TIDMRAT
RNS Number : 6326C
Rathbones Group PLC
24 February 2022
Preliminary results for the twelve months ended 31 December
2021
Strategic momentum leading to strong financial results
Paul Stockton, Group Chief Executive, said:
"We set out our focused strategy over two years ago and it has
driven some considerable and positive changes within the business
over that period. It is clear from the results we are publishing
today that Rathbones is building strong organic growth momentum,
complemented by value-added acquisitions, which has led to total
funds under management and advice (FUMA) growth of 24.7% to GBP68.2
billion in the year.
Our financial results for 2021 are strong and include meaningful
investments that are enabling further strategic progress. Statutory
profit before tax of GBP95.0 million is up 116.9% on the GBP43.8
million reported a year ago. The business ends 2021 in good health
and our confidence in the future is reflected in our full-year
dividend of 81p, up 12.5% from 72p last year. This financial
outcome gives us a strong platform to enter the next phase of our
strategy which will further leverage technology to deliver a
holistic digital experience to clients, advisers and colleagues,
and harness efficiency opportunities.
After a decade of significant growth, the Rathbones of today
offers a holistic range of wealth management and advice services,
complemented by a high-quality fund management business; our
December 2021 announcement to rename the company to Rathbones Group
Plc reflects this."
Financial highlights
- Total FUMA reached GBP68.2 billion at 31 December 2021, up
24.7% from GBP54.7 billion at 31 December 2020:
- GBP50.3 billion in Investment Management (excluding Saunderson
House), up 12.0% (2020: GBP44.9 billion).
- GBP4.9 billion of Saunderson House FUMA following completion
of the acquisition in October 2021.
- GBP13.0 billion in Rathbone Funds, up 32.7% (2020: GBP9.8
billion).
- In 2021, we enhanced our reporting capability to represent
more closely the way we deliver our products and services:
- Discretionary service net inflows totalled GBP1.3 billion in
the year (2020: GBP1.0 billion), while inflows into our multi-asset
fund range totalled GBP0.5 billion (2020: GBP0.2 billion). Total
discretionary and managed net inflows therefore were GBP1.8 billion
(2020: GBP1.2 billion), representing an annualised growth rate of
4.1% (2020: 2.9%), demonstrating growing momentum in both
direct-to-client business and the indirect financial adviser
market.
- Net flows into our single strategy fund range grew by 20.0%
year-on-year to GBP1.2 billion (2020: GBP1.0 billion).
- In total, Rathbone Funds generated net inflows of GBP2.1
billion (2020: GBP1.5 billion), an exceptional growth rate of 21.1%
(2020: 20.1%).
2021 2020
GBPm GBPm
(unless (unless
stated) stated) Change
------------------------------- -------- -------- ----------------
Operating income 435.9 366.1 19.1%
Underlying operating expenses1 (315.2) (273.6) 15.2%
Underlying profit before tax1 120.7 92.5 30.5%
Underlying operating margin1 27.7% 25.3%
Profit before tax 95.0 43.8 116.9%
Underlying earnings per share1 172.2p 133.3p 29.2%
Earnings per share 133.5p 49.6p 169.2%
1. A reconciliation between the underlying measure and its
closest IFRS equivalent is provided in the financial performance
section.
Outlook and guidance
Rathbones is in a strong position to implement the next phase of
its digital strategy, secure the delivery of its ambitions for
Saunderson House, and continue its organic growth momentum whilst
being mindful of an inflationary post-pandemic period and current
tensions in Ukraine.
Net interest income in 2022 is expected to increase as a result
of recent Bank of England base rate rises and those widely
anticipated in the remainder of 2022.
The progression of our digital strategy has been carefully
considered and is expected to result in an additional investment of
GBP40 million in total, split between 2022 and 2023. At market
levels consistent with conditions at 31 December 2021, we plan to
manage this investment within existing underlying operating margin
guidance of mid-20%s in 2022 and 2023 with a view to returning to
27-30% from 2024 onwards.
Rathbones' balance sheet is well capitalised which places it in
a strong position to invest to drive organic inflows, continue to
improve services to clients and explore further opportunities for
growth.
Declaration of final dividend
The board recommends a final dividend of 54p for 2021 (2020:
47p), making a total of 81p for the year (2020: 72p), an increase
of 12.5% on 2020. This is consistent with our progressive policy
and is supported by our strong capital position and robust balance
sheet. The dividend will be paid on 10 May 2022, subject to
shareholder approval at our 2022 Annual General Meeting on 5 May
2022.
2021 results presentation
A presentation detailing Rathbones' 2021 results is available on
the investor relations website under the tab 'Results
Presentations'
(https://www.rathbones.com/investor-relations/results-and-presentations).
A presentation to analysts and investors will take place this
morning at 10:30am at our offices at 8 Finsbury Circus, London,
EC2M 7AZ. Participants who wish to join the presentation virtually
can do so by either joining the video webcast (
https://www.investis-live.com/rathbone-brothers/620242f403c52012000f9ae2/whh3
) or by dialling in using the conference call details below:
United Kingdom: 0800 640 6441
United Kingdom (Local) : 020 3936 2999
All other locations : +44 203 936 2999
Participant access code: 865870
A Q&A session will follow the presentation. Participants
will be able to ask their questions either via the webcast by
typing them in or via the conference call line.
A recording of the presentation will be available later today on
our website at:
www.rathbones.com/investor-relations/results-and-presentations.
Issued on 24 February 2022
For further information contact:
Rathbones Group Plc
Tel: 020 7399 0000
email: shelly.patel@rathbones.com
Paul Stockton, Group Chief Executive
Jennifer Mathias, Group Chief Financial Officer
Shelly Patel, Head of Investor Relations
Camarco
Tel: 020 3757 4984
email: ed.gascoigne-pees@camarco.co.uk
Ed Gascoigne-Pees
Julia Tilley
Rathbones Group Plc
Rathbones provides individual investment and wealth management
services for private clients, charities, trustees and professional
partners. We have been trusted for generations to manage and
preserve our clients' wealth. Our tradition of investing and acting
responsibly has been with us from the beginning and continues to
lead us forward. Our ambition is to be recognised as the UK's most
responsible wealth manager.
Rathbones has over 1,900 staff in 15 UK locations and Jersey;
its headquarters is 8 Finsbury Circus, London, EC2M 7AZ.
www.rathbones.com
Chair's statement
Dear Shareholder
In my first year as Chair of Rathbones, I have spent time
getting to know the various teams that comprise this special
business, as well as having the pleasure of speaking to some of our
shareholders and other key stakeholders about Rathbones and the
wider UK wealth market. This has been informative, and I look
forward to continuing this dialogue during 2022 and beyond.
These discussions have confirmed that the work we do on behalf
of our clients and advisers is of real importance. It is our
responsibility to be good, long-term stewards of the GBP68.2
billion of wealth entrusted to Rathbones. Our commitment to be a
leader in responsible business stems from our sense of purpose to
society. It is woven throughout our business strategy, and embedded
in our day-to-day decision-making. This focus on the long term is
how we will not only create value for our clients, but also make a
wider contribution to the society where we live.
2021 was a year of good progress as we delivered against our
strategic ambitions. We generated very strong financial results and
took another major step forward in the expansion of our financial
planning proposition with the acquisition of Saunderson House. The
board reviewed the merits of the transaction and concluded that
Saunderson House will accelerate group growth and enable us to
reach new clients across the wealth sector. The acquisition brings
GBP4.9 billion of FUMA (at 31 December 2021) and reinforces
Rathbones' position as one of the largest independent UK wealth
managers. Their 51 financial planners will strengthen our existing
financial planning capabilities and enhance the wider wealth
proposition we provide to our existing clients. The transaction is
earnings accretive, underpinned by revenue and cost synergies, with
a target return on invested capital of approximately 12% by the end
of 2024.
Dividend
In line with a progressive dividend policy of over 25 years,
positive financial results and a strong capital position, the board
has recommended a final dividend of 54p per share. This brings the
total dividend for the year to 81p per share, 12.5% ahead of
2020.
Environmental, social and governance (ESG)
Rathbones' has long been at the forefront of responsible
investing through Rathbone Greenbank Investments who have created
bespoke, ethical, and sustainable portfolios for our clients for
over 20 years. Our approach to responsible investment was
recognised by the FT & Investors' Chronicle Investment Awards
2021, where Rathbones was named ESG Champion of the Year, and ESG
Champion for Governance. We intend to further integrate ESG into
our investment process across the Group, including the launch of
four new Rathbone Greenbank Multi-Asset Funds announced earlier
this year.
In keeping with our ESG responsibilities, I am delighted that
Rathbones is committed to achieving net zero emissions by 2050 or
earlier.
Outside of our own group, we have always recognised the
importance of maintaining a dialogue with the companies in which we
invested, and remain eager to help them towards better, more
sustainable long-term performance. Our highly regarded stewardship
team directly engaged with 705 companies in 2021 to discuss ESG
issues.
The board is conscious that good governance is not simply a
matter of regulatory compliance but encompasses the firm's culture,
behaviours and how we serve our clients. We recognise the crucial
link between culture, governance and leadership. As a result, the
board closely monitors and analyses the firm's culture. This is
supported by my own engagement with employees and our workforce
engagement programme. It is gratifying to see the firm's strong and
distinctive culture in action. This is evident by the way our
employees work to provide positive outcomes for our clients and
partners.
During the year the board held strategy days with the group
executive team to focus on strategic issues including emerging
trends, client needs and their future expectations. Commitment to
fulfilling client needs remains paramount, supported by a digital
approach to enhance that interaction. Our new portal and app,
MyRathbones, was launched in 2021 and during 2022, we will continue
our digital investment through the roll out of a more seamless,
personalised, and interactive experience resulting in reduced
documentation for clients and advisers.
Board composition and succession
This has been a year of change for the board. I succeeded Mark
Nicholls as Chair at the AGM in May 2021. Mark's decade of
commitment to Rathbones and his competence as chair were very clear
and we wish him well in his retirement.
Jim Pettigrew also retired at the AGM in May 2021. As part of
the board's succession plans, Colin Clark succeeded Jim as our
Senior Independent Director. I thank Jim for his tireless work over
his four years at Rathbones and am delighted that Colin has taken
on these important responsibilities.
James Dean has indicated that he will not seek re-election at
the 2022 AGM as he has served nine years on the Board. James has
made a huge contribution to the board, both as a non-executive
director and chair of the audit committee. As part of the board's
succession plans, I am pleased that Iain Cummings will succeed
James as chair of the audit committee.
As part of our nomination committee review of board
effectiveness and succession planning, we monitor the diversity,
depth of knowledge and industry experience within the board; to
assess what new skills are necessary to continue constructive
challenge and guidance to the executive team. As a result, in
October, we appointed Iain Cummings and Dharmash Mistry as
independent non-executive directors. Their experience in industry
within and beyond the financial sector will be of great value to
Rathbones in the years ahead.
Looking ahead
This has been a very strong financial year for Rathbones. In
2022 there is a continued commitment to accelerate the firm's
organic growth, accelerate the digital transformation agenda, and
successfully integrate Saunderson House.
Finally, on behalf of the board, I would like to thank our
colleagues for their remarkable resilience. They have supported
both Rathbones and each other throughout the pandemic.
I would also like to thank our clients, shareholders, and wider
stakeholders for their continued commitment to our success. I am
confident that together, we are building a stronger, better
business.
Clive C R Bannister
Chair
23 February 2022
Chief executive's statement
Introduction
It is difficult to report on 2021 without mentioning the
pandemic which has impacted so much. For Rathbones, it has
presented both challenges and opportunities that have changed the
way in which we have invested and improved the way in which we
deliver services to clients. We end the year in a very strong
position having taken advantage of opportunities to improve client
service quality, deliver strong investment returns, and build a
robust change management and delivery capability. Our approach to
supporting our employees has focussed on well-being, thereby
improving productivity and securing a high level of staff
engagement throughout the year.
As a result, we have made considerable progress in delivering on
a strategic change agenda that will not only improve our services,
but also build greater affinity with a wider range of client groups
and make us significantly easier to do business with. We have
succeeded in balancing cost and revenue growth during this period,
culminating in a very strong year financially. Total funds under
management and administration (FUMA) grew 24.7% to reach GBP68.2
billion at 31 December 2021 (2020: GBP54.7 billion), while profit
before tax grew 116.9% to GBP95.0 million (2020: GBP43.8 million.
Underlying profit before tax totalled GBP120.7 million, 30.5% ahead
of the GBP92.5 million reported in 2020. This resulted in an
underlying operating profit margin of 27.7% (2020: 25.3%). Further
information can be found in the financial performance section.
After a decade of significant growth, the Rathbones of today is
a business offering a holistic range of wealth management and
advice services, complemented by a high-quality Funds busines; our
December 2021 announcement to rename the company to Rathbones Group
Plc reflects this.
Growth and fund flows
By the end of the year and before the rotation to value we saw
in early 2022, global investment markets largely looked to a future
beyond the pandemic as key indices recovered well, comparing
favourably to the considerable nervousness in the period leading up
to the end of 2020. In the year, the FTSE 100 was up 14.3% and the
WMA Balanced Index up 10.3%. This relatively strong performance
combined with our own organic and acquired growth increased FUMA by
24.7% in the year (2020: 8.6%). Against relevant indices, our
investment performance was also strong over one, three and five
years.
In 2021 we enhanced our reporting capability, which is reflected
in the improved disclosure found in the financial performance
section. Discretionary service net inflows totalled GBP1.3 billion
in the year, up 30% on GBP1.0 billion in 2020. External inflows of
GBP0.5 billion into our risk targeted multi-asset fund range were
up considerably from GBP0.2 billion in 2020. This fund range is a
central part of our offering to the adviser market and also
underpins our offering for those clients wishing to invest smaller
values. Total discretionary and managed net inflows were GBP1.8
billion in 2021 representing an annualised growth rate of 4.1%.
This compares to growth of 1.4% in 2019 (net inflow of GBP0.5
billion) and 2.9% in 2020 (net inflow of GBP1.2 billion)
demonstrating a growing momentum in both direct to client business
and the indirect financial adviser market.
Our growth plans continue to focus on improving services to
existing clients and establishing relationships with new clients
and advisers. Our dedicated client development team has provided a
welcome point of focus in the direct market, encouraging a 'One
Rathbones' approach to deliver a more holistic client service where
we bring together the best of our skills and knowledge to support
focused growth campaigns. Our specialist intermediary sales team is
also well positioned to grow, and has seen momentum build in 2021
with indirect net flows from IFAs into our discretionary services
at GBP0.7 billion in 2021 (2020: GBP0.2 billion) reflecting the
investment we have made in the team.
Our Funds business had another very strong year with funds under
management (FUM) reaching GBP13.0 billion at 31 December 2021
(2020: GBP9.8 billion). Net flows into our single strategy fund
range grew by 20.0% year on year to GBP1.2 billion (2020: GBP1.0
billion). In total, Rathbone Funds generated net inflows of GBP2.1
billion (2020: GBP1.5 billion), a growth rate of 21.1% (2020:
20.1%). Rathbones was ranked in 5th position for total net retail
sales in the UK in 2021 (source: Pridham Report), ahead of its 9th
place position in 2020.
Our strategy in action
Rathbones' future success is founded on our commitment to
deliver a personal service that brings empathy and reassurance and
builds trust with clients and advisers. We are committed to a
responsible business agenda that fits our brand values and
resonates strongly with both stakeholders and the next generation
holders of wealth. Our strategy aims to establish a blended human
and digital experience that transitions seamlessly across Rathbones
and continually improves the quality of our investment and advice
processes that stand up to scrutiny and deliver value. To achieve
this, our objective is driven by four main pillars: enriching the
client and adviser proposition and experience, supporting and
delivering growth, inspiring our people, and operating more
efficiently. Our focus on delivering against this strategy has
driven considerable and positive changes within the business that
have helped deliver strong financial outcomes in 2021.
Building our financial advice capability
The completion of the Saunderson House Limited acquisition in
October 2021 added the largest specialist professional
services-focused financial planning business in the UK to Rathbones
Group. With GBP4.9 billion (as at 31 December 2021) of FUMA and 51
certified advisers, Saunderson House presents a valuable
opportunity to expand our proposition and accelerate the growth of
our financial advice capability. Work since acquisition has
reaffirmed the opportunities we anticipated: to be able to provide
a deeper and more flexible investment service to Saunderson House
clients and grow its presence in the sectors it operates in.
Integration work is on track to deliver against expectations. The
cultural fit with our existing Rathbones Financial Planning team is
strong, with both management teams working well together.
Vision Independent Financial Planning (Vision) grew FUMA to
GBP2.7 billion at 31 December 2021, up 22.7% from GBP2.2 billion in
2020, and now has 131 financial planners. The network is actively
seeking to recruit further in 2022.
Looking across the group, Rathbones can now provide clients with
access to over 200 financial planners and paraplanners and over 300
investment professionals that together can provide any combination
of advice or investment services. Our strategy recognises that
external advisers demand quality investment services directly, and
we have continued to invest to enhance our direct to adviser
proposition to deliver value and breadth of proposition to advisers
and networks. As at 31 December 2021, the amount of adviser linked
FUMA was GBP11.4 billion (31 December 2020: GBP9.7 billion).
Responsible investing
A critical part of the development of our proposition is to
deliver a leading approach to responsible investing across the
group. In our wealth business, we have over 20 years of experience
in ethical investing and our specialist ethical, sustainable and
impact team Rathbone Greenbank Investments had GBP2.3 billion of
funds under management at 31 December 2021 (2020: GBP1.9 billion).
We are leveraging the expertise and experience of Rathbone
Greenbank Investments more widely across Rathbones as well as
adding capability to develop its proposition in a rapidly changing
environment to facilitate further growth. All of our investment
managers and their support staff have now completed the CISI
Professional Assessment on Sustainability and Responsible
Investment or the CFA equivalent. In 2022 we will also integrate an
expanded ESG research data set into the investment process across
the group and improve ESG reporting to clients with support from
research and our award-winning stewardship team who during 2021,
completed 705 company engagements.
Our Funds business also supports the responsible investment
approach by delivering fund-based solutions for clients and
advisers. Our highly successful Ethical Bond Fund continues to
deliver strong investment performance, growing to reach GBP2.8
billion at 31 December 2021 (2020: GBP2.1 billion) while the
Rathbone Greenbank Global Sustainability Fund now manages GBP116
million (2020: GBP44 million). In March, we added to our
sustainability fund offering by launching the Rathbone Greenbank
Multi-Asset Portfolios (RGMAPs) fund range.
The RGMAPs funds are managed by Rathbones' acclaimed multi-asset
team and supported by Rathbone Greenbank Investments and though
nascent, now manage GBP105 million. Total ethical and sustainable
funds managed by Rathbones Group now equate to GBP5.3 billion and
continue to grow.
We will continue to place responsible investing at our core, and
enhance our capability through recruitment and skills development
across investment and advice teams. Our charity proposition also
continues to gain prominence with Rathbones ranked the 4th largest
charity manager in the UK by Charity Finance with funds managed
under a charitable mandate totalling GBP7.1 billion (2020: GBP6.5
billion). In a recent charity survey, respondents gave their
Rathbones investment manager a mean satisfaction score of 9/10,.
There were also a number of insights that we will use to improve
our service.
We are committed to responding to our own fiduciary duty as a
business to help build a better world for future generations as
well as being stewards and allocators of capital. The establishment
of a responsible business committee is critical to this ambition.
Chaired by me, this committee oversees not only our responsible
investment agenda, but also how we deliver on our responsibilities
to our employees, our own environmental impact, and our social
agenda. More information on our work in these areas will be
published in our first standalone responsible business report in
April 2022.
The success of Speirs & Jeffrey
The acquisition of Speirs & Jeffrey in 2018 added
considerable skills and capabilities to Rathbones as well as
creating a leading market presence in Scotland. The transaction has
established us as one of the largest independent wealth managers in
Scotland with FUMA of GBP11.0 billion at 31 December 2021 (2020:
GBP10.3 billion).
At the time of the acquisition in 2018, we outlined the
following financial targets for 2021: expected underlying EPS
accretion from the acquisition of at least 8%, and an underlying
return on investment of approximately 13%. As at 31 December 2021,
we exceeded both of the targets we originally laid out despite an
uncertain and challenging backdrop through much of 2020 and 2021.
Importantly, we have now largely worked through the short-term
impact from the acquisition on basic earnings per share (EPS),
which is now up 169.2% to 133.5p (2020: 49.6p) and more closely
reflecting underlying EPS. Further information on financials
related to the acquisition can be found in the business review. My
thanks go to the Glasgow and transition teams that have worked so
hard to make the deal such a success.
Current and future digital plans
Our strategy sets out the need for a resolute focus on
leveraging technology and people as part of a holistic digital
experience that differentiates by quality, demonstrates value to
clients, advisers and colleagues and harnesses efficiency
opportunities. There is little doubt that the pandemic has greatly
emphasised the importance of this direction of travel as well as
being a significant facilitator of change as to how we work and
interact with each other and our clients.
The first part of our digital strategy was the launch of our
'MyRathbones' web portal and app. Today, c.43% of clients are
actively using the portal and app and this will continue to grow in
2022. It is also clear that the level of engagement with
'MyRathbones' has increased significantly versus our legacy
platform. Alongside this development, we have also built in a
continual improvement ('agile') capability that delivers regular
upgrades that can keep the platform current and continue to respond
to client-led improvements. MyRathbones will grow to be the digital
doorway into Rathbones, providing clients and advisers with a
straightforward, flexible, and safe experience for everyday
tasks.
During 2021 we took our digital strategy further, in partnership
with Objectway, by upgrading our custody and settlement system that
provides the fundamental support for all aspects of the business.
This significant work was completed on time and budget and has now
established an up-to-date platform for operating our day-to-day
books and records. It is a solid foundation upon which to build
more client-centric systems, supporting an interim redesign of
client and adviser reporting.
In 2021 we also mobilised a significant change team to support
the delivery of a Client Lifecycle Management capability that will
transform how Rathbones engages with clients and advisers. Our
ambition is that clients and advisers will see a seamless,
personalised and interactive experience that significantly reduces
unnecessary documentation and data processes that materially
improves efficiency and client centricity across the business. When
achieved, our investment managers and financial advisers will be
equipped with leading data and client management tools that will
promote rather than inhibit service delivery and make Rathbones
much easier to do business with. It will also enable more time to
focus on performance and growth within the client facing teams.
To make this important step change, we have partnered with
InvestCloud, a global company which specialises in digital
transformation in the financial industry. It brings leading
expertise in digital design, innovative technology and data
capabilities to enable us to deliver leading Client Lifecycle
Management capabilities to deliver a holistic digital experience.
