the level of collateral held. Industry credit loss
information is drawn from data on credit defaults for different
categories of exposure published by the Council of Mortgage Lenders and
Standard & Poor's.
The model adopts a staging allocation methodology, primarily based on
changes in the internal and/or external credit rating of exposures to
identify significant increases in credit risk since inception of the
exposure.
The group has not rebutted the presumption that if an exposure is more
than 30 days past due, the associated credit risk has significantly
increased.
ECLs are discounted back to the balance sheet date at the effective
interest rate of the asset.
The impact of applying this methodology as at 1 January 2018 is shown
below.
Trust and financial planning debtors
The group's trust and financial planning debtors are generally short
term and do not contain significant financing components. Therefore, the
group has applied a practical expedient by using a provision matrix to
calculate lifetime expected credit losses based on actual credit loss
experience over the past four years.
Applying this methodology as at 1 January 2018 resulted in an impairment
loss provision of GBP87,000 under IFRS 9 relating to trust and financial
planning debtors (31 December 2017: GBP66,000 under IAS 39). This
methodology has also been applied at the interim reporting date.
Credit-impaired financial assets
At each reporting date, the group assesses whether financial assets
carried at amortised cost are credit-impaired. A financial asset is
'credit-impaired' when one or more events that have a detrimental impact
on the estimated future cash flows of the financial asset have occurred.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost are
deducted from the gross carrying amount of the assets.
Impairment losses related to the group's treasury book and investment
management loan book are presented in 'interest expense and similar
charges' and those related to all other financial assets (including
trust and financial planning debtors) are presented under 'other
operating expenses'. No losses are presented separately on the statement
of the comprehensive income and there have been no reclassifications of
amounts previously recognised under IAS 39.
Impact of the new impairment model
The group has determined that the initial application of IFRS 9's
impairment requirements at 1 January 2018 results in an additional
impairment provision as follows:
GBP'000
Loss provision at 31 December 2017 under IAS 39 66
Additional impairment recognised at 1 January 2018
on:
-- cash and balances with central banks 92
-- loans and advances to banks 3
-- loans and advances to customers:
-- investment management loan book 1
-- trust and financial planning debtors 21
-- debt securities 31
Loss provision at 1 January 2018 under IFRS 9 214
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 changes how and when revenue is recognised from contracts with
customers and the treatment of the costs of obtaining a contract with a
customer. The standard requires that the recognition of revenue is
linked to the fulfilment of identified performance obligations that are
enshrined in the customer contract. It also requires that the
incremental cost of obtaining a customer contract should be capitalised
if that cost is expected to be recovered. The standard replaces existing
revenue recognition guidance, in particular under IAS 18.
Transition
The group has adopted IFRS 15 using the cumulative effect method, with
the effect of applying the standard recognised at the date of adoption,
with no restatement of the comparative period. The following table
summarises the impact, net of tax, of transition to IFRS 15 on retained
earnings at 1 January 2018.
Impact of adopting IFRS 15 on opening balance
GBP'000
Retained earnings
Recognition of intangible assets under IFRS 15 8,268
Reduction in accruals 4,011
Recognition of provisions (4,075)
Impact of changes to timing of recognition of certain
time-based fees 296
Related tax (57)
Impact at 1 January 2018 8,443
Impact on financial statements for the six months to 30 June 2018
The group has considered the impact of adopting the standard, on its
existing revenue streams, as well as on its policy of capitalising the
cost of obtaining customer contracts.
Net fee and commission income
Included within net fee and commission income are initial fees, charged
by a number of group companies in relation to certain business
activities. Under IFRS 15, the group has made an assessment as to
whether the work performed to earn such fees constitutes the transfer of
services and, therefore, fulfils any performance obligation(s). If so,
then these fees can be recognised when the relevant performance
obligation has been satisfied; if not, then the fees can only be
recognised in the period in which the services are provided.
The adoption of IFRS 15 has not had a significant impact on the group's
accounting policies for revenue recognition.
A breakdown of the timing of revenue recognition can be found in note 3.
Contract costs
Under the group's previous policy under IAS 18 for capitalising contract
costs, incremental payments that were made to secure investment
management contracts were capitalised as client relationship intangibles
if they were separable, reliably measurable and expected to be
recovered. The period during which such payments are capitalised was
typically the 12 months following the end of any non-compete period.
Under IFRS 15, the scope requirements are broader such that costs to
obtain any contract with a customer should be capitalised if those costs
are incremental and the entity expects to recover them.
The group has assessed its previous policy and has removed the 12 month
limit on capitalisation of payments to newly recruited investment
managers under the new standard. The policy is unchanged in all other
respects.
The group has also identified a number of other schemes where awards are
linked to obtaining client contracts and has considered whether any meet
the new criteria for capitalising costs under IFRS 15. The group has
determined that the adoption of the new standard has not resulted in any
awards made under these schemes being capitalised. The costs of these
awards continue to be expensed through staff costs.
The following tables summarise the impacts of adopting IFRS 15 on the
group's interim statement of comprehensive income for the six months
ended 30 June 2018 and its interim balance sheet as at that date for
each of the line items affected. There was no impact on the group's
interim statement of cash flows for the six month period ended 30 June
2018.
