Preliminary results for the
12 months ended 31 December
2023
A TRANSFORMATIONAL YEAR
Paul Stockton, Group Chief
Executive, said:
"2023 was a transformational year for
Rathbones as we announced our combination with Investec Wealth
& Investment (IW&I). Our integration programme is
progressing well and, having spent considerable time with many new
colleagues this year, I am confident that we have brought together
a group of like-minded teams who are excited about the
opportunities the combination provides our enlarged group.
Underlying profit before tax increased 30.9% to £127.1 million,
including contribution from IW&I in the final quarter.
Together, we will secure the planned synergies from scale,
and provide stability to clients and colleagues, whilst offering
enhanced propositions that will benefit our clients and deliver
value to shareholders.
"We remain resilient and well positioned to withstand
some of the challenging investment market conditions we saw this
year and our 2023 results reflect this. Our priority has always
been to provide the reassurance and support that our clients expect
over such periods, and as ever, they will remain a key
consideration in everything that we do."
Financial highlights
- Total
FUMA reached £105.3 billion at 31 December 2023 (31 December 2022:
£60.2 billion), including £42.2 billion from Investec Wealth &
Investment UK (IW&I).
-
Underlying profit before tax increased 30.9% to £127.1
million (2022: £97.1 million), including a £25.4 million
contribution from IW&I in the final quarter.
- Underlying operating margin increased to 22.3% (2022: 21.3%),
including the planned £14.4 million expenditure on our digital
programme.
- Profit
before tax reduced by 10.1% to £57.6 million (31 December 2022:
£64.1 million), largely reflecting acquisition and integration
costs related to the combination with IW&I, along with higher
amortisation charges following the transaction.
Operational highlights
-
Integration work to combine Rathbones and IW&I is
progressing well, with the consent process that precedes the
migration of clients on to the Rathbones platform expected to be
concluded during 2024 with full migration in early 2025 as planned.
To December 2023, we realised £8 million of the £15 million of
run-rate synergies that were planned for the first full year
following completion (by October 2024), against the overall stated
£60 million annualised synergies. The impact on 2023 results was
negligible given the timing of when the combination
completed.
- The operational integration of Saunderson House is nearing
completion, with a high proportion of clients having agreed to
receive or proceed with advice to migrate to Rathbones' investment
propositions. We now expect to complete the migration process
during Q2 2024.
- During
2023, we continued to build on our digital programme. Our
client lifecycle management system is now expected to go live by
the middle of 2024. This is later than we anticipated but costs
continue to be managed closely and remain in line with those
previously announced in Q3 2023.
|
|
2023 comprises
|
|
|
2023
£m
(unless stated)
|
Rathbones excl. IW&I
£m
(unless stated)
|
IW&I
£m
(unless stated)
|
2022
£m
(unless stated)
|
Operating income
|
571.1
|
483.2
|
87.9
|
455.9
|
Underlying operating expenses1
|
(444.0)
|
(381.5)
|
(62.5)
|
(358.8)
|
Underlying profit before tax1
|
127.1
|
101.7
|
25.4
|
97.1
|
Underlying operating margin1
|
22.3%
|
21.1%
|
28.8%
|
21.3%
|
Profit before tax
|
57.6
|
42.6
|
15.0
|
64.1
|
Underlying earnings per share1
|
135.8p
|
-
|
-
|
130.8p
|
Earnings per share
|
52.6p
|
-
|
-
|
83.6p
|
1 A reconciliation between the underlying
measure and its closest IFRS equivalent is provided in the
financial performance section.
Outlook
Whilst we will continue to be impacted by
market reactions to political instability or adverse geopolitical
events, as a strong business with increased scale, Rathbones is
well-equipped to manage and navigate these challenges. Recent
indicators that interest rates may fall in the medium term should
be positive for equity markets and increase client confidence to
invest. This in turn should be positive for net organic growth
rates and the group as a whole.
The scale and benefits of the
combined business, and the synergies that we have committed to
and are delivering on, mean we are well positioned to achieve
our end state of 30%+ operating margin three years post completion
of the IW&I combination (i.e. from September 2026) however, we
now expect to be at mid-20s% margins in 2024. The primary drivers
of this change are the continuing investment in our digital
programme and the time required to complete the migration of
Saunderson House clients, in addition to the impact of ongoing
inflationary pressure. This is based on current market levels and
reflects the continuation of the high inflationary
environment.
The successful integration of IW&I is a
priority of course, but this is alongside other important
objectives to continue to develop our investment process, further
enhance our client engagement, embrace technology, and build out
our distribution capability.
We remain well positioned to take advantage of
both the benefits of scale and future growth
opportunities.
Declaration of final
dividend
At our half year results in July, we announced
an interim dividend of 29p. We also brought forward payment of a
portion of the final 2023 dividend to shareholders on the register
shortly prior to the completion of the IW&I combination by way
of a second interim dividend of 34p, paid in October.
The board recommends a final dividend of 24p
for 2023 (2022: 56p), making a total of 87p for the year (2022:
84p), an increase of 3.6% on 2022. 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 14 May 2024,
subject to shareholder approval at our 2024 Annual General Meeting
on 9 May 2024.
2023 results presentation
A presentation detailing Rathbones' 2023
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 10:00am 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/65c4df2f77117a0c00b39a70/fgerqw)
or by dialling in using the conference
call details below:
United Kingdom (Local): +44 20 3936
2999
United Kingdom (Toll-Free): +44 800 358
1035
Participant access code: 416757
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 6 March 2024
For further information
contact:
Rathbones Group
Plc
Paul Stockton, Group Chief Executive Officer
Iain Hooley, Group Chief Financial Officer
Shelly Patel, Head of Investor Relations
Tel: 020 7399 0071
Email: shelly.patel@rathbones.com
Camarco
Ed
Gascoigne-Pees
Julia Tilley
Tel: 020 3757 4984
Email: ed.gascoigne-pees@camarco.co.uk
Rathbones Group Plc
Rathbones provides 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 for everyone's tomorrow has been with us from the
beginning and continues to lead us forward.
Rathbones has over 3,500 employees in 23
locations across the UK and Channel Islands; its headquarters is 8
Finsbury Circus, London, EC2M 7AZ.
www.rathbones.com
Chair's statement
Stronger together
Dear shareholder
Rathbones is a strong and secure business. It
is well-equipped to manage and navigate challenging market
conditions.
2023 was a difficult period for the UK economy:
global conflicts, rising interest rates and continued inflation
reduced economic growth in many parts of the world, directly
impacting the investment returns of our clients. These collective
challenges have highlighted the importance of our adaptability,
resilience and the reassurance that we provide our
stakeholders.
During 2023, we announced a transformational
combination with Investec Wealth & Investment UK (IW&I).
This transaction presents a compelling strategic and financial
rationale for our shareholders, whilst it also better serves our
clients, and secures our future as the UK's leading discretionary
wealth manager.
We are delighted to welcome our IW&I
colleagues to our business. I look forward to the year ahead as we
work together, as one business, to realise the significant
proposition and financial benefits for all our
stakeholders.
CLIENTS
Our clients are at the heart of our strategy
and their interests are a key consideration in everything that
we do. In 2023, we continued to prioritise engaging with
clients through a variety of methods including focus groups and
targeted surveys, virtual and in-person conferences and events as
well as regular communications updating them on the business, macro
themes, the IW&I transaction and our investment propositions.
We will continue this dialogue during 2024.
SHAREHOLDER RETURNS
AND DIVIDENDS
Rathbones generates long-term value creation
for our shareholders. Following our combination with IW&I,
we commit again to our progressive dividend policy. This has been
in place for more than 25 years, over which period we have never
reduced our dividend. Given the strength of our enlarged business,
we are pleased to be able to sustain this dividend commitment, even
in the context of difficult markets.
At our half year results in July, we announced
an interim dividend of 29p. We also brought forward payment of
a portion of the final 2023 dividend to shareholders on the
register shortly prior to the completion of the combination by way
of a second interim dividend of 34p, paid in October. The final
dividend in respect of FY23 has therefore been reduced accordingly
to 24p per share. This brings the total dividend for the year, for
shareholders on the register prior to the combination, to 87p per
share (2022: 84p) a 3.6% increase on the prior year. The final
dividend will be paid on 14 May 2024, subject to shareholder
approval at our 2024 Annual General Meeting on 9 May 2024, for
shareholders who are on the register on 19 April 2024.
RESPONSIBLE BUSINESS
Our responsible business programme enables
us to deliver on our purpose to think, act and invest for
everyone's tomorrow. We seek to create long-term value for our
stakeholders, built upon the foundations of strong
governance.
Our programme ensures we deliver through
various initiatives, including our responsible investment approach,
diversity, equality and inclusion (DE&I) efforts, community
investment and reducing the environmental impact of
our operations.
GOVERNANCE AND CULTURE
The board recognises that enduring business
success is not possible without a clear purpose, and that good
governance is about more than just complying with rules. It is
about culture, behaviours and how we treat our clients. The board
is committed to ensure that the firm's purpose, values and culture
are embedded throughout the firm. The board regularly reviews its
'culture dashboard' and, this year, we paid particular attention to
the impact on the organisation from the combination with IW&I.
It remains incredibly important to ensure that the businesses
are culturally aligned with client focus at our core.
More information on the how the board monitored
and assessed culture can be found in the full corporate
governance report.
COLLEAGUES
There are tremendous skills across our enlarged
group of 3,500 colleagues. In 2023, our management teams and the
board continued to engage through employee engagement surveys and
the board's own workforce engagement programme. We remain committed
to improving our colleagues' experience at work, which is even more
important during the period of integration with
IW&I.
BOARD COMPOSITION AND SUCCESSION
Because of our combination with IW&I, there
has been necessary and welcome changes to our board. Most
notably, Henrietta Baldock and Ruth Leas are now new shareholder
directors, nominated by Investec Group. These appointments were
approved by our nomination committee in September 2023, reflecting
the 29.9% voting rights shareholding owned by Investec Group Plc.
Both have extensive knowledge of the financial services sector and
I look forward to working with them in the
years ahead.
Succession planning is vital to ensure the
board has the necessary plans in place for orderly succession to
both the board and senior management positions. The board believes
that greater diversity drives better decision-making and that
building a diverse and inclusive workforce will lead to better
outcomes for clients, colleagues and for our business.
The board has aligned its diversity policy for board
appointments with new targets set out in the listing rules and
is proud to have met those targets.
At the end of 2023, our board had five female
directors out of nine, which means we exceed the commitment of
female board representation for FTSE 350 companies set by the FTSE
Women Leaders initiative.
We continue to meet the requirements of the
Parker Review as we have at least one director from an ethnic
minority background. We see this as a good foundation on which
to build, but certainly not an end point.
After six years, Sarah Gentleman stepped down
as chair of the remuneration committee in September 2023, to focus
on her role as our senior independent director. I would like to
thank her for her leadership on remuneration policy over this time
and am delighted that Dharmash Mistry accepted the role as our new
remuneration committee chair.
In addition, in September 2023 we announced
that after four and half years as group CFO and executive director,
Jennifer Mathias would step down from the Board on 31 December 2023
and transition into the new position of group chief of staff,
working with the executive team across all parts of the combined
business. From January 2024, Iain Hooley took on the group CFO role
as Jennifer's successor. Iain was finance director of IW&I for
more than a decade and was appointed CEO of IW&I in February
2023, where he played a key role in the success of the business. I
am grateful to both Jennifer and Iain and look forward to working
with them as we bring our two businesses together.
ENGAGING WITH SHAREHOLDERS
We strongly believe in meaningful engagement
with shareholders, and I was pleased to meet many of you this year.
We are grateful for the overwhelming shareholder support for the
combination with IW&I, which was an affirmation of this
transformational transaction.
The chair of the remuneration committee
consulted with our top shareholders on proposed changes to our
remuneration policy. The consultation exercise demonstrated that
there is strong support for changes that will be put to
shareholders at our AGM in May 2024.
LOOKING AHEAD
IW&I integration planning remains on track.
We remain confident that the enlarged group will deliver
efficiencies and benefits to clients, employees and shareholders.
We will continue to update you on our progress as we grow together
as a combined business.
Finally, on behalf of the board, I would like
to thank our clients, shareholders and colleagues - old and new -
for your enduring commitment and collaboration. This remains the
foundation of our shared success. Thank you for being the driving
force behind our accomplishments in spite of the turbulent economic
landscape. It has been through your collective efforts, resilience,
and hard work that we have been able to navigate these challenges
and I am confident we will emerge stronger than ever.
Clive C R Bannister
Chair
GROUP CHIEF EXECUTIVE OFFICER'S
REVIEW
A TRANSFORMATIONAL YEAR
2023 in review
In a year that continued to offer some
challenging market conditions, our 2023 results reflect a
resilience and a willingness to step forward and address the
structural challenges that the UK wealth management industry faces.
Our priority has always been to provide the reassurance and support
that our clients expect over such periods. We also continue to look
to create opportunities for future growth and shareholder benefits,
whilst managing expenditure carefully.
The combination with Investec Wealth &
Investment UK (IW&I), announced in April 2023, holds the
prospect of being truly transformational. The integration programme
is progressing well, and having spent considerable time with many
new colleagues this year, I am confident that we have brought
together a group of like-minded individuals who are excited about
the opportunities that the combination provides our enlarged
group.
We remain committed to delivering the planned
synergies from scale, whilst providing stability to clients and
colleagues over what will be a very busy 2024. I also look forward
to building enhanced propositions and services that will benefit
our clients and deliver value to shareholders.
INVESTMENT MARKETS AND GROWTH
There appeared little relief from a general
investment market malaise in the early part of 2023, particularly
for those with a defensive positioning and UK bias. This affected
investment performance across the group, which remained
somewhat subdued until the final quarter of the year, when both
bonds and equities rallied.
High inflation in the year not only increased
operating expenditure, but also added cost of living pressures
on some clients. Investor sentiment moved away from equities
towards cash, and a client preference to use invested capital to
repay increasingly expensive debt emerged. Despite this backdrop,
gross inflows (ex IW&I) of £6.9 billion (2022: £6.5 billion)
remained resilient, representing an annualised growth rate of 11.4%
of opening funds under management and administration (FUMA) (an
increase from 9.5% in 2022), reaping the benefits from ongoing
client engagement and closer relationships with key third-party
distributors. Gross outflows (ex IW&I) of £7.4 billion
(2022: £6.1 billion) were elevated, however, representing
12.2% of opening FUMA (8.9% in 2022). Despite these outflows,
client retention remained high at 92.7% (2022: 93.7%).
IW&I was also impacted by similar trends,
though net outflows in the final quarter of the year of £0.3
billion also reflected the impact of known investment manager
departures that predominantly occurred prior to the announcement of
the combination with Rathbones. Investment manager turnover
has been low since then and engagement with colleagues at
IW&I continues to be very positive.
The UK fund industry suffered one of its
worst years on record for net outflows in 2023. Against this
backdrop, Rathbones remained resilient and ranked in fifth
position for total net retail sales in the UK in 2023. (2022:
eighth position). Although Rathbones' single strategy funds posted
net outflows of £0.6 billion for the year (FY 2022: net outflows of
£0.4 billion), our Global Opportunities and Ethical Bond funds were
in the top quartiles relative to peer groups for performance in the
year. Our multi-asset and FUMA managed via in-house funds
(sold directly, or as part of our Managed Portfolio or Rathbones
Select solutions) grew significantly, with net inflows and
transfers of £2.4 billion (FY 2022: £0.6 billion) for the
year.
COMBINATION WITH IW&I
The combination with IW&I completed on
21 September 2023, as planned. Collaboration between the two
businesses has been strong and key decisions on the future
structure, systems and policies have been formulated ahead of plan.
This has enabled us to move quickly to establish a robust framework
for integration and begin delivery of key actions and projects that
will bring both businesses together. There has been strong
enthusiasm amongst teams across both businesses, who are working
effectively to build momentum and capture best
practices.
In October, we announced the senior leadership
and governance structures for the combined group, and the new
executive team is working well and interacting positively across
the group.
Workstreams to effect common proposition
standards have advanced, and investment research and investment
risk teams are now under common leadership.
The enlarged Rathbones group has a strong
distribution capability working with an extensive national network
of third-party adviser contacts and counterparties. This adds to
our successful existing relationship with Vision Independent
Financial Planning. In October, we created the role of Chief
Distribution Officer to lead and build our distribution
capability across both the wealth and asset management
businesses.
Our distribution capability has also been
further enhanced by the combination and
strong partnership we have formed with Investec Bank. In
December, we formed a dedicated Strategic Partnership Team to work
with them more closely.
To December 2023, we realised £8 million
of the £15 million of run-rate synergies that
were planned for the first full year following completion (by
October 2024), against the overall stated £60 million annualised
synergies. The impact on 2023 results was negligible given the
timing of when the combination completed. There is much work to do
but I remain confident in our ability to deliver on these
objectives.
In 2024, we expect to let all of our space in 8
Finsbury Circus in London to a high-quality tenant for the
remaining nine-year lease term. Our London-based teams will be
located together in 30 Gresham Street in the latter half
of 2024. We continue to work to consolidate our offices across
the country, where we share locations and to rebrand the IW&I
offices we now have in our portfolio.
Planning for the successful migration of
clients on to the Rathbones' platform is well underway. We continue
to expect the client consent process to be concluded during 2024,
using a digital-first and streamlined approach to minimise
disruption to clients and client facing teams. We plan to
complete pilot exercises, ahead of the main migration planned
for early 2025.
A dedicated project team is already in place
and will ensure that we are able to seamlessly integrate
IW&I, whilst maintaining business as usual. Our combined
resources bring an extensive level of experience of consent and
migration processes, and we will continue to apply these
skills as we progress through the year.
A LEADING FINANCIAL
PLANNING CAPABILITY
The group, together with IW&I, Rathbones
Financial Planning (RFP) and Saunderson House (SHL), operates a
team comprising a total of 117 financial planners, delivering a
range of leading advice services. SHL and RFP have been under a
common leadership team for most of 2023, and IW&I financial
planning teams offer an excellent opportunity to add further scale
and strength.
The operational integration of SHL and RFP is
nearing completion, with a high proportion of clients having agreed
to receive or proceed with advice to migrate to Rathbones'
investment propositions. £2.4 billion of FUMA has already migrated
and we now expect to complete the migration process during Q2
2024.
During the year, both SHL and RFP advisers
introduced more than 150 new clients to the group, with expected
new assets of more than £200 million, demonstrating a distribution
reach despite undertaking a time-consuming migration process.
The SHL migration will be completed over the second quarter of
2024, and thereafter will increase adviser capacity to
grow.
Our next objective is to bring Rathbones and
IW&I financial planning businesses together, such that all
businesses can operating on one platform to service both new
clients and existing investment clients across our regional
offices.
Vision Independent Financial Planning (Vision)
remains an important part of our financial advice proposition as an
independent specialist financial advice network. We will continue
to leverage its strong relationship with the enlarged group. In
2023, FUMA in Vision was £3.3 billion (2022: £2.6 billion) with 138
financial planners (2022: 131). We anticipate further adviser
recruitment in 2024.
FOCUSING ON GROWTH
In addition to our strategic partnerships with
Vision and Investec Bank, Rathbones pursues growth opportunities
via three other key channels: client-facing teams, third-party
advisers and direct marketing.
Firstly, our client facing investment and
planning teams represent a valuable network, and we continue to
look for ways to improve capacity. Rathbones Select was designed as
a high-quality, 'self-select' (execution only) investment service
for clients with smaller values to invest, providing a better value
proposition by operating through a dedicated central
team.
The service now has more than £2 billion of
funds under management (FUM), an uplift of more than £1.4 billion
since the beginning of the year, and client numbers are
expected to increase further in 2024 as we offer the service to
eligible clients of IW&I.
We also continue to build specialist teams to
serve target client groups, last year taking advantage of the
IW&I combination to establish a dedicated
ultra-high-net-worth team to operate across the enlarged
business.
Secondly, the third-party adviser market
continues to be an important channel for us, generating an
annualised net growth rate of 5.0% in 2023 (2022: 4.8%). We now
offer an extensive range of investment solutions and over 340
IFA firms (2022: 280), are now utilising our Reliance on Adviser
(ROA) model (where responsibility for the suitability of the
investment mandate for the client rests with the adviser, and
Rathbones is instructed to manage the client portfolio to a risk
mandate). This service clarification provides a clear pricing model
for clients and advisers and creates internal efficiencies that
make us easier to do business with.
Together with IW&I, our offering to
intermediaries is comprehensive and incorporates a full range of
services, from bespoke and managed Discretionary Fund Management
(DFM), through to our third-party Managed Portfolio Services (MPS)
and Rathbones Select service, with ESG, tax and offshore
optionality, as well as our broad range of single strategy
funds. This capability will be central to what we can offer to
third-party advisers in 2024 and beyond.
Lastly, in 2023 we have taken some positive
steps to improve how we can build our digital distribution
capability. This has been supported by the launch of a refreshed
brand and proposition suite that is much more digestible and
targeted on our key markets. Alongside Rathbones, which has seen
website referrals increase by 100% year on year, we have
established Rathbones Asset Management (RAM) and Greenbank as
distinct identities. IW&I has been incorporated into the group,
albeit that full alignment will only occur following migration in
2025.
EMBRACING TECHNOLOGY
Throughout the year we continued to develop and
deploy applications and technology that improve the way in which we
service our clients. The number of clients using MyRathbones
continues to grow, reaching 58% in 2023 (2022: 50%). The
visibility, access to messaging and reporting that this application
offers is an important part of how we interact with
clients.
In October 2023, we reported that the time
frame associated with our client lifecycle management (CLM)
system development was likely to move to deployment in the first
quarter of 2024. The system is now expected to go live by the
middle of 2024, using the period after go-live and up to the
migration of IW&I clients in early 2025 to deploy further
enhancements to the solution and better align it with IW&I
requirements. This is later than we anticipated but scope has been
planned carefully to protect the IW&I migration, and also
ensure that we take best advantage of applications within IW&I
that we can benefit from.
The final phase of implementation of the
Charles River Investment Management solution into Rathbones Asset
Management will be completed during the first half of 2024, adding
the functionality to improve investment processes and the reporting
capability that we are confident will deliver operational
efficiency.
While we continue to carefully manage scope,
as previously stated in our Q3 2023 results, the expected
total costs of our digital project increased from £40 million to
£45 million, with £30.7 million of this incurred up to
31 December 2023.
INSPIRING OUR PEOPLE
We have prioritised this critical strategic
objective across the business as we progress our post-combination
integration work. Employee engagement, by both the board and
executive teams, has been extensive, supported by town halls and
meetings across all office locations as well as employee surveys.
We remain committed to a culture that fosters high performance and
builds rewarding careers for our colleagues.
Results from our engagement activity have
reaffirmed our expectations of the skills, capabilities and
cultural alignment within IW&I, and has supported a
collaborative approach to working together that will bring out the
very best from both businesses.
Employee wellbeing continues to be high on
our agenda, and we have implemented various measures to
promote the mental and physical health of our people. This year, we
continued to offer access to our employee assistance
programme, including a free and confidential phone and online
advice service.
Alongside these services, our wellbeing team
and inclusion networks have run awareness sessions on several
topics from cancer and menopause awareness to mental health and
neurodiversity.
RESPONSIBLE INVESTMENT
We are proud of our long history of ethical
and sustainable investment, managed by Greenbank, which
continues to receive industry recognition. This year, Greenbank won
the 'Best Sustainable Investment Wealth Manager/DFM Group' at the
Investment Week Sustainable Investment Awards, as well as achieving
'Silver' for ESG company of the year at the 2023 Magic Circle
Awards.
In addition to Greenbank's bespoke service,
RAM offers investment strategies through the Rathbone
Greenbank Global Sustainability Fund, Rathbone Ethical Bond Fund,
Rathbone Greenbank Multi-Asset Portfolios and, more recently,
through the launch of our new Rathbone Greenbank Global Sustainable
Bond Fund.
Beyond our investment offerings, Rathbones
incorporates ESG considerations, and the influence they can have on
our clients' portfolio returns, into our investing decisions. By
integrating the analysis of ESG factors into our investment
processes, we aim to understand ESG risks and identify
high-quality investments, with attractive financial
characteristics, that also make a positive contribution to society.
More information on our approach to responsible investment can be
found in the responsible business review of this annual report and
our standalone responsible business report, which will be published
in full next month.
RISK MANAGEMENT AND REGULATION
Risk management practices continue to be
embedded across the business as we remain conscious of the impact
of the changing risk landscape to our firm and industry,
particularly in an uncertain economic climate. We are also
carefully assessing and mitigating the risks associated with our
planned change programmes, including the IW&I
integration.
We continue to respond appropriately to
regulatory changes and acknowledge recent FCA and PRA consultation
activity and statements.