This will also enable us to keep pace with the rapid changes in
client preferences and industry standards we expect to see over the
medium term.
In addition to our partnership with InvestCloud, we have signed
a partnership agreement with Charles River. It is a leading
provider of portfolio management solutions that will help to take
our Funds business to the next level, adding more institutional
fund management capability to support investment performance and
the next phase of growth.
The programme of delivery for all our digital plans will be
phased to enable prioritisation and re-investment of early
benefits. The phase of investment is expected to be concentrated
over the next two years at a total operating expenditure cost of
GBP40 million. At market levels consistent with conditions at 31
December 2021, we plan to manage this investment within existing
underlying operating margin guidance of mid-20s with a view to
returning to upper-20s operating margins of 27-30% from 2024
onwards.
People
I have always maintained that, aside from our clients, our
people are our most important asset and it has been truly
heartening to witness the resilience and focus of our employees
over the past two years. Like many businesses, having learnt from
remote working, we will incorporate what we have learned into our
future hybrid working approach. Employees will have greater
autonomy in how they use their time and the ways in which they
work. Rathbones will facilitate this activity to ensure that we can
drive productivity, support flexibility, and compete for
talent.
Rathbones recognises that capturing the full value and impact of
our people at work can only be achieved by having an inclusive and
diverse workforce who feel that they belong to the Rathbones Group.
As a predominantly client-facing business this is critical to us
being able to serve our clients and deliver on goals we have set.
We took some important strides in 2021 to promote our Diversity,
Equality & Inclusion (DE&I) agenda by adding resources,
capturing helpful data for nearly 65% of our employees and taking
part in several workforce programmes.
An engaged workforce is essential to delivery of our purpose and
strategy. Our 2021 employee survey received an 83% response rate
and our overall engagement score is notably higher than our
industry benchmark. We are committed to continually improving our
employees' experience at work and will continue to run and respond
to surveys throughout the year.
Risk management
Risk management practices are embedded across the firm and will
continue to develop as we upgrade risk management systems and
consider control self-assessment processes in 2022. We remain
conscious of the impact of the changing risk landscape to our firm
and industry, particularly as the world emerges from the pandemic.
Risks associated with ESG, including climate change, anti-money
laundering and the potential for further supply chain risks arising
from Brexit are considered and assessed regularly. We will also
remain diligent to mitigate risks in respect of potential cyber
threats, business change, and greater investment in digital
solutions.
Outlook
The business ends 2021 in good health and is showing strong
momentum having posted strong financial returns and delivered on
some important initiatives in the year. The post pandemic
environment, together with inflationary and macro-economic
pressures, as well as the current tensions in Ukraine will continue
to be digested by investment markets, but Rathbones is in a strong
position to implement critical client lifecycle and investment
systems capabilities in 2022, secure the delivery of ambitions for
Saunderson House, and explore further opportunities to drive
growth.
Paul Stockton
Group Chief Executive
23 February 2022
Financial performance
Overview of financial performance
The group delivered a very strong set of results for the year to
31 December 2021, driven by growth in all areas of the business and
the realisation of benefits of our acquisition strategy.
Underlying profit before tax grew 31% to GBP120.7 million (2020:
GBP92.5 million) reflecting strong operating income growth,
balanced with the continuation of investment in the strategic plans
announced in October 2019. The underlying operating margin, which
is calculated as the ratio of underlying profit before tax to
operating income, was 27.7% (2020: 25.3%).
Statutory profit before tax for 2021 was
GBP95.0 million (2020: GBP43.8 million). This included planned
deferred acquisition and integration costs of GBP6.4 million
relating to Speirs & Jeffrey (2020: GBP32.3 million). We also
incurred costs of GBP3.7 million in 2021 relating to the
acquisition of Saunderson House.
The board primarily considers underlying measures of income,
expenditure and earnings when assessing the performance of the
group. These are considered to be a better reflection of true
business performance than reviewing results on a statutory basis
only. These measures are also widely used by research analysts
covering the group. A full reconciliation between underlying
results and the closest IFRS equivalent is provided in Table 4.
Funds under management and administration
In 2021 we enhanced our FUMA flow reporting capability to
provide additional analysis of FUMA by service level.
Table 1 presents separately the FUMA, and associated movements,
in those services and products which support our wealth management
solutions from asset management products and other services. Wealth
management FUMA incorporates our bespoke discretionary portfolio
and managed portfolio services. It also includes direct sales into
our range of risk-targeted multi-asset funds, which are designed to
be used as wealth management solutions for clients of investment
platforms and financial advisers. Asset management FUMA includes
our focused range of specialist 'single strategy' funds, which are
designed to act as individual holdings within investment
portfolios.
Including the acquisition of Saunderson House, group FUMA
increased 24.7% in the year to GBP68.2 billion. Saunderson House
FUMA totalled GBP4.9 billion at 31 December 2021.
Net inflows of discretionary and managed FUMA in Investment
Management totalled GBP1.3 billion in 2021, up 30% from GBP1.0
billion in 2020 (2019: GBP0.3 billion). Direct net flows into our
multi-asset fund range totalled GBP0.5 billion in the year (2020
and 2019: GBP0.2 billion). Taken together, this represents a growth
rate of 4.1% in discretionary and managed FUMA (2020: 2.9%; 2019:
1.4%).
In addition to the above, FUMA on Vision Financial Planning's
discretionary wealth management platform that was not managed by
the group totalled GBP0.8 billion at 31 December 2021 (2020: GBP0.7
billion).
In 2022 we will continue to enhance this disclosure to
incorporate FUMA in our financial planning businesses.
Operating income
Operating income increased 19% in 2021 to GBP435.9 million,
reflecting growth in all areas of the business and a full year of
Speirs & Jeffrey operating on standard tariffs post transition
in the fourth quarter of 2020. This also includes GBP6.1 million of
post-acquisition income in Saunderson House.
Fee income of GBP349.4 million in 2021 increased 27.4% compared
to GBP274.2 million in 2020. Fees represented 80.2% of operating
income in 2021, up from 74.9% in 2020.
Net commission income decreased 14.0% to GBP53.6 million in 2021
(2020: GBP62.3 million). Commission income was elevated in 2020 as
investment managers monitored and responded to the market impacts
of the pandemic. The transition of Speirs & Jeffrey clients to
fee-only tariffs in 2020 also impacted in 2021.
Net interest income decreased 53.6% to 3.9 million, reflecting a
full year with the UK base rate at 0.1%, following the cut in March
2020.
Underlying operating expenses
Operating expenses increased from GBP322.3 million to GBP340.9
million during the year. Operating expenses are adjusted to exclude
expenditure falling into the two categories explained under Table
4.
Underlying operating expenses increased by GBP41.6 million
(15.2%) to GBP315.2 million, reflecting ongoing investment in our
strategic objectives, continued growth momentum across the business
and the acquisition of Saunderson House.
Advancing the strategic plans to invest in our digital
capability, ESG proposition and IT infrastructure added GBP9.2
million to our non-staff cost base in the year. Business growth and
inflation added a further GBP6.0 million.
Excluding Saunderson House, planned additions to headcount in
2020 and 2021 and market-led salary increases increased fixed staff
costs by GBP9.3 million to GBP126.8 million. Average headcount
increased by 10% to 1,694 in 2021, driven largely by increases in
client facing and change delivery teams. Variable staff costs
increased by GBP12.0 million to GBP89.7 million, reflecting higher
profitability and strong performance of client portfolios.
Post-acquisition costs in Saunderson House totalled GBP5.0
million, of which GBP3.4 million related to staff costs.
Table 1. Group FUMA and flows by service level
Market &
Net service investment Net growth
Opening FUMA Net flows level transfers performance Closing FUMA (flows)
Year ended 31 December 2021 GBPbn GBPbn GBPbn GBPbn GBPbn %
------------------------------- ------------ --------- ---------------- ------------ ------------ ----------
Discretionary service 43.4 1.3 - 4.6 49.3 3.0%
Bespoke portfolios 42.5 1.1 (0.1) 4.5 48.0 2.6%
Managed via in-house funds 0.9 0.2 0.1 0.1 1.3 19.9%
------------------------------- ------------ --------- ---------------- ------------ ------------ ----------
Multi-asset funds 1.3 0.5 - 0.2 2.0 40.3%
------------------------------- ------------ --------- ---------------- ------------ ------------ ----------
Total discretionary & managed 44.7 1.8 - 4.8 51.3 4.1%
Non-discretionary service 1.4 (0.1) (0.3) - 1.0 (11.4%)
------------------------------- ------------ --------- ---------------- ------------ ------------ ----------
Total wealth management 46.1 1.7 (0.3) 4.8 52.3 3.6%
Single-strategy funds 6.3 1.2 - 0.8 8.3 18.9%
Execution only & banking 2.3 (0.2) 0.3 0.3 2.7 (8.9%)
Total group (pre acquisitions) 54.7 2.7 - 5.9 63.3 4.9%
Saunderson House 4.9
------------------------------- ------------ --------- ---------------- ------------ ------------ ----------
Total group 68.2
------------------------------- ------------ --------- ---------------- ------------ ------------ ----------
Market &
Net service investment Net growth
Opening FUMA Net flows level transfers performance Closing FUMA (flows)
Year ended 31 December 2020 GBPbn GBPbn GBPbn GBPbn GBPbn %
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Discretionary service 39.9 1.0 0.8 1.8 43.4 2.5%
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Bespoke portfolios 39.3 0.9 0.7 1.7 42.5 2.2%
Managed via in-house funds 0.6 0.1 0.1 0.1 0.9 15.5%
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Multi-asset funds 1.0 0.2 - 0.1 1.3 24.4%
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Total discretionary & managed 40.9 1.2 0.8 1.8 44.7 2.9%
Non-discretionary service 2.6 (0.1) (1.0) (0.1) 1.4 (3.8%)
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Total wealth management 43.5 1.1 (0.2) 1.7 46.1 2.5%
Single-strategy funds 4.7 1.0 - 0.7 6.3 20.4%
Execution only & banking 2.2 (0.2) 0.2 0.1 2.3 (10.4%)
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Total group 50.4 1.8 - 2.5 54.7 3.6%
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Market &
Net service investment Net growth
Opening FUMA Net flows level transfers performance Closing FUMA (flows)
Year ended 31 December 2019 GBPbn GBPbn GBPbn GBPbn GBPbn %
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Discretionary service 34.2 0.3 0.2 5.2 39.9 0.9%
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Bespoke portfolios 33.8 0.2 0.2 5.1 39.3 0.5%
Managed via in-house funds 0.4 0.1 - 0.1 0.6 20.0%
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Multi-asset funds 0.7 0.2 - - 1.0 31.3%
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Total discretionary & managed 35.0 0.5 0.3 5.2 40.9 1.4%
Non-discretionary service 3.4 (0.1) (0.4) (0.3) 2.6 (2.1%)
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Total wealth management 38.3 0.4 (0.1) 4.9 43.5 1.1%
Single-strategy funds 3.7 0.4 - 0.6 4.7 10.0%
Execution only & banking 2.1 (0.5) 0.1 0.5 2.2 (25.5%)
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Total group 44.1 0.3 - 6.1 50.4 0.6%
------------------------------ ------------ --------- ---------------- ------------ ------------ ----------
Table 2. Reconciliation of service levels to segmental
presentation
Investment
Management
FUMA (including Investment
intra-group Intra-group Management
holdings) holdings(1) FUMA Funds FUMA Group FUMA
GBPbn GBPbn GBPbn GBPbn GBPbn
------------------------------- ---------------- ------------ ----------- ---------- ----------
Discretionary service 49.3 (2.7) 46.6 2.7 49.3
------------------------------- ---------------- ------------ ----------- ---------- ----------
Bespoke portfolios 48.0 (1.5) 46.5 1.5 48.0
Managed via in-house funds 1.3 (1.2) 0.1 1.2 1.3
------------------------------- ---------------- ------------ ----------- ---------- ----------
Multi-asset funds - - - 2.0 2.0
------------------------------- ---------------- ------------ ----------- ---------- ----------
Total discretionary & managed 49.3 (2.7) 46.6 4.7 51.3
Non-discretionary service 1.0 - 1.0 - 1.0
------------------------------- ---------------- ------------ ----------- ---------- ----------
Total wealth management 50.3 (2.7) 47.6 4.7 52.3
Single-strategy funds - - - 8.3 8.3
Execution only & banking 2.7 - 2.7 - 2.7
------------------------------- ---------------- ------------ ----------- ---------- ----------
Total group (pre acquisitions) 53.0 (2.7) 50.3 13.0 63.3
------------------------------- ---------------- ------------ ----------- ---------- ----------
Saunderson House 4.9 - 4.9 - 4.9
------------------------------- ---------------- ------------ ----------- ---------- ----------
Total group 57.9 (2.7) 55.2 13.0 68.2
------------------------------- ---------------- ------------ ----------- ---------- ----------
1. Intra-group holdings represent in-house funds held within an
investment management portfolio.
Table 3. Group's overall performance
2021 2020
GBPm GBPm
(unless (unless
stated) stated)
----------------------------------------- -------- --------
Operating income 435.9 366.1
Underlying operating expenses(1) (315.2) (273.6)
Underlying profit before tax(1) 120.7 92.5
Underlying operating margin(1) 27.7% 25.3%
Profit before tax 95.0 43.8
Effective tax rate 20.8% 39.0%
Taxation (19.8) (17.1)
Profit after tax 75.2 26.7
Underlying earnings per share(1) 172.2p 133.3p
Earnings per share 133.5p 49.6p
Dividend per share(2) 81.0p 72.0p
Return on capital employed (ROCE) 13.0% 5.3%
Underlying return on capital employed(1) 16.1% 13.6%
----------------------------------------- -------- --------
1. A reconciliation between the underlying measure and its
closest IFRS equivalent is shown in table 4
2. The total interim and final dividend proposed for the
financial year
Alternative performance measures
Charges in relation to client relationships and goodwill (note
8)
Client relationship intangible assets are recognised when we
acquire a business or hire a team of investment managers.
The charges associated with these assets represent the
proportion of the cost of securing client contracts that is charged
to profit or loss as amortisation each year over the estimated
duration of the client relationships. The quantum of the accounting
charge will vary depending on the terms of each individual
acquisition or team hire and represents a significant non-cash
profit and loss item. They have, therefore, been excluded from
underlying profit, which represents largely cash-based earnings and
more directly relates to the financial reporting period. Research
analysts commonly exclude these costs when comparing the
performance of firms in the wealth management industry.
Acquisition-related costs (note 5)
Acquisition-related costs are significant costs which arise from
strategic investments to grow the business rather than its
operating performance and are therefore excluded from underlying
results.
They primarily represent deferred acquisition consideration and
the costs of integrating acquired businesses.
Deferred acquisition costs are generally significant payments
that are capital in nature reflecting the transfer of ownership of
the business. However, in accordance with IFRS 3, any deferred
consideration payments to former shareholders of the acquired
business who are required to remain in employment with the group
must be treated as remuneration. This distorts the view of
operational performance given by the statutory measure of
profit.
During 2021, GBP6.0 million of deferred consideration payments
for Speirs & Jeffrey (2020: GBP32.3 million), and GBP1.4
million for Saunderson House (2020: GBPnil) were charged to the
income statement.
Table 4. Reconciliation of underlying performance measures to
closest equivalent IFRS measures
2021 2020
GBPm GBPm
(unless (unless
stated) stated)
--------------------------------------------------------- ------------------------------- --------
Operating income 435.9 366.1
Operating expenses (340.9) (322.3)
Charges in relation to client relationships and goodwill 15.6 14.3
Acquisition-related costs 10.1 34.4
--------------------------------------------------------- ------------------------------- --------
Underlying operating expenses (315.2) (273.6)
--------------------------------------------------------- ------------------------------- --------
Profit before tax 95.0 43.8
--------------------------------------------------------- ------------------------------- --------
Underlying profit before tax(1) 120.7 92.5
--------------------------------------------------------- ------------------------------- --------
Operating margin 21.8% 12.0%
Underlying operating margin(2) 27.7% 25.3%
Taxation (19.8) (17.1)
Tax on non-underlying expenses (3.9) (3.8)
--------------------------------------------------------- ------------------------------- --------
Underlying taxation (23.7) (20.9)
--------------------------------------------------------- ------------------------------- --------
Profit after tax 75.2 26.7
Underlying profit after tax(3) 97.0 71.6
Weighted average number of shares in issue 56.3m 53.7m
Earnings per share 133.5 49.6
Underlying earnings per share 172.2 133.3
Underlying quarterly average total equity 599.1 520.5
ROCE 13.0% 5.3%
Underlying ROCE 16.1% 13.6%
--------------------------------------------------------- ------------------------------- --------
1. Operating income less underlying operating expenses
2. Underlying profit before tax as a percentage of operating
income
3. Underlying profit before tax less underlying taxation
4. Underlying profit after tax divided by the weighted average
number of shares in issue
5. Underlying profit after tax as a percentage of underlying
quarterly average total equity
Taxation
The corporation tax charge for 2021 was GBP19.8 million (2020:
GBP17.1 million) (see note 6). The effective tax rate was 20.8%
(2020: 39.0%).
The prior year rate reflects the significant amount of
disallowable costs of deferred consideration payments for the
acquisition of Speirs & Jeffrey. The effective tax rate is now
expected to remain closer to the statutory rate of tax, as the
level of disallowable costs for deferred consideration payments for
Saunderson House is expected to be much lower (see note 2.3).
Thereafter, the group expects it to return to 2-4 percentage points
above the statutory rate.
The UK Government legislated in the Finance Act 2021 to increase
the UK corporation tax rate to 25.0% in 2023. We have reflected
this rate in the deferred tax calculations.
Basic earnings per share
Basic earnings per share for the year ended 31 December 2021 was
133.5p compared to 49.6p in 2020. The increase in the year reflects
the significantly lower amount of non-underlying charges in
relation to the acquisition of Speirs & Jeffrey compared to the
prior year. On an underlying basis, earnings per share were 172.2p
in 2021, compared to 133.3p in 2020 (see note 12). The increase in
the year relates to the much higher growth in underlying profit
since 2020 than the number of ordinary shares in issue.
Dividends
We operate a generally progressive dividend policy, as set out
in the directors' report.
In determining the level of any proposed dividend, the board has
regard to current and forecast financial performance. Any proposal
to pay a dividend is subject to compliance with:
- the Companies Act, which requires that the company must have
sufficient distributable reserves to pay the dividend; and
- regulatory capital requirements, which require the group to
maintain at least a minimum level of own funds.
The company's distributable reserves are primarily dependent
on:
- the level of profits earned by the company, including
distributions received from trading subsidiaries (some of which are
subject to minimum regulatory capital requirements themselves);
and
- actuarial changes in the value of the pension schemes that are
recognised in the company's other comprehensive income, net of
deferred tax.
At 31 December 2021 the company's distributable reserves were
GBP106.8 million (2020: GBP93.7 million).
In setting the proposed dividend for 2021, the board has
considered the group's performance in 2021 and the strong balance
sheet position, balanced with the need to continue our investment
programme and the ongoing uncertainty in the economic outlook. As a
result, the board is proposing a final dividend for 2021 of 54p;
resulting in a full year dividend of 81p (an increase of 9p on
2020).
The proposed full year dividend is covered 1.6 times by basic
earnings and 2.1 times by underlying earnings.
Capital expenditure
Overall, capital expenditure of GBP8.8 million in 2021 was
GBP2.9 million below 2020. Spend on regulatory driven projects and
property improvements reduced by a total of GBP1.2 million.
Capitalised spend on technology and other change projects fell by
GBP1.7 million as the focus on the development of cloud-based
solutions has increased the proportion of strategic project spend
that is charged to operating expenses.
Underlying return on capital employed
The board monitors the underlying return on capital employed
(ROCE) as a key performance measure. For monitoring purposes,
underlying ROCE is defined as underlying profit after tax expressed
as a percentage of quarterly average total equity across the
year.
Assessment of underlying return on capital is a key
consideration for all investment decisions, particularly in
relation to acquired growth.
In 2021, underlying ROCE was 16.1% (2020: 13.6%). Quarterly
average total equity increased by GBP78.6 million in 2021 compared
to 2020, reflecting growth in retained earnings.
Outlook
The business enters 2022 in a robust financial position and with
encouraging growth momentum.
External factors will continue to have a significant impact on
the group's profitability in 2022. We expect global investment
markets to remain volatile during the year, with both the domestic
and global political environments adding considerable uncertainty.
Inflationary pressures continue, but these are likely to lead to
higher interest rates, which will benefit net interest income.
As noted in the Chief executive's review, investment in our
medium-term strategy will continue in 2022 and 2023. In total, we
expect to invest operating expenditure of GBP40 million in delivery
of our digital plans over the next two years. The increasing use of
modern cloud-based software solutions will have a lasting impact on
the mix of capital and operating expenditure, with fewer projects
generating material fixed assets and related depreciation costs
consequently falling over time.
We anticipate that integration and deferred acquisition costs
relating to the acquisition of Saunderson House will total
approximately GBP10 million in 2022. Synergies from the integration
are expected to start to bring material benefit in 2023.
Deferred acquisition costs for Speirs & Jeffrey are now
substantially complete. Costs of some GBP2.5 million are expected
to be incurred each year in 2022 and 2023, after which no further
material costs relating to the acquisition will arise.
Staff costs in 2022 will reflect salary inflation of
approximately 5% and national insurance increases, in addition to
the full impact of hiring activity in 2021 and further joiners
planned in 2022 in support of the strategic initiatives.
Alongside the investment in our strategic initiatives, we will
continue to maintain our focus on cost discipline. Based on market
conditions at 31 December 2021, we plan to manage this investment
within existing underlying operating margin guidance of mid-20s for
the next two years. The underlying operating margin is expected to
return to a high-20s level from 2024 onwards.
Segmental review
The group is managed through two key operating segments,
Investment Management and Funds.
Investment Management
The results of the Investment Management segment described below
include the trading results of Rathbone Trust Company, Vision
Independent Financial Planning and Saunderson House,
post-acquisition.
Investment Management income is largely driven by revenue
margins earned from funds under management and administration.
Revenue margins are expressed as a basis point return, which
depends on a mix of tiered fee rates, commissions charged for
transactions undertaken on behalf of clients and the interest
margin earned on cash in client portfolios and client loans.
Year-on-year changes in the key performance indicators for
Investment Management are shown in table 5.
Funds under management and administration
Investment Management funds under management and administration
increased by 22.9% to GBP55.2 billion at 31 December 2021, driven
by strong growth, investment performance and markets.
