Interim Results

Rathbone Brothers PLC 6 September 2001 6th September 2001 RATHBONE BROTHERS Plc INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30TH JUNE 2001 Funds under management rise as markets decline Summary * Rathbone Brothers Plc ('Rathbones'), one of Britain's largest, independent discretionary investment management and private client services groups, enjoyed good growth in assets under management (up 20%) in stark contrast to declining market index levels (down 11%). * Progress was achieved through organic growth and actively attracting strong new private client investment management teams. * Fee-based revenues from discretionary management continued to grow, as the Group benefited from its strategy of fee based investment management rather than dealing-volume based stockbroking business. Fee-based revenues from trust administration also continued to grow well, largely unaffected by stockmarket levels. * Pre-tax profits and earnings dipped as new business acquisition costs fed through ahead of new revenue streams secured. * Interim dividend will be unchanged. Highlights Six months Six months to to 30th June 30th June % 2001 2000 change Operating income £39.1m £37.8m +3% Pre-tax profits (before goodwill amortisation and exceptional items) £11.2m £14.2m -21% Basic earnings per share (before goodwill amortisation) 22.27p 27.76p -20% Interim dividend 10p 10p - Discretionary funds under management £6.0bn £5.0bn +20% FTSE 100 Index 5643 6312 -11% For further information, please contact: Micky Ingall Chairman Mark Powell Managing Director Andy Pomfret Finance Director Rathbone Brothers Plc 020 7399 0000 Julian Polhill/ Lucy Copeman Polhill Communications 020 7655 0500 RATHBONE BROTHERS Plc INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2001 Chairman's Statement I have pleasure in presenting the interim results for the trading period to 30th June 2001. Pre-tax profits (before goodwill amortisation and exceptional items) are £11.2m and earnings per share (before goodwill amortisation) are 22.27p and show a decrease of 21% and 20% respectively compared to the same period last year. The interim dividend is maintained at 10p per share. It is disappointing to be reporting a downturn in both pre-tax profits and earnings per share. However despite the headline declines, these figures are not wholly depressing and indeed disguise some very positive developments within the Group. Shareholders will be aware of the extremely depressed state of world equity markets at the present time. The FTSE 100 Index at 30th June 2001 was nearly 20% below its high at 31st December 1999 and 9% lower than at the beginning of the year. During this first half of 2001, discretionary funds under management, which we have always adopted as our most accurate barometer of the Group's progress, have risen from £5.5 to £6 billion. Given the market fall this is an eminently satisfactory increase. As announced with our figures in March 2001, this increase in funds under management has been achieved by both organic growth and a significant recruitment of new investment managers who have been very successful in attracting new investment clients. The take-on of new clients is both a costly and time consuming activity which generates little immediate income and inevitably this has had an adverse impact on the profit and loss account. I am pleased to report that our trust activities, which are only marginally affected by stockmarket levels and activity, have had a very successful period. Profits have increased, in part reflecting our recent acquisitions in Jersey, which have continued to perform strongly. Over many years we have pursued a policy which is designed to insulate the Group as far as possible from volatile stockmarkets by means of increasing fee income be it from investment management or trust activities. However, as some 80% of Rathbones' earnings are derived from investment management, these figures demonstrate that it is not possible to insulate ourselves totally from a stockmarket which, in terms of indices, has now stood still for nearly four years and has fallen by 20% in the last 18 months. Nevertheless, the rise in funds under management and the comparative resilience of these figures emphasise the success of our approach. The Group has always adopted a strategy of financing acquisitions either from its own cash resources or by issuing equity. This has left the Group well placed to expand further with a strong balance sheet with no debt finance. At the time of writing, stockmarkets remain weak