The FCA's Consumer Duty regime reinforces
behaviours and standards that we have recognised for a long time,
and we support the principles that underpin the rules. Our ethos,
whole-of-market approach to investment, flexible approach to
financial planning, and unbundled pricing are all well positioned.
The UK market remains highly competitive from a value
perspective and this is reflected in pricing levels generally,
particularly in the third-party advisers, charities and asset
management markets.
The Consumer Duty regime presented a good
opportunity to outline our propositions to the market. As we
streamline policies and practices across the enlarged group, the
pillars of Consumer Duty will continue to be a focus for
us well into 2024 and beyond.
outlook for 2024
Whilst we will continue to be impacted by
market reactions to political instability or adverse geopolitical
events, as a strong business with increased scale, Rathbones is
well-equipped to manage and navigate these challenges. Recent
indicators that interest rates may fall in the medium term should
be positive for equity markets and increase client confidence to
invest. This in turn should be positive for net organic growth
rates and the group as a whole.
The successful integration of IW&I is a
priority of course, but this is alongside other important
objectives to develop our investment process, further enhance our
client engagement, embrace technology and build out our
distribution capability. Rathbones remains well positioned to take
advantage of both the benefits of scale and future growth
opportunities, and I would like to thank our people in our combined
group for their unwavering commitment, which continues to be the
driving force behind our success.
Paul Stockton
Group Chief Executive Office
Group chief financial officer's
REVIEW
COMMITTED TO DELIVERING SUSTAINABLE
VALUE
I am delighted to present my first
review since my appointment as group chief financial
officer on 1 January 2024. Having been part of Investec Wealth
& Investment UK ( IW&I) for over 23 years, I look forward
to the exciting opportunities that lie ahead for our combined
business, driven by the core values that the Rathbones and IW&I
businesses share, and the significant benefits that we will bring
to our clients and shareholders from the scale, enhanced
propositions and depth of capability that our combined business
will offer.
The group has delivered continued
progress in its financial performance despite challenging
market conditions throughout 2023. This has been achieved alongside
the successful delivery of the IW&I and Rathbones combination
during September 2023. Delivering this transaction represents a
significant milestone not only for Rathbones and IW&I but for
the UK wealth management industry. We are now focused on
delivering the integration of the businesses and realising the
benefits of the combination.
Underlying profit before tax was
£127.1 million (2022: £97.1 million), an increase of 30.9% in the
year, reflecting the contribution of IW&I to the group's
performance in Q4 of an underlying profit before tax of £25.4
million.
The Rathbones group excluding
IW&I delivered a 4.7% increase in underlying profit before tax
to £101.7 million. This result is after charging the £14.4 million
of planned expenditure on our digital programme that we announced
in February 2022.
Operating income increased 25.3% to
£571.1 million (2022: £455.9 million). Excluding income relating to
IW&I of £87.9 million, operating income grew by 6.0% to £483.2
million. This growth was driven predominantly by increased interest
revenues, reflecting rising interest rates and the benefits of the
group's banking activities. Consequently, net interest income
contributed £51.7 million to operating income in 2023 (2022: £18.3
million).
While interest income increased
significantly during the year, recurring investment management and
asset management fees (excluding IW&I fees of £70.1 million)
also reported growth, rising 2.3% to £344.7 million due to higher
FUMA which benefited from an improvement in average market
indices.
Expenditure also increased,
reflecting the inflationary environment, increased headcount and
investment in our digital programme. The increase in headcount
reflects additional client facing roles and related support in
addition to change and technology resource, including that which is
part of our preparation for delivering the integration of IW&I.
The FSCS levy reduced by £4.6 million in 2023 as a result of
one-off factors and we expect the levy to revert to normal levels
in 2024.
HIGHLIGHTS: FINANCIAL PERFORMANCE
FUMa
|
|
Operating margin
|
£105.3bn
|
|
10.1%
|
2022: £60.2bn
|
|
2022: 14.1%
|
Underlying ROCE1
|
|
Underlying
operating margin¹
|
12.1%
|
|
22.3%
|
2022: 11.8%
|
|
2022: 21.3%
|
EPS
|
|
DIVIDEND per share
|
52.6p
|
|
87p
|
2022: 83.6p
|
|
2022: 84p
|
Underlying EPS1
|
|
CET1 ratio
|
135.8p
|
|
17.8%
|
2022: 130.8p
|
|
2022: 17.9%
|
1. This measure is considered an APM. Please
refer to financial performance section for more details on
APMs.
Despite the increase in total
expenditure the underlying operating margin, which is
calculated as the ratio of underlying profit before tax
to operating income, improved to 22.3% (2022: 21.3%).
The development of our client
lifecycle management system has continued during the year and
is now expected to go live mid-way through 2024, albeit with the
overall cost expected to increase from £40.0 million to £45.0
million, as set out in our Q3 2023
statement. The Charles River Investment
Management Solution will be fully implemented into Rathbones Asset
Management in the first half of 2024, adding functionality
that will improve investment processes and reporting capability,
that we are confident will deliver significant operational
efficiency.
Statutory profit before tax for 2023
was £57.6 million (2022: £64.1 million). The 10% reduction (2022:
32% reduction) is driven by increased acquisition execution and
integration costs, along with higher amortisation charges following
the IW&I transaction. The majority of the integration costs
incurred during the year relate to IW&I but also include the
final amounts payable in relation to the Saunderson House and
Speirs & Jeffrey acquisitions, which amount to £7.8 million for
the year.
The board primarily considers
underlying measures of income, expenditure and earnings when
assessing the performance of the group. These are considered to
provide useful additional information on business performance,
rather 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 3.
TABLE 1. group's overall performance
|
2023
£m
(unless stated)
|
IW&I
£m
(unless stated)
|
Rathbones
excl. IW&I
£m
(unless stated)
|
2022
£m
|
Operating income
|
571.1
|
87.9
|
483.2
|
455.9
|
Underlying operating
expenses1
|
(444.0)
|
(62.5)
|
(381.5)
|
(358.8)
|
Underlying profit before
tax1
|
127.1
|
25.4
|
101.7
|
97.1
|
Underlying operating
margin1
|
22.3%
|
28.9%
|
21.0%
|
21.3%
|
Profit before tax
|
57.6
|
15.0
|
42.6
|
64.1
|
Effective tax rate
|
34.9%
|
|
|
23.6%
|
Taxation
|
(20.1)
|
|
|
(15.1)
|
Profit after tax
|
37.5
|
|
|
49.0
|
Underlying earnings per
share1
|
135.8
|
|
|
130.8p
|
Earnings per share
|
52.6
|
|
|
83.6p
|
Dividend per
share2
|
87.0p
|
|
|
84.0p
|
Return on capital employed
(ROCE)1
|
4.9%
|
|
|
7.7%
|
Underlying return on capital
employed1
|
12.1%
|
|
|
11.8%
|
1. A reconciliation between the measure and its
closest IFRS equivalent is shown in table 3
2. The total interim and final dividend
proposed for the financial year
OUTLOOK and guidance
The Group's financial performance
remains closely linked to the behaviour of global investment
markets which, despite making positive progress during the latter
part of 2023, remain sensitive to the continued heightened
uncertainty in the economic and geopolitical
environment.
We remain focused on our key
strategic priorities to successfully integrate the IW&I and
Rathbones Investment Management businesses, complete the migration
of Saunderson House client assets to Rathbones investment
solutions, and deliver the successful launch of our new client
lifecycle management system. The IW&I integration project is
progressing well and while this project is planned to continue into
2025, synergy realisation for the combination remains on track and
we continue to expect 25% of synergies in the first full year
following completion as guided at the time of the combination,
which will benefit the group's profitability going forward from the
point the synergies are achieved. The one-off costs to achieve the
annualised synergies remain as stated and will predominantly fall
under non-underlying costs over the next two years.
The operational integration of
Saunderson House and Rathbones Financial Planning is nearing
completion, with a high proportion of clients having agreed to
receive or proceed with advice to migrate to Rathbones' investment
propositions. £2.4 billion of FUMA has already migrated and we now
expect to complete the migration process during Q2 2024. Assets
once migrated are expected to generate a total revenue margin of
c.1%. On a proforma basis, FUMA of £4 billion would generate
annualised revenue of c.£40 million, split across advice,
investment management and asset management income.
As noted above and advised in the
reporting of our half year results, the costs to deliver the client
lifecycle management system increased from £40.0 million to £45.0
million, with £30.7 million incurred up to 31 December 2023. The
costs of the implementation project continue to be monitored
closely.
The reduction in the rate of UK
inflation is welcome and we remain focused on ensuring a high
degree of discipline in managing our cost base to ensure we
mitigate the effects of inflation as far as possible. Employee
costs in 2023 will reflect salary inflation of approximately
4% during the year plus the full impact of recruitment
activity in 2023. A lower rate of net recruitment is expected for
2024 relative to 2023 outside of that directly related to the
IW&I integration project.
We have considered the implications
for our business of the FCA's recent 'Dear CEO' letter to platform
and SIPP providers relating to interest revenues. We consider that
the FCA's requirement to cease the charging of fees in respect of
cash assets within a firm's custody which generate interest
revenues is relevant to the small element of our FUMA that is under
an execution-only mandate. We will therefore no longer apply fees
to the cash element of these portfolios from 1 March 2024. We
expect the adverse impact on income to be small at approximately
£0.6 million per annum.
We previously guided to a high-20s
underlying operating margin for 2024, with 30%+ three years post
completion of the IW&I combination (i.e. from September 2026).
The scale and benefits of the combined business and the synergies
that we have committed to, mean we are well positioned to achieve
our end state of 30%+ margin, albeit, the path will now be mid-20%
in 2024. The primary drivers of this change are the continuing
investment in our digital programme and the time required to
complete the migration of Saunderson House clients, in addition to
the impact of ongoing inflationary pressure.
The group maintains a robust
financial position and is well placed financially to support the
investment that is required to deliver on our strategic priorities
as we drive forward with our plans during 2024.
Financial performance
BUSINESS PERFORMANCE: FUNDS UNDER MANAGEMENT
AND ADMINISTRATION (FUMA)
Total group FUMA at 31 December 2023
was £105.3 billion (2022: £60.2 billion). The increase during the
year is driven predominantly by the addition of £40.8 billion of
IW&I FUMA from 30 September 2023, following the completion of
the combination with IW&I during the year. Based on a pro forma
opening position of £101.0 million, FUMA has increased by 4.3%
during the year from an opening position of £101.0 billion (Table
2) despite challenging market conditions that have placed adverse
pressure on net flows.
Rathbones discretionary and managed
net inflows of £0.7 billion reflect gross inflows of £5.1 billion,
an increase of 18.6% relative to 2022, as the business continued to
drive strong levels of new business despite the difficult economic
backdrop. In total, net flows relating to Rathbones discretionary
and managed FUMA represented an annual rate of growth of 1.5%
(2022: 2.6%), with the reduction relative to the prior year being
the result of higher gross outflows offsetting the higher level of
gross inflows. In addition to net flows, discretionary and managed
FUMA benefited from the continued migration of Saunderson House
client assets into Rathbones investment solutions.
Gross outflows were elevated
throughout the year. Rathbones Investment Management outflows of
£3.8 billion (2022: £2.6 billion) reflected the effect of higher
inflation and interest rates, as existing clients prioritised
reducing debt and meeting cost of living pressures. The increase in
outflows is therefore principally driven by partial withdrawals by
existing clients and not client losses, but does reflect the loss
of two large charity mandates during the year. Direct net flows
into our multi-asset fund range, including that which is managed as
part of Investment Management portfolios, remained robust,
reflecting the diversification and efficient offering these funds
provide for smaller portfolios.
IW&I has contributed £0.8
billion of gross inflows during the final quarter of the year
following completion of the combination. These inflows were offset
by elevated gross outflows, resulting in net outflows for the
period of £0.3 billion. The level of gross outflows reflects both
the market backdrop, consistent with the Rathbones discretionary
and managed FUMA, along with expected outflows relating to
investment manager departures that predominantly occurred prior to
the announcement of the combination. Since then, investment manager
turnover has been low, supported by positive engagement as our
integration work progresses.
The general backdrop for the asset
management industry has been challenging during 2023, with
substantial withdrawals from UK funds being seen across the
industry. Our single strategy funds were not immune from this
backdrop but showed relative resilience with net outflows of £0.5
billion for the year (2022: £0.4 billion outflow), representing
8.5% of opening FUMA. Investment returns for these funds were
relatively strong during the year, resulting in total FUMA
remaining relatively consistent year-on-year at £6.7 billion (2022:
£6.5 billion).
Table 2 presents separately the FUMA
and associated movements in those services and products which
support our wealth management propositions. Wealth management FUMA
incorporates our core 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 both our direct clients
and those 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.
TABLE 2. group FUMA AND FLOWS BY SERVICE LEVEL
on proforma basis1
Year ended
31 December 2023
|
Opening FUMA- pro forma basis
£bn
|
Gross inflows
£bn
|
Gross outflows £bn
|
Net
flows
£bn
|
Transfers
£bn
|
SHL migrated assets
£bn
|
Market &
investment
performance
£bn
|
Closing
FUMA
£bn
|
Net
growth
(flows)
%
|
Rathbones Investment
Management
|
44.3
|
4.2
|
(3.8)
|
0.4
|
(0.2)
|
2.4
|
1.9
|
48.8
|
0.9%
|
Bespoke portfolios
|
42.9
|
3.8
|
(3.5)
|
0.3
|
(0.9)
|
1.1
|
1.6
|
45.0
|
0.6%
|
Managed via in-house funds
|
1.4
|
0.4
|
(0.3)
|
0.1
|
0.7
|
1.3
|
0.3
|
3.8
|
10.1%
|
Multi-asset funds
|
2.2
|
0.9
|
(0.6)
|
0.3
|
−
|
−
|
−
|
2.5
|
13.8%
|
Rathbones discretionary and
managed
|
46.5
|
5.1
|
(4.4)
|
0.7
|
(0.2)
|
2.4
|
1.9
|
51.3
|
1.5%
|
Non-discretionary service
|
0.7
|
0.1
|
(0.1)
|
(0.0)
|
(0.1)
|
−
|
0.1
|
0.7
|
(2.9%)
|
IW&I1
|
40.8
|
0.8
|
(1.1)
|
(0.3)
|
(0.1)
|
−
|
1.9
|
42.3
|
(0.8%)
|
Saunderson House
|
4.1
|
0.1
|
(0.5)
|
(0.4)
|
−
|
(2.4)
|
0.3
|
1.6
|
(9.5%)
|
Total wealth management
|
92.1
|
6.1
|
(6.1)
|
(0.0)
|
(0.4)
|
−
|
4.2
|
95.9
|
(0.0%)
|
Single-strategy funds
|
6.5
|
1.3
|
(1.8)
|
(0.5)
|
−
|
−
|
0.7
|
6.7
|
(8.5%)
|
Execution only and banking
|
2.4
|
0.3
|
(0.6)
|
(0.3)
|
0.4
|
−
|
0.2
|
2.7
|
(10.4%)
|
Total group
|
101.0
|
7.7
|
(8.5)
|
(0.8)
|
-
|
-
|
5.1
|
105.3
|
(0.8%)
|
1. 2023 Group FUMA and flows by service level
has been prepared on a proforma basis, opening FUMA has been
uplifted by £40.8 billion to include IW&I FUMA acquired
with effect from 30
September.
Year ended 31 December 2022
|
Opening FUMA
£bn
|
Gross inflows £bn
|
Gross outflows £bn
|
Net
flows
£bn
|
Transfers
£bn
|
SHL migrated assets
£b
|
Market &
investment
performance
£bn
|
Closing
FUMA
£bn
|
Net
growth
(flows)
%
|
Rathbones Investment Management
|
49.3
|
3.5
|
(2.6)
|
0.9
|
(0.2)
|
−
|
(5.7)
|
44.3
|
1.9%
|
Bespoke portfolios
|
48.0
|
3.3
|
(2.5)
|
0.8
|
(0.3)
|
−
|
(5.6)
|
42.9
|
1.6%
|
Managed via in-house funds
|
1.3
|
0.2
|
(0.1)
|
0.1
|
0.1
|
−
|
(0.1)
|
1.4
|
10.3%
|
Multi-asset funds
|
2.0
|
0.8
|
(0.4)
|
0.4
|
−
|
−
|
(0.2)
|
2.2
|
20.0%
|
Rathbones discretionary and
managed
|
51.3
|
4.3
|
(3.0)
|
1.3
|
(0.2)
|
-
|
(5.9)
|
46.5
|
2.6%
|
Non-discretionary service
|
1.0
|
0.0
|
(0.1)
|
(0.1)
|
(0.1)
|
−
|
(0.1)
|
0.7
|
(7.4%)
|
Saunderson House
|
4.9
|
0.3
|
(0.5)
|
(0.2)
|
(0.0)
|
−
|
(0.6)
|
4.1
|
(4.9%)
|
Total wealth management
|
57.2
|
4.6
|
(3.6)
|
1.0
|
(0.3)
|
-
|
(6.6)
|
51.3
|
(8.9%)
|
Single-strategy funds
|
8.3
|
1.7
|
(2.1)
|
(0.4)
|
−
|
−
|
(1.4)
|
6.5
|
(4.5%)
|
Execution only and banking
|
2.7
|
0.2
|
(0.4)
|
(0.2)
|
0.3
|
−
|
(0.4)
|
2.4
|
(9.0%)
|
Total group
|
68.2
|
6.5
|
(6.1)
|
0.4
|
-
|
-
|
(8.4)
|
60.2
|
0.6%
|
OPERATING INCOME
Operating income increased by £115.2
million in 2023 to £571.1 million, predominantly due to the
IW&I business contributing £87.9 million of income for the
final quarter of the financial year following completion of the
combination.
Excluding IW&I, the increase in
total income is largely driven by higher interest revenues,
reflecting the rising interest rate environment during the year and
the benefit of the group's banking activities. Recurring investment
management fees and asset management income benefited from higher
average markets and the continued migration of Saunderson House
client assets into Rathbones investment solutions, which moved this
income £7.7 million (2.3%) higher. This was offset by a short term
reduction in Saunderson House advice income during the client
migration process and lower transaction-based investment management
commission income, as the trend towards cleaner fee-only charges
continued.
OPERATING EXPENSES
Operating expenses of £513.5 million
(2022: £391.8 million) comprise underlying operating expenses
discussed below, together with non-underlying
operating expenses explained in Table 3
Underlying operating expenses
increased by £85.2 million (23.7%) to £444.0 million (2022:
£358.8 million). £62.5 million of this increase is due to
IW&I costs incurred since completion of the combination,
consisting of £29.4 million fixed staff costs, £14.3 million
variable compensation, and £18.8 million non-staff
costs.
Underlying operating expenses
excluding IW&I increased by 6.3% to £381.4 million (2022:
£358.8 million). Underlying staff costs in the year (excluding
IW&I), increased by £24.3 million to £269.9 million (2022:
£245.6 million). Some £13.2 million of this increase is the result
of higher average headcount (excluding that relating to Saunderson
House and staff engaged on digital capability). Salary inflation
increased costs by £7.3 million. The balance of the increase
reflects the effect of inflation on other staff-related costs and
other specific factors.
Year-on-year decreases in spend
within Saunderson House and the strategic investment in developing
our digital capability was partially offset an increase of £4.8
million (2022: £18.0 million increase) in non-staff costs excluding
IW&I. The cost base of the Saunderson House business decreased
by £3.2 million in 2023 due to the delivery of cost synergies and a
reduction in the Saunderson House FSCS levy. The remainder of the
group also benefited from a one-off reduction in the FSCS
levy, which reduced by £4.6 million for the group overall relative
to 2022 prior to an expected return to normal levels in 2024.
Strategic investment in developing our digital capability was £1.9
million lower than prior year at £14.4 million (2022: £16.3
million). The Charles River Investment Management Solution was
successfully launched in the Rathbones Asset Management
business during the year. The development of our client lifecycle
management system has continued during the year and is now expected
to go live mid-way through 2024, albeit with the overall cost
expected to increase from £40.0 to £45.0 million, as
set out in our Q3 2023 statement.
Rathbones average headcount rose by 21.7% to
2,498 (2022: 2,053). Rathbones headcount excluding IW&I rose by
5.8% to 2,173 in 2023 (2022: 2,053), reflecting additional client
facing roles and related support in addition to recruiting further
change and technology resource, including that which is part of our
preparation for delivering the integration of IW&I.
TABLE 3. RECONCILIATION OF UNDERLYING
PERFORMANCE MEASURES TO CLOSEST EQUIVALENT IFRS MEASURES
|
|
|
2023 comprises
|
|
|
2023
£m
(unless stated)
|
IW&I
£m
(unless stated)
|
Rathbones excl. IW&I
£m
(unless stated)
|
2022
£m
(unless stated)
|
Operating income
|
571.1
|
87.9
|
483.2
|
455.9
|
Underlying operating expenses
|
(444.0)
|
(62.5)
|
(381.5)
|
(358.8)
|
Underlying profit before tax1
|
127.1
|
25.4
|
101.7
|
97.1
|
Charges in relation to client relationships
and goodwill
|
(25.2)
|
(6.3)
|
(18.9)
|
(19.5)
|
Acquisition-related and integration
costs
|
(44.3)
|
(4.1)
|
(40.2)
|
(13.5)
|
Profit before tax
|
57.6
|
15.0
|
42.6
|
64.1
|
Taxation
|
(20.1)
|
|
|
(15.1)
|
Profit after tax
|
37.5
|
|
|
49.0
|
Operating margin
|
10.1%
|
|
|
14.1%
|
Underlying operating margin2
|
22.3%
|
|
|
21.3%
|
Weighted average number of shares in
issue
|
71.3m
|
|
|
58.6m
|
Earnings per share (p)
|
52.6
|
|
|
83.6
|
Underlying earnings per share (p)3
|
135.8
|
|
|
130.8
|
Quarterly average total equity
|
787.9
|
|
|
632.7
|
Underlying quarterly average total
equity4
|
798.5
|
|
|
650.4
|
ROCE5
|
4.9%
|
|
|
7.7%
|
Underlying ROCE6
|
12.1%
|
|
|
11.8%
|
1. Operating income less underlying operating
expenses
2. Underlying profit before tax as a percentage
of operating income
3. Underlying profit after tax divided by the
weighted average number of shares in issue
4. Quarterly average equity adjusted for
underlying operating expenses
5. Profit after tax as a percentage of
quarterly average total equity
6. Underlying profit after tax as a percentage
of underlying quarterly average total equity
ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measures
(APMs) are a financial measure of historical or future financial
performance, financial position, or cash flow, other than a
financial measure under IFRS.
Charges in relation to client relationships and
goodwill (note 8)
Client relationship intangible
assets are recognised when we acquire a business or investment
management contracts as a result of the recruitment of experienced
investment managers who have the capability to attract significant
FUMA to the group.
These intangible assets are
amortised over the expected duration of the respective client
relationships. The amortisation is charged to the income statement
each year. This represents a significant non-cash profit and loss
item which is therefore excluded from underlying profit in order to
present an alternative measure that represents largely cash-based
results of the financial reporting period. These amortisation
charges are therefore excluded from underlying profit, which
otherwise represents largely cash-based earnings and more directly
relates to the financial reporting period. Research analysts
commonly exclude these amortisation costs when comparing the
performance of firms in the wealth management
industry.
Acquisition-related AND INTEGRATION costs (note
5)
Acquisition and integration-related
costs are significant non-recurring costs that arise from strategic
investments to grow the business rather than from the business'
operating activities and are therefore excluded from underlying
results.
These costs primarily comprise
professional fees directly related to the execution of the relevant
transaction, certain elements of deferred consideration that are
conditional upon continuing employment with the group and the costs
of integrating the acquired businesses with those of the existing
group.
Deferred consideration costs are
generally significant payments that form part of the total
consideration payable under the terms of the acquisition agreement
and are considered to be capital in nature, reflecting the cost to
acquire the business and the transfer of its ownership. However, in
accordance with IFRS 3, any deferred consideration that is payable
to former shareholders of the acquired business who are required to
remain in employment with the group must be treated as remuneration
and are therefore expensed to the income statement over the period
to which the employment condition applies.
During 2023, £36.5 million of
acquisition and integration costs have been incurred as a result of
the IW&I transaction. This comprised £21.3 million of one-off
legal and professional costs relating to the execution of the
transaction, £6.2 million of costs relating to awards made to key
employees of the business, and £9.0 million of integration costs,
which form part of the total expected costs to deliver the
integration and achieve the related synergies.
Acquisition-related Property costs (note
5)
As part of the process of
integrating IW&I with the existing Rathbones group, it is
expected that some leasehold properties will be vacated
earlier than their respective lease expiry dates. The useful lives
of these properties' right-of-use assets and their fixtures and
fittings were revised to reflect the expected exit dates.