Gross organic inflows of GBP4.5 billion represented 10.0% of
opening funds under management and administration, up from 9.1% in
2020. Outflows of funds under management and administration were
8.0% of the opening balance (2020: 7.7%). Of this, approximately
38% related to accounts that were closed with the remainder being
drawings from capital to supplement income or for
inter-generational transfers.
Total Investment Management new business was GBP0.8 billion
during 2021, representing 2.0% of opening funds under management
and administration (2020: net total increase of 1.4%).
In addition to the above, the acquisition of Saunderson House
added GBP4.9 billion to funds under management and advice in
2021.
Table 5. Investment Management - key performance indicators
2021 2020
---------------------------------------------------------- --------- ---------
Funds under management and administration at 31 December GBP55.2bn GBP44.9bn
Rate of net organic growth in Investment Management funds
under management and administration(1) 1.8% 0.1%
Rate of total net growth in Investment Management funds
under management and administration(1) 2.1% 1.4%
Average net operating basis point return(2) 71.4 bps 72.7 bps
Number of Investment Management clients ('000) (3) 66 64
Number of investment managers 332 304
---------------------------------------------------------- --------- ---------
1. See table 6 (percentages calculated on unrounded figures)
2. See table 10
3. The comparative figure has been restated to align calculation
of the number of Speirs & Jeffrey clients with Rathbones
accounting policies, which reflects a lower level of aggregation of
underlying funds.
Table 6. Investment Management - funds under management and
administration
Year ended Year ended
31 December 31 December
2021 2020
GBPbn GBPbn
------------------------------ ------------ ----------------------------
As at 1 January 44.9 43.0
Inflows 4.5 3.9
------------------------------ ------------ ----------------------------
* Organic(1) 4.4 3.3
* Acquired2 0.1 0.6
------------------------------ ------------ ----------------------------
Outflows (3.6) (3.3)
Market adjustment3 4.5 1.3
------------------------------ ------------ ----------------------------
Total (pre acquisitions) 50.3 44.9
------------------------------ ------------ ----------------------------
Saunderson House 4.9 -
------------------------------ ------------ ----------------------------
Total 55.2 44.9
------------------------------ ------------ ----------------------------
Net organic new business(4) 0.8 -
------------------------------ ------------ ----------------------------
Rate of net organic growth(5) 1.8% 0.1%
------------------------------ ------------ ----------------------------
Rate of total net growth(6) 2.1% 1.4%
------------------------------ ------------ ----------------------------
1. Value at the date of transfer in/(out)
2. Value at date of acquisition
3. Represents the impact of market movements and investment
performance
4. Organic inflows less outflows
5. Net organic new business (excluding Saunderson House) as a
percentage of opening funds under management and administration
6. Net organic new business and acquired inflows (excluding
Saunderson House) as a percentage of opening funds under management
and administration
Growth in discretionary and managed FUMA of GBP1.3 billion in
2021 has come equally from direct contact with clients and through
financial adviser networks. Our specialist intermediary sales team
continued to build momentum in the year, with indirect net flows
from IFAs into our discretionary and managed services of GBP0.7
billion (2020: GBP0.2 billion).
The group saw net outflows from non-discretionary investment
management, and execution only & banking mandates totalling
GBP0.4 billion in the year.
During the year, our clients continued to migrate into
discretionary services from non-discretionary. Switches into
execution only services largely reflect the transfer of funds into
probate following death of a client.
The global recovery from lockdown-ridden 2020 drove stock
markets higher in 2021, however returns were more volatile than the
headline indices suggest. Many investors switched from "growth"
stocks to "value" and back again during the year as the impacts of
COVID-19 ebbed and flowed, inflation rose, central banks shifted
guidance and companies reported.
A significant concern for investors in 2021 was inflation, which
hit multi-decade highs in many large nations. Initial belief that
higher prices would be a passing phase gave way to longer term
concerns later in the year, which drove steep rises in the yield on
government bonds and the prices of "value" stocks whilst weighing
on the value of "growth" stocks. These trends have accelerated into
the early months of 2022.
The outperformance was largely driven by our tactical asset
allocation decisions in worldwide equities, fixed income and
alternatives. Company valuations, particularly in the developed
nations, were supported by stronger earnings whilst being
underweight fixed income also added positively with rising real
yields. Lastly, overweight property and underweight gold related
holdings were also helpful. Overall, the company performance
against other competitors' indices, such as the Private Client
indices publish by ARC was robust.
Table 7. Investment Management - new business by channel
2021 2021
2021 Service Market 2021
2021 Net level and investment 2021 Intra-group 2021 2020
Opening flows transfers performance Gross holdings(1) Net Net
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
------------------------- --------- ------- ----------- ---------------- ------- ------------- ------- -------
Bespoke portfolios 33.3 0.5 (0.1) 3.5 37.2
Managed via in-house
funds 0.4 0.1 0.1 0.1 0.7
------------------------- --------- ------- ----------- ---------------- ------- ------------- ------- -------
Total direct 33.7 0.6 - 3.6 37.9
------------------------- --------- ------- ----------- ---------------- ------- ------------- ------- -------
Bespoke portfolios 9.2 0.6 - 1.0 10.8
Managed via in-house
funds 0.5 0.1 - - 0.6
------------------------- --------- ------- ----------- ---------------- ------- ------------- ------- -------
Total financial adviser
linked 9.7 0.7 - 1.0 11.4
------------------------- --------- ------- ----------- ---------------- ------- ------------- ------- -------
Total discretionary
& managed 43.4 1.3 - 4.6 49.3 (2.7) 46.6 41.2
Non-discretionary
service 1.4 (0.2) (0.3) 0.1 1.0 - 1.0 1.4
------------------------- --------- ------- ----------- ---------------- ------- ------------- ------- -------
Total wealth management 44.8 1.1 (0.3) 4.7 50.3 (2.7) 47.6 42.6
Execution only &
banking 2.3 (0.2) 0.3 0.3 2.7 - 2.7 2.3
------------------------- --------- ------- ----------- ---------------- ------- ------------- ------- -------
Saunderson House 4.9 4.9
------------------------- --------- ------- ----------- ---------------- ------- ------------- ------- -------
Total Investment
Management 47.1 0.9 - 5.0 57.9 (2.7) 55.2 44.9
------------------------- --------- ------- ----------- ---------------- ------- ------------- ------- -------
1. Holdings of the group's in-house funds in Investment
Management client portfolios and in-house funds for which the
management of the assets is undertaken by Investment Management
teams; the corresponding funds under management and administration
is reported within Funds.
Overall, 2021 was a strong year for our specialist teams.
Rathbone Greenbank Investments continued to grow strongly and
reached funds under management and administration of GBP2.2 billion
at 31 December 2021, up 20% on 2020. Charity funds under management
and administration grew 9.2% to GBP7.1 billion at 31 December 2021.
The Personal Injury and Court of Protection business ended 2021
with GBP1.0 billion of funds under management and
administration.
As at 31 December 2021, Vision Independent Financial Planning
advised on client assets of GBP2.7 billion, up 23% from 2020.
Financial performance
Underlying profit before tax in Investment Management grew 23.9%
in the year to GBP98.4 million, reflecting an underlying operating
margin of 26.4%. This was driven by strong growth in fee income and
the post-acquisition impact of Saunderson House.
Higher average funds under management and administration levels
on our principal charging dates during 2021 (see table 9) boosted
net investment management fee income, which rose 25.1% to GBP288.1
million. This was driven by stronger markets and investment
performance, as well as the adoption of fee-only tariffs in the
fourth quarter of 2020 for clients of Speirs & Jeffrey.
Net commission income fell 14.0% to
GBP53.6 million, as the elevated levels of transactional
activity seen in 2020 reduced, along with market volatility, in
2021 and following the switch to fee-only tariffs for Speirs &
Jeffrey clients.
The cut in the Bank of England base rate to 0.1% in March 2020
was maintained throughout 2021, reducing the margin available on
our treasury book. Net interest income consequently decreased 53.6%
to GBP3.9 million in the year.
As a result of the factors described above, the average net
operating basis point return on funds under management and
administration fell slightly by 1.3 bps to 71.4 bps in 2021.
Fees from advisory services and other income increased 39.3% to
GBP27.3 million, reflecting growth in our advisory businesses and
the post-acquisition results of Saunderson House, which contributed
GBP6.1 million of additional revenue.
The issue of an additional GBP20 million of Tier 2 loan notes,
bringing the total notes issued to GBP40 million in October 2021,
is expected to increase the annual interest charge on these notes
by approximately GBP1 million compared to 2021.
Underlying operating expenses in Investment Management for 2021
were GBP274.5 million, an increase of 13.8% compared to 2020. This
is highlighted in table 11.
Table 8. Investment Management - financial performance
2021 2020
GBPm GBPm
------------------------------------------------ ------- -------
Net investment management fee income1(1) 288.1 230.3
Net commission income 53.6 62.3
Net interest income 3.9 8.4
Fees from advisory services(2) and other income 27.3 19.6
------------------------------------------------ ------- -------
Operating income 372.9 320.6
Underlying operating expenses (3) (274.5) (241.2)
------------------------------------------------ ------- -------
Underlying profit before tax 98.4 79.4
------------------------------------------------ ------- -------
Underlying operating margin(4) 26.4% 24.8%
------------------------------------------------ ------- -------
1. Net investment management fee income is stated after
deducting fees and commission expenses paid to introducers
2. Fees from advisory services includes income from trust, tax
and financial planning services (including Vision)
3. See table 11
4. Underlying profit before tax as a percentage of operating
income
Table 9. Investment Management - average funds under management
and administration (pre acquisitions)
2021 2020
GBPbn GBPbn
---------------------------- ------------------- -----------------------------
Valuation dates for billing
* 5 April 45.5 35.9
* 30 June 47.8 41.3
* 30 September 48.8 41.8
* 31 December 50.3 44.9
---------------------------- ------------------- -----------------------------
Average 48.1 41.0
---------------------------- ------------------- -----------------------------
Average FTSE 100 level(1) 7,066 5,978
---------------------------- ------------------- -----------------------------
1. Based on the corresponding valuation dates for billing
Table 10. Investment Management - revenue margin
2021 2020
bps bps
---------------------------------------------------------------- ---- ----
Basis point return1 from:
* fee income 59.9 56.2
* commission 11.1 15.2
* interest 0.4 1.3
---------------------------------------------------------------- ---- ----
Basis point return on funds under management and administration 71.4 72.7
---------------------------------------------------------------- ---- ----
1. Operating income (see table 8), excluding interest on own
reserves, interest payable on Tier 2 notes issued, interest payable
on lease assets, fees from advisory services and other income,
divided by the average funds under management and administration on
the quarterly billing dates (see table 9)
Fixed staff costs of GBP89.3 million increased by 6.7%
year-on-year, reflecting the growth in headcount Variable staff
costs totalled GBP61.9 million in 2021, an increase of GBP5.5
million on 2020. This principally reflects growth in profit share
awards, driven by segmental profitability.
Other operating expenses of GBP123.3 million include property,
depreciation, settlement, IT, finance and other central support
services costs.
Incremental spend on our strategic initiatives to develop
systems and enhance the client experience totalled GBP8.7 million
in 2021.
Savings arising from the impact of the pandemic on entertaining,
travel, events and subsistence spend, as well as reduced use of the
group's office space persisted for most of 2021.
Post-acquisition costs in Saunderson House totalled GBP5.0
million.
Funds
Funds' financial performance is principally driven by the value
and growth of funds under management. Year-on-year changes in the
key performance indicators for Funds are shown in table 12.
Funds under management
Net retail sales in the asset management industry totalled
approximately GBP43.4 billion in 2021, as reported by the
Investment Association (IA), up from around GBP30.8 billion in
2020. Industry-wide funds under management increased 10.4% to
GBP1.6 trillion at the end of the year.
Equities was again the top seller in 2021 at GBP14.8 billion, up
42% compared to 2020. Consistent sales to responsible investment
funds, where equities make up over 50% of sales, helped to maintain
consistent inflows to equities, even during periods of market
turbulence.
The IA Global sector (containing Rathbone Global Opportunities
Fund and Rathbone Global Sustainability Fund) was the highest
selling equity sector for the fourth year in a row with inflows of
GBP12.0 billion. Over GBP4.8 billion also went to the IA Volatility
Managed sector, which includes our six-fund multi-asset range and
the four-fund ESG range launched in 2021 called Rathbone Greenbank
Multi-Asset Portfolios.
The positive momentum in sales continued through 2021, with
gross sales up 22% in the year to GBP4.4 billion. Redemptions
increased more modestly, rising 9.5% to GBP2.3 billion for the
year. As a result, net inflows of GBP2.1 billion for the year were
up 40% on GBP1.5 billion in 2020. Rathbone Unit Trust Management
consistently ranked in the top 10 for net UK sales throughout the
year according to the quarterly Pridham Sales Reports.
Table 11. Investment Management - underlying operating
expenses
2021 2020
GBPm GBPm
-------------------------------- ----- -----
Staff costs(1)
* fixed 89.3 83.7
* variable 61.9 56.4
-------------------------------- ----- -----
Total staff costs 151.2 140.1
Other operating expenses 123.3 101.1
-------------------------------- ----- -----
Underlying operating expenses 274.5 241.2
-------------------------------- ----- -----
Underlying cost/income ratio(2) 73.6% 75.2%
-------------------------------- ----- -----
1. Represents the costs of investment managers and teams
directly involved in client-facing activities
2. Underlying operating expenses as a percentage of operating
income (see table 8)
Table 12. Funds - key performance indicators
2021 2020
------------------------------------------------------------ --------- --------
Funds under management at 31 December(1) GBP13.0bn GBP9.8bn
Rate of net growth in Unit Trusts funds under management(1) 21.1% 20.1%
Underlying profit before tax(2) GBP22.4m GBP13.1m
------------------------------------------------------------ --------- --------
1. See table 14
2. See table 16
Table 13. Funds - funds under management by product
2021 2020
GBPm GBPm
-------------------------------------------- ------ -----
Rathbone Global Opportunities Fund 4,334 3,202
Rathbone Ethical Bond Fund 2,802 2,088
Rathbone Multi-Asset Portfolios 2,679 1,714
Rathbone Income Fund 825 811
Offshore funds 661 578
Rathbone High Quality Bond Fund 291 283
Rathbone Active Income Fund for Charities 245 227
Rathbone Strategic Bond Fund 200 204
Rathbone Core Investment Fund for Charities 156 129
Rathbone UK Opportunities Fund 76 49
Rathbone Global Sustainability Fund 116 44
Other funds 500 491
Greenbank Multi-Asset Portfolios 105 -
-------------------------------------------- ------ -----
12,990 9,820
-------------------------------------------- ------ -----
The strong net inflows for the year were principally into the
Ethical Bond Fund (GBP0.8 billion), multi-asset funds (GBP0.8
billion), including GBP0.1 billion into the new Greenbank
multi-asset offering, and Global Opportunities Fund (GBP0.5
billion). The Ethical Bond Fund, in particular, bucked the trend
for other bond funds in the sector, which generally saw more muted
inflows.
Total net inflows, combined with positive investment performance
and market movements, raised total funds under management to
GBP13.0 billion at the end of the year, an increase of 32% during
the year (see table 14).
Long-term performance for our retail funds remains strong and
the funds are performing in line with expectations and their
benchmarks.
The Ethical Bond and Global Opportunities funds maintained their
excellent long-term track records and both finished in the first
quartile for performance, measured over three and five years. The
UK Opportunities Fund maintained its top quartile performance
during 2021, which has resulted in a much improved long-term track
record.
The growth focused multi-asset funds, which have risk targeted
mandates, beat their benchmarks over one, three and five years (or
since launch) and remained within volatility targets over the same
periods.
Performance of the UK Income fund was impacted by the large cuts
in dividends by UK stocks in 2020. During 2021, the fund's
longer-term performance recovered and it is now above median for
one, three and five years.
The High Quality Bond Fund posted good returns over the year,
performing well against its cash-plus based benchmark.
The Strategic Bond Fund remains more defensively positioned,
which has continued to weigh on short-term performance.
As at 31 December 2021, 97% of holdings in Funds' retail funds
were in institutional units (31 December 2020: 97%).
During the year, the total number of investment professionals in
Funds increased to 21 at 31 December 2021 from 18 at the end of
2020.
Table 14. Funds - funds under management
2021 2020
GBPbn GBPbn
---------------------- ------ ------
As at 1 January 9.8 7.4
Net inflows 2.1 1.5
---------------------- ------ ------
* Inflows(1) 4.4 3.6
* Outflows(1) (2.3) (2.1)
---------------------- ------ ------
Market adjustments(2) 1.1 0.9
---------------------- ------ ------
As at 31 December 13.0 9.8
---------------------- ------ ------
Rate of net growth(3) 21.1% 20.1%
---------------------- ------ ------
1. Valued at the date of transfer in/(out)
2. Impact of market movements and relative performance
3. Net inflows as a percentage of opening funds under
management
Table 15. Funds - performance1,2
2021/(2020) Quartile ranking3 over 1 year 3 years 5 years
----------------------------------- ------ ------- -------
Rathbone Ethical Bond Fund 1 (2) 1 (1) 1 (1)
Rathbone Global Opportunities Fund 2 (1) 1 (1) 1 (1)
Rathbone Income Fund 2 (2) 2 (2) 2 (3)
Rathbone Strategic Bond Fund 3 (2) 3 (2) 2 (2)
Rathbone UK Opportunities Fund 1 (1) 1 (2) 1 (2)
----------------------------------- ------ ------- -------
1. Quartile ranking data is sourced from FE Trustnet
2. Excludes multi-asset funds (for which quartile rankings are
prohibited by the Investment Association (IA)), High Quality Bond
Fund, which has no relevant peer group against which to measure
quartile performance, non-publicly marketed funds and segregated
mandates
3. Ranking of institutional share classes at 31 December 2021
and 2020 against other funds in the same IA sector, based on total
return performance, net of fees (consistent with investment
performance information reported in the funds' monthly
factsheets)
4. Funds included in the above table account for 64% of the
total FUM of the Funds business
Financial performance
Funds' income is primarily derived from annual management
charges, which are calculated on the daily value of funds under
management, net of rebates payable to intermediaries.
Net annual management charges increased 40% to GBP61.3 million
in 2021, driven principally by the rise in average funds under
management. Net annual management charges as a percentage of
average funds under management fell to 55.0 bps (2020: 55.5 bps)
reflecting the continued growth in the fixed income mandate
funds.
Operating income as a percentage of average funds under
management fell slightly to 55.6 bps in 2021 from 55.9 bps in 2020
for the same reasons.
Fixed staff costs of GBP5.2 million for the year ended 31
December 2021 were 27% higher than 2020. This reflects salary
inflation and growth in headcount in response to growth in the
business.
Variable staff costs of GBP16.8 million were 40% higher than
2020 as a result of growth in profit and the higher value of gross
sales, which drove increases in sales commissions.
Other operating expenses have increased by 15% to GBP18.7
million in 2021. Administration costs of GBP5.7 million were up
GBP0.9 million on 2020, driven by higher levels of funds under
management and sales. 2021 saw a full year's benefit of improved
rate cards with third-party service providers which were negotiated
and implemented in 2020. Incremental spend on development of
systems totalled approximately GBP0.5 million in 2021. Regulatory
costs also grew by GBP0.1 million, reflecting the growth in levies
for the Financial Services Compensation Scheme.
Table 16. Funds - financial performance
2021 2020
GBPm GBPm
--------------------------------- ------ ------
Net annual management charges 61.3 43.9
Net dealing profits 0.0 0.0
Interest and other income 1.8 1.5
--------------------------------- ------ ------
Operating income 63.1 45.4
Underlying operating expenses(1) (40.7) (32.3)
--------------------------------- ------ ------
Underlying profit before tax 22.4 13.1
--------------------------------- ------ ------
Operating % margin(2) 35.5% 28.9%
--------------------------------- ------ ------
1. See table 17
2. Underlying profit before tax divided by operating income
Table 17. Funds - underlying operating expenses
2021 2020
GBPm GBPm
-------------------------------- ----- -----
Staff costs
* Fixed 5.2 4.1
* Variable 16.8 12.0
-------------------------------- ----- -----
Total staff costs 22.0 16.1
Other operating expenses 18.7 16.2
-------------------------------- ----- -----
Underlying operating expenses 40.7 32.3
-------------------------------- ----- -----
Underlying cost/income ratio(1) 64.5% 71.1%
-------------------------------- ----- -----
1. Underlying operating expenses as a percentage of operating
income
(see table 16)
Financial position
Own funds
Rathbones is classified as a banking group for regulatory
capital purposes and is required to operate within the restrictions
on capital resources and banking exposures prescribed by the
Capital Requirements Regulation, as applied in the UK by the
Prudential Regulation Authority (PRA).
At 31 December 2021, the group's regulatory own funds (including
verified profits for the year) were GBP305 million (2020: GBP304
million).
Common Equity Tier 1 (CET1) own funds decreased by GBP27.0
million during 2021 to GBP266.2 million. This was primarily due to
the acquisition of Saunderson House, partly offset by an increase
in Tier 1 capital following the placing of GBP50 million of fresh
share capital during the year. The CET1 ratio was 18.7%, a decrease
on the 23.5% reported at the previous year end.
The leverage ratio was 9.1% at 31 December 2021, down from 9.2%
at 31 December 2020 The leverage ratio represents our Tier 1
capital as a percentage of our total assets, excluding intangible
assets, plus certain off balance sheet exposures. The reduction is
in line with the decrease in CET1 capital.
The business is primarily funded by equity, but also supported
by GBP40 million of ten-year Tier 2 subordinated loan notes, which
were issued in October 2021. The notes introduce a small amount of
gearing into our balance sheet as a way of financing future growth
in a cost-effective and capital-efficient manner. They are
repayable in October 2031, with a call option for the issuer
annually from 2026. Interest is payable at a fixed rate of
5.642%.
Total equity was GBP623 million at 31 December 2021, up 21.2%
from GBP514 million at the end of 2020, reflecting the share
placing in the year.
Own funds and liquidity requirements
As required under PRA rules, we perform an Internal Capital
Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy
Assessment Process (ILAAP) annually, which include performing a
range of stress tests to determine the appropriate level of
regulatory capital and liquidity that we need to hold. In addition,
we monitor a wide range of capital and liquidity statistics on a
daily, monthly or less frequent basis as required. Surplus capital
levels are forecast on a monthly basis, taking account of proposed
dividends and investment requirements, to ensure that appropriate
buffers are maintained. Investment of proprietary funds is
controlled by our treasury department.
We are required to hold capital to cover a range of own funds
requirements.
