Final Results
Rathbone Brothers PLC
06 March 2008
6 March 2008
Rathbone Brothers Plc
Preliminary results for the 12 months to 31 December 2007
Strong organic growth continues at Rathbone Brothers Plc
Rathbone Brothers Plc, a leading provider of discretionary fund management and
wealth management services for private investors and trustees, announces its
preliminary results for the year ended 31 December 2007.
Highlights:
___________
• Operating income increased by 15.6% to £154.5 million (2006: £133.7
million).
• Profits before tax rose by 16.8% to £52.2 million (2006: £44.7 million).
o Excluding gains on a part disposal of London Stock exchange shares,
underlying profit before tax rose by 22.7% from £41.5 million to
£50.9 million.
• Funds under management rose by 7.2% over 2007 to £13.12 billion
(£12.24 billion).
• Organic growth of funds under management in Rathbone Investment
Management (in the UK and Jersey) at highest ever level of 7.8%.
• Basic earnings per share rose by 14.7% to 87.88p (2006: 76.62p).
• Recommended final dividend is 25p, making a total of 41p (2006: 35p)
for the year - an overall increase of 17.1%.
• Acquisition of Citywall Financial Management adds an office in Exeter.
Mark Powell, chairman of Rathbone Brothers Plc, commented:
'Record results have been achieved and the rate of net organic growth of funds
under management, at 7.8 per cent, is the highest that Rathbone Investment
Management, in the UK and Jersey, has ever announced. These statistics reflect
our continuing commitment to promoting Rathbones as the investment manager of
choice for private investors and trustees, and we believe it reflects a growing
awareness of Rathbones. Particular efforts have been made in promoting our
services to professional intermediaries, to charity trustees and in the
increasingly important market for self-invested personal pensions.
'Despite the uncertainties created by the problems being experienced in credit
markets and high levels of day-to-day volatility in equity markets, Rathbones is
well placed to continue to grow our investment management and other services. In
part, this reflects the quality of our client relationships and we are confident
of the long term future.'
For further information contact:
Rathbone Brothers Plc Smithfield
020 7399 0000 (Switchboard) 020 7360 4900 (Switchboard)
Mark Powell, Chairman Reg Hoare
Andy Pomfret, Chief Executive Miranda Good
Emily Morris, Marketing Director
Notes for editors:
Rathbone Brothers Plc
Rathbone Brothers Plc specialises in providing, through its subsidiaries, high
quality, personalised investment management and wealth management services for
private investors and trustees, including discretionary fund management, unit
trusts, tax planning, trust and company management, pension and banking
services. It manages £13.12 billion of funds, including £1.89 billion managed by
Rathbone Unit Trust Management Limited (as at 31 December 2007).
Chairman's statement
I am delighted to report our results for the year ended 31 December 2007.
Despite the tensions and uncertainties associated with the difficulties in
credit markets, record results have been achieved. The percentage rate of net
organic growth of funds under management is the highest that Rathbone Investment
Management, in the UK and Jersey, has ever announced.
Results and dividend
Profit before tax for the year to 31 December 2007 was £52.2 million compared
with £44.7 million in 2006 - an increase of 16.8%. Excluding profits arising
from part disposals of our investment in London Stock Exchange Group Plc of £1.3
million in 2007 and £3.2 million in 2006, underlying profits have increased by
22.7%.
Reported earnings per share have risen by 14.7% to 87.88p compared with 76.62p
in 2006. Underlying earnings per share have risen from 71.28p to 85.74p, an
increase of 20.3%.
It is recommended that the final dividend be increased to 25.0p (2006: 21.5p)
making a total of 41.0p for the year (2006: 35.0p), an increase of 17.1%.
2007 can be characterised as a year of two parts. During the first half of the
year, bond and equity markets were firm and made progress. In the second half,
the well-publicised difficulties arising from sub-prime mortgage lending in the
USA led to very difficult conditions in credit markets and much more volatile
equity markets. July and August saw the FTSE 100 Index fall by over 12%.
Although there has been some overall recovery, at the year end the FTSE 100
Index had risen by only 3.8% and the FTSE/APCIMS Balanced Index rose by 2.5%.
As announced on 10 January 2008, funds under management as a whole have risen
during 2007 by 7.2% to £13.12 billion (2006: £12.24 billion). Adjusting for
funds withdrawn and acquired, and for market movements this represents an
underlying organic growth rate of 7.9%. The value of funds under management
within Rathbone Investment Management including Rathbone Investment Management
International (RIMI), rose by 8.2% to £11.23 billion (2006: £10.38 billion) and
the value of funds under management in Rathbone Unit Trusts rose by 1.6% to
£1.89 billion (2006: £1.86 billion).
Within Rathbone Investment Management (including RIMI) the underlying net
organic growth rate for 2007 was 7.8% compared with 7.2% in 2006 and 5.8% in
2005. These statistics reflect our continuing commitment to promoting Rathbones
as the investment manager of choice for private investors and trustees, and we
believe that it reflects a growing awareness of Rathbones. Particular efforts
have been made in promoting our services to professional intermediaries, to
charity trustees and in the increasingly important market for self-invested
personal pensions.
Your Board considers that this excellent rate of net organic growth reflects the
value of our policy of combining the roles of investment management and client
relationship management. We believe that it is greatly appreciated by clients
and prospective clients, and that it is the way of providing the most
appropriate investment solution for each individual client in the light of their
circumstances and risk appetite.