Consequently, the assets' residual values were calculated and their
depreciable amounts were restated during the year. The assets were
also reviewed for impairment at 31 December 2023 to determine
whether their carrying amounts could be supported by their
recoverable amounts. As a result, the group recognised £4.5 million
in relation to accelerated depreciation and impairment charges on
property assets during the year. These costs represent additional
non-recurring costs in excess of the normal ongoing operating costs
incurred in relation to the group's properties and were recognised
as non-underlying operating expenses, and are therefore not
included within underlying operating profit. They form part of the
total acquisition and integration costs of £36.5 million referred
to above.
TAXATION
The corporation tax charge for 2023
was £20.1 million (2022: £15.1 million) (see note 6). The effective
tax rate increased to 34.9% in 2023 (2022: 23.5%), this reflected
the increase in the average statutory rate to 23.5% (2022: 19.0%)
and the impact of disallowable legal and professional costs
incurred in relation to the IW&I transaction.
In 2024, we expect the effective tax rate to
return to 4 to 5 percentage points above the statutory
rate (reflecting disallowable costs for deferred consideration
payments (see note 2.3), as the impact of IW&I
disallowable expenses experienced in 2023 will not be repeated
given these costs are non-recurring.
BASIC EARNINGS PER SHARE
Basic earnings per share for the
year ended 31 December 2023 were 52.6p (2022: 83.6p). The decrease
in the year reflects the impact of the IW&I combination costs
on statutory profit after tax, the increase in the statutory rate
of tax and the increased number of shares in issue.
On an underlying basis, basic
earnings per share were 135.8p in 2023, compared to 130.8p in 2022
(see note 12). The increase in the year is due to increased
underlying profit after tax that has been partially offset by the
increased number of shares and the increase in the statutory rate
of tax.
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 underlying 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 2023, underlying ROCE was 12.1%
(2022: 11.8%). Underlying quarterly average total equity increased
by £148.1 million in 2023 compared to 2022, reflecting the share
issue for the IW&I combination with effect from the fourth
quarter.
Segmental review
The group operates through two segments: Wealth
Management and Asset Management.
TABLE 4. RECONCILIATION OF SERVICE LEVELS TO
SEGMENTAL PRESENTATION as at 31 December 2023
|
Wealth
Management
FUMA
(including
intra-group
holdings)
£bn
|
Intra-group
holdings¹
£bn
|
Wealth
Management
FUMA
£bn
|
Asset Management
FUMA
£bn
|
Group
FUMA
£bn
|
Rathbones Investment
Management
|
48.8
|
(4.3)
|
44.5
|
4.3
|
48.8
|
Bespoke portfolios
|
45.0
|
(0.6)
|
44.4
|
0.6
|
45.0
|
Managed via in-house
funds
|
3.8
|
(3.7)
|
0.1
|
3.7
|
3.8
|
Multi-asset funds
|
−
|
−
|
−
|
2.5
|
2.5
|
Rathbones discretionary and
managed
|
48.8
|
(4.3)
|
44.5
|
6.8
|
51.3
|
Non-discretionary service
|
0.7
|
-
|
0.7
|
−
|
0.7
|
IW&I
|
42.3
|
−
|
42.3
|
−
|
42.3
|
Saunderson House
|
1.6
|
(0.3)
|
1.3
|
0.3
|
1.6
|
Total wealth management
|
93.4
|
(4.6)
|
88.8
|
7.1
|
95.9
|
Single-strategy funds
|
−
|
−
|
−
|
6.7
|
6.7
|
Execution only and banking
|
2.7
|
−
|
2.7
|
−
|
2.7
|
Total group
|
96.1
|
(4.6)
|
91.5
|
13.8
|
105.3
|
1. Intra-group holdings represent in-house
funds held within an Investment Management portfolio.
WEALTH MANAGEMENT
The results of the Wealth Management segment
described below include the trading results of Rathbones Investment
Management, Rathbones Trust Company, Vision Independent Financial Planning, Saunderson
House and IW&I.
Wealth Management income is largely driven by
revenue margins earned from FUMA. 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.
FUNDS UNDER MANAGEMENT AND
ADMINISTRATION
Year-on-year changes in the key performance
indicators for Wealth Management are shown in table 5 (which
incorporates IW&I in 2023). Total Wealth Management FUMA
increased by 86.0% to £91.5 billion as at 31 December 2023. The
majority of this increase was driven by the combination with
IW&I, which added £40.8 billion to the Group's FUMA from 30
September 2023 following completion of the combination. Excluding
the acquired IW&I FUMA, Wealth Management FUMA has increased by
3.0% during the year.
TABLE 5. WEALTH MANAGEMENT - KEY PERFORMANCE
INDICATORS
|
2023
|
2022
|
FUMA at 31 December
|
£91.5bn
|
£49.2bn
|
Rate of total net growth (net
flows) in Wealth Management funds under management and
asministration1
|
0.3%
|
1.2%
|
Average net operating basis point
revenue margin2
|
74.3bps
|
72.4 bps
|
Number of Investment Management
clients3
|
114
|
68
|
Number of investment managers
|
681
|
355
|
1. See table 6 (percentages calculated on
unrounded figures)
2. See table 10
3. The basis of this calculation is dependent
on the way client data is structured on the relevant operating
systems. It is therefore not practicable to apply consistent
methodologies across the RIM and IW&I businesses until the
migration onto a single system has been completed. We expect the
number to change following migration, but consider the figure
disclosed to be appropriate in the interim period."
TABLE 6. WEALTH MANAGEMENT - FUNDS UNDER
MANAGEMENT AND ADMINISTRATION
|
Year ended
31 December
2023
£bn
|
Year ended
31 December
2022
£bn
|
As at 1 January
|
49.2
|
55.2
|
Inflows
|
46.3
|
4.1
|
-
organic1
|
5.5
|
4.0
|
-
acquired2
|
40.8
|
0.0
|
Outflows
|
(6.1)
|
(3.7)
|
Market adjustment3
|
2.1
|
(6.3)
|
Total group
|
91.5
|
49.2
|
Rate of total net growth4
|
0.3%
|
1.2%
|
1. Value at the date of transfer
in/(out)
2. Value at date of acquisition, includes
£42.3bn IW&I FUMA acquired with effect from 30 September
2023
3. Represents the impact of market movements
and investment performance
4. Net new business and acquired inflows as a
percentage of opening funds under management and
administration
Table 6 reconciles the movement in
FUMA during the year. Organic inflows of £5.5 billion, 11.2%
of opening FUM are dominated by flows into discretionary
bespoke portfolios, with 33% of flows coming from the adviser
channel as our revised 'Reliance on Adviser' proposition rolled out
(2022: 30.6%). 'Reliance on Adviser' is an operating model with
which financial advisers can engage with RIM. It is an
approach whereby client suitability rests with the adviser,
affording them total control over their client relationship and the
advice process. Our investment managers retain responsibility
for the suitability of the portfolio and for executing the mandate
that has been requested by the adviser on the client's behalf.
Outflows of £6.1 billion, representing 12.4% of opening FUM are
elevated as a result of market conditions, with existing clients making partial withdrawals of their
investments to repay debt (which has become increasingly expensive
in the environment of higher interest
rates) and meet the higher cost of living, along with those
relating to property purchases and inheritance tax planning.
In addition, outflows also reflect the loss of two large charity
mandates during the year.
Saunderson House FUMA stood at £1.3
billion at 31 December 2023 (2022: £4.1 billion). The reduction
during the year reflects the continuing progress that has been made
to migrate Saunderson House clients into Rathbones investment
solutions. Once migrated, this FUMA is included with Wealth
Management or Asset Management FUMA depending on the proposition
that the FUMA has moved to. At the year end, FUMA on Vision
Independent Financial Planning's discretionary wealth management
platform that was not managed by the group (and is not therefore
included in the Group's FUMA) totalled £0.9 billion (2022: £0.8
billion).
Table 7 (overleaf) provides an
analysis of FUMA and new business by channel and service level.
Growth in discretionary and managed net flows is driven by
interactions through financial adviser networks, helped by the
impact of Saunderson House new business flows. £2.4 billion of
assets were migrated from Sanderson House in 2023 and the remaining
£1.3 billion of assets are expected to be migrated in
2024.
Switches into execution-only
services largely reflect the transfer of clients' funds into
probate following their death (£0.4 billion).
IW&I net outflows of £0.3
billion include the effect of expected outflows related to
investment manager departures that predominantly occurred prior to
the announcement of the combination. Since then, investment manager
turnover has been low.
TABLE 7. WEALTH MANAGEMENT - NEW BUSINESS BY
CHANNEL ON A PROFORMA BASIS1
|
Opening FUMA
-pro forma basis
£bn
|
Gross
inflows
£bn
|
Gross
outflows
£bn
|
Net flows
£bn
|
Transfers
£bn
|
SHL migrated
FUMA
£bn
|
Market
movement & performance
£bn
|
2023
Gross closing
£bn
|
2023
Intra-group
holdings²
£bn
|
2023
Net closing
FUMA
£bn
|
2022
Net FUMA
£bn
|
Bespoke portfolios
|
33.0
|
2.6
|
(2.7)
|
(0.1)
|
(0.9)
|
-
|
1.0
|
33.0
|
-
|
-
|
-
|
Managed via in-house funds
|
0.7
|
0.1
|
(0.1)
|
-
|
0.6
|
-
|
0.1
|
1.4
|
-
|
-
|
-
|
Total direct
|
33.7
|
2.7
|
(2.8)
|
(0.1)
|
(0.3)
|
-
|
1.1
|
34.4
|
-
|
-
|
-
|
Bespoke portfolios
|
9.9
|
1.2
|
(0.8)
|
0.4
|
(0.1)
|
1.1
|
0.7
|
12.0
|
-
|
-
|
-
|
Managed via in-house funds
|
0.7
|
0.3
|
(0.2)
|
0.1
|
0.2
|
1.3
|
0.1
|
2.4
|
-
|
-
|
-
|
Total financial adviser
linked
|
10.6
|
1.5
|
(1.0)
|
0.5
|
0.1
|
2.4
|
0.8
|
14.4
|
-
|
-
|
-
|
Total discretionary and
managed
|
44.3
|
4.2
|
(3.8)
|
0.4
|
(0.2)
|
2.4
|
1.9
|
48.8
|
(4.3)
|
44.5
|
42.0
|
Execution only and banking
|
2.4
|
0.3
|
(0.6)
|
(0.3)
|
0.4
|
-
|
0.2
|
2.7
|
-
|
2.7
|
2.4
|
Non-discretionary service
|
0.7
|
0.1
|
(0.1)
|
-
|
(0.1)
|
-
|
0.1
|
0.7
|
-
|
0.7
|
0.7
|
Total wealth management
|
47.4
|
4.6
|
(4.5)
|
0.1
|
0.1
|
2.4
|
2.2
|
52.2
|
(4.3)
|
47.9
|
45.0
|
Saunderson House
|
4.1
|
0.1
|
(0.5)
|
(0.4)
|
-
|
(2.4)
|
0.3
|
1.6
|
(0.3)
|
1.3
|
4.1
|
IW&I
|
40.8
|
0.8
|
(1.1)
|
(0.3)
|
(0.1)
|
-
|
1.9
|
42.3
|
-
|
42.3
|
-
|
Total Wealth Management for enlarged
group
|
92.3
|
5.5
|
(6.1)
|
(0.6)
|
-
|
-
|
4.4
|
96.1
|
(4.6)
|
91.5
|
49.1
|
1. 2023 Group FUMA and flows by service level
has been prepared on a proforma basis, opening FUMA has been
uplifted by £40.8 billion to include IW&I FUMA acquired as at
30 September
2. 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 FUMA is reported within
Funds.
The high inflation rates experienced
in 2022 continued into 2023, resulted in Rathbones adopting a
cautious approach on bonds, with a preference for shorter-dated
debt less sensitive to changes in interest rate
expectations.
From September we became much more
optimistic on longer-dated government bonds, particularly east of
the Atlantic and, indeed, bond markets have rallied strongly as
they look ahead to rate cuts in 2024 following a plunge in key
measures of inflation in the UK and Eurozone.
Overall, 2023 was another strong
year for our specialist teams. Rathbone Greenbank Investments
continued to grow its net new business by 3.3%, despite the
difficult market, and reached FUMA of £2.1 billion at 31 December
2023 (2022: £1.9 billion). The Personal Injury and Court of
Protection business ended 2023 with £1.3 billion of FUMA (2022:
£1.0 billion).
Rathbone Financial Planning also saw
a strong year in 2023, increasing revenues by 18% from 2022, and
growing FUMA to £2.0 billion as at 31 December 2023 (31 December
2022: £1.6 billion).
Vision Independent Financial
Planning grew well in 2023, advising on client assets of £3.3
billion at the year end (2022: £2.6 billion), and seeing a net
growth in the network of IFAs to 138 at the year end (2022:
130).
Saunderson House has made
significant progress in migrating assets to the new Rathbones'
proposition. £2.7 billion of Saunderson House clients' assets are
now invested in Rathbones' products (2022: £63 million), with £1.3
billion (2022: £4.1 billion) of assets remaining under management
by Saunderson House at year end. It is expected that the migration
process will be completed by the end of June 2024.
FINANCIAL PERFORMANCE
Underlying profit before tax in
Wealth Management increased by 49.1% in the year to £105.4 million,
this represents an underlying operating margin of 20.9% (2022:
18.0%), which, when adjusted to exclude £14.4 million of operating
expenses incurred in relation to the delivery of digital strategy,
rises to 23.8% (2022: 22.1%).
Net investment management fee income
increased by £75.2 million (27.4%) in 2023. £70.1 million of the
increase is attributable to the effect of the IW&I combination
in the final quarter of 2023. The remaining £5.1 million uplift is
due to higher FUMA in the Wealth Management segment excluding
IW&I, reflecting the benefit of new revenues generated from the
migration of Saunderson House funds and the favourable market
movement, with the average level of the MSCI PIMFA Balanced index
at the quarterly billing dates being 2.2% higher than the prior
year.
Net commission income increased by
9.6% to £53.6 million (2022: £48.9 million). A £9.4 million uplift
in commission income as a result of the IW&I combination has
been partially offset by a reduction of £4.7 million in the Wealth
Management segment excluding IW&I commission income due to the
continued movement towards a fee-only basis of charging, which is
increasingly replacing transaction-based commission
charges.
The increase in the Bank of England
Base Rate from 3.5% at the start of 2023 to 5.25% by December 2023
contributed an additional £32.1 million to net interest income in
the year. The rates of interest payable to clients in respect of
the cash element of their portfolios also increased significantly
during the year as we ensured our interest rates remained
competitive. However, the overall increase in our net interest
margin illustrates the benefit of our banking
permissions.
Fees from advisory services and
other income fell by 2.1% to £50.3 million. Fees from advisory and
other services excluding IW&I fell by 15.8% (2022: 88.3%
increase). This expected reduction was partially offset by £7.0
million of other income from IW&I, as advice fees to Saunderson
House clients were suppressed during the period in light of the
extent to which advice was related to the migration process.
We expect advice fee levels relating to Saunderson House clients to
recover once the migration of assets has been completed.
Underlying operating expenses during
the year were £398.5 million (see table 11); an increase of 23.6%
on the prior year. When adjusted for Q4 IW&I underlying
expenses of £62.5 million, the year-on-year increase in underlying
expenses for the Wealth Management segment excluding IW&I is
£13.7 million (2022: £47.8 million). An £8.3 million increase in
fixed staff costs (2022: £20.2 million) was partially offset by a
reduction of £3.0 million (2022: £5.0 million increase) in variable
staff costs due to a number of profit share schemes vesting in
2022. Other operating expenses of £154.2 million (2022: 145.9
million) include property, depreciation, settlement, IT, finance
and other central support services.
TABLE 8. WEALTH MANAGEMENT - FINANCIAL
PERFORMANCE
|
2023 Comprises
|
|
|
2023
£m
|
IW&I
£m
|
Rathbones
excl. IW&I
£M
|
2022
£m
|
Net investment management fee
income1
|
350.1
|
70.1
|
280.0
|
274.8
|
Net commission income
|
53.6
|
9.4
|
44.2
|
48.9
|
Net interest income
|
49.9
|
1.4
|
48.5
|
17.8
|
Fees from advisory
services2 and other income
|
50.3
|
7.0
|
43.3
|
51.4
|
Operating income
|
503.9
|
87.9
|
416.0
|
392.9
|
Underlying operating expenses3
4
|
(398.5)
|
(62.5)
|
(336.0)
|
(322.3)
|
Underlying profit before tax
|
105.4
|
25.4
|
80.0
|
70.7
|
Underlying operating
margin5
|
20.9%
|
28.9%
|
19.2%
|
18.0%
|
1. Net investment management fee income is
stated after deducting fees and commission expenses paid to
introducers
2. Rathbones excl. IW&I Fees from advisory
services includes income from trust, tax and financial planning
services (including Vision and Saunderson House)
3. See table 11
4. Included within underlying operating
expenses are £14.4 million of costs relating to the group's digital
strategy, of which £1.6 million relates to asset
management
5. Underlying profit before tax as a percentage
of operating income. Excluding £14.4 million of expenditure on our
digital strategy in the year, the underlying operating margin was
23.8%
TABLE 9. WEALTH MANAGEMENT - AVERAGE FUNDS
UNDER MANAGEMENT AND ADMINISTRATION
|
2023
£m
|
2022
£m
|
Valuation dates for billing
|
|
|
- 5
April
|
45.7
|
47.9
|
- 30
June
|
45.4
|
43.8
|
- 30
September
|
45.4
|
43.2
|
- 31
December
|
48.0
|
45.1
|
Quarterly average1
|
46.1
|
45.0
|
|
|
|
Average MSCI level2
|
1,721
|
1,684
|
IW&I
|
2023
£bn
|
2022
£bn
|
Valuation dates for billing
|
|
|
- 30
November
|
40.7
|
−
|
Average MSCI level2
|
1,700
|
−
|
1. Rathbones quarterly average FUMA excluding
Saunderson House and IW&I
2. MSCI PIMFA Balanced Index considered to
reflect Rathbones' composition of portfolios most closely. Based on
the corresponding valuation dates for billing
TABLE 10. WEALTH MANAGEMENT - REVENUE
MARGIN
|
2023
£m
|
2022
£m
|
Basis point return1 from:
|
|
|
- fee
income
|
61.5
|
61.1
|
-
commission
|
9.5
|
10.8
|
-
interest
|
3.3
|
0.5
|
Basis point return on FUMA
|
74.3
|
72.4
|
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)
Other operating expenses of £173.1
million include property, depreciation, settlement, IT, finance and
other central support services costs (2022: £145.9
million).
The basis point return on fund under
management and administration for the Wealth Management segment
excluding IW&I increased by 0.5bps in the year to 72.9bps, this
is predominately due to the increase in interest income, offset by
lower commission as a higher proportion of clients have migrated to
fee-only rates.
TABLE 11. WEALTH MANAGEMENT - UNDERLYING
OPERATING EXPENSES
|
2023
£m
|
2022
£m
|
Staff costs1
|
|
|
-
fixed
|
147.2
|
109.5
|
-
variable
|
78.2
|
66.9
|
Total staff costs
|
225.4
|
176.4
|
Other operating expenses
|
173.1
|
145.9
|
Underlying operating expenses
|
398.5
|
322.3
|
Underlying cost/income
ratio2
|
79.1%
|
82.0%
|
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)
ASSET MANAGEMENT
The financial performance of the Asset
Management segment is principally driven by the value of FUM.
Year-on-year changes in the key performance indicators for asset
management are shown in table 12.
FUNDS UNDER MANAGEMENT
Following the challenging trading
conditions in 2022, 2023 continued to be a tough environment
for the industry. Net redemptions in the asset management
industry to 30 November 2023 totalled £41.6 billion (£49.7 billion
in the full year to December 2022), as reported by the Investment
Association (IA), albeit mainly in the institutional space.
Industry-wide funds under management grew by only 1.5% to £1.4
trillion at the end of November 2023.
Gross inflows in Rathbones Asset
Management improved 48% from £3.1 billion to £4.6 billion in 2023,
with Saunderson House assets migrating into Rathbones funds
responsible for a large part of this growth. Continued investor
concerns over inflation, interest rates and equity market
valuations have driven cautious investor sentiment. Despite these
macroeconomic impacts on investor confidence, our range of funds,
well balanced between multi-asset and single-strategy, has helped
serve our clients' changing needs and provided some shelter from
the market volatility for our overall FUM. The diverse nature of
our multi-asset investment mix, and thus its obvious continuing
appeal to clients in these tougher times, has ensured that positive
net flows have continued to stream into these funds, creating some
offset for the outflows experienced in the single-strategy
space.
Investors continue to exhibit an
elevated propensity for withdrawing some of their investable assets
to pay down debt, which has become increasingly expensive, and meet
rising costs of living. These factors have led to a continuation of
the elevated gross outflows experienced in 2022. Strong gross
flows, leading to positive net flows in Multi-asset funds and
favourable investment performance offsetting net outflows in single
strategy funds, ensured total funds under management grew to a
record high of £13.8 billion at the end of 2023, an increase of
25.5% during the year (see table 14).
TABLE 12. ASSET MANAGEMENT - KEY PERFORMANCE
INDICATORS
|
2023
|
2022
|
FUM at 31 December1
|
£13.8bn
|
£11.0bn
|
Rate of net growth in Asset Management
FUM1
|
13.7%
|
0.4%
|
Underlying profit before
tax2
|
£21.7m
|
£26.4m
|
1. See table 14
2. See table 16
TABLE 13. ASSET MANAGEMENT - funds under
management by product
|
2023
£bn
|
2022
£bn
|
Rathbone Global Opportunities Fund
|
3.6
|
3.4
|
Rathbone Multi-Asset Portfolios
|
5.3
|
3.0
|
Rathbone Ethical Bond Fund
|
2.2
|
2.2
|
Rathbone Income Fund
|
0.7
|
0.7
|
Offshore funds
|
0.6
|
0.6
|
Rathbone Active Income Fund for
Charities
|
0.2
|
0.2
|
Rathbone High Quality Bond Fund
|
0.2
|
0.2
|
Greenbank Multi-Asset Portfolios
|
0.4
|
0.2
|
Other funds1
|
0.1
|
0.2
|
Rathbone Core Investment Fund for
Charities
|
0.2
|
0.1
|
Rathbone Strategic Bond Fund
|
0.1
|
0.1
|
Rathbone Global Sustainability Fund
|
0.1
|
0.1
|
Rathbone UK Opportunities Fund
|
0.1
|
−
|
|
13.8
|
11.0
|
1. £213 million of 'Bespoke' other funds
transferred out during 2022 post the switch of Authorised Corporate
Director (ACD) from Rathbones Asset Management Limited to Evelyn
Partners, an independent ACD
Despite adverse market conditions,
Rathbones featured in the Pridham Report industry top ten for net
retail sales in all 4 quarters of 2023 as well as fifth for net
retail sales in the full year.
Volatility managed funds
(multi-asset portfolios) were the IA's top net seller in the year
up to November 2023 with £5.8 billion of net sales and this trend
was mirrored in Rathbones which accounted for 33% of the industry
total, with net sales in the year, totalling £1.9 billion in the
year to November 2023 and £2.1 billion in the full year, up
£1.4 billion when compared to 2022.
Rathbones largest fund, Rathbone
Global Opportunities Fund, saw a net £305 million outflow over the
course of the year.
Rathbone Ethical Bond Fund also
suffered from net redemptions in the year (£187 million), due to
the market uncertainty brought on by the volatility in bond yields.
Both funds, however, delivered positive market returns in the year
ensuring that, overall, both funds grew year-on-year.
The Ethical Bond and Global Opportunities funds
maintained their excellent industry long-term track performance
records and both finished the year in the first quartile for
performance measured over five years, which is a key factor in
investors' decision-making.
During the year, the total number of investment
professionals running the funds reduced by one to 23 at 31 December
2023 (2022: 24).
TABLE 14. ASSET MANAGEMENT - FUNDS UNDER
MANAGEMENT
|
2023
£bn
|
2022
£bn
|
As at 1 January
|
11.0
|
13.0
|
Net inflows
|
1.5
|
-
|
-
inflows1
|
4.6
|
3.1
|
-
outflows1
|
(3.0)
|
(2.9)
|
-
Bespoke2
|
-
|
(0.2)
|
Market adjustments3
|
1.3
|
(2.0)
|
As at 31 December
|
13.8
|
11.0
|
Rate of net growth4
|
13.7%
|
0.4%
|
1. Valued at the date of transfer
in/(out)
2. Bespoke funds transferred out during 2022
post the switch of Authorised Corporate Director ('ACD') from
Rathbones Asset Management Limited to Evelyn Partners, an
independent ACD
3. Impact of market movements and relative
performance
4. Net inflows as a percentage of opening
FUM
In 2022 £213.0 million of 'Bespoke' other funds
transferred out during the year post the switch of the Authorised
Corporate Director (ACD) from Rathbones Asset Management Limited to
Evelyn Partners, an independent ACD.