but the underlying business is growing and I am confident that when stability or, dare I say, growth returns to the market, this underlying strength to our business will show through. Micky Ingall Chairman 5th September 2001 Consolidated profit and loss account for the six months ended 30th June 2001 Six Six months months ended Year ended 30th June ended 30th June 2000 31st December 2001 (Restated) 2000 Unaudited Unaudited Audited £'000 £'000 £'000 Operating income 39,134 37,779 74,760 - continuing operations 39,134 37,088 71,253 - acquisitions - 691 3,507 Operating costs (28,683) (24,160) (49,590) Group operating profit 10,451 13,619 25,170 Group operating profit before amortisation 11,231 14,182 26,542 of goodwill Amortisation of goodwill (780) (563) (1,372) Net profit on sale of regional office - continuing operations 251 - - Group operating profit on ordinary 10,702 13,619 25,170 activities before tax - continuing operations 10,702 13,324 23,902 - acquisitions - 295 1,268 Tax on Group profit on ordinary activities (3,455) (4,396) (8,297) - current (3,126) (4,316) (8,341) - deferred (329) (80) 44 Group profit on ordinary activities after 7,247 9,223 16,873 tax Dividends (3,618) (3,580) (8,993) Retained profit for the year 3,629 5,643 7,880 Earnings per ordinary share Basic after goodwill amortisation 20.11p 26.16p 47.45p Basic before goodwill amortisation 22.27p 27.76p 51.31p Diluted after goodwill amortisation 19.92p 25.67p 46.39p Diluted before goodwill amortisation 22.07p 27.24p 50.16p Consolidated balance sheet as at 30th June 2001 30th June 31st 30th June 2000 December 2001 (Restated) 2000 Unaudited Unaudited Audited £'000 £'000 £'000 Assets Cash and balances at central banks 5,360 3,401 18,349 Settlement balances 32,563 27,069 26,111 Loans and advances to banks 30,279 37,372 40,405 Loans and advances to customers 30,183 27,496 32,550 Debt securities 347,089 244,301 234,591 Equity shares 65 65 65 Intangible fixed assets 29,182 28,566 29,378 Tangible fixed assets 8,650 8,368 7,764 Other assets 3,729 3,912 3,582 Prepayments and accrued income 13,762 10,941 12,838 Total assets 500,862 391,491 405,633 Liabilities Deposits by banks 868 1,596 3,127 Customer accounts 385,117 262,982 289,643 Settlement balances 16,151 32,592 13,632 Other liabilities 7,704 9,416 11,065 Accruals and deferred income 6,785 5,797 4,981 Provision for liabilities and charges 8,396 11,386 12,506 Called up share capital 1,809 1,790 1,800 Share premium account 6,584 5,457 6,156 Other reserves 24,817 23,811 23,811 Profit and loss account 42,631 36,664 38,912 Equity shareholders' funds 75,841 67,722 70,679 Total liabilities 500,862 391,491 405,633 Memorandum items Contingent liabilities and commitments 9,217 4,072 1,935 Consolidated statement of total recognised gains and losses for the six months ended 30th June 2001 Six Six months months Year ended ended ended 30th June 30th June 31st December 2001 2000 2000 Unaudited Unaudited Audited £'000 £'000 £'000 Profit for the period attributable to shareholders 7,247 9,223 16,873 Currency adjustments 90 280 291 Total recognised gains and losses for the 7,337 9,503 17,164 period Reconciliation of movements in shareholders' funds Six Six months months Year ended ended ended 30th June 30th June 31st December 2001 2000 2000 Unaudited Unaudited Audited £'000 £'000 £'000 Profit for the period attributable to shareholders 7,247 9,223 16,873 Dividends (3,618) (3,580) (8,993) Retained profit for the period 3,629 5,643 7,880 Currency adjustments 90 280 291 Shares issued 9 55 65 Premium on shares issued 1,248 10,305 11,004 Goodwill on disposal previously eliminated against reserves 186 - - Net addition to shareholders' funds 5,162 16,283 19,240 Opening shareholders' funds 70,679 51,439 51,439 Closing shareholders' funds 75,841 67,722 70,679 Consolidated cash flow statement for the six months ended 30th June 2001 Six Six months months ended Year ended 30th June ended 30th June 2000 31st December 2001 (Restated) 2000 Unaudited Unaudited Audited £'000 £'000 £'000 Net cash inflow from operating activities 111,465 132,131 144,462 Taxation - UK corporation tax (2,737) (2,261) (7,520) - Overseas tax (428) (241) (193) Net cash outflow for taxation (3,165) (2,502) (7,713) Capital expenditure and financial investments - Purchase of investment securities (836,308) (498,096) (1,087,513) - Proceeds from sale and maturities of investment securities 723,810 382,043 981,170 - Purchase of tangible fixed assets (2,862) (2,633) (3,776) - Sale of tangible fixed assets 193 149 209 Net cash outflow for