Impact on the condensed consolidated interim statement of comprehensive
income (extract)
As reported unaudited
Six months to Amounts without
30 June 2018 Adjustments adoption of IFRS 15
GBP'000 GBP'000 GBP'000
Operating income 153,191 238 153,429
Charges in relation to client relationships and
goodwill (6,198) 373 (5,825)
Other operating expenses (104,933) (112) (105,045)
Operating expenses (109,515) 261 (109,254)
Profit before tax 43,676 499 44,175
Taxation (8,931) (95) (9,026)
Profit for the period attributable to equity holders
of the company 34,745 404 35,149
Other comprehensive income net of tax (14) - (14)
Total comprehensive income for the period net of tax
attributable to equity holders of the company 34,731 404 35,135
Impact on the condensed consolidated interim balance sheet (extract)
As reported unaudited Amounts without
30 June 2018 Adjustments adoption of IFRS 15
GBP'000 GBP'000 GBP'000
Assets
Prepayments, accrued
income and other
assets 94,366 (59) 94,307
Intangible assets 163,149 (8,461) 154,688
Total assets 2,781,544 (8,520) 2,773,024
Liabilities
Accruals, deferred
income and other
liabilities 74,375 1,966 76,341
Current tax
liabilities 7,134 38 7,172
Provisions for
liabilities and
charges 15,138 (2,052) 13,086
Total liabilities 2,333,711 (48) 2,333,663
Equity
Retained earnings 214,213 (8,472) 205,741
Total equity 447,833 (8,472) 439,361
Total liabilities
and equity 2,781,544 (8,520) 2,773,024
3 Segmental information
For management purposes, the group is organised into two operating
divisions: Investment Management and Unit Trusts. Centrally incurred
indirect expenses are allocated to these operating segments on the basis
of the cost drivers that generate the expenditure. These are,
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. 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,
which is the group's chief operating decision maker.
Investment Management Unit Trusts Indirect expenses Total
Six months ended 30 June 2018 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000
Net investment management fee income 98,350 15,916 - 114,266
Net commission income 20,973 - - 20,973
Net interest income 6,903 - - 6,903
Fees from advisory services and other income 9,087 1,962 - 11,049
Underlying operating income 135,313 17,878 - 153,191
Staff costs - fixed (31,864) (1,658) (13,289) (46,811)
Staff costs - variable (17,759) (3,813) (4,349) (25,921)
Total staff costs (49,623) (5,471) (17,638) (72,732)
Other direct expenses (12,086) (3,012) (17,103) (32,201)
Allocation of indirect expenses (31,707) (3,034) 34,741 -
Underlying operating expenses (93,416) (11,517) - (104,933)
Underlying profit before tax 41,897 6,361 - 48,258
Charges in relation to client relationships and goodwill
(note 12) (6,198) - - (6,198)
Acquisition-related costs (note 4) (669) - (639) (1,308)
Segment profit before tax 35,030 6,361 (639) 40,752
Head office relocation (note 5) 2,924
Profit before tax 43,676
Taxation (note 7) (8,931)
Profit for the period attributable to equity holders
of the company 34,745
Investment Management Unit Trusts Total
GBP'000 GBP'000 GBP'000
Segment total assets 2,681,662 95,976 2,777,638
Unallocated assets 3,906
Total assets 2,781,544
Investment Management Unit Trusts Indirect expenses Total
Six months ended 30 June 2017 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000
Net investment management fee income 92,523 13,018 - 105,541
Net commission income 21,869 - - 21,869
Net interest income 5,600 - - 5,600
Fees from advisory services and other income 7,433 1,931 - 9,364
Underlying operating income 127,425 14,949 - 142,374
Staff costs - fixed (30,448) (1,545) (12,744) (44,737)
Staff costs - variable (19,675) (3,507) (2,604) (25,786)
Total staff costs (50,123) (5,052) (15,348) (70,523)
Other direct expenses (10,389) (1,830) (16,353) (28,572)
Allocation of indirect expenses (28,743) (2,958) 31,701 -
Underlying operating expenses (89,255) (9,840) - (99,095)
Underlying profit before tax 38,170 5,109 - 43,279
Charges in relation to client relationships and goodwill
(note 12) (5,960) - - (5,960)
Acquisition-related costs (note 4) (487) - - (487)
Segment profit before tax 31,723 5,109 - 36,832
Gain on plan amendment of defined benefit pension
schemes (note 15) 5,523
Head office relocation (note 5) (15,769)
Profit before tax 26,586
Taxation (note 7) (5,612)
Profit for the period attributable to equity holders
of the company 20,974
Investment Management Unit Trusts Total
GBP'000 GBP'000 GBP'000
Segment total assets 2,758,696 66,358 2,825,054
Unallocated assets 4,842
Total assets 2,829,896
Investment Management Unit Trusts Indirect expenses Total
Year ended 31 December 2017 (audited) GBP'000 GBP'000 GBP'000 GBP'000
Net investment management fee income 189,465 28,020 - 217,485
Net commission income 38,729 - - 38,729
Net interest income 11,594 - - 11,594
Fees from advisory services and other income 14,831 3,410 - 18,241
Underlying operating income 254,619 31,430 - 286,049
Staff costs - fixed (59,457) (3,040) (25,294) (87,791)
Staff costs - variable (40,240) (7,246) (5,843) (53,329)
Total staff costs (99,697) (10,286) (31,137) (141,120)
Other direct expenses (21,893) (4,415) (31,101) (57,409)
Allocation of indirect expenses (56,188) (6,050) 62,238 -
Underlying operating expenses (177,778) (20,751) - (198,529)
Underlying profit before tax 76,841 10,679 - 87,520
Charges in relation to client relationships and goodwill
(note 12) (11,716) - - (11,716)
Acquisition-related costs (note 4) (1,273) - (4,905) (6,178)
Segment profit before tax 63,852 10,679 (4,905) 69,626
Gain on plan amendment of defined benefit pension
schemes (note 15) 5,523
Head office relocation (note 5) (16,248)
Profit before tax 58,901
Taxation (note 7) (12,072)
Profit for the year attributable to equity holders
of the company 46,829
Investment Management Unit Trusts Total
GBP'000 GBP'000 GBP'000
Segment total assets 2,659,723 74,672 2,734,395
Unallocated assets 4,455
Total assets 2,738,850
The following table reconciles underlying operating income to operating
income:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Underlying operating income 153,191 142,374 286,049
Gain on plan amendment of defined benefit pension
schemes (note 15) - 5,523 5,523
Operating income 153,191 147,897 291,572
The following table reconciles underlying operating expenses to
operating expenses:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Underlying operating expenses 104,933 99,095 198,529
Charges in relation to client relationships and goodwill
(note 12) 6,198 5,960 11,716
Acquisition-related costs (note 4) 1,308 487 6,178
Head office relocation (note 5) (2,924) 15,769 16,248
Operating expenses 109,515 121,311 232,671
Included within Investment Management underlying operating income is
GBP1,247,000 (30 June 2017: GBP951,000; 31 December 2017: GBP2,049,000)
of fees and commissions receivable from Unit Trusts. Intersegment sales
are charged at prevailing market prices.