TABLE 15. ASSET MANAGEMENT -
PERFORMANCE1, 2, 4
2023/(2022) Quartile ranking³ over
|
1 year
|
3 years
|
5 years
|
Rathbone Ethical Bond Fund
|
1 (2)
|
2 (2)
|
1 (1)
|
Rathbone Global Opportunities Fund
|
1 (4)
|
3 (2)
|
1 (1)
|
Rathbone Income Fund
|
3 (2)
|
2 (2)
|
2 (2)
|
Rathbone Strategic Bond Fund
|
1 (3)
|
3 (3)
|
3 (3)
|
Rathbone UK Opportunities Fund
|
1 (4)
|
4 (4)
|
4 (4)
|
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 2023 and 2022 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 59% of the total FUM of the fund's business
FINANCIAL PERFORMANCE
Asset management's income is primarily derived
from annual management charges, which are calculated on a daily
basis on the value of FUM of each fund, net of rebates payable to
intermediaries.
Net annual management charges
increased to £64.7 million in 2023, reflecting the rise in average
FUM. Net annual management charges as a percentage of average FUM
fell by 0.9bps to 53.9 bps (2022: 54.8 bps), led by a higher
proportion of FUMA held in S-Class units in the Multi Asset funds,
which have a lower annual management charge. Alongside higher net
annual management charges, interest and other income
increased by £1.7
million in the year. As a result, total operating income as a
percentage of average FUM increased to 55.4 bps in 2023 from 54.7
bps in 2022.
Underlying operating expenses
detailed in Table 17 increased by £8.9 million to £45.5 million
(2023: £36.6 million). Fixed staff costs of £7.1 million for the
year ended 31 December 2023 were £0.2 million higher than 2022.
This reflects general inflationary rises as well as the impacts of
staffing changes in the period.
Variable staff costs of £13.4 million were
19.6% higher than 2022. These costs relate to deferred awards which
are spread over multiple years, the current year cost does not
solely reflect performance in the current year.
Other operating expenses have
increased by 35.9% to £25.0 million in 2023. A large part of this
cost increase relates to direct investment in our core Charles
River system, enhancing functionality and creating an efficient
platform for delivering to existing clients as well as positioning
the business well for future growth. Recurring operational spend in
the Asset Management segment for the Charles River Investment
Management Solution is £1.5 million per annum . The operating
margin net of these investment costs was 37%. Administration costs
of £6.1 million were up £0.8 million on 2022, driven by increasing
FUM and flows, as well as inflationary indexing on third-party
supplier contracts, which was also evident on technology
costs.
TABLE 16. ASSET MANAGEMENT - FINANCIAL
PERFORMANCE
|
2023
£m
|
2022
£m
|
Net annual management charges
|
64.7
|
62.2
|
Interest and other income
|
2.5
|
0.8
|
Operating income
|
67.2
|
63.0
|
Underlying operating
expenses1
|
(45.5)
|
(36.6)
|
Underlying profit before tax
|
21.7
|
26.4
|
Operating % margin2
|
32.3%
|
41.9%
|
1. See table 17
2. Underlying profit before tax divided by
operating income
TABLE 17. ASSET MANAGEMENT - UNDERLYING
OPERATING EXPENSES
|
2023
£m
|
2022
£m
|
Staff costs
|
|
|
-
Fixed
|
7.1
|
6.9
|
-
Variable
|
13.4
|
11.2
|
Total staff costs
|
20.5
|
18.1
|
Other operating expenses
|
25.0
|
18.4
|
Underlying operating expenses
|
45.5
|
36.5
|
Underlying cost/income
ratio1
|
67.5%
|
57.9%
|
1. Underlying operating expenses as a
percentage of operating income (see table 16)
Financial position
OWN FUNDS
As a banking group, Rathbones is
required to operate in accordance with the requirements relating to
capital resources and banking exposures prescribed by the Capital
Requirements Regulation, as applied in the UK by the Prudential
Regulation Authority (PRA).
The group is required to ensure it
maintains adequate capital resources to meet its combined pillar 1
and pillar 2 requirements.
At 31 December 2023, the group's
regulatory own funds (including verified profits for the year) were
£471.4 million (2022: £338.7 million). The increase in the year of
£132.7 million was the result of the issue of new share capital to
fund the group's acquisition of IW&I. The effect on own funds
of the new shares issued, which resulted in a £2.2 million increase
in share capital and a £747.4 million increase in the merger
reserve (net of £2.2 million of share issue costs) (see table 19)
was partly offset by the £585.1 million increase in goodwill and
intangible assets resulting from the acquisition.
The net increase in own funds was
partially offset by an increase in the group's total capital
requirement and combined buffers of £106.4 million, which reflected
the inclusion of IW&I in the group. The resulting in a capital
surplus at the end of 2023 of £134.5 million represents an increase
of £24.2 million relative to the surplus of £110.3 million 31
December 2022.
The CET1 ratio was 17.8%, broadly in
line with the 17.9% reported at the previous year-end. This
increase in the Pillar 1 requirement (see table 20) as a
consequence of the enlarged group, was countered by the increased
capital resources (see table 19)
The leverage ratio was 18.7% at 31
December 2023, up from 17.6% at 31 December 2022. The leverage
ratio represents our Tier 1 capital (own funds) as a percentage of
the group's total assets (exposure measure), excluding central bank
exposure, intangible assets, plus certain off-balance sheet
exposures. Whilst total assets and tier one capital increased in
the year due to the IW&I combination, assets excluded from the
exposure measure (central bank exposure and regulatory deductions)
represented a lower proportion of the balance sheet. This resulted
in an uplift to the leverage ratio.
At 31 December 2023, neither
Rathbones Investment Management Limited nor the Rathbones Group
were subject to a minimum leverage ratio requirement, although
monitoring is undertaken on a regular basis against the minimum
leverage requirement of 3.25% which applies to larger
banks.
The business is primarily funded by
equity, but also supported by £39.9 million of ten-year tier 2
eligible subordinated loan notes, which were issued in October
2021. The notes introduced 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% per annum until the
first option call date, and at a rate of 4.893% over Compound Daily
SONIA thereafter.
As a result of the factors set out
above, the total equity of the group (comprising share capital,
share premium and reserves, net of own shares held) was £1,350.2
million at 31 December 2023, up 112.7% from £634.8 million at the
end of 2022.
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 for
the consolidated group, which include performing a range of stress
tests to determine the appropriate level of regulatory capital and
liquidity that the group should hold. In addition, we monitor a
wide range of capital and liquidity statistics on a daily, monthly
or other frequency basis as required. Surplus capital levels are
forecast on a monthly basis, taking account of anticipated dividend
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
|
2023
£m
(unless stated)
|
2022
£m
(unless stated)
|
Own funds
|
|
|
- Common
Equity Tier 1 ratio1
|
17.8%
|
17.9%
|
- Total own
funds ratio2
|
19.4%
|
20.3%
|
Total retained earnings
|
263.7
|
297.2
|
- Tier 2
subordinated loan notes3
|
39.9
|
39.9
|
Total risk exposure amount
|
2,425.6
|
1,666.8
|
- Leverage
ratio4
|
18.7%
|
17.6%
|
Other resources:
|
|
|
Total assets
|
4,224.4
|
3,447.2
|
- Treasury
assets5
|
2,601.0
|
2,664.1
|
-
Investment Management loan book
|
101.7
|
159.7
|
-
Intangible assets from acquired growth6
|
502.7
|
342.7
|
- Tangible
assets and software7
|
30.9
|
26.2
|
Liabilities:
|
|
|
- Due to
customers8
|
2,253.3
|
2,516.1
|
Net defined benefit pension
asset/(liability)
|
7.0
|
9.4
|
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 Rathbones Investment Management as a bank
Table 19. GROUP'S REGULATORY OWN
FUNDS
|
2023
£m
|
2022
£m
|
Share capital and share premium
|
317.7
|
313.1
|
Reserves
|
1,088.1
|
374.2
|
Less:
|
|
|
Own shares
|
(55.6)
|
(52.5)
|
Intangible assets1
|
(911.8)
|
(326.7)
|
Retirement benefit asset2
|
(7.0)
|
(9.4)
|
Common Equity Tier 1 own funds
|
431.4
|
298.7
|
Tier 2 own funds
|
40.0
|
40.0
|
Total own funds
|
471.4
|
338.7
|
1. Net book value of goodwill, client
relationship intangible assets 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
REQUIREMENTS1
|
2023
£m
|
2022
£m
|
Credit risk requirement
|
72.3
|
66.3
|
Market risk requirement
|
-
|
1.1
|
Operational risk requirement
|
121.7
|
65.9
|
Pillar 1 own funds requirement
|
194.0
|
133.3
|
Pillar 2A own funds requirement
|
39.4
|
40.0
|
Total Capital Requirement ('TCR')
|
233.4
|
173.3
|
Combined buffer:
|
|
|
Capital Conservation Buffer (CCB)
|
60.6
|
41.6
|
Countercyclical Capital Buffer
(CCyB)
|
42.9
|
13.5
|
Total Capital Requirement ('TCR') and Combined
buffer
|
336.9
|
228.4
|
|
2023
£m
|
2022
£m
|
Total capital surplus
|
134.5
|
110.3
|
The purpose of each component of the regulatory
capital requirement and what it comprises is set out
below.
PILLAR 1 OWN FUNDS REQUIREMENT
Pillar 1 determines a total risk exposure
amount (also known as 'risk-weighted assets') for the group, taking
into account expected losses in respect of the group's exposure to
credit, counterparty credit, market and operational risks, and sets
a minimum requirement for the amount of capital the group must
hold.
The increase in credit risk to £72.3 million in
2023 was due to a revised allocation of the group's treasury assets
along with the consequences of including IW&I
exposures.
At 31 December 2023, the group's total risk
exposure amount was £2,425.6 million (2022: £1,666.8 million). The
increase was driven principally by the inclusion of IW&I
exposures.
PILLAR 2A OWN FUNDS REQUIREMENT
The Pillar 2 requirement 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 is set by
the PRA as part of its supervisory review process and the
calculation of it remains confidential to the PRA. The requirement
reflects those risks that are specific to the firm that are not
fully captured under the Pillar 1 own funds requirement. The
group-specific risks that are reflected in the Pillar 2A
requirement are set out below:
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. See note 10 for further detail on
the movement in the year to the net defined benefit pension
asset.
INTEREST RATE RISK IN THE BANKING BOOK
The group operates on a non-trading book basis,
whereby all assets held are with the intent of holding to maturity.
Assets are not actively traded in secondary markets for speculative
purposes. The resulting interest rate risk represents losses that
could arise for a 2% parallel shift in the Bank of England base
rate. The exposure would measure the time to reprice interest
bearing assets and liabilities.
CONCENTRATION RISK
Greater potential exposure as a result of the
concentration of borrowers located in the UK relative to other
overseas jurisdictions.
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 is set by the PRA.
The CCB is set at 2.5% of the group's total risk exposure amount as
at 31 December 2023.
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 value of the buffer is calculated as a percentage of the
group's total risk exposure amount. For UK credit risk exposures,
the percentage rate that applies is set by the Financial Policy
Committee ('FPC'). For other jurisdictions where the group has
exposures, the percentage rate applicable to each jurisdiction is
applied.
The percentage buffer rate for UK exposures is
currently 2.0%. The group has relevant credit exposures in other
jurisdictions where a different rate applies, resulting in a
weighted rate of 1.8% as at 31 December 2023.
CAPITAL MANAGEMENT
In managing the group's regulatory capital
position, we take into account:
-
potential future volatility in pension scheme valuations that
affect both the level of CET1 own funds and the value of the Pillar
2A requirement for pension risk;
- expected
additional increases in the UK countercyclical capital buffer rate;
and
- the
demands of acquisitions which would generate intangible assets and,
therefore, directly reduce CET1 resources; and
- expected
and potential regulatory developments.
We keep these issues under review by
forecasting capital and liquidity on a monthly basis, whilst taking
into account all known and anticipated macroeconomic and
idiosyncratic changes.
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 2023 were £4.2
billion (2022: £3.4 billion), of which £2.3 billion (2022: £2.5
billion) represents the cash element of client portfolios that is
held as a banking deposit.
RIM TREASURY ASSETS
As a licensed deposit taker, Rathbones
Investment Management Limited holds our surplus liquidity on its
balance sheet together with clients' cash. Cash in client
portfolios held on a banking basis of £2.3 billion (2022: £2.5
billion) represented 4.7% of total Investment Management funds
under management and administration at 31 December 2023, compared
to 5.3% at the end of 2022. Cash held in client money accounts was
£8.4 million (2022: £5.7 million). These balances are held off
balance sheet in accordance Client Money Rules of the
FCA.
During the year, the share of treasury assets
held with the Bank of England reduced to £1.0 billion (2022: £1.4
billion), as investment in certificates of deposit and UK treasury
bills increased in accordance with our treasury policy and risk
appetite as the environment of rising interest rates presented
greater opportunity for the management of our treasury
assets.
The treasury department of Rathbones Investment
Management, reporting through the banking committee to the board,
operates in accordance with procedures set out in a board-approved
treasury manual and monitors exposure to market, credit and
liquidity risk. It invests in certain securities issued by a
diversified range of highly-rated 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.
IW&I treasury assets
The manner in which Investec Wealth
& Investment Limited (a wholly owned subsidiary of Rathbones
Group Plc) holds its surplus client money is governed by the CASS
rules. In this regard these monies are off-balance
sheet.
The IW&I Cash & Credit
Management Committee (CCMC) is mandated by the Operations Committee
to consider, approve, and keep under review, the suitability of
financial institutions for the placement of firm's and clients'
cash deposits in accordance with the CASS rules on client money and
assets. Approved institutions are subject to the IW&I Credit
Policy and annual due diligence which is undertaken in accordance
with the CASS rules. Total Client Money held was £1.3 billion as at
31 December 2023 (2022: £1.9 billion) representing 3.1% of
Investment Management funds under management at 31 December 2023
compared to 4.7% at the end of 2022.
Investec Wealth & Investment
Limited also hold Firm's money, which is on balance sheet, also
subject to the IW&I Firms Credit Policy Statement and overseen
by the CCMC. Total Firms Money held was £161.9 million as at 31
December 2023 (2022: £209.6 million)
The treasury department of Investec
Wealth & Investment Limited are responsible for the cash
management of both the Client and Firm's money, reporting to the
CCMC and operating in accordance with the Treasury Mandate.
Treasury monitor diversification and liquidity on a daily basis.
Approved Institutions, other than group companies, must have a
minimum of S&P Short Term rating of A-2, a S&P Long Term
Rating of BBB+ and are reviewed quarterly by the CCMC.
LOANS TO CLIENTS
Loans are provided as a service to Wealth
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, with a requirement that the value
of the loan is covered two times by the value of the secured
portfolio. Loans 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 to clients who require bridging finance when
buying and selling their homes.
Loans advanced to clients decreased to £101.7
million at end of 2023 (2022: £159.7 million). As borrowing
costs increased, we saw lower demand for new loans as clients
looked to reduce outstanding debt and finance their cash
requirements from other means, including drawing down from
investment portfolios, leading to higher outflows of funds under
management and administration.
INTANGIBLE ASSETS
Intangible assets arise principally from
acquired growth in funds under management and administration
relating to business combinations and are categorised as goodwill
and client relationships. Intangible assets reported on the balance
sheet also include purchased and developed software.
At 31 December 2023, the total carrying value
of goodwill and client relationship intangible assets was £1,010.5
million (2022: £342.7 million). The significant increase in 2023 is
principally the result of the IW&I combination. In addition,
other purchases of client relationship intangible assets of £2.6
million were capitalised during the year (2022: £1.0 million). £2.8
million of client relationship intangible assets were disposed of
in the year, predominately in relation to earn-outs which were paid
(2022: £2.6 million).
Client relationship intangible assets are
amortised over the estimated life of the client relationship, which
is generally a period between 10 and 15 years. Should client
relationships be lost, any related intangible asset is derecognised
in the relevant year. The total amortisation charge for client
relationships in 2023, including the impact of any lost
relationships, was £22.4 million (2022: £16.9 million). The
increase in the year was the result of amortisation for the
IW&I client relationship intangible asset during the final
quarter following completion of the combination.
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. Further detail is provided in note
8.
CAPITAL EXPENDITURE
Capital expenditure during 2023 amounted to
£4.5 million (2022: £8.0 million).
Expenditure on the development of
our systems that was capitalised amounted to £4.0 million in the
year, a reduction of £1.8 million relative to the prior year.
Whilst we have continued our digital investment programme, the
portion of this investment that represents development expenditure
that falls to be capitalised under accounting standards has reduced
in line with our increasing adoption of cloud-based, strategic
technology solutions. The costs of cloud-based solutions are
largely charged to profit or loss at the time the cost is incurred,
with the subsequent benefit of a reduction in the level of
depreciation cost in future years.
Property expenditure fell by £1.7 million in
2023. This reflected a pause in planned office refurbishments as we
considered our property strategy for the newly enlarged group as a
result of the IW&I combination.
DEFINED BENEFIT PENSION SCHEMES
We operate two defined benefit pension schemes.
With effect from 30 June 2017, we closed both schemes, ceasing all
future benefit accrual and breaking the link to
salary.
At 31 December 2023 the combined schemes'
liabilities, measured on an accounting basis, had increased to
£101.1 million, up 6.8% from £94.7 million at the end of 2022. This
increase primarily reflected a reduction in discount rates at the
end of the year, and a small decrease in the assumed future rate of
inflation. The reported position of the schemes as at 31 December
2023 was a surplus of £7.0 million (2022: surplus of £9.4
million).
The funding position of the schemes improved
during 2023, with increased gilt yields driving a reduction in the
schemes' liabilities. As a result of this, the Company supported
the Trustees' decision to switch the schemes' assets into
self-sufficiency credit funds in order to better secure the funding
position against future changes in bond yields and inflation
expectations. This switch has further lowered the level of gearing
in the scheme's assets and reduced the exposure to future margin
calls.
The triennial funding valuations, with a
valuation date of 31 December 2022 were undertaken
during the year by the scheme actuary. As for the previous
valuations, a self-sufficiency funding basis was used to calculate
the schemes' liabilities. The valuations were completed in August
2023 and identified that the shortfall in the schemes' funding
position at 31 December 2022 was fully covered by the £2.75m
deficit contribution made by the Company in August 2023. Therefore,
no further deficit funding plan was necessary and the Company is
not required to make any further contributions to the scheme at
this time.
During 2023, the Company, working with the
Trustees and the Scheme Actuary, undertook a review of the
feasibility of insuring the schemes' liabilities via an insurance
"buy in". In December 2023, a request for quotation was issued to a
shortlist of insurers.
LIQUIDITY AND CASH FLOW
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 amounted to
£1.0 billion at 31 December 2023 (2022: £1.4 billion). We continue
to hold a substantial portion of the group's overall liquidity with
central banks. The reduction during the year reflects
increased investment in both debt securities issued by high-quality
counterparties, and central government issued short-dated treasury
bills, which was in response to the rising interest rate
environment.
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 outflows from operating activities in
the year largely reflect a £251.4 million decrease in banking
client deposits (2022: £181.9 million increase). Cash held in
client portfolios reduced due to portfolio asset allocation moving
to alternative liquid assets, such as UK Government Treasury Bills,
due to the high interest rate environment. Loans and advances
to banks and customers decreased by £87.4 million in the year, this
was partly attributable to the reclassification of a £14.5 million
term deposit (2022: £30.0 million) that is due to mature within
three months of the year end into cash and cash
equivalents.
TABLE 21. EXTRACTS FROM THE CONSOLIDATED
STATEMENT OF CASH FLOWS
|
2023
£m
|
2022
£m
|
Cash and cash equivalents at the end of the
year
|
1,302.9
|
1,572.7
|
Net cash inflows from operating
activities
|
(86.4)
|
292.9
|
Net change in cash and cash
equivalents
|
(269.8)
|
(80.9)
|
Cash used in investing activities included a
net outflow of £241.8 million from the purchase of certificates of
deposit (2022: net outflow of £278.1 million), as we continued to
reduce the proportion of treasury assets held with the Bank of
England in favour of UK Government short-dated Treasury Bills and
debt securities. All investment decisions were made under the
existing low risk appetite framework set by the RIM Banking
Committee. Included within cash used in investing activities is
cash of £172.6 million acquired from the acquisition of IW&I in
the year.
The other significant non-operating cash flows
during the year were as follows:
- outflows
relating to the payment of dividends of £71.4 million (2022: £48.6
million);
- outflows
relating to payments to acquire intangible assets of £5.6 million
(2022: £8.8 million), which includes payments in respect of
investment managers under earn-out agreements, and development of
client applications;
- outflows
of £5.1 million relating to capital expenditure on tangible
property, plant and equipment (2022: £4.3 million), which relates
predominantly to property fit-out costs; and inflows of £2.9
million from a partial sale of the group's shareholding in
Euroclear.
Risk management and control
Our approach to risk management is fundamental
to supporting the delivery
of our strategic objectives. Our risk governance and risk processes
are designed to enable the firm to manage risk effectively in
accordance with our risk appetite and to support the long-term
future of the firm.
MANAGING RISK
The board has overall responsibility for risk
management across the group, regularly assessing the most
significant risks and emerging threats to the group's strategy. The
board delegates oversight of risk management activities to the
group risk and audit committees. Our risk governance and risk
management framework support the chief executive and executive
committee members with their day-to-day responsibility for managing
risk.
RISK CULTURE
The risk culture embedded across the group
enhances the effectiveness of risk management and decision-making.
The board promotes a strong risk culture, reinforced by our
executive and senior management team, which encourages appropriate
behaviours and collaboration on managing risk across the
group.
Risk management is 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 GOVERNANCE AND three LINES OF
DEFENCE
We operate a three lines of defence model to
support risk governance and risk management across the
group
GOVERNANCE
|
|
BOARD
|
AUDIT COMMITTEE
|
GROUP RISK COMMITTEE
|
Executive committee
Executive risk committee
Banking committee
|
|
Sets strategy and risk appetite across the
group, and is ultimately accountable for risk
management.
|
Monitors and reviews the effectiveness of
internal controls with oversight of the internal audit function in
line with the group's risk profile on behalf of the board. It also
oversees the appointment and relationship with the external
auditor.
|
Oversees effectiveness of the
risk management framework
and activity across the group. Advises the board on risk appetite,
risk assessment, risk profile and risk culture.
|
First line committees with responsibility for
management
of risk and internal control
across the group.
|
|
BUSINESS AREAS and lines of defence
|
First line of defence
Senior management
Business operations and control functions
|
SECOND line of defence
Risk, compliance and anti-money laundering
functions
|
THIRD line of defence
Internal audit
|
Responsibility
Responsible for managing risk in line with risk
appetite by developing and maintaining an effective system of
internal control.
|
Responsibility
Responsible for the risk management framework
and the independent oversight and challenge of first line risk
management activity.
|
Responsibility
Responsible for providing independent assurance
to senior management on the effectiveness of governance, risk
management and internal control.
|
|
|
|
|
|
| |
RISK MANAGEMENT FRAMEWORK
(RMF) OVERVIEW
Our RMF provides the foundation for
identifying, evaluating, managing and reporting risk and
continually improving the effectiveness of risk management
throughout the firm.
RISK APPETITE
The board approves the firm's risk appetite
statement and framework at least annually to ensure it remains
consistent with our strategic objectives and prudential
responsibilities.
Specific risk appetite statements are set and
measures established for each principal risk. The risk appetite
framework supports strategic decision-making, as well as providing
a mechanism to monitor our risk exposures.
The position against our risk appetite
statements and measures is assessed and reported on a regular basis
to the executive committee, group risk committee and the
board.
Given 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 in
line with our strategy. 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 appetite measures and thresholds have been
approved by the board for 2024, taking into account the combination
between Rathbones and IW&I. This year's measures reflect
the scale of the enlarged group but, other than this, there have
been no other material changes to our appetite for risk. As
the business models integrate, our position against these measures
will be closely monitored and exceptions reported as
required.
RISK CATEGORIES
|
RISK APPETITE STATEMENT
|
STRATEGIC ALIGNMENT
|
BUSINESS AND STRATEGIC RISK
|
Business and strategic risks will be
identified and actively managed to protect the ability to deliver
sustainable growth.
Change initiatives will be orientated towards
longer-term client, stakeholder and societal
expectations.
|
Business resilience
Supporting and delivering growth
|
FINANCIAL RISK
|
Financial risks will be actively managed to
preserve the group's overall resilience.
Credit and market risk exposures will be
managed to board approved instruments and limits in order to
protect company assets and maintain prudent levels of liquidity and
regulatory own funds.