Table 18. Group's financial position
2021 2020
GBPm GBPm
(unless (unless
stated) stated)
---------------------------------------------- -------- --------
Own funds:
Common Equity Tier 1 ratio(1) 18.7% 23.5%
Total own funds ratio(2) 21.4% 24.3%
Total equity 288.8 513.8
Tier 2 subordinated loan notes(3) 39.9 19.8
Total risk exposure amount 1,424.5 1,247.8
Leverage ratio 9.1% 9.2%
---------------------------------------------- -------- --------
Other resources:
Total assets 3,271.8 3,370.6
Treasury assets 2,458.5 2,721.1
Investment Management loan book 168.0 158.0
Intangible assets from acquired growth 195.5 218.0
Tangible assets and software 28.0 28.0
Liabilities:
Due to customers 2,333.0 2,561.8
Net defined benefit pension asset/(liability) 12.3 (9.8)
---------------------------------------------- -------- --------
1. Common Equity Tier 1 capital as a proportion of total risk
exposure amount
2. Total own funds (see table 19) as a proportion of total risk
exposure amount
3. Represents the carrying value of the Tier 2 loan notes
4. Tier 1 capital as a percentage of total assets, excluding
intangible assets, plus certain off balance sheet exposures
5. Balances with central banks, loans and advances to banks and
investment securities
6. Net book value of acquired client relationships and goodwill
(note 8)
7. Net book value of property, plant and equipment and computer
software
8. Total amounts of cash in client portfolios held by Rathbone
Investment Management as a bank
Table 19. Regulatory own funds
2021 2020
GBPm GBPm
-------------------------------- ------- -------
Share capital and share premium 294.1 218.0
Reserves 365.8 342.6
Less:
Own shares (36.6) (46.7)
Intangible assets(1) (344.8) (220.7)
Retirement benefit asset(2) (12.3) 0.0
-------------------------------- ------- -------
Common Equity Tier 1 own funds 266.2 293.2
-------------------------------- ------- -------
Tier 2 own funds 38.5 10.7
-------------------------------- ------- -------
Total own funds 304.7 303.9
-------------------------------- ------- -------
1. Net book value of goodwill, client relationship intangibles
and software is deducted directly from own funds, less any related
deferred tax.
2. The retirement benefit asset is deducted directly from own
funds.
Table 20. Group's own funds requirements(1)
2021 2020
GBPm GBPm
------------------------------------------------------ ----- -----
Credit risk requirement 50.9 46.9
Market risk requirement 0.8 0.6
Operational risk requirement 62.3 52.4
------------------------------------------------------ ----- -----
Pillar 1 own funds requirement 114.0 99.9
Pillar 2A own funds requirement 40.1 40.0
------------------------------------------------------ ----- -----
Total Capital Requirement ('TCR') 154.1 139.9
Combined buffer:
capital conservation buffer (CCB) 35.6 31.1
countercyclical capital buffer (CCyB) - 0.1
------------------------------------------------------ ----- -----
Total Capital Requirement ('TCR') and Combined buffer 189.7 171.1
------------------------------------------------------ ----- -----
1. Own funds requirements stated above include the impact of
trading results and changes to requirements and buffers that were
known as at 31 December and which became effective prior to the
publication of the preliminary results
Pillar 1 - minimum requirement for capital
Pillar 1 focuses on the determination of a total risk exposure
amount (also known as 'risk-weighted assets') and expected losses
in respect of the group's exposure to credit, counterparty credit,
market and operational risks, and sets a minimum requirement for
capital.
At 31 December 2021, the group's total risk exposure amount was
GBP1,425 million (2020: GBP1,248 million).
Pillar 2 - supervisory review process
Pillar 2 supplements the Pillar 1 minimum requirement with
firm-specific Pillar 2A requirements and a framework of regulatory
capital buffers.
The Pillar 2A own funds requirement (which is set by the PRA and
the calculation of which remains confidential with the PRA)
reflects 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 SONIA.
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 regulatory
capital buffers, all of which must be met with CET1 capital.
Capital conservation buffer (CCB)
The CCB is a general buffer, designed to provide for losses in
the event of a stress, and represents 2.5% of the group's total
risk exposure amount as at 31 December 2021.
Countercyclical capital buffer (CCyB)
The CCyB is designed to act as an incentive for banks to
constrain credit growth in times of heightened systemic risk. The
amount of the buffer is determined by reference to rates set by the
FPC (for UK exposures) and other jurisdictions for our exposures to
their locations from time to time, depending on prevailing market
conditions, for individual countries where the group has credit
risk exposures.
The buffer rate is currently set at 0% for the UK. The group
also has some small, relevant credit exposures in other
jurisdictions, resulting in a weighted buffer rate of 0% of the
group's total risk exposure amount as at 31 December 2021. An
increased UK rate of 1% will come into effect from December 2022,
which has been built into our forecasts.
The surplus of own funds (including verified profits for the
full year) over Total Capital Requirement and Combined buffer was
GBP115 million, down from GBP133 million at the end of 2020, owing
to additional deductions in the year for the Saunderson House
intangibles and retirement benefit asset.
Pillar 2B PRA buffer
The PRA also determines whether any incremental firm-specific
buffer is required. The PRA requires any such buffer to remain
confidential between the group and the PRA.
In managing the group's regulatory capital position over the
next few years, we will continue to be mindful of:
- future volatility in pension scheme valuations which affect
both the level of CET1 own funds and the value of the Pillar 2A
requirement for pension risk; and
- regulatory developments;
- the demands of future acquisitions which generate intangible
assets and, therefore, directly reduce CET1 resources; and
- expected additional increases in the UK countercyclical
capital buffer rate.
We keep these issues under constant review to ensure that any
necessary capital-raising activities are carried out in a planned
and controlled manner.
The group's Pillar 3 disclosures are published annually on our
website
(rathbones.com/investor-relations/results-and-presentations) and
provide further details about regulatory capital resources and
requirements.
Total assets
Total assets at 31 December 2021 were GBP3.3 billion (2020:
GBP3.4 billion), of which GBP2.3 billion (2020: GBP2.6 billion)
represents the investment in the money markets of the cash element
of client portfolios that is held as a banking deposit.
Treasury assets
As a licensed deposit taker, Rathbone Investment Management
holds our surplus liquidity on its balance sheet together with
clients' cash. Cash in client portfolios as held on a banking basis
of GBP2.3 billion (2020: GBP2.6 billion) represented 4.2% of total
Investment Management funds under management and administration at
31 December 2021, compared to 5.7% at the end of 2020. Cash held in
client money accounts was GBP13.9 million (2020: GBP5.5
million).
The treasury department of Rathbone Investment Management,
reporting through the banking committee to the board, operates in
accordance with procedures set out in a board-approved treasury
manual and monitors exposure to market, credit and liquidity. It
invests in a range of securities issued by a relatively large
number of counterparties. These counterparties must be
single-'A'-rated or higher by Fitch at the time of investment and
are regularly reviewed by the banking committee.
During the year, the share of treasury assets held with the Bank
of England reduced to GBP1.5 billion from GBP1.8 billion at 31
December 2020. Client balances fell at the beginning of the year
and started to recover from August as settlement activity
reduced.
Loans to clients
Loans are provided as a service to Investment Management clients
who have short- to medium-term cash requirements. Such loans are
normally made on a fully secured basis against portfolios held in
our nominee name, requiring two times cover, and are usually
advanced for five years. In addition, charges may be taken on
property held by the client to meet security cover
requirements.
Our ability to provide such loans is a valuable additional
service, for example, to clients who require bridging finance when
buying and selling their homes.
Loans advanced to clients increased to GBP168 million at end of
2021 (2020: GBP158 million) as clients' demand for bridging finance
increased in favour of drawing down from investment portfolios at a
time of market volatility.
Intangible assets
Intangible assets arise principally from acquired growth in
funds under management and administration and are categorised as
goodwill and client relationships. Intangible assets reported on
the balance sheet also include purchased and developed
software.
At 31 December 2021, the total carrying value of intangible
assets arising from acquired growth was GBP361.3 million (2020:
GBP218.0 million). During the year, client relationship intangible
assets of GBP88.0 million were capitalised (2020: GBP11.0 million),
including GBP79.4 million in relation to Saunderson House (2020:
GBP6.9 million in relation to the Personal Injury and Court of
Protection business of Barclays). Goodwill of GBP70.8 million was
acquired during the year in relation to the Saunderson House
acquisition (2020: GBP6.5 million in relation to the Personal
Injury and Court of Protection business of Barclays).
Client relationship intangibles are amortised over the estimated
life of the client relationship, generally a period of 10 to 15
years. When client relationships are lost, any related intangible
asset is derecognised in the year. The total amortisation charge
for client relationships in 2021, including the impact of any lost
relationships, was GBP13.9 million (2020: GBP12.4 million).
Goodwill, which arises from business combinations, is not
amortised but is subject to a test for impairment at least
annually. No goodwill was identified as impaired during the
year.
Capital expenditure
Capex spend of GBP8.8 million in 2021 is down GBP2.9 million on
2020. Capital expenditure on regulatory driven projects and our
premises fell by GBP1.2 million in the year as certain projects
came to an end.
Capex spend on the development of our systems fell by GBP1.7
million to GBP8.1 million in the year. The proportion of spend on
the development of our systems that is capitalised has reduced in
line with the increasing adoption of cloud-based, strategic
technology solutions. The costs of cloud-based solutions are
largely charged to profit or loss, with a consequent reduction in
the level of depreciation cost in future years.
We expect property expenditure to increase in 2022 as we
continue to develop our hybrid working capability and relocate our
premises in Edinburgh following the conclusion of the current
lease.
Defined benefit pension schemes
We operate two defined benefit pension schemes, both of which
have been closed to new members for several years. With effect from
30 June 2017, we closed both schemes, ceasing all future benefit
accrual and breaking the link to salary.
At 31 December 2021 the combined schemes' liabilities, measured
on an accounting basis, had increased to GBP155.6 million, down
5.9% from GBP165.4 million at the end of 2020, primarily reflecting
the increase in interest rates used to discount the liabilities
during the year, and an increase in the assumed future rate of
inflation. The reported position of the schemes as at 31 December
2021 was a surplus of GBP12.3 million (2020: deficit of GBP9.8
million).
Triennial funding valuations form the basis of the annual
contributions that we make into the schemes. Funding valuations of
the schemes as at 31 December 2019 were completed during the prior
year. Having reviewed the long-term plan for the schemes, we agreed
with the trustees a target to fund the schemes to a self-sufficient
basis over the medium term. This targets a level of assets in the
scheme sufficient to fund future cash flows from interest and
maturities of the scheme assets, reducing the reliance on equity
returns to meet the schemes' requirements. This will significantly
reduce the volatility of the schemes and the future burden on the
group. Reflecting this, we agreed a schedule of contributions
totalling GBP25 million over the next six years. This schedule will
be reviewed at the next triennial valuations, as at 31 December
2022.
Liquidity and cash flow
Fees and commissions are largely collected directly from client
portfolios and a significant proportion of expenses are
predictable. Consequently, we operate with a modest amount of
working capital. Larger cash flows are principally generated from
banking and treasury operations when investment managers make asset
allocation decisions about the amount of cash to be held in client
portfolios.
As a bank, we are subject to the PRA's ILAAP regime, which
requires us to hold a suitable Liquid Assets Buffer to ensure that
short-term liquidity requirements can be met under certain stressed
scenarios. Liquidity risks are actively managed on a daily basis
and depend on operational and investment transaction activity.
Cash and balances at central banks was GBP1.5 billion at 31
December 2021 (2020: GBP1.8 billion).
Cash and cash equivalents, as defined by accounting standards,
includes cash, money market funds and banking deposits, which had
an original maturity of less than three months. Consequently, cash
flows, as reported in the financial statements, include the impact
of capital flows in treasury assets.
Net cash flows from operating activities reflect a GBP227.4
million decrease in banking client deposits (2020: GBP106.0 million
decrease), as a result of asset allocation decisions to reduce the
proportion of funds under management and administration held as
cash in clients' portfolios, reflecting market conditions at the
year end.
Cash flows from investing activities also included a net outflow
of GBP110.6 million from the purchase of certificates of deposit
(2020: net outflow of GBP53.1 million), as we reduced the
proportion of treasury assets held with the Bank of England.
The most significant non-operating cash flows during the year
were as follows:
- outflows relating to the payment of dividends of GBP44.0
million (2020: GBP37.8 million);
- payments made (net of cash acquired) in business combinations
of GBP79.7 million (2020: GBP12.0 million);
- net proceeds from the repayment and issuance of subordinated
loan notes of GBP19.8 million (2020: GBPnil);
- outflows relating to payments to acquire intangible assets
(other than as part of a business combination) of GBP10.7 million
(2020: GBP9.5 million); and
- GBP2.0 million of capital expenditure (other than as part of a
business combination) on tangible property, plant and equipment
(2020: GBP3.8 million).
Table 21. Extracts from the consolidated statement of cash
flows
2021 2020
GBPm GBPm
------------------------------------------------- ------- -------
Cash and cash equivalents at the end of the year 1,653.6 2,056.7
Net cash inflows from operating activities (214.2) 32.0
Net change in cash and cash equivalents (403.1) (91.3)
------------------------------------------------- ------- -------
Risk management and control
We have a well established approach to risk management, which
has continued to evolve in response to the firm's growth and
external developments. Our risk governance, processes and
infrastructure are designed to ensure that appropriate risk
management is applied to existing and emerging challenges to the
firm's day-to-day activities and strategic objectives. Our priority
for 2022 is to continue managing risk effectively in accordance
with our risk appetite, to support the long-term future of the
firm.
Managing risk
The board is ultimately accountable for risk management across
the group. It regularly assesses the most significant risks and
emerging threats to the group's strategy. Oversight of risk
management activities is also undertaken through the group risk and
audit committees.
Our risk management approach and governance framework support
the group chief executive officer and executive committee members
with their risk management responsibilities, underpinned by the
executive risk and banking committees. Day-to-day responsibility
for managing risk is delegated to the group chief executive officer
and executive committee members.
Risk culture
The risk culture embedded across the group continues to enhance
the effectiveness of risk management and decision-making. The board
sets a constructive tone in support of a strong risk culture and,
supported by our executive and senior management team, encourages
appropriate behaviours and collaboration on risk management across
the group. Risk management is therefore an integral part of
everyone's day-to-day responsibilities and activities; it is linked
to performance and development, as well as to the group's
remuneration and reward schemes. We aim to create an open and
transparent working environment, encouraging employees to engage
positively in risk management in support of the achievement of our
strategic objectives.
Risk appetite
The board, group risk committee and executive committee
regularly review and, at least annually, formally approve the
group's risk appetite statement, ensuring it remains consistent
with our strategy and objectives. We define risk appetite as the
amount and type of risk the board is prepared to take or accept in
pursuit of our long-term strategic objectives.
Our appetite framework is aligned with the group's overall
prudential requirements for strategic, financial and non-financial
(conduct and operational) risk. Specific appetite statements are
set and measures established for each principal risk. The risk
appetite framework is used to support strategic decision making, as
well as providing a mechanism to monitor risk exposure.
The position against our risk appetite measures is assessed and
reported on a regular basis to the executive committee, group risk
committee and the board, so that risk mitigation can be reviewed
and strengthened if needed.
In line with our strategy, the current economic outlook and the
evolving regulatory landscape within the sector, the board remains
committed to having a relatively low overall appetite for risk and
ensuring that our internal controls mitigate risk to appropriate
levels. The board recognises our performance is susceptible to
fluctuations in investment markets and has the potential to bear
losses from financial and non-financial risks from time to time,
either as reductions in income or increases in operating costs.
Risk categories Risk appetite statement Example of measures
======================== ========================================= =======================
Business & strategic The board expects business and Underlying dividend
risk strategic risks to be understood cover
and managed to limit the impact Net zero and diversity
on delivering sustainable growth targets
and change initiatives required
to meet longer term client, stakeholder,
and societal expectations.
======================== ========================================= =======================
Financial risk The board requires financial risks Prudential ratios
to be actively monitored and prudently (e.g. CET Tier 1,
managed to protect company assets, Total Capital)
maintain liquidity and regulatory
own funds, limit credit and market
risk exposures, and respond to
our pension obligations.
======================== ========================================= =======================
Non-financial risk The board accepts that non-financial Significant operational
(conduct & operational) risks and losses can arise from loss
failures in processes, people, Pass rate of assurance
systems or external events however checks
expects appropriate conduct and
behaviours to minimise the impact
on clients, stakeholders and our
reputation.
======================== ========================================= =======================
Three lines of defence
We operate a three lines of defence model across the group to
support governance and risk management:
First line
Senior management, business operations and support functions are
responsible for managing risks, by developing and maintaining
effective internal controls to mitigate risk in line with risk
appetite.
Second line
Risk, compliance and anti-money laundering functions maintain a
level of independence from the first line and are responsible for
providing oversight of and challenge to the first line's day-to-day
risk management, including monitoring and reporting of risks to
both senior management and governing bodies.
Third line
Our internal audit function is responsible for providing
independent assurance to senior management, the board and audit
committee on the effectiveness of the group's governance, risk
management and internal controls.
Throughout the group, everyone has responsibility for managing
risk and adhering to our control framework in line with their roles
and our conduct expectations.
Identification of risks
Our risks are classified hierarchically in a three-level
register, to reflect our current and anticipated future risk
profile. Our highest level of risk (Level 1) comprises business and
strategic, financial, conduct and operational risks. We continue to
separate conduct and operational risk, rather than combine them
into a non-financial risk category, to ensure that both elements
receive appropriate focus. Our next level (Level 2) contains 20
risk categories, which are each allocated to a Level 1 risk.
Detailed risks (Level 3) are identified as sub-sets of Level 2
risks. There are 52 Level 3 risks in our register. We recognise
that some Level 2 and Level 3 risks have features which need to be
considered under more than one Level 1 risk, which is facilitated
through a process of primary and secondary considerations.
The risks in the register are reviewed with risk owners, senior
management, and business units leaders to identify the principal
risks which have the potential to impact future performance and the
delivery of our strategic objectives and business priorities. All
risks in the register are monitored through top down and bottom up
reviews which consider the potential impact, existing internal
controls and management actions required to mitigate the impact and
likelihood of emerging issues and potential future events.
Risk assessment process
The board, executive and senior management are actively involved
in a continuous risk assessment process as part of our risk
management framework, supported by the Internal Capital Adequacy
Assessment Process (ICAAP) and Internal Liquidity Adequacy
Assessment Process (ILAAP) work, which assesses the principal risks
facing the group.
Our process considers both the impact and likelihood of risks
materialising which could affect the delivery of strategic
objectives and annual business plans and ensures that our
assessment of Level 2 risk categories and detailed Level 3 risks is
challenged and reviewed on a regular basis. The board, executive
committee and executive risk committee receive regular reports and
information from senior management, operational business units,
risk oversight functions and other committees to support this
assessment.
We have a consistent approach to identifying and assessing our
Level 3 risks. We consider risk on both an inherent and residual
basis over a three-year period against a number of different impact
criteria, including financial, client, operations, reputation,
strategy and regulation indicators. A residual risk exposure and
overall risk profile rating of high, medium, low or very low is
then derived for the three-year period, which includes
consideration of the internal control environment and/or insurance
mitigation. The assessment of our control environment includes
contributions from first, second and third line colleagues, data,
and monitoring and assurance activity.
We maintain a watch list as part of our approach to identify and
evaluate any current, emerging or future issues, threats, business
developments and regulatory or legislative changes, which could
have the potential to impact the firm's current or longer term risk
profile. Any material changes may require active risk management,
usually through process changes or systems development.
Stress tests are also undertaken to include consideration of the
impact of a number of severe but plausible events that could impact
the business. This work takes account of the availability and
likely effectiveness of mitigating actions that could be taken to
avoid or reduce the impact or likelihood of the underlying risks
materialising.
The group's risk profile, risk register, watch list and stress
tests are regularly reviewed and challenged by the executive,
senior management, group risk committee and the board.
Three lines of defence
Overview
External independent assurance
Profile and mitigation of principal risks
The group's underlying risk profile has improved over the last
12 months, despite another year of mostly remote working. Although
the risk ratings for many Level 2 risks are unchanged, there have
been improvements in the management of some principal risks as
opportunities were taken to invest further in people, processes and
technology to improve risk mitigation, including against cyber
threats. We have remained focused on service to clients, the
reliability of business operations and the wellbeing of our
colleagues and we believe this approach has been effective.
Based upon our risk assessment processes, the board believes
that the principal risks and uncertainties facing the group which
could impact the delivery of our strategic objectives have been
identified below. These risks reflect our strategic initiatives and
change programme, changes to the group's business model following
the acquisition of Saunderson House, environmental and societal
challenges, the cyber threat landscape, operational resilience in
relation to our suppliers, and the political environment. The board
remains vigilant to potential risks that could arise from the
longer-term impact of COVID-19 on our business and suppliers,
society and the economy, and also to regulatory risks that, in
turn, may arise from the continuing development of law, regulation
and standards in our sector.
Further information about the principal risks is set out below.
We include the potential impacts (I) the firm might face and our
assessment of the likelihood (L) of each principal risk
crystallising. These assessments take into account the controls in
place to mitigate the risks. However, as is always the case, should
a risk materialise, a range of outcomes (both in scale and type)
might be experienced. This is particularly relevant for firms such
as ours where the outcome of a risk event can be influenced by
market conditions as well as internal control factors.
We use ratings of high, medium, low and very low in our risk
assessment. We perceive as high-risk items those which have the
potential to impact the delivery of strategic objectives, with
medium-, low- and very low-rated items having proportionately less
impact on the group. Likelihood is similarly based on a qualitative
assessment.
Key principal risk profile trends
Risk trend
Risk Description in 2021
==================== ====================================================== ==========
Change In 2021, we have remained agile and adapted ->
to the continuing effects of COVID-19, while
delivering growth opportunities through the
Saunderson House acquisition and digital enhancements
for clients.
==================== ====================================================== ==========
Sustainability We continue to monitor external market conditions, ->
including environmental and social factors,
which could adversely affect sustainable growth,
market share or profitability. We broadened
the risk appetite measures for this risk for
2021, which now include diversity and our
climate risk indicators.
==================== ====================================================== ==========
Suitability We continue to refine our processes and improve ->
investment risk oversight, focusing on both
client suitability and portfolio construction.
Further technology enhancements are expected
in 2022.
==================== ====================================================== ==========
Information security We have continued to invest in improving our
and cyber security posture, including staff awareness,
preparedness and technology developments to
ensure we progress and are prepared for the
evolving threat landscape.