In common with other unit trust managers, Rathbone Unit Trust Management
experienced difficult trading conditions in the second half of the year and
funds under management for the year as a whole grew by 1.6% compared with the
remarkable 55.0% achieved in 2006. The Chancellor of the Exchequer's proposals
for changes to capital gains tax evidently had some impact on sales and
redemptions in UK equity income funds, and the credit crunch clearly had an
adverse impact on the confidence of retail investors and intermediary advisers.
During 2007, profits from our trust and tax activities grew by 69.6% to £3.9
million (2006: £2.3 million) as the benefits of the relocation of our offices in
Jersey into one building have been felt. This improvement in profitability was
achieved despite a rather unhelpful background in the provision of fiduciary and
trust services from offshore centres and the management of this division has
expended considerable energies in seeking to control costs and to identify new
business opportunities.
With this in mind we announced the acquisition of a small, well-established
trust business in Singapore in April 2007 which is now headed by a director of
our Jersey operation.
'Credit crunch'
The 'credit crunch' has not had a detrimental impact on Rathbones' ability to
finance its operations, indeed the consequent impact on credit markets in the
second half of the year has been beneficial for profitability.
Our banking licence allows our treasury department to make use of a range of
appropriate instruments issued by counterparties with high ratings when placing
funds in the money markets. Rathbones, as a net provider of liquidity to the
banking markets, has been able to take advantage of historically high short-term
interest rate margins, which has had the effect of increasing interest income in
the last quarter of the year when liquidity in client portfolios rose to £990
million (2006: £697 million).
Rathbones has no reliance on debt markets to finance its operating activities
and does not anticipate that this will change.
Corporate activity
For many years Rathbones has sought to supplement organic growth through the
acquisition of suitable businesses and the recruitment of established
professionals from other organisations. 2007 has seen a great deal of enquiry in
this area but it has not proved possible to make suitable acquisitions at
valuations which your Board has considered attractive. Since the year end we
have, however, committed to take over a small investment management business
based in Exeter and we are delighted to be establishing a presence there. It
will complement our existing office in Bristol.
Our approach to acquisition opportunities is that they must meet the criteria of
involving professionals who share our commitment to discretionary investment
management and that they are earnings enhancing within a reasonable timeframe or
broaden the range of services available to our clients.
Sue Desborough
The tragic and untimely death of our finance director at the end of November has
cast a dark shadow over Rathbones.
Sue joined Rathbones as group financial controller in 2000 and in October 2004
was appointed finance director. During her all too brief time with us she had
made an enormous contribution to Rathbones as a friend, as a professional and as
a greatly admired and respected colleague. She will be sadly missed by us all.
Composition of the Board
During the year, two of our non-executive directors, Roy Morris and Jamie
Cayzer-Colvin, have retired. Roy first joined Rathbones 50 years ago and was
chief executive from 1997 to 2004. He has made a massive contribution to
Rathbones over a remarkable career. Jamie Cayzer-Colvin has served as a
non-executive director for over five years and we have benefited from his
experience of the financial sector generally and the investment management area
in particular.
In December we welcomed David Harrel and John May to our Board as new
non-executive directors. They both bring with them wide experience which I am
confident will be of great value to us.
Outlook
Despite the uncertainties created by the problems being experienced in credit
markets and high levels of day-to-day volatility in equity markets, Rathbones is
well placed to continue to grow our investment management and other services. In
part, this reflects the quality of our client relationships and we are confident
of the long term future.
Mark Powell
Chairman
5 March 2008
Consolidated income statement
for the year ended 31 December 2007
2007 2006
Note £'000 £'000
______________________________________________________________________________________
Interest and similar income 52,058 37,335
Interest expense and similar charges (32,568) (21,297)
______________________________________________________________________________________
Net interest income 19,490 16,038
______________________________________________________________________________________
Fee and commission income 141,929 120,039
Fee and commission expense (11,499) (8,365)
______________________________________________________________________________________
Net fee and commission income 130,430 111,674
______________________________________________________________________________________
Dividend income 67 117
Net trading income 1,676 1,285
Net income from sale of available for sale securities 1,297 3,196
Other operating income 1,565 1,376
______________________________________________________________________________________
Operating income 154,525 133,686
Operating expenses (102,301) (88,966)
______________________________________________________________________________________
Profit before tax 52,224 44,720
Taxation 5 (14,844) (12,582)
______________________________________________________________________________________
Profit for the year attributable to equity holders of the
company 37,380 32,138
______________________________________________________________________________________
Dividends paid and proposed for the year per ordinary 6
share (p) 41.00p 35.00p
Dividends paid and proposed for the year (£'000) 6 17,479 14,786
Earnings per share attributable to equity holders of the
company for the year: 7
Basic (p) 87.88p 76.62p
Diluted (p) 86.46p 74.71p
______________________________________________________________________________________
Consolidated balance sheet
as at 31 December 2007
2007 2006
£'000 £'000
restated
Note (note 1)
_______________________________________________________________________________________
Assets
Cash and balances at central banks 275 281
Settlement balances 21,573 19,628
Loans and advances to banks 250,103 119,247
Loans and advances to customers 39,380 77,360
Investment securities
- available for sale 6,948 6,152
- held to maturity 765,274 558,368
Intangible assets 85,734 81,248
Property, plant and equipment 8,131 6,463
Deferred tax asset 3,528 5,321
Prepayments, accrued income and other assets 45,677 38,551
_______________________________________________________________________________________
Total assets 1,226,623 912,619
_______________________________________________________________________________________
Liabilities
Deposits by banks 12,460 12,119
Settlement balances 19,926 18,078
Due to customers 946,608 664,762
Accruals, deferred income, provisions and other
liabilities 49,637 39,605
Current tax liabilities 6,790 8,143
Retirement benefit obligations 9 6,452 10,763
_______________________________________________________________________________________
Total liabilities 1,041,873 753,470