The group will also continually monitor and
respond to risks arising from its pension scheme
obligations
|
Financial resilience
Supporting and delivering growth
|
NON-FINANCIAL RISK
(CONDUCT AND OPERATIONAL)
|
Conduct and regulatory risks associated with
our business are recognised; however, we have no appetite for
intentionally inappropriate behaviour or action by any entity
within the group or employees that could have a material
detrimental impact on clients, key stakeholders and our
reputation.
Operational risks and losses can arise from
inadequate or failed internal processes, people or systems, or from
external events. We have an extremely low appetite for losses and
no appetite for systemic or materially high-risk events that could
affect the operational resilience of important business
services.
|
Regulatory and
operational resilience
Enriching the client and adviser
proposition and experience
Inspiring our people
Operating more efficiently
|
RISK MANAGEMENT PROCESS
Our risk management process is a defined
approach to identify, assess and respond to risks that could affect
delivery of strategic objectives and annual business plans. The
board, executive and senior management are actively involved in
this process.
Risks are identified within a three-tier
hierarchy, with the highest level containing business and
strategic, financial, conduct and operational risks. Risks are
assessed on an inherent and residual basis across a three-year
period according to several impact criteria, which include
consideration of the internal control environment and/or insurance
mitigation.
We maintain a watch list to identify and
evaluate current issues and emerging risks as a result of business
development or changes in the regulatory landscape, as well as
threats and issues in the wider external environment. This helps
inform the view of the firm's current and longer-term risk profile,
and influences management's decisions and actions.
Stress tests are 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.
External 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 2023 we have continued
to develop our approach to monitoring strategic risks and horizon
threats.
Our view for 2024 is that we can reasonably
expect current market conditions and uncertainties to remain, given
the wide range of global economic and political scenarios which
could emerge.
NEAR TERM
|
Global and UK specific political
tensions
|
Geopolitical risk remains a significant threat
to financial stability. War in the Middle East and war between
Russia and Ukraine as well as tension between the US and China has
driven increased inflation and market volatility. To help us
identify and monitor this risk we've partnered with geopolitical
risk experts to define relevant red flags that will in turn help us
to adjust our portfolios accordingly.
|
UK and global
economic challenges
|
The UK economy continues to show signs of
stress accompanied by falling inflation. The former is mainly a
consequence of past increases in interest rates, while the latter
has been helped by easing global price levels, particularly for
energy. Analysts predict the GDP growth for the UK will be modest
and momentum in other economies will be slower.
|
Cyber threats and supply chain
resilience
|
The sophistication of cyber attacks is
ever-evolving, especially as our digital environment advances.
Attacks have become far more persistent with a notable increase in
frequency since the invasion of Ukraine. Rathbones is committed to
enhancing the technology infrastructure to help mitigate the
risk.
|
MEDIUM TERM
|
Changing regulatory expectations
|
The regulatory landscape is an area of fast
paced change centred on client advocacy, transparency and
integrity. Of note Consumer Duty requirements have successfully
been implemented throughout 2023. Work on fair consumer outcomes
will continue following the issuance of the Dear CEO letter FCA
Expectations for Wealth Managers and Stockbroking Firms. The look
ahead shows that 2024 will be another busy year with key
implementation dates for regulatory change.
|
Pandemic
|
Whilst operational resilience to a future
pandemic is much improved following the COVID-19 outbreak, a future
infectious disease epidemic could emerge and with that comes the
economic repercussions and slow recovery from it.
|
Climate change
transition risk
|
Climate and environmental risk is a key focus
as we move towards achieving net zero emissions by 2050 or sooner.
Alongside reviewing our governance structures, we will continue to
integrate data, develop metrics and increase disclosures in our
client reporting.
|
Digital innovation
|
Developing technology across the wealth
management sector poses a continual threat to maintaining a
competitive advantage. Digital capability is less of a barrier to
engaging clients and servicing their needs, in particular younger
generations where there is an expectation of online accessibility.
Rathbones is implementing a strategic programme of change to ensure
our digital technology meets the needs of our prospective and
existing clients.
|
New entrants to the market and artificial
intelligence AI
|
The threat of new non-traditional entrants to
the investment sector is a higher probability with Fintech
developers challenging established investment providers with their
products and services. In addition, AI capabilities, from advanced
analytics, automation and predictive intelligence is fast becoming
seen as a future competitive advantage within the financial
sector.
|
LONGER TERM
|
Generational
wealth change
|
Studies show that the over 45s and especially
the post-war 'baby boomers' retain a significant portion of the UK
wealth in the form of property and pensions. This wealth will begin
to transfer to younger beneficiaries over the next 30 years.
Generational differences could drive changes in behaviours and
appetite towards investments.
|
Social care financing
|
Accessibility and inequality in the adult
social care sector has been a topic of concern for some time and it
continues to be a risk to assets under management, with clients
drawing on their investments to pay for their care fees.
|
Principal risks
PROFILE AND MITIGATION OF PRINCIPAL
RISKS
Overall, we believe the group's underlying risk
profile is stable; however, during the past year it has fluctuated
as a result of market volatility and the changing economic and
political landscape. We continually assess our risk profile against
both internal and external risk drivers and are investing further
in our people, processes and technology to improve risk management.
We remain focused on client service, the resilience of our business
and wellbeing of our colleagues and we believe our approach
continues to be effective.
Based upon our risk assessment processes, the
board believes that the principal risks and uncertainties facing
the group that could impact the delivery of our strategic
objectives have been identified below. These risks continue to
reflect our strategic initiatives and transformation programme,
continual enhancements to the group's business model in response to
environmental, societal and regulatory expectations, the evolving
cyber threat landscape, operational resilience in relation to our
supply chain, the importance of our people and the economic and
political environment.
The board remains vigilant to potential risks
that could arise from longer-term trends in society, the economy
and markets, and to regulatory risks that, in turn, may arise from
the continuing development of law, regulation and
standards
Information about our principal risks is set
out below. The risks are mapped out by their likelihood and impact
on a residual risk basis, having considered the effectiveness of
controls in place to mitigate the risk. This assessment considers a
range of outcomes that could be experienced, including the
crystallisation of other risks. For some, the impact of events can
also be influenced by external factors, such as market
conditions.
We use ratings of high, medium, low and very
low in our risk assessment. High-risk items are those that have the
potential to impact the delivery of strategic objectives, with
medium, low and very low rated risks having less impact on the
group. Likelihood is similarly based on a qualitative
assessment.
We consider that the growth of the group
following the combination with IW&I has proportionately
increased the risk profile. The ratings of the risks below are
relative to the new scale of the organisation.
2023 oVERVIEW
Throughout 2023 the principal risk profile has
been relatively stable. We have reflected on both Rathbones'
internal and external environment over the course of 2023 and have
made some adjustments to the principal risks for 2024. We have
removed credit as it is no longer a material concern due to the
nature of our exposures. We have introduced a new risk,
integration, in recognition of the recent completion of the
combination with IW&I UK. We foresee this risk to be ongoing
into 2024 and 2025. In light of macroeconomic conditions and
changes in the regulatory landscape the prominence of investment
performance has increased therefore this has been added. Change
risk was a significant risk in 2023 and this remains the case for
the year ahead. Rathbones' digital transformation continues to be a
strategic imperative. Our remaining risks remained stable
throughout 2023, with suitability risk reducing following extensive
investment in the development of policies, procedures and
oversight.
RISK AND OWNER
|
CONTROL ENVIRONMENT
|
RISK TREND 2023
|
CHANGE
The risk that the change portfolio does not
support delivery of the group's strategy
RISK OWNER: chief
operating officer
RISK PROFILE: 3
RISK APPETITE MEASURES:
- Priority
programmes rated red
- Programme
overspend
|
- Executive
and board oversight of material change programmes
-
Differentiated governance approach to strategic change
programmes and business projects
- Dedicated
change delivery function and use of internal and, where required,
external subject matter experts
- Two-stage
assessment, challenge and approval of project plans
- Planning
and budgeting, monitoring of variances and actions to
address.
|
+
|
This risk has increased in 2023 as our digital
transformation programmes moved through critical delivery
milestones. Executive and senior management oversight has remained
agile and focused on targeted delivery outcomes, benefits
realisation, budget alignment and the impact of change on our risk
profile.
|
INTEGRATION
The risk that the integration of systems,
people and processes fails or is ineffective
RISK OWNER: chief
operating officer
RISK PROFILE: 3
RISK APPETITE MEASURES:
- Budget
compliance
- Cost
synergy
|
-
Integration project plan
- Executive
oversight of integration programme
- Board
oversight of programme delivery
-
Transformation office programme board oversight and
delivery-focused operating model
-
Cost/benefit monitoring
- KRI
tracking
- External
party appointed to provide independent assurance.
|
+
|
This is a new risk in 2023 as we begin the
process of integrating Rathbones and IW&I
businesses.
An Integration Management Office (IMO) was
established in September to coordinate the delivery of our
integration.
The impact of integration on other risks will
be considered throughout 2024.
|
INVESTMENT PERFORMANCE
The risk that investment performance fails to
meet clients' objectives or expectations
RISK OWNER: managing
Director Rathbones Investment Management
RISK PROFILE: 2
RISK APPETITE MEASURES:
- Actual
performance versus performance benchmark
- Portfolio
alignment
-
Assessment of fund value rating
|
-
Investment policy
-
Performance versus benchmarking monitoring
- Defined
investment strategy
- Exception
reporting
- Product
and proposition oversight
- Client
engagement and portfolio reviews.
|
+
|
Challenging market conditions are likely to
continue in 2024. The position of client portfolios and investment
performance are closely monitored.
|
PENSION
The risk that the cost of funding our defined
benefit pension schemes increases, or their valuation affects
dividends, reserves and regulatory own funds
RISK OWNER: chief
financial officer
RISK PROFILE: 2
RISK APPETITE MEASURES:
- Pillar 2A
Net Stressed deficit
- IFRS
deficit
|
- Board,
senior management and trustee oversight
- Monthly
valuation estimates
- Triennial
independent actuarial valuations
-
Investment policy
- Senior
management review and defined management actions
- Annual
ICAAP.
|
=
|
The group continues to work with the pension
scheme trustees and advisers to manage this risk.
|
Risk trend
|
Risk profile
|
+
|
Increasing
|
3
|
High
|
=
|
Stable
|
2
|
Medium
|
-
|
Decreasing
|
1
|
Low
|
N
|
New
|
|
|
RISK AND OWNER
|
CONTROL ENVIRONMENT
|
RISK TREND 2023
|
REGULATORY COMPLIANCE AND LEGAL
The risk of failure by the group or a
subsidiary to fulfil its regulatory or legal requirements and
comply with the introduction of new or updated regulations and
laws
RISK OWNER: group chief
executive officer and chief risk officer
RISK PROFILE: 2
RISK APPETITE MEASURES:
-
Compliance monitoring review outcomes
-
Regulatory review outcomes
-
Complaints data
|
- Board and
executive oversight
-
Management oversight and active involvement with industry
bodies
-
Compliance monitoring programme to examine the control of key
regulatory risks
- Separate
anti-money laundering function with specific
responsibility
- Oversight
of industry and regulatory developments
-
Documented policies and procedures
- Employee
training and development
- Panel of
external legal advisers
-
Whistleblowing policy and process.
|
=
|
While this risk has remained stable in 2023,
the landscape and expectations on firms and our sector continue to
evolve. We have continued to invest in and develop our first and
second line oversight teams, including the deployment of software
to support regulatory compliance.
The introduction of Consumer Duty in 2023 was a
key priority and its significance continued as new policies,
procedures and governance begun to be embedded.
|
SUSTAINABILITY
The risk that the business model does not
respond sufficiently to changing market conditions, including
environmental and social factors, such that sustainable growth,
market share or profitability are adversely affected
RISK OWNER: group
chief executive officer
RISK PROFILE: 2
RISK APPETITE MEASURES:
- Net
organic growth rate
- Net
organic outflow rate
- Climate
targets
- Diversity
targets
|
- Board,
executive and responsible business committee oversight
- A
documented strategy, including responsible investment
policy
-
Monitoring of strategic risks
- Annual
business targets, subject to regular review and
challenge
- Regular
reviews of pricing structure and client propositions
- Continued
investment in the investment process, service standards and
marketing
- Regular
competitor benchmarking and analysis
- Trade
body participation
- ESG
factors integrated into the investment process
- Dedicated
responsible investment project to drive changes to achieve
sustainability goals
- Diversity
targets included in risk appetite measures.
|
=
|
2023 has presented challenging market
conditions given the external environment, including a volatile
economic and political landscape.
We do, however, have a strong balance sheet and
recognised market position.
Climate risk has been integrated into our risk
management framework to support the transition to net
zero.
Our stakeholders will become more demanding in
response to evolving expectations of firms to manage climate and
other ESG risks, which remain a key priority of our responsible
business agenda.
|
INFORMATION SECURITY AND CYBER
The risk of inappropriate access to
manipulation, or disclosure of, client or company-sensitive
information
RISK OWNER: chief
operating officer
RISK PROFILE:2
RISK APPETITE MEASURES:
- Number of
cyber incidents
- Number of
data privacy events
- Cyber
external threat landscape rating
|
- Board and
executive oversight
- Data
governance committee and information security steering group
oversight
-
Information security policy, data protection policy and
associated procedures
- System
access controls and encryption
-
Penetration testing and multi-layer network
security
- Training
and employee awareness programmes
- Physical
security.
|
=
|
The threat landscape in 2023 continues to be
influenced by the volatile external environment. However, we
continue to invest in our control environment and resources to
improve our security posture and ensure our infrastructure and
employees are well positioned against an ever-changing threat
landscape.
|
Risk trend
|
Risk profile
|
+
|
Increasing
|
3
|
High
|
=
|
Stable
|
2
|
Medium
|
-
|
Decreasing
|
1
|
Low
|
N
|
New
|
|
|
RISK AND OWNER
|
CONTROL ENVIRONMENT
|
RISK TREND 2023
|
THIRD-PARTY SUPPLIER
The risk of one or more third-party suppliers
failing to provide or perform authorised and/or outsourced services
to standards expected by the group, impacting the ability to
deliver core services. This includes intra-group outsourcing
activity.
RISK OWNER: chief
operating officer and chief executive officer, Rathbone Asset
Management
RISK PROFILE: 2
RISK APPETITE MEASURES:
- Supplier
chain performance
|
- Board and
executive oversight
-
Third-party supplier and outsourcing framework
- Senior
dedicated relationship managers
- Supplier
contracts and defined service level agreements/KPIs
- Supplier
due diligence and approval process
- Close
liaison, contractual reviews and regular service review
meetings
-
Documented policy and procedures
-
Whistleblowing policy and process.
|
=
|
Our framework for third-party supplier and
outsourcing risk management has continued to be embedded and
developed in 2023. We continue to focus on technology enhancements
to further improve our controls in this area, which also supports
operational resilience. The change agenda will continue to drive
this work as we on-board new strategic partners.
|
PEOPLE
The risk of loss of key employees, lack of
skilled resources or inappropriate behaviour or actions. This could
lead to lack of capacity or capability threatening the delivery of
business objectives, or to behaviour leading to complaints,
litigation or regulatory action
RISK OWNER:
chief people officer
RISK PROFILE: 2
RISK APPETITE MEASURES:
- Regretted
leavers
- Turnover
ratio
- Employee
behaviour
|
- Board and
executive oversight
-
Succession and contingency planning
-
Transparent, consistent and competitive remuneration
schemes
-
Contractual clauses with restrictive covenants
- Continual
investment in employee training and development
- Employee
engagement survey
-
Appropriate balanced performance measurement
system
- Culture
monitoring and reporting
- Conduct
risk framework and committee
- Training
and competence framework
-
Whistleblowing policy and process.
|
=
|
We have continued to operate effectively in
spite of a difficult labour market over the past few years.
Continued high inflation and cost of living pressures will remain a
risk driver into next year. Management action, and our agile
approach to support our colleagues, has been positively received
however, we continue to engage frequently through our employee
survey tool. Employee engagement continues to be positive with
satisfaction scores exceeding the industry benchmarks.
|
SUITABILITY
The risk of an unsuitable client outcome
either through service, investment mandate, investment decisions
taken, investment recommendations made or portfolio or fund
construction
RISK OWNER: managing director rathbones investment management
RISK PROFILE: 1
RISK APPETITE MEASURES:
- Timely
portfolio reviews
- Timely
client reviews
- Quality
scores
|
- Board,
executive and general managers committee oversight
-
Investment governance and structured committee
oversight
-
Management oversight and segregated quality assurance and
performance teams
-
Performance measurement information and attribution
analysis
- 'Know
your client' (KYC) suitability processes
- Weekly
investment management meetings
- Training
and competence framework
-
Investment manager reviews through supervisor
sampling
-
Compliance monitoring
- Defined
investment mandates and tracking
- Exception
reporting
-
Complaints analysis.
|
-
|
We have continued to improve processes and
oversight of investment and suitability risk in 2023, focusing on
training, management information and new ways of working. The
successful launch of our 'Reliance on Adviser' proposition in
particular has supported the improvement of this risk. Our ongoing
investment in technology will also further improve suitability
processes and controls in 2024.
|
Risk trend
|
Risk profile
|
+
|
Increasing
|
3
|
High
|
=
|
Stable
|
2
|
Medium
|
-
|
Decreasing
|
1
|
Low
|
N
|
New
|
|
|
viability statement
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 or liquidity. 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 was considered for enhanced stress testing: a
significant fall in the value of FUMA, a loss of
business/competitive threat from a reputational event, integration
risk, business expansion and a combined FUMA 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.
Since 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
sever but plausible 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 factors
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,
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 2026
constitutes an appropriate and prudent period over which to provide
its viability statement given the uncertainties associated with
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
FUMA for a one-year period, with recovery over the following three
years and Foreign Exchange illiquidity
-
Idiosyncratic reputational stress (capital & liquidity):
a reputation-affecting cyber event, social media or ESG-related
event causing outflow of 20% of FUMA together with associated
compensation and rectification costs
-
Idiosyncratic integration stress (capital): a specific stress
relating to the planned integration of IW&I into the group,
resulting in outflow of 15% of FUMA together with additional
integration costs and cost synergies not being achieved
- Combined
stress (capital and liquidity): aggregation of the above
market-wide and integration stresses.
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 2026.
GOING CONCERN
Details of the group's business activities,
results, cash flow 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 £20 million of 10-year subordinated loan notes to
finance future growth which were repaid in August 2021. In October
2021, Rathbones Group Plc issued £40 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 geopolitical 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 2023
|
Note
|
2023
£m
|
2022
£m
|
Interest and similar income
|
|
128.8
|
46.3
|
Interest expense and similar charges
|
|
(77.1)
|
(28.0)
|
Net interest income
|
|
51.7
|
18.3
|
Fee and commission income
|
|
538.6
|
462.7
|
Fee and commission expense
|
|
(29.7)
|
(27.5)
|
Net fee and commission
income
|
|
508.9
|
435.2
|
Other operating income
|
|
10.5
|
2.4
|
Operating income
|
|
571.1
|
455.9
|
Charges in relation to client relationships and
goodwill
|
|
(25.2)
|
(19.5)
|
Acquisition-related and integration
costs
|
5
|
(44.3)
|
(13.5)
|
Other operating expenses
|
|
(444.0)
|
(358.8)
|
Operating expenses
|
|
(513.5)
|
(391.8)
|
Profit before tax
|
|
57.6
|
64.1
|
Taxation
|
6
|
(20.1)
|
(15.1)
|
Profit after tax
|
|
37.5
|
49.0
|
Profit for the year attributable to
equity holders of the company
|
|
37.5
|
49.0
|
|
|
|
|
Other comprehensive
income:
|
|
|
|
Items that will not be reclassified to profit
or loss
|
|
|
|
Net remeasurement of defined benefit
asset/liability
|
10
|
(5.8)
|
(7.1)
|
Deferred tax relating to net remeasurement of
defined benefit asset/liability
|
|
1.5
|
3.4
|
|
|
|
|
Other comprehensive income net of
tax
|
|
(4.3)
|
(3.7)
|
|
|
|
|
Total comprehensive income for the
year net of tax attributable to equity holders of the
company
|
|
33.2
|
45.3
|
|
|
|
|
Dividends paid and proposed for the year per
ordinary share
|
7
|
87.0p
|
84.0p
|
Dividends paid and proposed for the
year
|
|
62.9
|
49.3
|
|
|
|
|
Earnings per share for the year
attributable to equity holders of the company:
|
12
|
|
|
-
basic
|
|
52.6p
|
83.6p
|
-
diluted
|
|
50.8p
|
81.5p
|
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
|
Note
|
Share
capital
£m
|
Share
premium
£m
|
Merger
reserve
£m
|
Own
shares
£m
|
Retained
earnings
£m
|
Total
equity
£m
|
At 1 January 2022
|
|
3.1
|
291.0
|
77.0
|
(36.6)
|
288.8
|
623.3
|
Profit for the year
|
|
-
|
-
|
-
|
-
|
49.0
|
49.0
|
Net remeasurement of defined benefit
liability
|
10
|
-
|
-
|
-
|
-
|
(7.1)
|
(7.1)
|
Deferred tax relating to components
of other comprehensive income
|
|
-
|
-
|
-
|
-
|
3.4
|
3.4
|
Other comprehensive income net of
tax
|
|
-
|
-
|
-
|
-
|
(3.7)
|
(3.7)
|
|
|
|
|
|
|
|
|
Dividends paid
|
7
|
-
|
-
|
-
|
-
|
(48.6)
|
(48.6)
|
Issue of share capital
|
|
0.1
|
19.0
|
-
|
-
|
-
|
19.1
|
Share-based payments:
|
|
|
|
|
|
|
|
- cost of share-based payment arrangements
|
|
-
|
-
|
-
|
-
|
25.9
|
25.9
|
- cost of vested employee remuneration and share
plans
|
|
-
|
-
|
-
|
-
|
(12.8)
|
(12.8)
|
- cost of own shares vesting
|
|
-
|
-
|
-
|
2.7
|
(2.7)
|
-
|
- cost of own shares acquired
|
|
-
|
-
|
-
|
(18.7)
|
|
(18.7)
|
- tax
on share-based payments
|
|
-
|
-
|
-
|
-
|
1.3
|
1.3
|
At
31 December 2022
|
|
3.2
|
310.0
|
77.0
|
(52.6)
|
297.2
|
634.8
|
Profit for the year
|
|
-
|
-
|
-
|
-
|
37.5
|
37.5
|
Net remeasurement of defined benefit
asset
|
10
|
-
|
-
|
-
|
-
|
(5.8)
|
(5.8)
|
Deferred tax relating to components
of other comprehensive income
|
|
-
|
-
|
-
|
-
|
1.5
|
1.5
|
Other comprehensive income net of
tax
|
|
-
|
-
|
-
|
-
|
(4.3)
|
(4.3)
|
|
|
|
|
|
|
|
|
Dividends paid
|
7
|
-
|
-
|
-
|
-
|
(71.4)
|
(71.4)
|
Issue of share capital
|
|
2.2
|
2.3
|
747.4
|
|
|
751.9
|
Share-based payments:
|
|
|
|
|
|
|
|
- cost of share-based payment arrangements
|
|
-
|
-
|
-
|
-
|
24.0
|
24.0
|
- cost of vested employee remuneration and share
plans
|
|
-
|
-
|
-
|
-
|
(6.0)
|
(6.0)
|
- cost of own shares vesting
|
|
-
|
-
|
-
|
13.0
|
(13.0)
|
-
|
- cost of own shares acquired
|
|
-
|
-
|
-
|
(16.0)
|
|
(16.0)
|
- tax
on share-based payments
|
|
-
|
-
|
-
|
-
|
(0.3)
|
(0.3)
|
At
31 December 2023
|
|
5.4
|
312.3
|
824.4
|
(55.6)
|
263.7
|
1,350.2
|
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2023
|
Note
|
2023
£m
|
2022
£m
|
Assets
|
|
|
|
Cash and balances with central banks
|
|
1,038.3
|
1,412.9
|
Settlement balances
|
|
165.7
|
65.8
|
Loans and advances to banks
|
|
266.9
|
194.7
|
Loans and advances to customers
|
|
115.6
|
169.8
|
Investment securities:
|
|
|
|
- fair
value through profit or loss
|
|
1.2
|
11.2
|
- amortised
cost
|
|
1,294.6
|
1,045.2
|
Prepayments, accrued income and other
assets
|
|
225.3
|
126.7
|
Property, plant and equipment
|
|
16.1
|
12.7
|
Right-of-use assets
|
|
64.5
|
39.1
|
Current tax asset (UK)
|
|
3.9
|
3.5
|
Intangible assets
|
8
|
1,025.3
|
356.2
|
Net defined benefit asset
|
10
|
7.0
|
9.4
|
Total assets
|
|
4,224.4
|
3,447.2
|
Liabilities
|
|
|
|
Deposits by banks
|
|
12.4
|
1.0
|
Settlement balances
|
|
172.1
|
70.0
|
Due to customers
|
|
2,253.3
|
2,516.1
|
Accruals and other liabilities
|
|
209.6
|
114.3
|
Provisions
|
9
|
25.5
|
12.9
|
Lease liabilities
|
|
74.9
|
50.5
|
Current tax liabilities (overseas)
|
|
0.5
|
0.2
|
Net deferred tax liability
|
|
86.0
|
7.5
|
Subordinated loan notes
|
|
39.9
|
39.9
|
Total liabilities
|
|
2,874.2
|
2,812.4
|
Equity
|
|
|
|
Share capital
|
|
5.4
|
3.2
|
Share premium
|
|
312.3
|
310.0
|
Merger reserve
|
|
824.4
|
77.0
|
Own shares
|
|
(55.6)
|
(52.6)
|
Retained earnings
|
|
263.7
|
297.2
|
Total equity
|
|
1,350.2
|
634.8
|
Total liabilities and
equity
|
|
4,224.4
|
3,447.2
|
Company registered number: 01000403
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2023
|
Note
|
2023
£m
|
2022
£m
|
Cash flows from operating
activities
|
|
|
|
Profit before tax
|
|
57.6
|
64.1
|
Change in fair value through profit or
loss
|
|
(1.0)
|
0.3
|
Net interest income
|
|
(51.7)
|
(18.3)
|
Recoveries on financial instruments
|
|
0.1
|
(0.1)
|
Net charge for provisions
|
9
|
9.4
|
2.0
|
Depreciation, amortisation and
impairment
|
|
47.1
|
35.0
|
Foreign exchange movements
|
|
3.4
|
(7.1)
|
Defined benefit pension scheme
(credits)/charges
|
10
|
(0.5)
|
(0.3)
|
Defined benefit pension contributions
paid
|
10
|
(2.9)
|
(3.9)
|
Share-based payment charges
|
|
24.0
|
25.9
|
Interest paid
|
|
(67.7)
|
(20.9)
|
Interest received
|
|
111.9
|
33.9
|
|
|
129.7
|
110.6
|
Changes in operating assets and
liabilities:
|
|
|
|
- net
decrease in loans and advances to banks and customers
|
|
87.4
|
8.4
|
- net
decrease in settlement balance debtors
|
|
133.3
|
3.9
|
- net
(increase)/decrease in prepayments, accrued income and other
assets
|
|
(36.2)
|
1.9
|
- net
(decrease)/increase in amounts due to customers and deposits by
banks
|
|
(251.5)
|
181.9
|
- net
(decrease)/increase in settlement balance creditors
|
|
(123.6)
|
9.8
|
- net
increase/(decrease) in accruals, provisions and other
liabilities
|
|
1.0
|
(5.9)
|
Cash (used in)/generated from
operations
|
|
(59.9)
|
310.5
|
Tax paid
|
|
(29.5)
|
(17.6)
|
Net cash (outflow)/inflow from
operating activities
|
|
(89.4)
|
292.9
|
Cash flows from investing
activities
|
|
|
|
Cash acquired on acquisition of
subsidiaries
|
|
172.6
|
−
|
Purchase of property, plant, equipment and
intangible assets
|
|
(10.7)
|
(13.1)
|
Payment of deferred consideration
|
|
-
|
(10.9)
|
Purchase of investment securities
|
|
(2,059.9)
|
(1,262.5)
|
Proceeds from sale and redemption of investment
securities
|
|
1,818.1
|
984.4
|
Net cash used in investing
activities
|
|
(79.9)
|
(302.1)
|
Cash flows from financing
activities
|
|
|
|
Issue of ordinary shares
|
14
|
-
|
9.3
|
Repurchase of ordinary shares
|
14
|
(16.0)
|
(18.6)
|
Dividends paid
|
7
|
(71.4)
|
(48.6)
|
Payment of lease liabilities
|
|
(7.5)
|
(8.5)
|
Interest paid
|
|
(5.6)
|
(5.3)
|
Net cash used in financing
activities
|
|
(100.5)
|
(71.7)
|
Net decrease in cash and cash
equivalents
|
|
(269.8)
|
(80.9)
|
Cash and cash equivalents at the beginning of
the year
|
|
1,572.7
|
1,653.6
|
Cash and cash equivalents at the end
of the year
|
14
|
1,302.9
|
1,572.7
|
NOTES TO THE CONSOLIDATED STATEMENTS
1 PRINCIPAL
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 2023. 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 material estimation
uncertainty.