==================== ====================================================== ==========
People People risk fluctuated during 2021 as a result ->
of the pandemic, with turnover increasing
against last year and labour market challenges
impacting some areas. Management action has
been taken to address the concerns raised
by our colleagues. Our new employee survey
tool is well established and employee engagement
is positive.
==================== ====================================================== ==========
Third-party supplier This was a key area of focus in 2021, with
framework improvements and increased supplier
oversight introduced. Together with our suppliers,
we have improved the management of risks associated
with their activities, including potential
service disruption and other client impacts.
Work will continue in 2022, in line with our
change agenda.
==================== ====================================================== ==========
Principal risks
The most significant risks which could impact the delivery of
our strategy and annual business plans are detailed below. The
potential impacts (I) the firm might face and our assessment of the
likelihood (L) of each principal risk crystallising are included in
the table. Some of these risks increased in 2021, although they
have since stabilised.
Residual
rating
Risk How the risk
owner(s) Level 2 risk arises I L Control environment
========== ================= ================ ==== ====== ===========================================================
Group Credit This risk can High Low
Chief The risk that arise from * Banking committee and senior management oversight
Financial one or more placing
Officer counterparties funds with other
fail to fulfil banks and * Counterparty limits and credit reviews
contractual holding
obligations, interest-bearing
including stock securities. * Treasury policy and procedures
settlement There
is also a
limited * Client lending policy and procedures
level of lending
to clients
* Active monitoring of exposures
* Annual ICAAP
========== ================= ================ ==== ====== ===========================================================
Group Pension This risk can High Medium
Chief The risk that arise through * Board, senior management and trustee oversight
Financial the cost of a sustained
Officer funding our deficit
defined benefit between the * Monthly valuation estimates
pension schemes schemes'
increases, or assets and
their valuation liabilities. * Triennial independent actuarial valuations
affects A number of
dividends, factors
reserves and impact a * Investment policy
regulatory own deficit,
funds including
increased * Senior management review and defined management
life expectancy, actions
falling interest
rates and
falling * Annual ICAAP
asset values
========== ================= ================ ==== ====== ===========================================================
Chief Change This risk can Very Low
Operating The risk that arise if the high * Executive and board oversight of material change
Officer the change business programmes
portfolio is too
does not support aggressive
delivery of and unstructured * Transformation Office Programme Board oversight and
the group's in its change delivery-focused operating model
strategy programme to
manage
project risks, * Differentiated governance approach to strategic
or fails to make change programmes and business projects
available the
capacity and
capabilities * Dedicated change delivery function and use of
to deliver internal and, where required, external subject matter
business experts
benefits
* Two-stage assessment, challenge and approval of
project plans
* Documented project and change procedures
========== ================= ================ ==== ====== ===========================================================
Group Sustainability This risk can High Medium
Chief The risk that arise from * Board, executive and responsible business committee
Executive the business strategic oversight
Officer model does not decisions which
respond in an fail to consider
optimal manner the current * A documented strategy, including responsible
to changing operating investment policy
market environment, our
conditions, stakeholders'
including expectations, * Monitoring of strategic risks
environmental or can be
and social influenced
factors, by external * Annual business targets, subject to regular review
such that factors and challenge
sustainable such as
growth, market environmental
share or and social * Regular reviews of pricing structure
profitability factors
is adversely
affected * Continued investment in the investment process,
service standards and marketing
* Trade body participation
* Regular competitor benchmarking and analysis
* Monitoring of strategic risks
* Commitment to diversity and inclusion themes
========== ================= ================ ==== ====== ===========================================================
Group Regulatory This risk can High Medium
Chief compliance arise from * Board and executive oversight
Executive and legal failures
Officer & The risk of by the business
Chief Risk failure by the to comply with * Management oversight and active involvement with
Officer group or a existing industry bodies
subsidiary regulation
to fulfil its or failure to
regulatory or identify and * Compliance monitoring programme to examine the
legal react control of key regulatory risks
requirements to regulatory
and comply with change
the introduction * Separate anti-money laundering function with specific
of new or updated responsibility
regulations
and laws
* Oversight of industry and regulatory developments
* Documented policies and procedures
* Staff training and development
========== ================= ================ ==== ====== ===========================================================
Managing Suitability This risk can High Medium
Director The risk of arise through * Board, executive and general managers committee
Rathbone an unsuitable failure to oversight
Investment client outcome appropriately
Management either through understand the
service, wealth * Investment governance and structured committee
investment management oversight
mandate, needs of our
investment clients,
decisions taken, or failure to * Management oversight and segregated quality assurance
investment apply suitable and performance teams
recommendations advice or
made or portfolio investment
or fund strategies * Performance measurement and attribution analysis
construction
* 'Know your client' (KYC) suitability processes
* Weekly investment management meetings
* Investment manager reviews through supervisor
sampling
* Compliance monitoring
========== ================= ================ ==== ====== ===========================================================
Chief Information This risk can High Medium
Operating security and arise from the * Board and executive oversight
Officer cyber firm failing to
The risk of maintain and
inappropriate keep * Data governance committee oversight
access to, secure sensitive
manipulation, and confidential
or disclosure data through its * Information security policy, data protection policy
of, client or operating and associated procedures
company-sensitive infrastructure,
information including the
activities of * System access controls and encryption
employees, and
through the
management * Penetration testing and multi-layer network security
of cyber threats
* Training and employee awareness programmes
* Physical security
========== ================= ================ ==== ====== ===========================================================
Chief People This risk can High Medium
People The risk of arise across all * Board and executive oversight
Officer loss of key areas of the
staff, lack business
of skilled as a result of * Succession and contingency planning
resources resource
or inappropriate management
behaviour or failures or from * Transparent, consistent and competitive remuneration
actions. This external factors schemes
could lead to such as
lack of capacity increased
or capability competition or * Contractual clauses with restrictive covenants
threatening material changes
the delivery in regulation
of business * Continual investment in staff training and
objectives, development
or to behaviour
leading to
complaints, * Employee engagement survey
litigation or
regulatory action
* Appropriate balanced performance measurement system
* Culture monitoring and reporting
========== ================= ================ ==== ====== ===========================================================
Chief Third-party This risk can High Medium
Operating supplier arise when the * Board and executive oversight
Officer & The risk of firm does not
Chief one or more have appropriate
Executive third party governance and * Senior dedicated relationship managers
Officer of suppliers failing oversight of its
Rathbone to provide or supplier
Unit Trust perform relationships, * Supplier contracts and defined service level
Management authorised in particular agreements/KPIs
and/or outsourced those considered
services to key and material
standards to the * New supplier due diligence and approval process
expected operational
by the group, resilience of
impacting the business * Close liaison and regular service review meetings
ability to services
deliver provided to
core services. clients * Documented procedures
This includes or investors
intra-group
outsourcing
activity
========== ================= ================ ==== ====== ===========================================================
Emerging risks and threats
Emerging risks, including legislative and regulatory change,
which have the potential to impact the group and delivery of our
strategic objectives, are monitored through our watch list. During
the year, the executive committee continued to recognise and
respond to a number of emerging risks and threats to the financial
services sector as a whole and to our business. In addition,
throughout 2021 we have continued to develop and maintain our
approach to monitoring strategic risks and horizon threats. Key
emerging risks and threats are:
Near-term Cyber threats and Climate change transition Post pandemic UK and
supply chain resilience risk global economic challenges
ESG acceleration
=========== ======================== ========================= ===========================
Medium-term UK specific and global Sector consolidation Digital currencies
political tensions Changing regulatory Open finance
expectations
=========== ======================== ========================= ===========================
Longer-term Generational wealth Social care financing More extreme pandemics
change
=========== ======================== ========================= ===========================
Our view for 2022 is that we can reasonably expect current
market conditions and uncertainties to remain, given the
implications of COVID-19 variants and the wide range of global
economic and political scenarios which could emerge.
Assessment of the company's prospects
The board reviews its strategic plan annually. This, alongside
the ICAAP and ILAAP, forms the basis for capital planning which is
discussed periodically with the Prudential Regulation Authority
(PRA).
During the year, the board has considered a number of stress
tests and scenarios which focus on material or severe but plausible
events that could impact the business and the company's financial
position. The board also considers the plans and procedures in
place in the event that contingency funding is required to
replenish regulatory capital. On a monthly basis, critical capital
projections and sensitivities have been refreshed and reviewed,
taking into account current or expected market movements and
business developments.
The board's assessment considers all the principal risks
identified by the group and assesses the sufficiency of our
response to all Pillar 1 risks (defined as credit, market and
operational risks, including conduct) to the required regulatory
standards. In addition, the crystallisation of the following events
were considered for enhanced stress testing: an equity market fall,
a loss of business/competitive threat, business expansion, pension
obligation and a combined market fall and reputational event. The
economic and commercial impacts of the global pandemic on the
prospects of the company were also factored into the
assessment.
The group considers the possible impacts of serious business
interruption as part of its operational risk assessment process and
remains mindful of the importance of maintaining its reputation.
Although the business is almost wholly UK-situated, it does not
suffer from any other material client, geographical or counterparty
concentrations.
While this stress test does not consider all of the risks that
the group may face, the directors consider that this stress testing
based assessment of the group's prospects is reasonable in the
circumstances of the inherent uncertainty involved.
Viability statement
In accordance with the UK Corporate Governance Code, the board
has assessed the prospects and viability of the group over a
three-year period considering the risk assessments identified
above. The directors have considered the firm's current position
and the potential impact of the principal risks and uncertainties
set out above. As part of the viability statement, the directors
confirm that they have carried out a robust assessment of both the
principal risks facing the group, and stress tests and scenarios
that would threaten the sustainability of its business model, and
its future performance, solvency or liquidity.
The board regularly reviews business performance and at least
annually its current strategic plan through to 2024, alongside a
strategic risk assessment. The board also considers five-year
projections as part of its annual regulatory reporting cycle,
including strategic and investment plans. However, the directors
have determined and continue to believe that a three-year period to
31 December 2024 constitutes an appropriate and prudent period over
which to provide its viability statement given the uncertainties
associated with the global pandemic, as well as economic and
political factors and their potential impact on investment markets
over a longer period. This three-year view is also more aligned to
the firm's detailed stress testing and capital planning activity.
There is no reason to believe the five year view would be different
but as always, there is more uncertainty over a longer time horizon
particularly in relation to external factors.
Stress testing and scenario analysis shows that the group would
remain profitable in excess of our risk appetite tolerances for
capital and liquidity, and able to withstand the impact of such
scenarios. An example of a mitigating action in such scenarios
would be a reduction in costs, specifically around change
initiatives, along with a reduction in dividend.
Scenarios modelled include:
Market wide stress (capital & liquidity): a 30% fall in all
market levels for a prolonged 18-month period and FX
illiquidity.
Idiosyncratic stress (capital & liquidity): a
reputation-affecting cyber event causing outflow of 20% of FUMA
with associated compensation and rectification costs.
Combined stress (capital & liquidity): aggregation of the
above stresses, together with negative interest rates and
additional FUMA outflow to fund personal lifestyle changes.
Based on this assessment, the directors confirm that they have a
reasonable expectation that the company will be able to continue in
operation and meet its liabilities as they fall due over the period
to 31 December 2024.
Going concern
Details of the group's business activities, results, cash flows
and resources, together with the risks it faces and other factors
likely to affect its future development, performance and position
are set out in the chair's statement, chief executive's review,
financial performance and segmental review.
The group companies are regulated by the Prudential Regulation
Authority (PRA) and/or the Financial Conduct Authority (FCA) and
perform annual capital adequacy and liquidity assessments, which
include the modelling of certain extreme stress scenarios. The
company publishes Pillar 3 disclosures annually on its website,
which provide detail about its regulatory capital resources and
requirements. In July 2015, Rathbone Investment Management issued
GBP20 million of 10-year subordinated loan notes to finance future
growth which were repaid in August 2021. In October 2021, Rathbones
Group Plc issued GBP40 million of 10-year subordinated loan notes
to finance future growth. The group has no other external
borrowings.
The directors believe that the company is well placed to manage
its business risks successfully despite the continuing uncertain
economic and political outlook. As the directors have a reasonable
expectation that the company has adequate resources to continue in
operational existence for the foreseeable future, they continue to
adopt the going concern basis of accounting in preparing the annual
financial statements.
Consolidated statement of comprehensive income
for the year ended 31 December 2021
2021 2020
Note GBP'000 GBP'000
--------------------------------------------------- ---- --------- ---------
Interest and similar income 7,710 14,976
Interest expense and similar charges (3,834) (6,554)
--------------------------------------------------- ---- --------- ---------
Net interest income 3,876 8,422
--------------------------------------------------- ---- --------- ---------
Fee and commission income 457,696 378,240
Fee and commission expense (29,062) (24,491)
--------------------------------------------------- ---- --------- ---------
Net fee and commission income 428,634 353,749
--------------------------------------------------- ---- --------- ---------
Net trading income - (12)
Other operating income 3,417 3,929
--------------------------------------------------- ---- --------- ---------
Operating income 435,927 366,088
--------------------------------------------------- ---- --------- ---------
Charges in relation to client relationships and
goodwill (15,595) (14,302)
Acquisition-related costs 5 (10,089) (34,449)
Other operating expenses (315,208) (273,558)
--------------------------------------------------- ---- --------- ---------
Operating expenses (340,892) (322,309)
--------------------------------------------------- ---- --------- ---------
Profit before tax 95,035 43,779
Taxation 6 (19,806) (17,127)
--------------------------------------------------- ---- --------- ---------
Profit after tax 75,229 26,652
--------------------------------------------------- ---- --------- ---------
Profit for the year attributable to equity holders
of the company 75,229 26,652
--------------------------------------------------- ---- --------- ---------
Other comprehensive income:
Items that will not be reclassified to profit
or loss
Net remeasurement of defined benefit liability 10 17,091 (4,682)
Deferred tax relating to net remeasurement of
defined benefit liability (3,247) 1,668
Other comprehensive income net of tax 13,844 (3,014)
--------------------------------------------------- ---- --------- ---------
Total comprehensive income for the year net of
tax attributable to equity holders of the company 89,073 23,638
--------------------------------------------------- ---- --------- ---------
Dividends paid and proposed for the year per
ordinary share 7 81.0p 72.0p
Dividends paid and proposed for the year 49,501 38,728
Earnings per share for the year attributable
to equity holders of the company:
* basic 12 133.5p 49.6p
* diluted 129.3p 47.6p
--------------------------------------------------- ---- --------- ---------
Consolidated statement of changes in equity
for the year ended 31 December 2021
Share Share Merger Own Retained Total
capital premium reserve shares earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ---- -------- -------- -------- -------- --------- --------
At 1 January 2020 2,818 210,939 71,756 (41,971) 241,851 485,393
Profit for the year 26,652 26,652
==================================== ==== ======== ======== ======== ======== ========= ========
Net remeasurement of defined
benefit liability 10 (4,682) (4,682)
Deferred tax relating to components
of other comprehensive income 1,668 1,668
==================================== ==== ======== ======== ======== ======== ========= ========
Other comprehensive income
net of tax - - - - (3,014) (3,014)
Dividends paid 7 (37,831) (37,831)
Issue of share capital 56 4,153 - 4,209
Share-based payments:
* value of employee services 43,635 43,635
* cost of own shares acquired (5,077) (5,077)
* cost of own shares vesting 304 (304) -
* tax on share-based payments (140) (140)
------------------------------------ ---- -------- -------- -------- -------- --------- --------
At 31 December 2020 2,874 215,092 71,756 (46,744) 270,849 513,827
Profit for the year 75,229 75,229
==================================== ==== ======== ======== ======== ======== ========= ========
Net remeasurement of defined
benefit asset 10 17,091 17,091
Deferred tax relating to components
of other comprehensive income (3,247) (3,247)
==================================== ==== ======== ======== ======== ======== ========= ========
Other comprehensive income
net of tax - - - - 13,844 13,844
Dividends paid 7 (43,960) (43,960)
Issue of share capital 226 75,934 5,209 81,369
Share-based payments:
* value of employee services (3,247) (3,247)
* cost of own shares acquired (15,130) (15,130)
* cost of own shares vesting 25,248 (25,248) -
* tax on share-based payments 1,350 1,350
------------------------------------ ---- -------- -------- -------- -------- --------- --------
At 31 December 2021 3,100 291,026 76,965 (36,626) 288,817 623,282
------------------------------------ ---- -------- -------- -------- -------- --------- --------
Consolidated balance sheet
as at 31 December 2021
2021 2020
Note GBP'000 GBP'000
--------------------------------------------- ---- --------- ---------
Assets
Cash and balances with central banks 1,463,294 1,802,706
Settlement balances 69,750 90,373
Loans and advances to banks 203,589 159,430
Loans and advances to customers 179,840 166,221
Investment securities:
* fair value through profit or loss 29,934 107,559
* amortised cost 761,654 651,427
Prepayments, accrued income and other assets 115,992 98,714
Property, plant and equipment 13,059 14,846
Right-of-use assets 43,895 44,856
Current tax asset 2,272 -
Net deferred tax asset - 3,342
Intangible assets 8 376,187 231,144
Retirement benefit asset 10 12,287 -
--------------------------------------------- ---- --------- ---------
Total assets 3,271,753 3,370,618
--------------------------------------------- ---- --------- ---------
Liabilities
--------------------------------------------- ---- --------- ---------
Deposits by banks 2,212 893
Settlement balances 60,075 95,412
Due to customers 2,333,011 2,561,767
Accruals, provisions and other liabilities 9 144,498 112,071
Lease liabilities 54,971 56,124
Current tax liabilities - 971
Net deferred tax liability 13,811 -
Subordinated loan notes 39,893 19,768
Retirement benefit obligation 10 - 9,785
--------------------------------------------- ---- --------- ---------
Total liabilities 2,648,471 2,856,791
--------------------------------------------- ---- --------- ---------
Equity
--------------------------------------------- ---- --------- ---------
Share capital 3,100 2,874
Share premium 291,026 215,092
Merger reserve 76,965 71,756
Own shares (36,626) (46,744)
Retained earnings 288,817 270,849
--------------------------------------------- ---- --------- ---------
Total equity 623,282 513,827
--------------------------------------------- ---- --------- ---------
Total liabilities and equity 3,271,753 3,370,618
--------------------------------------------- ---- --------- ---------
Company registered number: 01000403
Consolidated statement of cash flows
for the year ended 31 December 2021
2021 2020
Note GBP'000 GBP'000
----------------------------------------------------------- ---- --------- ---------
Cash flows from operating activities
Profit before tax 95,035 43,779
Change in fair value through profit or loss (670) (1,881)
Net interest income (3,876) (8,422)
(Recoveries)/Impairment losses on financial instruments (712) 582
Net charge for provisions 9 3,118 143
Profit on disposal of property, plant and equipment - -
Depreciation, amortisation and impairment 31,279 31,229
Foreign exchange movements (519) 1,245
Defined benefit pension scheme charges 10 105 200
Defined benefit pension contributions paid 10 (5,086) (3,111)
Share-based payment charges 20,132 39,986
Interest paid (4,994) (5,300)
Interest received 11,225 12,376
----------------------------------------------------------- ---- --------- ---------
145,037 110,826
Changes in operating assets and liabilities:
net (increase)/decrease in loans and advances to banks
and customers (41,409) 29,852
net decrease/(increase) in settlement balance debtors 20,624 (37,852)
net increase in prepayments, accrued income and other
assets (9,113) (722)
net decrease in amounts due to customers and deposits
by banks (227,435) (106,013)
net (decrease)/increase in settlement balance creditors (35,336) 37,718
net (decrease)/increase in accruals, deferred income,
provisions and other liabilities (39,381) 19,616
----------------------------------------------------------- ---- --------- ---------
Cash (used in)/generated from operations (187,013) 53,425
Tax paid (27,207) (21,410)
Net cash (outflow)/inflow from operating activities (214,220) 32,015
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired (79,736) (12,048)
Purchase of property, plant, equipment and intangible
assets (12,632) (13,294)
Purchase of right-of-use assets (70) (238)
Purchase of investment securities (932,386) (886,847)
Proceeds from sale and redemption of investment securities 821,790 833,712
----------------------------------------------------------- ---- --------- ---------
Net cash used in investing activities (203,034) (78,715)
----------------------------------------------------------- ---- --------- ---------
Cash flows from financing activities
----------------------------------------------------------- ---- --------- ---------
Net (repurchase)/issue of ordinary shares 14 44,335 (868)
Repayment of subordinated loan notes (20,114) -
Net proceeds from the issue of subordinated loan notes 39,893 -
Dividends paid 7 (43,960) (37,831)
Payment of lease liabilities (5,109) (4,880)
Interest paid (895) (1,060)
Net cash generated from/(used in) financing activities 14,150 (44,639)
----------------------------------------------------------- ---- --------- ---------
Net decrease in cash and cash equivalents (403,104) (91,339)
----------------------------------------------------------- ---- --------- ---------
Cash and cash equivalents at the beginning of the
year 2,056,694 2,148,033
Cash and cash equivalents at the end of the year 14 1,653,590 2,056,694
----------------------------------------------------------- ---- --------- ---------
Notes to the preliminary announcement
1 Accounting policies
In preparing the financial information included in this
statement the group has applied accounting policies which are in
accordance with UK-adopted International Accounting Standards at 31
December 2021. The accounting policies have been applied
consistently to all periods presented in this statement, except as
detailed below.
2 Critical accounting judgements and key sources of estimation
uncertainty
The group makes judgements and estimates that affect the
application of the group's accounting policies and reported amounts
of assets, liabilities, income and expenses within the next
financial year. Estimates and assumptions are continually evaluated
and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.
The following key accounting policies involve critical
judgements made in applying the accounting policy and involve
estimations.
2.1 Client relationship intangibles (note 8)
Critical judgements
Client relations hip intangibles purchased through corporate
transactions
When the group purchases client relationships through
transactions with other corporate entities, a judgement is made as
to whether the transaction should be accounted for as a business
combination or as a separate purchase of intangible assets. In
making this judgement, the group assesses the assets, liabilities,
operations and processes that were the subject of the transaction
against the definition of a business combination in IFRS 3. In
particular, consideration is given to the scale of the operations
subject to the transaction and whether ownership of a corporate
entity has been acquired, among other factors.
Payments to newly recruited investment managers
The group assesses whether payments made to newly recruited
investment managers under contractual agreements represent payments
for the acquisition of client relationship intangibles or
remuneration for ongoing services provided to the group. If these
payments are incremental costs of acquiring investment management
contracts and are deemed to be recoverable (i.e. through future
revenues earned from the funds that transfer), they are capitalised
as client relationship intangibles. Otherwise, they are judged to
be in relation to the provision of ongoing services and are
expensed in the period in which they are incurred. Upfront payments
made to investment managers upon joining are expensed as they are
not judged to be incremental costs for acquiring the client
relationships.