_______________________________________________________________________________________
Equity
Share capital 2,134 2,114
Share premium 27,758 24,518
Other reserves 10 54,181 53,488
Retained earnings 10 100,677 79,029
_______________________________________________________________________________________
Total equity 184,750 159,149
_______________________________________________________________________________________
Total equity and liabilities 1,226,623 912,619
_______________________________________________________________________________________
Consolidated cash flow statement
for the year ended 31 December 2007
2007 2006
£'000 £'000
restated
Note (note 1)
_______________________________________________________________________________________
Cash flows from operating activities
Profit before tax 52,224 44,720
Net interest income (19,490) (16,038)
Net income from sale of available for sale securities (1,297) (3,196)
Impairment losses on loans and advances 130 323
Profit on disposal of plant and equipment (17) (49)
Depreciation and amortisation 4,723 3,418
Defined benefit pension scheme charges 2,554 3,448
Share based payment charges 2,692 2,080
Interest paid (31,811) (20,655)
Interest received 47,457 30,728
_______________________________________________________________________________________
57,165 44,779
Changes in operating assets and liabilities
- net decrease in loans and advances to banks and customers 14,280 18,158
- net (increase) in settlement balance debtors (1,945) (5,611)
- net (increase) in prepayments, accrued income and other assets (2,269) (6,881)
- net increase in amounts due to customers and deposits by banks 280,791 129,407
- net increase in settlement balance creditors 1,848 1,946
- net increase in accruals, deferred income, provisions
and other liabilities 8,697 5,296
_______________________________________________________________________________________
Cash generated from operations 358,567 187,094
Defined benefit pension contributions paid (6,595) (5,927)
Tax paid (13,773) (10,609)
_______________________________________________________________________________________
Net cash inflow from operating activities 338,199 170,558
_______________________________________________________________________________________
Cash flows from investing activities
Acquisition of businesses, net of cash acquired (422) (5,786)
Purchase of property, equipment and intangible assets (10,199) (5,690)
Proceeds from sale of property and equipment 44 113
Purchase of investment securities (1,276,420) (1,453,970)
Proceeds from sale and redemption of investment securities 1,070,811 1,294,798
_______________________________________________________________________________________
Net cash used in investing activities (216,186) (170,535)
_______________________________________________________________________________________
Cash flows from financing activities
Repayments of debt securities - (141)
Purchase of shares for share-based schemes (3,210) (3,407)
Issue of ordinary shares 11 2,963 6,715
Dividends paid 6 (15,914) (13,449)
_______________________________________________________________________________________
Net cash used in financing activities (16,161) (10,282)
_______________________________________________________________________________________
Net increase/(decrease) in cash and cash equivalents 105,852 (10,259)
Cash and cash equivalents at the beginning of the year 108,343 118,883
Effect of exchange rate changes on cash and cash equivalents 25 (281)
_______________________________________________________________________________________
Cash and cash equivalents at the end of the year 11 214,220 108,343
_______________________________________________________________________________________
Consolidated statement of recognised income and expense
for the year ended 31 December 2007
2007 2006
Note £'000 £'000
_______________________________________________________________________________________
Profit after taxation 37,380 32,138
_______________________________________________________________________________________
Exchange translation differences 14 (240)
Actuarial gain on retirement benefit obligation 9 270 5,468
Revaluation of available for sale investment securities:
_______________________________________________________________________________________
- net gain from changes in fair value 2,069 4,202
- net profit on disposal transferred to income during the
period (1,297) (3,196)
_______________________________________________________________________________________
772 1,006
Deferred tax on equity items:
_______________________________________________________________________________________
- available for sale investment securities (93) (302)
- actuarial gains and losses 34 (1,640)
- share-based payments 694 362
_______________________________________________________________________________________
635 (1,580)
_______________________________________________________________________________________
Net income recognised directly in equity 1,691 4,654
_______________________________________________________________________________________
Recognised income and expense for the year attributable to
equity holders of the company 39,071 36,792
_______________________________________________________________________________________
Notes
1. Accounting policies
In preparing the financial information included in this statement the Group has
applied accounting policies which are in accordance with International Financial
Reporting Standards as adopted by the European Commission at 31 December 2007.
The accounting policies have been applied consistently to all periods presented
in the consolidated accounts, except as noted below.
The comparative balances have been restated to be consistent with the current
year presentation of the Translation Reserve as a component of Other Reserves.
In prior years, the Translation Reserve was included as a component of retained
earnings. Comparative balances have also been restated to reflect the exclusion
of held to maturity debt securities from cash equivalents and the cash flow
statement. This amendment has had no impact on profit or equity.Rathbone
Brothers Plc is a public company incorporated in Great Britain.
2. Critical accounting judgements and key sources of estimation and uncertainty
The Group makes estimates and assumptions that affect the reported amounts of
assets and liabilities within the next financial year. Estimates and judgements
are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances.
Retirement benefit obligations
The Group makes estimates about a range of long-term trends and market
conditions to determine the value of the deficit on its retirement benefit
schemes, based on the Group's expectations of the future and advice taken from
qualified actuaries. The principal assumptions underlying the reported deficit
of £6,452,000 are given in note 9.
Long-term forecasts and estimates are necessarily highly judgemental and subject
to risk that actual events may be significantly different to those forecast. If
actual events deviate from the assumptions made by the Group then the reported
surplus or deficit in respect of retirement benefit obligations may be
materially different. The history of experience adjustments and information on
the sensitivity of the retirement benefit obligation to changes in underlying
estimates is set out in note 9.