2.1 CLIENT RELATIONSHIP INTANGIBLES (NOTE 8)
Critical judgements
Client Relationship intangibles purchased through
corporate transactions
When the group purchases client
relationships through transactions with other corporate entities, a
judgement is made as to whether the transaction should be accounted
for as a business combination or as a separate purchase of
intangible assets. In making this judgement, the group assesses the
assets, liabilities, operations and processes that were the subject
of the transaction against the definition of a business combination
in IFRS 3. In particular, consideration is given to 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 intangible assets 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 FUMA that
relate to the investment management contract), they are capitalised
as client relationship intangible assets (note
8). Otherwise, they are judged to be in
relation to the provision of ongoing services and are expensed as
remuneration cost in the period that they are transferred. Upfront
payments made to investment managers upon joining are expensed as
incurred, 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 the longevity of client relationships. During the year, client
relationship intangible assets were amortised over a period of
between 10 and 15 years.
Amortisation of £25.2 million (2022:
£19.5 million was charged during the year). At 31 December 2023,
the carrying value of client relationship intangible assets was
£502.7 million (2022: £175 million). A reduction of one year in the
amortisation period of the group's client relationship intangible
assets would increase the annual amortisation charge by £4.0
million.
2.2 RETIREMENT BENEFIT OBLIGATIONS (NOTE 10)
Critical judgements
Key judgement was applied in
determining that the group will be eligible to receive the surplus
associated with the pension schemes in recognising a pension
asset.
Estimation uncertainty
The principal assumptions underlying the
reported surplus of £7.0 million (2022: £9.4 million surplus) are
set out in note 10.
In order to set these assumptions,
the group engages qualified actuaries to estimate a range of
long-term trends and market conditions to determine the value of
the surplus or deficit on the group's retirement benefit schemes,
based on the group's expectations of the future. Long-term
forecasts and estimates are inherently 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 from
that recognised.
The sensitivities of the retirement
benefit obligations to changes in all of the underlying estimates
are set out in note 29. 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 £7.7 million (2022: £7.1 million). Increasing the
future rate of inflation by 0.5% would increase the schemes'
liabilities by £4.4 million (2022: £5.0 million). A lower or higher
movement in these assumptions would result in multiples of these
figures. A 0.5% decrease would reduce the scheme's
liabilities by £4.2 million.
2.3 BUSINESS COMBINATIONS (NOTE 4)
2.3.1 Investec Wealth & Investment
During the year, the group acquired
the entire share capital of Investec Wealth & Investment
('IW&I'). The group has accounted for the transaction as a
business combination. Note 4 contains further detail on the areas
of significant judgement and critical accounting estimates outlined
below.
Estimation uncertainty
Fair value of consideration
transferred
Total consideration transferred to
Investec Bank Plc comprised 27,056,463 ordinary shares and
17,481,868 convertible non-voting ordinary shares. The fair value
of the ordinary shares issued was determined with reference to the
share price of Rathbones Group Plc at close of business on 20
September 2023 (being the day before legal completion of the
transaction), which was £17.22 per share at close. The fair value
of the non-voting shares of £16.36 was calculated by applying a
5.0% discount to the closing share price of £17.22, to reflect the
fact that the shares are non-marketable and non-transferable. This
produced a total value for consideration paid of £751.9 million. A
2.0% decrease in the discount applied would have resulted in a £6.0
million increase in the value of the consideration paid; an
increase in the discount would have had an equal and opposite
effect.
Fair value of goodwill and net
assets acquired
The fair value of net assets
acquired was valued at £411.8 million (see note 4 for a detailed
breakdown).
Goodwill of £340.1 million was
recognised at acquisition, and represents the future economic
benefit expected from an acquired workforce, expected future growth
and future client relationships, as well as operational and revenue
synergies. The allocation of goodwill between the group's
cash-generating units has been based on their respective relative
values.
Client relationship intangible
assets of £350.3 million were recognised during the year in
relation to the acquisition of IW&I. The multi-period earnings
model used to value the intangible assets used estimates of client
longevity and investment performance to derive a series of
discounted cash flows. This was determined with reference to
management's best estimates of future performance and estimates of
the return required to determine an appropriate discount rate.
These assets are being amortised over an average 14-year useful
life. A 5.0% increase in the estimated fair value of client
relationship intangible assets would increase client relationship
assets by £17.5 million, with a corresponding increase in deferred
tax liabilities of £4.4 million and a decrease in goodwill of £13.1
million.
The group has applied judgement in
determining the allocation of acquired goodwill to the relevant
cash-generating units expected to benefit from the acquisition. The
allocation of goodwill is provisional and shall be reviewed and
completed before the end of the first annual period after the
acquisition. See note 8.
Other areas of focus
The financial statements include
other accounting estimates related to the acquisition of IW&I.
While these areas do not meet the definition under IAS 1 of
significant accounting estimates or critical accounting judgements,
the recognition and measurement of certain material balances are
based on assumptions and/or are subject to longer term
uncertainties.
Estimation uncertainty
Fair value of equity-settled
awards
Share-based incentive awards were
granted to certain Investec Wealth & Investment employees as
part of the acquisition (see note 4). These awards require the
recipients to remain in employment for a specific period, and to
achieve certain conditions relating to the integration of IW&I.
The awards will be accounted for as remuneration for ongoing
services and will be expensed over the deferral period. The
cumulative expense at year end of £3.1 million reflects the number
of equity instruments granted that are expected to ultimately vest,
as based on expected future attrition rates. A decrease of 10% in
the total unvested options outstanding at year end would decrease
the profit or loss charge for the last quarter of the year by £0.3
million, and therefore this is not considered to be a material
estimate.
2.3.2 Saunderson House
Estimation uncertainty
In 2021, the group acquired the
entire share capital of Saunderson House Limited as part of a
business combination. The equity-settled 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 from employment. The group's estimate of the amounts
ultimately payable will be expensed over the deferral
period.
The Saunderson House management
incentive scheme is subject to the achievement of certain
operational and performance targets at 31 December 2024. A profit
or loss charge has been recognised in equity for the expected
consideration payable. Under the terms of the agreements, the award
is calculated as 0.1% of funds under management ('FUM') at the test
date of 31 December 2024. The FUM award ranges from a payment of
£nil to a maximum possible payment in shares of £7.5 million; £0.5
million of this pool has already been granted to a group of
employees. In addition to this are integration and discretionary
awards, capped at £1.0 million and £0.5 million,
respectively.
The minimum threshold for pay-out of
this award was previously £5.0 billion in FUM; this was reduced to
£3.5 billion during the year, following review by the Group
Executive Committee, to rebase the scheme to reflect current market
conditions. Management's best estimate of the FUM award at the year
end was £4.8 million, and is based on expected funds under
management at 31 December 2024. The discretionary and integration
awards are expected to be paid in full.
The maximum FUM award of £7.5 million would
result in an additional charge to profit or loss in 2023 of £1.0
million. A payment of £nil would result in a reversal of the
accumulated profit or loss charge since commencement of the award
of £3.7 million in 2023.
3 SEGMENTAL
INFORMATION
IFRS 8 requires operating segments
to be identified on the basis of internal reports about components
of the group that are regularly reviewed by the chief operating
decision-maker, which takes the form of the Group Executive
Committee, in order to allocate resources to the segment and to
assess its performance.
For management purposes, the group is organised
into two operating segments: Wealth Management and Asset
Management. 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. Wealth Management
Segmental Assets relate to assets held within the Investment
Management, Banking and Trust Business Segments. Asset Management
Segmental Assets are assets held solely within the Asset Management
Business Segment. Unallocated Segmental Assets relate to the Net
Defined Benefit Asset held on the balance sheet.
IW&I has been identified as a separate
operating segment of the group. The results of the segment have
been presented in aggregate with the group's Wealth Management
segment, on the basis that their long-term characteristics are
expected to align following the initial integration period of the
business.
31 December 2023
|
Wealth Management
£m
|
Asset Management
£m
|
Indirect
expenses
£m
|
Total
£m
|
Net investment management fee income
|
350.1
|
64.7
|
-
|
414.8
|
Net commission income
|
53.6
|
-
|
-
|
53.6
|
Net interest income
|
49.9
|
1.8
|
-
|
51.7
|
Fees from advisory services and other
income
|
50.3
|
0.7
|
-
|
51.0
|
Operating income
|
503.9
|
67.2
|
-
|
571.1
|
|
|
|
|
|
Staff costs − fixed
|
(147.2)
|
(7.1)
|
(51.8)
|
(206.1)
|
Staff costs − variable
|
(78.2)
|
(13.4)
|
(15.9)
|
(107.5)
|
Total staff costs
|
(225.4)
|
(20.5)
|
(67.7)
|
(313.6)
|
Other direct expenses
|
(53.7)
|
(12.2)
|
(64.5)
|
(130.4)
|
Allocation of indirect expenses
|
(119.4)
|
(12.8)
|
132.2
|
-
|
Underlying operating
expenses
|
(398.5)
|
(45.5)
|
-
|
(444.0)
|
Underlying profit before
tax
|
105.4
|
21.7
|
-
|
127.1
|
Charges in relation to client relationships and
goodwill (note 8)
|
(25.2)
|
-
|
-
|
(25.2)
|
Acquisition-related and integration costs (note
5)
|
(11.0)
|
-
|
(33.3)
|
(44.3)
|
Segment profit before tax
|
69.2
|
21.7
|
(33.3)
|
57.6
|
Profit before tax attributable to
equity holders of the company
|
|
|
|
57.6
|
Taxation (note 6)
|
|
|
|
(20.1)
|
Profit for the year attributable to
equity holders of the company
|
|
|
|
37.5
|
|
|
|
|
|
|
Wealth Management
£m
|
Asset Management
£m
|
Unallocated Assets £m
|
Total
£m
|
Segment total assets
|
4,099.6
|
117.8
|
7.0
|
4,224.4
|
Investec Wealth & Investment has been
identified as a separate operating segment of the group. The
results of the segment have been presented in aggregate with the
group's Wealth Management segment, on the basis that their
long-term characteristics are expected to align following the
initial integration period of the business.
31 December 2022
|
Wealth Management
£m
|
Asset Management
£m
|
Indirect
expenses
£m
|
Total
£m
|
Net investment management fee income
|
274.8
|
62.2
|
−
|
337.0
|
Net commission income
|
48.9
|
−
|
−
|
48.9
|
Net interest income
|
17.8
|
0.5
|
−
|
18.3
|
Fees from advisory services and other
income
|
51.4
|
0.3
|
−
|
51.7
|
Operating income
|
392.9
|
63.0
|
−
|
455.9
|
|
|
|
|
|
Staff costs - fixed
|
(109.5)
|
(7.0)
|
(42.0)
|
(158.5)
|
Staff costs - variable
|
(66.9)
|
(11.2)
|
(9.0)
|
(87.1)
|
Total staff costs
|
(176.4)
|
(18.2)
|
(51.0)
|
(245.6)
|
Other direct expenses
|
(41.5)
|
(9.6)
|
(62.2)
|
(113.3)
|
Allocation of indirect expenses
|
(104.4)
|
(8.8)
|
113.2
|
-
|
Underlying operating
expenses
|
(322.3)
|
(36.6)
|
−
|
(358.9)
|
Underlying profit before
tax
|
70.6
|
26.4
|
−
|
97.0
|
Charges in relation to client relationships and
goodwill (note 8)
|
(19.5)
|
−
|
−
|
(19.5)
|
Acquisition-related and integration costs (note
5)
|
(10.0)
|
−
|
(3.4)
|
(13.4)
|
Segment profit before tax
|
41.1
|
26.4
|
(3.4)
|
64.1
|
Profit before tax attributable to
equity holders of the company
|
−
|
−
|
−
|
64.1
|
Taxation (note 6)
|
−
|
−
|
−
|
(15.1)
|
Profit for the year attributable to
equity holders of the company
|
−
|
−
|
−
|
49.0
|
|
|
|
|
|
|
Wealth Management
£m
|
Asset Management
£m
|
Unallocated Assets £m
|
Total
£m
|
Segment total assets
|
3,323.4
|
114.4
|
9.4
|
3,447.2
|
The following table reconciles underlying
operating expenses to operating expenses:
|
2023
£m
|
2022
£m
|
Underlying operating expenses
|
444.0
|
358.8
|
Charges in relation to client relationships and
goodwill (note 8)
|
25.2
|
19.5
|
Acquisition-related and integration costs (note
5)
|
44.3
|
13.5
|
Operating expenses
|
513.5
|
391.8
|
GEOGRAPHIC ANALYSIS
The following table presents operating income
analysed by the geographical location of the group entity providing
the service:
|
2023
£m
|
2022
£m
|
United Kingdom
|
553.4
|
442.0
|
Channel Islands
|
17.7
|
13.8
|
Rest of the World
|
-
|
0.1
|
Operating income
|
571.1
|
455.9
|
The following is an analysis of the carrying
amount of non-current assets analysed by the geographical location
of the assets:
|
2023
£m
|
2022
£m
|
United Kingdom
|
1,103.0
|
404.6
|
Channel Islands
|
2.9
|
3.4
|
Non-current assets
|
1,105.9
|
408.0
|
TIMING OF REVENUE RECOGNITION
The following table presents operating income
analysed by the timing of revenue recognition of the operating
segment providing the service:
|
|
2023
|
|
2022
|
|
Wealth Management
£m
|
Asset Management
£m
|
Wealth Management
£m
|
Asset Management
£m
|
Products and services transferred at a point in
time
|
44.4
|
-
|
41.2
|
-
|
Products and services transferred over
time
|
459.5
|
67.2
|
351.7
|
63.0
|
Operating income
|
503.9
|
67.2
|
392.9
|
63.0
|
MAJOR CLIENTS
The group is not reliant on any one client or
group of connected clients for generation of revenues.
4 BUSINESS
COMBINATIONS
INVESTEC WEALTH & INVESTMENT
On 21 September 2023, the group
completed its acquisition of 100% of the ordinary share capital of
Investec Wealth & Investment Limited (IW&I) from Investec
Bank Plc. Investec Wealth & Investment Limited owns 100% of the
ordinary share capital in Investec Wealth & Investment (Channel
Islands) Limited and Murray Asset Management UK Limited. Results
were consolidated with effect from 30 September 2023, as the effect
of transactions and activities in the period from 21 September 2023
to 30 September 2023 on the consolidated financial statements was
not material.
IW&I specialises in the
provision of wealth and investment management services in the UK
and Channel Islands, catering to private clients, clients of
professional advisers and charities. The group expects to capture
significant scale benefits from the combination, due to the
consolidation of technology platforms and operations, enablement
functions, third party services and property, in addition to
utilising the benefits of the group's banking licence once IW&I
clients are migrated.
Consideration transferred
Total consideration transferred to
Investec Bank Plc comprised a share issue of 27,056,463 ordinary
shares and 17,481,868 convertible non-voting ordinary shares. Based
on Rathbones' issued share capital at completion, the total shares
transferred to Investec Bank Plc amounted to an economic interest
in Rathbones Group Plc of 41.25%, but in accordance with the terms
of the acquisition 29.9% of the total voting rights in
Rathbones.
The fair value of the ordinary
shares issued was determined with reference to the share price of
Rathbones Group Plc at close of business on 20 September 2023, and
was assessed to be £17.22 per share. The fair value of the
non-voting shares of £16.36 was calculated by applying a 5.0%
discount to this share price, to reflect the fact the shares are
non-marketable and non-transferable. This produced a total value
for consideration paid of £751.9 million.
As the share issue was in pursuance
of the arrangement to acquire 100% of the shares in IW&I, the
premium on the share issue, being £749.8 million, qualifies for
merger relief. This has been recognised within the merger
reserve.
The regulatory announcement for the
acquisition on 4 April 2023 used a share price of £18.84 to derive
an implied equity value of £839 million. However, the group's share
price has reduced since the announcement, resulting in a lower
value for the shares issued at the completion date of the
acquisition (21 September 2023).
The convertible non-voting ordinary
shares rank pari-passu
with the ordinary shares, except that they do not carry voting
rights. Investec Bank Plc may convert the convertible non-voting
ordinary shares into ordinary shares on a 1-for-1 basis, provided
that at no time shall Investec group hold more than 29.9% of the
Rathbones group's enlarged voting rights. Both the ordinary shares
and convertible non-voting ordinary shares qualify as common equity
tier 1 capital of the Rathbones group.
Deferred Incentive awards
An ancillary matters agreement,
which was signed at the time of the combination announcement in
April, includes detail of deferred awards and contingent payments
to be made to a group of Investec W&I employees under the
Rathbones Integration Incentive Scheme. These payments require the
recipients of the awards to remain in employment with the group for
the duration of the respective deferral periods, and therefore
these amounts have not been included in the acquisition accounting.
The cost for these equity-settled awards is being charged to profit
or loss and spread over each vesting period. Details of the share
awards are as follows:
|
Gross
amount
£m
|
Grant date
|
Grant date
fair value
£m
|
Vesting date
|
Rathbone Integration Incentive
Scheme
|
39.0
|
6 October 2023
|
31.2
|
22 September 2027
|
The Rathbone Integration Incentive
Scheme awards of £39.0 million is payable in shares, and will vest
in three equal tranches annually on the second, third and fourth
anniversary of the completion date, subject to conditions relating
to the client migration process. Vesting of the final one-third of
the shares on the fourth anniversary of the date of grant will be
subject to engagement in the client migration process. The gross
amount of £39.0 million represents management's best estimate as to
the extent to which these conditions will be achieved. These awards
are being accounted for as an equity-settled share-based payment
under IFRS 2. The grant date fair value was determined with
reference to the share price at grant less the value of expected
dividends over the period to vesting, as no dividend shares have
been granted on this award. There are no market-related performance
conditions attached to this award.
The group recognised a charge of £3.0 million
in relation to this scheme in 2023 and all share options are
outstanding at the end of the period.
A Business Enablement award of £6.9
million was also granted during the year and is payable
predominantly in cash to different groups of employees in key
business enablement functions. For those recipients who are
classified by the group as material risk-takers in accordance with
remuneration regulations, 50% of their award will be payable in
shares. Approximately 30% of the total award will vest on 31 March
2024, and the remainder will vest on 31 March 2025, subject to the
recipients remaining employed until this date and other conditions
being met. The group treats the cash element of the award as an
employee benefit under IAS 19, with a corresponding liability
recognised for the services received at the balance sheet date, and
the share element of the awards as equity-settled share-based
payments under IFRS 2.
The group recognised a charge of £1.8 million
in relation to this scheme in 2023.
These costs are being reported as staff costs
within acquisition-related costs (see note 5).
Identifiable assets acquired and liabilities
assumed
The group uses the acquisition method to
account for business combinations. The identifiable net assets of
the IW&I group have been remeasured at fair value at the
acquisition date as follows:
21 September 2023
|
Carrying
amounts
£m
|
Fair value
£m
|
Recognised amounts
£m
|
Settlement assets
|
233.3
|
-
|
233.3
|
Property, plant and equipment
|
5.0
|
-
|
5.0
|
Trade and other receivables
|
45.5
|
-
|
45.5
|
Loans and advances to customers
|
0.7
|
-
|
0.7
|
Software assets (note 8)
|
3.7
|
-
|
3.7
|
Client relationship intangible assets (note
8)
|
20.0
|
330.3
|
350.3
|
Cash and cash equivalents
|
172.6
|
-
|
172.6
|
Right-of-use assets
|
31.8
|
1.1
|
32.9
|
Settlement liabilities
|
(225.7)
|
-
|
(225.7)
|
Trade and other payables
|
(30.0)
|
-
|
(30.0)
|
Accruals and deferred income
|
(51.7)
|
-
|
(51.7)
|
Deferred tax liabilities
|
4.6
|
(87.6)
|
(83.0)
|
Lease liabilities
|
(39.8)
|
8.7
|
(31.1)
|
Provisions (note 9)
|
(10.7)
|
-
|
(10.7)
|
Total net assets acquired
|
159.3
|
252.5
|
411.8
|
The fair value of £350.3 million for
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. These assets
were valued separately by client group, being direct private
clients, corporates, intermediaries and charities, to reflect their
differing revenue margins and attrition rates. The average weighted
life of the four groups has been calculated at 14 years.
The deferred tax liability of £87.6
million arising on recognition of the client relationship
intangible assets is equal to its carrying value at the applicable
tax rate and affects the amount of goodwill that is recognised as
part of the business combination.
No brand has been acquired as part
of the transaction.
