Final Results

Rathbone Brothers PLC 03 March 2004 3rd March 2004 RATHBONE BROTHERS PLC PRELIMINARY RESULTS FOR THE YEAR TO 31ST DECEMBER 2003 Rathbone Brothers Plc, the group that specialises in discretionary investment management for private clients, announces preliminary results for the year ended 31st December 2003. Highlights: •Total funds under management rise by 28% from £5.3bn to £6.8bn of which £500m now relates to Rathbone Unit Trust Management. •Operating income rises by 2.4% to £82m. •Pre-tax profits, before exceptional gains and before goodwill amortisation, rise by 7.5% to £19.7m. Pre-tax profits, before exceptional gains and after goodwill amortisation, decline 2.6% to £14.2m. •Earnings per share, before goodwill amortisation, increase by 12.4% to 38.11p. Earnings per share, after goodwill amortisation, increase by 0.7% to 24.07p. •Recommended final dividend is maintained at 16p, making an unchanged total of 26p for the year. Commenting on the preliminary results, Mark Powell, Chairman of Rathbone Brothers Plc, said: '2003 proved to be a year of considerable stockmarket volatility. It is therefore especially pleasing that funds under management had, by the year end, risen 28%, from £5.3bn to £6.8bn. The growth in our client base has been a feature of all parts of our investment management business and we believe that it reflects our consistent and continuing commitment to providing Investment Management and Trust services to wealthy private investors and trustees. 2003 has seen particular growth in the provision of investment management services to Charities. Excellent investment performance has continued to attract funds to our range of Unit Trusts and funds under management within Rathbone Unit Trust Management are now over £500m. We have welcomed the improved market conditions of the last few months. Our chosen areas of activity remain competitive but, provided that stockmarket conditions do not deteriorate markedly, we can be more optimistic about the future. I have no doubt that Rathbones is in an excellent position to grow its businesses successfully.' -ends- For further information, please contact: Rathbone Brothers Plc (020 7399 0000) •Mark Powell, Chairman •Andy Pomfret, Finance Director Luther Pendragon (020 7618 9100) •Tim Trotter (Glenfern) (020 7399 0444) •Beany McLean •Andrew Sharkey CHAIRMAN'S STATEMENT I have pleasure in presenting our results for the year to 31st December 2003. Operating income rose by 2.4% to £82m. Profits before tax, exceptional gains and goodwill amortisation are £19.7m, an increase of 7.5% over 2002 and earnings per share (before goodwill amortisation) are 38.11p, compared with 33.91p in 2002, an increase of 12.4%. A full year's goodwill amortisation charge in relation to the acquisitions made in 2002 has resulted in a 2.6% fall in post goodwill profits before tax and exceptional gains from £14.5m to £14.2m. Post goodwill earnings per share increased by 0.7% from 23.90p to 24.07p. It is recommended that the final dividend be maintained at 16p, making an unchanged total of 26p for the year. 2003 proved to be a year of considerable stockmarket volatility. During the early part of the year the UK equity market, as measured by the FTSE 100 Index, fell by 17%; it subsequently rallied from its low point by 36% and by the year end it had achieved an overall increase of 13.6% for the year. Extreme volatility of this sort can provide short-term opportunities for investors but it is an unhelpful environment for our clients and our fund managers to make long-term asset allocation and stock selection decisions. It is therefore especially pleasing that funds under management had, by the year end, risen 28%, from £5.3bn to £6.8bn. The growth in our client base has been a feature of all parts of our investment management business and we believe that it reflects our consistent and continuing commitment to providing Investment Management and Trust services to wealthy private investors and trustees. We stress the value of careful investment processes and close professional attention to the affairs of each individual client of Rathbones. 2003 has seen particular growth in the provision of investment management services to Charities. Excellent investment performance has continued to attract funds to our range of Unit Trusts and funds under management within Rathbone Unit Trust Management are now over £500m. Some of this reflects the evident attraction to larger individual clients and family groups of collective investments tailored to their particular circumstances and objectives. The Trust Division experienced another difficult year although the core Jersey business held up well. Some important steps have been taken to enable our Trust activities to make an improved contribution in the future to the financial results of Rathbones as a whole. In November 2003, we announced that Ian Buckley, who had been a Non-Executive Director of the Company since 2001, had accepted our invitation to become an Executive Director and a Member of the Executive Committee. He fulfils a new role as Chief Executive of the Trust Division, working closely with its Chairman, Paul Egerton-Vernon to consolidate and grow the range of professional services that are provided. Ian brings with him considerable relevant experience. We have also made key appointments in the Trust Division, with