Impairment of goodwill
The Group makes estimates in relation to the value in use of the cash generating
units to which goodwill has been allocated in determining whether goodwill is
impaired. The value in use calculation requires the entity to estimate the
future cash flows expected to arise from the cash-generating unit and a suitable
discount rate in order to calculate present value. The carrying amount of
goodwill at the balance sheet date was £70,536,000. There has been no impairment
of goodwill in prior years.
Share-based payments
In determining the fair value of equity settled share-based awards and the
related charge to the income statement, the Group makes assumptions about future
events and market conditions. In particular, judgements must be formed as to the
likely number of shares that will vest, and the fair value of each award
granted. The fair value of awards is determined using a valuation model which is
dependent on further estimates, including the Group's future dividend policy,
employee turnover, the timing with which options will be exercised and future
volatility in the price of the Group's shares. Such assumptions are based on
publicly available information, where available, and reflect market expectations
and advice taken from qualified actuaries. Different assumptions about these
factors to those made by the Group could materially affect the reported value of
share-based payments.
Income recognition
Revenue in the Trust and Tax business is calculated by reference to the
estimated stage of completion of the service rendered. Estimates are also made
as to the recoverability of work in progress and debtors in relation to this
income. At the year end, total work in progress and debtors for Trust and Tax
services amounted to £13,363,000 (2006: £11,372,000).
Conversely, very little judgement is required in the recognition of income
arising from the Investment Management and Unit Trusts businesses due to the
close proximity of billing dates to the year end and the inherently
non-judgemental nature of interest accrual calculations.
3. Segmental information
(a) Business segments
For management purposes, the Group is currently organised into three operating
divisions: Investment Management, Unit Trusts and Trust and Tax Services. These
divisions are the basis on which the Group reports its primary segment
information.
Transactions between the business segments are on normal commercial terms and
conditions. Intra-segment income constitutes trail commission. Revenues and
expenses are allocated to the business segment that originated the transaction.
Revenues and expenses that are not directly originated by a business segment are
reported as unallocated. Centrally incurred expenses are allocated to business
segments on an appropriate pro-rata basis. Segment assets and liabilities
comprise operating assets and liabilities, being the majority of the balance
sheet, but exclude items such as taxation and borrowings.
Trust
Investment Unit and tax
management trusts services Eliminations Total
At 31 December 2007 £'000 £'000 £'000 £'000 £'000
_________________________________________________________________________________________
External revenues 141,078 30,303 25,914 - 197,295
Revenues from other segments 1,606 - - (1,606) -
_________________________________________________________________________________________
142,684 30,303 25,914 (1,606) 197,295
Unallocated external revenues 1,297
_________________________________________________________________________________________
Total gross revenues (note 3c) 198,592
_________________________________________________________________________________________
Segment result 40,091 6,880 3,956 50,927
Unallocated items 1,297
_________________________________________________________________________________________
Profit before tax 52,224
Taxation (14,844)
_________________________________________________________________________________________
Profit for the year 37,380
_________________________________________________________________________________________
Segment assets 1,115,899 27,837 59,722 1,203,458
Unallocated assets 23,165
_________________________________________________________________________________________
Total assets 1,226,623
_________________________________________________________________________________________
Segment liabilities 974,760 21,390 18,462 1,014,612
Unallocated liabilities 27,261
_________________________________________________________________________________________
Total liabilities 1,041,873
_________________________________________________________________________________________
Other segment items:
Capital expenditure 8,718 262 912 9,892
Depreciation and amortisation 3,724 148 850 4,722
Other non-cash expenses 1,852 256 714 2,822
Provisions charged in the year 1,080 - 911 1,991
Provisions utilised in the year 5,512 - 922 6,434
_________________________________________________________________________________________
Trust
Investment Unit and tax
management trusts services Eliminations Total
At 31 December 2006 £'000 £'000 £'000 £'000 £'000
_________________________________________________________________________________________
External revenues 115,322 22,652 22,178 - 160,152
Revenues from other segments 1,463 - - (1,463) -
_________________________________________________________________________________________
116,785 22,652 22,178 (1,463) 160,152
Unallocated external revenues 3,196
_________________________________________________________________________________________
Total gross revenues (note 3c) 163,348
_________________________________________________________________________________________
Segment result 34,119 5,059 2,346 41,524
Unallocated items 3,196
_________________________________________________________________________________________
Profit before tax 44,720
Taxation (12,582)
_________________________________________________________________________________________
Profit for the year 32,138
_________________________________________________________________________________________
Segment assets 805,597 17,307 55,193 878,097
Unallocated assets 34,522
_________________________________________________________________________________________
Total assets 912,619
_________________________________________________________________________________________
Segment liabilities 689,943 12,654 18,048 720,645
Unallocated liabilities 32,825
_________________________________________________________________________________________
Total liabilities 753,470
_________________________________________________________________________________________
Other segment items:
Capital expenditure 11,995 194 2,393 14,582
Depreciation and amortisation 2,737 143 538 3,418
Other non-cash expenses 1,481 208 714 2,403
Provisions charged in the year 1,788 - 613 2,401
Provisions utilised in the year 6,273 - 457 6,730
_________________________________________________________________________________________
Unallocated external revenues comprise gains on disposal of available for sale
securities.