The group measured the acquired
lease liabilities using the present value of the remaining lease
payments as if the leases were new leases at the acquisition date.
The corresponding right-of-use assets were measured at an amount
equal to the lease liabilities, adjusted to reflect favourable or
unfavourable terms of the leases when compared to market terms.
However, no off-market terms that required an additional adjustment
to the right-of-use assets were identified. Assumptions of when the
group expects to terminate these leases were reflected in the
valuation.
A contingent liability assumed in a
business combination is recognised at the acquisition date even if
an outflow of economic benefits is not probable, provided it is a
present obligation arising from past events and its fair value can
be measured reliably. No contingent liabilities have been
recognised at acquisition. Circumstances which potentially exposed
certain clients of IW&I to detriment arose in the ordinary
course of business prior to the date of acquisition. An estimate of
the potential outflow has been calculated at £1.1 million. A
liability was not recognised at the year end, however all economic
outflows arising from this were indemnified by Investec Group at
acquisition. The asset relating to the amount receivable under the
indemnity would be measured on the same basis as the related
liability and there would therefore be no impact on acquired
goodwill.
Included within other creditors is
£8.3 million payable by Investec W&I to Investec Bank Plc in
relation to amounts recharged for the provision of payroll and
other services.
Settlement balances and
other receivables are
current assets that are deemed to be collectible with no allowance
for doubtful debts required. Trade and settlement payables are
generated through the normal course of business and are classified
as current liabilities expected to be settled through payments in
the short-term. The carrying value of these was therefore
determined to approximate fair value.
The fair value of all other net assets acquired
were deemed to be equal to their carrying value.
Goodwill
Goodwill of £340.1 million arising
on the excess of consideration over the fair value of the net
assets acquired represents the future economic benefit expected
from an acquired workforce, expected future growth and future
client relationships, as well as operational and revenue synergies.
Where goodwill arises on consolidation within the group it is not
deductible for tax purposes, and nor is any impairment of goodwill
in future periods.
|
£m
|
Total consideration
|
751.9
|
Fair value of identifiable net assets acquired
(see above)
|
411.8
|
Goodwill
|
340.1
|
If the group had made the acquisition on 1
January 2023, IW&I would have contributed £358.4 million to
group operating income and £85.8 million to profit before tax, as
based on the company's results for the year to 31 December
2023.
SAUNDERSON HOUSE
On 20 October 2021, the group acquired 100% of
the ordinary share capital of the Saunderson House
group.
OTHER DEFERRED PAYMENTS
In addition to a total cash
consideration of £98.9 million paid in prior years, 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 is therefore charged to the
income statement over the respective vesting periods. Details of
each of these elements is as follows:
|
Gross
amount
£m
|
Grant date
|
Grant date
fair value
£m
|
Vesting date
|
Initial share consideration
|
5.2
|
20 October 2021
|
5.5
|
20 October 2024
|
Deferred share consideration
|
4.1
|
20 October 2021
|
4.1
|
20 October 2022
|
Management incentive scheme
|
5.5
|
20 December 2021
|
4.8
|
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 £5.2 million was issued on the date of
acquisition, however it 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 £5.2 million on the issuance of these shares has
been recognised within the merger reserve.
- Deferred
share consideration of £4.1 million was settled in shares during
the prior year on the first anniversary of the acquisition date,
and was 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 £nil to a cap of £7.5 million (see
note 2.3).
These costs are being reported as staff costs
within acquisition-related costs (see note 5).
5 ACQUISITION-RELATED
AND INTEGRATION COSTS
During 2023 £44.3 million of
acquisition-related and integration costs were incurred (2022:
£13.5 million).
|
2023
£m
|
2022
£m
|
Acquisition of Speirs & Jeffrey
|
1.0
|
3.5
|
Acquisition of Investec Wealth &
Investment
|
36.5
|
−
|
Acquisition of Saunderson House
|
6.8
|
10.0
|
Acquisition-related and Integration
costs
|
44.3
|
13.5
|
Total acquisition-related staff costs worth
£11.0 million (2022: 10.0 million) during the year relate to
equity-settled share-based payments.
COSTS RELATING TO THE ACQUISITION OF INVESTEC WEALTH
& INVESTMENT
The group has incurred the following costs in
relation to the acquisition of IW&I, summarised by the
following classification within the income statement:
|
2023
£m
|
2022
£m
|
Acquisition costs:
|
|
|
Staff costs
|
6.2
|
−
|
Legal and Advisory Fees
|
21.3
|
−
|
Integration Costs
|
9.0
|
−
|
Acquisition-related and
Integration costs
|
36.5
|
−
|
Non-staff acquisition costs of £21.3 million
(2022: £nil) and integration costs of £9.0 million (2022: £nil)
have not been allocated to a specific operating segment (note
3).
The Legal and advisory fees of £21.3 million
are one-off costs incurred on executing the transaction (2022:
£nil).
The group incurred costs of £2.2 million in the
year that were deemed to be incremental to the share issue that
occurred on 21 September 2023. These costs have been recognised as
a deduction to the merger reserve.
From 30 September 2023 to 31 December 2023,
Investec W&I contributed £87.9 million to the group's total
operating income, and £15.0 million to the group's profit before
tax. This excludes integration costs of the acquired business since
acquisition, and amortisation of the acquired client relationship
intangible assets.
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:
|
2023
£m
|
2022
£m
|
Acquisition costs:
|
|
|
Staff costs
|
1.0
|
3.5
|
Acquisition-related and Integration
costs
|
1.0
|
3.5
|
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:
|
2023
£m
|
2022
£m
|
Acquisition costs:
|
|
|
Staff costs
|
3.9
|
6.5
|
Legal and advisory fees
|
0.8
|
-
|
Integration costs
|
2.1
|
3.4
|
Acquisition-related and Integration costs
|
6.8
|
9.9
|
Non-staff acquisition costs of £0.8 million
(2022: £nil) and Integration costs of £2.1 million (2022: £3.4
million) have not been allocated to a specific operating segment
(note 3).
Staff costs of £3.9 million (2022:
6.5 million) are related to deferred remuneration.
6 INCOME TAX
EXPENSE
|
2023
£m
|
2022
£m
|
Current tax:
|
|
|
- charge
for the year
|
22.8
|
16.5
|
-
adjustments in respect of prior years
|
1.1
|
0.3
|
Deferred tax:
|
|
-
|
- credit
for the year
|
(1.9)
|
(1.3)
|
-
adjustments in respect of prior years
|
(1.9)
|
(0.4)
|
|
20.1
|
15.1
|
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
(2022: higher) than the standard rate of corporation tax in the UK
of 23.5% (2022: 19.0%). 23.5% is a composite tax rate, since the UK
corporation tax rate was 19.0% until the 31st March 2023 and 25.0%
for the remainder of the financial year.
The differences are explained below:
|
2023
£m
|
2022
£m
|
Tax on profit from ordinary activities at the
standard rate of 23.5% (2022: 19.0%)
|
13.6
|
12.2
|
Effects of:
|
|
|
-
disallowable expenses
|
8.0
|
0.9
|
-
share-based payments
|
(0.2)
|
−
|
- tax on
overseas earnings
|
(0.7)
|
(0.2)
|
-
adjustments in respect of prior year
|
(0.8)
|
(0.1)
|
- deferred
payments to previous owners of acquired companies (note
5)
|
0.3
|
1.2
|
- change in
corporation tax rate on deferred tax
|
(0.1)
|
1.1
|
|
20.1
|
15.1
|
£0.4 million of current tax on share-based
payments was charged to equity during the year (2022: £0.1
million).
On 11 July 2023, the United Kingdom
government, where the parent company is incorporated, enacted the
Pillar II income taxes legislation effective from 1 January 2024.
Under the legislation, the parent company will be required to pay,
in the United Kingdom, top-up tax on profits of its subsidiaries
located in territories outside the United Kingdom that are taxed at
an effective tax rate of less than 15%. The jurisdiction in which
an exposure to this tax may exist is the Channel Islands. The group
is continuing to assess the impact of the Pillar II income taxes
legislation on its future financial performance following the
Investec acquisition. Based on our initial evaluations, we do not
expect there to be a material additional Pillar II exposure for the
group.
7 DIVIDENDS
|
2023
£m
|
2022
£m
|
Amounts recognised as distributions to equity
holders in the year:
|
|
|
- final
dividend for the year ended 31 December 2022 of 56.0p (2021: 54.0p)
per share
|
33.4
|
32.0
|
- interim
dividend for the year ended 31 December 2023 of 29.0p (2022: 28.0p)
per share
- second
interim dividend for the year ended 31 December 2023 of 34.0p
(2022:0p) per share
|
17.5
20.5
|
16.6
−
|
Dividends paid in the year of 119.0p (2022:
82.0p) per share
|
71.4
|
48.6
|
Proposed final dividend for the year ended 31
December 2023 of 34.0p (2022: 56.0p) per share
|
24.9
|
32.8
|
An interim dividend of 29.0p per share was paid
on 25 August 2023 to shareholders on the register at the close of
business on 4 August 2023 (2022: 28.0p).
A second interim dividend of 34.0 per share was
paid on 11 October 2023 to shareholders on the register at the
close of business on 20 September 2023 (2022: nil).
A final dividend declared of 24.0p
per share (2022: 56.0p) is payable on 14 May 2024 to shareholders
on the register at the close of business on 19 April 2024. The
final dividend is subject to approval by shareholders at the Annual
General Meeting on 9 May 2024 and has not been included as a
liability in these financial statements.
8 INTANGIBLE ASSETS
Goodwill of £340.1 million was
recognised as part of the acquisition of IW&I. (see note 4).
This has been provisionally allocated between the IW&I
cash-generating unit ('CGU') and the Wealth Management group of
CGUs in the year, before being reviewed for impairment. This
allocation will be reviewed in 2024.
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.
Client relationships of £350.3 million were
recognised as part of the acquisition of IW&I (see note 4). An
average useful life of 14 years was assigned to these
relationships, based on observed historic attrition
rates.
|
2023
£m
|
2022
£m
|
Goodwill
|
507.8
|
167.7
|
Other intangible assets
|
517.5
|
188.5
|
|
1,025.3
|
356.2
|
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:
|
Wealth
Management
£m
|
Investec W&I
£m
|
Asset Management
£m
|
Total
£m
|
Cost
|
|
|
|
|
At 1 January 2022
|
167.7
|
-
|
1.9
|
169.6
|
Acquired through business combinations (note
4)
|
-
|
-
|
-
|
-
|
At 1 January 2023
|
167.7
|
-
|
1.9
|
169.6
|
Acquired through business combinations (note
4)
|
82.1
|
258.0
|
-
|
340.1
|
At 31 December 2023
|
249.8
|
258.0
|
1.9
|
509.7
|
Impairment
|
|
|
|
|
At 1 January 2022
|
-
|
-
|
1.9
|
1.9
|
Charge for the year
|
-
|
-
|
-
|
-
|
At 31 December 2023
|
-
|
-
|
1.9
|
1.9
|
Carrying amount at 31 December
2023
|
249.8
|
258.0
|
-
|
507.8
|
Carrying amount at 31 December 2022
|
167.7
|
-
|
-
|
167.7
|
Carrying amount at 1 January 2022
|
167.7
|
-
|
-
|
167.7
|
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, which cover the three year period from the end of the
current financial year. This is extrapolated for five years based
on recent historic annual revenue and cost growth for each group of
CGUs (see table below), adjusted for significant historic
fluctuations in industry growth rates where relevant, as well as
the group's expectation of future growth.
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 Wealth Management group of CGUs or to the Investec
CGU during the period. The group has considered any reasonably
foreseeable changes to the assumptions used in the value-in-use
calculation for the Wealth 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.
|
IW&I
|
Wealth management
|
At 31 December
|
2023
|
2023
|
2022
|
Discount rate
|
15.0%
|
14.1%
|
14.1%
|
Average annual revenue growth rate
|
4.0%
|
1.1%
|
4.3%
|
Average annual profit margin
|
26.8%
|
14.3%
|
25.6%
|
Terminal growth rate
|
1.5%
|
1.5%
|
1.0%
|
The increase in the terminal growth
rate to 1.5% in 2023 is to align this with current expectations of
long-term UK economic growth. The fall in the average annual
revenue growth rate since the prior year primarily reflects the
group's latest forecasts for the Saunderson House client migration
by operating segment, and lower levels of forecast commission
income.
OTHER INTANGIBLE ASSETS
|
Client
relationships
£m
|
Software
development
costs
£m
|
Purchased
software
£m
|
Total
£m
|
Cost
|
|
|
|
|
At 1 January 2022
|
302.6
|
11.7
|
53.1
|
367.4
|
Internally developed in the year
|
−
|
1.8
|
−
|
1.8
|
Purchased in the year
|
1.0
|
−
|
1.8
|
2.8
|
Disposals
|
(2.7)
|
−
|
−
|
(2.7)
|
At 1 January 2023
|
300.9
|
13.5
|
54.9
|
369.3
|
Internally developed in the year
|
-
|
1.0
|
-
|
1.0
|
Acquired through business combinations (note
4)
|
350.3
|
1.7
|
2.0
|
354.0
|
Purchased in the year
|
2.6
|
-
|
2.2
|
4.8
|
Disposals
|
(2.8)
|
-
|
-
|
(2.8)
|
At 31 December 2023
|
651.0
|
16.2
|
59.1
|
726.3
|
Amortisation and
impairment
|
|
|
|
|
At 1 January 2022
|
109.0
|
8.5
|
41.3
|
158.8
|
Amortisation charge
|
19.5
|
1.5
|
3.6
|
24.6
|
Disposals
|
(2.6)
|
−
|
−
|
(2.6)
|
At 1 January 2023
|
125.9
|
10.0
|
44.9
|
180.8
|
Amortisation charge
|
25.2
|
1.8
|
3.8
|
30.8
|
Disposals
|
(2.8)
|
-
|
-
|
(2.8)
|
At 31 December 2023
|
148.3
|
11.8
|
48.7
|
208.8
|
Carrying amount at 31 December
2023
|
502.7
|
4.4
|
10.4
|
517.5
|
Carrying amount at 31 December 2022
|
175.0
|
3.5
|
10.0
|
188.5
|
Carrying amount at 1 January 2022
|
193.6
|
3.1
|
11.8
|
208.5
|
Purchases of client relationships of £2.6
million (2022: £1 million) 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 £25.2
million (2022: £19.5 million).
Purchased software with a cost of £36.4 million
(2022: £35.2 million) has been fully amortised but is still in
use.
9 PROVISIONS
|
Deferred,
variable costs
to acquire client
relationship
intangibles
£m
|
Deferred
consideration
in business
combinations
£m
|
Legal and
compensation
£m
|
Property-
related
£m
|
Onerous Contract £m
|
Total
£m
|
At 1 January 2022
|
8.6
|
-
|
2.1
|
4.6
|
-
|
15.3
|
Charged to profit or loss
|
-
|
-
|
0.8
|
1.2
|
-
|
2.0
|
Unused amount credited to
profit or loss
|
-
|
-
|
-
|
-
|
-
|
-
|
Net charge to profit or loss
|
-
|
-
|
0.8
|
1.2
|
-
|
2.0
|
Other movements
|
1.0
|
-
|
-
|
-
|
-
|
1.0
|
Utilised/paid during the year
|
(5.2)
|
-
|
(0.2)
|
-
|
-
|
(5.4)
|
At 1 January 2023
|
4.4
|
-
|
2.7
|
5.8
|
-
|
12.9
|
Charged to profit or loss
|
-
|
-
|
9.1
|
0.2
|
1.2
|
10.5
|
Unused amount credited to profit or
loss
|
-
|
(0.1)
|
(1.1)
|
-
|
-
|
(1.2)
|
Net charge to profit or loss
|
-
|
(0.1)
|
8.0
|
0.2
|
1.2
|
9.3
|
Acquisitions through business combinations
(Note 4)
|
-
|
3.4
|
1.9
|
5.4
|
-
|
10.7
|
Other movements
|
2.6
|
-
|
-
|
-
|
-
|
2.6
|
Utilised/paid during the
year
|
(2.3)
|
-
|
(7.7)
|
-
|
-
|
(10.0)
|
At 31 December 2023
|
4.7
|
3.3
|
4.9
|
11.4
|
1.2
|
25.5
|
Payable within 1 year
|
4.2
|
0.3
|
4.2
|
3.8
|
1.2
|
13.7
|
Payable after 1 year
|
0.5
|
3.0
|
0.7
|
7.6
|
-
|
11.8
|
|
4.7
|
3.3
|
4.9
|
11.4
|
1.2
|
25.5
|
DEFERRED, VARIABLE COSTS TO ACQUIRE CLIENT
RELATIONSHIP INTANGIBLES
Other movements in provisions relate to
deferred payments to investment managers and third parties for the
introduction of client relationships, which have been previously
capitalised.
LEGAL AND COMPENSATION
During the ordinary course of
business the group may, from time to time, be subject to
complaints, as well as threatened and actual legal proceedings
(which may include lawsuits brought on behalf of clients or other
third parties) both in the UK and overseas. Any such material
matters are periodically reassessed, with the assistance of
external professional advisers where appropriate, to determine the
likelihood of the group incurring a liability. In those instances
where it is concluded that it is more likely than not that a
payment will be made, a provision is established to the group's
best estimate of the amount required to settle the obligation at
the relevant balance sheet date. The group's best estimate is based
on legal advice and management's expectation of the most likely
settlement outcome, which in some cases is calculated by external
professional advisers. The timing of settlement of provisions for
client compensation or litigation is dependent, in part, on the
duration of negotiations with third parties.
DEFERRED CONSIDERATION IN BUSINESS
COMBINATIONS
Deferred Consideration in Business
Combinations relates to Investec Wealth & Investment's deferred
consideration provision on their acquisitions of Murray Asset
Management and The Share Centre.
PROPERTY-RELATED
Property-related provisions of £11.4
million relate to dilapidation provisions expected to arise on
leasehold premises held by the group (2022: £5.8 million).
Dilapidation provisions are calculated using a discounted cash flow
model.
In 2023 the group did not utilise
the property provision (2022: £nil). The impact of discounting led
to an additional charge of £0.2 million (2022: additional charge of
£1.2 million) being recognised during the year.
Amounts payable after one year
Property-related provisions of £7.6
million are expected to be settled within 11 years of the balance
sheet date, which corresponds to the longest lease for which a
dilapidations provision is being held. Remaining provisions payable
after one year are expected to be settled within 13 years of the
balance sheet date.
ONEROUS CONTRACT
During the year, the group
terminated a support agreement with a third-party service provider.
The onerous element of the contract represented a cost of £1.2
million to the group, which was recognised as a provision at the
year end.
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 were £21.0 million (2022: £15.2 million). The group also
operates a defined contribution scheme for overseas employees, for
which the total contributions were £0.1 million (2022: £0.1
million).
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 Rathbones 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.
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 2022.
In June 2023, the High Court handed
down a judgement that casts doubt on the validity of previous
pension scheme amendments made by schemes which were previously
contracted out. This was in the Court Case of Virgin Media Limited
Vs NTL Pension Trustees II Limited, where it was determined that a
Deed of Amendment was not valid because the accompanying written
actuarial confirmation under Section 37 of the Pensions Act 1995
was not present. An appeal to the ruling is due to be heard this
year. In the meantime, there remains a risk that the benefits of
schemes affected by the ruling turn out to be incorrect. The
Rathbone 1987 Scheme was never contracted out and so is not
impacted by this ruling, however there could be a potential impact
on the Lawrence Keen Scheme if any amendments are found to be
invalid. The impact is not known at this time but is not expected
to be material for the group based on information currently
available to the Actuary, we will continue to monitor.
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 Scheme
|
Rathbone 1987 Scheme
|
|
2023
% (unless stated)
|
2022
%
(unless stated)
|
2023
% (unless stated)
|
2022
%
(unless stated)
|
Rate of increase of salaries
|
n/a
|
n/a
|
n/a
|
n/a
|
Rate of increase of pensions in
payment
|
3.70
|
3.60
|
2.90
|
3.20
|
Rate of increase of deferred
pensions
|
3.10
|
3.20
|
3.10
|
3.20
|
Discount rate
|
4.40
|
4.70
|
4.40
|
4.70
|
Inflation*
|
3.10
|
3.20
|
3.10
|
3.20
|
Percentage of members transferring out of the
schemes per annum
|
2.00
|
2.00
|
2.00
|
2.00
|
Average age of members at date of transferring
out (years)
|
52.50
|
52.50
|
52.50
|
52.50
|
* 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 decreased by
0.3% to reflect a decrease in the yields available on AA-rated
Corporate Bonds;
2. the assumed rate of future inflation
has decreased by 0.1% 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, where linked to inflation, have decreased
by 0.3% for the Rathbone 1987 Scheme and, for the Laurence Keen
Scheme increased by 0.1%
Over the year the mortality assumptions have
been updated. The CMI model used to project future improvements in
mortality has been updated from the 2021 version to the 2022
version.
2% of members not yet in receipt of their
pension are assumed to transfer out of the scheme each year (2022:
2%).
The proportion of members assumed to be married
at retirement age is 80% (2022: 80%)
The assumed duration of the liabilities for the
Laurence Keen Scheme is 12 years (2022: 13 years) and the assumed
duration for the Rathbone 1987 Scheme is 16 years (2022: 16
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 with improvements in line with the CMI 2022 tables with
a long-term rate of improvement of 1.5% p.a. The assumed life
expectancies on retirement were:
|
|
2023
|
2022
|
|
|
Males
|
Females
|
Males
|
Females
|
Retiring today:
|
aged 60
|
27.6
|
29.5
|
28.2
|
29.9
|
|
aged 65
|
22.8
|
24.5
|
23.3
|
24.9
|
Retiring in 20 years:
|
aged 60
|
29.4
|
31.2
|
29.9
|
31.6
|
|
aged 65
|
24.3
|
26.1
|
24.9
|
26.6
|
The amount included in the balance sheet
arising from the group's assets in respect of the schemes is as
follows:
|
|
2023
|
|
|
2022
|
|
|
Laurence Keen
Scheme
£m
|
Rathbone
1987
Scheme
£m
|
Total
£m
|
Laurence Keen
Scheme
£m
|
Rathbone
1987
Scheme
£m
|
Total
£m
|
Present value of defined benefit
obligations
|
(7.3)
|
(93.8)
|
(101.1)
|
(7.2)
|
(87.5)
|
(94.7)
|
Fair value of scheme assets
|
8.2
|
99.9
|
108.1
|
8.1
|
96.0
|
104.1
|
Net defined benefit
asset/(liability)
|
0.9
|
6.1
|
7.0
|
0.9
|
8.5
|
9.4
|
The amounts recognised in profit or loss,
within operating expenses, are as follows:
|
|
2023
|
|
|
2022
|
|
|
Laurence Keen
Scheme
£m
|
Rathbone
1987
Scheme
£m
|
Total
£m
|
Laurence Keen
Scheme
£m
|
Rathbone
1987
Scheme
£m
|
Total
£m
|
Interest expense
|
(0.1)
|
(0.4)
|
(0.5)
|
(0.1)
|
(0.2)
|
(0.3)
|
|
(0.1)
|
(0.4)
|
(0.5)
|
(0.1)
|
(0.2)
|
(0.3)
|
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 £0.4 million (2022: £4.4
million fall) for the Laurence Keen Scheme and a rise in value of
£3.6 million (2022: £58.8 million fall) for the Rathbone 1987
Scheme.
Movements in the present value of defined
benefit obligations were as follows:
|
|
2023
|
|
|
2022
|
|
|
Laurence Keen
Scheme
£m
|
Rathbone
1987
Scheme
£m
|
Total
£m
|
Laurence Keen
Scheme
£m
|
Rathbone
1987
Scheme
£m
|
Total
£m
|
At 1 January
|
7.2
|
87.5
|
94.7
|
11.2
|
144.4
|
155.6
|
Interest cost
|
0.3
|
4.1
|
4.4
|
0.2
|
2.7
|
2.9
|
Actuarial experience gains
|
0.1
|
3.4
|
3.5
|
0.1
|
3.6
|
3.7
|
Actuarial gains/(losses) arising
from:
|
|
|
|
|
|
|
-
demographic assumptions
|
(0.1)
|
(1.5)
|
(1.6)
|
-
|
0.1
|
0.1
|
- financial
assumptions
|
0.2
|
2.8
|
3.0
|
(3.6)
|
(59.5)
|
(63.1)
|
Past service cost
|
-
|
-
|
-
|
-
|
-
|
-
|
Benefits paid
|
(0.4)
|
(2.5)
|
(2.9)
|
(0.7)
|
(3.8)
|
(4.5)
|
At 31 December
|
7.3
|
93.8
|
101.1
|
7.2
|
87.5
|
94.7
|
Movements in the fair value of scheme assets
were as follows:
|
|
2023
|
|
|
2022
|
|
|
Laurence Keen
Scheme
£m
|
Rathbone
1987
Scheme
£m
|
Total
£m
|
Laurence Keen
Scheme
£m
|
Rathbone
1987
Scheme
£m
|
Total
£m
|
At 1 January
|
8.1
|
96.0
|
104.1
|
13.0
|
154.9
|
167.9
|
Remeasurement of net defined benefit
asset/(liability)
|
|
|
|
|
|
|
- interest
income
|
0.4
|
4.5
|
4.9
|
0.3
|
2.9
|
3.2
|
- return on
scheme assets (excluding amounts included in interest
income)
|
-
|
(0.8)
|
(0.8)
|
(4.6)
|
(61.8)
|
(66.4)
|
Contributions from the sponsoring
companies
|
0.1
|
2.8
|
2.9
|
0.1
|
3.8
|
3.9
|
Benefits paid
|
(0.4)
|
(2.6)
|
(3.0)
|
(0.7)
|
(3.8)
|
(4.5)
|
At 31 December
|
8.2
|
99.9
|
108.1
|
8.1
|
96.0
|
104.1
|
The Schemes' assets are fully
invested with Legal & General Investment Management in
Self-Sufficiency Credit Funds and Absolute Return Bond Funds and no
assets are invested in Rathbones Funds. The Schemes invest in
self-sufficiency strategies, which aim to fully hedge the interest
and inflation rate risk. The Trustees will review the asset
allocation on a regular basis to ensure the strategy remains
appropriate.