Geographic analysis
The following table presents operating income analysed by the
geographical location of the group entity providing the service:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
United Kingdom 147,717 142,503 280,892
Jersey 5,474 5,394 10,680
Operating income 153,191 147,897 291,572
The group's non-current assets are substantially all located in the
United Kingdom.
Timing of revenue recognition
The following table presents operating income analysed by the timing of
revenue recognition of the operating segment providing the service:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
Investment Management Unit Trusts Investment Management Unit Trusts Investment Management Unit Trusts
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Products and
services
transferred
at a point
in time 22,311 1,794 23,493 1,787 42,036 3,104
Products and
services
transferred
over time 113,002 16,084 103,932 13,162 212,583 28,326
Underlying
operating
income 135,313 17,878 127,425 14,949 254,619 31,430
Major clients
The group is not reliant on any one client or group of connected clients
for generation of revenues. At 30 June 2018, the group provided
investment management services to 51,000 clients (30 June 2017: 49,000;
31 December 2017: 50,000).
4 Acquisition-related costs
Costs relating to the acquisition of Speirs & Jeffrey
On 14 June 2018, the group announced it was acquiring 100% of the share
capital of Speirs and Jeffrey, subject to approval by FCA. The group
incurred professional services costs of GBP639,000 (30 June 2017 and 31
December 2017: GBPnil) in relation to the acquisition in the six months
ended 30 June 2018. Further costs of up to GBP2,000,000 become payable
subject to the completion of the transaction.
Costs relating to the acquisition of Vision Independent Financial
Planning and Castle Investment Solutions
The group has incurred the following costs in relation to the 2015
acquisition of Vision Independent Financial Planning and Castle
Investment Solutions, summarised by the classification with the income
statement:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Staff costs 498 438 1,026
Interest expense 171 49 247
669 487 1,273
Amounts reported in staff costs relate to deferred payments to previous
owners who remain in employment with the acquired companies.
Costs relating to merger discussions with Smith & Williamson
In the year ended 31 December 2017 the group incurred professional
services costs of GBP4,905,000 (30 June 2017: GBP1,845,000) in relation
to the merger discussions with Smith & Williamson. On 31 August 2017,
the group announced that these discussions had been terminated. Thus no
such costs have been incurred in the six months ended 30 June 2018.
5 Head office relocation
On 6 June 2018, the group completed the assignment of its leases on
surplus property at 1 Curzon Street. The completion of the deal
triggered a release of GBP3,726,000 from the onerous lease provision
held over the property (see note 13).
During the six months to 30 June 2018, credit of GBP2,924,000 (30 June
2017: costs of GBP16,107,000 incurred; 31 December 2017: cost of
GBP16,248,000 incurred) were incurred. These incremental costs were as
follows:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Rental costs for 8 Finsbury Circus prior to relocation - 538 536
Accelerated depreciation charge for 1 Curzon Street - 779 779
Provision for dilapidations 492 123 248
Credit/charge in relation to onerous lease provision
(note 13) (3,726) 15,617 16,064
Interest charge in relation to onerous lease provision 43 338 201
Release of rent free period and landlord contribution
on recognition of the onerous lease provision - (2,148) (2,148)
Professional and other costs 267 522 568
(2,924) 15,769 16,248
6 Staff numbers
The average number of employees, on a full time equivalent basis, during
the period was as follows:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
Investment Management:
-- investment management services 769 724 734
-- advisory services 103 89 92
Unit Trusts 32 27 28
Shared services 321 283 293
1,225 1,123 1,147
7 Taxation
The tax expense for the six months ended 30 June 2018 was calculated
based on the estimated average annual effective tax rate. The overall
effective tax rate for this period was 20.4% (six months ended 30 June
2017: 21.1%; year ended 31 December 2017: 20.5%).
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
United Kingdom taxation 7,389 5,527 12,855
Overseas taxation 153 179 307
Deferred taxation 1,389 (94) (1,090)
8,931 5,612 12,072
The underlying UK corporation tax rate for the year ending 31 December
2018 is 19.0% (2017: 19.2%).
The Finance Bill 2016 contained legislation to reduce the UK corporation
tax rate to 17.0% in April 2020 and was substantively enacted in
September 2016. Deferred income taxes are calculated on all temporary
differences under the liability method using the rate expected to apply
when the relevant timing differences are forecast to unwind.
8 Dividends
An interim dividend of 24.0p per share was declared on 24 July 2018 and
is payable on 2 October 2018 to shareholders on the register at the
close of business on 7 September 2018 (30 June 2017: 22.0p). In
accordance with IFRS, the interim dividend has not been included as a
liability in this interim statement. A final dividend for 2017 of 39.0p
per share was paid on 14 May 2018.
9 Earnings per share
Earnings used to calculate earnings per share on the bases reported in
these condensed consolidated interim financial statements were:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
Pre-tax Post-tax Pre-tax Post-tax Pre-tax Post-tax
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Underlying profit attributable to equity holders 48,258 38,713 43,279 34,457 87,520 70,094
Gain on plan amendment of defined benefit pension
schemes (note 15) - - 5,523 4,460 5,523 4,460
Charges in relation to client relationships and goodwill
(note 12) (6,198) (5,020) (5,960) (4,813) (11,716) (9,461)
Acquisition-related costs (note 4) (1,308) (1,308) (487) (487) (6,178) (5,234)
Head office relocation (note 5) 2,924 2,360 (15,769) (12,643) (16,248) (13,030)
Profit attributable to equity holders 43,676 34,745 26,586 20,974 58,901 46,829
Basic earnings per share has been calculated by dividing profit
attributable to equity holders by the weighted average number of shares
in issue throughout the period, excluding own shares, of 50,855,180 (30
June 2017: 50,403,394; 31 December 2017: 50,493,984).