(b) Geographical segments
The Group's operations are located in the United Kingdom, Jersey, Switzerland,
the British Virgin Islands and Singapore. The following table provides an
analysis of the Group's revenues by geographical market, by origin of the
services:
Total gross revenues by geographical market
2007 2006
£'000 £'000
______________________________________________________________________________________
United Kingdom 171,556 140,666
Jersey 21,686 18,421
Rest of the world 5,350 4,261
______________________________________________________________________________________
198,592 163,348
______________________________________________________________________________________
The following is an analysis of the carrying amount of segment assets, and
additions to property, plant and equipment and intangible assets, analysed by
the geographical area in which the assets are located:
Assets allocated to business segments
2007 2006
£'000 £'000
______________________________________________________________________________________
United Kingdom 1,145,684 826,822
Jersey 37,123 31,448
Rest of the world 20,651 19,827
______________________________________________________________________________________
1,203,458 878,097
______________________________________________________________________________________
Additions to property, plant and equipment and intangible assets
2007 2006
£'000 £'000
______________________________________________________________________________________
United Kingdom 9,790 12,421
Jersey 296 2,122
Rest of the world 23 39
______________________________________________________________________________________
10,109 14,582
______________________________________________________________________________________
(c) Total gross revenues and operating income
2007 2006
£'000 £'000
______________________________________________________________________________________
Interest and similar income 52,058 37,335
Fee and commission income 141,929 120,039
Dividend income 67 117
Net trading income 1,676 1,285
Net income from sale of available for sale securities 1,297 3,196
Other operating income 1,565 1,376
______________________________________________________________________________________
Total gross revenues 198,592 163,348
Interest expense and similar charges (32,568) (21,297)
Fee and commission expense (11,499) (8,365)
Operating income 154,525 133,686
______________________________________________________________________________________
4. Business combinations
On 2 April 2007, the Group acquired the entire share capital of Federal Trust
(Singapore) Pte Limited for cash consideration of £496,000 and contingent,
deferred consideration of up to £249,000. The acquired business' net assets at
the acquisition date were as follows:
Recognised Fair value Carrying
Values adjustments amounts
£'000 £'000 £'000
________________________________________________________________________________________
Cash and cash equivalents 198 - 198
Other current assets 170 - 170
Property, plant and equipment 9 - 9
Client relationships 93 93 -
Current liabilities (293) - (293)
________________________________________________________________________________________
Net identifiable assets acquired 177 93 84
_________________________
Goodwill on acquisition 568
_______________________________________________________________
Total net assets acquired 745
_______________________________________________________________
Included within the consolidated income statement for the year is a loss before
tax, including acquisition costs, of £290,000 relating to the acquired business.
If the business had been acquired on 1 January 2007, consolidated profit before
tax for the Group would have been £52,255,000.
The goodwill arising on the acquisition is attributable to the anticipated
profitability of incorporating the business into the Group's operating model.
5. Taxation
2007 2006
£'000 £'000
______________________________________________________________________________________
Current tax 12,371 10,820
Adjustments in respect of previous years 45 64
Deferred tax 2,428 1,698
______________________________________________________________________________________
14,844 12,582
______________________________________________________________________________________
The tax charge for the year is lower (2006: lower) than the standard rate of
corporation tax in the UK of 30% (2006: 30%). The differences are explained
below:
2007 2006
£'000 £'000
______________________________________________________________________________________
Tax on profit from ordinary activities at the standard
rate of 30% (2006 - 30%) 15,667 13,416
Effects of:
UK dividend income - (23)
Disallowable expenses 617 257
Share-based payments (854) (649)
Trading losses 83 -
Tax relief on purchased goodwill - 79
Lower tax rates on overseas earnings (1,161) (719)
Under provision for tax in previous years 45 221
Effect of change in corporation tax rate 447 -
______________________________________________________________________________________
Income tax expense 14,844 12,582
In addition to the amount charged to the income statement, deferred tax relating
to actuarial gains and losses, share-based payments and gains and losses arising
on available for sale investment securities amounting to £635,000 has been
credited directly to equity (2006: £1,580,000 charged to equity).
6. Dividends
2007 2006
£'000 £'000
______________________________________________________________________________________
Amounts recognised as distributions to equity holders in the year:
- final dividend for the year ended 31 December 2006 of 21.5p
(2005: 18.5p) per share 9,107 7,753
- interim dividend for the year ended 31 December 2007 of
16.0p (2006: 13.5p) per share 6,807 5,696
______________________________________________________________________________________
15,914 13,449
______________________________________________________________________________________
Proposed final dividend for the year ended 31 December 2007 of
25.0p (2006: 21.5p) per share 10,672 9,090
______________________________________________________________________________________
The interim dividend of 16.0p per share was paid on 10 October 2007 to
shareholders on the register at the close of business on 21 September 2007.
The final dividend declared of 25.0p per share is payable on 14 May 2008 to
shareholders on the register at the close of business on 18 April 2008. The
final dividend is subject to approval by shareholders at the Annual General
Meeting and has not been included as a liability in these financial statements.
7. Earnings per share
Basic earnings per share has been calculated by dividing the profits
attributable to shareholders of £37,380,000 (2006: £32,138,000) by the weighted
average number of shares in issue throughout the year of 42,536,821 (2006:
41,946,781).
Diluted earnings per share is the basic earnings per share, adjusted for the
effect of contingently issuable shares under the Long Term Incentive Plan,
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).