The analysis of the scheme assets, measured at
bid prices, at the balance sheet date was as follows:
Laurence Keen
Scheme
|
2023
Fair value
£m
|
2022
Fair value
£m
|
2023
Current
allocation
%
|
2022
Current
allocation
%
|
Equity instruments:
|
|
|
|
|
- United
Kingdom
|
-
|
0.2
|
|
|
-
Eurozone
|
-
|
0.2
|
|
|
- North
America
|
-
|
0.7
|
|
|
-
Other
|
-
|
0.5
|
|
|
|
-
|
1.6
|
-
|
19
|
Debt instruments:
|
|
|
|
|
- United
Kingdom corporate bonds
|
0.4
|
4.3
|
|
|
|
0.4
|
4.3
|
5
|
54
|
Liability-driven investments
|
7.8
|
2.0
|
93
|
25
|
Cash
|
0.1
|
0.1
|
2
|
1
|
Other
|
-
|
0.1
|
-
|
1
|
At 31 December
|
8.3
|
8.1
|
100
|
100
|
Rathbone 1987
Scheme
|
2023
Fair value
£m
|
2022
Fair value
£m
|
2023
Current
allocation
%
|
2022
Current
allocation
%
|
Equity instruments:
|
|
|
|
|
- United
Kingdom
|
-
|
4.2
|
|
|
-
Eurozone
|
-
|
2.5
|
|
|
- North
America
|
-
|
13.5
|
|
|
-
Other
|
-
|
6.1
|
|
|
|
-
|
26.3
|
-
|
28
|
Debt instruments:
|
|
|
|
|
- United
Kingdom corporate bonds
|
-
|
37.7
|
|
|
|
-
|
37.7
|
-
|
39
|
Liability-driven investments
|
98.4
|
30.8
|
99
|
32
|
Cash
|
1.5
|
1.2
|
1
|
1
|
Other
|
-
|
-
|
-
|
-
|
At 31 December
|
99.9
|
96.0
|
100
|
100
|
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. Changes to these assumptions of a
different, but similar, magnitude would result in a broadly
proportional change in these figures. Where the changes to these
assumptions are more significant the impact will be more
significant, but potentially not proportional. These events within
the sensitivity analysis are unlikely to occur in isolation. 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
£m
|
(Decrease)/
increase
%
|
0.5% increase in:
|
|
|
- discount
rate
|
(7.7)
|
(7.6)
|
0.5% increase in:
|
|
|
- rate of
inflation
|
4.4
|
4.4
|
1-year increase to:
|
|
|
- longevity
at 60
|
4.2
|
4.1
|
The total contributions made by the group to
the 1987 Scheme during the year were £2.8 million (2022: £3.8
million).
There have been contributions of £0.2 million
(2022: £0.2 million) made by the group to the Laurence Keen Scheme
during the year.
Contributions for the year are in line with
those agreed as part of the actuarial valuation as at 31 December
2023.
Per IAS 19, companies are required to limit the
value of any defined benefit asset to the lower of the surplus in
the plan and the defined benefit asset ceiling, where the asset
ceiling is the present value of economic benefits available in the
form of refunds from the plan or reductions in future contributions
to the plan. The company expects to access any surplus assets
remaining in the plan once all members have left after gradual
settlement of the liabilities. Therefore, the net asset is deemed
to be recoverable and the effect of the asset ceiling is
£nil.
11 Fair values
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.
At 31 December 2023
|
Level 1
£m
|
Level 2
£m
|
Level 3
£m
|
Total
£m
|
Assets
|
|
|
|
|
Fair value through profit or loss:
|
|
|
|
|
equity securities
|
-
|
-
|
1.2
|
1.2
|
|
-
|
-
|
1.2
|
1.2
|
At 31 December 2022
|
Level 1
£m
|
Level 2
£m
|
Level 3
£m
|
Total
£m
|
Assets
|
|
|
|
|
Fair value through profit or loss:
|
|
|
|
|
equity securities
|
8.1
|
-
|
3.1
|
11.2
|
|
8.1
|
-
|
3.1
|
11.2
|
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 (2022: none).
The fair value of listed equity securities is
their quoted price.
The fair values of the group's other financial
assets and liabilities are not materially different from their
carrying values, with the exception of the following:
-
Investment debt securities measured at amortised cost
comprise bank and building society certificates of deposit, which
have fixed coupons, and treasury bills. The fair value of the debt
securities at 31 December 2023 was £1,296.8 million (2022: £1,053.5
million) and the carrying value was £1,294.6 million (2022:
£1,045.3 million). 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 2023 was £37.4 million
(2022: £41.2 million) and the carrying value was £39.9 million
(2022: £39.9 million). 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
At 31st December 2023, the group
held 517 shares in Euroclear Holdings SA, which are classed as
Level 3 in the fair value hierarchy, since readily available
observable market data is not available. At the prior
year-end, the Group held 1,809 shares which were valued at £3.1
million by reference to the indicative price derived from the most
recent transactions of the shares in the market. During the year,
the group sold 1,292 of its shares in two separate transactions.
The price was used to value the remaining shares at
year-end.
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 2022, would have reduced equity and profit
after tax by £0.1 million (2022: £0.3 million). 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:
|
2023
|
2022
|
At 1 January
|
3.1
|
2.5
|
Total unrealised gains/(losses) recognised in
profit or loss
|
1.0
|
0.6
|
Total disposals
|
(2.9)
|
-
|
At 31 December
|
1.2
|
3.1
|
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:
|
|
2023
|
|
|
2022
|
|
|
Pre-tax
£m
|
Taxation
£m
|
Post-tax
£m
|
Pre-tax
£m
|
Taxation
£m
|
Post-tax
£m
|
Underlying profit attributable to
shareholders
|
127.1
|
(30.3)
|
96.8
|
97.1
|
(20.4)
|
76.7
|
Charges in relation to client relationships and
goodwill (note 8)
|
(25.2)
|
5.9
|
(19.3)
|
(19.5)
|
3.7
|
(15.8)
|
Acquisition-related and integration costs (note
5)
|
(44.3)
|
4.3
|
(40.0)
|
(13.5)
|
1.6
|
(11.9)
|
Profit attributable to
shareholders
|
57.6
|
(20.1)
|
37.5
|
64.1
|
(15.1)
|
49.0
|
Basic earnings per share has been
calculated by dividing profit attributable to shareholders by the
weighted average number of shares in issue throughout the year,
excluding own shares, of 71,269,129 (2022: 58,618,521). This
includes 17,481,868 convertible non-voting shares issued as
consideration for the IW&I transaction. In total, 44,538,331
shares were issued as a result of the IW&I transaction on 21
September. This has resulted in a mismatch between the weighted
average number of shares and the total number of shares of
108,065,997 million due to the shares in the weighted average share
calculation being prorated from 21 September to year
end.
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, expected shares to be issued under
the KEEP Support Function award, expected shares to be issued
within the Rathbones Integration Incentive Award Scheme and any
dilutive shares to be issued under the Share Incentive Plan, all
weighted for the relevant period.
|
2023
|
2022
|
Weighted average number of ordinary shares in
issue during the year - basic
|
71,269,129
|
58,618,521
|
Effect of ordinary share options/Save As You
Earn
|
443,865
|
595,055
|
Effect of dilutive shares issuable under the
Share Incentive Plan
|
2,517
|
671
|
Effect of contingently issuable shares under
the Executive Incentive Plan
|
294,770
|
563,816
|
Effect of contingently issuable shares under
Saunderson House initial share consideration (note 4)
|
272,952
|
272,952
|
Effect of expected shares to be issued under
the Key Employee Equity Plan Support Function Award
|
314,600
|
−
|
Effect of expected shares to be issued under
the Rathbones Integration Incentive Scheme Award
|
1,276,744
|
−
|
Diluted ordinary shares
|
73,874,577
|
60,051,015
|
|
2023
|
2022
|
Earnings per share for the year attributable to
equity holders of the company:
|
|
|
-
basic
|
52.6p
|
83.6p
|
-
diluted
|
50.8p
|
81.6p
|
Underlying earnings per share for the year
attributable to equity holders of the company:
|
|
|
-
basic
|
135.8p
|
130.8p
|
-
diluted
|
131.0p
|
127.7p
|
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 £nil (2022: £nil). Further information about the
remuneration of individual directors is provided in the audited
part of the directors' remuneration report.
|
2023
£m
|
2022
£m
|
Short-term employee benefits
|
13.2
|
10.2
|
Post-employment benefits
|
0.3
|
0.3
|
Other long-term benefits
|
1.3
|
0.3
|
Share-based payments
|
2.6
|
0.4
|
|
17.4
|
11.2
|
Dividends totalling £0.3 million were paid in
the year (2022: £0.2 million) in respect of ordinary shares held by
key management personnel and their close family members.
At 31 December 2023, key management
personnel and their close family members had gross outstanding
deposits of £1.0 million (2022: £1.7 million) and gross outstanding
banking loans of £0.1 million (2022: nil). 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. All transactions
were made on normal business terms.
Other related party transactions
The group's transactions with the pension funds
are described in note 10. At 31 December 2023, no amounts were
outstanding with either the Laurence Keen Scheme or the Rathbone
1987 Scheme (2022: none).
As a result of the IW&I
transaction on 21 September 2023, Rathbones Group Plc is an
associate of Investec Bank PLC. As at the 31 December there
was a net payable balance with Investec Bank PLC of £8.3 million
(2022: £nil). IW&I outsources payroll to Investec Bank PLC (for
which a charge is levied under the transitional services
agreement), the balance outstanding as at the reporting date is
predominantly related to IW&I employee salary costs and
associated payroll taxes. During the period from acquisition,
Investec Bank PLC have provided certain services to IW&I via
the transitional services agreement. The total expense for these
services recognised during the period from 21 September 2023 to 31
December 2023 is £4.8 million (2022: £nil). These amounts were
fully paid as at 31 December 2023. IW&I partially sublets
certain regional office space to Investec Bank PLC companies and
charges Investec Bank PLC for use of research, total fees
receivable under these arrangements 21 September 2023 to 31
December 2023 were £0.1 million and
£0.3 million respectively (2022: nil).
One group subsidiary, Rathbones Asset
Management Limited, has authority to manage the investments within
a number of unit trusts. During 2023, the group managed 28 unit
trusts, Sociétés d'Investissement à Capital Variable (SICAVs) and
open-ended investment companies (OEICs) (together, 'collectives')
(2022: 32 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:
Year ended 31
December
|
2023
£m
|
2022
£m
|
Total management fees
|
69.6
|
68.2
|
|
|
|
As at 31
December
|
2023
£m
|
2022
£m
|
Management fees owed to the group
|
6.5
|
5.6
|
Holdings in unit trusts
|
-
|
8.1
|
|
6.5
|
13.7
|
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:
|
2023
£m
|
2022
£m
|
Cash and balances at central banks
|
1,036.0
|
1,408.0
|
Loans and advances to banks
|
266.9
|
164.7
|
At 31 December
|
1,302.9
|
1,572.7
|
Mandatory reserve deposits of £2.3
million (2022: £5.0 million) are held with central banks in
accordance with statutory requirements. As these deposits are not
held in demand accounts, and are not available to finance the
group's day-to-day operations, they are excluded from cash and cash
equivalents.
Cash flows arising from the issue/(repurchase)
of ordinary shares comprise:
|
2023
£m
|
2022
£m
|
Share capital issued
|
2.2
|
0.1
|
Share premium on shares issued
|
2.3
|
18.9
|
Merger reserve on shares issued
|
747.4
|
-
|
Shares issued in relation to share-based
schemes and business combinations for which no cash consideration
was received
|
(751.9)
|
(9.8)
|
Proceeds from issue of share
capital
|
-
|
9.3
|
Shares repurchased and placed into the employee
benefit trust
|
(16.0)
|
(18.6)
|
Net issue/(repurchase) of ordinary
shares
|
(16.0)
|
(9.3)
|
In 2022, £5.7 million of shares were issued for
the vesting of the Speirs & Jeffrey second earn-out
consideration. £4.1 million of shares were also issued for the
Saunderson House deferred share consideration. There was no cash
consideration received for these transactions. £18.6 million of
shares were repurchased and placed into the group EBT in the prior
year.
During the year, £751.9 million of shares were
issued as consideration for the IW&I transaction, there was no
cash consideration received for this transaction. In addition to
this, £16.0 million of shares were repurchased and placed into the
group EBT.
A reconciliation of the movements of financing
liabilities and equity to cash flows arising from financing
activities is as follows:
|
Subordinated
loan notes
£m
|
Lease liabilities
£m
|
Liabilities from financing
activities
£m
|
Share capital/
premium
£m
|
Reserves
£m
|
Retained
earnings
£m
|
Total
equity
£m
|
Total
£m
|
At 1 January 2023
|
39.9
|
50.5
|
90.4
|
313.2
|
24.4
|
297.2
|
634.8
|
725.2
|
|
|
|
|
|
|
|
|
|
Changes from financing cash
flows
|
|
|
|
|
|
|
|
|
Proceeds from issue of share capital
|
-
|
-
|
-
|
2.3
|
(2.3)
|
-
|
-
|
-
|
Payments for share repurchases
|
-
|
-
|
-
|
-
|
(16.0)
|
-
|
(16.0)
|
(16.0)
|
Dividends paid
|
-
|
-
|
-
|
-
|
-
|
(71.4)
|
(71.4)
|
(71.4)
|
Interest charge
|
(2.3)
|
(3.3)
|
(5.6)
|
-
|
-
|
-
|
-
|
(5.6)
|
Payment for lease liabilities
|
-
|
(7.5)
|
(7.5)
|
-
|
-
|
-
|
-
|
(7.5)
|
Total financing cash
flows
|
(2.3)
|
(10.8)
|
(13.1)
|
2.3
|
(18.3)
|
(71.4)
|
(87.4)
|
(100.5)
|
Total non-cash movements
|
2.3
|
35.2
|
37.5
|
2.2
|
762.7
|
37.9
|
802.8
|
840.3
|
At 31 December 2023
|
39.9
|
74.9
|
114.8
|
317.7
|
768.8
|
263.7
|
1,350.2
|
1,465.0
|
|
Subordinated
loan notes
£m
|
Lease liabilities
£m
|
Liabilities from financing
activities
£m
|
Share capital/
premium
£m
|
Reserves
£m
|
Retained
earnings
£m
|
Total
equity
£m
|
Total
£m
|
At 1 January 2022
|
39.9
|
55.0
|
94.9
|
294.1
|
40.3
|
288.8
|
623.2
|
718.1
|
|
|
|
|
|
|
|
|
|
Changes from financing cash
flows
|
|
|
|
|
|
|
|
|
Proceeds from issue of share capital
|
-
|
-
|
-
|
9.3
|
-
|
-
|
9.3
|
9.3
|
Payments for share repurchases
|
-
|
-
|
-
|
-
|
(18.6)
|
-
|
(18.6)
|
(18.6)
|
Dividends paid
|
-
|
-
|
-
|
-
|
-
|
(48.6)
|
(48.6)
|
(48.6)
|
Interest charge
|
(2.3)
|
(3.1)
|
(5.4)
|
-
|
-
|
-
|
-
|
(5.4)
|
Payment for lease liabilities
|
-
|
(8.5)
|
(8.5)
|
-
|
-
|
-
|
-
|
(8.5)
|
Total financing cash
flows
|
(2.3)
|
(11.6)
|
(13.9)
|
9.3
|
(18.6)
|
(48.6)
|
(57.9)
|
(71.8)
|
Total non-cash movements
|
2.3
|
7.1
|
9.4
|
9.8
|
2.7
|
57.0
|
69.5
|
78.9
|
At 31 December 2022
|
39.9
|
50.5
|
90.4
|
313.2
|
24.4
|
297.2
|
634.8
|
725.2
|
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
There have been no material events occurring
between the balance sheet date and the date of signing this report.
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 2023 or 2022. Statutory financial
statements for 2022 have been delivered to the Registrar of
Companies. Statutory financial statements for 2023 will be
delivered to the Registrar of Companies following the Company's
Annual General Meeting. The auditor has reported on both the 2023
and 2022 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 2023 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 Rathbones Group 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
2023.
The preliminary statement of annual results for
the period ended 31 December 2023 includes:
-
Disclosures required by the Listing Rules;
- Chair's
statement;
- Group
Chief Executive's review;
-
Financial performance;
-
Segmental review;
-
Financial position;
-
Liquidity and cash flow;
- Risk
management and control;
-
Principal risks;
-
Consolidated statement of comprehensive income;
-
Consolidated statement of changes in equity;
-
Consolidated balance sheet;
-
Consolidated statement of cash flows; and
- Notes 1
to 17 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 5 March 2024. 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. These
matters 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.
Acquisition accounting for Investec Wealth
& Investment Limited and subsidiary entities
Key audit matter description
Rathbones Group acquired 100% of the share
capital of Investec Wealth & Investment Limited and its
subsidiary entities ("IW&I") through an all-share transfer on
21 September 2023. The total consideration was £751.9m of which
£350.3m was attributed to recognition of client relationship
intangible assets, which are being amortised over a weighted
average of 14 years, and £340.1m to goodwill.
As detailed in the summary of principal
accounting policies in note 1 and note 2 in the full annual report
(included within note 1 and note 2 to this announcement), and as
disclosed in note 8 in the full annual report (included within note
4 and note 8 to this announcement), acquisition accounting requires
management to make a number of judgments to determine the fair
value of acquired identifiable assets. Management have engaged
external specialists to assist with these judgements. We have
identified the valuation of the IW&I client relationship
intangible assets as a fraud risk, given the inherent judgment,
complexity and level of estimation involved.
The significant assumptions that underpin the
client relationship intangible assets valuation in management's
model include: the forecasted cash flows, useful economic life and
the discount rate.
How the scope of our audit responded to the key
audit matter
In order to respond to the key audit matter, we
performed the following procedures:
- obtained
an understanding of relevant controls over the acquisition
accounting, in particular the identification and measurement of the
client relationship intangible assets and goodwill and controls
over the acquisition accounting related judgments;
- assessed
the competence, capability and objectivity of management's
experts;
- assessed
management's accounting analysis of the acquisition and the
accounting treatment in line with the requirements of IFRS
3;
- engaged
our in-house valuation specialists to: assist in the evaluation of
the methodology and the key assumptions used in the valuation of
the client relationship intangible assets acquired; independently
determine an appropriate discount rate for the calculation and
assessed the methodology used to establish useful economic lives of
assets;
- tested
the key data inputs used to determine the useful economic life for
completeness and accuracy;
-
challenged the entity's forecast cash flows by comparing with
approved business plans, historical performance and objective
macro-economic indications to assess the achievability of the
forecasts;
- tested
the completeness and accuracy of the data inputs into the
underlying models used in determining the client relationship
intangible assets valuation and the goodwill value;
- reviewed
the share purchase agreement to corroborate the overall deal
structure and transaction price, and agreed the value of the total
consideration to supporting documentation;
- with the
assistance of our tax specialists, assessed the tax implications
arising from this acquisition; and
- checked
the disclosures included in the financial statements to determine
whether all information has been included for a business
combination under IFRS 3.
Key observations
We conclude that the acquisition accounting in
relation to the IW&I transaction and the related disclosures as
at 31 December 2023, is appropriate.
Impairment of client relationship intangible
assets and goodwill
Key audit matter description
The group holds client relationship intangible
assets of £517.5 million (2022: £188.5 million) comprising both
client relationships acquired through business combinations and
through acquisition of individual investment managers and their
client portfolios and goodwill of £507.8 million (2022: £167.7
million).
As detailed in the summary of principal
accounting policies in notes 1 and 2 in the full annual report
(included within note 1 to this announcement), 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 client
portfolio, there is a degree of management judgement. This
assessment is based on movements in the value of funds under
management and the loss of client relationships in advance of their
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
("VIU"), calculated using a discounted cash flow method. In
determining the VIU 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 are
disclosed in note 22 in the full annual report (included within
note 8 to this announcement).
We have identified this as a key audit matter
given the inherent judgement and level of estimation in the
assumptions that support the annual impairment reviews. In the
prior period, we identified this as a fraud risk, however, as a
result of increased headroom on the most material impairment
reviews, we did not deem this to be a fraud risk in the current
period.
How the scope of our audit responded to the 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 relationships and for goodwill.
For client relationship intangible assets, we
specifically tested the assumptions used by management as part of
the impairment review exercise to assess whether they meet the
requirements of IAS 36 "Impairment of Assets". We assessed the key
assumptions around the impairment triggers identified for each
client portfolio, which we have assessed for reasonableness, and we
evaluated the accuracy of the inputs used by management.
Where management's 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 through the
calculation of the assets' VIU. To challenge management's VIU model
we performed the following procedures:
- tested
the key data inputs used to determine the useful economic life for
completeness and accuracy;
-
recalculated the underlying calculation to ensure
mathematical accuracy;
- stressed
management's assumptions to determine the point at which an
impairment would need to be recognised;
- with the
involvement of our valuation specialists, we independently
determined an appropriate discount rate for the calculation;
and
- with the
involvement of our in-house economic specialists reviewed the
growth rate assumptions used for funds under management to
challenge whether they were in line with
consensus.
For goodwill, in order to challenge the
appropriateness of the income and expenditure growth assumptions
used in the VIU calculation, we have challenged the assumptions
used by management against historical actual 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. We
also independently re-performed management's VIU
calculation.
We have checked the disclosures included within
the financial statements to determine whether all required
information has been included for the impairment of client
relationship intangible assets and goodwill.
Key observations
We concluded that management's approach and
conclusion was appropriate and that the carrying value of client
relationship intangible assets and goodwill as at 31 December 2023
is appropriate.
Defined benefit pension scheme
assumptions
Key audit matter description
The group has recognised a defined benefit
pension scheme net asset of £7.0 million (2022: net asset of £9.4
million). The net asset comprises scheme assets of £108.1 million
(2022: £104.1 million) and a defined benefit obligation of £101.1
million (2022: £94.7 million).
The calculation of the defined benefit
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 in the full annual report (included
within note 2 to this announcement) and disclosed in note 29 in the
full annual report (included within note 10 to this announcement).
We have therefore identified this as a key audit matter.
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 obligation.
How the scope of our audit responded to the key
audit matter
In order to evaluate the appropriateness of the
assumptions used by management, we obtained an understanding of
relevant controls over the determination of assumptions and the
calculation of the 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 assessed
each assumption used by management against independently determined
benchmarks derived using market data.
We have checked the disclosures included within
the financial statements to determine whether all required
information has been included for a defined benefit pension
scheme.
Key observations
We concluded that each of the key assumptions
used by management to estimate the defined benefit obligation are
consistent with the requirements of IAS 19 and that the valuation
of the defined benefit pension scheme net asset has been
appropriately determined as at 31 December 2023.
Investment management fee revenue relating to
bespoke fees
Key audit matter description
As detailed in the summary of principal
accounting policies in notes 1 and 3 in the full annual report
(included within note 3 to this announcement), revenue comprises
net investment management fee income of £414.8 million (2022:
£337.0 million), net commission income of £53.6 million (2022:
£48.9 million), net interest income of £51.7 million (2022: £18.3
million) and fees from advisory services and other income of £51.0
million (2022: £57.1 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 voluminous. 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. We identified a risk of potential fraud in
respect to bespoke rates.
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 the scope of our audit responded to the key
audit matter
We tested controls over the calculation of IM
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 fee 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 checked 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
2023.
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 or draft 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 interim
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
5 March 2024