Diluted earnings per share is the basic earnings per share, adjusted for
the effect of contingently issuable shares under the Executive Incentive
Plan, 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:
Unaudited Unaudited Audited
30 June 2018 30 June 2017 31 December 2017
Weighted average number of ordinary shares in issue
during the period - basic 50,855,180 50,403,394 50,493,984
Effect of ordinary share options/Save As You Earn 163,305 171,711 188,549
Effect of dilutive shares issuable under the Share
Incentive Plan 12,065 11,043 59,030
Effect of contingently issuable ordinary shares under
the Executive Incentive Plan 353,605 221,128 228,702
Diluted ordinary shares 51,384,155 50,807,276 50,970,265
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
Underlying earnings per share for the period attributable
to equity holders of the company:
76.1p 68.4p 138.8p
-- basic
75.3p 67.8p 137.5p
-- diluted
10 Loans and advances to customers
Unaudited Unaudited Audited
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Overdrafts 4,691 6,997 4,621
Investment management loan
book 117,082 115,538 120,509
Trust and financial planning
debtors 1,062 748 1,048
Other debtors 29 20 35
122,864 123,303 126,213
11 Property, plant and equipment
During the six months ended 30 June 2018, the group purchased assets
with a cost of GBP1,638,000 (six months ended 30 June 2017:
GBP3,022,000; year ended 31 December 2017: GBP4,265,000). The move to 8
Finsbury Circus accounted for GBPnil (six months ended 30 June 2017:
GBP2,760,000; year ended 31 December 2017: GBP2,821,000) of the amount
capitalised in the six months ended 30 June 2018.
12 Intangible assets
Total
Goodwill Client relationships Software development costs Purchased software intangibles
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 31 December 2017 (audited) 64,272 145,412 5,759 30,590 246,033
Adjustment on initial application of IFRS 15 (note
2) - 9,691 - - 9,691
At 1 January 2018 (unaudited) 64,272 155,103 5,759 30,590 255,724
Internally developed in the period - - 660 - 660
Purchased in the period - 1,359 - 2,261 3,620
Disposals - (1,103) - - (1,103)
Revaluation of assets - (3,201) - - (3,201)
At 30 June 2018 64,272 152,158 6,419 32,851 255,700
Amortisation and impairment
At 31 December 2017 (audited) 1,090 56,901 4,529 21,536 84,056
Adjustment on initial application of IFRS 15 (note
2) - 1,423 - - 1,423
At 1 January 2018 (unaudited) 1,090 58,324 4,529 21,536 85,479
Charge in the period 269 5,929 293 1,684 8,175
Disposals - (1,103) - - (1,103)
At 30 June 2018 1,359 63,150 4,822 23,220 92,551
Carrying value at 30 June 2018 (unaudited) 62,913 89,008 1,597 9,631 163,149
Carrying value at 30 June 2017 (unaudited) 63,182 93,120 1,050 5,971 163,323
Carrying value at 31 December 2017 (audited) 63,182 88,511 1,230 9,054 161,977
Carrying value at 1 January 2018 (unaudited) 63,182 96,779 1,230 9,054 170,245
The total amount charged to profit or loss in the period, in relation to
goodwill and client relationships, was GBP6,198,000 (six months ended 30
June 2017: GBP5,960,000; year ended 31 December 2017: GBP11,716,000).
The value of certain awards related to client relationships were reduced
by GBP3,201,000 during the period as not all performance conditions were
ultimately met.
Impairment
During the period, the group updated its assessment of goodwill
allocated to the investment management, trust and tax and Rooper &
Whately cash generating units (CGUs) for impairment.
The recoverable amounts of goodwill allocated to the CGUs are determined
from value-in-use calculations. There was no indication of impairment of
goodwill allocated to the investment management or Rooper & Whately CGUs
during the period.
The calculated recoverable amount of goodwill allocated to the trust and
tax CGU at 30 June 2018 was GBP595,000, which was lower than the
carrying value of GBP864,000 at 31 December 2017. The recoverable amount
was calculated based on forecast earnings for the current year,
extrapolated for a 10 year period, assuming an annual decrease in
revenues of 1.0% per annum (31 December 2017: decrease of 1.0% per
annum). The pre-tax rate used to discount the forecast cash flows was
15.0% (31 December 2017: 14.0%) as the group judges this discount rate
appropriately reflects the market in which the CGU operates and, in
particular, its small size. The group has therefore recognised an
impairment charge of GBP269,000 during the period. This impairment has
been included in the Investment Management segment in the segmental
analysis (note 3).