2007 2006
______________________________________________________________________________________
Weighted average number of ordinary shares in issue
during the year - basic 42,536,821 41,946,781
Effect of ordinary share options 461,167 580,127
Effect of dilutive shares issuable under the Share
Incentive Plan 85,535 152,580
Effect of contingently issuable ordinary shares under the
Long Term Incentive Plan 148,431 334,720
______________________________________________________________________________________
Diluted weighted average number of ordinary shares 43,231,954 43,014,208
______________________________________________________________________________________
8. Provisions
Deferred
Contingent Client Litigation
consideration compensation related Total
£'000 £'000 £'000 £'000
___________________________________________________________________________________________
At 1 January 2007 6,407 1,525 516 8,448
Exchange adjustments (3) - - (3)
___________________________________________________________________________________________
Charged to the income statement 1,308 683 1,991
Unused amount credited to the income
statement (134) (86) (220)
___________________________________________________________________________________________
Net charge to the income statement(i) 1,174 597 1,771
Capitalised during the year(ii) 4,377 4,377
Utilised/paid during the year (4,938) (724) (772) (6,434)
___________________________________________________________________________________________
At 31 December 2007 5,843 1,975 341 8,159
___________________________________________________________________________________________
Current 3,834 1,935 341 6,110
Non-current 2,009 40 - 2,049
___________________________________________________________________________________________
5,843 1,975 341 8,159
___________________________________________________________________________________________
(i) In addition to the net charge of £1,771,000 (2006: £1,551,000) to the
income statement in the above table, a net credit of £723,000
(2006: £179,000) has been recognised in the income statement during the
period in relation to expected insurance recoveries resulting in a net
charge to the income statement for other provisions of £1,048,000
(2006: £1,372,000).
(ii) Amounts capitalised during the period comprise £249,000 deferred
consideration in relation to the acquisition of Federal Trust (Singapore)
Pte Limited (see note 4) and £4,128,000 in relation to deferred payments
to investment managers under earn-out schemes. The amount of the deferred
consideration arising on earn-out schemes is contingent on the value of
funds attracted and is payable in cash.
At 31 December 2007, anticipated insurance recoverables relating to client
compensation and litigation related provisions of £477,000 (2006: £436,000) were
included within other assets.
In the ordinary course of business, the Group receives complaints from clients
in relation to the services provided. Complaints are assessed on a case by case
basis and provisions for compensation are made where judged necessary.
Provisions have also been made in relation to a number of cases where legal
proceedings are expected to result in loss to the Group.
9. Retirement benefit obligations
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 of contributions made to this scheme during the year
was £697,000 (2006: £594,000). The Group also operates defined contribution
schemes for overseas employees, for which the total contributions were £581,000
(2006: £517,000).
The Group operates two funded pension schemes providing benefits based on final
pensionable pay for executive directors and staff employed by the Company in the
UK (the Rathbone 1987 Scheme and the Laurence Keen Scheme). The schemes are
currently both clients of Rathbone Investment Management Limited, with
investments managed on a discretionary basis, in accordance with the statement
of investment principles agreed by the trustees. Scheme assets are held
separately from those of the Group.
The trustees of the fund are required to act in the best interest of the fund's
beneficiaries. The appointment of trustees to the fund 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 fund.
The scheme operated by Rathbone Stockbrokers Limited (the Laurence Keen Scheme)
was closed to new entrants and future pension accrual for the current membership
with effect from 1 October 1999. As from that date 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. Both schemes continue on a closed
basis with the existing assets remaining invested thereunder.
The schemes are valued by independent actuaries 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:
Last full actuarial valuation as at:
_________________________________________________________________________________
Rathbone 1987 Scheme 31 December 2004
Laurence Keen Scheme 31 December 2005
_________________________________________________________________________________
The actuarial valuation of the Rathbone 1987 Scheme as at 31 December 2007 is in
progress but has not yet been completed.
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. The principal actuarial assumptions used,
which reflect the different membership profiles of the schemes, were:
2007 2006 2007 2006
Laurence Laurence Rathbone Rathbone
Keen Keen 1987 1987
Scheme Scheme Scheme Scheme
_________________________________________________________________________________________
Rate of increase in salaries 4.55% 4.15% 4.55% 4.15%
Rate of increase in pensions in payment *3.60% *3.50% *3.20% *2.90%
Rate of increase of deferred pensions 3.30% 2.90% 3.30% 2.90%
Discount rate 5.70% 5.20% 5.70% 5.20%
Expected return on scheme assets 6.10% 6.21% 7.10% 7.09%
Inflation assumption 3.30% 2.90% 3.30% 2.90%
_________________________________________________________________________________________
* 5% for service prior to April 2001
The assumed duration of the liabilities for both schemes is 25 years (2006: 25
years). The overall expected return on scheme assets is a weighted average of
the returns expected on each class of asset held by the scheme, as disclosed
below.
Normal retirement age is 65 for members of the Laurence Keen Scheme and 60 for
members of the Rathbone 1987 Scheme. The assumed life expectancy for the
membership of both schemes is based on the PA92 actuarial tables. In 2007, the
assumption for life expectancy was updated to take account of recent and
expected future improvements in life expectancy by using the 'Medium Cohort'
projection, rated up by 2 years. The assumed life expectations on retirement
were:
2007 2007 2006 2006
Males Females Males Females
____________________________________________________________________________________
Retiring today - aged 60 24.7 27.7 24.7 27.6
- aged 65 20.0 22.9 20.0 22.9
Retiring in 20 years - aged 60 25.9 28.7 25.9 28.7
- aged 65 21.1 23.9 21.1 23.9
____________________________________________________________________________________
The amount included in the balance sheet arising from the Group's obligations in
respect of the schemes is as follows:
2007 2007 2006 2006
Laurence Rathbone Laurence Rathbone
Keen 1987 2007 Keen 1987 2006
Scheme Scheme Total Scheme Scheme Total
£'000 £'000 £'000 £'000 £'000 £'000
___________________________________________________________________________________________
Present value of defined
benefit obligations (10,301) (60,274) (70,575) (10,423) (53,982) (64,405)
Fair value of scheme assets 9,708 54,415 64,123 8,996 44,646 53,642
___________________________________________________________________________________________
Deficit in schemes (593) (5,859) (6,452) (1,427) (9,336) (10,763)
___________________________________________________________________________________________
The amounts recognised in the income statement, within operating expenses, are
as follows:
2007 2007 2006 2006
Laurence Rathbone Laurence Rathbone
Keen 1987 2007 Keen 1987 2006
Scheme Scheme Total Scheme Scheme Total
£'000 £'000 £'000 £'000 £'000 £'000
___________________________________________________________________________________________
Current service cost - 3,083 3,083 - 3,445 3,445
Interest cost 532 2,897 3,429 567 2,571 3,138
Expected return on scheme assets (551) (3,407) (3,958) (480) (2,655) (3,135)
___________________________________________________________________________________________
(19) 2,573 2,554 87 3,361 3,448
Actuarial gains and losses have been reported in the statement of recognised
income and expense. The actual return on scheme assets was £621,000 (2006:
£565,000) for the Laurence Keen Scheme and £3,317,000 (2006: £3,381,000) for the
Rathbone 1987 Scheme.