Estimation uncertainty
Amortisation of client relationship intangibles
The group makes estimates as to the expected duration of client
relationships to determine the period over which related intangible
assets are amortised. The amortisation period is estimated with
reference to historical data on account closure rates and
expectations that these will continue in the future. During the
year, client relationship intangible assets were amortised over a
10-to-15-year period.
Amortisation of GBP15.6 million (2020: GBP14.3 million) was
charged during the year. At 31 December 2021, the carrying value of
client relationship intangibles was GBP193.6 million (2020:
GBP121.1 million).
A reduction of three years in the amortisation period of those
client relationship intangible assets currently amortised over 15
years would increase the annual amortisation charge by GBP6.3
million.
2.2 Retirement benefit obligations (note 10)
Estimation uncertainty
The principal assumptions underlying the reported surplus of
GBP12,287,000 (2020: GBP9,785,000 deficit) are set out in note
10.
In setting these assumptions, the group makes estimates about a
range of long-term trends and market conditions to determine the
value of the surplus or deficit on its retirement benefit schemes,
based on the group's expectations of the future and advice taken
from qualified actuaries. Long-term forecasts and estimates are
necessarily highly subjective and subject to risk that actual
events may be significantly different to those forecast. If actual
events deviate from the assumptions made by the group then the
reported surplus or deficit in respect of retirement benefit
obligations may be materially different.
The sensitivities of the retirement benefit obligations to
changes in all of the underlying estimates are set out in note 10.
Of these, the most sensitive assumption is the discount rate used
to measure the defined benefit obligation. Increasing the discount
rate by 0.5% would decrease the schemes' liabilities by
GBP14,966,000 (2020: GBP15,689,000). A 0.5% decrease would have an
equal and opposite effect.
2.3 Business combinations (note 4)
Critical judgement
Treatment and fair value of consideration transferred
During the year, the group acquired the entire share capital of
Saunderson House Limited. The group has accounted for the
transaction as a business combination.
The purchase price payable in respect of the acquisition is
split into a number of different components. The payment of certain
elements has been deferred; the timing and value of these are
contingent on certain employment conditions and operational and
financial targets being met.
The proportion of the deferred payments that are contingent on
the recipients remaining employees of the group for a specific
period are accounted for as remuneration for ongoing services in
employment. The group's estimate of the amounts ultimately payable
will be expensed over the deferral period.
Estimation uncertainty
Treatment and fair value of consideration transferred
The deferred payments subject to the achievement of certain
operational and performance targets at 31 December 2024 were
assessed, and a provision for the expected consideration to be paid
has been made. Under the terms of the agreements, the award ranges
from a payment of GBPnil to a maximum possible payment of GBP7.2
million.
Management's best estimate of this award at the year end was
GBP4.75 million, based on expected qualifying funds under
management at 31 December 2024 of GBP5.0 billion. The maximum award
of GBP7.2 million would result in an additional charge to profit or
loss in 2021 of GBP0.1 million.
Amortisation of client relationship intangibles
Client relationships of GBP79.4 million were recognised in the
period in relation to the acquisition of Saunderson House. These
are being amortised over a 15 year useful life. A reduction of
three years in the amortisation period of the client relationship
intangible asset would increase the annual amortisation charge by
GBP1.3 million.
3 Segmental information
For management purposes, the group is organised into two
operating divisions: Investment Management and Funds. Centrally
incurred indirect expenses are allocated to these operating
segments on the basis of the cost drivers that generate the
expenditure; principally, these are the headcount of staff directly
involved in providing those services from which the segment earns
revenues, the value of funds under management and administration
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 group executive
committee, which is the group's chief operating decision-maker.
Investment Indirect
Management Funds expenses Total
31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ----------- -------- --------- ---------
Net investment management fee income 288,089 61,289 - 349,378
Net commission income 53,596 - - 53,596
Net interest income 3,874 2 - 3,876
Fees from advisory services and other income 27,265 1,812 - 29,077
--------------------------------------------- ----------- -------- --------- ---------
Operating income 372,824 63,103 - 435,927
--------------------------------------------- ----------- -------- --------- ---------
Staff costs - fixed (89,343) (5,210) (35,260) (129,813)
Staff costs - variable (61,872) (16,833) (11,426) (90,131)
--------------------------------------------- ----------- -------- --------- ---------
Total staff costs (151,215) (22,043) (46,686) (219,944)
Other direct expenses (37,488) (10,084) (47,692) (95,264)
Allocation of indirect expenses (85,767) (8,611) 94,378 -
--------------------------------------------- ----------- -------- --------- ---------
Underlying operating expenses (274,470) (40,738) - (315,208)
--------------------------------------------- ----------- -------- --------- ---------
Underlying profit before tax 98,354 22,365 - 120,719
Charges in relation to client relationships
and goodwill (note 8) (15,595) - - (15,595)
Acquisition-related costs (note 5) (9,635) - (454) (10,089)
--------------------------------------------- ----------- -------- --------- ---------
Segment profit before tax 73,124 22,365 (454) 95,035
--------------------------------------------- ----------- -------- --------- ---------
Profit before tax attributable to equity
holders of the company 95,035
Taxation (note 6) (19,806)
--------------------------------------------- ----------- -------- --------- ---------
Profit for the year attributable to equity
holders of the company 75,229
--------------------------------------------- ----------- -------- --------- ---------
Investment
Management Funds Total
GBP'000 GBP'000 GBP'000
--------------------- ----------- -------- ---------
Segment total assets 3,132,898 126,568 3,259,466
Unallocated assets 12,287
--------------------- ----------- -------- ---------
Total assets 3,271,753
--------------------- ----------- -------- ---------
Investment Indirect
Management Funds expenses Total
31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------- ----------- -------- --------- ---------
Net investment management fee income 230,309 43,929 - 274,238
Net commission income 62,297 - - 62,297
Net interest income 8,422 - - 8,422
Fees from advisory services and other income 19,629 1,502 - 21,131
------------------------------------------------- ----------- -------- --------- ---------
Operating income 320,657 45,431 - 366,088
------------------------------------------------- ----------- -------- --------- ---------
Staff costs - fixed (83,673) (4,118) (29,697) (117,488)
Staff costs - variable (56,414) (12,015) (9,299) (77,728)
------------------------------------------------- ----------- -------- --------- ---------
Total staff costs (140,087) (16,133) (38,996) (195,216)
------------------------------------------------- ----------- -------- --------- ---------
Other direct expenses (33,371) (8,693) (36,278) (78,342)
Allocation of indirect expenses (67,753) (7,521) 75,274 -
------------------------------------------------- ----------- -------- --------- ---------
Underlying operating expenses (241,211) (32,347) - (273,558)
------------------------------------------------- ----------- -------- --------- ---------
Underlying profit before tax 79,446 13,084 - 92,530
Charges in relation to client relationships
and goodwill (note 8) (14,302) - - (14,302)
Acquisition-related costs (note 5) (32,433) - (2,016) (34,449)
------------------------------------------------- ----------- -------- --------- ---------
Segment profit before tax 32,711 13,084 (2,016) 43,779
Profit before tax attributable to equity holders
of the company 43,779
Taxation (note 6) (17,127)
------------------------------------------------- ----------- -------- --------- ---------
Profit for the year attributable to equity
holders of the company 26,652
------------------------------------------------- ----------- -------- --------- ---------
Investment
Management Funds Total
GBP'000 GBP'000 GBP'000
------------------------------------------------- ----------- -------- --------- ---------
Segment total assets 3,243,198 121,320 3,364,518
Unallocated assets 6,100
------------------------------------------------- ----------- -------- --------- ---------
Total assets 3,370,618
------------------------------------------------- ----------- -------- --------- ---------
The following table reconciles underlying operating expenses to
operating expenses:
2021 2020
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Underlying operating expenses 315,208 273,558
Charges in relation to client relationships and goodwill
(note 8) 15,595 14,302
Acquisition-related costs (note 5) 10,089 34,449
--------------------------------------------------------- -------- --------
Operating expenses 340,892 322,309
--------------------------------------------------------- -------- --------
Geographic analysis
The following table presents operating income analysed by the
geographical location of the group entity providing the
service:
2021 2020
GBP'000 GBP'000
----------------- -------- --------
United Kingdom 421,386 353,712
Jersey 14,541 12,376
----------------- -------- --------
Operating income 435,927 366,088
----------------- -------- --------
The following is an analysis of the carrying amount of
non-current assets analysed by the geographical location of the
assets:
2021 2020
GBP'000 GBP'000
------------------- -------- --------
United Kingdom 429,345 286,409
Jersey 3,796 4,437
------------------- -------- --------
Non-current assets 433,141 290,846
------------------- -------- --------
Timing of revenue recognition
The following table presents operating income analysed by the
timing of revenue recognition of the operating segment providing
the service:
2021 2020
--------------------- ---------------------
Investment Investment
Management Funds Management Funds
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ----------- -------- ----------- --------
Products and services transferred at a point
in time 44,190 - 56,300 (12)
Products and services transferred over time 327,486 64,251 264,851 44,949
--------------------------------------------- ----------- -------- ----------- --------
Operating income 371,676 64,251 321,151 44,937
--------------------------------------------- ----------- -------- ----------- --------
Major clients
The group is not reliant on any one client or group of connected
clients for generation of revenues.
4 Business combinations
Speirs & Jeffrey
On 31 August 2018, the group acquired 100% of the ordinary share
capital of Speirs & Jeffrey Limited ('Speirs &
Jeffrey').
Other deferred payments
The group has now provided for the total cost of deferred and
contingent payments to be made to vendors for the sale of the
shares of Speirs & Jeffrey. These payments required the vendors
to remain in employment with the group for the duration of the
respective deferral periods. Hence, they have been treated as
remuneration for post-combination services and the grant date fair
value has been charged to profit and loss over the respective
vesting periods. The group continues to provide for related
incentivisation awards for other staff.
During the prior year, the group replaced a share-based
incentivisation award for support staff with a cash award. The
accumulated charge recognised in equity over the related vesting
period was reversed, and a provision was recognised in the 2020
financial statements in respect of the cash award. The award was
settled during the year.
The remainder of payments are to be made in shares and have been
accounted for as equity-settled share-based payments under IFRS
2:
- initial share consideration was payable on completion.
However, although the shares were issued on the date of
acquisition, they vested during the year at the third anniversary
of the acquisition date.
- earn-out consideration and related incentivisation awards were
subject to the delivery of certain operational and financial
performance targets. The awards were payable in two parts in the
third and fourth years following the acquisition date. The second
earn-out vested during the year.
Further details of each of these elements are as follows:
Grant date
Gross amount fair value
GBP'000 Grant date GBP'000 Vesting date
------------------------------------------- ------------ -------------- ----------- -------------------
Initial share consideration 25,000 31 August 2018 23,462 31 August 2021
Earn-out consideration and incentivisation
awards 40,500 31 August 2018 41,111 31 December 2020/21
------------------------------------------- ------------ -------------- ----------- -------------------
The gross amount in respect of the earn-out consideration and
incentivisation awards represents the extent to which the
performance targets were achieved at the respective vesting
dates.
The charge recognised in profit or loss for the year ended 31
December 2021 for the above elements is as follows:
2021 2020
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Initial share consideration 4,533 9,215
Earn-out consideration and incentivisation awards 1,430 23,042
--------
5,963 32,257
-------------------------------------------------- -------- --------
A net credit of GBP2,600,000 was charged to profit or loss in
the year for the second earn-out consideration. This related in
part to a release of a portion of the accumulated charge recognised
since the acquisition date, which was based on a higher estimate of
the expected award at the time than the final qualifying amount.
These costs are being reported as staff costs within
acquisition-related costs (see note 5).
Barclays Wealth's Personal Injury and Court of Protection
business
On 3 April 2020, the group acquired the trade and assets of
Barclays Wealth's Personal Injury and Court of Protection business.
The acquired trade relates to the provision of discretionary
investment management services to Personal Injury and Court of
Protection clients.
Cash consideration of GBP12,048,000 was transferred on the date
of acquisition. The sale and purchase agreement also comprised an
employee incentive plan that was payable in two tranches. The last
tranche of the award vested on 31 December 2020 and was paid during
the year.
The awards under this plan are considered to be directly
attributable costs of acquiring new client relationships, hence
these costs have been capitalised in line with IFRS 15 and
amortised over a 15 year useful life (note 8).
Saunderson House
On 20 October 2021, the group acquired 100% of the ordinary
share capital of the Saunderson House group.
Saunderson House is a UK-based advice-led wealth management
business with a focus on professional services clients. It has a
long-standing heritage in serving London and South East-based
professional services clients, who tend to hold market-leading
positions in accountancy and law firms.
Consideration transferred
The following table summarises the acquisition date fair value
of each class of consideration transferred:
Fair value
GBP'000
---------------------------- ----------
Initial cash consideration 87,981
Deferred cash consideration 10,873
---------------------------- ----------
Total consideration 98,854
---------------------------- ----------
Total consideration comprises an initial cash payment of
GBP87,981,000, which was paid on 20 October 2021. A further
GBP45,208,000 was paid to the vendors on completion to settle debt
of the acquired group. This debt, now payable to Rathbone Brothers
Plc, has been included in the value of net assets acquired.
Deferred cash consideration is payable on the first anniversary
of the acquisition date to vendors who are not required to remain
in employment with the group. As the payment is due within one
year, the consideration has not been discounted.
Other deferred payments
The sale and purchase agreement details other deferred and
contingent payments to be made to the vendors for the sale of the
shares of Saunderson House. However, these payments require the
recipients to remain in employment with the group for the duration
of the respective deferral periods. Hence, they are being treated
as remuneration for post-combination services, and the cost charged
to profit and loss over the respective vesting periods. Details of
each of these elements is as follows:
Grant date
Gross amount fair value Expected vesting
GBP'000 Grant date GBP'000 date
----------------------------- ------------ ----------- ----------- ----------------
20 October
Initial share consideration 5,223 2021 5,454 20 October 2024
20 October
Deferred share consideration 4,052 2021 4,066 20 October 2022
----------------------------- ------------ ----------- ----------- ----------------
20 December
Management incentive scheme 4,750 2021 4,093 31 December 2024
----------------------------- ------------ ----------- ----------- ----------------
All of these payments are to be made 100% in shares and are
being accounted for as equity-settled share-based payments under
IFRS 2.
- Initial share consideration of GBP5,223,000 was issued on the
date of acquisition, however does not vest until the third
anniversary of the acquisition date, subject to the vendors
remaining employed until this date. As the share issuance is in
pursuance of the arrangement to acquire the shares of the
Saunderson House group, the premium of GBP5,209,000 on the issuance
of these shares has been recognised within the merger reserve.
- Deferred share consideration of GBP4,052,000 is payable on the
first anniversary of the acquisition date subject to the vendors
remaining in employment with the group.
- An incentive plan is in place for the Saunderson House senior
management team, which is subject to certain operational and
financial performance targets. The consideration vests in the
fourth year following the acquisition date. The gross amount
represents management's best estimate as to the extent to which
these targets will be achieved. The award ranges from a minimum
payment of GBPnil to a cap of GBP7.2 million.
These costs are being reported as staff costs within
acquisition-related costs (see note 5).
Identifiable assets acquired and liabilities assumed
The identifiable net assets of the acquired business at the
acquisition date were as follows:
Recognised
Carrying amounts Fair value amounts
20 October 2021 GBP'000 GBP'000 GBP'000
-------------------------------------- ---------------- ---------- ----------
Property, plant and equipment 519 - 519
Trade and other receivables 10,063 - 10,063
Software assets 1,425 - 1,425
Client relationship intangibles (note
8) - 79,415 79,415
Cash held at bank 8,245 - 8,245
Right-of-use assets 451 - 451
Trade creditors (86) - (86)
Accruals and other liabilities (4,485) - (4,485)
Due to group companies (47,655) - (47,655)
Deferred tax liabilities (6) (19,386) (19,392)
Lease liabilities (451) - (451)
Contingent liabilities - - -
-------------------------------------- ---------------- ---------- ----------
Total net assets acquired (31,980) 60,029 28,049
-------------------------------------- ---------------- ---------- ----------
The fair value of the client relationship intangible assets has
been measured using a multi-period earnings method (note 8). The
model uses estimates of client longevity and investment performance
to derive a series of cash flows, which are discounted to a present
value to determine the fair value of the client relationships
acquired. The deferred tax liability arises on recognition of the
client relationship intangible assets, and is equal to its carrying
value.
The fair value of all other net assets acquired were equal to
their carrying value.
Goodwill
Goodwill arising from the acquisition has been recognised as
follows:
GBP'000
----------------------------------------------------------- -------
Total consideration (see above) 98,854
Fair value of identifiable net assets acquired (see above) 28,049
----------------------------------------------------------- -------
70,805
----------------------------------------------------------- -------
Goodwill of GBP70,805,000 arises as a result of the acquired
workforce, expected future growth as well as operational and
revenue synergies arising post integration. Any impairment of
goodwill in future periods is not expected to be deductible for tax
purposes.
During the period to 31 December 2021, Saunderson House
contributed GBP6,142,000 to the group's operating income, and
GBP1,122,000 to the group's profit before tax. This excludes the
acquisition-related costs of GBP3,669,000 (see note 5), which were
paid by Rathbone Brothers Plc.
If the group had made the acquisition on 1 January 2021,
Saunderson House would have contributed GBP32,481,000 to group
operating income and GBP2,067,000 to profit before tax, as based on
the company's full year results.
5 Acquisition-related costs
2021 2020
GBP'000 GBP'000
---------------------------------------------------------- -------- --------
Acquisition of Speirs & Jeffrey 6,418 34,273
Acquisition of Barclay's Wealth Personal Injury and Court
of Protection business 2 176
Acquisition of Saunderson House 3,669 -
---------------------------------------------------------- -------- --------
Acquisition-related costs 10,089 34,449
---------------------------------------------------------- -------- --------
Costs relating to the acquisition of Speirs & Jeffrey
The group has incurred the following costs in relation to the
2018 acquisition of Speirs & Jeffrey, summarised by the
following classification within the income statement:
2021 2020
GBP'000 GBP'000
------------------------------- -------- --------
Acquisition costs:
* Staff costs 5,964 32,257
* Legal and advisory fees 5 20
Integration costs 449 1,996
------------------------------- -------- --------
6,418 34,273
------------------------------- -------- --------
Non-staff acquisition costs of GBP5,000 (2020: GBP20,000) and
integration costs of GBP449,000 (2020: GBP1,996,000) have not been
allocated to a specific operating segment (note 3).
Costs relating to the acquisition of Barclays Wealth's Personal
Injury and Court of Protection business
On 3 April 2020, the group acquired the trade and assets of
Barclays Wealth's Personal Injury and Court of Protection business.
The group incurred professional services costs of GBP2,000 (2020:
GBP176,000) in relation to the acquisition during the year.
Costs relating to the acquisition of Saunderson House
The group has incurred the following costs in relation to the
acquisition of Saunderson House, summarised by the following
classification within the income statement:
2021 2020
GBP'000 GBP'000
------------------------------- -------- --------
Acquisition costs:
* Staff costs 1,406 -
* Legal and advisory fees 2,263 -
Integration costs - -
------------------------------- -------- --------
3,669 -
------------------------------- -------- --------
6 Income tax expense
2021 2020
GBP'000 GBP'000
--------------------------------------------- -------- --------
Current tax:
* charge for the year 23,796 18,247
* adjustments in respect of prior years 86 (727)
Deferred tax:
* credit for the year (3,793) (1,495)
* adjustments in respect of prior years (283) 1,102
--------------------------------------------- -------- --------
19,806 17,127
--------------------------------------------- -------- --------
The tax charge is calculated based on our best estimate of the
amount payable as at the balance sheet date. Any subsequent
differences between these estimates and the actual amounts paid are
recorded as adjustments in respect of prior years.
The tax charge on profit for the year is higher (2020: higher)
than the standard rate of corporation tax in the UK of 19.0% (2020:
19.0%).
The differences are explained below:
2021 2020
GBP'000 GBP'000
------------------------------------------------------------ -------- --------
Tax on profit from ordinary activities at the standard rate
of 19.0% (2020: 19.0%) effects of: 18,057 8,318
* disallowable expenses 984 454
* share-based payments 87 2,228
* tax on overseas earnings (56) (225)
* adjustments in respect of prior year (197) 375
* deferred payments to previous owners of acquired
companies (note 5) 927 5,455
* other 8 (49)
* Effect of change in corporation tax rate on deferred
tax (4) 571
------------------------------------------------------------ -------- --------
19,806 17,127
------------------------------------------------------------ -------- --------
7 Dividends
2021 2020
GBP'000 GBP'000
------------------------------------------------------------- -------- --------
Amounts recognised as distributions to equity holders in
the year:
* final dividend for the year ended 31 December 2020 of
47.0p (2019: 45.0p) per share 25,938 24,316
* interim dividend for the year ended 31 December 2021
of 27.0p (2020: 25.0p) per share 18,022 13,515
------------------------------------------------------------- -------- --------
Dividends paid in the year of 74.0p (2020: 70.0p) per share 43,960 37,831
------------------------------------------------------------- -------- --------
Proposed final dividend for the year ended 31 December
2021 of 54.0p (2020: 47.0p) per share 31,479 25,213
------------------------------------------------------------- -------- --------
An interim dividend of 27.0p per share was paid on 5 October
2021 to shareholders on the register at the close of business on 3
September 2021 (2020: 25.0p).
A final dividend declared of 54p per share (2020: 47.0p) is
payable on 10 May 2022 to shareholders on the register at the close
of business on 22 April 2022. The final dividend is subject to
approval by shareholders at the Annual General Meeting on 5 May
2022 and has not been included as a liability in these financial
statements.
8 Intangible assets
2021 2020
GBP'000 GBP'000
------------------------ -------- --------
Goodwill 167,677 96,872
Other intangible assets 208,510 134,272
------------------------ -------- --------
376,187 231,144
------------------------ -------- --------
Goodwill
Goodwill acquired in a business combination is allocated, at
acquisition, to the groups of cash-generating units (CGUs) that are
expected to benefit from that business combination.