new Managing Directors of the Jersey Trust Company and of our Geneva Company. We are confident that these individuals will make an increasing contribution to our businesses. During the year, two long-serving Executive Directors retired and I have no hesitation in paying public tribute to the enormous contribution that they have both made to the growth of your Company over the last twenty years. Micky Ingall joined the Company in 1985 and was responsible for the rapid and successful growth of our investment management activities. He became Chairman in 1997 and has led the Company with great distinction and far-sightedness. He was instrumental in some of the most important acquisitions and recruitments and leaves the Company in a very strong position. Mark Leather joined us in Liverpool in 1992 and brought with him considerable experience of investment management for wealthy private individuals and trustees. Since Roy Morris' appointment as Chief Executive, Mark has been responsible for our investment management activities in Liverpool, which he has done energetically and effectively. At the end of the year, Bill Rathbone retired as a Non-Executive Director, after nine years' service, during which time he had chaired our Audit and Remuneration Committees with wise and careful judgement. He is the eighth generation of his family to be associated with the Company. All three individuals have made outstanding contributions to Rathbones and they will be greatly missed by all of their colleagues here. We wish them well. During the year, two new independent Non-Executive Directors were appointed. Caroline Burton and James Barclay both bring a relevant and wide experience within the financial sector and I am sure that their contributions will strengthen our Board. We have welcomed the improved market conditions of the last few months. Our chosen areas of activity remain competitive but, provided that stockmarket conditions do not deteriorate markedly, we can be more optimistic about the future. I have no doubt that Rathbones is in an excellent position to grow its businesses successfully. Much has been achieved in the profitable development of Rathbones' activities despite three years of challenging market conditions. By far the greatest contribution to that has been the commitment and hard work of our staff throughout Rathbones, to whom we owe a great debt of gratitude. Mark Powell Chairman 2nd March 2004 -------------------------------------- ------ -------- --------- Consolidated profit and loss account for the year ended 31st December 2003 -------------------------------------- ------ -------- --------- 2003 2002 (*Restated) Notes £'000 £'000 -------------------------------------- ------ -------- --------- Interest receivable - interest receivable and similar 14,399 16,839 income arising from debt securities - other interest receivable and 3,552 3,945 similar income Interest payable (7,968) (9,081) -------------------------------------- ------ -------- --------- Net interest income 9,983 11,703 Dividend income 62 90 Fees and commissions receivable 72,117 *68,579 Fees and commissions payable (2,228) *(1,762) Other operating income 1,843 1,215 -------------------------------------- ------ -------- --------- Operating income 81,777 79,825 Administrative expenses (58,802) (57,187) Depreciation and amortisation (8,661) (7,220) Other operating charges (17) (529) Provisions for bad and doubtful (132) (341) debts -------------------------------------- ------ -------- --------- Operating profit 14,165 14,548 Operating profit before goodwill 19,745 18,364 amortisation Goodwill amortisation (5,580) (3,816) Exceptional gains on sales of 9 1,088 777 investment securities -------------------------------------- ------ -------- --------- Profit on ordinary activities before 15,253 15,325 tax Tax on profit on ordinary 3 (5,685) (6,211) activities -------------------------------------- ------ -------- --------- Profit on ordinary activities after 9,568 9,114 tax Dividends paid and proposed 4 (10,524) (10,451) -------------------------------------- ------ -------- --------- Transferred from reserves (956) (1,337) -------------------------------------- ------ -------- --------- Dividends per ordinary share 4 26p 26p Earnings per ordinary share 5 Basic after goodwill amortisation 24.07p 23.90p Basic before goodwill amortisation 38.11p 33.91p Diluted after goodwill amortisation 23.86p 23.83p Diluted before goodwill 37.77p 33.81p amortisation -------------------------------------- ------ -------- --------- *see Note 11 There is no difference between the profit on ordinary activities before taxation and the result for the year above and their historic cost equivalents. Operating income, operating profit and the exceptional gains on sales of investment securities all derive from continuing operations. Consolidated balance sheet as at 31st December 2003 ----------------------------------- -------- --------- -------- 2003 2002 Note £'000 £'000 ----------------------------------- -------- --------- -------- Assets Cash and balances at central banks 3,205 19,019 Settlement balances 13,523 6,837 Loans and advances to banks 43,207 33,025 Loans and advances to customers 36,353 36,828 Debt securities 333,002 363,426 Equity shares 6 35 70 Intangible fixed assets 57,702 56,232 Tangible fixed assets 6,226 7,454 Other assets 4,245 