13 Provisions for liabilities and charges
Deferred, variable costs to acquire client relationship Deferred and contingent consideration in business
intangibles combinations Legal and compensation Property-related Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2017 10,212 1,136 598 2,798 14,744
Charged to profit or loss - - 93 16,105 16,198
Unused amount credited to profit or loss - - - - -
Net charge to profit or loss - - 93 16,105 16,198
Other movements 1,597 (13) - - 1,584
Utilised/paid during the period (4,820) - (46) (2,968) (7,834)
At 30 June 2017 (unaudited) 6,989 1,123 645 15,935 24,692
Charged to profit or loss - - 155 429 584
Unused amount credited to profit or loss - - (54) - (54)
Net charge to profit or loss - - 101 429 530
Other movements 1,146 97 - - 1,243
Utilised/paid during the period (63) - (69) (2,621) (2,753)
At 31 December 2017 (audited) 8,072 1,220 677 13,743 23,712
Adjustment on initial application of IFRS 15 (note
2) 4,075 - - - 4,075
At 1 January 2018 (unaudited) 12,147 1,220 677 13,743 27,787
Charged to profit or loss - - 143 514 657
Unused amount credited to profit or loss - - (50) (3,726) (3,776)
Net credit to profit or loss - - 93 (3,212) (3,119)
Other movements (1,842) 35 - - (1,807)
Utilised/paid during the period (4,544) - (204) (2,975) (7,723)
At 30 June 2018 (unaudited) 5,761 1,255 566 7,556 15,138
Payable within 1 year 5,316 - 566 4,257 10,139
Payable after 1 year 445 1,255 - 3,299 4,999
At 30 June 2018 (unaudited) 5,761 1,255 566 7,556 15,138
Deferred, variable costs to acquire client relationship intangibles
Other movements in provisions relate to deferred payments to investment
managers and third parties for the introduction of client relationships,
which have been capitalised in the period.
Deferred and contingent consideration in business combinations
Deferred and contingent consideration of GBP1,255,000 (30 June 2017:
GBP1,123,000; 31 December 2017: GBP1,220,000) is the present value of
amounts payable at the end of 2019 in respect of the acquisition of
Vision and Castle.
Legal and compensation
During the ordinary course of business the group may, from time-to-time,
be subject to complaints, as well as threatened and actual legal
proceedings (which may include lawsuits brought on behalf of clients or
other third parties) both in the UK and overseas. Any such material
matters are periodically reassessed, with the assistance of external
professional advisers where appropriate, to determine the likelihood of
the group incurring a liability. In those instances where it is
concluded that it is more likely than not that a payment will be made, a
provision is established to the group's best estimate of the amount
required to settle the obligation at the relevant balance sheet date.
The timing of settlement of provisions for client compensation or
litigation is dependent, in part, on the duration of negotiations with
third parties.
Property-related
Property-related provisions of GBP7,556,000 relate to dilapidation and
onerous lease provisions expected to arise on leasehold premises held by
the group (30 June 2017: GBP15,935,000; 31 December 2017:
GBP13,743,000).
On 6 June 2018, the group completed assignment of its leases on surplus
property at 1 Curzon Street, which triggered a release of GBP3,726,000
from the onerous lease provision held over the property. The timing of
cash flows from the group relating to monies due under the contract with
the assignee are subject to the level of rent paid by the assignee
following the rent review due in the third quarter of 2018.
Dilapidation provisions are calculated using a discounted cash flow
model. During the six months ended 30 June 2018, dilapidation provisions
decreased by GBP418,000 (30 June 2017: decreased GBP554,000; 31 December
2017: decreased GBP533,000). The group recognised an additional
GBP492,000 in relation to amounts due to the assignee of the 1 Curzon
Street leases as part of a fit out contribution included within the
contract to assign. The group utilised GBP889,000 (30 June 2017:
GBP704,000; 31 December 2017: GBP802,000) of the dilapidations provision
held for the property at 1 Curzon Street during the period. The impact
of discounting led to an reduction of GBP21,000 (30 June 2017:
additional GBP150,000; 31 December 2017: additional GBP82,000) being
provided for over the period.
Amounts payable after one year
Property-related provisions of GBP3,299,000 are expected to be settled
within 18 years of the balance sheet date, which corresponds to the
longest lease for which a dilapidations provision is being held.
Provisions for deferred and contingent consideration in business
combinations of GBP1,255,000 are expected to be settled within two years
of the balance sheet date. Remaining provisions payable after one year
are expected to be settled within three years of the balance sheet date.
14 Subordinated loan notes
Unaudited Unaudited Audited
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Subordinated loan notes
-- face value 20,000 20,000 20,000
-- carrying value 19,751 19,643 19,695
Subordinated loan notes consist of 10-year Tier 2 notes, which are
repayable in August 2025, with a call option 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 six month
LIBOR thereafter.
An interest expense of GBP641,000 (30 June 2017: GBP637,000; 31 December
2017: GBP1,276,000) was recognised in the period.
15 Long term employee benefits
The group operates two defined benefit pension schemes providing
benefits based on pensionable salary for staff employed by the company.
For the purposes of calculating the pension benefit obligations, the
following assumptions have been used:
Unaudited Unaudited Audited
30 June 2018 30 June 2017 31 December 2017
% p.a. % p.a. % p.a.
Rate of increase of pensions in payment:
-- Laurence Keen Scheme 3.50 3.60 3.60
-- Rathbone 1987 Scheme 3.20 3.40 3.40
Rate of increase of deferred pensions 3.30 3.50 3.50
Discount rate 2.75 2.75 2.65
Inflation* 3.30 3.50 3.50
Percentage of members transferring out of the schemes
per annum 3.00 3.00 3.00
Average age of members at date of transferring out
(years) 52.50 52.00 52.50
Average duration of defined benefit obligation
(years):
-- Laurence Keen Scheme 16.00 19.00 16.00
-- Rathbone 1987 Scheme 20.00 23.00 20.00
* Inflation assumptions are based on the Retail Prices Index
The assumed life expectations of members retiring, aged 65 were:
Unaudited 30 June Unaudited 30 June Audited 31 December
2018 2017 2017
Males Females Males Females Males Females
Retiring
today 23.8 25.7 23.7 25.6 23.7 25.6
Retiring
in 20
years 25.5 27.5 25.4 27.4 25.4 27.4
The amount included in the balance sheet arising from the group's
obligations in respect of the schemes is as follows:
Unaudited 30 June 2018 Unaudited 30 June 2017 Audited 31 December 2017
Rathbone 1987 Scheme Laurence Keen Scheme Rathbone 1987 Scheme Laurence Keen Scheme Rathbone 1987 Scheme Laurence Keen Scheme
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Present
value of
defined
benefit
obligations (143,028) (12,601) (165,322) (12,937) (151,133) (12,980)
Fair value
of scheme
assets 129,663 11,914 146,218 12,023 136,235 12,278
Total
deficit (13,365) (687) (19,104) (914) (14,898) (702)
The group made lump sum contributions into its pension schemes totalling
GBP1,738,000 during the period (30 June 2017: GBP1,750,000; 31 December
2017: GBP2,838,000).