The cumulative actuarial gains and losses reported in the statement of
recognised income and expense since the adoption of IFRS is as follows:
2007 2007 2006 2006
Laurence Rathbone Laurence Rathbone
Keen 1987 2007 Keen 1987 2006
Scheme Scheme Total Scheme Scheme Total
£'000 £'000 £'000 £'000 £'000 £'000
___________________________________________________________________________________________
At 1 January 245 201 446 (1,432) (3,590) (5,022)
Actuarial gains/(losses)
recognised in the year 348 (78) 270 1,677 3,791 5,468
___________________________________________________________________________________________
At 31 December 593 123 716 245 201 446
___________________________________________________________________________________________
Movements in the present value of defined benefit obligations were as follows:
2007 2007 2006 2006
Laurence Rathbone Laurence Rathbone
Keen 1987 2007 Keen 1987 2006
Scheme Scheme Total Scheme Scheme Total
£'000 £'000 £'000 £'000 £'000 £'000
___________________________________________________________________________________________
At 1 January 10,423 53,982 64,405 11,697 50,501 62,198
Service cost (employer's part) - 3,083 3,083 - 3,445 3,445
Interest cost 532 2,897 3,429 567 2,571 3,138
Contributions from members - 1,030 1,030 - 959 959
Actuarial gains (278) (12) (290) (1,592) (3,038) (4,630)
Benefits paid (376) (706) (1,082) (249) (456) (705)
___________________________________________________________________________________________
At 31 December 10,301 60,274 70,575 10,423 53,982 64,405
___________________________________________________________________________________________
Movements in the fair value of scheme assets were as follows:
2007 2007 2006 2006
Laurence Rathbone Laurence Rathbone
Keen 1987 2007 Keen 1987 2006
Scheme Scheme Total Scheme Scheme Total
£'000 £'000 £'000 £'000 £'000 £'000
___________________________________________________________________________________________
At 1 January 8,996 44,646 53,642 8,118 35,370 43,488
Expected return on scheme assets 551 3,407 3,958 480 2,655 3,135
Actuarial gains/(losses) 70 (90) (20) 85 753 838
Contributions from the
sponsoring companies 467 6,128 6,595 562 5,365 5,927
Contributions from scheme
members - 1,030 1,030 - 959 959
Benefits paid (376) (706) (1,082) (249) (456) (705)
___________________________________________________________________________________________
At 31 December 9,708 54,415 64,123 8,996 44,646 53,642
___________________________________________________________________________________________
The analysis of the scheme assets, measured at bid prices, and expected rates of
return on those assets at the balance sheet date was as follows:
Laurence Keen Scheme
1.1.07 1.1.06 2007 2006 2007 2006
Expected Expected Fair Fair Current Current
return return value value allocation allocation
% % £'000 £'000 % %
________________________________________________________________________________________
Equity instruments 7.60 7.50 5,180 5,047 53 56
Debt instruments 4.40 4.30 4,161 3,738 43 42
Cash 4.40 4.30 367 211 4 2
________________________________________________________________________________________
9,708 8,996
Rathbone 1987 Scheme
1.1.07 1.1.06 2007 2006 2007 2006
Expected Expected Fair Fair Current Current
return return value value allocation allocation
% % £'000 £'000 % %
________________________________________________________________________________________
Equity instruments 7.60 7.50 42,099 35,515 77 80
Debt instruments 5.70 5.20 9,323 8,649 17 19
Cash 4.40 4.30 2,993 482 6 1
________________________________________________________________________________________
54,415 44,646
________________________________________________________________________________________
The expected return on equities was assumed to be 3.20% above the return on long
dated Gilts (2006: 3.25% above). The expected rate of return on debt instruments
is based on long-term yields at the start of the year, with an adjustment for
the risk of default and future downgrade in relation to corporate bonds. Cash
has been assumed to generate a similar return to short dated government bonds.
The statement of investment principles set by the trustees requires that the
assets of the scheme are invested in a balanced portfolio in the following
sectors and proportions:
Laurence Keen Scheme Rathbone 1987 Scheme
UK equities 35% - 55% 43% - 57%
Overseas equities 0% - 15% 21% - 35%
Fixed interest stocks 45% - 65%* 14% - 28%
Cash deposits 45% - 65%* 0% - 8%
*The total allocation of assets in the Laurence Keen Scheme to fixed interest
stocks and cash deposits is expressed as a combined percentage of the two asset
classes in the statement of investment principles.
In the Rathbone 1987 Scheme, not more than 85% of the assets may be held in
equities. A maximum of 5% of UK equities may be invested in companies outside
the FTSE 350 and not more than 5% of total equity assets can be invested in
hedge funds.