The carrying amount of goodwill has been allocated as
follows:
Investment
Management Funds Total
GBP'000 GBP'000 GBP'000
------------------------------------------------ -------------- -------- ------------
Cost
At 1 January 2020 90,405 1,954 92,359
Acquired through business combinations (note 4) 6,467 - 6,467
------------------------------------------------ -------------- -------- ------------
At 1 January 2021 96,872 1,954 98,826
Acquired through business combinations (note 4) 70,805 - 70,805
------------------------------------------------ -------------- -------- ------------
At 31 December 2021 167,677 1,954 169,631
------------------------------------------------ -------------- -------- ------------
Impairment
At 1 January 2020 - 1,954 1,954
Charge for the year - - -
------------------------------------------------ -------------- -------- ------------
At 1 January 2021 - 1,954 1,954
Charge for the year - - -
------------------------------------------------ -------------- -------- ------------
At 31 December 2021 - 1,954 1,954
------------------------------------------------ -------------- -------- ------------
Carrying amount at 31 December 2021 167,677 - 167,677
------------------------------------------------ -------------- -------- ------------
Carrying amount at 31 December 2020 96,872 - 96,872
------------------------------------------------ -------------- -------- ------------
Carrying amount at 1 January 2020 90,405 - 90,405
------------------------------------------------ -------------- -------- ------------
Goodwill of GBP70,805,000 acquired through business combinations
in the period relates to the acquisition of Saunderson House (2020:
GBP6,467,000 acquired in the prior year relates to the acquisition
of the Barclays Wealth's Personal Injury and Court of Protection
business). See note 4. This has been allocated to the Investment
Management group of CGUs. The group does not believe there are any
key assumptions where reasonable changes could occur which could
give rise to a material adjustment in the carrying value.
Impairment
The recoverable amounts of the groups of CGUs to which goodwill
is allocated are assessed using value-in-use calculations. The
group prepares cash flow forecasts derived from the most recent
financial budgets approved by the board, covering the forthcoming
and future years. Budgets are extrapolated for five years based on
annual revenue and cost growth for each group of CGUs (see table
below), as well as the group's expectation of future industry
growth rates. A five-year extrapolation period is chosen as this
aligns with the period covered by the group's Internal Capital
Adequacy Assessment Process ('ICAAP') modelling. A terminal growth
rate is applied to year five cash flows, which takes into account
the net growth forecasts over the extrapolation period and the
long-term average growth rate for the industry. The group estimates
discount rates using pre-tax rates that reflect current market
assessments of the time value of money and the risks specific to
the group of CGUs.
The pre-tax rate used to discount the forecast cash flows for
each group of CGU is shown in the table below; these are based on a
risk-adjusted weighted average cost of capital. The group judges
that these discount rates appropriately reflect the markets in
which each group of CGUs operate.
There was no impairment to the goodwill allocated to the
Investment Management group of CGUs during the period. The group
has considered any reasonably foreseeable changes to the
assumptions used in the value-in-use calculation for the Investment
Management group of CGUs to its cash flow projections and the level
of risk associated with those cash flows. Based on this assessment,
no such change would result in an impairment of the goodwill
allocated to this CGU.
Investment Management
-----------------------
At 31 December 2021 2020
--------------------------- ----------- ----------
Discount rate 12.0% 12.2%
Annual revenue growth rate 4.2% 5.0%
Terminal growth rate 1.0% 1.0%
----------------------------- ----------- ----------
Other intangible assets
Software
Client development Purchased
relationships costs software Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------------- ------------ --------- --------
Cost
At 1 January 2020 207,136 8,182 41,148 256,466
Internally developed in the year - 1,613 - 1,613
Acquired through business combinations
(note 4) 6,890 - - 6,890
Purchased in the year 4,085 - 6,269 10,354
Disposals (1,858) - (1,228) (3,086)
-------------- ------------ --------- --------
At 1 January 2021 216,253 9,795 46,189 272,237
Internally developed in the year - 1,995 - 1,995
Acquired through business combinations
(note 4) 79,415 - 5,662 85,077
Purchased in the year 8,620 - 4,840 13,460
Disposals (1,716) - (3,699) (5,415)
--------------------------------------- -------------- ------------ --------- --------
At 31 December 2021 302,572 11,790 52,992 367,354
--------------------------------------- -------------- ------------ --------- --------
Amortisation and impairment
At 1 January 2020 82,680 6,037 30,347 119,064
Impairment charge - - - -
Amortisation charge 14,302 1,197 6,488 21,987
Disposals (1,858) - (1,228) (3,086)
--------------------------------------- -------------- ------------ --------- --------
At 1 January 2021 95,124 7,234 35,607 137,965
Acquired through business combinations
(note 4) - - 4,237 4,237
Amortisation charge 15,595 1,383 5,053 22,031
Disposals (1,716) - (3,673) (5,389)
--------------------------------------- -------------- ------------ --------- --------
At 31 December 2021 109,003 8,617 41,224 158,844
--------------------------------------- -------------- ------------ --------- --------
Carrying amount at 31 December 2021 193,569 3,173 11,768 208,510
--------------------------------------- -------------- ------------ --------- --------
Carrying amount at 31 December 2020 121,129 2,561 10,582 134,272
--------------------------------------- -------------- ------------ --------- --------
Carrying amount at 1 January 2020 124,456 2,145 10,801 137,402
--------------------------------------- -------------- ------------ --------- --------
Client relationships of GBP79,415,000 acquired through business
combinations in the period relate to the acquisition of Saunderson
House
(2020: GBP6,890,000 acquired in the prior year relates to the
acquisition of the Barclays Wealth's Personal Injury and Court of
Protection business). See note 4.
Purchases of client relationships of GBP8,620,000 (2020:
GBP4,085,000) in the year relate to payments made to investment
managers and third parties for the introduction of client
relationships.
The total amount charged to profit or loss in the year in
relation to goodwill and client relationships was GBP15,595,000
(2020: GBP14,302,000).
Purchased software with a cost of GBP32,363,000 (2020:
GBP23,803,000) has been fully amortised but is still in use.
9 Provisions
2021 2020
GBP'000 GBP'000
----------------- -------- --------
Trade creditors 59 785
Other creditors 23,667 20,766
Accruals 105,448 81,805
Other provisions 15,324 8,715
----------------- -------- --------
144,498 112,071
----------------- -------- --------
Deferred,
variable
costs
to acquire Deferred
client consideration Legal
relationship in business and Property-
intangibles combinations compensation related Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ------------- -------------- ------------- --------- --------
At 1 January 2020 1,319 - 2,175 5,238 8,732
==================================== ============= ============== ============= ========= ========
Charged to profit or loss 588 639 (642) 585
Unused amount credited to profit or
loss - - (419) (23) (442)
==================================== ============= ============== ============= ========= ========
Net charge to profit or loss - 588 220 (665) 143
Other movements 3,857 - - - 3,857
Utilised/paid during the year (1,391) - (1,801) (825) (4,017)
------------------------------------ ------------- -------------- ------------- --------- --------
At 1 January 2021 3,785 588 594 3,748 8,715
==================================== ============= ============== ============= ========= ========
Charged to profit or loss - - 2,278 995 3,273
Unused amount credited to profit or
loss - - (155) - (155)
==================================== ============= ============== ============= ========= ========
Net charge to profit or loss - - 2,123 995 3,118
Other movements 7,992 - - - 7,992
Utilised/paid during the year (3,239) (588) (574) (100) (4,501)
------------------------------------ ------------- -------------- ------------- --------- --------
At 31 December 2021 8,538 - 2,143 4,643 15,324
------------------------------------ ------------- -------------- ------------- --------- --------
Payable within 1 year 3,567 - 2,143 96 5,806
Payable after 1 year 4,971 - - 4,547 9,518
------------------------------------ ------------- -------------- ------------- --------- --------
8,538 - 2,143 4,643 15,324
------------------------------------ ------------- -------------- ------------- --------- --------
10 Long-term employee benefits
Defined contribution pension scheme
The group operates a defined contribution group personal pension
scheme and contributes to various other personal pension
arrangements for certain directors and employees. The total
contributions made to these schemes during the year GBP12,006,000
(2020: GBP10,411,000). The group also operates a defined
contribution scheme for overseas employees, for which the total
contributions were GBP82,000 (2020: GBP67,000).
Defined benefit pension schemes
The group operates two defined benefit pension schemes that
operate within the UK legal and regulatory framework: the Rathbone
1987 Scheme and the Laurence Keen Retirement Benefit Scheme. The
schemes are currently both clients of Rathbone Investment
Management, with investments managed on a discretionary basis, in
accordance with the statements of investment principles agreed by
the trustees. Scheme assets are held separately from those of the
group.
The trustees of the schemes are required to act in the best
interest of the schemes' beneficiaries. The appointment of trustees
is determined by the schemes' trust documentation and legislation.
The group has a policy that one third of all trustees should be
nominated by members of the schemes.
Following a High Court ruling in 2018, the cost of equalising
pension benefits for the impact of unequal Guaranteed Minimum
Pensions (GMPs) has been recognised. Only the Laurence Keen Scheme
was impacted. The Rathbone 1987 Scheme was never contracted out,
meaning there are no GMP benefits in this scheme. Ahead of a
specific method for equalisation being agreed with the scheme
trustees, the cost has been estimated using a method consistent
with that deemed by the High Court to be the minimum necessary to
achieve equality. The High Court made a further ruling in November
2020 relating to members with GMPs that had previously transferred
out, whereby the scheme remains liable for paying any required
adjustments arising from GMP equalisation. An estimate of the
additional payment was recognised as a past service cost in
2020.
The Laurence Keen Scheme was closed to new entrants and future
accrual with effect from 30 September 1999. Past service benefits
continue to be calculated by reference to final pensionable
salaries. From 1 October 1999, all the active members of the
Laurence Keen Scheme were included under the Rathbone 1987 Scheme
for accrual of retirement benefits for further service. The
Rathbone 1987 Scheme was closed to new entrants with effect from 31
March 2002 and to future accrual from 30 June 2017.
The schemes are valued by independent actuaries at least every
three years using the projected unit credit method, which looks at
the value of benefits accruing over the years following the
valuation date based on projected salary to the date of termination
of services, discounted to a present value using a rate that
reflects the characteristics of the liability. The valuations are
updated at each balance sheet date in between full valuations. The
latest full actuarial valuations were carried out as at 31 December
2019.
The assumptions used by the actuaries, to estimate the schemes'
liabilities, are the best estimates chosen from a range of possible
actuarial assumptions. Due to the timescale covered by the
liability, these assumptions may not necessarily be borne out in
practice.
The principal actuarial assumptions used, which reflect the
different membership profiles of the schemes, were:
Laurence Keen Rathbone 1987
Scheme Scheme
-------------------- --------------------
2021 2020 2021 2020
% % % %
(unless (unless (unless (unless
stated) stated) stated) stated)
----------------------------------------------- --------- --------- --------- ---------
Rate of increase of salaries n/a n/a n/a n/a
Rate of increase of pensions in payment 3.70 3.40 3.30 3.00
Rate of increase of deferred pensions 3.40 3.00 3.40 3.00
Discount rate 1.90 1.30 1.90 1.30
Inflation* 3.40 3.00 3.40 3.00
Percentage of members transferring out of
the schemes per annum 2.00 3.00 2.00 3.00
Average age of members at date of transferring
out (years) 52.5 52.5 52.5 52.5
----------------------------------------------- --------- --------- --------- ---------
* Inflation assumptions are based on the Retail Prices Index
Over the year, the financial assumptions have been amended to
reflect changes in market conditions. Specifically:
1. the discount rate has been increased by 0.6% to reflect a
decrease in the yields available on AA-rated corporate bonds
2. the assumed rate of future inflation has increased by 0.4%
and reflects expectations of long-term inflation as implied by
changes in the Bank of England inflation yield curve
3. the assumed rates of future increases to pensions in payment
increased by 0.3% for both schemes, allowing for the change to the
assumed rate of future inflation
Over the year the mortality assumptions have been updated. The
CMI model used to project future improvements in mortality has been
updated from the 2019 version to the 2020 version.
2% of members not yet in receipt of their pension are assumed to
transfer out of the scheme each year (2020: 3%).
The assumed duration of the liabilities for the Laurence Keen
Scheme is 15 years (2020: 16 years) and the assumed duration for
the Rathbone 1987 Scheme is 20 years (2020: 21 years).
The normal retirement age for members of the Laurence Keen
Scheme is 65 (60 for certain former directors). The normal
retirement age for members of the Rathbone 1987 Scheme is 60 for
service prior to 1 July 2009 and 65 thereafter, following the
introduction of pension benefits based on Career-Average Revalued
Earnings (CARE) from that date. The assumed life expectancy for the
membership of both schemes is based on the S3PA 'Light' actuarial
tables with improvements in line with the CMI 2020 tables with a
long-term rate of improvement of 1.5% p.a. The assumed life
expectancies on retirement were:
2021 2020
-------------- --------------
Males Females Males Females
---------------------- -------- ----- ------- ----- -------
Retiring today: aged 60 28.2 29.9 28.2 29.8
aged 65 23.3 24.9 23.3 24.8
Retiring in 20 years: aged 60 29.9 31.6 29.9 31.5
aged 65 24.8 26.6 24.8 26.5
------------------------------- ----- ------- ----- -------
The amount included in the balance sheet arising from the
group's assets in respect of the schemes is as follows:
2021 2020
------------------------------ ------------------------------
Laurence Rathbone Laurence Rathbone
Keen 1987 Keen 1987
Scheme Scheme Total Scheme Scheme Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- --------- --------- -------- --------- ---------
Present value of defined benefit
obligations (11,149) (144,428) (155,577) (12,374) (153,030) (165,404)
Fair value of scheme assets 12,981 154,883 167,864 12,592 143,027 155,619
--------------------------------- -------- --------- --------- -------- --------- ---------
Net defined benefit liability 1,832 10,455 12,287 218 (10,003) (9,785)
--------------------------------- -------- --------- --------- -------- --------- ---------
The amounts recognised in profit or loss, within operating
expenses, are as follows:
2021 2020
---------------------------- ----------------------------
Laurence Rathbone Laurence Rathbone
Keen 1987 Keen 1987
Scheme Scheme Total Scheme Scheme Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------- -------- -------- -------- -------- --------
Net interest on net liability (5) 110 105 7 117 124
Past service cost - - - 76 - 76
------------------------------ -------- -------- -------- -------- -------- --------
(5) 110 105 83 117 200
------------------------------ -------- -------- -------- -------- -------- --------
Remeasurements of the net defined benefit asset have been
reported in other comprehensive income. The actual return on scheme
assets was a rise in value of GBP481,000 (2020: GBP451,000 rise)
for the Laurence Keen Scheme and a rise in value of GBP11,501,000
(2020: GBP9,660,000 rise) for the Rathbone 1987 Scheme.
Movements in the present value of defined benefit obligations
were as follows:
2021 2020
---------------------------- ----------------------------
Laurence Rathbone Laurence Rathbone
Keen 1987 Keen 1987
Scheme Scheme Total Scheme Scheme Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- -------- -------- -------- -------- --------
At 1 January 12,374 153,030 165,404 12,726 146,398 159,124
Service cost (employer's part) - - - - - -
Interest cost 158 1,961 2,119 257 2,916 3,173
Contributions from members - - - - - -
Actuarial experience gains 20 5,793 5,813 (1,081) (3,272) (4,353)
Actuarial gains/(losses) arising
from:
* demographic assumptions (159) (1,200) (1,359) (389) (5,154) (5,543)
* financial assumptions (816) (10,761) (11,577) 1,158 20,482 21,640
Past service cost - - - 76 - 76
Benefits paid (428) (4,395) (4,823) (373) (8,340) (8,713)
--------------------------------- -------- -------- -------- -------- -------- --------
At 31 December 11,149 144,428 155,577 12,374 153,030 165,404
--------------------------------- -------- -------- -------- -------- -------- --------
Movements in the fair value of scheme assets were as
follows:
2021 2020
---------------------------- ----------------------------
Laurence Rathbone Laurence Rathbone
Keen 1987 Keen 1987
Scheme Scheme Total Scheme Scheme Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------------- -------- -------- -------- -------- -------- --------
At 1 January 12,592 143,027 155,619 12,178 138,932 151,110
Remeasurement of net defined
benefit liability:
* interest income 163 1,851 2,014 250 2,799 3,049
* return on scheme assets (excluding amounts included
in interest income) 318 9,650 9,968 201 6,861 7,062
Contributions from the sponsoring
companies 336 4,750 5,086 336 2,775 3,111
Contributions from scheme members - - - - - -
Benefits paid (428) (4,395) (4,823) (373) (8,340) (8,713)
---------------------------------------------------------- -------- -------- -------- -------- -------- --------
At 31 December 12,981 154,883 167,864 12,592 143,027 155,619
---------------------------------------------------------- -------- -------- -------- -------- -------- --------
The statements of investment principles set by the trustees of
both schemes were revised in 2020. They require that the assets of
the schemes are invested in a diversified portfolio of assets,
split between return-seeking assets (primarily equities) and safer
assets (corporate bonds and liability-driven investments).
The expected asset allocations at 31 December 2021 as set out in
the statements of investment principles are as follows:
Laurence Rathbone
Keen 1987
Target asset allocation at 31 December 2021 Scheme Scheme
-------------------------------------------- -------- --------
Benchmark
Safer assets 60% 60%
Growth assets 40% 40%
Range
50% - 50% -
Safer assets 70% 70%
30% - 30% -
Growth assets 50% 50%
-------------------------------------------- -------- --------
The analysis of the scheme assets, measured at bid prices, at
the balance sheet date was as follows:
2021 2020 2021 2020
Fair Fair Current Current
value value allocation allocation
Laurence Keen Scheme GBP'000 GBP'000 % %
-------------------------------------- -------- -------- ----------- -----------
Equity instruments:
* United Kingdom 348 485
* Eurozone 696 555
* North America 2,547 2,284
* Other 2,244 2,048
-------------------------------------- -------- -------- ----------- -----------
5,835 5,372 46 43
Debt instruments:
* United Kingdom corporate bonds 4,854 4,489
-------------------------------------- -------- -------- ----------- -----------
4,854 4,489 37 36
Liability-driven investments 1,986 2,441 15 19
* Cash 181 161 1 1
* Other 125 129 1 1
-------------------------------------- -------- -------- ----------- -----------
At 31 December 12,981 12,592 100 100
-------------------------------------- -------- -------- ----------- -----------
2021 2020 2021 2020
Fair Fair Current Current
value value allocation allocation
Rathbone 1987 Scheme GBP'000 GBP'000 % %
-------------------------------------- -------- -------- ----------- -----------
Equity instruments:
* United Kingdom 18,035 29,299
* Eurozone 9,107 5,948
* North America 27,980 15,978
* Other 16,823 15,497
-------------------------------------- -------- -------- ----------- -----------
71,945 66,722 47 46
Debt instruments:
* United Kingdom corporate bonds 54,370 41,509
54,370 41,509 35 29
Liability-driven investments 26,308 32,700 17 24
* Cash 2,260 2,096 1 1
* Other - - - -
-------------------------------------- -------- -------- ----------- -----------
At 31 December 154,883 143,027 100 100
-------------------------------------- -------- -------- ----------- -----------
All equity instruments have quoted prices in active markets.
'Other' scheme assets comprise commodities (2020: comprise
commodities). Buy and maintain credit funds held with Legal and
General Investment Management have been classified as UK corporate
bonds.
During the prior year, a proportion of assets was transferred to
new fund managers, Legal and General Investment Management, and the
interest rate swap instrument that was previously held was sold.
The scheme now holds liability-driven investments, which act to
reduce the group's exposure to changes in net defined benefit
pension obligations arising from changes in interest rates and
inflation.
The key assumptions affecting the results of the valuation are
the discount rate, future inflation, mortality, the rate of members
transferring out and the average age at the time of transferring
out. In order to demonstrate the sensitivity of the results to
these assumptions, the actuary has recalculated the defined benefit
obligations for each scheme by varying each of these assumptions in
isolation whilst leaving the other assumptions unchanged. For
example, in order to demonstrate the sensitivity of the results to
the discount rate, the actuary has recalculated the defined benefit
obligations for each scheme using a discount rate that is 0.5%
higher than that used for calculating the disclosed figures. A
similar approach has been taken to demonstrate the sensitivity of
the results to the other key assumptions. A summary of the
sensitivities in respect of the total of the two schemes' defined
benefit obligations is set out below.
Combined impact
on schemes' liabilities
----------------------------------------
(Decrease)/increase (Decrease)/increase
GBP'000 %
--------------------------------------------- ------------------- -------------------
0.5% increase in:
* discount rate (14,966) (9.6%)
0.5% increase in: 12,639 8.1%
* rate of inflation
Reduce allowance for future transfers to nil 1,671 1.1%
1-year increase to:
* longevity at 60 7,884 5.1%
--------------------------------------------- ------------------- -------------------
The total contributions made by the group to the 1987 Scheme
during the year were GBP4,750,000 (2020: GBP2,775,000). The group
has a commitment to pay deficit-reducing contributions of
GBP3,750,000 by 31 August 2022 and a further GBP2,750,000 by 31
August 2023 and each subsequent 31 August up to and including 31
August 2026, so long as that scheme remains in deficit. The deficit
funding plan will be reviewed following the next triennial
valuation, as at 31 December 2022.
The total contributions made by the group to the Laurence Keen
Scheme during the year were GBP336,000 (2020: GBP336,000). The
group has a commitment to pay deficit-reducing contributions of
GBP168,000 by 28 February each year from 2022 to 2026 (inclusive)
and a further GBP168,000 by 31 August in each of those years, so
long as that scheme remains in deficit.
11 Fair values disclosures
The table below analyses 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 Level Level
1 2 3 Total
At 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- -------- --------
Assets
Fair value through profit or loss:
* equity securities 7,376 - 2,558 9,934
* money market funds - 20,000 - 20,000
----------------------------------- -------- -------- -------- --------
7,376 20,000 2,558 29,934
----------------------------------- -------- -------- -------- --------
Level Level Level
1 2 3 Total
At 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- -------- --------
Assets
Fair value through profit or loss:
* equity securities 5,728 - 2,569 8,297
* money market funds - 99,262 - 99,262
----------------------------------- -------- -------- -------- --------
5,728 99,262 2,569 107,559
----------------------------------- -------- -------- -------- --------
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 year (2020: none).
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:
- Investment debt securities measured at amortised cost comprise
bank and building society certificates of deposit, which have fixed
coupons. The fair value of debt securities at 31 December 2021 was
GBP761,763,000 (2020: GBP654,769,000) and the carrying value was
GBP761,682,000 (2020: GBP651,533,000). Fair value of debt
securities is based on market bid prices, and hence would be
categorised as level 1 within the fair value hierarchy.
- Subordinated loan notes comprise Tier 2 loan notes. The fair
value of the loan notes at 31 December 2021 was GBP42,824,000
(2020: GBP21,726,000) and the carrying value was GBP39,893,000
(2020: GBP19,768,000). 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 in the fair value hierarchy.