3,651 Prepayments and accrued income 17,666 16,132 ----------------------------------- -------- --------- -------- Total assets 515,164 542,674 ----------------------------------- -------- --------- -------- Liabilities Deposits by banks 5,335 62 Settlement balances 11,376 5,865 Customer accounts 366,715 408,039 Debt securities in issue 898 5,768 Other liabilities 11,190 10,899 Accruals and deferred income 8,560 7,671 Provision for liabilities and charges 5,188 3,940 Called up share capital 2,033 1,969 Shares to be issued including premium - 1,927 Share premium account 13,791 9,639 Other reserves 49,428 45,674 Profit and loss account 40,650 41,221 ----------------------------------- -------- --------- -------- Equity shareholders' funds 105,902 100,430 ----------------------------------- -------- --------- -------- ----------------------------------- -------- --------- -------- Total liabilities 515,164 542,674 ----------------------------------- -------- --------- -------- Memorandum items Contingent liabilities - guarantees 912 730 - assets pledged as collateral 49 49 security ----------------------------------- -------- --------- -------- 961 779 ----------------------------------- -------- --------- -------- Commitments - undrawn commitments to lend 4,182 4,503 ----------------------------------- -------- --------- -------- Consolidated cash flow statement for the year ended 31st December 2003 ------------------------------ 2003 2002 Notes £'000 £'000 £'000 £'000 ------------------------ ------ -------- ------- -------- -------- Net cash (outflow)/ inflow from operating activities 10 (14,635) 14,837 ------------------------ ------ -------- ------- -------- -------- Taxation - UK corporation tax (5,120) (5,279) - overseas tax (506) (1,425) ------------------------ ------ -------- ------- -------- -------- Net cash outflow for (5,626) (6,704) taxation ------------------------ ------ -------- ------- -------- -------- Capital expenditure and financial investments - purchase of investment (1,962,667) (1,733,062) securities - proceeds from sale and maturities of investment securities 1,994,214 1,751,939 - purchase of tangible (1,903) (1,866) fixed assets - sale of tangible fixed 105 179 assets ------------------------ ------ -------- ------- -------- -------- Net cash inflow for capital expenditure and financial investments 29,749 17,190 ------------------------ ------ -------- ------- -------- -------- Acquisitions and disposals - acquisitions of subsidiaries/ businesses (4,970) (4,754) - net cash acquired with subsidiary undertakings/ businesses 70 1,186 ------------------------ ------ -------- ------- -------- -------- Net cash outflow for acquisitions and disposals (4,900) (3,568) ------------------------ ------ -------- ------- -------- -------- Equity dividends paid (10,319) (9,953) ------------------------ ------ -------- ------- -------- -------- Net cash (outflow)/ (5,731) 11,802 inflow before financing Financing - issue of shares 3,466 260 - repayment of debt (4,870) - securities - issue expenses of debt - (29) securities ------------------------ ------ -------- ------- -------- -------- Net cash (outflow)/ (1,404) 231 inflow from financing ------------------------ ------ -------- ------- -------- -------- (Decrease)/increase in 10 (7,135) 12,033 cash in the year ------------------------ ------ -------- ------- -------- -------- Consolidated statement of total recognised gains and losses for the year ended 31st December 2003 ------------------------------------------------ ---------- --------- 2003 2002 £'000 £'000 ------------------------------------------------ ---------- --------- Profit for the financial year attributable to shareholders 9,568 9,114 Currency adjustments (207) (107) ------------------------------------------------ ---------- --------- Total recognised gains and losses for the year 9,361 9,007 Prior year adjustment made in 2002 (see Note 11) - 2,018 ------------------------------------------------ ---------- --------- Total gains and losses recognised since the last 9,361 11,025 report ------------------------------------------------ ---------- --------- Reconciliations of movements in shareholders' funds for the year ended 31st December 2003 ----------------------------------------------- ---------- --------- 2003 2002 £'000 £'000 ----------------------------------------------- ---------- --------- Profit for the financial year attributable to 9,568 9,114 shareholders Dividends (10,524) (10,451) ----------------------------------------------- ---------- --------- Result for the financial year (956) (1,337) Currency adjustments (207) (107) Shares issued or to be issued 64 155 Premium on shares issued and shares (including 5,979 24,621 premium) to be issued Movement in relation to the SIP 592 (349) ----------------------------------------------- ---------- --------- Net addition to shareholders' funds 5,472 22,983 Opening shareholders' funds 100,430 77,447 ----------------------------------------------- ---------- --------- Closing shareholders' funds 105,902 100,430 ----------------------------------------------- ---------- --------- Notes 1 Accounting policies This preliminary announcement has been prepared on the basis of the accounting policies as set out in the published report and accounts for the year ended 31st December 2002 with the exception of the policy in relation to fees and commissions which has been changed to comply with Application Note G to Financial Reporting Standard ('FRS') 5 'Reporting the substance of transactions' on revenue recognition - see Note 11. 