The sensitivities regarding the principal assumptions used to measure the
schemes liabilities are set out below:
Impact on Scheme Liabilities
(Decrease)/ (Decrease)/
Increase Increase
£'000 %
_______________________________________________________________________________________
0.5% increase to:
- Discount rate (7,400) (10.50)
- Rate of inflation 5,400 7.70
- Rate of salary growth 2,600 3.70
1 year increase to longevity at 60 2,000 2.80
_______________________________________________________________________________________
The history of experience adjustments is as follows:
Laurence Keen Scheme
2007 2006 2005 2004
______________________________________________________________________________________
Present value of defined benefit
obligations (£'000) (10,301) (10,423) (11,697) (9,552)
Fair value of scheme assets (£'000) 9,708 8,996 8,118 6,836
______________________________________________________________________________________
Deficit in the scheme (£'000) (593) (1,427) (3,579) (2,716)
______________________________________________________________________________________
Experience adjustments on scheme
liabilities:
- amount (£'000) 104 1,592 1,864 466
- percentage of scheme liabilities (%) 1% 15% 16% 5%
______________________________________________________________________________________
Experience adjustments on scheme assets:
- amount (£'000) 70 85 539 359
- percentage of scheme assets (%) 1% 1% 7% 5%
______________________________________________________________________________________
Rathbone 1987 Scheme
2007 2006 2005 2004
______________________________________________________________________________________
Present value of defined benefit
obligations (£'000) (60,274) (53,982) (50,501) (38,214)
Fair value of scheme assets (£'000) 54,415 44,646 35,370 25,947
______________________________________________________________________________________
Deficit in the scheme (£'000) (5,859) (9,336) (15,131) (12,267)
______________________________________________________________________________________
Experience adjustments on scheme liabilities:
- amount (£'000) 1,264 3,038 7,138 1,881
- percentage of scheme liabilities (%) 2% 6% 14% 5%
______________________________________________________________________________________
Experience adjustments on scheme assets:
- amount (£'000) 90 753 4,297 1,132
- percentage of scheme assets (%) - 2% 12% 4%
______________________________________________________________________________________
The total regular contributions made by the Group to The Rathbone 1987 Scheme
during the year were £2,238,000 (2006: £2,365,000) based on 13.9% of pensionable
salaries (1 January to 31 March 2006: 11.5%, 1 April to 24 August 2006: 15.5%,
25 August to 31 December 2006: 13.9% of pensionable salaries). Additional lump
sum contributions amounting to £3,890,000 were also paid in 2007 (2006:
£3,000,000). After 31 March 2002 the Rathbone 1987 Scheme was closed to new
entrants and, consequently, 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 £467,000 (2006: 562,000). Annual contributions of £420,000 will
continue to be made to the Laurence Keen Scheme. As the scheme was closed to new
entrants with effect from 1 October 1999, the current pension cost will increase
as the members of the scheme approach retirement.
10. Reserves and retained earnings
Available Total
Merger for sale Translation other Retained
reserve reserve reserve reserves earnings
£'000 £'000 £'000 £'000 £'000
_______________________________________________________________________________________
At 1 January 2006 49,428 3,585 11 53,024 57,843
Profit for the year 32,138
Translation differences
arising in the year (240) (240)
Dividends paid (13,449)
Actuarial gains and losses 5,468
Revaluation of investment
securities 4,202 4,202
Net gains transferred to
net profit on disposal of
available for sale
investment securities (3,196) (3,196)
Share-based payments
- value of employee services 2,080
- cost of shares issued/purchased (3,773)
Tax on equity items (302) (302) (1,278)
_______________________________________________________________________________________
At 1 January 2007 49,428 4,289 (229) 53,488 79,029
Profit for the year 37,380
Translation differences
arising in the year 14 14
Dividends paid (15,914)
Actuarial gains and losses 270
Revaluation of investment
securities 2,069 2,069
Net gains transferred to
net profit on disposal of
available for sale
investment securities (1,297) (1,297)
Share-based payments
- value of employee services 2,692
- cost of shares issued/
purchased (3,508)
Tax on equity items (93) (93) 728
_______________________________________________________________________________________
At 31 December 2007 49,428 4,968 (215) 54,181 100,677
_______________________________________________________________________________________
The Merger Reserve represents share premium that was not recognised on the issue
of shares as consideration for an acquisition prior to the adoption of IFRS on 1
January 2004, in accordance with the Companies Act.
11. Consolidated cash flow statement
For the purposes of the cash flow statement, cash and cash equivalents comprise
the following balances with less than three months' maturity from the date of
acquisition.
2007 2006
£'000 £'000
restated
(note 1)
_______________________________________________________________________________________
Cash and balances at central banks (note 14) 4 5
Loans and advances to banks (note 15) 214,216 108,338
_______________________________________________________________________________________
214,220 108,343
_______________________________________________________________________________________
Cash flows arising from the issue of ordinary shares in the year comprise:
2007 2006
£'000 £'000
Cash inflow - share capital 20 51
Cash inflow - share premium 3,240 7,031
Cash outflow - financing of shares in relation to
share-based schemes (297) (367)
_______________________________________________________________________________________
2,963 6,715
_______________________________________________________________________________________
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 years ended
31 December 2007 or 2006. Statutory accounts for 2006 have been delivered to the
Registrar of Companies. Statutory accounts for 2007 will be delivered to the
Registrar of Companies following the Company's Annual General Meeting. The
auditors have reported on both the 2006 and 2007 accounts. Their reports were
unqualified and did not draw attention to any matters by way of emphasis. They
also did not contain statements under section 237(2) or (3) of the Companies Act
1985.
This information is provided by RNS
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