With effect from 30 June 2017, the link between past service benefit and
pensionable salaries was broken for both schemes and the Rathbone 1987
Scheme was closed to future accrual from this date. This resulted in a
plan amendment gain of GBP5,523,000 being recognised in operating income
on that date.
16 Share capital and share premium
The following movements in share capital occurred during the period:
Number of Exercise price Share capital Share premium Total
shares pence GBP'000 GBP'000 GBP'000
At 1 January 2017 50,682,679 2,535 139,991 142,526
Shares issued:
1,784.0 -
-- to Share Incentive Plan 76,983 2,429.0 4 1,475 1,479
984.0 -
-- to Save As You Earn scheme 85,838 1,648.0 4 1,243 1,247
-- to Employee Benefit Trust 397,761 5.0 19 - 19
At 30 June 2017 (unaudited) 51,243,261 2,562 142,709 145,271
Shares issued:
2,351.0 -
-- to Share Incentive Plan 9,688 2,611.0 - 250 250
984.0 -
-- to Save As You Earn scheme 9,203 1,648.0 1 130 131
-- to Employee Benefit Trust 39,922 5.0 3 - 3
At 31 December 2017 (audited) 51,302,074 2,566 143,089 145,655
Shares issued:
2,436.0 -
-- to Share Incentive Plan 58,076 2,484.0 3 1,420 1,423
1,106.0 -
-- to Save As You Earn scheme 136,604 1,648.0 7 1,863 1,870
-- to Employee Benefit Trust 269,372 5.0 12 - 12
-- on placing 2,400,000 2,500.0 120 58,189 58,309
At 30 June 2018 (unaudited) 54,166,126 2,708 204,561 207,269
On 18 June 2018, the company issued 2,400,000 shares by way of a placing
for cash consideration at GBP25.00 per share, which raised
GBP58,309,000, net of GBP1,691,000 placing costs, offset against share
premium arising on the issue.
At 30 June 2018, the group held 890,880 own shares (30 June 2017:
672,909; 31 December 2017: 656,693).
17 Share-based payments
The group recognised total expenses of GBP2,803,000 (30 June 2017:
GBP1,765,000 and 31 December 2017: GBP3,871,000) in relation to
share-based transactions in the period.
Executive Incentive Plan
Following approval at the AGM in May 2018, the maximum variable
remuneration opportunity under the Executive Incentive Plan scheme
increased from 200% to 300% of base salary.
Staff Equity Plan
During the first half of 2018, the group launched a new remuneration
scheme, Staff Equity Plan, for individuals within Rathbone Investment
Management and Rathbone Investment Management International. The aim of
the scheme is to promote increased equity interest in Rathbone Brothers
Plc amongst employees.
Participants are granted awards under the plan in the form of an option
with an exercise price of GBPnil. The option awards are subject to
certain service and performance conditions. Following the satisfaction
of these performance conditions, the awards will vest (or lapse) and
become exercisable on the fifth anniversary of the grant date. The
awards will be exercisable from the vesting date until the tenth
anniversary of the grant date.
18 Financial instruments
Fair value measurement
The table below analyses the group's financial instruments measured at
fair value into a fair value hierarchy based on the valuation technique
used to determine the fair value.
-- Level 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities.
-- Level 2: inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly or indirectly.
-- Level 3: inputs for the asset or liability that are not based on
observable market data.
Level 1 Level 2 Level 3 Total
At 30 June 2018 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
Fair value through profit or loss:
-- equity securities 2,597 - - 2,597
-- money market funds - 89,085 - 89,085
2,597 89,085 - 91,682
Level 1 Level 2 Level 3 Total
At 30 June 2017 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
Available for sale securities:
-- equity securities 2,513 - - 2,513
-- money market funds - 124,287 - 124,287
2,513 124,287 - 126,800
Level 1 Level 2 Level 3 Total
At 31 December 2017 (audited) GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
Available for sale securities:
-- equity securities 2,565 - - 2,565
-- money market funds - 106,747 - 106,747
2,565 106,747 - 109,312
The group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the change has
occurred. There have been no transfers between levels during the period.
The fair value of listed equity securities is their quoted price. Money
market funds are demand securities and changes to estimates of interest
rates will not affect their fair value. The fair value of money market
funds is their daily redemption value.
The fair values of the group's other financial assets and liabilities
are not materially different from their carrying values with the
exception of the following:
-- Debt securities that are classified and measured at amortised cost
comprise bank and building society certificates of deposit, which have
fixed coupons. The fair value of debt securities at 30 June 2018 was
GBP778,634,000 (30 June 2017: GBP592,696,000; 31 December 2017:
GBP704,002,000) and the carrying value was GBP775,839,000 (30 June 2017:
GBP590,005,000; 31 December 2017: GBP701,966,000). As at 30 June 2017 and
31 December 2017, debt securities were classified as held to maturity
under IAS 39. Fair value is based on market bid prices and hence would be
categorised as level 1 within the fair value hierarchy.
-- Subordinated loan notes (note 14) comprise Tier 2 loan notes. The fair
value of the loan notes at 30 June 2018 was GBP20,297,000 (30 June 2017:
GBP20,604,000; 31 December 2017: GBP20,478,000) and the carrying value
was GBP19,751,000 (30 June 2017: GBP19,643,000; 31 December 2017:
GBP19,695,000). Fair value of the loan notes is based on discounted
future cash flows using current market rates for debts with similar
remaining maturity, and hence would be categorised as level 2 within the
fair value hierarchy.