2 Segmental information (a) Segmental information as required by Statement of Standard Accounting Practice 25 'Segmental reporting': ------------------------- ---------------------- ------------------- Profit before taxation Gross operating after goodwill income amortisation 2003 2002 2003 2002 (Restated) £'000 £'000 £'000 £'000 ------------------------- ------- --------- -------- --------- By class of business: Investment management and 71,774 69,937 14,587 13,193 banking Trust services 20,199 20,731 666 2,132 ------------------------- ------- --------- -------- --------- 91,973 90,668 15,253 15,325 ------------------------- ------- --------- -------- --------- ------------------------- ---------------------- ------------------- Total assets Net assets 2003 2002 2003 2002 £'000 £'000 £'000 £'000 ------------------------- ------- --------- -------- --------- By class of business: Investment management and 455,806 480,112 65,326 58,255 banking Trust services 59,358 62,562 40,576 42,175 ------------------------- ------- --------- -------- --------- 515,164 542,674 105,902 100,430 ------------------------- ------- --------- -------- --------- ------------------------- ---------------------- ------------------- Profit before taxation Gross operating after goodwill income amortisation 2003 2002 2003 2002 (Restated) £'000 £'000 £'000 £'000 ------------------------- ------- --------- -------- --------- By geographical segment: United Kingdom 74,867 74,436 12,670 12,141 Jersey, Switzerland and 16,206 14,208 2,552 2,031 other European countries The Americas 900 2,024 31 1,153 ------------------------- ------- --------- -------- --------- 91,973 90,668 15,253 15,325 ------------------------- ------- --------- -------- --------- ------------------------- ---------------------- ------------------- Total assets Net assets 2003 2002 2003 2002 £'000 £'000 £'000 £'000 ------------------------- ------- --------- -------- --------- By geographical segment: United Kingdom 458,371 484,005 70,318 63,961 Jersey, Switzerland and 53,466 53,814 34,085 34,217 other European countries The Americas 3,327 4,855 1,499 2,252 ------------------------- ------- --------- -------- --------- 515,164 542,674 105,902 100,430 ------------------------- ------- --------- -------- --------- ------------- --------------- -------------- ---------------------- --------------- Interest Dividend Fees and commissions Other receivable income receivable operating income 2003 2002 2003 2002 2003 2002 2003 2002 (Restated) £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ------------ ------ ------ ------ ------ ------ ---------- ------ ------ Analysis of gross operating income by geographical segment: United Kingdom 17,026 19,796 62 90 55,965 53,340 1,814 1,210 Jersey, Switzerland and other European countries 868 921 - - 15,314 13,282 23 5 The Americas 57 67 - - 838 1,957 6 - ------------ ------ ------ ------ ------ ------ ---------- ------ ------ 17,951 20,784 62 90 72,117 68,579 1,843 1,215 ------------ ------ ------ ------ ------ ------ ---------- ------ ------ (b) Additional segmental analysis: Profit before taxation Gross operating before goodwill income amortisation 2003 2002 2003 2002 (Restated) £'000 £'000 £'000 £'000 --------------------------- ------- --------- -------- --------- By class of business: Investment management and 71,774 69,937 18,092 15,225 banking Trust services 20,199 20,731 2,741 3,916 --------------------------- ------- --------- -------- --------- 91,973 90,668 20,833 19,141 --------------------------- ------- --------- -------- --------- Profit before taxation Gross operating before goodwill income amortisation 2003 2002 2003 2002 (Restated) £'000 £'000 £'000 £'000 --------------------------- ------- --------- -------- --------- By geographical segment: United Kingdom 74,867 74,436 16,535 14,560 Jersey, Switzerland and 16,206 14,208 4,267 3,428 other European countries The Americas 900 2,024 31 1,153 --------------------------- ------- --------- -------- --------- 91,973 90,668 20,833 19,141 --------------------------- ------- --------- -------- --------- Notes (i) Gross operating income and operating income are derived as follows: Year Year ended ended 31st December 31st December 2003 2002 (*Restated) £'000 £'000 ------------------------------------- ----------- ----------- Interest receivable from debt 14,399 16,839 securities Other interest receivable 3,552 3,945 Dividend income 62 90 Fees and commissions receivable 72,117 *68,579 Other operating income 1,843 1,215 ------------------------------------- ----------- ----------- Gross operating income 91,973 90,668 Interest payable (7,968) (9,081) Fees and commissions payable (2,228) *(1,762) ------------------------------------- ----------- ----------- Operating income 81,777 79,825 ------------------------------------- ----------- ----------- (ii) The Group's banking activity relates almost entirely to clients in the investment management business and both banking and investment management are treated as one segment for management and internal reporting purposes. Accordingly, in the opinion of the directors, it is more meaningful to present