Level 3 financial instruments: Fair value through profit or
loss
The group holds 1,809 shares in Euroclear Holdings SA, which are
classed as level 3 in the fair value hierarchy since no observable
market data is available.
The valuation of EUR1,684 per share at 31 December 2021 has been
calculated by reference to the most readily available data, which
is the indicative price derived from recent transactions of the
shares in the market. The valuation at the balance sheet date has
been adjusted for movements in exchange rates since the acquisition
date. A 10% weakening of the euro against sterling, occurring on 31
December 2021, would have reduced equity and profit after tax by
GBP207,000 (2020: GBP208,000). A 10% strengthening of the euro
against sterling would have had an equal and opposite effect.
Changes in the fair values of financial instruments categorised
as level 3 within the fair value hierarchy were as follows:
2021 2020
-------------------------------------------------------- ----- -----
At 1 January 2,569 1,186
Total unrealised (losses)/gains recognised in profit or
loss (11) 1,383
-------------------------------------------------------- ----- -----
At 31 December 2,558 2,569
-------------------------------------------------------- ----- -----
The gains or losses relating to the fair value through profit or
loss equity securities is included within 'other operating income'
in the consolidated statement of comprehensive income.
There were no other gains or losses arising from changes in the
fair value of financial instruments categorised as level 3 within
the fair value hierarchy.
12 Earnings per share
Earnings used to calculate earnings per share on the bases
reported in these financial statements were:
2021 2020
-------- -------- -------- -------- -------- --------
Pre-tax Taxation Post-tax Pre-tax Taxation Post-tax
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ -------- -------- -------- -------- -------- --------
Underlying profit attributable
to shareholders 120,719 (23,732) 96,987 92,530 (20,928) 71,602
Charges in relation to client
relationships and goodwill (note
8) (15,595) 2,963 (12,632) (14,302) 2,717 (11,585)
Acquisition-related costs (note
5) (10,089) 963 (9,126) (34,449) 1,084 (33,365)
------------------------------------ -------- -------- -------- -------- -------- --------
Profit attributable to shareholders 95,035 (19,806) 75,229 43,779 (17,127) 26,652
------------------------------------ -------- -------- -------- -------- -------- --------
Basic earnings per share has been calculated by dividing profit
attributable to shareholders by the weighted average number of
shares in issue throughout the year, excluding on shares, of
56,334,784 (2020: 53,720,680).
Diluted earnings per share is the basic earnings per share,
adjusted for the effect of contingently issuable shares under the
Saunderson House initial share consideration and 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. The Speirs
and Jeffrey initial share consideration vested during the year.
2021 2020
----------------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares in issue
during the year - basic 56,334,784 53,720,680
Effect of ordinary share options/Save As You Earn 521,955 231,259
Effect of dilutive shares issuable under the Share
Incentive Plan 237,776 73,990
Effect of contingently issuable shares under the Executive
Incentive Plan 811,508 929,457
Effect of contingently issuable shares under Speirs
& Jeffrey initial share consideration (note 4) - 1,006,522
Effect of contingently issuable shares under Saunderson
House initial share consideration (note 4) 272,952 -
----------------------------------------------------------- ---------- ----------
Diluted ordinary shares 58,178,975 55,961,908
----------------------------------------------------------- ---------- ----------
2021 2020
--------------------------------------------------------------- ------ ------
Earnings per share for the year attributable to equity holders
of the company:
* basic 133.5p 49.6p
* diluted 129.3p 47.6p
Underlying earnings per share for the year attributable
to equity holders of the company:
* basic 172.2p 133.3p
* diluted 166.7p 127.9p
--------------------------------------------------------------- ------ ------
Underlying earnings per share is calculated in the same way as
earnings per share, but by reference to underlying profit
attributable to shareholders.
13 Related party transactions
Transactions with key management personnel
The remuneration of the key management personnel of the group,
who are defined as the company's directors and other members of
senior management who are responsible for planning, directing and
controlling the activities of the group, is set out below.
Gains on options exercised by directors during the year totalled
GBPnil (2020: GBPnil). Further information about the remuneration
of individual directors is provided in the audited part of the
directors' remuneration report.
2021 2020
GBP'000 GBP'000
----------------------------- -------- --------
Short-term employee benefits 12,159 9,829
Post-employment benefits 290 298
Other long-term benefits 1,305 941
Share-based payments 1,997 3,170
----------------------------- -------- --------
15,751 14,238
----------------------------- -------- --------
Dividends totalling GBP229,000 were paid in the year (2020:
GBP98,000) in respect of ordinary shares held by key management
personnel and their close family members.
As at 31 December 2021, the group had outstanding interest-free
season ticket loans of GBPnil (2020: GBPnil) issued to key
management personnel.
At 31 December 2021, key management personnel and their close
family members had gross outstanding deposits of GBP634,000 (2020:
GBP616,000) and gross outstanding banking loans of GBPnil (2020:
nil), all of which (2020: all) were made on normal business terms.
A number of the group's key management personnel and their close
family members make use of the services provided by companies
within the group. Charges for such services are made at various
staff rates.
Other related party transactions
The group's transactions with the pension funds are described in
note 10. At 31 December 2021, no amounts were outstanding with
either the Laurence Keen Scheme or the Rathbone 1987 Scheme (2020:
none).
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
2021, the group managed 33 unit trusts, Sociétés d'Investissement à
Capital Variable (SICAVs) and open-ended investment companies
(OEICs) (together, 'collectives') (2020: 28 unit trusts and
OEICs).
The group charges each fund an annual management fee for these
services, but does not earn any performance fees on the unit
trusts. The management charges are calculated on the bases
published in the individual fund prospectuses, which also state the
terms and conditions of the management contract with the group.
The following transactions and balances relate to the group's
interest in the unit trusts:
2021 2020
Year ended 31 December GBP'000 GBP'000
---------------------------------- -------- --------
Total management fees 68,444 50,541
---------------------------------- -------- --------
2021 2020
As at 31 December GBP'000 GBP'000
---------------------------------- -------- --------
Management fees owed to the group 6,240 4,885
Holdings in unit trusts 7,376 5,728
---------------------------------- -------- --------
13,616 10,613
---------------------------------- -------- --------
Total management fees are included within 'fee and commission
income' in the consolidated statement of comprehensive income.
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 equity securities' in the consolidated
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 expected credit loss provisions have been made in respect of the
amounts owed by related parties.
14 Consolidated statement of cash flows
For the purposes of the consolidated statement of cash flows,
cash and cash equivalents comprise the following balances with less
than three months until maturity from the date of acquisition:
2021 2020
GBP'000 GBP'000
-------------------------------------------------------- --------- ---------
Cash and balances at central banks 1,460,001 1,798,000
Loans and advances to banks 173,589 159,432
Fair value through profit or loss investment securities 20,000 99,262
-------------------------------------------------------- --------- ---------
At 31 December 1,653,590 2,056,694
-------------------------------------------------------- --------- ---------
Fair value thought profit or loss investment securities are
amounts invested in money market funds, which are realisable on
demand.
Cash flows arising from the (repurchase)/issue of ordinary
shares comprise:
2021 2020
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Share capital issued 226 56
Share premium on shares issued 75,934 4,153
Merger reserve on shares issued 5,209 -
Shares issued in relation to share-based schemes for
which no cash consideration was received (21,902) -
Shares issued in relation to share buybacks (15,132) (5,077)
----------------------------------------------------- -------- --------
44,335 (868)
----------------------------------------------------- -------- --------
A reconciliation of the movements of liabilities to cash flows
arising from financing activities was as follows:
Liabilities Equity
------------ -----------------------------------
Subordinated Share capital/ Retained
loan notes premium Reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ ------------ -------------- -------- --------- --------
At 1 January 2021 19,768 217,966 25,012 270,849 533,595
Changes from financing cash flows
Proceeds from issue of share capital - 54,244 - 54,244
Proceeds from issue of treasury shares - - (9,909) (9,909)
Dividends paid - - - (43,960) (43,960)
------------------------------------------ ------------ -------------- -------- --------- --------
Total changes from financing cash
flows - 54,244 (9,909) (43,960) 375
------------------------------------------ ------------ -------------- -------- --------- --------
The effect of changes in foreign exchange
rates - - - - -
------------------------------------------ ------------ -------------- -------- --------- --------
Changes in fair value - - - - -
------------------------------------------ ------------ -------------- -------- --------- --------
Repayment of loan notes (20,114) - - - (20,114)
Liability-related
Issue of loan notes 39,893 39,893
Interest expense 1,241 - - - 1,241
Interest paid (895) - - - (895)
------------------------------------------ ------------ -------------- -------- --------- --------
Total liability-related changes 20,125 - - - 20,125
------------------------------------------ ------------ -------------- -------- --------- --------
Total equity-related other changes - 21,916 25,236 61,928 109,080
------------------------------------------ ------------ -------------- -------- --------- --------
At 31 December 2021 39,893 294,126 40,339 288,817 663,175
------------------------------------------ ------------ -------------- -------- --------- --------
Liabilities Equity
------------ ------------------------------
Share
Subordinated capital/ Retained
loan notes premium Reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ ------------ --------- -------- --------- --------
At 1 January 2020 19,927 213,757 29,785 241,851 505,320
Changes from financing cash flows
Proceeds from issue of share capital - 4,209 - - 4,209
Proceeds from sale of treasury shares - - (4,773) (304) (5,077)
Dividends paid - - - (37,831) (37,831)
------------------------------------------ ------------ --------- -------- --------- --------
Total changes from financing cash flows - 4,209 (4,773) (38,135) (38,699)
------------------------------------------ ------------ --------- -------- --------- --------
The effect of changes in foreign exchange
rates - - - - -
------------------------------------------ ------------ --------- -------- --------- --------
Changes in fair value - - - - -
------------------------------------------ ------------ --------- -------- --------- --------
Other changes (393) - - -
Liability-related
Interest expense 1,294 - - - 1,294
Interest paid (1,060) - - - (1,060)
------------------------------------------ ------------ --------- -------- --------- --------
Total liability-related changes (159) - - - (159)
------------------------------------------ ------------ --------- -------- --------- --------
Total equity-related other changes - - - 67,133 67,133
------------------------------------------ ------------ --------- -------- --------- --------
At 31 December 2020 19,768 217,966 25,012 270,849 533,595
------------------------------------------ ------------ --------- -------- --------- --------
15 Events after the balance sheet date
There have been no material events occurring between the balance
sheet date and the date of signing this report.
16 Financial information
The financial information set out in this preliminary
announcement has been extracted from the Group's financial
statements, which have been approved by the Board of directors and
agreed with the Company's auditor.
The financial information set out above does not constitute the
Company's statutory financial statements for the years ended 31
December 2021 or 2020. Statutory financial statements for 2020 have
been delivered to the Registrar of Companies. Statutory financial
statements for 2021 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditor has
reported on both the 2020 and 2021 financial statements. Their
reports were unqualified and did not draw attention to any matters
by way of emphasis. They also did not contain statements under
Section 498 of the Companies Act 2006.
17 Forward looking statements
This announcement contains certain forward-looking statements,
which are made by the directors in good faith based on the
information available to them at the time of their approval of the
2021 annual report. Statements contained within this announcement
should be treated with some caution due to the inherent
uncertainties (including but not limited to those arising from
economic, regulatory and business risk factors) underlying any such
forward-looking statements. This announcement has been prepared by
Rathbone Brothers Plc to provide information to its shareholders
and should not be relied upon for any other purpose.
Independent auditor's report to the shareholders of Rathbones
Group Plc on the preliminary announcement of Rathbones Group
Plc
As the independent auditor of Rathbones Group Plc we are
required by UK Listing Rule LR 9.7A.1(2)R to agree to the
publication of Rathbones Group Plc's preliminary announcement
statement of annual results for the period ended 31 December
2021.
The preliminary statement of annual results for the period ended
31 December 2021 includes:
- Disclosures required by the Listing Rules;
- Chair's statement;
- Chief executive's statement;
- Financial performance;
- Segmental review;
- Financial position;
- Liquidity and cash flow;
- Risk management and control;
- Consolidated statement of comprehensive income;
- Consolidated statement of changes in equity;
- Consolidated balance sheet;
- Consolidated statement of cash flows; and
- Notes to the preliminary announcement.
We are not required to agree to the publication of presentations
to analysts, trading statement, interim management statement or
half-yearly financial report.
The directors of Rathbones Group Plc are responsible for the
preparation, presentation and publication of the preliminary
statement of annual results in accordance with the UK Listing
Rules.
We are responsible for agreeing to the publication of the
preliminary statement of annual results, having regard to the
Financial Reporting Council's Bulletin "The Auditor's Association
with Preliminary Announcements made in accordance with UK Listing
Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of Rathbones Group
Plc is complete and we signed our auditor's report on 23 February
2022. Our auditor's report is not modified and contains no emphasis
of matter paragraph.
Our audit report on the full financial statements sets out the
following key audit matters which had the greatest effect on our
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team, together with how
our audit responded to those key audit matters and the key
observations arising from our work:
Valuation of the Saunderson House Limited ("SHL") client
relationship intangible asset and associated Useful Economic Life
("UEL")
Key audit matter description
On 20 October 2021, the Group acquired a 100% equity interest in
SHL. In respect of, this the Group has recognised a client
relationship intangible of GBP79.4 million, which is being
amortised over 15 years.
As detailed in the critical accounting judgements and key
sources of estimation uncertainty note 2, and as disclosed in note
4, acquisition accounting requires management to make a number of
judgements to determine the fair value of acquired identifiable
assets. We have identified the valuation of the SHL client
relationship intangible asset and associated UEL as a fraud risk,
given the inherent judgement, complexity and level of estimation
involved.
The significant assumptions that underpin the client
relationship intangible asset valuation include: the growth rate
for assets under management ("AuM"); the revenue margins; the
non-staff costs to income ratio; and the applied discount rate.
The UEL has been derived based on the minimum life indicated
from the Group's existing advisory book as well as future
expectations for the SHL client proposition.
How our audit responded to this key audit matter
In order to evaluate the appropriateness of the assumptions used
by management, we obtained an understanding of relevant controls
over the appropriate determination of key assumptions and the
calculation of the client relationship intangible asset to be
recognised in the financial statements.
In order to challenge the appropriateness of the assumptions
used in the valuation model to derive the valuation of the client
relationship intangible asset and the assumptions that underpin the
associated UEL we have involved our in-house valuation specialists
in reviewing the model methodology and the key assumptions;
independently recalculating the valuation; and benchmarking the
assumptions to determine their reasonableness. We have also
evaluated the accuracy of the data inputs and calculations
performed by management.
To challenge the assumptions for growth rate in AUM, revenue
margin and non-staff costs to income ratio we scrutinised
management's business plans which underpinned the acquisition,
assessed whether the assumptions were consistent with data from
previous acquisitions and evaluated management's ability to
forecast with reasonable accuracy by validating recent actual
outturns to historic forecasts.
We have performed a review of the disclosures included within
the financial statements to determine whether all required
information has been included for a business combination under IFRS
3.
Key observations
We concluded that the valuation of the client relationship
intangible asset and associated UEL have been appropriately
determined.
Impairment of client relationship intangible assets and
goodwill
Key audit matter description
The Group holds client relationship intangible assets of
GBP193.6 million (2020: GBP121.1 million) and goodwill of GBP167.7
million (2020: GBP96.9 million) comprising both client
relationships acquired through business combinations and through
acquisition of individual investment managers and their client
portfolios. We have identified this matter as a fraud risk, given
the inherent judgement and level of estimation in the annual
impairment review.
As detailed in note 8, client relationship intangible assets are
reviewed for indicators of impairment at each balance sheet date
and, if an indicator of impairment exists, an impairment test is
performed. Goodwill is tested for impairment at least annually,
whether or not indicators of impairment exist.
For client relationship intangible assets, in determining the
appropriate impairment triggers for each portfolio, there is a
degree of significant management judgement. This assessment is
based on movements in the value of Funds Under Management ("FUM")
and the loss of client relationships in advance of the amortisation
period.
For goodwill, the impairment assessment is performed by
comparing the carrying amount of each cash generating unit ("CGU")
to its recoverable amount from its value-in-use, calculated using a
discounted cash flow method. In determining the value-in-use for
the CGUs, management is required to make assumptions in relation to
an appropriate income growth rate, expenditure growth rate and the
discount rate. The discount rate, annual revenue growth rate and
terminal growth rate used were 12.0%, 4.2%, and 1.0% respectively
as disclosed in note 8.
How our audit responded to this key audit matter
We obtained an understanding of relevant controls in relation to
the impairment review process for client relationship intangible
assets for both acquired portfolios and individual client
relationships and for goodwill. We tested controls in place over
FUM values which form the basis of the impairment assessment.
For client relationship intangible assets, we specifically
tested the calculations prepared by management as part of the
impairment review exercise to assess whether they meet the
requirements of IAS 36 "Impairment of Assets". Where the review
indicated that an impairment trigger had occurred, we assessed the
relevant assumptions and judgements made by management in
determining whether an impairment needed to be recognised. We have
challenged the key assumptions around the impairment triggers
identified for each portfolio, which we have assessed for
reasonableness and evaluated the accuracy of the inputs used by
management.
For goodwill, in order to challenge the appropriateness of the
income and expenditure growth assumptions used in the value-in-use
calculation, we have back-tested the assumptions used by management
against recent historical performance and checked for consistency
with forecasts used elsewhere in the business. We challenged the
determination of the discount rate applied by benchmarking to
appropriate market rates of interest and recalculation. We have
also independently re-performed management's value-in-use
calculation.
Focusing on those assumptions where the impairment test was most
sensitive, we also performed sensitivity analysis to assess the
risk that reasonably possible changes in assumptions used by
management could give rise to an impairment.
We have performed a review of the disclosures included within
the financial statements to determine whether all required
information has been included for client relationship intangible
assets and goodwill.
Key observations
Through our testing for client relationship intangible assets
and goodwill, we concluded that management's approach and
conclusion was appropriate.
Valuation of the Defined Benefit Scheme obligation
Key audit matter description
The Group has recognised a defined benefit pension scheme asset
of GBP12.3 million (2020: liability of GBP9.8 million). The net
asset comprises scheme assets of GBP167.9 million (2020: GBP155.6
million) and a defined benefit obligation of GBP155.6 million
(2020: GBP165.4 million).
The calculation of the defined benefit scheme obligation is
sensitive to changes in underlying assumptions and is considered to
be a key source of estimation uncertainty for the Group as detailed
in note 2.
The key assumptions are in respect of the discount rate,
inflation rate and mortality rate where small changes to these
assumptions could result in a material change to the valuation of
the defined benefit scheme obligation.
How our audit responded to this key audit matter
In order to evaluate the appropriateness of the assumptions used
by management, we obtained an understanding of relevant controls
over the appropriate determination of the assumptions used and the
calculation of the defined benefit scheme obligation to be
recognised in the financial statements.
With the involvement of our in-house actuarial specialists, we
made direct enquiries of the Group's actuary to review and
challenge each of the key assumptions used in the IAS 19 ("Employee
Benefits") pension valuation. In particular, we compared each
assumption used by management against our independently determined
benchmarks derived using market and other data.
We have performed a review of the disclosures included within
the financial statements to determine whether all required
information has been included for a defined benefit pension scheme
obligation.
Key observations
We concluded that each of the key assumptions used by management
to estimate the defined benefit scheme obligation are consistent
with the requirements of IAS 19 and that the valuation of the
defined pension scheme obligation has been appropriately
determined.
Investment management fee revenue relating to bespoke fees
Key audit matter description
As detailed in note 3, revenue comprises net investment
management fee income of GBP349.4 million (2020: GBP274.2 million),
net commission income of GBP53.6 million (2020: GBP62.3 million),
net interest income of GBP3.9 million (2020: GBP8.4 million) and
fees from advisory services and other income of GBP29.1 million
(2020: GBP21.1 million).
Investment management ("IM") fees from the IM segment account
for approximately 80% of total revenue and are based on a
percentage of an individual client's funds under management
("FUM"). Due to its many long standing client relationships and
history of acquisitions, the number of fee schedules managed by the
Group is high. This means that a number of clients are on bespoke
rates rather than the current standard rates or legacy rates that
were standard previously or at the time of acquisition.
As a result, we identified a key audit matter relating to the
risk that, whether due to error or fraud, incorrect bespoke fee
rates could be used to calculate investment management fees.
How our audit responded to this key audit matter
We tested controls over the calculation of investment management
fees. This included controls relating to the set-up of client fee
rates, rate card amendments, the valuation of FUM and the system
generated investment management fees, including associated IT
controls.
We used data analytics to recalculate the system generated
amount for the total fees population.
We agreed a sample of bespoke client fee rates through to client
contracts and the value of FUM to third party sources. Where manual
fee rate amendments were made to system generated fees, we
inspected evidence of authority and rationale.
We have performed a review of the disclosures included within
the financial statements to determine whether all required
information has been included for revenue.
Key observations
We concluded that the investment management fee revenue is
appropriately recognised for the year ended 31 December 2021.
These key audit matters set out above were addressed in the
context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we did not provide a separate
opinion on these matters.
Procedures performed to agree to the preliminary announcement of
annual results
In order to agree to the publication of the preliminary
announcement of annual results of Rathbones Group Plc we carried
out the following procedures:
(a) checked that the figures in the preliminary announcement
covering the full year have been accurately extracted from the
audited financial statements and reflect the presentation to be
adopted in the audited financial statements;
(b) considered whether the information (including the management
commentary) is consistent with other expected contents of the
annual report;
(c) considered whether the financial information in the preliminary announcement is misstated;
(d) considered whether the preliminary announcement includes a
statement by directors as required by section 435 of CA 2006 and
whether the preliminary announcement includes the minimum
information required by UKLA Listing Rule 9.7A.1;
(e) where the preliminary announcement includes alternative
performance measures ("APMs"), considered whether appropriate
prominence is given to statutory financial information and
whether:
- the use, relevance and reliability of APMs has been
explained;
- the APMs used have been clearly defined, and have been given
meaningful labels reflecting their content and basis of
calculation;
- the APMs have been reconciled to the most directly
reconcilable line item, subtotal or total presented in the
financial statements of the corresponding period; and
- comparatives have been included, and where the basis of
calculation has changed over time this is explained.
(f) read the management commentary, any other narrative
disclosures and any final period figures and considered whether
they are fair, balanced and understandable.
Use of our report
Our liability for this report, and for our full audit report on
the financial statements is to the company's members as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's 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 and the company's members as a body,
for our audit work, for our audit report or this report, or for the
opinions we have formed.
Manbhinder Rana FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
23 February 2022
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END
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