Concentration of credit risk
The movement in the allowance for impairment in respect of financial
assets during the reporting period was as follows:
Cash and balances with central banks Loans and advances to banks Investment Management loan book Trust and financial planning debtors Debt securities Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2018
(unaudited) 92 3 1 87 31 214
Amounts
written off - - - (6) - (6)
Net
remeasurement
of loss
allowance 27 (1) (1) 33 2 60
Balance at 30
June 2018
(unaudited) 119 2 - 114 33 268
As at 30 June 2018, the impairment allowance in respect of all financial
assets in the table above was measured at an amount equal to 12 month
ECLs, apart from trust and financial planning debtors, where the
impairment allowance was equal to lifetime ECLs.
19 Contingent liabilities and commitments
1. Indemnities are provided in the normal course of business to a number of
directors and employees who provide tax and trust advisory services in
connection with them acting as trustees/directors of client companies and
providing other services.
2. Capital expenditure authorised and contracted for at 30 June 2018 but not
provided for in the condensed consolidated interim financial statements
amounted to GBP963,000 (30 June 2017: GBP2,074,000; 31 December 2017:
GBP48,000).
3. The contractual amounts of the group's commitments to extend credit to
its clients are as follows:
Unaudited Unaudited Audited
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Guarantees 117 117 117
Undrawn commitments to lend
of 1 year or less 24,970 22,644 20,985
Undrawn commitments to lend
of more than 1 year 8,020 5,204 9,040
33,107 27,965 30,142
The fair value of the guarantees is GBPnil (30 June 2017 and 31 December
2017: GBPnil).
1. The arrangements put in place by the Financial Services Compensation
Scheme (FSCS) to protect depositors and investors from loss in the event
of failure of financial institutions has resulted in significant levies
on the industry in recent years. The financial impact of unexpected FSCS
levies is largely out of the group's control as they result from other
industry failures.
There is uncertainty over the level of future FSCS levies as they depend
on the ultimate cost to the FSCS of industry failures. The group
contributes to the deposit class, investment fund management class and
investment intermediation levy classes and accrues levy costs for future
levy years when the obligation arises.
20 Consolidated interim statement of cash flows
For the purposes of the consolidated interim statement of cash flows,
cash and cash equivalents comprise the following balances with less than
three months until maturity from the date of acquisition:
Unaudited Unaudited Audited
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Cash and balances at central banks 1,305,002 1,480,932 1,374,002
Loans and advances to banks 127,072 147,714 87,009
Investment securities held at fair value through profit
or loss 89,085 124,287 106,747
1,521,159 1,752,933 1,567,758
Investment securities held at fair value through profit or loss are
amounts invested in money market funds which are realisable on demand.
Cash flows arising from issue of ordinary shares comprise:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Share capital issued (note 16) 142 27 31
Share premium on shares issued (note 16) 61,472 2,718 3,098
Shares issued in relation to share-based schemes for
which no cash consideration was received (2,225) (437) (441)
59,389 2,308 2,688
21 Related party transactions
The key management personnel of the group 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.
Dividends totalling GBP214,000 were paid in the period (six months ended
30 June 2017: GBP204,000; year ended 31 December 2017: GBP408,000) in
respect of ordinary shares held by key management personnel.
As at 30 June 2018, the group had provided interest-free season ticket
loans of GBP4,000 (30 June 2017: GBP4,000; 31 December 2017: GBP6,000)
to key management personnel.
At 30 June 2018, key management personnel and their close family members
had gross outstanding deposits of GBP3,340,000 (30 June 2017:
GBP4,252,000; 31 December 2017: GBP4,059,000) and gross outstanding
loans of GBP735,000 (30 June 2017: GBP723,000; 31 December 2017:
GBP728,000) which were made on normal business terms. A number of the
company's directors and their close family members make use of the
services provided by companies within the group. Charges for such
services are made at various staff rates.
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 the first half of 2018, the
group managed 25 unit trusts, Sociétés d'investissement Ã
Capital Variable (SICAVs) and open-ended investment companies (OEICs)
(together, 'collectives') (six months ended 30 June 2017: 25
collectives; year ended 31 December 2017: 25 collectives).
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.
The following transactions and balances relate to the group's interest
in the unit trusts:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Total management fees 20,000 16,592 35,525
Total management fees are included within 'fee and commission income' in
the consolidated interim statement of comprehensive income.
Unaudited Unaudited Audited
Six months to Six months to Year to
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Management fees owed to the
group 3,456 2,931 3,266
Holdings in unit trusts
(note 18) 2,597 2,513 2,565
6,053 5,444 5,831
Management fees owed to the group are included within 'accrued income'
and holdings in unit trusts are classified as 'fair value through profit
or loss' in the consolidated interim balance sheet. The maximum exposure
to loss is limited to the carrying amount on the balance sheet as
disclosed above.
All amounts outstanding with related parties are unsecured and will be
settled in cash. No guarantees have been given or received.
No provisions have been made for doubtful debts in respect of the
amounts owed by related parties.
22 Interest in unconsolidated structured entities
As described in note 21, at 30 June 2018, the group owned units in
collectives managed by Rathbone Unit Trust Management with a value of
GBP2,597,000 (30 June 2017: GBP2,513,000; 31 December 2017:
GBP2,565,000), representing 0.04% (30 June 2017: 0.05%; 31 December
2017: 0.05%) of the total value of the collectives managed by the group.
These assets are held to hedge the group's exposure to deferred
remuneration schemes for employees of Unit Trusts.
The group's primary risk associated with its interest in the unit trusts
is from changes in fair value of its holdings in the funds.
The group is not judged to control, and therefore does not consolidate,
the collectives. Although the fund trustees have limited rights to
remove Rathbone Unit Trust Management as manager, the group is exposed
to very low variability of returns from its management and share of
ownership of the funds and is therefore judged to act as an agent rather
than having control under IFRS 10.