segmental information for these activities on a combined basis. (iii) The allocations by class of business and geographical segment of total and net assets include goodwill of £57,702,000 (2002: £56,232,000) of which £29,428,000 (2002: £30,598,000) relates to trust services. (iv) In the opinion of the directors, there is no material difference between the sales origin and destination of gross operating income and accordingly, the geographic segmental analysis has been prepared on a sales origin basis only. None of the activities were discontinued in the current and previous years. The tables include companies that have joined the Group with effect from the date of their acquisition. (v) Common costs and earnings on shareholders' funds have been allocated on the same basis that is used for internal management reporting. Total and net assets have been allocated on a legal entity basis which, in the main, reflects both the 'by class of business' and 'by geographical segment' analyses. 3 Tax on profit on ordinary activities 2003 2002 £'000 £'000 --------------------------------------------------- -------- -------- Current tax: UK corporation tax on profits for 6,262 4,770 the year Adjustments in respect of previous (395) (92) years --------------------------------------------------- -------- -------- 5,867 4,678 Foreign tax (including £128,000 (2002: £11,000) in 749 1,131 respect of previous years) --------------------------------------------------- -------- -------- Total current tax 6,616 5,809 --------------------------------------------------- -------- -------- Deferred tax: Origination and reversal of timing differences - current year (923) 208 - previous year (8) 194 --------------------------------------------------- -------- -------- Total deferred tax (931) 402 --------------------------------------------------- -------- -------- 5,685 6,211 --------------------------------------------------- -------- -------- The tax charge for the year is higher than the standard rate of corporation tax in the UK of 30% (2002: 30%). The differences are explained below: 2003 2002 £'000 £'000 --------------------------------------------------- -------- -------- Tax on ordinary activities at the standard rate 30% 4,576 4,598 (2002: 30%) Effects of: UK dividend income (15) (26) Goodwill amortisation 1,601 1,145 Leasehold property depreciation 80 92 Disallowable expenses 75 163 Share options exercised (56) - UK tax on overseas subsidiary dividends 352 578 Lower tax rates on overseas earnings (399) (452) (Over)/underprovision for tax in previous years (529) 113 --------------------------------------------------- -------- -------- Overall tax charge 5,685 6,211 --------------------------------------------------- -------- -------- Timing differences subject to deferred tax: Timing difference in relation to capital allowances 128 (27) and depreciation Timing difference in relation to SSAP 24 pension 24 (277) cost Timing difference in relation to the SIP costs 130 (110) Timing difference in relation to bonus costs 649 12 --------------------------------------------------- -------- -------- Current tax charge 6,616 5,809 --------------------------------------------------- -------- -------- 4 Dividends 2003 2002 £'000 £'000 --------------------------------------------------- -------- -------- Interim dividend of 10p per share on 39,649,942 shares (2002: 10p per share on 39,119,091 shares) 3,965 3,912 Adjustment to interim dividend of 10p per share on 43 - 425,946 shares Final dividend of 16p per share on 40,668,642 shares (2002: 16p per share on 39,388,073 shares) 6,507 6,302 --------------------------------------------------- -------- -------- 10,515 10,214 Adjustment to previous year's final dividend 9 237 --------------------------------------------------- -------- -------- Total dividends 10,524 10,451 --------------------------------------------------- -------- -------- 5 Earnings per share Basic earnings per share has been calculated by dividing the profit attributable to shareholders of £9,568,000 (2002: £9,114,000) by the weighted average number of shares in issue throughout the year of 39,750,634 (2002: 38,139,407). Diluted earnings per share is the basic earnings per share, adjusted for the effect of contingently issuable shares, employee share options remaining capable of exercise and any dilutive shares to be issued under the Share Incentive Plan, weighted for the relevant period (see table below). The directors believe that the provision of additional EPS figures, in particular before goodwill amortisation, is beneficial to the users of the financial statements to understand the performance of the Group. Supplementary basic and diluted EPS figures have been calculated to exclude the effect of goodwill amortisation of £5,580,000 included in operating administrative expenses (2002: £3,816,000). The average fair value of one ordinary share during 2003 was £5.97 (2002: £6.89) and the average exercise price for shares under option during 2003 was £6.71 (2002: £7.50). 