capital expenditure and financial investments (115,167) (118,537) (109,910) Acquisitions and disposals - Acquisitions of subsidiaries (4,193) (5,226) (5,328) - Disposal of regional office 438 - - - Net cash acquired with subsidiary 11 628 628 undertakings Net cash outflow for acquisitions and (3,744) (4,598) (4,700) disposals Equity dividends paid (5,401) (4,860) (8,452) Net cash (outflow)/inflow before financing (16,012) 1,634 13,687 Financing - Issue of shares 432 302 1,011 - Capital element of finance lease rental - (32) (44) payments Net cash inflow from financing 432 270 967 (Decrease)/increase in cash in the period (15,580) 1,904 14,654 Notes to the accounts for the six months ended 30th June 2001 1 Basis of preparation The unaudited interim financial information has been prepared on the basis of accounting policies set out in the Group's accounts for the year ended 31st December 2000. In 2001, the Group has adopted the provisions of the UK Financial Reporting Standard ('FRS') 18 'Accounting Policies'. The accounts have been prepared in accordance with the Statements of Recommended Practice ('SORPs') issued jointly by the British Bankers' Association ('BBA') and Irish Bankers' Federation ('IBF'). The comparative figures for the six month period ended 30th June 2000 have been restated to comply with the special provisions of Part VII Chapter II of the Companies Act 1985 relating to banking groups. 2 Basis of consolidation The consolidated accounts include the accounts of the Company and its subsidiary and quasi-subsidiary undertakings made up to 30th June 2001. Unless otherwise stated, the acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the period are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal. 3 Goodwill Purchased goodwill (representing the difference between the fair value of the consideration given and any associated costs and the fair value of the separable net assets acquired) arising on consolidation in respect of acquisitions before 1st January 1998, when FRS 10 'Goodwill and intangible assets' was adopted, was written off to reserves in the year of acquisition. When a subsequent disposal occurs, any related goodwill previously written off to reserves is written back through the profit and loss account as part of the profit or loss on disposal. Purchased goodwill arising on consolidation in respect of acquisitions since 1st January 1998 is capitalised. Positive goodwill is amortised to nil by equal instalments over its estimated useful life, normally 20 years. Such goodwill is subject to periodic review for impairment. On the subsequent disposal or termination of a business acquired since 1st January 1998, the unamortised amount of any related goodwill is taken into account in calculating the profit or loss on disposal or termination. 4 Investments As at 30th June 2001, the Group has a holding of 200,000 shares in the London Stock Exchange which is included in the balance sheet at a cost of £nil. 5 Acquisitions On 16th May 2001, the Company issued 88,442 new ordinary shares of 5p each, valued at £824,278, in consideration for the acquisition of a UK based company. The company acquired had, over a period, introduced investment management clients to the Group and was due to receive continuing payments for these introductions. The cost of this investment has been recorded in the Company's books at the nominal value of the shares issued under the merger relief provisions of Section 131 of the Companies Act 1985 in addition to acquisition costs. 6 Operating income Six months Six months Year ended ended ended 30th June 30th June 31st December 2001 2000 2000 £'000 £'000 £'000 Gross operating income - Interest receivable 11,327 8,830 18,218 - Dividend income 31 25 57 - Fees and commissions receivable 36,388 35,554 68,787 - Other operating income 375 520 1,395 48,121 44,929 88,457 Interest payable (6,041) (4,192) (9,131) Fees and commissions payable (2,946) (2,958) (4,566) Operating income 39,134 37,779 74,760 All amounts derive from continuing activities. 7 Taxation The interim tax charge is calculated by applying the Directors' best estimate of the effective annual corporation tax rate (30% (2000: 31%)) to the profit for the period. 