23 Events after the balance sheet date
An interim dividend of 24.0p per share was declared on 24 July 2018 (see
note 8).
There have been no other material events occurring between the balance
sheet date and 24 July 2018.
Regulatory capital
The group is classified as a banking group under the Capital
Requirements Directive (CRD) and is therefore required to operate within
the restrictions on capital resources and banking exposures prescribed
by the Capital Requirements Regulation, as applied by the Prudential
Regulation Authority (PRA).
The group has chosen not to adopt the IFRS 9 transitional arrangements,
as the impact of IFRS 9 on the group's regulatory capital has been
minimal.
Regulatory own funds
The group's regulatory own funds (excluding profits for the six months
ended 30 June, which have not yet been independently verified, but
including independently verified profits to 31 December) are shown in
the table below:
Unaudited Unaudited Unaudited
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Share capital and share premium 207,269 145,271 145,655
Reserves 222,237 188,586 222,487
Less:
-- own shares (5,484) (5,344) (4,864)
-- intangible assets (net of deferred tax) (162,501) (162,589) (161,286)
Total Common Equity Tier 1 capital 261,521 165,924 201,992
Tier 2 capital 15,517 16,498 14,846
Total own funds 277,038 182,422 216,838
Own funds requirements
The group is 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 30 June 2018, the group's risk-weighted assets were GBP992,388,000
(30 June 2017: GBP911,163,000; 31 December 2017: GBP977,250,000).
Pillar 2 - supervisory review process
Pillar 2 supplements the Pillar 1 minimum requirement with 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 capital strain or 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.
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 of England 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.
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 30 June 2018, the buffer rate
was 1.875% of risk-weighted assets and it will finally increase to 2.5%
of risk-weighted assets from 1 January 2019. The CCB must be met with
Common Equity Tier 1 capital.
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
Financial Policy Committee (FPC) for individual countries where the
group has credit exposures. The buffer rate for the UK increased to 0.5%
with effect from 27 June 2018. However, different rates for other
countries, where the group has small relevant credit exposures, result
in an overall rate of 0.42% of risk-weighted assets for the group as at
30 June 2018. The FPC has announced that the UK rate will increase to
1.0%, with binding effect from 28 November 2018. The CCyB must be met
with Common Equity Tier 1 capital.
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 PRA
buffer to remain confidential between the group and the PRA.
The group's own funds requirements were as follows:
Unaudited Unaudited Unaudited
30 June 2018 30 June 2017 31 December 2017
GBP'000 GBP'000 GBP'000
Own funds requirement for credit risk 41,021 38,729 39,457
Own funds requirement for market risk - - 353
Own funds requirement for operational risk 38,370 34,164 38,370
Pillar 1 own funds requirement 79,391 72,893 78,180
Pillar 2A own funds requirement 47,241 28,105 46,123
Total Pillar 1 and 2A own funds requirement 126,632 100,998 124,303
CRD IV buffers:
-- capital conservation buffer (CCB) 18,607 11,390 18,323
-- countercyclical capital buffer (CCyB) 4,168 182 98
Total Pillar 1 and 2A own funds requirement and CRD
IV buffers 149,407 112,570 142,724
Statement of director's responsibilities in respect of the interim
statement
Confirmations by the board
We confirm to the best of our knowledge:
-- the condensed set of financial statements have been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by the
EU;
-- the interim management report includes a fair view of the information
required by:
1. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
2. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the
first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do so.
Going concern basis of preparation
Details of the group's results, cash flows and resources, together with
an update on the risks it faces and other factors likely to affect its
future development, performance and position are set out in this interim
management 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 group publishes Pillar 3 disclosures
annually on its website, which provide further detail about its
regulatory capital resources and requirements. During the first half of
2018, and as at 30 June 2018, the group was primarily equity-financed,
with a small amount of gearing in the form of the Tier 2 debt.
In 2018, the group has continued to grow client funds under management,
both organically and through acquisition, and the group remains
profitable. The directors believe that the company remains well-placed
to manage its business risks successfully, despite an uncertain economic
and political backdrop.
As we believe that the group has, and is forecast to continue to have,
sufficient financial and regulatory resources we continue to adopt the
going concern basis of accounting in preparing the condensed
consolidated interim financial statements. In forming our view, we have
considered the company's prospects for a period exceeding 12 months from
the date the condensed consolidated interim financial statements are
approved.
By order of the board
Philip Howell
Chief Executive
24 July 2018
Independent review report to Rathbone Brothers Plc
Conclusion
We have been engaged by the company to review the condensed set of
financial statements in the half-yearly financial report for the six
months ended 30 June 2018 which comprises the consolidated interim
statement of comprehensive income, consolidated interim statement of
changes in equity, consolidated interim balance sheet, consolidated
interim statement of cash flows and the related explanatory notes on
pages 6 to 28.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2018 is
not prepared, in all material respects, in accordance with IAS 34
'Interim Financial Reporting' as adopted by the EU and the Disclosure
Guidance and Transparency Rules ('the DTR') of the UK's Financial
Conduct Authority ('the UK FCA').
Scope of review
We conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410 'Review of Interim Financial
Information Performed by the Independent Auditor of the Entity' issued
by the Auditing Practices Board for use in the UK. A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. We read the other information
contained in the half-yearly financial report and consider whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become
aware of all significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing
the half-yearly financial report in accordance with the DTR of the UK
FCA.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with International Financial Reporting Standards
as adopted by the EU. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly
financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms
of our engagement to assist the company in meeting the requirements of
the DTR of the UK FCA. Our review has been undertaken so that we might
state to the company those matters we are required to state to it in
this report and for no other purpose. To the fullest extent permitted by
law, we do not
accept or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have reached.
Nicholas Edmonds
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London E14 5GL
24 July 2018
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
July 25, 2018 02:00 ET (06:00 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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