2003 2002 --------------------------------------------- ---------- ----------- Weighted average number of ordinary shares in issue during the year - basic 39,750,634 38,139,407 Effect of ordinary share options 243,661 - Effect of dilutive shares issuable under the 110,897 16,183 Share Incentive Plan Weighted average number of contingently issuable ordinary shares during the year - 90,225 --------------------------------------------- ---------- ----------- Diluted ordinary shares 40,105,192 38,245,815 --------------------------------------------- ---------- ----------- 6 Equity shares 2003 2002 Directors' Directors' valuation/ valuation/ market market Cost value Cost value £'000 £'000 £'000 £'000 ------------------------- -------- -------- -------- --------- Listed equity shares (see - 5,025 - 5,526 Note (b) below) Unlisted equity shares 35 35 70 70 ------------------------- -------- -------- -------- --------- 35 5,060 70 5,596 ------------------------- -------- -------- -------- --------- (a) The equity shares are held as investment securities for continuing use in the business. (b) The Group holds a total of 1,500,000 (2002: 1,750,000) shares in London Stock Exchange plc held by Rathbone Neilson Cobbold Limited and Rathbone Stockbrokers Limited, which are held in the balance sheet at cost (£2). 7 Acquisitions (a) (b) Total £'000 £'000 £'000 ---------------------------------------- -------- -------- -------- Consideration paid: Acquisition costs 7 58 65 Issue of new ordinary shares of 5p in 3,780 - 3,780 Rathbone Brothers Plc Cash - 2,221 2,221 Deferred contingent consideration - 154 154 ---------------------------------------- -------- -------- -------- Total consideration 3,787 2,433 6,220 ---------------------------------------- -------- -------- -------- Net assets acquired: Loans and advances to banks 70 - 70 Loans and advances to customers 26 - 26 ---------------------------------------- -------- -------- -------- Total assets 96 - 96 Liabilities (21) - (21) ---------------------------------------- -------- -------- -------- Net assets on acquisition date 75 - 75 Total fair value adjustments - - - ---------------------------------------- -------- -------- -------- Adjusted net assets acquired 75 - 75 ---------------------------------------- -------- -------- -------- Goodwill arising on acquisition 3,712 2,433 6,145 ---------------------------------------- -------- -------- -------- (a) On 27th June, 30th June, 10th November and 15th December 2003, the Group acquired, in total, nine UK companies for a consideration of shares, the details of which are set out below: 27th 30th 10th 15th June June November December 2003 2003 2003 2003 Total £'000 £'000 £'000 £'000 £'000 ------------------- ------- -------- -------- -------- -------- Acquisition costs 1 1 3 2 7 ------------------- ------- -------- -------- -------- -------- New shares issued: 114,848 @ 608.7p 699 - - - 699 each 296,037 @ 759.0p - - 2,247 - 2,247 each 113,470 @ 735.1p - - - 834 834 each ------------------- ------- -------- -------- -------- -------- 699 - 2,247 834 3,780 ------------------- ------- -------- -------- -------- -------- These companies act as introducers of private client investment management business. In total, they had introduced £267 million of new discretionary managed clients to the Group prior to their acquisition, resulting in an annualised increase to the Group's operating income of £2,716,000. The companies had earned fees from the Group for the introduction of new business. The companies have contributed £151,000 to the Group's profit after tax for the year. An estimate of the profit after tax of these companies in aggregate for the period 1st January 2003 to the date of acquisition is £65,000. None of the companies acquired is individually material to the Group. (b) In January 2003, Rathbone Investment Management Limited signed agreements to transfer investment management clients from two organisations. For both transactions, the consideration payable is contingent on the number of clients who agree to transfer on the basis of the standard terms and conditions of Rathbone Investment Management Limited. In total, there were initial consideration payments of cash of £2,221,000 and acquisition costs of £58,000. Deferred contingent consideration is payable in cash to both vendors in 2004 and an estimate of the value of the consideration has been included in goodwill and provisions for liabilities and charges. 8 Pension schemes FRS 17 disclosures Whilst the Group continues to account for pension costs in accordance with Statement of Standard Accounting Practice 24 'Accounting for pension costs', under FRS 17 'Retirement benefits' the following transitional disclosures are required: (i) The Group currently operates two funded pension schemes in the UK (the Rathbone Scheme and the Laurence Keen Scheme) providing benefits based on final pensionable salary. The Laurence Keen Scheme was closed to new entrants with effect from 1st October 1999. The Rathbone Scheme was closed to new entrants with effect from 1st April 2002. The assets are held in independent, trustee administered funds. The pension costs are assessed on the advice of the scheme actuaries using the projected unit method which looks at the value of benefits accruing over the years following the valuation date based on projected salary to date of termination of service. (ii) The latest full actuarial valuations were conducted as at 31st December 2001 (the Rathbone Scheme) and as at 31st December 2002 (the Laurence Keen Scheme) and were updated to 31st December 2003 by qualified independent actuaries. The major assumptions used in these valuations were as follows: Laurence Keen Rathbone