8 Earnings per share The calculation of basic earnings per share is based on profit after taxation before dividends, for each period and 36,043,359 ordinary shares at 30th June 2001, 35,560,272 ordinary shares at 31st December 2000, and 35,249,967 ordinary shares at 30th June 2000, where this is the weighted average number of ordinary shares in issue during the relevant period. The directors believe that the provision of additional EPS figures, in particular before goodwill amortisation, is beneficial to the users of this financial information when reviewing the performance of the Group. Diluted earnings per share is the basic earnings per share, adjusted for the effect of contingently issuable shares in relation to deferred consideration for the acquisition of subsidiary undertakings, employee share options remaining capable of exercise and any dilutive shares to be issued under the All Employee Share Ownership Plan, weighted for the relevant periods. Six Six months months Year ended ended ended 30th June 30th June 31st December 2001 2000 2000 Weighted average number of ordinary shares in issueduring the year - basic 36,043,359 35,249,967 35,560,272 Effect of ordinary share options 320,308 503,367 484,043 Effect of dilutive shares issuable under the All Employee Share Ownership Plan 12,106 - - Weighted average number of contingently issuable ordinary shares during the period - 174,491 325,949 Diluted ordinary shares 36,375,773 35,927,825 36,370,264 9 Dividends per share The directors have declared an interim dividend of 10p (2000: 10p) per share amounting to £3,618,000 (2000: £3,580,000) payable on 12th October 2001 to shareholders on the register at the close of business on 14th September 2001. 10 Provisions for liabilities and charges Six months Six months ended Year ended 30th June ended 30th June 2000 31st December 2001 (Restated) 2000 £'000 £'000 £'000 Corporation tax 5,906 7,214 5,939 Contingent consideration on acquisitions - 3,449 4,414 Deferred taxation 1,503 723 1,175 Other 987 - 978 8,396 11,386 12,506 The deferred contingent consideration in respect of last year's acquisition of Nigel Harris Trust Company Limited, estimated at £4,414,000 as at 31st December 2000, was finalised at £4,148,000 which, with additional acquisition costs of £41,000, has resulted in a decrease to goodwill on consolidation of £ 225,000. 11 Cash flow statement (i) Reconciliation of operating profit to net cash inflow from operating activities Six Six months months Year ended ended ended 30th 30th June 31st June December 2001 2000 2000 £'000 £'000 £'000 Operating profit 10,451 13,619 25,170 Profit on disposal of tangible fixed assets (45) (88) (119) Depreciation and amortisation 2,610 2,023 4,528 Provision for bad and doubtful debts 38 365 403 (Increase)/decrease in accrued income and (899) 646 (1,334) prepayments Increase in provision for liabilities and charges 28 - 1,039 Increase in accruals and deferred income 1,822 2,208 1,399 Net cash inflow from trading activities 14,005 18,773 31,086 Net decrease/(increase) in loans and advances to banks and customers 9,490 1,488 (9,774) Net (increase) in settlement debtor balances (6,452) (5,071) (4,113) Net increase/(decrease) in settlement creditor 2,518 17,881 (238) balances Net increase in deposits by banks and customer 93,632 97,890 126,721 accounts Net (decrease)/increase in other liabilities (1,573) 2,228 1,391 Net (increase) in other assets (155) (1,058) (611) Net cash inflow from operating activities 111,465 132,131 144,462 (ii) Analysis of the balances of cash as shown in the balance sheet At At 1st 30th January Cash Non-cash Exchange June 2001 flow changes movements 2001 £'000 £'000 £'000 £'000 £'000 Cash and balances at central banks 18,349 (13,012) - 23 5,360 Loans and advances to other banks repayable on demand 28,386 (2,568) - 195 26,013 Total 46,735 (15,580) - 218 31,373 (iii) Analysis of changes in financing Share Share capital premium £'000 £'000 Balance at 1st January 2001 1,800 6,156 Cash inflow 4 428 Other movement 5 - Balance at 30th June 2001 1,809 6,584 (iv) Disposal of regional office Net sale proceeds of £437,846 were received in relation to the sale of the Group's Isle of Wight office - see Note 13. 