Scheme Scheme 2003 2002 2001 2003 2002 2001 ---------------------- ------- ------- ------ ------- ------- ------- Rate of increase in 3.45% 3.0% 4.7% 3.45% 3.0% 4.7% salaries Rate of increase of 2.6% 2.25% 2.7% *2.6% *2.25% *2.7% pensions in payment Rate of increase of 2.6% 2.25% 2.7% 2.6% 2.25% 2.7% deferred pensions Discount rate 5.6% 5.8% 5.7% 5.6% 5.8% 5.7% Inflation assumption 2.7% 2.25% 2.7% 2.7% 2.25% 2.7% ----------------------- ------ ------- ------ ------- ------- ------- * 5% for service prior to April 2001 The assumptions used by the actuaries are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not necessarily be borne out in practice. (iii) The fair value of the Schemes' assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the present value of the Schemes' liabilities, which are derived from cash flow projections over long periods and are thus inherently uncertain, and the related tax effect are set out below: Laurence Keen Scheme Rathbone Scheme Long term rate of Long term rate of return expected at return expected at Laurence Keen Rathbone 2003 2002 2001 Scheme Scheme Total Total Total 1.1.02 1.1.03 1.1.04 1.1.02 1.1.03 1.1.04 £'000 £'000 £'000 £'000 £'000 ------ ----- ------ ----- ------ ------ ------ ------- ------- ------ ------ Equities 8.0% 8.0% 7.7% 8.0% 8.0% 7.7% 2,803 17,293 20,096 14,048 14,197 Bonds 5.25% 4.9% 4.8% 6.2% 5.8% 5.6% 2,781 3,257 6,038 5,482 6,364 Other 4.0% 2.75% 4.6% 4.0% 2.75% 4.6% 233 666 899 1,991 970 ------ ----- ------ ----- ------ ------ ------ ------- ------- ------ ------ Total 5,817 21,216 27,033 21,521 21,531 market value of assets Present value (8,868) (32,009) (40,877)(32,939) (31,830) of scheme liabilities ------ ----- ------ ----- ------ ------ ------ ------- ------- ------ ------ Deficit in (3,051) (10,793) (13,844)(11,418) (10,299) scheme Related 915 3,238 4,153 3,425 3,090 deferred tax asset ------ ----- ------ ----- ------ ------ ------ ------- ------- ------ ------ Net pension (2,136) (7,555) (9,691) (7,993) (7,209) liability ------ ----- ------ ----- ------ ------ ------ ------- ------- ------ ------ (iv) If the above amounts had been recognised in the financial statements, the Group's net assets and profit and loss reserve at 31st December 2003 would have been as follows: 2003 2002 £'000 £'000 ----------------------------------------- -------- -------- Net assets Net assets excluding pension liability 105,902 100,430 Pension liability (9,691) (7,993) --------------------------------------- -------- -------- Net assets including pension liability 96,211 92,437 --------------------------------------- -------- -------- Reserves Profit and loss reserve excluding pension 40,650 41,221 liability Pension liability (9,691) (7,993) --------------------------------------- -------- -------- Profit and loss reserve including pension 30,959 33,228 liability --------------------------------------- -------- -------- (v) Movement in deficit during the year Laurence Rathbone Keen Scheme Scheme Total £'000 £'000 £'000 --------------------------- ----------- ----------- ----------- Balance at 1st January 2003 (2,661) (8,757) (11,418) Movement in the year: Current service cost - (2,588) (2,588) Contributions 33 2,557 2,590 Other finance income (128) (300) (428) Actuarial loss (295) (1,705) (2,000) --------------------------- ----------- ----------- ----------- Balance at 31st December 2003 (3,051) (10,793) (13,844) --------------------------- ----------- ----------- ----------- The actuarial loss can be analysed as follows: Laurence Keen Rathbone Scheme Scheme 2003 2002 2003 2002 £'000 £'000 £'000 £'000 ---------------------------------- ------ ------ ------- ------- Actual return less expected return 654 (700) 1,696 (4,064) on pension scheme assets Percentage difference between 11% 13% 8% 25% expected and actual return Experience gains and losses - (725) - 38 arising on the scheme liabilities Percentage of the present value of - 9% - 0.2% the scheme liabilities Total amount recognised in (295) (415) (1,705) (132) statement of recognised gains and losses Percentage of the present value of 3% 5% 5% 0.5% the scheme liabilities ---------------------------------- ------ ------ ------- ------- (vi) The total regular contributions made by the Group to the Rathbone Scheme during the year were £1,777,416 (2002: £1,790,655) based on 11.5% of pensionable salary. No additional lump sum contributions were paid in 2003 (2002: £1,000,000). Future employer contributions will continue at the rate of 11.5% of pensionable salaries. Given that after 31st March 2002 the Rathbone Scheme was closed to new entrants, the current pension cost will increase as the members of the Scheme approach retirement. The total contributions made by the Group to the Laurence Keen Scheme during the year were £33,000 (2002: £8,250). Future employer contributions of £562,000 p.a. will be paid to the Scheme over ten years commencing in 2004. As the Scheme was closed to new entrants with effect from 1st October 1999, the current pension cost will increase as the members of the Scheme approach retirement. 9 Gains on sales of investment securities No. Sale Attributable shares Cost proceeds Profit Tax Security sold £'000 £'000 £'000 £'000 --------------------- --------- ------- -------- -------- --------- London Stock Exchange 250,000 - 909 909 273 plc Consort Security 35,000 35 192 157 47 Systems Limited Euroclear Bank S.A./ 1 - 22 22 7 N.V. --------------------- --------- ------- -------- -------- --------- 35 1,123 1,088 327 --------------------- --------- ------- -------- -------- --------- 10 Group cash flow statement (i) Reconciliation of operating profit to net cash inflow from operating activities 2003 2002 £'000 £'000 ------------------------------------------------- -------- -------- Operating profit 14,165 14,548 (Profit)/loss on disposal of tangible fixed (60) 11 assets Depreciation and amortisation 8,661 7,220 UITF Abstract 17 SIP charge 1,165 283 Provision for bad and doubtful debts 132 341 Net (increase) in accrued income and prepayments (1,524) (801) Net increase/(decrease) in provision for 86 (1,067) liabilities and charges Net increase in accruals and deferred income 903 1,841 ------------------------------------------------- -------- -------- Net cash inflow from trading activities 23,528 22,376 Net (increase)/decrease in loans and advances to (304) 1,057 banks and customers Net (increase)/decrease in settlement debtor (6,684) 1,790 balances Net increase/(decrease) in settlement creditor 5,511 (1,522) balances Net (decrease) in deposits by banks and customer (37,109) (9,266) accounts Net increase/(decrease) in other liabilities 85 (41) Net decrease in other assets 338 443 ------------------------------------------------- -------- -------- Net cash (outflow)/inflow from operating (14,635) 14,837 activities ------------------------------------------------- -------- -------- (ii) Analysis of the balances of cash as shown in the balance sheet At 1st At 31st January Cash Non-cash Exchange December 2003 flow Changes movements 2003 £'000 £'000 £'000 £'000 £'000 -------------------- -------- --------- -------- -------- -------- Cash and balances at 19,019 (15,779) - (35) 3,205 central banks Loans and advances to banks repayable on demand 28,276 8,644 - (96) 36,824 -------------------- -------- --------- -------- -------- -------- Total 47,295 (7,135) - (131) 40,029 -------------------- -------- --------- -------- -------- -------- The Group is required to maintain balances with the British Virgin Islands government which, at 31st December 2003, amounted to £302,000 (2002: £335,000). (iii) Analysis of changes in financing Share Share Shares capital premium to be issued £'000 £'000 £'000 ------------------------------ ----------- --------- -------- Balance at 1st January 2003 1,969 9,639 1,927 Cash inflow 37 4,003 - Other movement 27 149 (1,927) ------------------------------ ----------- --------- -------- Balance at 31st December 2003 2,033 13,791 - ------------------------------ ----------- --------- -------- (iv) Acquisition of subsidiary undertakings and businesses The effects of the acquisitions made during the year are set out in Note 7. The companies/businesses acquired did not make a material contribution to the Group's net operating cashflows or capital expenditure. (v) Major non-cash transactions The consideration for the companies/businesses acquired included shares - see Note 7(a). (vi) Disposal of investment securities Net sale proceeds of £1,123,000 were received in relation to the sale of investment securities - see Note 9. 11 Prior year adjustment Previously, the gross value of income arising from the sale of units by Rathbone Unit Trust Management Limited was included in 'Fees and commissions receivable' and the value of discounts given in relation to those sales was included in 'Fees and commissions payable'. Application Note G to FRS 5 'Reporting the substance of transactions' on revenue recognition, issued on 13th November 2003, states that revenue should be measured at the fair value of the right to consideration and that this will normally be the price specified in the contractual arrangement, net of discounts, value added tax and similar sales taxes. Accordingly, the accounting policy for income arising from the sale of units by Rathbone Unit Trust Management Limited has been changed so that the income net of any discount given is now included in 'Fees and commissions receivable'. The comparatives for 2002 have been restated as follows: Fees and Fees and Gross operating commissions commissions income payable receivable £'000 £'000 £'000 ----------------------- ---------- ---------- ----------- As previously reported 73,880 (7,063) 95,969 Discounts given (5,301) 5,301 (5,301) ----------------------- ---------- ---------- ----------- As restated 68,579 (1,762) 90,668 ----------------------- ---------- ---------- ----------- The effect of the change in accounting policy in 2003 has been to reduce 'Fees and commissions receivable', 'Fees and commissions payable' and 'Gross operating income' by £10,907,000. This change in accounting policy has no impact on operating profit, profit before tax, profit after tax or net assets. 12 Financial information The financial information set out in this preliminary announcement has been extracted from the Group's accounts which have been approved by the Board of Directors. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31st December 2003 or 2002. Statutory accounts for 2002 have been delivered to the Registrar of Companies and those for 2003 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts. Their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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