12 Segmental information Gross operating income Profit before taxation Six Six Six months Year Six months Year months ended ended months ended ended ended 30th June 31st ended 30th June 31st 30th June 2000 December 30th 2000 December June 2001 (Restated) 2000 2001 (Restated) 2000 £'000 £'000 £'000 £'000 £'000 £'000 By class of business: Investment management and banking 38,711 37,872 73,065 8,559 12,325 21,549 Trust services 9,410 7,057 15,392 2,143 1,294 3,621 48,121 44,929 88,457 10,702 13,619 25,170 Total assets Net assets Six Six Six months Year Six months Year months ended ended months ended ended ended 30th June 31st ended 30th June 31st 30th June 2000 December 30th 2000 December June 2001 (Restated) 2000 2001 (Restated) 2000 £'000 £'000 £'000 £'000 £'000 £'000 By class of business: Investment management and banking 451,473 344,551 358,325 42,304 37,680 48,706 Trust services 49,389 46,940 47,308 33,537 30,042 21,973 500,862 391,491 405,633 75,841 67,722 70,679 Gross operating income Profit before taxation Six Six Six months Year Six months Year months ended ended months ended ended ended 30th June 31st ended 30th June 31st 30th 2000 December 30th 2000 December June June 2001 (Restated) 2000 2001 (Restated) 2000 £'000 £'000 £'000 £'000 £'000 £'000 By geographical segment: United Kingdom 41,137 38,945 75,448 8,757 12,143 20,546 Jersey, Switzerland and other European countries 5,888 4,584 10,862 1,609 1,317 3,881 The Americas 1,096 1,400 2,147 336 159 743 48,121 44,929 88,457 10,702 13,619 25,170 Total assets Net assets Six Six Six months Year Six months Year months ended ended months ended ended ended 30th June 31st ended 30th June 31st 30th 2000 December 30th 2000 December June June 2001 (Restated) 2000 2001 (Restated) 2000 £'000 £'000 £'000 £'000 £'000 £'000 By geographical segment: United Kingdom 453,487 345,150 355,915 44,357 40,540 49,278 Jersey, Switzerland and other European countries 43,474 42,163 44,348 28,933 24,526 19,304 The Americas 3,901 4,178 5,370 2,551 2,656 2,097 500,862 391,491 405,633 75,841 67,722 70,679 Interest receivable Dividend income Six Six Six months Year Six months Year months ended ended months ended ended ended 30th June 31st ended 30th June 31st 30th 2000 December 30th 2000 December June June 2001 (Restated) 2000 2001 (Restated) 2000 £'000 £'000 £'000 £'000 £'000 £'000 By geographical segment: United Kingdom 10,660 8,233 17,205 31 25 57 Jersey, Switzerland and other 573 332 833 - - - European countries The Americas 94 265 180 - - - 11,327 8,830 18,218 31 25 57 Fees and commissions Other operating income receivable Six Six Six months Year Six months Year months ended ended months ended ended ended 30th June 31st ended 30th June 31st 30th 2000 December 30th 2000 December June June 2001 (Restated) 2000 2001 (Restated) 2000 £'000 £'000 £'000 £'000 £'000 £'000 By geographical segment: United Kingdom 30,073 30,173 56,834 373 514 1,352 Jersey, Switzerland and other 5,313 4,250 9,986 - 2 43 European countries The Americas 1,002 1,131 1,967 2 4 - 36,388 35,554 68,787 375 520 1,395 13 Net profit on sale of regional office £'000 Net proceeds on disposal of regional office 437 Goodwill previously eliminated against reserves (186) Net profit 251 On 26th January 2001, the Group's Isle of Wight office was sold. The amount of tax attributable to the profit on sale included in the overall tax charge is £131,000. 14 Interim report The information in this interim report is not audited and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985 ('the Act'). This interim report was approved by the Board of Directors on 5th September 2001. The statutory accounts for the year ended 31st December 2000 have been delivered to the Registrar of Companies in England and Wales in accordance with Section 242 of the Act. The auditor has reported on those accounts; its report was unqualified and did not contain a statement under Section 237(2) or (3) of the Act. Copies of the interim report will be sent to registered shareholders on or about 17th September 2001 and further copies will be available to the public from the Company's registered office at 159 New Bond Street, London W1S 2UD. Independent review report by KPMG Audit Plc to Rathbone Brothers Plc Introduction We have been instructed by the Company to review the financial information which comprises the consolidated profit and loss account, consolidated balance sheet, consolidated statement of total recognised gains and losses, reconciliation of movements in shareholders' funds, consolidated cash flow statement and notes 1 to 14. We have read the other information, which comprises only the Chairman's Statement, contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' Responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where they are to be changed in the next annual accounts in which case any changes, and the reasons for them, are to be disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999 /4 Review of interim financial information issued by the Auditing Practices Board. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30th June 2001. KPMG Audit Plc Chartered Accountants 8 Salisbury Square London EC4Y 8BB 5th September 2001

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